sapna jain 050751458docshare03.docshare.tips/files/1837/18370205.pdfsignificant contribution and...

FINANCIAL STATEMENT ANALYSIS(With Special Reference to Indian Oil Corporation Limited)

BYSapna Jain050751458

GUIDED BYMr. Kamaldeep Singh Egan, FCA

A Project report submitted in partial fulfillment of the requirements for MBA Program of

IGNOU New Delhi, India

INDEXDeclaration_________________________________________________ 2

Acknowledgement____________________________________________ 3

Meaning of Financial Statement __________________________________4

Company Profile______________________________________________ 5-9

Mission & Vision ______________________________________________10

Obligations __________________________________________________11

Objectives___________________________________________________12-13

Divisions of IOCL______________________________________________14-15

Corporate Social Responsibility___________________________________15-16

SWOT Analysis________________________________________________17-20

Financial Analysis (Ratio Analysis)________________________________21-41

Funds Flow Statement__________________________________________42-49

Comparative Balance Sheet______________________________________50-51

Comparative Income Statement __________________________________52-53

Cash Flow Statement___________________________________________54-56

Performance Highlights ________________________________________ 57-62

Bibliography _________________________________________________ 63

2

ACKNOWLEDGEMENT

Heart full thanks to those who support and guide me.

It often happens that one holds someone in high esteem and gropes for words to express his

feelings of gratitude towards the other.

I am deeply indebted to Mr. Kamaldeep Singh Egan for his guidance and for being my

mentor and for giving a very patient hearing whenever I needed. He directly made a

significant contribution and provided invaluable support for emergence of this project report.

I am also very thankful to Mr. Naveen Kumar (Accounts Officer Panipat Refinery-Indian Oil

Corporation Ltd.) who provided me the valuable information to undertake the project work.

Sapna Jain

050751458

MEANING OF FINANCIAL STATEMENT

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Financial statement analyses are the outcome of summarizing process of accounting.

Financial Statements are prepared primarily for decision making. They play a dominant role

in setting the framework of managerial decisions. But the information provided in the

financial statements is not an end in itself as no meaningful conclusions can be drawn from

the statement alone. However the information provided in the financial statements is of

immense use in making decisions through analysis and interpretation of financial

statements.

In the words of john n. Myers, “ the financial statement provide a summary of the accounts

of a business enterprise, the balance sheet reflecting the assets, liabilities and capital as on

a certain date and the income statement showing the results of operations during a certain

period. There it means that financial statements are prepared as an end result of financial

accounting and are the major sources of financial information of an enterprise.

OBJECTIVES OF FINANCIAL STATEMENTS

1. To provide reliable financial information about economic resources and obligations of

a business firm.

2. To provide needed information about changes in such economic resources and

obligations.

3. To provide financial information that assists in estimating the earning potentials of

business.

4. To diagnose the information contained in the financial statements so as to judge the

profitability and financial statements of the firm.

5. To determine the significance and meaning of the financial statements data so that

forecast may be made of the future earnings, ability to pay interest and debt

maturities and profitability of a sound dividend policy.

4

COMPANY PROFILE

Indian Oil Corporation Limited

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

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

It is currently India's largest company by sales with a turnover of Rs. 220,779 crore inclusive

of Excise Duty (US $51 billion), the highest–ever for an Indian company and profit after tax

of Rs. 7,499 crore (US $1.73 billion) for fiscal 2006-07. Indian Oil is also the highest ranked

Indian company in the prestigious Fortune 'Global 500' listing, at 135th position. It is also

the 20th largest petroleum company in the world.

India’s Downstream Major

Indian Oil and its subsidiaries account for 47% petroleum products market share in the

industry, 40.4% national refining capacity and 67% downstream sector pipelines capacity.

For the year 2006-07, the Indian Oil group sold 57.97 million tonnes of petroleum products.

This includes sale of natural gas, which has gone up to 1.63 million tonnes from 1.3 million

tonnes in the previous year. In addition, product exports went up to 3.13 million tonnes from

2 million tonnes in the previous year.

The Indian Oil Group of companies owns and operates 10 of India’s 19 refineries with a

combined refining capacity of 60.2 million tonnes per annum (1.2 million barrels per day).

These include two refineries of subsidiary Chennai Petroleum Corporation Ltd. (CPCL) and

one of Bongaigaon Refinery and Petrochemicals Limited (BRPL).The Company’s cross-country

crude oil and product pipelines network spanning over 9,300 km meets the vital energy

needs of the country. To maintain its competitive edge and leadership status, Indian Oil is

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investing Rs.43,250 crore (US $10.65 billion) during the XI Plan period (2007-12) in

integration and diversification projects, besides refining and pipeline capacity augmentation,

product quality up gradation and expansion of marketing infrastructure.

Network Beyond Compare

As the flagship national oil company in the downstream sector, Indian Oil, together with its

IBP Division reaches precious petroleum products to millions of people everyday through a

countrywide network of around 32,500 sales points. They are backed for supplies by 170

bulk storage terminals and depots, 101 aviation fuel stations and 89 Indane LPG bottling

plants.

Indian Oil operates the largest and the widest network of petrol & diesel stations in the

country, numbering around 16,600. It reaches Indane cooking gas to the doorsteps to over

47.5 million households in 2,671 markets through a network of 4,990 Indane distributors.

Indian Oil's ISO-9002 certified Aviation Service commands a 63% market share in aviation

fuel business, meeting the fuel needs of domestic and international flag carriers, private

airlines and the Indian Defense Services. Indian Oil also enjoys a dominant share of the bulk

consumer business, railways, state transport undertakings, industrial, agricultural and

marine sector.

Indian Oil's world class R&D Centre is perhaps Asia's finest. Besides pioneering work in

lubricants formulation, refinery processes, pipeline transportation and alternative fuels such

as bio-diesel, the Centre is also the nodal agency of the Indian hydrocarbon sector for

ushering in Hydrogen fuel in the country. Indian Oil joined the league of global technology

providers in 2006-07 with its in-house developed IndMax technology selected for the 4

MMTPA Fluidized Catalytic Cracking (FCC) unit at the Corporation’s upcoming 15 MMTPA

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refinery-cum-petrochemicals complex at Para dip in Orissa, as well as for the FCC unit

coming up at BRPL.

Customer First

At Indian Oil, customers always get the first priority. New initiatives are launched round-

the-year for the convenience of the various customer segments.

Exclusive XTRACARE petrol & diesel stations unveiled in select urban and semi-urban

markets offer a range of value-added services to enhance customer delight and loyalty.

Similarly, large format Swagat brand outlets cater to highway motorists, with multiple

facilities such as food courts, first aid, rest rooms and dormitories, spare parts shops, etc.

Specially formatted Kisan Seva Kendra outlets meet the diverse needs of rural populace,

offering a variety of products and services such as seeds, fertilizers, pesticides, farm

equipment, medicines, spare parts for trucks and tractors, tractor engine oils and pump set

oils, besides auto fuels and kerosene. SERVO Xpress has been recently launched as one-stop

shop for auto care services. To safeguard the interest of our valuable customers,

interventions like retail automation, vehicle tracking and marker systems have been

introduced to ensure quality and quantity of petroleum products.

Synergy through Subsidiaries

A wholly owned subsidiary, Indian Oil Technologies Ltd., is commercializing the innovations

and technologies developed by Indian Oil’s R&D Centre, across the globe. Merger of

Bongaigaon Refinery & Petrochemicals Ltd. with the parent company is in process.

Widening Horizons

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In petrochemicals, Indian Oil is currently implementing a master plan envisaging Rs. 30,000

crore (US$ 6.8 billion) investment by the year 2011-12. Through the world-scale Linear Alkyl

Benzene plant for detergents manufacture at Gujarat Refinery, the Corporation has already

captured 38% market share and product has been exported to Indonesia, Turkey, Thailand,

Vietnam, Norway and Oman. An integrated Paraxylene/Purified Terephthalic Acid plant for

polyster intermediates is already in operation at Panipat, while a Naphtha Cracker with

downstream polymer units is coming up at Panipat.

Indian Oil’s refinery-cum-petrochemicals complex at Para dip on the east coast to strengthen

its presence in the sector is proposed to be completed by 2011-12.In exploration &

production (E&P), Indian Oil has bagged eight blocks under NELP (New Exploration Licensing

Policy) in India, in consortium with other companies. It has also acquired participating

interest in on-shore blocks in Assam and Arunachal Pradesh region. Overseas ventures

include two gas blocks in Sirte Basin of Libya, the Farsi Exploration Block in Iran, onshore

farm-in arrangements in Gabon, an on land block in Nigeria and two on-shore blocks in

Yemen.

The Corporation is also exploring opportunities to acquire a suitable medium-sized E&P

company to quickly consolidate its upstream portfolio. In natural gas business, Indian Oil is

targeting sale of 2 million tonnes in 2007-08, up from 1.63 million tonnes in 2006-2007. An

LNG import terminal and city gas distribution projects are in the pipeline in partnership with

GAIL (India) and Great Eastern Energy Corporation Ltd. To emerge as a transnational energy

major, Indian Oil has set up subsidiaries in Sri Lanka, Mauritius and UAE and is

simultaneously scouting new opportunities in energy markets in Asia and Africa.

Indian Oil subsidiary, Lanka IOC Ltd., operates 151 retail outlets commanding a 20% market

share. Its oil terminal at Trincomalee is also Sri Lanka’s largest petroleum storage facility.

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Lanka IOC occupies the No. 2 spot among the top 50 listed companies operating in Sri Lanka

and is ranked No. 5 among the leading brands in the island nation.

Indian Oil (Mauritius) Ltd. has also garnered a 16% market share, which includes aviation

fuelling and bunkering business. It operates a modern petroleum bulk storage terminal at

Mer Rouge port, besides petrol & diesel stations. Besides expansion of retail network, the

first ISO-9001 product-testing laboratory has been commissioned in Mauritius. It is

partnering Shell, Caltex-Chevron and Total to build an aviation jet fuel depot at the SSR

international airport at a cost of US$ 16 million.The Corporation’s UAE subsidiary, IOC Middle

East FZE, which oversees business expansion in the Middle East, is blending SERVO

lubricants, marketing petroleum products and lubricants in the Middle East, Africa and CIS

countries.

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MISSION

To achieve international standards of excellence in all aspects of energy and diversified

business with focus on customer delight through value of products and services, and cost

reduction.

To maximize creation of wealth, value and satisfaction for the stakeholders.

To attain leadership in developing, adopting and assimilating state-of-the-art technology for

competitive advantage.

To provide technology and services through sustained Research and Development.

To foster a culture of participation and innovation for employee growth and contribution.

To cultivate high standards of business ethics and Total Quality Management for a strong

corporate identity and brand equity.

To help enrich the quality of life of the community and preserve ecological balance and

heritage through a strong environment conscience.

VISION

A major, diversified, transnational, integrated energy company, with national leadership and

a strong environment conscience, playing a national role in oil security and public

distribution.

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OBLIGATIONS

Towards customers and dealers

To provide prompt, courteous and efficient service and quality products at fair and

reasonable prices.

Towards suppliers

To ensure prompt dealings with integrity, impartiality and courtesy and promote ancillary

industries.

Towards employees

Develop their capability and advancement through appropriate training and career planning.

Expeditious redressal of grievances

Fair dealings with recognized representatives of employees in pursuance of healthy trade

union practice and sound personnel policies.

Towards community

To develop techno-economically viable and environment-friendly products for the benefit of

the people.

To encourage progressive indigenous manufacture of products and materials so as to

substitute imports.

To ensure safety in operations and highest standards of environment protection in its

manufacturing plants and townships by taking suitable and effective measures.

Towards Defence Services

To maintain adequate supplies to Defence Services during Norman and emergency

situations as per their requirement at different locations.

11

CORPORATE OBJECTIVES

To serve the national interests in the Oil and related sectors in accordance and consistent

with Government policies.

To ensure and maintain continuous and smooth supplies of petroleum products by way of

crude refining, transportation and marketing activities and to provide appropriate assistance

to the consumer to conserve and use petroleum products efficiently.

To earn a reasonable rate of interest on investment.

To work towards the achievement of self-sufficiency in the filed of Oil refining by setting up

adequate capacity and to build up expertise in laying of crude and petroleum product

pipelines.

To create a strong research and development base in the field of Oil refining and stimulate

the development of new product formulations with a view to minimize/eliminate their

imports and to have next generation products.

To maximize utilization of the existing facilities in order to improve efficiency and increase

productivity.

To optimize utilization of its refining capacity and maximize distillate yield from refining of

crude to minimize foreign exchange outgo.

To minimize fuel consumption in refineries and stock losses in marketing operations to effect

energy conservation.

To further enhance distribution network for providing assured service to customers

throughout the country through expansion of reseller network as per Marketing

Plan/Government approval.

To avail of all viable opportunities, both national and global, arising out of the liberalization

policies being pursued by the Government of India.

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To achieve higher growth through integration, mergers, acquisitions and diversification by

harnessing new business opportunities like petrochemicals, power, lube business,

consultancy abroad and exploration & production.

FINANCIAL OBJECTIVES

To ensure adequate return on the capital employed and maintain a reasonable annual

Dividend on its equity capital.

To ensure maximum economy in expenditure.

To manage and operate the facilities in an efficient manner so as to generate adequate

internal resources to meet revenue cost and requirements for project investment, without

budgetary support.

To develop long-term corporate plans to provide for adequate growth of the activities of the

corporation.

To endeavor to reduce the cost of production of petroleum products by means of systematic

cost control measures.

To endeavor to complete all planned projects within the stipulated time and cost estimates.

VARIOUS DIVISIONS OF IOCL

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REFINERIES DIVISION

IOC (40.4%)

Indian Oil controls 10 of India's 19 refineries - at Digboi,

Guwahati, Barauni, Koyali, Haldia, Mathura, Panipat,

Chennai, Narimanam and Bongaigaon - with a current

combined rated capacity of 60.2 million metric tonnes

per annum (MMTPA) or 20,000 barrels per day (bpd).

< Indian Oil accounts for 40.4% of India's total refining

capacity.

PIPELINES DIVISION

IOC (76%)

Indian Oil owns and operates India's largest network of

cross-country crude oil and product pipelines of 9,300

km, with a combined capacity of 61.72 MMTPA. Indian Oil

also operates two Single Buoy Mooring systems in the

high seas off Vadinar coast in the Gulf of Kutch for

receipt of crude oil.

>Indian Oil owns & operates 76% of India's downstream

pipeline throughout capacity.

MARKETING DIVISION

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IOC (53.2%)

Indian Oil’s countrywide network of over 23,000 retail sales

points is backed for supplies by its extensive, well spread out

marketing infrastructure comprising 169 bulk storage

terminals, installations and depots, 93 aviation fuel stations

and 79 LPG bottling plants. Its subsidiary, IBP Co. Ltd, is a

stand-alone marketing company with a nationwide retail

network of over 2500 sales points.

< Indian Oil caters to over 53.2% of India's petroleum

consumption.

CORPORATE SOCIAL RESPONSIBILITY

Indian Oil knows that corporate social responsibility is a cornerstone for success. Therefore,

IOCL has made their mission to help enrich the quality of life and preserve cultural heritage

of the communities in which they operate.

Indian Oil’s community development plans have avowed objectives to improve the quality of

life of economically and socially weaker sections of the society, to develop techno-

economically viable and environment friendly products for people, and to ensure safety in

operations and the highest standards to environment protection.

IOCL have taken concrete actions to realize three principles of business philosophy, thereby

building value for the shareholders and customers. They are constructive partners in the

communities where they do business. They respect human rights, value their employees

and invest in innovative technologies and solutions to meet the need for sustainable energy

and economic growth.

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Since inception, IndianOil has supported dozens of social initiatives in India. Touching the

lives of millions of people positively through our sponsorship of environment and health-care

initiatives as well as cultural and educational programmes. IndianOil people have rallied to

help victims of natural calamities. They are engaged on a daily basis to improve the lives of

those around them.

Indian Oil has a concerted social responsibility programme to partner communities in health,

family welfare, education, environment protection, providing potable water, sanitation and

empowerment of women and other marginalized groups.

Every year, a fixed profit-linked percentage goes towards spreading smiles in millions of lives

across the country through welfare and community development activities. The budget

allocation for a typical year towards IndianOil’s social responsibility activities are:

1. 30% Community Development

40% Clean Drinking Water

40% Health & Medical Care

20% Education

2. 20% Indian Oil Scholarships

3. 10% Other activities

4. 5% Donations

5. 35% National Causes/Natural Calamities

SWOT ANALYSIS OF IOCL

STRENGTHS:

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• High foreign exchange debt .

IOCL has managed to significantly cut its borrowing cost due to high share of foreign

exchange debt. Its share of foreign exchange borrowings is increasing with foreign exchange

loans crossing 50% of its total debt compared to 42% at the end of the last financial year.

• Largest retail network all over India .

Indian Oil’s countrywide network of over 22,000 sales points is backed for supplies by its

extensive, well spread out marketing infrastructure comprising 184 bulk storage terminals,

installations and depots, 93 aviation fuel stations and 85 LPG bottling plants. Its subsidiary,

IBP Co. Ltd, is a stand-alone marketing company with a nationwide retail network of over

3,000 sales points.

• Highest market share

As India's flagship national oil company, Indian Oil accounts for 56% petroleum products

market share, 42% national refining capacity and 67% downstream pipeline throughput

capacity.

• Expertise in Oil & Gas Industry

Indian Oil is one of the leaders in providing engineering, construction and consultancy

services to the pipeline industry. Highly qualified professionals with vast experience execute

pipeline projects from concept to commissioning and provide services for construction

supervision and project management.

Indian Oil has been lending its expertise for nearly two decades to various countries in

several areas of refining, marketing, transportation, training and research & development.

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These include Sri Lanka, Kuwait, Bahrain, Iraq, Abu Dhabi, Tanzania, Ethiopia, Algeria,

Nigeria, Nepal, Bhutan, Maldives, Malaysia and Zambia.

• Foreign subsidiaries and joint ventures

Indian Oil is strengthening its existing overseas marketing ventures and simultaneously

scouting new opportunities for marketing and export of petroleum products in foreign

markets. Two wholly owned subsidiaries are already operational in Sri Lanka and Mauritius,

and regional offices at Dubai and Kuala Lumpur are coordinating expansion of business

activities in Middle East and South East Asia regions. The Corporation has launched eleven

joint ventures (listed separately) in partnership with some of the most respected corporate

from India and abroad -- Lubrizol, Nyco SA, Elf, Petronas, Oiltanking GmbH, Marubeni,

Mitsubishi, to name a few. SERVO lubricants are being exported to Dubai, Nepal, Bhutan,

Kuwait, Malaysia, Bahrain, Indonesia, Sri Lanka, Kyrgyzstan, Mauritius, Bangladesh, etc.

• In-House training centres

Indian Oil operates 17 training centres throughout India for up-skilling, re-skilling and multi-

skilling of employees in pursuit of corporate excellence. Among these, the foremost learning

centres - the Indian Oil Institute of Petroleum Management at Gurgaon, the Indian Oil

Management Centre for Learning at Mumbai, and the Indian Oil Management Academy at

Haldia -- have emerged as world-class training and management academies. Indian Oil

Institute of Petroleum Management, the Corporation's apex centre of learning, conducts

advanced management development programmes in collaboration with reputed institutes. It

also offers a unique mid-career International MBA programme in Petroleum Management.

WEAKNESSES :

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• Stringent corporate policies

The decisions relating to administration are taken at the corporate level. Even minor

proposals are to be referred to the top management. This leads to a delay in decision-

making

• Lack of marketing efforts

Among the public sector oil companies, Indian Oil Corporation is the only one to follow a

weak marketing strategy. It in only in the recent years that the company has started to

market its products. However, still the efforts seem to be weak when compared with the

competitors like BPCL and HPCL.

• Promotion policy

Most of the public sector companies seem to suffer from these lacunae. The employees are

promoted mainly on the basis of experience and not on the efforts and initiatives displayed

by the employee in his work. This results in demotivation and lack of interest for their work

on the part of the hardworking employees, who then tend to shift jobs to satisfy their need

for self-esteem.

• Tender process

The policy of selection of the lowest bidder tends to affect the quality of the

products/services on some occasions. A more simplistic procedure is also likely to generate

some savings for the company, since tendering process leads to expenses on account of

advertisement.

OPPORTUNITIES:

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• Exploration and Production

Indian Oil is metamorphosing from a pure sectoral company with dominance in downstream

in India to a vertically integrated, transnational energy behemoth. The Corporation is making

investments in E&P and import/marketing ventures for oil and gas in India and abroad, and

is implementing a master plan to emerge as a major player in petrochemicals by integrating

its core refining business with petrochemical activities.

THREATS :

• Entry of Big Private players

The opening up of the oil sector for private players poses a threat even for this well-

established company. With Indian players like Reliance and Essar and foreign players like

Shell planning their entry into the Indian scenario, the road seems to be tough for Indian Oil.

FINANCIAL ANALYSIS

Financial Statement provides a summarized view of the financial position and operations of a

firm. Therefore, much can be learnt about a firm from a careful examination of its financial

statements as invaluable documents/performance reports. The analysis of Financial

Statement is, thus, an important aid to Financial Analysis.

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The rationale of Financial Analysis is on key figures in the financial statements and the

significant relationship exists between them. The analysis of financial statements is a

process of evaluating the relationship between components parts of financial statements to

obtain a better understanding of the firm’s position and performance. The first task of the

financial analyst is to select the information relevant to the decision under consideration

from the total information contained in the financial statements. The second step is to

arrange the information in a way to highlight significant relationships. The final step is

interpretation and drawing of inferences and conclusions. In brief, financial analysis is the

process of selection, relation and evaluation.

Ratio Analysis is a widely used tool of financial analysis. It can be used to compare the risk

and return relationships of firms of different sizes. It is defined as the systematic use of

ratio to interpret the financial statements so that the strengths and weaknesses of

organization as well as its historical performance and current financial condition can be

determined. The term ratio refers to the numerical or quantitative relationship between two

items/variables. This relationship can be expressed as (i) percentages, (ii) fraction and (iii)

proportion of numbers.

The rationale of ratio analysis /financial 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. For instance, the face that the net

profits of a firm amount to say, Rs. 10 lakhs throws no light on its adequacy or otherwise.

The net profit figure has to be considered in relation to other variables. If, therefore, net

profits are shown in terms of their relationship with items such as sales, assets, capital

employed, equity capital and so on, meaningful conclusions can be drawn regarding their

adequacy.

Ratio Analysis enables analyst to draw conclusions regarding financial operations. The use of

ratios, as a tool of, financial analysis, involved their comparison.

Financial Analysis or Ratio Analysis can be classified into:-

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A. Liquidity Ratios

B. Activity Ratios

C. Solvency Ratios

D. Profitability Ratios

A. LIQUIDITY RATIOS

The importance of adequate liquidity in the sense of the ability of a firm to meet

current/short-term obligations when they become due for payment can hardly be

overstressed. Liquidity is a prerequisite for the very survival of a firm. The short-term

creditors of the firm are interested in the short-term solvency or liquidity of the firm. But

liquidity implies, from the viewpoint of utilization of the funds of the firm that funds are idle

or they earn very little. A proper balance between the two contradictory requirements, i.e.,

liquidity and profitability, is required for efficient financial management. The liquidity ratios

measure the ability of the firm to meet its short-term obligations and reflect the short-term

financial strength/solvency of a firm. The ratios which indicate the liquidity of a firm are :-

1. Current Ratio

2. Acid-Test/Quick Ratio

1)Current ratio: -

It may be defined as the relation between current assets and current liabilities. It is measure

of general liquidity and is most widely used to make the analysis of the short term financial

position of a firm.

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The current assets of the firm represent those assets which can be, in the ordinary course of

business, converted into cash within a short period of time includes cash and bank balances,

marketable securities, inventory of raw materials, semi-finished and finished goods, debtors,

bills receivable and prepaid expenses. The current liabilities defined as liabilities which are

short-term maturing obligations to be met, as originally contemplated, within a year consist

of trade creditors, bills payable, bank credit, provision for taxation, dividends payable and

outstanding expenses.

Rationale of Current Ratio:- Current Ratio is a measure of margin of safety to the

creditors. The need for safety margin arises from the inevitable unevenness in the flow of

funds through the current assets and liabilities occur. The size of the current assets should

sufficiently larger than current liabilities so that the firm would be assured of being able to

pay its current maturing debt as and when it becomes due.

There is no hard and fast rule about the optimum current ratio. Generally, a ratio of 2:1 is

considered satisfactory.

FORMULA

Current ratio= Current assets Current liabilities

23

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Current Assets 42,298.21 39,888.46 35,634.98 27,860.73 24,978.09Current Liabilities 30,369.09 26,598.97 23,636.00 20,337.27 18,513.67Current Ratio 1.39:1 1.50:1 1.51:1 1.37:1 1.35:1

Explanation: - As we can see that in year 2002-03 current ratio was 1.35:1 which raised

up to 1.51:1 in 2004-05. This is an indicative of slack management practices, as it also

signals excessive inventories for requirements and poor credit management in terms

overextended account receivables. At the same time the firm was not making full use of its

borrowing capacity. But then it started falling from 2004-05 onwards which then shows

company is now utilizing liquid funds properly and able to pay expenses through their liquid

funds. This shows that inventory is being properly managed.

2)Acid test ratio :-

An asset is liquid if it can be converted into cash immediately or reasonably soon without a

loss of value. Quick ratio is also known as acid test or liquid ratio and is more rigorous test of

liquidity than the current ratio. The quick ratio can be defined as the relation between quick

or liquid asset and current liability. Included in this category of current assets are current

assets less inventories and prepaid expenses. The exclusion of inventory is based on the

fact that it is not easily readily converted into cash. Prepaid expenses are by nature not

available to pay off current debts.

The usefulness of the ratio lies in the fact that it is widely accepted to the best available test

of the liquidity position of the firm. Generally, an acid test ratio of 1:1 is considered

satisfactory as a firm can easily meet all current claims.

FORMULA

24

Acid test ratio = Liquid assets Current liabilities

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Liquid Assets 13,308.49 11,248.73 12,397.15 10,695.81 10,968.71Current Liabilities 30,369.09 26,598.97 23,636.00 20,337.27 18,513.67Acid Test Ratio 0.44:1 0.42:1 0.52:1 0.53:1 0.59:1

Explanation :- As we can see that Acid Test Ratio is continuously diminishing from 2002-

03 to 2005-06 but with a very less variation. This shows that Company’s liquidity position

was not very good. Acid assets are approx 50% of current liabilities in each year. Company

was not having sufficient liquid assets to pay off its liabilities. But the ratio starts increasing

in 2006-07 which shows company is improving its liquidity position.

B. ACTIVITY RATIOS:-

These ratios help in commenting on the efficiency of the firm in managing its assets. The

speed with which assets are converted into sales is captured by activity ratios. The activity of

any business enterprise is reflected by the volume of sales it is able to generate. All assets

are used by the business in the quest of generating sales. So one can comment on the

efficiency of different assets in relation to sales generated during a defined period. Types of

Activity Ratios are as follows:-

1. Inventory Turnover Ratio

2. Debtors Turnover Ratio

3. Creditors Turnover Ratio

4. Working Capital Turnover Ratio

5. Total Asset Turnover Ratio

1) Inventory/Stock turnover ratio:-

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Inventory turnover ratio is also known as stock velocity. It will indicate whether inventory

has efficiently used or not. A high ratio is good from the viewpoint of liquidity and vice versa.

A low ratio would signify that inventory does not sell fast and stays on the shelf or in the

warehouse for a long time.

FORMULA

Inventory turnover ratio = Net Sales Closing inventory

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Net Sales 1,84,460.70 1,52,297.81 1,31,644.04 1,13,401.49 1,05,036.55Closing Inventory 28,989.72 28,639.73 23,237.83 17,164.92 14,009.38Inventory Turnover

Ratio6.36 Times 5.32 Times 5.67 Times 6.61 Times 7.49 Times

Explanation:- Inventory Turnover Ratio is diminishing from 2002-03 i.e. 7.49 times to

5.32 times in 2005-06. Reducing ratio indicates over-investment in inventories, stock

accumulations and low profits as compared to total investments. But on the other hand a too

high turnover of inventory may not necessarily always imply a favorable situation. A high

inventory turnover may be the result of very low level of inventory which results in shortage

of goods in relation to demand and a position of stock-out.

2) Debtors turnover ratio:-

This ratio indicates the number of times the debtor’s turnover each year. The higher the

value of debtor’s turnover, the more efficient is the management of credit. The analysis of

the debtors turnover ratio supplements the information regarding the liquidity of one item of

current assets of the firm. The ratio measures how rapidly receivables are collected. A high

26

ratio is indicative of shorter time lag between credit sales and cash collection. A low ratio

shows that debts are not being collected rapidly.

FORMULA

Debtors Turnover Ratio = Total Sales Debtors (Inclusive of Bills Receivables)

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Total Sales 1,84,460.7

0

1,52,297.8

1

1,31,644.0

4

1,13,401.4

91,05,036.55

Debtors (Incl.of Bills

Receivables)5,166.76 5,030.92 4,447.41 3,272.87 4,007.83

Debtors Turnover

Ratio

35.70

Times

30.27

Times

29.60

Times

34.65

Times26.21 Times

Average Collection

Period

365/35.70

=10

365/30.27

=12

365/29.60

=12

365/34.65

=11

365/26.21

=14

Explanation:- This ratio is dependent on the credit policy of the company and credit period

allowed to the customer. There is not much variation in all years in this ratio. It’s almost

same. The higher the value of debtors turnover the more efficient is the management of

debtors. Similarly, low debtors turnover implies inefficient management of debtors/sales and

less liquid debtors. But a very high ratio may imply a firm’s inability due to lack of resources

to sell on credit thereby losing sales and profits.

3) Creditors turnover ratio:-

In the course of business operations, a firm has to make credit purchases and incur shot

term liabilities. A supplier of goods, i.e. creditor, is interested in finding out how much a firm

is likely to take in repaying creditors. The analysis for creditor’s turnover is basically the

same as of debtors turnover ratio.

27

A low turnover ratio reflects liberal credit terms granted by suppliers, while a high ratio

shows that accounts are to be settled rapidly. The creditors turnover ratio is an important

tool of analysis as a firm can reduce its requirement of current assets by relying on

supplier’s credit. The extent to which trade creditors are willing to wait for payment can be

approximated by the creditors turnover ratio.

FORMULA

Creditor Turnover Ratio = Total Purchases Total Creditors

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Total Purchases 75,681.47 64,890.31 57,215.02 44,932.02 54,785.12Total Creditors 15,063.58 14,352.98 12,593.93 9,288.80 8,204.10Creditors Turnover

Ratio

5.02

Times

4.52

Times

4.54

Times

4.84

Times

6.68

Times

Explanation:- Generally higher the creditor velocity better it is or otherwise lower the

creditor velocity less favorable are the results and creditors turnover ratio of IOCL is has

reduced in the year 05-06 because of which company might have to face some difficulty. By

keeping in view these difficulties management of IOCL took few steps towards this and as a

result creditor turnover ratio started rising in 2006-07 i.e. now its 5.02 times.

4) Working capital turnover ratio: -

Working Capital Turnover ratio indicates the number of times the working capital is turned

over in the course of a year. This ratio measures the efficiency with which the working capital

is being used by a firm.

FORMULA

28

Working Capital Ratio = Net Sales Working Capital

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Net Sales 1,84,460.70 1,52,297.81 1,31,644.04 1,13,401.49 1,05,036.55Working Capital 11,929.12 13,289.49 11,999.01 7,523.46 6,464.42Working Capital

Turnover Ratio15.46:1 11.46:1 10.97:1 15.07:1 16.25:1

Explanation:- As we can see working capital turnover ratio is diminishing from 2002-03 to

2005-06 which shows less utilization of working capital. Then it started rising and becomes

15.46:1 in 2006-07. This shows working capital is now efficiently utilized. A very high ratio is

not a good situation for any firm and hence care must be taken while interpreting the ratio.

5) Total asset turnover ratio:-

It is also known as capital turnover ratio. This ratio can be obtained by dividing the net sales

by the total assets of the firm.

FORMULA

Total Asset Turnover Ratio = Net Sales Total Assets

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Net Sales 1,84,460.70 1,52,297.81 1,31,644.04 1,13,401.49 1,05,036.65Total Assets 1,03,993.54 94,211.53 78,139.20 65,260.30 55,711.09Total Asset turnover

ratio1.77:1 1.62:1 1.68:1 1.74:1 1.89:1

29

Explanation:- Higher ratio indicates the proper use of Assets and the ratio has come down

from 2002-03 i.e. 1.89:1 to 2005-06 i.e. 1.62:1 which was an indication for the company to

utilize its assets efficiently. So as a result total asset turnover ratio starts rising in 2006-07

i.e.1.77:1

C. Solvency Ratios

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

long-term financial strength measured in term of its ability to pay the interest regularly as

well as repay the installment of the principal on due dates or in one lump sum at the time of

maturity. The long-term solvency of the firm can be examined by using leverage or capital

structure ratios. The leverage or capital structure ratios may be defined as financial ratios

which throw light on the long-term solvency of a firm as reflected in its ability to assure the

long-term lenders with regard to (i) periodic payment of interest during the period of the

loan and (ii) repayment of principal on maturity or in predetermined installments at due

dates.

There are, thus, two aspects of the long-term solvency of the firm: (i) ability to repay the

principal when due, and (ii) regular payment of the interest. Accordingly, there are two

different, but mutually dependent and interrelated, types of leverage ratios. First, ratios

which are based on the relationship between borrowed funds and owner’s capital.

1) Debt-Equity Ratio:-

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

term debts by stockholders' equity. It indicates what proportion of equity and debt the

company is using to finance its asset.

Debt means: long term loans i.e. Debenture, loan from long-term financial institutions.

Equity means:-shareholders funds i.e. preference share capital, equity share capital,

reserves & surplus less losses & fictitious assets like preliminary expenses.

30

The debt considered here is exclusive of current liabilities. The shareholder’s equity includes

(i) equity and preference shares capital, (ii) past accumulated profits but excludes fictitious

assets like past accumulated losses, (iii) discount on issue of shares and so on.

The D/E ratio is an important tool of financial analysis to appraise the financial structure of

the firm. It has an important implication from the view point of the creditors, owners and

the firm itself. A high ratio shows a large share of financing by the creditors of the firm; a

low ratio implies a smaller claim of creditors. If the D/E is high, the owners are putting up

relatively less money of their own. It is a danger signal for the creditors. If the project

should fail financially, the creditors would lose heavily. A proper D/E ratio depends upon the

type and size of business, the nature of the industry and the degree of risk involved.

Debt-equity ratio= Debt Equity

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Debt 29,481.12 30,063.60 20,329.83 14,946.06 14,495.10Equity 36,544.27 30,640.94 27,449.97 23,951.57 18,928Debt-Equity Ratio 0.81:1 0.98:1 0.74:1 0.62:1 0.77:1

Explanation: - Interpretation of this ratio depends upon the financial position. A very high

ratio is unfavorable from the point of view of the firm as increase in debts shows that

company is being aggressive in using external debts in order to increase its growth and debt

equity ratio of IOCL needed to be given some thought as it was increasing from 2002-03 to

2005-06. Now due to more concentration over this, Debt-Equity ratio has reduced to 0.81:1

in 2006-07.

2) Proprietary ratio:-

31

This ratio is a variant of debt-equity ratio. This ratio establishes the relationship between

proprietor’s fund and total assets. It attempts to indicate the part of total assets funded

through equity.

Proprietary ratio = Proprietor’s funds x 100 Total assets

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Proprietor’s Fund 36,544.27 30,640.94 27,449.97 23,951.57 18,928.00Total Assets 1,03,993.54 94,211.53 78,139.20 65,260.30 55,711.09Proprietors’ Ratio 35.14% 32.52% 35.13% 36.70% 33.98%

Explanation:- Higher the proprietor’s ratio means that a company has Enough funds being

provided by its shareholders thus it need Be dependent on external sources but very low

ratio means company is dependent on outsiders. This ratio is almost similar in each year

with very mild variations.

3) Solvency ratio:-

Any of several formulas used to gauge a company's ability to meet its long-term obligations.

It is calculated as total net worth divided by total assets.

FORMULA

Solvency ratio = Net worth Total liabilities

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Net Worth 36,544.27 30,640.94 27,449.97 23,951.57 18,928.00Total Liabilities 73,782.83 67,673.93 54,541.98 45,008.05 37,296.00Solvency Ratio 49.53% 45.28% 50.33% 53.22% 50.75%

32

Explanation:- Higher the ratio more Satisfactory or stable is the long term solvency

position. The ratio of IOCL in the 2006-07 was much more satisfactory than 2005-06.as the

total liabilities have increased with a greater margin than the increase we can see in net

worth which Shows Company owes more than what it actually owns in 06-07.

4) Interest Coverage ratio or Debt service ratio:-

A ratio used to determine how easily a company can pay interest on outstanding debt. The

ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one

period by the company's interest expenses of the same period.

The ratio uses the concept of net profits before taxes because interest is tax deductible so

that tax is calculated after paying interest on long term loan. This ratio indicates the extent

to which a fall in EBIT is tolerable in that the ability of the firm to service its interest

payments would not be adversely affected. From the view point of the lenders, the larger

the coverage, the greater is the ability of the firm to handle fixed-charge liabilities and the

more assured is the payment of interest to them. However, too high a ratio may imply

unused debt capacity. In contrast, a low ratio is a danger signal that the firm is using

excessive debt and does not have the ability to offer assured payment of interest to the

lenders.

FORMULA:-

Debt service ratio = Net profit ( before interest & taxes) Fixed interest charges (on long term loans)

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Net profit (before

Interest & Tax)13,354.73 8,544.63 8,303.67 11,486.06 9,185.50

Fixed Interest Charges 1,743.01 1,251.44 737.92 525.48 788.10Debt-Service Ratio 7.66:1 6.83:1 10.81:1 21.86:1 11.66:1

33

Explanation: - lower the ratio, more the company is burdened by debt expense. When a

company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may

be questionable. An interest coverage ratio below 1 indicates the company is not generating

sufficient revenues to satisfy interest expenses. Thus although the ratio has decreased as

compared to the previous years but still there is nothing unfavorable except that debt

burden has increased.

D. PROFITABILITY RATIOS:-

Creditors both short term and long term and owners and management or the company itself

are interested in the financial soundness of the Firm. The management of the firm is

naturally eager to measure its operating efficiency.

Similarly, the owners invest their funds in the expectation of reasonable returns. The

operating efficiency of a firm and its ability to ensure adequate returns to its

shareholders/owners depends ultimately on the profits earned by it. The profitability of a

firm can be measured by its profitability ratios. Profitability ratios can be determined on the

basis of either sales or investments.

1) Gross profit margin : -

This ratio shows the relationship of sales with the direct costs such as purchases,

manufacturing cost, etc & thus is very important. Gross profit is the result of the relationship

between prices, sales volume and costs. The gross profit represents the limit beyond which

fall in sales are outside the tolerance limit. Gross profit ratio is also used in determining the

extent of loss caused by theft, spoilage, damage and so on. A high ratio is a sign of good

management as it implies that the cost of production of the firm is relatively low. It might

be due to higher sales or higher sales price or low production cost. Nevertheless, a very

34

high and rising gross margin may also be result of unsatisfactory basis of valuation of stock,

that is, overvaluation of closing stock and or undervaluation of opening stock.

A relatively low gross margin is a danger signal, warranting a careful and detailed analysis of

the factors responsible for it. It might be due to (i) high cost of production, (ii) inefficient

utilization of resources, current as well as fixed assets, and (iii) a low selling price resulting

from sever competition, inferior quality of product, lack of demand and so on. A thorough

investigation of the factors is required.

FORMULA

Gross profit ratio = Gross profit x100 Net sales

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Gross Profit 14,622.00 9,931.00 8,722.00 12,013.00 10,863.00Net Sales 1,84,460.70 1,52,297.81 1,31,644.04 1,13,401.49 1,05,036.55Gross Profit ratio 7.93% 6.52% 6.63% 10.59% 10.34%

Explanation: - A low gross profit margin ratio (or gross margin ratio) indicates that low

amount of earnings are generated from revenues. We can see that there is fall in gross profit

from Fy2002-03 to Fy2005-06 then it started rising in Fy2006-07.

2) Net profit ratio:-

Profit margin is an indicator of company's pricing policies and its ability to control costs.

Differences in competitive strategy and product mix cause profit margin to vary among

different companies.

The net profit margin is indicative of management ability to operate the business with

sufficient success not only to recover from revenues of the period, the cost of merchandise

or services, the expenses of operating the business (including depreciation) and the cost of

35

the borrowed funds, but also to leave a margin of reasonable compensation to the owners

for providing their capital at risk. The ratio of net profit (after interest and taxes) to sales

essentially expresses the cost price effectiveness of the operation.

A high net profit margin would ensure adequate return to the owners as well as enable a

firm to withstand adverse economic conditions when selling prices is declining, cost of

production is rising, and demand for the product is falling.

A low net profit margin has the opposite implications. However, a firm with a low profit

margin can earn a high rate of return on investment if it has a higher inventory turnover.

The profit margin should, therefore, be evaluated in relation to the turnover ratio. In other

words, the overall rate of return is the product of the net profit margin and investment

turnover ratio.

FORMULA

Net profit ratio = Net profit after tax X 100

Net Sales

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Net Profit 7,927.42 4,947.85 5,485.74 7,493.07 6,114.89Net Sales 1,84,460.70 1,52,297.81 1,31,644.04 1,13,401.49 1,05,036.55Net Profit ratio 4.30% 3.25% 4.17% 6.61% 5.82%

Explanation: Net Profit margin is decreasing which might be because of increasing

competition which has forced company to come down with the prices. As the data shows

that profit has reduced where as sales show an increase from Fy 2002-03 to Fy 2005-06.

But in 2006-07, IOCL has overcome the increasing competition problem and its Net Profit

margin has increased from 3.25% in Fy 2005-06 to 4.30% in Fy 2006-07.

36

3 Return on assets:- Return

on assets is the relationship between net income plus interest expenses and total assets. It

is mainly used to decide whether a company should start with a particular project or not.

Where ROA stands for Return on assets and NAT stands for net profit after taxes. The ROA

measures the profitability of the total funds/investments of a firm. It however, throws no

light on the profitability of the difference sources of funds which finance the total assets.

FORMULA

Return on assets = Net income + Interest expenses Total assets

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Net Income +

Interest Expenses9,922.36 6,367.34 6,668.83 8,362.79 6098.30

Total Assets 1,03,993.54 94,211.53 78,139.20 65,260.30 55,711.09Return on Assets 9.54% 6.76% 8.53% 12.81% 12.36%

Explanation: - The return on assets ratio measures how efficiently Profits are being

generated from the assets employed. We can see that IOCL is maintaining its return on

assets margin efficiently as Net income is increasing with increase in total assets.

4) R eturn on capital employed :-

It is also known as return on shareholder Funds or return on investment .It is the

relationship between net profit and proprietor’s Funds. The capital employed basis provides a

test of profitability related to the sources of long-term funds. A comparison of this ratio with

similar firm, with the industry average and over time would provide sufficient insight into

how efficiently the long term funds of owners and lenders are being used.

37

FORMULA:-

Return on capital employed: - Net Profit (before interest &tax) X100 Shareholder’s Fund

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Net Profit (before

Interest & Tax)13,354.73 8,544.63 8,303.67 11,486.06 9,185.50

Shareholder’s Fund 36,544.27 30,640.94 27,449.97 23,951.57 18,928.00Return on capital

employed36.54% 27.89% 30.25% 47.96% 48.53%

Explanation:- This ratio reveals how well the resources of a firm are being used and

whether the shareholders are getting satisfactory return or not, higher the ratio better are

the results. But company’s return to its shareholders is decreasing from Fy-2002-03 to Fy-

2005-06, then it started rising in Fy-2006-07.

5).Earning Per Share :-

Earning per share is a small variation of return on equity capital and is calculated by

dividing the net profit after taxes and preference dividend by the total number of equity

shares.

Formula:

Earning per share: - Net profit after tax – Preference dividend Number of Equity shares

38

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Net Profit (after tax-

Preference Dividend)7867.45 4,932.42 5,469.23 7,491.62 6,098.30

No. of Equity Shares 119.24 116.80 116.80 116.80 77.87Earning Per Share 65.98 42.23 46.83 64.14 78.31

Explanation: This shows the amount earned by the company per share. Here the company

is showing a decrease in the earning per share because of the reduced Income in the year.

But in Fy-2006-07 company’s earning per share is increased to a great extent. After a long

downfall in Net Profits from Fy-2002-03 to Fy-2005-06 there is sudden increase in Net

profits in Fy-2006-07.

6). Capital Turnover Ratio:-

This ratio is calculated to measure the efficiency or effectiveness with which a firm utilizes

its resources or the capital employed. As capital is invested in a business to make sales and

earn profits, this ratio is a good indicator of overall profitability of a Concern.

FORMULA

Capital turnover ratio :- Cost of good sold Capital Employed

Particulars 2006-07

(Crore)

2005-06

(Crore)

2004-05

(Crore)

2003-04

(Crore)

2002-03

(Crore)Cost of goods sold 1,69,838.70 1,42,366.81 1,22,922.04 1,01,388.49 94,173.55Capital Employed 36,544.27 30,640.94 27,449.97 23,951.57 18,928.00Capital turnover ratio 4.65:1 4.65:1 4.48:1 4.23:1 4.98:1

39

Explanation : - Capital turnover ratio of IOCL is almost same in all years. As there is

marginal increase in the ratio which is definitely a good indicator showing that capital is

being efficiently utilized.

FUNDS FLOW STATEMENT

The balance sheet discloses the financial position of the business on a particular date. It is

merely a statement of the assets and liabilities. It may depict the effect of various

transactions in a particular period and show the resources position after transactions in a

period. The balance sheet at the end of the period is generally quite different from the

balance sheet at the beginning of the year. But how the changes have come about is not

40

reflected in the balance sheet. The analysis method that discloses these changes clearly is

called ‘Funds Flow Statement’.

MEANING OF FUND

In a narrow sense, the word fund is synonymous with cash. In this sense, the funds flow

statement is simply a statement of cash receipts and disbursements. Such a statement is

called cash flow statement; it portrays the inflow and outflow of cash during a period and

consequently, the balance in hand. The term “Funds” , however, is broader than cash, it

means working capital, i.e., the difference between current assets and current liabilities or

the excess of current assets over current liabilities.

MEANING OF FLOW

The term “Flow” means change. Therefore, the term ‘flow of funds’ means ‘change in funds’

or ‘change in working capital’. According to working capital concept of funds, the term “Flow

of Funds” refers to the movement of fund as a flow in and out of the working capital area. All

flows of funds pass through working capital. Any increase or decrease in working capital

means ‘Flow of Funds’.

MEANING AND DEFINITION OF FUNDS FLOW STATEMENT

Foulke defines Funds Flow Statement as: “ A statement of sources and applications of funds

is a technical device designed to analyze the changes in the financial condition of a business

enterprise between two dates”.

In the words of Anthony,’ The funds flow statement describes the sources from which

additional funds were derived and the use to which these sources were put’.

OBJECTIVES OF FUNDS FLOW STATEMENT

How much funds have been generated from recurring and non-recurring activities?

How much funds have been raised from external sources?

Where did the profits go?

41

How was it possible to distribute dividends in excess of current earnings or in the

presence of net loss for the period?

Why are the net current assets up even though there was a net loss for the period?

How was the expansion in plant and equipment financed?

How was increase in working capital financed?

Before preparation of Funds Flow Statement, first step is to prepare “Statement Of Changes

in Working Capital”.

STATEMENT OF CHANGES IN WORKING CAPITAL:-

Statement of changes in Working Capital is prepared to show the changes in the working

capital between two Balance Sheet dates. This statement is prepared with the help of

current assets and current liabilities derived from the two balance sheets.

o A Increase in current assets increases working capital.

o A decrease in current assets decreases working capital.

o A increase in current liabilities decreases working capital.

o A decrease in current liabilities increases working capital.

Comparison of working capital between different financial years is as follows:-

INDIAN OIL CORPORATION LTD

STATEMENT OF CHANGES IN WORKING CAPITALFOR YEAR ENDING 31ST MARCH'2007

Figures in CroresParticulars 2007 2006 Increase DecreaseCurrent Assets

Inventories 28,989.7

2 28,639.7

3 349.9

9

Sundry Debtors 5,166.7

6 5,030.9

2 135.8

4

Cash & Bank Balances 1,076.7

3 1,052.8

5 23.8

8

42

Other Current Assets 776.1

0 33.8

6 742.2

4

Loans & Advances 6,288.9

0 5,131.1

0 1,157.8

0

42,298.2

1 39,888.4

6

Current Liabilities & Provisions

Sundry Creditors 15,063.5

8 14,352.9

8 710.60

Other Liabilities 5,490.2

2 4,240.9

3 1,249.29

Security Deposits 6,047.4

3 5,647.2

4 400.19

Foreign Currency Liabilities 233.3

9 42.4

4 190.95

Accrued Interest 208.9

2 180.7

9 28.13

Provision for taxation 991.0

2 4.5

6 986.46

Proposed Dividend 1,566.8

4 1,462.1

7 104.67

Corporate Dividend Tax 308.5

2 232.0

6 76.46

Provision for Retirement Benefits 357.3

4 356.2

3 1.11

Unpaid Dividend 9.2

5 8.8

4 0.41

Unpaid Matured Deposits 0.3

4 2.0

4 1.7

0

Unpaid Matured Bonds 0.0

1 0.0

9 0.0

8

Contingencies for probable obligations 92.2

3 68.6

0 23.63

30,369.0

9 26,598.9

7

Working Capital 11,929.1

2 13,289.4

9

Decrease in Working Capital 1,360.3

7 1360.37

Total 13,289.4

9 13,289.4

9 3,771.9

0 3,771.90 INDIAN OIL CORPORATION LTD

STATEMENT OF CHANGES IN WORKING CAPITAL

FOR YEAR ENDING 31ST MARCH'2006

Figures in Crores

Particulars 2006 2005 Increase DecreaseCurrent Assets

Inventories 28,639.73 23,237.83

5,401.90

Sundry Debtors 5,030.92 4,447.41

583.51

Cash & Bank Balances 1,052.85 1,373.71 320.86

Other Current Assets 33.8 2.21 31.65

43

6

Loans & Advances 5,131.10 6,573.82 1,442.72

39,888.46 35,634.98


Sundry Creditors 14,352.98 12,593.93 1,759.05

Other Liabilities 4,240.93 3,255.3 985.63

Security Deposits 5,647.24 5,309.01 338.23

Material taken on loan 307.44 307.4

4

Forign Currency Liabilities 42.44 42.44

Accrued Interest 180.79 65.37 115.42

Provision for taxation 4.56 367.78

363.22

Proposed Dividend 1,462.17 1,171.19 290.98

Corporate Dividend Tax 232.06 209.25 22.81

Provision for Retirement Benefits 356.23 287.82 68.41

Unpaid Dividend 8.84 7.75 1.09

Unpaid Matured Deposits 2.04 1.25 0.79

Unpaid Matured Bonds 0.09 0.09

Contingencies for probable obligations 68.60 59.91 8.69

26,598.97 23,636.00


11,998.98

Increase in Working Capital 1,290.51 1290.51

Total 13,289.49

13,289.49

6,687.72 6,687.72

INDIAN OIL CORPORATION LTD




3 17,164.9

2 6,072.9

1


1 3,272.8

7 1,174.5

4


1 1,465.4

5 91.74


1 1.9

3

(0.28)

44


2 5,955.5

6

(618.26)

35,634.9

8 27,860.7

3



3 9,288.8

0 3,305.13


0 3,309.9

2 54.6

2


1 4,894.0

8 414.93

Material taken on loan 307.4

4 241.5

9 65.85


7 92.1

8 26.8

1


8 140.5

6 227.22


9 1,870.0

2 698.8

3


5 269.0

4 59.7

9


2 221.5

7 66.25

Unpaid Dividend 7.7

5 6.2

9 1.43


5 1.4

6 0.2

1


1 1.7

6 58.15

23,636.0

0 20,337.2

7


8 7,523.4

6

Increase in Working Capital

4,475.52

4,475.55

Total 11,998.9

8 11,998.9

8 8,087.7

1 8,087.71




2 14,009.3

8 3,155.5

4


7 4,007.8

3 734.96


5 946.0

6 519.3

9


3 1.9

3


6 6,014.8

2 59.26

45

27,860.7

3 24,978.0

9



0 8,204.1

0 1,084.70


2 2,607.0

1 702.91


8 4,499.8

0 394.28

Material taken on loan 241.5

9 0.0

7 241.52


8 113.0

7 20.8

9


6 14.0

7 126.49


2 1,868.8

2 1.20


4 239.4

4 29.60


7 124.8

5 96.72

Unpaid Dividend 6.2

9 4.7

0 1.59


6 1.46


6 1.76

Dues to Subsidiary Companies

837.74

837.74

20,337.2

7 18,513.6

7


6 6,464.4

2

Increase in Working Capital

1,059.04

1,059.04

Total 7,523.4

6 7,523.4

6 4,535.4

9 4,535.49

46

The data shows working capital of IOCL is continuously increasing till FY 2005-06 after that it

started falling in FY 2006-07. i.e. in FY 2002-03 its 6,464.42 crore, in FY 2003-04 its

7,523.46 crore, in FY 2004-05 its 11,998.98 crore, in FY 2005-06 its 13,289.49 crore and in

FY 2006-07 its 11,929.12 crore. That means current assets are increasing with higher

percentage as compared to current liabilities. IOCL always had sufficient funds to pay off its

liabilities.

47

INDIAN OIL CORPORATION LIMITEDFUNDS FLOW STATEMENT FOR 5YEARS ENDING 31ST MARCH'07

SOURCES OF FUNDS 2006-07 2005-06 2004-05 2003-04APPLICATIONS OF FUNDS 2006-07 2005-06 2004-05 2003-04

Increase In Liabilities Increase in AssetsIncrease in Shareholder Funds

5,903.33

3,190.97

3,498.40

5,023.57 Purchase of Fixed Assets

6,950.69

1,503.26

2,497.01 4,596.95

Increase in Unsecured Loans

2,162.16

4,270.34

5,923.48

316.59 Increase in Intangible Assets 114.37

20.55

77.88 65.06

Increase in Deferred Tax Liability

832.81

171.27

239.09

943.44 Increase in Investment

7,019.77

9,572.80

17.75

Secured Loans Raised 5,463.4

3 134.0

5 Increase in Misc. Expenditure 97.0

1 22.5

9 Increase in Minority Interest

35.94

412.67

1,293.98

Increase in Dismantled Capital Stores

9.75 28.43

Increase in Capital Work In Progress

964.59

2,447.43 2,851.14

Decrease In Assets Increase in Advances for Investments

143.12 6.88

Decrease in Dismantled Capital Stores

9.06

10.95 Increase in Goodwill 1,791.34

Decrease in Capital Work In Progress

5,067.97 Increase in Deferred Tax asset

1.75

Decrease in Goodwill 1,607.3

9 78.3

8 43.2

8 Decrease in Advances for Investments

0.44

145.41 Decrease in Liabilities

Decrease in Lease Receivables

27.14

27.13

26.06 11.94 Repayment of Secured Loans

2,744.64

539.71

Decrease in Deferred Tax Asset

0.57

1.18 Decrease in Minority Interest

44.76

Decrease in Investments 2,661.2

9 Net Increase in Working Capital

1,290.51

4,475.52 1,059.04

Decrease in Misc. Expenditure

46.24

13.98

Net Decrease in Working Capital

1,360.37

Total 16,971.2

4 13,384.0

5 10,200.1

7 10,398.8

4 Total 16,971.2

4 13,384.0

5 10,200.1

7 10,398.84

48

COMPARITIVE BALANCE SHEET

In the words of Foulke, ”comparative balance sheet analysis is the study of the trend of the

same items, group of items and computed items in two or more balance sheets of the same

business enterprise on different dates.” The changes in periodic Balance Sheet items reflect

the conduct of business, the changes can be observed by companies of the balance sheet at

the beginning and at the end of a period and these changes can help in forming an opinion

about the progress of an enterprise.

ADVANTAGES OF COMPARITIVE BALANCE SHEET

The single balance sheet shows the balances of accounts of accounts after closing

the books on a certain date, whereas the comparative balance sheet shows not only

the balance of accounts as on different dates but also the extent of their increases or

decreases between these dates.

In the single balance sheet, the emphasis is on status, whereas in the comparative

balance sheet the emphasis is on change.

The balance sheet is a useful statement but the comparative balance sheet is even

more useful as it contains not only the data of single balance sheet but also those,

which may be used in studying the trends in business concern.

49

INDIAN OIL CORPORATION LIMITED

COMPARATIVE BALANCE SHEET FOR 5 YEARS ENDING ON 31ST MARCH'07

Figures in Crores

Mar-07 Mar-06 Mar-05 Mar-04 Mar-03 Mar-07 Mar-06 Mar-05 Mar-04 Mar-03

Sources Amount Amount Amount Amount Amount Applications Amount Amount Amount Amount Amount Shareholder's Fund

36,544.27

30,640.94

27,449.97

23,951.57

18,928.00 Fixed Assets

61,168.60

51,516.57

47,573.15

42,690.21

34,204.00

Loan Funds:- Less:-Depreciation 24,000.

69 21,299.3

5 18,859.1

9 16,473.2

6 12,584.0

0

Secured Loans 6,620.8

2 9,365.4

6 3,902.0

3 4,441.7

4 4,307.6

9 Intangible Assets 277.

86 163.4

9 142.9

4 65.06 Unsecured Loans

22,860.30

20,698.14

16,427.80

10,504.32

10,187.73

Dismantled Capital Stores

18.17 27.23 17.48 28.43

Capital Work in Progress

4,804.19

9,872.16

8,907.57

6,460.14

3,609.00

Deffered Tax Liabilty

6,059.61

5,226.80

5,055.53

4,816.44

3,873.00

Goodwill on Acquisition

62.29

1,669.68

1,748.06

1,791.34

Minority Interest 1,697.8

3 1,742.5

9 1,706.6

5 1,293.9

8 Investments 19,312.

03 12,292.2

6 2,719.4

6 2,701.7

1 5,363.0

0

Advances for Investments

4.15 4.59

150.00 6.88

Finance Lease Receivables

48.73 75.87

103.00

129.06

141.00

Miscellaneous Expenditure

158.38 61.37 38.78 85.02 99.00

Deffered Tax Asset - 0.57 1.75 -

Net Working Capital 11,929.

12 13,289.4

9 11,998.9

8 7,523.4

6 6,464.4

2

Total 73,782.83

67,673.93

54,541.98

45,008.05

37,296.42 Total

73,782.83

67,673.93

54,541.98

45,008.05

37,296.42

By comparing the balance sheets of the Last Five years of the IOCL we came to know that the company is continuously making

investments in other sectors e.g the company has made investment of Rs.9572.80 Crores in the F.Y. 05-06 and 7019.77 Crores in F.Y.

2006-07. It is also showing that the shareholders funds are increasing continuously from the last five years it shows that the

50

shareholders have the faith in the company which insists them to invest more in the

company moreover it also shows that our Reserves are also increasing. These kind of

comparisons are helpful for the decision making in the business.

COMPARITIVE INCOME STATEMENT

The income statement shows the net profit or net loss on account of business operations.

The comparative income statement gives an idea of the progress of a business over a

period of time. A comparative income statement shows the operating results for a

number of accounting periods so that changes in absolute data in terms of money and

percentage from one period to another may be known.

While studying changes shown in the income statement, the analyst should pay more

attention to the following:

i. Increase or decrease in gross sales

ii. Increase or decrease in net sales

iii. Increase or decrease in cost of goods sold and its causes

iv. Increase or decrease in gross profit

v. Increase or decrease in operating profit

vi. Increase or decrease in operating expense

vii. Increase or decrease in non – operating expenses

viii. Analysis of various items of income

ix. Provision for taxation is adequate or not

Analysis of net profit and its percentage with sales.

51

Expenditures Mar-07 Mar-06 Mar-05 Mar-04 Mar-03 Income Mar-07 Mar-06 Mar-05 Mar-04 Mar-03

Purchases 75,681.47 64,890.31 57,215.02 44,932.02 54,785.12 Sale of Products 213,278.27 176,780.90 149,715.51 132,149.92 Manufacturing,Admn,Selling & Other Expenses 112,406.73 89,296.81 68,525.21 60,068.39 46,772.57 Less:-Commission & Discounts 2,107.42 1,686.20 1,309.44 825.22 Net Duties 544.41 913.55 425.80 533.80 577.75 Less:- Excise Duty 26,710.15 22,796.89 16,762.03 17,923.21 Depreciation & Amortisation on:- Net Sales 184,460.70 152,297.81 131,644.04 113,401.49 105,036.55

(i) Fixed Assets 2,872.77 2,521.78 2,400.34 2,093.33 1,656.28 Subsidy From Govt. of India 1,526.92 1,515.81 1,415.00 2,809.92 3,863.50 (ii) Intangible Assets 42.83 28.65 13.58 2.48 Grant from Govt. Of India 13,943.21 6,992.02

2,915.60 2,550.43 2,413.92 2,095.81 1,656.28 Increase/Decrease in Stocks 386.22 2,934.20 2,169.30 831.03 2,411.31

Impairment loss on:- Interest & Other Income 2,761.88 1,992.52 1,418.59 1,637.07 1,749.49

(i) Fixed Assets 53.03 Company's use of own Products 272.58 214.34 246.23

(ii) Intangible Assets 1.65

Net Claim from/(surrender to) PPAC/GOI 77.97 206.23

54.68 Profit on sale of ONGC Shares 1,905.49 438.46

Interest Payments on:-Incomes pertaining to prior years 24.95 16.88 16.57

(a) Fixed period loans 546.14 459.52 335.57 251.68 377.47 Balance b/f from last year account 59.97 15.43 16.51 1.45

(b) Bonds 131.45 100.69 70.12 99.25 148.86

(c)Short Term Loans from Bank 1,015.12 676.37 330.89 156.92 235.35 (d) Public Deposits 0.39 0.96 1.45 4.39 6.58 (e) Others 49.91 13.90 29.89 13.24 19.86

1,743.01 1,251.44 767.92 525.48 788.12

Deffered Revenue Expenditure W/O 0.04 0.04 2.79 0.99 Expenses pertaining to prior years 26.76 111.07 Provision for Tax 3,432.37 2,177.32 1,634.84 3,123.16 2,299.11 Share of Minority Interest 311.90 183.45 431.68 345.69 329.81 Net Profit available for appropration 7,927.42 4,947.85 5,485.74 7,493.07 6,114.89

Total 205,044.39 166,211.20 137,013.99 119,118.41 113,323.65 Total 205,044.39 166,211.20 137,013.99 119,118.41 113,323.65


COMPARATIVE INCOME STATEMENT FOR 5 YEARS ENDING ON 31ST MARCH'07

52

By comparing the income statement of the last five years of the IOCL we came to know that

in spite of increase in the sales from F.y 203-04 to 2004-05 the Net Profit is decreasing.

This shows that either there is increase in the expenses or there is increase in purchases.

This kind of comparison is possible only if we prepare the comparative income statement.

This helps in taking decisions that under which heads we have to control our expenditures or

to increase our incomes to increase the profit levels

CASH FLOW STATEMENT

Cash flow statement is a statement that describes the inflows (sources) and out flows

(uses) of cash and cash equivalents in an enterprise during a specified period of time.

Accounting to AS-3 (revised), an enterprise should prepare a cash flow statement and

should present it for each period for which financial statements are prepared. The term cash,

cash equivalents and cash flows are used in this statement with following means:

CASH: comprises cash on hand and demand deposits with banks.

CASH EQUIVALENTS: are short term, highly liquid investments that are readily convertible

into known amounts of cash and which are subject to an insignificant risk of changes in

value.

CASH FLOWS: are inflows and outflows of cash and cash equivalents.

Therefore, cash flow statement is prepared to show the impact of various transactions on the

cash position of the firm. It takes into account the transactions resulting in cash inflows cash

outflows only.

Objectives of cash flow statement

1) Cash flow information helps planning.

2) Cash flow information helps o understand liquidity.

3) Dividend decisions.

53

4) Prediction of sickness.


CASH FLOW STATEMENT OF 5 FINANCIAL YEARS ENDING 31ST MAR-07

Particulars Mar-07 Mar-06 Mar-05 Mar-04 Mar-03

A. Cash Flow from Operating Activities

1 Profit Before Tax 11,611.7

2 7,293.

19 7,535.

75 10,960.

47 8,397.4

0

2 Adjustments For:

Depreciation 3,011.8

5 2,552.

42 2,524.

57 2,096.

61 1,656.3

0

Loss/(Profit) On Sale Of Assets (Net) 30.8

3 4.

96 17.

39 29.

94

Loss/(Profit) On Sale Of Investments (Net) (3,076.2

6) (533.2

7)

Amortization Of Capital Grants (0.9

1) (0.7

6) (0.7

5) (0.7

5)

Amortization Of Goodwill 1.

66 5.

34 2.

01

Amortization Of Voluntary Retirement Compensation 49.

03 60.

82

Profit On Sale Of Investments(Net) (1.0

0) (0.5

0)

Deferred Revenue Expenditure (Net) (97.0

1) (22.5

9)

Provision For Probable Contingencies (Net) 31.1

7 2.

87 59.

91

Loss In Sale Of Investments 0.

12

Provision For Loss On Investments 180.8

7 7.

17 42.

00 8.

70

Revenue Grant Received In The Form Of Government Bonds (13,943.2

1) (6,992.0

2)

Provision For Doubtful Debts, Advances, Claims 7.6

1 414.

85 (1.6

5) 45.

34

Provision For Diminution-Amt Receivable From Trust 1,319.2

9

Provision In Investment Written Back (4.9

4) (2.0

0)

Interest Income On Investments (693.0

4) (124.1

8) (3.9

0) (3.9

8) (336.6

0)

Dividend Income On Investments (550.2

0) (688.4

0) (456.1

0) (468.2

2) (497.4

0)

Interest Expenditure 1,743.0

1 1,251.

44 767.

92 525.

48 788.1

0

B. Operating Profit Before Working Capital Changes (1+2) (429.2

2) 3,165.

34 10,538.

51 13,256.

04 10,007.8

0

C. Change In Working Capital:-

(Excluding Cash & Bank Balances)

Trade & Other Receivables (1,533.3

5) 682.

32 (1,771.1

9) 605.

37 (66.4

0)

Inventories (364.5

3) (5,410.5

9) (6,073.0

7) (1,167.7

4) (3,554.8

0)

Rade & Other Payables 2,550.3

6 2,887.

62 3,797.

33 604.

50 1,271.1

0

Unamortized Expenditure On Retirement Benefits (32.4

1)

Inc/Dec In Other Current Liabilities 1,190.2

0

Change In Working Capital 652.4

8 (1,840.6

5) (4,046.9

3) 9.

72 (1,159.9

0)

D. Cash Generated From Operations (B+C) 223.2

6 1,324.

69 6,491.

58 13,265.

76 8,847.9

0

E. Tax Paid (1,398.7

8) (2,539.3

5) (1,177.0

9) (2,560.0

9) (2,299.1

0)

Inc/Dec in Def Tax Asset/Liability 468.1

54

0

Misc Expenditure w/o 45.8

0

Extraordinary Inc/(exp) 16.6

0

F. Net Cash Flow From Operating Activities (D-E) (1,175.5

2) (1,214.6

6) 5,314.

49 10,705.

67 7,079.3

0 G. Cash Flow From Investing Activities:-

Sale Of Assets 198.3

7 70.

67 35.

71 132.

00

Sale/Maturity Of Investments 10,055.0

5 661.

65 4,378.5

0

Interest Income On Investments 693.0

4 124.

18 3.

90 3.

98 336.6

0

Dividend Income On Investments 550.2

0 688.

40 456.

10 411.7

1 497.4

0

Purchase Of Assets (1,083.1

1) (661.4

9) (2,372.4

9) (2,268.9

7) (2,904.3

0)

Goodwill On Purchase Of Business (154.0

3)

Adjustment For Financial Lease Receivables 27.1

4 27.

13 26.

06 23.

73

Investment In Mutual Funds Etc. (240.0

1) (150.0

0)

Investment/Advance For Investments (66.3

8) (73.8

9)

Sale Of Investments 9.1

7

Oil Companies GOI Special Bonds Etc. (2,532.8

8)

Expenditure On Construction Work In Progress (4,024.1

3) (4,395.9

7) (5,188.1

5) (3,079.7

7)

Net Cash Used In Investing Activities 6,185.7

2 (6,018.3

1) (7,255.2

5) (5,005.2

4) 2,308.2

0

H. Net Cash Flow From Financing Activities:-

Proceeds From Long Term Borrowings (1,014.6

3) 7,025.

81 (269.8

1) (888.3

2) (1,252.0

0)

Proceeds From/(Repayments Of) Short-Term Borrowings 432.1

5 2,708.

72 5,653.

58 (1,108.4

0)

Interest Paid (1,830.5

9) (1,286.1

4) (903.5

8) (849.1

5) (788.1

0)

Dividend/Dividend Tax Paid (2,573.2

5) (1,535.4

3) (2,783.5

6) (2,880.3

0) (756.9

0)

Proceeds Issue Of Shares Including Premium(Lanka IOC Limited) 152.

36

Receipt Of Grant For Capital Projects 0.

03

Inc/(Dec) in debt (4,574.9

0)

Direct add/(red) To Reserves (1,741.0

0)

Net Cash Generated/(Used) From Financing Activities (4,986.3

2) 6,912.

96 1,849.

02 (5,726.1

7) (9,112.9

0)

I. Net Change In Cash & Cash Equivalents (F+G+H) 23.8

8 (320.0

1) (91.7

4) (25.7

4) 274.6

0

J. Cash & Cash Equivalents As At End Of The Financial Year 1,076.7

3 1,052.

85 1,373.

71 1,465.

45 1,491.1

9

K. Cash & Cash Equivalents As At Beginning Of The Financial Year (1,052.8

5) (1,373.7

1) (1,465.4

5) (1,491.1

9) (1,216.5

9)

Adjustment For ISPRL 0.

85

Net Change In Cash & Cash Equivalents (J-K) 23.8

8 (320.0

1) (91.7

4) (25.7

4) 274.6

0

55

PERFORMANCE HIGHLIGHTS (2006 - 2007)

REFLECTIONS -2006-07:-

During the year, Indian Oil……………

• Achieved highest ever Turnover of Rs. 2,20,779 Crores (Inclusive of Excise Duty).

• Achieved highest ever Net Profit of Rs.7,499 Crores.

• IBP merged on 2nd May’07 w.e.f. 31st Mar’07.

• Expansion of Panipat Refinery from 6 to 12 MMTPA in Aug’06.

• Commissioning of P/x/PTA Plant at Panipat Refinery in Aug’06.

• BRPL merger approved by the board in Nov’06, Govt. approval awaited.

Consequent upon the merger of IBP Co. Ltd. With Indian Oil, the financial statements of

Indian Oil for the year ended 31st Mar’07 have been prepared by including the financials of

erstwhile IBP as a separate division. Since figures for the previous year 2005-06 do not

include the financials of erstwhile IBP, the same are to that extent not comparable with the

figures for the current year.

The financial year 2006-07 was highly rewarding for IndianOil in terms of record throughputs

registered by its refineries and pipelines network, increase in product sales by 2.4 million

tonnes, and rise in gross turnover for the first nine months by over 22%.

A highlight of fiscal 2006 was the commissioning of major projects that enhanced and

diversified the Corporation’s processing capabilities. Among these were doubling of

capacity at Panipat Refinery to 12 million tonnes, a world scale PX/PTA (Paraxylene /

Purified Terephthalic Acid) plant at Panipat, MS (petrol) quality upgradation project at

56

Gujarat Refinery, and the Mundra-Panipat crude oil pipeline with facilities for handling heavy

crude oil at Mundra.

During the year 2006-07, the Marketing Group spared no efforts to retain Indian Oil’s

dominant petroleum products share despite stiff competition in the market place. In keeping

with the Corporation’s focus on close bonding with customers, the year 2006 was observed

as ‘Customer Service Excellence Year’ and several new initiatives were launched under the

umbrella concept of Sambandh. Among new businesses, the Petrochemicals and Gas

verticals generated revenues of Rs. 1,420 crore and Rs.1, 947 crore respectively during the

year 2006-07, with focus on enhancing customer base, infrastructure and supply logistics.

New successes in acquisition of oil & gas blocks in India and abroad ensured further growth

in the E&P portfolio. Efforts in globalisation of products and services received a fillip with

overseas subsidiaries consolidating and expanding their business activities.

In a major policy shift, the Corporation received permanent approval of the Government of

India to continue with ship chartering on its own. It also became the first PSU to commence

trading on the domestic commodities and derivates exchange (NCDEX) during the year. The

merger of the wholly-owned subsidiary, Indian Oil Blending Ltd., with the parent company

was completed during the year.

Financial Performance The turnover (inclusive of excise duty) of Indian Oil for the year

ended 31st Mar’07 was Rs.2,20,779 crore as compared to Rs.1,83,172 crore in the previous

year. The total sales of petroleum products (including natural gas) for 2006-07 were 57.97

MMT as against 49.61 MMT (excluding IBP sales) during 2005-06. The Corporation’s Profit

Before Tax was Rs.10,485 crore during 2006-07 as compared to Rs.6,706 crore in 2005-06.

the profit for 2006-07 includes a profit of Rs.3,225 crore on sale of 20% equity holding in Oil

& Natural Gas Corporation Ltd. (ONGC) and provision of Rs.1319 crore for diminution in

investments in erstwhile IBP, which is vested in a Trust formed consequent to the

57

amalgamation, while the profit for 2005-06 included a profit of Rs.438 crore on sale of 50%

equity holding in GAIL (India) Ltd.

Refineries For the year 2006-07, IndianOil refineries clocked the highest-ever throughput

of 44.million tonnes, which translated into a 14% growth in crude oil processing over the

previous year Three of the refineries achieved their highest ever throughput:

Refinery 2006-07 Previous Best Gujarat 12,950 12,758 (2003-04) Haldia 5,840 5,502

(2005-06) Panipat 9,420 6,507 (2005-06) (Figs. In thousand metric tonnes or TMT)

Committed efforts in energy conservation resulted in record lowest overall energy

consumption during the year 2006-07 as against the previous lowest in 2005-06 All the

refineries took up Clean Development Mechanism projects to help reduce greenhouse gas

emissions. Each refinery identified more Six Sigma projects for enhanced operational

performance. Total Productive Maintenance spread across all the units for maximising the

efficiency of the production system and reducing chronic losses.

Pipelines During the year, Pipelines Division achieved the highest ever operational

throughput of 51.20 million tonnes of crude oil and petroleum products the cross-country

pipeline network was expanded with the commissioning of the Mundra-Panipat pipeline.

Year Pipeline Length (km) Pipeline Capacity (million tonnes p.a) 2006-07 9,273 61.72,

2005-06 9,024 60.42

Marketing Domestic sales touched 48.80 million tonnes during the year, which was 2.4

million tonnes more than that of the previous year Large-scale commissioning of low-cost,

small-format Kisan Seva Kendra outlets drove volumes in both fuels and lubricants in the

rural market, opening a new window of business For the first time, Indian Oil emerged as the

market leader in branded fuels – XTRAPREMIUM petrol, XTRAMILE diesel and

AUTOGAS LPG for automobiles .Availability of XTRAMILE diesel, with an overall market

share of 47.4%, was extended to over 6,800 retail outlets.

58

Auto LPG sales increased from 31 TMT to about 58 TMT. In aviation fuelling, Indian Oil

continued to be the market leader with an overall market share of 63%. ATF sales grew by

20% during the year.

The Lubes Group registered a 3% growth in finished lubes sale during the year. Several new

products with business growth potential of about 15,000 kl per annum were launched in the

market during the year, including Transformer Oil, Rayon Coning Oil, De-dusting Oil, Granite

Cutting Oil, Ink Oil, etc.

As part of stepped-up efforts to curb malpractices, selected retail outlets were automated

and work is in progress to cover 2,000 outlets by March 2008, A unique marker system was

launched to curb adulteration of diesel with kerosene .A manual for handling customer

complaints was developed for putting in place a uniform and transparent procedure for

redressal of customer grievances.

International Trade & Shipping In order to widen its crude oil basket, IndianOil

purchased heavier grades of Middle East and South American origin crude during the year

for processing at Panipat Refinery, Over 95% of the LPG imports for the year 2006-07 were

finalised through term contracts. The Shipping Group handled a record quantity of 42.4

million tonnes of imported crude during 2006-07 on behalf of group companies as against

37.5 million tones during 2005-06.

HR Initiatives With focus on talent management issues, several changes were made in the

methodology and approach to recruitment and induction during the year. The e-enabled

Performance Management System was further stabilized and the first round of incentive

payouts linked to individual performance was made during the year .Workshops and training

programmes on Right to Information (RTI) Act were organized across the Corporation to

spread awareness and empower all concerned officers handling RTI-related cases

59

CONCLUSION

Financial analysis makes the related information comparable. A single figure by itself has no

meaning, but when expressed in terms of a related figure, it yields significant inferences.

Financial analysis measures the ability of a firm to meet its short-term obligations and reflect

its short-term financial strength or solvency. Financial analysis helps in making decision-

making. It is a post-mortem of the organizations financial activities. Financial analysis is

used as a tool of Control Management.

Working capital management concerned with the problems that arise in attempting to

manage the current assets, current-liabilities and the inter relationship that exists between

them. The goal of working capital management is to manage the firm’s current assets and

current liabilities in such a way that a satisfactory level of working capital is maintained to

boost the production. If a company could not maintain a satisfactory level of working capital

it is likely to become insolvent and even be forced into bankruptcy.

The study has its own importance in its own way. With the help of this study one can know

about the existence and survival and success of IOCL and efforts, which even as a Public

Sector Undertaking (PSU), is in the Global Fortune 500 Companies, which is due to its

efficient management and Control Management.

Although the sales of IOCL are increasing and which has resulted in the increase in income,

still the company is not able to manage an increase in profits because of a simultaneous

increase in the amount of expenditure. The IOCL has earned handsome amount of profits

even the profits have been decreasing from past few years. But, this state is temporary due

to high price in world crude oil prices.

The study will be a helpful step ahead in increasing the morale of each employee and by

studying this, management can come to know that what effective measure can be take to

maintain the effective use of working capital in the organization which has shown a

decrease. A high percentage increase of 350.22% can be seen in case of investments and

even current assets are showing a favorable increase on the other side although equity or

60

capital investment has increased in the organization still it is showing a decrease in earning

per share thus return on capital employed is also less as compared to the previous year this

all has not affected the fixed assets of the company which are still showing an increase but

secured and unsecured loans have increased in the year 05-06. Such results and conclusions

are definitely helpful in order to achieve goals of the organization in this modern business

world.

61

BIBLOGRAPHY

www.google.com

www.iocl.com

www.investopedia.com

Management Accounting by R.K.Sharma & Shashi K.Gupta

62

http://www.investopedia.com/

http://www.iocl.com/

http://www.google.com/

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