A STUDY ON FINANCIAL PERFORMANCE OF OIL AND NATURAL GAS CORPORATION (ONGC)

A STUDY ON FINANCIAL PERFORMANCE OF

OIL AND NATURAL GAS CORPORATION (ONGC)

A Project Report submitted to the

JAMAL MOHAMED COLLEGE (AUTONOMOUS)

Affiliated to Bharathidasan University, TIRUCIRAPPALLI.

In partial fulfillment of the requirements for the Award of the Degree of

MASTER OF COMMERCE

Submitted By

A.AARIF KHAN (Reg.No.11PCO 001)

Under the guidance of

Prof. R. KHADER MOHIDEEN Principal & Head, Department of Commerce

POST GRADUATE AND RESEARCH DEPARTMENT OF COMMERCE

JAMAL MOHAMED COLLEGE (Autonomous) Nationally accredited with ‘A’ Grade by NAAC – CGPA 3.6 out of 4.0

Affiliated to Bharathidasan University TIRUCHIRAPPALLI – 620 020

APRIL 2013

Prof. R. KHADER MOHIDEEN Principal & Head, Department of Commerce Jamal Mohamed College (Autonomous) Tiruchirappalli – 620 020.

Date:

CERTIFICATE

This is to certify that the Project Work is done under my guidance

and the Dissertation entitled “A STUDY ON FINANCIAL

PERFORMANCE OF OIL AND NATURAL GAS CORPORATION

(ONGC) ” submitted by A. AARIF KHAN (Reg. No. 11PCO 001) in

partial fulfillment of the requirements for the award of the Degree of

MASTER OF COMMERCE of Jamal Mohamed college (Autonomous)

affiliated to Bharathidasan University, Tiruchirappalli – 620020 for the

academic period 2011-2013 is the original work of the candidate.

SIGNATURE OF THE SIGNATURE OF THE HEAD OF THE DEPARTMENT PROJECT ADVISOR

SIGNATURE OF THE EXTERNAL EXAMINAR

ACKNOWLEDGEMENT

At the out set, I wish to express my sincere thanks to the

Almighty for showering his blessing on me to complete this project.

I am deeply indebted to Dr. R.KHADER MOHIDEEN M.Com,

M.B.A., M.Phil., Ph.D., Principal and Head, Department of Commerce,

for his guidance and assistance in carrying out the project work.

I am very much grateful to Dr. A.M.MOHAMED SINDHASHA

M.Com., M.B.A., M.Phil., Ph.D., M.Sc(Psy), Additional Vice Principal

and HOD In-Charge Department of Commerce, for his support and

providing necessary facility to carry out my project.

I sincerely thank the Faculty Members, Department of

Commerce for their encouragement and support.

Last but not least I like to thank my Parents and beloved friends

for their moral support for completing this project work successfully.

A.AARIF KHAN

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CHAPTER 1

INTRODUCTION

1.1 INTRODUTION

Finance is regarded as the base of a business enterprise. This is

because in the modern money-oriented economy, finance is one of the basic

foundations of all kinds of economics activities. Finance provides access to the

entire source being employed in manufacturing and merchandising activities. It

has rightly been said that business means money to make more money.

However, it is also true that money begets more money only when it is properly

managed. Hence, efficient management of every business enterprise is closely

linked with efficient management of its finance.

In general, finance may be defined has a provision of money at the time

it is wanted. Finance function may be defined as the procurement of funds and

their affective utilization. Some of the authoritative definitions are as follows.

In the words of Guthman and Dougall, “Business finance may be defined

as the activity concerned with planning, raising, controlling and administering of

the funds in the business”.

Business finances is that business activities which is concerned with the

acquisition and conservation of capital funds in meeting financial needs and

overall objectives of a business enterprise”.

Finance mainly involves rising of funds and their effective utilization

keeping in view the overall objectives of the firm. This requires great caution

and wisdom on the part of management. The management makes use of

various financial techniques, devices, etc, for administering the financial affairs

of the firm ink the most effective and efficient way.

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1.2 FINANCIAL MANAGEMENT

Financial management is the managerial activity which is concerned with

the planning and controlling of the firm’s financial resources.

“Financial management is concerned with the efficient use of an

important economic resource, namely capital funds”.

Financial management is necessary for the proper management of

funds. Finance manager must see that the funds are procured in the manner

that the risk, cost and control considerations are properly balanced in a given

situation and there is optimum utilization of funds.

“Financial management is concerned with management decisions that

result in the acquisition and financing of long term and short term credit for the

firm. As such it deals with the situations that require selection of specific assets

as well as the problem of size and growth of an enterprise. The analysis of

these decisions is based on the expected inflows and their effects upon

managerial objectives”.

In the modern economy, finance is one of the basic foundations of all

kinds of economics activities. It is the master key, which provides the access to

all the sources for the being employed in manufacturing and merchandising

activities. Efficient management of every business enterprise is closely linked

with efficient management of finances. Finance is the only common

denominator for vast range of corporate objectives. The major part of any

corporate plan must be expresses in financial term.

Finance is a specialized function and it draws heavily on their related

functions, finance has undergone a significant change and is concerned with

flow of funds and decisions relating to business operations effecting the

valuation of the firm. Finance functions cover decisions relating to investment,

financing and dividends.

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1.3 SIGNIFICANCE OF THE STUDY

So this core industry requires a huge amount of finance. Finance as a

resource, in this industry needs to be improved today. Improvement of financial

is possible by way proper planning and utilization of funds. Finance is a means

which improves the performance of this core industry. Financial analysis helps

a company to diagnose its profitability and financial soundness.

Due to the above reasons this study namely “Financial statement

analysis of OIL AND NATURAL GAS CORPORATION “is necessary and is

undertaken.

1.4 OPERATIONAL DEFINITIONS AND CONCEPTS

Finance

Finance in common parlance refers to money. The edifice of modern

economy stands on the foundation of money i.e. finance. All economic

activities centre on making of money. Finance is the backbone of all activities

whether it is manufacturing, or servicing. The entire idea of dong any economic

activity is to make more money out of money. However, this is possible only

when the finance is properly and prudently managed. So it goes without saying

that efficient management of an enterprise is closely related to efficient

management of its finances.

Financial Statement

A financial statement is an organized collection of data according to

logical and consistent accounting procedures. Its purpose is to convey an

understanding of some financial aspects of a business firm. It may show a

position at a moment of time as in the case of a balance sheet, or may revel a

series of activities over a given period of time, as in the case of an income

statement.

Basically there are two types of financial statement. They are income

statement and balance sheet.

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Financial Statement Analysis

It is the process of identifying the financial strength and weakness of a

firm from the available accounting data and financial statement. The analysis is

done by properly establishing the relationship between the items of Balance

Sheet and Profit and Loss Account. The first task of financial analyst is to

determine the information in relevant to the decision under consideration from

the total information contained in the financial statement. The second step is to

arrange information in a way to highlight significant relationship. The final step

to provide is information and drawing of inferences and conclusion. Thus

financial analysis is the process of selection relating and evaluation of the

accounting data/information.

This study contains the following analyses

• Ratio Analysis

• Trend Analysis

• Common Size Balance Sheet

• Comparative Balance Sheet

Comparative Financial Statement

Comparative financial statements are those statements which have been

designed in a way so as to provide time perspective to the consideration of

various elements of financial position embodied in such statements. In these

statements, figures for two or more periods are placed side by side to facilitate

comparison.

But the income statement and balance sheet can be prepared in the

form of comparative financial statement.

Comparative Balance Sheet

Comparative balance sheet as on two or more different dates can be

used for comparing assets and liabilities and finding out any increase or

decrease in those items. Thus, while in a single balance sheet the emphasis is

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on present position, it is on change in the comparative balance sheet. Such a

balance sheet is very useful in studying the trends in an enterprise.

Common-Size Financial Statement

Common-size financial statements are those in which figures reported

are converted into percentages to some common base. In the income

statement the sales figure is assumed to be 100 and all figures are expressed

as a percentage of sales. Similarly, in the balance sheet, the total of assets or

liabilities is taken as 100 and all the figures are expressed as a percentage of

this total.

WORKING CAPITAL MANAGEMENT

Decisions relating to working capital and short term financing are

referred to as working capital management. These involve managing the

relationship between a firm’s short-term assets and its short term liabilities.

The goal of working capital management is to ensure that the firm is able to

continue its operations and that it has sufficient cash flow to satisfy both

maturing short-term debt and upcoming operational expenses.

By definition, working capital management entails short term decision-

generally, relating to the next one year periods- which are “reversible”. These

decisions are therefore not taken on the same basis as capital Investment

Decisions (NPV or Related, as above) rather they will be based on cash flows

and/or profitability.

One measure of cash flow is provided by the cash conversion cycle-the

Net number of days from the outlay of cash for Raw material to receiving

payment from the customer. As a management tool, this metric makes explicit

the inter-relatedness of decisions relating to inventories, accounts receivable

and payable, and cash. Because this number effectively corresponds to the

time that the firm’s cash is tied up in operations and unavailable for other

activities, management generally aims at a low net count.

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In this context, the most useful measure of profitability is Return on

Capital (ROC). The result is shown as a percentage, determined by dividing

relevant income for the 12month by capital employed; Return on Equity (ROE)

shows this result for the firms share holders. Firm value is enhanced when,

and if, the return on capital, which results from working capital management,

exceeds the cost of capital, which results from capital investment decisions as

above. ROC measures are therefore useful as a management tool, in that link

short-term decision making. Economic Value Added (EVA).

Trend Analysis

Trend Analysis is a comparative study of the financial statement of

several years.

Ratio

Ratio is a mathematical expression of relationship between figures which

have connection in one way or the other. Ratios are expressed in two ways:

1. Times: One value is divided by another value. The expression is

“number of times”

2. Percentage: The quotient obtained above is multiplied by 100. This

gives the%

Ratio Analysis

Ratio analysis is a widely used tool of financial analysis. The term ratio

in it refers to the relationship expressed in mathematical terms between two

individual figures or group of figures connected with each other in some logical

manner and are selected from financial statement of the concern. The ratio

analysis is based on the fact that single accounting figures by it self may not

communicate any meaningful information but when expressed as a relative to

some other figures, it may definitely provide some significant information the

relationship between two or more accounting figure / group is called a financial

ratio helps to express the relationship between two accounting figures in such a

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way that users can draw conclusions about the performance, strengths and

weakness of a firm.

Accounting Ratio

The arithmetical method of ascertaining the interrelation between any

two numeric data expressed in accounting statements is known as Accounting

Ratio. The definition implies that in use of an accounting ratio both the

components in the form of numerals or variables used in computing a ratio are

taken from the financial statements prepared in financial accounting. For

example it can be stated that if in a concern the Sales of a particular year is Rs.

2.00.000 and the Net Profit is Rs. 40,000 Sales Ratio becomes 1:5 or 1/5

indicates that the Net Profit of the concern for that year is one-fifth portion of its

Sales or for Sales of Rs. 5 Net Profit is Rs. 1. In this case Sales and Net Profit

both these variable are taken out of the Profit and Loss Account prepared in

financial accounting. For this reason this ratio is stated as Accounting Ratio. In

the opinion of J. Batty, accounting ratio “is used to describe significant

relationships which exist between figures shown on a Balance Sheet, in a Profit

and Loss Account in a Budgetary Control System or in any other part of the

accounting organization”.

Steps in Ratio Analysis

The following steps are followed in analysis through accounting ratios:

(i) Collection of information: In the first step of ratio analysis raw data is

collected from the financial statements for computing different ratios.

(ii) Computation of ratios: In the second step necessary ratios are

computed between the figures having cause and effect inter-relationship.

Such ratios may be expressed in terms of times, multiples, proportion or

percentage depending on the specific requirement.

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(iii) Making comparison: The ratios computed are compared with the ratios

of the past year or years of the same concern or with the standard ratios

of the industry to which the concern belongs.

(iv) Arriving at decisions on comments: In the next step the significance

of these ratios must be conceived on the basis of comparative

interrelationship among them in such a manner so that adequate

comments can be made for helping the users of accounting information

to arrive at their decisions.

(v) Preparing report: In the final step necessary reports are to be prepared

for communicating analyzed information and the relevant comments to

the management.

Significance of Financial Statement Analysis:

1. Judging the earning capacity or profitability of a business concern.

2. Analyzing the short term and long term solvency of the business

concern.

3. Helps in making comparative studies between various firms.

4. Assists in preparing budgets.

Limitations of Financial Statement Analysis

Analysis of financial statements helps to ascertain the strength and

weakness of the business concern, but at the same time it suffers from the

following limitations.

• It analyses what has happened till date and does not reflect the future.

• It ignores price level changes.

• Financial analysis takes into consideration only monetary matters,

qualitative aspects are ignored.

• The conclusions of the analysis are based on the correctness of the

financial statements.

• Analysis is a means to an end and not the end itself.

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• As there is variation in accounting practices followed by different firms a

valid comparison of their financial analysis is not possible.

There are different ways by which financial statement analysis can be

undertaken and one among them is “Ratio Analysis”.

CLASSIFICATION OF RATIOS:

a) Liquidity Ratios

b) Leverage Ratios

c) Activity Ratios

d) Profitability Ratios

A) Liquidity Ratios

These ratios portray the capacity of the business unit to meet its short

term obligation from its short-term resources (i.e0 Current Ratio, Quick Ratio.

Current Ratio:

Current ratio may be defined as the relationship between current assets

and current liabilities it is the most common ratio of measuring liquidity. It is

calculated by dividing current assets and current liabilities. Current assets are

those, the amount of which can be realized with in a period of one year.

Current liabilities are those amounts which are payable with in the period of the

year.

Current assets Current Assets = ––––––––––––––––––––– Current liabilities

Liquid Ratio:

The term ‘liquidity’ refers to the ability of a firm to pay its short-term

obligation as and when they become due. The term quick assets or liquid

assets refers current assets which can be converted into cash immediately it

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comprises all current assets except stock and prepaid expenses it is

determined by dividing quick assets by quick liabilities.

Liquid assets Liquid Ratio = ––––––––––––––––––––––– Liquid liabilities

B) Leverage Ratios

Many financial analyses are interested in the relative use of debt and

equity in the firm. The term ‘solvency’ refers to the ability of a concern to meet

its long-term obligations. Accordingly, long-term solvency ratios indicate a

firm’s ability to meet the fixed interest and cost and repayment schedule

associate with its long-term borrowings. (i.e) Debt Equity Ratio, Proprietary

Ratio, etc….

Debt equity Ratio:

It expresses the relationship between the external equities and internal

equities or the relationship between funds and ‘owners’ capital. It is a popular

measure of the long-term financial solvency of a firm. The relationship is

shown by the debt equity ratio. The ratio indicates the relative proportion of

debt and equity in financing the assets of a firm. This ratio is computed by

dividing the total debt of the firm by its equity (i.e) net worth.

Outsider’s funds Debt equity Ratio= –––––––––––––––––– Proprietor’s funds

Proprietary ratio:

Proprietary ratio relates to the proprietors funds to total assets. It

reveals the owners contribution to the total value of assets. This ratio shows

the long-time solvency of the business it is calculated by dividing proprietor’s

funds by the total tangible assets.

Proprietor’s funds Proprietary Ratio = ––––––––––––––––––––– Total tangible assets

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Fixed assets to net worth Ratio:

The ratio shows the relationship between fixed assets and proprietors

funds. The purpose of ratio is to find out the percentage of the owners fund

invested in fixed assets.

Fixed assets Fixed assets to net worth Ratio= ––––––––––––––––––– Proprietor’s funds

Ratio current assets to proprietor’s funds:

The ratio of current assets to proprietor’s funds establishes the

relationship between current assets and proprietor’s funds.

Current assets

Ratio current assets to proprietors funds= ––––––––––––––––––––––– Proprietor’s funds

Ratio of current assets to fixed assets:

The ratio establishes the relationship between current assets and fixed

assets.

Current assets Ratio of current assets to fixed assets = –––––––––––––––––––

Fixed assets

Stock to working capital Ratio:

Stock on inventory Stock to working capital Ratio = –––––––––––––––––––––– Working capital

C) Activity Ratios

These ratios evaluate the use of the resources of the business concern

along with the use of the components of total assets. They are intended to

measure the effectiveness of the assets management the efficiency with which

the assets are used would be reflected in the speed and rapidity with which the

assets are converted into sales. The greater the rate of turnover, the more

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efficient the management would be (i.e) Stock Turnover Ratio, Fixed Assets

Turnover Ratios etc.

Fixed assets turnover Ratio:

The ratio indicates the extent to which the investment in fixed assets

contribution towards sales. If the compared with a previous year. It indicates

whether the investment in fixed assets has been judious or not the ratio is

calculated as follows.

Net sales Fixed assets turnover Ratio= ––––––––––––––– Fixed assets

Working capital turnover Ratio:

Working capital turnover ratio indicates the velocity of the utilization of

net working capital. The ratio indicates the number of times the working capital

is turned over in the course of a year. It is a good measure over-trading and

under-trading.

Net sales Working capital turnover Ratio = –––––––––––––––––––– Net working capital

Return on total assets:

Profitability can be measured in terms of relationship between net profit

and total assets. It measures the profitability of investment. The overall

profitability can be known by applying this ratio.

Net profit Return on the assets = –––––––––––––––––––– x 100 Total assets

Return on proprietor’s funds:

This ratio shows the rate of profit on proprietor’s funds. It relates the

profit available for the share holders to their total investment.

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Net profit after interest & tax Return on proprietor’s funds = ––––––––––––––––––––––––––––– Proprietor’s funds

D) Profitability Ratios:

The profitability ratios of a business concern can be measured by the

profitability ratios. These highlight the end result of business activities by which

alone the overall efficiency of a business unit can be judged, (i) Gross Ratios,

Net Profit Ratio.

Net profit Ratio:

Net profit ratio establishes a relationship between net profit (after taxes)

and sales. It is determined by dividing the net income after tax to the net sales

for the period and measures the profit per rupee of sales.

Net profit Net profit ratio = –––––––––––––––––– x 100 Net sales

Expenses Ratio:

This ratio establishes the relationship between various indirect expenses

to net sales.

Administrative expenses Ratio:

Administrative expenses Administrative expense Ratio = ––––––––––––––––––––––––– x 100 Sales

Selling & distribution expenses Ratio:

Selling and distribution expenses Selling & distribution expenses Ratio = ––––––––––––––––––––––––––– x 100 Sales

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CLASSIFICATION OF ACCOUNTING RATIO AND ITS FORMULAS:

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CHAPTER II

REVIEW OF LITERATURE

INTRODUCTION

It is mandatory to review the literature available with respect to the area

of the research study. Measuring the performance of the corporate sector has

always been an area of controversies form the point of view of the government,

share holders, prospective investors, creditors, employees and any other stock

holder. Several studies have been undertaken to evaluate the financial

performance in the corporate sector. This chapter presents some of the

examples of various studies conducted by financial analysis.

� S. Bain study in (1951) of 42 four digit us manufacturing Industries to

establish for the period 1936 – 40 was a pioneering work on profitability.

He has sought to establish the relationship between concentration and

profitability for this he regressed average, after tax return on equity of

the liquidity firms on eight firm’s concentration ratio. He found that the

relationship was positive, between concentration and profitability.

� Hall. M. and Weiss I.W., (1967) in their important study found that size

of the firm as a major determinant of profitability. They found after tax on

equity of individual firm (341 large U.S. industries corporations)

significantly related more with size of the firm than with concentration.

� Altman (1968) in his study on “Financial Ratios, Discriminate analysis

and prediction of corporate Bankruptcy”, took 66 firms in general and

applied multiple discriminate analysis to discriminate the failed firms

from the non-failed firms, on the basis to the weighted combination of

working capital to total liabilities, cumulative retained earnings to total

Assets, market value of equity to book value of total debt and sales to

total Assets, market value of equity to book value of total debt and sales

tot total Assets, he was able to predict the bankruptcy with 45 percent

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degree of accuracy. He also revealed that the predictive ability of the

model declined.

� Edward I Altman (1986) in the Dean Solvency predictors. He was the

first person to successfully use step-wise multiple discriminate analysis

to develop a prediction model with a high degree of accuracy using the

sample of 66 companies, 33 failed and 33 successful, Altman’s model

achieved an accuracy rate of as percent. Altman’s model takes the

following form.

Z = 1.2 A + 1.4 B + 3.3 C + 0.6 D + 0.99 E

A = Working Capital to total assets

B = Retained earnings to total assets

C = EBIT to total assets

D = Market value of equity / Book value of liabilities

E = Sales to total assets.

� Smith K.V (1974) readers to profitability US liquidity trade in working

capital management. The study suggested that parallel monthly for costs

of liquidity and profitability can be useful in evaluating tradeoff between

two goals. This study also discussed individual and collect effects of

account receivables, inventories, accounts payable and other ocular on

profitability and liquidity.

� Hilton (1976) in his study he pointed out that the rate of interest is used

as a proxy for the opportunity cost of carrying stock or as a measure of

the cost of funds needed to hold inventories. The study also found that

inventories generally accumulate with expansion of economic activities

of the company.

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� Ramamoorthy (1978) has found profitability and solvency as the twin

goals of working capital management. According to him a firm’s survival

and growth depend on its ability to achieve these goals. If liquid Assents

can pay off current liabilities, financial strength can be created and the

firm can sustain its Neputation.

� Bhabatosh Banerjee (1979) has analyzed the different turnover ratios

such as debtors, creditors and the stock turnover ratio. The cash

position and cash movement is also examined with the effect of the

liquidity ratio.

� Singh (1981) has found out that the size of the unit has a significant role

in the capital structure of the cement industry. His study has revealed

that the returns and profitability can be increased by increasing the size

firm small to big.

� Desai, B.H (1983) “The capital structure is a part of financial structure

and is a structure of funds to finance all the fitted Assets. Which a

company is supposed to keep permanently carrying in the business”.

� Pandey (1985) conducted another empirical study examining the

industrial patterns, trend and volatilities of Leverage and the impact of

size profitability and growth on leverage.

� George Paul (1985) studied the financial performance of diversified

companies in India. A comparative study of diversified and Non-

diversified companions. The financial performance of 32 relatively

matched pairs of diversifying and non- diversifying generally outperform

non- diversifying on indicators of growth, profitability, safety and market

evaluation. However inter- industry differences in the benefits of

diversification are selectively useful.

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� Kumar (1985) in this study on “Corporate Growth and profitability in the

Large Indian companies” has examined the relationship between

profitability and growth in 83 large companies in India’s corporate sector

during 1969-70. The study reveals a significant inter- Industry difference

in the growth process of firms under study. The very low value or R2 in

all the cases shows that only a small fraction of the growth firm in India

corporate sector has been explained by profitability.

� Dr. P.K. Bhattacharyya (1987) analysed the capital structure and

profitability of central sector under takings. According to him

government’s liberal policy of granting loan to public enterprise which

severely curtailed their profitability. He suggested the enlargement of

equity base and improvement of profitability of such enterprises.

� Harbir Sing (1990) in his study has stated that the financial health of a

company can be improved if stringent control is exercised on raw

materials, stores and spares and also by reducing the unprofitable

investment blocked in current assets. The cash flow can be regulated if

the companies prepare weekly cash flow statement and also cash

budget on a regular basis.

� Panigrahi (1990) in his study discussed the objectives of working capital

analysis and its impact on profitability. The study reveals that liquidity

position is not satisfactory. The impact of working capital ratios on

profitability showed both negative and positive impacts on profitability in

transport sector.

� Srinivasa Rao. G. and Indrasense Reddy. P (1995) in their study

entitled Financial performance in paper Industry. A case study stated

that the financial position of the company has been improving form year

to year. The company’s performance in relations to generating internal

funds in the form of reserve and surplus was excellent and also sounded

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as it was revealed by current on quick ratios which were above the

standard. The solvency ratios showed that the company had been

following the policy of low capital gearing from this year. The

performance of the company in relation to its profitability was not up to

the Expected level. The company’s ability to utilize assets for generation

of sales has been improved much during the study period as it was

revealed by its turnover ratios.

� Van Horne, J.C (1996) study pointed that “the term liquidity means the

ability of an organization to realize value in money the most liquid among

all assets”.

� Sakthivel Murgan. M (1999) in his study on working capital

management – A case analysis revealed that one of the several

indicators of efficient management of working capital is to examine

whether adequate liquidity is maintained. The ‘Z’ score analysis reveals

that the organization. Maintains the ‘Z’ score above 3 points for all the

year taken for the study. This shown that the company is maintaining

adequate working capital by investing sufficient funds in its current

assets, is also able to meat the current obligations without inviting the

risk of bankruptcy.

� Rajeswari N. (2000) in her study, an attempt has been made to

evaluate the efficiency of liquidity management in Tamil Nadu cement

corporation. The ratios namely current Ratio, quickly ratio and absolute

liquid ratio have been used. The study shows that the liquidity position of

TANCEM is not stable due to abnormal increases of ideal assets by the

corporation during the study period.

� Business wire New York year Dec 2008

It will help you to identify and explain information sources besides

annual financial statements and supplementary information; learn the

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mechanics of the accounting process, which is the foundation for

financial reporting assess the securities valuation implications of any

financial statement element or transaction comprehend income

statements, Balance sheet and Cash flow statements and become

familiarized with the different financial analysis techniques such as ratio

analysis and common size financial statements that provide valuable

insight into a company’s operation risk characteristics and valuation

beyond what readily apparent by examining raw data.

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CHAPTER-III

INDUSTURY PROFILE

3.1 History of the oil industry in India

The history of the Indian oil industry extends back to the period of the

British Raj, at a time when petroleum first became a primary global energy

source.

Colonial rule, 1858-1947

The first oil deposits in India were discovered in 1889 near the town of

Digboi in the state of Assam.[1] This discovery came on the heels of industrial

development. The Assam Railways and Trading Company (ARTC) had

recently opened the area for trade by building a railway and later finding oil

nearby. The first well was completed in 1890 and the Assam Oil Company was

established in 1899 to oversee production. At its peak during the Second

World War the Digboi oil fields were producing 7,000 barrels per day.[citation

needed] At the turn of the century however as the best and most profitable

uses for oil were still being debated, India was seen not as a producer but as a

market, most notably for fuel oil for cooking. As the potential applications for oil

shifted from domestic to industrial and military usage this was no longer the

case and apart from its small domestic production India was largely ignored in

terms of oil diplomacy and even written off by some as hydrocarbon barren.

Despite this however British colonial rule laid down much of the country’s

infrastructure, most notably the railways.

Independence, 1947-1991

After India was granted independence in 1947, the new government

naturally wanted to move away from the colonial experience which was

regarded as exploitative. In terms of economic policy this meant a far bigger

role for the state. This resulted in a focus on domestic industrial and

agricultural production and consumption, a large public sector, economic

protectionism, and central economic planning.

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The foreign companies continued to play a key role in the oil industry. Oil

India Limited was still a joint venture involving the Indian government and the

British owned Burma Oil Company (presently, BP) whilst the Indo- Stanvac

Petroleum project in West Bengal was between the Indian government and the

American company SOCONY-Vacuum (presently, ExxonMobil).[5] This

changed in 1956 when the government adopted an industrial policy that placed

oil as a “schedule A industry” and put its future development in the hands of the

state.[5] In October 1959 an Act of Parliament was passed which gave the

state owned Oil and Natural Gas Commission (ONGC) the powers to plan,

organize, and implement programmes for the development of oil resources and

the sale of petroleum products and also to perform plans sent down from

central government. In order to find the expertise necessary to reach these

goals foreign experts from West Germany, Romania, the US, and the Soviet

Union were brought in. The Soviet experts were the most influential and they

drew up detailed plans for further oil exploration which were to form part of the

second five-year plan. India thus adopted the Soviet model of economic

development and the state continues to implement five-year plans as part of its

drive towards modernity. The increased focus on exploration resulted in the

discovery of several new oil fields most notably the off-shore Bombay High field

which remains by a long margin India’s most productive well.

Liberalization, 1991-present

The process of economic liberalization in India began in 1991 when

India defaulted on her loans and asked for a $1.8 billion bailout from the IMF.

This was a trickle-down effect of the culmination of the cold war era; marked

by the 1991 collapse of the Soviet Union, India’s main trading partner. The

bailout was done on the condition that the government initiates further reforms,

thus paving the way for India’s emergence as a free market economy.

For the ONGC this meant being reorganized into a public limited

company (it is now called for Oil and Natural Gas Corporation) and around 2%

27

of government held stocks were sold off. Despite this however the

government still plays a pivotal role and ONGC is still responsible for 77% of

oil and 81% of gas production while the Indian Oil Corporation (IOC) owns

most of the refineries putting it within the top 20 oil companies in the world.

The government also maintains subsidized prices. As a net importer of oil

however India faces the problem of meeting the energy demands for its

rapidly expanding population and economy and to this the ONGC has pursued

drilling rights in Iran and Kazakhstan and has acquired shares in exploration

ventures in Indonesia, Libya, Nigeria, and Sudan.

India’s choice of energy partners however, most notably Iran led to

concerns radiating from the US. A key issue today is the proposed gas pipeline

that will run from Turkmenistan to India through politically unstable Afghanistan

and also through Pakistan. However despite India’s strong economic links with

Iran, India voted with the US when Iran’s nuclear program was discussed by the

International Atomic Energy Agency although there are still very real differences

between the two countries when it comes to dealing with Iran.

28

3.2 ONGC- A PROFILE

OIL AND NATURAL GAS CORPORATION (ONGC)

Oil and Natural Natural Gas corporation (ONGC) an Indian multinational

oil and gas company headquartered in Dehradun, India. It is one of the largest

Asia based oil and gas exploration and production companies, and produces

29

around 77% of India's crude oil (equivalent to around 30% of the country's total

demand) and around 81% of its natural gas. It is one of the largest publicly

traded companies by market capitalization in India. ONGC has been ranked

357th in the Fortune Global 500 list of the world's biggest corporations for the

year 2012. It is also among the Top 250 Global Energy Company by Platts.

HISTORY

� 1961 to 2000

Since its inception, ONGC has been instrumental in transforming the

country's limited upstream sector into a large viable playing field, with its

activities spread throughout India and significantly in overseas territories. In the

inland areas, ONGC not only found new resources in Assam but also

established new oil province in Cambay basin (Gujarat), while adding new

petroliferous areas in the Assam-Arakan Fold Belt and East coast basins (both

inland and offshore). ONGC went offshore in early 70's and discovered a giant

oil field in the form of Bombay High, now known as Mumbai High. This

discovery, along with subsequent discoveries of huge oil and gas fields in

Western offshore changed the oil scenario of the country. Subsequently, over 5

billion tonnes of hydrocarbons, which were present in the country, were

discovered. The most important contribution of ONGC, however, is its self-

reliance and development of core competence in E&P activities at a globally

competitive level.

ONGC became a publicly held company in February 1994, with 20% of

its equity were sold to the public and eighty percent retained by the Indian

government. At the time, ONGC employed 48,000 people and had reserves

and surpluses worth 104.34 billion, in addition to its intangible assets. The

corporation's net worth of 107.77 billion was the largest of any Indian company.

� 2000 to present:

• In 2003, ONGC Videsh acquired Talisman Energy's 25% stake in the

Greater Nile Oil project.

30

• In 2006 a commemorative coin set was issued to mark the 50th

anniversary of the founding of ONGC, making it only the second Indian

company (State Bank of India being the first) to have such a coin issued

in its honour.

• In 2011, ONGC applied to purchase of 2000 acres of land at Dahanu to

process offshore gas.

• ONGC Videsh, along with Statoil ASA (Norway) and Repsol SA (Spain),

has been engaged in deepwater drilling off the northern coast of Cuba in

2012.

• On 11 August 2012, ONGC announced that it had made a large oil

discovery in the D1 oilfield off the West coast of India, which will help it

to raise the output of the field from 2/23/13 Oil and Natural Gas

Corporation around 12,500 barrels per day (bpd) to a peak output of

60,000 bpd.

• In November 2012, ONGC Videsh agreed to acquire ConocoPhillips'

8.4% stake in the Kashagan oilfield in Kazakhstan for around US$5

billion, in ONGC's largest acquisition to date. The acquisition is subject

to the approval of the governments of Kazakhstan and India and also to

other partners in the Caspian Sea field waiving their pre-emption rights.

� ONGC Videsh:

• ONGC Videsh Limited (OVL) is the international arm of ONGC. It was

rechristened on 15 June 1989. It currently has 14 projects across 16

countries. Its oil and gas production reached 8.87 MMT of O+oEG in

2010, up from 0.252 MMT of O+OEG in 2002/03.

� ONGC Tripura Power Company:

• ONGC Tripura Power Company Ltd (OTPC) is a joint venture which was

formed in September 2008 between ONGC, Infrastructure Leasing and

Financial Services Limited and the Government of Tripura. It is

developing a 726.6 MW CCGT thermal power generation project at

31

Palatana in Tripura which will supply electricity to the power deficit areas

of the north eastern states of the country.

� Frontiers of Technology

� State-of-the-art seismic data acquisition, processing and interpretation

facilities

� Uses one of the Top Ten Virtual Reality Interpretation facilities in the

world

� Alliances with Transocean, Schlumberger, Halliburton, Baker Hughes,

IPR, Petrobras, Norsk, ENI and Shell

� One of the biggest ERP implementations in the Asia

� Best In Class Infrastructure And Facilities

� The Company operates with 27 Seismic crews, manages 240 onshore

production installations, 202 offshore installations, 77 drilling (plus 44

hired) and 58 work-over rigs (plus 30 hired), owns and operates more

than 26,598 kilometers of pipeline in India, including 4,500 kilometers of

sub-sea pipelines.

� ONGC has adopted Best-in-class business practices for modernization,

expansion and integration of all Infocom systems.

� Financials (2011-12)

� ONGC group's turnover during 2011-12 has been Rs. 150,185 Crore

with net profit of Rs. 28,144 Crore. ONGC paid the highest-ever dividend

of Rs. 8,342 Crore. The Net Worth of ONGC Group of companies is Rs.

135,266 Crore.

� During 2011-12, the turnover of ONGC (on standalone basis) has been

Rs. 76,887 Crore with net profit of Rs.25,123 Crore; the highest-ever

despite sharing under-recovery of Rs.44,466 Crore to the Oil Marketing

Companies (OMCs) as per the instructions of the Government of India.

Net worth of ONGC (on standalone basis) has been Rs.1,11,784 Crore.

32

� OVL's consolidated gross revenue increased by 21% from Rs. 18,671

Crore during 2010-11 to Rs.22,637 Crore during 2011-12 and

consolidated net profit increased by 1% from Rs. 2,621 Crore during

2010-11 to Rs. 2,721 Crore during 2011-12.

� The turnover of MRPL has been Rs.52,207 Crore, up 19% from

Rs.43,800 Crore and net profit has been Rs.909 Crore during 2011-12.

� MOU ratings

MOU performance rating of ONGC during the last four years is as given

below:

Year Score Grading/Rating

2007-08 1.81 Very good

2008-09 1.70 Very good

2009-10 1.53 Very good

2010-11 1.79 Very good

� Corporate Social Responsibility

In recognition of its role as a 'responsible leader', ONGC continues its

quest to make positive, tangible difference in the lives of the vulnerable and

disadvantaged. With a business paradigm that is based on an interconnected

vision - of people's welfare, societal growth and environmental conservation,

ONGC in 2011-12 continued to cater to the developmental needs across the

following focus areas:

� Education including vocational courses;

� Health Care;

� Entrepreneurship (self-help & livelihood generation) schemes;

� Infrastructure support roads, bridges, Schools, hospitals in around our

operational areas.

� Environment protection, ecological conservation, promotion;

� Protection of heritage sites, UNESCO heritage monuments etc.;

33

� Promotion of artisans, craftsman, musicians, artists etc. for preservation

of heritage, art & culture;

� Women's empowerment, girl child development, gender sensitive

projects;

� Water management including ground water recharge;

� Initiatives for physically and mentally challenged;

� Sponsorship of seminars, conferences, workshops etc. and

� Promoting sports/sports persons; supporting agencies promoting sports /

sports persons.

� Corporate Governance

ONGC has taken structured initiatives towards Corporate Governance

and its practices which evolve around multi-layered checks and balances to

ensure transparency. Apart from the mandatory measures required to be

implemented as a part of Corporate Governance, ONGC has gone the extra

mile in this regard and has implemented the Whistle Blower Policy, Annual

Report on working of the Audit & Ethics Committee, MCA Voluntary Guidelines

on Corporate Governance, Enterprise-wide Risk Management (ERM)

framework.

� Health, Safety & Environment

ONGC has implemented globally recognized QHSE management

systems conforming to requirements of ISO 9001, OHSAS 18001 and ISO

14001 at ONGC facilities and certified by reputed certification agencies at all its

operational units. Corporate guidelines on incident reporting, investigation and

monitoring of recommendations has been developed and implemented for

maintaining uniformity throughout the organization in line with international

practice.

During 2011-12, 20% reduction in incidents achieved, 131 environmental

clearance (EC/TOR) obtained, 4 Lakh Ringal Bamboo Planted in Upper

Himalayas, 25000 MT of oily waste treated using Bioremediation, 412

34

installations certified with QHSE, 240 operational units audited for HSE

Performance, 130 employees trained on HUET, 14 HSE awareness programs

completed.

Corporate Disaster Management Plan and guidelines have been

developed for uniform disaster management all across ONGC. ONGC has also

developed Occupational Health physical fitness criteria for employees deployed

for offshore operations. Occupational Health module has now been populated

on SAP system.

Human Resources

ONGC has vast pool of skilled and talented professionals – the most

valuable asset for the company. 32,909 ONGCians (as on 31st March, 2012)

dedicate themselves for the excellent performance of the company. ONGC

extends several welfare benefits to the employees and their families by way of

comprehensive medical care, education, housing and social security.

Vision Statement:

To be global leader in integrated energy business through sustainable

growth, knowledge excellence and exemplary governance practices.

World Class

� Dedicated to excellence by leveraging competitive advantages in R&D

and technology with involved people.

� Imbibe high standards of business ethics and organizational values.

� Abiding commitment to safety, health and environment to enrich quality

of community life.

� Foster a culture of trust, openness and mutual concern to make working

a stimulating and challenging experience for our people.

� Strive for customer delight through quality products and services.

35

Integrated In Energy Business

� Focus on domestic and international oil and gas exploration and

production business opportunities.

� Provide value linkages in other sectors of energy business.

� Create growth opportunities and maximize shareholder value.

Dominant Indian Leadership

� Retain dominant position in Indian petroleum sector and enhance India's

energy availability.

� Registered Address

Jeevan Bharti Building,

Tower II,,124, Indira Chowk

New Delhi

Delhi

110001

Tel: 011-23310156 011-23323201

Fax: 011-23316413

Email: [email protected]

Website: http://www.ongcindia.com

Group: Public Sector

Management - ONGC

Name Designation

Sudhir Vasudeva Chairman & Managing Director

K S Jamestin Director - Human Resources

A Giridhar Government Director

Deepak Nayyar Independent Director

S K Barua Independent Director

36

Anita Das Part Time Non Official Director

Pronip Kumar Borthakur Director

Deepak Nayyar Additional Director

Joeman Thomas Director

O P Bhatt Additional Director

S V Rao Director

Aloke Kumar Banerjee Director – Finance

D Chandrasekharam Independent Director

Arun Ramanathan Independent Director

Om Prakash Bhatt Independent Director

Shaktikanta Das Government Director

Shashi Shanker Director

Arun Ramanathan Additional Director

S K Barua Additional Director

Shaktikanta Das Government Director

37

CHAPTER-IV

RESEARCH METHODOLOGY

4.1 Research Problem

• The main purpose of the study is to determine the working and growth of

the ONGC through its financial statements.

• The aim of financial performance is to assess the ONGC financial

stability.

4.2 Objectives of the study

• To bring out the origin and growth of the ONGC of India in the Country.

• To know the financial position and profitability of the ONGC.

• To analyze the financial performance of the ONGC as a whole.

• To offer suggestion for further improvement in the performance of the

ONGC.

4.3 Research Design

The descriptive form of research is adopted for study. The major

purpose of descriptive research is description of state of affairs of the

institutions as it exits at present. The nature and characteristics of the financial

statements of OIL AND NATURAL GAS CORPORATION have been described

in this study.

4.4 Nature of Data

The data required for the study has been collected from secondary

sources. The relevant figures were taken from annual reports, journals and

contents gathered from internet.

38

4.5 Methods of Data Collection

This study was based on the annual report of OIL AND NATURAL GAS

CORPORATION. Hence the information related to, profitability, short term and

long term solvency and turnover are required for attaining the objectives of the

percent study.

4.6 Tools Applied

To have a meaningful analysis and interpretation of various data

collected the following tools were made, for of this study.

� Comparative statement

� Common size Statement

� Ratio analysis

� Trend Analysis

4.7 Period of Study:

This study covers a period of years from 2007-08 to 2011-12. Data

relate to 5 years were collected from the website of ONGC.

4.8 Scope of the Study:

The present is study is meant for the ONGC under the study because it

deals with Financial performance of the ONGC by analyzing the Profit and Loss

account and the Balance sheet.

4.9 LIMTATIONA OF THE STUDY

All ratios could not be used for analyzing the financial performance of

the ONGC.

� The study was based on published annual reports.

� Due to time constraint the period of study is for five years only.

39

CHAPTER-V

FINANCIAL PERFORMANCE OF ONGC- AN ANALYSIS

RATIOS

5.1 CURRENT RATIO

It is used for measuring short-term liquidity or solvency. Whether the

current assets of the firm are sufficient to meet its current liabilities that is

assessed through the current ratio

Current assets Current Assets= –––––––––––––––––––

Current liabilities

TABLE - 5.1

(Rs. In Crores)

YEAR CURRENT

ASSESTS (��) CURRENT

LIABLITIES (��) RATIO

(TIMES)

2007-08 66,604.64 64,252.78 1.04

2008-09 84,037.65 87,930.19 0.96

2009-10 90,788.99 80,711.49 1.12

2010-11 92,596.56 1,03,793.58 0.89

2011-12 79,688.44 77,778.95 1.02

(SOURCE: FINANCIAL REPORTS OF ONGC)

40

INTERPRETATION:

� The Ideal Standard is 2:1. In no year the standard ratio was reached by

the company.

� The short term solvency ratio had been fluctuating during the period of

study. It ranged between “0.89 to 1.12”.

� A low current ratio than the standard indicates a bad liquidity, over-

trading, less Working capital and unsatisfactory debt repayment capacity

of the firm.

� The investment of creditors in a firm having a low current ratio may not

be too safe.

CHART - 5.1

1.04

0.96

1.12

0.89

1.02

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2007-08 2008-09 2009-10 2010-11 2011-12

CURRENT RATIO

CURRENT RATIO

41

5.2 QUICK RATIO:

It is used to verify the short-term liquidity position of the firm as indicated

by the current ratio and supported by the quick ratio. It is in fact used to

measure the cash position of the firm.

(Cash + Marketable Securities) Liquid Ratio= ––––––––––––––––––––––––––––– Quick or Liquid Liabilities

TABLE- 5.2

(Rs. In Crores)

YEAR QUICK ASSETS (��) CURRENT

LIABLITIES (��) RATIO

2008 7,750.04 64,252.78 0.12

2009 8,907.15 87,930.19 0.10

2010 8,569.57 80,711.49 0.11

2011 19,839.92 1,03,793.58 0.19

2012 41,057.56 77,778.95 0.53


42

INTERPRETATION:

� The ideal standard is 1:1. The Current Liability was fluctuating during the

period of study.

� The Liquid Ratio was below the standard throughout the period of study.

During period 2008 to 2011 it was very low ranging from 0.10 to 0.19 and in

2012 it increased to 0.53.

� Since the current ratio and the quick ratio were not satisfactory a low

absolute liquid ratio indicates that the debt repayment capacity of the firm

was not sound.

CHART 5.2

0.00

0.10

0.20

0.30

0.40

0.50

0.60

2007-082008-09

2009-102010-11

2011-12

QUICK RATIO

QUICK RATIO

43

5.3 TOTAL ASSETS TURNOVER RATIO:

It is used to measure the managerial efficiency with which the firm has

utilised its investment in fixed assets and its overall activity. It indicates the

generation of sales for per rupee invested in fixed asset.

TOTAL INCOME TOTAL ASSETS TURNOVER RATIO = –––––––––––––––– TOTAL ASSETS


TABLE- 5.3

(Rs. In Crores)

YEAR TOTAL INCOME (��) TOTAL ASSETS (��) RATIO

(%)

2007-08 1,01,115.25 80,175.90 1.26

2008-09 1,07,999.69 1,00,193.98 1.08

2009-10 1,07,232.27 1,26,775.78 0.85

2010-11 1,24,294.52 1,23,620.37 1.01

2011-12 1,55,709.69 1,53,870.74 1.01

44

INTERPRETATION:

� The table shows that Fixed Asset during the period is almost increasing

trend due to new addition in the assets and sales shows increasing trend.

� Total Turnover Ratio was ranged between “0.85 to 1.26”. It shows that the

company is doing extremely well.

� A high fixed assets turnover ratio is an indicator of efficient utilisation of

fixed assets in generating sales. It reveals that use of less fixed assets

made possible higher generation of sales.

CHART-5.3

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

2007-082008-09

2009-102010-11

2011-12

126.12

107.79

84.58

100.55 101.20

TOTAL ASSETS TURNOVER RATIO

TOTAL ASSETS TURNOVER

RATIO

45

5.4 PROPRIETARY/ NETWORTH RATIO:

It is used in the analysis of long-term solvency and financial stability of

tie firm. The proportion of total assets of a firm collected through proprietors

fund can be understood from this ratio.

SHAREHOLDER’S FUND PROPRIETARY/ NETWORTH RATIO= ––––––––––––––––––––––––– TOTAL ASSETS

TABLE- 5.4

(Rs. In Crores)

YEAR SHARE HOLDER'S

FUND (��) TOTAL ASSETS (��) RATIO

2007-08 78,086.62 80,175.90 0.97

2008-09 92,223.50 1,00,193.98 0.92

2009-10 1,01,406.64 1,26,775.78 0.80

2010-11 1,15,327.25 1,23,620.37 0.93

2011-12 1,36,439.13 1,53,870.74 0.89


46

INTERPRETATION:

� The Ideal Norms is 1:3 (33%) of Total Assets collected through

proprietary capital. Here Proprietary Ratio was high ranging between

“0.80 to 0.97”. It was adequate and above the standard norms.

� A high proprietary ratio indicates more use of proprietors funds in

acquiring total assets of the firm.

� This situation shows a favourable long-term solvency and a satisfactory

financial stability of the firm. So a high proprietary ratio is favourable to

the long-term creditors and investors.

CHART- 5.4

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

2007-08 2008-09 2009-10 2010-11 2011-12

0.97

0.92

0.80

0.93

0.89

PROPRIETARY/NETWORTH RATIO

PROPRIETARY/NETWORTH

RATIO

47

5.5 NET PROFIT/ GROSS MARGIN RATIO:

It is used to measure the overall profitability and the efficiency of the

Management in generating additional revenue over and above the total

operating costs.

It does not make any difference between operating and non operating

expenses and shows the relation between net profit and net sales.

NET PROFIT NET PROFIT/ GROSS MARGIN RATIO= --------------------X 100 NET SALES

TABLE – 5.5

(Rs. In Crores)

YEAR NET PROFIT (��) NET SALES (��) RATIO

2007-08 20,221.05 96,772.56 20.90

2008-09 20,170.88 1,04,634.68 19.28

2009-10 19,727.57 1,02,223.99 19.30

2010-11 22,824.97 1,18,002.86 19.34

2011-12 28,428.91 1,47,305.72 19.30


48

INTERPRETAION:

� The Net Profit Ratio shows that the Net Contribution made by sales of rupee

1 to the owners fund.

� The study unit showed and average of 19.5%.

� The table shows that the higher Net profit Ratio by the corporation, this

indicates better overall profitability and managerial efficiency.

� It expresses how much the total revenue earned is more than the total

expenses incurred.

CHART – 5.5

18.00

18.50

19.00

19.50

20.00

20.50

21.00

2007-082008-09

2009-102010-11

2011-12

20.90

19.28 19.30 19.3419.30

NET PROFIT/GROSS MARGIN RATIO

NET PROFIT/GROSS

MARGIN RATIO

49

5.6 INTEREST COVERAGE RATIO:

It is used for measuring long-term solvency and the effect of fixed

interest charges on profit earned. It explains the relation between earnings

before interest and tax and the interest paid on debt capital. From the lenders’

viewpoint it is used to measure the safety of return on investment.

EBIT INTEREST COVERAGE RATIO= –––––––––––––––––––––––––––––– FIXED INTEREST CHARGES

TABLE – 5.6

(Rs. In Crores)

YEAR EBIT (��) FIXED INTEREST

CHARGE (��) RATIO

2007-08 40,595.98 135.30 300.04

2008-09 42,861.48 238.51 179.71

2009-10 44,818.98 502.19 89.25

2010-11 48,299.16 457.15 105.65

2011-12 58,725.50 434.94 135.02


50

INTERPRETAION:

� The table show that the earnings before interest and tax and the operating

profit are same. So the interest coverage ratio measures as to how many

times the interest burden of the firm is covered by the operating profit of the

firm.

� The highest was 300.14 times in the year 2008 it indicates better debt

servicing capacity. It is beneficial from the viewpoints of both the firm and

the lenders. From the viewpoint of the firm it is beneficial because it

indicates more shock absorbing capacity in case of lower profit and the

reduced risk of default in interest payment.

� The lowest was 4.17 in the year 2011 it reveals that the lenders have a low

safety of return on their investment, it is also unfavourable to the firm

because in such case the firm’s profitability in relation to its interest payment

commitment is low and it is not in a position to take recourse to further debt

financing in case of any need.

CHART- 5.6

300.04

179.71

89.25105.65

135.02

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

2007-08 2008-09 2009-10 2010-11 2011-12

INTEREST COVERAGE RATIO

INTEREST COVERAGE

RATIO

51

5.7 OPERATING RATIO:

It is used to analyse profitability and managerial efficiency. It explains

the proportion of operating expenses in sales of rupee 1.

(Cost of Goods Sold + Operating Expenses) Operating ratio = –––––––––––––––––––––––––––––––––––––x 100 Net Sales

TABLE – 5.7

(Rs. In Crores)

YEAR COST OF GOODS

SOLD+OPERATING EXPENSES (��)

NET SALES (��) RATIO

2007-08 56,286.67 96,772.56 58.16

2008-09 61,428.80 1,04,634.68 58.71

2009-10 57,777.89 1,02,223.99 56.52

2010-11 70,595.39 1,18,002.86 59.83

2011-12 89,044.34 1,47,305.72 60.45


52

INTERPRETATION:

� Generally the range of 70% to 80% is accepted standard ratio. Here the

corporation has not reached the standards during the study period.

� The highest was 60.45% during the year 2011-12 and the lowest was

56.52% during the year 2009-10.

� A low operating ratio indicates that the firm has more surpluses in its hand

after meeting operating costs. This surplus can be used for payment of tax,

payment of dividend, transfer to reserve, etc. Therefore, an indicator of high

profitability and good efficiency.

CHART -5.7

58.16

58.71

56.52

59.83

60.45

54.00

55.00

56.00

57.00

58.00

59.00

60.00

61.00

2007-08 2008-09 2009-10 2010-11 2011-12

OPERATING RATIO

OPERATING RATIO

53

5.8 OPERATING PROFIT RATIO:

If this ratio is used along with other profitability ratios it provides a more

meaningful Interpretation of a firm’s profitability and managerial efficiency. It is

relevant to mention in this context that the operating profit ratio and the

operating ratio are complementary to each other. If a firm’s operating ratio is

80% its operating profit ratio will be (100-80)% or 20%.

Operating Profit Operating profit Ratio = –––––––––––––––––– x100 Net Sales

TABLE- 5.8

(Rs. In Crores)

YEAR OPERATING

PROFIT (��) NET SALES (��) RATIO

2007-08 40,595.98 96,772.56 41.95

2008-09 42,861.48 1,04,634.68 40.96

2009-10 44,818.98 1,02,223.99 43.84

2010-11 48,299.16 1,18,002.86 40.93

2011-12 58,725.50 1,47,305.72 39.87


54

INTERPRETATION:

� The table shows that operating profit ratio of ONGC had been ranging

between 39.87% to 43.84%.

� Generally an operating profit in the range of 20% to 25% is acceptable

standard in manufacturing firms.

� Here it is seen that it was above the standards. This is the indicator of good

profitability and efficient managerial ability.

CHART- 5.8

41.95

40.96

43.84

40.93

39.87

37.00

38.00

39.00

40.00

41.00

42.00

43.00

44.00

45.00

2007-08 2008-09 2009-10 2010-11 2011-12

OPERATING PROFIT RATIO

OPERATING PROFIT RATIO

55

5.9 DIVIDEND PAYOUT RATIO:

It is used to assess the scope of dividend of the equity shareholders and

the extent of self financing made by the company.

Dividend per Share Dividend Payout ratio = ––––––––––––––––––––– Earning per Share

TABLE- 5.9

(Rs. In Crores)

YEAR DIVIDEND PER

SHARE (��) EARNING PER

SHARE (��) RATIO

2007-08 32.00 94.54 33.85

2008-09 32.00 94.31 33.93

2009-10 33.00 92.23 35.78

2010-11 17.50 26.68 65.59

2011-12 9.75 33.23 29.34


56

INTERPRETATION:

� The table shows that how much percentage of dividends paid by the

company from the profit earned by the company.

� The highest payout ratio was 65.59% during the year 2010-11 and

lowest was the 29.34% during the year 2011-12.

� From the viewpoint of the financial health of the company a high

dividend payout ratio is never desirable because in such case retention

of profit becomes less.

� A low dividend payout ratio indicates less distribution and more retention

is helpful for the sustained growth of the company.

CHART- 5.9

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

2007-08 2008-09 2009-10 2010-11 2011-12

33.85 33.9335.78

65.59

29.34

DIVIDEND PAY OUT RATIO

DIVIDEND PAY OUT RATIO

57

5.10 RETURN ON PROPRIETOR'S FUND:

It is used to analyse the profitability of the firm from the point of view of

funds employed and to evaluate the efficiency of the management. This ratio

explains the Relationship between the operating profit i.e. net profit before

interest and tax and Proprietor’s fund.

Net Profit before Interest and Tax Return on proprietor’s fund= –––––––––––––––––––––––––––––– x 100 Proprietors Funds or Equity

TABLE - 5.10

(Rs. In Crores)

YEAR NET OPERATING

PROFIT AFTER TAX (��)

PROPRIETOR'S FUND (��)

RATIO

2007-08 20,221.05 78,086.62 25.90

2008-09 20,170.88 92,223.50 21.87

2009-10 19,727.57 1,01,406.64 19.45

2010-11 22,824.97 1,15,327.25 19.79

2011-12 28,428.91 1,36,439.13 20.84


58

INTERPRETATION:

� The table reveals that how much percentage of return from the

Proprietor’s fund. Here highest was 25.90% during the 2007-08 and

lowest was the 19.45%.

� This ratio is a real test of the profitability and managerial efficiency. The

higher the return on Proprietor’s fund the higher is the profitability and

the sound is the managerial ability.

� From the viewpoint of shareholders and the management a high return

on capital employed is always favourable.

CHART – 5.10

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2007-08 2008-09 2009-10 2010-11 2011-12

25.90

21.87

19.45 19.7920.84

RETURN ON PROPRIETOR'S FUND

RETURN ON PROPRIETOR'S

FUND

59

TREND ANALYSIS

Trend analysis is very helpful in making a comparative study of the

financial statements of several years. Under this technique, information for a

number of years is taken up and one year-usually the first year-is taken as the

base year. Each item of the base year is taken as 100 and on that basis the

percentages for the other years are calculated.

5.11 TREND ANALYSIS OF SALES:

TABLE -5.11

Year Sales (��) Trend % Difference %

2007-08 1,01,834.91 100.00 0

2008-09 1,09,412.94 107.44 7

2009-10 1,06,638.27 97.46 -3

2010-11 1,23,157.47 115.49 15

2011-12 1,51,121.10 122.71 23


60

INTERPRETATION:

� From the above table- 5.11, the sales have been raising year after year

except the year 2009-10.

� It can be seen that there has been steep rise from 2007-2008 to 2008-

2009 (i.e) Rs.1,01,834.91 to Rs.1,09,412.94.

� There is a slight decrease in the year 2009-10 , increase of 15% in the

year 2010-11 and increase of 23% in the year 2011-12.

CHART -5.11

100.00

107.44

97.46

115.49

122.71

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

2007-08 2008-09 2009-10 2010-11 2011-12

TREND PERCENTAGE OF SALES

TREND PERCENTAGE OF

SALES

61

TREND ANALYSIS OF NET PROFIT

TABLE – 5.12

TREND PERCENTAGE OF NET PROFIT

Year NET PROFIT

(��) Trend % Difference %

2007-08 20,221.05 100.00 0

2008-09 20,170.88 99.75 -0.25

2009-10 19,727.57 97.80 -2.20

2010-11 22,824.97 115.70 15.70

2011-12 28,428.91 124.55 24.55


INTERPRETATION:

� The table shows that Trend percentage of Net profit was fluctuating

during the period of study.

� The lowest was 97.80% during the year 2009-10. A low net profit ratio

reveals that the net earning is insufficient and the profitability and

managerial efficiency were not up to the mark.

� Here we can clearly see that for the past two years 2010-11 and 2011-

12 it was in the increasing Trend. The highest is 124.55% (i.e) 24.55%

higher than the base year.

� A higher net profit ratio indicates better overall profitability and

managerial efficiency. It expresses how much the total revenue earned

is more than the total expenses incurred.

� If a firm has a low net profit ratio in spite of having a high gross profit

ratio, it seems that it has excessive indirect expenses on which it has not

been able to enforce control.

62

TABLE 5.12

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

2007-08 2008-09 2009-10 2010-11 2011-12

TREND PERCENTAGE OF NET PROFIT

TREND PERCENTAGE OF

NET PROFIT

63

5.13 TREND ANALYSIS OF TOTAL ASSETS

TABLE -5.13

TREND PERCENTAGE OF TOTAL ASSETS

Year TOTAL

ASSETS (��) Trend % Difference %

2007-08 80,175.90 100.00 0

2008-09 1,00,193.98 124.97 24.97

2009-10 1,26,775.78 126.53 26.53

2010-11 1,23,620.37 97.51 -2.49

2011-12 1,53,870.74 124.47 24.47


INTERPRETATION:

� The table 5.13 shows that there is a slight fluctuation in the Total Assets.

� If the total assets of a firm increase without any corresponding increase

in its operating profit, the return on total assets will come down. It

reveals that the increase in investment has not resulted in the welfare of

the owners.

� Here we can clearly understood that the operating profit adequate from

the table 5.8 which shows that it is resulted in the welfare of the

owners.

64

CHART -5.13

100.00

124.97 126.53

97.51

124.47

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

2007-08 2008-09 2009-10 2010-11 2011-12

TREND PERCENTAGE OF TOTAL ASSETS

TREND PERCENTAGE OF

TOTAL ASSETS

65

5.14 TREND ANALYSIS OF TOTAL LIABLITIES

TABLE – 5.14

TREND PERCENTAGE OF TOTAL LIABLITIES

Year TOTAL

LIABLITIES (��) Trend % Difference %

2007-08 64,252.78 100.00 0

2008-09 87,930.19 136.85 36.85

2009-10 80,711.49 91.79 -8.21

2010-11 1,03,793.58 128.60 28.60

2011-12 77,778.95 74.94 -25.06


INTERPRETATION:

� The Table-5.14 shows that there is a fluctuation in the Total liabilities.

� There is increase by 36.85% in the year 2008-09, decrase by -8.21% in

the year 2009-10, increase by 28.60 in the year 28.60% and decrease

by -25.06 in the year 2011-12.

� Here it is evident from the table 5.1 the ONGC has not reached the

standard ratio of 2:1. The investment of creditors in a firm having a low

current ratio may not be too safe.

66

TABLE – 5.14

100.00

136.85

91.79

128.60

74.94

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

2007-08 2008-09 2009-10 2010-11 2011-12

TREND PERCENTAGE OF TOTAL LIABLITIES

TREND PERCENTAGE OF

TOTAL LIABLITIES

67

5.15 TREND ANALYSIS OF EARNING PER SHARE

TABLE – 5.15

TREND PERCENTAGE OF EARNING PER SHARE (EPS)

Year EARNING PER

SHARE (��) Trend % Difference %

2007-08 94.54 100.00 0

2008-09 94.31 99.76 -0.24

2009-10 92.23 97.79 -2.21

2010-11 26.68 28.93 -71.07

2011-12 33.23 124.55 24.55


INTERPRETATION:

� The table-5.15 shows that the Earning per Share is in decreasing trend

except in the year 2011-12 (i.e) 24.55%

� A high price earning ratio indicates either a fall in earning per share or

an increase in market price per share. A high price earning ratio

resulting from increased market price per share is beneficial to the

shareholders. It indicates high managerial efficiency, high profitability

and good market reputation.

� A low price earning ratio not caused by an increased earning indicates

reduced market price per share. It also reveals a low level of managerial

efficiency and profitability. It is against the interest of the shareholders.

� If the low price earning ratio is caused by an increased earning per

share it does not indicate an unfavourable situation for the shareholders.

68

TABLE – 5.15

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

2007-08 2008-09 2009-10 2010-11 2011-12

TREND PERCENTAGE OF EARNING PER

SHARE (EPS)

TREND PERCENTAGE OF

EARNING PER SHARE (EPS)

69

TABLE-15.16 COMMON SIZE BALANCE SHEET 2008-2009

PARTICULARS 2008 (��) PERCENTAGE 2009 (��) PERCENTAGE

SOURCES OF FUND

Equity Share Capital 2138.89 2.67 2138.89 2.13

Share Application Money 14.58 0.02 0.00 0.00

Reserves 75933.15 94.71 90084.61 89.91

Net worth 78086.62 97.39 92223.50 92.04

Secured Loans 697.97 0.87 680.92 0.68

Unsecured Loans 246.50 0.31 5878.21 5.87

Total Debt 944.47 1.18 6559.13 6.55

Minority Interest 1144.83 1.43 1411.35 1.41

Total Liabilities 80175.92 100.00 100193.98 100.00

APPLICATION OF FUNDS

Gross Block 76216.22 95.06 89828.65 89.65

Less: Accum. Depreciation

54242.39 67.65 59929.17 59.81

Net Block 21973.83 27.41 29899.48 29.84

Capital Work in Progress

50694.15 63.23 70056.07 69.92

Investments 4482.14 5.59 3480.35 3.47

Inventories 7298.48 9.10 6542.39 6.53

Sundry Debtors 7046.94 8.79 7181.35 7.17

Cash and Bank Balance 703.10 0.88 1725.80 1.72

Total Current Assets 15048.52 18.77 15449.54 15.42

Loans and Advances 27203.37 33.93 47718.36 47.63

Fixed Deposits 24352.75 30.37 20869.75 20.83

Total CA, Loans & Advances

66604.64 83.07 84037.65 83.87

Current Liabilities 38391.38 47.88 53574.13 53.47

Provisions 25861.40 32.26 34356.06 34.29

Total CL & Provisions 64252.78 80.14 87930.19 87.76

Net Current Assets 2351.86 2.93 -3892.54 -3.89

Miscellaneous Expenses

673.92 0.84 650.62 0.65

Total Assets 80175.92 100.00 100193.98 100.00


70

INTERPRETATION:

The above statement shows the percentage of various assets and

liabilities on the total.

� During the year 2008, Net worth is 97.39%, total debt was 1.18% and

Minority interest was 1.43% of the Total Liabilities. It is clear from the

above statement that the majority 97.39% of Total Liabilities constitute

Net Worth.

� During the year 2008 Net Block is 27.41%, Capital Work in progress

was 63.23%, investments is 5.59%, Net current assets was 2.93% and

Miscellaneous expenses 0.84% of the total assets. It was clear from the

above statement that the majority 63.23% of Total Assets constitute to

Capital Work in progress.

� During the year 2009, Net worth is 92.04%, total debt is 6.55% and



Net Worth.

� During the year 2009 Net Block is 29.84%, Capital Work in progress

was 69.92%, investments is 3.47%, Net current assets was -3.89% and




71



SOURCES OF FUND


Reserves 90084.61 89.91 99267.75 78.30

Networth 92223.50 92.04 101406.64 79.99

Secured Loans 680.92 0.68 789.35 0.62

Unsecured Loans 5878.21 5.87 22936.61 18.09

Total Debt 6559.13 6.55 23725.96 18.71




Gross Block 89828.65 89.65 99731.19 78.67


59929.17 59.81 65816.45 51.92

Net Block 29899.48 29.84 33914.74 26.75


70056.07 69.92 76782.91 60.57

Investments 3480.35 3.47 5159.31 4.07

Inventories 6542.39 6.53 8240.01 6.50

Sundry Debtors 7181.35 7.17 7142.35 5.63




Fixed Deposits 20869.75 20.83 20957.01 16.53


84037.65 83.87 90788.99 71.61


Provisions 34356.06 34.29 40293.90 31.78


Net Current Assets -3892.54 -3.89 10077.50 7.95


650.62 0.65 841.32 0.66

Total Assets 100193.98 100.00 126775.78 100.00


72

INTERPRETATION:






Net Worth.

� During the year 2009 Net Block was 29.84%, Capital Work in progress

was 69.92%, investments was 3.47%, Net current assets was -3.89%

and Miscellaneous expenses 0.65% of the total assets. It is clear from

the above statement that the majority 69.92% of Total Assets constitute

to Capital Work in progress.


Minority interest was 1.30% of the Total Liabilities. It was clear from the


Net Worth.

� During the year 2010 Net Block was 26.75%, Capital Work in progress is

60.57%, investments is 4.07%, Net current assets was 7.95% and

Miscellaneous expenses 0.66% of the total assets. It is clear from the



73



SOURCES OF FUND



Reserves 99267.75 78.30 111049.49 89.83

Networth 101406.64 79.99 115327.25 93.29

Secured Loans 789.35 0.62 778.27 0.63

Unsecured Loans 22936.61 18.09 5512.96 4.46

Total Debt 23725.96 18.71 6291.23 5.09




Gross Block 99731.19 78.67 108941.27 88.13


65816.45 51.92 73083.35 59.12

Net Block 33914.74 26.75 35857.92 29.01


76782.91 60.57 94807.31 76.69

Investments 5159.31 4.07 3356.10 2.71

Inventories 8240.01 6.50 8567.57 6.93

Sundry Debtors 7142.35 5.63 9772.39 7.91




Fixed Deposits 20957.01 16.53 18620.73 15.06


90788.99 71.61 92596.56 74.90


Provisions 40293.90 31.78 38730.15 31.33


Net Current Assets 10077.50 7.95 -11197.02 -9.06


841.32 0.66 796.06 0.64

Total Assets 126775.78 100.00 123620.37 100.00


74

INTERPRETATION:



� During the year 2010, Net worth was 79.99%, total debt was 18.71%

and Minority interest is 1.30% of the Total Liabilities. It is clear from the


Net Worth.

� During the year 2010 Net Block is 26.75%, Capital Work in progress is

60.57%, investments was 4.07%, Net current assets is 7.95% and




� During the year 2011, Net worth was 93.29%, total debt is 5.09% and



Net Worth.

� During the year 2011 Net Block was 29.01%, Capital Work in progress is

76.69%, investments is 2.71%, Net current assets was -9.06% and




75



SOURCES OF FUND



Reserves 111049.49 89.83 132161.37 85.89

Networth 115327.25 93.29 136439.13 88.67

Secured Loans 778.27 0.63 5958.75 3.87

Unsecured Loans 5512.96 4.46 9264.44 6.02

Total Debt 6291.23 5.09 15223.19 9.89




Gross Block 108941.27 88.13 180143.61 117.07


73083.35 59.12 80801.20 52.51

Net Block 35857.92 29.01 99342.41 64.56


94807.31 76.69 49698.13 32.30

Investments 3356.10 2.71 2920.71 1.90

Inventories 8567.57 6.93 13168.01 8.56

Sundry Debtors 9772.39 7.91 11714.33 7.61




Fixed Deposits 18620.73 15.06 0.00 0.00


92596.56 74.90 79688.44 51.79


Provisions 38730.15 31.33 26545.27 17.25


Net Current Assets -11197.02 -9.06 1909.49 1.24


796.06 0.64 0.00 0.00

Total Assets 123620.37 100.00 153870.74 100.00


76

INTERPRETATION:



� During the year 2011, Net worth was 93.29%, total debt was 5.09% and



Net Worth.

� During the year 2011 Net Block is 29.01%, Capital Work in progress was

76.69%, investments is 2.71%, Net current assets was -9.06% and




� During the year 2012, Net worth was 88.67%, total debt was 9.89% and



Net Worth.

� During the year 2012 Net Block was 64.56%, Capital Work in progress

was 32.30%, investments was 1.90% and Net current assets was 1.24%

of the total assets. It is clear from the above statement that the majority

64.56% of Total Assets constitute to net block.

77

TABLE – 5.20 COMPARITIVE BALANCE SHEET 2008-09

PARTICULARS 2008 (��) 2009 (��) INCREASE/

DECREASE PERCENTAGE

SOURCES OF FUND


Share Application Money 14.58 0.00 -14.58 -100.00

Reserves 75933.15 90084.61 14151.46 18.64

Networth 78086.62 92223.50 14136.88 18.10

Secured Loans 697.97 680.92 -17.05 -2.44

Unsecured Loans 246.50 5878.21 5631.71 2284.67

Total Debt 944.47 6559.13 5614.66 594.48




Gross Block 76216.22 89828.65 13612.43 17.86

Less: Accum. Depreciation 54242.39 59929.17 5686.78 10.48

Net Block 21973.83 29899.48 7925.65 36.07

Capital Work in Progress 50694.15 70056.07 19361.92 38.19

Investments 4482.14 3480.35 -1001.79 -22.35

Inventories 7298.48 6542.39 -756.09 -10.36

Sundry Debtors 7046.94 7181.35 134.41 1.91




Fixed Deposits 24352.75 20869.75 -3483.00 -14.30


66604.64 84037.65 17433.01 26.17


Provisions 25861.40 34356.06 8494.66 32.85


Net Current Assets 2351.86 -3892.54 -6244.40 -265.51

Miscellaneous Expenses 673.92 650.62 -23.30 -3.46

Total Assets 80175.92 100193.98 20018.06 24.97


78

INTERPRETATION:

� Form the above Comparative Balance sheet as on 31.3.2009 Net worth

has increase 18.10% Secured Loan has decreased by -2.44% and

Minority interest increased by 23.28%.

� Here Net block has increase 36.07% capital work in progress has

increased by 38.19% Investments has decreased by -22.35%, Net

current assets has decreased by -265.51% and Miscellaneous expenses

decreased by -3.46%

79


PARTICULARS 2009 (��) 2010 (��) INCREACE/

DECREASE PERCENTAGE

SOURCES OF FUND


Reserves 90084.61 99267.75 9183.14 10.19

Networth 92223.50 101406.64 9183.14 9.96

Secured Loans 680.92 789.35 108.43 15.92

Unsecured Loans 5878.21 22936.61 17058.40 290.20

Total Debt 6559.13 23725.96 17166.83 261.72




Gross Block 89828.65 99731.19 9902.54 11.02


Net Block 29899.48 33914.74 4015.26 13.43


Investments 3480.35 5159.31 1678.96 48.24

Inventories 6542.39 8240.01 1697.62 25.95

Sundry Debtors 7181.35 7142.35 -39.00 -0.54

Cash and Bank Balance 1725.80 1427.22 -298.58 -17.30



Fixed Deposits 20869.75 20957.01 87.26 0.42


84037.65 90788.99 6751.34 8.03

Current Liabilities 53574.13 40417.59 -13156.54 -24.56

Provisions 34356.06 40293.90 5937.84 17.28

Total CL & Provisions 87930.19 80711.49 -7218.70 -8.21

Net Current Assets -3892.54 10077.50 13970.04 -358.89

Miscellaneous Expenses 650.62 841.32 190.70 29.31

Total Assets 100193.98 126775.78 26581.80 26.53


80

INTERPRETATION:


has increase 9.96% Secured Loan has increased by 15.92%, Total Debt

has increased by 261.72% and Minority interest increased by 16.42%.


increased by 9.60%, Investments has increased by 48.24%, Net

current assets has decreased by -358.89% and Miscellaneous

expenses increased by 29.31%

81


PARTICULARS 2010 (��) 2011 (��) INCREACE/DECREASE PERCENTAGE

SOURCES OF FUND


Reserves 99267.75 111049.49 11781.74 11.87

Networth 101406.64 115327.25 13920.61 13.73

Secured Loans 789.35 778.27 -11.08 -1.40

Unsecured Loans 22936.61 5512.96 -17423.65 -75.96

Total Debt 23725.96 6291.23 -17434.73 -73.48


Total Liabilities 126775.76 123620.36 -3155.40 -2.49

APPLICATION OF FUNDS 0.00

Gross Block 99731.19 108941.27 9210.08 9.23


Net Block 33914.74 35857.92 1943.18 5.73


Investments 5159.31 3356.10 -1803.21 -34.95

Inventories 8240.01 8567.57 327.56 3.98

Sundry Debtors 7142.35 9772.39 2630.04 36.82



Loans and Advances 53022.40 45568.34 -7454.06 -14.06

Fixed Deposits 20957.01 18620.73 -2336.28 -11.15

Total CA, Loans & Advances 90788.99 92596.56 1807.57 1.99


Provisions 40293.90 38730.15 -1563.75 -3.88


Net Current Assets 10077.50 -11197.02 -21274.52 -211.11


Total Assets 126775.78 123620.37 -3155.41 -2.49


82

INTERPRETATION:

� Form the above Comparative Balance sheet as on 31.3.2011 Net worth has

increase 13.73% Secured Loan has decreased by -75.96%, Total Debt has

decreased by 73.48% and Minority interest increased by 21.83%.

� Here Net block has increase 5.73% capital work in progress has increased

by 23.47%, Investments has decreased by -34.95%, Net current assets

has decreased by -211.11% and Miscellaneous expenses decreased by

-5.38%.

83



PARTICULARS 2011 (��) 2012 (��) INCREACE/DECREASE PERCENTAGE

SOURCES OF FUND


Reserves 111049.49 132161.37 21111.88 19.01

Networth 115327.25 136439.13 21111.88 18.31

Secured Loans 778.27 5958.75 5180.48 665.64

Unsecured Loans 5512.96 9264.44 3751.48 68.05

Total Debt 6291.23 15223.19 8931.96 141.97




Gross Block 108941.27 180143.61 71202.34 65.36


Net Block 35857.92 99342.41 63484.49 177.04

Capital Work in Progress 94807.31 49698.13 -45109.18 -47.58

Investments 3356.10 2920.71 -435.39 -12.97

Inventories 8567.57 13168.01 4600.44 53.70

Sundry Debtors 9772.39 11714.33 1941.94 19.87



Loans and Advances 45568.34 26916.55 -18651.79 -40.93

Fixed Deposits 18620.73 0.00 -18620.73 -100.00


92596.56 79688.44 -12908.12 -13.94

Current Liabilities 65063.43 51233.68 -13829.75 -21.26

Provisions 38730.15 26545.27 -12184.88 -31.46

Total CL & Provisions 103793.58 77778.95 -26014.63 -25.06

Net Current Assets -11197.02 1909.49 13106.51 -117.05


Total Assets 123620.37 153870.74 30250.37 24.47

84

INTERPRETATION:


has increase 18.31% Secured Loan has increased by 68.05%, Total

Debt has increased by 141.97% and Minority interest increased by

10.32%.


decreased by -47.58%, Investments has decreased by -12.97% and Net

current assets has decreased by -117.05%.

85

CHAPTER VI

6.1 INTRODUCTION:

From the foregoing chapters the following inferences have been made:

6.2 INFERENCES

• During 2011-12, the turnover of ONGC (on standalone basis) has been

Rs. 76,887 Crore with net profit of Rs.25,123 Crore; the highest-ever

despite sharing under-recovery of Rs.44,466 Crore to the Oil Marketing

Companies (OMCs) as per the instructions of the Government of India.

Net worth of ONGC (on standalone basis) has been Rs.1,11,784 Crore.

• Short term Solvency Ratio had been fluctuating during the study period. It

ranged between “0.89 to 1.12”. Investment of creditors in the corporation

might not be too safe. Because the Current Ratio was low (i.e) below 2.

• Liquid Ratio was below the standard (i.e) 1 through out the period from

2008 to 2011, it was very low ranging from “0.10 to 0.19” and in 2012, it

increased to just 0.53 but not atleast 1.

• Total Assets Turnover Ratio was ranged between “0.85 to 1.26”. It

decreased in the first three years (2008-10) and increased in the recent

two years (2011-12).

• Proprietory Ratio was ranging between “0.80 to .97”. It is adequate and

above the standard norms (0.33). It indicates the better overall profitability

and managerial efficiency of the corporation.

• Operating Ratio prevailed between “56.52 to 60.45” ,which was low (70%

to 80%) that the corporation had less surpluses in its hand after meeting

operating cost. Therefore it affects the profitability of the corporation.

86

• Operating Profit Ratio of ONGC had been ranging between 38.87% to

43.84%. This is the indicator of good profitability and efficient managerial

ability of the corporation.

• In the year 2010-11, the Dividend Payout Ration of 65.59% was highest

during the study period. From the view point of financial health of the

company a high Dividend Payout Ratio is never desirable because in

such case the retention of profit become less.

• Return on Proprietors fund was ranging between 19.45% to 25.90%. The

higher return on profitability and the sound is the managerial ability.

• Sales in the Corporation had been rising year after year.

• Total Liabilities increased by 36.85%, in the year 2008-09 decreased by

-8.21% in the year 2009-10 increased by 28.60% and decreased by

25.06% in the year 2011-12. This fluctuation is not desirable to the growth

of the Corporation.

• During the year 2008, Networth was 97.39%. Total Debt was 1.18% and

Minority interest was 1.43% of Total Liabilities. It is clear from the above

result that the majority (97.39%) of total liabilities constitutes Networth.

• During the year 2012, Net Block was 64.56%, Capital Work in Progress

was 32.30%, investment was 1.90% and Net Current Asset was 1.24% of

Total Assets. It is clear from the above statement the majority (64.56%) of

Total Liability constitute to Net Block.

6.3 SUGGESTIONS

• The Corporation has to increase the Current Assets to meet out Current

Liabilities and to maintain Standard norms of 2:1.

• The Corporation has to try to increase the Operating Ration by way of

reducing the Operating Cost in order to boost up its Profitability..

87

• The Corporation should maintain the Quick Assets properly to face the

emergency needs of cash.

• The corporation should have less Dividend Payout Ratio (i.e) less

distribution and more retention is helpful for the substained growth of the

company.

• The Fixed Assets of Corporation should be used more effectively to

reduce the cost of production and maintain their sales.

• The company shall increase the profitability so as to improve the

effectiveness and soundness of the organisation.

6.4 CONCLUSION

The Growth and Development of the organisation is highly depending on

financial position. From the above study it is concluded that the company’s fund

position is good in terms of key financial indicators of the performance. ONGC

one of the largest Asia based Oil and Gas exploration and Production

Companies. But in recent years there is a slow downs in the business activities

due to recession and more subsidies. Proper steps to be taken by the company

to overcome its adverse economic condition and make better profit with its

sound Financial Recourses experienced technically skilled Human Resource

and with help of continuous research the company can restore its reputation

and efficiently in near future.

88

BIBLIOGRAPHY

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Journals and Newspapers:

• The Times of India

• Economic Times

• The Business Line

Websites:

• www.wikipedia.org

• www.mckinsey.com

• www.ongcindia.com

• www.moneycontrol.com

Documents

A STUDY ON FINANCIAL PERFORMANCE OF OIL AND NATURAL GAS CORPORATION (ONGC)