Skip to main content

An empirical study on the financial health of the main steel producing segment in India: application of factor analysis and multiple regression analysis

Abstract

The preset study is an attempt to measure the influence of different financial ratios selected from different categories like liquidity, activity, and leverage on the profitability of the selected companies. For the purpose of the study, three main producers of steel in India—Steel Authority of India, Rashtriya Ispat Nigam Limited and Tata Steel Limited—are selected for a period of 20 years. Initially, the factor analysis is conducted on all the 15 selected ratios and on the basis of inter correlation matrix the variables (financial ratios) which have the correlation coefficient less than ±6 are excluded from the study. The factor analysis is again conducted on the remaining variables and two factors are extracted. The extracted factors are named suitably. To validate those factors cluster analysis is conducted. Afterwards, to estimate the impact of selected variables on the profitability multiple regression analysis is carried on and a model is predicted for such purpose.

This is a preview of subscription content, access via your institution.

References

  • Ali Hamdi F, Charbaji (1994) Applying factor analysis to financial ratios of International Commercial Airlines. IJCM 4(1&2):25

    Google Scholar 

  • Cohen J et al (2003) Applied multiple regression/correlation analysis for the behavioral sciences. Lawrence Erlbaum Associates, Mahwah

    Google Scholar 

  • De A, Bandopadhyay G, Chakraborty BN (2011) Application of the factor analysis on the financial ratios and validation of the results by the cluster analysis: an empirical study on the Indian cement industry. J Bus Stud Q 2(3):13–31

    Google Scholar 

  • Government of India (2009–10), Annual Report, Ministry of Steel, Government of India, New Delhi, pp–19

  • Gulsun I, Umit G (2010) Early warning model with statistical analysis procedures in Turkish insurance companies. Afr J Bus Manag 4(5):623–630

    Google Scholar 

  • Kishore RM (2009) Financial management—comprehensive text book with case studies. Taxmann, New Delhi

    Google Scholar 

  • Ludvigson SC, Serena Ng (2007) “The empirical risk-return relation: a factor analysis approach”, Journal of Financial Economics, Accessed 19 March 19 2012. http://econ.nyu.edu/user/ludvigsons/fac.pdf

  • Őcal ME, Oral EL, Erdis E, Vural G (2007) Industry financial ratios-application of factor analysis in Turkish construction industry. Build Environ 42(1):385–392

    Article  Google Scholar 

  • Pandey IM (2010) Financial management. Vikas Publishing House, New Delhi

    Google Scholar 

  • Pinches GE, Mingo KA, Caruthers JK (1973) The stability of financial patterns in industrial organizations. J Finance 28(3):389–396

    Article  Google Scholar 

  • Raheman A, Nasr M (2007) Working capital management and profitability-case of Pakistani firms. Int Rev Bus Res Pap 3(1):279–300

    Google Scholar 

  • Reinard JC (2006) Communication research statistics. Sage publications, New Delhi

    Google Scholar 

  • Schneider HK, Matai I (2010) Business climate, political risk and FDI in developing countries. Int J Econ Finance 2(5):54–65

    Google Scholar 

  • Titman S, Wessels R (1988) The determinants of capital structure choice. J Finance 43(1):1–19

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Shrabanti Pal.

Appendices

Appendix 1

Result of factor analysis, cluster analysis, and multiple regression analysis (See in Table 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, and 15)

Appendix 2

See Table 16

Table 16 List of different financial ratios and their formulas

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Pal, S., Bhattacharya, M. An empirical study on the financial health of the main steel producing segment in India: application of factor analysis and multiple regression analysis. Decision 40, 47–55 (2013). https://doi.org/10.1007/s40622-013-0009-x

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s40622-013-0009-x

Keywords

  • Financial ratios
  • Factor analysis
  • Cluster analysis
  • Multiple regression analysis