Sr. No.

Topics Page No.

1. Introduction 6.2. History of the Company:

1960-19801981-20002001-Present

7.777-8

3. Shareholding 9.4. Listing 9.5. Operations 9-

10.6. Major subsidiaries and associates 10-

11.7. Employees 12.8. Environmental Record 12.9. Awards and recognitions 12-

13.10. Controversies 13-

14.11. Principle Competitor’s 14.12. Ratio Analysis

MeaningDifferent modes of expressing ratio analysisStandards for comparisonNature of ratio

15.15.16.17.

13. Profit and Loss Account 18.14. Balance Sheet 19.15. Calculation of Ratio

a. Management Efficiency Ratiosb. Financial Stability, Solvency and Liquidity

Ratio c. Profitability Ratiod. Overall Efficiency/Growth Potentialities

Credit Standing

20.20.25.30.

32.

16. Conclusion 3617. Bibliography 37.

Content

1

A PROJECT REPORT ON

“ADVANCED ACCOUNTING PROJECT IN RATIO ANALYSIS OF

RELIANCE INDUSTRIES LIMITED”

SUBMITTED BY

MR/MISS Leena Ramesh Gavelkar,

ROLL NO: 6227

M.Com. SEM- I

(ADVANCE ACCOUNTANCY)

ACADEMIC YEAR: 2014-2015

Under the guidance of PROJECT GUIDE

PROF. S. V. RANE & (Mrs.) ANURADHA GANESH

SUBMITTED TO UNIVERSITY OF MUMBAI

MULUND COLLEGE OF COMMERCE

S N ROAD, MULUND (WEST)

MUMBAI - 400080

2

Declaration from the Student

I Miss. Leena Ramesh Gavelkar R. No6227 Student of Mulund College Of

Commerce, S. N. Road, Mulund (West) 400080, studying in M.Com Part- I hereby

declare that I have completed the project on “RATIO ANALYSIS OF RE;IANCE

INDUSTRIES LIMITED” under the guidance of project guide Prof. S. V. RANE &

Prof. (Mrs)ANURADHA GANESH during the academic year 2013-14. The

information submitted is true to the best of my knowledge.

Date: 23/092014 Signature

Place: MULUND LEENA RAMESH

GAVELKAR

3

CERTIFICATE

We, Prof. S. V. RANE & Prof.(Mrs)ANURADHA GANESH, hereby certify that

Mr/Miss LEENA RAMESH GAVELKARR.No. 6227 of Mulund College of

Commerce, S. N. Road, Mulund (West), Mumbai -400080 of M.com Part I (Advanced

Accountancy) has completed her project on “RATIO ANALYSIS OF RE;IANCE

INDUSTRIES LIMITED” during the academic year 2014-2015. The information

submitted is true and original to the best of my knowledge.

____________________ ___________________

Project Guide External guide

_____________________ ___________________

Co-coordinator Principal

Date: 23/09/2014

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ACKNOWLEDGEMENT

I would like to express my sincere gratitude to Principal of Mulund

College of Commerce DR. (Mrs.) Parvathi Venkatesh, Course - Coordinator Prof.

Rane and our project guide Prof.S. V. RANE & Prof.(Mrs.)ANURADHA

GANESH, for providing me an opportunity to do my project work on “RATIO

ANALYSIS OF RE;IANCE INDUSTRIES LIMITED”. I also wish to express my

sincere gratitude to the non - teaching staff of our college. I sincerely thank to

all of them in helping me to carrying out this project work. Last but not the

least, I wish to avail myself of this opportunity, to express a sense of gratitude

and love to my friends and my beloved parents for their mutual support,

strength, help and for everything.

PLACE: MULUND Signature

DATE: 23/092014 LEENA RAMESH

GAVELKAR

5

Introduction Reliance Industries Limited (RIL) is an Indian conglomerate holding company headquartered in Mumbai, Maharashtra, India. The company operates in five major segments: exploration and production, refining and marketing, petrochemicals, retail and telecommunications.

The group is present in many business sectors across India including petrochemicals, construction, communications, energy, health care, science and technology, natural resources, retail, textiles, and logistics.

RIL is the second-largest publicly traded company in India by market capitalisation and is the second largest company in India by revenue after the state-run Indian Oil Corporation. The company is ranked No. 99 on the Fortune Global 500 list of the world's biggest corporations, as of 2013. RIL contributes approximately 14% of India's total exports.

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History

1960 – 1980 The company was co-founded by Dhirubhai Ambani and his cousin Champaklal Damani in 1960s as Reliance Commercial Corporation. In 1965, the partnership was ended and Dhirubhai continued the polyester business of the firm. In 1966, Reliance Textiles Industries Pvt Ltd was incorporated in Maharashtra. It established a synthetic fabrics mill in the same year at Naroda in Gujarat. In 1975, company expanded its business into textiles, with "Vimal" becoming its major brand in later years. The company held its Initial public offering (IPO) in 1977. The issue was over-subscribed by seven times.[11] In 1979, a textiles company Sidhpur Mills was amalgamated with the company. In 1980, the company expanded its polyster yarn business by setting up a Polyester Filament Yarn Plant in Raigad, Maharashtra with financial and technical collaboration with E. I. du Pont de Nemours & Co., USA.

1981 – 2000 In 1985, the name of the company was changed from Reliance Textiles Industries Ltd. to Reliance Industries Ltd. During the years 1985 to 1992, the company expanded its installed capacity for producing polyster yarn by over 145,000 tonnes per annum. The Hazira petrochemical plant was commissioned in 1991–92. In 1993, Reliance turned to the overseas capital markets for funds through a global depositary issue of Reliance Petroleum. In 1996, it became the first private sector company in India to be rated by international credit rating agencies. S&P rated BB+, stable outlook, constrained by the sovereign ceiling. Moody's rated Baa3, Investment grade, constrained by the sovereign ceiling. In the year 1995–96, the company entered the telecom industry through a joint venture with NYNEX, USA and promoted Reliance Telecom Private Limited in India. In 1998–99, RIL introduced packaged LPG in 15 kg cylinders under the brand name Reliance Gas. During 1998–2000, the company completed setup of integrated petrochemical complex at Jamnagar in Gujarat.

2001 – Present. In 2001, Reliance Industries Ltd. and Reliance Petroleum Ltd. became India's two largest companies in terms of all major financial parameters. In 2001–02, Reliance Petroleum was merged with Reliance Industries. In 2002, Reliance announced India's biggest gas discovery (at the Krishna Godavari basin) in nearly three decades and one of the largest

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gas discoveries in the world during 2002. The in-place volume of natural gas was in excess of 7 trillion cubic feet, equivalent to about 1.2 billion barrels of crude oil. This was the first ever discovery by an Indian private sector company. In 2002–03, RIL purchased a majority stake in Indian Petrochemicals Corporation Ltd. (IPCL), India's second largest petrochemicals company, from Government of India. IPCL was later merged with RIL in 2008. In the years 2005 and 2006, the company reorganized its business by demerging its investments in power generation and distribution, financial services and telecommunication services into four separate entities. In 2006, Reliance entered the organised retail market in India with the launch of its retail store format under the brand name of 'Reliance Fresh'. By the end of 2008, Reliance retail had close to 600 stores across 57 cities in India. In 2010, Reliance entered Broadband services market with acquisition of Infotel Broadband Services Limited, which was the only successful bidder for pan-India fourth-generation (4G) spectrum auction held by Government of India. In the same year, Reliance and BP announced a partnership in the oil and gas business. BP took a 30 per cent stake in 23 oil and gas production sharing contracts that Reliance operates in India, including the KG-D6 block for $7.2 billion. Reliance also formed a 50:50 joint venture with BP for sourcing and marketing of gas in India. In 2012, RIL set up a joint venture with Russian Company Sibur for setting up a Butyl rubber plant in Jamnagar, Gujarat. The plant is scheduled to be operational in 2015. Presently, Vivek Lall is the President and CEO of New Ventures in the Chairman’s Office at Reliance Industries Limited.

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Shareholding The number of shareholders in RIL are approx. 3 million. The promoter group, Ambani family, holds approx. 45.34% of the total shares whereas the remaining 54.66% shares are held by public shareholders, including FII and bodies corporate. Life Insurance Corporation of India is the largest non-promoter investor in the company with 7.98% shareholding.Buyback: In January 2012, the company announced a buyback programme to buy a maximum of 120 million shares for  104 billion(US$1.7 billion). By the end of January 2013, the company bought back 46.2 million shares for  33.66 billion (US$550 million).

Listing The company's equity shares are listed on the National Stock Exchange of India Limited (NSE) and the BSE Limited. The Global Depository Receipts (GDRs) issued by the Company are listed on Luxembourg Stock Exchange. It has issued approx. 56 million GDRs wherein each GDR is equivalent to 2 equity shares of the company. Approx. 3.46% of its total shares are listed on Luxembourg Stock Exchange.Its debt securities are listed at the Wholesale Debt Market (WDM) Segment of the National Stock Exchange of India Limited (NSE).

Credit Ratings: It has received domestic credit ratings of AAA from CRISIL (S&P subsidiary) and Fitch. Moody’s and S&P have provided investment grade ratings for international debt of the Company, as Baa2 positive outlook (local currency issuer rating) and BBB+ outlook respectively.

Operations The company's petrochemicals, refining, and oil and gas-related operations form the core of its business; other divisions of the company include cloth, retail business, telecommunications and special economic zone (SEZ) development. In 2012–13, it earned 76% of its revenue from Refining, 19% from Petrochemicals, 2% from Oil & Gas and 3% from Other segments.

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In July 2012, RIL informed that it was going to invest US$1 billion over the next few years in its new aerospace division which will design, develop, manufacture, equipment and components, including airframe, engine, radars, avionics and accessories for military and civilian aircraft, helicopters, unmanned airborne vehicles and aerostats.

Major subsidiaries and associates On 31 March 2013, the company had 123 subsidiary companies and 10 associate companies.

Reliance Retail  is the retail business wing of the Reliance Industries. In March 2013, it had 1466 stores in India. It is the largest retailer in India. Many brands like Reliance Fresh, Reliance Footprint, Reliance Time Out, Reliance Digital, Reliance Wellness, Reliance Trends, Reliance Autozone, Reliance Super, Reliance Mart, Reliance iStore, Reliance Home Kitchens, Reliance Market (Cash n Carry) and Reliance Jewel come under the Reliance Retail brand. Its annual revenue for the financial year 2012–13 was  108 billion (US$1.8 billion) with an EBITDA of  780 million (US$13 million).

Reliance Life Sciences  works around medical, plant and industrial biotechnology opportunities. It specializes in manufacturing, branding, and marketing Reliance Industries' products in bio-pharmaceuticals, pharmaceuticals, clinical research services, regenerative medicine, molecular medicine, novel therapeutics, biofuels, plant biotechnology, and industrial biotechnology sectors of the medical business industry.

Reliance Institute of Life Sciences  (RILS), established by Dhirubhai Ambani Foundation, is an institution offering higher education in various fields of life sciences and related technologies.

Reliance Logistics is a single-window company selling transportation, distribution, warehousing, logistics, and supply chain-related products, supported by in-house telematics and telemetry solutions. Reliance Logistics is an asset based company with its own fleet and

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infrastructure. It provides logistics services to Reliance group companies and outsiders.

Reliance Clinical Research Services (RCRS), a contract research organisation (CRO) and wholly owned subsidiary of Reliance Life Sciences, specialises in the clinical research services industry. Its clients are primarily pharmaceutical, biotechnology and medical device companies.

Reliance Solar, the solar energy subsidiary of Reliance, was established to produce and retail solar energy systems primarily to remote and rural areas. It offers a range of products based on solar energy: solar lanterns, home lighting systems, street lighting systems, water purification systems, refrigeration systems and solar air conditioners.

Relicord  is a cord blood banking service owned by Reliance Life Sciences. It was established in 2002. It has been inspected and accredited by AABB, and also has been accorded a license by Food and Drug Administration (FDA), Government of India.

Reliance Jio Infocomm  (RJIL), previously known as Infotel Broadband, is a broadband service provider which gained 4G licences for operating across India. Now it is wholly owned by RIL for  48 billion (US$790 million). Sandip Das, former ceo of Maxis Malaysia, is the current group president of Reliance Jio Infocomm.

Reliance Industrial Infrastructure Limited  (RIIL) is an associate company of RIL. RIL holds 45.43% of total shares of RIIL. It was incorporated in September 1988 as Chembur Patalganga Pipelines Limited, with the main objective being to build and operate cross-country pipelines for transporting petroleum products. The company's name was subsequently changed to CPPL Limited in September 1992, and thereafter to its present name, Reliance Industrial Infrastructure Limited, in March 1994. RIIL is mainly engaged in the business of setting up and operating industrial infrastructure. The company is also engaged in related activities involving leasing and providing services

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connected with computer software and data processing. The company set up a 200-millimetre diameter twin pipeline system that connects the Bharat Petroleum refinery at Mahul,Maharashtra, to Reliance's petrochemical complex at Patalganga, Maharashtra. The pipeline carries petroleum products including naphtha and kerosene. It has commissioned facilities like the supervisory control and data acquisition system and the cathodic protection system, a jackwell at River Tapi, and a raw water pipeline system at Hazira. The infrastructure company constructed a 71,000 kilo-litre petrochemical product storage and distribution terminal at the Jawaharlal Nehru Port Trust (JNPT) Area in Maharashtra.

Employees As on 31 March 2013, the company had 23,519 employees of which 1,159 were women and 83 were employees with disabilities. It also had 29,462 temporary employees on the same date. As per its Sustainability Report for 2011–12, the attrition rate was 7.57%. In its 39th Annual General Meeting, its Chairman informed the shareholders of the investment plans of the company of about  1500 billion (US$25 billion) in next three years. This would be accompanied by increasing the staff strength in Retail division from existing strength of 35,000 to 120,000 in next three years and increasing employees in Telecom division from existing 3,000 to 10,000 in 12 months.

Environmental RecordReliance Industries is the world's largest polyester producer and as a result one of the largest producers of polyester waste in the world. In order to deal with large quantities of waste, they operate the largest polyester recycling centre that uses the polyester waste as a filling and stuffing.

Awards and RecognitionsInternational Refiner of the Year in 2013 at the HART Energy’s 27th World Refining & Fuel Conference.[1] This is the second time that RIL has received this Award for its Jamnagar Refinery, the first being in 2005.

According to survey conducted by Brand Finance in 2013, Reliance is the second most valuable brand in India.

The Brand Trust Report, 2013 has ranked 'Reliance' as the 7th most trusted brand in India.[66]

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RIL was certified as 'Responsible Care Company' by the American Chemistry Council in March, 2012.

RIL was ranked at 25th position across the world, on the basis of sales, in the ICIS Top 100 Chemicals Companies list in 2012.

RIL was awarded the National Golden Peacock Award 2011 for its contribution in the field of corporate sustainability.

In 2009, Boston Consulting Group (BCG) named Reliance Industries as the world's fifth biggest 'sustainable value creator' in a list of 25 top companies globally in terms of investor returns over a decade. The company was selected as one of the world's 100 best managed companies for the year 2000 by Industry Week magazine. From 1994 to 1997, the company won National Energy Conservation Award in the petrochemical sector.

Controversies

De-merger of RIL in 2005–06The Ambani family holds around 45% of the shares in RIL.[72] Since its inception the company was managed by its founder and chairman Dhirubhai Ambani. After suffering a heart attack in 1986, he handed over the daily operations of the company to his sons Mukesh Ambani and Anil Ambani. After the death of Dhirubhai Ambani in 2002, the management of the company was taken up by both the brothers. In November 2004, Mukesh Ambani, in an interview, admitted to having differences with his brother Anil over 'ownership issues'.[73]He also said that the differences "are in the private domain". The share prices of RIL were impacted by some margin when this news broke out. In 2005, after a bitter public feud between the brothers over the control of the Reliance empire, mother Kokilaben intervened to broker a deal splitting the RIL group business into the two parts.[74] In October 2005, the split of Reliance Group was formalized. Mukesh Ambani got Reliance Industries and IPCL. Younger brother Anil Ambani received telecom, power, entertainment and financial services business of the group. The Anil Dhirubhai Ambani Group includes Reliance Communications, Reliance Infrastructure, Reliance Capital, Reliance Natural Resources and Reliance Power. The division of Reliance group business between the two brothers also resulted in de-merger of 4 businesses from RIL. These businesses immediately became part of Anil Dhirubhai Ambani Group. The existing shareholders in RIL, both the promoter group and non-promoters, received shares in the de-merged companies.

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RIL Plane groundedBusiness jet owned by Reliance Industries (RIL) was grounded by The Directorate General of Civil Aviation (DGCA) on 22 March 2014 during a surprise inspection, for carrying expired safety equipment on-board and also suspended its pilot for flying without a licence.

ONGC ControversyIn May 2014, ONGC moved to Delhi High Court accusing RIL of pilferage of 18 billion cubic metres from its gas-producing block in the Krishna Godavari basin. Subsequently, the two companies agreed to form an independent expert panel to probe any pilferage.

Petition against Reliance JioA PIL filed in the Supreme Court by an NGO Centre for Public Interest Litigation, through Prashant Bhushan, challenged the grant of pan-India licence to RJIL by the Government of India. The PIL alleged that RJIL was allowed to provide voice telephony along with its 4G data service, by paying an additional fees of just  16580 million (US$270 million) which was arbitrary and unreasonable, and contributed to a loss of  228420 million (US$3.7 billion) to the exchequer. The CAG in its draft report alleged rigging of the auction mechanism, whereby an unknown ISP, Infotel Broadband Services Pvt Ltd, acquired the spectrum by bidding 5000 times its net worth, after which the company was sold to Reliance Industries within minutes of acquiring license.

Principal Competitors

Indian Oil Corporation Ltd.; Hindustan Petroleum Corporation Ltd.; Bharat Petroleum Corporation Ltd.; Indian Petrochemicals Corporation Ltd.; Mangalore Refinery and Petrochemicals Ltd.; Kochi Refineries Ltd.; Chennai Petroleum Corporation Ltd.; Parker Agro-chemical Exports Ltd.

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Ratio AnalysisRatio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas. The ratios are categorized as Short-term Solvency Ratios, Debt Management Ratios, Asset Management Ratios, Profitability Ratios, and Market Value Ratios.

Ratio Analysis as a tool possesses several important features. The data, which are provided by financial statements, are readily available. The computation of ratios facilitates the comparison of firms which differ in size. Ratios can be used to compare a firm's financial performance with industry averages. In addition, ratios can be used in a form of trend analysis to identify areas where performance has improved or deteriorated over time.

Because Ratio Analysis is based upon Accounting information, its effectiveness is limited by the distortions which arise in financial statements due to such things as Historical Cost Accounting and inflation. Therefore, Ratio Analysis should only be used as a first step in financial analysis, to obtain a quick indication of a firm's performance and to identify areas which need to be investigated further.

The pages below present the most widely used ratios in each of the categories given above. Please keep in mind that there is not universal agreement as to how many of these ratios should be calculated. You may find that different books use slightly different formulas for the computation of many ratios. Therefore, if you are comparing a ratio that you calculated with a published ratio or an industry average, make sure that you use the same formula as used in the calculation of the published ratio.

DIFFERENT MODES OF EXPRESSING AN ACCOUNTING RATIO Ratio may be expressed in different ways. They are as follows: 

a) Simple or Pure Ratios, b) Percentages, c) Rate. 

a) Simple or Pure Ratios: Simple or pure ratio is merely a quotient arrived by simple division of one number by another. Example: When the current assets of a business organisation are Rs.60,000 and current liabilities are Rs.15,000 the ratio is derived by dividing Rs.60,000 by Rs.15,000. It will be expressed as = 60,000 4 or as 4:115,000 

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b) Percentages: Ratios are expressed as percentage relations when the simple or ratios are multiplied by 100. The resulting ratios are known as percentage ratios. Example: Thus, the current ratio in the above example — expressed in percentage by multiplying 4 by 100. The ratio will be as 400%.60,000 i.e. 10015,000

c) RateSometimes, ratios are expressed as rates which refer to ratios over a period of time. Example: Stock has turned over 6 times a year’.

Standards for Comparison (Bench Marks): While interpreting financial statements benchmark should be considered. In order to make judgement about financial status, actual ratio has to be compared with the yardstick Benchmark may be.

1. Intra-company -The company under analysis can provide standards for comparisons based on its own prior performance and relations between its financial items. Research in Motion's current net income, for instance, can be compared with its prior years' net income and in relationto its revenues or total assets.

2. Ratio of Competitive firms -One or more direct competitors of the company being analysed can provide standards for comparisons. Coca-Cola's profit margin, for instance, can be compared with PepsiCo's profit margin.

3. Industry Average -Industry statistics can provide standards of comparisons. Such statistics are availablefrom services such as Dun & Bradstreet, Standard & Poor's, and Moody's.

4. Rules of thumb -General standards of comparisons can develop from experience. Examples are the 2:1 level for the current ratio or 1:1 level for the acid-test ratio. Guidelines, or rules of thumb, must be carefully applied because context is crucial. 

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Nature of ratio Analysis

Though ratio analysis is ‘all the rage’ among the users of accounting information, it is better to understand the nature of ratios so that they can be employed judiciously under appropriate conditions.

1. The relation between two or more financial data brought out by an accounting ratio is not an end in itself. They are means to get to know the financial position of an organisation.

2. An Individual ratio may not be capable of providing the answers required for the various problems facing an executive.  Industrial ratios may provide valuable information only when they are studied and compared with several other related ratios.

3. Ratio analysis will tend to be more meaningful when certain standards and norms are laid down so that what the ratios indicate can be compared with the said standards. This provides a base for decision-making and assists in taking measures to rectify any drawback or deficiency.

Particulars Amount (Rs.)

Amount (Rs.)

IncomeSales Turnover 390117.0

0360297.00

Excise Duty 00.00 00.00Net Sales 390117.0 360297.00

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0Other Income 8936.00 7998.00Stock Adjustment -412.00 -412.00Total Income 398641.0

0371612.00

ExpenditureRaw Materials 334283.0

0310428.00

Power & Fuel Cost 10153.00 7166.00Employee Cost 3370.00 3354.00Other Manufacturing Expenses 1985.00 0.00Selling & Administration Expenses 0.00 0.00Miscellaneous Expenses 9037.00 11879.00Preoperative Expenses Capitalised 0.00 0.00Total Expenses 358828 332827Operating Profit 30877 30787PBDIT 39813 38785Interest 3206.00 3036.00PBDT 36607.00 35749.00Depreciation 8789.00 9465.00Profit Before Tax 27818.00 26284.00Extra-Ordinary Items 0.00 0.00Profit Before Tax (Post Extra-Ord. Items) 27818.00 26284.00Tax 5834.00 5281.00Reported Net Profit 21984.00 21003.00Total Value Addition 24545.00 22399.00Preference Dividend 0.00 0.00Equity Dividend 2793.00 2628.00Corporate Dividend Tax 475.00 447.00Per Share Data (annualised)Share In Issue (lakhs) 32319.02 32286.63Earning Per Share (Rs.) 68.02 65.05Equity Dividend (%) 95.00 90.00Book Value (Rs.) 609.78 557.49

In The Book of Reliance Industries Limited

Profit And Loss Account For The Year Ended 31st March 2013, 2014

Balance sheet as on 31st March 2013, 2014

Particulars Amount Amount

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(Rs.) (Rs.)Sources of FundsTotal Share Capital 3232.00 3229.00Equity Share Capital 3232.00 3229.00Share Application Money 17.00 25.00Preference Share Capital 0.00 0.00Reserves 193842.0

0176766.00

Revaluation Reserves 0.00 0.00Net Worth 197091 180020Secured Loans 10744 2422Unsecured Loans 74737.00 52101.00Total Debt 85481.00 54523.00Total Liabilities 282572.0

0234543.00

Application of FundsGross Block 194793.0

0187607.00

Less: Accumulated Depreciation 85387.00 77859.00Net Block 109400 109748Capital Work In Progress 41716.00 19116.00Investments 86062.00 52509.00Inventories 42932.00 42729.00Sundry Debtors 10664.00 11880.00Cash & Bank Balance 36624.00 49547.00Total Current Assets 90220.00 104156.00Loans & Advances 40179.00 32982.00Fixed Deposit 0.00 0.00Total C.A, Loans & Advances 130399.0

0137138.00

Deffered Credit 0.00 0.00Current Liabilities 80844.00 79620.00Provisions 4167.00 4348.00Total C.L &Provisions 85011.00 83968.00Net Current Assets 45388.00 53170.00Miscellaneous Expenses 0.00 0.00Total Assets 282572.0

0234543.00

Contingent Liabilities 77162.00 54600.00Book Value 609.78 557.49

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Calculation of RatiosA. Management Efficiency Ratios: 1. Gross Profit Ratio: Gross Profit Ratio brings out relationship between

Goss Profit and Net Sales. It is also known as “Turnover Ratio” or “margin” or “Gross Margin Ratio” or “Rate of Gross Profit”. It is expressed as a percentage of net sales.

Gross Profit is a profit made on sale of goods. It is the profit on turnover. It is defined as the excess of net sales over cost of goods sold or excess of revenue over cost. Thus gross profit= Net sales less Cost of goods sold. Cost of Goods sold is the total of materials, labour, production and other trading expenses incurred on the quantity of goods sold. Cost of goods sold does not take into account certain operating expenses like administrative, selling and distribution expenses. Finance expenses like interest, which are charged to Profit & Loss account are also not taken into consideration.Cost of goods sold= Opening stock+ purchases+ Direct Expenses- Closing stock.

Calculation:

Gross Profit Ratio=Gross Profit *100/Net SalesYear 2013 Year 2014Cogs=46046+ 310428+ 7166+ 3354 – 42729=324265Gross Profit=360297-324265 =36032

Cogs=43344+ 334283+ 10153+ 3370- 42932=348218Gross Profit=390117-334283=55834

Gross Profit Ratio=36032*100/360297 =10%

Gross Profit Ratio=55834*100/390117 =14.31%

Comments: The Gross profit ratio has increased by 4.31%. This is due to the following factor:

The sales have increased by 3.97% over the corresponding figure of 2013, but the cost of goods sold to net sales in 2013 works out 89.07% , whereas in 2014 it works out to 89.67%, which decreased the cost and increased the sales.

2. Operating Ratio: Operating Ratio is the relationship between cost of activities and net sales. This ratio brings out relationship between cost

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of goods sold and net sales. In other words, operating ratio shows at what percentage the operating expenses are comprised in net sales. It is expressed as percentage.

The purpose of operating ratio is to ascertain the efficiency of the management as regards operations. This ratio is the test of operational efficiency of the business. Operating cost is the total of Cost of goods sold and other operating expenses except finance expenses and other non-operating expenses.

Calculation:

Operating Ratio= Operating cost*100 Net Sales Year 2013 Year 2014Operating cost=324548+11879=336427

Operating cost=349791+9037=358828

Operating Ratio=336427*100/360297 =93.37%

Operating Ratio=358828*100/390117 =91.98%

Comments:

The operating efficiency of the business has decreased compared to the previous year. This is due to the increase in cost of goods sold, which in 2013 was 89.07% of sales while it was 89.67% in the year 2014.

3. Expenses Ratio: The ratio of each item of expense or each group of expenses to sales is known as an “Expense Ratio” and such ratios are collectively known as “Expense Ratios”. Thus, expense ratio bring out the relationship between various elements of operating costs and net sales.

Expense Ratio analyse each individual item of expense or group of expense express them as a percentage in relation to net sales. Expenses ratio enable the management in controlling costs and improving the managerial efficiency. These ratios are important to shareholders in the sense that ultimate profit is influenced and conditioned by these ratios. It shows the proportion of expenses to sales. If the ratio is 20% it means that per Rs.100 sales expenses are Rs.20.

a) Cost of Goods Sold Ratio Cost of goods sold= Opening stock+ Purchases+ Expenses incurred for manufacturing goods- Closing stock

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Calculation:

Cost of Goods Sold Ratio= Cost of Goods Sold*100/Net Sales Year 2013 Year 2014Cogs=46046+ 310428+ 7166+ 3354- 42729=324265Net Sales= 360297

Cogs=43344+ 334283+ 10153+ 3370- 42932=348218Net Sales= 390117

Cost of Goods Sold=324265*100/360297 =89.99%

Cost of goods Sold= 348218*100/390117 = 89.25%

b) Raw Materials Ratio

Calculation:

Raw Materials Consumed Ratio= Raw Materials Consumed*100/Net SalesYear 2013 Year 2014Raw Materials Consumed= 310428Net Sales= 360297

Raw Materials Consumed= 334283Net Sales= 390117

Raw Materials Consumed Ratio=310428*100/360297 =86.16%

Raw Materials Consumed Ratio=334283*100/390117 =85.69%

c) Manufacturing Expenses Ratio

Calculation:

Manufacturing Expenses Ratio=Manufacturing Expenses*100/Net SalesYear 2013 Year 2014Manufacturing Expenses=0.00Net Sales=360297

Manufacturing Expenses=1985Net Sales=390117

Manufacturing Expenses Ratio=0.00 Manufacturing Expenses Ratio=1985*100/390117 =0.05%

Comment:

The raw materials consumed ratio has decreased by 0.47% due to which the cost of goods sold ratio by 0.74%

There were no manufacturing expenses in 2013, whereas in 2014 it increased to 0.05%.

4. Net Operating Profit Ratio: It is the relationship between net operating profit and net sales which is expressed in percentage.

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Calculation:

Net Operating profit Ratio=Net Operating Profit *100/Net SalesYear 2013 Year 2014Net Operating Profit=30787 Net Operating Profit=30877Net Operating Profit Ratio=30787*100/360297 =8.54%

Net operating Profit Ratio=30887*100/309117 =7.91%

Comment:

Even though the net sales in the year 2013 are less as compared in the year 2014, the net operating profit in the year 2013 is more than in the year 2014. This is because the operating expenses in the year 2013 are less than in the year 2014.

5. Net Profit Ratio: Net Profit Ratio indicates the relationship between net profit and net sales. Net profit can be either operating net profit after tax or net profit before tax. This ratio is also known as ‘Margin on Sales Ratio’.

It indicates as to what proportion of net sales is available for the proprietors. It is a clear index of cost control, managerial efficiency and sales promotion. The ratio is often called ‘the index of operational efficiency’.

Calculation:

Net Profit Ratio=Net Profit After Tax*100/Net SalesYear 2013 Year 2014Net Profit After Tax=21003 Net Profit After Tax=21984Net Profit Ratio=21003*100/360297 =5.83%

Net Profit Ratio=21984*100/390117 =5.64%

Comment:

Though the net profit in the year 2014 is higher than that in the year 2013, it clearly has low net profit ratio. This is because in the year 2014, the company has earned additional profit of Rs.981 on an increased sales of Rs.29820.

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6. Fixed Assets Turnover Ratio: It measures how productively the firm is managing its fixed assets to generate sales. This ratio is calculated by dividing sales by net fixed assets.

Calculation:

Fixed Assets Turnover Ratio=Net Sales/Fixed AssetsYear 2013 Year 2014Net Fixed Assets=109748Net Sales= 360297

Net Fixed Assets=109406Net Sales= 390117

Fixed Assets Turnover Ratio=360297/109748 =3.28

Fixed Assets Turnover Ratio=390117/109406 =3.57

Comments:

Fixed assets turnover ratio is less in the year 2013 as compared in the year 2014. In 2013, even though there are more fixed assets as compared in the year 2014, but these assets are not utilised properly to increase sales.

In the year 2014, the fixed asset are less as compared in the year 2013, it means that even though less assets are utilised, the sales has increased.

7. Total Assets Turnover Ratio: total assets turnover ratio measures how productively the firm is managing all of its assets to generate sales. This ratio is calculated by dividing sales by total assets.

Total Assets Turnover Ratio=Net sales/Total AssetsYear 2013 Year 2014Total Assets=318511Net Sales= 360297

Total Assets=367583Net Sales= 390117

Total Assets Ratio=1.13 Total Assets Ratio=1.06

Comments: The overall assets in the year 2013 as compared to the sales are

properly utilised, whereas in 2014 the assets are not properly utilised as compared in the year 2013.

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B. Financial Stability, Solvency & Liquidity Ratios:

1. Current Ratio: Current Ratio is also known as ‘Working Capital Ratio’, ‘Solvency Ratio’ or ‘2 to 1 ratio’. This ratio expresses the relationship between current assets and current liabilities.it expressed as a pure ratio.

The current ratio is a test of the credit strength and solvency of an organisation. It indicates the strength of working capital of the business. It indicates the company’s ability to meet its day-day financial obligations. The ratio discloses possible tendencies of the business to over-trade or under-capitalise or over-invest in stocks.

Calculation:

Current Ratio=Current Assets/Current LiabilitiesYear 2013 Year 2014Current Assets=104156Current Liabilities=79620

Current Assets=90220Current Liabilities=80844

Current Ratio=104156/79620 =1.31i.e.1.31:1

Current Ratio=90220/80844 =1.11i.e.1.11:1

Comments:

In the year 2013, the short term solvency position of the company is good, whereas in the year 2014 also the short term financial position is good.

But in the year 2013 it is much better than in the year 2014.

2. Quick Ratio: It is also known as ‘Liquid Ratio’ or ‘Quick Asset Ratio’ or ‘Near-Money Ratio’, or ‘1 to 1 ratio’. This ratio is designated to indicate the liquid financial position of an enterprise. Thus, the ratio shows the firm’s ability to meet its immediate obligation promptly. It measures the relationship between quick assets and quick liabilities.

Quick Assets=Current Assets – [Stock+ Prepaid Expenses]

Quick Liabilities=Current Liabilities - [Bank Overdraft + Income Received in Advance

Calculation:

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Quick Ratio=Quick Assets/Quick LiabilitiesYear 2013 Year 2014Quick Assets=137138-42729=94409Quick Liabilities=79620

Quick Assets=130399-42932=87467Quick Liabilities=80844

Quick Assets Ratio=94409/79620 =1.19i.e.1.19:1

Quick Assets Ratio=87467/80844 =1.08i.e.1.08:1

Comments:

The quick ratio in both the year is satisfactory as in the year 2013 it was 1.19:1, whereas in the year 2014 it was 1.08:1 which is more than standard ratio i.e.1:1

The Quick assets in the year 2013 are more than in the year 2014.

3. Proprietary Ratio: Proprietary Ratio is a test of the financial and credit strength of the business. It relates shareholder’s fund to total assets i.e., total funds. This ratio determines the long-term or ultimate solvency of the company.

In other words, proprietary ratio determines as to what extent the owner’s interest and expectations are fulfilled from the total investments made in the business operations.

Proprietor’s Fund include: a) Equity Share Capital

b) Preference Share Capital

c) Capital Reserves

d) Revenue Reserves

e) Securities Premium

f) Surplus and Undistributed Profit

Less Accumulated losses and unamortised Miscellaneous Expenditure Items

Calculation: 26

Proprietary Ratio=Proprietor’s Fund/Total Assets*100Year 2013 Year 2014Proprietor’s Fund=3229+176766=179995Total Assets=109748+19116+52509+137138=318511

Proprietor’s Fund=3232+193842=197074Total Assets=109400+41716+86062+130399=367577

Proprietary Ratio=179995/318511*100 =56.51%

Proprietary Ratio=197074/367577*100 =53.61%

Comments:

Of the total assets shareholders contribution is approximately 56.51% in 2013 and 53.61% in 2014.

The proprietary ratio in 2014 is less than in 2013 even though the proprietor’s fund and total assets are more in 2014 because the fixed assets has decreased in 2014 by 348.

4. Capital Gearing Ratio: Capital Gearing Ratio brings out the relationship between two types of capital i.e., capital carrying fixed rate of interest or fixed dividend and capital that does not carry fixed rate of interest or fixed dividend. It is a modified counterpart of Debt Equity Ratio. In short, capital gearing ratio indicates the degree to which capital has been geared in the capital structure of a company.

This ratio is also known as ‘Leverage Ratio’ or ‘Financial Leverage Ratio’ or ‘Capital Structure Ratio’. Capital Gearing ratio is the mechanism to ascertain whether a company is practising ‘trading on equity’ and if so to what extent. The ratio aids in bringing about a balanced capital structure. According to Securities and Exchange Board of India a ratio of 1:4 between equity and preference capital is considered reasonable.

Calculation:

Capital Gearing Ratio=Fixed Interest Bearing Securities/Equity Capital & Reserves & Surplus Year 2013 Year 2014Fixed Interest Bearing Securities=2422Equity Capital & Reserves & Surplus=3229+176766=179995

Fixed Interest Bearing Securities=10744Equity Capital & Reserves & Surplus=3232+193842=197074

Capital Gearing Capital Gearing Ratio=10744/197074

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Ratio=2422/179995 =0.013 i.e.0.013:1

=0.054 i.e.0.054:1

Comments:

The capital gearing ratio in both the years is low as compared to the standard ratio i.e. in the year 2013 it was 0.013:1 and in the year 2014 it was 0.054:1.

The capital structure of the company is low geared. The company depends on the equity to the greater extent The burden of interest is also lower. This ratio is not suitable to the

company.

5. Debt Equity Ratio: It expresses the relationship between the external equities and internal equities or the relationship between borrowed capital and owner’s capital.

The ratio shares favourable or unfavourable financial position of the concern. It shows long term capital structure. The low ratio is viewed as favourable from long term creditor’s point of view. Higher ratio is unfavourable. The standard ratio is 2:1Debt=Secured Loans + Unsecured LoansEquity=Share capital+ Reserves and Surplus

Calculation:

Debt Equity Ratio=Debt/EquityYear 2013 Year 2014Debt=2422+52101=54523Equity=3229+176766=

Debt=10744+74737=85481Equity=3232+193842=197074

Debt Equity Ratio=54523/179995 =0.30 i.e. 0.30:1

Debt Equity Ratio=85481/197074 =0.43 i.e. 0.43:1

Comments:

The Debt Equity Ratio in the year 2013 is better than in the year 2014, but it is lower as compared to the standard ratio.

The company gets benefit of trading on equity during the period of slackness.

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There is less burden of interest. The company can rais additional loans without difficulty

C.Profitability Ratio: 1) Return on Capital Employed: This Ratio explains the relationship

between total profits earned by the business and total investments made or total assets employed. This ratio, thus measures the overall efficiency of the business operations.

This ratio is alternatively known as “Return on Total Resources”. Return on total resources is calculated by dividing net profit before preference dividend and interest on loans and debentures by total assets (fixed and current). This is always expressed in percentage.

Capital Employed= Proprietor’s Fund+ Long Term Loans

OR =Fixed Assets+ Current Assets- Current Liabilities

Calculation;

Return on Capital Employed=Net Profit Before Interest And Tax*100/Capital EmployedYear 2013 Year 2014Net Profit Before Interest And Tax=30787Capital Employed= 109748+ 19116+ 52509+ 137138- (79620+4348) =234543

Net Profit Before Interest and Tax=30877Capital Employed= 109406+ 41716+ 86062+ 130399 (80844+ 4167)=282572

Return on Capital Employed= 30787*100/234543=13.12%

Return On Capital Employed= 30877*100/282572=10.92%

Comments:

This ratio shows the earning capacity of the business. Return on Capital Employed ratio in the year 2013 is good compared to

the year 2014 and it also shows that the market value of the shares in 2014 is lower than in the year 2013.

The above ratio indicates that in the year 2013 the assets were utiliser economically well as compared in the year 2014.

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2. Return on Proprietor’s Fund: Alternatively it is also known as “Return on Proprietor’s Equity” or “Return on Shareholder’s Investment” or “Investor’s Ratio”. It indicates the relationship between net profit earned and total Proprietor’s Funds. This ratio is of practical importance to prospective investors and shareholders. It shows the amount of return earned on proprietor’s fund.

Proprietor’s Fund include: a) Equity Share Capital

b) Preference Share Capital

c) Capital Reserves

d) Revenue Reserves

e) Securities Premium

f) Surplus and Undistributed Profits

Less

Accumulated losses and unamortised Miscellaneous Expenditure Items

Calculation:

Return On Proprietor’s Fund= Net Profit After Tax*100/Proprietor’s FundYear 2013 Year 2014Net profit After Tax= 21003Proprietor’s Fund=3229+176766=179995

Net profit After Tax= 21984Proprietor’s Fund= 3232+193842= 197074

Return on Proprietor’s Fund= 21003*100/179995=11.66%

Return on Proprietor’s Fund= 21984*100/197074=11.16%

Comments:

The Return on Proprietor’s Fund in the year 2013 is better than in the year 2014.

Proprietors fund is utilised less effectively. In both the years the overall profitability of the company is

satisfactory.

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D. Overall Efficiency /Growth Potentiality Credit Standing ETC:

1. Stock Turnover Ratio: Stock Turnover Ratio is also known as ‘Inventory Ratio’ or ‘inventory Turnover Ratio’ or ‘Stock Turn Ratio’ or ‘Merchandise turnover Ratio’ or ‘Stock Velocity Ratio’ or simply ‘Velocity of Stock’.

This Ratio measures the number of times stock turns or flows or rotates in an accounting period compared to the sales affected during that period. In other words, the ratio indicates the frequency of inventory replacement i.e. the number of times inventory has been sold and replaced during a given period of time.

Cost of goods sold= Opening stock+ Purchases+ Expenses incurred for manufacturing goods- Closing stockAverage stock= Opening stock+ Closing stock/2

Calculation:

Stock Turnover Ratio=Cost of goods Sold/Average StockYear 2013 Year 2014Cogs=46046+ 310428+ 7166+ 3354- 42729=324265Average Stock= 46046+ 42729/2=44388

Cogs=43344+ 334283+ 10153+ 3370- 42932=348218Average stock= 43344+ 42932/2=43138

Stock Turnover Ratio= 324265/44388= 7.31 times

Stock Turnover Ratio= 348218/43138=8.07 times

Comments:

In 2014, the inventory ratio has increased from 7.31 times to 8.07 times i.e. with the lower inventory the company has achieved higher sales.

2. Debtor’s Turnover Ratio: Debtor’s Turnover is also known as ‘Turnover of Debtor’s Ratio’ or ‘Accounts Receivable Turnover Ratio’. Some analysts prefer to call this ratio as “Debtors” Turnover Period” or as “Average Collection Period”.

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This ratio attempts to measure the collectability of debtors and other accounts receivables. In other words, it shows the rate at which the trade debts are being collected. If nothing is specified that whether the sales are on cash or credit basis, for calculation of “Debtors Turnover Ratio” they are to be considered as credit sales only.

Average Accounts Receivable= Average Trade Debtors+ Average Bills Receivable

Calculation:

Debtor’s Turnover Ratio=Credit Sales/Average Accounts ReceivableYear 2013 Year 2014Credit Sales=360297Average Accounts Receivable= 11880

Credit Sales= 390117Average Accounts Receivable= 10664

Debtor’s Turnover Ratio= 360297/11880 =30.33 times

Debtor’s Turnover Ratio= 390117/10664 =36.58 times

Comments:

This ratio indicates a liberal credit policy followed by the firm. This will result in blocking of working capital, and reduced profits.

The Debtor’s Turnover ratio in the year 2013 is better than in the year 2014.

3. Debt Collection Period: The ratio indicates the extent to which the debts have been collected in time. It gives the average debt collection period. The ratio helps the lenders to know their borrowers are collecting money from debtors within a stipulated period.

Calculation:

Debt Collection Period= No. of Days in a Year/Debtors Turnover RatioYear 2013 Year 2014No. of days in a year=365Debtors Turnover Ratio=30.33 times

No. of days in a year=365Debtors Turnover Ratio=36.58 times

Debt Collection Period=365/30.33 Debt Collection Period=365/36.5832

= 12.03 Days

= 9.98 Days

Comments:

The credit allowed to the debtor’s is 13.03 days in the year 2013, and is 9.98 days in the year 2014.

The collection from the debtor’s is correct as they can recover the amount within minimum days.

4. Earning per Share: Earning per Share is calculate to find out overall profitability of the organisation. Earning per share represents earnings of the company whether or not dividends are declared. If there is only one class of shares, the earnings per share are determined by dividing net profit by the no. of equity shares. If there are both equity and preference shares the net profit should be reduced by the amount necessary to pay preference dividend. It is calculated by following formula.

Calculation:

Earning per Share= Net Profit After Tax- Preference Dividend/Number of Equity SharesYear 2013 Year 2014Net Profit After Tax=21003No. of Equity Shares= 322.9

Net Profit After Tax=21984No. of Equity Shares= 323.2

Earning Per Share=21003/322.9 =Rs.65.05 per share

Earning Per Share= 21984/323.2 =Rs.68.02 per share

Comments:

In the year 2013, earning per share was Rs.65.05 per share which is less as compared in the year 2014, which is Rs.68.02 per share.

In both the years the equity capital was utilised effectively.

5. Dividend Payout Ratio: The purpose of this ratio is to find out the proportion of earning used for payment of dividend and the proportion of earning retained. The ratio is a relation between earning per equity share and dividend per equity share, the ratio is calculated as follows.

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Calculation:

Dividend Payout Ratio=Dividend per Equity Share/Earning per Equity Share

Year 2013 Year 2014Dividend per equity share=2628/322.9=8.14Earning per share= 65.05

Dividend per equity share= 2793/323.2=8.64Earning per share= 68.02

Dividend Payout Ratio=8.14/65.05 = 0.125

Dividend Payout ratio= 8.64/68.02 = 0.127

Comments:

The above ratio shows that the dividend is paid at a higher rate which makes equity shareholders happy.

And also the profit retained is not sufficient for the growth. There is a scope to attract fresh funds from short term investments.

6. Debt Service Ratio: This is also called as Interest Coverage Ratio. The purpose of this ratio is to find out the no. of times the fixed financial charges are covered by income before interest and tax. The ratio is calculated by the following formula.

Calculation:

Debt Service Ratio= Net Profit before Interest and Tax/Fixed Interest chargesYear 2013 Year 2014Net Profit before interest and Tax=38785Fixed Interest= 3036

Net Profit before interest and Tax=39813Fixed Interest= 3206

Debt Service Ratio= 38785/3036 =12.78 times

Debt Service Ratio= 39813/3206 =12.42 times

Comments:

The above ratio calculated shows that the company has the capacity to pay interest.

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Larger amount of profit is available for interest. There is a scope of fresh loans.

Conclusion As we all know that reliance group is founded by Dhirubhai H. Ambani. And reliance industry is India’s largest private sector enterprise. The flagship company, the reliance industry limited, is a fortune Global 500 company and is the largest private sector company in India.

Starting as a small textile company, reliance has in its journey crossed several milestone to become a fortune 500 company in less than 3 decades. Reliance Industry Limited operates world-class manufacturing facilities across the country.

The company works under different business segments such as exploration and production, petroleum refining and marketing, petrochemicals, textile, retail. Reliance industry is a holding company of many subsidiary companies.

From the above ratio analysis of the company, we come to know that the equity shareholders get dividend at a higher rate of interest. The debtors are also given sufficient time to pay the money. The company has the ability to pay the interest. The net sales in the year 2014 are more than in the year 2013.thus, the overall profitability of the company in both the years are good.

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Bibliography.

1. Company Information: http://en.wikipedia.org/wiki/Reliance_Industries

2. Ratio Analysis: http://en.wikipedia.org/wiki/Financial_ratio3. Calculation of Ratios: Referred T. Y. B.com(Accounting

&Finance)book of Sheth Publication.

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