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ASSETS MANAGEMENT
OF OIL REFINERIES
5.1 Introduction
5.2 Inventory management
5.2.1 Size of Inventory
5.2.2 Inventory and sales relationship
5.2.3 Inventory turnover ratio
5.2.4 Inventory holding period
5.2.5 Structure of inventory
5.2.6 Raw-material and its effectiveness
5.2.7 Raw-material to total inventory
5.2.8 Raw-material turnover ratio
5.2.9 Raw-material holding period
5.2.10 Work in progress and its size
5.2.11 Work in progress to total inventory
5.2.12 Work in progress turnover ratio
5.2.13 Work in progress holding period
5.2.14 Finished goods and its size
5.2.15 Finished goods to total inventory
5.2.16 Finished goods turnover ratio
5.2.17 Finished goods holding period
5.2.18 Stores and Spares and its Effectiveness
5.2.19 Stores and Spares to inventory
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5.3 Receivable Management
5.3.1 Size of Receivable
5.3.2 Total Receivables and total sales relationship
5.3.3 Total debtors of sampled units
5.3.4 Total Debtors Exceeding Six Months to Total Debtors
5.3.5 Other debtors less than six month to total debtors of
sampled units.
5.3.6 Bad debts to total debtors
5.3.7 Bad-debts to total sales
5.4 Cash Management
5.4.1 Size of Cash
5.4.2 Cash and sales relationship
5.4.3 Cash conversion cycle
5.4.4 Cash Management Performance Measurement through ratios
5.4.4(A) Cash turnover ratio of sampled units
5.4.4(B) Cash return on assets of sampled units
5.4.4(C) Cash Flow Margin of Sampled Units
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5.1 Introduction
The firm economic resources represent by assets. The assets are more valuable
and useful possession owned by the firm. The assets must be capable to being
measured in monetary term. Assets are the future benefits. They represent 1. Stored
purchasing (e.g. cash) 2. Money clams (e.g. patents copyrights trademarks or
goodwill)
There are two types of assets 1. Tangible assets 2. Intangible assets. Tangible
items that can be sold in business to generate earnings. Intangible items do not have
physical existence but they have a value to firm. Example: goodwill, patent etc …firm
assets may be classified as:
1. Long term assets
2. Current assets.
1. Long term assets
Long –term assets are held for the longer period. These types of assets are held
for use neither in business nor for sale. The long-term assets are included:
Fixed assets
Long-term investment
Other non –current assets
2. Current assets
Sometimes firm‘s investment in specific current assets. Firm purpose is to
investigate ways in which these assets can be managed efficiently so as to contribute
to the overall objectives of the firm. In general, the optimum investment in specific
current assets is determined by comparing the benefits expected to be derived from a
particulars level of investment and the investment of excess funds in marketable
securities. Sometimes current assets are also known as liquid assets. Current assets are
those resources of a firm which are either help in the form of cash or are expected to
be converted in to cash within the accounting period. Current assets include:
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Cash in hand and at bank
Readily marketable securities
Bills receivable
Debtors
Stock in trade
Prepaid expenses other current assets
From the above list cash, debtors, receivable and stock are more valuable
current assets. They more contribute to working capital. This chapter deals with
management of inventories and receivables and cash etc…..
5.2 Inventory management
Inventories provide a very important link in the production and sale of a
product. For a company engaged in manufacturing a certain amount of inventory is
absolutely necessary in the actual production of the product: this inventories is known
as ―goods in process‖ Although other types of inventory namely, in transit, raw-
materials and finished-goods inventory-are not absolutely necessary in the strictest
sense, they are extremely important if the firm is to be at all flexible. For example,
inventory in transit that is inventory between various stages of production or storage
permits efficient production scheduling and utilization of resources. Without this
types of inventory, each stage of production would be dependent upon the preceding
stage‘s finishing its operation on a unit of production. As a result, there probably
would be delays and considerable idle time in certain stage of production. Thus, there
is an incentive for the production area of the firm to maintain large in transit
inventory.
If the inventory size is to big they block the funds and if the inventory size is
very small, the firm may lose the sales. Therefore the firm must have an adequate
level of inventory. The basic financial trouble is to ascertain the proper level of
investment in the inventories and to specify how much inventory must be held during
each period to maintain that level. Thus it is very essential to manage and control the
inventories skillfully. The main purpose of inventory management is to ensure
availability of material in enough quantity as and when needed and also to reduce
investment in inventories.
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This section deals with detail analysis and interpretation of the adequacy of
inventory, inventory and sales volumes and structure of inventory (e.g. Raw-Material,
Work-in-Progress, Finished Goods and Store and Spares)
For consistency in inventory for oil refineries industry co-efficient of variance
has been used. Correlations are applied to find any association between two variables.
Whether it requires it has been used to formulate the conclusion therefore.
5.2.1 Size of Inventory
Table 5.2.1
Total inventory of refineries during study the period
(Rs. in Crores)
Companies BPCL HPCL IOC MRPL NRL CPCL Total Years
2007-08 10603 12020 30941 3624 921 4432 62541
2008-09 6823 8793 25149 1890 978 2470 46103
2009-10 12028 12579 36404 3114 1550 4378 70053
2010-11 15375 16622 49284 4097 1632 5112 92122
2011-12 15948 19454 56829 7817 2015 6359 108422
Mean 12155.40 13893.60 39721.40 4108.40 1419.20 4550.20 75848.20
SD 3728.62 4171.84 13082.13 2230.39 463.74 1410.52 25087.24
CV (%) 30.67 30.03 32.93 54.29 32.68 31.00 211.60
Table 5.2.1 indicates size of inventory of selected six oil refineries under study
period. The BPCL has Rs.10,603 crores inventory in the year 2007-08, decreased in
the year 2008-09 up to Rs.6823 crores. After that size of inventory continuously
upgrade under study period. The HPCL has Rs.12020 crores inventory in the year
2007-08 and increased by Rs.19454 crores in the year 2011-12. HPCL had increasing
trend under study period (Excluding the year 2008-09).The IOC also increasing trend
under study period excluding the year 2008-09. The MRPL inventories has Rs.3624 in
the year 2007-08, decrease in the year 2008-09, in the year 2011-12 size of inventory
increase and reached to Rs. 7817 The NRL has continuously upward movement in
inventories under study period. The CPCL mixture movement about size of inventory
but approximate 150% increased from 2007-08 to 2011-12. IOC has higher average
inventories and NRL have lower inventory average due to virtue of size. The
excluding the year 2008-09 year wise analysis also showed increasing trend from
2007-08 to 2011-12. Co-efficient of variation indicates the level of consistency. The
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most consistent company was HPCL. Beside excluding MRPL all sampled companies
are consistent and HPCL was most consistent companies.
5.2.2 Inventory and sales relationship
Generally it is accepted that the increase in volume of sales obligate the firm
to maintain proper level of inventory. The chief criterion of inventory soundness is the
turnover defined as the annual sales divided by the year ended inventory. The
relationship between inventory and sales has been studied in following table:
Table 5.2.2
Inventory and sales relationship of sampled units
(Rs. in Crores) Year Total Inventory Total Inventory to sales (%) Sales
2007-08 62541 9.88 633254
2008-09 46103 7.15 644858
2009-10 70053 12.49 561080
2010-11 92122 13.22 696690
2011-12 108422 11.56 937502
r 0.78
The table 5.2.2 represents relationship between total inventory and total sales
of selected six oil refineries. The total inventory increase when sales increased. There
was rise in sales for the year 2008-09, 2010-11, and 2011-12. The correlation between
sales and inventory of selected oil refineries was 0.78. Therefore it is clear concluded
that there was a positive correlation between inventory and sales for selected units.
5.2.3 Inventory turnover ratio
Inventory turnover ratio is the method of reviewing performance and
controlling inventories periodically to check the inventory turnover of each type of
raw-material supply and finished goods. Higher turnover lead to directly in sales, and
indicate quickly inventory convert in sales and lower inventory holding period.
Ordinarily the higher the rate of inventory turnover, the larger amount profit with
larger sales, smaller contribution by inventory in working capital and more current
transaction. The ratio may be calculated with help of following formula.
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The inventory at beginning of year and end of the year are use for calculation
of average inventory. The following table represent inventory turnover ratio of
sampled units.
Table 5.2.3
Inventory turnover ratio of sampled units
(In times)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 11.44 20.57 8.89 10.64 8.81 7.37 11.29
2008-09 15.39 12.01 10.95 13.88 8.70 9.33 11.71
2009-10 12.75 10.04 8.75 12.74 5.70 7.32 9.55
2010-11 11.01 9.12 7.73 11.09 5.24 7.00 8.53
2011-12 13.53 9.91 8.27 9.03 7.36 7.11 9.20
Mean 12.83 12.33 8.92 11.47 7.16 7.62 10.06
SD 1.75 4.73 1.22 1.89 1.66 0.96 2.04
CV(%) 13.67 38.35 13.72 16.45 23.13 12.65 19.66
The table 5.2.3 suggested inventory turnover ratio of selected six oil refineries.
The BPCL inventory turnover ratio has 11.44 times in the year 2007-08, after than
increased up to 15.39 times which was says mixture trend under study period. The
inventory turnover ratio for HPCL in year 2007-08 was 20.57 times, which was
decline continuously for the year 2008-09 to 2010-11. In the year 2011-12 once again
increased by 0.79 times only. For IOC inventory turnover shows mixture trend under
study period. The highest turnover ratio was 10.95 times in the year 2008-09 and
lowest turnover was 7.73times in the year 2010-11.The MRPL has 10.64 times in the
year 2008-09,which increase in the year 2009-10 but after that continuously decline
for remaining year. Inventory turnover ratio of NRL was varying 2 times under study
period. The CPCL inventory turnover was highly fluctuate and shows the mixture
movement under study period. Highest turnover ratio was 9.33 times and lowest
turnover ratio was 7.11 times BPCL have best average of 12.83 times, clear indicates
effective of management of inventory.
5.2.4 Inventory holding period
The number of days inventory are hold indicates by inventory holding period.
The days are suggested time period between production of finished goods and sales of
finished goods. The calculation of inventory holding period of selected sampled units
of oil refineries given below:
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Table 5.2.4
Inventory holding period of sampled units
(In days)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 32 18 41 34 41 50 36
2008-09 24 30 33 26 42 39 32
2009-10 29 36 42 29 64 50 42
2010-11 33 40 47 33 70 52 46
2011-12 27 37 44 40 50 51 42
Mean 29 32 41 33 53 48 39
SD 4 9 5 5 13 5 7
CV(%) 13.16 27.37 12.45 16.83 24.24 10.94 17.50
Table 5.2.4 indicates inventory holding period of sampled units. Inventory
holding period of BPCL was 32 days in the year 2007-08, which decline in the year
2008-09 and increase in the year 2009-10. Overall mix trend for inventory holding
period. The HPCL had held only 18 day inventory in the year 2007-08 it is good.
However they increase up to 40 days in the year 2010-11. For IOC inventory holding
period was higher 47 days in the year 2011-12 and lower was 34 days in the year
2008-09 with average of 41 days. For MRPL it had 34 days, 26 days, 29 day, 33 days,
and 40 days for the year 2007-08 to 2011-12. The average blocked inventory period
of NRL was 53 days under study period. The CPCL was also hold the inventory
approximately 50 days for study period. Year wise analysis shows, highest inventory
holding period was 46 day in the year 2010-12. The BPCL has lower holding period
and NRL has higher holding period. The HPCL, MRPL and NRL are not consistent in
holding inventories under study period.
5.2.5 Structure of inventory
In the words of M.Y.Khan and P.K. Jain, inventory is composed of assets that
will be sold in future in the normal course of business operation. The assets which
firms store as inventory, in anticipation of need are raw-material, work in progress
and finished goods. Inventory may be divided in following four parts are as under:
i. Raw-material
ii. Work-in progress
iii. Finished goods
iv. Store and Spares
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Therefore, in inventory management, manager needs to manage about these
four components of inventory. Latest examine each part of inventory in contribution
to inventory, turnover as well as holding period.
5.2.6 Raw-material and its effectiveness
Raw-material implies the items which are held in their original form for
production and processing. The raw-material is act as input of the final product. The
every firm must be purchased adequate raw-material for continuity in production
process. Thus it should be assured that production should be not suffered because of
low supply of raw materials. The raw material of sampled units under study period
given in following table:
Table-5.2.6
Raw material of sampled units
(Rs. in Crores)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 3758 3443 13697 2020 186 2038 4190.33
2008-09 1520 2055 8708 882 211 1276 2442.00
2009-10 2746 2579 14866 1775 150 2528 4107.33
2010-11 4009 3171 22351 1942 252 2783 5751.33
2011-12 3974 5122 26535 5461 360 3487 7489.83
Mean 3201.40 3274.00 17231.40 2416.00 231.80 2422.40 4796.17
SD 1071.61 1164.39 7132.72 1761.93 80.72 827.13 2006.42
CV(%) 33.47 35.56 41.39 72.93 34.82 34.14 42.05
Table 5.2.6 indicates the Raw- Material and its effectiveness of sampled units.
The raw material of BPCL was Rs.3758 crores in the year 2007-08 which was
increased up to Rs.3974 crores in the year 2011-12. The overall mixture trend prevails
throughout study period for BPCL. The HPCL has increasing trend in the last three
years. It was increased up to Rs.5122 crores in the year 2011-12. In IOC size of raw
material indicates increasing trend with great quantum raw material (excluding the
year 2008-09). The raw material of MRPL was Rs.2020 crores in the year 2007-08
which was decline in the year 2008-09 up to Rs.882 crores. The quantum of raw
material of MRPL increased in the last three years. The size of raw material of NRL
was very small with average value Rs.231.80 crores only. The lowest quantum of raw
material for CPCL was Rs.1276 crores in the year 2008-09 and highest was Rs.3487
crores in the year 2011-12. Year wise average value shows, size of raw material
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increased for last three years. Overall C.V. was 42.05% indicates consistency in size
of raw material for selected oil refineries.
5.2.7 Raw-material to total inventory
In the total inventory raw material is important component. Inventory may be
in raw-material also considered as a raw material. The raw material to total inventory
ratio shows contribution of raw material in total inventory. Higher contribution means
inefficiency about management of raw material and lower means soundness towards
raw material management.
Table-5.2.7
Raw material to total inventory of sampled units
(In %)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 35.44 28.64 44.27 55.74 20.20 45.98 38.38
2008-09 22.28 23.37 34.63 46.67 21.57 51.66 33.36
2009-10 22.83 20.50 40.84 57.00 9.68 57.74 34.76
2010-11 26.07 19.08 45.35 47.40 15.44 54.44 34.63
2011-12 24.92 26.33 46.69 69.86 17.87 54.84 40.08
Mean 26.31 23.58 42.35 55.33 16.95 52.93 36.24
SD 5.33 3.97 4.83 9.38 4.69 4.44 5.44
CV (%) 20.27 16.83 11.42 16.95 27.66 8.39 16.92
Table 5.2.7 represents the ratio of raw material to total inventory. It indicates
contribution of raw material to total inventory. The ratio of raw material to inventory
of BPCL shows fluctuating trend during the period of study. It was 35.444%in the
year 2007-08. It was almost constant during the year 2008-09 and 2009-10. It was
increased in the year 2010-11 up to 26.07% and decreased up to 24.92% in the year
2011-12. Contribution of raw material in the total inventory of HPCL shows
decreasing trend during the period of study but it was increased in the year 2011-12
up to 26.31% with an average of 23.58% and S.D. is 3.97 and C.V. at 16.83%.
Contribution of raw material to inventory of IOC moved 34.63% in the year 2008-09
to 46.69% in the year 2011-12 with an Avg. of 42.35% and C.V. was 11.42%. It
indicates increasing trend during the study period (excluding year 2007-08). The
contribution of raw material in the inventory of MRPL indicates fluctuating trend
during the period of study. It was 55.74% in the year 2007-08 which was decline in
the year 2008-09 i.e. 46.67%. The contribution of raw material to inventory of MRPL
205
was increased in the last three years with an average of 55.33% and S.D. is 9.38 and
C.V. at 16.95%. The contribution of raw material in the inventory of NRL was very
small with an average of 16.95%. It was 20.20% in the year 2007-08 which was
increased in the year 2008-09 i.e. 21.57%. It was increased in the last two years. The
contribution of raw material in the total inventory of CPCL was increasing in the first
three years which was constant in the last two years with an average of 52.93% and
S.D. is 4.44 and C.V. at 8.39%. The industry mean was highest in the year 2011-12
i.e. 40.08% and lowest in the year 2008-09 i.e., 33.36% and S.D. is 5.44 and C.V. at
16.92%.
5.2.8 Raw-material turnover ratio
In raw material turnover ratio indicates speed of converting raw-material in
relation to stock of material. The ratio also suggested number of time raw-material is
transfer during the specific periods. The ratio is calculated by dividing cost of raw-
material consumed by average of raw-material. Lower ratio mean excessive raw-
material have been maintained while high ratio required to carry out the production
process.
Table-5.2.8
Raw material turnover ratio of sampled units
(In times)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 13.02 11.04 8.84 14.89 36.67 12.09 16.09
2008-09 35.48 19.95 15.65 39.13 33.38 22.15 27.62
2009-10 18.42 14.63 8.21 17.03 43.40 9.37 18.51
2010-11 15.65 12.73 6.44 19.17 27.67 11.16 15.47
2011-12 21.53 11.12 7.62 9.38 34.33 11.28 15.88
Mean 20.82 13.89 9.35 19.92 35.09 13.21 18.71
SD 8.79 3.69 3.63 11.34 5.70 5.10 6.37
CV (%) 42.21 26.54 38.80 56.92 16.25 38.58 36.55
Table no. 5.2.8 indicates raw material turnover ratio of sampled units. Raw
material turnover ratio represents the efficient inventory movement. The material
turnover ratio of BPCL was 13.02times in the year 2007-08 which was increased up
to 35.48times in the year 2008-09. It was also decline in the year 2009-10 and 2010-
11. The fluctuating trend prevails during the period of study for BPCL with an
Average of 20.82times and S.D. is 8.79 and C.V. at 42.21%. The HPCL have
206
decreasing trend during the last three years. It was decreased up to 11.12 times in the
year 2011 -12 with an Average of 13.89 times and C.V. at 26.54%. The raw material
ratio of IOC was shows declining trend during the study period (excluding year 2008-
09). It was moved between 8.84 times in the year 2007-08 to 7.62 times in the year
2011-12 with an Average of 9.35 times, S.D. is 3.63 and 38.80%. The material
turnover ratio of MRPL shows mix trend during the period of study period. It was
highest in the year 2008-09 i.e., 39.13 times and lowest in the year 2011-12 i.e.,
9.38times with an Average of 19.92 times S.D. is 11.34 and C.V. at 56.92%. The raw
material turnover ratio of NRL was ranged between 43.40 times in the year 2009-10
to 27.67 times in the year 2011-12 with an Average of 35.09 times and C.V. at
16.25%. In CPCL, the raw material ratio is 12.09 in the year 2007-08 which was
increased up to 22.15 in the year 2008-09. It was constant in the last two years. The
industry mean was highest in the year 2008-09 i.e., 27.62 times and lowest in the year
2011-12 i.e., 15.47 times with an Average of 18.71 times S.D. was6.37 and C.V. at
36.55%.
5.2.9 Raw-material holding period
Raw-material holding period indicates numbers of day raw-material are hold
by the company. Higher ratio means inefficiency and lower ratio means efficiency.
The raw material holding period of sampled units given below:
Table-5.2.9
Raw material holding period of sampled units
(In days)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 28 33 41 25 10 30 28
2008-09 10 18 23 9 11 16 15
2009-10 20 25 44 21 8 39 26
2010-11 23 29 57 19 13 33 29
2011-12 17 33 48 39 11 32 30
Mean 20 28 43 23 11 30 26
SD 7 6 12 11 2 8 8
CV (%) 33.97 22.35 28.73 47.34 16.33 27.56 29.38
Table 5.2.9 shows the raw material holding period of sampled units. The
holding period of material of BPCL indicates mix trend during the study period. The
raw material holding period of BPCL was 28 days in the year 2007-08. In the year
207
2008-09, raw material holding period was 10 days and then 2009-10 and 2010-11, it
was increased 20 days and 23 days respectively. In the last year, it was decline up to
17 days. The raw material holding period of HPCL mix trend during study period.
The lowest holding period of raw material was 18 days in the year 2008-09 and
highest was 33 days in two years 2007-08 and 2011-12. The raw material holding
period of IOC indicate in first three years mix trend i.e., 41 days, 23 days and 44 days
year 2007-08, 2008-09 and 2009-10 respectively. In the last two years, raw material
holding period increased i.e., 57 days and 48 days. The overall mixture trend prevails
throughout this study period for MRPL. The holding period of raw material of NRL
was very negligible difference between years. The raw material holding period of
CPCL was 30 days in the year 2007-08 which was decline in the year 2008-09 up to
16 days. The holding period of CPCL increased in the year 2009-10 and last two
years, it was decreased up to 33 days and 32 days. The year wise Average value
indicates that holding period of raw material was 28 days in the year 2007-08. Last
four years, it was increased up to 30 days in the year 2011-12. The highest C.V. was
47.34% of the MRPL and lowest C.V. 16.33% of NRL.
5.2.10 Work in progress and its size
Raw-material is input sources of production process and finished goods are
output sources of production. In addition to this certain items may be between input
and output means partially completed or fully completed. Other words some items
have in the various stage of production process. The items are partially processed or
partially assembled or have in production process called items works in progress. So
work- in-progress also important components of total inventory.
Table-5.2.10
Work in progress of sampled units
(Rs. in Crores)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 566 486 2179 147 113 428 653.17
2008-09 485 339 1586 69 87 216 463.67
2009-10 723 837 2803 109 115 300 814.50
2010-11 1031 1694 4012 241 132 502 1268.67
2011-12 896 1636 5303 196 86 414 1421.83
Mean 740.20 998.40 3176.60 152.40 106.60 372.00 924.37
SD 226.17 635.18 1490.32 68.23 19.78 113.27 425.49
CV (%) 30.55 63.62 46.92 44.77 18.56 30.45 39.14
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Table 5.2.10 indicates the work in progress and its size of sampled units. The
work in progress of BPCL was Rs. 566 crores in the year 2007-08 which was
decreased up to Rs. 485 crores in the year 2008-09. It shows fluctuating trend during
the period of study. In HPCL, the size of work in progress shows increasing trend
during the last three years which was increased up to Rs.1636 crores in the year 2011-
12. The size of work in progress of IOC shows increasing trend with great quantum of
work in progress (excluding year 2008-09). It was Rs.2179 crores in the year 2007-08
which was increased up to Rs.5303 crores in the year 2011-12, with an average of
Rs.3176 & S.D. is 1490.32 and C.V. at 46.92%. The size of work in progress of
MRPL was Rs.147 crores in the year 2007-08 which was declined up to Rs.69 crores
in the year 2008-09. The size of work in progress of NRL have fluctuating trend
during the study period. It was highest in the year 2009-10 i.e. Rs. 115 crores and
lowest in the year Rs. 86 crores with an average of Rs. 106.60, S.D. is Rs. 19.78 and
C.V. at 18.56%. In CPCL, the size of work in progress was Rs.428 crores in the year
2007-08 which was declined up to Rs.216 crores in the year 2008-09. The size of
work in progress was increased up to Rs. 414 crores in the year 2011-12 with an
average of Rs. 372 and S.D. is 113.27 and C.V. at 30.45%.
5.2.11 Work in progress to total inventory
The working progress to total inventory indicates contribution of WIP to total
inventory. This ratio indicates effectiveness about production process. Lower ratio
means sound production process and higher means delay during production process.
Table-5.2.11
Work in progress to total inventory of sampled units
(In %)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 5.34 4.04 7.04 4.06 12.27 9.66 7.07
2008-09 7.11 3.86 6.31 3.65 8.90 8.74 6.43
2009-10 6.01 6.65 7.70 3.50 7.42 6.85 6.36
2010-11 6.71 10.19 8.14 5.88 8.09 9.82 8.14
2011-12 5.62 8.41 9.33 2.51 4.27 6.51 6.11
Mean 6.16 6.63 7.70 3.92 8.19 8.32 6.82
SD 0.74 2.75 1.14 1.24 2.88 1.55 1.72
CV (%) 12.01 41.47 14.84 31.54 35.14 18.67 25.61
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Table 5.2.11 represents ratio between work in progress to total inventory of
sampled units. This indicates contribution of work in progress to total inventory. In
BPCL, contribution of work in progress to total inventory have fluctuating trend
during the study period. It was 5.34% in the year 2007-08 which was increased up to
7.11% in the year 2008-09. It was decreased up to 5.62 % in the year 2011-12.
Contribution of work in progress to total inventory of HPCL was 4.04% in the year
2007-08 it was declared up to 3.86% in the year 2008-09 and last there year HPCL
having increasing trend which was increased up to 8.41% in IOC contribution of
work in progress to total inventory shows increasing trend (excluding year 2008-
2009) during the period of study the ratio of IOC ranged between 6.31% in the year
2008-09 to 9.33% in the year 2011-12 with an average of 7.70, S.D. is 1.14 C.V was
observed at 14.84 %. Contribution of work in progress to total inventory of MRPL
shows mix trend during the period of study with small proportion as compared to
other units. it was highest in the year 2010-11 i.e. 5.88% and lowest in the year 2011-
12 i.e. 2.51% with an average of 3.92, S.D. is 1.24 and C.V. at 31.54% In NRL,
contribution of work in progress to total inventory was 12.27% in the year 2007-08
which was highest during the study period, it was 4.27% in the year 2011-12 which
was lowest during the period of study with an average of 8.19 & C.V. was observed at
35.14 %. CPCL having fluctuating trend during the period of study it moved between
6.5 1% in the year 2010-11 with an average of 8.32%, S.D. 1.55 and C.V. at 18.67%.
The industry means of work in progress to total inventory was highest in the year
2010-11 i.e. 8.14 & lowest in the year 2011-12 i.e. 6.11 with an average of 6.82 and
S.D. is 1.72 and C.V. at 25.6 %.
5.2.12 Work in progress turnover ratio
The ratio shows effectiveness about production process. Other wards speed
with which raw materials are converted in to finished goods, a high ratio shows
smooth production process or high rate of conversion of raw-materials to finished
goods, low level of stock held in WIP for carry out the production that is good for
units. A very high ratio means higher conversion and very low level stock held in
WIP. Some time very low level of stock effect adversely means production process
may be hampered. A very high ratio is not good for the units. The lower ratio reveals
apposite situation to higher ratio. The very lower ration also not goods for the firm.
210
Table-5.2.12
Work in progress turnover ratio of sampled units
(In times)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 192.72 220.43 110.60 208.38 68.27 62.93 143.89
2008-09 276.60 363.15 191.34 514.45 92.05 145.35 263.82
2009-10 174.39 131.91 94.02 281.34 65.38 83.94 138.50
2010-11 146.33 78.21 80.35 155.02 60.20 64.66 97.46
2011-12 236.37 108.89 80.43 269.38 152.84 99.08 157.83
Mean 205.28 180.52 111.35 285.71 87.75 91.19 160.30
SD 51.58 115.01 46.41 137.54 38.38 33.73 70.44
CV (%) 25.13 63.71 41.68 48.14 43.74 36.98 43.23
Table 5.2.12 indicates WIP turnover ratio of sampled units. In BPCL, work in
progress turnover ratio was 192.72 times in the 2007-08 which was increased up to
276.60 times in the year 2008-09,it was 236.37 times in the year 2011-12 the overall
mixture trend prevails throughout the period of study with an average of 205.28 times
and C.V. at 25.13 % in HPCL work in progress turnover ratio was highest in the year
2008-09 i.e. 363.15 times and lowest in the year 2010-11 i.e.78.21 times with an
average of 180.85 times and C.V. at 63.71%. The WIP turnover ratio of IOC was
shows decreasing trend (excluding year 2008-09) during study period with an average
of 111.35 times and C.V. at 41.68%. The WIP turnover ratio of MRPL moved
between 514.45 times in the year 2008-09 to 155.02 times in the year 2010-11, with
an average of 285.71 times and S.D. is 137.54 times and C.V. was observed at
48.14%. In NRL, the WIP turnover ratio was 68.27 in the year 2007-08 which was
increased up to 152.84 times in the year 2011-12 with an average of 87.75 times and
S.D. is 38.38 and C.V. at 43.74%. The WIP turnover ratio of CPCL was highest in the
year 2008-09 i.e., 145.35 times and lowest in the year 2007-08 i.e., 62.93 times. The
industry mean of WIP turnover ratio was highest in the year 2008-09 i.e., 263.82
times and lowest the year 2010-11 i.e., 97.46 times with an average of 160.30 times
and S.D. is 70.44 and C.V. at 43.23%.
5.2.13 Work in progress holding period
The work- in-progress holding period indicates number of day taken for
conversion of raw-material to finished goods. Generally it is not held more than one
month it is calculated by dividing 365 day by WIP turnover ratio.
211
Table-5.2.13
Work in progress holding of sampled units
(In days)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 2 2 3 2 5 6 3
2008-09 1 1 2 1 4 3 2
2009-10 2 3 4 1 6 4 3
2010-11 2 5 5 2 6 6 4
2011-12 2 3 5 1 2 4 3
Mean 2 3 4 1 5 4 3
SD 0 1 1 1 1 1 1
CV (%) 24.65 53.43 30.13 40.73 32.01 31.33 35.38
Table 5.2.13 shows WIP holding period of sampled units. Work- in- progress
holding period of BPCL was 2 days every year during the study period excluding year
2008-09. WIP holding period of HPCL was highest in the year 2010-11 up to5 days
and lowest in the year 2008-09 up to 1 day. In IOC, WIP holding period was 3 days in
the year 2007-08 which was increased up to 4 days in the year 2009-10. It was
constant during the last two years. Work-in-progress holding of MRPL was 1 day to 2
days during study period. In NRL, WIP holding period was 2 days in the year 2011-
12 which was increased up to 6 days in the year 2009-10 and 2010-11. Work-in-
progress holding period of CPCL was 6 days in the year 2007-08 which was declined
up to 4 days in the year 2011-12. The unit wise average of work in progress holding
period of sampled units was 1 day in MRPL which was lowest and 5 days in NRL
which was highest in sampled units. The year wise industry mean was 4 days in the
year 2010-11 which was highest and 2 days in the year 2008-09 which was lowest. It
was 3 days in remaining years during the period of study.
5.2.14 Finished goods and its size
The goods which are sell for consumption or goods which could be sellable
called finished goods, the customer are king of market. They demand the goods in any
time any quantum. If firm have not sufficient goods than demand can‘t satisfied as
well as adversely affect on profitability. So sufficient finished goods are also required:
212
Table-5.2.14
Finished goods of sampled units
(Rs. in Crores)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 6127 7905 13864 1377 550 1828 5275.17
2008-09 4631 6215 13288 858 592 816 4400.00
2009-10 8383 8967 17117 1115 1189 1390 6360.17
2010-11 5567 6238 15970 1797 1137 1636 5390.83
2011-12 6315 6890 17650 1993 1487 2261 6099.33
Mean 6204.60 7243.00 15577.80 1428.00 991.00 1586.20 5505.10
SD 1382.61 1183.41 1936.32 469.27 406.27 535.72 985.60
CV (%) 22.28 16.34 12.43 32.86 41.00 33.77 26.45
Table No. 5.2.14 indicates finished goods of sampled units. It shows the
proportion of finished goods in total inventory. The finished goods of BPCL were Rs.
6127 crores in the year 2007-08 which was increase up to Rs.6315 crores in the year
2011-12. It shows the mixture trend during the study period with an average of Rs.
6204.60 and S.D. is Rs.1382.31 and C.V. at 22.28%. HPCL have fluctuating trend
during the study period. It ranged between Rs.6215 crores in the year 2008-09 to
Rs.8967 crores in the year 2009-10. In IOC, the size of raw material was Rs.13864
crores in the year 2007-08 which was increased up to Rs.17650crores in the year
2011-12 with great quantum (excluding year 2011-12) with an average of Rs.
15577.80, S.D. is 1936.32 and C.V. at 12.42%. MRPL shows increasing trend during
the study period (excluding year 2008-09, 2009-10) with an average of Rs.1423, S.D.
is Rs. 469.27 and C.V. at 32.86%. In NRL, it shows increasing trend during the study
period. It was 550 crores in the year 2007-08 which increased up to Rs. 1487 crores in
the year 2011-12 with an average of Rs.991crores S.D. is 406.27 and C.V. was
observed at 41%. In CPCL, the size of finished goods was Rs.1828 crores in the year
2007-08 which was declined up to Rs.816 crores in the year 2008-09. CPCL shows
increasing trend in the last three years during the study period with C.V. at 33.77%.
5.2.15 Finished goods to total inventory
The finished goods to total inventory indicate composition of finished goods
in total inventories. For meeting the customer demand, firm need to keep the certain
finished goods but higher level is ultimately increase the total inventory. SO higher
ratio says ineffective management and very low also shows poor management. The
213
standard ratio is not available and requirement of quantum of finished goods depe nd
on nature of industry.
Table-5.2.15
Finished goods to total inventory of sampled units
(In %)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 57.79 65.77 44.81 38.00 59.72 41.25 51.22
2008-09 67.87 70.68 52.84 45.40 60.53 33.04 55.06
2009-10 69.70 71.29 47.02 35.81 76.71 31.75 55.38
2010-11 36.21 37.53 32.40 43.86 69.67 32.00 41.95
2011-12 39.60 35.42 31.06 25.50 73.80 35.56 40.15
Mean 54.23 56.14 41.63 37.71 68.08 34.72 48.75
SD 15.63 18.09 9.51 7.90 7.69 3.95 10.46
CV (%) 28.82 32.23 22.84 20.96 11.30 11.37 21.25
Table 5.2.15 shows contribution of finished goods in total inventory of
sampled units. In BPCL, the contribution of finished goods to total inventory shows
increasing trends in initial three years which was declined up to 39.60% in the year
2011-12 with an average of 54.23, S.D. is 15.63% and C.V. was observed at 28.82%.
Contribution of finished goods in total inventory of HPCL was 65.77 % in the year
2007-08 which was increased up to 71.29 % in the year 2009-10. It was decreased up
to 35.42% in the year 2011-12 with an average of 56.14 % and C.V. at 32.23%. In
IOC, contribution of finished goods to total inventory was 44.81% in the year 2007-
08 which was increased up to 52.84% in the year 2008-09. In last three years,
declining trend prevails during the study period with an average of 41.63; S.D. is 9.51
and C.V. at 22.84%. The MRPL have fluctuating trend during the period of study.
Contribution of finished goods to total inventory was highest in the year 2008-09 i.e.
45.40% and lowest in the year 2011-12 i.e. 25.50% with an average of 37.71% S.D. is
7.90 and C.V. at 20.96%. NRL also have mixture trend during the period of study.
The ratio ranged between 59.72% in the year 2007-08 to 76.71% in the year 2009-10
with an average of 68.08% and C.V. at 11.30%. In CPCL, the contribution of finished
goods to total inventory was highest in the year 2007-08 i.e. 41.25% and lowest in the
year 2009-10 i.e. 31.75% with an average of 34.72% and S.D. was 3.95 and C.V. at
11.37%. The overall that increasing trend prevails during the beginning of the three
years and in remaining two years declining trend prevails during the study period in
214
industry. Industry mean was highest in the year 2009-10 i.e., 55.38% and lowest in
the year 2011-12 i.e. 40.15 and C.V. was observed at 21.25% under study period.
5.2.16 Finished goods turnover ratio
The finished goods turnover ratio shows relationship between cost of goods
sold and average value of finished stock. The ratio shows speed with which finished
goods are converted in to sales.
Table-5.2.16
Finished goods turnover ratio of sampled units
(In times)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 16.56 12.99 16.13 21.84 7.48 14.22 14.87
2008-09 26.32 18.40 18.13 40.22 12.49 36.61 25.36
2009-10 13.60 11.25 17.62 27.11 5.78 17.31 15.45
2010-11 24.93 20.23 18.39 20.26 6.35 18.99 18.19
2011-12 31.21 24.11 22.11 25.63 8.16 17.32 21.42
Mean 22.53 17.39 18.48 27.01 8.05 20.89 19.06
SD 7.26 5.27 2.21 7.89 2.65 8.95 5.71
CV (%) 32.24 30.32 11.98 29.19 32.91 42.87 29.92
Table 5.2.16 indicates finished goods turnover ratio of sampled units. In
BPCL, finished goods turnover ratio was 16.56 times in the year 2007-08 which was
increased up to 26.32 times in the year 2008-09. The finished goods turnover ratio
was increased during the last three year with an average of 22.53 and C.V. at 32.24%.
Finished goods turnover ratio of HPCL shows increasing trend during the study
period (excluding year 2009-10) with an average of 17.39 and C.V. at 30.32%.The
IOC also having increasing trend during the study period excluding year 2009- 10. It
was highest in the year 2011-12 i.e. 22.11 times and lowest in the year 2007-08
i.e.16.13 times with an average of 18.48 and S.D. is 2.21 and C.V. at 11.98%. The
MRPL have fluctuating trend during the period of study. The ratio moved between
20.26 times in the year 2010-11 and 25.63 times in the year 2011-12 with an average
of 27.01 tomes S.D. is 7.89 and C.V. at 29.19%. Finished goods turnover ratio of
NRL was 7.48 times in the year 2007-08 which was increased up to 12.49 times in the
year 2008-09. The ratio was declined up to 8.16 times in the year 2011-12 with an
average of 8.05 times, S.D. is 2.65 and C.V. at 32.91%. In CPCL, finished goods
turnover ratio was highest in the year 2008-09 i.e. 36.61 times and lowest in the year
215
2009-10 i.e. 36.61 times and lowest in the year 2009-10 i.e., 17.31 times with an
average of 20.89tomes, S.D. is 8.95 and C.V. at 42.87%. The industry mean was
highest in the year 2008-09 i.e.25.36 times and lowest in the year 2007-08 i.e. 14.87
and C.V. at 29.92% under study period.
5.2.17 Finished goods holding period
Finished goods holding period is calculated dividing 365 days by finished
goods turnover ratio.
Table-5.2.17
Finished goods holding period of sampled units
(In days)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 22 28 23 17 49 26 27
2008-09 14 20 20 9 29 10 17
2009-10 27 32 21 13 63 21 30
2010-11 15 18 20 18 57 19 25
2011-12 12 15 17 14 45 21 21
Mean 18 23 20 14 49 19 24
SD 6 7 2 3 13 6 6
CV (%) 35.76 31.98 11.11 24.13 26.79 29.82 26.60
Table 5.2.17 indicates finished goods holding period of sampled units during
the study period. In BPCL, holding period of finished goods was 22 days in 2007-08.
Holding period of finished goods increased up to 27 days in 2009-10 which was
highest during the study period. It was declined up to 12 days in the year 2011-12
which was lowest during the study period with an average of 18 days and C.V. at
35.76%. In HPCL, mixture trend prevails during the period of study. It was ranged
between 32 days in the year 2009-10 and 15 days in the year 2011-12 with an average
of 23days. S.D. is 7 and C.V. at 31.98%. Finished goods holding period of IOC was
23 days in the year 2007-08 which was declined up to 17 days in the year 2011-12.
The overall decreasing trend prevails during the study period. Holding period of
finished goods of MRPL also having mix trend during the period of study. It was
highest in the year 2011-12 i.e., 18 days and lowest in the year 2008-09 i.e., 9 days
with an average of 14 days and C.V. was observed at 24.13%. In NRL, finished goods
holding period was 49 days in the year 2007-08 which was increased up to 63 days in
216
the year 2009-10. In last two years, decreasing trend prevails during the study period.
In CPCL it was 26 days in the year 2007-08 which was decreased up to 10 days in the
year 2008-09 and 19 days in the year 2010-11. In remaining two years, it was constant
i.e. 21 days with an average of 19 days and C.V. at 29.82%. The industry mean was
highest in the year 2009-10 i.e.30 days and lowest in the year 2008-09 i.e.17days with
S.D. 6 and C.V. at 26.60% under study period.
5.2.18 Stores and Spares and its Effectiveness
Table-5.2.18
Spare and Stores of sampled units
(Rs. in Crores)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 145.00 176.00 1187.00 80.00 72.00 138.00 299.67
2008-09 181.00 176.00 1550.00 81.00 88.00 162.00 373.00
2009-10 168.00 188.00 1600.00 115.00 96.00 160.00 387.83
2010-11 194.00 197.00 2022.00 116.00 111.00 191.00 471.83
2011-12 200.00 257.00 2517.00 167.00 82.00 197.00 570.00
Mean 177.60 198.80 1775.20 111.80 89.80 169.60 420.47
SD 22.01 33.71 509.55 35.48 14.74 24.28 106.63
CV (%) 12.39 16.96 28.70 31.73 16.41 14.31 20.09
Table 5.2.18 represents stores and spares of sampled units. In total parts of
inventory, the proportion of stores was small as compare to other parts of total
inventory. In BPCL, it was increasing trend prevails during the study period
(excluding year 2009-10) with an average of Rs.177.60 crores S.D. is 22.01 and C.V.
at 12.39%. In HPCL have increasing trend during the period of study. Its size was
constant for initially two years and in remaining years increasing trend prevails with
an average of 198.80 crores and C.V. was observed at 16.96%. The size of stores and
spares of IOC was Rs.1187.00 crores in the year 2007-08 which was declined up to
Rs.1550 crores in the year 2008-09. In last three years, increasing trend prevails with
great quantum was increased up to Rs. 2517 crores in the year 2011-12 with an
average of Rs. 1775.20, S.D. is 509.55 and C.V. at 28.70%. In MRPL, the size of
stores and spares increased during the period of study. It was Rs. 80 crores in the year
2007-08 which was increased up to Rs. 167 crores in the year 2011-12 with an
average of Rs. 111.80 crores, S.D. is 35.48 and C.V. at 31.37%. NRL also have
217
increasing trend during the period of study (excluding year 2011-12) with an average
of Rs. 89.80. the size of stores and spares of CPCL also increased during the study
period(excluding year 209-10) which was highest in the year 2011-12 i.e. Rs. 197
crores and lowest in the year 2007-08 i.e. Rs. 138 crores. The industry mean also
increased during the study period which was moved between Rs. 299.37 crores in the
year 2007-08 to Rs. 570 crores in the year 2011-12 with C.V. at 20.09% during study
period.
5.2.19 Stores and Spares to inventory
Table-5.2.19
Stores and Spared to inventory of sampled units
(In %)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 1.37 1.46 3.84 2.21 7.82 3.11 3.30
2008-09 2.65 2.00 6.16 4.29 9.00 6.56 5.11
2009-10 1.40 1.49 4.40 3.69 6.19 3.65 3.47
2010-11 1.26 1.19 4.10 2.83 6.80 3.74 3.32
2011-12 1.25 1.32 4.43 2.14 4.07 3.10 2.72
Mean 1.59 1.49 4.59 3.03 6.78 4.03 3.58
SD 0.60 0.31 0.91 0.94 1.85 1.44 1.01
CV (%) 37.78 20.74 19.94 31.00 27.30 35.79 28.76
Table 5.2.19 indicates contribution of stores and spared to total inventory. In
BPCL, contribution of stores and spares in total inventory was almost 1 % in every
year (excluding year 2008 – 09) during the period of study with an average of 1.59 %
and C.V. at 37.78%. The contribution of stores and spared in total inventory of HPCL
was 2% in the year 2008 – 09. In remaining year, it was almost fluctuate between 1%
to 1.5 % during the period of study with an average of 1.49% and C.V. at 20.74%. In
IOC, contribution of stores and spares in total inventory was highest in the year 2008
– 09 up to 6.16% and lowest in the year 2007 – 08 up to 3.84% with an average of
4.59% and C.V. was observed at 19.94%. MRPL have fluctuating trend during the
period of study. It was highest in the year 2008 – 09 i.e. 4.29% and lowest in the year
2011 – 12 i.e. 20.14%with an average of 3.03 and C.V. at 31%. The NRL shows
declining trend during the period of study (excluding year 2008 – 09) with an average
of 6.78%, S.D. is 1.85 and C.V. at 27.30%. In CPCL, contribution of stores and spares
in total inventory was almost same during the study period i.e. 3% excluding year
218
2008 – 09 The industry mean was highest in the year 2008 -09 i.e. 5.11 and lowest in
the year 2011 – 12 i.e. 2.72 with C.V. at 28.78%. Overall say that it was almost same
during the period of study in sampled units excepting year 2008 – 09.
5.3 Receivable Management
It is not always possible to sell the goods on cash basis only but firm need to
sell the goods on credit basis. If the company sell the good on credit basis tha n result
in creation of receivable. Credit sales is risky because cash payment for sale yet to be
received. Some cash may not be received. Therefore they require a meticulous
analysis and proper management.
Receivable is equally important as much as inventory, management and an
essential components of current assets. The term ―receivables‖ has been defined by
joy O.M. as‖ Debt owed to the firm by customers arising from sale of goods or
services in the ordinary course of business‖
Generally it has been observed that the accounts receivable or reciavable
comprise the following items:
I. Sundry debtors or Book debts:
Debts outstanding over six months
Debts outstanding up to six months
II. Loan and advances:
Prepaid expenses
Advances recoverable in cash
Advance to suppliers
Advance to employees
Advance payment of income-tax
Deposits with govt. and other
Balance with custom, excise, port trust and other authorities
Investment in account receivables involves cost and risk of bad-debts.
Therefore the firm should manage its accounts receivables in such way that sale are
increase to the extent to which risk remains within an acceptable limit.
219
5.3.1 Size of Receivable
Size of receivable includes more than debtors, loans and advances etc… The
receivable means payment yet to be received. They represent credit policy of the firm.
The oil refineries size of receivable represented by following table:
Table 5.3.1
Size of receivables of refineries during study the period
(Rs. in Crores)
Companies BPCL HPCL IOC MRPL NRL CPCL Total
Years
2007-08 3208 6933 20374 2748 587 1707 35557
2008-09 4927 6409 17515 2315 232 1189 32587
2009-10 7426 7695 20528 2242 247 1307 39445
2010-11 6299 9789 31536 3286 884 2516 54310
2011-12 14165 13710 48772 4157 864 3704 85372
Mean 7205.00 8907.20 27745.00 2949.60 562.80 2084.60 49454.20
SD 4197.52 2977.09 12918.75 792.94 317.66 1043.78 21745.61
CV (%) 58.26 33.42 46.56 26.88 56.44 50.07 43.97
Table 5.3.1 exhibits the size of receivable of sampled units. The receivable of
BPCL Rs.3208 crores in the year 2007-08 which was increase in the year 2008-09 up
to Rs.4927 crores. The higher total receivable was Rs.14165 crores in the year 2011-
12. In HPCL total receivables was an Rs.6933 crores in the year 2007-08 which was
increased up to Rs.13710 in the year 2011-12. (Excluding the year 2008-09) The IOC
has larger size of receivable under study period. The average size of receivable in IOC
was Rs.27745 cores. The total receivables of MRPL was Rs.2748 crores in the year
2007-08 increased and lead to Rs.4157 crores in the year 2011-12. The average
receivable of NRL was only Rs.562.8 crores it indicates lower size of receivable. The
highest receivable for CPCL was Rs.3704 crores and lowest receivable for CPCL was
Rs.1189 crores in the year 2011-12 and 2008-09 respectively. The sampled unit wise
CV indicate that the HPCL and MRPL follow uniform policy regarding size of total
receivable.
5.3.2 Total Receivables and total sales relationship
Generally receivable and sale have positive relationship because sales
increased resulting in increasing receivable in form of debtors. Following table shows
Correlation co-efficient between total sales and total receivable. Total sales means
220
sum total of individual sampled units sales and total receivable means sum total of
individual sampled units‘ receivables.
Table 5.3.2
Inventory and sales relationship of sampled units
(Rs. in Crores)
Year Total Receivables
Total Receivables to sales (%)
Sales
2007-08 35557 5.61 633254
2008-09 32587 5.05 644858
2009-10 39445 7.03 561080
2010-11 54310 7.80 696690
2011-12 85372 9.11 937502
r 0.94
Correlation co-efficient between sales and receivable of oil refineries was 0.94
shows positive correlation. The sales of oil refineries increase when the volume of
receivables was increase. Therefore it indicates highly positive Correlationship
between total receivable and total sales.
5.3.3 Total debtors of sampled units
Debtors are most important components of the receivable. The debtors arise
from credit sales. For working capital aspect debtors also significance contribution
because debtors considered as current assets. For improving liquidity firm also need
to manage their credit policy (debtors) effectively. Following table represent size of
total debtors of sampled units under study period.
Table 5.3.3
Total debtors of sampled units
(Rs. in Crores)
Companies BPCL HPCL IOC MRPL NRL CPCL Total
Years
2007-08 1608 1710 6819 2204 478 1510 14329.00
2008-09 1425 2240 5917 1286 141 1013 12022.00
2009-10 2662 2437 5799 1657 117 854 13526.00
2010-11 2664 2654 8869 2526 760 1983 19456.00
2011-12 6378 3565 15502 3459 800 3431 33135.00
Mean 2947.40 2521.20 8581.20 2226.40 459.20 1758.20 18493.60
SD 2002.65 680.32 4059.69 839.36 326.09 1034.81 8648.69
CV (%) 67.95 26.98 47.31 37.70 71.01 58.86 46.77
221
The table 5.3.3 exhibits the size of debtors BPCL of sampled units. The size of
debtors Rs.1608 crores in the year 2007-08 that increase to Rs.6378 crores in the year
2011-12. It was increased approximately 400%. The HPCL size of debtors was
Rs.1710 in the year 2007-08 which was increased for remaining all the year under
study period. The average size of debtors in IOC was Rs.8581.20 crores which was
higher and overall mix trend under study period for IOC. The MRPL total debtors was
Rs.2204 crores in the year 2007-08 which was decline to Rs.1286 crores in the year
2008-09.Last three year under study period size of debtors was increased for MRPL.
The quantum of debtors was very low in NRL with average only Rs.459.20 crores.
The highest debtors in CPCL was Rs. 3431 crores in the year 2011-12 and lowest was
Rs.854 in the year 2009-10. The sample units CV shows highest CV was 71.01% in
NRL and lowest was 26.98% in HPCL it‘s indicates NRL highly fluctuate units.
5.3.4 Total Debtors Exceeding Six Months to Total Debtors.
Debtors are classified in two categories:
i. Debtors exceeding six months
ii. Other debtors less than six months
The analysis and interpretation of composition of debtors lead to stand the
liquidity of debtors as well will also help to improve profitability. From the debtors
exceeding six month higher chance of bad-debts, the ratio total debtors exceeding six
months to total debtors lead to adverse effect of profit. The following table represents
data about this ratio for sampled units.
Table 5.3.4
Total debtors exceeding six months to total debtors of sampled units
(In %)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 14.18 3.92 2.95 2.27 0.00 1.32 4.11
2008-09 13.89 24.29 1.12 1.94 0.71 0.20 7.02
2009-10 6.39 2.01 1.55 4.10 9.40 0.12 3.93
2010-11 8.30 2.94 8.63 6.45 0.79 0.05 4.53
2011-12 9.41 2.92 7.84 6.88 1.88 0.03 4.83
Mean 10.43 7.21 4.42 4.33 2.56 0.34 4.88
SD 3.46 9.57 3.56 2.29 3.89 0.55 3.89
CV (%) 33.21 0.00 80.62 0.00 152.07 160.65 71.09
222
Table 5.3.4 indicates total debtors over six months to total debtors of sampled
units. This ratio 14.18% in BPCL for the year 2007-08 which was continuously
decline for next two year and again increase up to 9.41% in the year 2011-12. For
HPCL this ratio 3.92% in the year 2007-08 which was increased up to 24.29% in the
year 2008-09.However last three year this ratio was stable in HPCL. In IOC highest
ratio was 8.63% in the year 2010-11 and lowest was 1.12% in the year 2008-09.
Average value of ratio in IOC was 4.42%. The MRPL 2.27% in 2007-08 regard to this
ratio, after than continuously increase for the year 2009-10 to 2011-12 and reach up to
6.88%(Excluding the year 2008-09) Average value of this ratio in CPCL was only
0.34%.The HPCL,NRL and CPCL was not uniform regard to this ratio under study
period.
5.3.5 Other debtors less than six month to total debtors of sampled
units.
The debtors which are less than six months is highly liquid. These types of
debtors probably lower chance for bed-debt. The following table represents other
debtors less than six months to total debtors of sampled units.
Table 5.3.5
Other debtors less than six months to total debtors of sampled units
(In %)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 85.82 96.08 97.05 97.73 100.00 98.68 95.89
2008-09 86.11 75.71 98.88 98.06 99.29 99.80 92.98
2009-10 93.61 97.99 98.45 95.90 90.60 99.88 96.07
2010-11 91.70 97.06 91.37 93.55 99.21 99.95 95.47
2011-12 90.59 97.08 92.16 93.12 98.13 99.97 95.17
Mean 89.57 92.79 95.58 95.67 97.44 99.66 95.12
SD 3.46 9.57 3.56 2.29 3.89 0.55 3.89
CV (%) 3.87 0.00 3.73 0.00 3.99 0.55 2.02
Table 5.3.5 indicates other debtors less than six months to total debtors of
sampled units. A part from the year wise analysis the average value 2007-08 which
was decline in the year 2008-09 up to 92.98% mean not much. The highest ratio was
96.07% in the year 2009-10. Overall year wise analysis says mixture trend regard to
this ratio. The sample units wise analysis, almost all the sampled units maintain
223
uniform and consistency regard to this ratio because average CV was only 2.02%
under study period.
5.3.6 Bad debts to total debtors
In debtors‘ management bad-debts is critical part for the firm. Generally a
bad-debt originates from debtors and it occur when the debtors declares bankruptcy
for even in cases when the cost if extending credit and collecting the debt go beyond
the debt is self. Analysis of bad-debts is very concern initiative measure to check bad-
debt and also help to deciding the credit limit to customers.
Table-5.3.6
Bad-debts to debtors of sampled units
(Rs. in %)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 0.31 0.00 0.22 0.00 0.00 0.13 0.11
2008-09 0.00 0.00 0.19 0.00 0.00 0.11 0.05
2009-10 0.23 0.00 0.09 0.00 0.00 0.12 0.07
2010-11 0.00 0.00 0.08 0.00 0.00 0.01 0.01
2011-12 0.94 0.00 0.31 0.00 0.06 0.01 0.22
Mean 0.30 0.00 0.18 0.00 0.01 0.07 0.09
SD 0.39 0.00 0.10 0.00 0.03 0.06 0.10
CV(%) 130.68 0.00 54.88 0.00 223.61 82.11 81.88
Table 5.3.6 shows bad-debts to debtors of sampled units. In BPCL bad debt to
debtors was 0.31% in the year 2007-08 which was increased in the year 2009-10 to
0.23% and then again increase in year 2011-12 up to 0.94%. The BPCL was no bad-
debt in year 2008-09 and 2010-11. The HPCL have no bad-debts throughout study
period. Bad-debts to debtors in IOC was 0.22% in the year 2007-08 which was
decline in next three year and again increased up to 0.31% in the year 2011-12. The
MRPL have no bad-debt under study period. The NRL was 0.06% bed-debt to debtors
ratio in the year 2011-12. Bad-debts to debtors in CPCL was 0.13% in the year 2007-
08, which was decline 0.11% in the year 2008-09 and again increased 0.12% in the
year 2009-10 it was 0.01% for next two year. Average bad-debts to debtors were
0.30%, 0.18% and 0.07% for BPCL, IOC and CPCL.
224
5.3.7 Bad-debts to total sales
The higher credit sales to weak customer lead to increasing bad-debts. The
effect of bad-debt losses on profitability can be analyzed by comparing them with
sales. The percentage of this ratio reduces the margin of profit of the business.
Table-5.3.7
Bad-debts to total sales inventory of sampled units
(In %)
Companies BPCL HPCL IOC MRPL NRL CPCL Average
Years
2007-08 0.00 0.00 0.01 0.00 0.00 0.01 0.00
2008-09 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2009-10 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2010-11 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2011-12 0.03 0.00 0.01 0.00 0.00 0.00 0.01
Mean 0.01 0.00 0.00 0.00 0.00 0.00 0.00
SD 0.01 0.00 0.00 0.00 0.00 0.00 0.00
CV (%) 156.43 0.00 76.59 0.00 223.61 87.29 90.65
The table 5.3.7 shows bad-debt to total sales. The HPCL, MRPL and NRL
have bad-debt to total sales. The BPCL have 0.03 % bad-debt to sales I the year 2011-
12. In IOC have only 0.01% in the year 2007-08. The CPCL was also only 0.01%
regard to this ratio in the year 20708. A part from this, year wise and sample company
wise average value indicates no bad-debt from debtors.
5.4 Cash Management
Cash management is a broad term that refers to the collection, concentration,
and disbarments of cash. The management goal is to manage the cash balance of an
enterprise in such a way as to cash not invested in fixed assets or inventories and to
reduce risk of insolvency. In some ways, managing cash flow is the most important
job of business managers. If at any time a company fails to pay an obligation b ecause
of lack of cash and company become insolvent. Insolvency is the primary reason
firms go bankrupt. Obviously, the prospect of such a dire consequence should compel
companies to manage their cash with care. Moreover, efficient cash management
means more than just preventing bankruptcy. Efficient cash management improves
the profitability and reduces the risk to which the firm is exposed.
225
Cash management is particularly important for new growing business. The
management of cash flow without margin of safety creates numerous problems.
Management also may experience trouble in finding the funds for innovation or
expansion. It is somewhat ironically, easier to borrow money when you have money.
In addition to this, poor cash flow makes it difficult to hire and retain good
employees. The major business expenses are incurred in the production of goods and
the provision of services. So these factors an essential part of any business financial
planning. Cash is the lifeblood of a business. So is essential for success.
This section included detail analysis and interpretation of cash management
with reference to size of cash, cash and sales relationship, cash conversion cycle and
manage efficient about cash through ratio.
5.4.1 Size of Cash
Cash is medium of exchange and therefore it is the most important component
of working capital. Generally speaking, cash balance denoted cash on hand and bank
deposit. Maintaining cash balance is necessary. The size of cash of sampled units
represent by following table:
Table 5.4.1
Size of cash of sampled units
(Rs. in Crores)
Companies BPCL HPCL IOC MRPL NRL CPCL Total
Years
2007-08 960 290 815 12 512 11 2600
2008-09 440 604 796 15 122 6 1983
2009-10 341 238 916 22 292 10 1819
2010-11 379 75 643 13 201 8 1319
2011-12 978 226 307 2234 1 38 3784
Mean 619.6 286.6 695.4 459.2 225.6 14.6 2301
SD 320.97 194.66 238.06 992.15 192.49 13.22 1951.55
CV (%) 51.80 67.92 34.23 216.06 85.33 90.56 545.90
Table 5.4.1 Indicated size of cash of sample units. The year-wise analysis of
BPCL exhibits that in the year 2007-08. The size of cash Rs.960 crores which was
decline in next three year up Rs.341 crores in the year 2010-11. However again
increased lead to top in the year 2011-12 which was Rs.978 crores. The available cash
balance of HPCL varies between Rs. 75 crores to Rs.604 crores for the year 2010-12
226
and 2008-09. The mean value of size of cash in HPCL was only Rs.286.6 crores
which is lowest compared to IOC and BPCL. In IOC cash balance was Rs.815 crores
in the year 2007-08 which was decreased for the year up to Rs.796 crores once again
increase up to Rs.916 crores. Cash balance of MRPL was not high Rs.12 crores in the
year 2007-08 and Rs.22 crores in the year 2009-10. However in year 2011-12
suddenly increased up to Rs.2234 crores. FOR NRL size of cash vary between 1
crores to Rs. 512 crores with the average value of Rs.225.6 crores. The CPCL have
lowest available cash throughout the study period and average cash only Rs.14.6
crores. It was observed from the CV MRPL was not consistent policy for maintaining
cash balance.
5.4.2 Cash and sales relationship
The term cash with reference to cash management is used in two senses. In
narrow sense it is used to cover cash and generally accepted equipments of cash such
as cheques, drafts and demand deposit in banks. The broader view of cash also
included near-cash assets such as marketable security and time deposit. If cash does
not earn any return why it is held by firm? There are four primary motives for
maintaining cash balances: 1. Transaction motive 2. Precautionary motive 3.
Speculative motive 4. Compensating motive. For maintain cash balance need to
maintain balance between cash inflow and outflow. Generally following three sources
of cash inflow 1. Cash sales 2. Collection accounts receivable 3. Disposal of fixed
assets. The sales are main sources of cash inflow. Thus relationship between cash and
sales of sample units given below:
Table 5.4.2
Inventory and sales relationship of sampled units
(Rs. in Crores)
Year Total Cash Total Cash to sales (%) Sales
2007-08 2600 0.41 633254
2008-09 1983 0.31 644858
2009-10 1819 0.32 561080
2010-11 1319 0.19 696690
2011-12 3784 0.40 937502
r 0.77
227
Table 5.4.2 exhibits total cash of all the sampled units and total sales of all the
sampled units and total cash and total sales relationship. The total cash was Rs.2600
crores in the year 2007-08 which was decline in the year 2008-09, 2009-10 and 2011-
12 up to Rs.1983 crores, Rs.1819 crores and Rs.1319 crores respectively. The total
sales was Rs.633254 crores in the year 2007-08 which was increase in the next and
again decline in the year 2009-10 up to Rs.561080 crores. In the year 2011-13 total
cash was increased suddenly up to Rs.3784 crores. The correlation coefficient
between total cash and sales was 0.77. This indicates moderate degree relationship
between total cash and total sales for oil refineries.
5.4.3 Cash conversion cycle
Cash conversion cycle calculates the time between disbursing cash collecting
cash. The duration of this cycle is the length of time for which enterprises need to
fiancé their business operation from short term of long term fund. Cash conversion
cycle is equal to length of the operating cycle minus average payment period in the
terms of days. In other words, the cash conversion will be remained without in
resources in order to expected sales and hence it is a measure of the liquidity risk
involved by growth. However shortcoming the CCC lead to its own risk, meantime a
firm can also have a negative CCC if it collect from customers before paying
suppliers a negative CCC is the ideal situation for any enterprise but strict collection
policy of tax-payment not always sustainable. It is expressed in following formula.
The above formulas used to calculate cash conversion cycle of any business
enterprise.
-
228
Table 5.4.3
Cash Conversion Cycle of sampled units
(In Days)
Companies BPCL HPCL IOC MRPL NRL CPCL Total
Years
2007-08 -4 3 22 11 -21 39 8
2008-09 6 16 14 18 13 28 16
2009-10 6 6 23 -20 22 48 14
2010-11 2 11 23 -31 35 44 14
2011-12 18 15 38 -9 38 55 26
Mean 6 10 24 -6 17 43 16
SD 8 6 9 21 24 10 13
CV (%) 139 58 37 -338 136 23 9
Table 5.4.3 shows cash conversion cycle of oil refineries under study period.
The CCC cycle of HPCL was -4 days in the year 2007-08 which represent ideal
situation. However than after CCC period was increased up to 12 days in the year
2011-12. The CCC period of HPCL was 3 days in the year 2007-08 which was
increased in next year 2008-09 up to 16 days and after that mixture movement in last
three year. For IOC lowest conversion period was 14 days in the year 2008-09 and
highest was 38 days in the year 2011-12. Cash conversion cycle of MRPL was 11
days and 18 days for the year 2007-08 and2008-09. In MRPL CCC period for last
three year was negative that indicates ideal situation. NRL cash conversion duration
was negative in the year 2007-08 which was -21 days but then after continuously
increased under study period. The CPCL have taken long time for conversion of cash.
The average value of CCC in CPCL was 43 days which was highest among sampled
units. The overall CCC period of all sampled units was 16 days and overall CV was
9%only.
5.4.4 Cash Management Performance Measurement through Ratios
Cash management performance is measures by much way analysis of available
cash, cash and sales relationship, cash and profit relationship, analysis of cash flow
statement, CCC and liquid ratios. Besides this Cash management performance also
measures by various ratios.
This ratio indicates relationship between sales and cash flow operating activity
and sales/total assets. Following three ratio are use for measuring cash management
performance:-
229
i. Cash turnover ratio
ii. Cash return on assets
iii. Cash flow margin ratio
5.4.4(A) Cash turnover ratio of sampled units
Cash turnover ratio is calculated analysis divide by average cash and cash
equivalent. This ratio indicated how efficiently cash had been used transform in the
sales. Formula of this ratio given below:
Cash turnover ratio= Annuals sales ÷ Average cash and cash equivalent
Table 5.4.4(A)
Cash turnover ratio of sampled units
(In Times)
Companies BPCL HPCL IOC MRPL NRL CPCL Total
Years
2007-08 114.80 713.65 303.51 2713.75 15.61 2561.18 1070.42
2008-09 304.71 206.85 385.83 2551.93 67.67 5365.17 1480.36
2009-10 352.54 450.84 294.15 1448.64 24.66 2505.50 846.05
2010-11 397.99 1776.17 514.98 3074.46 41.45 4150.63 1659.28
2011-12 216.74 790.86 1429.41 24.07 13428.00 1072.82 2826.98
Mean 277.36 787.67 585.58 1962.57 2715.48 3131.06 1576.62
SD 112.97 598.63 479.96 1241.96 5988.52 1657.05 1679.85
CV (%) 40.73 76.00 81.96 63.28 220.53 52.92 89.24
Table 5.4.4 (A) exhibits cash turnover ratio of sampled units. For BPCL cash
turnover ratio was 114.80 times in the year 2007-08 which was rapidly increased up
to 397.99 times in the year 2010-11, In the 2011-12 this ratio was decline up to
216.74 times due to higher size of cash for BPCL. Cash turnover ratio of HPCL was
713.65 times in the year 2007-08 than after ratio increased for next two year up to
1776.17 times in the year 2010-11. The cash turnover ratio of IOC was 294.15 times
in the year 2009-10 that is minimum on other 1429.41 times in the year 2011-12 that
is maximum. In MRPL cash turnover ratio was much high due to lowest size of cash
compare to sales. In NRL cash turnover ratio varies between 41.45 times to 13428
times because of never cash available in 2011-12. The cash turnover ratio of CPCL
was also high due to lower size of cash compare to sales. Overall CV was 89.24% that
reveals in cash turn ratio oil refineries not maintain uniform policy.
230
5.4.4(B) Cash return on assets of sampled units
A higher cash return on assets ratio indicates a greater cash return. The cash
return on assets (excluding interest) contains no provision for replacing assets or
future commitments. The cash return on assets (including interest) indicates internal
generation of cash available to creditors and investors. This ratio calculated by
following formula:
Cash return on assets= Cash ÷ Total assets
Table 5.4.4(B)
Cash return on assets of sampled units
(In %)
Companies BPCL HPCL IOC MRPL NRL CPCL Total
Years
2007-08 0.98 4.12 -8.05 13.72 1.53 57.77 11.68
2008-09 13.11 12.47 -16.01 18.60 0.59 25.04 8.97
2009-10 -2.84 6.41 -0.27 18.67 0.55 -15.07 1.24
2010-11 5.52 1.43 -3.27 10.50 7.16 7.87 4.87
2011-12 1.41 1.79 -1.32 -2.52 0.08 10.47 1.65
Mean 3.63 5.24 -5.78 11.79 1.98 17.22 5.68
SD 6.07 4.51 6.45 8.72 2.94 26.84 9.25
CV (%) 167.01 85.99 111.54 73.91 148.46 155.88 86.62
Table 5.4.4 (B) shows cash return on assets of sampled units. The cash return
on assets of BPCL was 0.98% in the year 2007-08 suddenly which was increase up to
13.11% in the year 2008-09. This ratio was -2.84% in the year 2009-10 shows poor
utilization of assets in relation to cash. However last two year cash return on assets
ratio was positive that good sign for company. For HPCL cash return of assets was
4.12% in the year 2007-08 which was increase 300% in next year and again decline
up to 1.43% in the year 2010-12. Throughout the study period cash return on assets of
IOC was negative with 111.54% CV. In MRPL this ratio was 13.72% in the year
2007-08 than after which was increase for next two years up to 19.67% and once
again decline and goes to native in the year 2011-12. In NRL cash return on assets
was varies between 0.08% to 7.16%. The CPCL have higher cash return on assets
with the average 17.12%. The year wise average cash return on assets shows
downward trend for initially three year. However in fourth year return was inc rease
but once again decline in last year.
231
5.4.4(C) Cash Flow Margin of Sampled Units
Generally this ratio indicates cash generating capacity from main operation
(sales). Otherworld, this ratio shows relationship between cash generated from
operation and sales. Following formula is used for measuring this ratio:-
Cash flow margin ratio= Cash flow from operating activities ÷ Net sales
Table 5.4.4(C)
Cash flow margin ratio of sampled units
(In %)
Companies BPCL HPCL IOC MRPL NRL CPCL Total
Years
2007-08 0.38 0.82 -3.79 4.86 0.81 19.71 3.80
2008-09 4.63 4.68 -7.54 5.21 0.27 5.67 2.15
2009-10 -1.26 3.06 -0.17 8.54 0.32 -5.97 0.75
2010-11 2.04 0.75 -1.72 4.86 4.30 2.91 2.19
2011-12 0.44 0.86 -0.63 -1.23 0.03 3.84 0.55
Mean 1.25 2.03 -2.77 4.45 1.15 5.23 1.89
SD 2.22 1.77 3.01 3.53 1.78 9.26 3.60
CV (%) 178.51 87.05 -108.66 79.37 155.85 176.98 94.85
Table 5.4.4 (C) shows cash margin ratio of sampled units. The cash flow
margin ratio of BPCL was 0.38% in the year 2007-08 which was decline in the year
2009-10 up to -1.26%. The HPCL have cash margin ratio 0.82% in the year 2007-08
which was increased in next year 2008-09 up to 4.68% and then after decline up to
0.75% in the year 2010-11. However compare to previous year in the year 2011-12
this ratio was increased in HPCL. In IOC cash flow margin ratio was negative
throughout the study period. In MRPL cash flow margin ratio was varies between -
1.23% in the year 2011-12 to 8.54% in the year 2009-10. The cash flow margin ratio
of NRL was 0.81% in the 2007-08 which was fluctuate movement throughout study
period. In CPCL cash flow margin ratio was 19.71% in the year 2007-08 which was
decline -5.97% in the year 2009-10. Last two year this ratio was increase in CPCL.
Year wise analysis highest cash flow margin ratio was 3.80% in the year 2007-08 and
sampled units‘ wise highest mean value was 5.23% in CPCL.
232
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