CHAPTER-2

REVIEW

OF

LITERATURE

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 Chapter-2
REVIEW OF LITERATURE
The review of literature guides the researchers for getting better
understanding of methodology used, limitations of various available estimation

procedures and database, arid lucid interpretation and reconciliation of the

conflicting results. Besides this, the review of empirical studies explores the
avenues for future and present research efforts related to the subject matter.

In case of conflicting and unexpected results, the researcher can take the
advantage of knowledge of other researchers simply through the medium of

their published works. A number of research studies have been carried out on
different aspects of performance appraisal by the researchers, economists

and academicians in India and abroad. Different authors have analyzed

performance in different perspectives. A review of these analyses is important

in order to develop an approach that can be employed in the context of the
study of Indian companies. Therefore, the present chapter reviews the

empirical studies related with the different aspects of financial appraisal.

Agarwal (1978) in his study entitled “size, profitability and growth of

some manufacturing industries” highlighted relationships between profitability

measured as profit / net worth and net profit / net assets and size expressed
as total sales for seven Indian manufacturing industries viz., cotton spinning
industry, jute textiles, paper and pulp, sugar and aluminum for the period
1962-1972. The relationship between size and profitability was absorbed in

cotton spinning industry, jute textiles industry, sugar and brewing industry and

aluminum industry, while in case of cem ent and cotton spinning and ginning
industry no such relationship was observed.

Agarwal R.N (1999) studied the profitability and growth in Indian

Automobile manufacturing industry. T h e objective of this study was to
examine if firms have been making super normal profits since 1975 when
price controls were removed. It also evaluated the impact of policy changes
since 1981-82 on profitability and growth of firms in the industry using Tobin’s
square as measure of profitability. T h e study finds no evidence to show that
firms have made super normal profits. Profitability was found to be explained

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mainly by age of th e firms, v e rtic a l integration, diversification and industry
policy dum m y variable. Im portant determ inants o f the grow th of firm s were

found as diversification, ind ustry policy dummy variables, growth retained

profits and expansion of cap abilities. Results also revealed differences in
performance between car and n o n c a r sectors as well as w ith in the se cto rs of
the industry.

1. W orking Capital and Finan cial Perform ance

A kkihal (1984) study o f 9 4 sm all scale industries in Hubii D harw ad
Municipal Corporation (HDMC) in th e state of Karnataka revealed th a t the
management of w orking capital in sam ple industries was fou nd to b e highly
unplanned. The study con centrate d on the ratios like curren t ratio, inventory

turnover ratio, fixed assets tu rn o v e r ratio, total assets turnove r ratio, earnings
power and gross pro fit margin. T h e application of ratio analysis has revealed
that the m ism anagem ent of w o rkin g capital had adverse effect on the
performance of the industries.

2. W orking Capital and P ro ficien cy

A m it Mallick and D ebasish S u r (1998) exam ined th e working capital
and profitability: a ca s e study tra n sa ctio n . The study explores the correlation
between ROI and several ratios relating to working capital m anagem ent. In
this study an effort has been m a d e to make an em pirical study o f AFT
industries Ltd., a te a producing enterprise in Assam for assessing th e im pact
of working capital o n profitability by computing sim ple correlation co-efficient
between ROI and each of som e selected important ratios relating to w orking
capital m anagem ent and to te s t the significance of such coefficients. The
study on their relation between th e selected ratios in the areas of W orking
Capital M anagem ent and P ro fita b ility of the com pany revealed both negative
and positive association.

3. Technological C hanges a n d Financial Perform ance

Arya I.C. (1981) m easured te ch n o lo g ica l change in Indian cem ent industry by
computing “Solow Index” of te c h n ic a l change fo r period 1951-70. T h e study

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observed that the upward shift in the production function was neutral since no
change was traceable in the margin rate of the substitution between capital
and labour. The rate of technical progress was higher during 1961-70 as
compared to 1951-1960, which indicated that major shifting in the production
function took place in the latter decade.

4. Price-Cost margin as measurement tool

Asha Jain (1980) in “Price-Cost Margin in Indian Manufacturing
industries: An Econometric Analysis” analyzed the price cost margin over time
In the 2 digit industries. Price- Cost margin was used as a measure of
profitability while the structural variables like concentration Ratio, capacity
utilization, and growth and capital intensity showed mixed pattern. Results
varied among industries.

5. Financial health of companies.

Azhagaiah R, Priya Sabari N (2008) has examined the impact of
dividend policy on shareholder’s wealth. The researcher has examined the
relationship between the shareholder’s wealth and dividend paid out by the
firm with specific reference to organic and inorganic companies in India during
span of 10 years with the multiple regression method taking into account
dividend per share, retained earning per share, price earning ratio and market
price. The study depicts that dividend payment by organic chemical
companies has significant positive impact on shareholder’s wealth as well as
in long run wealth of shareholders of dividend paying companies has
increased significantly when compelled to that of non dividend paying
companies. It also depicts that there is significant difference in average
market value related to book value of equity between dividend payers and
non-payers of both organic and inorganic chemical companies. Higher a
dividend increases the market value of the shares which enables shareholder
to generate high return on investment as well as many shareholders prefer
current dividend as to future income. Hence, in the present scenario, cash
dividend available right now is considered very important factor in taking
decision for investment in particular script. Fixed income retail investors
considered cash dividend as most significant factor in shareholder value

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creation as well as company image. But actual wealth of the shareholder is
greatly influenced by growth in sales, improvement of profit margin, capital
investment decision (both working capital and fixed capital), capital structure
decision, cost of capital, etc. However, a small investor ignores all these
factors but consider only amount of dividend paid which reflect very narrow
concept towards investment valuation.

6. Financial Policies and growth in Return on Investment

B.M.Patel (1992) studied financial policies and practices of giant
companies in India. He studied companies having total assets or total sales
more than one hundred crores or more. He studied the policies of these
companies with reference to fixed assets investment and working capital
investment. He observed that investment activities of the companies were
mainly geared up to achieve the target of increase in ROI and growth of the
firm.

7. Correlation between economies of scale, firm growth on profitability

of firm
Bothwell Cooley and Hall (1982) in their research. “ A New view of
market structure - Performance debate” used a sample of 156 large U.S.
manufacturing firms over a period 1960-67 for determining the relationship
between profit rate and other variable like seller concentration, advertising
intensity, economies of scale, absolute capital requirements, leverage, profit
variability, firm growth, firm size and market share etc., positive correlation
between seller concentration, market stock and growth of demand, business
risk, advertisement expenses and profit rate was found. Profit rates were
negatively related with the extent of economics and capital requirements.

8. Size of Business unit and growth of Business

Boumol (1967) in “Business Behaviour, Value and Growth” has
emphasized that there is a positive relationship between firm size and profits.
He states that increased money capital will not only increase the total profits
of the firm but because it puts the firm in a higher echelon of imperfectly
computing capital groups, it may also increase its earning per dollar of

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investment Besides large firms have as they can enter in variety of product
lines which gives them the benefits of both the scale and the size. Generally
this firm are in a position to take full advantage of technical and pecuniary
economies in manufacturing, marketing, supervision and raising capital.

9. Performance of ICICI
C. H. Bhagwan Rao (2000) studied the performance of Industrial
Credit and Investment Corporation of India. The performance of the
corporation of forty four years i.e. for the period 1995 to 1999 was studied.
The study recorded many ups and downs in the initial growth, diversification
and modernization.

10. Determinants of Profitability in cement industry

Chandra Sekaran (1993) studied the determinants of profitability in
cement industry. The study aimed at drawing inference on impact of policy
measures which led to change in price and distribution policies relevant for
cement industry. Determinants of profitability were analyzed using the
technique of ordinary least squares. To find out whether the profitability
function has shifted after the estimating the function and the test was also
done to ascertain the inference. The main findings of this study are that the
profitability of the company is based on the assets structure and proper
utilization of the production capacity.

11. Liquidity management of power sector

Dabasish Sur (2001) studied the Liquidity Management: An overview
of Four Companies in Indian Power Sector. In this study a comparative
analysis regarding the liquidity management in electricity generation and
distribution industry has been made for the period 1987-88 to 1996-97. The
study reveals that the overall liquidity should be managed in such a way that
not only it should not hamper profitability but also its contribution towards
increase in profitability should be positive.

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12. Liquidity management in private sector
Dabasish Sur, Joydeep Biswas and Prasenjit Ganguly (2001) studied
the Liquidity Management in Indian Private Sector Enterprises ~ A Case
Study of Indian Primary Aluminum Industry. The data of HINDALCO and
JINDAL for the period 1989-90 to 1996-97 used in this study have been taken
from the Stock Exchange Official Directory of the Mumbai Stock Exchange.
From the analysis, it may be summarized that the overall performance
regarding liquidity management at JINDAL was better in terms of efficient
utilization of short term funds, when as HINDALCO was unable to do so. A
very high degree of positive correlation between liquidity and profitability in
case of both the companies was a notable feature, reflecting the favorable
effect of liquidity on profitability.

13. Profitability analysis of food product industry

Debases Rei and Debasish Sur (2001) studied the profitability analysis
of Indian Food products industry: a case study of Cadbury India Ltd. The
study attempted to measures the profitability scenario of Cadbury India Ltd.
And analyzed the relationship among various profitability ratios and their joint
impact using multiple correlation co-efficient and multiple regression method.
The study on the inter relation between the selected ratios regarding the
companies position and performance and profitability of the company
revealed both negative and positive association,

14. Profitability analysis of Indian made Fibers Industry

Deepak Chawla (1986) studied an empirical analysis of the profitability
of the Indian man-made fibers industry. This study examined and explained
the trends in the profitability of the Indian man-made fibers industry. The
relevant date for the study was obtained from 17 firms found in BSE Official
Directory for the period 1963-64 to 1977-78. An increase in the excise duty of
man-made fibers seems to be associated with the decline in profitability of the
industry. Both concentration and vertical integration influenced the profitability.
However, their impact differed for celluloses and Petro-chemical based group
of fibers.

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15. Analysis of Short term liquidity in steel companies
Dr. Bhunia Amalendu (2011) has deeply analyzed short term liquidity
management of two market leader steel companies of India. The study
reveals that lack of working capital management with specific reference to
receivables and inventory management, both giant company’s profitability is
highly affected with the help of regression model, relationship of profitability
with current ratio, absolute liquid ratio, age of inventory and age of debtors
had been established indicates that there is nearly cent percent relationship
between profitability in terms of return on capital employed and short term
liquidity factors in case of Tata Steel Limited. It further reveals that increase in
liquid ratio, debt equity ratio and age of creditors having negative relationship
with the profitability of the firm in case of Tata Steels Limited. In case of JSW
Steels Limited only one co-efficient was associated with profitability of the firm
positively which is current ratio. Inverse relationship has been found between
profitability and increase in liquid ratio, absolute liquid ratio, debt equity ratio,
age of inventory, age of debtors and age of creditors. Inventory management
as well as receivable management affects overall short term liquidity of the
firm which creates acute shortage of cash which ultimately results into overall
reduction in the profit. The study concluded that proper composition of net
current assets should be sustained by the means of indexes of Indian Steel
Companies as well as any short term finance obtained should be paid-out
within short period of time otherwise it dents out operating profit. However,
best management team could not create any impact on the profitability
through better working capital management. The examination of the said
research has ignored seasonal impact on profitability as well as working
capital management. The researcher has not taken into account benchmark
ratio of Steel Industries in deriving any conclusion as well as any changes in
the organisation which are highly affecting short term liquidity are ignored.

16. Accounting valuable, profitability and risk

Fombrun and Shanlcy (1990) has examining the concept of reputation
with reference to perception of firm’s performance by its various stakeholders.
The study has focused that there is diversity in the information sources used
by the stakeholders to evaluate and establish the reputation of the firm. The

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most significant variable in the study is accounting variable, profitability and

risk followed by market valuation. Some non-financial variables like charitable

work, dividend pay-out, corresponding to the previous financial year, property
concentration and other aspects has less impact in creation of positive
perception of the firm. The study has ignored the reliability level of sources of
information which is used by the researcher. Not only this, but reputation can

be highly affected by various other factors like strategy followed by

management, market situation and reaction of the firm in the adverse
situation, impact of all such factors had not been examined.

17. Performance evaluation approach

From the above review of empirical works it is clear that different
authors have approached financial appraisal in different ways in varying levels
of analysis. These different approaches helped in the emergence of more and
more literature on the subject over time. It gives an idea on extensive and
diversed works on financial performance appraisal. It has been noticed that

the studies on financial performance in various sectors provide divergent

results relating to the study period overlap or coincide. The main reason for
the divergence in the results is the different in the method used for the
measurement of factors specially profitability , assets productivity, capital
structure, solvency, working capital, liquidity, dividend policy and growth rate
in the operating performance and social performance. All the studies aimed to
analyze the financial performance in Indian Manufacturing sector with number
of factors. Very few studies appeared which used cost trends and sales trends
to explore the financial performance of the industries.

18. Market share and rate of return

Gale (1972) in “Market Share and Rate of Return”, states the effect of
market share on the rate of return of selected firms operating in different
environments using data of high market share is associated with high rates of
return and that the effect on share on profitability depends on other firm and
industry characteristics such as degree concentration and rate of growth in
the industry in which the firm completes and on the absolute size of the firm.

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He also found that the relation between rate of return on equity and the equity
of capital ratio to be positive and significant.

19. Financial performance of diversified and non-diversified companies

George Paul (1985) studied the financial performance of diversified
companies in India: A comparative study of diversified and non diversified
companies. The financial performance of 32 relatively matched pairs of
diversifying and non-diversifying companies in five Indian industries were
compared. The findings indicate that diversifiers generally outperform non
diversifiers on indicators of growth, profitability, safety and market evaluation.
However, inter industry differences in the benefits of diversification indicate
that diversification is selectively useful.

20. Working Capital Management and Profitability

Gill Amarjit, Biger Nahum, Mathur Neil (2010) has established
relationship between working capita! management and profitability of several
film s of United States with reference to earlier study in the same area. The
finding indicates slow collection of accounts receivables is co-related with low
profitability. Hence, operational managers in the area of finance should
improve their working with reference to increasing profitability of the firm.
Indirectly speaking researcher is of the opinion that by reducing credit period
granted to the customers one can enhance collection or liquidity which
reduces .shortage of working capital. The study found no satisfactory
relationship between average days of accounts payable and the profitability of
the firm in the sample of US based companies. However, the study of the
sampled firm reveal that there is very insignificant relationship between
average number of days the inventory held and profitability, which is
inconsistent with the earlier research in the same area. However, a positive
relationship between cash conversion cycle and gross operating profit has
been established with the co-relation model. The conclusion of the researcher
in many cases is not matching with the earlier research which indicates that
financial performance in terms of profitability is highly influenced by other non-
financial matters as well as size of the firm and its gross operating profit has
no relationship. The researcher focussed on the functions of the middle level

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manager in the finance area and suggests that operational managers are
playing very important and key role in creation of shareholder’s value by

reducing credit period allowed to customers, which ultimately increases

working capital and restricts short term borrowing. The study has absolutely
ignored US government implications as well as typical problems of the
sampled firm industries, while establishing relationship between working
capital management and profitability. However, every firm and industry is

always affected by seasonal changes which have been ignored.

21. Impact of inventory management on profitability

Investment in inventory contributed to 46 percent of total current assets
in the companies under study. It was also noted that most of the companies in
the industry carried excess inventory, affecting adversely an profitability of the
companies. It was found in the study that most of the companies did not

adhere to the policies laid down by them. It was also found that there was
very poor planning about an important component cash.
It has been noticed that studies on the profitability analysis in various
industries used the variables like seller’s concentration, advertising intensity,

economies of scale, absolute capital requirement, leverage, profit variability,

firm growth and size. So far very few studies appeared which used the

quantum of sales, return on investment and appropriate of profits to explore

the profit variation of the manufacturing industries. A very substantial literature
is available dealing with the trends of productivity growth and degree of factor
substitution in Indian manufacturing sector at aggregate and various levels of
desegregation. These studies did not reflect the specific pattern of elasticities
of substitution in Indian manufacturing sectors.
It was observed in the study while analyzing capital structure of the
corporation that cost of debt capital range between 6.5 percent to 16 percent.
The performance of ICICI in post liberalization period reveals higher growth
rate in operations which was mainly due to large flow of assistance from
infrastructure sector.

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22. Financial appraisal of Indian Automobile tyre industry
Jagan Mohan Rao (1993) studied the financial appraisal of Indian
Automobile tyre industry. The study was intended to probe in to the financial
condition financial strength and weakness of the Indian tyre industry. To this
end, a modest attempt has been made to measure and evaluate the financial
performance through inter company and inter sectoral analysis over a given
period of time (1981-1988). The main findings are that fixed assets utilization
in many of the tyre undertakings was not as productive as expected and
inventory was managed fairly well. The tyre industry’s overall profit
performance was subjected to inconsistency and ineffectiveness.

23. Corporate reputation and financial performance

Juan Manuel de la ,Fuente Sabate and Esther de Quevedo Puente
(2003) examining empirical analysis of relationship between corporate
reputation and financial performance. On examining various literature review
and studies, an track in the above mentioned area, researcher conclude that
relationship between corporate reputation and financial performance is
depending upon various factors. The initial study only suggests possibility of
such relationship, but, most recent work an empirical studies considered
casual direction of the link. The study reveals that there is lack of unbias
financial performance reporting as well as unbias evaluation of
communication for creating corporate reputation is necessary to establish
relationship between corporate reputation and financial performance. Diversity
of financial performance measures, the creation of reputation measures as
well as possibility of financial bias in some ranking measurements, has
enriched the literature and give evidence of the interest aroused by this area
of research. Huge gap has been found in the line of research. The two major
restrictions has been observed in the literature review, reviewed by the
researcher viz lack of theoretical framework and inappropriateness of the
methodological tools employed, which could not conclude the finding in the
right direction, which enables results to develop from being mere signs of a
possible relationship between variables into empirical evidence that
significantly depends on the knowledge of the firm. The stakeholders
perception towards firm’s reputation is highly depends upon several formal

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and informal contents or information obtained, but, the study reveals that firm
with the good reputation which has been created jointly with financial
performance efforts as well as through several non-financial efforts enjoyed
previlage market position and enable to capture better resources more
favourable conditions and it helps to generate better shareholder value
creation.

24. Financial and operating performance evaluation

Juliet D’Souza and William L. Megginson (1999) have studied the
financial and operating performance of 85 companies from 28 industrialized
countries that were privatized through public share offerings for the period
from 1990 through 1996. The significant increases in profitability, output,
operating efficiency, dividend payments and significant decreases in leverage
ratios for the full sample of firms after privatization were noticed. Capital
expenditures increase significantly in absolute terms, but not relative to sales.
Employment declines, but insignificantly. Combined with results from two
previous, directly comparable studies, these findings strongly suggested that
privatization yields significantly performance improvements.

25. Inter-company finance analysis of tea-companies

Kallu Rao (1991) has made a study of inter-company financial
analysis of tea industry retrospect and prospect. An attempt has been made in
this study to analyse the important variable of tea industry and projected
future trends regarding sales and profit for the next 10 years period, with a
view to help the policy makers to take appropriate decisions. Various financial
ratios have been calculated for analyzing the financial health of the industry.
The forecast of sales and profits of tea manufacturing companies showed that
the Indian tea industry has bright prospects. The recent change in the Indian
economic policies will boost up the foreign exchange earnings which will
benefits those companies, which are exporting to hard currency areas

26. Liquidity Management

Kartik and Pradeep Kumar Singh (2003) examined the liquidity
management in EICHER Ltd., A Case Study. The data of EICHER Ltd. For
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the year 1994-95 to 1998-99 used in this study have been taken as secondary
source. It can be concluded that the liquidity management of EICHER Ltd. Is
not satisfactory. The companies require to improve their liquidity position in
the coming years.

27. impact of Giobalizction medium scale industry

Kaushik Joshi (2002) studied impact of globalization on medium scale
industries particularly on some selected companies in Gujarat and
Maharashtra with special reference to financial and management aspects. It
was suggested that to increase the profitability cost of basic raw material
should be reduced. The government should rationalize and should replace
excise duty and customs on the product under study.

28. Examining Relationship profitability, growth and risk

Kim and Kunchul (1996) studied the relationship between profitability,
growth and risk (optimization). An attempt was made to understand the
profitability differentials in terms of simultaneously determined inter­
relationships among profitability, growth and risk. The authors focused on the
process of production and investment decision making, which was the main
activity for a firm’s profits maximization. The major objective of the investment
and production decision is to simultaneously choose optimum levels of
profitability, growth and risk. Therefore, these variables were endogenous in a
firm’s profit maximization and simultaneously inter related.

29. Performance appraisal of Indian Chemical Industry

Krishna Veni (2005) examined the performance appraisal of Indian
Chemical Industry after liberalization with the help of several benchmark ratios
and other statistical tour who considered 723 companies having internal
segments like drugs and medicines, organic chemical, unorganic chemicals,
paints, pesticides and other fertilizer companies. The study reveals that
average operating profit margin is highest in inorganic sector followed by
drug, pesticides, organic, fertilizers and paint sectors. Fluctuation in the profit
margin in the various sub sectors is due to market condition, planned product
mix and efficient use of machinery. But the overall picture of whole chemical

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in d u s try s h o w s t h a t o p e r a tin g p r o fit is s u ffic ie n t f o r p a y m e n t o f d e b t a s w e ll a s

s a tis fa c to r y re tu rn to its s h a r e h o ld e r s . The a n a ly s is of re tu rn fro m th e

in v e s tm e n t v ie w p o in t is a ls o s e e n e f fe c tiv e u tiliz a tio n o f o p e r a tin g a s s e t s

w h ic h c r o s s t h e b e n c h m a r k r e tu r n o f 1 0 % a c r o s s t h e s e c to r . T h e s tu d y f u r th e r

r e v e a ls t h a t p ro fita b ility is h ig h ly d e p e n d u p o n g ro w th o f in v e s tm e n t in fix e d

a s s e ts . C u r r e n t a n d liq u id r a tio s h a v e in c r e a s e d s lo w ly a n d s te a d ily o v e r a

p e rio d o f t im e w h ic h g iv e s in d ic a tio n t h a t o p e r a t in g e f fic ie n c y c a n b e o b ta in e d

a fte r s p a n o f 5 y e a r s . In c a s e o f p a in ts , in o r g a n ic s e c to r , d r u g s a n d fe r tiliz e r s ,

a lth o u g h t h e ra tio w a s le s s t h a n t h e s t a n d a r d n o r m s b u t liq u id ity p o s itio n o f

such s e c to r is c o n s id e r e d s a tis fa c to r y . A lo n g te r m f in a n c e s tr e n g th is

m e a s u r e d w ith t h e h e lp o f d e b t e q u ity ra tio r e v e a ls t h a t c h e m ic a l in d u s try

c o n s id e r e d s a tis fa c to r y . T h e a v e ra g e d e b t to e q u ity r a tio v a r ie d f r o m sub

s e c to r t o s u b s e c to r , b u t h ig h e s t 1 . 6 4 t im e s in o r g a n ic a n d f e r tiliz e r f o llo w e d

b y in o r g a n ic 1 . 3 6 t im e s p a in ts 1 . 1 8 t im e s , p e s tic id e s 1 . 0 8 tim e s a n d d r u g s

0 . 9 4 t im e s . T h e d e t a ile d a n a ly s is o f c o s t f o r f lu c tu a tin g t r e n d in d ic a te s t h a t

s u c h c h a n g e s a r e d u e to c h a n g e in c a p it a l s t r u c t u r e , d e m a n d in t h e m a r k e t a s

w e ll a s a b ility to g e n e r a t e n e w a s s e t s . M a jo r p o r tio n o f lo n g te r m f u n d s a r e

u s e d a s w o r k in g c a p it a l b y m a n y o r g a n iz a t io n s . B y a n a ly z in g a s s e t t u r n o v e r

ra tio it in d ic a te s t h a t t h e r e is e ffe c tiv e u tiliz a tio n o f a s s e t s . T h e a n a ly s is o f

w o rk in g c a p ita l t u r n o v e r ra tio r e v e a ls t h a t a ll t h e s u b s e c t o r s a b le t o h a n d le

w o rk in g c a p ita l p r o p e r ly . T h e in v e n to r y m a n a g e m e n t w a s a t s a tis fa c to r y le v e l,

b u t lib e r a l c r e d it a n d c o lle c tio n p o lic y o f t h e fir m a f fe c ts a d v e r s e ly t o s u b

s e c to rs lik e fe r tiliz e r s , p a in ts , e t c . T h is u ltim a t e ly in c r e a s e s s h o rt t e r m debt

c o s t. The s tu d y c o n c lu d e d th a t lib e r a lis a tio n m e a s u re s h e lp s t h e In d ia n

C h e m ic a l In d u s try t o im p r o v e t h e i r p e r f o r m a n c e in d iv id u a lly a n d t h e im p a c t o f

p o lic y o f lib e ra lis a tio n s h o u ld b e m o s t s t r e n g t h e n to m a k e th is s e c t o r m o r e

p r o fita b le a n d c o n tr ib u te to a c c e le r a t e t h e e c o n o m ic g r o w th in t h e c o u n tr y .

3 0 . R e la tio n s h ip b e tw e e n s iz e -g r o w th a n d p r o fita b ility

K u ld ip K a u r ( 1 9 9 8 ) s t u d ie d s iz e , g r o w th a n d p ro fita b ility o f fir m s in

In d ia . In t h e c o n te x t, t h e s tu d y o f v a r io u s f a c e t s o f 2 3 5 f ir m s o f In d ia h a v e

b e e n u n d e r ta k e n , c o v e r in g t h e p e r io d f r o m 1 9 7 0 - 7 1 to 1 9 8 9 - 9 0 g ro w th p a tte r n

o f t h e f ir m s s h o w e d t h a t m a jo r ity o f t h e firm r e c o r d e d g r o w th ra te f r o m 1 0 to

20 p e r c e n t. Tw o m e a s u re s of p ro fita b ility m a r g in (o p e r a t in g p r o fits as

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percentage of net sales). Second measure was the profitability rate (gross as
percentage of net sales). However, the analysis in case of Indian firms
showed that there was no systematic tendency for average profitability to
increase/decrease as the size of the firm changed.

31. Corporate growth and profitability in large company

Kumar P. (1985) examined the corporate growth and profitability in
the large Indian companies. To meet the objectives of the study, 100 largest
non-banking, non-financial, non-government joint stock companies in Indian
ranked on the bases of there total net assets in 1979 were selected from the
Economic Times directory of Private Sector Giants. The study covers the
period from 1969-70 to 1978-79. The growth of firm was measured by the
growth of total net assets at current prices. From the analysis the profitability
explained a very small part of the growth and the ability to perceive growth
opportunities and exploit them fully exert an important influence on the finance
growth seems to have been provided by the sector institutions like IDBI, ICICI,
IFC and SFC.

32. Evaluating Borrowing as a source of working capital

Manjumdar (1994) has carried out an empirical analysis among 20
corporate companies in India 1990. Concentrating exclusively on borrowing
as a source of financing working capital requirements in the corporate sector
in The study revealed that the share of public deposits to total borrowings on
an average was only 6% in public limited companies and this was only 1.08%
in private sector companies. The results indicated that the public deposit was
not a significant source of working capital finance among the selected sample
companies during the study period. The study revealed that current ratio in
private corporate limited companies was 1.38 which indicated aggressive
policy. In government companies the current ratio was 4.32 indicating
conservative policy adopted by them which in turn resulted in higher debt
equity ratio. On overall basis, this comparative study indicated that working
capital management in public sector companies was better than that of private
sector companies.

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33. Profitability and size of the firm
Marcus (1969) in “profitability and size of the firm: some futher
evidence” tried to re-evaluate the hypothesis that the rate of return increases
with the size of the firm, against new data within an improved analytical
framework. His conclusion was that the hypothesis did not perform uniformly
in all the industries and that it cannot therefore be viewed for having general
validity.

34. Evaluating Profitability

Martani Dwi, Mulyono, Khairarurizka Rahfiani (2009) has examined the
effects of financial ratio, firm size, cash from operating activities in the interim
report to the stock return. Study has successfully established relationship
between all these factors to stock return in case of interim report. However,
the researcher were argued that second report which is final one having more
impact on price fluctuation in the respective stock exchange. Based on the
regression result, it has been concluded that financial ratios, firm size, cash
flow from operating activities affect market return. Financial ratios are useful in
making decision on investment for retail investor. The research also exposed
that stock price is affected by factors other than firm ’s financial performance.
From all models, used in this research, it suggests that other information other
than internal fundamental factors having great impact in the stock return or
firm’s stock price. Micro economic condition, political situation, government
industrial policy and technical aspects within firms are factors other than
financial performance that can affect change in the stock price. Researcher
could not find out clear cut relationship in the stock price movement of
particular stock price and any particular financial factor. However, other
factors such as interest rate, inflation rate, exchange rate, influence changes
in stock return significantly, which are out of control for the firm as well as
having no direct relationship between profitability of the firm and such factors.

35. influence of working capital on corporate profitability

Mathuva (2009) examined the influence of working capital
management components on corporate profitability by using a sample of 30
firms listed on the Nairobi Stock Exchange (NSE) for the periods 1993 to

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2008. He used Pearson and Spearman’s correlations, the pooled ordinary
least square (OLS), and the fixed effects regression models to conduct data
analysis. The key findings of his study were that : (i) there exists a highly
significant negative relationship between the time it takes for firms to collect
cash from their customers (accounts collection period) and profitability, (ii)
there exists a highly significant positive relationship between the period taken
to convert inventories into sales (the inventory conversion period) and
profitability, and (iii) there exists a highly significant positive relationship
between the time it takes the firm to pay its creditors (average payment
period) and profitability.

36.Working Capital policy and efficiency

Nabil, Smith, and MacKay (1999) had conducted a very
comprehensive survey conducted among 57 Smaller firms in Canada (in
1994), 105 largest firms in U.S. (in 1998) and 39 largest firms in Australia (in
1989) revealed very interesting relationship among various working capital
practices. The authors attempted to make international comparison of working
capital practices among three nations. The major aspects of the study were
working capital policy, cash and equivalents, accounts receivables, Inventory,
accounts and notes payable and managing working capital itself. The study
revealed that 7% of the Canadian firms have formal working capital policies,
which is found to be very negligible. This is attributed to the fact that the
surveyed firms are smaller ones. It was found that 28.5% of Canadian firms
had a cautious working capital policy. The study revealed that as far as the
criterion for evaluating changes in credit terms was concerned the Canadian
firms were found to lean more on the effect on sales whereas the Australian
and U.S. companies were found to have focussed more on the impact on the
effect on firms profit. Very interestingly, the study revealed that the Canadian
firms used adhoc decisions in replenishing the inventory while the Australian
and U.S. Companies used computerized control systems.

37.Size of the firm and profitability

Nagarjunan and Barathwal (1989) found positive relationship between
large size firms and profitability. He suggested that large firms would be in a
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position to take advantage of technical know-how and economies in
manufacturing, marketing, supervision and in rising capital.

38. Risk Bearing and rate of return

Neumann, Bobel and Haid (1979) in their study entitled “profitability,
risk and market structure in west german industries”, explained mean rates of
return of the period from 1965 to 1973 of 334 W est German joint stock
companies by risk and market structure. The results suggested that investors
were risk averters and that risk bearing was accordingly compensated by a
higher rate of return. Degrees of concentration and product differentiation
were positively related to profitability while export and import ratio exerted and
adverse impact on profitability. As regards size and profitability, smaller firms
tended to be more flexible, tended to take chances of growth more easily then
the bigger once. So there was inverse relationship between growth and
profitability.

39. Strategic planning and financial performance

Noel Capon and John V. James M. Hulbert (1994) studied the
strategic planning and financial performance more evidence. A recently
published meta - analysis of the impact of strategic planning on financial
performance omitted a major study of corporate planning in fortune 500
manufacturing firms. This study briefly reviewed the result of the Meta
analysis. Additional analysis examined the performance and firm survival over
a longer time period than in the original book. The overall conclusion is that a
small but positive relationship between strategic planning and performance
exists and persists.

40. Working Capital Management at Paper Industry

P. Siva Rama Prasad (1998) studied the working capital management
in paper industry. He studied 21 paper mills. The study says that working
capital is major chunk of total capital, yet adequate attention is not given on
working capital aspects.

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41. Socio Technical system approach and appraisal process

Pandey and Ram esh Bhatt (1990) studied the financial ratio pattern in
Indian manufacturing com panies. T h e socio technical system approach
provides a useful fram ew ork for designing and im plem enting effective
performance appraisal system . It is proposed th a t in designing appraisal

system, the appraisal technology sh o u ld be chosen and operationalised,

keeping in m ind not only organizational goals, culture and politics but also th e
socio - psychological needs of em ployees as well as o th e r over an d

unconscious dynam ics that would influence the appraisal process.

42. Efficiency ratios and profitability

Pandey S hishir and Jaiswal V ika s Kumar (2011) has exam ined th e
effectiveness of effectiveness on profitability through w orking capital
m anagem ent with reference to N A LC O with the help of various w orking

capital and profitability ratios like C ash Turnover Ratio, Inventory Turnover
Ratio, Current Ratio, Return on Capital employed, etc. The study reveals th a t
there is high fluctuation in gross w orking capital in a span of 11 years an d
there is very stiff increase in gross w orkin g capital in last three years but w ith

reference to current liability, net w orking capital is very highly fluctuating. T o

m eet the financial requirem ents, enterprise has various source to finance its
working capital like short term financing and long term financing. Long term
financing is contributing fro m 0% to 45 .2 0 % to current assets in a span of a
study, but it has been reduced to 10% between 2001 to 2004 and furth e r
m ore, it has been increased to 45% in 2006 to 2007 which indicates there is
no clearcut policy fo r w orking capital m anagem ent in the organisation w hich
affects adversely to the profitability, efficiency and overall liquidity position of
th e company. However, th e said study has ignored to exam ine th e factors
responsible fo r such instability in th e net working capital, but the various
com ponents of w orking capital like cash and inventory shows good rotation a s
average cash turnover ratio is 3.6. Surprisingly, th e researcher has ignored
benchm ark ratio com parison in case o f current ratio and liquid ratio. Though,
working capital am ount is highly fluctuating, a very high profitability of th e

com pany has been m aintained. The curren t assets of NALCO have w itnessed
fluctuations over the past years w hich were fo u r times m ore in 2008 in

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c o m p a r is o n to th a t of 1999 w h ic h is c le a r ly due to p r iv a tiz a tio n o f th e

o r g a n iz a tio n . T h e re s e a rc h e r h a s not m ad e an a t te m p t o f e x a m in in g t h e

im p a c t o f p r iv a tis a tio n o r d is in v e s t m e n t o f t h e NALCO on w o rk in g c a p it a l

m a n a g e m e n t a n d p ro fita b ility o f N A L C O . T h e r e g r e s s io n r e s u lt o f t h e s tu d y

in d ic a te s t h a t t h e r e is v e r y in s ig n ific a n t im p a c t o n re tu rn o n c a p it a l e m p lo y e d

o f d iffe r e n t w o r k in g c a p it a l ra tio s .

4 3 . L ib e r a liz a tio n a n d C a p ita l s tr u c tu r e

P a n ig r a h i Ashok Kum ar (2 0 1 0 ) e x a m in in g th e c a p it a l s tr u c tu r e of

In d ia n c o r p o r a te w ith t h e h e lp o f 3 0 0 In d ia n p r iv a te s e c t o r c o m p a n ie s h a v in g

d iffe r e n t 2 0 s e c to r s . M a in ly s tu d y f o c u s s e d o n im p a c t o f v a r io u s q u a lita tiv e

m e a s u re s ta k e n b y G o v e r n m e n t o f In d ia , F in a n c e D e p a r t m e n t , R e g u la tin g

A u th o rity , R e s e r v e B a n k o f In d ia , S to c k E x c h a n g e s a n d o t h e r in s titu tio n s .

C a p it a l S tr u c tu r e o f In d ia n c o m p a n ie s h a v e been a n a ly s e d d e e p ly w h ic h

in d ic a te s t h a t t h e r e is a c le a r c u t im p a c t o f lib e ra lis a tio n o n c a p it a l s tr u c tu r e o f

In d ia n c o m p a n ie s . M a jo r it y o f In d ia n c o m p a n ie s a r e u tiliz in g d e b t fo r m e d iu m

te r m r e q u ir e m e n t o f lo a n . T h e G o v e r n m e n t r e g u la t e d p r ic e s a t w h ic h f ir m c a n

is s u e e q u ity , r a t e o f in te r e s t w h ic h c o u ld o f fe r o n t h e b o n d s , p e r m is s ib le d e b t

e q u ity ra tio a s a b e n c h m a r k f o r is s u e o f b o n d s , e tc . h a s c r e a t e d s ig n ific a n t

im p a c t o n c a p ita l s tr u c tu r e . R e s e a r c h e r c o n c lu d e t h a t s u b s id iz e d in s titu tio n a l

f in a n c e is t h e m ost a ttr a c tiv e s o u rc e o f f in a n c e e it h e r th r o u g h f in a n c ia l

in s titu tio n s o r th r o u g h n a t io n a liz e d b a n k s w h ic h u s u a lly m e a n t m a x im u m d e b t

e q u ity ra tio a n d le v e r a g e s u c h d e b t w h ic h h e lp in c r e a tin g s h a r e h o ld e r v a lu e

c r e a tio n . T h e o t h e r m o s t im p o r ta n t r e a s o n f o r t h e change in th e c a p it a l

s tr u c tu r e is t h e fle x ib ility in t h e d e b t m a n a g e m e n t a s in s titu tio n s a r e r e a d y to

r e s c h e d u le th e m w ith little c o s t. F o r e ig n d ir e c t in v e s t m e n t h e lp s In d ia n

c o m p a n ie s in g e n e r a tin g lo n g t e r m f ix e d a s s e ts to g r e a t e r e x t e n t , b u t t h e ro le

o f p r im a r y is s u e s in th e c a p ita l m a rk e t a n d fin a n c ia l b e h a v io u r o f s m a ll

in v e s to r s a ls o c o n tr ib u te to g r e a t e r e x te n t. T h e r e s e a r c h e r f u r th e r c o n c lu d e

t h a t a lth o u g h t h e s iz e o f t h e firm , its a g e , t h e re g io n to w h ic h it b e lo n g s t o a n

in d u s try c la s s ific a tio n c o n tr ib u te to th e e x is tin g v a r ia tio n in th e c a p it a l

s tr u c tu r e a c r o s s in d u s tr y c la s s e s , b u t still t h e d o m in a n c e o f in d u s try p e r s is ts .

T h e s t u d y r e v e a ls t h a t in t e r m s o f a v e r a g e in flo w fu n d w e s t e r n re g io n o f t h e

c o u n tr y is still e n jo y in g fir s t p o s itio n , w h e r e in d u s tria l e n v ir o n m e n t in t h e fo r m

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of S ta te G o v e r n m e n t p o lic ie s h e lp s in d u s tr ie s t o g r o w . T h e e x t e r n a l fu n d

r e q u ir e m e n t w h ic h is e x c lu s iv e ly b a s e d o n t e c h n o lo g y p la y a le a d in g ro le in

d e te r m in in g in te r in d u s try v a r ia t io n in c a p a b l e s tr u c tu r e . F a c to r s d e te r m in in g

c a p ita l s tru c tu re v a r y fro m in d u s tr y to in d u s try . T h e s t u d y in d ic a te s t h a t s iz e ,

age, lo c a tio n , p la c e , even m a rk e t segm ent p la y s im p o r ta n t ro le in

d e te r m in a tio n o f c a p ita l s tr u c tu r e . G o v e r n m e n t h a s to p la y a d o m in a n t ro le fo r

a llo c a tin g lim ite d re s o u rc e s fo r m o re p u b lic in v e s t m e n t th r o u g h d iffe re n t

p o lic ie s . It is a d v is a b le t o go f o r d o m e s tic c a p ita l f o r m a tio n r a t h e r th a n

d e p e n d in g upon f o r e ig n in s titu tio n s o r fo r e ig n f in a n c e r in lo n g ru n . T h e

c o n trib u tio n fro m N o n R e s id e n t In d ia n s c a n b e s o u g h t e d w ith r e la x a tio n in

re g u la tin g a c t. The p r e s e n t s c e n a r io in t h e c o r p o r a te s e c to r is ju s t lik e

“ju n g le r a j” fitte s t c a n “s u r v iv e ” . H e n c e s m a ll a n d m e d iu m s iz e c o m p a n ie s

w h ic h h a s b e e n e s t a b lis h e d b y n e w e n t r e p r e n e u r c o u ld n o t g e t f in a n c e e a s ily .

4 4 . C r e d it P o lic y a n d P e r fo r m a n c e

P a ra s u ra m a n (2 0 0 4 ) s t u d y a t te m p ts to u n d e r s ta n d th e r e la tio n s h ip

b e t w e e n c re d it p e r io d g iv e n b y c o m p a n ie s a n d t h e ir a c t u a l p e r f o r m a n c e in

te r m s o f s a le s a n d p ro fita b ility . H e h a s a ls o a t te m p te d to fin d a v e r a g e le v e l o f

o th e r k e y fin a n c ia l p a r a m e t e r s c o n n e c t e d to w o r k in g c a p it a l m a n a g e m e n t .

H a v in g la id th e e m p h a s is o n In d ia n p h a r m a c e u t ic a l c o m p a n ie s , h e fo u n d o u t

th a t le a d in g c o m p a n ie s h a v e e m p lo y e d g r e a t e r w o r k in g c a p it a l f o r e n h a n c in g

p ro fita b ility . T h e s t u d y a ls o r e v e a le d t h a t D a y s S a le s O u t s ta n d in g h a d g o n e

u p in t h e s a m p le c o m p a n ie s . T h o u g h t h e ris e w a s m a r g in a l, it p la y e d a n

im p o r ta n t ro le in t h e m a n a g e m e n t o f w o r k in g c a p ita l. T h e s tu d y in fe r r e d th a t

th e t o p p h a r m a c y c o m p a n ie s s tr a te g ie s o n th e ir w o r k in g c a p it a l p o lic y t o re la x

th e c r e d it p o lic y t o a c h ie v e g r e a t e r s a le s a n d g r e a t e r p ro fits .

4 5 . L e v e r a g e a n d p e r fo r m a n c e

P e s w a n i S h il p a (2 0 1 1 ) e x a m in in g th e im p a c t o f L e v e r a g e d C a p ita l

S tr u c tu r e o f a firm o n its f in a n c ia l p e r f o r m a n c e w ith r e f e r e n c e to t w o m a r k e t

le a d e r F M C G c o m p a n ie s in In d ia . The s tu d y is h ig h ly f o c u s s e d o n tw o

c o m p a n ie s v iz B r ita n ia In d u s t r ie s L im ite d and M a r ic o In d u s tr ie s L im ite d .

R e s e a r c h e r o b s e r v e d th a t b o th t h e firm s a r e o b ta in in g f in a n c e f r o m d iffe re n t

s o u r c e s f o r th e ir e x p a n s io n p r o je c t b u t B r ita n ia In d u s tr ie s L im ite d b a n k o n

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promoter’s fund in such projects, while Marico industries depend upon debts.
Though, both the firms are leveraged differently, the profitability is remaining

more or less same. As sales performance of both the companies has been
almost same with Compounded Average Growth Rate. Though the solvency
ratio of Marico is low due to high leverage, but its return on equity
shareholder’s fund is higher as to Britania due to benefit of tax credit. The

study concluded that profitability of the company is not entirely depend upon
source of financing, but in the study it also highly influenced by top level

management initiatives, but the universal acceptable phrase “a high leveraged

firm gives better return to the equity shareholders as to low leveraged firm is
established in the study”. The study depicts that merger and acquisition in the

fast moving consumer goods company is the benchmark policy for expansion
of market, which directly impact profitability of the firm, but it is highly depend
upon source of finance for such merger and acquisition as well as repayment

schedule determined by the financial Executives of the firm. However, study

has not considered special features of the FMCG companies which highly
affect profitability of the firm like small life span of the product, huge brand
building cost and other aspects.

46. “Relationship of Planning and Performance”

Prajapati and Trivedi (1990) 0 has made a study to the comparative
efficiency of public and private enterprises: further evidence. The comparative

efficiency of public and private enterprises has remained an unsolved issue.

This study attempted to examine the methodological issues involved in

evaluating the relative performance of the two sectors as well as to provide an

empirical application of a preferred methodology It also examined the
comparative performance of public and private enterprise in the Indian
cement industry and finds that, many of these studies based their findings on
a small number of firms Brian K Boyd (July 1991) strategic planning Financial
performance [Header strategic planning performance]. The study used Meta
analysis to aggregate the results of 29 samples on a total of 2496
organizations. Analysis of previous studies found modes calculation between
planning and nine performance measures like profitability, asset productivity,
capital structure, solvency, working capital, liquidity, dividend policy, growth

ill
rate in operating performance and social performance. Extensive
measurement problems suggests that these findings underestimate the true
relationship between planning and performance.

47. Liquidity analysis of paper industry

R.K. Sahu (2002) examined a simplified model for liquidity analysis of
paper industry. The study was based on the assumption that the liquidity
management of a company in a particular year is effective if its’ earnings
before depreciation is positive and not effective if its earnings before
depreciation is negative. Thus, the empirical, findings revealed a very high
predictive ability of the estimated discriminate function.

48. Liquidity management and profitability

Rageswari (2000) 0 studied the liquidity management of Tamil Nadu
Cement Corporation Ltd. Alangulam - A Case Study. To analyse the liquidity
position of TANCEM the researcher has collected information from the annual
reports of TANCEM for a period of five years starting from 1993-94 to 1997-
98. It can be concluded from the analysis, the liquidity position of TANCEM is
not stable. Regarding liquidity ratios, there was too much of liquidity is also
bad as idle assets earn nothing and affects profitability. Hence, it can be
concluded that the liquidity management of TANCEM is poor and not
satisfactory.

49. Corporate performance of post liberalization

Raghnathan and Prabina das (1999) have made a study of the
corporate performance of post liberalization. In this study, they analysed the
performance of Indian manufacturing sector in the last 8 years since
liberalization on the parameters of profitability, liquidity, leverage and
solvency. While the solvency and profitability ratios were encouraging till 1996
they have been gradually diminishing after that. This problem gets more
pronounced when the EVA is calculated which shows that the Indian
manufacturing sector has destroyed wealth for their shareholders. The study
points out that poor corporate performance has led to an economic slowdown
and not the other way round. Corporate raised funds during the blacken days

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of equity m arkets and ended up investing the se funds a t below th e ir cost of
capital. The outcom e has been a prolonged econom ic slowdown.

50. Financial health - checked by ratio analysis

Raiyani J. R., Dr. Batasana R. B. (2011) had studied the financial

health of Textile Industry of India w ith th e help of published financial

statem ents of m a jo r Textile Industries covering th e period of seven years. The
financial health has been exam ined with reference to retained earnings to

total assets, earnings before interest and tax to total assets, debt eq uity ratio

and total asset turnove r ratio. The study reveals that th e average n e t working
capital ratio of textile industry having the m ean of 41 .09 which is ve ry very
high w orking capital. One should match this m ean with industrial m ean which

is not com pared. V e ry high net working capital ratio indicates blockage of high
am ount of capital in total current assets, specifically with reference to debtors.
Surprisingly, return on total assets or utilisation of assets is very lo w and its

m ean is 7.16, w hich is lower than average bank’s fixed deposit interest. The
excess working capital resulted in the com panies going fo r less d e b t raising
ultim ately affecting adversely to the shareholders’ return in the fo rm of low
earning per share. The operating efficiency of all the fo u r units exam ined is
very poor as to industrial benchm ark return. N ot only this, but even though in

increasing the investm ent in the fixed assets in all fo u r units could not
increase profitability in the sam e proportion even. Indirectly speaking the
result show s over utilization of fixed assets. B ut the study has ignored further
detailed analysis of reasons fo r low profitability with reference to capital
invested as well as assets utilization. T he study is restricted to four com panies
only w hich indicates that the result obtained in the said research m a y not be
applicable to other sectors.

51. A ctual rate of return and risk analysis return

Raj S. D hankar (1998) has studied a new lo o k at the criteria of
perform ance m easurem ent fo r business enterprises in India a study o f public
sector undertakings. Num erous criteria fo r m easuring th e perform ance of
business enterprises in India have been developed during the past. But
unfortunately, none of the criteria has succeeded in winning th e general

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consensus of leaders in industry and academics so far, for their obvious
weakness. The author has given a new model for measuring the performance
of a business enterprise in India, where in, the basis is to compare its actual
rate of return with its expected risk adjusted rate of return. Realizing the
importance and controversy of public sector in India, an attempt was made to
measure the performance of all public sector undertakings, which were
started up to 1964 and were in operation until 1983. It is shocking to know that
half of them on an average what to talk of making excess returns, have not
been able to earn equal to their cost of capital.

52. Evaluation of Performance and Sector

RBI 2005 study analyzed the performance of private corporate
business sector in India from 1991-92 to 2002-03. ii studied working of around
2031 companies. It reveals that the performance of the sector improved
during the initial period of liberalization, but could not be sustained in the later
half of the period (after 1995-96) in terms of profitability. However the sector
has shown improvements in better management practices. The companies
thrived to reduce the inventory cost by improving to sales ratio during the
period under review.

53. Performance of Financial and non-financial companies

RBI Corporate Studies Division (Sep.2003) has made an attempt to
study the performance of corporate business sector during the first half of
2002-2003. The results of 146 private companies of various sectors were
analysed on the various parameters of performance. Aggregation and
comparison of the results of the first two quarters was done on these
performance parameters. It was concluded that the performance of the private
sector was better when compared with the first half of the previous year
(2001-2002). This was indicated by the following parameters viz., higher
sales, reduced interest, payments and ultimately improved profitability. Sector
industry wise analysis of performance has been done to highlight those areas
where the performance has been better vis-a-vis sectors, which have lagged
behind in performance.

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5 4 . P e r f o r m a n c e o f F in a n c ia l In v e s t m e n t c o m p a n ie s

RBI s tu d y ( 1 9 9 5 ) , an a tte m p t w a s m a d e to s tu d y t h e fin a n c ia l

p e r f o r m a n c e o f p r iv a te c o r p o r a te b u s in e s s s e c t o r d u rin g t h e p e r io d 1 9 9 4 - 9 5 o f

t h e 1 0 3 0 c o m p a n ie s c o v e r e d in th is s tu d y , 9 2 5 w e r e n o n -fin a n c ia l c o m p a n ie s

and 105 w e r e fin a n c ia l c o m p a n ie s . The r e s u lt s o f th e n o n -fin a n c ia l and

fin a n c ia l c o m p a n ie s w e r e a ls o a n a ly z e d s iz e w is e ( S iz e c la s s ifie d o n t h e b a s is

o f 1 9 9 4 - 9 5 p a id u p c a p it a l o f t h e c o m p a n ie s ) . A p a r t fro m t h e a n a ly s is o f t h e

c o n s o lid a t e d re s u lts f o r t h e e n t ir e s e c to r . T h e g o o d c o r p o r a te p e r f o r m a n c e

d u rin g 1 9 9 4 -9 5 r e fle c te d in m a jo r p ro fita b ility ra tio s r e g is te r in g d is tin c t

im p r o v e m e n t in th e y e a r u n d e r r e v ie w a s c o m p a r e d to th e p r e v io u s y e a r .

R B I s tu d y ( 2 0 0 2 - 0 3 ) a n a t t e m p t w a s m a d e t o s tu d y t h e p e r f o r m a n c e o f

fin a n c ia l and in v e s tm e n t c o m p a n ie s . The s tu d y c o v e re d 957 In d ia n

c o m p a n ie s . T h e c o n s o lid a te d r e s u lts o f t h e c o m p a n ie s in d ic a t e d im p r o v e d

p e r f o r m a n c e in te r m s o f t h e ir in c o m e a s w e ll a s p ro fit. T h e s tu d y s h o w e d t h a t

th e p ro fit m a r g in a n d re tu rn o n s t a k e h o ld e r ’s fu n d s w e r e h ig h e r in t h e s e

c o m p a n ie s in 2 0 0 2 - 0 3 a s c o m p a r e d t o p re v io u s y e a r .

R e s e a r c h e r h a s t a k e n in to a c c o u n t o n ly p o s itiv e v o la tility , b u t h a s n o t

e s t im a t e d a n y th in g in t e r m s o f r e d u c tio n in liq u id ity . A s t h e r e is h ig h v o la tility it

h a s b e e n o b s e r v e d t h a t t h e r e is r e d u c tio n in t h e liq u id ity , it a f fe c ts a d v e r s e to

t h e p ro fita b ility o f th e c o m p a n y to g r e a t e r e x te n t. L iq u id ity m a in t e n a n c e is a ls o

to b e tre a te d w ith b ia s , a s m a in t e n a n c e o f h ig h liq u id ity is a ls o b e a r in g

o p p o r tu n ity c o s t. In c a s e o f s h o r t a g e o f liq u id ity in t h e N ig e r ia n c a p it a l m a r k e t

a n d m o n e y m a r k e t, it is n o t e a s y to o b t a in fu n d - th is a s p e c t is ju s t ig n o r e d .

5 5 . C o r p o r a t e R e p u t a tio n a n d F ir m V a lu e

R o b e r ts , P .W . a n d D o w lin g , G . R . ( 1 9 9 7 ) h a v e a t t e m p t e d to p r o v id e

ju s tific a tio n f o r th is r e la tio n s h ip fr o m a r e s o u r c e s b a s e d v ie w . T h is a p p r o a c h

a llo w s t h e m to a c c o u n t fo r t h e s u s ta in a b ility o f t h e c o m p e titiv e a d v a n t a g e

d e r iv e d fro m r e p u ta tio n , b u t fa ils t o a c c o u n t f o r th e o rig in o f th e h ig h e r

in c o m e s . A n a d e q u a t e t h e o r e tic a l f r a m e w o r k , t h e r e f o r e , is still m is s in g . M o r e

im p o r ta n tly , a f r a m e w o r k w h ic h e x p la in s w h y c o r p o r a te r e p u ta tio n g e n e r a t e s

fir m v a lu e , o n th e o n e h a n d a n d w h ic h , o n t h e o th e r, a llo w s f o r s o rtin g t h e

d iv e r s ity o f s tu d ie s a n d th e ra n g e o f m e a s u re s o f fin a n c ia l p e r f o r m a n c e ,

r e p u ta tio n in d e x e s , m e th o d o lo g ie s a n d c o n tro l v a r ia b le s u s e d t o v e r ify th is

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r e la tio n s h ip , w o u ld a ls o v a lid a t e t h e m a n d lin k th e m w ith p r e v io u s lite r a tu r e .

T h is a b s e n c e o f t h e o r e t ic a l e x p la n a tio n s , c o u p le d w ith e m p ir ic a l a n a ly s e s t h a t

a c k n o w le d g e a t w o - w a y r e la tio n s h ip , le a d s u s t o w o n d e r w h e t h e r t h e r e r e a lly

is a m u t u a l in flu e n c e b e t w e e n t h e s e v a r ia b le s , o r w h e t h e r t h e e x is t e n c e o f t h e

r e la tio n s h ip in one d ire c tio n g iv e s th e im p r e s s io n , a rtific ia lly , of in v e r s e

d ir e c tio n .

56. Perform ance of Public Enterprise

R o s a r io G . M a n a s a n , J u n a it a A m a t o n g a n d G il B e ltr a n ( 1 9 8 8 ) have

m a d e a s tu d y o f t h e p u b lic e n t e r p r is e s e c t o r in th e P h ilip p in e s : e c o n o m ic

c o n tr ib u tio n a n d p e r f o r m a n c e , 1 9 7 5 - 1 9 8 4 . T h e p u b lic e n t e r p r is e s e c t o r in t h e

P h ilip p in e s h a s g r o w n a t a t r e m e n d o u s p a c e in t h e la s t d e c a d e . It h a s a

c o n tr ib u te d a la r g e p ro p o rtio n of g ro s s d o m e s tic c a p it a l fo r m a tio n b u t it

im p a c ts o n p ro d u c tio n , e m p lo y m e n t a n d s a v in g s w e r e n o t s ig n ific a n t. A t t h e

s a m e t im e , e s t im a te s o f fin a n c ia l p ro fita b ility ra tio s a n d fa c to r p r o d u c tiv ity

m e a s u r e s s u g g e s ts t h a t t h e p u b lic s e c to r e n t e r p r is e w e r e g e n e r a lly in e ffic ie n t.

57. Profitability and Size o f Firm

S a m u e ls a n d S m y t h ( 1 9 6 8 ) in “P r o fits a n d F irm s iz e ” to o k t h e c ro s s

s e c tio n d a t a o f a n n u a l o b s e r v a t io n ( 1 9 5 9 t o 1 9 6 3 ) o f p ro fits a n d n e t a s s e t s fo r

186 U n it e d K in g d o m c o m p a n ie s . These c o m p a n ie s w e re engaged in

m a n u fa c tu r in g d is trib u tio n a n d m in in g . T h e s e c o m p a n ie s w e r e c la s s ifie d , in to

te n s i z e c la s s e s a c c o r d in g to t h e i r a s s e ts in 1 9 5 4 . N e t A s s e t s w e r e u s e d a s

m e a s u r e o f firm s iz e a n d t h e r a tio o f p r o fits (a ft e r d e p r e c ia tio n b u t b e fo r e

t a x a t io n ) to n e t a s s e ts , w a s t h e m e a s u re o f p ro fita b ility . T h e y c a lc u la t e d

a v e ra g e p ro fit r a t e s o v e r t h e te n - y e a rs p e r io d a n d a p p lie d a n a ly s is of

v a r ia n c e . T h e r e w a s s o m e e v i d e n c e th a t f ir m ’s s iz e w a s s ig n ific a n t f a c t o r in

t h e d e t e r m in a tio n o f its m e a n p r o fits o v e r t h e t e n - y e a r p e r io d . T h e a n a ly s is d id

n o t in d ic a t e w h e t h e r t h e h ig h e r p r o fit r a te s w e r e a s s o c ia te d w ith la r g e o r s m a ll

firm s . B u t t h e m e a n ra te o f r e tu r n f o r e a c h s i z e g ro u p f o r e a c h y e a r a n d a ls o

t h e a v e r a g e f o r t h e w h o le te n y e a r p e r io d , s u g g e s te d t h a t h ig h e r t h e p ro fit

r a te s w e r e a s s o c ia te d w ith t h e s m a lle r f ir m s w e r e b e c o m in g m o r e m a r k e d

o v e r t im e . In o r d e r to e x a m in e t h e v a r ia b ilit y o f p ro fit r a t e s , th e h y p o th e s is

t e s t e d w a s th a t la r g e c o m p a n ie s a r e m o r e a b l e to w ith s ta n d flu c tu a tio n s in th e

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level of activity against profits in another. Time was greater variability among
profit rates of firms of the same size for small firms than for large size.

58. Inter Industry variation of Capital Structure in Pharma

Shanmugasundaram G (2008) examines inter-industry variation of
capital structure in pharmaceutical industry in India. The study indicates that
intra industry variation in the capital structure for Indian Pharmaceutical
companies is perfectly proving conventional capital structure theory. The
higher the proportion of fixed assets to the total asset and the higher the
growth rate of asset results into higher is the industry debt equity ratio. The
study has been made with the reference to multinational pharmaceutical
companies in India for process and transition period with the help of
regression analysis indicates that proportion of fixed assets to the total asset
has shown positive and insignificant relationship in the transition period. The
overall industry picture indicates that Indian companies are shifting from high
debt to high equity over the period of time. Not only this, but several
multinational pharmaceutical companies who has experienced more than
three decades in India preferred to keep their debt nil, which reduces interest
costs and increases shareholder profitability which is indicating consistency
with the static trade of theory. The average growth and size of the companies
are positively related. In case of foreign pharmaceutical companies, only
profits adjusted to total assets and sales are positively related but risks
measured with the standard deviation of the growth in gross profit is
negatively related. There is significant structural change in the form of source
of finance particularly in Indian companies, after policy of favouring product
patent by Government of India. The study indirectly reveals that the decision
of government for product patent has compel the promoters and existing
management to replace external debt to owner’s fund.

59. Working Capital Turnover in Pharma

Siddharth and Das, (1994) in his study on “Working Capital Turnover in
Pharmaceutical Companies” attempted to ascertain efficient or otherwise use
of working capital in selected pharmaceutical firms in India. Having studied
the data of 10 years he concluded that the overall working capital turnover

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ratio was 9.03 tim es. T h e overall analysis o f the data indicated that the
selected com panies did ve ry well in term s of em ploym ent of working capital.

The study also revealed th a t working capital turnove r ratio declined gradually

over the period from 1981 to 1990.

60. Factors affecting profitability in textile industry of India

S idhu and G urpreet Bhatia (1998) studied the factors affecting

profitability in Indian textile industry. In this stud y an attem pt w as m ade to

identify th e m ajor determ inants of profitability in Indian textile industry with th e

help of em pirical date take n from Bom bay stock Exchange D irector fo r th e
yea r 1983. To find out th e factors affecting profitability, regression analysis

has been applied. From th e analysis, it was fo u n d that there is no clear cut

relationship between current profitability and capital intensity. The age of the
firm having generally negative but statistically insignificant relationship w ith

current profitability which points tow a rds the fact th a t add firm s in Indian textile
industry are obsolete and need m odernization.

61. Growth Profitability and valuation

Singh, Ajit and W hittington (1968) in “Growth profitability and
valuation” conducted an em pirical study of th e relationship between the
growth, size and profitability of th e firm , growth being the m ain dependent
variable, fo r 450 UK public quoted com panies, existing over the period 1948-

60. The book value of the “net assets” was used as a measure of size of th e
firm and th e difference in size of firm . The results exhibited that the average

growth rate m easured in term s of n e t assets w as independent of the opening

size of th e firm. The sam e was also tru e of profitability. But the variability of
the growth rates and the profit rates a s between firm s did change with the size
to a significant extent. In both cases it tended to decrease as size increased.
Large firm s had a m ore predictable rate of profits, but not a higher one.

62. W orking Capital M anagem ent in Indian pap er industry

S ivaram a (1990) study on w orkin g capital m anagem ent in Indian p a per
industry laying em phasis on individual current assets like cash, receivables
and inventory. The study revealed th a t the w orking capital form ed 47.2% of

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the total net assets during 1984-93. The rate of return on current assets was
negative o r insignificant in all selected m ills indicating inefficient m anagem ent

of working capital. The results of correlation analysis indicated close

relationship between profitability and w orking capital efficiency em phasizing

the need to exercise better control o ve r working capital. The stu d y also
attem pted to assess the perceptions of chief executives on m anagem ent of

working capital. Fifty per cent of the executives favoured budgetary m ethod as

the tool to plan w orking capital. Even though m ajority of the executives felt
that th e funds m eant fo r working capital should not be diverted to a n y other

applications, it was found in m ajority of the cases that fun ds were diverted to
other uses. The survey revealed that collection of receivables and inadequate

working capital w ere serious problem s in running the business.

63. Profitability trend in Indian cotton m ill industry

Soum yendra Kishore D utta (1999) exam ined an analysis of
profitability trend in the Indian Cotton Mill Industry. T h e disadvantage
situations of a large num ber of mills w ere reflected in the haphazard

m ovem ent of the m ill sector’s profitability ratio. Loss of m arket share of mill
made cotton cloth to synthetic substitutes, burden of unfavorable excise duty,
uncertainty in supply of raw cotton, untoward labour legislation, under
utilization of capital and high capital cost added to the aforesaid fluctuations in
profitability. Lower base of th e profitability ratios and the warning financial
position of the m ajority of th e mills have left them with resources to
undertaken renovation and m odernization.

64. Influence of corporate reputation on stock m arket

Srivastava, R.K. Mclnish, T.H., W ood, R.A. and Capraro, A J . (1997)
have exam ined the influence of corporate reputation on the stock-m arket
through regression analysis w hich shows a positive relationship. T h e further
study reveals that reputation reduces on the reduction of return on investm ent
that shareholders expect to m aintain m arket value. In the event of sudden and
unexpected decline, firm with good reputation suffer a low er decrease in their
shares’ value. They also observed, however, that when a crisis strikes so
deeply tha t investors are overcom e by panic and this governs their investing

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d e c is io n s , c o r p o r a te r e p u ta tio n b y its e lf c a n n o t c u s h io n t h e f a ll. T h e s tu d y

a ls o in d ic a te s th a t c h a n g e in th e m a r k e t s e n tim e n t d ilu te t h e im p a c t o f

c o r p o r a te r e p u ta tio n a n d e v e n t h e m o r e p r o fita b le fir m in t e r m s o f fin a n c ia l

a s p e c t h a v in g v e r y s tro n g p o s itiv e p e r c e p tio n lo o s e s its m a r k e t v a lu e . The

s tu d y u ltim a te ly c o n c lu d e s t h a t th e e f fo r t s o f t h e o r g a n iz a t io n in c r e a tin g

p o s itiv e p e r c e p tio n in t e r m s o f b u ild in g g o o d r e p u ta tio n h a d b e e n w ip e o u t

e a s ily b y t h e o t h e r n o n -fin a n c ia l p e r f o r m a n c e fa c to r s . M a r k e t e f fic ie n c y w h e r e

p r ic e s o f s u c h f ir m ’s s h a r e a r e r e fle c te d a r e ig n o re d .

65. Profitability of firm using cash recovery method

T a y lo r a n d C h r is t o p h e r T h o m a s ( 1 9 9 5 ) e x a m in e d a n in q u ir y in to firm

p ro fita b ility u s in g th e cash re c o v e ry m e th o d : an a p p lic a tio n to

p h a r m a c e u t ic a ls . A n im p o r ta n t a s t h e c o n c e p t o f p r o fit a n d th e e m p ir ic a l

m e a s u re , th e p ro fit r a te s w e re to e c o n o m ic s , th e re w as no u n iv e r s a lly

a c c e p t a b le e m p ir ic a l m e a s u r e o f t h e lo n g t e r m p ro fita b ility o f a f ir m . In o r d e r to

a s c e r ta in firm p ro fita b ility , c a s h r e c o v e r y m e th o d ( C R M ) w a s d e v e lo p e d . In

th is m e t h o d t h e fir m w a s m o d e lle d a s a c o lle c tio n o f o v e r la p p in g p r o je c ts w ith

t h e s a m e In te r n a l R a t e o f R e tu r n ( IR R ) . B e fo r e im p le m e n tin g t h e p ro fita b ility

a n a ly s is , a n e w in v e s tig a tio n o f c a s h f lo w s in t h e p h a r m a c e u t ic a l in d u s tr y fr o m

New C h e m ic a l E n titie s (N C E ) w as p e rfo rm e d . S a le s d a ta fro m in d iv id u a l

N C E ’s w e r e a n a ly z e d to d e t e r m in a n t t h e tr e n d s in t h e p r o d u c t life c y c le a n d

th is a n a ly s is s h o w s th a t s a l e s p ro file s h a v e b e e n g e ttin g s t e e p e r , b u t p e a k

s a le s a r e b e in g r e a c h e d e a s ily . T h e a n a ly s is o n a p r o d u c t le v e l is n e c e s s a r y

f o r c o m p u tin g p ro fita b ility u s in g t h e C R M .

T h e s u r v e y o f t h e e x is tin g lit e r a t u r e in d ic a te s t h a t s o f a r n o s p e c ific

w o r k h a s b e e n c a r r ie d o u t t o e x a m in e t h e fin a n c ia l a p p r a is a l o f a n In d ia n

p h a r m a c e u t ic a ls in d u s trie s a f t e r lib e r a liz a tio n in t h e m a n u f a c t u r in g s e c to r ,

a lth o u g h t h e p e r f o r m a n c e o f s u c h a s t u d y c a n n o t b e u n d e r s ta n d . T h e p r e s e n t

s tu d y is a n a t t e m p t in th is d ir e c tio n a n d th e r e f o r e , a im s t o e n r ic h t h e lite r a tu r e

o f fin a n c ia l of p e rfo rm a n c e , d e t e r m in a n t s o f p r o fita b ility , p r o d u c tiv ity and

f a c t o r s u b s titu tio n re la tin g t o In d ia n s e le c t e d in d u s tr ie s . F u r t h e r th is s tu d y is

in te n d e d to e m p lo y d iffe r e n t s o p h is tic a te d s ta tis tic a l a n d e c o n o m ic te c h n iq u e s

b e f o r e q u a lify in g a n y a s p e c t o f p e r f o r m a n c e a p p r a is a l f o r w id e r a c c e p ta b ility

a n d a p p r e c ia tio n . T h e p r e s e n t s tu d y is a h u m b le a t t e m p t in th is r e g a r d .

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 T h e y in t h e ir r e s e a r c h w o r k e n title d “p ro fita b ility a n d s tr u c tu r e ” “A firm

le v e l s tu d y of In d ia n P h a r m a c e u t ic a ls In d u s tr y ”, in te n s e ly e x a m in e d th e

r e la tio n s h ip b e t w e e n p ro fita b ility a n d s tru c tu re , u s in g a s a m p le o f th ir ty e ig h t

p h a r m a c e u t ic a l firm s in In d ia f o r t h e p e r io d 1 9 7 0 -1 9 8 2 . T w o m e a s u re s of

p ro fita b ility i.e . ra tio o f n e t p ro fits t o to ta l a s s e t s h a v e b e e r , u s e d to fin d o u t t h e

c o n d itio n o f p r ic e c o n tr o ls t h e m o s t s ig n ific a n t d e t e r m in a n t o f t h e p ro fita b ility

o f t h e firm in th is in d u s tr y w a s v e r tic a l in te g r a tio n . S i z e a n d a d v e r tis in g

in te n s ity d id n o t in a b ility o f firm s to t r a n s la te t h e ir m a r k e t p o w e r in to p r ic e s ,

b e c a u s e o f c o n tro ls . T h e c o e ffic ie n t o f g ro w th r a t e o f s a le s w a s p o s itiv e a n d

s ig n ific a n t, s u g g e s tin g t h a t fa c to r s o n t h e d e m a n d s id e o f a f ir m h a d a g r e a t e r

im p a c t o n p ro fita b ility t h a n o n t h e s u p p ly s id e .

66. Financial distress and corporate perform ance

T im C. O p le r a n d S h e r id a n T itm a n (1 9 9 4 ) s t u d ie d th e fin a n c ia l

d is tre s s a n d c o r p o r a te p e r f o r m a n c e . T h is s tu d y f in d s th a t m o r e c o n s e r v a t iv e ly

f in a n c e d c o m p e tito r in in d u s try dow n tu r n s . S p e c ific a lly f ir m s in t h e to p

l e v e r a g e d e c id e in in d u s tr ie s t h a t e x p e r ie n c e o u tp u t c o n tr a c tio n s d e c lin e b y

26% m o r e t h a n th e f ir m s in t h e b o tto m l e v e r a g e d e c id e . A s im ila r d e c lin e

t a k e s p la c e in t h e m a r k e t v a lu e o f e q u ity . T h e s e fin d in g s a r e c o n s is te n t w ith

th e v ie w th a t th e in d ir e c t c o s ts of fin a n c ia l d is tr e s s a re s ig n ific a n t and

s p e c ia liz e d p ro d u c ts a re e s p e c ia lly v u ln e r a b le to fin a n c ia l d is tre s s , th e

r e s e a r c h e r s fin d th a t t h e y s u ffe r t h e m o s t in e c o n o m ic a lly d is tr e s s e d p e r io d s .

They a ls o f in d th a t th e a d v e rs e consequences of le v e ra g e s a re m o re

p r o n o u n c e d in c o n c e n t r a te d in d u s trie s . P a i. V a d iv e l a n d K .H . K a m a la ( 1 9 9 5 )

s tu d ie d t h e “d iv e r s ifie d c o m p a n ie s a n d fin a n c ia l p e r f o r m a n c e ”: A s tu d y . A n

e ffo rt w a s m a d e to s tu d y t h e r e la tio n s h ip b e t w e e n d iv e r s ifie d firm s a n d t h e ir

fin a n c ia l p e rfo rm a n c e . Seven la r g e firm s h a v in g d iffe r e n t p ro d u c ts b o th

r e la te d a n d o th e r w is e in t h e ir p o rtfo lio a n d o p e r a tin g in d iv e r s e in d u s tr ie s

w e re a n a ly s e d . B a s ic a lly , a set of p e rfo rm a n c e m e a s u re s / ra tio s w e re

e m p lo y e d t o d e t e r m in e t h e le v e l o f fin a n c ia l p e r f o r m a n c e . S u b s e q u e n t ly w a s

in tr o d u c e d t o r a n k fir m s t o e s ta b lis h r e la tiv e s u p e r io r ity o f p e r f o r m a n c e . T h e

r e s u lts r e v e a le d th a t t h e d iv e r s ifie d fir m s s tu d ie d h a v e b e e n h e a lth y fin a n c ia l

p e r f o r m a n c e . H o w e v e r , v a r ia tio n in p e r f o r m a n c e f r o m o n e f ir m t o a n o th e r h a s

b e e n o b s e r v e d a n d s ta tis tic a lly e s t a b lis h e d .

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67. Co-relation between liquidity management and performance of
Nigerian Co.
Toby Adolphus (2006) has examined the co-relation between liquidity
management and performance of Nigerian Manufacturing Company with the
help of 87 Nigerian Quoted Manufacturing Companies registered at Nigerian
Stock Exchange. The study reveals that there is direct relationship between
liquidity and profitability. The regression result shows significant relationship
between measures of liquidity and selected measures of profitability,
efficiency and indebtedness in Nigerian companies. Better management of
working capital and very precisely liquidity management enhance the
profitability of companies as well as increased shareholder value creation.
The impact of 1% increase in average liquidity measures produces a more
significant increase in average profitability by 21.9% and efficiency by 16.1%
and indebtedness by 16.6%. Further it has been estimated that (with
regression model), the 5% increase in liquidity expects to increase profitability
by 109.5% and company efficiency by 80.5% and debt can be leveraged by
83%. The study directly focus on clear-cut and very positive impact of liquidity
on profitability. The proceeding empirical results imply that liquidity behaviour
of manufacturing companies is significant both for macro-economic policy
management and company financial policy. Liquidity management with
specific reference to cash and bank management is very critical function in a
country like Nigeria and almost all the manufacturing companies are required
to depend upon unorganized banking sector. Profitability and liquidity is by
and large also affected by government policy, organizational capital structure
and efficiency of organization’s financial manager.

68. Determinants of profitability of sugar industry

Vijayakumar (2000) Examined in Determinants of Profitability-A firm
Level study of the sugar Industry of Tamil Nadu”, delved into the various
determinants of profitability viz., growth rate of sales, vertical integration and
leverage. Apart from these three variables, he has selected current ratio,
operating expenses to sales ratio and inventory turnover ratio. Econometric
models were used to test the various hypotheses relating to profitability with
other variables. The researcher noted in his conclusion that efficiency in

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inventory management and current assets are important to improve
profitability.

69. Assessment of corporate liquidity

Vijayakumar (2002) studied the assessment of corporate
liquidity - health discriminant Analysis Approach. There are 28 firms in the
sugar industry operating in Tamil Nadu of which 14 are under co-operative
sector and classified as poor risky in all the selected years as per current and
liquid ratio. The way of discrimination analysis employed is a useful exercise
to determine the combined effects of various ratios. The study reveals that
the overall liquidity position of the industry is satisfactory.

70. Determinants of corporate size, growth and profitability

Vijaykumar A. (1998) has examined the determinants of corporate
size, growth and profitability the Indian experience. This study emphasized
that the growth has been found to be significantly associated with profitability.
To meet the objective of the study, Indian public sector industries were
selected. The data relating to size, growth and profitability were collected from
their annual reports published by the Bureau of Public Enterprise (BPE),
Government of India. The study covers the period 1980-81 to 1995-96. The
technique of average, correlation and linear and multiple regression analysis
has been used in this study. Inter industry analysis reveals that the growth
was positively and significantly associated with the size in all the industry
groups except textiles.

71. Profitability size of firm in Indian minerals and metal industry

Vijaykumar and Kadirvelu (2003) studied the profitability and size of
firm in Indian Minerals and Metals industry. Generally, it is suggested that the
larger the firm may be in a position to earn a higher rate of return on its
investment than the smaller firm similar, a counter argument is that size
breed’s inefficiency and hence profitability may decline with size of firms.
Thus, they find that some theoretical arguments suggest that profitability
should increase with the firm size, others suggest a negative relationship. It is
in view of these contradictory suggestions, that it become necessary to study

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t h e r e la tio n s h ip b e t w e e n s iz e a n d p ro fita b ility o f t h e firm s . F o r th is p u r p o s e ,

In d ia n p u b lic s e c to r m in e r a ls a n d m e t a ls in d u s tr y h a s b e e n s e le c t e d . T h e

s tu d y r e v e a ls t h a t s i z e w a s fo u n d t o b e s ig n ific a n tly a s s o c ia t e d w ith t h e

p ro fita b ility d u r in g t h e s tu d y p e r io d . It is a ls o e v id e n t fro m t h e a n a ly s is t h a t

s iz e w a s p o s itiv e ly a s s o c ia te d w ith t h e p r o fita b ility . T h u s , la r g e fir m m a y b e in

a p o s itio n of e a r n h ig h e r ra te o f r e tu rn o n in v e s t m e n t th r o u g h d iv e r s ific a tio n

a n d m o v in g in to h ig h e r te c h n o lo g y .

In subsequent c h a p te r No. - 3 re s e a rc h m e t h o d o lo g y a d o p te d is

d is c u s s e d . A ll r e s e a r c h w o r k b e c o m e u s e fu l a s a n d w h e n a p p r o p r ia t e a n d

r e le v a n t m e t h o d o lo g y is u s e d . A c h a p t e r o f m e th o d o lo g y c la r ify t h e p r o c e s s

a d o p te d b y t h e r e s e a r c h e r .

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