Productivity and Profitability Analysis of Eastern Refinery Limited (ERL) - An Evaluative Study

Abstract

Productivity measures the efficiency of production system and profitability measures the financial soundness of a company. The current study is an attempt to critically evaluate the productivity and profitability position of Eastern Refinery Limited (ERL). The study found that ERL could utilize only 78.74 percent of production capacity in refinery plant and 57.17 percent in secondary conversion plant. A huge unutilized capacity creates inefficient asset management and reduces productivity and profitability of ERL. The study also depicts that average total productivity (TP) and capital productivity (CP) was 1.05 and 0.47 only which indicates the poor productivity performance and asset management of ERL. In case of profitability, net profit margin, ROE, and ROA was found very unsatisfactory which indicates the inability of ERL in generating profit for the shareholders. The study reiterated that average total asset turnover was 0.38 times only which indicates that ERL failed to generate higher amount of sales per amount of tangible assets. The study has identified a number of factors using Likert’s 5 point scale and found that, capacity utilization, asset management, decision making authority, debt management and budgetary control were found significant affecting the productivity and profitability of ERL.

Key words: Productivity, Profitability, Asset management, Capacity utilization, Z-score, Balanced Scorecard.