PROJECT REPORT

ON

“Ratio analysis of Indian Oil Corporation”

Submitted to

Rashtrasant Tukdoji Maharaj

Nagpur University, Nagpur

In Partial Fulfillment of the requirement of the

“Bachelor of Business Administration”

Submitted byKaustubh A. Dalal

Guidance by Prof. Prabhjot Kaur Nayyar

Dr. Ambedkar Institute of Management Studies & Research Deeksha Bhoomi Nagpur-440012

(2010-2011)

1

CERTIFICATE

This is to certify that Mr./Ms. kaustubh a. dalal has satisfactorily

completed the Project work entitled “Ratio analysis of Indian oil

corporation” in not less than one academic session. This also certify

that this Project work is the result of the candidate’s own work and is

of sufficiently high standard to warrant its presentation for the BBA

program.

To the best of my knowledge this project or its part has not been

submitted to this university or any other university for any

Degree/Diploma.

Prof. Prabhjot Kaur Nayyar

Internal Examiner External Examiner

Place: Director

Date

2

ACKNOWLEDGEMENT

“Words have never expressed human sentiments. This only an

attempt to express my deep gratitude which comes from my heart.”

It is a great pleasure for me to express my deep feeling of gratitude

to my respected guide” Prof. Prabhjot Kaur Nayyar” Lecturer,

DAIMSR, for her great encouragement & unfailing support which

provided needed moral & confidence to carry on my work.

I am grateful to the Dr. S.Metre, Director of Dr. Ambedkar Institute

of Management Studies & Research, Nagpur for making all facilities

available for my work.

It is with profound gratitude that I wish to express my indebtedness

to Dr. Nirzar.Kulkarni(Coordinator, DAIMSR) for his invaluable

guidance & unning supervision completion of this project work.

“Thank you, Sir” for all you have done.

I am great to my parents for their lovable support. I wish special

thanks to Prof. Avish Petras for his inspiration. Last but not least I

am thankful to my friends & other faculty Member for their direct &

indirect help for completion of this work.

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DECLARATION

I, KAUSTUBH A. DALAL hereby declare that the project entitled

“RATIO ANALYSIS OF INDIAN OIL CARPORATION” is the

out come of my own research work based on personal study during

academic session 2010 - 2011 and has not been submitted previously

for award of any degree or diploma to this university or any other

university.

Kaustubh A. Dalal

4

Index Page no.

Introduction 6

Company profile

Objectives of study

Research methodology

Comparative financial statements of Indian oil

corporation

Ratio analysis

Suggestion and recommendation

Conclusion

Bibliography

Annexure.

index

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Introduction

6

Introduction

A tool used by individuals to conduct a quantitative analysis of information in a

company's financial statements. Ratios are calculated from current year numbers

and are then compared to previous years, other companies, the industry, or even

the economy to judge the performance of the company. Ratio analysis is

predominately used by proponents of fundamental analysis

Ratio analysis is a method of analyzing data to determine the overall financial

strength of a business. Financial analysts take the information off the balance

sheets and income statements of a business and calculate ratios that can then be

used to make assessments of the operating ability and future prospects of that

business. These ratios are useful only when compared to other ratios, such as the

comparable ratios of similar businesses or the historical trend of a single

business over several business cycles. There are various ratios that measure a

company's efficiency, short-term strength, and solvency.

The type of ratio analysis that is most effective depends upon who needs the

information. Credit analysts are concerned with risk evaluation, and they

therefore will concentrate of ratios that measure whether a company can pay its

financial obligations and how much debt is involved in capital structure. On the

opposite end of the spectrum, analysts looking at a business in terms of an

investment opportunity will employ ratios that determine if a company is

efficient and how great is its potential profitability.

For example, knowing that a company has a particular as determined by a

corresponding ratio is meaningless by itself. Financial analysts know it's more

important to determine how that ratio looks in terms of other similar companies,

or even how that ratio looks compared to prior profitability levels of that same

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company. In addition, these ratios must be studied over a proper time period,

allowing for major changes within the company to be taken into consideration.

Ratio analysis is useful in determining the solvency of a business and the

amount of reliance it has on its creditors. Specific ratios included in this group

are current ratio, which measures financial strength by dividing a company's

assets by its and, which takes the essence of the current ratio but excludes. By

focusing on of a business, a quick ratio can measure its strength even in a worst-

case scenario whereby all of its funding was suddenly removed.

In contrast, income statement analysis is more concerned with the profitability

of a business. Among this type of ratio analysis, ratio measures the profit from

sales available to pay while margin ratio is an indicator on the company's

financial return on sales. Ratios known as management ratios can also be

calculated from balance sheet information. These ratios measure efficiency in

terms of collecting accounts receivable and managing inventory, the ability to

turn assets into profit, and how much of a return the owners of the business are

getting on their investment.

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Ratio Analysis

Ratio Analysis compares significant numbers from your financial statements.

Rather than focusing on specific volumes, ratios are indicators of the broad state

of your business.

What they indicate is dependent upon the nature of your company, comparisons

to your company’s historical ratio values, and Comparisons to competitive

companies in the same industry.

Financial ratios are useful to you and potential investors because they allow

comparisons to be made between your business and others of the same type.

Standard ratios for many industries are available from on-line database services

and are also published in various reference books available at most libraries.

As part of an agreement for financing, your lender or investor may require that

you maintain certain ratios. Any ratio that must be maintained at a specific value

as part of a financing agreement should be calculated and monitored on a timely

basis. If you neglect to do this, you risk being out of complain

with your lender or investor, which could result in the debt being called for

immediate repayment.

“…for the period”

We keep saying ‘period’ because you can and should measure these ratios for

different periods (Months /

Quarters / Years) and compare in order to see any trends that may be developing

and that can be corrected if necessary.

Adjusted EPS

Net income-dividend on preferred stock

Average outstanding share

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The portion of a company's profit allocated to each outstanding share of

common stock. Earnings per share serves as an indicator of a

company's profitability.

Earnings per share are generally considered to be the single

most important variable in determining a share's price. It is also a major

component used to calculate the price-to-earnings valuation ratio. 

Dividend per share

Dps= d- sd

S

D - Sum of dividends over a period (usually 1 year)-

SD - Special, one time dividends

S - Shares outstanding for the period

The the sum of declared dividends for every ordinary share issued.

Dividend per share (DPS) is the total dividends paid out over an entire year

(including interim dividends but not including special dividends) divided by

the number of outstanding ordinary shares issued. 

Dividends per share are usually easily found on quote pages as the dividend

paid in the most recent quarter which is then used to calculate the dividend

yield. Dividends over the entire year (not including any special dividends)

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must be added together for a proper calculation of DPS, including interim

dividends. Special dividends are dividends which are only expected to be

issued once so are not included. The total number of ordinary shares

outstanding is sometimes calculated using the weighted average over the

reporting period. 

Profitability Ratios

A class of financial metrics that are used to assess a business's ability to

generate earnings as compared to its expenses and other relevant costs incurred

during a specific period of time. For most of these ratios, having a higher value

relative to a competitor's ratio or the same ratio from a previous period is

indicative that the company is doing well.

One of the primary reasons for operating most businesses is to

generate profits. If you have outside investors, the return on

their investment often comes from the net income the business

generates (rather than from the sale of the business or some

other form of pay back). There are many ways to measure

Return on Investment (ROI). Return on Equity and Return on

Assets, as shown below, are two easily calculated methods.

Operating Profit Margin (Return On Sales - ROS)=

Operating profit margin = Operating income

Total revenue

11

A ratio used to measure a company's pricing strategy and operating efficiency.

This value measures the percent of revenue remaining after

paying all operating expenses (Operating Income). The

operating profit margin is your operating income (gross profit

minus all operating expenses) divided by your gross sales

expressed as a percentage.

Operating margin gives analysts an idea of how much a company makes (before

interest and taxes) on each dollar of sales. When looking at operating margin to

determine the quality of a company, it is best to look at the change in operating

margin over time and to compare the company's yearly or quarterly figures to

those of its competitors. If a company's margin is increasing, it is earning more

per dollar of sales. The higher the margin, the better.

Gross Profit Margin=

Gross ProfitTotal Revenue

This value measures the percent of money your company generated over the

cost of producing your goods or services. In other words, gross profit margin (or

percent) is the ratio of your net sales (gross sales minus your cost of goods sold)

divided by your gross sales, expressed as a percentage. You can do very

well here when you really understand the value your product or service bring to

your customers – your prices need not be built upon your costs. Better to

determine the real value to your customers and sell them on that. This way you

will enjoy higher gross margins

Net Profit Margin=

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Option 1: Net Income after Taxes

Revenue

Option 2: (Net Income + Minority Interest + Tax-Adjusted

Interest)

Revenue

This is the profit you made on this business. The net income divided by your

gross sales, expressed as a percentage. Your company’s after-tax profit margin

tells you (and investors) the percentage of money your company actually earns

per dollar of sales. Interpretation is similar to your profit margin, the after tax

profit margin is more stringent as it takes into account taxes. Looking at the

earnings of a company often doesn't tell the entire story… Profit can increase,

but it does not mean that its profit margin is improving. For example, if your

company increases sales, and if costs also rise, you’ll have a lower profit margin

then had been seen with a lower profit. This indicates that costs need to be better

controlled.

All three of these above percentages should usually be included on your income

statements. To analyze

your profitability, compare these percentages to your industry’s averages or

those of your immediate competitors (if you can obtain this information). Of

course, you’ll always want to compare your current year’s profitability

percentages to the percentages from your company’s previous years in order to

determine how well you are progressing.

Reported return on net worth (%)

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Net income *100

Shareholders equity

The amount of net income returned as a percentage of shareholders

equity. Return on equity measures a corporation's profitability by revealing how

much profit a company generates with the money shareholders have invested.  

The ROE is useful for comparing the profitability of a company to that of other

firms in the same industry.

There are several variations on the formula that investors may use:

1. Investors wishing to see the return on common equity may modify the

formula above by subtracting preferred dividends from net income and

subtracting preferred equity from shareholders' equity, giving the following:

return on common equity (ROCE) = net income - preferred dividends / common

equity.

2. Return on equity may also be calculated by dividing net income

by average shareholders' equity. Average shareholders' equity is calculated by

adding the shareholders' equity at the beginning of a period to the shareholders'

equity at period's end and dividing the result by two.

3. Investors may also calculate the change in ROE for a period by first using the

shareholders' equity figure from the beginning of a period as a denominator to

determine the beginning ROE. Then, the end-of-period shareholders' equity can

be used as the denominator to determine the ending ROE. Calculating both

beginning and ending ROEs allows an investor to determine the change in

profitability over the period

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Leverage ratios

Long term debt / Equity

The long term debt to equity ratio is simply similar to gearing, except that short term debt is excluded from the calculation. This is most simply interpreted as a measure of capital structure, but is also used as a measure of financial strength.

One shortcoming of the use of long term debt/equity with regard to capital structure is that borrowing that appears to be short term on the face of the balance sheet may in fact be rolled over or be provided from a continuing facility such as an overdraft (which may be provided for many years, even though re-payable on demand) — so its economic effect is that of long term debt.

Total Debt to Owners’ Equity=

Total liability

Shareholders equity

A measure of a company's financial leverage calculated by dividing its total

liabilities by stockholders' equity. It indicates what proportion of equity and debt

the company is using to finance its assets.

The debt to equity ratio is a common benchmark used to measure the leverage

within a business. To relate

Return on Equity to the Debt-to-Worth ratio, you need to remember that given a

fixed total asset figure,

the greater the debt, the lower the net worth. Therefore, given two companies of

identical asset size and

profitability, the company with the higher debt to worth ratio will also have a

higher return on equity

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ratio. When potential lenders and investors consider the risks of investing in

your business, they will look

at your return on equity ratio. If the ratio is the same as lower risk investments

such as certificates of

deposit or US Treasury bills, it does not make sense for them to invest in your

company.

A high debt/equity ratio generally means that a company has been aggressive in

financing its growth with debt. This can result in volatile earnings as a result of

the additional interest expense. 

If a lot of debt is used to finance increased operations (high debt to equity), the

company could potentially generate more earnings than it would have without

this outside financing. If this were to increase earnings by a greater amount than

the debt cost (interest), then the shareholders benefit as more earnings are being

spread among the same amount of shareholders. However, the cost of this debt

financing may outweigh the return that the company generates on the debt

through investment and business activities and become too much for the

company to handle. This can lead to bankruptcy, which would leave

shareholders with nothing. The debt/equity ratio also depends on the industry in

which the company operates. For example, capital-intensive industries such as

auto manufacturing tend to have a debt/equity ratio above 2, while personal

computer companies have a debt/equity of under 0.5.

Fixed assets turnover ratio

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Fix asset turnover=net sales Net property, plan and equipment

A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments - specifically property, plant and equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues.

This ratio is often used as a measure in manufacturing industries, where major purchases are made for PP&E to help increase output. When companies make these large purchases, prudent investors watch this ratio in following years to see how effective the investment in the fixed assets was.

Liquidity ratios

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Current ratio=Current asset

Current liability

A liquidity ratio that measures a company's ability to pay short-term obligations. 

Also known as "liquidity ratio", "cash asset ratio" and "cash ratio"

The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Because business operations differ in each industry, it is always more useful to compare companies within the same industry. 

This ratio is similar to the acid-test ratio except that the acid-test ratio does not include inventory and prepaids as assets that can be liquidated. The components of current ratio (current assets and current liabilities) can be used to derive working capital (difference between current assets and current liabilities). Working capital is frequently used to derive the working capital ratio, which is working capital as a ratio of sales.

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Liquid or Liquidity or Acid Test or Quick Ratio:

Total Current Assets

Total Current Liabilities

A class of financial metrics that is used to determine a company's

ability to pay off its short-terms debts obligations. Generally, the

higher the value of the ratio, the larger the margin of safety that the

company possesses to cover short-term debts.   

These values come from your balance sheet and are a measure of

your liquidity. Your current ratio indicates your ability to pay your

current debt out of your current assets. The higher the ratio, the

greater your “cushion.” Although a satisfactory value for a current

ratio varies from industry to industry, a general rule of thumb is that

a current ratio of 2 to 1 or greater is fairly healthy. Thinking in terms

of dollars, a 2 to 1 ratio means that you have 94rupees of current

assets from which to pay every 47rupees of current bills.

A smaller current ratio may mean that you have successfully

negotiated to pay your suppliers later than the usual 30 days, which

essentially gives your company an interest-free source of cash. Let’s

say your current assets are 7, 05,000 rupees and current liabilities are

4, 70,000rupees this gives you a current ratio of 1.5 to 1. In this

scenario, you could improve your current ratio to 2 to 1 by paying

2,35,000 RS of your current liabilities with your current assets,

reducing both by If your suppliers were willing to wait for payment

without charging you interest, this would probably be a bad idea

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(unless your 2,35,000 RS financing agreement requires you to

maintain a current ratio of 2 to 1).

Common liquidity ratios include the current ratio, the quick ratio and

the operating cash flow ratio. Different analysts consider different

assets to be relevant in calculating liquidity. Some analysts will

calculate only the sum of cash and equivalents divided by current

liabilities because they feel that they are the most liquid assets, and

would be the most likely to be used to cover short-term debts in an

emergency.

A company's ability to turn short-term assets into cash to cover debts

is of the utmost importance when creditors are seeking payment.

Bankruptcy analysts and mortgage originators frequently use

the liquidity ratios to determine whether a company will be able to

continue as a going concern

Inventory Turnover ratio=

_ COGS

Inventory

A ratio showing how many times a company's inventory is sold and replaced over a period.

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The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days". 

Although the first calculation is more frequently used, COGS (cost of goods sold) may be substituted because sales are recorded at market value, while inventories are usually recorded at cost. Also, average inventory may be used instead of the ending inventory level to minimize seasonal factors.

This ratio should be compared against industry averages. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying.

High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall.

Number of times inventory turns in period. High turn

can indicate better liquidity or good merchandising or

shortage of needed inventory for sales. Low turn can

mean overstocking, obsolescence, builds to inaccurate

sales forecast – can also a planned inventory build-up

in anticipation of possible material shortages.

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Payout ratios

Dividend payout ratio (net profit)

  Dividend Payout Ratio =

Dividend Payment per Share

Earnings per Share

he percentage of earnings paid to shareholders in dividends.

The payout ratio provides an idea of how well earnings support the

dividend payments. More mature companies tend to have a higher

payout ratio.

In the U.K. there is a similar ratio, which is known as dividend

cover. It is calculated as earnings per share divided by dividends per

share.

Earning retention ratio=

Net income-dividends

Net income

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The percent of earnings credited to retained earnings. In other words,

the proportion of net income that is not paid out as dividends.

The retention ratio is the opposite of the dividend payout ratio. In

fact, it can also be calculated as one minus the dividend payout ratio.

Component ratios

Working Capital Cycle

Receivables Turnover=

Net Sales

Trade Account Receivable

An accounting measure used to quantify a firm's effectiveness in

extending credit as well as collecting debts. The receivables

turnover ratio is an activity ratio, measuring how efficiently a firm

uses its assets.

(Sales/Receivables Ratio) Measures number of times AR turns over during the period. Higher the turn, shorter the time between sale and collection of the cash. Does not take into consideration seasonal fluctuations or a large proportion of cash sales compared to total sales.

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By maintaining accounts receivable, firms are indirectly extending

interest-free loans to their clients. A high ratio implies either that a

company operates on a cash basis or that its extension of credit and

collection of accounts receivable is efficient. 

A low ratio implies the company should re-assess its credit policies

in order to ensure the timely collection of imparted credit that is not

earning interest for the firm. 

Account Payables Turnover=

_ Account payable turnover

Average account Payables

An accounting measure used to quantify a firm's effectiveness in

extending credit as well as collecting debts. The receivables

turnover ratio is an activity ratio, measuring how efficiently a firm

uses its assets.

Number of times AP turns during the period. A higher turn for your

payables indicates a shorter the time between purchase and payment.

If your payables turnover I lower than your industry, a lender or

investor may wonder if you have a cash shortage, you are disputing

invoices with vendors, enjoying extended terms or purposefully

expanding your trade credit.

The measure shows investors how many times per period the

company pays its average payable amount

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Sales / Working Capital turnover=

_ Sales

Working capital

A measurement comparing the depletion of working capital to the

generation of sales over a given period. This provides some useful

information as to how effectively a company is using its working

capital to generate sales.

Net Working Capital equals current assets minus current liabilities.

Working Capital measures the margin

of protection for current creditors and reflects your ability to finance

current operations. Comparing sales

to working capital this way measures how efficiently your working

capital is employed. Low ratio may

mean ineffective use of WC. High ratio may mean “overtrading”— a

vulnerable position for creditors.

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

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from these operations. In a general sense, the higher the working

capital turnover, the better because it means that the company is

generating a lot of sales compared to the money it uses to fund the

sales.

Operating Ratios

Operating ratios help measure the effectiveness of management

performance.

Gross profit ratio

Gross Profit x 100

Net Sales

Gross profit ratio may be indicated to what extent the selling prices

of goods per unit may be reduced without incurring losses on

operations. It reflects efficiency with which a firm produces its

products. As the gross profit is found by deducting cost of goods

sold from net sales, higher the gross profit better it is. There is no

standard GP ratio for evaluation. It may vary from business to

business. However, the gross profit earned should be sufficient to

recover all operating expenses and to build up reserves after paying

all fixed interest charges and dividends.

Operating Ratio=

Operating Expense

Net Sales

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This ratio shows management efficiency by comparing your

operating expenses to your net sales. The Smaller the ratio, the

greater your company’s ability to generate a profit if revenue

decreases this ratio

However, does not take into account any debt repayment or debt

increase.

The smaller the ratio, the greater the organization's ability to

generate profit if revenues decrease. When using this ratio,

however, investors should be aware that it doesn't take debt

repayment or expansion into account.

_ NOTE: Each industry and each business will have a

set of ratios that are especially helpful to it. The

point to remember is that ratios are a comparison of

two numbers. So if you find a ratio that is helpful to

you in the financial management of your firm, by all

means use it. Standard ratio values for many

industries are available from on-line database

services, from organizations that collect financial data

(such as BizStats, Dun & Bradstreet and Robert Morris

Associates (RMA)), and from various reference

books available at most libraries. Other ratios, often

made up to suit a particular business can be useful

as “Key Indicators.”

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What do we want ratio analysis to tell us?

The key question in ratio analysis isn't only to get the right answer: for example, to be able to say that a business's profit is 10% of turnover. We have to start working on ratio analysis with the following question in our heads:

What are we trying to find out?

Isn't this just blether, won't the exam just ask me to tell them that profit is 10% of turnover? Well, yes, but then they want to know that you are a good student who understands what it means to say that profit is 10% of turnover.

We can use ratio analysis to try to tell us whether the business

1. is profitable

2. has enough money to pay its bills

3. could be paying its employees higher wages

4. is paying its share of tax

5. is using its assets efficiently

6. has a gearing problem

7. is a candidate for being bought by another company or

investor

and more, once we have decided what we want to know then we can decide which ratios we need to use to answer the question or solve the problem facing us.

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29

Company profile

Company profile

Indian Oil owns and operates 6 of the refineries with a combined

refining capacity of over 25 million tones per annum (5,00,000bpd).

Another 6 million tones per annum (1,20,000bpd) refinery will be

ready during fiscal 1997. Constant technology up gradation enables

achievement of over 100% capacity utilization.

Indian Oil has the largest network of over 5,300 km onshore crude

oil and petroleum product pipelines in the country which operate at

over 100% capacity and are equipped with latest technology.

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Indian Oil sold 41.97 million tones of petroleum products during

the year 1996-97. It markets 55% of the petroleum products

consumption of India. In aviation fuels, its market participation is

69%. Its nationwide retail network of nearly 18,000 sales points

(6,731 petrol stations, 3,413 kerosene dealers, 2,834 LPG

distributors and 4,820 bulk consumer outlets) is backed for supplies

by 178 bulk storage terminals and depots having a tank age of five

million kilolitres. There are 92 aviation fuel stations besides 39

LPG bottling plants with a capacity of 1.5 million tones to cater to

nearly 15 million customers in over 1,300 towns all over the

country.

Indian Oil is India’s flagship national oil company, with

Business interests straddling the entire hydrocarbon

Value chain and the highest ranked Indian corporate in the

prestigious Fortune ‘Global 500’ listing. With over a 34,000- strong

workforce, Indian Oil has been meeting India’s energy demands for

over five decades. The company’s operations are strategically

structured along business verticals - Refineries, Pipelines,

Marketing, R&D and Business Development.

To achieve the next level of growth, Indian Oil is currently forging

ahead on a well laid-out road map through vertical integration –

upstream into oil exploration & production (E&P) and downstream

into petrochemicals – and diversification into natural gas marketing

and alternative energy, besides globalization of its downstream

operations. Having set up subsidiaries in Sri Lanka, Mauritius and

the United Arab

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Emirates (UAE), Indian Oil is simultaneously scouting for new

business opportunities in the energy markets of Asia and Africa.

Indian Oil and its subsidiaries have a dominant share of the

petroleum products market share, national refining capacity and the

downstream sector pipelines capacity in India. With a steady aim of

maintaining its position as a market leader and providing best quality

products and services, Indian Oil is currently investing Rs. 47,000

crore in a host of projects for augmentation of refining and pipelines

capacities, expansion of marketing infrastructure and product quality

up gradation.

The Indian Oil Group of companies owns and operates 10 of India’s

20 refineries and the largest network of crude oil and profile product

pipelines in the country.

Indian Oil has a keen customer focus and a formidable network of

customer touch-points dotting the landscape across urban and rural

India, backed for supplies by bulk storage terminals and depots,

aviation fuel stations and LPG gas bottling plants. Indian Oil’s ISO-

9002 certified Aviation Service commands a dominant market share

in aviation fuel business, successfully servicing the needs of

domestic and international flag carriers, private airlines and the

Indian Defense Services.

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33

OBJECTIVES

OBJECTIVES

A] To study and express the relationship between two

values of the comparative statement.

B] To study the various ratios to determine the

relationship of different factor which have impact on the

financial position of the company

C] To study the operating efficiency of profitability of the

company

D] To study the liquidity position

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RESEARCH

METHODOLOGY

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RESEARCH METHODOLOGY

DEFINATION: Methodology refers to the body of method used

in conducting a study. Different type of method is used in

social research. In selecting method a researcher should take

in to account not only the suitability of method but also

adequate knowledge of method.

Primary data: - 1) Interviews

2) Communication

Secondary data: - Books

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COMPARATIVE

FINICIAL

STATEMENT OF

INDIAN OIL

CORPORATION

37

Profit loss account in crore

  Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

IncomeOperating income

2,69,438.08 3,07,123.99 2,47,359.24 2,16,498.85 1,74,895.12

ExpensesMaterial consumed

2,35,668.52 2,75,383.54 2,21,256.55 1,93,471.53 1,56,413.53

Manufacturing expenses 

1,755.28 1,500.51 1,558.14 1,112.87 961.22

Personnel expenses

5,723.96 5,686.96 2,894.86 2,586.80 1,799.23

Selling expenses

10,488.13 9,684.04 8,753.07 7,733.07 6,721.97

Administrative expenses

1,824.74 1,888.60 2,004.30 1,375.23 1,596.65

Expenses capitalised

-1,121.28 -544.01 -403.58 -542.83 -406.74

Cost of sales 2,54,339.35 2,93,599.64 2,36,063.34 2,05,736.67 1,67,085.86Operating profit

15,098.73 13,524.35 11,295.90 10,762.18 7,809.26

Other recurring income

3,320.35 2,709.59 2,422.73 1,836.69 1,426.92

Adjusted PBDIT

18,419.08 16,233.94 13,718.63 12,598.87 9,236.18

Financial expenses

1,572.35 4,020.98 1,589.73 1,496.25 995.44

Depreciation  3,227.14 2,881.71 2,709.70 2,590.31 2,201.46

38

Other write offs

133.98 317.64 236.53 113.43 10.47

Adjusted PBT 13,485.61 9,013.61 9,182.67 8,398.88 6,028.81Tax charges  3,097.87 1,364.71 3,104.54 2,949.46 1,790.38Adjusted PAT 10,387.74 7,648.90 6,078.13 5,449.42 4,238.43Non recurring items

-130.67 -5,615.51 705.81 1,973.32 178.24

Other non cash adjustments

-36.52 915.26 178.64 76.73 498.45

Reported net profit

10,220.55 2,948.65 6,962.58 7,499.47 4,915.12

Earnings before appropriation

15,525.63 8,254.63 6,962.58 7,499.47 4,915.12

Equity dividend

3,156.34 910.48 655.81 2,250.89 1,460.02

Preference dividend

- - - - -

Dividend tax 508.83 154.74 76.48 361.72 204.77Retained earnings

11,860.46 7,189.41 6,230.29 4,886.86 3,250.33

39

Balance sheet In crore  

40

41

Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Sources of fundsOwner's fundEquity share capital

2,427.95 1,192.37 1,192.37 1,168.01 1,168.01

Share application money

- 21.60 - 24.36 -

Preference share capital

- - - - -

Reserves & surplus

48,124.88 42,789.29 39,893.88 33,664.92 28,134.66

Loan fundsSecured loans 18,292.45 17,565.13 6,415.78 5,671.42 7,793.54Unsecured loans

26,273.80 27,406.93 29,107.39 21,411.27 18,610.77

Total 95,119.08 88,975.32 76,609.42 61,939.98 55,706.98

Uses of fundsFixed assetsGross block 71,780.60 62,104.64 56,731.50 54,770.29 43,662.84Less : revaluation reserve

- - - - -

Less : accumulated depreciation

30,199.53 27,326.19 23,959.68 21,400.07 18,639.42

Net block 41,581.07 34,778.45 32,771.82 33,370.22 25,023.42Capital work-in-progress

21,268.63 18,186.05 9,170.22 4,394.30 9,620.03

Investments 22,370.25 32,232.13 21,535.78 19,990.86 14,521.39

Net current assetsCurrent assets, loans & advances

60,971.48 45,234.47 53,506.07 43,966.26 42,451.37

Less : current liabilities & provisions

51,090.52 41,493.74 40,499.06 39,938.93 35,966.74

Total net current assets

9,880.96 3,740.73 13,007.01 4,027.33 6,484.63

Miscellaneous expenses not written

18.17 37.96 124.59 157.27 57.51

Total 95,119.08 88,975.32 76,609.42 61,939.98 55,706.98

Notes: Book value of unquoted investments

22,370.25 29,527.27 18,682.05 17,137.21 9,381.72

42

Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Sources of fundsOwner's fundEquity share capital

2,427.95 1,192.37 1,192.37 1,168.01 1,168.01

Share application money

- 21.60 - 24.36 -

Preference share capital

- - - - -

Reserves & surplus

48,124.88 42,789.29 39,893.88 33,664.92 28,134.66

Loan fundsSecured loans 18,292.45 17,565.13 6,415.78 5,671.42 7,793.54Unsecured loans

26,273.80 27,406.93 29,107.39 21,411.27 18,610.77

Total 95,119.08 88,975.32 76,609.42 61,939.98 55,706.98

Uses of fundsFixed assetsGross block 71,780.60 62,104.64 56,731.50 54,770.29 43,662.84Less : revaluation reserve

- - - - -

Less : accumulated depreciation

30,199.53 27,326.19 23,959.68 21,400.07 18,639.42

Net block 41,581.07 34,778.45 32,771.82 33,370.22 25,023.42Capital work-in-progress

21,268.63 18,186.05 9,170.22 4,394.30 9,620.03

Investments 22,370.25 32,232.13 21,535.78 19,990.86 14,521.39

Net current assetsCurrent assets, loans & advances

60,971.48 45,234.47 53,506.07 43,966.26 42,451.37

Less : current liabilities & provisions

51,090.52 41,493.74 40,499.06 39,938.93 35,966.74

Total net current assets

9,880.96 3,740.73 13,007.01 4,027.33 6,484.63

Miscellaneous expenses not written

18.17 37.96 124.59 157.27 57.51

Total 95,119.08 88,975.32 76,609.42 61,939.98 55,706.98

Notes: Book value of unquoted investments

22,370.25 29,527.27 18,682.05 17,137.21 9,381.72

Ratio analysis and

interpretation

Ratio analysis and interpretation

1} Adjusted EPS (Rs)

Net income-dividend on preferred stock

Average outstanding shareYear Mar2010 Mar2009 Mar2008 Mar2007 Mar2006

Adjusted EPS (Rs) 42.78 64.15 50.98 46.66 36.29

43

Interpretation:

In the year2006 there was adjusted eps was36.29, the average annual growth is17.88%

As we can see in graph the rise in the adjusted eps from2006 to 2009 but in the year 2010 there is fall in Adjusted EPS (Rs)

2} dividend per share

Dps= d- sd

S

D - Sum of dividends over a period (usually 1 year)-

SD - Special, one time dividends

S - Shares outstanding for the period

44

year mar2010 mar2009 mar2008 mar2007 mar2006

Dividend per share 13.00 7.50 5.50 19.00 12.50

Interpretation:

In year 2007 there is noted highest growth among the

five year because equity dividend was greater than 2006,

2008, 2009. In 2010 equity dividend is maximum than 4

years but dividend per share could not rise because

share outstanding period was maximum

3} Profitability ratio:

a)

Operating Profit Margin (Return On Sales - ROS)=

Operating profit margin = Operating income

Total revenue

45

Years Mar2010 Mar2009 mar2008 Mar2007 Mar2006

Operating margin (%) 5.60 4.40 4.56 4.97 4.46

Interpretation:

higher the profit margin is better for Operating profit

margin, the highest profit margin is noted in year2010

company’s pricing strategy and operating efficiency is better in

year2010

Gross profit margin (%)

Gross ProfitTotal Revenue

46

Years M2010 M 2009 M2008 M2007 M2006

Gross profit margin (%) 4.40 3.46 3.47 3.77 3.20

Interpretation:

in the year2006 it is noted that was lowest among the

years. Year after year the profit margin is increasing so

that company profit margin is better

Net Profit Margin=

Option 1: Net Income after Taxes

Revenue

47

Year 2010 2009 2008 2007 2006

Net profit margin (%) 3.74 0.95 2.78 3.43 2.78

Interpretation:

rom the figure it is noted that net profit margin was

decreased in 2009 because there was decrease in net

income after tax, but it showing rise in year 2010

because net income after tax was maximum in this year

compare to other year

d) REPORTED RETURN ON NET WORTH (%)

Reported return on net worth (%)

Net income *100

48

Shareholders equity

Years 2010 2009 2008 2007 2006

Reported return on net worth (%) 20.22 6.71 16.99 21.62 16.80

Interpretation:

The average rise in reported return on net worth is20.35

from2006to2010 so that we can say that the company

profit is better from shareholder fund

e) Return on long term funds (%)

49

Year 2010 2009 2008 2007 2006

Return on long term funds (%) 21.20 20.72 19.54 20.59 16.18

Interpretation:

There is observed in graph that continuous rise in return

on long term fund %it shows good financial position

4) Leverage ratios:

a) Long term debt / Equity:

Years 2010 2009 2008 2007 2006

Long term debt / Equity 0.40 0.43 0.34 0.38 0.48

50

Interpretation:

There is showing average financial growth that is

recorded16.66%

b) Total debt to equity

Years 2010 2009 2008 2007 2006

Total debt/equity 0.88 1.02 0.86 0.77 0.90

51

Interpretation:

The company uses the financial budgets are in average

level

c) Owners fund as % of total source

52

Years 2010 2009 2008 2007 2006

Owners fund as % of total source 53.14 49.44 53.63 56.25 52.60

Interpretation:

There is showing maximum as owners fund as % of total

source

d) Fixed assets turnover ratio

net sales

53

Net property, plan and equipment

Year 2010 2009 2008 2007 2006

Fixed assets turnover ratio 3.78 4.98 4.38 3.97 4.02

Interpretation:In the year2009 it was noted that the

company is used the net property ,plan effectively so

that graph is in gone high than other years

5) Liquidity ratios:

a) Current ratio: Current asset

54

Current liability

Years 2010 2009 2008 2007 2006

Current ratio 1.19 1.09 1.32 1.10 1.18

Interpretation:

The entire ratio shows more than 1 so that it directs us

that company is having good financial condition

55

b) Current ratio (inc. st loans)

Year 2010 2009 2008 2007 2006

Current ratio (inc. st loans) 0.76 0.60 0.83 0.79 0.83

Interpretation:

There is in 2006 the ratio 1.18 it is decreased in 2008 as 0.08 even also it is rise

in2010

56

c) Acid test ratio or liquid test ratio or quick ratio:

Liquid asset

Liquid liability

Year2010 2009 2008 2007 2006

Quick ratio 0.44 0.46 0.54 0.47 0.49

Interpretation: Larger the acid test ratio shows higher

the margin of safety, in he year2008 it was noted greater than of

other 4 year because total current asset was noted maximum in year 2010 it

fall down because liquid liability was maximum and liquid asset was also

greater

57

Inventory Turnover ratio=

_ COGS

Inventory

Years 2010 2009 2008 2007 2006

Inventory turnover ratio 8.37 13.98 9.09 10.10 8.26

Interpretation:High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall.

58

That is showing in year 2009

6) Payout ratios: A) Dividend Payout Ratio =

Dividend Payment per Share

Earnings per Share

Years 2010 2009 2008 2007 2006

Dividend payout ratio (net profit) 35.86 36.11 10.51 34.83 33.87

Interpretation:The payout ratio provides an idea of how well earnings support the dividend payments.In year2008 it was noted the fall in dividend payout ratio because the dividend per share was lowIf there is dividend profit ratio is maximum, than it shows better performance of company

b) Earning retention ratio

59

Net income-dividends

Net income

Year 2010 2009 2008 2007 2006

Earning retention ratio 64.72 86.08 87.96 52.06 60.73

Interpretation:

 Tracking year-on-year earnings retention ratios is important to fundamental analysis to investigate whether a company is increasing or decreasing its rate of re-investment

It is noted the fluctuation in Earning retention ratio showing average 0.06%growth only

c) Cash earnings retention ratio

60

Year 2010 2009 2008 2007 2006

Cash earnings retention ratio 73.35 90.19 91.89 67.96 74.20

Interpretation:Showing in Tracking year-on-year earnings retention ratios is important to fundamental analysis to investigate whether a company is increasing or decreasing its rate of re-investment

Showing the average growth 0.01 during five years

7) Coverage ratios

a) Financial charges coverage ratio(pre tax)

61

Years 2010 2009 2008 2007 2006

Financial charges coverage ratio(pre tax)

11.71 4.04 8.63 8.42 9.28

Interpretation: the figure showing the average profit is of Financial charges coverage ratio (pre tax)is 0.26 so that finicial charges coverage ratio very low

Sales / Working Capital turnover=_ Sales

Working capital

62

YEAR 2010 2009 2008 2007 2006

W.C 11.65 16.144 25.74 46.82 17.36

Interpretation:

The figure showing that in year2006 the company shows

that company is not using sales and working capital

properly

It rised in year2007 but fall from 2008 to 2010

Gross profit ratio

Gross Profit x 100

63

Net Sales

YEARS 2010 2009 2008 2007 2006

GROSS

PROFIT

RATIO

28.22 21.10 24 26.6 26.1

Operating Ratio=

64

Operating Expense

Net Sales

YEARS 2010 2009 2008 2007 2006

OPERATING

RATIO

Adjusted EPS (Rs) 42.78 64.15 50.98 46.66 36.29Dividend per share 13.00 7.50 5.50 19.00 12.50

Profitability ratiosOperating margin (%) 5.60 4.40 4.56 4.97 4.46Gross profit margin (%) 4.40 3.46 3.47 3.77 3.20

65

Net profit margin (%) 3.74 0.95 2.78 3.43 2.78Reported return on net worth (%) 20.22 6.71 16.99 21.62 16.80Return on long term funds (%) 21.20 20.72 19.54 20.59 16.18

Leverage ratios

Long term debt / Equity 0.40 0.43 0.34 0.38 0.48Total debt/equity 0.88 1.02 0.86 0.77 0.90Owners fund as % of total source 53.14 49.44 53.63 56.25 52.60Fixed assets turnover ratio 3.78 4.98 4.38 3.97 4.02

Liquidity ratiosCurrent ratio 1.19 1.09 1.32 1.10 1.18Current ratio (inc. st loans) 0.76 0.60 0.83 0.79 0.83Quick ratio 0.44 0.46 0.54 0.47 0.49Inventory turnover ratio 8.37 13.98 9.09 10.10 8.26

Payout ratiosDividend payout ratio (net profit) 35.86 36.11 10.51 34.83 33.87Earning retention ratio 64.72 86.08 87.96 52.06 60.73Cash earnings retention ratio 73.35 90.19 91.89 67.96 74.20

Coverage ratiosFinancial charges coverage ratio(pre tax)

11.71 4.04 8.63 8.42 9.28

66

SUGGESTION AND RECOMMENDATION

1)Operating profit margin is showing

67

68

CONCLUSION

69

1)Overall financial performance of company is good and even rising every year but only small fall in year 2009

2)

BIBILOGRAPHY70

1>Financial Ratio analysis

AUTHOR: Charles K. Vandke

2>Financial management

AUTHOR: V.K BHALLA

3>Corporate finance

4>Element of financial management

Websites:-

1) www.Google.com

2) www.investopedia.com

3) www.eicherworld.com

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