Volume : 1 | Issue : 12 | September 2012 ISSN - 2249-555X

Research Paper Commerce

Medical Science

A Comparative Study Of Profitability Analysis

Of Selected Steel Industries

*Prof. Ketan H.Popat

*Visiting Lecturer in J.H.Bhalodia women’s college,Kalawad Road, Rajkot.
ABSTRACT

Steel Ministry, at present, has 12 public sector undertakings (PSUs) including the Steel Authority of India Limited (SAIL), National
Mineral Development Corporation (NMDC), Kudramukh Iron Ore Company Limited (KIOCL), Rastriya Ispat Nigam Limited
(RINL), Metallurgical and Engineering Consultants India Limited (MECON). these various steel companies are working in India.
The profitability ratios are calculated to measure the operating efficiency of the business enterprise. Besides management of
the company, creditors and owners are interested in the profitability of the firm. Investor wants to get reasonable return on their
investments. This is only possible when the company is having satisfactory profit. For this purpose researcher would like to
evaluate the profitability analysis with reference to various ratios like, PBDT to Gross Sales, PAT to Gross Sales, PAT to Net
Sales, PAT to Shareholders fund and PAT to Total Assets to examined the financial result of selected steel industries in India.
This research give us result of profitability with reference to study period from 2006-07 to 2010-11.

Keywords : Profitability Analysis, Steel Industry

Introduction The data has been collected from the annual report of Tata
The history of Iron and Steel industry in India is nearly 4000 Steel, Goals, J.S.W. Steels, Sail, Jindal Steel, and Uttam
years old. The Iron pillars at the outskirts of Delhi prove that Steel for the research year 2006-07 to 2010-11 to find out the
Indians were familiar with iron and steel even during the Ve- better profitability of steel industry
dic age. But the father of the modern Steel industry Sir Jam-
shedji Tata set up the Tata Iron and Steel Company (TISCO) Hypothesis of the Study
in 1907. The first steel ingots were rolled in TISCO in 1911. (1) The Size of Profitability Trend Value of PBDT (Net Oper-
This was followed by the establishment of the Mysore Iron ating Profit) to Gross Sales Ratio is uniform
and Steel Works in 1936, later renamed as Visveswaraya Iron (2) The Size of Profitability Trend Value of PAT to Gross Sales
and Steel Works. In 1939, Indian Iron and Steel Company Ratio is uniform
(IISCO), now a subsidiary of Steel Authority of India Limited (3) The size of Profitability Trend Value of PAT to Net Sales
(SAIL) was started. At the time of Independence, India pos- Ratio is Uniform
sessed a small but viable steel industry with an annual capac- (4) The Size of Profitability Trend Value of PAT to Sharehold-
ity of 1.3 million tones. In 1951, India produced 1.1 million ers Fund Raito is Uniform
tones of finished steel. In the era of planned economy, iron (5) The Size of Profitability Trend Value of PAT to Total Assets
and steel - a core and basic sector - received the full attention Ratio is Uniform
of the government and with the foreign assistance and own
resources, many new steel plants were set up. Technique of the Analysis
For the purpose of profitability Analysis of the various Steel
Review of Literature Industries Ratios are selected and calculated through vari-
Few studies has been conducted in India are summarized ous Statistical Techniques and Tools like, Mean and ANOVA
here: Dr. Bhayani (2004) has conducted study on working Test, For that SS = Sum of Square D.F = Degree of Freedom,
capital and profitability of cement industry and found that prof- MSS = Mean Sum of Square F cal = Calculated value of F
itability is highly influenced by working capital. Linkage be- crit = Critical Value of F Ratio at 5% Significant Level This
tween asset management and profitability of Indian Industry Tools can be analyzed the profitability trend of Major players
has been conducted by Narware P.C. (2004), Malik A.K. and of steel industries.
Sur D . (1998 & 1999) has conducted to study the effect of
working capital management on profitability with case study. Profitability Analysis
Conducting a survey among 94 Japanese companies in (1) Net Operating Profit Ratio / PBDT to Gross Sales:
USA, Suk et al.(1992) found that they differ in working capital This ratio explains the changes in the profit margin to sales.
management practices from in the US and 39 terms of lower This ratio is computed by dividing operating expenses i.e.
level of inventory and higher levels of account receivable. The cost of goods sold plus selling expenses and general and ad-
study revealed that while the US firms piled-up their inven- ministrative expenses including interest by sales.
tories, Japanies firm had higher percentage of receivable to
total assets. Purvi Tibrewalla (Kolkutta) Steel has facilitated Net Operating Profit = PBDT x 100
our quality of life, underpinned humankind‘s development and
even helped us to understand our planet Gross sales

Research Methodology This ratio measures the efficiency of operations of the com-
The study is mainly based on secondary data. The relevant pany. This ratio is designed to focus attention in the net profit
information in this regard is collected from various sources margin arising from business operation before dep. and tax is
like annual reports of banks, speeches of chairman & web- deducted. This convention is to express profit before dep. and
sites. The reference books have been referred from libraries. tax as a percentage of sales.
Thus, various sources have used to collect the relevant data.

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Volume : 1 | Issue : 12 | September 2012 ISSN - 2249-555X

2008 23.80 15.13 19.08 22.86 3.92 16.96

Table-1 Net Operating Profit to Gross Sales
2009 21.39 3.27 14.31 20.08 2.29 12.27
Years TATA JSW SAIL JINDAL UTTAM Average 2010 20.17 11.11 16.63 20.08 2.28 14.05
2007 35.83 25.96 27.14 32.86 6.06 25.57 2011 23.35 8.68 11.48 21.56 1.52 13.32
2008 35.6 25.11 27.89 31.95 5.75 25.26 AVERAGE 22.55 10.65 15.96 20.88 2.88 14.58
2009 30.88 9.92 21.96 28.89 4.29 19.188
2010 31.01 20.26 26.1 20.84 5.67 20.776 From the above table -5, it is revealed that as per the Com-
2011 34.24 16.56 21.84 24.62 4.37 20.326 pany Average 14.58; Only Tata, Jindal and sail are maintain-
Average 33.512 19.562 24.986 27.832 5.228 22.224 ing the Ratio While JSW is nearest to average But it shows
fluctuation trend in Net Profit Ratio. While Uttam shows de-
From the above table -1, it is revealed that as per the Com- creasing trend in the Average.
pany Average 22.224; Only Tata, Jindal and sail are maintain-
ing the Ratio While JSW and Uttam shows below trend in the Table-6 One Way ANOVA result of selected Sample units
Average. Source of Sum of
Variance Square D.f. MSS Fc Ft
Table-2 One Way ANOVA result of selected Sample units BSS 1291.69 4 322.92 42.88 2.87
ESS 150.532 20 7.53
Sources of Sum of Degree of MSS Fc Ft TSS 1442.22
Variance Squares Freedom
Above table shows, the calculated value ‘F’ is 42.88 which is
BSS 2295.35 4 573.84 31.29 2.87 more than the table value of ‘F’ at 5% levels of significance
ESS 366.863 20 18.34
which is 2.87. It indicates that there is significant difference in
TSS 2662.21
the net operating profit to sales ratio in the units undertaken
Above table Shows The calculated value ‘F’ is 31.29 which is for the study for the period of the study.
more than the table value of ‘F’ at 5% levels of significance
which is 2.87. It indicates that there is significant difference in (4) Profit After Tax to Shareholder’s Fund:
the net operating profit to sales ratio in the units undertaken This is known as shareholders’ funds. Return on sharehold-
for the study for the period of the study. ers’ fund is a very effective measure of the profitability of an
enterprise. These ratios measure the return on the total equity
(2) PAT to Gross Sales: of the shareholders. This ratio is one of the most important
This ratio is overall measure of the firm’s ability to turn each relationships in financial statement analysis.
rupee sales into net profit.
Return on Shareholders’ Fund = PAT x 100
Net Profit Margin = PAT x 100
Shareholders’ Fund
Gross Sales
Table-7 PAT to Shareholder’s Fund Ratio
Table-3 PAT to Gross Sales
Year TATA JSW SAIL JINDAL UTTAM Average Year TATA JSW SAIL JINDAL UTTAM AVERAGE
2007 21.36 13.90 15.83 18.03 4.02 14.628 2007 29.95 23.10 35.82 28.16 20.58 27.52
2008 21.12 13.68 16.54 20.23 3.77 15.068 2008 17.17 22.51 32.68 32.93 17.41 24.54
2009 19.38 3.02 12.68 18.23 2.22 11.106 2009 17.24 5.76 22.06 28.37 12.07 17.1
2010 18.86 10.40 15.37 12.74 2.19 11.912 2010 13.65 20.84 20.27 21.93 11.41 17.62
2011 21.52 8 10.43 14.76 1.44 11.23 2011 14.62 11.67 13.23 23.75 8.10 14.27
Average 20.448 9.8 14.17 16.798 2.728 12.788 AVERAGE 18.53 16.78 24.81 27.03 13.91 20.21
From the above table -3, it is revealed that as per the Compa- From the above table -7, it is revealed that as per the Com-
ny Average 12.788; Only Tata, Jindal and sail are maintaining pany Average 20.21; Only Jindal and sail are maintaining the
the Ratio While JSW is nearest to average But Uttam shows Ratio While TATA is nearest to average But JSW and UTTAM
below trend in the Average. Shows Lower trend in Shareholder’s fund.

Table-4 One Way ANOVA result of selected Sample units Table 8 One Way ANOVA result of selected Sample units
Sources of Sum of Degree of MSS Fc Ft Sources of Sum of Degree of MSS Fc Ft
Variance Squares Freedom Variance Squares Freedom
BSS 933.99 4 233.50 30.23 2.87 BSS 609.66 4 152.415 3.28 2.87
ESS 154.48 20 7.724 ESS 930.05 20 46.50
TSS 1088.46 TSS 1539.71

Above table shows, The calculated value ‘F’ is 30.23 which is Above table shows, The calculated value ‘F’ is 3.28 which is
more than the table value of ‘F’ at 5% levels of significance more than the table value of ‘F’ at 5% levels of significance
which is 2.87. It indicates that there is significant difference in which is 2.87. It indicates that there is significant difference in
the net operating profit to sales ratio in the units undertaken the net operating profit to sales ratio in the units undertaken
for the study for the period of the study. for the study for the period of the study.

(3) PAT to Net Sales (5) Profit After Tax to Total Asset Ratio
This ratio shows the relationship between net profits to net This ratio is computed to know the productivity of the total
sales. The net profit is overall measure of a firm’s ability to assets. This ratio is indicates the efficiency of utilization of
turn each rupee of sales into profit. It indicates the efficiency assets in generating revenue.
with which a business is managed
PAT to Total Assets = PAT x 100
Net Profit Margin = PAT x 100
Total Assets
Net Sales
Table-9 PAT to Total Asset Ratio
Table -5 Net Profit to Net Sales Ratio Year TATA JSW SAIL JINDAL UTTAM Average
YEAR TATA JSW SAIL JINDAL UTTAM AVERAGE 2007 16.49 11.98 27.08 10.95 7.38 14.78
2007 24.06 14.93 18.28 19.81 4.39 16.30 2008 9.96 10.49 27.23 15.24 7.04 13.99
2009 8.85 2.22 16.75 14 4.47 9.26

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Volume : 1 | Issue : 12 | September 2012 ISSN - 2249-555X

2010 7.86 8.70 13.18 9.34 3.40 8.50

2011 8.74 6.38 8.35 9.52 2.42 7.08 Above table Shows, The calculated value ‘F’ is 5.86 which is
Average 10.38 7.95 18.52 11.81 4.94 10.72 more than the table value of ‘F’ at 5% levels of significance
which is 2.87. It indicates that there is significant difference in
From the above table -9, it is revealed that as per the Com- the net operating profit to sales ratio in the units undertaken
pany Average 10.72; Only sail and Jindal are maintaining the for the study for the period of the study.
Ratio While TATA is nearest to average But JSW and UTTAM
Shows Lower trend in Total Asset Ratio. Conclusion:
From the above tables It is revealed that the profitability of
Table-10 One Way ANOVA result of selected Sample units Tata Steel Company is better, JINDAL steel shows next to
Sources of Sum of Degree of Tata Steel while major fluctuation in profitability shown in JSW
Variance Squares Freedom MSS Fc Ft and SAIL But Uttam shows decrease trend in profitability. 
BSS 515.74 4 128.93 5.86 2.87
ESS 439.61 20 21.98
TSS 955.35

REFERENCES
1.Bhayani S.J. (2004), Working Capital and Profitability Relationship (A Case Study of Gujarat Ambuja Cements Ltd.), SCMS Indian Management, April-June, pp. 98-111. |
2. Mallick Amit and Debasish sur “Working capital and profitability: A case study in interrelation” | November 1998 | 3 Purvi Tibrewalla (Kolkutta) 2010. E- Research Paper
on Indian Steel Industry. | 4 Enders, Walter and Skilos, Pierre, 2001 “Co integration and Threshold Adjustment” Journal of Business and Economic Statistics, April, Vol.19,
No.2 | 5 Foyil Securities Yearbook 2009 | Foyil Securities Report on Steel Industry “Weathering the Crisis”, October 2008 – February 2009. | |

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