A PROJECT REPORT

On

PERFORMANCE ANALYSIS

Of

INDIAN OIL CORPORATION LIMITED

Project report submitted in partial fulfillment of the requirement of

Pondicherry University for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by

KANGKAN DEKA

(Reg. No. 13397039)

Under the guidance of

Dr. R. KASILINGAM

Associate Professor,

Department of Management Studies,

Pondicherry University.

DEPARTMENT OF MANAGEMENT STUDIES

SCHOOL OF MANAGEMENT

PONDICHERRY UNIVERSISTY

PUDUCHERRY-605014

INDIA

MARCH - APRIL 2014

DECLARATION

I hereby declare that the project titled, “PERFORMANCE ANALYSIS OF INDIAN OIL

CORPORATION LIMITED” is original work done by me during March - April 2015

under the guidance of DR.R.KASILINGAM, Associate Professor, Department of

Management Studies, School of Management, Pondicherry University. This project or any

part thereof has not been submitted for any Degree / Diploma / Associate ship / Fellowship /

any other title or recognition to this University or any other University / Institution.

Place:

Date: (KANGKAN DEKA)

GUIDE’S CERTIFICATE

Certified that this report entitled “PERFORMANCE ANALYSIS OF INDIAN OIL

CORPORATION LIMITED” is submitted in partial fulfillment for the award of MBA is

record of independent research work carried out by KANGKAN DEKA under my

guidance and no part of this corporate Exposure Training has been previously

submitted earlier for the award of any degree/diploma.

Professor & Head Faculty Guide:

Dr. T .Nambirajan Dr.R.Kasilingam

Department Of Management Department Of Management

Studies Studies

Pondicherry University Pondicherry university

ACKNOWLEDGEMENT

At first, I thank God for granting me the great opportunity to complete my project. I

would like to express my gratitude and extent my best wishes to all people who guided,

inspired and motivated me during this project.

I would like to thank DR.T.NAMBIRAJAN, Head of the Department, Department of

Management Studies, School of Management, Pondicherry University for his support.

I take this opportunity to express my profound gratitude and deep regards to my

Project Guide DR.R.KASILINGAM, Associate Professor, Department of Management

Studies, School of Management, Pondicherry University for his guidance and motivation,

without his invaluable help and support, this project work would have never been possible.

I would also like to express my special thanks to MR.NAVA KALITA, Senior

Finance Manager and MR.SUNIL JHA, Assistant Finance Manager of IOCL, Guwahati and

in addition toMr.Rituraj&Mr.Parthiban, Staff members of same for giving me this

opportunity to have an enriching learning experience in this company and also for their keen

interest, guidance, continuous encouragement, support and help throughout the period of the

project.

I am grateful to my parents and friends for their assistance towards the acquisition and

application of knowledge for the efficient and effective finishing of this project work.

\KANGKAN DEKA

ABSTRACT

This project report entitled to PERFORMANCE ANALYSIS OF INDIAN OIL

CORPORATION LIMITED. The main objective of the study is to analyze the financial

position of the company. It is the process of identifying the financial strength and weakness

of the firm properly establishing relationship between the item of balance sheet and profit and

loss account. The details regarding the history and financial details of the bank were collected

through discussion with the company officers Secondary data are based on the annual reports

of 2010-11 to 2013-14.

The various tools used for the study are Dupont Analysis, Motaal‟s Liquidity

Test,Altman Z-score Test, Ratio Analysis, Comparative Statement, Common Size Income

Statement and Trend Analysis. Table and charts are used for better understanding. Through

ratio analysis the company could understand the Profitability. Liquidity, Leverage, Turnover

Position of the company.

Finally, findings &benefits to the company, valuable suggestion and

recommendations are given to the company for better prospects and improving the

performance in future.

CONTENTS

CHAPTER 1: INTRODUCTION TO THE PROJECT

1.1: Introduction to the topic

1.2: Need for the study

1.3: Scope of the study

1.4: Objective of the study

CHAPTER 2: PROFILE OF THE COMPANY AND THE MARKET SCENARIO

2.1: Origin of oil industry in India.

2.2: About IOCL and Guwahati refinery.

CHAPTER 3: RESEARCH METHODOLOGY

3.1: Research design

3.2: Data source and collection

3.3: Data representation

CHAPTER 4: DATA INTERPRETATION AND ANALYSIS

CHAPTER 5: CONCLUSION

5.1: FINDINGS

5.2: SUGGESTIONS

5.3: LIMITATIONS

5.4: CONCLUSION

CHAPTER 6: BIBLIOGRAPHY

CHAPTER-1

INTRODUCTION

Introduction

The Indian oil and gas (O&G) sector is projected to touch US$ 139,814.7 million by 2015

from US$ 117,562.9 million in 2012. The sector provides vast opportunities for investors.

The New Exploration Licensing Policy (NELP) of 1997–98 was envisioned to deal with the

ever-growing gap between demand and supply of gas in India. It has successfully attracted

both foreign and domestic investment, as attested by the presence of Cairn India and

Reliance Industries Limited in the country.

India’s economic growth, as with all other countries, is closely linked to energy demand. The

need for oil and gas, which are among the primary sources for meeting energy

requirements, is thus projected to grow further.

To meet this demand, the government has adopted several policies, such as allowing 100

per cent foreign direct investment (FDI) in several segments of the sector, including

petroleum products, natural gas, pipelines, and refineries.

Key Statistics

In 2011, India’s O&G sector witnessed one of the biggest FDI deals in the country, with

British Petroleum (BP) formalizing a US$ 7.2 billion partnership with Reliance Industries, for

exploring offshore gas reserves.

At the end of FY 2011–12, India had total reserves of 1330 billion cubic metres (bcm) of

natural gas and 760 million metric tonnes (mt) of crude oil.

Diesel & Petrol

Diesel is the country’s most consumed fuel, accounting for almost 45 per cent of the total

demand for petroleum products. Since 2003–04, the demand for the transportation fuel has

been increasing at a rate of 6–8 per cent.

About 62 per cent of petrol in the Indian market is consumed by two-wheelers, 27 per cent

by cars, and 6 per cent by three-wheelers. The rest are consumed for other purposes such

as operating generators, and by people in rural areas who need the fuel to run their

livelihood, according to a survey conducted by global information and measurement

company, Nielsen.

Gas

India's natural gas output was 3.01 bcm in July 2013.

India's natural gas output will increase by 67 per cent in the next three years owing

to higher production from several blocks, especially Reliance Industries-operated KG-

D6, according to the country’s Oil Minister, Mr M VeerappaMoily.

1.2 Need of the study

• Financial analysis is a powerful mechanism which helps in ascertaining the strengths

and weakness in the operation and financial position of an company.

• According to Myers, Financial analysis is defined as “Financial statement analysis is

largely a study of the relationship among the various financial factors in a business as

disclosed by a single set statement and a study of the trend of these factors as shows

in series of statement”.

• “Financial analysis is the process of identifying the financial strengths and weakness

of the firm by properly establishing relationship between the items of the balance

sheet and the profit and loss accounts”.

• A company's financial position tells about its general well-being, and the study of it is

essential for any serious investor wanting to understand and value a company in the

appropriate manner.

• The study aims at assessing the financial health of the business.

• It helps in improvement of the business and will help in future decision making

1.3 Scope of the study

The scope of the study is to find out financial performance of the Indian Oil Corporation

Limited. A sincere attempt has been made to include all the aspect relating to the study. For

this purpose analysis of financial performance of the company has done from the last four

years published financial statement and all the aspects should be included in the report.

Financial Performance analysis can be used for chalking out the budget and for planning

purposes. And it‟s provide a peek into the results and are based on historical facts and figures.

It is calculated by the analyzing the previous records of the company. It is particularly useful

for the investors and shareholders who invest their money into a company after going through

the economic and financial position.

1.4 Objectives of the study

• To study the financial performance of Indian Oil Corporation Limited over the period

of four years.

• To study the liquidity, solvency and profitability position of Indian Oil Corporation

Limited.

• To establish a relationship between profitability and size of IOCL.

• To assess the financial soundness of the company.

• To examine the overall performance of the company.

• To suggest ways and means to improve the present condition.

2.1.: Indian Oil Corporation Limited

Indian Oil Corporation Ltd. (Indian Oil) was formed in 1964 through the merger of Indian Oil

Company Ltd. (Estd. 1959) and Indian Refineries Ltd. (Estd. 1958).

Indian Oil Corporation Ltd. (IndianOil) is India's largest commercial enterprise, with a sales

turnover of Rs. 4,14,909crore (US $ 76200 million) and profits of Rs. 5,005 crore (US $ 919 million)

for the year 2012-13. With a net revenue of Rs. 466937.49 crore, Indian Oil has maintained its

position as the country’s largest company according to the list of 500 Indian companies released

by Financial Express. With market capitalisation of Rs. 68334.65 crore and operating profit of

13812.55 crore, Indian Oil stands way ahead of its competitors. Indian Oil had topped the ranks in

previous years listings too. It is also the 18th largest petroleum company in the world. It is the

world's 83rd largest corporation, according to the Fortune Global 500 list, and the largest public

corporation in India when ranked by revenue.Indian Oil and its subsidiaries account for 46.9%

petroleum products market share in the industry, 31% share in national refining capacity and

67% downstream sector pipelines capacity.

At 88th positionin the Global Fortune 500 list of the world’s biggest corporations, itcontinued to

be the highest ranking company from India. Net Profitrose to ` 5005 crore, registering a growth of

26.6 percent over theprevious year. Refineries exceeded 100 percent capacity utilizationfor sixth

consecutive year in a row,improved distillate yield to a record78.1 percent and achieved the

bestlevels of energy efficiency so farby recording the lowest MBN of56.3 during the year.

Domesticproduct sales scaled up to a recordlevel of 68.76 MMT.

IndianOil and its subsidiaries own and operate 10 of India’s 22 refineries and its cross-country

network of over 11,000 kms of crude oil, product and gas pipelines is the largest in the country,

meeting the vital energy needs of consumers in an efficient and environment-friendly manner.

LOCATION OF IOCL IN INDIA

The current Refining capacity stands at 55.01 million ton per annum.

Yet another refinery is being set up on the East Coast at Paradip (Orissa). The outlay includes

provision for Expansion of Barauni Refinery, Quality improvement for HSD at Haldia, Gujarat,

Mathura, Grass Root Refinery in Eastern Sector, Residue Up gradation at Gujarat, and

Implementation of Lube Quality improvement at Haldia etc.The company is mainly controlled

by the Government of India which owns approx.. 79% shares in the company. It is one of the

Maharatna status companies of India apart from Coal India Limited, NTPC Limited, Oil and

Natural Gas Corporation, Steel Authority of Indian Limited, Bharat Heavy Electricals Limited

and Gas Authority of India Limited.

Indian Oil Corporation Limited operates a network of 11,214 km long crude oil, petroleum

product and gas pipelines with a capacity of 77.258 million metric tonnes per annum of oil

and 10 million metric standard cubic meter per day of gas. Cross-country pipelines are

globally recognized as the safest, cost-effective, energy-efficient and environment friendly

mode for transportation of crude oil and petroleum products. Indian Oil has one of the

largest petroleum marketing and distribution networks in Asia with over 35,000 marketing

points

Indian Oil’s countrywide network of over 22,000 sales points (as on 1st April, 2004) is backed

for supplies by its extensive, well spread out marketing infrastructure comprising 167 bulk

storage terminals, installations and depots, 94 aviation fuelling stations and 87 LPG bottling

plants. Its subsidiary, IBP Co. Ltd. is a stand-alone marketing company with a nationwide

network of over 3,000 retail sales points.

2.2.: GUWAHATI REFINERY (NOONMATI)

Guwahati Refinery is one of the largest production based organization in the entire

Northeast having more than 900 employees. Guwahati Refinery, the first public sector

refinery of the country, was built with Romanian collaboration and was inaugurated by the

first Prime Minister of India, Pandit Jawaharlal Nehru, on 1st January 1962.

Indian Oil commissioned India's first product pipeline, the Guwahati - Siliguri pipeline, in

1965. This 435-Km pipeline connecting Guwahati Refinery to different installations was

designed to carry about 0.818 MMT of oil per year. As on 1st April 2003 Indian Oil operates

the country's largest network of 7170 km of crude and product pipeline with a total capacity

of 52.75 million metric tons per annum.

From a small beginning with a sale of 0.032 million kiloliters, Indian Oil achieved sales of 10

million kiloliters with a turnover of Rs. 635 crore and profit Rs. 22.5 crore by the late 60's.

From then on, the company has grown from strength to strength and presently the

company sold 46.46 million tons of petroleum products in the domestic market during the

financial year 2003.

Guwahati Refinery is amongst those Indian Refineries who have been rewarded with ISO-

9001 certification of International Quality Standards as well as ISO-14001, for Environment

Management System and Occupational Health and Safety Management System (OSHMS)

which is also a stringent International Standard which very few Indian Companies have

achieved till date. M/s DNV has certified Guwahati Refinery with International Safety Rating

System (ISRS) level-6 certification. These achievements show the deep commitment of

Guwahati Refinery to Quality, Safety and Environmental Management System.

CHAPTER 3: RESEARCH METHODOLOGY

3.1: RESEARCH DESIGN

A research design is the specification of method and procedure for accruing the information

needed. It is overall operational pattern of frame work of project that stipulates what

information is to be collected for source by the procedures.

Analytical Research design is appropriate for this study.

3.2: DATA SOURCE AND COLLECTION

This research is based on secondary data. This means the data are already available, i.e. the

data which have been already collected and analyzed by someone else.

Secondary data are used for the study of ratio analysis of this company and also its competitors. To

collect the data, company annual report, internet websites has been used.

3.3; DATA REPRESENTATION:

MS-Excel and SPSS. (Amount entered in the tables all are Rupees in Millions, except

mentioned data)

3.3.1; TOOLS OF THE STUDY:

Since the project work is done in the area of finance, most of the applied are tools of financial

analysis. Statistical tools such as regression, trend line graphs and charts are also used for

analysis. The tools of financial analysis such as,

Dupont analysis

Motaal‟s liquidity test

Altman – Z score test

Ratio analysis

Trend analysis

CHAPTER-4

DATA ANALYSIS & INTERPRETATIONS

DATA ANALYSIS & INTERPRETATIONS

4.1 Dupont Analysis

• The name comes from the Dupont Corporation, U.S. That started using this formula

in the 1920s.

• DuPont analysis is an expression which breaks ROE (Return On Equity) into three

parts.

• Return on Equity = Net Profit Margin x Asset Turnover x Financial

Leverage.

• The DuPont system for financial analysis is a means to fairly quickly and easily assess

where the business strengths and weaknesses potentially lie and thus where

management time may optimally be spent. It is a fairly straight-forward and

systematic means to drill back into the financial numbers to determine the source or

lack thereof for financial performance.

• The DuPont system has disadvantages as does any financial analysis system.

However, its advantage beyond simplicity of use is that it takes into account the major

levers of firm profitability – efficiency, asset use, and debt leverage.

ROA and ROE ratio

The return on assets (ROA) ratio developed by DuPont for its own use is now

used by many firms to evaluate how effectively assets are used. It measures the

combined effects of profit margins and asset turnover.

The return on equity (ROE) ratio is a measure of the rate of return to

stockholders. Decomposing the ROE into various factors influencing company

performance is often called the Du Pont system.

Figure: 4.1 – Dupont System

Year Net Income Sales Asset Equity

2010-11 10113.98 309797.02 184601.00 57575.21

2011-12 3995.32 408924.03 219827.22 60373.30

2012-13 4449.01 461779.51 241724.98 63035.97

2013-14 7085.59 488344.93 266678.62 67913.02

Table.4.2 - Dupont three factor calculation.

Year Net Margin Asset Turnover Financial Leverage

2010-11 0.03 1.68 3.21

2011-12 0.01 1.86 3.64

2012-13 0.01 1.91 3.83

2013-14 0.01 1.83 3.93

Figure: 4.2 – Dupont three factor chart

0.03

1.68

3.21

0.01

1.86

3.64

0.01

1.91

3.83

0.01

1.83

3.93

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Net Margin Asset Turnover Financial Leverage

2010-11

2011-12

2012-13

2013-14

Table: 4.3 - Return on equity

Figure: 4.3 – Return on equity chart

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

2010-11 2011-12 2012-13 2013-14

ROE

ROE

Year ROE

2010-11 0.18

2011-12 0.07

2012-13 0.07

2013-14 0.10

Figure: 4.4 – 4 years trend line for Dupont system

Interpretation:

If a company's ROE goes up due to an increase in the net profit margin or

asset turnover, this is a very positive sign for the company.

However, if the equity multiplier is the source of the rise, and the company

was already appropriately leveraged, this is simply making things more risky.

If the company is getting over-leveraged, the stock might deserve more of a

discount despite the rise in ROE.

The company could be under-leveraged as well. In this case it could be

positive and show that the company is managing itself better.

To find the highly influencing factor from those three factor like (i.e.) Net

income ratio, Asset turnover ratio and Financial leverage ratio.

By keeping Return on Equity (ROE) as the dependent variable and other three

factors are independent variables.

From the above table we can find that financial leverage of the company was

highly influencing the Return on Equity (ROE) (significant level is 0.011)

when compared to other two factors Net income and Asset turnover both are

reached more than 0.5 in the significant level. So,IOCL‟s ROE is highly

influenced by its financial leverage.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2010-11 2011-12 2012-13 2013-14

Net Margin Asset Turnover Financial Leverage ROE

4.2 Motaal’s Liquidity Test

• The liquidity position of a company is largely affected by the composition of working

capital in as much as any considerable shifts from the relatively more current assets to

the relatively less current assets and vice versa will materially affect a company‟s

ability to pay its current debts promptly.

• Therefore, to determine the liquidity position of the company under this study is more

precise.

• It contains four constrains

I. Inventory ÷ Current Asset × %

II. Debtors ÷ Current Asset × %

III. Cash & Bank ÷ Current Asset × %

IV. (Loans & Advances + Other Asset) ÷ Current Asset × %

Table: 4.5 – Motaal’s liquidity test (Rank calculation)

Year (I) (II) (III) (IV)

Rank for (I)

Rank for (II)

Rank for (III)

Rank for (IV)Total Rank

Ultimate Rank

2010-11 41.16 33.21 10.21 15.23 4 3 1 2 10 3 2011-12 34.31 44.99 3.46 17.19 3 2 2 1 8 1 2012-13 34.36 47.36 3.44 14.72 2 4 3 4 13 4 2013-14 31.94 50.94 2.39 14.67 1 1 4 3 9 2

Interpretation:

In this Test we can observed that the company under study registered the most sound

liquidity position in the year 2011-12, This yearly ranking indicates that there is no any

moderate improvement in the liquidity performance of the company.

4.3 Altman – Z score Test

Altman Z-Score is a mathematic (quantitative balance-sheet method) model used to

evaluate the company‟s probability of bankruptcy in the next two years. This model was

created combining five different financial ratios, calculated using the accounting data of those

companies that had already gone bankrupt in the past. This model does not calculate the exact

probability of a company‟s bankruptcy. It is more of a statistics – based model, developed in

1968, but is still the most widely used one. Data needed to calculate this ratio is collected

from the balance sheet, income statement and stock market bulletin, and the cash flow

statement.

There are 5 variables:

X1 = (Working Capital/Total Assets).

X2 = (Retained Earnings/Total Assets).

X3 = (EBIT/Total Assets).

X4 = (Market Value of Equity/Total Liabilities).

X5 = (Net Sales/Total Assets).

For Public Companies, the Model is calculated as follows:

Z = 1.2*X1 + 1.4*X2 + 3.3*X3 + 0.6*X4 + 1.0*X5.

Altman Z-Score gives as follows:

Z-SCORE ABOVE 3.0 –The Company is considered „Safe‟ based on the financial

figures only.

Z-SCORE BETWEEN 2.7 and 2.99 – „On Alert‟. This zone is an area where one

should „Exercise Caution‟.

Z-SCORE BETWEEN 1.8 and 2.7 – Good chance of the company going bankrupt

within 2 years of operations from the date of financial figures given.

Z-SCORE BELOW 1.80- Probability of Financial Catastrophe is Very High.

If the Altman Z-Score is close to or below 3, then it would be as well to do some

serious due diligence on the company in question before even considering investing.

In overall Altman Z-score test was the very useful tool to find the whether the

company have the chance of getting bankrupt.

Table: 4.6 – Data required for Altman Z-score test

Year Working capital

Total Assets

Retained Earnings EBIT

Market value of Equity Sales

Total Liabilities

2010-11 -889.12

184601.89

57575.21

10113.98

2427.95

488344.93

184601.89

2011-12 2230.99

219827.22

60373.30

11703.17

2427.95

461779.51

184601.89

2012-13

2950.75

241724.98

63035.97

4501.09

2427.95

412111.16

184601.8

2013-14

27.71

266678.62

67913.02

8315.02

2427.95

313244.71

184601.89

Table: 4.7 – Altman Z-score calculation

Year X1 X2 X3 X4 X5 Z

2010-11 0.00 0.31 0.05 0.01 2.65 3.26

2011-12 0.01 0.27 0.05 0.01 2.10 2.66

2012-13 0.01 0.26 0.02 0.01 1.70 2.15

2013-14 0.00 0.25 0.03 0.01 1.17 1.63

Figure: 4.5 – Altman Z-score Chart

Interpretation:

The above shows that in past four years the company never faced the danger zone like

(chance of the company going bankrupt within 2 years of operations).

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2010-11 2011-12 2012-13 2013-14

Z

Z

4.4 Ratio Analysis

4.4.1 Short - Term Solvency

1. Current Ratio

The simplest measure of a firm‟s ability to raise fund to meet short term

obligation is the current ratio. Current ratio is the ratio of the firm‟s total current

assets to its current liabilities. Apparently the higher the current ratio shows the

greater the short term solvency. A low ratio an indication that a firm may not be able

to pay its future bills on time.

(Current Ratio = Current Assets ÷ Current Liabilities)

Table: 4.8 – Current ratio calculation

Year Current Asset Current Liabilities Ratios

2010-11 121903.29 131923.05 0.92

2011-12 125252.07 123021.46 1.02

2012-13 134438.45 130408.06 1.03

2013-14 141165.96 141138.25 1.00

Figure: 4.6 – Current ratio chart

0.85

0.90

0.95

1.00

1.05

2010-11 2011-12 2012-13 2013-14

Current Ratio

Current Ratio

Interpretation:

. The current ratio is an indication of a firm's market liquidity and ability to meet creditor's

demands. Acceptable current ratios vary from industry to industry. If a company's current

assets are in the range of 2:1, then it is generally considered to have good short-term

financial strength. If current liabilities exceed current assets (the current ratio is below 1),

then the company may have problems meeting its short-term obligations. If the current

ratio is too high, then the company may not be efficiently using its current assets.

As a conventional rule a current ratio of 2 to 1 or more is considered satisfactory. This rule is

based on the logic that in a worse situation, even if the value of current assets becomes half, the

firm will be able to meet its obligation. However an arbitrary standard of 2 to 1 should not be blindly

followed. Firms with less than 2 to 1 current ratio may be doing well, while firms with 2 to 1 or even

higher current ratios may be struggling to meet their obligations. This is because current ratio is a

measure of quantity and not quality.

2. Liquid Ratio

Liquidity ratio, expresses a company's ability to repay short-term creditors out

of its total cash. The liquidity ratio is the result of dividing the total cash by short-term

borrowings. It shows the number of times short-term liabilities are covered by cash. If

the value is greater than 1.00, it means fully covered.

(Liquid Ratio = Liquid Assets ÷ Current Liabilities)

Table: 4.9 – Liquid ratio calculation

Year Liquid Asset Current Liabilities Ratios

2010-11 57092.23

131923.05 0.43

2011-12 61401.03

123021.46 0.50

2012-13 67834.15

130408.06 0.52

2013-14 72093.48

141138.25 0.51

Figure: 4.7 – Liquid ratio chart

Interpretation:

All current assets are not equally liquid. While cash is readily available to make payments to

suppliers and debtors can quickly convert in to cash, inventories are two steps away from

conversion into cash (sale & collection). Thus a larger current ratio by itself is not a

satisfactory measure of liquidity when inventories constitute a major part of the current

assets. Therefore the quick ratio, or acid test ratio, is computed as a supplement to the

current ratio. The ratio relates highly liquid current assets, usually current assets less

inventories, to current liabilities. A general rule of thumb states that the ratio should be 1 to

1 (or 1:1 or 1/1)

Liquid Ratio = {Current Assets-(Inventories + Prepaid expenses)} / {Current Liabilities –Bank

Overdraft}

Generally, a quick ratio of 1to 1 is considered to represent a satisfactory financial condition.

However it should be remembered that all debtors may not be liquid and all the inventories

are not absolutely non- liquid. Thus a company with a high value of quick ratio can suffer

from the shortage of funds if it has slow paying, doubtful and long-duration outstanding

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2010-11 2011-12 2012-13 2013-14

Liquid Ratio

Liquid Ratio

debtors. On the other hand, a company with a low value of quick ratio may really be

prospering and paying its current obligation in time if it has been turning over its inventories

effectively.

3. CASH RATIO/ ABSOLUTE LIQUID RATIO

CASH RATIO = (CASH + MARKETABLE SECURITIES)/CURRENT LIABILITIES

Table: 4.10 – Cash ratio calculation

Year C & B balance Current Liabilities Ratios

2010-11 839.21 131923.05 0.01

2011-12 821.95 123021.46 0.01

2012-13 1219.80 130408.06 0.01

2013-14 3704.52 141138.25 0.03

Figure: 4.8 – Liquid ratio chart.

Interpretation:

Since cash is the most liquid asset, a financial analyst may examine cash ratio and its

equivalent to current liabilities. Trade investment or marketable securities are equivalent of

cash; therefore, they may be included in the computation of cash ratio.Cash Ratio shows the

extent to which cash and marketable securities are able to meet the current liabilities. There

0.00

0.01

0.01

0.02

0.02

0.03

0.03

0.04

2010-11 2011-12 2012-13 2013-14

Absolute Ratio

Absolute Ratio

is nothing to be worried about the lack of cash if the company has reserve borrowing power.

In India, firms have credit limits sanctioned from banks, and can easily draw cash.

4.4.2 Long - Term Solvency

1. Debt Equity Ratio

The debt to equity ratio (also called the risk ratio or leverage ratio) provides a

quick tool to financial analysts and prospective investors for determining the amount

of financial leverage a company is using, and thus its exposure to interest rate

increases or insolvency. Knowing how to analyze the debt to equity ratio can help you

assess a company's financial health before investing.

(Debt Equity Ratio = Debt ÷ Equity)

Table: 4.11 – Debt equity ratio calculation

Year Debt Equity Ratios

2010-11 32128.83 57710.44 0.55

2011-12 35031.92 60373.30 0.58

2012-13 42993.94 63037.95 0.68

2013-14 56436.79 67913.02 0.83

Figure: 4.9 – Debt equity ratio chart

Interpretation:

Since cash is the most liquid asset, a financial analyst may examine cash ratio and its

equivalent to current liabilities. Trade investment or marketable securities are equivalent of

cash; therefore, they may be included in the computation of cash ratio.Cash Ratio shows the

0.00

0.20

0.40

0.60

0.80

1.00

2010-11 2011-12 2012-13 2013-14

Ряд1

extent to which cash and marketable securities are able to meet the current liabilities. There

is nothing to be worried about the lack of cash if the company has reserve borrowing power.

In India, firms have credit limits sanctioned from banks, and can easily draw cash.

1.Proprietary Ratio

Proprietary ratio (also known as Equity Ratio or Net worth to total assets or shareholder

equity to total equity). Establishes relationship between proprietor's funds to total resources

of the unit. Where proprietor's funds refer to Equity share capital and Reserves, surpluses and

Total resources refer to total assets.

(Proprietary Ratio = Proprietor's Fund ÷ Total Asset)

Table: 4.11 – Proprietary ratio calculation

Year PF Total Asset Ratios

2010-11 60092.45 197489.34 0.30

2011-12 60373.30 219827.22 0.27

2012-13 63037.95 241724.98 0.26

2013-14 67913.02 266678.62 0.25

Figure: 4.9 – Proprietary ratio chart

0.00

0.05

0.10

0.15

0.20

0.25

0.30

2010-11 2011-12 2012-13 2013-14

Proprietory Ratio

Interpretation:

This ratio shows that how the company face very low level of Net worth in the

financial year 2013-14 And overall proprietary ration level is unbalanced when compared to

normal norms.

4.4.2 Profitability

1. Net Profit Ratio

The net profit percentage is the ratio of after-tax profits to net sales. It reveals the remaining

profit after all costs of production, administration, and financing have been deducted from

sales, and income taxes recognized. It is also used to compare the results of a business with

its competitors.

(Net Profit Ratio = Net Profit ÷ Sales × 100)

Table: 4.13 – Net profit ratio calculation

Year Net Profit Sales

Ratios - %

2010-11 2971.56 433871.39 0.68

2011-12 4173.23 408923.00 1.02

2012-13 3627.30 461779.51 0.79

2013-14 6966.58 488344.94 1.43

Figure: 4.11 – Net profit ratio chart

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2010-11 2011-12 2012-13 2013-14

Net Profit Ratio

Net Profit Ratio

Interpretation:

Net Profit Ratio establishes a relationship between Net Profit (After taxes) and Sales. This

ratio is the overall measure of firm’s profitability. Thus

Net Profit Ratio= Net Profit/Net Sales*100

This ratio also indicates the firm’s capacity to face adverse economic condition such as price

competition, low demand etc. Obviously, higher the ratio the better is the profitability. But

while interpreting the ratio, it should be kept in mind that the performances of profits must

also be seen in relation to investment of the firm and not only in relation to sales.

2. Net Operating Profit Ratio

Net Operating Profit ratio is influenced by the methods of financing you utilize. Notice that

this ratio employs earnings before interest and taxes, not earnings after taxes. Profits are

taken after interest is paid to creditors. A fallacy of omission occurs when creditors support

total assets. It is used to find how the company earn the profit in their overall operations.

(Net Operating Profit Ratio = Net Operating Profit ÷ Sales × 100)

Table: 4.14 – Net operating profit ratio calculation

Year Net Operating Profit Sales Ratios - %

2010-11 6301.34 433871.39 1.45

2011-12 4914.18 408923.00 1.20

2012-13 4501.09 461779.51 0.97

2013-14 8315.02 488344.93 1.70

Figure: 4.11 - Net operating profit ratio chart

0.00

0.50

1.00

1.50

2.00

2010-11 2011-12 2012-13 2013-14

Net Operating Profit Ratio

Net Operating Profit Ratio

Interpretation:

This ratio clearly shows that the company made average on operating expenditure in

last three years. And Net Operating Profit Ratio is fluctuating in past three years.

3. Return on Capital Employed

The return on capital employed (ROCE) ratio, expressed as a percentage,

complements the return on equity (ROE) ratio by adding a company's debt liabilities,

or funded debt, to equity to reflect a company's total "capital employed". This

measure narrows the focus to gain a better understanding of a company's ability to

generate returns from its available capital base.

(Return on Capital Employed = EBIT ÷ Capital Employed × 100

Table: 4.15 – Return on capital employed calculation

Year EBIT Capital Employed

Return on Capital Employed

2010-11 10113.98 23496.78 43.04

2011-12 11703.17 20738.35 56.43

2012-13 4501.09 27215.46 16.54

2013-14 8315.02 38293.11 21.71

Figure: 4.12 – Return on capital employed chart

0.00

10.00

20.00

30.00

40.00

50.00

60.00

2010-11 2011-12 2012-13 2013-14

Return on capital employed

Return on capital employed

Interpretation:

Here the chart shows that how the returns came for capital employed incurred in each

year of the period of the study. It shows clearly in 2012-13 the return on capital employed

reached to lowest in that year. After that the return is fluctuating.

4. Return on Total Asset

Since income is derived from assets in use through the year, including new plant or

machinery, the value used in the calculation is an average. Return on assets, or ROA, tests

management's ability to earn a fair return on assets. The calculation of this ratio is as follows:

(Return on Total Asset = EBIT÷ Total Asset × 100)

Table: 4.16 – Return on total asset calculation

Year EBIT Asset

Return on Total Asset

2010-11 10113.98 184601.89 5.48

2011-12 11703.38 219827.22 5.32

2012-13 4501.09 241724.98 1.86

2013-14 8315.02 266678.62 3.12

Figure: 4.13 – Return on total asset chart

Interpretation:

Here the IOCL gets their returns on total asset in fully fluctuating level only.

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2010-11 2011-12 2012-13 2013-14

Return on Total Assets

Return on Total Assets

4.4.3 Turnover

1. Stock Turnover Ratio

This next metric tells the analyst how well a company manages inventory. Once again, this

measure takes information from both the income statement and balance sheet. Typically,

higher values of inventory turnover are a positive sign.

(Stock Turnover Ratio = Cost of Goods sold ÷ Average stock)

Table: 4.17 – Stock turnover ratio calculation

Year

Cost of Goods sold Avg. Stock Stock turnover

ratio

2010-11 303059.85 88171.59 3.44

2011-12 400678.27 91027.45 4.40

2012-13 460790.06 97152.17 4.74

2013-14 483472.29 102774.00 4.70

Figure: 4.14 – Stock turnover ratio chart

Interpretation:

It is observed from the chart that the stock turnover ratio shows lies 1 time throughout the

four years period of study. Hence IOCL has good inventory turnover ratio.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2010-11 2011-12 2012-13 2013-14

Stock Turnover Ratio

Stock Turnover Ratio

2. Receivable Turnover Ratio

The convenience of credit, and relatively attractive repayment terms, results in the vast

majority of revenues starting out as accounts receivable. This brings us to the next measure

of efficiency: accounts receivable turnover. This measure tells the analyst how effective a

company is at managing the credit they're extending to customers.

(Receivable Turnover Ratio = Sales ÷ Trade Receivables)

Table: 4.18 – Receivables turnover ratio calculation

Year

Sales Trade Receivables Receivable

turnover ratio

2010-11 488344.93 7684.62 63.55

2011-12 461779.51 11551.80 39.97

2012-13 412111.16 12502.05 32.96

2013-14 313244.71 12551.72 24.96

Figure: 4.15 – Receivables turnover ratio chart

Interpretation:

Here the turnover ratio shows how the receivables is involved in total turnover. Form the

2010-11 the times of turnover lies high and gradually decreasing. IOCL must concentrate

deeply on it.

0.00

10.00

20.00

30.00

40.00

50.00

60.00

2010-112011-12

2012-132013-14

Receivable turnover ratio

Receivable turnover ratio

3. Fixed Asset Turnover Ratio

This ratio is a rough measure of the productivity of a company's fixed assets (property, plant

and equipment or PP&E) with respect to generating sales. For most companies, their

investment in fixed assets represents the single largest component of their total assets. This

annual turnover ratio is designed to reflect a company's efficiency in managing these

significant assets.

(Fixed Asset Turnover Ratio = Sales ÷ Fixed Asset)

Table: 4.19 – Fixed asset turnover ratio calculation

Year

Sales Fixed asset Fixed Asset

turnover ratio

2010-11 488344.93 73524.00 6.64

2011-12 461779.51 80030.56 5.77

2012-13 412111.16 93926.88 4.39

2013-14 313244.71 110527.46 2.83

Figure: 4.16 - Fixed asset turnover ratio chart

Interpretation:

From the Chart it is known that the Fixed Asset turnover Ratio of IOCL is fluctuating for past

Four years. Generally higher the total assets turnover ratio betters the profit being. So total

assets turnover ratio of IOCL is satisfied.

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1.00

2.00

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4.00

5.00

6.00

7.00

12

34

5

Year

Fixed Assets turnover ratio

4. Working Capital Turnover Ratio

The Working Capital Turnover Ratio is used to measure the efficiency of the firm. This also

indicates whether or not working capital has been effectively utilized in making sales. It

measures the efficiency in working capital management. In case company can achieve higher

volume of sales with relatively small amount of working capital. It is an indication of the

operating efficiency of the company.

(Working Capital Turnover Ratio = Sales ÷ Working Capital)

Table: 4.20 – Working capital turnover ratio calculation

Year

Sales Working Capital Working Capital

turnover ratio

2010-11 488344.93 -889.82 -548.81

2011-12 461779.51 2230.99 206.98

2012-13 412111.16 2950.75 139.66

2013-14 313244.71 27.71 11304.39

Figure: 4.17 - Working capital turnover ratio chart

Interpretation:

Working capital turnover indicates the efficiency of the firm in utilizing the working capital

in the business. It is observed from the table that the working capital turnover ratio of IOCL

show the negative value on 2010-11 and sudden increment in the 2013-14. It shows that the

company earns sufficient returns using working capital increases.

-2000.00

0.00

2000.00

4000.00

6000.00

8000.00

10000.00

12000.00

2010-11 2011-12 2012-13 2013-14

Working Capital turnover ratio

Working Capital turnover ratio

4.5 Trend Analysis

For five years (Trend %'s when 2010-11 as base year)

Details 2010-11 2010-11 2011-12 2012-13 2013-14 EQUITY AND LIABILITIES Issued capital 100.0 2512.6 2512.6 2512.6 Share application money 100.0 Reserves and surplus 100.0 5383.0 5630.4 6083.4 share application money pending allotment 100.0 - - - Minority interest 100.0 - - - 100.0 5123.9 5459.5 5863.2 Non-current liabilities Long-term borrowings 100.0 564.8 764.6 1106.2 Deferred tax liability 100.0 5150.3 5463.2 5570.0 Other non- current liability 100.0 - - - Long-term provisions 100.0 - - - 100.0 744.2 1280.4 1681.3 Current liabilities Short-term borrowings 100.0 3428.7 3775.6 3231.6 Trade payables - 100.0 104.0 121.4 Other current liabilities 100.0 10805.5 6361.3 7750.1 Short-term provisions 100.0 15964.1 23163.8 28182.5 100.0 6613.3 6708.7 7043.4 100.0 3331.5 3696.5 4077.6 ASSETS Fixed assets: Tangible assets 100.0 2621.7 2712.0 2954.8 Intangible assets 100.0 5788.1 5397.0 4731.4 Capital WIP 100.0 5003.9 8787.8 12308.9 Intangible assets under development 100.0 - - - 100.0 2916.5 3420.8 4025.4 Non-current assets Deferred tax assets 100.0 - - - Investments 100.0 3013.1 3780.6 4399.6 Long-term loans and advances 100.0 109.3 118.4 123.4 Other non-current asstes 100.0 100.0 103.4 117.4 100.0 548381.7 413303.2 594650.8 Current assets Inventories 100.0 6823.9 7118.1 7731.0 Trade receivables 100.0 529.2 572.8 575.1 Cash and bank balances 100.0 675.2 1002.0 3043.0 Short-term loans and advances 100.0 6101.5 7299.2 7639.8 Other current assets 100.0 - - - Miscellaneous expenditure (not yet written off) 100.0 100.0 3322.4 3623.2 3722.9 100.0 3331.5 3696.5 4077.6

Figure: 4.18 Trend line for financial highlights

Interpretation:

The above chart and table shows that the company‟s financial highlights are increasing or

vice versa from 2010-11(base year). Cash and Bank balance increase in 2012-13 and

payables is remain same in every years. Reserves & surplus is increase as more than twice

from the base year. In overall the major financial highlights of the company shows increasing

trend only except cash and bank balance.

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2010-11 2011-12 2012-13 2013-14

Pe

rce

nta

ge

Year

R & S

Payables

Investments

Inventories

Receivables

Cash and bank

CHAPTER-5

FINDINGS &SUGGESTIONS

CHAPTER-5

FINDINGS & SUGGESTIONS

5.1; FINDING

The ultimate aim of every business concern is to maximize its profit by enduring efficiency

and controlling costs. The management of Indian Oil Corporation Limited works hard to

attain this objective while to maintain a prestige and goodwill. The prestige and goodwill can

be protected only by maintaining better profitability, sufficient liquidity, and ensuring

solvency. The present study reveals the following aspects in relations to the Indian Oil

Corporation Limited for the last four years form 1st April 2010 to 31

st March 2014.

In three factor of DuPont analysis, financial leverage is in satisfactory level when

compared to other two factor.

According to Motaal‟s Liquidity Test, in this period of the study the liquidity value of

the company was not in correct ranking schedule, it leads to showing that weakness in

liquidity position..

In the test of Altman Z-score, the company‟s chance of going bankrupt within 2 years

is very low in all the four years (period of the study). And it is the Safe based on the

financial figures.

The current ratio of last 4 years in the period of the study, The current ratio of the

firm has shown an upward trend.

The quick ratio of IOCL is the highest in 2013-14; this means that Indian Oil

Corporation Limited is in a better position to pay its short term liabilities.

The cash ratio of IOCL is the lowest in 2010-11, 2011-12, 2012-13 ,This may be due to

collection of receivables too slowly, paying bills too quickly, etc

IOCL has the lowest debt-equity ratio of 0.83 and 0.68 in 2013-14 and 212-13. This

means that IOCL provides more security in meeting its obligation to the creditors.

The inventory turnover ratio of IOCL is lowest in last four years. This is due to the

maintenance of huge amount of stocks, which is required for the seven refineries.

The fixed asset turnover ratio of IOCL is the lowest in 2013-14 as well as in 2012-13.

This means the Company is not utilizing its fixed assets efficiently to generate sales.

All the turnover ratios are showing insufficient level of increasing in overall period of

the study.

The company is having a good amount of free cash flows in most of the years under

study because the cash from operating activities is high.

5.2; SUGGESTIONS

The company must keep on making profit in the forthcoming years, which will also

enhance the share value of the company.

They should increase the value of Net Margin and Asset Turnover for influencing the

high rate of Return on equity.

The company must concentrate on the improvement of Liquidity position by making

balanced liabilities.

The activity ratios tell that company operates efficiently but it needs to accelerate the

process of collection period form debtors. The fixed assets and inventory turnover must

be maintained well in order to achieve efficiency in its operations.

The company can invest in marketable securities to improve its cash ratio.

The company’s working capital has been found to be low. It is advised that the

company should try to reduce its investment and try to make more profit so that the

ratio increases.

The company should try to try to achieve maximum sales with minimum of capital

employed.

Try to increase the Debt equity ratio, by concentrate on controlling Debt issues.

The company must try to control the operating expenses which give unexpected loss.

The company should try to increase the profit before interest and tax so that the

Investments in the firm are attractive as the investors would like to invest only where

the return is higher

The company has shown huge growth in terms of profitability in the year 2012-13 when

compared to recent years. So, it must now make a constant effort to achieve those

heights by its efficient way operating as the investors first see only the profit of the

firm.

The company must increase their research and development process for its own

improvements.

The company must switch over to new technology machines to enhance their

production capability.

.

The company should regularly make use of ratio analysis and measure should be taken

to improve undesirable ratios at least as to the point of industry‟s average.

Operational efficiency should be increased by reducing cost and wastage that improves

operating and management performance. Supply of working capital should be adequate.

5.3: LIMITATIONS OF THE STUDY

The scope of the study is limited to Guwahati Refinery.

Time taken to complete the study is very limited.

The analysis of the analysis of the companies and suggestion totally depends upon

the information shared.

Non-monetary aspects are not considered making the results unreliable.

Different accounting procedures may make results misleading.

In spite of precautions taken there are certain procedural and technical limitations.

Accounting concepts and conventions cause serious limitation to Financial analysis

5.4; CONCLUSION

This project of Performance analysis in the production concern is not merely a work of the

project. But a brief knowledge and experience of that how to analyze the financial

performance of the firm. The study undertaken has brought in to the light of the following

conclusions. According to this project I came to know that from the analysis of financial

statements it is clear that Indian Oil Corporation Ltd have been doing a satisfactory job. But

the firm has certain areas to ponder upon like capital employment and management of

working capital. So the firm should focus on getting of profits in the coming years by taking

care internal as well as external factors. And with regard to resources, the firm is take

utilization of the assets properly.

CHAPTER 6: BIBLIOGRAPHY

1. WEBSITE REFERENCES:

www.moneycontrol.com

www.iocl.com

Annual reports of Indian Oil Corporation limited.

www.cmie.in

http://icsi.edu/webmodules/icsiweb/works/Schdiary/.../38_ratio_analysis.

doc%E2%80%8E

http://www.garph.co.uk/IJARMSS/Aug2012/7.pdf

http://www.accountingformanagement.org

http://academia.edu/

http://www.money-zine.com/

http://www.investopedia.com/

2. BOOKS REFERENCES:

Das K.R, Sinha K.M, Pujari P.K, 1st Edition (2013):Financial Management,

Bipul Kalita 1ST Edition : Financial Analysis Management.

Research Methodology – R. Panneerselvam

Altman Z-score (1968)