Post on 23-Mar-2020
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
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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.
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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.
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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
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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
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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
Current Liabilities & Provisions
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
Working Capital 13,289.49
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
STATEMENT OF CHANGES IN WORKING CAPITALFOR YEAR ENDING 31ST MARCH'2005
Figures in CroresParticulars 2005 2004 Increase DecreaseCurrent Assets
Inventories 23,237.8
3 17,164.9
2 6,072.9
1
Sundry Debtors 4,447.4
1 3,272.8
7 1,174.5
4
Cash & Bank Balances 1,373.7
1 1,465.4
5 91.74
Other Current Assets 2.2
1 1.9
3
(0.28)
44
Loans & Advances 6,573.8
2 5,955.5
6
(618.26)
35,634.9
8 27,860.7
3
Current Liabilities & Provisions
Sundry Creditors 12,593.9
3 9,288.8
0 3,305.13
Other Liabilities 3,255.3
0 3,309.9
2 54.6
2
Security Deposits 5,309.0
1 4,894.0
8 414.93
Material taken on loan 307.4
4 241.5
9 65.85
Accrued Interest 65.3
7 92.1
8 26.8
1
Provision for taxation 367.7
8 140.5
6 227.22
Proposed Dividend 1,171.1
9 1,870.0
2 698.8
3
Corporate Dividend Tax 209.2
5 269.0
4 59.7
9
Provision for Retirement Benefits 287.8
2 221.5
7 66.25
Unpaid Dividend 7.7
5 6.2
9 1.43
Unpaid Matured Deposits 1.2
5 1.4
6 0.2
1
Contingencies for probable obligations 59.9
1 1.7
6 58.15
23,636.0
0 20,337.2
7
Working Capital 11,998.9
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
STATEMENT OF CHANGES IN WORKING CAPITALFOR YEAR ENDING 31ST MARCH'2004
Figures in CroresParticulars 2004 2003 Increase DecreaseCurrent Assets
Inventories 17,164.9
2 14,009.3
8 3,155.5
4
Sundry Debtors 3,272.8
7 4,007.8
3 734.96
Cash & Bank Balances 1,465.4
5 946.0
6 519.3
9
Other Current Assets 1.9
3 1.9
3
Loans & Advances 5,955.5
6 6,014.8
2 59.26
45
27,860.7
3 24,978.0
9
Current Liabilities & Provisions
Sundry Creditors 9,288.8
0 8,204.1
0 1,084.70
Other Liabilities 3,309.9
2 2,607.0
1 702.91
Security Deposits 4,894.0
8 4,499.8
0 394.28
Material taken on loan 241.5
9 0.0
7 241.52
Accrued Interest 92.1
8 113.0
7 20.8
9
Provision for taxation 140.5
6 14.0
7 126.49
Proposed Dividend 1,870.0
2 1,868.8
2 1.20
Corporate Dividend Tax 269.0
4 239.4
4 29.60
Provision for Retirement Benefits 221.5
7 124.8
5 96.72
Unpaid Dividend 6.2
9 4.7
0 1.59
Unpaid Matured Deposits 1.4
6 1.46
Contingencies for probable obligations 1.7
6 1.76
Dues to Subsidiary Companies
837.74
837.74
20,337.2
7 18,513.6
7
Working Capital 7,523.4
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
INDIAN OIL CORPORATION LIMITED
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.
INDIAN OIL CORPORATION LIMITED
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.
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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
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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
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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.
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BIBLOGRAPHY
www.google.com
www.iocl.com
www.investopedia.com
Management Accounting by R.K.Sharma & Shashi K.Gupta
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