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

1、 bsss journal of management, issue-2, vol.-2 (2011) 1 profitability analysis of oil companies of india: a comparative study of iocl, bpcl, hpcl dr. vivek sharma director, c. rajagopalachari institute of management, barkatullah university, bhopal executive summary an attempt has been made to measure

2、the profitability 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 companies key words: profitability, financial ra

3、tios, oil companies. introduction the 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 a

4、lso for 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 i

5、ndicates 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 ave

6、rage, with 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

7、important financial ratios. bsss journal of management, issue-2, vol.-2 (2011) 2 methodology 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 statist

8、ical tools with 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 int

9、egrated companies 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 numarlingarh refinery; and kochi refinery. (c) hindustan petroleum corporation limi

10、ted: 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 capacity is significantly less than both iocl and bpcl. it operates two refineries one located in mumbai and one at visakhapattanam

11、on the east coast. analysis of data: table no.1 in table no.1 profitability of the oil companies are judged with the help some important ratios of profitability which are gross profit ratio (gpr) which reveals gross income of the company after direct expense but before deducting indirect expenses, n

12、et 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 as point out profitability condition of the bsss journal of management, issue-2, vol.-2 (2011) 3 company. therefore these three r

13、atios 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 5.11 of the last five years profit with standard deviations of 1.25 and coefficient of variances are 24.45%. the net profit r

14、atio 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 finally roi shows average of 5.77, standard deviation of 2.10 and coefficient of variances are 36.40%, which represents that the pr

15、ofitability 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 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 c

16、oefficient 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 coefficient of variance are 59.60%. this reflects unsatisfactory condition of the company. hpcl: the profitability ratios o

17、f 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 average of npr is 1.96, standard deviation is .83 and coefficient of variance are 42.14%, roi shows a average of 3.08, s

18、tandard deviation of 1.66 and coefficient of variance are 53.90%, which replicate inadequate profitability position of the company. table no. 2 in table no 2 the simple correlation coefficient analysis are done between some selected ratios and return on investment (roi). the ratios used for the anal

19、ysis 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 (tatr), and capital employed turnover ratio (cetr). theses ratio helps us to measure the overall performance and to jud

20、ge 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 correlation between two variables. the t value is more bsss journal of management, issue-2, vol.-2 (2011) 4 than the critical

21、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 moderate correlation between the two variable but the t value is less than the critical value which expose insignifican

22、t 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 and roi it is -0.06 which is also found insignificant at 5% level if significance, the correlation coefficient betw

23、een 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 5%. bpcl: as the correlation coefficient between wcr and roi are analyzed it is .14 and the t value is insignifican

24、t 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 roi is 0.21 which is again found insignificant at 5%level of significance, when the correlation coefficient betwe

25、en 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 and roi is 0.30 and it is also insignificant at 5% level of significance, the correlation coefficient between cetr a

26、nd 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 significance, in case of the correlation between atr and roi is -0.30 and the t value is insignificant at 5% level of s

27、ignificance, 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 0.72 and again the t value is insignificant at the level of significance, correlation coefficient between tatr

28、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 significance. *(critical vale at 0.05 percent level of significance at degree of freedom 3 is 2.353) table no. 3 in table

29、 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 variable. bsss journal of management, issue-2, vol.-2 (2011) 5 iocl: the table shows that there is very high

30、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 and atr have not been taken into account for the calculation of multiple correlation and multiple regression

31、 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. as a result wcr, fttr and cttr are not taken into consideration for the calculation of multiple correlati

32、on 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 these variables have high correlation. thus, wcr, cttr and atr are not taken for the calculation of multiple

33、 regression and multiple correlation. table no. 4 the table exhibiting the relationship between the dependent variable and roi and all the independent variable taken together and the impact of these independent variable on the profitability iocl: when fttr increased by one unit, the roi decreased by

34、 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 cetr increased by one unit the roi of the company increased to 36.121 which is significant at 005 leve

35、l of significance bpcl: 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 significance but when one unit increased to atr it increased to 8.076 which is significant at 0.05 percent

36、 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) 6 hpcl: as hpcl when one unit is increased to fttr it hike up to 148.654 which is significant at 0.05 percent level wh

37、ile 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 significant 0.005 percent level of significance. *(critical vale at 0.05 percent level of significance at

38、 degree of freedom 3 is 3.183) conclusion from the above analysis it can be concluded that the profitability of oil corporations are not adequate during the period of study, the profitability ratios calculated shows stumpy position in all the three companies and the correlation coefficient between r

39、oi 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 the other independent variable in iocl shows insignificant on tatr and fttr but it is signi

40、ficant 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 fttr and tatr but it is negatively associated in case of cetr. therefore it can be concluded t

41、hat all three companies need to recuperate its management to develop its profitability. bsss journal of management, issue-2, vol.-2 (2011) 7 table - 1 important profitability ratios source: annual report of the companies note- gpr-gross profit ratio npr-net profit ratio roi- return on investment tab

42、le- 2 simple correlation analysis between selected performance indicators and return on investment companyindian oil corporation bharat petroleum corporation hindustan petroleum corporation yeargpr (%) npr (%) roi (%) gpr (%) npr (%) roi (%) gpr (%) npr (%) roi (%) 20064.673.565.881.64.741.191.51.62

43、1.85 20076.084.947.714.023.185.773.292.575.55 20085.244.156.123.422.524.102.571.823.09 20093.222.252.242.782.041.622.862.121.30 20106.355.206.903.522.583.013.692.693.63 mean5.114.025.773.082.213.142.781.963.08 standard deviation 1.251.182.100.920.9171.870.830.831.66 coefficient of variances 24.4529.

44、3536.4029.7841.4559.629.8642.1453.90 companyindian oil corporation yearswcratrcttrfttrtatrcetrroi (%) 20061.370.360.460.382.23.345.88 20071.320.390.430.372.383.617.71 20081.250.410.490.342.23.336.12 20090.950.340.380.382.423.522.24 20101.200.360.450.401.902.936.90 correlation coefficient (x) 0.840.6

45、30.65-0.06-0.44-0.26 t value of r2.681.411.48-0.18-0.850.47 bsss journal of management, issue-2, vol.-2 (2011) 8 source: annual report of the companies note- wcr- working capital ratio atr- acid test ratio cttr- current assets to total assets ratio tatr- total assets turnover ratio cetr- capital emp

46、loyed turnover ratio roi- return on investment table- 3 correlation matrix indian oil corporation limited companyhindustan petroleum corporation yearswcratrcttrfttrtatrcetrroi (%) 20061.120.250.440.393.124.61.85 20070.770.190.360.413.074.55.55 20081.000.350.460.372.723.883.09 20090.640.250.340.352.8

47、13.751.30 20100.860.300.390.372.243.303.63 correlation coefficient (x) -0.12-0.30-0.140.72-0.020.15 t value of r-0.21-0.54-0.241.80-0.340.26 pearson correlation matrix wcratrcttrfttrtatrcetrroi wcr1.000 atr0.5531.000 cttr0.7310.7231.000 fttr-0.186-0.798-0.4581.000 tatr-0.262-0.009-0.542-0.4001.000 c

48、etr-0.0800.125-0.425-0.4500.9801.000 roi0.8400.6280.651-0.059-0.444-0.2631.000 bsss journal of management, issue-2, vol.-2 (2011) 9 bharat petroleum corporation limited bpcl hindustan petroleum corporation limited source: annual report of the companies note: statistical calculation have been done th

49、rough ststat pearson correlation matrix wcratrcttrfttrtatrcetrroi wcr1.000 atr0.5411.000 cttr0.9650.7331.000 fttr0.741-0.1470.5631.000 tatr-0.038-0.463-0.1120.4411.000 cetr0.367-0.0700.3310.6060.8951.000 roi0.1360.3190.211-0.0890.1680.3441.000 pearson correlation matrix wcratrcttrfttrtatrcetrroi wcr

50、1.000 atr0.3921.000 cttr0.9270.6561.000 fttr0.307-0.5690.1031.000 tatr0.174-0.6080.0290.5401.000 cetr0.364-0.5940.1700.7430.9521.000 roi-0.119-0.300-0.1350.722-0.0230.1541.000 bsss journal of management, issue-2, vol.-2 (2011) 10 table -4 multiple correlations and multiple regression analysis indian

51、 oil corporation regression coefficient b = (xx)-1xy effectcoefficientstandar d error std. coeffic ient tolerancetp-value const ant -6.36312.9970.000.-0.4900.710 fttr2.98021.0520.0310.7520.1420.910 tatr-49.47910.194-4.8410.036-4.8540.129 cetr36.1218.2244.4970.0354.3920.143 bharat oil corporation reg

52、ression coefficient b = (xx)-1xy effectcoefficie nt standard error std. coefficient tolerancetp-value const ant 55.4090.000.-0.1000.937 fttr-0.51637.263-0.0620.039-0.0140.991 tatr8.07650.2960.3200.1930.1610.899 cetr1.81617.0200.4220.0490.1070.932 hindustan petroleum corporation regression coefficien

53、t b = (xx)-1xy effectcoefficie nt standard error std. coefficient tolerancetp-value const ant 12.0390.000.-3.2510.190 fttr148.65440.3842.0360.1513.6810.169 tatr8.6055.7011.8190.0321.5090.373 cetr-9.4834.652-3.0900.020-2.0390.290 source: annual report of the companies note: statistical calculation ha

54、ve been done through ststat bsss journal of management, issue-2, vol.-2 (2011) 11 references 1.gupta s.p2 “management accounting”, sahitya bhawan publication, pp-560. (2004) 2.islam rafiqul mahammad, “profitability of fertilizer industry in bangladesh”, the management accountant, may 2000 3.khan m.y

55、. where banks lent to men, they lent to women; when banks made large loans, they made small loans; where banks required collateral, their loans were collateral free; where banks required endless paper work, their loans were illiterate friendly.1 a relief from the traditional banking formalities and

56、a sincere and persistent approach of the micro lending system, have attracted many rural masses especially women to this form of finance. 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 an

57、d also capital for production requirements. formation 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 ve

58、ntures, enhancing self confidence and self-reliance. such an attempt could contribute to the development of rural economy where 72.27 percentage of population of the country is concentrated (2001 census report) micro finance has been identified as an effective tool in empowering women. empowerment e

59、ntails a social process that signifies the participation of both male and female in the development process of the economy. history reveals that there are women who could demonstrate high feats and bring glory in their lives as well as to the nation. however a small section of women could make it to

60、 the highest positions and majority of women who reside in rural areas are destined to be poor and continue to be in a state of vulnerability and deprivation in many parts of the country. bringing women in to the mainstream development process is possible by creating awareness, educating them, givin