Profitability Analysis of Oil Companies of India A Comparative Study of IOCL, BPCL, HPCL

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1、 BSSS Journal of Management, Issue-2, Vol.-2 (2011) 1Profitability Analysis of Oil Companies of India: A Comparative Study of IOCL, BPCL, HPCLDr. Vivek SharmaDirector, C. Rajagopalachari Institute of Management, Barkatullah University, BhopalEXECUTIVE SUMMARYAn attempt has been made to measure the p

2、rofitability scenario of oil companies of India; A comparative study has been done regarding IOCL, BPCL and HPCL. The ratio analysis, correlation and regression analysis model has been used to analyze the data and to test the profitability of the companiesKey Words: Profitability, Financial Ratios,

3、Oil Companies.INTRODUCTIONThe primary objective of a business undertaking is to earn profit. Profit earning is considered essential for the business. In other words of Lord Keynes, “Profit is the engine that drives the business enterprise”. A business needs profit not for its existence but also for

4、expansion and diversification.1 Profitability analysis comprises the study of sales, analysis of cost of goods sold, analysis of gross margin on sales, analysis of operating expenses, analysis of operating profit and analysis of profit in relation to sales and capital.2. Profitability also indicates

5、 public acceptance of the product or services rendered by the enterprise and shows the combined effects of liquidity, assets management and debt management on operating result.Further the analysis of the relationship is also important from an other angle, i.e. profitability increases on average, wit

6、h the size of the firm. This will suggest that profitability is not constrained by size; in fact, in case it is a positive inducement to further growth3.OBJECTIVES OF THE STUDY:1.To analyze the profitability of the companies. 2.To assess the regression and correlation coefficient between important f

7、inancial ratios. BSSS Journal of Management, Issue-2, Vol.-2 (2011) 2METHODOLOGY OF THE STUDY:The study is mainly based on secondary data. Annual reports of last five years have been used extensively. The data from these reports have been analyzed using appropriate financial and statistical tools wi

8、th a view to evaluate the performance of the companies. Some of the tools used are ratio analysis, correlation coefficient, correlation matrix and multiple correlation and regression.Company profile:The downstream sector companies of the exclusive refining companies as well as the integrated compani

9、es responsible for the refining and marketing. The downstream public sector refining companies comprises of 19 companies, three of which are (integrated refining and marketing) companies are IOCL, BPCL & HPCL.(a) Indian Oil Corporation Limited: IOCL is the giant of Indias hydrocarbons industry. Its

10、refining and retail operations are the focus of IOCLs business, although it maintains highly diversified commercial operations including significant upstream Exploration and Production and Petrochemicals and Fertilizer business. In the downstream sector IOCL has over 50% market share in marketing an

11、d retail. IOCL operates 10 refineries across India with a combined capacity of about 1.2 million bbl/d.(b) Bharat Petroleum Corporation Limited: BPCL is Indias second largest OMC by sales, marginally larger than Hindustan Petroleum Corporation. BPCL operates a retail network of over 8 000 outlets. B

12、PCL maintains three refineries: Mumbai refinery; Numarlingarh refinery; and Kochi refinery.(c) Hindustan Petroleum Corporation Limited: HPCL is the smallest of Indias three key OMCs. HPCL has a slightly greater auto fuels retail presence than BPCL also with over 8000 retail outlets. HPCLs refining c

13、apacity is significantly less than both IOCL and BPCL. It operates two refineries one located in Mumbai and one at Visakhapattanam on the East Coast.ANALYSIS OF DATA:Table No.1In Table no.1 profitability of the oil companies are judged with the help some important ratios of profitability which are G

14、ross Profit Ratio (GPR) which reveals gross income of the company after direct expense but before deducting indirect expenses, Net Profit Ratio (NPR) represents income after all direct as well as indirect expense, Return on Investment (ROI) expose the operational efficiency of the business as well a

15、s point out profitability condition of the BSSS Journal of Management, Issue-2, Vol.-2 (2011) 3company. Therefore these three ratios are computed in order to examine the overall profitability of the business.IOCL:As per profitability ratios of IOCL are analyzed, it reveals that GPR shows average of

16、5.11 of the last five years profit with standard deviations of 1.25 and coefficient of variances are 24.45%. The net profit ratio also does not shows a good position in the whole study period it indicates average of 4.02, standard deviations of 1.18 and coefficient of variances are 29.35% and finall

17、y ROI shows average of 5.77, standard deviation of 2.10 and coefficient of variances are 36.40%, which represents that the profitability condition is not good and the company has to improve it to get better result in future.BPCL:The condition of profitability ratios of BPCL are more terrible as IOCL

18、 as per the study period it can be said that the company shows an average of GPR 3.08, with standard deviation of .92 and coefficient of variances are 29.78%. NPR discloses an average profit of 2.21 and coefficient of variance is 41.45%.and the average of ROI is 3.14, standard deviation is 1.87 and

19、coefficient of variance are 59.60%. This reflects unsatisfactory condition of the company.HPCL:The profitability ratios of HPCL also dose not donates a fine condition of the company the GPR ratios indicates an average of 2.78, standard deviation of .83 and coefficient of variance are 29.86%, and the

20、 average of NPR is 1.96, standard deviation is .83 and coefficient of variance are 42.14%, ROI shows a average of 3.08, standard deviation of 1.66 and coefficient of variance are 53.90%, which replicate inadequate profitability position of the company.Table No. 2In Table no 2 the simple correlation

21、coefficient analysis are done between some selected ratios and Return on Investment (ROI). The ratios used for the analysis are Working Capital Ratio (WCR), Acid Test Ratio (ATR), Current Assets to Total Assets Ratio (CTTR), and Fixed Assets to Total Assets Ratio (FTTR), Total Assets Turnover Ratio

22、(TATR), and Capital Employed Turnover Ratio (CETR). Theses ratio helps us to measure the overall performance and to judge profitability of the companies.IOCL:It can be seen from Table No. 2 that the correlation coefficient between ROI and WCR is 0.84 which indicates high degree of positive correlati

23、on between two variables. The t value is more BSSS Journal of Management, Issue-2, Vol.-2 (2011) 4than the critical value hence it is significant at 5% level of significance, secondly when correlation coefficient between ATR and ROI are analyzed it can be revealed that it is 0.63 which indicated mod

24、erate correlation between the two variable but the t value is less than the critical value which expose insignificant at 5%level of significance, the correlation coefficient between CTTR and ROI is .65 and it is also insignificant at 5% level of significance, the correlation coefficient between FTTR

25、 and ROI it is -0.06 which is also found insignificant at 5% level if significance, the correlation coefficient between TATR and ROI is -0.44 and it is also insignificant at 5% level of significance and lastly the correlation between CETR and ROI is -0.26 and it was also found to be insignificant at

26、 5%.BPCL:As the correlation coefficient between WCR and ROI are analyzed it is .14 and the t value is insignificant at 5% level of significance, and the correlation coefficient of ATR and ROI is .32 which is also insignificant at 5% level of significance, the correlation coefficient between CTTR and

27、 ROI is 0.21 which is again found insignificant at 5%level of significance, when the correlation coefficient between FTTR and ROI are examine it is -0.09 which shows negative association between two variable hence it is also insignificant at the level of significance, the correlation between TATR an

28、d ROI is 0.30 and it is also insignificant at 5% level of significance, the correlation coefficient between CETR and ROI is 0.34 and it also insignificant at 5% level of significance.HPCL:The correlation coefficient between ROI and WCR is -0.12 and the t value is insignificant at 5% level of signifi

29、cance, in case of the correlation between ATR and ROI is -0.30 and the t value is insignificant at 5% level of significance, the correlation coefficient between ROI and CTTR is -0.14 and the t value is insignificant at the level of significance, in case of the correlation between FTTR and ROI it is

30、0.72 and again the t value is insignificant at the level of significance, correlation coefficient between TATR and ROI is -0.02 and the t value is insignificant at the level of significance, and the correlation between CETR and ROI is -0.15 and the t value is insignificant at the level of significan

31、ce. *(Critical vale at 0.05 percent level of significance at degree of freedom 3 is 2.353)Table No. 3 In Table No.3 correlation matrix has been calculated for the purpose of selection of variables in this analysis, the correlation matrix represents the correlation coefficient between the explanatory

32、 variable. BSSS Journal of Management, Issue-2, Vol.-2 (2011) 5IOCL:The table shows that there is very high degree of correlation between WCR and CTTR is 0.731 and the relationship between CTTR and ATR is 0.723 it reveals that there is positive relationship between CTTR and ATR. Therefore CTTR, WCR

33、and ATR have not been taken into account for the calculation of Multiple Correlation and Multiple Regression BPCL:In BPCL the high degree of correlation can be seen between WCR and CTTR 0.965 and the correlation between WCR and FTTR is 0.741, which represents high correlation between these variables

34、. As a result WCR, FTTR and CTTR are not taken into consideration for the calculation of Multiple Correlation and Multiple Regression Analysis.HPCL:In HPCL the higher correlation can be seen between WCR and CTTR which is 0.927 and the correlation between CTTR and ATR is 0.656 which is shows that the

35、se variables have high correlation. Thus, WCR, CTTR and ATR are not taken for the calculation of Multiple Regression and Multiple Correlation.Table No. 4The Table exhibiting the relationship between the dependent variable and ROI and all the independent variable taken together and the impact of thes

36、e independent variable on the profitabilityIOCL:When FTTR increased by one unit, the ROI decreased by 2.980 which was insignificant at 0.05 percent level. For one unit increased in TATR the profitability of the company decreased to -49.479 which is not satisfying the critical value. Moreover when CE

37、TR increased by one unit the ROI of the company increased to 36.121 which is significant at 005 level of significanceBPCL:The Table of Multiple Regression and Correlation reveals that when one unit of TATR is increased the ROI is decreased to -0.516 which is not satisfying the 0.05 level of signific

38、ance but when one unit increased to ATR it increased to 8.076 which is significant at 0.05 percent of significance but when one unit is increased to CETR it decreased to 1.816 which is insignificant at 0.05level of significance. BSSS Journal of Management, Issue-2, Vol.-2 (2011) 6HPCL:As HPCL when o

39、ne unit is increased to FTTR it hike up to 148.654 which is significant at 0.05 percent level while when one unit is increased to TATR it decline to 8.605 which is significant at 0.05 percent level of significance however when one unit is add up in CETR it fall down to -9.483 which is not significan

40、t 0.005 percent level of significance.*(Critical vale at 0.05 percent level of significance at degree of freedom 3 is 3.183)CONCLUSIONFrom the above analysis it can be concluded that the profitability of oil corporations are not adequate during the period of study, the profitability ratios calculate

41、d shows stumpy position in all the three companies and the correlation coefficient between ROI and other variable also shows weak position during the study period and lastly the Multiple correlation and regression table also disclosed both the positive and negative association. The slope of ROI with

42、 the other independent variable in IOCL shows insignificant on TATR and FTTR but it is significant in case of CETR. On the other hand BPCL shows insignificant relationship ROI and TATR and CETR but it is significant in case of ATR. As well as in HPCL shows significant relationship between ROI and FT

43、TR and TATR but it is negatively associated in case of CETR. Therefore it can be concluded that all three companies need to recuperate its management to develop its profitability. BSSS Journal of Management, Issue-2, Vol.-2 (2011) 7TABLE - 1Important Profitability RatiosSource: Annual Report of the

44、CompaniesNote- GPR-Gross Profit Ratio NPR-Net Profit Ratio ROI- Return on Investment TABLE- 2Simple Correlation Analysis between Selected Performance Indicators and Return on InvestmentCompanyIndian Oil CorporationBharat Petroleum CorporationHindustan Petroleum CorporationYearGPR (%)NPR(%)ROI(%)GPR

45、(%)NPR(%)ROI(%)GPR (%)NPR(%)ROI(%)20064.673.565.881.64.741.191.51.621.8520076.084.947.714.023.185.773.292.575.5520085.244.156.123.422.524.102.571.823.0920093.222.252.242.782.041.622.862.121.3020106.355.206.903.522.583.013.692.693.63Mean5.114.025.773.082.213.142.781.963.08Standard Deviation1.251.182.

46、100.920.9171.870.830.831.66Coefficient of Variances24.4529.3536.4029.7841.4559.629.8642.1453.90CompanyIndian Oil CorporationYearsWCRATRCTTRFTTRTATRCETRROI(%)20061.370.360.460.382.23.345.8820071.320.390.430.372.383.617.7120081.250.410.490.342.23.336.1220090.950.340.380.382.423.522.2420101.200.360.450

47、.401.902.936.90Correlation Coefficient (x)0.840.630.65-0.06-0.44-0.26t value of r2.681.411.48-0.18-0.850.47 BSSS Journal of Management, Issue-2, Vol.-2 (2011) 8Source: Annual Report of the CompaniesNote- WCR- Working Capital ratio ATR- Acid test Ratio CTTR- Current Assets to Total Assets ratio TATR-

48、 Total Assets Turnover Ratio CETR- Capital Employed Turnover Ratio ROI- Return on InvestmentTABLE- 3CORRELATION MATRIXIndian Oil Corporation LimitedCompanyHindustan Petroleum CorporationYearsWCRATRCTTRFTTRTATRCETRROI(%)20061.120.250.440.393.124.61.8520070.770.190.360.413.074.55.5520081.000.350.460.3

49、72.723.883.0920090.640.250.340.352.813.751.3020100.860.300.390.372.243.303.63Correlation Coefficient (x)-0.12-0.30-0.140.72-0.020.15t value of r-0.21-0.54-0.241.80-0.340.26Pearson Correlation MatrixWCRATRCTTRFTTRTATRCETRROIWCR1.000ATR0.5531.000CTTR0.7310.7231.000FTTR-0.186-0.798-0.4581.000TATR-0.262

50、-0.009-0.542-0.4001.000CETR-0.0800.125-0.425-0.4500.9801.000ROI0.8400.6280.651-0.059-0.444-0.2631.000 BSSS Journal of Management, Issue-2, Vol.-2 (2011) 9Bharat Petroleum Corporation LimitedBPCLHindustan Petroleum Corporation LimitedSource: Annual Report of the CompaniesNote: Statistical calculation

51、 have been done through STSTATPearson Correlation MatrixWCRATRCTTRFTTRTATRCETRROIWCR1.000ATR0.5411.000CTTR0.9650.7331.000FTTR0.741-0.1470.5631.000TATR-0.038-0.463-0.1120.4411.000CETR0.367-0.0700.3310.6060.8951.000ROI0.1360.3190.211-0.0890.1680.3441.000Pearson Correlation MatrixWCRATRCTTRFTTRTATRCETR

52、ROIWCR1.000ATR0.3921.000CTTR0.9270.6561.000FTTR0.307-0.5690.1031.000TATR0.174-0.6080.0290.5401.000CETR0.364-0.5940.1700.7430.9521.000ROI-0.119-0.300-0.1350.722-0.0230.1541.000 BSSS Journal of Management, Issue-2, Vol.-2 (2011) 10TABLE -4Multiple Correlations and Multiple Regression Analysis Indian O

53、il CorporationRegression Coefficient B = (XX)-1XYEffectCoefficientStandard ErrorStd.CoefficientTolerancetp-ValueCONSTANT-6.36312.9970.000.-0.4900.710FTTR2.98021.0520.0310.7520.1420.910TATR-49.47910.194-4.8410.036-4.8540.129CETR36.1218.2244.4970.0354.3920.143Bharat Oil CorporationRegression Coefficie

54、nt B = (XX)-1XYEffectCoefficientStandard ErrorStd.CoefficientTolerancetp-ValueCONSTANT55.4090.000.-0.1000.937FTTR-0.51637.263-0.0620.039-0.0140.991TATR8.07650.2960.3200.1930.1610.899CETR1.81617.0200.4220.0490.1070.932Hindustan Petroleum CorporationRegression Coefficient B = (XX)-1XYEffectCoefficient

55、Standard ErrorStd.CoefficientTolerancetp-ValueCONSTANT12.0390.000.-3.2510.190FTTR148.65440.3842.0360.1513.6810.169TATR8.6055.7011.8190.0321.5090.373CETR-9.4834.652-3.0900.020-2.0390.290 Source: Annual Report of the Companies Note: Statistical calculation have been done through STSTAT BSSS Journal of

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61、 minerals and metals industry-an empirical evidence”, The management Accountant, November, 2003. BSSS Journal of Management, Issue-2, Vol.-2 (2011) 12Micro Finance: A Tool for Economic Empowermentof Women in KeralaDr. A.V. Hemalatha Associate Professor in CommercePazhassi Raja N.S.S.College, Mattanu

62、r, KERALAEXECUTIVE SUMMARYThe development pattern of the present economic scenario emphasised the relevance of micro finance as a tool of poverty alleviation, employment generation and women empowerment. Micro finance expedites finance to the poor and neglected section of population who were outside

63、 the reach of formal financial institutions. The post nationalisation era witnessed a great expansion in the flow of credit to the rural sector. Surprisingly, the benefit of such increased flow by passed the weaker section of the rural community. Micro finance innovations have opened doors to the ne

64、glected sector of the economy that were outside the reach of financial services previously. With the provision of credit to women, a system has been developed in rural area where they could access money for their immediate and urgent consumption needs and also capital for production requirements. Fo

65、rmation of groups, named as Self Help Groups enables women to come out of their traditional bondage and interact with similar class of people. Participation in the group activities helps them to improve their skill and competence to take up productive ventures, enhancing self confidence and self-rel

66、iance, leading to economic empowerment. In Kerala, women are better positioned in terms of literacy and human development index, compared to other Indian states. The vast reservoir of untapped female potential can contribute towards the prosperity of the state, provided adequate credit and support system is ensured. The innovative credit delivery system emerged in the country during 90s, through group formation following the axiom of self help and mutual help, is found to be a powerful tool to m