COMPARATIVE ANALYSIS

OF OIL REFINERIES
6.1 Introduction
6.2 Methodology of multivariate techniques
6.3. Factor analysis of BPCL
6.4. Factor analysis of HPCL
6.5. Factor analysis of IOC
6.6. Factor analysis of MRPL
6.7. Factor analysis of NRL
6.8. Factor analysis of CPCL

233

6.1 Introduction
The financial position of the any units has depended on profitability
performance, liquidity position, utilization of fixed assets, investment management,
inventory management, cash management, working capital policy, capital structure
management etc
Financial position depends on many other parameters. The measuring the each
parameters many other ratios are used in financial management. i.e. profitability is
measures through various ratios like operating profit, net profit, gross profit and
operating expenses to sales etc. same like as liquidity position is measure through
current ratio, quick ratio, debt to equity ratio. The performance of the fixed assets and
investment are measures through profit derived from them. At last for inventory
management and cash management are also measured through various ratios like
inventory turnover, raw-material turnover finished goods turnover, cash conversion
cycle, cash flow margin, cash generated from assets etc..
The above discussion indicates that the for measuring the financial position
firm need measured profitability performance, liquidity position, working capital
policy, inventory management, cash management, return from assets and return from
investment so on.
The ratios of each parameter may be or may not be depend on ratios of other
parameters. Thus for measuring the actual financial performance need to calculate
correlation between various financial ratios. Every firm different ratio co-related at
different degree. So degree of Correlation and rank is important aspect. Through
matrix correlation degree of Correlation and rank we can say that these specific
parameters are mostly affected to financial position of the firm.
Therefore this chapter deals with measuring the financial performance of
selected units through the multivariate techniques. The following parameters have
been used for measuring the financial performances of selected units. The overview of
multivariate techniques has described in the next section of this chapters.

234

Following variable are used for comparative analysis:

1. PBDIT to Sales
2. PBIT to Sales
3. PAT to Sales
4. O.E. to Sales
5. PAT to F.A
6. PAT to N.W.
7. N.P to Total Debt
8. EBIT To C.E.
9. Cash to Sales
10. Acid-Test
11. W.C.Ratio
12. Debt to equity
13. G.W.C.C
14. Int. Coverage
15. Total assets turnover
16. Investment turnover
17. Inventory Turnover
18. Raw-Material turnover
19. Finished goods turnover
20. Age of Debtors
21. Age of Creditors
22. CCC
23. Cash turnover
24. Cash to Assets
25. Cash flow margin

235

6.2 Methodology of multivariate techniques

The statistical techniques which simultaneously analyze more than two
variables on sample of observation can be categorized as multivariate techniques. In
the analysis of many problems, it is helpful to have a number of scores for each
object. For instance, in the field of financial measurement testing, if we s tart with the
profitability theory, is reflected in a variety of specific performance measures test,
such as gross profit, net profit, and return from capital employed and return from
long-term debt and so on.
The score on each test on variable X1 and there are several K of such scores
for each object, represented as X1, X2 ..Xk. Most of the research studied involve
more than two variables in which situation analysis is desired of the association
between one (At times many) criterion variable and several independent variables, or
we may be required to study the association between variable having no dependency
relationship. All such analyses are termed as multivariate analyses or multivariate
techniques.
The important multivariate techniques named(with special emphasis on factor analysis)
is as under:
1. Multiple regression
2. Multiple discriminant analysis
3. Multivariate analysis of variance
4. Cononical correlation analysis
5. Factor analysis

There are several methods of factor analysis, but they do not necessarily give
same results. As such factor analysis is not a single unique method but a set of
techniques. Important methods of factor analysis are:
(i) The centroid method
(ii) The principal components method
(ii) The maximum likelihood method
236

Before we describe these different methods of factor analysis, it seems appropriate

that some basic terms relating to factor analysis be well understood.
(i) Factor: A factor is an underlying dimension that account for several observed
variables. There can be one or more factors, depending upon the nature of the study
and the number of variables involved in it.
(ii) Factor-loadings: Factor-loadings are those values which explain how closely the
variables are related to each one of the factors discovered. They are also known as
factor- variable correlations. In fact, factor- loadings work as key to understanding
what the factors mean. It is the absolute size (rather than the signs, plus or minus) of
the loadings that are important in the interpretation of a factor.
(iii) Communality (h2): Communality, symbolized as h2, shows how much of each
variable is accounted for by the underlying factor taken together. A high value of
communality means that not much of the variable is left over after whatever the
factors represent is taken into consideration.
It is worked out in respect of each variable as under:
h2 of the ith variable = (ith factor loading of factor A)2
+ (ith factor loading of factor B) 2 +

(iv) Eigen value (or latent root): When we take the sum of squared values of factor
loadings relating to a factor, then such sum is referred to as Eigen Value or latent root.
Eigen value indicates the relative importance of each factor in accounting for the
particular set of variables being analyzed.
(v) Total sum of squares: When eigen values of all factors are totaled, the resulting
value is termed as the total sum of squares. This value, when divided by the number
of variables (involved in a study), results in an index that shows how the particular
solution accounts for what all the variables taken together represent. If the variables
are all very different from each other, this index will be low. If they fall into one or
more highly redundant groups, and if the extracted factors account for all the groups,
the index will then approach unity.
237

(vi) Rotation: Rotation, in the context of factor analysis, is something like staining a
microscope slide. Just as different stains on it reveal different structures in the tissue,
different rotations reveal different structures in the data. Though d ifferent rotations
give results that appear to be entirely different, but from a statistical point of view, all
results are taken as equal, none superior or inferior to others. However, from the
standpoint of making sense of the results of factor analysis, one must select the right
rotation. If the factors are independent orthogonal rotation is done and if the factors
are correlated, an oblique rotation is made. Communality for each variable will
remain undisturbed regardless of rotation but the eigen values will change as result of
rotation.
(vii) Factor scores: Factor score represents the degree to which each respondent gets
high scores on the group of items that load high on each factor. Factor scores can help
explain what the factors mean. With such scores, several other multivariate analyses
can be performed.
In this research study centroid method of factor analysis has been used. Detail
concept of this method as under:
This method of factor analysis, developed by L.L. Thurstone, was quite
frequently used until about 1950 before the advent of large capacity high speed
computers.* The centroid method tends to maximize the sum of loadings,
disregarding signs; it is the method which extracts the largest sum of absolute
loadings for each factor in turn. It is defined by linear combinations in which all
weights are either + 1.0 or 1.0. The main merit of this method is that it is relatively
simple, can be easily understood and involves simpler computations. If one
understands this method, it becomes easy to understand the mechanics involved in
other methods of factor analysis.
Various steps** involved in this method are as follows:

(i) This method starts with the computation of a matrix of correlations, R, wherein

unities are place in the diagonal spaces. The product moment formula is used for
working out the correlation coefficients.

238

(ii) If the correlation matrix so obtained happens to be positive manifold (i.e.,

disregarding the diagonal elements each variable has a large sum of positive
correlations than of negative correlations), the centroid method requires that the
weights for all variables be +1.0. In other words, the variables are not weighted; they
are simply summed. But in case the correlation matrix is not a positive manifold, then
reflections must be made before the first centroid factor is obtained.
(iii) The first centroid factor is determined as under:
(a) The sum of the coefficients (including the diagonal unity) in each column of
the correlation matrix is worked out.
(b) Then the sum of these column sums (T) is obtained.
(c) The sum of each column obtained as per (a) above is divided by the square
root of (T) obtained in (b) above, resulting in what are called centroid
loadings. This way each centroid loading (one loading for one variable) is
computed. The full set of loadings so obtained constitutes the first centroid
factor (say A).
(iv) To obtain second centroid factor (say B), one must first obtain a matrix of residual
coefficients. For this purpose, the loadings for the two variables on the first centro id
factor are multiplied. This is done for all possible pairs of variables (in each diagonal
space is the square of the particular factor loading). The resulting matrix of factor
cross products may be named as Q1. Then Q1 is subtracted clement by element from
the original matrix of correlation, R, and the result is the first matrix of residual
coefficients, R1.* After obtaining R1, one must reflect some of the variables in it,
meaning thereby that some of the variables are given negative signs in the sum [This
is usually done by inspection. The aim in doing this should be to obtain a reflected
matrix, R'1, which will have the highest possible sum of coefficients (T)]. For any
variable which is so reflected, the signs of all coefficients in that column and ro w of
the residual matrix are changed. When this is done, the matrix is named as reflected
matrix form which the loadings are obtained in the usual way (already explained in
the context of first centroid factor), but the loadings of the variables which were
reflected must be given negative signs. The full set of loadings so obtained constitutes

239

the second centroid factor (say B). Thus loadings on the second centroid factor are
obtained from R'1.
(v) For subsequent factors (C, D, etc.) the same process outlined above is repeated.
After the second centroid factor is obtained, cross products are computed forming,
matrix, Q2. This is then subtracted from R1 (and not from R'1) resulting in R2. To
obtain a third factor (C), one should operate on R2 in the same way as on R1. First,
some of the variables would have to be reflected to maximize the sum of loadings,
which would produce R'2 . Loadings would be computed from R'2 as they were from
R'1. Again, it would be necessary to give negative signs to the loadings of variables
which were reflected which would result in third centroid factor (C).

6.3. Factor analysis of BPCL

The following table shows correlation matrix of BPCL between 25 financial
parameters. The all the financial parameters are in the form of ratios and ratios have
been calculated from financial report of the company during the 2007-08 to 2011-12.

240

Table 6.3.1 Correlation matrix of BPCL

241

The above table 6.3.1 indicates matrix correlation between 25 ratios of the
firm BPCL. The table also shows degree of correlation with each other. The table
indicates all the profitability ratios high degree positive correlated with each other and
low degree positive co-related with operating expenses to sales ratio. Working capital
ratio was positively correlated with profit after tax to sales, but negatively correlated
with profit before interest and tax to sales. The gross working capital cycle was
moderate degree positive correlated with profitability ratios. The cash conversion
cycle highly negative correlated with all the profitability ratios. The utilizations of
fixed assets, net worth, total debt were high degree positive correlated with profit
sales situation. Interest coverage ratio was high degree positive correlated with all the
profitability ratios but debt-equity ratio negative correlated with profit after tax to
sales.
The management efficiency ratio like total assets turnover, investment
turnover, inventory turnover and raw material turnover ratio have positive correlated
with each other but all these ratios has negative relations hip with profitability ratios.
Age of debtors was positively correlated with cash conversion cycle but negative
correlation with profit aspect. Age of creditors and profitability ratio have high degree
positive correlation. The cash return on assets and cash flow margin were little
negative co-related with CCC while cash flow margin ratio have positive correlation
with cash return on assets. The negative correlation between debt-equity ratio and
working capital ratio mean working capital policy independent from capital structure.
Excluding the acid-test all the liquidity and solvency ratio positive correlated with
profitability means liquidity position was satisfactory in relation to profitability.
The working capital ratio negative correlated with age of debtors while
positively co-related with age of creditors. The cash conversion cycle also positively
correlated with working capital aspect. It is observed from the one part of correlation
matrix excluding the cash conversion cycle all the cash related ratio s are negatively
impact on working capital ratios same like as inventory turnover ratio also negative
correlated with working capital ratio. So to concluded, that the working capital policy
was not satisfactory.

242

Table 6.3.2 First centroid factors of BPCL

243

Table 6.3.3 First Matrix of Factor Cross Product of BPCL

244

Table 6.3.4 First Matrix of Residual Coefficient Variables of BPCL

245

Table 6.3.5 Reflected matrix and Second centroid factors of BPCL

246

Table 6.3.6
Factor Loading of BPCL and rank

Variables

PBDIT to Sales
PBIT to Sales
PAT to Sales
O.E. to Sales
PAT to F.A
PAT to N.W.
N.P to Total Debt
EBIT To C.E.
Cash to Sales
Acid-Test
W. C. Ratio
Debt to Equity
G.W.C.C
Int. Coverage
Total assets Turnover
Investment Turnover
Inventory Turnover
Raw-Material Turnover
Finished goods
Turnover
Age of Debtors
Age of Creditors
CCC
Cash Turnover
Cash to Assets
Cash Flow Margin
Total

Factor loading of BPCL

Centroid
Centroid
Factors -A
Factors -B

Communality Rank
(h2)

0.715
0.816
0.466
-0.065
0.175
0.308
0.114
-0.178
-0.598
-0.025
0.380
0.556
0.621
0.615
-0.427
-0.001
0.177
-0.026

0.492
0.338
0.820
0.539
0.914
0.914
0.908
-0.710
-0.591
0.831
-0.753
-0.568
0.586
0.686
-0.439
-0.915
-0.943
-0.951

0.754
0.781
0.890
0.295
0.865
0.930
0.838
0.536
0.707
0.691
0.711
0.631
0.728
0.849
0.375
0.837
0.921
0.904

13
12
5
25
7
1
9
21
16
17
15
20
14
8
22
10
2
4

-0.738
-0.055
0.603
-0.225
-0.410
-0.429
-0.551

-0.521
-0.955
0.709
-0.564
0.382
-0.702
-0.612
-1.104

0.816
0.916
0.866
0.369
0.314
0.676
0.678

11
3
6
23
24
19
18

1.817

17.876

Table- 6.3.7
Centroid factors method of factor analysis for BPCL
Factor loading of BPCL
Centroid
Centroid
Communality
Variables
Factors - A
Factors - B
(h2)
Eigen
Value(Variance
4.976
12.901
17.876
Accounted For i.e.
common variance)
Proportion of total
0.20(20%)
0.52(52%)
0.72(72%)
variance
Proportion of
0.28(28%)
0.72(72%)
1.00(100)
common variance
247

Table 6.3.7 shows Eigen value (variance accounted for i.e. co mmon variance),
proportion of total variance, and proportion of common variance by the two centroid
factor A and B. Each centroid factor have their own properties and different
interpretation from other and each communality in table represented the proport ion of
variance in corresponding raw and is accounted by the two factor A and B.
Here total variance or variables are 25.00 means 25 financial parameters have
taken as a variance. The portion of the factors is given by numerical eigen value or
common variance. These are found by summing up the squared value of the
corresponding factors loading, thus total value or variance 25 is partitioned into 4.976
as eigen value for factors - A and 12.901 as eigen value for factor - B and total
17.876 sum of eigen values for these two factors. In the table next raw represent by
the corresponding proportion of total variance, 25.00, from that we can notice that the
72% of total variance is related to these two factors. i.e. approximately 72% of total
variance or variables (financial parameters) were common variables. From the total
variance 25, approximately 18 variables are jointly effect to financial performance of
BPCL while remaining 28% of total variance or 7 variables are individual variance.
The techniques used to measure them. The proportions of common variance explain
by the last rows of table. From that approximately 28% is accounted for by factor A
and other 72% by factor B. Thus it can be concluded that the majority of common
variance explain by only one factor B.
From the table it can be seen that 18 variables are most effective and
dependent variable out of 25 variables in the unit which can be observed from the
loading factors of units, while remaining are independent variable. The effective or
dependent variables are Profit After Tax to Net Worth, Investor Turnover, Age of
Debtors, Raw-Material Turnover, Profit After Tax to Sales, Age of Creditors, Profit
After Tax to Fixed Assets, Interest Coverage, Net Profit to Total Debt, Investment
Turnover, Finished Goods Turnover, PBIT to Sales, PBDIT to Sales, Gross Working
Capital Cycle, Working Capital Ratio, Cash to Sales, Acid-Test Ratio, and Cash Flow
Margin. So improve its financial position and better performance company need to
concentrate on these variables. Further eigen value of centriod factor-A is 4.976. It is
reveals approximately first five ranking variable are more prominent variable. These
variables like, PAT to Net Worth, Inventory Turnover, Age of Debtors, Raw Material

248

Turnover and Profit after Tax to Sales. Company should give more attention to these
factors.

6.4. Factor analysis of HPCL

The following table shows correlation matrix of HPCL between 25 financial
parameters. The all the financial parameters are in the form of ratios and ratios have
been calculated from financial report of the company during the 2007-08 to 2011-12.

249

Table 6.4.1 Correlation matrix of HPCL

250

The above table 6.4.1 indicates matrix correlation between 25 ratios of the
firm HPCL. The tale also shows degree of correlation with each other. The table also
represents degree of correlation with each other. The table represents high degree
positive correlation between operating profit to sales and net profit to sales. This
indicates most of incomes were generated from operating activity under study period.
The returns from fixed assets, net worth and total debt have positive relation with
profitability while earnings before interest and tax to capital employed was have
negative relation with profitability. The negative correlation between cash generated
from assets and profit after tax to sales. The working capital ratio negative correlated
with all the profitability ratios but positive correlated with gross working capital
cycle. The debt-equity ratio positively effect on operating profits to sales but
negatively effect on net profit to sales. The interest coverage and profitability
positively effect to each other.
The correlation between management efficiency ratios indicated negative
relationship This implies that lower contribution of raw- material and finished good in
structure on inventory while very lower degree correlation between total assets
turnover ratio and investment turnover ratio. The very low correlation has between
total assets and inventory turnover ratio. The table ind icates that the all the
management efficiency ratios (total assets, investment, inventory, raw-material and
finished goods turnover ratio) have negative relationship with profit after tax to sales.
The cash conversion cycle has negatively impact on profitability and GWCC. The
working capital ratio positively co-related with EBTI to sales ratio means liquidity
and profitability has interdependent to each other. The collection policy and payment
policy positively effect on profit aspect in HPCL Cash conversio n cycle negatively
correlated with cash turnover ratio and profit after tax to sales while positively
correlated with cash return on assets and cash flow margin. Cash turnover ratio
positively correlated with profitably and negative correlated with working capital
position. Cash flow margin ratio was positive relation with operating profit but
unfortunately negative relationship with net profit under study period for HPCL.
Overall profitability negatively correlated with liquidity and management efficiency
ratios.

251

Table
6.4.2
Correlation
matrixfactors
of HPCL
Table
6.4.2
First centroid
of HPCL

252

Table 6.4.3 First Matrix of Factor Cross Product of HPCL

253

Table 6.4.4 First Matrix of Residual Coefficient Variables of HPCL

254

Table 6.4.5 Reflected matrix and Second centroid factors of HPCL

255

Table 3.4.6
Factor Loading of HPCL and rank
Variables

PBDIT to Sales
PBIT to Sales
PAT to Sales
O.E. to Sales
PAT to F.A
PAT to N.W.
N.P to Total Debt
EBIT To C.E.
Cash to Sales
Acid-Test
W. C. Ratio
Debt to Equity
G.W.C.C
Int. Coverage
Total assets Turnover
Investment Turnover
Inventory Turnover
Raw-Material Turnover
Finished goods Turnover
Age of Debtors
Age of Creditors
CCC
Cash Turnover
Cash to Assets
Cash Flow Margin
Total

Factor loading of HPCL

Centroid
Centroid
Factors -A
Factors -B
0.326
0.183
0.563
0.667
0.840
0.765
0.821
-0.548
-0.728
-0.630
-0.794
-0.648
-0.499
0.658
-0.424
-0.837
-0.506
-0.994
0.529
1.145
0.505
-0.742
0.617
-0.734
-0.646
-1.110

0.894
0.816
0.466
-0.065
0.175
0.308
0.114
-0.178
-0.598
-0.025
0.380
0.556
0.621
0.615
-0.427
-0.001
0.177
-0.026
-0.738
-0.055
0.603
-0.225
-0.410
-0.429
-0.551
1.996

Communality Rank
(h2)

1.318
1.158
0.722
0.466
0.574
0.613
0.516
0.597
0.849
0.374
0.748
0.791
0.975
0.827
0.551
0.649
0.471
0.545
0.828
0.684
0.767
0.523
0.502
0.673
0.828
17.549

Table-6.4.7
Centroid factors method of factor analysis for HPCL
Factor loading of HPCL
Centroid
Centroid
Communality
Variables
Factors A
Factors -B
(h2)
Eigen
Value(Variance
Accounted For i.e.
5.263
12.285
17.549
common variance)
Proportion of total
0.21(21%)
0.49(49%)
0.70(70%)
variance
Proportion of
0.30(30%)
0.70(70%)
1.00(100)
common variance

256

1
2
11
24
17
15
21
13
4
25
10
8
3
7
18
14
23
19
5
12
9
20
22
13
6

Table 6.4.7shows eigen value (variance accounted for i.e. common variance),
proportion of total variance, and proportion of common variance by the two centroid
factor A and B. Each centroid factor have their own properties and different
interpretation from other and each communality in table represented the proportion of
variance in corresponding raw and is accounted by the two factor A and B.
Here total variance or variables are 25.00 means 25 financial parameters have
taken as a variance. The portion of the factors is given by numerical eigen value or
common variance. These are found by summing up the squared value of the
corresponding factors loading, thus total value or variance 25 is partitioned into 5.263
as eigen value for factors - A and 12.285 as eigen value for factor - B and total
17.549 sum of eigen values for these two factors. In the table next raw represent by
the corresponding proportion of total variance 25.00, from that we can notice that the
70% of total variance is related to these two factors. i.e. approximate ly 70% of total
variance or variables (financial parameters) were common variables. From the total
variance 25, approximately 18 variables are jointly effect to financial performance of
HPCL while remaining 30% of total variance or 7 variables are individual variance.
The techniques used to measure them. The proportions of common variance explain
by the last rows of table. From that approximately 30% is accounted for by factor A
and other 70% by factor B. Thus it can be concluded that the majority of common
variance explain by only one factor B.
From the table it can be seen that18 variables are most effective and dependent
variables from the 25 variance in the HPCL. it is observed from the loading factors of
this units, remaining 7 variables are ineffective variable to financial position in the
unit. These effective variables are PBDIT to Sales, PBIT To Sales, Finished Goods
Turnover, Cash Flow Margin, Interest Coverage, Debt to Equity, Age of Creditors,
Working Capital Ratio, PAT to Sales, Age of Debtors, Cash to Assets, Investment
Turnover, Profit After Tax to Net Worth, EBIT to Capital Employed, PAT to Fixed
Assets and Total Assets Turnover Ratio. Further eigen value or common variance of
centroid factors-A is 5.263. it is revels that the approximately first five ranking
variable like PBDIT to Sales, PBIT to Sales, Gross Working Capital Cycle, Cash to
Sales and Finished Goods Turnover these five variables are most prominent or
dependent and company need to concentrate on these ratio.

257

6.5. Factor analysis of IOC

The following table shows correlation matrix of IOC between 25 financial
parameters. The all the financial parameters are in the form of ratios and ratios have
been calculated from financial report if the company during the 2007-08 to 2011-12.

258

Table 6.5.1 Correlation matrix of IOC

259

The above table 6.5.1 indicates matrix correlation between 25 ratios of the
firm IOC. The tale also shows degree of correlation with each other. They represent
that the all the profitability ratios positively correlated with each other at high degree.
The ratios related to utilization of fixed assets, net worth, total debt and capital
employed were positive correlated with each other as well as these all the ratios were
also high degree positively correlated with profit after tax to sales. The wo rking
capital ratio lower level positively correlated with profitability ratios and return ratios.
While gross working capital cycle lower level negatively correlated with profitability
ratios and return ratios. Debt-equity ratios negatively correlated with profitability
ratios while interest coverage ratio has positively relationship with profitability ratio
and utilization of fixed fund ratios.
Negative correlation of debt-equity with profitability suggested that the
leverage situation adversely impact on profitability but on other hand interest
coverage ratio positive relationship with profit after tax to sales means higher fixed
operating cost in total cost.
It is observed from the management efficiency correlation matrix, Inventory
turnover ratio high degrees positively correlated with raw- material turnover ratio
while other hand negative correlation between inventory turnover and finished goods
turnover ratio. In addition to these table also represent that the excluding the finished
goods turnover ratio the entire management efficiency ratio positively correlated with
each other. It is observed as broader sense, negative correlation between management
efficiency ratio and profitability ratio, management efficiency ratio and return ratios
and management efficiency ratio and liquidity& solvency ratios. The working capital
ratios have positive relation with age of debtors and age of creditors, and collection
policy ratio (age of debtors) negative correlated with profit aspect. There was a high
degree relationship between CCC and GCCC and negative relationship between CCC
and profitability ratios. Cash return on assets positively correlated with profitability
and liquidity ratios.

260

Table 6.5.2 First centroid factors of IOC

261

Table 6.5.3 First Matrix of Factor Cross Product of IOC

262

Table 6.5.4 First Matrix of Residual Coefficient Variables of IOC

263

Table 6.5.5 Reflected matrix and Second centroid factors of IOC

264

Table -6.5.6
Factor Loading of IOC and rank

Variables

PBDIT to Sales
PBIT to Sales
PAT to Sales
O.E. to Sales
PAT to F.A
PAT to N.W.
N.P to Total Debt
EBIT To C.E.
Cash to Sales
Acid-Test
W. C. Ratio
Debt to Equity
G.W.C.C
Int. Coverage
Total assets Turnover
Investment Turnover
Inventory Turnover
Raw-Material Turnover
Finished goods Turnover
Age of Debtors
Age of Creditors
CCC
Cash Turnover
Cash to Assets
Cash Flow Margin
Total

Factor loading of IOC

Centroid
Centroid
Factors -A
Factors -B
0.785
0.775
0.781
0.676
0.757
0.775
0.780
0.773
-0.751
-0.669
-0.780
-0.867
-0.870
0.726
-0.710
-0.739
0.713
0.733
-0.829
-0.862
0.482
-0.900
-0.893
-0.747
-0.460
-1.321

0.499
0.475
0.560
0.364
0.593
0.559
0.511
0.437
0.959
0.802
-0.027
0.349
0.567
0.535
-0.536
-0.913
-0.797
-0.864
0.212
0.413
0.387
0.542
0.300
0.951
0.150
7.025

Communality Rank
(h2)

0.864
0.826
0.923
0.589
0.924
0.913
0.870
0.789
1.483
1.091
0.609
0.873
1.078
0.813
0.791
1.380
1.142
1.284
0.732
0.914
0.382
1.103
0.887
1.462
0.234
22.958

Table- 6.5.7
Centroid factors method of factor analysis for IOC
Factor loading of IOC
Centroid
Centroid
Communality
Variables
Factors -A
Factors -B
(h2)
Eigen
Value(Variance
Accounted For i.e.
8.506
14.452
22.958
common variance)
Proportion of total
0.34
0.58
0.92
variance
Proportion of
0.37
0.63
1.00
common variance
265

16
17
10
23
9
12
15
15
1
7
22
14
8
18
19
3
5
4
21
11
24
6
13
2
25

Table 6.5.7 shows eigen value (variance accounted for i.e. common variance),
proportion of total variance, and proportion of common variance by the two centroid
factor A and B. Each centroid factor have their own properties and different
interpretation from other and each communality in table represented the proportion of
variance in corresponding raw and is accounted by the two factor A and B.
Here total variance or variables are 25.00 means 25 financial parameters have
taken as a variance. The portion of the factors is given by numerical eigen value or
common variance. These are found by summing up the squared value of the
corresponding factors loading, thus total value or variance 25 is partitioned into 8.506
as eigen value for factors - A and 14.452 as eigen value for factor - B and total
22.958 sum of eigen values for these two factors. In the table next raw represent by
the corresponding proportion of total variance 25.00, from that we can notice that the
92% of total variance is related to these two factors. i.e. approximately 92% of total
variance or variables (financial parameters) were common variables. From the total
variance 25, approximately 23 variables are jointly effect to financial performance of
IOC while remaining 08% of total variance or 2 variables are individual variance. The
techniques used to measure them. The proportions of common variance explain by the
last rows of table. From that approximately 37% is accounted for by factor A and
other 63% by factor B. Thus it can be concluded that the majority of common
variance explain by only one factor B.
From the table it can be seen that the 23 variables are effective or jointly effect
to the financial performance which can be observed from the loading factors of the
units. While remaining 8% mean 2 variables are perform individually to financial
position. These dependent variables are Cash to Sales, Cash to Assets, Investment
Turnover, Raw-Material Turnover, Inventory Turnover, CCC, Acid-Test, GWCC,
PAT to Fixed Assets, PAT to Sales, Age of Debtors, PAT to Net Worth, Cash
Turnover, Debt to Equity, Net Profit to Total Debt, PBDIT to Sales, PBIT to Sales,
Interest Coverage, Total Assets Turnover, EBIT to Capital Employed, Finished Good
Turnover, Working Capital Ratio, etc. In IOC excluding age of creditors and cash
flow margin need to more focus on all the selected financial parameter. In additional
these it is observed from the table 8.056 is eigen value of centroid factor-A. These
suggested that the approximately first 9 ranking are most effective factors or
variables. The factors like Cash to Sales, Cash to Assets, Investment Turnover etc. the
266

company need to more attention to these eight or nine factors for better financial
position.

6.6. Factor analysis of MRPL

The following table shows correlation matrix of MRPL between 25 financial
parameters. The all the financial parameters are in the form of ratios and ratios have
been calculated from financial report of the company during the 2007-08 to 2011-12.

267

Table 6.6.1 Correlation matrix of MRPL

268

The above table 6.6.1 represents matrix correlation of 25 ratios of MRPL.

They also represent degree of correlation between each other. The table represent that
the all the profitability ratios were high degree positive correlated with each other.
The profit after tax to sales and operating profit to sales are high degree positively
correlated that means major part of income generated from the operating activities.
The ratios like PAT to fixed assets, profit after tax to net worth, net profit to total debt
and earnings before interest and tax to capital employed were positive correlated with
each other and also positively correlated with profitability ratios. The working capital
ratios positive correlated with profitability and return related ratios but negative
relationship with age of debtors and age of creditors, reveals that the collection policy
and payment policy were significant to working capital policy.
The gross working capital cycle and profit after tax to sales has negative
relationship while interest coverage and profit after tax to sales has positive
relationship. The efficiency ratios like total turnover ratios, investment turnover ratio,
inventory turnover ratio and raw-material turnover ratio have positive relationship
with each other and profitability ratio also. All the managements efficiency capital
ratios, acid test ratios and GWCC while negative test ratio and GWCC while negative
correlated with debt-equity ratio. The debt-equity ratios and working capital structure
means working capital policy significant to capital structure. CCC cycle negatively
correlated with cash flow margin ratio and other all the cash related ratio positive
relationships with each other. The CCC cycle positively correlated with profitability
and liquidity in MRPL.

269

Table 6.6.2 First centroid factors of MRPL

270

Table 6.6.3 First Matrix of Factor Cross Product of MRPL

271

Table 6.6.4 First Matrix of Residual Coefficient Variables of MRPL

272

Table 6.6.5 Reflected matrix and Second centroid factors of MRPL

273

Table - 6.6.6
Factor Loading of MRPL and rank
Variables

PBDIT to Sales
PBIT to Sales
PAT to Sales
O.E. to Sales
PAT to F.A
PAT to N.W.
N.P to Total Debt
EBIT To C.E.
Cash to Sales
Acid-Test
W. C. Ratio
Debt to Equity
G.W.C.C
Int. Coverage
Total assets Turnover
Investment Turnover
Inventory Turnover
Raw-Material Turnover
Finished goods Turnover
Age of Debtors
Age of Creditors
CCC
Cash Turnover
Cash to Assets
Cash Flow Margin
Total

Factor loading of MRPL

Centroid
Centroid
Factors -A
Factors -B
0.441
0.482
0.442
-0.669
-0.219
-0.340
0.525
0.187
0.443
-0.608
-0.737
-0.580
-0.696
0.672
-0.354
-0.547
0.444
-0.554
-0.725
0.578
0.447
-0.657
0.374
0.324
0.552
-0.772

0.852
0.803
0.866
0.207
0.953
0.862
0.650
0.959
0.830
0.727
-0.050
0.641
0.387
0.399
0.819
0.685
0.760
0.640
0.442
-0.589
-0.706
0.604
0.653
0.901
0.721
14.014

Communality Rank
(h2)

0.920
0.876
0.945
0.490
0.956
0.858
0.699
0.955
0.885
0.897
0.545
0.747
0.634
0.611
0.796
0.767
0.774
0.716
0.721
0.681
0.699
0.796
0.566
0.918
0.825
19.278

Table- 6.6.7
Centroid factors method of factor analysis for MRPL
Factor loading of MRPL
Centroid
Centroid
Communality
Variables
Factors -A
Factors -B
(h2)
Eigen
Value(Variance
Accounted For i.e.
12.387
6.891
19.278
common variance)
Proportion of total
0.50(50%)
0.28(28%)
0.77(77%)
variance
Proportion of
0.64(64%)
0.36(36%)
1.00(100%)
common variance

274

4
8
3
25
1
9
19
2
7
6
24
15
21
22
12
14
13
17
16
20
18
11
23
5
10

Table 6.6.7 shows eigen value (variance accounted for i.e. common variance),
proportion of total variance and proportion of common variance by the two centroid
factor A and B. Each centroid factor have their own properties and different
interpretation from other and each communality in table represented the proportion of
variance in corresponding raw and is accounted by the two factor A and B.
Here total variance or variables are 25.00 means 25 financial parameters have
taken as a variance. The portion of the factors is given by numerical eigen value or
common variance. These are found by summing up the squared value of the
corresponding factors loading, thus total value or variance 25 is partitioned into
12.387 as eigen value for factors - A and 6.891 as eigen value for factor - B and total
19.278 sum of eigen values for these two factors. In the table next raw represent by
the corresponding proportion of total variance 25.00, from that we can notice that the
77% of total variance is related to these two factors. i.e. approximately 77% of total
variance or variables (financial parameters) were common variables. From the total
variance 25, approximately 19 variables are jointly effect to financial performance of
MRPL while remaining 22% of total variance or 6 variables are individual variance.
The techniques used to measure them. The proportions of common variance explain
by the last rows of table. From that approximately 64% is accounted for by fa ctor A
and other 36% by factor B. Thus it can be concluded that the majority of common
variance explain by only one factor A.
From the table it can be seen that the 19 variables or elements are jointly
effected variable out of 25 variance which can be derived from the loading factors of
the units while remaining 6 variables are independent from the financial position.
These jointly effected variables are Profit After Tax to Net Worth, EBIT to Capital
Employed, PAT to Sales, PBDIT to Sales, Cash to Assets, Acid-Test Ratio, Cash to
Sales, PBIT to Sales, PAT to Net Worth, Cash Flow Margin, CCC, Total Assets
Turnover, Inventory Turnover, Investment Turnover, Debt to Equity, Finished Goods
Turnover, Raw-Material Turnover Age of Creditors, Net Profit to Total Debt etc. For
improve the financial position unit need to more focus on these variables. If these
ratios upward to positive side than ultimate financial performance will be improve. In
addition to this centroid factor - A eigen value was 12.387. It is reveals are most
effective or prominent variables to financial position. These prominent variables are

275

Profit After Tax to Fixed Assets, EBIT to Capital Employed, PAT to Sales and
PBDIT to Sales etcSo company need to more attention to these ratios.

6.7. Factor analysis of NRL

The following table shows correlation matrix of NRL between 25 financial
parameters. The all the financial parameters are in the form of ratios and ratios have
been calculated from financial report of the company during the 2007-08 to 2011-12.

276

Table 6.7.1 Correlation matrix of NRL

277

The above table 6.7.1 indicates matrix correlation between 25 ratios of the
firm NRL. The table also shows degree of co relation with each other. In NRL profit
before depreciation, interest and tax to sales, profit before interest and tax to sales and
profit after tax to sales were high degree positivity co-related with each other. The
operating expense to sales has negative relationship with profitability ratios. The
working capital ratio has low level negative correlated with profit after tax to sales.
The working capital ratio low degree positively correlated with gross working capital
cycle. From the correlation of profit after tax to fixed assets and working capital
analyzed that the profit generated from the fixed assets was negative significant
impact on working capital.
The ratio related to generation of profit from the fixed assets, net worth and
total debt were positively correlated with each other as well as moderate level
positively correlated to profitability ratios. Earnings before interest and tax to capital
employed have negative correlation with profitability ratios. The debt-equity ratio and
working capital ratio high degree negative correlated means working capital
insignificance to capital structure.

The Gross working capital ratio and interest

coverage were positively correlated with profitability ratios.

The management efficiency ratio, inventory turnover ratio moderate degree
correlated with raw material turnover and high degree correlated with finished goods
turnover ratios. The total assets turnover ratio high degree correlated with investment
turnover ratio and inventory turnover ratios. The total assets turnover ratio,
investment turnover ratio, inventory turnover ratio has negatively correlated with
profit after tax to sales while lower degree positive correlated with working capital
ratios. Age of debtors and age of creditors were negative correlated with working
capital ratio while positive relationship with profitability ratios. Cash conversion
cycle negative correlated with profitability ratio and positive relationship with
working capital. Cash return on assets and cash flow margin has positive relationship
with profitability ratios in NRL under study period. The cash conversion cycle was
negatively impact on profitability while positively impact on liquidity.

278

Table 6.7.2 First centroid factors of NRL

279

Table 6.7.3 First Matrix of Factor Cross Product of NRL

280

Table 6.7.4 First Matrix of Residual Coefficient Variables of NRL

281

Table 6.7.5 Reflected matrix and Second centroid factors of NRL

282

Table -6.7.6
Factor Loading of NRL and rank

Variables

PBDIT to Sales
PBIT to Sales
PAT to Sales
O.E. to Sales
PAT to F.A
PAT to N.W.
N.P to Total Debt
EBIT To C.E.
Cash to Sales
Acid-Test
W. C. Ratio
Debt to Equity
G.W.C.C
Int. Coverage
Total assets Turnover
Investment Turnover
Inventory Turnover
Raw-Material Turnover
Finished goods Turnover
Age of Debtors
Age of Creditors
CCC
Cash Turnover
Cash to Assets
Cash Flow Margin
Total

Factor loading of NRL

Centroid
Centroid
Factors -A
Factors -B
0.589
0.743
0.602
-0.806
0.566
0.662
0.782
0.500
-0.797
0.652
-0.467
-0.604
0.459
0.675
-0.692
-0.674
-0.738
0.601
-0.474
-0.484
-0.377
-0.779
-0.691
0.359
0.370
-0.023

0.599
0.283
0.602
0.301
0.724
0.610
0.241
-0.801
0.334
-0.443
0.800
0.613
0.791
-0.286
-0.414
-0.315
-0.251
-0.460
-0.543
0.811
0.876
-0.243
-0.482
0.789
0.780
4.917

Communality Rank
(h2)

0.706
0.631
0.725
0.740
0.845
0.810
0.670
0.892
0.746
0.621
0.858
0.741
0.836
0.537
0.650
0.554
0.608
0.573
0.519
0.893
0.910
0.665
0.710
0.752
0.745
17.94

Table- 6.7.7
Centroid factors method of factor analysis for NRL
Factor loading of NRL
Centroid
Centroid
Communality
Variables
Factors -A
Factors -B
(h2)
Eigen
Value(Variance
Accounted For i.e.
8.309
9.627
17.936
common variance)
Proportion of total
0.33
0.39
0.72
variance
Proportion of
0.46
0.54
1.00
common variance

283

15
19
13
12
5
7
16
3
9
20
4
11
6
24
18
23
21
22
25
2
1
17
14
8
10

Table 6.7.7 shows Eigen value (variance accounted for i.e. common variance),
proportion of total variance, and proportion of common variance by the two centroid
factor A and B. Each centroid factor have their own properties and different
interpretation from other and each communality in table represented the proportion of
variance in corresponding raw and is accounted by the two factor A and B.
Here total variance or variables are 25.00 means 25 financial parameters have
taken as a variance. The portion of the factors is given by numerical eigen value or
common variance. These are found by summing up the squared value of the
corresponding factors loading, thus total value or variance 25 is partitioned into 8.309
as eigen value for factors - A and 9.627 as eigen value for factor - B and total 17.936
sum of eigen values for these two factors. In the table next raw represent by the
corresponding proportion of total variance 25.00, from that we can notice that the
72% of total variance is related to these two factors. i.e. approximately 72% of total
variance or variables (financial parameters) were common variables. From the total
variance 25, approximately 18 variables are jointly effect to financial performance of
NRL while remaining 28% of total variance or 7 variables are individual variance.
The techniques used to measure them. The proportions of common variance explain
by the last rows of table. From that approximately 46% is accounted for by factor A
and other 54% by factor B. Thus it can be concluded that the two factors together
explain the common variance.
From the table it can be seen that the 18 variance or variables are dependent or
effective variances which can be observed from the loading factor of units while
remaining 7 variance or variable out of 25 variables are independent from the
financial position and they perform individually. These variables are Age of
Creditors, Age of Debtors, EBIT to Capital Employed, Working Capital Ratio, PAT
to Fixed Assets, Gross Working Capital Cycle, PAT to Net Worth, Cash to Assets,
Cash to Sales, Cash Flow Margin, Debt to Equity, Operating Expenses to Sales, PAT
to Sales, Cash Turnover, PBDIT to Sales, Net Profit to Total Debt, CCC, tnd Total
Assets Turnover etc For better financial performance company need to more
concentrate to these ratios. Further eigen value or common variance of centroid
factor-A was 8.309. It is reveals that the approximately 8 variables are most
effectives. These ratios like Age of Creditors, Age of Debtors, EBIT to Capital

284

Employed, Working Capital Ratios, PAT to Fixed Assets etc For immediate
improve the performance of company more attention to these ratios.

6.8. Factor analysis of CPCL

The following table shows correlation matrix of CPCL between 25 financial
parameters. The all the financial parameters are in the form of ratios and ratios have
been calculated from financial report of the company during the 2007-08 to 2011-12.

285

Table 6.8.1 Correlation matrix of CPCL

286

The above table 6.8.1 indicates matrix correlation between 25 ratios of the
firm CPCL. The tale also shows degree of correlation with each other. The value
reveals that the profit to sales ratios was positively co-related with each other.
Operating expenses to sales has minor positive correlation with profit aspect. The
high degree positive correlation between all the return ratios) Utilization of fixed
assets, net worth, total debt, and capital employed in relation to profit) with each other
as well as all the profitability ratios. These means profitability performance mostly
depend on utilization of fund. The working capital ratio positive correlated with profit
ratios. The moderate degree negative relationship between working capital and debtequity reveals that the capital structure has independent from the working capital.
Interest coverage ratio high degree positively correlated with profitability and
working capital ratios. The cash return on assets positively correlated with working
capital ratio while negatively correlated with gross working capital cycle. Interest
coverage ration have positive relation with profitability, liquidity & solvency as well
utilization of fixed assets.
The management efficiency ratio like

total assets turnover, investment

turnover, inventory turnover, raw material turnover and finished good turnover ratios
are positively correlated with other. These all the management efficiency ratio were
negative co-related with profit aspect ratios as well utilization of fund ratios. It is
derived from Correlation inventory turnover mostly depend on raw material turnover
and finished goods turnover while total assets turnover mostly depend on investment
turnover.
The collection policy (age of debtors) and payment policy (age o f creditors)
were negatively correlated with profitability, working capital and gross working
capital cycle. The cash conversion cycle has positively impact on profitability but
negatively impact on liquidity. In addition to these other cash related ratios like cash
turnover ratio, cash return on assets and cash flow margin were negatively correlated
with cash conversion cycle. Instant of lower profit as well as loss under study period
profitability and liquidity & solvency positively correlated with each other.

287

Table 6.8.2 First centroid factors of CPCL

288

Table 6.8.3 First Matrix of Factor Cross Product of CPCL

289

Table 6.8.4 First Matrix of Residual Coefficient Variables of CPCL

290

Table 6.8.5 Reflected matrix and Second centroid factors of CPCL

291

Table - 6.8.6
Factor Loading of CPCL and rank

Variables

PBDIT to Sales
PBIT to Sales
PAT to Sales
O.E. to Sales
PAT to F.A
PAT to N.W.
N.P to Total Debt
EBIT To C.E.
Cash to Sales
Acid-Test
W. C. Ratio
Debt to Equity
G.W.C.C
Int. Coverage
Total assets Turnover
Investment Turnover
Inventory Turnover
Raw-Material Turnover
Finished goods Turnover
Age of Debtors
Age of Creditors
CCC
Cash Turnover
Cash to Assets
Cash Flow Margin
Total

Factor loading of CPCL

Centroid
Centroid
Factors -A
Factors -B
0.383
0.359
0.475
0.804
0.365
0.448
0.542
0.525
-0.769
-0.478
0.914
0.606
0.838
0.203
-0.869
-0.867
-0.838
-0.907
-0.765
0.555
-0.526
0.841
-0.684
-0.638
-0.790
-0.274

0.915
0.926
0.860
-0.170
0.918
0.881
0.815
0.827
0.490
0.797
-0.074
0.278
0.357
0.965
-0.071
-0.325
-0.296
-0.279
-0.508
-0.105
-0.192
-0.186
-0.087
0.689
-0.128
7.295

Communality Rank
(h2)

0.984
0.986
0.965
0.675
0.976
0.976
0.958
0.959
0.831
0.865
0.841
0.445
0.829
0.972
0.760
0.857
0.790
0.901
0.843
0.319
0.313
0.742
0.475
0.881
0.640
19.78

Table- 6.8.7
Centroid factors method of factor analysis for CPCL
Factor loading of CPCL
Centroid
Centroid
Communality
Variables
Factors -A
Factors -B
(h2)
Eigen
Value(Variance
Accounted For i.e.
8.561
11.223
19.784
common variance)
Proportion of total
0.34
0.45
0.79
variance
Proportion of
0.43
0.57
1.00
common variance
292

2
1
6
20
4
3
8
2
15
11
14
23
16
5
18
12
17
9
13
24
25
19
22
10
21

Table 6.8.7 shows Eigen value (variance accounted for i.e. common variance),
proportion of total variance and proportion of common variance by the two centroid
factor A and B. Each centroid factor have their own properties and different
interpretation from other and each communality in table represented the proportion of
variance in corresponding raw and is accounted by the two factor A and B.
Here total variance or variables are 25.00 means 25 financial parameters have
taken as a variance. The portion of the factors is given by numerical eigen value or
common variance. These are found by summing up the squared value of the
corresponding factors loading, thus total value or variance 25 is partitioned into 8.561
as eigen value for factors - A and 11.223 as eigen value for factor - B and total
19.784 sum of eigen values for these two factors. In the table next raw represent by
the corresponding proportion of total variance 25.00, from that we can notice that the
79% of total variance is related to these two factors. i.e. approximately 79% of total
variance or variables (financial parameters) were common variables. From the total
variance 25, approximately 20 variables are jointly effect to financial performance of
CPCL while remaining 21% of total variance or 5 variables are individual variance.
The techniques used to measure them. The proportions of common variance explain
by the last rows of table. From that approximately 43% is accounted for by factor A
and other 57% by factor B. Thus it can be concluded that the two factors together
explain the common variance.
From the table it can be seen that the 20 variables are dependent or jointly
effect to the financial performance which can be observed from the loading factors of
the units. While remaining 21% means 5 variables are perform individually to
financial performance. These dependent variables are PBIT to Sales, PBDIT to Sales,
PAT to Net Worth, PAT to Fixed Assets, Interest Coverage, PAT to Sales, EBIT to
Capital Employed, Net profit to Total Debt, Raw-Material Turnover, Cash to Assets,
Acid-Test, Investment Turnover, Finished Goods Turnover, WC Ratio, Cash to Sales,
GWCC, etc. For improve the financial performance company must need to more
focus on all the selected financial parameters. In addition to these it is observed from
the table 8.309 is eigen value of centroid factor-A. These suggest that approximately
first 8 ranking are most effective factor or variable. The Factors like, PBIT to Sales,
PBDIT to Sales, PAT to Net Worth, PAT to Fixed Assets, Interest Coverage Etc. The
company need to more attention to these eight factors for better financial position.
293

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5. M.N.Arora - Management Accounting Theory, Problems and
Solutions First Edition
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7. Prasanna

Chandra-Financial

Management-Theory

and

Practice-Tata

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294