Arpit Final

7/27/2019 Arpit Final

1/109

1

PROJCT RPORT

INDIAN OIL CORPORATION LIMITD (IOCL),

PIPLIN HAD OFFIC (PLHO), NOIDA

A Rport on

Financial Analysis of IOCL and DFR on Proposal for Invstmnt Approval

of Branch Piplin from BKPL to Motihari and Baitalpur

Submittd by: Undr th Guidanc of:

Arpit Vrma Ms. Navln Kaur

A1802012113 Assist. ProfssorMBA-IB(2012-14) Amity Univrsity

AIBS, Noida.

Amity Univrsity, Noida.


2/109

2

Rport on

Financial Analysis of Indian Oil Corporation Limitd and

DFR on

Proposal for Invstmnt Approval

Of

Branch Piplin

From

Barauni-Kanpur Piplin to Motihari and Baitalpur

for lvraging th transportation tariff

Submittd By: Arpit Vrma

nrollmnt No. : A1802012113

Faculty Guid: Ms. Navln Kaur

Company Guid: CA Gaurav Gupta

A rport submittd in partial fu lfil lmnt of th rquirmnts of MBA-I B Program

of Amity Univrsity, Noida


3/109

3

Authorization

Th making of this rport has bn authorizd by CA Gaurav Gupta, Snior Accounts Officr

at Piplins Division Had offic, Noida (Indian Oil Corporation Limitd).

I hrby dclar that all th work shown in my projct is tru to my knowldg and has bn

compltd at IOCLs offic. Th rsarch study was conductd ovr a span of 45 days from Jun

2013 to July 2013.

This projct is mant for a partial fulfillmnt of th MBA-IB program at Amity Intrnational

Businss School, Amity Univrsity, Noida.


4/109

4

Acknowldgmnts

I tak this opportunity to xprss my hartflt thanks to CA Gaurav Gupta, Snior Accounts

Officr at Piplins Division, Had Offic, Noida (IOCL). H has bn th guiding light in th

organization right from first day of my joining. H has always had trust in my abilitis and has

apprciatd th sam. Th projct would not hav bn complt without his immns guidanc

and support.

I would also lik to thankMs Navln Kaur, Assistant Profssor, AIBS, Amity Univrsity ,

Noida, who has bn availabl at all tim to hlp and support m whnvr I ndd during th

cours of my intrnship.

I am xtrmly indbtd to Ms. Dpti Gol , Snior Accounts Officrs at Piplins Division,

Had Offic, Noida (IOCL) and th Tchnical Dpartmnt for providing m with valuabl

inputs that hlpd m in my study.


5/109

5

TABL OF CONTNTS

Authorization3

Acknowldgmnts..4

xcutiv Summry..5

CHAPTR 1 (Introduction)....9

Introduction about Oil and Gas sctor...10

Company Ovrviw12

Cor Oprations..16

SWOT Analysis of IOCL....23Piplin - An Introduction..29

Introduction to th Rport...41

CHAPTR 2 (Rsarch Mthodology)...45

Objctiv of thstudy.46

Scopof study.....47

Mthodology (Rsarch Dsign and Sourcs of Data collction)...47

Limitations..48

CHAPTR 3 (Litratur Rviw)49

CHAPTR 4 (Findings and Analysis)....54

Projct Proposal...55

Brif dscription of thproposal..55

Financial (Ratio) Analysis of IOCL.57

CasStudy90

CHAPTR 5 (Limitations)....97

CHAPTR 6 (Conclusion and Rcommndations)99

Conclusions...100

Rcommndations..101


6/109

6

Larning from SIP......102

CHAPTR 7 (Rfrncs and Appndix)103

Appndix103

Rfrncs (Print matrials, lctronic, Scondary).....108


7/109

7

xcutiv Summary

Th projct proposd is to study th financial ratio analysis of IOCL for last fiv to six yars and

making a comparativ study for it and also studying th financial fasibility of a major capital

intnsiv projct in th Piplins Division of Indian Oil Corporation Limitd. With an aim to

optimiz th transportation tariff, actions hav bn initiatd to put up a branch piplin from

Barauni-Kanpur Piplin to Motihari and Baitalpur, which is dvlopd indignously by th

Companys Rsarch & Dvlopmnt dpartmnt.

Th projct involvd larning th functioning of th Financ dpartmnt in th piplins in

analyzing th financial viability of such proposals by th Tchnical dpartmnt. Th projct is

thn aimd towards dvloping an undrstanding th various guidlins that th company

follows to dtrmin th fasibility of Capital Budgting dcisions and analyzing th financial

ratios. Ths undrstanding formd th basis for conducting th futur study ncssary to go

ahad with th projct. Th first stp in xrcis was to hav a brif ida about th background

and procss dscription of th tchnology, rviwing th nd and justification stablishd by th

tchnical dpartmnt and th consquncs if th projct is not implmntd. Th analysis of

availabl altrnativs to fulfill th sam nd is also vry important. Th currnt throughput of

th 3 products i.. Motor Spirit (MS), Suprior Krosn Oil (SKO) and High Spirit Disl

(HSD) wr compard with thir futur throughputs and dmands.

Th nxt part of th projct involvd idntifying and bifurcating th dtails and basis of th

projct cost, compar th cost with similar projcts and dtrmin th phasing ofxpnditurs.

Finally, th financial analysis of th proposd projct was don to dtrmin its viability and

profitability. This analysis is basically rquird in th piplins to analyz th financial aspcts of

any capital invstmnt projct along with its tchnical fasibility and ratio analysis. It is vry

important for capital intnsiv companis to dtrmin th rturn forvry projct bcaus an

unprofitabl vntur might prov disastrous for th growth and survival of th company.


8/109

8

Along with th abov mntiond on sit projct, th rport compriss of industry and company

analysis. It focusd on building on an undrstanding of th oil and gas sctor in India, in trms of

siz of th markt, production consumption and othr rlvant information. This is followd by

an introduction to IOCL, its history and progrss, rvnus and profitability analysis and

financial ratio analysis.


9/109

9

CHAPT

R

1

INTRODUCTION


10/109

10

Introduction about Oil & Gas sctorThnrgy sctor in India is on of th important conomic drivrs in India. Fulfilling th nd

fornrgy for both domstic and commrcial consumption, th sctor has mrgd as th 4th

largst nrgy consumr in th world, aftr th Unitd Stats, China and Japan. As pr th

Ministry of Ptrolum and natural Gas, oil in India accounts for clos to 30% of th total nrgy

consumd. To satisfy dmand, Indian upstram oil companis hav acquird staks in ovrsas

assts. xisting domstic oil rsrvs and production is insufficint to mt th dmand in India.

Morthan 80% of Indias crud oil dmand was mt through imports as of FY12.conomic

growth witnssd by India, has ld to morconomic activity across stats thus rsulting in high

dmand for oil and gass to continuous ful th growth furthr. mploying mor than 1.3 lakhs

individuals and with a favorabl policy nvironmnt th sctor has mrgd as on of th ky

cor sctors driving thconomy. Th sctor is primarily dominatd by stat ownd firms lik

ONGC and IOCL. Th sctor also acts as a major sourc of tax rvnu gnration for Indias

cntral and stat govrnmnts. Prics of many oil, natural gas and ptrolum products ar

controlld by th cntral govrnmnt. This somtims forcs downstram companis to sll

finishd products at unprofitabl prics. Govrnmnt subsidis partially covr th shortfall, but

this puts a strain on cntral govrnmnt financs and bloats th fiscal dficit. In FY13, th

govrnmnt institutd a slw of rforms gard toward rducing th subsidis, such as limiting

th numbr of subsidizd cylindrs and incrmntal dcontrol of disl prics. Ths movs arxpctd to improv tharnings of industry oprators in coming quartrs.

As pr th BP statistics rport publishd in 2013, India has provd oil rsrvs of about 9.0

billion barrls, with an avrag production of about 826,000 barrls/day. Indian Oil & Gas sctor

has two lvls of activitis.


11/109

11

1. Upstram Sgmnt: This primarily dals with xploration of crud oil from rsrvs

across rgions. Oil and Natural Gas Corporation (ONGC) is th lading playr in this

sctor, oprating with clos to 75% of th markt shar in trms of crud oil output.

2. Downstram Sgmnt: This sgmnt dals with transportation, rfining and markting of

crud oil. Indian Oil Corporation (IOCL) has mastrd this activity. Oprating ovr

12,163 Km of piplin for crud transportation with a capacity of 1.4 million barrls pr

day, th firm oprats with clos to 75% of th total markt shar in trms of piplins.

Upstream

Major activity is exploration and extraction ofcrude

Major Players are ONGC, OIL and GAIL ONGC accounts for close to 75% of the total oil

output, making it the biggest upstream player

Downstream

Major activity is transportation, refinining andmarketing of oil

Major Players are IOCL, BPCL,HPCL and Essar Oil

IOCL operates a total of more than 10 refineriesacross states

IOCL has approx 12,163 km of Pipeline network


12/109

12

Company Ovrviw

Indian Oil is Indias biggst commrcial ntrpris and flagship national oil company with

businss intrst comprising thntir hydrocarbon valu chain. It is a lading Indian Corporat

in fortunGlobal 500 listing, rank at th 83rd position by th sals turnovr for th yar 2013.

Indian Oil and its subsidiaris hav a dominant shar in th ptrolum products markt, national

rfining capacity and downstram piplin capacity. It has bn hlping mt Indias nrgy

dmands ovr fiv dcads now with businss vrticals sprad ovr Rfinris, Piplins,

Markting, Rsarch & Dvlopmnt and Businss Dvlopmnt- &P, Ptrochmicals andNatural Gas. It is controlling Indias 10 out of 22 rfinris with a group rfining capacity of

65.7 MMTPA and a cross country ntwork of crud oil, product and gas piplins arching ovr

11,600 km with a capacity of 77 MMTPA as wll as maintains a markting ntwork with 37000

touch points (52%).

With an aim of maintaining its markt ladrship and providing bst quality product and

srvics, Indian Oil is invsting ovr Rs. 47,000 crors in a host of projcts for amplification of

rfining and piplin capacity, product quality up gradation, xpansion of marktinginfrastructurtc. Indian Oil srvics vry nook and cornr of th country, vry hour of th day

with customr sals points supplying by bulk storag in trminals and dpots, aviation ful

stations and LPG bottling plants.


13/109

13


14/109

14


15/109

15

IOCLs dominanc in downstram Oil sctor:

IndianOil has th largst rfining capacity in India comprising of almost 31% of th

markt shar.

It has th highst Ptrolum products markt shar of 46%.

87% downstram markt shar in crud oil piplins.

Largst providr of piplins for ptrolum products of 50% approximatly.

89% markt shar of bulk consumr pumps.

52% markt shar in LPG dalrship.

54% of total consumr touch points.


16/109

16

Cor Oprations

Rfining : Indian Oil controls 10 rfinris sprad across th country in Barauni(6.0 MMT),

Guwahati(1 MMT), Digboi(0.65 MMT), Bongaigaon(2.35 MMT), Haldia(7.5 MMT), Panipat(15MMT), Mathura(8 MMT), Koyali(13.7 MMT) along with two subsidiaris in Narimanan(1

MMT) and Chnnai(10.6 MMT). A nw rfinry of IOCL is still undr construction in Paradip

(15 MMT). Th rfinris in th north astrn part of th company bnfits from xcis duty

concssion and has th ability to supply in th North Indian markt at low cost by lvraging

piplin ntwork. Th total rfining industry capacity is 215.066 MMTPA and IndianOil with a

capacity of 65.7 MMTPA and holds 31% of thntir markt. IOCLs shar among thPSUs

stands at 49%. It is th only oil company to hav prsnc in high consumption North Indian

rgion comprising of Uttar Pradsh, Punjab, Haryana, Rajasthan, Himachal Pradsh, Uttaranchal

and Jammu & Kashmir. Th Corporation has bn consistntly maintain a capacity utilization of

100% and abov in th wak of plannd rvamp shutdowns for implmntation of quality

upgradation projcts in all th rfinris.


17/109

17

Oprating Highlights

Stratgic inland rfinry locations with most ffctiv supply and vacuation systm

through piplins

Highst vr throughput of 55.6 MMT

Lowst vr spcific nrgy consumption at 57 MBN against 59 MBN in FY 2010-11

Highst vr distillat yild of 77.8%

All rfinris aruro III/IV compliant

Piplins: IndianOil owns and oprats Indias largst ntwork of crud and product piplins

gtting closr to th clints with incrasing lngth. With th commissioning of nw piplins th

total ntwork of product, crud and gas is oprating at 10,777 km during th yar. With a lngth

of 4,376 km and a capacity of 40.40 MMTPA compriss of 73% downstram markt shar and

product piplins with a lngth of 6401 km and capacity of 35.36 MMTPA compriss of 50% of

downstram markt shar. It provids low cost crud transportation to all th companys

rfinris. Th highst vr throughput of 75.5 MMT was achivd by IOCLs piplins in FY

12. Also, it achivd th highst vr capacity utilization of 118% for crud oil piplins.


18/109

18

Th rcntly compltd product piplins ar:

290 km long Chnnai Bangalor product piplin.

265 km long Koyali Ratlam product piplin.

275 km long Panipat Jalandar LPG piplin.

36 km long ATF piplin conncting IOCLs Dvanagonthi trminal to Bngaluru

Intrnational Airport.

95 km long piplin conncting CPCLs Manali rfinry to Mnabakkam AFS.


19/109

19

Markting- Sals: IOCL has a shar of 52% in th Markting infrastructur with 4 Rgional

offics, 16 Stat offics, 100 Divisional offics (66 rtail and 34 consumrs) and 45 Indan Ara

Offics.Th organization is continuing to lvrag its distributors to maintain ladrship.

Rural Pntration through Markting

FY 2012 mad an imprssiv rcord by commissioning of 731 KSKs during th yar. Also,

9.2% of total IOCs sals (MS & HSD) was rcord which was th highst sinc 4 yars.

Rsarch and Dvlopmnt: Th R&D dpartmnt of IndianOil was stablishd in 1972 and

currntly has 438 scintist and support staff. Th major focus of th dpartmnt mainly now is to

rduc thcarbon footprints of IOCLs procss, products and tchnologis; ndavor to rduc

company.


20/109

20

Commrcialisation of Tchnologis

INDMAX : For maximisation of LPG & light distillats from rfinry rsidu

Marin Oils : On of six companis to hav dvlopd Original quipmnt

Manufacturr Approvd Marin Tchnology quipmnt

Ndl Cok : On of thr companis in th world that posssss tchnology to

mak high valu ndl cok

Lubricants

154 product formulations dvlopd, 108 commrcialisd, 56 approvals obtaind

from usr industris/OMs

In a first ovrsas businss gain, Mauritius Shipping Corporation adoptd

indignously dvlopd Srvo marin grads

Patnts

Six patnts grantd during th yar

Widning horizons

Nw ptrochmical and polymr labs fully functional

MOU with th dpartmnt of Bio-Tchnology to st up Advancd Bio-nrgy

rsarch cntr

Divrsifid Customr Bas and Product Suit

India

55%USA

22%

Others

23%

Active Patents by

Geography

Lubes

20%

Refinery

47%

Others

33%

Active Patents by division


21/109

21

Th various divrsification initiativs towards clan nrgy ar:

Wind powr projct:

Commissiond in Kachchh, Gujrat in January 2009 has a capacity of 21 MW( 14 WG of

1.5 MW ach)

Considring furthr invstmnt in Wind powr projcts.

Solar Powr Plant:

IOCL won bid to st up 5 MW Solar PV Powr Plant at Barmr, Rajasthan undr

Jawaharlal Nhru National Solar Mission.

Mor than 3000 solar lantrns sold from rtail outlts, LPG distributors for lighting rural

homs and shops.

Thr solar charging stations installd for poorr villags at pilot basis to cntrally charg

lantrns for rnting to customrs.


22/109

22

Nuclar Powr:

JV Company incorporatd to st up Nuclar Powr Plants in India.

quity participation (26%) in Rawatbhata, Rajasthan.

Biofuls: nrgy Crop Plantation

Captiv plantation for Jatropha in India.

In Uttar Pradsh plantation undr MNRGS fundd Public- Privat- Panchayat

partnrship modl: 10 ha compltd

Furthr proposd to xtnd plantation to 5000 ha.


23/109

23

SWOT Analysis of IOCL

STRENGTHS

1. India's largest commercialenterprise with a strong brand name

2. Operates 20 refineries in India

3. Huge distrubtion network through

retailing4. Has over 35,000 employees

5. Loyalty programs like XTRAPOWERFleet Card Program is aimed at LargeFleet Operators

WEAKNESS

1. Legal issues

2. Employee management

3. Bureaucracy

4. Volatility in the crude market &subsidy burden

OPPORTUNITIES

1 . Increasing Preference for Pipelines

2. Widening Horizon

3. Energy Efficient Mode

4. Cost-Effective & CompetitiveProjects

5. Expanding Gas Market

THREAT

1. Diverse Culture

2. Difficult Terrain

3. Harsh Climate

4. High Competition


24/109

24

SWOT Analysis With Rspct To Markting Division

Strngths:

Indias highst rankd Fortun 500 Company and a markt ladr with 50% shar of

Ptrolum products.

Possss th largst Piplin Ntwork; and thus has a vital comptitivdg in

transportation costs and thus hlps to accss in dficit markts.

IOC controls 10 rfinris, by virtu of which it has a total shar of around 34% of

Indias ovrall rfining capacity.

Thr ar mor than 35600 sal points all ovr India which is 55% of industry.

Thr ar about 5096 distributors of Indan Cooking gas for catring 56 million

housholds.

Raching th doors of bulk customrs: Bulk Consumr Pumps 7,593 (89%).

Strong Brand nam for its products (Forxampl, SRVO which covrs 42% markt

shars, with mor than 450 grads).

xcllnt crdibility and intrnational corporat imag for raising funds.

IOC also acquird managmnt control of th markting company IBP, thrby

strngthning its position in ths activitis.

Thr ar around 229 activ Patnts which includs 125 intrnational patnts.

Th company has alrady ntrd ovrsas markts such as Sri Lanka, Maldivs, and

Oman and is prsntly considring ntring Turky through a JV. Th company is in


25/109

25

talks with Caliak of Turky to st up an I0 million TPA grassroots rfinry with an

invstmnt of $2 billion and stablish rtail businss. IOC is also wighing th possibility

ofntring Indonsia. IOC has also startd xploring th ovrsas markts for incrasing

its scop of oprations. Its intrsts includ downstram activitis in Sri Lanka, Maldivs,

Oman, and Npal; intrst in th lubs businss in Maldivs, Dubai, Bangladsh, Sri

Lanka, tc; among othrs.

Waknsss:

Th functioning of IOC is gratly influncd by th govrnmnt policy and rgulation.

Th govrnmnt has 82% stak in th company, thus gaining th control of th company.

Thr is always a risk of its proposals bing rjctd as thr is uncrtain political

nvironmnt prvailing in th country.

Th Advrtismnt stratgy of IOCL is not xtrmly ffctiv. For xampl, Xtra

Prmium is th bst ptrol availabl in th markt, but du to lack of ffctiv

advrtismnt, th sal of th product is not in th dsird lvl, whr as Castrol is

known for its clbrity advrtismnt.

vn though IOC controls most rtail outlts it has markt shar of only 33.8% in th

ptrol and 39.6% in disl rgistring an incras of 0.5% and 0.3% rspctivly ovr th

last yar. This is comparativly vry small as compard to its siz, rach and production.This is bcaus of th fact that its rtail outlts ar concntratd mor in smi-urban ara

and rural ara.

Opportunitis:

nhancmnt of th distribution ntwork must b madspcially in th dficit rgions.

Distribution / sal of altrnativ products through xisting rtail ntwork can b chalkd

out.

With gas mrging as an attractiv altrnativ ful du to th twin bnfits of low

pollution and bttrconomics, IOCL has plannd to quickly stablish itslf in th gas

markt also. Th LNG and Hydrogn businss offrs an attractiv nvironmnt for its

futur businss. Gas is stadily growing into th most prfrrd ful among utility

providrs such as powr, frtilizrs and transportation. IOC plans to st up a nationwid


26/109

26

gas distribution ntwork for srving major Indian citis to markt CNG for automobils

and to import LNG.

IOC signd a MOU with th National Iranian Oil Company (NIOC) for importing 2.5

MMTPA LNG and also for taking part in th LNG midstram projcts in Iran. Th initial

fforts turnd succssful with IOC alrady bcoming th lad supplir of LNG to ssar

Stl and Gujarat Stat Ptrolum Corp. IOC has procurd xxon Mobils rgas from

Qatar for a priod of twnty fiv yars from April 2004 to mt rising dmand. All ths

fforts would stimulat th growth and profitability of th company in th nar trm.

Improvmnt of customr managmnt srvics at th rtail nd (a customr satisfaction

has shown only 65% customr satisfaction lvl).

Thrats:

In th post APM scnario, IOC will fac comptition in th ara of crud / product

import. Consquntly it has affctd th margin of Rs.5000cror which it arns from

trading oprations.

Incras in numbr of playrs, spcialization in lub markting (such as HPCL, BPCL,

and Rlianc).

Introduction of LNG / CNG in som mtro citis (.g., Dlhi) can rduc th dmand of

ptrol or disl in nar futur.

Consumption of marin ful procurd by som major public sctor shipping companis is

showing a dcrasing trnd.

Drgulation of Indian Ptrolum sctor: Th drgulation of th ptrolum sctor in

India during 2002 abolishd th monopoly staks of IOC. Th company is now facing

stiff comptition from svral playrs, striving to gain markt shar. Thrxists a clos

comptition btwn ONGC and IOC in th Indian oil markt. RIL has also mrgd as

an important playr compting in th upstram sctor subsqunt to th drgulation of

th ptrolum sctor.

Dmographic issus ar also posing som srious thrats to IOCL. IOCLs north ast

oprations continu to suffr from crtain constraints.


27/109

27

SWOT Analysis With Rspct To Rfinris Division

Strngths:

Th rfinris ar dsignd in a flxibl way, which givs ovr 100% fficincy,

comptitiv cost and catrs for varity of nds. About 34% of rfining capacity in th

country is ownd by IOCL.

58% of IOCs rfining capacity is locatd in th Northrn and Wstrn rgions, which ar

high dmand and high growth aras.

Pionr in quality managmnt with its Mathura Rfinry as th 1st in Asia and 3rd in th

world to arn ISO14001 Crtification.

High quality LOBS producd by rfinris contribut to world class lubs.

No financial constraints in modrnizing and improving facilitis for rfinris.

Waknsss:

Oprating cost is comparativly highr than nw rfinris of comptitors (.g. Jamnagar

Rfinry of Rlianc Ptrolum).

Thr is lss flxibility option of handling various typs of crud (both swt & sour)

unlik nw rfinris of comptitors.


28/109

28

Opportunitis:

Nd for additional rfining capacity to mt rising dmand in ptrolum product.

Installation of piplin infrastructur for dficit rgions and incrasd application of

piplins as a prfrrd mod of transportation for lowr logistics cost as compard to

road / rail transport.

Improvmnt / cration of nw infrastructurstorag, transportation and distribution.

Globalization in rfining, piplin and consultancy.

Thrats:

Th dcontrol in Hydrocarbon sctor is likly to bring in nw playrs spcially th

MNCs, with nw rfining capacity having th flxibility to improvis th product mix

according to th natur of markt dmand.

Growth of mrchant rfining can b a nw sourc of comptition.

Highr Capital nds to modrnizxisting infrastructur.


29/109

29

PiplinsAn Introduction

Th trm piplin in broadr sns mans a facility usd to transport commoditis from

point of rcipt to th point of dlivry.

Many commoditis ar transportd through piplins.

Crud oil and ptrolum products ar prhaps th most common commoditis transportd

by piplins.

Dvlopmnt of Piplins in India

Most of tharlir rfinris in India wr installd at coastal locations, Thus dpnding

on coastal movmnt of Crud Oil.

Furthr, Th Rfining capacitis bing low, Th products writhr consumd locally

or transportd to th consumption cntrs by Rail or Road.

Aftr 1960, Most of th Rfinris wr installd in Land-Lockd locations and Crud

and Product Piplins wr prompltly laid.

Th First Crud Oil Piplin was laid from DIGBOI Oil filds to DIGBOI Rfinry.

During 1960-63, OIL INDIA LIMITD laid th First Trunk Crud Oil Piplin, 1156

Km long from Naharkatiya and Moran Oil filds to th rfinris at GuwahatiI and

Barauni.

Th First Cross Country Product Piplin was laid during 1962-64 to transport products

from Guwahati Rfinry to Siliguri.

Subsquntly , A numbr of product and Crud Oil Piplins wr laid in th60s, 70s

and 80s, including sub-sa Crud Oil Piplins.

Th country today has about 24,000 Km of major Crud Oil and Product Piplins.

Th Piplins laid during th 60s wr Dsignd, nginrd and Constructd by

Forign Companis. Howvr, Thxposur to this Tchnology nabld indian nginrs


30/109

30

to gain confidnc, and th Piplins which cam up latr, wr dsignd and constructd

with indignous xprtis.

Th country today has about 24,000 Km of major Crud Oil and Product Piplins.

Piplin Transportation of Liquid Ptrolum : Th Indian Scnario

Indian oil industry has ovr four dcads ofxprinc in transportation of crud oil and

finishd ptrolum products.

Th crud oil piplins transport waxy crud as wll as low sulphur & high sulphur

crud.

Th finishd product piplins transport primarily light and middl distillats, including

aviation turbin ful, in multi-product piplins.

ADVANTAGS OF PL TRANSPORTATION

Cost ffctiv

conomis of scal

Ngligibl transit loss

nrgy fficint

Rliabl

Saf, nvironmnt frindly

WAKNSS IN PIPLIN TRANSPORTATION SYSTM

Capital intnsiv

Viability dpnds on utilization


31/109

31

Onc laid, it is sunk cost/No altrnat us

Invntory carrying cost

Lss flxibility rgarding batch siz

Intrfac and contamination of product

Door to Door dlivry not possibl

MODS FOR TRANSPORTATION OF PTROLUM PRODUCTSA COMPARISON

Road Rail Piplin

nrgy cost Vry High High Low

Oprating cost Vry High High Low

Pollution High Low Nil

Movmnt congstion High Low Nil

Handling loss High Low Ngligibl

Safty Hazards High Low Ngligibl

Rliability Low Low 100%


32/109

32


33/109

33


34/109

34

XISTING CRUD OIL & GAS PIPLINS

Crud Oil Piplins

S.

No

Nam of th Piplin Lngth

(KM)

Diamtr

(Inch)

Rfinry Capacity

(MMTPA)

1. SALAYA-MATHURA (WR) 1870 28 / 24 J/M/P 21.6

2. PARADIPHALDIA-

BARAUNI (R)

1312 30/18 H/B/BN 11

3. MUNDRA-PANIPAT (NR) 1194 28 / 22 P 8.4

TOTAL 4376 41.0

Gas Piplins

S.

No

Nam of th Piplin Lngth

(KM)

Diamtr

(Inch)

Rfinry Capacity

(MMSCMD)

1. DADRI-PANIPAT - NR 132 30 P 9.5

PRODUCT PIPLINS

S.

No.

Nam of th Piplin Lngth (KM) Diamtr

(Inch)

Capacity

(MMTPA)

ASTRN RGION

1. GUWAHATI-SILIGURI 435 8 1.4

2. BARAUNI-KANPUR 745 20/12 3.5

3. HALDIA-BARAUNI 525 12 1.25


35/109

35

4. HALDIA-MOURIGRAM-

RAJBANDH277 12 1.35

WSTRN RGION

5. KOYALI-SANGANR 1056 18/12 4.6

6. KOYALIDAHJ 197 14/12 2.6

7. KOYALI-RATLAM 265 16 2.0

8. KOYALI-AHMDABAD 116 8 1.1

9. VIRAMGAM KANDLA 231 16/22 -

S.

No.


(Inch)

Capacity

(MMTPA)

NORTHRN RGION

10. MATHURA-DLHI 147 16 3.7

11. MATHURA-TUNDLA 77 16/8 1.2

12. BIJWASAN-PANIPAT NAPHTHA 111 10 -

13. PANIPAT-AMBALA-JALANDHAR 434 14/12 3.5

14. PANIPAT-BHATINDA 219 14 1.5

15. PANIPAT-RWARI 155 12 1.5

16. PANIPAT-DLHI 182 14 -

17. PANIPAT-JALANDHAR LPG 274 10 0.7

S.

No.


(Inch)

Capacity

(MMTPA)

SOUTHRN RGION

18. CHNNAITRICHYMADURAI 683 14/12/10 2.30

19. CHNNAI-BANGALOR 290 14/12 2.45

OTHRS


36/109

36

20. CHNNAI ATF 95 8 0.18

21. NARIMANAM-NAGAPATTINAM 7 18 0.368

22. BNGALURU ATF 36 8 0.66

23. DIGBOI-TINSUKIA 75 8/6 1.0

TOTAL 6632 36.858

PROJCTS UNDR IMPLMNTATION

S.

No

.

Projcts Dscription App. Cost

(`/ Cror)

Capacity

(MMTP

A)

Lngth

(km)

Dia

(inch)

1. Hook-up of Tikrikalan Trminal

with MJPL

59 - 8 14

2. Paradip- Raipur-Ranchi Piplin 1793 5.0 1065 18/10

3. Intgratd Crud Handling

Facilitis at Paradip

1492 - 70 48

4. Addl Tanks and blnding facility

at Vadinar

267 - - -

5. D-Bottlncking of SMPL 1584 4 767 28/24

6. Kolkata ATF Piplin 45 0.13 28 8

7. Guwahati ATF Piplin 44 0.07 35 8

8. Cauvry Basin Rfinry - Trichy

Piplin

98 0.40 114 8


37/109

37

9. Paradip-Haldia-Durgapur LPG

Piplin

913 0.85 710 12/10

10. PHBPL Augmntation 586 4.2 64 18

11. Branch Lin from BKPL to

Motihari & Baitalpur

276 - 275 10

12. Last Mil connctivity to NFL

from DPPL

10 - 1.8 10

TOTAL 7167 14.65 3137.80


38/109

38

GROWTH OF PIPLIN NTWORK

0

2000

4000

6000

8000

1000012000

14000

16000

1964 1975 1985 1995 2000 2005 2013 2015

435

2014

39805423

6364

8951

11600

14278

Length ( KM)


39/109

39

GROWTH OF PIPLIN CAPACITY

0

10

20

3040

50

60

70

80

90

100

1964 1975 1985 1995 2000 2005 2013 2015

0.48 5.71

23.0728.92

43.72

56.82

77.86

92.51

Capacity(MMT)


40/109

40

INCOM- Piplins Division

Fright Rcovry. This is a contra itm in Divisional Accounts and is nullifid at

Corporat lvl. Sinc Piplin fright includs an lmnt of profit, th margin is

liminatd for closing stock valuation.

Consultancy Incom/ Training & Dvlopmnt

Sal of Scrap/Wind Powr

Rcovris from mploys/contractors

Unspnt/ Unclaimd Liabilitis writtn back

Intrst on mploy advancs

XPNSS- Piplins Division

Powr & Ful - 30%

Rpairs & Maintnanc - 13%

Chmical Consumption - 2%

stablishmnt Cost - 14%

Dprciation - 28%

Gnral Administration xpnss - 13%


41/109

41

Introduction to th rport

Background

Financial Ratio Analysis

Ratio Analysis compars on figur in on financial statmnt (say P&L account or Balanc

Sht) with anothr figur in th sam financial statmnt or in anothr financial statmnt of

th company. A ratio is xprssd in th numrator dnominator format. Thus th numrator

and dnominator can b ithr from th P&L account or th Balanc sht of th sam

company.

Hnc, ratio analysis facilitats intra firm comparison. i.. comparison of your companys

prformanc in th currnt yar with your companys prformanc in th prvious yar. It also

facilitats intr firm comparison. i.. comparison of your companys prformanc in th currnt

yar with your comptitors prformanc in th currnt yar. Pr rviw, as this is calld, hlps

you bnchmark your prformanc with your prs. Ratios hlp in ascrtaining th financial

halth of th company and also its futur prospcts. Ths ratios can b classifid undr

various hads to rflct what thy masur. Thr may b a tndncy to work a numbr of ratios.

But w bliv that bing thorough in th computation and intrprtation of a fw ratios (Say

20-25) would b idal, sinc too much of analysis could lad to paralysis.

Capital Budgting Dcisions

Th Capital Invstmnt plays a vry vital rol in th growth and financial halth of any company.

Such invstmnts ar ncssary for continud growth of th organization, updation of

tchnology, rmoval of oprational bottlncks, improvmnt in fficincy and productivity,

nhancmnt of capacitis, fulfillmnt of social objctivs tc. Capital Invstmnt dcisions

would gnrally includ xpansion, acquisition, modrnization and rplacmnt of long trm

assts.


42/109

42

Dcisions involving Capital Invstmnts rquirs spcial attntion du to th following rasons:

Growth: Invstmnt dcisions ar gnrally long trm and takn for futur bnfits. It

has to bndurd for a longr priod than consquncs of currnt oprating xpnditur.

A wrong dcision can prov disastrous for th growth and survival of th company,

unprofitabl vnturs can hampr to compt succssfully and vn rsult in loosing on

its markt shar.

Risk: Capital invstmnt dcision vn changs th risk complxion of a company. If

adoption of a particular invstmnt incrass th avrag gain of th firm and along with

that also brings in frqunt fluctuations in its arnings, th ovrall risk profil of th

company incrass.

Funding: Long trm commitmnt of funds gnrally involvs larg amount of funds,

which maks it imprativ for th company to tak it dcisions vry carfully and arrang

in advanc th procurmnt of financ intrnally orxtrnally.

Irrvrsibility: Ths dcisions ar gnrally irrvrsibl and th company would incur

havy losss if such assts ar scrappd as th marktability of such invstmnts is vry

lss. Furthr, if th fixd chargs rquird to b incurrd can mak difficult th vry

survival of th company if thr is no commnsurat incom to mt thm.

Complxity: Capital invstmnt dcisions ar an assssmnt of futur bnfits and

difficult to prdict.


43/109

43

Capital projcts in Indian Oil Corporation Limitd can b broadly dividd into:

As pr rvisd DOA ffctiv from April 9, 2001, all capital invstmnt proposals abov Rs

100 cror rquir boards approval as undr:

Abov Rs. 100 cror : Board

Abov Rs. 50 cror to Rs. 100 cror: Planning and Projct Committ Board

Abov Rs. 10 cror to Rs. 50 cror: Chairman

Upto Rs. 10 cror: Functional Dirctor

Projct costing Rs. 250 cror and abov rquirs approval of Projct valuation Committ.

Core sectorprojects

Refining, marketing, pipelines and R&D

Diversificationprojects

Exploration and Production (E&P)

Globalizationprojects

Core/ non core sector projects overseas


44/109

44

Financial valuation

Th following two mthods will b considrd to valuat th projct proposal of IOCL:

Intrnal Rat of Rturn (IRR): It is th discounting rat at which th prsnt valu of

cash outflows will b qual to th prsnt valu of cash inflows. In othr words, th

discount rat that yilds a zro Nt Prsnt Valu is known as IRR. Projcts having a IRR

lss than th hurdl rat (cost of capital+ prmium) shall not b considrd commrcially

viabl and shall b justifid on non- commrcial grounds, whrvr applicabl. For

calculation of Rturn on quity Principal Rpaymnt along with intrst outgo shall b

takn into considration.

Nt Prsnt Valu (NPV): Th prsnt valu of a futur sum of mony can b found by

discounting it to th prsnt tim in tim or Yar 0 at th rquird rat of rturn

/discount rat. Rquird rat of rturn shall not b lss than cost of capital. Undr this

mthod, th prsnt valu of ach yars nt cash flow is calculatd, starting from th

Yar 0 till complt projct lif i.. 15 yars. This discounting rat adoptd shall b th

hurdl rat. If th projct has a positiv NPV, th projct is considrd to b

commrcially viabl.


45/109

45

CHAPTR2

RSARCHMTHODOLOGY


46/109

46

Objctiv of th Study Th study is conductd with rfrnc to IOCL. Th main objctiv of th study is to

hav an ida of th practical application of Capital Budgting, Capital Structur and Ratio

Analysis whos thortical aspcts ar known.

Th study is conductd with th following objctivs:

To undrstand th various financial implications involvd in th piplins projcts.

To canvas th stps involvd in th tndring procss.

To undrstand th stps involvd in valuating thstimats.

To gain knowldg involvd in th prparation of Dtaild Fasibility Rport (DFR).

To gt quippd with th workabl knowldg of MS xcl

To bridg th gap btwn th thortical aspcts and practical implmntation in

Piplins Division

To undrstand th working of financ dpartmnt

To gt xprinc & xposur for th corporat lif

To comprhnsivly calculat all th financial ratios aftr analysing Balanc sht and

P/L account and intrprt th rsults.

To suggst on th basis of findings, improvmnts in th managmnt of snsitiv factors

and financial ratios.


47/109

47

Scop of th Study

Study th Augmntation of Barauni-Kanpur Piplin and undrstand th various financial

implications involvd in th piplin projct.

Undrstand th financial fasibility of th projct

Calculat th various Financial Ratios and valuat th financial condition of th

company as a whol.

Mthodology

Typ of Rsarch

Analytical Rsarch, i.., to us facts or information alrady availabl, & analyz ths

to mak a critical valuation (Dtaild Fasibility Rport)

Fundamntal or Basic Rsarch, i.., finding information that has a broad bas of

applications & thus adds to th alrady xisting organizd body of scintific knowldg

(Budgting).

Rsarch Dsign

Th rsarch conductd hr is ofxploratory and Dscriptiv in natur which structurs

and idntifis nw problms. Th objctiv ofxploratory rsarch and dscriptiv rsarch

is to gathr prliminary information.

Sourcs of Data Collction

Primary Data

Th mthod which involvs, collction of data for th givn subjct, is dirctly from th

ral world which is collctd by th rsarchr himslf. Th data wr collctd through:

Discussions among th concrnd xcutivs of th corporat.

Intraction with th ky mploys of th organization.


48/109

48

Scondary Data

Th data which is collctd by othrs is to b r-usd by th rsarchr. Analysis

prpard from collction of various rquird information from:

Intrnal Rports (Annual),

Prformanc Rport of Indian Oil Corporation-Piplin Division, financial statmnts

of th company (i.. Balanc sht, P&L, Rvnu budgts tc.)

Study of th Dtaild Fasibility Rports (DFR) of othr projcts which hav bn

alrady compltd and th various manuals of th division.

Limitations

Tim constraint: Th duration of th projct limitd th in-dpth undrstanding ofvry

aspct involvd in th Capital Budgting dcision making of th organization

Limitd scop: Th projct was carrid out within th scop of th company. Th

prdtrmind guidlins givn by th corporat offic should b strictly adhrd to. Th

fficacy of th mthods followd is still dbatd in th acadmic arna.

Tchnicality: Th proposals put forward by th tchnical dpartmnt of th Piplins ar

gnrally vry tchnical and taks ffort for non-tchnical background studnts to

intrprt crtain trminologis. Th issu was mainly facd during th bifurcation of coststimats.


49/109

49

Chaptr -3

LITRATURRVIW


50/109

50

In th bginning of nintnth cntury ssntial improvmnt in ratio analysis occurrd. In this

priod fw dvlopmnts arndognous. First, larg numbr of ratios was concivd in

comparison to arlir priod of tim. Scond, propr ratio critria wr appard. In this rgard

most famous was currnt ratio critrion. Third, diffrnt analysts undrstand th nd of intr-

firm analysis and for that purpos it flt th nd for rlativ ratio critrion. Dspit ths

dvlopmnts ratio analysis has bn usd for analysis in this priod and thos flt th nd of

using ratio analysis only usd currnt ratio.

.In 1920s, intrst in ratio analysis incrasd dramatically. Many publications on th topic of ratio

analysis publishd during this priod. Diffrnt crdit agncis, trad unions, univrsitis and

individuals sking analyss compild industry data on ratio analysis.

Justin (1924) argud that th mthod of gathring industry data and calculats avrags wr

calld Scintific ratio analysis. Thword scintific in this titl was not ntirly corrct

bcaus no vidnc had bn found that th hypothsis formulation and hypothsis tsting

actually carrid out.

Horrigan (1968) says ratios analysis has com into xistnc sincarly ags and th main

rason of th dvlopmnt of ratio analysis was its us in th analysis of th proprtis of ratios

in 300 B.C. in rcnt tim it is usd as a standard tool for th analysis of financial statmnt. In

nintnth cntury main rasons of using ratio analysis ar powr of financial institutions and

shifting of managmnt to profssional managrs. Ratio analysis usd for two purposs that ar

crdit and managrial. In managrial approach profitability and in crdit approach capacity of

firm to pay dbts is th main point of focus. Gnrally, ratio analysis is usd crdit analysis.

Thr was rapid xpansion of financial knowldg in nintnth cntury and to study this rapidly

xpanding knowldg analyst first compard similar itms thn movd furthr and compard

currnt assts and liabilitis as wll with othr ratios. In that priod currnt ratio was th most


51/109

51

significant ratio among all othr availabl ratios. To analyz th oprating rsults dupont analysis

is also usd. Th rsult dividd into thr parts and thn compard with othr companis to point

out th problm and strong aras of businss.

Bliss (1923) says basic rlationship within th businss is indicatd by th ratios and dvlopd

complt modl basd on th ratios. Th purpos modl was not matur but inspird othrs to

start working on this thory.

Diffrnt critics of ratio analysis also appard. Gilman (1925) has following concrns on ratio

analysis (1) ratios ar bond with tim and changd as tim passd so cannot b intrprtd (2)

ratios ar not natural masur for judging th prformanc companis manipulatd thm (3)

ratios asily affct th mind of viwrs and hid th actual position and (4) ratios swing widly

that also affct th dpndability.

Foulk (1931) crat and promotd own st of financial ratios succssfully. This st of financial

ratios was printd and promptly known as important and prominnt group of ratios.

Fitzpatrick (1932) with th hlp of thirtn diffrnt typ of ratios analysis 120 faild firms and

found that thr out of thirtn ratios prdict th failur of firms with prcis accuracy whil

othr ratios also shown som prdiction powr.

Rasmr and fostr (1931) usd lvn ratios to xamin that th succssful firms has highr

ratios than unsuccssful firms. Although this study was immatur but immaturity was ignord by

considring th vital contribution this study has in thvaluation of usfulnss of ratios. Scurity

and xchang commission of Amrica was formd in 1934. This also xpands th flow and

numbr of financial statmnts and with th hlp of this priphral factor importanc of ratio

analysis furthrnhancd and ralizd.

Marwin (1942) by using svral ratios analyz financial trnds of hug succssful and

unsuccssful firms. Compard normal ratios of industry with man ratios of larg unsuccssful

firms and find out that th thr ratios currnt ratio, nt working capital to total assts and nt

worth to dbt wr abl to fors failur bfor actual failur happnd. This study shows th

actual powr of prdiction of ratio analysis and rsults wr still rliabl.


52/109

52

Waltr (1957) includd cash flow statmnt itms in ratio analysis. At thnd of world war fund

statmnt cam into xistnc and with fund statmnt fund statmnt ratios was also producd.

Hickman (1958) usd tims intrst arnd ratio and nt profit ratio to prdict th dfault rat on

corporat bond.

Saulnir (1958) says firms with low currnt ratio and dbt ratio has gratr chanc to dfault

thn firms with high ratios.

Moor and Atkinson (1961) point out th rlationship btwn capacity to pay and financial

ratios and shows rsults of ratio analysis influnc th borrowing ability of firms.

Bavr (1967) also xamind th prdiction powr of ratio analysis and point out ratios ability to

prdict failur as arly as fiv yars bfor th collapsd. Statistical tchniqu usd in th study

was mor powrful than arlir studis and fund statmnt data was usd to calculat ratio. This

study st th foundation for futur rsarch on ratio analysis.

Sortr and Bckr (1964)xamind th rlationship btwn psychological modl andcorporat prsonality of financial ratios and find out that long-stablishd corporation maintain

gratr liquidity and solvncy ratios.

Gombola and Ktz (1983) found that th fund and incom statmnt ar producd for diffrnt

purpos and profitability ratios did not has th information that cash flow ratios provid. In othr

words both ratios gav important as wll as diffrnt information from on and othr.

In 1940s many nations xprssd intrst in ratio analysis. Currnt ratio has usd in crdit

managmnt in Australia aftr intns scrutiny. In ngland data has collctd from diffrnt

organization and sort in pyramid in ordr to usd that data in ratio analysis so that dcision

mad on mor rational basis. In othr wards British mthod is mor managmnt orintd than

Amrican systm that is crdit orintd. Indian and Canadian systm is similar to Amrican

systm and sam kind of ratios and critria has bn usd. In Japan data is availabl in grouping


53/109

53

on th basis of industry and sizs of firms. China and Russia usd svral ratios as control

masur in invstmnt and working capital.

mpirical analysis of financial ratios:

Pinchs and Mingo (1973) valuat th structur of ratios and found that ratios can b dividd

into diffrnt groups. Prsnt gnral classification of financial ratios on logical basis. Rsults

concludd that th ratios can b dividd into four groups that ar financial lvrag, short-trm

capital intnsivnss, rturn on invstmnt and long-trm capital intnsivnss.

Stvns (1973) also studis th topic of ratio classification and groupd th financial ratios in

four catgoris that includ activity, liquidity, lvrag and profitability.

Pinchs, Mingo, and Caruthrs (1973) and Pinchs, ubank, Mingo, and Caruthrs (1975)

carry on furthr workd on this subjct and catgorizd th financial ratios in svn factors that

includ rcivabl turnovr, capital turnovr, short-trm liquidity, rturn on invstmnt,

invntory turnovr, financial lvrag and cash position.

Libby (1975) also studis th division of financial ratios and condnss that division from svn

to fiv. Fiv divisions includ liquidity, activity, cash position, profitability and assts balanc.

Johnson (1979) furthr studis th rsarch of Pinchs (1973) and addd anothr factor that is

dcomposition masur into svn factors. Twlv diffrnt factors or division of financial ratios

ar prsntd in fiv diffrnt studis. On th basis of fiv publishd studis assortmnt of

financial ratios ar vry tim consuming bcaus th rsults of publishd studis was vry

divrs.

Chn and Shimrda (1999) dply xamind fiv publishd studis and find out that som of

th twlv factors that has bn prsntd in th studis has sam and simply nam is changd.

Thrfor, twlv factors ar groupd into svn factors. Svn factors ar cash position,

financial lvrag, invntory turnovr, short-trm liquidity, rturn on invstmnt, rcivabl

turnovr and capital turnovr.


54/109

54

CHAPTR4

FINDINGS &

ANALYSIS


55/109

55

Projct Proposal

Financial Analysis of Indian Oil Corporation Limitd and DFR on Proposal for Invstmnt

Approval of Branch Piplin from Barauni-Kanpur Piplin to Motihari and Baitalpur for

lvraging th transportation tariff.

Brif Dscription of th Proposal

Financial (Ratio) Analysis

Financial analysis rfrs to an assssmnt of th viability, stability and profitability of a businss,

sub-businss or projct. Profssionals who prpar rports using ratios that mak us of

information takn from financial statmnts and othr rports prform it. Ths rports ar

usually prsntd to top managmnt as on of thir bass in making businss dcisions. Basd

on ths rports, managmnt may:

Continu or discontinu its main opration or part of its businss;

Mak or purchas crtain matrials in th manufactur of its product;

Acquir or rnt/las crtain machinris and quipmnts in th production of its goods;

Othr dcisions that allow managmnt to mak an informd slction on various

altrnativs in th conduct of its businss.

Financial analysts oftn asss thfirms on:

Profitability- its ability to arn incom and sustain growth in both short-trm and long-

trm.


56/109

56

Solvncy- its ability to pay its obligation to crditors and othr third partis in th long

trm;

Liquidity- its ability to maintain positiv cash flow, whil satisfying immdiat

obligations; Solvncy & Liquidity ar basd on th companys balanc sht, whichindicats th financial condition of a businss at givn point of tim.

Lvrag- Any ratio usd to calculat financial lvrag of a company to gt an ida ofth companys mthods of financing or to masur its ability to mt financialobligations. It also givs an ida of how changs in output will affct oprating incom.

DU PONT- analysis shows that th profitability dpnds not only on th profit margin butalso on how fficintly th firm has usd its assts to gnrat sals.

Dbt financing and Growth- It is th maximum growth rat that can b achivd with no

xtrnal financing whil taking into considration th dbt quity ratio.

Markt tst ratios- It rlats th firms stock pric to its arnings and book valu prshar.


57/109

57

FINANCIAL ANALYSIS OF INDIAN OIL CORPORATION LIMITD

IMPORTANC OF FINANCIAL ANALYSIS

A basic limitation of th traditional financial statmnts comprising th balanc sht and th

profit and loss account is that thy do not giv all th information rlatd to th financial

oprations of a firm. Nvrthlss, thy provid somxtrmly usful information to thxtnt

that th balanc sht mirrors th financial position on a particular dat in trms of th structur

of assts, liabilitis and ownrs quity, and so on and th profit and loss account shows th

rsults of oprations during a crtain priod of tim in trms of th rvnus obtaind and th

cost incurrd during th yar. Thus, th financial statmnts provid a summarizd viw of th

financial position and oprations of a firm. Thrfor, much can b larnt about a firm from a

carful xamination of its financial statmnts as invaluabl documnts/prformanc rports. Th

analysis of financial statmnts is, thus, an important aid to financial analysis.

Th focus of th financial analysis is on ky figurs in th financial statmnts and th significant

rlationship that xists btwn thm. Th analysis of financial statmnts is a procss of

valuating th rlationship btwn componnt parts of financial statmnts to obtain a bttr

undrstanding of thfirms position and prformanc.

Th first task of th financial analyst is to slct th information rlvant to th dcision undr

considration from th total information containd in th financial statmnts. Th scond stp is

to arrang th information in a way to highlight significant rlationships. Th final stp is th

intrprtation and drawing of infrncs and conclusions. In brif, financial analysis is th

procss of slction, rlation and valuation.


58/109

58

Ratio Analysis:

It is important whn xamining a st of financial statmnts and using ratio analysis to rlat

thm to rfrnc points or standards. Ths points of rfrnc might b to:

stablish trnds from past yars, so providing a standard of comparison

compar against othr businsss in th sam industry

compar with standards assumd to b satisfactory by th intrstd party, .g. a bank

Abov all, it is important to undrstand th rlationships btwn ratios: on ratio may giv an

indication of th stat of th businss but, bfor drawing conclusions, this nds to b supportd

by othr ratios. Ratios can highlight symptoms, but th caus will thn nd to b invstigatd.

Anothr us of ratios is to stimat th likly futur profit or balanc sht of a businss. For

xampl, it might b assumd that th sam gross profit prcntag as last yar will also apply

nxt yar; thus, givn an stimatd incras in sals rvnu, it is a simpl mattr to stimat

gross profit. In a similar way, by making us of ratios, nt profit (profit bfor tax) and th

balanc sht can b forcast.


59/109

59

Ratio Analysis of IOCL

Particulars 2008-09 2009-10 2010-11 2011-12 2012-13

Liquidity ratio:Currnt ratio 0.96 0.92 0.87 1.01 1.03

Liquid ratio 0.64 0.49 0.44 0.54 0.56

Dfnsiv Intrval Ratio 72.62 67.39 63.88 62.76 58.37

Activity Ratio:

Invntory turnovr ratio 16.00 13.24 12.79 9.18 7.39

Dbtors turnovr ratio 41.18 42.48 41.31 42.68 42.53

Crditors turnovr ratio 6.34 6.00 5.97 5.39 6.57

Assts turnovr ratio 2.74 2.28 2.20 2.38 2.37

Capital turnovr ratio 3.47 2.93 3.42 4.62 5.68

Lvrag ratio:

Dbt-quity ratio 1.02 0.88 0.95 1.30 1.32

Total dbt ratio 0.64 0.61 0.66 0.77 0.77

Propritary ratio 0.36 0.39 0.34 0.23 0.23

Intrst covrag ratio 2.10 10.24 4.41 3.05 1.88

Financial lvrag ratio 1.91 1.11 1.29 4.54 2.13

Profitability ratio:

Gross profit ratio 0.04 0.08 0.05 0.05 0.04

Oprating profit ratio 0.03 0.06 0.04 0.04 0.03

Nt profit ratio 0.01 0.04 0.02 0.01 0.01

Rturn on capital mployd 0.15 0.10 0.18 0.20 0.25

Rturn on quity 0.07 0.20 0.13 0.07 0.08Rturn on Assts 0.03 0.09 0.05 0.04 0.08

arnings pr shar 24.74 42.10 30.67 16.29 20.62

Dividnd pr shar 8.93 15.10 10.98 5.80 7.25

Dividnd Payout Ratio 0.36 0.36 0.36 0.36 0.35

Cash profit ratio 0.02 0.05 0.04 0.02 0.02

xpns ratio 1.16 1.06 1.08 0.98 1.00

DuPont analysis

arning Powr 0.02 0.08 0.05 0.02 0.02

Rturn on quity 0.07 0.20 0.13 0.07 0.08

Dbt- financing growth

Intrnal growth rat 0.02 0.05 0.03 0.02 0.05Sustainabl growth rat 0.04 0.11 0.08 0.04 0.05

Markt tst ratio

Dividnd-yild ratio 0.039 0.044 0.028 0.019 0.022

arning-yild ratio 0.128 0.142 0.092 0.062 0.073


60/109

60

Liquidity Ratios:

Th importanc of adquat liquidity in th sns of th ability of a firm to mt currnt/short-

trm obligations whn thy bcom du for paymnt can hardly b ovrstrssd. In fact, liquidity

is th prrquisit for th vry survival of a firm. Th short-trm crditors of th firm ar

intrstd in th short trm solvncy or liquidity of a firm. But liquidity implis, from th

viwpoint of utilization of th funds of th firm that funds ar idl or thy arn vry littl. A

propr balanc btwn th two contradictory rquirmnts, that is, liquidity and profitability, is

rquird forfficint financial managmnt. Th Liquidity Ratios masur th ability of a firm to

mt its short-trm obligations and rflct th short trm financial strngth/solvncy of a firm.

Th ratios which indicat th liquidity of a firm ar:

1. Currnt ratios

2. Acid tst/ quick ratios

3. Dfnsiv Intrval ratios

Currnt Ratio:

Th currnt ratio is th ratio of total currnt assts to total currnt liabilitis. It is

calculatd by dividing currnt assts to currnt liabilitis.

Th total currnt assts includ thos assts which ar in th form of cash, nar cash or

convrtibl into cash within a priod of 1 yar. Th trm currnt assts also includ

prpaid xpnss and short trm invstmnts, if any. Th currnt liabilitis includ all

typs of liabilitis which will matur for paymnt within a priod of 1yar .g. bank

ovrdraft, bills payabl, trad crditors, outstanding xpnss t.c. Th currnt ratio

throws light on th firms ability to pay its currnt liabilitis out of its currnt assts.


61/109

61

IOCL Currnt Ratio Analysis:

Yar

CurrntAssts

(A)

CurrntLiabilitis

(B)

Currnt

Ratio

(**)(G) =

(A) / (B)

2008-

0976767.32 80330.04 0.96

2009-

1081759.05 89318.01 0.92

2010-

11102565.9 118348.01 0.87

2011-

12121001.6 119825.93 1.01

2012-

13128298.6 124133.67 1.03

Intrprtation:

Currnt Ratio of IOCL has bn clos to 1 most of th tims for th last 3 yars, indicating thinability of th IOCL to mt its short trm obligations. Gnrally, a currnt ratio of 2:1 is

considrd to b th minimum rquird ratio for a firm to b dclard liquid. So, from that point

of viw, IOCL is suffring from a srious liquidity crunch. Top Managmnt nds to work upon

this issu. So, Th ratio signifis that IOCL is inadquatly liquid from th point of viw of its

ability to always satisfy th claims of th short-trm crditors. A slight dclin in th valu of th

0.96

0.92

0.87

1.011.03

0.75

0.8

0.85

0.9

0.95

1

1.05

2008-09 2009-10 2010-11 2011-12 2012-13

Current ratio


62/109

62

currnt assts will advrsly affct th ability of IOCL to mt its obligations; thrfor, from th

viwpoint of th crditors, IOCL is a mor risky vntur.

Acid-Tst/Quick Ratio:

On dfct of th Currnt Ratio is that it fails to convy any information on th composition of

th currnt assts of a firm. A rup of cash is considrd quivalnt to a rup of invntory or

rcivabls. But it is not so. A rup of cash is mor radily availabl to mt currnt obligations

than a rup of invntory. This impairs th usfulnss of th currnt ratio. Th acid-tst ratio is a

masur of liquidity dsignd to ovrcom this dfct of th currnt ratio. It is oftn rfrrd to

as quick ratio bcaus it is a masurmnt of a firms ability to convrt its currnt assts quickly

into cash on ordr to mt its currnt liabilitis. Thus, it is a masur of quick or acid liquidity.

Th acid-tst ratio is th ratio btwn quick currnt assts and currnt liabilitis and is

calculatd by dividing th quick assts by currnt liabilitis.

Acid tstratio = QuickAssts CurrntLiabilitis

Th trm Quick assts rfrs to currnt assts which can b convrtd into cash immdiatly or

at a short notic without diminution of valu. Includd in this catgory of currnt assts ar cash

and bank balanc, short-trm marktabl scuritis and dbtors/rcivabls. Thus, th currnt

assts which ar xcludd ar: prpaid xpnss and invntory. Th xclusion of invntory is

basd on th rasoning that it is not radily and asily convrtibl in to cash. Prpaid xpnss by

thir vry natur ar not availabl to pay off currnt dbts. Thy mrly rduc th amount of

cash rquird in on priod bcaus of paymnt in a prior priod.


63/109

63

IOCL Quick Ratio Analysis:

Yar

Currnt

Assts

(A)

Currnt

Liabilitis

(B)

Invntoris

(C)

Prpaid

xpnss

(D)

Liquid

Assts

(H) = (A)

- (C) -

(D)

Quick

Ratio

(@)

(I) =

(H) /

(B)

2008-

0976767.32 80330.04 25149.6 0

51617.72 0.64

2009-10

81759.05 89318.01 36404.08 1262.76 44092.21 0.49

2010-

11102565.9 118348.01 49284.52 1483.72

51797.7 0.44

2011-

12121001.6 119825.93 55829.2 0

65172.36 0.54

2012-

13128298.6 124133.67 59314.39 0

68984.21 0.56

Quick Ratio dpicts th following trnd:

0.64

0.490.44

0.54 0.56

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2008-09 2009-10 2010-11 2011-12 2012-13

Liquid ratio


64/109

64

Intrprtation:

Th acid-tst ratio masurs th ability to srvic short-trm liabilitis of IOCL. Gnrally, an

acid-tst ratio of 1:1 is considrd satisfactory as a firm can asily mt all currnt claims. But

th Quick Ratio of IOCL has nvr bn abl to touch th targt point of 1:1, indicating thliquidity crunch for th firm. So, lik Currnt Ratio, Quick Ratio trnd dpicts th sam thing

that IOCL is suffring from liquidity and th managmnt nds to tak corrctiv actions

immdiatly to rtain th trust of thir crditors.

Dfnsiv Intrval Ratio:

Th ratios discussd till now throw light on th ability of th firm to pay its currnt liabilitis.

Apart from paying th currnt liabilitis th liquidity position of a firm should also bxamind

from in rlation to its ability to mt projctd daily xpnditur from oprations. Thdfnsiv-

intrval ratioprovids such a masur of liquidity. It is a ratio btwn th quick/liquid assts

and th projctd daily cash rquirmnts.

Dfnsiv IntrvalRatio = LiquidAssts ProjctdDailyCashRquirmnt

Th projctd cash oprating xpnditur is basd on past xpnditurs and futur plans. It is

quivalnt to th cost of goods sold xcluding dprciation, plus slling and administrativ

xpnss and othr ordinary cash xpnss. Liquid assts includ currnt assts xcluding

invntory and prpaid xpnss. Th dfnsiv intrval ratio masurs th tim span a firm can

oprat on prsnt liquid assts.

IOCL Dfnsiv Intrval Ratio Analysis:

Yar

Liquid

Assts(a) =

(H)

Nt

Sals (b)

GrossProfit

(c)

Cost of

Good

Sold(d) = (b) -

(c)

Dpriciation

()

Slling

and

Administ

rativxpnss

(f)

Othr

Cashxpns

s (g)

Projctd

daily cash

rquirmt

(h) = (d) -() +(f) +

(g)

DIR ($)(i) = (a)

(h)

2008-

09

51617.72

262654.42 11319 251335.42

2881.71 10709.66 267.76 710.77 72.62

2009-

10

44092.21

249271.35 18872 230399.35

3227.14 11386.06 253.86 654.28 67.39

2010- 51797.7 302954.3 16336 286618.37 4567.0 13378.79 555.25 810.92 63.88


65/109

65

11 7 1

2011-

12

65172.36

396793.07 21600 375193.07 4542.4 6321.11 2055.4 1038.43 62.76

2012-

13

68984.21 446120.4 17257 428862.51 5219.8 5396.76 2337.41 1181.85 58.37

Intrprtation:

Th figurs of th Dfnsiv Intrval Ratio of IOCL masurs its capacity to mt immdiat

cash rquirmnts without rsorting to sals or othr sourcs i.., th tim lag for which IOCL

can oprat without rsorting to th sals rcipts. Th Dfnsiv Intrval Ratio of 72.62 in th

yar 2008-09 indicats that IOCL has th liquid assts which can mt th oprating cash

rquirmnts of businss for 72 days without rsorting to futur rvnus. Similarly, th othr

DIRs tlls us th numbr of days for which IOCL can oprat on its liquid assts to mt th

cash rquirmnts.

72.62

67.3963.88 62.76

58.37

0

10

20

30

40

50

60

70

80

2008-09 2009-10 2010-11 2011-12 2012-13

defensive interval ratio

defensive interval ratio


66/109

66

Conclusion:

To conclud th discussion of liquidity ratios, th short-trm solvncy of th firm Indian Oil

Corporation Limitd (IOCL) dos not sms to b good according to th various ratios

calculatd. IOCL was nvr abl to achiv th targt valu of a particular ratio ovr a tim spanof last 4 to 5 yars. So, this is a mattr of srious concrn to th managmnt and crditors of

IOCL.

Activity Ratios:

Funds ar invstd in various assts in businss to mak sals and arn profits. Thfficincy

with which assts ar managd dirctly affcts th volum of th sals. Th bttr th

managmnt of assts, th largr is th amount of sals and th profits. Activity ratios masur

thfficincy orffctivnss with which a firm manags its rsourcs or assts. Ths ratios ar

also calld Turnovr Ratios bcaus thy indicat th spd with which assts ar convrtd or

turnd ovr into sals.

Th currnt ratio or acid tst ratio givs mislading rsults if currnt assts includ high amountof dbtors du to slow crdit collctions. In th sam mannr, currnt ratio may b furthr

mislading if th assts includ high amount of slow moving invntoris as both ths ratios

ignor th movmnt of currnt assts, it is important to calculat th following turnovr or

fficincy ratios to commnt upon th liquidity or thfficincy with which th liquid rsourcs

ar bing usd by a firm.

Invntory Turnovr Ratio:

vry firm has to maintain a crtain lvl of invntory of finishd goods so as to b abl to mt

th rquirmnts of th businss. But th lvl of th invntory should not b too high or too low.

Invntory turnovr ratio is also known as stock vlocity. It indicats whthr invntory has bn

fficintly usd or not. It indicats th no. of tims th stock has bn turnd ovr during th

priod and valuats thfficincy with which a firm is abl to manag its invntory.


67/109

67

Dbtors Turnovr Ratio:

Dbtors turnovr ratio indicats th vlocity of dbt collction of th firm. In simpl words, it

indicats th no. of tims th avrag dbtors (rcivabls) ar turnd ovr during a yar.

Crditors Turnovr Ratio:

This ratio shows th vlocity of dbt paymnt by th firm.

IOCL Turnovr Ratios Analysis:

Yar

Nt Sals

(A)

Gross

Profit

(B)

Cost of

Goods

Sold

(C) = (A)

- (B)

Opning

Stock

(D)

Closing

Stock

()

Avrag

Invntory

(F) = [(D)

+ ()] / 2

Invntory

Turnovr

Ratio (*)

(G) = (C) /

(F)

Days for

Invntory

Holding

(**) (H)

2008-

09 262654.42 11319 251335.42 16549.24 14874.68 15711.96 16.00 22.82

2009-

10 249271.35 18872 230399.35 14874.68 19918.93 17396.805 13.24 27.56

2010-

11 302954.37 16336 286618.37 19918.93 24891.86 22405.395 12.79 28.53

2011-

12 396793.07 21600 375193.07 24891.86 56829.01 40860.435 9.18 39.75

2012-

13 446120.4 17257.89 428862.51 56829.01 59315.01 58072.01 7.39 49.42

Yar

Nt

Purchas

(1)

Opning

Crditors

(2)

Closing

Crditors

(3)

Avrag

Crditors

(4) = [(2) +(3)]

/ 2

Crditors

Tunovr

Ratio ($)

(5) =(1) /

(4)

Avrag

Paymnt

Priod (&)

(6) = 365 /

(5)

2008-

09 131482.60 20973.91 20519.51 20746.71 6.34 57.592009-

10 123704.72 20519.51 20719.03 20619.27 6.00 60.84

2010-

11 150484.12 20719.03 29661.76 25190.395 5.97 61.10

2011-

12154093.5

29661.7627520.75 28591.255

5.39 67.72


68/109

68

16

13.24 12.79

9.187.39

41.1842.48

41.3142.68 42.53

6.34 6 5.97 5.396.57

0

5

10

15

20

25

30

35

40

45

2008-09 2009-10 2010-11 2011-12 2012-13

Inventory Turnover ratio

Debtors Turnover ratio

Creditors Turnover ratio

2012-

13188182.2 27520.75 29729.91 28625.33

6.57 55.52

Yar

Nt Sals

(a)

OpningDbtors

(b)

ClosingDbtors

(c)

Avrag

Dbtors(d) = [(b)

+(c)] / 2

Dbtors

TunovrRatio (@)

() =(a) / (d)

Avrag

CollctionPriod (#)

(f) = 365 / ()

2008-09 262654.42 6819.23 5937.86 6378.55 41.18 8.86

2009-10 249271.35 5937.86 5799.28 5868.57 42.48 8.59

2010-11 302954.37 5799.28 8869.65 7334.47 41.31 8.84

2011-12 396793.07 8869.65 9725.47 9297.56 42.68 8.55

2012-13 446120.41 9725.47 11254.78 10490.13 42.53 8.58


69/109

69

Intrprtation:

ITR indicats that IOCL has bn facing a problm in convrting its invntory into sals from th

past 4-5 yars as th ITR has shown a continuous dcras ovr this priod. It dirctly affcts th

liquidity of th firm. Whn a firm is not abl to convrt its invntory into sals, its liquidity is

surly going to b affctd. So, as indicatd by th liquidity ratios, th invntory turnovr ratio

also concluds that th liquidity of IOCL is not vry sound and its top managmnt nds to tak

corrctiv actions to improv it.

DTR ratio shows a good thing for IOCL i.. its vlocity of rcivabls collction has incrasd

ovr a span of tim. It shows how fficintly and ffctivly th top managmnt of IOCL has

managd its dbtors.

CTR ratio shows that IOCL is not vry fast in paying to its crditors. This is an anothr good

sign of IOCLs Top Managmnt fficincy.

Som othr trnds dpicting th activity ratios of IOCL ar as follows:

Asst turnovr ratio:

Asst turnovr ratio is th ratio of a company's sals to its assts. It is an fficincy ratio whichtlls how succssfully th company is using its assts to gnrat rvnu.

Capital turnovr ratio:Masurs th sals mad pr rup of th capital mployd in th firm. Highr is th ratio, highris th profit.

Yar

Nt

Sals

(A)

Opning

Tangibl

Assts (*)

(B)

Closing

Tangibl

Assts (*)

(C)

Avrag

Tangibl

Assts

(D) = [(B) +

(C)] / 2

Assts

Turnovr

Ratio (**)

() = (A) /

(D)

2008-

09 262654.4 94660.08 97114.69 95887.385 2.742009-

10 249271.4 97114.69 121790.4 109452.545 2.28

2010-

11 302954.4 121790.4 153157.9 137474.15 2.20

2011-

12 396793.1 153157.9 179933.75 166545.825 2.38


70/109

70

2012-

13 446120.4 188255.71 188122.02 188188.865 2.37

Yar

Nt

Sals

(a)

Opning

stock of

Capitalmployd

(@)

(b)

Closing

Stock of

Capitalmployd

(@)

(c)

Avrag

Capitalmployd

(d) = [(b) + (c)]

/ 2

CapitalTurnovr

Ratio (#)

() = (a) / (d)

2008-

09 262654.4 61542.2 89661.9 75602.05 3.47

2009-

10 249271.4 89661.9 80486.5 85074.20 2.93

2010-

11 302954.4 80486.5 96750.5 88618.50 3.42

2011-

12 396793.1 96750.5 74942.5 85846.50 4.622012-

13 446120.4 74942.5 82223.1 78582.80 5.68

Intrprtation :

Asst turnovr ratio whn compard to last fiv yars , givs th highst turnovr in th yar2008-09 which is showing a positiv impact as it is an fficincy ratio which tlls how

2.74

2.28 2.22.38 2.37

3.47

2.93

3.42

4.62

5.68

0

1

2

3

4

5

6

2008-09 2009-10 2010-11 2011-12 2012-13

Assets Turnover ratio

Capital Turnover ratio


71/109

71

succssfully th company is using its assts to gnrat rvnu, thn it is going on dcrasingfor nxt two yars and thn in th yar 2012-13 it is raching th point 2.37.

Whil doing th intrprtation for Capital turnovr ratio , it is showing a positiv signal as it hasincrasd from 3.47 tims in 2008-09 to 5.68 tims in 2012-13 thus this mans it is making morsals pr rup of th capital mployd in th firm which is a sign of bttr profitability.

Lvrag Ratios:

Th long trm lndrs/crditors would judg th soundnss of a firm on th basis of th long-

trm financial strngth masurd in trms of its ability to pay th intrst rgularly as wll as

rpay th installmnt of th principal on du dats or in on lump sum at th tim of maturity.

Th long-trm solvncy of a firm can bxamind by using lvrag or capital structur ratios.

Th lvrag ratios may b dfind as financial ratios which throw light on th long trm

solvncy of a firm as rflctd in its ability to assur th long-trm lndrs with rgard to

priodic paymnt of intrst during th priod of th loan and

Rpaymnt of principal on maturity or in prdtrmind installmnts at du dats.

Dbt-quity Ratio:

Th D Ratio is th basic and th most common masur of studying th indbtdnss of th

firm. Th D Ratio is basd on th assumption that thxtnt to which th firm should mploy

th dbt should b viwd in trms of th siz of th cushion providd by th sharholdrs funds.


72/109

72

Th D Ratio is calculatd by comparing th total dbts with th total sharholdrs funds as

follows:

Dbt quityRatio = TotalDbt Sharholdrsquity

Total Dbt includ th long trm loans and th currnt liabilitis, and th trm sharholdrs

quity includ thquity shar capital, th prfrnc shar capital and all accumulatd rsrvs

and surplus.

Total Dbt Ratio:

Th TD Ratio compars th total dbts (long trm as wll as short trm) with th total assts. It is

computd as follows:

TotalDbtRatio = TotalDbts TotalAssts

Propritory Ratio:

It stablishs th rlationship btwn th sharholdrs funds to total assts of th firm.

Yar

Long

Trm

Dbt

(A)

Currnt

Liabiliti

s (B)

Total

Dbt

(C) =

(A) +

(B)

SC

(Rs.10

ach)

(D)

Rsrv

s &

Surplus

()

Nt

Worth

(F) =

(D) +

()

Total

Assts

(G) =

(C) + (F)

Total

DbtRati

o (** )

(H) = (C)

/ (G)

Propritory

Ratio

(@)

(I) = (F)

/ (G)

2008-

09

44,972.06

32754.5877,726.6

41,213.

9742,784.2

143,998.

18121,724.

82 0.64 0.36

2009-

10

44,566.25

34480.1779,046.4

22,427.

9548,124.9

850,552.

93129,599.

35 0.61 0.39

2010-

11

52,733.

87 52549.94

105,283.

81

2,427.

95

52,904.3

7

55,332.

32

160,616.

13 0.66 0.342011-

12

75,447.10

119825.93

195,273.03

2,427.95

55,448.75

57,876.70

253,149.73 0.77 0.23

2012-

13

80,894.01

124133.67

205,027.68

2,427.95

58,696.36

61,124.31

266,151.99 0.77 0.23


73/109

73

Intrprtation:

Dbtquity ratioWhn compard to its prvious yar, IOCL is now mor subjctdto financial risk and dpnds mor on financial risk. Furthr now IOCL has morcrditors and obligors mony in businss than its sharholdrs. A ratio of 1:1 is usuallyconsidrd to b satisfactory.

Total Dbt ratio -A dbt ratio of gratr than 1 indicats that a company has mor dbtthan assts, manwhil, a dbt ratio of lss than 1 indicats that a company has morassts than dbt.Propritary ratio-Thus, sharholdrs hav contributd 23% of all funds usd in thbusinss, with crditors contributing th rmaining 77% of funds in 2013.Highr th ratio, bttr is th long trm solvncy position of th company.

Intrst Covrag Ratio:

This ratio is also calld th tims intrst arnd ratio and it masurs th ability of th firm topay th fixd intrst liability. Th ratio may b calculatd as follows:

ICRatio = BIT Intrst

It masurs as to how many tims th intrst liability of th firm is covrd with th oprating

profits of th firm.

1.02

0.880.95

1.3 1.32

0.640.61

0.66

0.77 0.77

0.360.39

0.34

0.23 0.23

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2008-09 2009-10 2010-11 2011-12 2012-13

Debt-equity ratio

Total Debt ratio

Proprietary ratio


74/109

74

Financial Lvrag Ratio:

Th trm financial lvrag rfrs to th us of fixd charg scuritis such as dbnturs and th

variabl charg scuritis such as quity shars in th capital structur to financ th total assts

of th firm. So, th financial lvrag rfrs to th prsnc of fixd charg (in th form of

intrst) in th incom statmnt of th firm. Th fixd charg is fixd in amount and do not vary

with th chang in thBIT, whras th rturn availabl to thquity sharholdrs, which is a

rsidual balanc, is affctd by th chang in BIT. Th Financial Lvrag Ratio masurs th

rlationship btwn BIT and BT and is calculatd as follows:

FLRatio = BIT BT

Yar

PBIT

(A)

Intrst

(B)

Intrst

Covrag

Ratio (#)

(C) = (A) / (B)

PBT

(D)

Financial

Lvrag Ratio

($) () =

(A) / (D)

2008-

09 8,280.73 3,952.14 2.10 4,328.59 1.91

2009-

10 15,632.55 1,526.46 10.24 14,106.09 1.112010-

11 11,765.69 2,669.83 4.41 9,095.86 1.29

2011-

12 17,058.00 5,596.11 3.05 3,754.31 4.54

2012-

13 12,056.59 6,408.79 1.88 5,647.80 2.13


75/109

75

Intrprtation:

ICR- It can b sn that ICR of IOCL in 2009 was 2.10 which incrasd to10.24(Highst) in 2010.This thn kpt dcrasing thraftr. Sinc ICR was lowst in2013.Hnc Compard to prvious yars, IOCL was mor burdnd with dbt xpns inthis Financial Yar. Highr th ratio, mor saf ar th long trm crditors.

FCR- It can b sn that ICR of IOCL in 2009 was 1.91.It dcrasd to 1.11 in 2010,incrasd to 1.29 in 2011 again incrasd to 4.54(Highst) in 2012 and thn dcrasd to2.13 in 2013.Financial Lvrag Ratio tlls about thxtnt of chang in PBT as a rsult of chang inPBIT.

Profitability Ratios:

Th profitability ratios masur th profitability of th oprational fficincy of th firm. Thr

ar two groups of prsons who may b spcifically intrstd in th analysis of th profitability

of th firm. Ths ar:

Th managmnt which is intrstd in th ovrall profitability and th oprational fficincy of

th firm and

2.1

10.24

4.41

3.05

1.881.91

1.11 1.29

4.54

2.13

0

2

4

6

8

10

12

2008-09 2009-10 2010-11 2011-12 2012-13

Interest coverage ratio

Financial coverage ratio


76/109

76

Thquity sharholdrs who ar intrstd in th ultimat rturns availabl to thm. Both of

ths partis and any othr party such as crditors can masur th profitability of th firm in

trms of th P ratios. Diffrnt P Ratios hav bn suggstd to assss th profitability of th

firm from diffrnt angls. Th prformanc of th firm can bvaluatd in trms of its arnings

with rfrnc to a givn lvl of assts or sals or ownr intrst t.c. Broadly, P Ratios ar

calculatd by rlating th rturns with th

Sals of th firm

Assts of th firm

Th ownrs contribution

Profitability Ratios basd on th Sals of th Firm:

Ths ratios ar basd on th prmis that a firm should arn sufficint profit on ach rup of

sals. If adquat profits ar not arnd on sals, thr will b difficulty in mting th oprating

xpnss and no rturns will b availabl to th ownrs. Ths ratios consist of

Gross Profit ratio

Oprating profit ratio

Nt Profit ratio

Gross Profit Ratio:

Th GP Ratio is also calld th avrag mark up ratio. It is calculatd by comparing th gross

profit of th firm with th nt sals as follows:

GPRatio = GrossProfit NtSals

Nt Profit Ratio:

It masurs th rlationship btwn nt profits and sals of a firm.

NtProfitratio = PAT NtSals


77/109

77

Oprating Profit Ratio:

Th oprating profit rfrs to th profit gnratd by th opration of th firm and hnc is

calculatd by considring any financial chargtc.

OPRatio = BIT NtSals

Yar

Gross

Profit

(A)

Nt Sals

(B)

Gross

Profit

Ratio (*)

(C) = (A) /

(B)

PBIT

(D)

Oprating

Profit Ratio

(**)

() = (D) /

(B)

PAT

(F)

Nt Profit

Ratio(@)

(G) = (F) /

(B)

2008-

09 11,319.00 262,654.42 0.04 8,280.73 0.03 2,949.55 0.01

2009-

10 18,872.00 249,271.35 0.08 15,632.55 0.06 10,220.55 0.042010-

11 16,336.00 302,954.37 0.05 11,765.69 0.04 7,445.48 0.02

2011-

12 21,600.00 396,793.07 0.05 17,058.00 0.04 3,954.62 0.01

2012-

13 17,257.89 446,120.40 0.04 12,056.59 0.03 5,005.17 0.01

4.00%

8.00%

5.00% 5.00%

4.00%

3.00%

6.00%

4.00% 4.00%

3.00%

1.00%

4.00%

2.00%

1.00% 1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

2008-09 2009-10 2010-11 2011-12 2012-13

Gross profit

Operating profit

Net profit


78/109

78

Intrprtation

Gross Profit Ratio: Th FY 20121-13 has littl bit lowr prcntag of Gross profit ratio as

compard to prvious yars which is not a good indicator as this ratio indicats th margin lft

aftr mting manufacturing costs. So, it is to b highr. GPR in th FY 2009-10 was approx. 8%

which was a positivsignal from companys point of viw.

Nt Profit Ratio:As this ratio shows tharning lft for sharholdrs as prcntag of nt sals

and also masurs thfficincy of th managmnt in gnrating additional rvnus ovr and

abov th total cost of oprations. Thus Highr th ratio, bttr is th profitability. As NPR of

IOCL for th last fiv yars lis btwn 1% to 4% and was highst in th FY 2009-10 but it has

kp on dcrasing yar aftr yar which is not showing th sound profitability.

Oprating Profit Ratio: Oprating Profit (OP) Ratio shows th pur profit arnd on vry 1

rup of sals mad. Thus a highr valu of oprating margin ratio is favorabl which indicats

that mor proportion of rvnu is convrtd to oprating incom. But in IOCL Oprating Profit

Ratio is dclining from 6% to 3% from th yar 2010 to 2013 which is not favourabl for th

company.

Rturn on Assts Ratio:

Th ROA masurs th profitability of th firm in trms of assts mployd in th firm. Th

ROA is calculatd by stablishing th rlationship btwn th profits and th assts mployd to

arn that profit.

ROA = PAT TotalAssts


79/109

79

Rturn on Capital mployd Ratio:

Th profitability of th firm can also b analyzd from th point of viw of th total funds

mployd in th firm. Th trm funds mployd or th capital mployd rfrs to th total long

trm sourcs of funds. Th capital mployd compriss of sharholdrs funds plus long trmdbts.

RC = BIT AvragCapitalmployd

Rturn on quity Ratio:

Th ROxamins profitability from th prspctiv of thquity invstors by rlating profits

availabl for thquity sharholdrs with th book valu of thquity invstmnt.

RO = PAT PrfrncDividnd quitySharholdrsFunds

Yar

PAT

(a)

Opning

Tangibl

Assts

(b)

Closing

Tangibl

Assts

(c)

Avrag

Tangibl

Assts

(d) = [(b) +

(c)] / 2

Rturn on

Assts (#)

() = (a) /

(d)

PBIT

(f)

Opning

stock of

Capital

mployd

(g)

2008-

09 2,949.55 94660.08 97114.69 95887.385 0.03 11,631.64 61542.2

2009-

10 10,220.55 97114.69 121790.4 109452.545 0.09 8,280.73 89661.9

2010-

11 7,445.48 121790.4 153157.9 137474.15 0.05 15,632.55 80486.5

2011-

12 3,954.62 153157.9 58932.29 106045.095 0.04 17,058.00 96750.5

2012-

13 5,005.17 58932.29 59823.45 59377.87 0.08 12,056.59 74942.5


80/109

80

Intrprtation

Rturn on Assts (ROA) shows how much profit is arnd pr rup of assts usd. Highr th

ROA, highr is th profitability. Hnc, ROA in 2013 is much highr than its prvious yar.

3.00%

9.00%

5.00%4.00%

8.00%

15.00%

10.00%

18.00%

20.00%

25.00%

7.00%

20.00%

10.00%13.00%

8.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2008-09 2009-10 2010-11 2011-12 2012-13

Return on assets

Return on capital employed

Return on equity

Yar

Closing Stock of

Capitalmployd (h)

Avrag Capital

mployd

(i) = [(g) + (h)] /2

Rturn on

Capital

mploy

d ($)

(j) = (f) / (i)N

t worth(k)

Rturn on

quity (&)

(l) = (a) / (k)

2008-0989661.9 75602.05 0.15 43,998.18 0.07

2009-1080486.5 85074.2 0.10 50,552.93 0.20

2010-1196750.5 88618.5 0.18 55,332.32 0.13

2011-1274942.5 85846.5 0.20 57,876.70 0.07

2012-13

82223.1 78582.8 0.15 61,124.31 0.08


81/109

81

Rturn on capital mployd - ROC masurmnt is a comprhnsiv profitability indicator

bcaus it gaugs managmnt's ability to gnratarnings from a company's total pool of

capital. Hnc IOCL was mor profitabl in 2013.

Rturn on quity - Invstors rcivd th bst rturn on thir invstmnt from IOCL 2010 but

compard to prvious yars, IOCL has bn lss profitabl and infficint in utilizing its quitybas proprly.

Othr Charts dpicting th profitability of IOCL ar:

Yar

PAT

(1)

No. of

quity

Shars

Issud

(2)

PS

(3) = (1) /

(2)

Div. + Div.

Tax (4)

DPS

(5) = (4) /

(2)

DP Ratio

(6) = (5) /

(3)2008-

09 2,949.55 119.23 24.74 1,065.22 8.93 0.36

2009-

10 10,220.55 242.79 42.10 3,665.17 15.10 0.36

2010-

11 7,445.48 242.79 30.67 2,665.25

Documents

Arpit Final