Financial Analysis of Factoring Companies in India: A Study of SBI Global Factors and Canbank Factors

Transcription

1 Financi Anysis of Factoring Companies in India: A Study of Factors and Factors Hardarshan Kaur 1, Navkiranjit Kaur Dhiw 2 1 Research Fellow, Dept. of Commerce, Punjabi University Patia, , Punjab, India 2 Associate Professor & Head, Dept. of Commerce, Punjabi University, Patia, , Punjab, India hardarshandhillon@gmail.com navkirandhiw@ymail.com Abstract With growing industriization at a fast pace in India the factoring services is so growing with business. However, there are many chlenges being faced by the factoring companies in India because the factoring is a new concept to India and bas failed to educate people about this service. The debt recovery is slow and more debts are turned to be Nonperforming. Interest rates charged by the Factors are higher than the bas which lead to make the service unpopular. In the light of these developments, the financi success of the factoring companies is one of vit importance. The objective of this paper was to evuate the financi performance of Indian Factoring Companies with speci reference to Factors and Factors. It was reveed that financi performance of Factors was better than that of Factors in the criteria of operating income, net profit ratio, return on equity, and return on assets. Earnings per share, equity dividend coverage ratio and dividend per share was higher for Factors as compared to Factors. It was found that the operating income and profitability was higher in case of Factors as compared to GFL during the period of study. It was suggested that the GFL should utilize its assets more efficiently so to earn higher return on its assets. Keywords Factoring, Debt Recovery, Performance, Assets, Income I. INTRODUCTION Factoring services has recent origin in India. These made an entry in to India with the deliberate attempt of Vaghul Committee a study group on money market in The Vaghul Committee envisaged the factoring service mainly from the point of view of sml units and observed that efficient factoring can have a more important role in India. The Kyansundram Committee set up by RBI in 1988 laid emphasis on setting up of independent agencies to provide factoring services. Some of the important recommendations of Kyansundram committee are as: The committee recommended that there is sufficient scope of factoring services in the country and provided complementary to ba services. Along with it export factoring should be launched. It is assessed that it would grow sufficiently so as to make factoring business a commercily viable proposition within a period of two or three years as the quantification of demand of services is not possible. The Factors should be providing services to wide range of sectors and industries of the country in order to dispers of risks. The cost of funds should not be more than 13.5 per cent per annum. Factors will have to charge the price for services at a rate not higher than bas. The price for administrative services may not exceed 2.5 to 3 per cent of debt services. Factoring companies will be operated on zon basis one each for North, South, East and West. RBI accepted the findings of the committee and permitted State ba of India and Canara ba to start factoring services through their subsidiaries. Both and Canara Ba started their operations in A few more companies like Punjab nation Ba, Wipro Finance Ltd., Integrated Finance Company Ltd. and Foremost Factors Ltd. has so entered in the business. The RBI permitted Canara Ba and PNB to operate in southern and northern parts while was providing services in western parts of the country. Initily, the factoring companies were regulated by RBI but now factoring companies are treated as Non-baing Financi Companies under The Factoring Regulation Bill, 2011 which is a full fledge legislation for the same. With growing industriization at a fast pace in India the factoring services is so growing with business. The tot volume of Indian factoring business is around Rs crore at the end of financi year which is dominantly shared between Factors Limited and Factors Limited. Many glob and foreign players like DBS (Development Ba of Singapore) and GE capit have so entered in the factoring business in India. However, there are many chlenges being faced by the factoring companies in India because the factoring is a new concept to India and bas failed to educate people about this service. The debt recovery is so slow and more debts are turned to be Nonperforming. Interest rates charged by the Factors are higher than the bas which lead to make the service unpopular. In the light of these developments, the financi success of the factoring companies is one of vit importance. Therefore, an attempt has been made in this paper to undertake the financi anysis of Factors and Factors /Copyright 2014, IJRMST, April

2 II. OBJECTIVES OF THE STUDY Main objectives of the study are: 1. To undertake the income anysis of Factors and Factors. 2. To review the expenditure anysis of Factors and Factors. 3. To anyses the profitability position of Factors and Factors. III. RESEARCH METHODOLOGY The present study is based on secondary data covering period from the year to The data has been taken from the annu reports of Factors and Factors, Statistic abstract of Factor Chain Internation brochures and booklets of Factors Ltd. and Factors Ltd. and from the websites of selected institutions. The financi performance has been reviewed by undertaking income anysis, expenditure anysis and profitability anysis of the selected companies. The income anysis includes operating income to tot income, non-operating income to tot income and income in foreign currency to tot income. The expenditure anysis includes operating expenses to tot expenses, non-operating expenses to tot expenses, Personnel expenses to tot expenses and expenditure in foreign currency to tot expenditure. Profitability anysis has been done on the basis of various ratios like return on assets, return on equity, dividend per share, earning per share, expense ratio, equity dividend coverage ratio and net profit ratio. The presentation of the data anyzed has been made in the form of tables and the relevant conclusions have been drawn. IV. INCOME ANANLYSIS The income anysis reves the earning efficiency of an enterprise. The income statement is basicly the first financi statement in an annu report. It so contains the numbers such as revenue, earnings and earnings per share. It shows how much money the company generated as revenue, how much it spent and the difference between the two which is profit over a certain time period. The Income Anysis has been done on the basis of operating income to tot income, non-operating income to tot income and income in foreign currency to tot income. The operating income to tot income refers to the income received from the factoring services only. The non-operating income to tot income is that part of the tot income which comes up after subtracting the factoring income from the tot income. The income in foreign currency to tot income is obtained by dividing the earnings in foreign currency divided by tot income. Table I shows the Income Anysis of Factors and Factors. TABLE I INCOME ANALYSIS OF GLOBAL FACTORS AND CANBANK FACTORS (IN PER CENT) Compo nents Operating Income to Tot Income Non-Operating Income to Tot Income Income in Foreign Currency to Tot Income Year Nil Nil 11 MEAN Table I shows that the mean vue of operating income to tot income of Factors (99.17%) was higher than that of GFL (89.18%) during the period of to The ratio of operating income to tot income of GFL increased from per cent in the year to per cent during the period. Factors had fluctuating Operating Income which showed more ups and downs. The ratio of factors increased from per cent to per cent during the same period. The share of non- operating income of GFL (Mean=10.80%) was higher than that of Factors (Mean=0.81%) during the period to The non-operating income of GFL decreased from 1.16 per cent in the year to 5.53 per cent in the year and same was highest (13.70%) in the year In Factors share of non-operating income increased from 1.16 per cent in the year to 0.44 per cent in the year The ratio of Factors was most followed diminishing trend. The mean vue of Income earned in foreign currency to tot income of Factors was 0.84 per cent during the period of to The ratio of GFL decreased from per cent in the year to 5.17 per cent in the year The Factors faced declining trend throughout the study period. The share of factors decreased from 0.92 per cent in the year to 0.62 per cent in the year and after that it was nil. The comparative anysis showed that the non-operating income of both GFL and Factors was declined during the period of study. The non-operating income and income in foreign currency was higher in GFL as compared to that in Factors during the study. V. EXPENDITURE ANALYSIS /Copyright 2014, IJRMST, April

3 Table II shows the Expenditure Anysis of Factors and Factors. Compo nents Year TABLE II EXPENDITURE ANALYSIS OF GLOBAL FACTORS AND CANBANK FACTORS (IN PER CENT) Operating Tot Expenses MEAN Non-Operating Tot Expenses Personnel Tot Expenses Expenditure in Foreign Currency to Tot Expenditure Nil Nil Table II depicts that the mean vue of operating expenses to tot expenses in Factors was per cent during the period of to However, the mean vue of ratio of GFL was higher (28.26%) than that of Factors during the same period. The ratio of GFL was highest (55.89 per cent) in the year and least (13.23%) in the year The share of Factors increased from 9.15 per cent in the year to per cent in the year during the same period. However, the Factors faced most rising trend throughout the period of study. The share of non-operating expenses to tot expenses of Factors was higher (82.75%) than that of Factors (63.45%) during the period of to The non-operating expenses to tot expense of Factors decreased from per cent in the year to per cent in the year On the other hand, the ratio of GFL decreased from per cent in the year to per cent in the year during the same period. Both the companies witnessed fluctuating trend as both had rising trend from the year to year Afterwards both faced declining trend. The mean vue of the personnel expenses to tot expense of GFL was 3.56 per cent during the period of to However, the mean of ratio of Factors was higher (3.88%) than that of GFL during the same period. The ratio of personnel expenses to tot expenses in decreased from 5.52 per cent in the year to 2.07 per cent in the year The ratio of Factors was decreased from 5.37 per cent in the year to 4.10 per cent in the year The vue of expenditure in foreign currency to tot expenditure of Factors was higher (5.63%) than that of Factors (2.10%) during the period of to The GFL had expenditure of per cent in the year which decreased to 0.77 per cent in the year The ratio of Factors decreased from 5.09 per cent in the year to 0.26 per cent in the year Both the companies GFL and witnessed declining trend as by the year GFL had 0.77 per cent as expenditure in foreign currency and the ratio of Factors in the year of study became nil as the import factoring product of the company had been withdrawn. The comparative anysis of expenditure anysis of Factors and Factors showed that Factors had more increasing operating expenses as compared than Factors. The non-operating expense to tot expenses of Factors was higher as compared to GFL. From the last two years of the study it can be concluded that Factors was able curtail its expenses to great extent as compared to Factors. The share of personnel expenses in tot expenses was most same in both Factors and GFL. It is reveed from the above data that both the companies have reduced the expenditure in foreign currency and Factors had the lesser than that of Factors. VI. PROFITIBILITY ANALYSIS Profitability is an essenti objective of a financi institution. High profits are necessary to pay dividends to stockholders, to build stockholder equity, to offset loan losses, to meet on- going operating expenses, and to expand products and services. The profitability anysis has been done through anysing the net profit ratio, return on assets, return on equity, dividend per share, earning per share, equity dividend coverage ratio and expense ratio. By deducting income tax we got net profits and net profit ratio has been cculated after excluding nonoperating expenses and incomes from net profits. ROA shows the efficiency of the management to generate earnings by using assets. It is cculated by dividing a company's annu earnings by its tot assets. Return on Equity is the measure of profits generated by using resources provided by stockholders. Dividend per share is the amount that a shareholder receives for each share. Earnings per share is obtained after dividing earnings by the outstanding shares. Equity dividend coverage ratio measures the firm's ability to pay dividend. It is cculated by dividing the distributable profits during a given period by the actu dividend paid in that period. Expense ratio refers to the tot expense incurred by the institution in a financi year. TABLE III NET PROFIT RATIO AND EXPENSE RATIO OF GLOBAL FACTORS AND CANBANK FACTORS (IN PER CENT) /Copyright 2014, IJRMST, April

4 Ratio Net Profit Ratio Expense Ratio Year MEAN Table III shows that the mean vue of net profit ratio of Factors was higher (24.20%) than that of GFL (4.61%) during the period of to Though is showing fluctuating trends in profitability still able to maintain but Factors profits are in negative which means during the company had loss. The table III shows that the mean vue of the expense ratio of GFL (20.65%) was higher than that of Factors (15.71%) during the period of to It has been reveed that the expenditure of GFL was more than that of Factors and where witnessed decrease in expense ratio GFL saw rise. TABLE IV RETURN ON ASSETS AND RETURN ON EQUITY OF GLOBAL FACTORS AND CANBANK FACTORS (IN PER CENT) Ratio Return on Return on Assets Equity Year MEAN Table IV depicts that the mean of return on assets of GFL was 0.76 per cent during the period of to However, the mean of return on assets of Factors was higher (2.60%) than that of GFL during the same period. As the ROA is an indicator of profitability of the company relative to its tot assets we can say that Factors can generate earnings by using its assets to some extent. But Factors showed negative performance. The mean of return on equity of Factor (16.74%) was higher than that of GFL (15.68%) during the period of to TABLE V DIVIDEND PER SHARE, EARNING PER SHARE AND EQUITY DIVIDEND COVERAGE RATIO OF GLOBAL FACTORS AND CANBANK FACTORS (IN PER CENT) Ratio Dividend per Share Earnings Per Share Equity Dividend Coverage Ratio Year MEAN Table V depicts that the mean vue of dividend per share of GFL was 0.82 per cent during the period of to However, the mean vue of dividend per share of factors was higher (1.53%) during the same period. the share of Earning per share of Factors (9.14%) was higher than that of Factors (2.58%) during the period of to The mean of the equity dividend coverage ratio of Factors (5.10%) was higher than that of GFL (2.65%) during the period of to VII. CONCLUSION The comparative anysis showed that the non-operating income of both GFL and Factors was declined during the period of study. The non-operating income and income in foreign currency was higher in GFL as compared to that in Factors during the study. The expenditure anysis of Factors and Factors showed that Factors had more increasing operating expenses as compared than Factors. The non-operating expense to tot expenses of Factors was higher as compared to that of GFL. The Factors was able curtail its expenses to great extent as compared to Factors. The share of personnel expenses in tot expenses was most same in both Factors and GFL. Both the companies have reduced the expenditure in foreign currency and Factors had the lesser than that of Factors. The anysis of expense ratio reveed that the expenditure of GFL was more than that of Factors and the expenditure of Factors decreased at a higher rate as compare to that of GFL during the same period. The return on assets, return on equity, dividend per share, earning per share and equity per share was higher in Factors as compared to that of GFL during the same period. To conclude, the profitability of Factors was higher as compared to that of Factors. Therefore, it is suggested that the /Copyright 2014, IJRMST, April

5 GFL should utilize its assets more efficiently so to earn higher return on its assets. REFERENCES [1] P.K. Banerjee, Performance Evuation of Indian Factoring Business: Some Lessons for Bangladesh, Vision: The journ of Business Perspective, vol. 7, pp.55-68, [2] B.S. Bhatia and G.S. Batra., Management of Financi Services, Deep and Deep Publications Pvt. Ltd., New Delhi, [3] S.P. Gupta, Statistic Methods, Sultan Chand and Sons, New Delhi, [4] S. Gurusamy, Financi services, Tata McGraw Hill Education Pvt. Ltd., 2nd edition, , [5] M.Y. Khan, Financi Services, Tata McGraw Hill publishing Co. Ltd.,New Delhi, 3 rd edition, , [6] Nair, Geeta, Factoring bill clearance to attract private players, The Financi Express, April 12, 2012, Thursday. [7] I.M. Pandey, Financi Management, Vikas Publishing House Pvt.Ltd., 8 th edition, , [8] Ranjani, Factoring in India, Ph.D thesis submitted to University of Delhi, Delhi, [9] S. P. Singh, How Factoring Service should be launched?, Vikpa, vol.13, pp , [10] Singh, N., Get complete information on Factoring in India, July- September. india.html [11] Syed, F., RBI norms on factoring business in the offing, Business Standard, March, 19, Monday, [12] N. P. Tripathi, Financi services, Pritence- Hl of India Pvt. Ltd., 2nd edition, , /Copyright 2014, IJRMST, April