Financial Performance of Public Sector Companies: With Special Reference to Indian Oil Corporation Limited & Hindustan Petroleum Corporation Limited
Keywords:
Net revenue from operations, working capital, firm size, operating costs, interest on fixed (but interest bearing) costs and long-term debts.Abstract
Purpose: This study aims at the evaluation of financial performance of Indian Oil Corporation Limited (IOCL) and Hindustan Petroleum Corporation Limited (HPCL) over period 2011‐12 to 2020‐21. This study goes one step further to focus on the effect of key financial components e.g. Operating costs, Interest on fixed interest-bearing charges, Revenue tot operations, and Firm size on overall financial performance unlike the previous research, which dealt solely with financial ratios. Methodology: The research is based on secondary data i.e. annual reports published by both the companies. A multiple regression analysis is done for the dependent variable net profit and independent variables as net revenue from operations, operating costs, interest on fixed interest-bearing charges, working capital, long term debts, paid up share capital. The control variable applied is firm size. The significance and influence of these variables are determined by applying Fixed Effect Panel Least Square method. Findings: The study also signifies that net revenue from operations, working capital and firm size positively affect net profit but operating costs, interest on fixed (but interest bearing) costs and long term debts negatively impact it. Changes in financial performance are not influenced by paid up share capital. The model uses 97.79% of the variance of the net profit, and there exists a very strong linkage between the chosen financial components and profitability. Originality value: Traditional financial performance analysis is extended in this paper with firm specific cost structure and other operational elements resulting in a more holistic understanding of profitability drivers in public sector undertakings. Managerial Implications: Based on the evidence, both companies are suggested to apply stricter credit policies, improve inventory management systems, control operating expenses and put in place long term investment strategies that improve their financial sustainability and profitability. These insights can then be adopted by the policymakers and financial managers to formulate strategies that will enhance financial efficiency and enhance economic contributions of public sector enterprises
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