PROFITABILITY AND LEVERAGE ANALYSIS OF INDIAN RAILWAYS:IMPACT OF COST-BASED INDEXATION

摘要

We aim to determine the impact of implementing the FAC in freight and fare rates for IR on its BEP and leverages. The BEP represents the cutoff point for the organization's profit or loss, and leverages are indicators of risk. While operating leverage is due to FC associated with the production of goods and services, financial leverage exists due to the presence of debt in the capital structure of the company. Leverage analysis enables understanding and developing an effective relationship between overall risk and returns. We find the BEP and margin of safety to improve substantially after implementing the FAC. In addition, application of the FAC in fare and freight would improve IR's profitability from 0.013 to 0.113 as well as its leverages, improving operating leverage to 5.48 from 12.85 (without FAC) and financial leverage to 1.42 from 4.52 (without FAC). These results demonstrate the profound impact of fuel costs and recovery on the BEP and operating leverage of IR.