introduction of indian oil
TRANSCRIPT
-
8/7/2019 Introduction of Indian oil
1/72
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
-
8/7/2019 Introduction of Indian oil
2/72
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 candidates 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
-
8/7/2019 Introduction of Indian oil
3/72
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.
3
-
8/7/2019 Introduction of Indian oil
4/72
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
-
8/7/2019 Introduction of Indian oil
5/72
index
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.
5
-
8/7/2019 Introduction of Indian oil
6/72
Introduction
6
-
8/7/2019 Introduction of Indian oil
7/72
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
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.
7
-
8/7/2019 Introduction of Indian oil
8/72
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 becalculated 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.
8
-
8/7/2019 Introduction of Indian oil
9/72
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 companys 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
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.
9
-
8/7/2019 Introduction of Indian oil
10/72
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) 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
10
-
8/7/2019 Introduction of Indian oil
11/72
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 someother 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
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). Theoperating profit margin is your operating income (gross profit
11
-
8/7/2019 Introduction of Indian oil
12/72
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 Profit
Total 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=
Option 1: Net Income after Taxes
Revenue
12
http://beginnersinvest.about.com/od/incomestatementanalysis/a/gross-profit.htmhttp://beginnersinvest.about.com/od/incomestatementanalysis/a/revenue-and-sales.htmhttp://beginnersinvest.about.com/od/incomestatementanalysis/a/gross-profit.htmhttp://beginnersinvest.about.com/od/incomestatementanalysis/a/revenue-and-sales.htm -
8/7/2019 Introduction of Indian oil
13/72
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 companys 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, youll 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 incomestatements. To analyze
your profitability, compare these percentages to your industrys averages or
those of your immediate competitors (if you can obtain this information). Of
course, youll always want to compare your current years profitability
percentages to the percentages from your companys previous years in order to
determine how well you are progressing.
Reported return on net worth (%)
Net income *100
Shareholders equity
13
-
8/7/2019 Introduction of Indian oil
14/72
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 inprofitability over the period
Leverage ratios
14
-
8/7/2019 Introduction of Indian oil
15/72
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 ofcapital 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
thebalance 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
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 investmentssuch as certificates of
15
http://moneyterms.co.uk/long_term_liabilities/http://moneyterms.co.uk/gearing/http://moneyterms.co.uk/current_liabilities/http://moneyterms.co.uk/current_liabilities/http://moneyterms.co.uk/capital-structure/http://moneyterms.co.uk/long-term-debt-equity/http://moneyterms.co.uk/balance_sheet/http://moneyterms.co.uk/long_term_liabilities/http://moneyterms.co.uk/gearing/http://moneyterms.co.uk/current_liabilities/http://moneyterms.co.uk/current_liabilities/http://moneyterms.co.uk/capital-structure/http://moneyterms.co.uk/long-term-debt-equity/http://moneyterms.co.uk/balance_sheet/ -
8/7/2019 Introduction of Indian oil
16/72
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
Fix asset turnover=net sales
Net property, plan and equipment
16
-
8/7/2019 Introduction of Indian oil
17/72
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
Current ratio=
Current asset
Current liability
A liquidity ratio that measures a company's ability to pay short-termobligations.
17
-
8/7/2019 Introduction of Indian oil
18/72
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-testratio 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.
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
18
-
8/7/2019 Introduction of Indian oil
19/72
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. Lets
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
(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
19
-
8/7/2019 Introduction of Indian oil
20/72
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 soldand replaced over a period.
The days in the period can then be divided by the inventoryturnover formula to calculate the days it takes to sell theinventory on hand or "inventory turnover days".
20
-
8/7/2019 Introduction of Indian oil
21/72
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 usuallyrecorded at cost. Also, average inventory may be used insteadof the ending inventory level to minimize seasonal factors.
This ratio should be compared against industry averages. Alow turnover implies poor sales and, therefore, excessinventory. A high ratio implies either strong sales or ineffectivebuying.
High inventory levels are unhealthy because they represent an
investment with a rate of return of zero. It also opens thecompany 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.
21
-
8/7/2019 Introduction of Indian oil
22/72
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
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. Infact, it can also be calculated as one minus the dividend payout ratio.
22
-
8/7/2019 Introduction of Indian oil
23/72
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.
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.
23
-
8/7/2019 Introduction of Indian oil
24/72
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
24
-
8/7/2019 Introduction of Indian oil
25/72
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
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.
25
-
8/7/2019 Introduction of Indian oil
26/72
Operating RatiosOperating 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
This ratio shows management efficiency by comparing your
operating expenses to your net sales. The Smaller the ratio, the
greater your companys ability to generate a profit if revenue
decreases this ratio
However, does not take into account any debt repayment or debt
increase.
26
-
8/7/2019 Introduction of Indian oil
27/72
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 debtrepayment 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.
27
-
8/7/2019 Introduction of Indian oil
28/72
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 efficiently6.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.
28
-
8/7/2019 Introduction of Indian oil
29/72
29
-
8/7/2019 Introduction of Indian oil
30/72
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.
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
30
-
8/7/2019 Introduction of Indian oil
31/72
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 39LPG 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 Indias 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 Indias energy demands for
over five decades. The companys 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 ArabEmirates (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
31
-
8/7/2019 Introduction of Indian oil
32/72
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 Indias
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 Oils 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.
32
-
8/7/2019 Introduction of Indian oil
33/72
OBJECTIVES
33
-
8/7/2019 Introduction of Indian oil
34/72
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
34
-
8/7/2019 Introduction of Indian oil
35/72
RESEARCH
METHODOLOGY
35
-
8/7/2019 Introduction of Indian oil
36/72
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) Interviews2) Communication
Secondary data: - Books
36
-
8/7/2019 Introduction of Indian oil
37/72
COMPARATIVE
FINICIAL
STATEMENT OF
INDIAN OIL
CORPORATION37
-
8/7/2019 Introduction of Indian oil
38/72
Profit loss account in crore
38
-
8/7/2019 Introduction of Indian oil
39/72
Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Income
Operating
income
2,69,438.0
8
3,07,123.9
9
2,47,359.2
4
2,16,498.8
5
1,74,895.12
Expenses
Material
consumed
2,35,668.5
2
2,75,383.5
4
2,21,256.5
5
1,93,471.5
3
1,56,413.53
Manufacturin
g 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 2,54,339.3
5
2,93,599.6
4
2,36,063.3
4
2,05,736.6
7
1,67,085.86
Operating
profit
15,098.73 13,524.35 11,295.90 10,762.18 7,809.26
Other
recurringincome
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
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 6,028.81
Tax charges 3,097.87 1,364.71 3,104.54 2,949.46 1,790.38
Adjusted 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 76.48 361.72 204.77
Retained
earnings
11,860.46 7,189.41 6,230.29 4,886.86 3,250.33
39
-
8/7/2019 Introduction of Indian oil
40/72
Balance sheet In crore
40
-
8/7/2019 Introduction of Indian oil
41/72
Ratio analysis and
interpretation
41
-
8/7/2019 Introduction of Indian oil
42/72
Ratio analysis and interpretation
1} Adjusted EPS (Rs)
Net income-dividend on preferred stock
Average outstanding share
0
10
20
30
40
5060
70
2006 2007 2008 2009 2010
Adjusted EPS (Rs)
Interpretation:
year Mar2010 Mar2009 Mar2008 Mar2007 Mar2006
Adjusted EPS (Rs) 42.78 64.15 50.98 46.66 36.29
42
-
8/7/2019 Introduction of Indian oil
43/72
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
0
5
10
15
20
2006 2007 2008 2009 2010
Dividend per share
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
year mar2010 mar2009 mar2008 mar2007 mar2006
Dividend per share 13.00 7.50 5.50 19.00 12.50
43
-
8/7/2019 Introduction of Indian oil
44/72
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
Years Mar2010 Mar2009 mar2008 Mar2007 Mar2006
Operating margin (%) 5.60 4.40 4.56 4.97 4.46
44
-
8/7/2019 Introduction of Indian oil
45/72
0
1
2
3
4
5
6
2010 2009 2008 2007 2006
Operating margin(%)
Interpretation:
higher the profit margin is better for Operating profit
margin, the highest profit margin is noted in year2010
companys pricing strategy and operating efficiency is better inyear2010
Gross profit margin (%)
Gross Profit
Total Revenue
45
http://beginnersinvest.about.com/od/incomestatementanalysis/a/gross-profit.htmhttp://beginnersinvest.about.com/od/incomestatementanalysis/a/revenue-and-sales.htmhttp://beginnersinvest.about.com/od/incomestatementanalysis/a/gross-profit.htmhttp://beginnersinvest.about.com/od/incomestatementanalysis/a/revenue-and-sales.htm -
8/7/2019 Introduction of Indian oil
46/72
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
Years M2010 M 2009 M2008 M2007 M2006
Gross profit margin (%) 4.40 3.46 3.47 3.77 3.20
46
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2010 2009 2008 2007 2006
Gross profit
margin (%)
-
8/7/2019 Introduction of Indian oil
47/72
0
0.5
1
1.52
2.5
3
3.5
4
2010 2009 2008 2007 2006
Net profit margin
(%)
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
Shareholders equity
Year 2010 2009 2008 2007 2006
Net profit margin (%) 3.74 0.95 2.78 3.43 2.78
47
-
8/7/2019 Introduction of Indian oil
48/72
0
5
10
15
20
25
2010 2009 2008 2007 2006
REPORTEDRETURN ON NETWORTH (%)
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 (%)
Years 2010 200
9
2008 2007 2006
Reported return on net worth (%) 20.2
2
6.71 16.99 21.62 16.80
48
-
8/7/2019 Introduction of Indian oil
49/72
0
5
10
15
20
25
2010 2009 2008 2007 2006
Return on longterm funds (%)
Interpretation:
There is observed in graph that continuous rise in return
on long term fund %it shows good financial position
year 2010 2009 2008 2007 2006
Return on long term funds (%) 21.20 20.72 19.54 20.59 16.18
49
-
8/7/2019 Introduction of Indian oil
50/72
4) Leverage ratios:
a) Long term debt / Equity:
0
0.1
0.2
0.3
0.4
0.5
0.6
2010 2009 2008 2007 2006
Long term debt /
Equity
Interpretation:
There is showing average financial growth that is
recorded16.66%
Years 2010 200
9
200
8
200
7
2006
Long term debt / Equity 0.40 0.43 0.34 0.38 0.48
50
-
8/7/2019 Introduction of Indian oil
51/72
b) Total debt to equity
0
0.2
0.4
0.6
0.8
1
1.2
2010 2009 2008 2007 2006
Total debt/equity
Interpretation:
years 2010 200
9
200
8
200
7
2006
Total debt/equity 0.88 1.02 0.86 0.77 0.90
51
-
8/7/2019 Introduction of Indian oil
52/72
The company uses the financial budgets are in average
level
c) Owners fund as % of total source
46
48
50
52
54
56
58
2010 2009 2008 2007 2006
Owners fund as % oftotal source
Interpretation:
Years 2010 2009 2008 200
7
2006
Owners fund as % of total source 53.14 49.44 53.63 56.25 52.60
52
-
8/7/2019 Introduction of Indian oil
53/72
There is showing maximum as owners fund as % of total
source
d) Fixed assets turnover ratio
net sales
Net property, plan and equipment
year 2010 200
9
2008 200
7
2006
Fixed assets turnover ratio 3.78 4.98 4.38 3.97 4.02
53
-
8/7/2019 Introduction of Indian oil
54/72
0
1
2
3
4
5
6
2010 2009 2008 2007 2006
Fixed assetsturnover ratio
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
Current liability
54
-
8/7/2019 Introduction of Indian oil
55/72
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2010 2009 2008 2007 2006
Current ratio
Interpretation:
The entire ratio shows more than 1 so that it directs us
that company is having good financial condition
years 2010 2009 2008 2007 2006
Current ratio 1.19 1.09 1.32 1.10 1.18
55
-
8/7/2019 Introduction of Indian oil
56/72
b) Current ratio (inc. st loans)
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.80.9
2010 2009 2008 2007 2006
Current ratio (inc. stloans)
Interpretation:
There is in 2006 the ratio 1.18 it is decreased in 2008 as 0.08 even also it is rise
in2010
Year 2010 2009 2008 2007 2006
Current ratio (inc. st loans) 0.76 0.60 0.83 0.79 0.83
56
-
8/7/2019 Introduction of Indian oil
57/72
c) Acid test ratio or liquid test ratio or quick ratio:
Liquid asset
Liquid liability
0
0.1
0.2
0.3
0.4
0.5
0.6
2010 2009 2008 2007 2006
Quick ratio
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
Year2010 200
9
2008 200
7
2006
Quick ratio 0.44 0.46 0.54 0.47 0.49
57
-
8/7/2019 Introduction of Indian oil
58/72
Inventory Turnover ratio=
_COGS
Inventory
0
2
4
6
8
10
12
14
2010 2009 2008 2007 2006
Inventoryturnover ratio
Interpretation:
Years 2010 2009 2008 2007 2006
Inventory turnover ratio 8.37 13.98 9.09 10.10 8.26
58
-
8/7/2019 Introduction of Indian oil
59/72
High inventory levels are unhealthy because they represent aninvestment with a rate of return of zero. It also opens thecompany up to trouble should prices begin to fall.
That is showing in year 2009
6) Payout ratios:A) Dividend Payout Ratio =
Dividend Payment per Share
Earnings per Share
0
5
10
15
20
25
30
35
40
2010 2009 2008 2007 2006
Dividend payout ratio(net profit)
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 low
If there is dividend profit ratio is maximum, than it shows better performance of
company
Years 2010 2009 2008 2007 2006
Dividend payout ratio (net profit) 35.86 36.11
10.51 34.83 33.87
59
-
8/7/2019 Introduction of Indian oil
60/72
b) Earning retention ratio
Net income-dividends
Net income
0
10
20
30
40
50
60
70
80
90
2010 2009 2008 2007 2006
Earning retention ratio
Interpretation:
Tracking year-on-year earnings retention ratios is important to fundamentalanalysis to investigate whether a company is increasing or decreasing its rateof re-investment
It is noted the fluctuation in Earning retention ratio showing average
0.06%growth only
year 2010 2009 2008 2007 2006
Earning retention ratio 64.72 86.08 87.96 52.06 60.73
60
http://financial-dictionary.thefreedictionary.com/Fundamental+Analysishttp://financial-dictionary.thefreedictionary.com/Fundamental+Analysishttp://financial-dictionary.thefreedictionary.com/Fundamental+Analysishttp://financial-dictionary.thefreedictionary.com/Fundamental+Analysis -
8/7/2019 Introduction of Indian oil
61/72
c) Cash earnings retention ratio
0
1020
30
40
50
60
70
80
90
100
2010 2009 2008 2007 2006
Cash earningsretention ratio
Interpretation:
Showing inTracking year-on-year earnings retention ratios is important to fundamentalanalysis to investigate whether a company is increasing or decreasing its rateof re-investment
Showing the average growth 0.01 during five years
7) Coverage ratios
a) Financial charges coverage ratio(pre tax)
year 2010 2009 2008 2007 2006
Cash earnings retention ratio 73.35 90.1
9
91.89 67.9
6
74.20
61
http://financial-dictionary.thefreedictionary.com/Fundamental+Analysishttp://financial-dictionary.thefreedictionary.com/Fundamental+Analysishttp://financial-dictionary.thefreedictionary.com/Fundamental+Analysishttp://financial-dictionary.thefreedictionary.com/Fundamental+Analysis -
8/7/2019 Introduction of Indian oil
62/72
0
2
4
6
8
10
12
2010 2009 2008 2007 2006
Financial chargescoverage ratio(pretax)
Interpretation: the figure showing the average profit is
ofFinancial charges coverage ratio (pre tax)is 0.26 so that finicial chargescoverage ratio very low
Sales / Working Capital turnover=
_Sales
Working capital
Years 2010 2009 200
8
2007 2006
Financial charges coverage ratio(pre
tax)
11.71 4.04 8.63 8.42 9.28
62
-
8/7/2019 Introduction of Indian oil
63/72
YEAR 2010 2009 2008 2007 2006
W.C 11.65 16.144 25.74 46.82 17.36
0
10
20
30
40
50
2010 2009 2008 2007 2006
Sales / WorkingCapital turnover=
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
-
8/7/2019 Introduction of Indian oil
64/72
Net Sales
YEARS 2010 2009 2008 2007 2006
GROSS
PROFIT
RATIO
28.22 21.10 24 26.6 26.1
0
5
10
15
20
25
30
2010 2009 2008 2007 2006
GROSS PROFITRATIO
Operating Ratio=
Operating Expense
64
-
8/7/2019 Introduction of Indian oil
65/72
Net Sales
YEARS 2010 2009 2008 2007 2006
OPERATING
RATIO
65
-
8/7/2019 Introduction of Indian oil
66/72
Adjusted EPS (Rs) 42.78 64.15 50.98 46.66 36.29
Dividend per share 13.00 7.50 5.50 19.00 12.50
Profitability ratios
Operating margin (%) 5.60 4.40 4.56 4.97 4.46Gross profit margin (%) 4.40 3.46 3.47 3.77 3.20
Net profit margin (%) 3.74 0.95 2.78 3.43 2.78
Reported return on net worth (%) 20.22 6.71 16.99 21.62 16.80
Return 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 0.48
Total debt/equity 0.88 1.02 0.86 0.77 0.90
Owners fund as % of total source 53.14 49.44 53.63 56.25 52.60
Fixed assets turnover ratio 3.78 4.98 4.38 3.97 4.02
Liquidity ratios
Current ratio 1.19 1.09 1.32 1.10 1.18
Current ratio (inc. st loans) 0.76 0.60 0.83 0.79 0.83
Quick ratio 0.44 0.46 0.54 0.47 0.49
Inventory turnover ratio 8.37 13.98 9.09 10.10 8.26
Payout ratios
Dividend payout ratio (net profit) 35.86 36.11 10.51 34.83 33.87
Earning 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 ratios
Financial charges coverage
ratio(pre tax)
11.71 4.04 8.63 8.42 9.28
66
-
8/7/2019 Introduction of Indian oil
67/72
SUGGESTION AND
RECOMMENDATION
67
-
8/7/2019 Introduction of Indian oil
68/72
1)
Operating profit margin is showing
68
-
8/7/2019 Introduction of Indian oil
69/72
CONCLUSION
69
-
8/7/2019 Introduction of Indian oil
70/72
1)Overall financial performance of company is good and even rising every
year but only small fall in year 2009
2)
BIBILOGRAPHY70
-
8/7/2019 Introduction of Indian oil
71/72
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
71
http://www.investopedia.com/http://www.investopedia.com/ -
8/7/2019 Introduction of Indian oil
72/72