financial analysis of ongc Final project

1

INTRODUCTION TO

OIL AND GAS CORPORATION

LIMITED (ONGC)

1.1• HISTORY OF ONGC

1.2• BASIC INFORMATION

1.3

• ONGC VISION AND MISSION STATEMENT

1.4• ASSETS/BASINS/PLANTS/INSTITUTE

1.5 • SWOT ANALYSIS OF ONGC

1.6

• SUBSIDIARIES AND JOINT VENTURE

1.7• BOARD OF DIRECTORS

1.8• ONGC STRUCTURE

1.9• ABOUT MEHSANA ASSET

1

Year

2012

OIL AND NATURAL GAS CORPORATION

LTD

2

INTRODUCTION

1.1 HISTORY OF ONGC

1947-1960

During the pre-independence period, the Assam Oil Company in the north-eastern and

Attack Oil company in north-western part of the undivided India were the only oil

companies producing oil in the country, with minimal exploration input. The major

part of Indian sedimentary basins was deemed to be unfit for development of oil and

gas resources.

After independence, the national Government realized the importance oil

and gas for rapid industrial development and its strategic role in defence.

Consequently, while framing the Industrial Policy Statement of 1948, the

development of petroleum industry in the country was considered to be of

utmost necessity.

Until 1955, private oil companies mainly carried out exploration of hydrocarbon

resources of India. In Assam, the Assam Oil Company was producing oil at Digboi

(discovered in 1889) and the Oil India Ltd. (a 50% joint venture between

Government of India and Burmah Oil Company) was engaged in developing

two newly discovered large fields Naharkatiya and Moran in Assam. In West

Bengal, the Indo-Stan vac Petroleum project (a joint venture between Government of

India and Standard Vacuum Oil Company of USA) was engaged in exploration

work. The vast sedimentary tract in other parts of India and adjoining

offshore remained largely unexplored.

In 1955, Government of India decided to develop the oil and natural gas resources in

the various regions of the country as part of the Public Sector development. With this

objective, an Oil and Natural Gas Directorate was set up towards the end of 1955, as a

subordinate office under the then Ministry of Natural Resources and Scientific

Research. The department was constituted with a nucleus of geoscientists from the

Geological survey of India.

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A delegation under the leadership of Mr. K D Malviya, the then Minister of Natural

Resources, visited several European countries to study the status of oil industry in

those countries and to facilitate the training of Indian professionals for exploring

potential oil and gas reserves. Foreign experts from USA, West Germany, Romania

and erstwhile U.S.S.R visited India and helped the government with their expertise.

Finally, the visiting Soviet experts drew up a detailed plan for geological and

geophysical surveys and drilling operations to be carried out in the 2nd Five Year

Plan (1956-57 to 1960-61).

In October 1959, the Commission was converted into a statutory body by an act of the

Indian Parliament, which enhanced powers of the commission further. The main

functions of the Oland Natural Gas Commission subject to the provisions of the Act

were "to plan, promote, organize and implement programs for development of

Petroleum Resources and the production and sale of petroleum and petroleum

products produced by it, and to perform such other functions as the Central

Government may, from time to time, assign to it ". The act further outlined the

activities and steps to be taken by ONGC in fulfilling its mandate.

1961-1990

Since its inception, ONGC has been instrumental in transforming the country's limited

upstream sector into a large viable playing field, with its activities spread throughout

India and significantly in overseas territories. In the inland areas, ONGC not only

found new resources in Assam but also established new oil province in Cambay basin

(Gujarat), while adding new petroliferous areas in the Assam-Arakan Fold Belt and

East coast basins (both inland and offshore).

ONGC went offshore in early 70's and discovered a giant oil field in the form of

Bombay High, now known as Mumbai High. This discovery, along with subsequent

discoveries of huge oil and gas fields in Western offshore changed the oil scenario of

the country. Subsequently, over 5 billion tonnes of hydrocarbons, which were present

in the country, were discovered. The most important contribution of ONGC, however,

is its self-reliance and development of core competence in E&P activities at a globally

competitive level.

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After 1990

The liberalized economic policy, adopted by the Government of India in July 1991,

sought toderegulate and de-licenses the core sectors (including petroleum sector) with

partial disinvestments of government equity in Public Sector Undertakings and other

measures. As consequence thereof, ONGC was re-organized as a limited Company

under the Company‟s Act, 1956 in February 1994.

After the conversion of business of the erstwhile Oil & Natural Gas Commission to

that of Oil & Natural Gas Corporation Limited in 1993, the Government disinvested 2

per cent of itsshares through competitive bidding. Subsequently, ONGC expanded its

equity by another 2 per cent by offering shares to its employees.

During March 1999, ONGC, Indian Oil Corporation (IOC) - a downstream giant and

Gas Authority of India Limited (GAIL) - the only gas marketing company, agreed to

have crossholding in each other's stock. This paved the way for long-term strategic

alliances both for the domestic and overseas business opportunities in the energy

value chain, amongst themselves. Consequent to this the Government sold off 10 per

cent of its share holding in ONGC to IOC and 2.5 per cent to GAIL. With this, the

Government holding in ONGC come down to 84.11 per cent.

In the year 2002-03, after taking over MRPL from the A V Birla Group, ONGC

diversified into the downstream sector. ONGC will soon be entering into the retailing

business. ONGC has also entered the global field through its subsidiary, ONGC

Videsh Ltd. (OVL). ONGC has made major investment in Vietnam, Sakhalin Sudan

and earned its first hydrocarbon revenue from its investment in Vietnam.

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1.2 BASIC INFORMATION

Company name: Oil & Natural Gas Corporation Limited.

Incorporation year: 1959

Ownership: Central Govt. – Commercial Enterprises.

Main Activity: Exploration & Production of Oil and Gas

Registered office: jeevan bharti tower-2,124-indian chowk, Connaught

place, new delhi-110001

Address: ONGC limited KDMbhavan palavasana near palavasna chokdi

mehsana

Bankers: state bank of India

1.3 ONGC VISION AND MISSION STATEMENT

1.3.1 COMPANY’S VISION

“To be a world class Oil & Gas Company Integrated in energy business with

dominant Indian leadership and global presence.”

Motto

“Provide quality services with efficiency and transparency.”

1.3.2 MISSION

World Class

Dedication towards leveraging competitive advantages in R&D and

technology with involved people.

Imbibing high standards of business ethics and organizational values.

Abiding commitment to health, safety and environment to enrich quality of

community life.

Fostering a culture of trust, openness and mutual concern to make working

stimulating & challenging experience for our people.

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Striving for customer delight through quality products and services

1.3.3 INTEGRATED IN ENERGY BUSINESS

Provide value linkages in other sectors of energy business.

Create growth opportunities and maximize shareholder value.

Dominant Indian Leadership

Retain dominant position in Indian Petroleum sector and enhance India's

energy availability

1.3.4 STRATEGIC VISION: 2001-2020

To focus on core business of E&P, ONGC has set strategic objectives of:

Doubling reserves (i.e. accreting 6 billion tones of O+OEG).

Improving average recovery from 28 per cent to 40 per cent.

Tie-up 20 MMTPA of equity Hydrocarbon from abroad.

The focus of management will be to monetize the money.

1.3.5 GLOBAL RANKING

It is Asia‟s best Oil & Gas Company, as per a recent survey conducted by US-

based magazine „Global Finance‟.

It is placed at the top of all indian corporte listed in forbes 400 global

corporate (rank 133 rd) and financial times global 500(rank 326th),by market

capitalization.

It is recognized as the Most Valuable Indian Corporate, by Market

Capitalization, Net Worth and Net Profits, in current listings of Economic

Times 500 (4th time in a row), Business Today 500, Business Baron 500 and

Business Week.

It is targeting to have all its installations (offshore and onshore) accredited

(certified) by March 2005. This will make ONGC the only company in the

world in this regard.

It owns and operates more than 11000 kilo meters of pipelines in India,

including nearly 3200kilometers of sub-sea pipelines. No other company in

India operates even 50 per cent of this route length.

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Crossed the landmark of earning Net Profit exceeding Rs.10, 000 Core, and

the first to do so among all Indian Corporate, and a remarkable Net Profit to

Revenue ratio of 29.8 per cent. The growth in ONGC's profits is not solely due

to deregulation in crude prices in India, as deregulation has affected all the oil

companies, upstream as well as downstream, but it is only ONGC which has

exhibited such a performance (of doubling turnover and profits). Has paid the

highest-ever dividend in the Indian corporate history.

Its 10 per cent equity sale (India's highest-ever equity offer) received

unprecedented Global Investor recognition. This was a landmark in Indian

equity market, establishing beyond doubt, the respect ONGC's professional

management commands among the global investor community. According to a

report published in 'The Asian Wall Street Journal (Hong Kong)',ONGC's

Public Issue brought in 20 Foreign Institutional Investors (FII‟s) to India, as (it

was reported), 'they could not ignore the company representing India's energy

security'.

1.3.6 Ongc’s pioneering efforts

Ongc is the only fully integrated petroleum company in india, operating along the

entire hydrocarbon value chain:

Holds largest share (57.2%) of hydrocarbon acreages in India.

Contributes over 84% of India‟s oil &gas production.

Every sixth LPG cylinder comes from ONGC.

About one-tenth of Indian refining capacity.

Created a record of sorts by turning Mangalore Refinery in petrochemicals

limited around from being a stretcher case for referral to BIFR to among the

BSE top 30, within year.

Owns 23% OF Mangalore-Hasan-Bangalore product pipeline (MHBPL),

connecting MRPL to the Karnataka hinterland

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1.4 ASSETS/BASINS/PLANTS/INSTITUTES

Assets/Plants

Mumbai High Asset, Mumbai

Neelam & Heera Asset Mumbai

Bassein & Satellite Asset, Mumbai

Uran Plant, Uran

Hazira Plant, Hazira

Ahmedabad Asset, Ahmedabad

Ankleshwar Asset, Ankleshwar

Mehsana Asset, Mehsana

Rajamundry Asset, Rajamundry

Karaikal Asset, Karaikal

Assam Asset, Assam

Tripura Asset, Agartala

Basins

Western Offshore Basin, Mumbai

Western Onshore Basin, Baroda

K. G. Basin, Rajahmundry

Cauvery Basin, Chennai

Assam & Assam-Ark an Basin, Jorhat

CBM- BPM Basin, Kolkata

Frontier Basin, Dehradun

Plants

Uran Plant, Uran

Hazira Plant, Hazira

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Region

Mumbai Region, Mumbai

Western Region, Baroda

Eastern Region, Nazira

Southern Region, Chennai

Central Region, Kolkata

Institutes

Keshava Deva Malaviya Insti. of Petroleum Exploration (KDMIPE),Dehradun

Institute of Drilling Tech., (IDT), Dehradun

Institute of Reservoir Studies, Ahmedabad

Institute of Oil & Gas Production Tech., Navi Mumbai

Institute of Engineering & Ocean Tech.,, Navi Mumbai

Geo-data Processing & Interpretation Center (GEOPIC), Dehradun

ONGC Academy, Dehradun

Institute of Petroleum Safety, Health & Envi. Management, Goa

Institute of Biotechnology & Geotectonic Studies, Jorha

School of Maintenance Practices, Baroda

Regional Training Insti., Navi Mumbai, Chennai, Sivasagar & Baroda

Services

Chief Drilling Services, Mumbai

Chief Well Services , New Delhi

Chief Geo-Physical Services, Dehradun

Chief Logging Services, Mumbai

Chief Engineering Services, Mumbai

Chief Offshore Logistics, Mumbai

Chief Technical Services, Dehradun

Chief Info-com Services, New Delhi

Chief Corporate Planning, New Delhi

Chief Human Resource Development, Dehradun

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Chief Employee Relations, Dehradun

Chief Security, New Delhi

Company Secretary, New Delhi

Chief Marketing, New Delhi

Head Corporate Affairs & Co-ordination, New Delhi

Head Corporate Communication, New Delhi

Chief Material Management, Dehradun

Chief Health, Safety & Environment, Mumbai

Head Legal, New Delhi

Chief Medical, Dehradun

Chief Internal audit, New Delhi

Head Commercial, New Delhi

Chief Exploration & Development, Dehradun

1.5 SWOT ANALYSIS OF ONGC

1) STRENGTHS

O.N.G.C LTD is perceived to be the leader in oil production industry.

It has a very efficient and professional management team.

Being an international company has sufficient resources and capital to invest.

O.N.G.C has ISO-9001 & ISO 14001 registration.

2) WEAKNESS

O.N.G.C is facing difficulties to produce oil from aging reservoirs.

3) OPPURTUNITY

Energy utilization of buried coal resource (700 -1700M), estimated 63BT –

Equivalent to15000 BCM.

4) THREATS

Security of personnel & property especially crude oil continues to be a cause

of concern in certain area.

Some exploration Campaign Company involves high technology, high

technology, high investment and high risks.

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ONGC OFFICE ALL OVER INDIA

(DRAW NO.1 ONDC OFFICE ALL OVER INDIA)

12

The Road Ahead

ONGC is entering LNG (re-gasification), Petrochemicals, power generation, as well

as crude and gas shipping, to have presence along the entire hydrocarbon value chain.

While remaining focused on the core business of Oil & Gas E&P, it is also looking at

the future promoting and applied R&D in alternate fuels (which can be commercially

brought to marked).these efforts in integration are basically to exploit the core

competency of the organization knowledge of hydrocarbon, gained over the five

decades.

New Business

ONGC has also ventured in Coal Bed Methane (CBM) and Underground Coal

Gasification (UCG); CBM production would commence in 2006-07 and UCG in

2008-09.

ONGC is also looking at Gas Hydrates, as it is one possible source that could make

India self sufficient in energy, on a sustained basis.

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1.6 SUBSIDIARIES AND JOINT VENTURE

1.6.1 SUBSIDIARIES

1.6.1.1 ONGC Videsh Ltd.(OVL)

ONGC Videsh ltd is the wholly subsidiary of ONGC

”OVL is the first Indian company to produce oil & gas overseas.”

OVL today is the “Second largest E&P Company in India”, second only to ONGC

inters of Oil & Gas reserves. It has 12 overseas assets and is actively seeking more

opportunities. OVL‟s efforts have been supported wholeheartedly by the Govt. of

India, which has allowed OVL single window clearance for overseas upstream

projects irrespective of investments involved.

OVL has been designated as the Indian Nodal Agency for overseas petroleum

business and is maintained as a permanent participant in all concerned bilateral

interaction and joint working groups of Govt. of India. The strategic objective of

parent company ONGC and the Govt of India provide the basis for the strategic

direction of OVL. Taking into account the industry environment and other influencing

factors, both internal and external, strategic direction has been formulated, which is

re-evaluated on a continuous basis given the rapidly changing nature of the global

petroleum industry to better adapt to the scenario.

The functional directors of ONGC serve as the directors on the OVL board as well,

thus inducing cohesion of the corporate objectives and goal congruence in both

organizations.

OVL follows meritocracy and draws its human resource from the parent company,

were the functional directors are consulted for selection. The finance for the operation

is provided by ONGC in form of Loans, interest free advances and equity.

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1.6.1.2 Mangalore Refinery and Petrochemicals Ltd (MRPL)

MRPL, a subsidiary of ONGC has turned back to a profit making company just inthe

3rd after ONGC management control. ONGC‟s shareholding has increased from51%

to 71.62% in June –July 2003 through the buy-back of lenders equity at par, under the

mutually agreed Debt Restructuring Package.

MRPL has showed excellent performance in the very first year of its operation as

subsidiary of ONGC. The performance in 2003-04 under all parameters was better

than the projection made at the time of the acquisition. It earned net profit of Rs,

4594.15 million as against a net loss of Rs.4118.06 million in previous year. MRPL is

no longer a potentially sick company as its accumulated losses have gone down below

50% of the net worth on 31st March 2004. MRPL was awarded highest „Five Star‟

rating the British Safety Council. It is the third refinery in India to get this prestigious

certification.

Equity shares of MRPL are now traded under‟ A‟ category of Mumbai Stock

Exchange (BSE) from 1st March 2004. The Market capitalization of MRPL on the

BSEtouched Rs.100 billion mark on 7Th January, 2004.

MRPL exported products (Motor Spirit, Naphtha, Reformate, HSD, ATF, FO, LSHS)

worth Rs.44720 million during the year (up 133.77% from Rs.19130 million) and has

emerged as the second largest export of petroleum products.

MRPL has entered in MOU with ONGC for purchase of Mumbai High Crude at arm‟s

length price.

1.6.2 JOINT VENTURESP

1.6.2.1 Petro net LNG Ltd.(PIL)

Petro net LNG Ltd, a joint venture co-promoted by ONGC completed the

construction of India first LNG terminal at Dahej on time, and the facility was

dedicated to the nation on 9th

February, 2004. Commercial sale of re-gasified LNG

from Dahej terminal has already commenced. PLL also achieved financial closure.

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1.6.2.1 Petro net MHB Limited

ONGC has acquired 23% equity in Petro net MHB Ltd, which is successfully

operating the 362.3km product pipeline from Mangalore (MRPL) to Bangalore via

Hassan.

1.6.2.3 ONGC International Private Limited (ONGIO)

This 50-50 JV with Indian Oil Corporation Ltd (IOCL),in corporate on 8th

June 2001

has incurred cumulative loss of Rs. 30.1 million till 31st March, 2004. Given

lukewarm co- promoter support, it was decided by the ONGC Board of

Director to withdraw from the JV which is to be dissolved. However, the

Department of Company Affair has not accepted application to wind up the

ONGIO under section 560 of the Companies Act 1956, on the ground that it

had carried on business during the year 2003-04. Hence, it will continue to exit

without any activities till it is finally wound up.

1.6.2.4 Pawan Hans Helicopters Ltd. (PHHL)

ONGC invested in 21.5% of equity capital of PHHL which provides Helicopter

services primarily to ONGC.

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1.6.1 ONGC GROUP OF COMPANIES

(DRAW NO: 2ONGC GROUP OF COMPANIES)

17

1.7 BOARD OF DIRECTORS

Mr. R.S.Sharma

Chairman & Managing Director

Mr.D.K.Sharaf Director (Finance)

Dr.A.K.Balyan Director (HR)

Mr.A.K.Hazarika Director (Onshore)

Mr.N.K.Mitra Director (Offshore)

Mr.P.K.Deb Director

Mr. Sunjoy Joshi Director

Mr.M.M.ChitaleDirector

Mr.Rajesh V. Shah Director

Mr. U. Sundararajan Director

Mr.N.K.Nayyar Director

Mr.P.K.Sinha Director

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1.8 ONGC Organogram

(Crc structure)

(DRAW NO:3 ONGC STRUCTURE)

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1.9 ABOUT MEHSANA ASSET:

Mehsana asset is the largest oil production onshore asset. mehsana tectonic block is

fairly well exploration productive block of north combat with nearly four decades

exploration history. The exploration, development & exploration activities are being

undertaken in asset intended. The earliest success was achieved in 1967 with

discovery of north kadi field, largest oil block of mehasana block. Oil in mehsana

block is heavy as well as light.

The oil field with low gravity API gravity & high viscosity are santhal, balol, and

becharaji & lanva. Oil field with moderate API gravity is north kadi, shobhasan,

jotana,nandasan, linch & langnaj.

Mehsana block encompasses 6000square kilometres. Exploration success for large &

small fields came about simultaneously in the first decades. So far 28 filed have been

discovered. The peak production was achieved in the 22nd

year of it existence. The

decline has been arrested & now production has been increasing from 1999. The

revival has achieved through better reservoir management, implementation of

different IOR & EOR.

Exploration today‟s focused on subtle traps of & small amplitude entrapment

situation. Current effort is best with problem related to shield of middle scone market

especially thick coals, which tends to mask seismic reflection from deeper section.

The major oil field of mehsana asset have been operating for last 25 year.80% of well

operate of artificial lift. About 400 works over operation are carried ot every year.

Despite problems related to aging, asset has between able to pag down the sick well

inventory well under control.

As a mehsana of build up to date for future coal bed methane exploration, a number of

coal cores have taken from shobhasan filed as a part of R & D efforts, this however

will go a long way in chalking out strategy for CBM exploration. Two wells drilled

for underground coal gasification in mehsana city were evaluated for utility

exploration of UCG. it is estimated that the asset has 63 billons tones of local reserves

at the depth of 700 to 1700 masters with expected producible energy of 15000 BCM.

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The mehsana project came into 7th

nov 1967 when it has bifurcated from Ahmadabad

to facilitate administrative & operational convenience.

First well drilled mehsana structure-1 spudded on 20-04-1964.

First oil well drilled-mehsana 2. Deepest well drilled south warasan-I depth

5000M>

Oldest formation encountered granite basement well serau east-I.

Deepest oil zone drilled -2198-2208m well mehsana –II.

Shallowest oil zone drilled 1790-1794m well langhanaj-II

First hydrocarbon bearing filed mnsa-II

First EOR scheme balol instu combustion pilot project 15.03.1990

First coal bed methane exploration well shobhasan 17.02.1991.

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a

BRIEF OVERVIEW OF FINANCE

DEPARTMENT

2.1•MEHSANA FINANCE DEPARTMENT STRUCTURE

2.2•INTRODUCTION OF VARIOUS FINANCE SECTIONS

2.3•FINANCIAL INFORMATION OF THE COMPANY

2

Year

2012


LTD

22

GENERALMANAGER(F&A))

CHIEFMANAGER(F&A)

INCHARGECENTR

ALA/C

INCHARGE

ASSETA/C

INCHARGECOSTING/WELLS

/IUT

INCHARGECASH/B

ANK

INCHARGEPREAUD

IT

INCHARGEBUDGE

T

INCHARGE PCS

2.1) MEHSANA FINANCE DEPARTMENT

STRUCTURE

(DRAW NO:4 MEHSANA FINANCE DEPARTMENT STRUCTURE)

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2.2) INTRODUCTION OF VARIOUS FINANCE

SECTIONS

2.2.1 BUDGET SECTION:

Introduction

Under the guidance of Mr. Vishal sir. I came to realize the importance of budgeting.

In ONGC, the budget section plays a very important and crucial role. The reason is

that whenever there is requirement of any kind of material or service, proper

arrangement of fund is required and for that purpose budgeting is done. Due to

restriction on number of pages for project report, every detail of budget is not

covered.

Budgetary controls – definition

Budgetary control is a technique whereby actual utilization is compared

with budgets to make the budget an effective financial control tool. Any

differences/ variances are the responsibility of key individuals who can either

exercise control action or revise the original budgets after providing necessary

justifications to the top management. Budgetary control is defined by the Institute of

Cost and Management Accountants (CIMA) as: The establishment of budgets relating

the responsibilities of executives to the requirements of a policy, and the continuous

comparison of actual results with budgeted results, either to secure by individual

action the objective of that policy, or to provide a basis for its revision

Budgeting Process in ONGC

General Functioning or System or working of F&A department (especially in respect

of Budgeting)

Before moving forward it is important to know about the Budget Software known as

Budget Manual which is used for the budget data entry prior uploading of final data

into SAP

The method use by ONGC is ACTIVITY BASE BUDGET. This budget done by the

various departments like drilling department, surface department, MM department,

24

logging department etc. according their future needs and at last the club it in to the

actual budget.

2.2.2 CASH AND BANK SECTION

This section is responsible for the receipts and payments either in cash or cheque or

by any other form. This section is also responsible for the custody of cash, documents

in respect of investments of corporation money and other important documents. Major

activities perform by cash & bank section

Cash withdrawal from bank.

Cash payments and receipts.

Payments and receipts(other than cash)

Cheque management

Regular payments on behalf of employees.

Remittance of tax deducted at source.

Dispatch of released payments.

Liquidity for cast and fund management.

MIS activities.

In ONGC the vendors payments are done by the Mumbai headquarter

And employees salaries are done by the Dehradun headquarter.

Various fees for issuing tender forms to our suppliers are collected by cash

and bank section.

Earnest money deposit(EMD)

Security deposit (SD)

2.2.3 PRE AUDIT SECTION

This section is also known as accounts payable section. The section is divided into

two parts – one is pre-audit supply cell and other is pre-audit service contract cell.

Pre-audit is also known as voucher-audit or administrative audit and denotes scrutiny

&examination, before releasing the payments. Types of Bills:

Supplier‟s Bills

Contractor‟s Bills

25

Miscellaneous payments the scope of Pre-audit also includes scrutiny of receipts of

the corporation. Activities normally regarded as pre-audit receipt-accounting for

incoming cash, such as:

Initial public offering (IPO)

Bank drafts/banker‟s cheque

Bank guarantees.

Receipts of FDR kept as security deposits with GEB, irrigation department.

Logistics invoice verification (LIV) with the integrated network of SAP being

used during verification find out any error in the documents before payments

are made and deal with it.

2.2.4 PERSONAL CLAIM SECTION

This section deals with policies, procedures, controls, roles and responsibilities related

to accounting for employee related payments, recoveries, corresponding statutory

payments &compliances. The process explained in this section covers payments

to/recoveries from:

Regular employees of ONGC;

Graduate Engineering Trainees (GET)/Management Trainees (MT)

Retired employees; and

Term based employees, (for example employees on deputation)Payments to regular

employees include monthly salary payments, off-cycle payments (for example holiday

home, briefcase payments etc.), loans & advances. GET/MT are paid as per their

terms of employment. Retired employees are paid medical expense reimbursements as

per HR policy. Recoveries from regular employees include House Rent Recovery

(HRR), Association of Scientific and Technical Officers (ASTO) union recoveries,

recoveries of loans &advances etc.

Main Role of PCS Section

Updating employee payroll data at the time of joining.

Accounting of various employee related payments.

Accounting for full & final settlement on separation of employees.

Payment to retired employees.

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Inter unit transfers and deputations to/from the Company.

Tax Deducted at Source deductions and deposits

Accounting for retirement benefits and related employee benefits.

2.3) FINANCIAL INFORMATION OF THE COMPANY

2.3.1 Accounting policies

The company follows the accrual method of accounting. The company has followed

the entire applicable accounting standards mad mandatory by institute of chartered

accountants of India.

2.3.2 Equity capital

The fully paid up equity capital of the company was as. During the year under review

there was no change in the equity capital structure of there is no issued preference

capital in sterling ceramic ltd. There is no warrant waiting to be covered into equity.

Nearly percent of company equity is comprised of bonus shares. The company last

made a bonus issue in issuing two bonus shares for one share held in the company.

2.3.3 Loans

Oil and natural gas corporation ltd loan fund decreased form in the previous year to

during the year. During the current year the ratio of secured long term funds to

tangible net worth increased to in the previous year.

2.3.4 Fixed assets

The gross and net block of the company as on were and respectively. Plant and

machinery constituted of the gross block and net block respectively.

2.3.5 Depreciation

Depreciation accounted for in the current year compared to in the previous year

compared to in the previous year. There is no change in the accounting policy for

depreciation over the last year.

27

2.3.6 Corporate tax

In view of loss during the year under review, the company has not provided for any

tax liability this year also.

2.3.7 Debtors

During the year under the review the sundry debtors were compared to in the previous

year representing of sales compared to of sales In the previous year. The sundry

debtors are net of provision for doubtful debts of the increase in sundry debtors are

due to market conditions.

2.3.8 Inventories

Inventories decreased from in the previous year to during the current year to during

the current year. Of this finished goods, raw material and spares inventory of stock in

process however increased.

2.3.9 Working capital

The working capital gap during the current year was lower at which is lower than in

tha previous year. The working capital of is founded by bank borrowing to the extent

of and the balance is founded out of company‟s own resource. Each rupee of working

capital generated of gross turnover in the current year compared to in the previous

year. Oil and natural gas corporation ltd shall continue to make to further improve

working capital management by stricter control over inventories and book debts.

2.3.10 Reserves

Oil and natural gas corporation ltd reserves stood at as on nearly per cent of the

company‟s reserves were earned. Per cent comprised capital reserves. There were no

revaluation reserves as on. During the year under review a Sam of representing items.

28

BALANCESHEET

ANALYSIS

3.1

•INTRODUCTION TO BALANCESHEET

3.2•BALANCE SHEET

3

Year

2012


LTD

29

3.1 INTRODUCTION TO BALANCESHEET

A balance sheet is a list of assets and liabilities and claims of a business at some

specific point of time and is prepared from an adjusted Trial Balance. It shows the

financial position of a business by detailing the source of funds and utilization of

these funds. Balance Sheet shows the assets and liabilities grouped, properly

classified and arranged in a specific manner.

USES OF BALANCE SHEET

It enables us to ascertain the proprietary interest of a person or business

organization.

It enables us to calculate the actual capital employed in the business.

The lender can ascertain the financial position of the business.

It may serve as the basis for determining purchase consideration of the

business.

Different ratio can be calculated from the Balance Sheet and these ratios can

be utilized for better management of the business.

LIMITATION OF BALANCE SHEET

Fixed assets are shown in the Balance Sheet as historical costless

depreciation up-to-date. A conventional Balance Sheet can not reflect

the true value of these assets. Again intangible assets are shown in the

Balance Sheet at book values which may bear no relationship to the

market values.

Sometimes, balance sheet contains some assets which c o m m a n d n o

market value such as expense, debenture discount etc. the inclusion of

these assets unduly inflate the total value of assets.

The balance sheet can not reflect the value of certain factors such as skill and

loyalty of staff.

30

3.2 BALANCE SHEET

BALANCE SHEET OF ONGCAS ON 31ST

MARCH

Balance Sheet ------------------- in Rs. Cr. -------------------

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share

Capital

4,277.76 2,138.89 2,138.89 2,138.89 2,138.89

Equity Share

Capital

4,277.76 2,138.89 2,138.89 2,138.89 2,138.89

Share

Application

Money

0.00 0.00 0.00 0.00 0.00

Preference

Share Capital

0.00 0.00 0.00 0.00 0.00

Reserves 93,226.67 85,143.72 76,596.53 68,478.51 59,785.04

Revaluation

Reserves

0.00 0.00 0.00 0.00 0.00

Networth 97,504.43 87,282.61 78,735.42 70,617.40 61,923.93

Secured Loans 0.00 0.00 0.00 0.00 0.00

Unsecured

Loans

17,564.26 16,405.64 16,035.70 12,482.71 15,109.07

Total Debt 17,564.26 16,405.64 16,035.70 12,482.71 15,109.07

Total Liabilities 115,068.69 103,688.25 94,771.12 83,100.11 77,033.00

Application Of Funds

Gross Block 80,938.60 71,553.78 61,355.61 57,463.78 52,038.07

Less: Accum.

Depreciation

62,299.05 55,905.28 50,941.23 46,945.77 43,198.95

Net Block 18,639.55 15,648.50 10,414.38 10,518.01 8,839.12

31

Capital Work in

Progress

65,354.44 56,073.25 52,923.19 41,154.63 37,794.16

Investments 5,332.84 5,772.03 5,090.32 5,899.50 5,702.05

Inventories 4,118.98 4,678.57 4,060.67 3,480.64 3,033.76

Sundry Debtors 3,845.90 3,058.64 4,083.80 4,360.37 2,759.44

Cash and Bank

Balance

356.55 282.85 161.48 269.22 27.42

Total Current

Assets

8,321.43 8,020.06 8,305.95 8,110.23 5,820.62

Loans and

Advances

64,693.91 63,721.90 55,964.02 38,906.53 58,710.79

Fixed Deposits 22,090.00 17,948.18 18,934.74 22,148.43 19,253.37

Total CA, Loans

& Advances

95,105.34 89,690.14 83,204.71 69,165.19 83,784.78

Deffered Credit 0.00 0.00 0.00 0.00 0.00

Current

Liabilities

35,384.31 27,244.53 26,854.11 22,482.94 19,835.99

Provisions 34,775.19 37,092.46 30,657.98 21,828.17 39,765.20

Total CL &

Provisions

70,159.50 64,336.99 57,512.09 44,311.11 59,601.19

Net Current

Assets

24,945.84 25,353.15 25,692.62 24,854.08 24,183.59

Miscellaneous

Expenses

796.03 841.32 650.61 673.90 514.06

Total Assets 115,068.70 103,688.25 94,771.12 83,100.12 77,032.98

Contingent

Liabilities

38,979.63 39,178.54 36,024.57 26,006.73 34,157.17

Book Value (Rs) 113.97 408.08 368.12 330.16 289.52

Table no:1

32

INTERPRETATION:-

The balance sheet is the statement showing the increase or decrease in the

assets and liabilities. This indicates the change in capital structure as well as

increase or decrease in assets.

Owner‟s fund increases by 2138.87 Crore in 2011 as compared to base year

2007. The reserves & surplus is also get increase in last four years very

rapidly. It increases by 33441.63 Crore in 2011 as compared to base year

2007.

Proportion of the debt in capital structure is decrease that is in2007borrowing

debt is 15,109.07 Crore and in 2008 debt is 12,482.71 Crore. So, it is decrease

by 96.43.after next three year continues increase.

The balance sheet also shows the balance of assets and other investment made

by the company. The gross fixed assets are increased in 2008 by 1678.90

Crore as compared to previous year 2007.

The investment is also increase in 2008 by 197.45 Crore as compared to

previous year. After the investment is also decreases in 2009 by 800.18 crore

as compared to previous year. And in 2010 it is increase than 2009 after than it

is a decrease in 2011 by439.19 crore. The overall inventory turnover ratio

shows the good position of the company is good.

We also conclude that the liquid position of the company is good because

Current Assets are increase year by year.

33

INVESTMENT CHART:-

Chart no:1

INTERPRETATION:-

The investment is also increase in 2008 by 197.45 Crore as compared to

previous year. After the investment is also decreases in 2009 by 800.18 crore

as compared to previous year. And in 2010 it is increase than 2009 after than it

is a decrease in 2011 by439.19 crore as compare to previous year. The overall

inventory turnover ratio shows the good position of the company is good.

5,702.05

5,899.50

5,090.32

5,772.03

5,332.84

4,600.00

4,800.00

5,000.00

5,200.00

5,400.00

5,600.00

5,800.00

6,000.00

2007 2008 2009 2010 2011

Investments

Investments

34

PROFIT AND LOSS ACCOUNT

ANALYSIS

4.1

•INTRODUCTION TO PROFIT AND LOSSACCOUNT

4.2•PROFIT & LOSS ACCOUNT

4

Year

2012


LTD

35

4.1) INTRODUCTION TO PROFIT AND LOSSACCOUNT

The Profit & Loss account is also known as the income statement. It can be defined as

a report that summaries the revenues and expenses of an accounting period to reflect

the changes in various critical areas of firm‟s operation. It is of greatest interest and

import and importance to end-users of accounting statements because it enables them

to ascertain whether the business operations have been profitable or not during that

particular period.

The important destination between the balance sheet and income statement is for a

period of one year. The two broad categories of item shown in the income statement

are revenue and expenses. Revenues derived from a company‟s operation say

manufacturing and selling products. During transaction business has also incurred

revenues other than main business operation. Expenses are occurred in day-to-day

transactions.

Here, expenses regarding manufacturing activities, office and administrative expenses

are considered. By deducting total expenses from total revenue we get profit

and by deducting total revenue from total expenses we get total loss. Income tax

amount is also decided by profit that incurred in business with help of this statement.

36

4.2 )PROFIT & LOSS ACCOUNT

Profit & Loss account ------------------- in Rs. Cr. -------------------

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07


Income

Sales Turnover 66,487.19 60,470.18 64,342.28 60,466.48 57,190.17

Excise Duty 322.85 218.41 338.29 401.38 276.73

Net Sales 66,164.34 60,251.77 64,003.99 60,065.10 56,913.44

Other Income 5,028.07 3,615.96 4,085.59 4,228.63 3,107.05

Stock Adjustments 12.91 118.04 81.10 114.11 -19.73

Total Income 71,205.32 63,985.77 68,170.68 64,407.84 60,000.76

Expenditure

Raw Materials 2,790.68 2,431.88 10,905.51 8,424.32 8,177.22

Power & Fuel Cost 285.60 260.38 270.79 317.15 320.28

Employee Cost 6,445.18 5,618.16 4,536.80 5,843.27 3,974.79

Other Manufacturing Expenses

32,098.77 26,652.82 19,578.49 17,184.51 15,616.76

Selling and Admin Expenses

-16,565.10 -13,243.69

-4,470.78 -2,328.21 -560.70

Miscellaneous Expenses

492.78 947.65 1,011.04 983.74 1,079.27

Preoperative Exp Capitalised

0.00 0.00 0.00 0.00 0.00

Total Expenses 25,547.91 22,667.20 31,831.85 30,424.78 28,607.62

Mar '11

Mar '10

Mar '09

Mar '08

Mar '07


Operating Profit 40,629.34 37,702.61 32,253.24 29,754.43 28,286.09

PBDIT 45,657.41 41,318.57 36,338.83 33,983.06 31,393.14

Interest 11,133.34 11,276.89 8,485.40 5,016.88 3,724.81

PBDT 34,524.07 30,041.68 27,853.43 28,966.18 27,668.33

Depreciation 6,835.01 5,242.66 4,355.62 3,915.77 3,292.80

Other Written Off 0.00 0.00 0.00 0.00 0.00

Profit Before Tax 27,689.06 24,799.02 23,497.81 25,050.41 24,375.53

Extra-ordinary items 547.70 183.99 790.68 607.25 -564.27

PBT (Post Extra-ord Items)

28,236.76 24,983.01 24,288.49 25,657.66 23,811.26

Tax

9,177.53 8,258.73 8,437.78 8,941.85 8,041.02

Reported Net Profit(PAT)

18,924.00 16,767.56 16,126.32 16,701.65 15,642.92

Total Value Addition 22,757.23 20,235.33 20,926.34 22,000.46 20,430.40

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 7,486.05 7,058.28 6,844.39 6,844.39 6,630.51

Corporate Dividend Tax

1,215.65 1,161.56 1,163.20 1,163.20 1,012.51

37

Per share data (annualised)

Shares in issue (lakhs) 85,554.90 21,388.73 21,388.73 21,388.73 21,388.73

Earning Per Share (Rs)

22.12 78.39 75.40 78.09 73.14

Equity Dividend (%) 335.00 330.00 320.00 320.00 310.00

Book Value (Rs) 113.97 408.08 368.12 330.16 289.52

Table no:2

PAT CHART :-

Rs. cr

Chart no:2

15,642.9216,701.65 16,126.32 16,767.56

18,924.00

0.00

5,000.00

10,000.00

15,000.00

20,000.00

2007 2008 2009 2010 2011

PAT

pat

38

INTERPRETATION:-

The profit and loss account of the company shows the overall income and

expenditure, made by the company in a particular time period. The difference between

the debit and credit side of the P&L account, shows the net profit or net loss.

Here, the profit and loss account of the company shows the satisfactory level but as

compared to previous year the expenses of the company is increases. Here the

sales turnover is increase year by year. The operating income in 2010 is 60,470.18

and now it is increase by 6017.01 Crore Rs. in 2011. So, by this way the net

profit of the company is increase by 2156.44 in 2011 as compared to previous year.

While on the other side the expenditure shows the expenses meet by the company in a

particular period. The expenditure met by the company is highest in 2009, while in

other year the expenditure of the company are increases. T h e overall analysis of

the expenditure side of the company shows the average increase in expenses of the

company.

After analyzing the income and expenditure side of the company, there is difference

between both sides which is known as the net profit / loss. The net profit of the

company shows an overall increase year by year. In 2007 it is 15,642.92Crore Rs. and

now itis increasing and in 2011 it is 18,924.00 Cr.

39

THEORETICAL BACKGROUND

OF WORKING CAPITAL

MANAGEMENT

5.1•MEANING OF WORKING CAPITAL

5.2•CONCEPT OF WORKING CAPITAL

5.3•TYPES OF WORKING CAPITAL

5.4•NEED FOR WORKING CAPITAL

5.5•DETERMINENTS OF WORKING CAPITAL

5.6

•MEANING AND NATURE OF WORKING CAPITAL MANAGEMENT

5.7•WORKING CAPITAL ANALYSIS

5

Year

2012


LTD

40

5 .1 MEANING OF WORKING CAPITAL:-

In simple words working capital means that which is issued to carry out the day to day

operations of a business. Capital required for a business can be classified under two

main categories

Fixed capital

Working capital

Every business needs funds for two purposes, for its establishment and to carry on its

day to day operations. Long term funds are required to create production facilities

through purchase of fixed assets such as plant and machinery, land, building, furniture

etc. Investment in these assets represents that part of firm capital, which is blocked on

a permanent or fixed basis called fixed capital. Funds are also needed for short term

purposes i.e. for the purchase of raw material, payment of wages and other day to day

operations of business. These funds are known as working capital. In other words,

working capital refers to that firm‟s Capital, which is required for short – term assets

or current assets. Funds thus invested in current assets keep revolving last and being

constantly converted into cash and this cash flow is again converted into other current

assts. Hence it is known as circulating or short – term capital.

41

5.2 CONCEPT OF WORKING CAPITAL

5.2.1 Gross Working Capital

It is simply called working capital refers to the firm‟s investment in current assets so

the total current assets of the firm are known as gross working capital.

5.2.1 Net Working Capital

It represents the difference between current assets and current liabilities. Net working

capital may be positive or negative. Positive net working capital is that when current

assets are more than current liabilities. But when current liabilities become more than

current assets than it is negative working capital.

In brief we can say that working capital is too much necessary for the smooth

functioning and proper utilization of fixed assets.

5.3 TYPES OF WORKING CAPITAL

5.3.1 Permanent Working Capital:

As the operating cycle is a continuous process so the need for working capital also

arises continuously. But the magnitude of current assets needed is not always same; it

increases and decreases over time. However there is always a minimum level of

current assets. This level is known as permanent or fixed working capital.

In ONGC maintain the Permanent working capital of the raw material as a 1/3 of total

raw material and 10% work in process and finished goods of the total production.

20% cash balance maintain as permanent in the profit.

5.3.2 Temporary Working Capital:

The extra working capital needed to support the changing production and sales

activities, is called variable or functioning or temporary working capital.

42

For hear ONGC purchase raw material as a plastic for manufacturing pipes in

particular season and have to employ additional labour to process it. They must meet

this requirement for providing additional funds. Another aspect of temporary working

capital. Last year suddenly increase the demand of final product so at that time require

extra fund it‟s called the special working capital.

Temporary working capital differs from permanent working capital in the sense that is

required for short periods and cannot be permanently employed gainfully in the

business. This can

Be shown in the following diagram:-

Amount Of Working Capital Temporary capital

Permanent Capital

Time

(DRAW NO: 5 TEMPORARY WORKING CAPITAL)

5.4 NEED FOR WORKING CAPITAL

The need for working capital cannot be overemphasized. The need of working capital

arises due to the time gap between production and realization of cash from sales. So

the working capital or investment in current assets becomes necessary need for

working capital. It arises due to following reasons:-

43

5.4.1 OPERATING CYCLE

“Operating cycle is the time duration requires for converting sales into

cash after the conversion of resources into inventories.”

First of all a firm purchase Raw Material, then after some processing it is converted

into work–in–progress and after this further processing is done to convert work–in–

progress in finished goods. After the raw material is converted into finished goods,

sales are made. Sales are no always full cash sales; there are credit sales also. These

credit sales after some period are converted into cash. So the whole process takes the

time. This time taken is known as the length of operating cycle. So operating cycles

includes:-

1. Raw Material conversion period (RMCP)

2. Work–in – progress conversion period (WIPCP)

3. Finished goods conversion period (FCP)

4. Debtors Conversion period (DCP)

So operating cycle can be known as following:-

Sales

(DRAW NO:6 OPERATING CYCLE)

Raw Material

Work in Progress

Cash Collection

from Debtors

Finished Goods

Credit Sales Cash Sales

44

If the length of the operating cycle has short length period then less working capital is

required. So working capital requirement is directly related with operating cycle.

Operating cycle may be of two types

1. Gross Operating cycle

2. Net operating cycle

1. Gross Operating cycle

Gross Operating cycle is the total time period from the conversion of Raw Material

into finished goods and finished goods into sales and then sales into cash.

GOC =RMCP + WIPCP + FCP + DCP

2. Net Operating Cycle

As we provide period to debtors for the payments, our creditors also provide period to

us for payment to them. So this reduces our requirement of working capital. This also

affects the operating cycle. Operating cycle‟s length reduces with so many days as

provided by the creditors to us. The difference between gross operating cycle and

period allowed by the creditors for payment is known as net operating cycle

NOC = GOC – CPP

5.4.2 WORKING CAPITAL REQUIREMENT FOR THE ANTICIPATED

NEEDS FOR FUTURE

These needs may be of Raw Material or Finished Goods. Sometimes because of non-

availability of Raw Material or due to seasonal availability of Raw Material some

advances stock of Raw Material becomes necessary for company. In the similar way

due to sudden arise of demand of finished goods in future more finished goods are

kept in stock. For both reasons more working capital is required because funds will be

involve in these safeties stocks.

45

5.5. DETERMINENTS OF WORKING CAPITAL

Followings are the main determinants of working capital.

5.5.1 Nature and Size of Business :

The working capital of a firm basically depends upon nature of its business for e.g.

Public utility undertakings like electricity; water supply needs very less working

capital because offer only cash sales whereas trading & financial firms have a very

less investment in fixed assets but require a large sum of money invested in working

capital.

The size of business also determines working capital requirement and it may be

measured in terms of scale of operations. Greater the size of operation, larger will be

requirement of working capital. Hear ONGC company for manufacturing products not

to the service so require to working capital high in compare to public ltd. Company.

5.5.2 Manufacturing Cycle:

The manufacturing cycle also creates the need of working capital. Manufacturing

cycle starts with the purchase and use of Raw Material and completes with the

production of finished goods. If the manufacturing cycle will be longer more working

capital will be required or vice versa.

In oil and gas corporation ltd. Production Cycle works better and manufacturing

process works fast, so no other costs are incurred in the time of production.

5.5.3 Seasonal variation:

In certain industries like ONGC raw material is not available throughout the year.

They have to buy raw material in bulk during the season to ensure an uninterrupted

flow and process them during the year. Generally, during the busy season, a firm

requires large working capital than in the slack season.

46

5.5.4 Production Policy:

Production policy also determines the working capital level of a firm. If the firm has

steady production policy, it may require need of continuous working capital. But if

the firms adopt a fluctuating production policy means to produce more during the lead

demand season then the more working capital may require at that time but not in other

period during a financial year. So the different productions policy arise different type

of need of working capital.

If the policy is to keep production steady by accumulate inventories it will require

higher working capital.

Oil and gas corporation ltd‟s Production policy is not steady so Requirement of

working capital is less.

5.5.5 Firm’s Credit Policy:

The firm‟s credit policy directly affects the working capital requirement. If the firm

has liberal credit policy, hence the more credit period will be provided to the debtors

so this will lead to more working capital requirement. With the liberal credit policy

operating cycle length increases and vice versa.

Oil and gas corporation ltd Credit Policy for collection toward the debtor for giving 2

or 3 weeks for credit sales in the limit of 2 lakh. Above the 2 lakh give credit for 1

month.

5.5.6 Sales Growth:

Working capital requirement is directly related with sales growth. If the sales are

growing, more working capital will be needed due to arises need of more Raw

Material, finished goods and credit sales. Hear, ONGC Sales growth is increase in

year by year so require more working capital.

5.5.7 Business Cycle:

Business cycle refers to alternate expansion and contraction in general business. In a

period of boom, larger amount of working capital is required where as in a period of

depression lesser amount of working capital is required. ONGC Position is growth

stage. So require working capital is high.

47

5.5.8 Price Level Changes:

Changes in the price level also effects the working capital requirements. Generally,

the rising prices will require the firm to maintain larger amount of working capital as

more funds will be required to maintain the same current assets.

5.5.9 Other Factors:

Certain other factors such as operating efficiency, management ability, irregularities

of supply, import policy, asset structure, importance of labour, banking facilities, time

lag. Etc. also influence the requirement of working capital.

So these are the main determinants of working capital. The importance of influence of

these determinants on working capital may differ from firm to firm

5.6 MEANING AND NATURE OF WORKING CAPITAL

MANAGEMENT

The management of working capital is concerned with two problems that arise in

attempting to manage the current assets, current liabilities and the inter relationship

that asserts between them.

The basic goal is working capital management is to manage current assets and current

liabilities of a firm in such a way that a satisfactory of optimum level of working

capital is maintained i.e. it is neither inadequate nor excessive. This is so because both

inadequate as well as excessive working capital position is bad for business.

5.7 MAJOR DECISIONS IN WORKING CAPITAL

MANAGEMENT

There are two major decisions management relating to working capital management:-

1. What should be ratio of current assets to sales?

2. What should be the appropriate mix of short term financing and long term

financing for financing these current assets?

5.7.1 Current assets in relation to sales

If the firm can forecast accurately the factors, which effect the working capital, the

investment in current assets, can be designed uniquely? When uncertainty

characteristics the above factors, as it usually does the investment in current assets

48

cannot be specified uniquely. In case of uncertainty, the outlay on current assets

should consist of base component meant to meet normal requirement and a safety

component meant to cope with unusual requirement. The safety component depends

upon low conservative or aggressive in the current assets policy of a firm. If the firm

purchases a very conservative current asset policy it would carry a high level of

current assets in relation to sales. If a firm adopts a moderate current assets policy it

would carry moderate level of current assets in relation to sales, finally is a firm

follows a highly aggressive current assets policy, it would carry a low level of current

assets in relation to sales.

5.7.2 Determining a Short Term and Long Term Financing Mix for Financing of

current assets

There are three approaches in this regard, which are discussed below:

5.7.2.1 HEDGING APPROACH

This approach is also called matching approach. In this approach there is a proper

matching of expected life of asset with the duration of fund. Usually, according to this

approach long-term sources are used for financing permanent current assets and fixed

assets & short-term sources are used for financing temporary current assets:

Permanent current assets

Term financing

Time

DRAW NO:7 HEDGING APPROACH

Fixed Assets

Temporary current assets

Short term financing

Long term financing

Assets

49

5.7.2.2 CONSERVATIVE APPROACH

In this approach there is more reliance on long-term financing in comparison to short-

term financing. Even some part of the temporary current comparison to finance from

long-term sources because long-term sources are less risky in comparison to short-

term source

Temporary Current Assets

Short-term financing

Assets

Permanent Current Assets Long-term financing

Fixed Assets

Time

(DRAW NO:8 CONSERVATIVE APPROACH)

5.7.2.3 AGGRESSIVE APPROACH

In this approach there is more reliance on short term financing and even a part of

permanent current assets is financed from short-term finance.

Temporary current assets Short term financing

Assets

Permanent current assets Long term financing

Fixed Assets

Time

(DRAW NO:9 AGGRESSIVE APPROACH)

In Oil and gas corporation ltd, the current assets are financed from short term sources

as well as long term sources, so they follow conservative approach.

50

5.8 WORKING CAPITAL ANALYSIS

5.8.1. ANALYSIS ON THE BASIS OF SCHEDULE OF CHANGES IN

WORKING CAPITAL

SCHEDULE OF CHANGES IN WORKING CAPITAL

(RS.cr)

FOR YEARS 2011 AND 2010

As we have a look on the schedule of changes in working capital for the company

over the years 2010 and 2011, we find that, among in current assets, Loan &

Advances, sundry debtors and Cash &Bank Balance have shown increment from year

2010 to year 2011. The inventories have got decreased in the same years. Among the

current liabilities, liabilities& Provision have increase. So the overall net working

capital has decreased.

PARTICULARS 2011 2010 INCREASE DECREASE

CURRENT ASSETS:

Inventories 4,118.98 4,678.57 5559.59

S. debtors 3,845.90 3,058.64 787.26

Cash & Bank Balances

356.55 282.85

73.7

Loans & Advances

64,693.91 63,721.90 972.01

Total current assets (A)

73,015.34

71741.96

CURRENT LIABILITIES:

Liabilities& provision

70,159.50 64,336.99 5822.51

Total current liabilities (B)

70,159.50 64,336.99

Working capital (A-B)

2855.84

7404.97

Net increase in working capital

7655.48

51

(RS. Cr)



over the years 2008 and 2009, we find that, among in current assets, Loan &

Advances, and Cash &Bank Balance, inventories have shown increment from year

2008 to year 2009. The sundry debtors have got decreased in the same years. Among

the current liabilities, liabilities& Provision have increase. So the overall net working

capital has increase.


CURRENT ASSETS:

Inventories 4,060.67 3,480.64 580.03

S. debtors 4,083.80 4,360.37 276.57


161.48 269.22 107.74

Loans & Advances 55,964.02 38,906.53 17057.49


64269.97 47016.76



57,512.09 44,311.11 13200.98


57,512.09 44,311.11


6757.88 2705.65


30838.5

52

(Rs.cr)



over the years 2007 and 2008, we find that, among in current assets, sundry debtors,

Cash &Bank Balance, inventories have shown increment from year 2007 to year

2008. The Loan & Advances and have got decreased in the same years. Among the

current liabilities, liabilities& Provision have decrease. So the overall net working

capital has decrease.


CURRENT ASSETS:

Inventories 3,480.64 3,033.76 446.88

S. debtors 4,360.37 2,759.44 1600.93


269.22 27.42 241.8

Loans & Advances

38,906.53 58,710.79 19804.26


47016.76 64531.41



44,311.11 59,601.19 15290.08


44,311.11 59,601.19


2705.65 4930.22


2047.81

53

MANAGEMENT OF

INVENTORY

6.1•NATURE OF INVENTORIES

6.2

•OBJECTIVES OF INVENTORY MANAGEMAENT

6.3

•ANALYSIS OF EFFICIENCY OF INVENTORY MANAGEMENT IN ONGC

6

Year

2012


LTD

54

6 MANAGEMENT OF INVENTORY

Inventory is very important part of current assets. Approximately 60% part of current

assets is inventories. So the proper management of inventory is required for

successful working capital management. As the larger amount of funds is involved in

the inventories, so it must be carried with care for proper utilization of funds.

6.1) Nature of Inventories

In inventories we include:

(a) Raw Material: There are those basic inputs which are converted into work-in-

progress after the manufacturing process. ONGC purchased Raw materials as

a Rough Plastic for production and storage purpose.

(b) Work-in-Progress: These inventories are semi-manufactured products. These

products are those which are ready for sale. Product as a pipes, pumps,etc.

(c) Finished Goods: These are completely manufactured products. These

products are those which are ready for sale. In ongc finished product of pipe,

pumps and etc.

Here is one another type of inventory also which is not directly related with

production but facilitate in production process. These inventories are known

as supplies. Cleaning material, oil, fuel, electric tube etc are the supplies.

6.2) OBJECTIVES OF INVENTORY MANAGEMENT

There are so many objectives of inventory management. These objectives may differ

from firm to firm. The main objectives of inventory management are:

To make adequate investment in inventories so that funds can be best utilized.

Smooth production in present and future.

Time availability of inventories.

Smooth and uninterrupted sale processes.

Minimize the cost related with inventories.

To meet the future price change.

To get adequate return on investment.

55

6.3) ANALYSIS OF EFFICIENCY OF INVENTORY

MANAGEMENT IN ONGC

INVENTORY TURNOVER RATIO

It indicates the number of times the stock has been turned over during the period and

evaluates the efficiency with which the firm is to manage inventory. A high inventory

turnover indicates efficient management of inventory because more frequently the

stocks are sold; the lesser amount of money is required to finance the inventory.

Formula: Cost of Goods sold/ Average inventory

Cost of Goods Sold (COGS)

------------------- in Rs. Cr. -------------------

Particular 2010-11 2009-10 2008-09 2007-08 2006-07

Sales 66164.34 60251.77 64003.99 60065.10 56913.44

Gross Profit 45657.41 41318.57 36338.83 33983.06 31393.14

COGS 20506.93 18933.20 27665.16 26082.04 25520.30

Average Inventory:

(Rs.cr)

Particular 2010-11 2009-10 2008-09 2007-08 2006-07

Opening Stock 4678.57 4060.67 3480.64 3033.76 2512.34

Closing Stock 4118.98 4678.57 4060.67 3480.64 3033.76

Average Inventory 4398.78 4369.62 3770.66 3257.2 2923.05

56

Inventory Turnover Ratio:

(Rs.cr)

Particular 2010-11 2009-10 2008-09 2007-08 2006-07

COGS 20506.93 18933.20 27665.16 26082.04 25520.30

Avg. Inventory 4398.05 4369.62 3770.66 3257.2 2923.05

Inventory Turnover

Ratio

4.66 4.33 7.34 8.00 8.73

Table no:3

Chart no:3

Analysis:

The inventory turnover ratio is increasing in the year 2007 after next year in

2008 and 2009 and 2010 it is consistently decreasing. Which indicates that its

performance in terms of generating cash flow is decreasing in this year

because the companies‟ cash flow has blocked in inventories? However, in

2011 the ratio increased by 0.33 than previous year, which is a positive sign.

0123456789

2010-11 2009-10 2008-09 2007-08 2006-07

4.664.33

7.34 88.73

Inventory Turnover Ratio

Inventory Turnover Ratio

57

RATIO ANALYSIS

7.1•UTILITY OF RATIO ANALYSIS

7.2•CLASSIFICATION OF RATIO

7

Year

2012


LTD

58

7. RATIO ANALYSIS

Ratio analysis is a widely used tool for financial analysis. It is defined as the

systematic use of ratio to interpret the financial statement, so that the strength and

weakness of a firm as well as its historical performance and current financial

condition can be determined. The term ration refers to the numerical and quantitative

relationship between two items/variables. The relationship can be expressed as:-

1. Percentage

2. Fraction

3. Proport ion of numbers

The rational of ratio analysis lies in the fact that it makes related information

comparable. A single figure by itself has no meaning but when expressed in

terms of a related figure, it yields significant inferences.

Ratio analysis thus, a quantitative tool enables analysis todraw quantitative answers

such as:-

Is the net profit adequate?

Are the assets being used efficiently?

Is the firm solvent?

Can the firm meet its current obligations and so on?

7.1) UTILITY OF RATIO ANALYSIS

The use of ratio was started by banks for ascertaining the liquidity and profitability of

the company‟s business for the purpose of advancing loan to them. It gradually

become popular and other creditors began tousle them profitably. Now even the

investor calculates ratio from the published account of the company before investing

their savings. The ratio analysis provides useful information to management, which

would help them in taking important policy decision. Diverse group of people make

use of ratios, to determine the particular aspect of the financial position of the

company, in which they are interested.

59

7.1.1) Profitability

Useful information about the trend of profitability is available from the profitability

ratios. The gross profit ratio, net profit ratio and ratio of return on investment give a

good idea of profitability of business.

7.1.2) Liquidity

In fact, the use of this ratio is to ascertain the liquidity of the business . The current

ratio and liquid ratio will tell whether the business will be able to meet its current

liabilities as and when they mature.

7.1.3) Efficiency

The turnover ratio are excellent guides to measures the efficiency of managers. For

e.g. the stock turnover will indicate how efficiency the sales are being made, the

debtors turnover shows the efficiency of collection department and assets are used in

business.

7.1.4) Inter- firm comparison

The absolute ratio of the firm are not of much use, unless they are compared with

similar ratio of other firm belongs to the same industries.

7.1.5) Indicate Trend

The ratio of the last three to five years will indicate the trend in the respective fields.

7.1.6) Useful for budgetary Control

Regular budgetary reports are prepared in business where the system of budgetary

control in use. If various ratios are prepared in these reports, it will give a fairly good

idea about various aspect of financial position.

7.1.7) Useful for decision making

Ratios guide the management in making some of the important decision.

60

7.2) CLASSIFICATION OF RATIO

Ratios can be classified into four broad groups:-

7.2.1. Liquidity Ratio

7.2.2. Leverage / Capital structure Ratio

7.2.3. Profitability Ratio

7.2.4. Activity / Efficiency Ratio

7.2.1) LIQUIDITY RATIOS

Liquidity is the most important factor in successful financial management. A

firm should have enough money to meets its short-term liabilities, as and when they

become due for payment. If affirm fails to meet its short term liabilities frequently, its

prestige and creditworthiness would be adversely affected. A very high degree of

liquidity is also bad; idle assets earn nothing. Therefore it is necessary to strike a

proper balance between high liquidity and lack of Liquidity.

7.2.1.1) Current Ratio:

This most widely used ratio shows the proportion of current assets to current

liabilities. It is also known as „Working Capital Ratio‟. It is a measure of short term

financial strength of business a n d shows whether the business will able to meet its

current liabilities. Generally, it is believed that ratio of 2:1 is good and shows a

comfortable working capital position. But this ratio i s differing company by

company. The formula for calculating these ratios as under:-

Current Ratio = Current Assets

Current Liabilities

61

Current assets:

(Rs. in cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Inventories 4118.98

4678.57

4060.67

3480.64

3033.76

Debtors 3845.90 3058.64 4083.80 4360.37 2759.44

Cash / bank balance 356.55 282.85 161.48 269.22 27.22

Loans / Adv. 64693.91 63721.90 55964.02 38906.53 58710.79

Fixed Deposites 22090 17948.18 18934074 22148.43 19253.37

Total Current Assets 95105.34 89690.14 83204.71 69165.19 83784.78

Current liabilities:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Liabilities 35384.31 27244.53 26854.71 22482.94 19835.99

Provisions 34775.19 37092.46 30657.98 21828.17 39765.20

Total Current

Liabilities

70159.50 64336.99 57512.09 44311.11 59601.19

Current Ratio:

(RS .cr)

Particular 2010-11 2009-10 2008-09 2007-08 2006-07

Current Assets 95105.34 89690.14 83204.71 69165.19 83784.78

Current Liabilities 70159.50 64336.99 57512.09 44311.11 59601.19

Current Ratio 1.36 1.39 1.45 1.56 1.41

Table no:4

62

Chart no:4

INTERPRETATION:-

This calculation implies that the fluctuation in the current ratio. As compared

to previous year the current year‟s ratio shows the better liquidity position.

In 2007 this ratio is 1.41:1 and in 2008 the ratio is 1.56:1 which shows

increase in liquidity. The reason behind that cash balance and receivable is

increasing. But after next three year the ratio is contently decrease.

1.25

1.3

1.35

1.4

1.45

1.5

1.55

1.6

2010-11 2009-10 2008-09 2007-08 2006-07

1.361.39

1.45

1.56

1.41

Current Ratio

Current Ratio

63

7.2.1.2) Acid Test / Quick Ratio

The Acid test ratio is the ratio between quick current assets and current liabilities and

is calculated by dividing the quick assets by the liquid liabilities. Most people believe

that liquid ratio is acid test ratio, but sometimes business is able to repay its liquid

quick assets. The reason behind that is emergency requirement cash and business

cannot get it from debtors, so quick assets include cash balance +investment

certificate that can be immediately transferable into cash. The satisfactory ratio is 1:1

but lower limit is 0.5:1. Here quick assets do not include stock.

Quick Ratio = Quick Assets (Current assets–Inventories)

Current Liabilities

Quick Assets:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Total Current

Assets

95105.34 89690.14 83204.71 69165.19 83784.78

Inventories 4118.98 4678.57 4060.67 3480.64 3033.76

Quick Assets 90986.36 85011.57 79144.04 65684.55 80751.02

Quick liabilities:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Total Quick Liabilities 70159.50 64336.99 57512.09 44311.11 59601.19

64

Quick Ratio:

(Rs.cr)

Table no:5

Chart no:5

INTERPRETATION:-

So, as per the current year ratio of the company is up to some extent

satisfactory. This ratio shows the repay ability of the company which is

satisfactory as per lower level all over the year. As compared to previous year

in current year it is not good. In 2009-10 it is 1.32:1 and in current year it is

1.30:1.

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Quick assets 90986.36 85011.57 79144.04 65684.55 80751.02

Quick liabilities 70159.50 64336.99 57512.09 44311.11 59601.19

Quick Ratio 1.30 1.32 1.38 1.48 1.35

1.2

1.25

1.3

1.35

1.4

1.45

1.5

2010-11 2009-10 2008-09 2007-08 2006-07

1.31.32

1.38

1.48

1.35

Quick ratio

Quick ratio

65

7.2.2) CAPITAL STRUCTURE/LEVERAGE RATIO

The second category of financial ratios is leverage or capital structure ratios.

The long term creditors would judge the soundness of a firm on the basis of the long

term financial strength measured in terms of its ability to pay the interest

regularly as well as repay the instalment of the principal of due dates or in

one lump sum at the time of maturity.

7.2.2.1) Debt Ratio:

Debt Ratio may be used to analyze the long-term solvency of a firm. The firm may be

interested in knowing the proportion of the interest-bearing debt (also called funded

debt) in the capital structure.

Debt ratio= Total debt

Capital Employed

Capital employed = Share Holders’ Funds + Total Debt

Total Debts: (Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Secured Loans - - - - -

Unsecured Loans 17564.26 16405.64 16035.70 12482.71 15109.07

Total Debts 17564.26 16405.64 16035.70 12482.71 15109.07

Capital Employed:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Share Holders’

funds

97504.43 87282.61 78735.42 70617.40 61923.93

Total Debts 17564.26 16405.64 16035.70 12482.71 15109.07

Capital

Employed

115068.69 103688.25 94771.12 83100.11 77033.00

66

Debt Ratio:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

TD 17564.26 16405.64 16035.70 12482.71 15109.07

CE 115068.69 103688.25 94771.12 83100.11 77033.00

Debt Ratio: 0.15 0.16 0.17 0.15 0.20

Table no: 6

Chart no:6

INTERPRETATION:-

The debt ratio is continuously decreasing from 2009 to 2011. Because increase

in CE more than total debt. In ONGC Company Capital Employed is more

than the Total debts. So the ratio is decreasing from 0.16 to 0.15.

0

0.05

0.1

0.15

0.2

2010-11 2009-10 2008-09 2007-08 2006-07

0.150.16 0.17

0.15

0.2

Debt Ratio

Debt Ratio:

67

7.2.2.2) Debt-Equity Ratio

The ratio establishes a relationship between long term debts and shareholders‟ funds.

It reflects the relative claims of creditors and shareholders against the assets of the

firm and in other terms it indicates the relative proportion of debt and equity in

financing the assets of the firm.

Debt equity ratio= Long term Debt

Shareholders’ funds

Long-Term Debt (Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Secured Loans - - - - -

Unsecured Loans 17564.26 16405.64 16035.70 12482.71 15109.07

Total 17564.26 16405.64 16035.70 12482.71 15109.07

Shareholders Fund: (Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Share Capital 4277.76 2138.89 2138.89 2138.89 2138.89

Reserves and

Surplus

93226.67 85143.72 76596.42 68478.51 59785.04

Total 97504.43 87282.61 78735.42 70617.40 61923.93

68

Debt-Equity Ratio: (Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Total Long-

term Debt

17564.26 16405.64 16035.70 12482.71 15109.07

Total Share

holders Fund

97504.43 87282.61 78735.42 70617.40 61923.93

Debt-Equity

Ratio

0.18 0.19 0.20 0.18 0.24

Table no:7

Chart no:7

INTERPRETATION:-

The ONGC has debt equity ratio indicate, numerator is an equity part while

denominator is a debt part. So we can easily say that equity part is more than

debt part.

0

0.05

0.1

0.15

0.2

0.25

2010-11 2009-10 2008-09 2007-08 2006-07

0.18 0.190.2

0.18

0.24

Debt-Equity Ratio

Debt-Equity Ratio

69

7.2.2.3) Capital Employed to Net worth Ratio:

There is yet another alternative way of expressing the basic relationship between debt

and equity. One may want to know: How much funds are being contributed together

by lenders and owners for each rupee of the owners‟ contribution?

Formula: Capital Employed (C.E.)

Net worth (N.W.)

Capital Employed:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Share Holders’

funds

97504.43 87282.61 78735.42 70617.40 61923.93

Total Debts 17564.26 16405.64 16035.70 12482.71 15109.07

C.E. 115068.69 103688.25 94771.12 83100.11 77033.00

Net Worth: (Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Share Capital 4277.76 2138.89 2138.89 2138.89 2138.89

Reserves and

Surplus

93226.67 85143.72 76596.42 68478.51 59785.04

Total 97504.43 87282.61 78735.42 70617.40 61923.93

70

Capital Employed to Net worth Ratio: (Rs.cr)

Particulars

2010-11 2009-10 2008-09 2007-08 2006-07

C.E. 115068.69 103688.25 94771.12 83100.11 77033.00

NW 97504.43 87282.61 78735.42 70617.40 61923.93

Capital

Employed to

Net worth Ratio

1.18 1.19 1.20 1.18 1.24

Table no: 8

Chart no: 8

INTERPRETATION:-

From the above graph, we can say that in the company, total external

contribution is increasing year by year. The ratio increases after the year by

year from 1.18 to 1.20 due to increase in C.E. The Reason of increment is

Capital Employed is more than the Net Worth. But unfortunately in 2010 and

2011 the capital employed to net worth ratio is decrease.

1.14

1.16

1.18

1.2

1.22

1.24

2010-11 2009-10 2008-09 2007-08 2006-07

1.181.19

1.2

1.18

1.24

Capital Employed to Net worth

Ratio

Capital Employed to Net worth Ratio

71

7.2.2.4) Total Liabilities to Total Assets Ratio:

Current liabilities are generally excluded from the computation of leverage ratios. One

may like to include them on the ground that they are important determinants of the

firm‟s financial risk since they represent obligations and expert pressure on the firm

and restrict its activities.

Formula: Total liabilities (TL)

Total Assets (TA)

Total Liabilities: (Rs.cr)

Particular 2010-11 2009-10 2008-09 2007-08 2006-07

Current

Liabilities

70159.50 64336.99 57512.09 44311.11 59601.19

Secured

Loans

- - - - -

Unsecured

Loans

17564.26 16405.64 16035.70 12482.71 15109.07

Total 87723.76 80742.63 73547.79 56793.82 74710.26

Total Assets: (Rs.cr)

Particular 2010-11 2009-10 2008-09 2007-08 2006-07

Fixed Assets 18639.55 15648.50 10414.38 10518.01 8839.12

Current Assets 95105.34 89690.14 83204.71 69165.19 83784.78

Total 113744.89 105338.64 93619.09 79683.2 92623.9

72

Total Liabilities to Total Assets Ratio:

(Rs.cr)

Particular 2010-11 2009-10 2008-09 2007-08 2006-07

TL 87723.76 80742.63 73547.79 56793.82 74710.26

TA 113744.89 105338.64 93619.09 79683.2 92623.9

Total

Liabilities to

Total Assets

Ratio

0.771 0.767 0.786 0.713 0.807

Table no:9

Chart no: 9

INTERPRETATION:-

IN The Analysis the ratio is continuously increasing and decreasing by year to

year. But in 2011 the Total Liabilities to Total Assets Ratio is increase than

previous year. The Reason of increment is Total Assets are more than total

liabilities and increasing year by year.

0.65

0.7

0.75

0.8

0.85

2010-11 2009-10 2008-09 2007-08 2006-07

0.771 0.7670.786

0.713

0.807

Total Liabilities to Total Assets Ratio

Total Liabilities to Total Assets …

73

7.2.3) PROFITABILITY RATIO

Profit is the main objective of any business enterprise. Besides, profitability is the

measure of efficiency. The owner‟s invest their funds in expectation of receiving

reasonable return. Hence profitability ratios are very important from the view point

of various shareholders.

7.2.3.1) Gross Profit Ratio

Gross profit margin ratio reflects the efficiency with which management produces

each unit of product. It expressing t h e relationship between Gross Profit earned to

Net Sales. This ratio usually expressed as percentage

Gross profit ratio = Gross Profit ×100

Sales

Gross Profit Ratio:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Gross Profit 40629.34 37702.61 32253.24 29754.43 28286.09

Sales 66164.34 60251.77 64003.99 60065.10 56913.44

Gross Profit

Ratio

61.41 62.58 50.39 49.54 49.70

Table no:10

74

Chart no:10

INTERPRETATION:-

Gross profit ratio shows the relation between gross profit and sales. That

means how much proportion of gross profit in sales. This ratio is decrease in last

year compared to previous year. It is 1.17. From the above data we get Gross Profit

of 2007, 2008, 2009, 2010, and 2011 are 49.7, 49.54, 50.39, 62.58, and 61.41.

In 2008 gross profit ratio is increase from 49.54 to 50.39 in 2009; gross profit

ratio is increase from 50.39 to 62.58. In 2010.

0

10

20

30

40

50

60

70

2010-11 2009-10 2008-09 2007-08 2006-07

61.41 62.58

50.3949.54 49.7

Gross Profit Ratio

Gross Profit Ratio

75

7.2.3.2) Net Profit Ratio

Net Profit is obtained when operating expense, interest and taxes are subtracted from

the gross profit. The net profit ratios measured by dividing PAT (Profit After tax) by

sales. This ratio indicates the firm‟s capacity to withstand adverse economic

conditions.

Net Profit Ratio= PAT X 100

Sales

Net Profit Ratio: (Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

N.P. 18924 16767.56 16126.32 16701.65 15642.92

Sales 66164.34 60251.77 64003.99 60065.10 56913.44

Net Profit Ratio 28.60 27.83 25.20 27.81 27.49

Table no:11

Chart no:11

Interpretation:-

Net profit ratio shows the relationship of PAT with the sales. This ratio is in

2007, it is 27.49%, in 2008 it is 27.81%, in 2009 it is 25.20%, in 2010 it is

27.83%, in 2011 it is 28.60% which means PAT is always near to 25% to

30%. Because of Tax charges is increasing year by year.

28.6

27.83

25.2

27.8127.49

23

24

25

26

27

28

29

2010-11 2009-10 2008-09 2007-08 2006-07

Net Profit Ratio

Net Profit Ratio

76

7.2.3.3) Return on Total Investment

Profitability ratio can also be computed by relating the profit of a company to its total

assets. The ROA may also be called profit –to –asset ratio. This ratio can be

computed by dividing the PAT by total assets.

Return on Total Investment = PAT X 100

Total Assets

Return on Investment Ratio:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

PAT 18924 16767.56 16126.32 16701.65 15642.92

T.A 115,068.70 103,688.25 94,771.12 83,100.12 77,032.98

Return on Total

Investment

16.44 16.17 17.01 20.09 20.30

Table no:12

77

Chart no:12

INTERPRETATION:-

This ratio shows company‟s profit earned on the total investment made in the

company. This ratio is increase in current year . In 2011 it is 16.44%

and now it is 16.17% in 2010.Because of total assets is decreased compared to

previous year. It is good for the company. But in 2008 the investment is increase than

2009. It is a 20.09 to 17.01.so it is a 3.08% decrease.

0

5

10

15

20

25

2010-11 2009-10 2008-09 2007-08 2006-07

16.44 16.1717.01

20.09 20.3

Return on Total Investment

Return on Total Investment

78

7.2.3.4) Earning Per Share:

Financial analyst regards the earning per share as an important measure of

profitability. EPS measures the profit available to the equity shareholders on a per

share basis that is the amount that they can get on every share held. It is computed by

dividing the PAT to the No. of equity share.

Earnings Per Share = Profit After Tax

No. of equity share

Earnings per Share

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

PAT 18924 16767.56 16126.32 16701.65 15642.92

Equity share 4,277.76 2,138.89 2,138.89 2,138.89 2,138.89

Earning Per

Share

4.42 7.83 7.53 7.80 7.31

Table no:13

Chart no:13

INTERPRETATION:-

The earning per share is increases and decreases to year by year. If we can see

in the figure. But in 2010&2011 EPS is decreases because equity share is a

more than PAT. It is a 3.41% decreases. It is good for shareholders. They get

good return.

0

1

2

3

4

5

6

7

8

2010-11 2009-10 2008-09 2007-08 2006-07

4.42

7.83 7.537.8

7.31

Earning Per Share

Earning Per Share

79

7.2.4.) ACTIVITY RATIO

The activity ratio measures the efficiency with which assets are being used in

business. They are also known as Turnover Ratio. The efficiency with which the

assets are used would be reflected in the speed and rapidly with which assets are

converted into sales. The greater the rate of turnover or conversation, the more

efficient is the utilization / management, other things being equal.

7.2.4.1 Assets Turnover Ratio:

A firm‟s ability to produce a large volume of sales for a given amount of net assets is

the most important aspect of its operating performance. Unutilized assets increase the

firm‟s need for costly financing as well as expenses for maintenance and upkeep. The

net assets turnover should be interpreted cautiously.

Formula: Sales

Net Assets

Sales: (Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Net Sales 66164.34 60251.77 64003.99 60065.10 56913.44

Net Assets: (Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Fixed Assets 18639.55 15648.50 10414.38 10518.01 8839.12

Net Current Assets 24945.84 25353.15 25692.62 24854.08 24183.59

Net Assets 43585.39 41001.65 36107 35372.09 33022.71

80

Assets Turnover Ratio:

(Rs.cr)

Particular 2010-11 2009-10 2008-09 2007-08 2006-07

Sales 66164.34 60251.77 64003.99 60065.10 56913.44

N.A. 43585.39 41001.65 36107 35372.09 33022.71

Assets Turnover

Ratio

1.52 1.47 1.77 1.70 1.72

Table no:14

Chart no:14

INTERPRETATION:-

Here, we have taken as assets turnover as base. The total assets turnover is

increasing year by year till 2011. The investment in net assets in 2007 it is

33022.71 and in 2011 it is 43585.39.which was approximately 10562.69 cr

increase. The company is using the assets efficiently that‟s why the ratio is

increasing trend.

0

0.5

1

1.5

2

2010-11 2009-10 2008-09 2007-08 2006-07

1.52 1.47

1.77 1.7 1.72

Assets Turnover Ratio

Assets Turnover Ratio

81

7.2.4.2) Total Assets Turnover Ratio:

The amounts invested in business are invested in all assets jointly and sales

are affected through them to earn profits. So In order to find out relation

between total assets to sales. Total assets include net fixed assets and current assets.

Total Assets Turnover Ratio = Sales

Total Assets

Sales:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Sales 66164.34 60251.77 64003.99 60065.10 56913.44

Total Assets (T.A.):

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Fixed Assets 18639.55 15648.50 10414.38 10518.01 8839.12

Current Assets 95105.34 89690.14 83204.71 69165.19 83784.78

Total 113744.89 105338.64 93619.09 79683.2 92623.9

Total Assets Turnover Ratio:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Sales 66164.34 60251.77 64003.99 60065.10 56913.44

T.A. 113744.89 105338.64 93619.09 79683.2 92623.9

Total Assets

Turnover Ratio

0.582 0.572 0.684 0.754 0.614

Table no:15

82

Chart no:15

INTERPRETATION:-

Here, we have taken as total assets as base. The total assets turnover is

increasing year by year till 2011. The investment in assets in 2011it is

113744.89and in 2007 it is 92623.9.which was approximately 21120.99 cr

increase. But the total asset of 2007 is a increase than 2011. The company is

using the assets efficiently that‟s why the ratio is increasing trend.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2010-11 2009-10 2008-09 2007-08 2006-07

0.582 0.572

0.6840.754

0.614

Total Assets Turnover Ratio

Total Assets Turnover Ratio

83

7.2.4.3) Fixed Assets Turnover Ratio:

Here we have also taken fixed assets as base. To ascertain the efficiency and

profitability of business of business, the total fixed assets are compared to sales. This

ratio can be finding out by dividing sales with the total fixed assets. The more the

sales in relation to amount invested in fixed assets, the more efficient is the use of

fixed assets.

Fixed Assets Turnover Ratio = Net Sales

Fixed Assets

Sales:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Sales 66164.34 60251.77 64003.99 60065.10 56913.44

Net Fixed Assets:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Fixed Assets 18639.55 15648.50 10414.38 10518.01 8839.12

Fixed Assets Turnover Ratio:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Sales 66164.34 60251.77 64003.99 60065.10 56913.44

N.F.A. 18639.55 15648.50 10414.38 10518.01 8839.12

Fixed Assets

Turnover Ratio

3.55 3.85 6.15 5.71 6.44

Table no:16

84

Chart no:16

INTERPRETATION:-

This ratio shows an efficiently and profitability of the business . The overall

result of this ratio shows year by year fluctuating decreasing. This show the

fixed assets are being used effectively to earn profits in the business. We can

show in the graph. In 2007 the Fixed Assets Turnover Ratio is increase. It is

6.44 after next year it is a decrease. It is a 5.71.In 2009 the Fixed Assets

Turnover Ratio is increase. It is 6.15 after in 2010 and 2011 it is consistory

decrease if show in figure.

0

1

2

3

4

5

6

7

2010-11 2009-10 2008-09 2007-08 2006-07

3.55 3.85

6.155.71

6.44

Fixed Assets Turnover Ratio

Fixed Assets Turnover Ratio

85

7.2.4.4) Current Assets Turnover

Current assets turnover ratio indicates productivity ratio, which measures the output,

produced from the given input employed. Current Assets are inputs, which can be

converted in to cash quickly. Higher the current assets turnover ratio, higher the

liquidity of the firm.

Current Assets Turnover = Sales

Current Assets

Current Assets Turnover:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Sales 66164.34 60251.77 64003.99 60065.10 56913.44

C.A. 95105.34 89690.14 83204.71 69165.19 83784.78

Current Assets

Turnover

0.69 0.67 0.77 0.87 0.68

Table no:17

86

Chart no:17

INTERPRETATION:

From the above graph, we can say that in the year 2006-07 the ratio is 0.68.

while in the year 2007-08 it increases and reaches to 0.87 which is due to

increase in firm‟s current assets than sales while in year 2008-09 it is

decreased and reaches to 0.77 and also decreases in 2009-10. Which is due to

increase in current assets is more than the firm‟s sales. So the current Assets

turnover ratio is favourable for this year but in compare of year2006-07 to

2008-09 it is unfavourable.

0

0.2

0.4

0.6

0.8

1

2010-11 2009-10 2008-09 2007-08 2006-07

0.69 0.670.77

0.87

0.68

Current Assets Turnover

Current Assets Turnover

87

7.2.4.5) Working Capital Turnover Ratio:

The Working Capital Turnover ratio measures the company's Net Sales from the

Working Capital generated. A company uses working capital (current assets - current

liabilities) to fund operations and purchase inventory. These operations and inventory

are then converted into sales revenue for the company. The working capital turnover

ratio is used to analyze the relationship between the money used to fund operations

and the sales generated from these operations.

Working Capital Turnover Ratio= Net Sales

Working Capital

Working Capital = Total Current Assets –Total Current Liabilities

NET SALES:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Sales 66164.34 60251.77 64003.99 60065.10 56913.44

WORKING CAPITAL:

(Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Total Current

Assets

95105.34 89690.14 83204.71 69165.19 83784.78

Total Current

Liabilities

70159.50 64336.99 57512.09 44311.11 59601.19

Working Capital 24945.84 25353.15 25692.62 24854.08 24183.59

88

Working Capital Turnover Ratio: (Rs.cr)

Particulars 2010-11 2009-10 2008-09 2007-08 2006-07

Sales 66164.34 60251.77 64003.99 60065.10 56913.44

Working Capital 24945.84 25353.15 25692.62 24854.08 24183.59

Working Capital

Turnover Ratio

2.65 2.38 2.49 2.42 2.35

Table no:18

Chart no:18

INTERPRETATION:-

A high or increasing Working Capital Turnover is usually a positive sign,

showing the company is better able to generate sales from its Working

Capital. Either the company has been able to gain more Net Sales with the

same or smaller amount of Working Capital, or it has been able to reduce its

Working Capital while being able to maintain its sales. In the above graph the

ratio increase year by year, In year 2011 Ratio is 2.65.and in year 2010 it

decrease in 2.38.The Reason Behind of increase in working capital.

2.2

2.3

2.4

2.5

2.6

2.7

2010-11 2009-10 2008-09 2007-08 2006-07

2.65

2.38

2.49

2.422.35

Working Capital Turnover Ratio

Working Capital Turnover Ratio

89

CONCLUSION

8

Year

2012

OIL AND GAS CORPORATION LIMITED

90

Conclusion

It was a great experience to undertake industrial visit at ONGC MEHSANA ASSET

because I learned lot new things regarding my studies. I also got useful insights

regarding financial analysis of this organization and about their proceedings and also

its general background. I also got useful information about how the theory part pf

business management is actually practiced. This kind of industrial visit definitely

helps me to grasp and digest the knowledge of business administration and

management.

After studying the detail of O.N.G.C LTD I reached at conclusion that O.N.G.C has

achieved its entire desire goal with its hard work and unique idea. O.N.G.C is having

a good manpower and provides good facilities to their employees. The majority of the

company's profitability ratios show an increasing trend. The performance of the

company can be considered as satisfactory. As per my opinion that O.N.G.C LTD has

a wide scope to develop in coming years

91

BIBLIOGRAPHY

9

Year

2012


LTD

92

Biblography

1) Annual Report of the company of 2007-2011.

2) Websites:-

www.ongcindia.com

www.google.com

www.kotaksecurities.com

www.moneycontrol.com

3) Book:-

Financial Accounting, 3rd

Edition, PHI Learning Pvt. Ltd.,

Author- R. Narayanswamy, Part III, Chapter11, Financial Statement

Analysis

http://www.kotaksecurities.com/

http://www.moneycontrol.com/

financial analysis of ongc Final project

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