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PROJCT RPORT
INDIAN OIL CORPORATION LIMITD (IOCL),
PIPLIN HAD OFFIC (PLHO), NOIDA
A Rport on
Financial Analysis of IOCL and DFR on Proposal for Invstmnt Approval
of Branch Piplin from BKPL to Motihari and Baitalpur
Submittd by: Undr th Guidanc of:
Arpit Vrma Ms. Navln Kaur
A1802012113 Assist. ProfssorMBA-IB(2012-14) Amity Univrsity
AIBS, Noida.
Amity Univrsity, Noida.
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Rport on
Financial Analysis of Indian Oil Corporation Limitd and
DFR on
Proposal for Invstmnt Approval
Of
Branch Piplin
From
Barauni-Kanpur Piplin to Motihari and Baitalpur
for lvraging th transportation tariff
Submittd By: Arpit Vrma
nrollmnt No. : A1802012113
Faculty Guid: Ms. Navln Kaur
Company Guid: CA Gaurav Gupta
A rport submittd in partial fu lfil lmnt of th rquirmnts of MBA-I B Program
of Amity Univrsity, Noida
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Authorization
Th making of this rport has bn authorizd by CA Gaurav Gupta, Snior Accounts Officr
at Piplins Division Had offic, Noida (Indian Oil Corporation Limitd).
I hrby dclar that all th work shown in my projct is tru to my knowldg and has bn
compltd at IOCLs offic. Th rsarch study was conductd ovr a span of 45 days from Jun
2013 to July 2013.
This projct is mant for a partial fulfillmnt of th MBA-IB program at Amity Intrnational
Businss School, Amity Univrsity, Noida.
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Acknowldgmnts
I tak this opportunity to xprss my hartflt thanks to CA Gaurav Gupta, Snior Accounts
Officr at Piplins Division, Had Offic, Noida (IOCL). H has bn th guiding light in th
organization right from first day of my joining. H has always had trust in my abilitis and has
apprciatd th sam. Th projct would not hav bn complt without his immns guidanc
and support.
I would also lik to thankMs Navln Kaur, Assistant Profssor, AIBS, Amity Univrsity ,
Noida, who has bn availabl at all tim to hlp and support m whnvr I ndd during th
cours of my intrnship.
I am xtrmly indbtd to Ms. Dpti Gol , Snior Accounts Officrs at Piplins Division,
Had Offic, Noida (IOCL) and th Tchnical Dpartmnt for providing m with valuabl
inputs that hlpd m in my study.
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TABL OF CONTNTS
Authorization3
Acknowldgmnts..4
xcutiv Summry..5
CHAPTR 1 (Introduction)....9
Introduction about Oil and Gas sctor...10
Company Ovrviw12
Cor Oprations..16
SWOT Analysis of IOCL....23Piplin - An Introduction..29
Introduction to th Rport...41
CHAPTR 2 (Rsarch Mthodology)...45
Objctiv of thstudy.46
Scopof study.....47
Mthodology (Rsarch Dsign and Sourcs of Data collction)...47
Limitations..48
CHAPTR 3 (Litratur Rviw)49
CHAPTR 4 (Findings and Analysis)....54
Projct Proposal...55
Brif dscription of thproposal..55
Financial (Ratio) Analysis of IOCL.57
CasStudy90
CHAPTR 5 (Limitations)....97
CHAPTR 6 (Conclusion and Rcommndations)99
Conclusions...100
Rcommndations..101
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Larning from SIP......102
CHAPTR 7 (Rfrncs and Appndix)103
Appndix103
Rfrncs (Print matrials, lctronic, Scondary).....108
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xcutiv Summary
Th projct proposd is to study th financial ratio analysis of IOCL for last fiv to six yars and
making a comparativ study for it and also studying th financial fasibility of a major capital
intnsiv projct in th Piplins Division of Indian Oil Corporation Limitd. With an aim to
optimiz th transportation tariff, actions hav bn initiatd to put up a branch piplin from
Barauni-Kanpur Piplin to Motihari and Baitalpur, which is dvlopd indignously by th
Companys Rsarch & Dvlopmnt dpartmnt.
Th projct involvd larning th functioning of th Financ dpartmnt in th piplins in
analyzing th financial viability of such proposals by th Tchnical dpartmnt. Th projct is
thn aimd towards dvloping an undrstanding th various guidlins that th company
follows to dtrmin th fasibility of Capital Budgting dcisions and analyzing th financial
ratios. Ths undrstanding formd th basis for conducting th futur study ncssary to go
ahad with th projct. Th first stp in xrcis was to hav a brif ida about th background
and procss dscription of th tchnology, rviwing th nd and justification stablishd by th
tchnical dpartmnt and th consquncs if th projct is not implmntd. Th analysis of
availabl altrnativs to fulfill th sam nd is also vry important. Th currnt throughput of
th 3 products i.. Motor Spirit (MS), Suprior Krosn Oil (SKO) and High Spirit Disl
(HSD) wr compard with thir futur throughputs and dmands.
Th nxt part of th projct involvd idntifying and bifurcating th dtails and basis of th
projct cost, compar th cost with similar projcts and dtrmin th phasing ofxpnditurs.
Finally, th financial analysis of th proposd projct was don to dtrmin its viability and
profitability. This analysis is basically rquird in th piplins to analyz th financial aspcts of
any capital invstmnt projct along with its tchnical fasibility and ratio analysis. It is vry
important for capital intnsiv companis to dtrmin th rturn forvry projct bcaus an
unprofitabl vntur might prov disastrous for th growth and survival of th company.
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Along with th abov mntiond on sit projct, th rport compriss of industry and company
analysis. It focusd on building on an undrstanding of th oil and gas sctor in India, in trms of
siz of th markt, production consumption and othr rlvant information. This is followd by
an introduction to IOCL, its history and progrss, rvnus and profitability analysis and
financial ratio analysis.
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CHAPT
R
1
INTRODUCTION
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Introduction about Oil & Gas sctorThnrgy sctor in India is on of th important conomic drivrs in India. Fulfilling th nd
fornrgy for both domstic and commrcial consumption, th sctor has mrgd as th 4th
largst nrgy consumr in th world, aftr th Unitd Stats, China and Japan. As pr th
Ministry of Ptrolum and natural Gas, oil in India accounts for clos to 30% of th total nrgy
consumd. To satisfy dmand, Indian upstram oil companis hav acquird staks in ovrsas
assts. xisting domstic oil rsrvs and production is insufficint to mt th dmand in India.
Morthan 80% of Indias crud oil dmand was mt through imports as of FY12.conomic
growth witnssd by India, has ld to morconomic activity across stats thus rsulting in high
dmand for oil and gass to continuous ful th growth furthr. mploying mor than 1.3 lakhs
individuals and with a favorabl policy nvironmnt th sctor has mrgd as on of th ky
cor sctors driving thconomy. Th sctor is primarily dominatd by stat ownd firms lik
ONGC and IOCL. Th sctor also acts as a major sourc of tax rvnu gnration for Indias
cntral and stat govrnmnts. Prics of many oil, natural gas and ptrolum products ar
controlld by th cntral govrnmnt. This somtims forcs downstram companis to sll
finishd products at unprofitabl prics. Govrnmnt subsidis partially covr th shortfall, but
this puts a strain on cntral govrnmnt financs and bloats th fiscal dficit. In FY13, th
govrnmnt institutd a slw of rforms gard toward rducing th subsidis, such as limiting
th numbr of subsidizd cylindrs and incrmntal dcontrol of disl prics. Ths movs arxpctd to improv tharnings of industry oprators in coming quartrs.
As pr th BP statistics rport publishd in 2013, India has provd oil rsrvs of about 9.0
billion barrls, with an avrag production of about 826,000 barrls/day. Indian Oil & Gas sctor
has two lvls of activitis.
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1. Upstram Sgmnt: This primarily dals with xploration of crud oil from rsrvs
across rgions. Oil and Natural Gas Corporation (ONGC) is th lading playr in this
sctor, oprating with clos to 75% of th markt shar in trms of crud oil output.
2. Downstram Sgmnt: This sgmnt dals with transportation, rfining and markting of
crud oil. Indian Oil Corporation (IOCL) has mastrd this activity. Oprating ovr
12,163 Km of piplin for crud transportation with a capacity of 1.4 million barrls pr
day, th firm oprats with clos to 75% of th total markt shar in trms of piplins.
Upstream
Major activity is exploration and extraction ofcrude
Major Players are ONGC, OIL and GAIL ONGC accounts for close to 75% of the total oil
output, making it the biggest upstream player
Downstream
Major activity is transportation, refinining andmarketing of oil
Major Players are IOCL, BPCL,HPCL and Essar Oil
IOCL operates a total of more than 10 refineriesacross states
IOCL has approx 12,163 km of Pipeline network
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Company Ovrviw
Indian Oil is Indias biggst commrcial ntrpris and flagship national oil company with
businss intrst comprising thntir hydrocarbon valu chain. It is a lading Indian Corporat
in fortunGlobal 500 listing, rank at th 83rd position by th sals turnovr for th yar 2013.
Indian Oil and its subsidiaris hav a dominant shar in th ptrolum products markt, national
rfining capacity and downstram piplin capacity. It has bn hlping mt Indias nrgy
dmands ovr fiv dcads now with businss vrticals sprad ovr Rfinris, Piplins,
Markting, Rsarch & Dvlopmnt and Businss Dvlopmnt- &P, Ptrochmicals andNatural Gas. It is controlling Indias 10 out of 22 rfinris with a group rfining capacity of
65.7 MMTPA and a cross country ntwork of crud oil, product and gas piplins arching ovr
11,600 km with a capacity of 77 MMTPA as wll as maintains a markting ntwork with 37000
touch points (52%).
With an aim of maintaining its markt ladrship and providing bst quality product and
srvics, Indian Oil is invsting ovr Rs. 47,000 crors in a host of projcts for amplification of
rfining and piplin capacity, product quality up gradation, xpansion of marktinginfrastructurtc. Indian Oil srvics vry nook and cornr of th country, vry hour of th day
with customr sals points supplying by bulk storag in trminals and dpots, aviation ful
stations and LPG bottling plants.
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IOCLs dominanc in downstram Oil sctor:
IndianOil has th largst rfining capacity in India comprising of almost 31% of th
markt shar.
It has th highst Ptrolum products markt shar of 46%.
87% downstram markt shar in crud oil piplins.
Largst providr of piplins for ptrolum products of 50% approximatly.
89% markt shar of bulk consumr pumps.
52% markt shar in LPG dalrship.
54% of total consumr touch points.
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Cor Oprations
Rfining : Indian Oil controls 10 rfinris sprad across th country in Barauni(6.0 MMT),
Guwahati(1 MMT), Digboi(0.65 MMT), Bongaigaon(2.35 MMT), Haldia(7.5 MMT), Panipat(15MMT), Mathura(8 MMT), Koyali(13.7 MMT) along with two subsidiaris in Narimanan(1
MMT) and Chnnai(10.6 MMT). A nw rfinry of IOCL is still undr construction in Paradip
(15 MMT). Th rfinris in th north astrn part of th company bnfits from xcis duty
concssion and has th ability to supply in th North Indian markt at low cost by lvraging
piplin ntwork. Th total rfining industry capacity is 215.066 MMTPA and IndianOil with a
capacity of 65.7 MMTPA and holds 31% of thntir markt. IOCLs shar among thPSUs
stands at 49%. It is th only oil company to hav prsnc in high consumption North Indian
rgion comprising of Uttar Pradsh, Punjab, Haryana, Rajasthan, Himachal Pradsh, Uttaranchal
and Jammu & Kashmir. Th Corporation has bn consistntly maintain a capacity utilization of
100% and abov in th wak of plannd rvamp shutdowns for implmntation of quality
upgradation projcts in all th rfinris.
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Oprating Highlights
Stratgic inland rfinry locations with most ffctiv supply and vacuation systm
through piplins
Highst vr throughput of 55.6 MMT
Lowst vr spcific nrgy consumption at 57 MBN against 59 MBN in FY 2010-11
Highst vr distillat yild of 77.8%
All rfinris aruro III/IV compliant
Piplins: IndianOil owns and oprats Indias largst ntwork of crud and product piplins
gtting closr to th clints with incrasing lngth. With th commissioning of nw piplins th
total ntwork of product, crud and gas is oprating at 10,777 km during th yar. With a lngth
of 4,376 km and a capacity of 40.40 MMTPA compriss of 73% downstram markt shar and
product piplins with a lngth of 6401 km and capacity of 35.36 MMTPA compriss of 50% of
downstram markt shar. It provids low cost crud transportation to all th companys
rfinris. Th highst vr throughput of 75.5 MMT was achivd by IOCLs piplins in FY
12. Also, it achivd th highst vr capacity utilization of 118% for crud oil piplins.
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Th rcntly compltd product piplins ar:
290 km long Chnnai Bangalor product piplin.
265 km long Koyali Ratlam product piplin.
275 km long Panipat Jalandar LPG piplin.
36 km long ATF piplin conncting IOCLs Dvanagonthi trminal to Bngaluru
Intrnational Airport.
95 km long piplin conncting CPCLs Manali rfinry to Mnabakkam AFS.
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Markting- Sals: IOCL has a shar of 52% in th Markting infrastructur with 4 Rgional
offics, 16 Stat offics, 100 Divisional offics (66 rtail and 34 consumrs) and 45 Indan Ara
Offics.Th organization is continuing to lvrag its distributors to maintain ladrship.
Rural Pntration through Markting
FY 2012 mad an imprssiv rcord by commissioning of 731 KSKs during th yar. Also,
9.2% of total IOCs sals (MS & HSD) was rcord which was th highst sinc 4 yars.
Rsarch and Dvlopmnt: Th R&D dpartmnt of IndianOil was stablishd in 1972 and
currntly has 438 scintist and support staff. Th major focus of th dpartmnt mainly now is to
rduc thcarbon footprints of IOCLs procss, products and tchnologis; ndavor to rduc
company.
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Commrcialisation of Tchnologis
INDMAX : For maximisation of LPG & light distillats from rfinry rsidu
Marin Oils : On of six companis to hav dvlopd Original quipmnt
Manufacturr Approvd Marin Tchnology quipmnt
Ndl Cok : On of thr companis in th world that posssss tchnology to
mak high valu ndl cok
Lubricants
154 product formulations dvlopd, 108 commrcialisd, 56 approvals obtaind
from usr industris/OMs
In a first ovrsas businss gain, Mauritius Shipping Corporation adoptd
indignously dvlopd Srvo marin grads
Patnts
Six patnts grantd during th yar
Widning horizons
Nw ptrochmical and polymr labs fully functional
MOU with th dpartmnt of Bio-Tchnology to st up Advancd Bio-nrgy
rsarch cntr
Divrsifid Customr Bas and Product Suit
India
55%USA
22%
Others
23%
Active Patents by
Geography
Lubes
20%
Refinery
47%
Others
33%
Active Patents by division
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Th various divrsification initiativs towards clan nrgy ar:
Wind powr projct:
Commissiond in Kachchh, Gujrat in January 2009 has a capacity of 21 MW( 14 WG of
1.5 MW ach)
Considring furthr invstmnt in Wind powr projcts.
Solar Powr Plant:
IOCL won bid to st up 5 MW Solar PV Powr Plant at Barmr, Rajasthan undr
Jawaharlal Nhru National Solar Mission.
Mor than 3000 solar lantrns sold from rtail outlts, LPG distributors for lighting rural
homs and shops.
Thr solar charging stations installd for poorr villags at pilot basis to cntrally charg
lantrns for rnting to customrs.
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Nuclar Powr:
JV Company incorporatd to st up Nuclar Powr Plants in India.
quity participation (26%) in Rawatbhata, Rajasthan.
Biofuls: nrgy Crop Plantation
Captiv plantation for Jatropha in India.
In Uttar Pradsh plantation undr MNRGS fundd Public- Privat- Panchayat
partnrship modl: 10 ha compltd
Furthr proposd to xtnd plantation to 5000 ha.
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SWOT Analysis of IOCL
STRENGTHS
1. India's largest commercialenterprise with a strong brand name
2. Operates 20 refineries in India
3. Huge distrubtion network through
retailing4. Has over 35,000 employees
5. Loyalty programs like XTRAPOWERFleet Card Program is aimed at LargeFleet Operators
WEAKNESS
1. Legal issues
2. Employee management
3. Bureaucracy
4. Volatility in the crude market &subsidy burden
OPPORTUNITIES
1 . Increasing Preference for Pipelines
2. Widening Horizon
3. Energy Efficient Mode
4. Cost-Effective & CompetitiveProjects
5. Expanding Gas Market
THREAT
1. Diverse Culture
2. Difficult Terrain
3. Harsh Climate
4. High Competition
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SWOT Analysis With Rspct To Markting Division
Strngths:
Indias highst rankd Fortun 500 Company and a markt ladr with 50% shar of
Ptrolum products.
Possss th largst Piplin Ntwork; and thus has a vital comptitivdg in
transportation costs and thus hlps to accss in dficit markts.
IOC controls 10 rfinris, by virtu of which it has a total shar of around 34% of
Indias ovrall rfining capacity.
Thr ar mor than 35600 sal points all ovr India which is 55% of industry.
Thr ar about 5096 distributors of Indan Cooking gas for catring 56 million
housholds.
Raching th doors of bulk customrs: Bulk Consumr Pumps 7,593 (89%).
Strong Brand nam for its products (Forxampl, SRVO which covrs 42% markt
shars, with mor than 450 grads).
xcllnt crdibility and intrnational corporat imag for raising funds.
IOC also acquird managmnt control of th markting company IBP, thrby
strngthning its position in ths activitis.
Thr ar around 229 activ Patnts which includs 125 intrnational patnts.
Th company has alrady ntrd ovrsas markts such as Sri Lanka, Maldivs, and
Oman and is prsntly considring ntring Turky through a JV. Th company is in
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talks with Caliak of Turky to st up an I0 million TPA grassroots rfinry with an
invstmnt of $2 billion and stablish rtail businss. IOC is also wighing th possibility
ofntring Indonsia. IOC has also startd xploring th ovrsas markts for incrasing
its scop of oprations. Its intrsts includ downstram activitis in Sri Lanka, Maldivs,
Oman, and Npal; intrst in th lubs businss in Maldivs, Dubai, Bangladsh, Sri
Lanka, tc; among othrs.
Waknsss:
Th functioning of IOC is gratly influncd by th govrnmnt policy and rgulation.
Th govrnmnt has 82% stak in th company, thus gaining th control of th company.
Thr is always a risk of its proposals bing rjctd as thr is uncrtain political
nvironmnt prvailing in th country.
Th Advrtismnt stratgy of IOCL is not xtrmly ffctiv. For xampl, Xtra
Prmium is th bst ptrol availabl in th markt, but du to lack of ffctiv
advrtismnt, th sal of th product is not in th dsird lvl, whr as Castrol is
known for its clbrity advrtismnt.
vn though IOC controls most rtail outlts it has markt shar of only 33.8% in th
ptrol and 39.6% in disl rgistring an incras of 0.5% and 0.3% rspctivly ovr th
last yar. This is comparativly vry small as compard to its siz, rach and production.This is bcaus of th fact that its rtail outlts ar concntratd mor in smi-urban ara
and rural ara.
Opportunitis:
nhancmnt of th distribution ntwork must b madspcially in th dficit rgions.
Distribution / sal of altrnativ products through xisting rtail ntwork can b chalkd
out.
With gas mrging as an attractiv altrnativ ful du to th twin bnfits of low
pollution and bttrconomics, IOCL has plannd to quickly stablish itslf in th gas
markt also. Th LNG and Hydrogn businss offrs an attractiv nvironmnt for its
futur businss. Gas is stadily growing into th most prfrrd ful among utility
providrs such as powr, frtilizrs and transportation. IOC plans to st up a nationwid
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gas distribution ntwork for srving major Indian citis to markt CNG for automobils
and to import LNG.
IOC signd a MOU with th National Iranian Oil Company (NIOC) for importing 2.5
MMTPA LNG and also for taking part in th LNG midstram projcts in Iran. Th initial
fforts turnd succssful with IOC alrady bcoming th lad supplir of LNG to ssar
Stl and Gujarat Stat Ptrolum Corp. IOC has procurd xxon Mobils rgas from
Qatar for a priod of twnty fiv yars from April 2004 to mt rising dmand. All ths
fforts would stimulat th growth and profitability of th company in th nar trm.
Improvmnt of customr managmnt srvics at th rtail nd (a customr satisfaction
has shown only 65% customr satisfaction lvl).
Thrats:
In th post APM scnario, IOC will fac comptition in th ara of crud / product
import. Consquntly it has affctd th margin of Rs.5000cror which it arns from
trading oprations.
Incras in numbr of playrs, spcialization in lub markting (such as HPCL, BPCL,
and Rlianc).
Introduction of LNG / CNG in som mtro citis (.g., Dlhi) can rduc th dmand of
ptrol or disl in nar futur.
Consumption of marin ful procurd by som major public sctor shipping companis is
showing a dcrasing trnd.
Drgulation of Indian Ptrolum sctor: Th drgulation of th ptrolum sctor in
India during 2002 abolishd th monopoly staks of IOC. Th company is now facing
stiff comptition from svral playrs, striving to gain markt shar. Thrxists a clos
comptition btwn ONGC and IOC in th Indian oil markt. RIL has also mrgd as
an important playr compting in th upstram sctor subsqunt to th drgulation of
th ptrolum sctor.
Dmographic issus ar also posing som srious thrats to IOCL. IOCLs north ast
oprations continu to suffr from crtain constraints.
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SWOT Analysis With Rspct To Rfinris Division
Strngths:
Th rfinris ar dsignd in a flxibl way, which givs ovr 100% fficincy,
comptitiv cost and catrs for varity of nds. About 34% of rfining capacity in th
country is ownd by IOCL.
58% of IOCs rfining capacity is locatd in th Northrn and Wstrn rgions, which ar
high dmand and high growth aras.
Pionr in quality managmnt with its Mathura Rfinry as th 1st in Asia and 3rd in th
world to arn ISO14001 Crtification.
High quality LOBS producd by rfinris contribut to world class lubs.
No financial constraints in modrnizing and improving facilitis for rfinris.
Waknsss:
Oprating cost is comparativly highr than nw rfinris of comptitors (.g. Jamnagar
Rfinry of Rlianc Ptrolum).
Thr is lss flxibility option of handling various typs of crud (both swt & sour)
unlik nw rfinris of comptitors.
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Opportunitis:
Nd for additional rfining capacity to mt rising dmand in ptrolum product.
Installation of piplin infrastructur for dficit rgions and incrasd application of
piplins as a prfrrd mod of transportation for lowr logistics cost as compard to
road / rail transport.
Improvmnt / cration of nw infrastructurstorag, transportation and distribution.
Globalization in rfining, piplin and consultancy.
Thrats:
Th dcontrol in Hydrocarbon sctor is likly to bring in nw playrs spcially th
MNCs, with nw rfining capacity having th flxibility to improvis th product mix
according to th natur of markt dmand.
Growth of mrchant rfining can b a nw sourc of comptition.
Highr Capital nds to modrnizxisting infrastructur.
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PiplinsAn Introduction
Th trm piplin in broadr sns mans a facility usd to transport commoditis from
point of rcipt to th point of dlivry.
Many commoditis ar transportd through piplins.
Crud oil and ptrolum products ar prhaps th most common commoditis transportd
by piplins.
Dvlopmnt of Piplins in India
Most of tharlir rfinris in India wr installd at coastal locations, Thus dpnding
on coastal movmnt of Crud Oil.
Furthr, Th Rfining capacitis bing low, Th products writhr consumd locally
or transportd to th consumption cntrs by Rail or Road.
Aftr 1960, Most of th Rfinris wr installd in Land-Lockd locations and Crud
and Product Piplins wr prompltly laid.
Th First Crud Oil Piplin was laid from DIGBOI Oil filds to DIGBOI Rfinry.
During 1960-63, OIL INDIA LIMITD laid th First Trunk Crud Oil Piplin, 1156
Km long from Naharkatiya and Moran Oil filds to th rfinris at GuwahatiI and
Barauni.
Th First Cross Country Product Piplin was laid during 1962-64 to transport products
from Guwahati Rfinry to Siliguri.
Subsquntly , A numbr of product and Crud Oil Piplins wr laid in th60s, 70s
and 80s, including sub-sa Crud Oil Piplins.
Th country today has about 24,000 Km of major Crud Oil and Product Piplins.
Th Piplins laid during th 60s wr Dsignd, nginrd and Constructd by
Forign Companis. Howvr, Thxposur to this Tchnology nabld indian nginrs
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to gain confidnc, and th Piplins which cam up latr, wr dsignd and constructd
with indignous xprtis.
Th country today has about 24,000 Km of major Crud Oil and Product Piplins.
Piplin Transportation of Liquid Ptrolum : Th Indian Scnario
Indian oil industry has ovr four dcads ofxprinc in transportation of crud oil and
finishd ptrolum products.
Th crud oil piplins transport waxy crud as wll as low sulphur & high sulphur
crud.
Th finishd product piplins transport primarily light and middl distillats, including
aviation turbin ful, in multi-product piplins.
ADVANTAGS OF PL TRANSPORTATION
Cost ffctiv
conomis of scal
Ngligibl transit loss
nrgy fficint
Rliabl
Saf, nvironmnt frindly
WAKNSS IN PIPLIN TRANSPORTATION SYSTM
Capital intnsiv
Viability dpnds on utilization
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Onc laid, it is sunk cost/No altrnat us
Invntory carrying cost
Lss flxibility rgarding batch siz
Intrfac and contamination of product
Door to Door dlivry not possibl
MODS FOR TRANSPORTATION OF PTROLUM PRODUCTSA COMPARISON
Road Rail Piplin
nrgy cost Vry High High Low
Oprating cost Vry High High Low
Pollution High Low Nil
Movmnt congstion High Low Nil
Handling loss High Low Ngligibl
Safty Hazards High Low Ngligibl
Rliability Low Low 100%
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XISTING CRUD OIL & GAS PIPLINS
Crud Oil Piplins
S.
No
Nam of th Piplin Lngth
(KM)
Diamtr
(Inch)
Rfinry Capacity
(MMTPA)
1. SALAYA-MATHURA (WR) 1870 28 / 24 J/M/P 21.6
2. PARADIPHALDIA-
BARAUNI (R)
1312 30/18 H/B/BN 11
3. MUNDRA-PANIPAT (NR) 1194 28 / 22 P 8.4
TOTAL 4376 41.0
Gas Piplins
S.
No
Nam of th Piplin Lngth
(KM)
Diamtr
(Inch)
Rfinry Capacity
(MMSCMD)
1. DADRI-PANIPAT - NR 132 30 P 9.5
PRODUCT PIPLINS
S.
No.
Nam of th Piplin Lngth (KM) Diamtr
(Inch)
Capacity
(MMTPA)
ASTRN RGION
1. GUWAHATI-SILIGURI 435 8 1.4
2. BARAUNI-KANPUR 745 20/12 3.5
3. HALDIA-BARAUNI 525 12 1.25
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4. HALDIA-MOURIGRAM-
RAJBANDH277 12 1.35
WSTRN RGION
5. KOYALI-SANGANR 1056 18/12 4.6
6. KOYALIDAHJ 197 14/12 2.6
7. KOYALI-RATLAM 265 16 2.0
8. KOYALI-AHMDABAD 116 8 1.1
9. VIRAMGAM KANDLA 231 16/22 -
S.
No.
Nam of th Piplin Lngth (KM) Diamtr
(Inch)
Capacity
(MMTPA)
NORTHRN RGION
10. MATHURA-DLHI 147 16 3.7
11. MATHURA-TUNDLA 77 16/8 1.2
12. BIJWASAN-PANIPAT NAPHTHA 111 10 -
13. PANIPAT-AMBALA-JALANDHAR 434 14/12 3.5
14. PANIPAT-BHATINDA 219 14 1.5
15. PANIPAT-RWARI 155 12 1.5
16. PANIPAT-DLHI 182 14 -
17. PANIPAT-JALANDHAR LPG 274 10 0.7
S.
No.
Nam of th Piplin Lngth (KM) Diamtr
(Inch)
Capacity
(MMTPA)
SOUTHRN RGION
18. CHNNAITRICHYMADURAI 683 14/12/10 2.30
19. CHNNAI-BANGALOR 290 14/12 2.45
OTHRS
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20. CHNNAI ATF 95 8 0.18
21. NARIMANAM-NAGAPATTINAM 7 18 0.368
22. BNGALURU ATF 36 8 0.66
23. DIGBOI-TINSUKIA 75 8/6 1.0
TOTAL 6632 36.858
PROJCTS UNDR IMPLMNTATION
S.
No
.
Projcts Dscription App. Cost
(`/ Cror)
Capacity
(MMTP
A)
Lngth
(km)
Dia
(inch)
1. Hook-up of Tikrikalan Trminal
with MJPL
59 - 8 14
2. Paradip- Raipur-Ranchi Piplin 1793 5.0 1065 18/10
3. Intgratd Crud Handling
Facilitis at Paradip
1492 - 70 48
4. Addl Tanks and blnding facility
at Vadinar
267 - - -
5. D-Bottlncking of SMPL 1584 4 767 28/24
6. Kolkata ATF Piplin 45 0.13 28 8
7. Guwahati ATF Piplin 44 0.07 35 8
8. Cauvry Basin Rfinry - Trichy
Piplin
98 0.40 114 8
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9. Paradip-Haldia-Durgapur LPG
Piplin
913 0.85 710 12/10
10. PHBPL Augmntation 586 4.2 64 18
11. Branch Lin from BKPL to
Motihari & Baitalpur
276 - 275 10
12. Last Mil connctivity to NFL
from DPPL
10 - 1.8 10
TOTAL 7167 14.65 3137.80
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GROWTH OF PIPLIN NTWORK
0
2000
4000
6000
8000
1000012000
14000
16000
1964 1975 1985 1995 2000 2005 2013 2015
435
2014
39805423
6364
8951
11600
14278
Length ( KM)
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GROWTH OF PIPLIN CAPACITY
0
10
20
3040
50
60
70
80
90
100
1964 1975 1985 1995 2000 2005 2013 2015
0.48 5.71
23.0728.92
43.72
56.82
77.86
92.51
Capacity(MMT)
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INCOM- Piplins Division
Fright Rcovry. This is a contra itm in Divisional Accounts and is nullifid at
Corporat lvl. Sinc Piplin fright includs an lmnt of profit, th margin is
liminatd for closing stock valuation.
Consultancy Incom/ Training & Dvlopmnt
Sal of Scrap/Wind Powr
Rcovris from mploys/contractors
Unspnt/ Unclaimd Liabilitis writtn back
Intrst on mploy advancs
XPNSS- Piplins Division
Powr & Ful - 30%
Rpairs & Maintnanc - 13%
Chmical Consumption - 2%
stablishmnt Cost - 14%
Dprciation - 28%
Gnral Administration xpnss - 13%
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Introduction to th rport
Background
Financial Ratio Analysis
Ratio Analysis compars on figur in on financial statmnt (say P&L account or Balanc
Sht) with anothr figur in th sam financial statmnt or in anothr financial statmnt of
th company. A ratio is xprssd in th numrator dnominator format. Thus th numrator
and dnominator can b ithr from th P&L account or th Balanc sht of th sam
company.
Hnc, ratio analysis facilitats intra firm comparison. i.. comparison of your companys
prformanc in th currnt yar with your companys prformanc in th prvious yar. It also
facilitats intr firm comparison. i.. comparison of your companys prformanc in th currnt
yar with your comptitors prformanc in th currnt yar. Pr rviw, as this is calld, hlps
you bnchmark your prformanc with your prs. Ratios hlp in ascrtaining th financial
halth of th company and also its futur prospcts. Ths ratios can b classifid undr
various hads to rflct what thy masur. Thr may b a tndncy to work a numbr of ratios.
But w bliv that bing thorough in th computation and intrprtation of a fw ratios (Say
20-25) would b idal, sinc too much of analysis could lad to paralysis.
Capital Budgting Dcisions
Th Capital Invstmnt plays a vry vital rol in th growth and financial halth of any company.
Such invstmnts ar ncssary for continud growth of th organization, updation of
tchnology, rmoval of oprational bottlncks, improvmnt in fficincy and productivity,
nhancmnt of capacitis, fulfillmnt of social objctivs tc. Capital Invstmnt dcisions
would gnrally includ xpansion, acquisition, modrnization and rplacmnt of long trm
assts.
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Dcisions involving Capital Invstmnts rquirs spcial attntion du to th following rasons:
Growth: Invstmnt dcisions ar gnrally long trm and takn for futur bnfits. It
has to bndurd for a longr priod than consquncs of currnt oprating xpnditur.
A wrong dcision can prov disastrous for th growth and survival of th company,
unprofitabl vnturs can hampr to compt succssfully and vn rsult in loosing on
its markt shar.
Risk: Capital invstmnt dcision vn changs th risk complxion of a company. If
adoption of a particular invstmnt incrass th avrag gain of th firm and along with
that also brings in frqunt fluctuations in its arnings, th ovrall risk profil of th
company incrass.
Funding: Long trm commitmnt of funds gnrally involvs larg amount of funds,
which maks it imprativ for th company to tak it dcisions vry carfully and arrang
in advanc th procurmnt of financ intrnally orxtrnally.
Irrvrsibility: Ths dcisions ar gnrally irrvrsibl and th company would incur
havy losss if such assts ar scrappd as th marktability of such invstmnts is vry
lss. Furthr, if th fixd chargs rquird to b incurrd can mak difficult th vry
survival of th company if thr is no commnsurat incom to mt thm.
Complxity: Capital invstmnt dcisions ar an assssmnt of futur bnfits and
difficult to prdict.
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Capital projcts in Indian Oil Corporation Limitd can b broadly dividd into:
As pr rvisd DOA ffctiv from April 9, 2001, all capital invstmnt proposals abov Rs
100 cror rquir boards approval as undr:
Abov Rs. 100 cror : Board
Abov Rs. 50 cror to Rs. 100 cror: Planning and Projct Committ Board
Abov Rs. 10 cror to Rs. 50 cror: Chairman
Upto Rs. 10 cror: Functional Dirctor
Projct costing Rs. 250 cror and abov rquirs approval of Projct valuation Committ.
Core sectorprojects
Refining, marketing, pipelines and R&D
Diversificationprojects
Exploration and Production (E&P)
Globalizationprojects
Core/ non core sector projects overseas
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Financial valuation
Th following two mthods will b considrd to valuat th projct proposal of IOCL:
Intrnal Rat of Rturn (IRR): It is th discounting rat at which th prsnt valu of
cash outflows will b qual to th prsnt valu of cash inflows. In othr words, th
discount rat that yilds a zro Nt Prsnt Valu is known as IRR. Projcts having a IRR
lss than th hurdl rat (cost of capital+ prmium) shall not b considrd commrcially
viabl and shall b justifid on non- commrcial grounds, whrvr applicabl. For
calculation of Rturn on quity Principal Rpaymnt along with intrst outgo shall b
takn into considration.
Nt Prsnt Valu (NPV): Th prsnt valu of a futur sum of mony can b found by
discounting it to th prsnt tim in tim or Yar 0 at th rquird rat of rturn
/discount rat. Rquird rat of rturn shall not b lss than cost of capital. Undr this
mthod, th prsnt valu of ach yars nt cash flow is calculatd, starting from th
Yar 0 till complt projct lif i.. 15 yars. This discounting rat adoptd shall b th
hurdl rat. If th projct has a positiv NPV, th projct is considrd to b
commrcially viabl.
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CHAPTR2
RSARCHMTHODOLOGY
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Objctiv of th Study Th study is conductd with rfrnc to IOCL. Th main objctiv of th study is to
hav an ida of th practical application of Capital Budgting, Capital Structur and Ratio
Analysis whos thortical aspcts ar known.
Th study is conductd with th following objctivs:
To undrstand th various financial implications involvd in th piplins projcts.
To canvas th stps involvd in th tndring procss.
To undrstand th stps involvd in valuating thstimats.
To gain knowldg involvd in th prparation of Dtaild Fasibility Rport (DFR).
To gt quippd with th workabl knowldg of MS xcl
To bridg th gap btwn th thortical aspcts and practical implmntation in
Piplins Division
To undrstand th working of financ dpartmnt
To gt xprinc & xposur for th corporat lif
To comprhnsivly calculat all th financial ratios aftr analysing Balanc sht and
P/L account and intrprt th rsults.
To suggst on th basis of findings, improvmnts in th managmnt of snsitiv factors
and financial ratios.
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Scop of th Study
Study th Augmntation of Barauni-Kanpur Piplin and undrstand th various financial
implications involvd in th piplin projct.
Undrstand th financial fasibility of th projct
Calculat th various Financial Ratios and valuat th financial condition of th
company as a whol.
Mthodology
Typ of Rsarch
Analytical Rsarch, i.., to us facts or information alrady availabl, & analyz ths
to mak a critical valuation (Dtaild Fasibility Rport)
Fundamntal or Basic Rsarch, i.., finding information that has a broad bas of
applications & thus adds to th alrady xisting organizd body of scintific knowldg
(Budgting).
Rsarch Dsign
Th rsarch conductd hr is ofxploratory and Dscriptiv in natur which structurs
and idntifis nw problms. Th objctiv ofxploratory rsarch and dscriptiv rsarch
is to gathr prliminary information.
Sourcs of Data Collction
Primary Data
Th mthod which involvs, collction of data for th givn subjct, is dirctly from th
ral world which is collctd by th rsarchr himslf. Th data wr collctd through:
Discussions among th concrnd xcutivs of th corporat.
Intraction with th ky mploys of th organization.
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Scondary Data
Th data which is collctd by othrs is to b r-usd by th rsarchr. Analysis
prpard from collction of various rquird information from:
Intrnal Rports (Annual),
Prformanc Rport of Indian Oil Corporation-Piplin Division, financial statmnts
of th company (i.. Balanc sht, P&L, Rvnu budgts tc.)
Study of th Dtaild Fasibility Rports (DFR) of othr projcts which hav bn
alrady compltd and th various manuals of th division.
Limitations
Tim constraint: Th duration of th projct limitd th in-dpth undrstanding ofvry
aspct involvd in th Capital Budgting dcision making of th organization
Limitd scop: Th projct was carrid out within th scop of th company. Th
prdtrmind guidlins givn by th corporat offic should b strictly adhrd to. Th
fficacy of th mthods followd is still dbatd in th acadmic arna.
Tchnicality: Th proposals put forward by th tchnical dpartmnt of th Piplins ar
gnrally vry tchnical and taks ffort for non-tchnical background studnts to
intrprt crtain trminologis. Th issu was mainly facd during th bifurcation of coststimats.
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Chaptr -3
LITRATURRVIW
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In th bginning of nintnth cntury ssntial improvmnt in ratio analysis occurrd. In this
priod fw dvlopmnts arndognous. First, larg numbr of ratios was concivd in
comparison to arlir priod of tim. Scond, propr ratio critria wr appard. In this rgard
most famous was currnt ratio critrion. Third, diffrnt analysts undrstand th nd of intr-
firm analysis and for that purpos it flt th nd for rlativ ratio critrion. Dspit ths
dvlopmnts ratio analysis has bn usd for analysis in this priod and thos flt th nd of
using ratio analysis only usd currnt ratio.
.In 1920s, intrst in ratio analysis incrasd dramatically. Many publications on th topic of ratio
analysis publishd during this priod. Diffrnt crdit agncis, trad unions, univrsitis and
individuals sking analyss compild industry data on ratio analysis.
Justin (1924) argud that th mthod of gathring industry data and calculats avrags wr
calld Scintific ratio analysis. Thword scintific in this titl was not ntirly corrct
bcaus no vidnc had bn found that th hypothsis formulation and hypothsis tsting
actually carrid out.
Horrigan (1968) says ratios analysis has com into xistnc sincarly ags and th main
rason of th dvlopmnt of ratio analysis was its us in th analysis of th proprtis of ratios
in 300 B.C. in rcnt tim it is usd as a standard tool for th analysis of financial statmnt. In
nintnth cntury main rasons of using ratio analysis ar powr of financial institutions and
shifting of managmnt to profssional managrs. Ratio analysis usd for two purposs that ar
crdit and managrial. In managrial approach profitability and in crdit approach capacity of
firm to pay dbts is th main point of focus. Gnrally, ratio analysis is usd crdit analysis.
Thr was rapid xpansion of financial knowldg in nintnth cntury and to study this rapidly
xpanding knowldg analyst first compard similar itms thn movd furthr and compard
currnt assts and liabilitis as wll with othr ratios. In that priod currnt ratio was th most
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significant ratio among all othr availabl ratios. To analyz th oprating rsults dupont analysis
is also usd. Th rsult dividd into thr parts and thn compard with othr companis to point
out th problm and strong aras of businss.
Bliss (1923) says basic rlationship within th businss is indicatd by th ratios and dvlopd
complt modl basd on th ratios. Th purpos modl was not matur but inspird othrs to
start working on this thory.
Diffrnt critics of ratio analysis also appard. Gilman (1925) has following concrns on ratio
analysis (1) ratios ar bond with tim and changd as tim passd so cannot b intrprtd (2)
ratios ar not natural masur for judging th prformanc companis manipulatd thm (3)
ratios asily affct th mind of viwrs and hid th actual position and (4) ratios swing widly
that also affct th dpndability.
Foulk (1931) crat and promotd own st of financial ratios succssfully. This st of financial
ratios was printd and promptly known as important and prominnt group of ratios.
Fitzpatrick (1932) with th hlp of thirtn diffrnt typ of ratios analysis 120 faild firms and
found that thr out of thirtn ratios prdict th failur of firms with prcis accuracy whil
othr ratios also shown som prdiction powr.
Rasmr and fostr (1931) usd lvn ratios to xamin that th succssful firms has highr
ratios than unsuccssful firms. Although this study was immatur but immaturity was ignord by
considring th vital contribution this study has in thvaluation of usfulnss of ratios. Scurity
and xchang commission of Amrica was formd in 1934. This also xpands th flow and
numbr of financial statmnts and with th hlp of this priphral factor importanc of ratio
analysis furthrnhancd and ralizd.
Marwin (1942) by using svral ratios analyz financial trnds of hug succssful and
unsuccssful firms. Compard normal ratios of industry with man ratios of larg unsuccssful
firms and find out that th thr ratios currnt ratio, nt working capital to total assts and nt
worth to dbt wr abl to fors failur bfor actual failur happnd. This study shows th
actual powr of prdiction of ratio analysis and rsults wr still rliabl.
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Waltr (1957) includd cash flow statmnt itms in ratio analysis. At thnd of world war fund
statmnt cam into xistnc and with fund statmnt fund statmnt ratios was also producd.
Hickman (1958) usd tims intrst arnd ratio and nt profit ratio to prdict th dfault rat on
corporat bond.
Saulnir (1958) says firms with low currnt ratio and dbt ratio has gratr chanc to dfault
thn firms with high ratios.
Moor and Atkinson (1961) point out th rlationship btwn capacity to pay and financial
ratios and shows rsults of ratio analysis influnc th borrowing ability of firms.
Bavr (1967) also xamind th prdiction powr of ratio analysis and point out ratios ability to
prdict failur as arly as fiv yars bfor th collapsd. Statistical tchniqu usd in th study
was mor powrful than arlir studis and fund statmnt data was usd to calculat ratio. This
study st th foundation for futur rsarch on ratio analysis.
Sortr and Bckr (1964)xamind th rlationship btwn psychological modl andcorporat prsonality of financial ratios and find out that long-stablishd corporation maintain
gratr liquidity and solvncy ratios.
Gombola and Ktz (1983) found that th fund and incom statmnt ar producd for diffrnt
purpos and profitability ratios did not has th information that cash flow ratios provid. In othr
words both ratios gav important as wll as diffrnt information from on and othr.
In 1940s many nations xprssd intrst in ratio analysis. Currnt ratio has usd in crdit
managmnt in Australia aftr intns scrutiny. In ngland data has collctd from diffrnt
organization and sort in pyramid in ordr to usd that data in ratio analysis so that dcision
mad on mor rational basis. In othr wards British mthod is mor managmnt orintd than
Amrican systm that is crdit orintd. Indian and Canadian systm is similar to Amrican
systm and sam kind of ratios and critria has bn usd. In Japan data is availabl in grouping
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on th basis of industry and sizs of firms. China and Russia usd svral ratios as control
masur in invstmnt and working capital.
mpirical analysis of financial ratios:
Pinchs and Mingo (1973) valuat th structur of ratios and found that ratios can b dividd
into diffrnt groups. Prsnt gnral classification of financial ratios on logical basis. Rsults
concludd that th ratios can b dividd into four groups that ar financial lvrag, short-trm
capital intnsivnss, rturn on invstmnt and long-trm capital intnsivnss.
Stvns (1973) also studis th topic of ratio classification and groupd th financial ratios in
four catgoris that includ activity, liquidity, lvrag and profitability.
Pinchs, Mingo, and Caruthrs (1973) and Pinchs, ubank, Mingo, and Caruthrs (1975)
carry on furthr workd on this subjct and catgorizd th financial ratios in svn factors that
includ rcivabl turnovr, capital turnovr, short-trm liquidity, rturn on invstmnt,
invntory turnovr, financial lvrag and cash position.
Libby (1975) also studis th division of financial ratios and condnss that division from svn
to fiv. Fiv divisions includ liquidity, activity, cash position, profitability and assts balanc.
Johnson (1979) furthr studis th rsarch of Pinchs (1973) and addd anothr factor that is
dcomposition masur into svn factors. Twlv diffrnt factors or division of financial ratios
ar prsntd in fiv diffrnt studis. On th basis of fiv publishd studis assortmnt of
financial ratios ar vry tim consuming bcaus th rsults of publishd studis was vry
divrs.
Chn and Shimrda (1999) dply xamind fiv publishd studis and find out that som of
th twlv factors that has bn prsntd in th studis has sam and simply nam is changd.
Thrfor, twlv factors ar groupd into svn factors. Svn factors ar cash position,
financial lvrag, invntory turnovr, short-trm liquidity, rturn on invstmnt, rcivabl
turnovr and capital turnovr.
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CHAPTR4
FINDINGS &
ANALYSIS
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Projct Proposal
Financial Analysis of Indian Oil Corporation Limitd and DFR on Proposal for Invstmnt
Approval of Branch Piplin from Barauni-Kanpur Piplin to Motihari and Baitalpur for
lvraging th transportation tariff.
Brif Dscription of th Proposal
Financial (Ratio) Analysis
Financial analysis rfrs to an assssmnt of th viability, stability and profitability of a businss,
sub-businss or projct. Profssionals who prpar rports using ratios that mak us of
information takn from financial statmnts and othr rports prform it. Ths rports ar
usually prsntd to top managmnt as on of thir bass in making businss dcisions. Basd
on ths rports, managmnt may:
Continu or discontinu its main opration or part of its businss;
Mak or purchas crtain matrials in th manufactur of its product;
Acquir or rnt/las crtain machinris and quipmnts in th production of its goods;
Othr dcisions that allow managmnt to mak an informd slction on various
altrnativs in th conduct of its businss.
Financial analysts oftn asss thfirms on:
Profitability- its ability to arn incom and sustain growth in both short-trm and long-
trm.
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Solvncy- its ability to pay its obligation to crditors and othr third partis in th long
trm;
Liquidity- its ability to maintain positiv cash flow, whil satisfying immdiat
obligations; Solvncy & Liquidity ar basd on th companys balanc sht, whichindicats th financial condition of a businss at givn point of tim.
Lvrag- Any ratio usd to calculat financial lvrag of a company to gt an ida ofth companys mthods of financing or to masur its ability to mt financialobligations. It also givs an ida of how changs in output will affct oprating incom.
DU PONT- analysis shows that th profitability dpnds not only on th profit margin butalso on how fficintly th firm has usd its assts to gnrat sals.
Dbt financing and Growth- It is th maximum growth rat that can b achivd with no
xtrnal financing whil taking into considration th dbt quity ratio.
Markt tst ratios- It rlats th firms stock pric to its arnings and book valu prshar.
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FINANCIAL ANALYSIS OF INDIAN OIL CORPORATION LIMITD
IMPORTANC OF FINANCIAL ANALYSIS
A basic limitation of th traditional financial statmnts comprising th balanc sht and th
profit and loss account is that thy do not giv all th information rlatd to th financial
oprations of a firm. Nvrthlss, thy provid somxtrmly usful information to thxtnt
that th balanc sht mirrors th financial position on a particular dat in trms of th structur
of assts, liabilitis and ownrs quity, and so on and th profit and loss account shows th
rsults of oprations during a crtain priod of tim in trms of th rvnus obtaind and th
cost incurrd during th yar. Thus, th financial statmnts provid a summarizd viw of th
financial position and oprations of a firm. Thrfor, much can b larnt about a firm from a
carful xamination of its financial statmnts as invaluabl documnts/prformanc rports. Th
analysis of financial statmnts is, thus, an important aid to financial analysis.
Th focus of th financial analysis is on ky figurs in th financial statmnts and th significant
rlationship that xists btwn thm. Th analysis of financial statmnts is a procss of
valuating th rlationship btwn componnt parts of financial statmnts to obtain a bttr
undrstanding of thfirms position and prformanc.
Th first task of th financial analyst is to slct th information rlvant to th dcision undr
considration from th total information containd in th financial statmnts. Th scond stp is
to arrang th information in a way to highlight significant rlationships. Th final stp is th
intrprtation and drawing of infrncs and conclusions. In brif, financial analysis is th
procss of slction, rlation and valuation.
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Ratio Analysis:
It is important whn xamining a st of financial statmnts and using ratio analysis to rlat
thm to rfrnc points or standards. Ths points of rfrnc might b to:
stablish trnds from past yars, so providing a standard of comparison
compar against othr businsss in th sam industry
compar with standards assumd to b satisfactory by th intrstd party, .g. a bank
Abov all, it is important to undrstand th rlationships btwn ratios: on ratio may giv an
indication of th stat of th businss but, bfor drawing conclusions, this nds to b supportd
by othr ratios. Ratios can highlight symptoms, but th caus will thn nd to b invstigatd.
Anothr us of ratios is to stimat th likly futur profit or balanc sht of a businss. For
xampl, it might b assumd that th sam gross profit prcntag as last yar will also apply
nxt yar; thus, givn an stimatd incras in sals rvnu, it is a simpl mattr to stimat
gross profit. In a similar way, by making us of ratios, nt profit (profit bfor tax) and th
balanc sht can b forcast.
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Ratio Analysis of IOCL
Particulars 2008-09 2009-10 2010-11 2011-12 2012-13
Liquidity ratio:Currnt ratio 0.96 0.92 0.87 1.01 1.03
Liquid ratio 0.64 0.49 0.44 0.54 0.56
Dfnsiv Intrval Ratio 72.62 67.39 63.88 62.76 58.37
Activity Ratio:
Invntory turnovr ratio 16.00 13.24 12.79 9.18 7.39
Dbtors turnovr ratio 41.18 42.48 41.31 42.68 42.53
Crditors turnovr ratio 6.34 6.00 5.97 5.39 6.57
Assts turnovr ratio 2.74 2.28 2.20 2.38 2.37
Capital turnovr ratio 3.47 2.93 3.42 4.62 5.68
Lvrag ratio:
Dbt-quity ratio 1.02 0.88 0.95 1.30 1.32
Total dbt ratio 0.64 0.61 0.66 0.77 0.77
Propritary ratio 0.36 0.39 0.34 0.23 0.23
Intrst covrag ratio 2.10 10.24 4.41 3.05 1.88
Financial lvrag ratio 1.91 1.11 1.29 4.54 2.13
Profitability ratio:
Gross profit ratio 0.04 0.08 0.05 0.05 0.04
Oprating profit ratio 0.03 0.06 0.04 0.04 0.03
Nt profit ratio 0.01 0.04 0.02 0.01 0.01
Rturn on capital mployd 0.15 0.10 0.18 0.20 0.25
Rturn on quity 0.07 0.20 0.13 0.07 0.08Rturn on Assts 0.03 0.09 0.05 0.04 0.08
arnings pr shar 24.74 42.10 30.67 16.29 20.62
Dividnd pr shar 8.93 15.10 10.98 5.80 7.25
Dividnd Payout Ratio 0.36 0.36 0.36 0.36 0.35
Cash profit ratio 0.02 0.05 0.04 0.02 0.02
xpns ratio 1.16 1.06 1.08 0.98 1.00
DuPont analysis
arning Powr 0.02 0.08 0.05 0.02 0.02
Rturn on quity 0.07 0.20 0.13 0.07 0.08
Dbt- financing growth
Intrnal growth rat 0.02 0.05 0.03 0.02 0.05Sustainabl growth rat 0.04 0.11 0.08 0.04 0.05
Markt tst ratio
Dividnd-yild ratio 0.039 0.044 0.028 0.019 0.022
arning-yild ratio 0.128 0.142 0.092 0.062 0.073
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Liquidity Ratios:
Th importanc of adquat liquidity in th sns of th ability of a firm to mt currnt/short-
trm obligations whn thy bcom du for paymnt can hardly b ovrstrssd. In fact, liquidity
is th prrquisit for th vry survival of a firm. Th short-trm crditors of th firm ar
intrstd in th short trm solvncy or liquidity of a firm. But liquidity implis, from th
viwpoint of utilization of th funds of th firm that funds ar idl or thy arn vry littl. A
propr balanc btwn th two contradictory rquirmnts, that is, liquidity and profitability, is
rquird forfficint financial managmnt. Th Liquidity Ratios masur th ability of a firm to
mt its short-trm obligations and rflct th short trm financial strngth/solvncy of a firm.
Th ratios which indicat th liquidity of a firm ar:
1. Currnt ratios
2. Acid tst/ quick ratios
3. Dfnsiv Intrval ratios
Currnt Ratio:
Th currnt ratio is th ratio of total currnt assts to total currnt liabilitis. It is
calculatd by dividing currnt assts to currnt liabilitis.
Th total currnt assts includ thos assts which ar in th form of cash, nar cash or
convrtibl into cash within a priod of 1 yar. Th trm currnt assts also includ
prpaid xpnss and short trm invstmnts, if any. Th currnt liabilitis includ all
typs of liabilitis which will matur for paymnt within a priod of 1yar .g. bank
ovrdraft, bills payabl, trad crditors, outstanding xpnss t.c. Th currnt ratio
throws light on th firms ability to pay its currnt liabilitis out of its currnt assts.
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IOCL Currnt Ratio Analysis:
Yar
CurrntAssts
(A)
CurrntLiabilitis
(B)
Currnt
Ratio
(**)(G) =
(A) / (B)
2008-
0976767.32 80330.04 0.96
2009-
1081759.05 89318.01 0.92
2010-
11102565.9 118348.01 0.87
2011-
12121001.6 119825.93 1.01
2012-
13128298.6 124133.67 1.03
Intrprtation:
Currnt Ratio of IOCL has bn clos to 1 most of th tims for th last 3 yars, indicating thinability of th IOCL to mt its short trm obligations. Gnrally, a currnt ratio of 2:1 is
considrd to b th minimum rquird ratio for a firm to b dclard liquid. So, from that point
of viw, IOCL is suffring from a srious liquidity crunch. Top Managmnt nds to work upon
this issu. So, Th ratio signifis that IOCL is inadquatly liquid from th point of viw of its
ability to always satisfy th claims of th short-trm crditors. A slight dclin in th valu of th
0.96
0.92
0.87
1.011.03
0.75
0.8
0.85
0.9
0.95
1
1.05
2008-09 2009-10 2010-11 2011-12 2012-13
Current ratio
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currnt assts will advrsly affct th ability of IOCL to mt its obligations; thrfor, from th
viwpoint of th crditors, IOCL is a mor risky vntur.
Acid-Tst/Quick Ratio:
On dfct of th Currnt Ratio is that it fails to convy any information on th composition of
th currnt assts of a firm. A rup of cash is considrd quivalnt to a rup of invntory or
rcivabls. But it is not so. A rup of cash is mor radily availabl to mt currnt obligations
than a rup of invntory. This impairs th usfulnss of th currnt ratio. Th acid-tst ratio is a
masur of liquidity dsignd to ovrcom this dfct of th currnt ratio. It is oftn rfrrd to
as quick ratio bcaus it is a masurmnt of a firms ability to convrt its currnt assts quickly
into cash on ordr to mt its currnt liabilitis. Thus, it is a masur of quick or acid liquidity.
Th acid-tst ratio is th ratio btwn quick currnt assts and currnt liabilitis and is
calculatd by dividing th quick assts by currnt liabilitis.
Acid tstratio = QuickAssts CurrntLiabilitis
Th trm Quick assts rfrs to currnt assts which can b convrtd into cash immdiatly or
at a short notic without diminution of valu. Includd in this catgory of currnt assts ar cash
and bank balanc, short-trm marktabl scuritis and dbtors/rcivabls. Thus, th currnt
assts which ar xcludd ar: prpaid xpnss and invntory. Th xclusion of invntory is
basd on th rasoning that it is not radily and asily convrtibl in to cash. Prpaid xpnss by
thir vry natur ar not availabl to pay off currnt dbts. Thy mrly rduc th amount of
cash rquird in on priod bcaus of paymnt in a prior priod.
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IOCL Quick Ratio Analysis:
Yar
Currnt
Assts
(A)
Currnt
Liabilitis
(B)
Invntoris
(C)
Prpaid
xpnss
(D)
Liquid
Assts
(H) = (A)
- (C) -
(D)
Quick
Ratio
(@)
(I) =
(H) /
(B)
2008-
0976767.32 80330.04 25149.6 0
51617.72 0.64
2009-10
81759.05 89318.01 36404.08 1262.76 44092.21 0.49
2010-
11102565.9 118348.01 49284.52 1483.72
51797.7 0.44
2011-
12121001.6 119825.93 55829.2 0
65172.36 0.54
2012-
13128298.6 124133.67 59314.39 0
68984.21 0.56
Quick Ratio dpicts th following trnd:
0.64
0.490.44
0.54 0.56
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2008-09 2009-10 2010-11 2011-12 2012-13
Liquid ratio
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Intrprtation:
Th acid-tst ratio masurs th ability to srvic short-trm liabilitis of IOCL. Gnrally, an
acid-tst ratio of 1:1 is considrd satisfactory as a firm can asily mt all currnt claims. But
th Quick Ratio of IOCL has nvr bn abl to touch th targt point of 1:1, indicating thliquidity crunch for th firm. So, lik Currnt Ratio, Quick Ratio trnd dpicts th sam thing
that IOCL is suffring from liquidity and th managmnt nds to tak corrctiv actions
immdiatly to rtain th trust of thir crditors.
Dfnsiv Intrval Ratio:
Th ratios discussd till now throw light on th ability of th firm to pay its currnt liabilitis.
Apart from paying th currnt liabilitis th liquidity position of a firm should also bxamind
from in rlation to its ability to mt projctd daily xpnditur from oprations. Thdfnsiv-
intrval ratioprovids such a masur of liquidity. It is a ratio btwn th quick/liquid assts
and th projctd daily cash rquirmnts.
Dfnsiv IntrvalRatio = LiquidAssts ProjctdDailyCashRquirmnt
Th projctd cash oprating xpnditur is basd on past xpnditurs and futur plans. It is
quivalnt to th cost of goods sold xcluding dprciation, plus slling and administrativ
xpnss and othr ordinary cash xpnss. Liquid assts includ currnt assts xcluding
invntory and prpaid xpnss. Th dfnsiv intrval ratio masurs th tim span a firm can
oprat on prsnt liquid assts.
IOCL Dfnsiv Intrval Ratio Analysis:
Yar
Liquid
Assts(a) =
(H)
Nt
Sals (b)
GrossProfit
(c)
Cost of
Good
Sold(d) = (b) -
(c)
Dpriciation
()
Slling
and
Administ
rativxpnss
(f)
Othr
Cashxpns
s (g)
Projctd
daily cash
rquirmt
(h) = (d) -() +(f) +
(g)
DIR ($)(i) = (a)
(h)
2008-
09
51617.72
262654.42 11319 251335.42
2881.71 10709.66 267.76 710.77 72.62
2009-
10
44092.21
249271.35 18872 230399.35
3227.14 11386.06 253.86 654.28 67.39
2010- 51797.7 302954.3 16336 286618.37 4567.0 13378.79 555.25 810.92 63.88
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11 7 1
2011-
12
65172.36
396793.07 21600 375193.07 4542.4 6321.11 2055.4 1038.43 62.76
2012-
13
68984.21 446120.4 17257 428862.51 5219.8 5396.76 2337.41 1181.85 58.37
Intrprtation:
Th figurs of th Dfnsiv Intrval Ratio of IOCL masurs its capacity to mt immdiat
cash rquirmnts without rsorting to sals or othr sourcs i.., th tim lag for which IOCL
can oprat without rsorting to th sals rcipts. Th Dfnsiv Intrval Ratio of 72.62 in th
yar 2008-09 indicats that IOCL has th liquid assts which can mt th oprating cash
rquirmnts of businss for 72 days without rsorting to futur rvnus. Similarly, th othr
DIRs tlls us th numbr of days for which IOCL can oprat on its liquid assts to mt th
cash rquirmnts.
72.62
67.3963.88 62.76
58.37
0
10
20
30
40
50
60
70
80
2008-09 2009-10 2010-11 2011-12 2012-13
defensive interval ratio
defensive interval ratio
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Conclusion:
To conclud th discussion of liquidity ratios, th short-trm solvncy of th firm Indian Oil
Corporation Limitd (IOCL) dos not sms to b good according to th various ratios
calculatd. IOCL was nvr abl to achiv th targt valu of a particular ratio ovr a tim spanof last 4 to 5 yars. So, this is a mattr of srious concrn to th managmnt and crditors of
IOCL.
Activity Ratios:
Funds ar invstd in various assts in businss to mak sals and arn profits. Thfficincy
with which assts ar managd dirctly affcts th volum of th sals. Th bttr th
managmnt of assts, th largr is th amount of sals and th profits. Activity ratios masur
thfficincy orffctivnss with which a firm manags its rsourcs or assts. Ths ratios ar
also calld Turnovr Ratios bcaus thy indicat th spd with which assts ar convrtd or
turnd ovr into sals.
Th currnt ratio or acid tst ratio givs mislading rsults if currnt assts includ high amountof dbtors du to slow crdit collctions. In th sam mannr, currnt ratio may b furthr
mislading if th assts includ high amount of slow moving invntoris as both ths ratios
ignor th movmnt of currnt assts, it is important to calculat th following turnovr or
fficincy ratios to commnt upon th liquidity or thfficincy with which th liquid rsourcs
ar bing usd by a firm.
Invntory Turnovr Ratio:
vry firm has to maintain a crtain lvl of invntory of finishd goods so as to b abl to mt
th rquirmnts of th businss. But th lvl of th invntory should not b too high or too low.
Invntory turnovr ratio is also known as stock vlocity. It indicats whthr invntory has bn
fficintly usd or not. It indicats th no. of tims th stock has bn turnd ovr during th
priod and valuats thfficincy with which a firm is abl to manag its invntory.
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Dbtors Turnovr Ratio:
Dbtors turnovr ratio indicats th vlocity of dbt collction of th firm. In simpl words, it
indicats th no. of tims th avrag dbtors (rcivabls) ar turnd ovr during a yar.
Crditors Turnovr Ratio:
This ratio shows th vlocity of dbt paymnt by th firm.
IOCL Turnovr Ratios Analysis:
Yar
Nt Sals
(A)
Gross
Profit
(B)
Cost of
Goods
Sold
(C) = (A)
- (B)
Opning
Stock
(D)
Closing
Stock
()
Avrag
Invntory
(F) = [(D)
+ ()] / 2
Invntory
Turnovr
Ratio (*)
(G) = (C) /
(F)
Days for
Invntory
Holding
(**) (H)
2008-
09 262654.42 11319 251335.42 16549.24 14874.68 15711.96 16.00 22.82
2009-
10 249271.35 18872 230399.35 14874.68 19918.93 17396.805 13.24 27.56
2010-
11 302954.37 16336 286618.37 19918.93 24891.86 22405.395 12.79 28.53
2011-
12 396793.07 21600 375193.07 24891.86 56829.01 40860.435 9.18 39.75
2012-
13 446120.4 17257.89 428862.51 56829.01 59315.01 58072.01 7.39 49.42
Yar
Nt
Purchas
(1)
Opning
Crditors
(2)
Closing
Crditors
(3)
Avrag
Crditors
(4) = [(2) +(3)]
/ 2
Crditors
Tunovr
Ratio ($)
(5) =(1) /
(4)
Avrag
Paymnt
Priod (&)
(6) = 365 /
(5)
2008-
09 131482.60 20973.91 20519.51 20746.71 6.34 57.592009-
10 123704.72 20519.51 20719.03 20619.27 6.00 60.84
2010-
11 150484.12 20719.03 29661.76 25190.395 5.97 61.10
2011-
12154093.5
29661.7627520.75 28591.255
5.39 67.72
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16
13.24 12.79
9.187.39
41.1842.48
41.3142.68 42.53
6.34 6 5.97 5.396.57
0
5
10
15
20
25
30
35
40
45
2008-09 2009-10 2010-11 2011-12 2012-13
Inventory Turnover ratio
Debtors Turnover ratio
Creditors Turnover ratio
2012-
13188182.2 27520.75 29729.91 28625.33
6.57 55.52
Yar
Nt Sals
(a)
OpningDbtors
(b)
ClosingDbtors
(c)
Avrag
Dbtors(d) = [(b)
+(c)] / 2
Dbtors
TunovrRatio (@)
() =(a) / (d)
Avrag
CollctionPriod (#)
(f) = 365 / ()
2008-09 262654.42 6819.23 5937.86 6378.55 41.18 8.86
2009-10 249271.35 5937.86 5799.28 5868.57 42.48 8.59
2010-11 302954.37 5799.28 8869.65 7334.47 41.31 8.84
2011-12 396793.07 8869.65 9725.47 9297.56 42.68 8.55
2012-13 446120.41 9725.47 11254.78 10490.13 42.53 8.58
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Intrprtation:
ITR indicats that IOCL has bn facing a problm in convrting its invntory into sals from th
past 4-5 yars as th ITR has shown a continuous dcras ovr this priod. It dirctly affcts th
liquidity of th firm. Whn a firm is not abl to convrt its invntory into sals, its liquidity is
surly going to b affctd. So, as indicatd by th liquidity ratios, th invntory turnovr ratio
also concluds that th liquidity of IOCL is not vry sound and its top managmnt nds to tak
corrctiv actions to improv it.
DTR ratio shows a good thing for IOCL i.. its vlocity of rcivabls collction has incrasd
ovr a span of tim. It shows how fficintly and ffctivly th top managmnt of IOCL has
managd its dbtors.
CTR ratio shows that IOCL is not vry fast in paying to its crditors. This is an anothr good
sign of IOCLs Top Managmnt fficincy.
Som othr trnds dpicting th activity ratios of IOCL ar as follows:
Asst turnovr ratio:
Asst turnovr ratio is th ratio of a company's sals to its assts. It is an fficincy ratio whichtlls how succssfully th company is using its assts to gnrat rvnu.
Capital turnovr ratio:Masurs th sals mad pr rup of th capital mployd in th firm. Highr is th ratio, highris th profit.
Yar
Nt
Sals
(A)
Opning
Tangibl
Assts (*)
(B)
Closing
Tangibl
Assts (*)
(C)
Avrag
Tangibl
Assts
(D) = [(B) +
(C)] / 2
Assts
Turnovr
Ratio (**)
() = (A) /
(D)
2008-
09 262654.4 94660.08 97114.69 95887.385 2.742009-
10 249271.4 97114.69 121790.4 109452.545 2.28
2010-
11 302954.4 121790.4 153157.9 137474.15 2.20
2011-
12 396793.1 153157.9 179933.75 166545.825 2.38
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2012-
13 446120.4 188255.71 188122.02 188188.865 2.37
Yar
Nt
Sals
(a)
Opning
stock of
Capitalmployd
(@)
(b)
Closing
Stock of
Capitalmployd
(@)
(c)
Avrag
Capitalmployd
(d) = [(b) + (c)]
/ 2
CapitalTurnovr
Ratio (#)
() = (a) / (d)
2008-
09 262654.4 61542.2 89661.9 75602.05 3.47
2009-
10 249271.4 89661.9 80486.5 85074.20 2.93
2010-
11 302954.4 80486.5 96750.5 88618.50 3.42
2011-
12 396793.1 96750.5 74942.5 85846.50 4.622012-
13 446120.4 74942.5 82223.1 78582.80 5.68
Intrprtation :
Asst turnovr ratio whn compard to last fiv yars , givs th highst turnovr in th yar2008-09 which is showing a positiv impact as it is an fficincy ratio which tlls how
2.74
2.28 2.22.38 2.37
3.47
2.93
3.42
4.62
5.68
0
1
2
3
4
5
6
2008-09 2009-10 2010-11 2011-12 2012-13
Assets Turnover ratio
Capital Turnover ratio
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succssfully th company is using its assts to gnrat rvnu, thn it is going on dcrasingfor nxt two yars and thn in th yar 2012-13 it is raching th point 2.37.
Whil doing th intrprtation for Capital turnovr ratio , it is showing a positiv signal as it hasincrasd from 3.47 tims in 2008-09 to 5.68 tims in 2012-13 thus this mans it is making morsals pr rup of th capital mployd in th firm which is a sign of bttr profitability.
Lvrag Ratios:
Th long trm lndrs/crditors would judg th soundnss of a firm on th basis of th long-
trm financial strngth masurd in trms of its ability to pay th intrst rgularly as wll as
rpay th installmnt of th principal on du dats or in on lump sum at th tim of maturity.
Th long-trm solvncy of a firm can bxamind by using lvrag or capital structur ratios.
Th lvrag ratios may b dfind as financial ratios which throw light on th long trm
solvncy of a firm as rflctd in its ability to assur th long-trm lndrs with rgard to
priodic paymnt of intrst during th priod of th loan and
Rpaymnt of principal on maturity or in prdtrmind installmnts at du dats.
Dbt-quity Ratio:
Th D Ratio is th basic and th most common masur of studying th indbtdnss of th
firm. Th D Ratio is basd on th assumption that thxtnt to which th firm should mploy
th dbt should b viwd in trms of th siz of th cushion providd by th sharholdrs funds.
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Th D Ratio is calculatd by comparing th total dbts with th total sharholdrs funds as
follows:
Dbt quityRatio = TotalDbt Sharholdrsquity
Total Dbt includ th long trm loans and th currnt liabilitis, and th trm sharholdrs
quity includ thquity shar capital, th prfrnc shar capital and all accumulatd rsrvs
and surplus.
Total Dbt Ratio:
Th TD Ratio compars th total dbts (long trm as wll as short trm) with th total assts. It is
computd as follows:
TotalDbtRatio = TotalDbts TotalAssts
Propritory Ratio:
It stablishs th rlationship btwn th sharholdrs funds to total assts of th firm.
Yar
Long
Trm
Dbt
(A)
Currnt
Liabiliti
s (B)
Total
Dbt
(C) =
(A) +
(B)
SC
(Rs.10
ach)
(D)
Rsrv
s &
Surplus
()
Nt
Worth
(F) =
(D) +
()
Total
Assts
(G) =
(C) + (F)
Total
DbtRati
o (** )
(H) = (C)
/ (G)
Propritory
Ratio
(@)
(I) = (F)
/ (G)
2008-
09
44,972.06
32754.5877,726.6
41,213.
9742,784.2
143,998.
18121,724.
82 0.64 0.36
2009-
10
44,566.25
34480.1779,046.4
22,427.
9548,124.9
850,552.
93129,599.
35 0.61 0.39
2010-
11
52,733.
87 52549.94
105,283.
81
2,427.
95
52,904.3
7
55,332.
32
160,616.
13 0.66 0.342011-
12
75,447.10
119825.93
195,273.03
2,427.95
55,448.75
57,876.70
253,149.73 0.77 0.23
2012-
13
80,894.01
124133.67
205,027.68
2,427.95
58,696.36
61,124.31
266,151.99 0.77 0.23
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Intrprtation:
Dbtquity ratioWhn compard to its prvious yar, IOCL is now mor subjctdto financial risk and dpnds mor on financial risk. Furthr now IOCL has morcrditors and obligors mony in businss than its sharholdrs. A ratio of 1:1 is usuallyconsidrd to b satisfactory.
Total Dbt ratio -A dbt ratio of gratr than 1 indicats that a company has mor dbtthan assts, manwhil, a dbt ratio of lss than 1 indicats that a company has morassts than dbt.Propritary ratio-Thus, sharholdrs hav contributd 23% of all funds usd in thbusinss, with crditors contributing th rmaining 77% of funds in 2013.Highr th ratio, bttr is th long trm solvncy position of th company.
Intrst Covrag Ratio:
This ratio is also calld th tims intrst arnd ratio and it masurs th ability of th firm topay th fixd intrst liability. Th ratio may b calculatd as follows:
ICRatio = BIT Intrst
It masurs as to how many tims th intrst liability of th firm is covrd with th oprating
profits of th firm.
1.02
0.880.95
1.3 1.32
0.640.61
0.66
0.77 0.77
0.360.39
0.34
0.23 0.23
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2008-09 2009-10 2010-11 2011-12 2012-13
Debt-equity ratio
Total Debt ratio
Proprietary ratio
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Financial Lvrag Ratio:
Th trm financial lvrag rfrs to th us of fixd charg scuritis such as dbnturs and th
variabl charg scuritis such as quity shars in th capital structur to financ th total assts
of th firm. So, th financial lvrag rfrs to th prsnc of fixd charg (in th form of
intrst) in th incom statmnt of th firm. Th fixd charg is fixd in amount and do not vary
with th chang in thBIT, whras th rturn availabl to thquity sharholdrs, which is a
rsidual balanc, is affctd by th chang in BIT. Th Financial Lvrag Ratio masurs th
rlationship btwn BIT and BT and is calculatd as follows:
FLRatio = BIT BT
Yar
PBIT
(A)
Intrst
(B)
Intrst
Covrag
Ratio (#)
(C) = (A) / (B)
PBT
(D)
Financial
Lvrag Ratio
($) () =
(A) / (D)
2008-
09 8,280.73 3,952.14 2.10 4,328.59 1.91
2009-
10 15,632.55 1,526.46 10.24 14,106.09 1.112010-
11 11,765.69 2,669.83 4.41 9,095.86 1.29
2011-
12 17,058.00 5,596.11 3.05 3,754.31 4.54
2012-
13 12,056.59 6,408.79 1.88 5,647.80 2.13
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Intrprtation:
ICR- It can b sn that ICR of IOCL in 2009 was 2.10 which incrasd to10.24(Highst) in 2010.This thn kpt dcrasing thraftr. Sinc ICR was lowst in2013.Hnc Compard to prvious yars, IOCL was mor burdnd with dbt xpns inthis Financial Yar. Highr th ratio, mor saf ar th long trm crditors.
FCR- It can b sn that ICR of IOCL in 2009 was 1.91.It dcrasd to 1.11 in 2010,incrasd to 1.29 in 2011 again incrasd to 4.54(Highst) in 2012 and thn dcrasd to2.13 in 2013.Financial Lvrag Ratio tlls about thxtnt of chang in PBT as a rsult of chang inPBIT.
Profitability Ratios:
Th profitability ratios masur th profitability of th oprational fficincy of th firm. Thr
ar two groups of prsons who may b spcifically intrstd in th analysis of th profitability
of th firm. Ths ar:
Th managmnt which is intrstd in th ovrall profitability and th oprational fficincy of
th firm and
2.1
10.24
4.41
3.05
1.881.91
1.11 1.29
4.54
2.13
0
2
4
6
8
10
12
2008-09 2009-10 2010-11 2011-12 2012-13
Interest coverage ratio
Financial coverage ratio
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Thquity sharholdrs who ar intrstd in th ultimat rturns availabl to thm. Both of
ths partis and any othr party such as crditors can masur th profitability of th firm in
trms of th P ratios. Diffrnt P Ratios hav bn suggstd to assss th profitability of th
firm from diffrnt angls. Th prformanc of th firm can bvaluatd in trms of its arnings
with rfrnc to a givn lvl of assts or sals or ownr intrst t.c. Broadly, P Ratios ar
calculatd by rlating th rturns with th
Sals of th firm
Assts of th firm
Th ownrs contribution
Profitability Ratios basd on th Sals of th Firm:
Ths ratios ar basd on th prmis that a firm should arn sufficint profit on ach rup of
sals. If adquat profits ar not arnd on sals, thr will b difficulty in mting th oprating
xpnss and no rturns will b availabl to th ownrs. Ths ratios consist of
Gross Profit ratio
Oprating profit ratio
Nt Profit ratio
Gross Profit Ratio:
Th GP Ratio is also calld th avrag mark up ratio. It is calculatd by comparing th gross
profit of th firm with th nt sals as follows:
GPRatio = GrossProfit NtSals
Nt Profit Ratio:
It masurs th rlationship btwn nt profits and sals of a firm.
NtProfitratio = PAT NtSals
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Oprating Profit Ratio:
Th oprating profit rfrs to th profit gnratd by th opration of th firm and hnc is
calculatd by considring any financial chargtc.
OPRatio = BIT NtSals
Yar
Gross
Profit
(A)
Nt Sals
(B)
Gross
Profit
Ratio (*)
(C) = (A) /
(B)
PBIT
(D)
Oprating
Profit Ratio
(**)
() = (D) /
(B)
PAT
(F)
Nt Profit
Ratio(@)
(G) = (F) /
(B)
2008-
09 11,319.00 262,654.42 0.04 8,280.73 0.03 2,949.55 0.01
2009-
10 18,872.00 249,271.35 0.08 15,632.55 0.06 10,220.55 0.042010-
11 16,336.00 302,954.37 0.05 11,765.69 0.04 7,445.48 0.02
2011-
12 21,600.00 396,793.07 0.05 17,058.00 0.04 3,954.62 0.01
2012-
13 17,257.89 446,120.40 0.04 12,056.59 0.03 5,005.17 0.01
4.00%
8.00%
5.00% 5.00%
4.00%
3.00%
6.00%
4.00% 4.00%
3.00%
1.00%
4.00%
2.00%
1.00% 1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
2008-09 2009-10 2010-11 2011-12 2012-13
Gross profit
Operating profit
Net profit
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Intrprtation
Gross Profit Ratio: Th FY 20121-13 has littl bit lowr prcntag of Gross profit ratio as
compard to prvious yars which is not a good indicator as this ratio indicats th margin lft
aftr mting manufacturing costs. So, it is to b highr. GPR in th FY 2009-10 was approx. 8%
which was a positivsignal from companys point of viw.
Nt Profit Ratio:As this ratio shows tharning lft for sharholdrs as prcntag of nt sals
and also masurs thfficincy of th managmnt in gnrating additional rvnus ovr and
abov th total cost of oprations. Thus Highr th ratio, bttr is th profitability. As NPR of
IOCL for th last fiv yars lis btwn 1% to 4% and was highst in th FY 2009-10 but it has
kp on dcrasing yar aftr yar which is not showing th sound profitability.
Oprating Profit Ratio: Oprating Profit (OP) Ratio shows th pur profit arnd on vry 1
rup of sals mad. Thus a highr valu of oprating margin ratio is favorabl which indicats
that mor proportion of rvnu is convrtd to oprating incom. But in IOCL Oprating Profit
Ratio is dclining from 6% to 3% from th yar 2010 to 2013 which is not favourabl for th
company.
Rturn on Assts Ratio:
Th ROA masurs th profitability of th firm in trms of assts mployd in th firm. Th
ROA is calculatd by stablishing th rlationship btwn th profits and th assts mployd to
arn that profit.
ROA = PAT TotalAssts
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Rturn on Capital mployd Ratio:
Th profitability of th firm can also b analyzd from th point of viw of th total funds
mployd in th firm. Th trm funds mployd or th capital mployd rfrs to th total long
trm sourcs of funds. Th capital mployd compriss of sharholdrs funds plus long trmdbts.
RC = BIT AvragCapitalmployd
Rturn on quity Ratio:
Th ROxamins profitability from th prspctiv of thquity invstors by rlating profits
availabl for thquity sharholdrs with th book valu of thquity invstmnt.
RO = PAT PrfrncDividnd quitySharholdrsFunds
Yar
PAT
(a)
Opning
Tangibl
Assts
(b)
Closing
Tangibl
Assts
(c)
Avrag
Tangibl
Assts
(d) = [(b) +
(c)] / 2
Rturn on
Assts (#)
() = (a) /
(d)
PBIT
(f)
Opning
stock of
Capital
mployd
(g)
2008-
09 2,949.55 94660.08 97114.69 95887.385 0.03 11,631.64 61542.2
2009-
10 10,220.55 97114.69 121790.4 109452.545 0.09 8,280.73 89661.9
2010-
11 7,445.48 121790.4 153157.9 137474.15 0.05 15,632.55 80486.5
2011-
12 3,954.62 153157.9 58932.29 106045.095 0.04 17,058.00 96750.5
2012-
13 5,005.17 58932.29 59823.45 59377.87 0.08 12,056.59 74942.5
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Intrprtation
Rturn on Assts (ROA) shows how much profit is arnd pr rup of assts usd. Highr th
ROA, highr is th profitability. Hnc, ROA in 2013 is much highr than its prvious yar.
3.00%
9.00%
5.00%4.00%
8.00%
15.00%
10.00%
18.00%
20.00%
25.00%
7.00%
20.00%
10.00%13.00%
8.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2008-09 2009-10 2010-11 2011-12 2012-13
Return on assets
Return on capital employed
Return on equity
Yar
Closing Stock of
Capitalmployd (h)
Avrag Capital
mployd
(i) = [(g) + (h)] /2
Rturn on
Capital
mploy
d ($)
(j) = (f) / (i)N
t worth(k)
Rturn on
quity (&)
(l) = (a) / (k)
2008-0989661.9 75602.05 0.15 43,998.18 0.07
2009-1080486.5 85074.2 0.10 50,552.93 0.20
2010-1196750.5 88618.5 0.18 55,332.32 0.13
2011-1274942.5 85846.5 0.20 57,876.70 0.07
2012-13
82223.1 78582.8 0.15 61,124.31 0.08
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Rturn on capital mployd - ROC masurmnt is a comprhnsiv profitability indicator
bcaus it gaugs managmnt's ability to gnratarnings from a company's total pool of
capital. Hnc IOCL was mor profitabl in 2013.
Rturn on quity - Invstors rcivd th bst rturn on thir invstmnt from IOCL 2010 but
compard to prvious yars, IOCL has bn lss profitabl and infficint in utilizing its quitybas proprly.
Othr Charts dpicting th profitability of IOCL ar:
Yar
PAT
(1)
No. of
quity
Shars
Issud
(2)
PS
(3) = (1) /
(2)
Div. + Div.
Tax (4)
DPS
(5) = (4) /
(2)
DP Ratio
(6) = (5) /
(3)2008-
09 2,949.55 119.23 24.74 1,065.22 8.93 0.36
2009-
10 10,220.55 242.79 42.10 3,665.17 15.10 0.36
2010-
11 7,445.48 242.79 30.67 2,665.25