MNCs perform better than Indian peers

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Pradip Kumar Dey: Mar 04 2011, 01:45 IST

Multinational companies in India have performed better in terms of aggregate profitibility ratio than Indian companies in 2009-10. A comparison between 47 major MNCs and 50 major domestic companies, all with sales over Rs 300 crore, shows that while Indian companies profitability ratio (profit before tax to sales) increased during 2009-10, the magnitude of MNCs in profitability ratio was higher.

In the case of MNCs, all the selected ratios at the aggregate level showed an increase except capital turnover ratio during 2009-10, against that of 2008-09, but in the case of Indian companies, all the ratios showed a decline except profitability ratio during the same period.

The aggregate sales of the 47 MNCs have increased by 11.9% from Rs 1.33 lakh crore in 2008-09 to Rs 1.49 lakh crore in 2009-10. Their total profit before tax (PBT) has increased by 20.36% during the above period, increasing the profitability ratio measured as a percentage of the PBT to sales ratio from 17.69% in 2008-09 to 19.03% in 2009-10. This is significant, for with lower sales growth, the MNCs have succeeded in raising their return on sales. We considered four ratios for the comparison. They are profitability = (profit before tax/ sales) x 100; capital turnover = sales/total funds; working capital turnover = sales/net current assets; stock turnover = sales/inventories.

On the other hand, corporate India achieved an 2.71% growth in sales during 2009-10, and the PBT has increased by 38.93% to Rs 2.15 lakh crore during 2009-10 from

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