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Financial Leverage and Proﬁtability: Evidence from Oil and Gas Sector of India
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Vol-15-Issue-4-April-2020
Financial Leverage and Profitability: Evidence from Oil and Gas Sector of
India
Dr. Mohd Taqi
(Assistant Professor)
Centre for Distance Education, Aligarh Muslim University, Aligarh, India
E-mail: taqiamu@rediffmail.com
Mr. Rizwan Khan

(Research Scholar)
Department of Commerce,Aligarh Muslim University, Aligarh, India
Email: Rizwan.khan0204@gmail.com
Mr. Imran Anwar

(Research Scholar)
Department of Commerce,Aligarh Muslim University, Aligarh, India
Email: anwarimran1@gmail.com(Corresponding Author)
Abstract
Financial Leverage is the use of external (borrowed) money invested in the business to finance
its fixed assets. Any business has two kinds of investments, i.e., internal and external investment.
Internal investment consisting of equity and preference shares bearing no fixed charges. External
investments consist of debt and it is borrowed money which can be in the form of loan or
debentures. The interest rate on debt is fixed and notwithstanding the company’s rate of return on
asset. The financial leverage engaged by a corporate entity is aimed to earn more on the financial
leverage fund than its costs. Financial leverage and Debt are moved in the same directions mean
its debt increases then financial leverage also increases. The primary purpose of financial
leverage is to maximize the shareholder’s return in favorable economic conditions. It is expected
that the debt is having a fixed rate of interest which can be realized at a cost lower than the rate
of return on net assets. In other terms, if a company has more debt in comparison to equity and
preference capital, than it is said that the company is more levered. Financial reports of oil and
gas sector companies of India shows a considerable volume of debt capital that constructs a good
size of capital structure.The position of financial leverage in providing a clear view of the
financial performance of the business entity is the major concern of modern researches and this
P a g e | 665 Copyright ⓒ 2019Author

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position remains an emerging issue to catch the attention of researchers. This study aims to
measure the impact of financial leverage on the financial performance of the Oil and Gas
SectorCompanies of Indiafor ten years from 2008-09 to 2017-18. The study concluded that
leveragehas a positive associationwiththe profitability of Indian Oil and Gas SectorCompanies.
Keywords: Leverage, Oil and Gas Sector, Capital Structure, Profitability, Financial
Performance.
Introduction
Financial leverage means how much a business is using borrowed money for financed its
assets(Adenugba et al. 2016). In other terms, it can be said that in what ratio a business uses
fixed charge securities like debt and debentures (Banafa et al. 2015). If the financial leverage of a
company is increased, that it affects the shareholder’s earning negatively because due to
increment in financial leverage, the finance cost is also increased. Increased finance cost reduced
the earning per share (Rajin, 2012). Oil and gas segment is having its own importance in any
economy. These companies are contributing a major share in GDP. In India, public and private
firms are engaging in this business. The investment policies of these companies are characterized
by capital structure and proper leverage issues. The present research is an attempt to measure the
influence of financial leverage on the profitability on selected Oil and Gas Sector Companies of
India.
Financial leverage considers the exercise of borrowed money in the company for
acquiring assets (Abubakar2015). An organization can finance its assets by debt and
shareholder’s funds which consists of equity and preference capital (Goel, et al. 2015). The
charge on debt is fixed which is called the rate of interest, irrespective of the rate of return on
assets (Akbarian 2013). The motive of employing financial leverage is to earn higher on the
fixed charges funds than their costs (Bontempi et al. 2001). Therefore, the company raisesits
debt; then its financial leverage will also rise. If a company is highly levered than the risk of
going into bankruptcy is high and not failed to pay interest on borrowed money (debt) than they
will not get loans in future (Damouri et at. 2013). From the point of shareholders’ debt capital is
good because it increases the shareholder’s value and from the company point of view, the
company will get tax advantages (Barakat 2014). As a company increases financial leverage,

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then its finance cost will also increase as a result, and due to this EPS will decrease because of
high-interest payments (Akhtar et al. 2013).
The Oil and Gas sector have their own reputation among all sectors. It influencesthe
decision for other important economic segments of the nation. Oil and Gas segment of any
economy provides a good return on investment. It is the only sector which faces the increasing
demand in any condition (Elhunia et al. 2017). Therefore, the oil and gas sector is the primary
choice of investors. Already, the Government hasmade several policies to accomplish the
growing demand and also with the passage of time new policies are adopted. This is the sector in
which 100 per cent FDI is allowed. Globally,India isa leadingcontributor to nonOECD petroleum
consumption growth. Itwas the third-largest consumer of oil in the world in 2017, consumed 4.69
mbpd, which was more than 0.13 mbpd from 2016. In 2016, India consumed 4.56 mbpd was
US$ 70.72 billion in 2016-17, which rose by US$ 16.65 in 2017-18 and become US$ 87.37
billion. In 2017, India had the fourth position in the import of L&G (Liquefied Natural Gas).
First three importers were Japan, South Korea and China, respectively. In 2016-17, 24.48 bcm
was imported, but in 2017-18, it rose by 1.63 bcm and in total 26.11 bcm. Overall India hasthe
fourth position among the world in terms of energy consumption, 37.3 per cent of the total
energy consumed by India. India is itself capable of fulfilling demands because the country has
5.6 billion barrels of oil reserves which are proven and 1330 bcm of gas reserves. In 2012, only
47.6 bcm of Gas was produced by India (Press Information Bureau, 2018). After the
Industrialization and increasing population have created a lot of concern in the Oil and Gas
sector because India does not make any significant breakthroughs in the field of renewal source
of energy, oil and gas.
It is a significant sector of the economy. In ‘Make in India’ government allowed to do
business freely and set different parameters like setting up a fully functional-window, change
labor laws and change easy acquisition of land. There are many public and private companies are
involved in export, import and domestic trade of oil and gas segment. For the current study, the
researchers have selected tenpublic and private sector companiesin India, which are as follows:

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Table – 1 Profile of Oil and Gas Sector Companies of India
Company name Year of H.Q. Area of Business
Estb.
1. Bharat Petroleum 1950 Mumbai Petroleum, Natural Gas,
Corporation Ltd Petrochemical
2. Hindustan Oil Exploration 1983 Vadodra Exploration and production of oil and
Company Ltd gas
3. Essar Oil Ltd 1989 Mumbai Oil and Gas
4. Gujrat Gas 1980 Ahmadabad Natural Gas
5. GAIL India Ltd 1984 New Delhi Natural Gas, Petrochemical,
6. ONGC MRPL 1988 Manglore, Petroleum, Petrochemical, Natural
Karnataka Gas
7. Oil India Ltd 1959 Duliajan, Oil and Gas
Assam
8. HPCL 1974 Mumbai Oil, Natural Gas, Petroleum,
Lubricant, Petrochemical
9. Indian Oil Ltd 1959 New Delhi Oil, Natural Gas, Petroleum
10. Reliance Industries Ltd 2008 Ahmadabad Petroleum and Natural Gas
Source: Published Reports of Respective companies of Oil and Gas Sector of India
Statement of the problem

Financial leverage is vitalfor any company because it related to capital structure and capital is
directly related to the health and survival of any company. Financial leverage considers as a
channel to boost the return on equity (Madan, 2007). The primary motive of financial
management is to magnify the shareholders’ value and it depends on the shares’ market value. If
the market value of shares increases, then shareholder’s value also increases (Enuju et al. 2005).
Scholars had done many studies on the leverage, but still, this topic has more to research about.
Most of the studies are available related to financial leverage in different sectors of a developed
market. Some studies also exist in the Oil and Gas Sector but with very little evidence for
emerging markets, particularly in India. This study ishaving the objectives ofexamining the
impact of changes in financial leverage onthe profitability of oil and gas sector companies of
India. This study is trying to bridge the gap by investigating the impact of leverage on the
profitability of Oil and Gas Sector companies of India. It can be said that in a business that the
first important financing decision is to decide the capital structure. It is a challenging job for the
decisionmakers that what will be the optimal proportion of debt and equity (Al-Tally, 2014). It is
anonstopbattle of ensuring that suitable sources of long term financing that will maximize the

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shareholder’s worth (Enekwe et al. 2014).Any capital mix of equity shares, preference shares and
debt used in acquiring the assets of business create some level of financial risk (Ku et al. 2013).
In other words, financial risk is positively correlated to the capital of the firm and financial
leverage (Pandey, 2010). The present study is trying to find out how companies of the oil and gas
sector are able to handle the financial risk and still remain optimally financed. The financial
leverage is a topic that always has the interest of academicians, researchers, the general public
and the management of companies.
Review of literature
Sahni& Kulkarni (2018) measured the effect of financial leverage and liquidity on the financial
performance of real estate companies of India by taking DLF Ltd as a sample. Profitability ratios
and liquidity ratios areconsidered as variables for the study. The study concluded that if the
company uses operating leverage, it affects the changes in sales and Earnings before Interest and
Taxes (EBIT) positively. The company uses financial leverage so that the effect of change in
Operating Profit is positive. Rehman (2013)examined the association between financial leverage
and financial performance amongSugar Companies of Pakistan. It concludes that debt-equity
ratio have positive association with return on asset and sales growth and negative association
with earning per share, net profit margin and return on equity. The study finally shows that if the
debt increases, then EPS will decrease because interest on the debt will raise itseffect on the
profit negatively. Nasrollah& Syed (2013) investigated the impact of financial leverage and
investment diverseness on returnon increasing earning management. This study shows the result
that at 95 per cent of the level of confidence is meaningful for financial leverage coefficient. So,
the conclusion made that financial leverage influences income-increasing earnings
management.Akabrian (2013)measured the impact of financial leverage and environment risks
on performance of listed firms atthe Stock Exchange of Tehran. This study revealed that
financial leverage and cash flow per share have negatively correlated, but variable market risk
and economic risk with free cash flow per share have a positive correlation.Bohlet al. (2013)
reviewed 23 companies from OkoDax& the Dax subsector index of the common risk factor of
companies that combined the performance of renewable energy stock of Germany. Data for
eight-year from 2004 to 2011 were considered for analysis. Multifactor performance

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measurement, ADF test and Markov regime-switching ADF test were applied in the study. This
analysis revealed that the previous trends of stock converted into losers, shows a negative effect
on price momentum and delivering considerable negative car hart four-factor Alpha’s. Finally,
the results indicated from 2004 to 2007, renewable energy stock of Germany earned significant
risk-adjusted returns,but from 2008 to 2011, these stocks show negative loading on price
momentum and a considerable negative car hart Alpha’s.
Rajin (2012) examined the impact of financial leverage on shareholder’s return and
market capitalization of Indian Telecom companies. Impact and nature of relationship examine
individually. The results indicated that financial leverage and shareholders’ return are positively
correlated, i.e. if financial leverage increases then due to this, shareholder return will also
increase. Hence, financial leverage and market capitalization are negatively correlated.
Ebiringa&Ezeji (2012) measuredthe impact of financial leverage on the performance of the
organizationby applying debt-equity ratios and earnings per share as proxies. F ratios, Durbin
Watson, Akaikeand Schwarz information criteria and log-likelihood parameters are used for
research methodology. The results of this study showed mixed outcomes for banks, and financial
leverage is considered a critical strategy for maximization of shareholders’ returns.
Akinmuligum (2012)measured the effect of financial leverage on the financial efficiencyof
selected Nigerian companies. The study investigated the effect of financial leverage on earnings
per share (EPS) and net assets per share (NAPS). The result indicated that the debt-equity ratio
(financial leverage) influenceoperating efficiency,especially if the net asset per share is used as
an indicator of corporate performance.Lameira et al.(2012) analyzed the effect of location and
sector of activity of energy corporateonthe performance of companies. Eighteen largest energy
companies of Euro zone were selected as a sample over the period from 2005 to 2009.
Performance of the firm was considered as a dependent variable and for the independent
variables, return on equity, return on capital employed, and profit margin was taken. The OLS
technique under the linear regression model was used for analysis. The study revealed that
location did notaffectthe financial performance of energy companies; they always give the
highest return. Akhtar et al. (2012) examined the correlationamidstOperating efficiency and
financial leverage of Fuel Energy Sector companies of Pakistan. The paperaimed to investigate
the response of financial efficiencydue to financial leverage of Fuel Energy companies. Twenty

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companies were taken as a sample from 2002 to 2005. Only those companies wereconsidered
which are listed at Karachi Stock Exchange. The study concluded that financial leverage and
financial performance are positively correlated. Therefore, the companies of fuel energy of
Pakistan can have profitable outcomes at leverage.
Research gap
Oil and Gas industry is the main playerof the Indian economy. During the last three decades, the
Indian economy experienced a number of reforms. The Government has disinvested several
public sector companies and shifted ownership from public to private. Consequently, a change
has occurred in the capital structure of the companies. The companies decide capital mix in their
investment and use more debt to increase shareholder’s wealth as well as the market price of
shares (Rajkumar, 2014). The companies used more debt to gain a positive influence of leverage
on the profitability of the business (Kale, 2014). Financial leverage and its effect on financial
performance is an emerging issue among the academician, researcher and corporate. There area
number of studies that have been conducted on the issue of leverage and financial performance.
The researcher has reviewed many national and international studies on financial leverage and
performance. The studies cover a different segment of the economy, but there is no specific
study pointed out which is related to the Oil and Gas Sector of India.
Objectives of the study
 To ascertain the effectof financial leverage onprofitability.
 To assess the associationbetween leverageand performance.
 To ascertain the influence of financial leverage onthe efficiency of Oil and Gas Sector
companies of India.
Research hypotheses
H01:There is no significant impact of Leverage (DER, DATR) on Return on Asset.
H02: There is no significant impact of Leverage (DER, DATR) on Return on Equity (ROE).
H03: There is no significant impact of Leverage (DER, DATR) on Return on Capital

Employed.

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Research methodology
Sample of the study: This paper is conducted by taking ten oil and gas sector companies of
India as a sample. The companies are Bharat Petroleum Corporation Ltd, Hindustan Oil
Exploration Company Ltd, Essar Oil Ltd, Gujrat Gas, GAIL India Ltd, ONGC MRPL, Oil India
Ltd, HPCL, Indian Oil Ltd andReliance Industries Ltd.
Nature and Source of data: The data considered for analysis is of secondary in nature which
wasextracted from the annual reports of respective companies. Other relevant information has
also been taken from various Journals, Newspapers, and Magazines as well as through the
internet.
Time period of the study:This paper is being conducted from 2008-09 to 2017-18.
Variables used in the study

Independent variables: Financial leverage ratios viz. debt-equity ratio(DER) and Debt to Total
Asset Ratio (DTAR) are taken as financial leverage variables.
Dependent variable: Financial performance has been considered as the dependent variable for
this study. Return on asset (ROA), Margin Ratio, Return on equity (ROE),and Return on capital
employed are taken as proxy variables of financial performance.
Tools and techniques used in the study: Leverage Ratios, Profitability ratios, regression
analysis, has been applied for the purpose of analysis. The statistical description is applied to
describe the nature of the selected variables. The association between financial leverage and
profitability has been examinedby using correlation and regression analysis. Collected data is
analyzed through E-views and SPSS 21 software.
Conceptualization
This study has an analytical research designwhich measures the influenceof financial leverage on
the profit efficiencyof Oil and Gas Sector firmsof India. In this study,profitability has been
assumed as dependent variable while financial leverage has been taken asan independent
variable.

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Table 2. Nature of variables

Dependent variables Proxies
Return on Assets Net Profit/Total Assets
Return on Equity Net Profit/Total Equity
Return on Capital Employed Net Profit/Capital Employed
Independent variables Proxies
Debt Equity Ratio Debt/Equity
Debt to Total Asset Ratio Debt/Total Asset
Source: Authors compilation
Variables: Descriptions of the variables are given as under:
Table – 3 Variables Description

Concept Variables Indicator Measurement
Debt-Equity Ratio Debt / Equity * 100
Financial
Leverage Debt-Total Asset
Leverage Debt / Total Assets*100
Ratio
Profit Based on
Return on Asset Net Profit / Total Asset*100
Asset
Financial Profit Based on Profit after Tax / Shareholder’s
Return on Equity
Performance Equity Fund *100
Return on Capital Profit Based on Profit before Interest and Tax /
Employed Investment Capital Employed * 100
Source: Authors compilation
Method of the data analysis: The regression rodel

Firstly, the statistical description was used to explainpertinent facets of financial leverage and
detailed information about each pertinent variable of this study. Degree of association between
variable was measured by using correlation matrix(Evgeny, 2015). Specifically, Pearson’s
correlation and the relationship of independent variables with dependent variables were
examined with the help of regression analysis (Taani, 2012). Regression analysis was also used
to find out the effect of selected independent variables on financial performance (Maghanga,
2012). With the help of this method, researchers will be able to find out the importance of a
particular explanatory variable to the model individually and as well as combined. The study
consists of more than one variable; therefore, multiple regression was used in the model.

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Ordinary least square (OLS) method is used for testing the hypotheses, which are in multiple
forms. MS-Excel was used for basic calculation and financial data feeding. For regression
analysis, E-views and SPSS 21 software were used.
Model specification
Ordinary Least Square (OLS) method was chosen for this study because its calculation procedure
is simple. The outcomes acquired by this method have flawless features including linearity,
unbiasedness, mini variance and mean square error estimation (Gill, 2011) for finding out the
effect of financial leverage on financial performance, researchers develop an equation given
below:
Y = bo + b1x1 + b2x2 + b3x3 + …… + ei
Where:
Y = Dependent variable
X = Independent variable
b0 = Intercept for X variable of i company
b1 – b3 = Coefficient for the independent variables X of companies, denoting the nature
of the relationship with dependent variable Y (or parameters)
ɛi = The error term
Specially, when researchers convert the above general least squares model into our
specified variables, it becomes:
(ROA)yt = bo + b1(DER)yt + b2(DTAR)yt + ɛi
Where: ROA = Return on Assets
DER = Debt-Equity-Ratio
DTAR = Debt to Total Asset Ratio
ɛi = Error term
Analytical Model
The following regression equation was generated 𝑌= 𝛽𝑜+ 𝛽1 𝑋1+𝛽2𝑋2+ 𝛽3𝑋3+ 𝜀
where:
Y = Financial performance measured using Return on Assets (ROA) for firm i at time t

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𝛽𝑜= Constant term
𝛽1, 𝛽2, 𝛽3, &𝛽4 = Coefficients to the regression model
𝑋1 = Financial leverage determined by the total debt divided by the total assets
𝑋2 = Size of firm determined using natural log of the total assets
𝜀 = Probable error
Hypotheses Testing
H01: there is no significant impact of Leverage (DER, DATR) on Return on Asset
Table – 4 ANOVAa
Model Sum of Squares df Mean Square F Sig.
Regression 1208.387 2 604.193 16.589 .000b
1 Residual 3532.860 97 36.421
Total 4741.247 99
Source: Calculated from Data extracted from the Financial Reports of sample companies
a. Dependent Variable: Return on Asset
b. Predictors: (Constant), Debt Equity, Debt to Total Asset
Table – 5 Model Summaryb

Model R R Square Adjusted R Std. Error of the Durbin-Watson
Square Estimate
1 .505a .255 .240 6.03500 1.329
Source: Calculated from Data extracted from the Financial Reports of sample companies
a. Predictors: (Constant), Debt Equity, Debt to Total Asset
b. Dependent Variable: Return on Asset
Table 5 shows the combined correlation (r) between the leverage ratios and Return on Asset
(ROA) of Oil and Gas Companies of India. The coefficient of determination (R2) is at .240,
which implies that 24.0 per cent of variance is described by the association between these
variables. The table also describes the correlation between leverage ratios and ROCE that gives
the coefficient of correlation at .505, indicates a moderate positive correlation among the
variables.

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a
Table – 6 Coefficients
Model Unstandardized Coefficients Standardized t Sig.
Coefficients
B Std. Error Beta
(Constant) 11.183 1.457 7.674 .000
Debt to Total Asset
1 -14.374 9.021 -.190 -1.593 .114
Ratio
Debt Equity Ratio -5.957 1.988 -.357 -2.996 .003
Source: Calculated from Data taken from the Annual Reports of sample companies
a. Dependent Variable: Return on Asset
The table exhibits the outcomesmeasuring the impact of leverage on return on assets of sample
organization. In reference to the hypothesis framed regarding the influence of DER and DATR
on Return on Asset, results indicate that DER has a positive impact on the ROA (p <.05), but
DTAR is not significantly influencing ROA (p> .05). Hence, we partially accept our hypothesis.
Moreover, Adjusted R square is .24, which indicates our model explains 24% variance.
H02: there is no significant impact of Leverage (DER, DATR) on Return on Equity (ROE)
Table – 7 ANOVAa
Regression 4664.368 2 2332.184 8.303 .000b
1 Residual 27244.372 97 280.870
Total 31908.740 99
Source: Calculated from Data extracted from the Final Reports of sample companies
a. Dependent Variable: Return on Equity

Square Estimate
1 .382a .146 .129 16.75917 1.333
b. Dependent Variable: Return on Equity
Table 8 explains the correlation (r) between the leverage ratios and Return of Equity(ROE) of
sample companies. The coefficient of determination (R2) is at .129, which implies that the
correlation between these variables describes 12.9 percent of the variance. The table also

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examines the relationship between leverage ratios and ROE that gives the coefficient of
correlation at .382, which indicate a moderate positive correlation between the variables.
Table – 9 Coefficientsa
Model Unstandardized Standardized t Sig.
Coefficients Coefficients
B Std. Error Beta
(Constant) 22.342 4.047 5.521 .000
1 Debt to Total Asset Ratio -31.345 25.052 -.159 -1.251 .214
Source: Calculated from Data extracted from the Financial Reports of sample
a. Dependent Variable: Return on Equity
Table 9 presents the results regarding the effect of leverage ratios on return on equity of sample
companies. In reference to hypothesis framed regarding the influence of DER and DATR on
Return on Asset, results indicated that DER has a positive impact on the ROA (p <.05), but
DATR is not significantly influencing ROA (p> .05). Hence, we partially accept our hypothesis.
H03: there is no significant impact of Leverage ratios (DER, DATR) on Return on Capital
Employed.
Table – 10 ANOVAa
Regression 2474.387 2 1237.194 14.792 .000b
1 Residual 8112.839 97 83.638
Total 10587.226 99
a. Dependent Variable: Return on Capital Employed

Square Estimate
a
1 .483 .234 .218 9.14535 1.348
b. Dependent Variable: Return on Capital Employed
Table 11exhibits the correlation (r) between the leverage ratios and ROCE of sample companies.
The coefficient of determination (R2) is at .234, implies that 23.4 per cent of variance is

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explained by the association between these variables. The table also confers the relationship
between leverage ratios and ROCE that gives the coefficient of correlation at .483, which
indicate a moderate positive correlation between the variables.
Table – 12 Coefficientsa
Model Unstandardized Coefficients Standardized t Sig.
Coefficients
B Std. Error Beta
(Constant) 16.592 2.208 7.514 .000
Debt to Total Asset
1 -22.128 13.670 -.195 -1.619 .109
Ratio
a. Dependent Variable: Return on Capital Employed
Table 12presents the results measuring the effect of leverage on return on capital employed of
sample companies. In reference to hypothesis framed regarding the influence of DER and DATR
on Return on Asset, results reportthat DER has a positive impact on the ROA (p <.05), but
DATR is not significantly influencing ROA (p> .05). Hence, we partially accept our hypothesis.
Moreover, Adjusted R square is .21, which indicates our model explains 12 per cent variance.
Conclusion
The study revealed that the profitability of sample companies (Oil and Gas) of India is positively
affected by financial leverage. It is widely considered that financial leverage plays a vital role in
the profitability of corporate entities. It is positively correlated of sample companies of India.
Therefore, sample companies can use the optimal debt combination to boost their earnings and
shareholders’ value. The selection of optimal capital structure is the main problem of
management. It is difficult for management to set what percentage of debt can be fruitful for the
business (Zhao et al. 2012). If a company can handle this problem of capital structure efficiently
and effectively than it will be beneficial for the concern entities. With the help of leverage,
sample companies can reduce their tax liability and it directly benefited to earning per share. Due
to high earnings per share, the sample companies always have good options for investors to
invest in the business. Therefore, it can be stated based onthe study that leverage ratios are
affecting financial performance positively.

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The rejection of null hypotheses is the statistical proof that financial leverage ispositively
affecting financial performance. Hence, sample companies have a choice to make their capital
structure better by using optimal debt. An optimal capital structure always increases the profit
per share (Raza, 2013). So, sample companies can improve the profit earning capacity and
contribute to the growth of the economy. By using the debt in capital structure, sample
companies are also contributing tothe growth of the economy indirectly because they are
generating business for debt providers.
Finally, the results indicated that there is an impact of financial leverage on profitability,
and it is positively correlated the profitability of sample companies of Oil and Gas Sector of
India. These companies should use optimal debt to increase the profitability of companies which
also affect investors positively. Debt should be used in such a way that it does not affect the
average profit of the industry. The study also suggests that sample companies of India should use
the economies of scale to enhance their profitability and the management skills for choosing the
selection of optimal capital structure.
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ANNEXURES
Annual reports of the sample companies have been shown below:
Bharat Petroleum Corporation Ltd

Year Net Profit Total Assets Short Term Long Term Total
Debt/Current Debt Equity
Liabilities
2008-09 735.90 47993.64 30244.26 5621.27 12128.11
2009-10 1537.62 54316.54 27145.30 14084.53 13086.71
2010-11 1546.68 55875.95 37387.96 4430.37 14057.62
2011-12 1311.27 65606.98 46667.55 4025.57 14913.86
2012-13 2642.90 66987.39 42693.40 7659.97 16634.02
2013-14 4060.88 72427.41 38581.34 14387.31 19458.76
2014-15 5084.51 69728.88 32637.50 14623.90 22467.48
2015-16 7431.88 75989.41 31698.56 17132.16 27158.69
2016-17 8039.30 91989.63 43489.26 18831.99 29668.38
2017-18 7919.34 100222.54 44792.11 21278.43 34152.00
Source: Annual Reports ofBharat Petroleum Corporation Ltd from 2008-09 to 2017-18
Hindustan Oil Exploration Company Ltd

Liabilities
2008-09 53.57 1620.65 403.33 158.97 1058.35
2009-10 41.59 1906.80 152.68 652.47 1101.66
2010-11 80.20 1930.27 118.41 637.61 1174.25
2011-12 33.49 1992.15 126.40 658.01 1207.74
2012-13 (550.83) 1747.78 178.26 913.09 656.44
2013-14 (124.81) 1651.55 315.10 807.89 528.56
2014-15 (1221.01) 422.68 40.44 110.30 271.93
2015-16 3.49 478.17 60.61 122.54 295.02
2016-17 36.38 515.10 67.78 115.96 331.36
2017-18 37.84 535.16 42.69 118.93 373.53
Source: Annual Reports of Hindustan Oil Exploration Company Ltd from 2008-09 to 2017-18

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ISSN: 1430-3663
Gas Authority of India Ltd
Liabilities
2008-09 2803.70 25607.85 8154.77 2683.45 13501.15
2009-10 3139.84 30233.86 10378.37 3056.49 15530.52
2010-11 3561.13 32011.45 8847.67 3910.43 17984.86
2011-12 3653.84 39084.68 10186.46 7273.74 20356.00
2012-13 4022.20 44684.19 8970.90 11485.49 22959.32
2013-14 4375.27 49811.33 9471.33 13267.67 27072.33
2014-15 3039.17 52893.23 9992.24 13781.47 29119.52
2015-16 2298.90 52994.26 10882.27 11527.12 30584.87
2016-17 3502.91 55336.96 8374.84 8812.75 38149.34
2017-18 4618.41 58082.18 9901.55 7852.51 40328.12
Source: Annual Reports of Gas Authority of India Ltd from 2008-09 to 2017-18
Oil and Natural Gas C MRPL

Liabilities
2008-09 1192.54 12226.07 4741.78 2754.89 4729.40
2009-10 1112.38 16414.87 8607.29 2211.03 5596.55
2010-11 1176.63 18501.13 10532.56 1439.67 6528.90
2011-12 908.58 26156.09 14550.95 4375.95 7229.19
2012-13 (756.91) 26701.22 13673.24 6560.29 6467.69
2013-14 601.18 39517.68 23076.37 9372.43 7068.87
2014-15 (1712.23) 34335.72 21131.47 7899.29 5304.96
2015-16 1146.94 37284.07 24006.28 6846.41 6431.37
2016-17 3643.69 26404.62 10982.23 5352.11 10067.42
2017-18 2224.12 26214.42 12372.73 2808.61 11029.23
Source: Annual Reports of Oil and Natural Gas Company Ltd from 2008-09 to 2017-18

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ISSN: 1430-3663
Oil India Ltd
Liabilities
2008-09 2228.45 13496.48 3094.07 1069.94 9332.48
2009-10 2715.63 18213.34 3269.29 1178.37 13765.68
2010-11 2887.73 21231.12 4146.35 1482.90 15601.87
2011-12 3446.92 22681.27 3479.44 1480.49 17721.34
2012-13 3589.34 25180.85 4302.61 1666.76 19211.48
2013-14 2981.30 34874.45 10581.70 3584.57 20708.18
2014-15 2510.20 36227.12 3901.27 10811.54 21514.31
2015-16 2301.67 39149.20 2260.12 11969.63 24919.45
2016-17 1548.68 45339.55 3305.15 12943.91 29090.49
2017-18 2667.93 44034.18 4376.15 11748.62 27909.41
HPCL
Liabilities
2008-09 436.30 47114.98 15258.15 21126.20 10730.63
2009-10 1355.04 51673.07 26071.59 14043.51 11557.97
2010-11 1554.25 60761.09 34714.81 13500.47 12545.81
2011-12 911.92 71109.55 42702.56 15284.47 13122.52
2012-13 791.32 76244.73 43262.65 19255.68 13726.40
2013-14 1792.14 77578.09 35307.26 27258.67 15012.16
2014-15 2728.79 67550.64 23695.30 27833.25 16022.09
2015-16 3868.28 70470.93 26789.04 25325.79 18356.10
2016-17 6208.80 78469.85 45758.27 12364.17 20347.41
2017-18 6357.07 86807.22 47377.35 15481.65 23948.22

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ISSN: 1430-3663
Indian Oil Ltd
Liabilities
2008-09 2033.39 130469.06 61427.69 25038.11 43981.66
2009-10 10257.07 146209.60 68868.36 26788.41 50552.83
2010-11 7519.19 173679.68 95223.50 23123.86 55332.32
2011-12 3675.83 209859.75 119825.93 32157.12 57876.70
2012-13 4998.87 223995.27 124133.67 38737.29 61124.31
2013-14 7115.39 252413.78 135320.24 51101.46 65992.08
2014-15 5280.59 219849.47 96801.35 55078.15 67969.97
2015-16 11242.23 220504.17 80030.10 52339.76 88134.31
2016-17 19106.40 259213.27 128312.34 31172.21 99728.72
2017-18 21346.12 280739.91 135882.28 34686.61 110171.02
Reliance Industries Ltd

Liabilities
2008-09 15678.92 245953.16 41928.87 77651.32 126303.72
2009-10 16235.67 251249.38 46365.12 67713.65 137170.61
2010-11 20286 284719 70484 62686 151540
2011-12 20040 295140 68888 60156 166096
2012-13 21003 318511 83286 55205 179995
2013-14 21984 367583 95566 74926 197074
2014-15 22719 397785 91301 90308 216459
2015-16 27417 457720 125022 92514 240176
2016-17 31425 546746 152826 105607 288309
2017-18 33612 617525 190647 112231 314632

GIS Business
ISSN: 1430-3663
ONGC
Liabilities
2008-09 15269.86 152283.20 43673.07 29874.72 78735.42
2009-10 16583.56 168025.24 49180.03 31562.61 87282.60
2010-11 18957.63 148017.41 19156.61 31356.37 97504.43
2011-12 25132.47 171727.61 25697.95 33072.92 112956.73
2012-13 20956.25 178126.67 17473.85 36199.59 124453.22
2013-14 21583.70 199288.43 19079.77 43483.66 136725.01
2014-15 18116.86 208079.88 19173.49 44305.42 144600.98
2015-16 16139.93 221876.85 17878.15 38224.03 165774.68
2016-17 17899.98 247249.49 19233.47 42477.65 185538.38
2017-18 19945.26 291228.18 49361.86 48481.64 193384.68
Chennai Petroleum Corporation Ltd

Liabilities
2008-09 -411.45 8339.68 3762.39 1510.05 3067.24
2009-10 457.56 10578.89 5412.02 1704.78 3462.09
2010-11 511.52 12256.99 7308.09 1182.78 3765.93
2011-12 61.83 14967.37 9670.11 1504.12 3793.14
2012-13 -1766.84 14101.11 10191.05 1883.76 2026.30
2013-14 -303.85 13942.26 9475.32 2744.49 1722.45
2014-15 -38.99 10954.62 8249.11 1050.44 1655.08
2015-16 741.87 10331.67 5885.05 1085.19 4361.43
2016-17 1029.75 11495.57 5659.71 522.05 5313.81
2017-18 912.92 14165.49 9038.23 770.77 4356.50
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Article in GIS-Business · April 2020

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Mr. Imran Anwar

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Statement of the problem

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Objectives of the study

 To ascertain the effectof financial leverage onprofitability.

 To assess the associationbetween leverageand performance.

H01:There is no significant impact of Leverage (DER, DATR) on Return on Asset.

H03: There is no significant impact of Leverage (DER, DATR) on Return on Capital

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Variables used in the study

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Table 2. Nature of variables

Variables: Descriptions of the variables are given as under:

Table – 3 Variables Description

Method of the data analysis: The regression rodel

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Y = bo + b1x1 + b2x2 + b3x3 + …… + ei

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Table – 5 Model Summaryb

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Table – 8 Model Summaryb

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Table – 11 Model Summaryb

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Bontempi, M. E. &Golinelli, R. (2001). Is Financial Leverage Mean-Reverting? Unit Root Tests

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Annual reports of the sample companies have been shown below:

Bharat Petroleum Corporation Ltd

Hindustan Oil Exploration Company Ltd

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Oil and Natural Gas C MRPL

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Reliance Industries Ltd

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Chennai Petroleum Corporation Ltd

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