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    Jour + Seerenoen 2010 1a Profitability Analysis of State Road Transport Undertakings (A Case Study of RSRTC and UPSRTC) R. K. AGARWAL & PRAMOD BHARGAVA * ABSTRACT The paper is an attempt to highlight the profitability approach in State Road Transport Undertakings. A case study of two major undertakings ie. Rajasthan State Road Transport Corporation and Uttar Pradesh State Road Transport Corporation is analyzed. The profitability is analyzed on the various aspects and dimensions, and discussed through the application of mean and coefficient of variation. The student's t test at 5% level of significance is also applied in order to test the significant difference between the mean of various dimensions. The study will be useful in judging the operational efficiency of RSRTC and UPSRTC. PRAMOD BHARGAVA + Dr. Aganwal 1s Assistant Professor, Department of Accountancy and Business Statistics, University of Rajasthan, Jaipur and Shri Bhargava is Assistant Professor, Department of Accounting and Taxation, The IIS University Jaipur. Inotan Journas oF Transrost Muxaceuext a2 INTRODUCTION Profitability Profitability is composed of two words ‘Profit’ and ‘Ability’. The word profit has been defined in a number of ways since the term profit has different meaning for different purposes. For accounting purpose the total expenses for a period are deducted from the total revenue for the period to measure the profit. The term ability reflects the power of the enterprise to earn the profit. The ability is also referred to as "earning power” or operating performance of the concerned investment. "The word profitability may be defined as the ability of a given investment to earn a return from the use.” Profit is said to be the engine that drives the business enterprise. It is the primary motivating force for all economic activities. As Samuelson says “Profit is the report card of past, the incentive gold star for the future”. If an enterprise fails to make profit, capital invested is eroded and if this situation prolongs, the enterprise ultimately ceases to exist.’ It may be said that the efficiency of management is measured by the amount of profit earned, the greater the profit, the more efficient the management is considered. Profitability should be the main criterion for judging the extent to which business has been successful. Application of the Concept of Profitability in SRTUs Profit making is the fundamental object of private enterprise; hence profitability is the yardstick for judging the efficiency of such undertaking. The question arises whether the same yardstick should be applied in case of state road transport undertakings also. If the public enterprise is to run at a profit, what level of profit should they be allowed to earn, and whether maximization of profit should be applied as the criterion for judging the efficiency of such enterprises is a debatable issue. ‘There is a school of thought which says that the public sector exists not for profit but for public welfare. Against this there is another school of thought which maintains that the public sector should have profit as a necessary objective. The Road Transport Corporation Act, 1950 says that the State Transport Undertakings have twin objectives of provide "secure or promote efficient, adequate, economical and properly coordinated transport services to be run on business principles. Profit as an objective for public sector can be justified as the profits of public sector helps to augment the revenue of the state and to that extent profits of the public sector are always for public welfare unlike that of the private sector where individual welfare is the supreme motto. It is rightly observed that profits of public enterprises are the propellers of socialist administration. Prof. J.K. Galbraith observes "If I had to lay down a measure for performance for public owned corporation in the developing country. It would be the earning that is able to put into its own expansion... The most successful firm would be the one which may by its efficiency and drive finds the earning that allow it the greatest growth.” Prof. L.N.Gupta has discovered in details the concept of profitability in public sector and has come to the conclusion that the “public enterprise should be run on profit and this is to be treated as one of the most important criteria for judging the efficiency of such enterprises and particularly the industrial and commercial ones.” Jur ~ Semewoex 2010 183 OBJECTIVES OF STUDY Numerous attempts have been made to study the State Road Transport Undertakings but still it is required to spotlight an attention on the profitability of SRTUs because most of the undertakings are facing heavy losses. Therefore it appears that a profound study of the profitability Analysis of SRTUs is extremely important. The study was undertaken with the following objectives 1 To assess the profitability of SRTUs under study by applying the technique of ratio analysis. 2 To compare the profitability of STRUs under study on the basis of statistical test 3 To highlight the major reasons responsible for the profits and losses of SRTUs. 4. To probe if there is any significant difference between the profitability positions of SRTU under study. 5. To offer the constructive suggestion in order to improve the profitability of SRTUs under study. RESEARCH METHODOLOGY The data relating to the Profitability Analysis of Corporations under study is collected from primary as well as secondary sources. Personal interview method is used for obtaining primary data and the published annual reports and other statements prepared by the Corporations are used as secondary data. For the purpose of the study the annual reports and other financial and non financial statements from 2003-04 to 2007-08 are considered which were provided by the SRTUs. In addition to this the statistical data published by various institutions like Central Institute of Road Transport, Pune, articles and research papers published in journals and magazines are also used. For the analysis, the financial statement of SRTUs are recast and represented in the forms of tables and diagrams. For testing significant difference between the profitability of SRTUs, the student's t test is applied as statistical tool ‘The profitability analysis is made by making of common size profitability statements of SRTUs under study and certain ratios are calculated in order to evaluate and analyze the profitability of undertakings. AREA OF THE STUDY For the purpose of the analysis, SRTUs are divided into three categories i.e. undertakings operating in plain areas, hilly areas and city transport. The SRTUs are operating in the whole of the country. But this study is limited to the SRTUs operating in the plain area of northern India. SRTUs from plain areas are preferably sclected because of the working conditions and infrastructure in hilly areas and city transport are not comparable with the plain areas. Keeping in view the time, resource constraints and data availability the SRTUs of Rajasthan and Uttar Pradesh are selected for study. HYPOTHESIS Hypothesis testing is a technique through which some claims can be proved or nous Jouraas oF Teaxsrorr Maraceusxt 184 disproved. It is a logical test of findings and conclusions. For the present study the following hypothesis are formulated Null Hypothesis (Ho) There is no significant difference between the profitability positions of the SRTUs under study. Alternative Hypothesis (H1) ‘There is a significant difference between the profitability positions of the SRTUs under study, ‘The common size profitability statement is a statement which facilitates the expression of absolute rupee amounts into percentage. Under this method the total revenue is taken 100 percent and each and every items of cost structure is compared with sales and expressed in percentage. In other words all the items of statements are compared with a common base. For the rationale analysis, the data related to profitability of SRTUs are expressed in the common size profitability statements. The total revenue which is constituted of operating and non operating revenue is taken as base and all other cost elements are compared with that. The common size profitability statements provide an effective conclusion regarding the evaluation and analysis of profitability of SRTUs under study. It is depicted from the Table-1 that the profitability position of RSRTC is not satisfactory. The operating revenue which was Rs. 7010.9 lakhs in the year 2003-04 amplified to Rs, 97507.9 lakhs in the year 2007-08 which shows a considerable increase of 39%. The same trend is revealed in the operating revenue per effective kilometre also, as it was Rs. 12.56 in the year 2003-04 and enhanced to Rs.16.21 in the year 2007-08 with the increase of 29%, Similar to the operating revenue, the non-operating revenue is also increasing although its contribution to the total revenue is too small. The non operating revenue which was Rs.2087.81 lakhs in the year 2003-04 increased to Rs. 2719.59 lakhs in 2007-08 which shows a growth of 30%. Although, the total revenue of RSRTC is augmenting it is continuously facing losses during the entire period of study. As per Table-I the profit before interest and taxes of RSRTC is negative in the complete span. It was maximum in the year 2004/5 (Rs.3748.3 lakhs) and minimum in the year 2006/7 (Rs.1830.6 lakhs}. During the entire study period, RSRTC was facing deficit and the basic reason for this, was that the increasing rate of cost was more than the increasing rate of revenue. The cost structure of RSRTC comprises different costs but the major part of the total cost was covered by personnel and material cost. The personnel cost covers 36 % of total cost on an average, similarly the material cost covers 40% of total cost on an average. The personnel cost includes the payment made to employees and other workers. The personnel cost which was Rs 27192 lakhs in the year 2003/4 increased to Rs. 36529 lakhs in the year 2007/8 which shows an increase of 25.6%.The same trend is noticed in the material cost which was Rs.25871 lakhs in the year 2003-04 and increased to Rs. 44160 lakhs in the year 2007-08 with the significant growth rate of 70%. In addition to these costs the other costs including depreciation, hire charges, interest, miscellaneous expenses also increased during the study period. The considerable increase in cost is completely reflected in the profitability position of RSRTC. Although, RSRTC was facing losses during the entire period of study but it is evident from the Table that some necessary steps were taken and because of which RSRTC was successful in reducing the amount of losses. The loss which was Rs, 3748 lakhs in the year 2004-05, reduced to Rs.2750 lakhs in the year 2005-06 and decreased to 185 Jur» Stevewaex 2010 sarowopy Guiprobar oop 2 puo sjeayf paresuco 01 prod ax sa6soy> any ayy sv saBioy any sof pax ‘sung ‘uodeuess pooy fo am Pew masa ‘sounuuofieg puo apart “SAIS : 2010s eee fse't9ee~ [as esoeer-pre- oz-osze- Jew eee fee levevse- ad BeOrl FIZT |SZOCOT [eeor| SOZT {ZLBOOT [eeTT | BOT [POS JOST] PLT | CaTHLG [Zee |SSST [OT TSHR RL EET LEC |RESELT [RST] SEO [PFO [SST | ECO OFFSET [OOST| GOTO | FSLHT [SBT] ATO |SeeHT oI BEF] GLO ESL |ISFC] CLIO |ATHLIE [SE | THEO [ESL¥E SCUS] GOTO | SOOGHE feces |ORSO |STLbGE aN SIS ore leseziz jesoz '96:2002 |ser'e les'epe [xce's| zs'ssee |z06'+ tozese ou SEE] CTO |EPCE [CIOS] BHO EHTS SOOT] PLO |REWIEY [ETS] STO | I Teer [SHES [OSTO | STSHRE [TONWBTTaSC ToT anpuy GET] BITE [OLESST [LOTTE] COST |EVORIE [FLTC | CITE [SS TOOST OTIC] LIFE | LOCHST OPS | ere fe PEOST [ITO SOT WD sor] rez [ooorte |sorr| siz |ersozer joer | ave9 |eczooelooze| ters | se'seveqcese| eco |rizesz | renown =] 1805 sve} ezo9 |rezsve lovee] oer's |oceze |ese | sizs |restsoc|etze| s1zs | rr ev0sqa0ze|ze> |zerzz | euuosisg SRE pong RUSTE oor | 9991 |szzoor joor | oot |zosaze foot | st |zs'szozs|oor | reer | eeersufoor |zeer |e-estee Troy, SRSA Buneisdo etze| sv lese1zz |reve| soso |restte [coe | zero |zr'sesz jeore| 90 | srtosz |aeez|z9e0 182400 WON oa 67:26] wor |6'zosz6 |1s96| s'st |everse |rr26 | svt |seovtsa|z96 | swet | teo6rdfores|oszt |eottoz | Buneido % | jeu fe/zooc | % | fem [Z/o0z | % | jem | 9/900c| % | jam [s/vo0r | % | jem |b/e002 | sxe monIeg or DLASe Jo suomeWS AyTGEIOLE OzI5 HoMTUIOD : T-o1GeL Inoian Jousnat oF Teanseoer Manaceven? 186 Rs1830 lakhs in the year 2006-0" 2361 lakhs. yut in the year 2007-08 RSRTC again faced a loss of Rs ‘According to Table-2, UPSRTC is generating two types of revenues. The operating revenue is the main source of revenue which includes passenger fare, and other fares charged. The operating revenue which was Rs 78556 lakhs in the year 2003-04 increased to Rs. 119816 lakhs, which shows an increase of 52.55%. Moreover, the operating revenue per effective kilometre also improved 26%. Alike the operating revenue, the non operating revenue also increased, The non operating revenue was Rs 3135 lakhs in the year 2003-04 and Rs 4257.11 lakhs in the year 2007-08 which shows an increase of 35%. The ultimate effect of raise in operating and non operating revenue reflects in total revenue. The total revenue which was Rs.81691 lakhs in the year 2003-04 increased to Rs 124073.9 lakhs, an increase of 51% and the same trend is seen in the total revenue per effective kilometre also, which increased by 25.5%. ‘The cost structure of UPSRTC includes both direct and indirect cost. The direct cost consists of material and personnel cost. UPSTRC was successful in maintaining the personnel cost at constant level till the year 2006-07. The personnel cost is an essential factor of total cost of UPSRTC, it covers 34% on an average. The personnel cost remained constant on an average till 2006-07 but in 2007-08 it increased to Rs 3902.97 lakhs. The personnel cost per effective kilometre also shows a decreasing trend till 2006-07 but in the year 2007-08 it increased to Rs 4.33 per effective kilometre although it was Rs 0.23 less than the personnel cost per effective kilometre of the year 2003-04. ‘The material cost is the cost which plays a significant role in the cost structure of UPSRTC. The material cost which was Rs. 31264.18 lakhs in the year 2003-04 increased throughout the period of study by a considerable margin of 30% and 15%, in the years 2005-66 and 2006-07, respectively, and 2% and 6% in the year 2004-05 ‘and 2007-08, respectively: Moreover, the material cost per effective kilometre increased more rapidly which shows more material consumption or inefficiency in utilization of material. The material cost per effective kilometre which was Rs 4.19 in the year 2003-04 increased to Rs.4.75 in the year 2004-05 and similarly increased to Rs.5.61 in the year 2005-06 and Rs 6.05 in the year 2006- 07 although it remained constant in the next year. ‘The other costs consisting of hire charges, depreciation and miscellaneous expenses also increased during the study period but the interest cost showed a decrease in the total cost as well as in cost per effective kilometre. The taxes paid by UPSRTC also played a vital role in the cost structure; the tax payments during the entire period of study increased and also made a significant reason for the losses faced by SRTU. UPSRTC enjoyed surplus only in the year 2007-08 and this was because of absence of passenger tax. UPSRTC suffered losses continuously but it was successful in controlling the amount of losses year to year as the loss which was Rs. 20039 lakhs in the year 2003-04, reduced to Rs.7820 lakhs in the year 2005-06. But, in the year 2006-07 it again increased to Rs. 14344 lakhs. RATIO ANALYSIS Ratio analysis is an important technique of financial statement analysis. It is the process of determining and interpreting the numerical relationship between figures of the financial statements, Ratio analysis facilitates the simplification, systematization and summarization of financial information by establishing the quantitative relationship as J.Batty said “ratio can also assist management in its basic functions of forecasting, planning, coordination, control and communication". The technique of ratio analysis is used in the present study in order to evaluate the profitability of SRTUs. Specific ratios are calculated arqorean zou =} spe2p x0) 1abuassed Jo osmneog parmmaqoa you st xo so¥fo Neal 187 uoppuuofn iad 0 pind Jou 81 80-L00E 40—f 24) sof x01 saOuosso4 « argonyore you sums anawopy Buprefos vyp ays pun sieayf poroesqueD oF prod as saBioy> axy ayp Sv sa6iny> any sof paveyna}D> zou 51 auioworTy amise{f2 Wad 3609 DL © BION ‘ung ‘uodsunsr pooy fo sinmsuy posuag ‘souvuofiag Pro anfoas ‘snug * a2:0s sve svozoy | (0971) |t61 |Iee'rvern)| (oo's!| L260 sez |(ceres| 1297z_| (to'6e000) iad j.ss9ee [eoor |ssz lozseor gee _|eczeest lovee [ise |zeevter facoe [zoct |evevter xeL eebt [zero [reseet | +29 |sezo lecorer vizo _|eesozt [soz |svolessezt ler reco |seoret 3s9700 69% |zueo lovever | sore [toro lev-ze0e geo seo [owe |seolezise lore [neo |orsose SN wee uct |eezostr | ecoe fore ieeoer_| re | zert [sce [cre [rt |rrovsz fore [see | 169000 [uonepasdog so8reyD ee. ss0968 | veo zee. | zeo| teow |so°6 eorrsse _fecor goves ont sosuadey 7 anpuy ose [sect losorsoe|sove [eter lseeetse | erez| csor [evreeze|scve feoclerette lvoe looee |scocvor | word sso1p 3805) seer |1s09 |zoorsts | 66% [zs0'9 Joeosers | zeor| sto essere forse [sxe |recere ecee leory |ervocte | reuse 3809 sete leer |sezzose | reo [seo |svecove | 10] reer |eescsee|voe [pr |seszie lotr jos» |trtoove | reuuosieg sosuade wang anuanny oot_|zeet |eezorer | oor oot | ter [error joor |ret|sezze foot |usor |zeteote rei0L, WoId Suneisdo eve eso [iruscr [oe losroltozcir [ove | scvo |ivestr jocr |evolooese fee revo |ysere woN Word uss6 over _|vorectr | ee96 [2071 levescor | v96| oer | creroor toss |stt|yszres forge scot |svocsas | Sunesdo jem |s/zooz | % |jey | 2/900 | % | pou [9/sooz | % |u| s/ooz | % | ye | ¥/e00r |siemmoniea sa L 1 a mH ima Jw» Serewses 2010 z DLASAA Jo mou AMAEYOIE oz1g woMMOD : Z-2190L, Iwouss Jougsa. oF Transrorr Maxacenext 183 to examine the different aspect of profits for the SRTUs. The analysis brings out particular constraints of operating and non operating profitability. Operating Ratio ‘The ratio which expresses the rapport between operating cost and sales is called as operating ratio. The operating cost includes cost of goods sold and other operating expenses such as administrative expenses etc. The operating ratio is a yardstick of operational efficiency. A higher operating ratio is un favourable since it leaves a small amount of operating income to meet interest, dividends etc. on the contrary a low operating ratio is a test of operational inefficiency. Table-3 : Analysis of Profitability Ratios of RSRTC Year | Operating | Operating | Gross Net.) Working | Return on io | Profit Ratio| Profit Ratio Profit Ratiol Capit Total Ratio Ratio 2003/4 | 107% 7 26.46% 2.30% 0.34 | -7.27% 2004/5 | 108% | 8 24.55% 4.83% 0.43 | -7.28% 2005/6 | 106% 6 21.74% 3.13% -0.04 | -8.64% 2006/7 | 106% 6 21.67% -1.89% -0.04 | -6.42% 2007/8 | 105% 5 19.49% 2.35% -0.04 | -9.49% Mean 106.4 64 22.7 290 | -0.18 78 sD Lia 4 2.73 Liz 0.19 114 cv 1.07 178 12.02 40.34 | 105.55 14.61 Table-4 : Analysis of Profitability Ratios of UPSRTC Year | Operating | Operating | Gross Net | Working |, Return on | Pro atio| Profit Ratio| Capital | Total Assets Ratio 2003/4 | 124% “24.53 20.10% 4.49% -146 | _-9.52% 2004/5 | 119% -19.67 24.23% 0.28% “1.85 0.54% 2005/6 | 107% -7.06 31.63% 9.9% -1.67 | 19.58% 2006/7 | 112% -12.0 24.65% 3.68% -1.60 7.07% 2007/8 97% 3.28 24.59% 3.28% “1.94 6.93% Mean | 112% 12.00 25.04% | 2.53% -164 | 491% sD 10.52 10.52 4.15 5.01 0.18 10.62 cv 9.39 87.66 1657 197 10.97 216 ‘Ju + Serrensee 2010 189 From Table-3 and Table-4 it is clear that RSRTC continuously had a_higher operating ratio during the whole span of study, which indicates inefficiency in the operation. But, only one thing was satisfactory that the margin of operating ratio was coming down. it was 108% in the 2004-05, 106% in the 2005-06 and 2006-07 and 105% in 2007-08. In comparison to RSRTC, UPSRIC is more inconsistent. The operating ratio of UPSRTC fluctuated within the entire period of study as shown in Table-4. The operating ratio of UPSRTC was 109% in 2003-04, then it decreased to 104% and 94% in 2004-05 and 2005-06 respectively. But in 2006-07 and 2007-08 it again increased to 100%. ‘The above analysis concludes that the operating cost of both the Corporations are still out of reach although the efforts made are reflected in the performances of both Corporations. But, without having control over cost it is not possible to retain the reflection for a long period of time. The Corporations are government undertakings and have to bear a lot of social obligations. Moreover, the Corporations cannot raise their revenue by increasing fare because the main motive of these undertakings is to provide service rather than generating profits. Operating Profit Ratio The operating profit is the profit arising from the normal operations of a business. While computing the operating profit ratio the non operating expenses and cost are not considered. This ratio provides measurement of operational efficiency, higher ratio shows a better managerial efficiency and lower ratio indicates inefficiencies in operation. As evident from Table-4, RSRTC has always had a negative operating profit ratio during the study period. Although, the negativity is reducing by a very small margin, as it had 8% operating loss in 2004-05 and the same reduced to 5% in 2007-08. It is noticeable that UPSRTC is successful in overcoming with the negative operating profit. The Corporation was having an operating loss of 9% in 2003-04 and there from it converted loss into 6% operating profit in 2005-06. It is evident from the above analysis that the present operating profits are not satisfactory although a serious intention to overcome is observed. Gross Profit Ratio ‘The gross profit ratio expresses the relationship between sales and gross profit. The gross profit is a profit which is arrived after deducting the direct expenses from total revenue. According to the Accounting Standards Board of India, Gross profit is the excess of the proceeds of goods sold and services rendered during a period over their cost before taking into account administration, selling, distribution and financial expenses. The gross profit in RSRTC declined year to year, it was 26% in 2003-04 but then it declined to 19.49% in 2007-08. It remained constant only in the year 2005-6 and 06-07 at 21%. The gross profit in UPSRTC is comparatively more fluctuating as it was 20% in 2003-04, increased to 31.63% in 2005-06 and then reduced to 24.78% in 2007-08. Conclusively, the gross profit ratio of RSRTC and UPSRTC are not satisfactory. In RSRTC, it is decreasing every year, which is an indicator of inefficiency in direct cost control. In UPSRTC, there is an inconsistent efficiency. The management failed to retain the level of efficiency. [Woias JOURNAL oF Traxsroer Manaceuext 190 Net Profit Ratio ‘The net profit ratio is an indicator of overall efficiency of an undertaking. It shows a relationship between the total revenue and the profit arrived after deducting the operating and non operating expenses. The net profit ratio not only reveals the recovery of cost from the revenue of the period but also to leave a_margin of reasonable compensation to the owners for providing capital at their risk. RSRTC faced a net loss during the entire study period. The net loss was maximum in 2004-05 when it reached 4.83%. But, RSRTC was successful in controlling the net loss in 2006-07 which was 1.89%. UPSRTC faced loss in 2003-04 but then it recovered remarkably as the net profit increased with a noticeable growth of 14% and reached 9.9% in 2005-06. But the growth did not continue in the next year as it went down to 3.28% in 2007-08. Working Capital Turnover Ratio ‘The ratio is basically used to assess the efficiency in using working capital for generating sales. It shows a relationship between sales and working capital. A high working capital ratio indicates a good sign for the undertaking as it can get more profits by investing lesser amounts in working capital. RSRTC had a very less working capital ratio which indicates that the amount ‘of working capital was not properly utilized. The working capital turnover ratio regularly declined from -0.43 times in 2004-05 to -0.04 times in 2005-06, 06-07 and 2007-08. Similar to RSRTC, UPSRTC also had negative working capital tumover ratio throughout the span of study. It was ~ 1.46 times in 2003-04 and -1.94 times in 2007-08. For the purpose of evaluating consistency a statistical technique of coefficient of variation is applied. The parameter, for which CV is more, is considered as less consistent and vice-versa. According to Table-3 and Table-4 it is evident that the performance of RSRTC is more consistent than UPSRTC on all parameters (operating ratio, operating profit ratio, gross and net profit ratio) except working capital turnover ratio. Return on Total Assets Return on total assets ratio is also called as return on investment and return on gross capital employed. The ratio is very significant in evaluating the effective use of capital employed in business. In other words it expresses the earning power of assets of the business. Net profit means profit which is arrived after interest and taxes and the total assets include all such assets of the business except of the intangible and fictitious assets in addition to this the non operating investments are also excluded from the calculation of assets. It is observed from the table that RSRTC is facing a negative return on its assets ‘The return on assets are negative during the entire period of study which indicates an improper utilization of assets. Moreover, this also indicates the inefficient utilization of funds provided by investors such as government and other creditors. UPSRTC was somehow in a better position in comparison to the RSRTC. UPSRTC was facing negative return on assets but it was successful to overcome the negativity and generate a 19.58% return on assets in 2005-06. Although, it is a noticeable recovery from the negative return of -9.52% in 2003-04, the same trend could not be continued in the following years. Jus» Samewoex 2010 19 Conclusively, the return on assets for RSRTC was improving but it was still negative. So, a proper consideration is required over the effective utilization of funds. As far as UPSRTC is concerned, the return on assets are positive except for the year 2003-04. But, it failed to make a constant growth. OTHER FACTORS AFFECTING PROFITABILITY Fleet Utilization Fleet utilization ratio is a strong indicator of physical performance. It represents the effective utilization of fleets for the revenue generation, normally all fleets are not used because of repairs and other contingencies so with this ratio the physical performance of Corporations and the impact of physical performance on the profitability can be measured, Table-6 presents the fleet utilisation ratio of RSRTC and UPSRTC. The ratio has remained at 96% on an average for RSRTC which is quite satisfactory with respect to the fleet strength which was 4747 in 2003-04, 4373 in 2005-06 and 4306 in 2007-08. The fleet utilization ratio of UPSRTC is also satisfactory as shown in the Table. The fleet utilization ratio decreased to 95.4% in 2007-08 from 96.3% in 2005-06 with reference to the strength of fleet which was 6197 in 2003-04, 5843 in 2004-05, 6031 in 2005-06 and 6660 in 2007-08. Table-S : Fleet Strength 2003-04 | 2004-05 | 2005-06 | 2006-07 | 2007-08 ‘STU buses [| 4747 4345 4373 4389 4306 RSRTC —_ a Hired buses NA NA 192 130 114 STU buses 6197 5843 6031 6418 6660 UPSRTC | Hired buses | 1197 NA 898 812 810 Table-6 : Fleet Utilization Ratio 2003-04 | 2004-05, 2005-06 2006-07 | 2007-08 {_Rsrtc 93.90% | 96.00% 96.2% 96.5% 96.1% UPSRTC 92.20% | 96.00% 96.3% 96.5% 95.4% Load Factor Load factor depicts carrying capacity of fleet. Table-7 presents the load factor of RSRTC and UPSRTC. From the Table it is clear that the fleets are better loaded in RSRTC in comparison to UPSRTC. The load factor of RSRTC which was 65.60% in 2003-04 increased to 72% in 2007-08. The same trend is also seen in the case of UPSRTC also, where the load factor increased to 64.16% in 2007-08, from 57.00% in 2003-04. The load factor is an important factor affecting the cost and profitability of SRTUs. The load factor is also an important reason of difference between the profitability of SRTUs under study as depicted in the Table. The load factor in UPSRTC is less than that of RSRTC, although both the Corporations showed improvement during the study period. [ak Joueyss oF Transroar Masaceuent ‘Table-7 : Load Factor 2003-04 2004-05 2005-06 2006-07 2007-08 RSRTC 65.60% 70.30% 67.40% 70.10% 72.00% UPSRTC 87.00% 62.16% 59.14% 61.92% 64.16% ‘Tax Structure Tax structure is an essential element influencing the profitability of SRTUs. SRTUs have to pay different kind of taxes which comprises motor vehicle tax, permit fees, passenger tax and other taxes. As per Table-8 there is a considerable difference between the tax payments made by both the SRTUs because of the fleet strength and transits. The motor vehicle tax and permit fees paid by RSRTC shows an increasing trend with the tax payments of Rs.408.50 lakhs in 2003-04, Rs. 451.49 lakhs in 2005-06, which decreased to Rs. 429.26 lakhs in 2007-08. The same trend followed in case of passenger tax which increased by 19% from Rs. 6882.21 lakhs in the year 2006-07 to Rs 8187.89 lakhs in the year 2007-08. Although, the same decreased by 13.5% in 2006-07 in comparison to 2005-06. Other taxes also increased by 43% but then decreased by 9%in the year 2007-08. The motor vehicle tax ‘and permit fees paid by UPSRTC are more than that of RSRTC. This is because of the fleet strength mentioned in Table-5. Similar to the motor vehicle tax and permit fees, the passenger tax paid by UPSRTC is also in excess to RSRTC. The other taxes paid by UPSRTC are much less then paid by RSRTC. A heavy fluctuation is noticed in the payment of other taxes by UPSRTC. It was 137.14 lakhs in 2005-06 which decreased to Rs.2 lakhs in 2006-07 and then again increased to Rs. 76.69 lakhs in 2007-08. ‘The taxes paid by UPSRTC were double to the taxes paid by RSRTC and it certainly affected the profitability. ‘Table-8 : Tax Payments Lakhs 2003-04 | 2004.05 | 2008-06 | 2006-07 | 2007-08 MV and 408.50 387.70 | 451.49 436.73 | 429.26 Permit Fees RsRTC Passenger | 776352 | 8155.11 | 796594 | 688221 | 8187.89 Tax Other Taxes NA na | 1300.00 | 1861.40 | 1693.42 MV and 634.92 598.49 | 612.67 833.00 | 759.90 | Permit Fees | upsrtc | Passenger | 1638492 | 1743855 | 18187.48 | 13547.60 NA | Tax | Other Taxes] 124.00 105.83 137.14 2.00 76.69 Jus ~ Serrewoee 2010 193 Fare Structure ‘The fare structure consists the fare charged to the passenger per kilometre. The variation in charges is due to the classes. Both RSRTC and UPSRTC have different class of fleet, which are mentioned in Table-9. The fare charges for the A.C fleet are highest. As depicted in the Table, the fare charges for ordinary class in UPSRTC is considerably more (27%) than RSRTC and makes a significant difference in revenue generation. Similar to the ordinary class, the express, deluxe and semi deluxe fares charged by UPSRTC are also more than the fare charged by RSRTC during the entire span of study. The fare charged by both SRTUs has also increased year-wise. The fare charged by RSRTC for ordinary class increased by 36% and 19% in the case of UPSRTC during the study period. ‘Table-9 : Fare Structure 2003-04 | 2004-05 | 2005-06 | 2006-07 Ordinary 33.00 33.00 40.00 40.00 Express 40.00 40.00 47.00 47.00 RsRTC [A.C 120.00 120.00 125.00 125.00 Deluxe 67.00 67.00 75.00 75.00 ‘Semi Deluxe] 46.00 46.00 50.00 50.00 Ordinary 41.70 45.00 49.52 49.52 Seer [Express | 459 | 49.50 54.47 ae Deluxe 70.9 76.50 61,90 61.90 Semi Deluxe 52.1 36.25 | 84.18 84.18 Price structure: Paise per passenger per km. Hypothesis Testing For the analysis of profitability of SRTUs under study, an inter comparison of firms from six dimensions is made by applying the student's t test at 5% level of significance. ‘Table-10 depicts observations and conclusions of the application of test. As shown in the Table, the null hypothesis is accepted in all cases except of working capital turnover ratio for which null hypothesis is rejected. The acceptance of Ho denotes that there is no significant difference between the profitability positions of SRTUs under study but the rejection of null hypothesis indicates that there is a significant difference between the working capital utilization of SRTUs under study. CONCLUSION From the above analysis the following conclusions and findings are discovered Rajasthan State Road Transport Corporation and Uttar Pradesh State Road Transport Corporation are both public sector undertakings. The main aim of these Corporations is to nous Jouesas oF Teansrorr Manscewext 194 provide service to the society and not to generate profits. The Corporations have to bear a lot of social cost which ultimately reduces the profits. It is apparent from the above study that both RSRTC and UPSRTC are facing losses during the entire span of study. As palpable from the analysis, the SRTUs are struggling in controlling operating cost as a result both the Corporations ‘are having negative operating and operating profit ratio, The operating cost is continuously overlapping the operating revenue during the period of study. Although, the operating ratio of UPSRTC is in better condition in comparison with RSRTC, the mean of both Corporations does not have any significant difference, which is also proved from the hypothesis testing. The gross profit ratio is positive in both the Corporations which confirm that the Corporations are recovering their direct cost in an effective manner. The net profit ratio of RSRTC is negatively decreasing throughout the period of study but UPSRTC is successful in recovering itself from the losses. Although, UPSRTC has successfully overcome with their losses but the difference in between the mean of net profit ratio of both Corporations are insignificant. ‘The working capital turnover ratio is an indicator of effective utilization of working capital. RSRTC has very less working capital turnover ratio throughout the period of study. ‘The net working capital ratio of UPSRTC is also negative in the period of study but the margin of negativity is less in comparison to RSRTC. This is the only parameter or dimension of analysis which has a significant difference between the mean of two undertakings. The return on assets ratio is an indicator of prosperity of Corporations. ‘The higher return on assets ratio reflects a better utilization of assets and generation of profit from the investment in assets. RSRTC is facing with the negative return on assets. But, UPSRTC is using its assets in an efficient way as its return on assets is positive after first year in which it faced loss, Conclusively, the main difference between the SRTUs and private operators is that the private operators work with an objective of profit maximization but the SRTUs are government undertakings and are established for providing service to every segment of Society. The other difference is that private operators can fix their fare and charges but the government undertakings cannot do so as the fares and charges are fixed by government with a motive of service to the society. In spite of these reasons it is suggested that both the corporations adopt professionalism in work and necessary steps should be taken to overcome the losses. The corporations must control the direct and indirect cost of operation. References 1, Howard and Upton, Introduction to Business Finance (New York, McGraw Hill, 1961), pp.150, 2, Fourth Conference of Asian and Pacific Accountant, New Delhi, 1965, pp.143. Road Transport Corporation Act, 1950 (Section18 and 22) 4. Address by Prof. J.K. Galbraith on Public Administration and Public corporation at UPA, New Delhi on 25th August, 1961 5. Raj, A. Besant C, Corporate Financial Management (An Introduction), Tata McGraw Hill Publishing Co. 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