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Case study on financial statement analysis – profitability analysis of sail

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 Case Study on Financial Statement Analysis –Profitability Analysis
of SAIL
Sumedha Tuteja
Assistant Professor
Jaipuria Institute of Management Studies, Ghaziabad
E-mail: sumedha.tuteja@gmail.com
Tel: +9198917 57755

Abstract

The primary objective of this paper is to serve as a case study to illustrate the techniques used for
performing financial statement analysis on a company. The company chosen for this purpose is
Steel Authority of India Ltd (SAIL) and the same is compared with four of its competitors –JSW
Steel Ltd, TATA Steel Ltd, Visa Steel Ltd and Steel Exchange of India Ltd. Since the financial
data and the information emanating from the same can be a lot to handle, this paper focuses on
one aspect of the financial position of the company i.e., Profitability Position. Hence, the paper
demonstrates the methods to be employed for conducting a Profitability Analysis on SAIL
through a combination of mathematical and statistical tools and techniques.

This paper demonstrates the method by which the financial data of a company can provide
meaningful information. The paper adopts a scientific approach towards Profitability Analysis of
a company wherein the subject company is analyzed on four levels – Trend Analysis,
Profitability Ratios, Peer Analysis and Hypothesis Testing. These four approaches cover all
important aspects of a analysing the profitability of a company. The study also uses techniques
like Common Size Analysis and Du-Pont Analysis to perform an in-depth analysis of the
profitability of SAIL.

The paper demonstrates the comparison with similar companies in the industry as well as
statistical tests like ANOVA, Test of Homogeneity of Variances and the Multiple Comparison
Tests like the Bonferroni Test and Tamhane Test.

The results suggest that the by following this method exhibited in the paper, substantial
information about the reasons behind the decrease in profitability of SAIL have been
demystified. Also, by analysing the peers of SAIL, the relative position of the company’s
profitability could be established.

Keywords: ANOVA, Common Size Analysis, Du-Pont Analysis, Multiple Comparison Test,
Peer Analysis, Profitability, SAIL, Steel companies.
Introduction to the Indian Steel Industry
Indian steel industry plays a significant role in the country’s economic growth. The major
contribution directs the attention that steel is having a stronghold in the traditional sectors, such
as infrastructure & constructions, automobile, transportation, industrial applications etc (India
Brand Equity Foundation, 2012). The country has acquired a central position on the global steel
map with its giant steel mills, acquisition of global scale capacities by players, continuous
modernization & up gradation of old plants, improving energy efficiency, and backward
integration into global raw material sources (RNCOS, 2011). Indian steel production has grown
strongly in recent decades and India is now the world’s fourth largest steel producer. Global steel
giants from across the world have shown interest in the industry due to its phenomenal
performance. Indian crude steel production will grow at a CAGR of around 10% during 2010-
2013 (Invest India, 2012). Moreover, with the government’s proactive incentive plans to boost
economic growth by injecting funds in various industries, such as construction, infrastructure,
automobile, and power will drive the steel industry in future. Steel consumption in India is
expected to grow significantly in coming years as per capita finished steel consumption is far
less than its regional counterparts. Indian steelmakers have plans to expand capacity substantially
in order to meet the anticipated increase in demand.
Objectives of the Study

The major objective of the study is to examine the profitability position of SAIL vis-à-vis its peer
group i.e., JSW Steel Ltd., Tata Steel Ltd, VISA Steel Ltd and Steel Exchange India Ltd.

•   To study the profitability position of SAIL.

•   To study the significance of profitability by selecting a few important parameters such as
Gross Profit, Net Profit, Operating Profit (EBIT), Return on capital employed (ROCE),
Return on Equity (ROE), and Earnings per share (EPS).
•   To assess the critical factors which affect the profitability of SAIL.
•   To measure SAIL’s performance against the peer companies.

Hypothesis of the Study

For better understanding of the relative profitability position of SAIL, the following hypotheses
were tested. Apart from this, Multiple Comparison Tests were conducted for five profitability
parameters –return on capital employed, return on net worth, operating profit margin, gross profit
margin and net profit margin.
Hypothesis H01: There is no significant difference between the return on capital employed for
selected steel companies.
Hypothesis H02: The population variances are equal for the return on capital employed for
selected steel companies.
Hypothesis H03: There is no significant difference between the return on equity for selected
steel companies.
Hypothesis H04: There is no significant difference between the gross profit margins for
selected steel companies.
Hypothesis H05: The population variances are equal for the gross profit margin for selected
steel companies.
Hypothesis H06: There is no significant difference between the operating profit margins for
selected steel companies.
Hypothesis H07: The population variances are equal for the operating profit margin for
selected steel companies.
Hypothesis H08: There is no significant difference between the net profit margins for selected
steel companies.
Hypothesis H09: The population variances are equal for the gross profit margin for selected
steel companies.
Research Methodology

The study adopts analytical and descriptive research design. The data of the sample was
collected from the Prowess Database published by the CMIE, websites like, moneycontrol.com
and the websites of the company. A finite sample size of five companies has been selected for
the study as these five are comparable with each other for the purpose of financial analysis. They
are SAIL, Tata Steel, JSW Steel, and VISA Steel and Steel Exchange India.

The variables used in the analysis are Gross Profit Margin, Operating Profit Margin, Net Profit
Margin, Return on Equity (ROE), Return on capital Employed (ROCE) and Earnings per Share
(EPS). While

Sample Design

Sampling Techniques: The study is done with special reference to public limited companies as
data is easily available for these companies. The study has been executed to analyse profitability
of SAIL. For peer analysis comparable companies from the steel industry have to be considered.
The sample for such a comparison has been drawn on the basis of three parameters, market
capitalization, sales turnover and total assets. On comparing all these three figures of the public
limited steel companies listed on Bombay Stock Exchange (BSE) to that of SAIL, the sample
comprises of four companies Tata Steel, JSW Steel, and VISA Steel and Steel Exchange India.

Data Collection

Raw data i.e., financial statements have been collected from Prowess Database and various
websites like, moneycontrol.com and company websites.

Time Period of Study

The study has been conducted for the annual financials from March 2007 to March 2011.
Tools used for Analysis

1.   Trend Analysis (Horizontal Analysis)

Horizontal analysis involves the assessment of relative changes in different items over
time. It also indicates the behavior of revenues, expenses, and other line items of
financial statements over the course of time.

2.   Profitability Analysis – Profitability Ratios

Profitability analysis undertaken with the help of Profitability Ratios helps to assess the
likelihood of a company earning a profit. The ratios also help to relate important
information about the company with its profit.

3.   Peer Analysis
a.   Ratio Analysis
b.   Common Size Analysis
4.   Hypothesis Testing

Hypothesis testing involves testing of a statistical hypothesis which is performed on a

data set so as to infer the result of the hypothesis.

Limitations of the Study

The study is based on secondary data and a period of 5 years has been considered for analysis.

Literature Review

Financial Statement Analysis has applications in various critical activities like investment
decisions, asset allocation, credit analysis, financing decisions, credit rating, business valuation,
strategic analysis and decision making etc. This analysis is a combination of mathematical and
statistical tools and techniques that can lead us to profound information about a company,
industry or economy. This study aims to set an example by demonstrating the analysis of
profitability of one company over time and against its peers. Financial statement analysis can
help professionals, consultants and financial analysts extract profound information about the
company, its industry and the economy.

(Kolluru, 2005) studies performance of the Indian steel companies on the basis of eleven
financial ratios. The study concludes that assets size and market share of the company affects the
overall performance of the steel companies positively.

The Indian steel industry has undergone many positive changes in the last two decades like,
decontrol of prices, de-reservation of capacity, removal of quantitative restrictions in
international trade and removal of restrictions on foreign direct investments (Ganguli, 2010).
Financial statement analysis has been explored by various researchers. (Bhunia, 2010) has
analysed the financials of two public sector drug & pharmaceutical enterprises listed on BSE in
terms of liquidity, solvency, profitability and financial efficiency. It uses the standard procedure
of using ratios for studying trend analysis and peer analysis. The study also applied t-test to
examine the dependence of liquidity, solvency and profitability ratios and return on investment
of the companies under study. Similarly, (Ray, 2011) analyses the financial performance of
Indian Paper and Paper product companies by conducting study on seven key financial
dimensions, namely, financial profitability, capital structure, operational efficiency, fixed asset
age and current assets efficiency and liquidity position. The techniques employed are ratio
analysis, arithmetic mean, multiple regression t-test. (Megginson, Nash, & Randenborgh, 1994)
compare the financial and operating performance of 61 companies in 18 countries that were
privatized using financial indicators.

Not much has been done to explore a method to study the financial performance of one company
especially in the steel industry in India to demonstrate how financial data demystifies
information useful for management decision-making. This paper serves as a case study to
demonstrate the correct and step-by-step approach that an analyst should follow while
performing financial statement analysis.

Results and discussions

1.   Horizontal Analysis

Table1: Horizontal Analysis of SAIL

Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Net Sales (in Rs. ‘000 Crores) 34.375 40.008 43.858 40.818 42.674

Net Sales Growth Rate (%)     16.39 9.62 -6.93 4.55

PBDIT (in Rs. ‘000 Crores) 11.191 13.141 11.066 12.084 9.421

PBDIT Growth Rate (%)     17.43 -15.79 9.19 -22.03

PAT (in Rs ‘000 Crores) 6.264 7.597 6.253 6.847 5.017

PAT Growth Rate (%)     21.28 -17.69 9.49 -26.72

EPS (Rs./Share) 15.17 18.39 15.14 16.58 12.15

EPS Growth Rate (%)     21.23 -17.67 9.51 -26.72

(Prowess Database, CMIE)

i.   The sales turnover increased up to year ending 2009 but started declining in 2010
primarily due to lower selling price due to the economic crisis in the global economy.
The turnover increased marginally in 2011 however, the increase was not satisfactory. In
terms of Growth rate, there was a year by year decline and a negative growth rate in 2010
due to decrease in selling price of steel.
ii.   PBDIT reflects a fluctuating trend on a year on year basis. The decrease in PBDIT in
2009 and 2011 was mainly due to increase in total expenditure and decrease in sales
 volume of SAIL which was a result of increase in input prices. This in turn resulted in
negative growth rate in 2011.
iii.   PAT also displayed a fluctuating trend, decreasing in 2009 and 2011 due to increase in
total expenditure. This decrease is also reflected in the negative growth rate in 2011.
iv.   EPS also mirrors the trend displayed by Sales, PBIT and PAT. The increase in capital
expenditure in 2009 and 2011 led to increase in Net expenses which ultimately led to
decrease in the return to shareholders.

2.   Ratio Analysis –Profitability Ratios

Table2: Ratio Analysis of SAIL
Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Gross Profit Margin 24.82 25.3 17.62 20.3 13.55

Gross Profit Margin Growth
- 1.93 -30.4 15.21 -33.25
Rate (%)
Operating Profit Margin 28.49 28.5 20.66 23.81 17.3
Operating Profit Margin Growth
- 0.04 -27.5 15.25 -27.34
Rate (%)
Net Profit Margin 17.53 18.26 13.55 15.93 11.25
Net Profit Margin Growth Rate
- 4.16 -25.8 17.56 -29.38
(%)
Return On Capital Employed
44.13 42.76 26.92 20.29 13.34
(%)
ROCE Growth Rate (%) - -3.1 -37.04 -24.6 -34.25

Return On Equity 35.8 32.6 22.1 20.3 13.3

ROE Growth Rate (%) - -8.94 -32.21 -8.14 -34.48

(Prowess Database, CMIE)

i.   Gross Profit Margin fluctuated on a year by year basis. Margin increased in 2010 due to
increase in sales during the year however, in the following year it decreased substantially
due to increase in prices of several input factors resulting in decrease in Sales volume.
ii.   Operating Profit Margin showed a growth of 15.25% in 2010 but it decreased in 2011  due
to increase in the input prices like Coal, Aluminum, and increase in royalty of minerals
etc. The overall growth rate of SAIL shows a declining trend but only in the year 2010 it
shows an improvement in growth rate due to decrease in total expenses of SAIL in that
Year and also due to increase in other income.
iii.   As with Gross Profit Margin, Net Profit margin also decreased on a year by year basis
due to increase in expenses and depreciation of SAIL. There was an improvement in
2010 as the company’s gross profit increased in that year as compared to other years. Net
Profit margin shows a huge decline in 2011 due to lower selling price.
iv.   The ROCE for SAIL is continuously decreasing due to the decrease in operating profit of
SAIL which is declining due to the increase in expenses of SAIL specially due to
increase in the prices of raw material and also due to increase in capital employed. This is
 primarily due to increase in total debt of SAIL especially secured loans which are
increasing substantially from 2009 to 2011 which ultimately led to decrease in the return
on investment of SAIL, only in 2010 it shows some growth as compared to 2009.
v.   The ROE of SAIL has taken a steep fall from 35.8% in 2006-07 to 13.3% in 2010-11.
This is mainly due to a sharp fall in net profit of SAIL in these five years. Apart from
this, there has been a healthy increase in the reserves of SAIL, which lead to an increase
in the equity of SAIL. Hence, both these forces worked together to deteriorate the ROE
for SAIL.

3.   Du-Pont Analysis
Du-Pont Analysis is used for assessing a company's return on equity (ROE) breaking it
into three parts- Operating Efficiency (measured by Net Profit Margin); Asset Utilization
Efficiency (measured by total asset turnover) and Financial Leverage (measured by
Equity Ratio)
Table 3: Du-Pont Analysis of SAIL
Sales/Average Average Total
Year Net Profit/Sales
Total Assets Assets/Equity

2006-2007 18.22 155.34 126.53

2007-2008 18.99 147.21 116.70

2008-2009 14.26 118.64 130.63

2009-2010 16.77 79.45 152.28

2010-2011 11.76 72.48 156.52

There has been a decrease in Net Profit Margin over the last five years i.e., from 2007 to 2011.
The Asset Turnover Ratio has declined as well over this period. Hence the ROE has decreased
from 35.8% to 13.3%. The leverage ratio has increased slightly over time which has pulled ROE
upwards but the fall in the previous two variables was steeper than this increase. Thus, SAIL has
maintained its financial leverage more or less in this tenure at stable levels. However, decrease in
Net Profit Margin and Asset Turnover Ratio has led to fall in ROE.
4.   Peer Analysis
a.   Comparison with Profitability Ratios of Peers

Table 4: Profitability Ratios –Peer Analysis of SAIL

Steel
Company SAIL Tata Steel JSW Steel Visa Steel Average
Exchange
Gross Profit Ratio 21.17 38.22 15.57 18.14 7.59 20.14

Operating Ratio 16.37 34.09 17.43 15.41 7.1 18.08

 Net Profit Ratio 11.53 19.79 5.07 3.96 1.47 8.36

Return On Equity (%) 13.2 13.8 9.4 14.5 8.5 11.9

Return On Total Assets (%) 6.4 7.4 3.9 1.8 2 4.3

Return On Capital Employed
8.06 9.23 3.77 9.88 3.19 6.83
(%)
(Prowess Database, CMIE)

i.   Gross Profit Ratio of TATA Steel is more as compared to SAIL and if compared to other
companies than SAIL have good Gross Profit Ratio as compared to other companies.
SAIL’s Gross Profit ratio is also higher than the industry average of 20.14. However, the
company is still earning less despite having highest sales which is due to high prices of
input factors as well as lower selling price as compared to TATA Steel which has higher
earnings due to lower expenses.
ii.   Here Operating Ratio of TATA Steel is more as compared to SAIL which means TATA
Steel is earning Operating Profit just double of SAIL’s Profit on Net Sales which is due
to the SAIL’s expenses which are more as compare to TATA Steel which is due to costly
raw material, more employee cost inspite of having more sales than TATA, SAIL has
lower Net profit that is also due to lower selling price of steel which implies that if TATA
Steel’s Sales increase by 1% then they will earn 34.09% more but a 1% increase in sales
for SAIL would earn only 16.37%. The operating ratio of SAIL is also less than the
industry average.
iii.   SAIL’s Net Profit ratio is lower than TATA Steel which is due to increase in expenses
and also due to higher depreciation as compared to TATA steel, these two factor led to
decline in the net profit of SAIL which implies that as compared to its peers TATA Steel
becomes more stable than SAIL. On a positive side, the Net Profit ratio of SAIL is well
above the industry average.

b.   Common Size Analysis –Comparison with Peers

4. b.i. Return on Equity
Table 5: ROE –Peer Ratio & Common Size Analysis
Common Size (in Percentage)
Net Profit (in Equity (in
Rs ‘000 Rs ‘000 Return On Equity Averag
Name Crores) Crores) (%) e Net Profit/Sales Equity/Total Assets
SAIL 4.905 37.070 13.2 11.5 5.4
Tata Steel 6.696 48.445 13.8 19.8 1.3
JSW Steel 1.626 17.225 9.4 5.1 2.7
Visa Steel 0.0514 0.353 14.5 4.0 3.7
Steel
Exchange 0.017 0.200 8.5 1.5 9.6
11.90

Here Return on Shareholder Fund of SAIL is quite satisfactory as compared to other companies,
Tata Steel’s Return on Shareholder’s Fund is slightly more as compare to SAIL but SAIL is
performing good in terms of industry average as SAIL is above Average but if look at the
common size then TATA Steel is earning better percentage of Profit on net sales as compared to
SAIL and with investing less shareholder fund i.e Equity and preference shareholder and if we
look on SAIL’s shareholder fund they are close to four times more as compared to TATA Steel
which implies that SAIL has less net profit with higher sales and more funds than TATA Steel.
4. b.ii. Return on Total Assets

Table 6: ROTA –Peer Ratio & Common Size Analysis

Common Size (in
Percentage)
Return On
Name Net Profit Total Assets Total Assets Average Net Profit/Sales
SAIL 4.905 77.111 6.4 11.5
Tata Steel 6.670 90.677 7.4 19.8
JSW Steel 1.626 41.558 3.9 5.1
Visa Steel 0.051 2.935 1.8 4.0
Steel Exchange 0.017 0.855 2.0 1.5
4.30

Here return on total asset of SAIL is less then Return of TATA Steel which is also due to less
profit as well as less total assets than TATA which also decreases the return on Total Assets.
However, if we compare return on total assets from average then return of SAIL is satisfactory as
it is above the average and when we look on common size we see that due to increase in net
profit of TATA when compare to SAIL it is giving more profit which leads to more return on
total Asset.
5.   Hypothesis Testing

Hypothesis H01: There is no significant difference between the return on capital employed for
selected steel companies.
Hypothesis H11: There is a significant difference between the return on capital employed for
selected steel companies.

ANOVA  
Return  on  Capital  Employed  

Sum  of   Mean  

    Squares   df   Square   F   Sig.  
Between   1189.332   4   297.333   7.266   .001  
Groups  
Within   818.476   20   40.924          
Groups  
Total   2007.809   24              
Since the calculated significance level, 0.001 is lesser than 0.05, the above stated null hypothesis
is rejected. Therefore, there is a significant difference between the Return on Capital Employed
of the selected five steel companies.

Hypothesis H02: The population variances are equal for the return on capital employed for
selected steel companies.
Hypothesis H12: The population variances are not equal for the return on capital employed
for selected steel companies.

Test  of  Homogeneity  of  Variances  

Return  on  Capital  Employed  

Levene  
Statistic   df1   df2   Sig.  
2.187   4   20   .107  

In order to test the equality of variances between Return on Capital Employed of five steel
companies, the above hypothesis has been tested. The above result shows that the calculated
significance level 0.107 is greater than 0.05, hence, the null hypothesis cannot be rejected. Thus,
there the population variances are equal for the samples of selected five steel companies.

Multiple Comparisons Test

Multiple  Comparisons  
Dependent  Variable:  Return  on  Capital  Employed    
 Bonferroni  

(I)  Company   (J)  Company   Mean  Difference   Std.  Error   Sig.   95%  Confidence  Interval  
(I-­J)   Lower  Bound   Upper  Bound  
JSW   12.03400   4.04593   .075   -­.7244   24.7924  
*
Steel  Exchange   16.26400   4.04593   .007   3.5056   29.0224  
SAIL  
TATA   8.69400   4.04593   .441   -­4.0644   21.4524  
*
Visa   20.14800   4.04593   .001   7.3896   32.9064  
*.  The  mean  difference  is  significant  at  the  0.05  level.  

Since, the test of means of Return on Capital Employed (Hypothesis H01) for the steel companies
under study shows there is a significant difference between the companies, we need to examine
the source of this difference. Also, the variances are tested to be equal at a significance level of
5% (Hypothesis H02), Bonferroni Test is appropriate for performing a multiple comparisons test.
In this test, the dependent variable of SAIL –return on capital employed is analyzed with JSW
Steel, Steel Exchange, Tata Steel and Visa Steel. The calculated value for analysis with Steel
Exchange (0.007) is less than the table value (0.05). Thus, it can be concluded that there is
significant difference between return on capital employed of SAIL and Steel Exchange. The
same can be concluded for the SAIL and Visa Steel. However, when SAIL is compared to JSW
Steel and TATA Steel the calculated value is (0.075) and (0.441) respectively. Since these are
greater than the table value (0.05), there is no significant difference between the return on capital
employed of SAIL and JSW Steel and SAIL and TATA Steel.

Hypothesis H03: There is no significant difference between the return on equity for selected
steel companies.
Hypothesis H13: There is a significant difference between the return on equity for selected
steel companies.

ANOVA  
Return  on  Equity  

  Sum  of  Squares   df   Mean  Square   F   Sig.  

Between  Groups   1421.573   4   355.393   2.580   .069  

Within  Groups   2754.605   20   137.730  
Total   4176.178   24  

The above hypothesis testing shows that the calculated significant value is 0.069 which is greater
than 0.05, therefore, the null hypothesis cannot be rejected. Hence, there is no significant
difference between the return on net worth of selected five companies under study.

Since, test of means shows no difference for the above mentioned parameter, the multiple
comparisons test investigating the major sources for difference need not be performed. Thus, test
for homogeneity of variances is also not required for return on net worth.

Hypothesis H04: There is no significant difference between the gross profit margins for
selected steel companies.
Hypothesis H14: There is a significant difference between the gross profit margins for selected
steel companies.

ANOVA  
Gross  Profit  Margin  

  Sum  of  Squares   df   Mean  Square   F   Sig.  

Between  Groups   504.872   4   126.218   7.253   .001  

Within  Groups   348.030   20   17.401  
Total   852.901   24  
On testing the differences between the gross profit margins of the companies under study, it is
found that the significance level is (0.001), which is less than table value (0.05). Thus, the null
hypothesis is rejected and it can be interpreted that there is significant difference between gross
profit margins of these five companies.

Hypothesis H05: The population variances are equal for the gross profit margin for selected
steel companies.
Hypothesis H15: The population variances are not equal for the gross profit margin for
selected steel companies.

Test  of  Homogeneity  of  Variances  

Gross  Profit  Margin  

Levene  Statistic   df1   df2   Sig.  

1.834   4   20   .162  

Since the calculated significance level for above hypothesis is (0.162) is greater than (0.05), we
can conclude that the null hypothesis cannot be rejected. Thus, the variances of gross profit
margins for the five companies in the sample are equal.

Multiple Comparisons Test

Multiple  Comparisons  
Dependent  Variable:  Gross  Profit  Margin    
 Bonferroni  

(I)  Company   (J)  Company   Mean  Difference   Std.  Error   Sig.   95%  Confidence  Interval  
(I-­J)   Lower  Bound   Upper  Bound  
JSW   2.48600   2.63829   1.000   -­5.8336   10.8056  
*
Steel  Exchange   12.03800   2.63829   .002   3.7184   20.3576  
SAIL   *
TATA   9.47000   2.63829   .018   1.1504   17.7896  
Visa   8.27000   2.63829   .052   -­.0496   16.5896  
*.  The  mean  difference  is  significant  at  the  0.05  level.  

Taking forward from the result of above two hypotheses -H04 and H05, we need to examine the
source of differences between the gross profit margins of the selected five steel companies. The
same is done by the Bonferroni Multiple Comparison Test as it assumes equality of variances.
The dependent variable of gross profit margin of SAIL is compared with other four companies.
The significance value is (0.002) & (0.18) for Steel exchange and TATA Steel respectively is
less than (0.05). Thus, the gross profit margin of SAIL is significantly different from that of
these two companies. However, there is no significant difference the gross profit margin of SAIL
and JSW Steel as the calculated significance level is (1.00) which is greater than the table value
(0.05).

Hypothesis H06: There is no significant difference between the operating profit margins for
selected steel companies.

Hypothesis H16: There is a significant difference between the operating profit margins for
selected steel companies.

ANOVA  
Operating  Profit  Margin  

  Sum  of  Squares   df   Mean  Square   F   Sig.  

Between  Groups   846.504   4   211.626   12.628   .000  

Within  Groups   335.173   20   16.759  
Total   1181.677   24  

The significance level from this test is (0.000) less that the table value (0.05). Thus, the null
hypothesis stated above is rejected. Therefore, there is significance difference between the
operating profit margins of the selected five steel companies.

Hypothesis H07: The population variances are equal for the operating profit margin for
selected steel companies.

Hypothesis H17: The population variances are not equal for the operating profit margin for
selected steel companies.

Test  of  Homogeneity  of  Variances  

Operating  Profit  Margin  

Levene  Statistic   df1   df2   Sig.  

1.825   4   20   .164  

Before proceeding to multiple comparisons test, it is imperative to check the equality of

variances between the operating profit margins of the five companies under study. Since the
calculated significance level (0.164) is greater than (0.05), the null hypothesis cannot be rejected.
Hence, the variances of operating profit margins for these five companies are equal. Therefore,
the Bonferroni Test is appropriate for examining the source of differences between operating
profit margins.
Multiple Comparisons Test

Multiple  Comparisons  
Dependent  Variable:  Operating  Profit  Margin    
 Bonferroni  

(I)  Company   (J)  Company   Mean  Difference   Std.  Error   Sig.   95%  Confidence  Interval  
(I-­J)   Lower  Bound   Upper  Bound  
JSW   -­.32800   2.58910   1.000   -­8.4925   7.8365  
*
Steel  Exchange   14.80600   2.58910   .000   6.6415   22.9705  
SAIL   *
TATA   9.38800   2.58910   .017   1.2235   17.5525  
*
Visa   8.26800   2.58910   .046   .1035   16.4325  
*.  The  mean  difference  is  significant  at  the  0.05  level.  

On the basis of the results of hypotheses –H06 & H07, the source of differences between the
operating profit margins was investigated by performing the Bonferroni Multiple Comparisons
Test. The above table shows that the dependent variable of SAIL –operating profit margins is
significantly different from Steel Exchange, TATA Steel and Visa Steel. This is because their
significance level is less than the table value (0.05). However, in this parameter again the
significance level of JSW Steel (1.00) is greater than required value (0.05). Thus, there is no
significance difference between the operating profit margins of JSW Steel and SAIL.

Hypothesis H08: There is no significant difference between the net profit margins for selected
steel companies.

Hypothesis H18: There is a significant difference between the net profit margins for selected
steel companies.

ANOVA  
Net  Profit  Margin  

  Sum  of  Squares   df   Mean  Square   F   Sig.  

Between  Groups   553.881   4   138.470   6.551   .002  

Within  Groups   422.764   20   21.138  
Total   976.645   24  

In order to analyse if there is any significant difference between the net profit margins for
selected steel companies, the above hypothesis has been tested. Since the calculated value
(0.002) is less than required value (0.05), the null hypothesis was rejected. Hence, there is
significance difference between the net profit margins of selected five steel companies.
Hypothesis H09: The population variances are equal for the gross profit margin for selected
steel companies.

Hypothesis H19: The population variances are not equal for the gross profit margin for
selected steel companies.

Test  of  Homogeneity  of  Variances  

Net  Profit  Margin  

Levene  Statistic   df1   df2   Sig.  

4.428   4   20   .010  

Since the calculated value of significance is (0.01) is less than the table value (0.05), the null
hypothesis was rejected. Thus, the variance between the net profit margins of the five steel
companies was not equal. Hence, for this parameter, the Tamhane Test is suitable for performing
multiple comparisons.

Multiple Comparisons Test

Multiple  Comparisons  
Dependent  Variable:  Net  Profit  Margin    
 Tamhane  

(I)  Company   (J)  Company   Mean  Difference   Std.  Error   Sig.   95%  Confidence  Interval  
(I-­J)   Lower  Bound   Upper  Bound  
JSW   6.90000   2.85839   .355   -­4.0939   17.8939  
*
Steel  Exchange   11.92200   1.89241   .026   1.8915   21.9525  
SAIL  
TATA   8.84200   2.69607   .107   -­1.4543   19.1383  
Visa   13.45200   3.53996   .071   -­1.0333   27.9373  
*.  The  mean  difference  is  significant  at  the  0.05  level.  

This test takes into account the inequality of variances between net profit margins of the five
steel companies. The above table shows that the net profit margin of SAIL is significantly
different from Steel Exchange. This is because the significance level for Steel Exchange (0.026)
is less than table value (0.05). Apart from this, there is no significant difference between the net
profit margin of SAIL and that of JSW Steel, TATA Steel and Visa Steel. This is because the
calculated significance levels of JSW Steel, TATA Steel and Visa Steel (0.355, 0.107 and 0.071)
are greater than table value (0.05).
Conclusion

The profitability position of SAIL has been deteriorating for the past few years owing to the
tough global economic conditions. Owing to increase in input prices of raw materials and
depressed demand, the industry’s profitability has been negatively affected. However, on
 comparing the profitability figures with its competitors it was revealed that SAIL’s performance
is promising. On many fronts, SAIL’s performance has been above average against competition.
Although, the overall analysis showed TATA Steel faring much better than SAIL, this difference
in performance can be plugged in future easily.
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