SIP Fiance W Ratio

8/8/2019 SIP Fiance W Ratio

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APROJECT REPORT ON

RATIO ANALYSIS & WORKING CAPITAL MANAGEMENT

FOR

INDIAN OIL CORPORATION LIMITED, BARAUNI, (BIHAR)

SUBMITTED TO

UNIVERSITY OF PUNEIN PARTIAL FULFILMENT OF TWO YEAR FULL TIME

COURSE

MASTER OF BUSINESS ADMINSTRATION (MBA)

SUBMITTED BY

AMRENDRA KUMAR

(BATCH 2009-2011)

JSPMS

RAJARSHI SHAHU COLLEGE OF ENGINEERING

S.NO.80/3,PUNE-MUMBAI BYPASS HIGHWAY TATHAWADE

PUNE-411033

UNDER GUIDENCE OF

PROF. S.RAMESH MEHTHA

JULY2010


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ACKNOWLEDGEMENT

I hereby take the opportunity to express my gratitude towards those

who have made great contribution in completion of this project work. I feel immensepleasure to thanks to the Senior Finance Manager Mr. Avijit Basu who has given methe opportunity to work with INDIAN OIL CORPORATION LIMITED as projecttrainee. I am immensely thankful to my external project guideMr. Vikash C Jaswaland internal project guide Prof. S. Ramesh Kumar Mehtha who has been a constantsource of inspiration. Both have keen interest and encouraging guidance, which leadsto completion of this project in time, is hard to express in words.

I offer my sincere thanks to Principal Dr.D.S.Bormane, HOD

Prof.Gorakh Wakhare, Corporate Senior Human Resource Manager Mr. William

Kullu, Training Officer Mr. J.N.Bhilware, Mr. J.P.Singh and the whole Corporate

Finance Staff who spared their valuable time and was always available for guidance

in spite of their busy schedule and support in the endeavor to carry out the project.

In the end, I would like to express my gratitude towards the

respondents, who selflessly adjusted their schedules to accommodate me in the

scheme of things. This project would not have been successful without their valuable

help. I also express my sincere thanks to all those who contributed in bringing this

project into its current physical form.

THANKING YOU

AMRENDRA KUMAR


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DECLARATION

I have by declare that the project on to study ratio analysis and working capital

forIOCL,Barauni has been surveyed and composed and by me and has not

previouslyformed the basis for award of any degree of business management.

The work contain in this report is authentic. Matter down from other known sources is

properly mentioned. Any resemblances of any unpublished or publish work to report

are to this report are purely coincidental in nature.


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INDEX

SR.NO CHAPTER TITTLE PAGE NO.

1. EXCUTIVE SUMMARY

2. CERTIFICATE OF ATTENDENCE BY COMPANY

3. CERTIFICATE BY INSTITUTE

4. OBJECTIVES AND SCOPE OF PROJECT STUDY

5. COMPANY PROFILE

6. CONCEPTUAL BACKGROUND

7. RESEARCH METHODLOGY

8.

DATA ANALYSIS, GRAPHICAL

REPRESENTATION & INTERPRETATION

9. FINDING

10. LIMITATIONS OF THE PROJECT

11. CONCLUSION

12. RECOMMENDATION

13. ANNEXURES

14. BIBLIOIGRAPHY


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CHAPTER-01

Project title

Location

Duration of the project

Project undertaken by

Project guide (external)

Project guide (internal)

Summary of research work


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CHAPTER-02

OBJECTIVES OFPROJECT STUDY


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OBJECTIVE

It is necessary to decide the objectives of the project in the very beginning. It is useful

to draw correct & appropriate objectives to carry out the project work in proper &right direction. It helps in identifying the data, information, documents, etc requiredfor the completion of the project and other objectives are :-

1. To study & understand the basic concept of Ratio Analysis &Working capital management

2. To evaluate the Liquidity, Profitability & Solvency position of thecompany.

3. To study financial position of the IOCL.4. To analyze & interpret the financial statements of the company.5. Meet day-to-day cash flow needs.6. Pay wages and salaries when they fall due.7. Pay government taxation and providers of capital, dividends; and

ensure the long-term survival of the business entity

8. To locate the weak spots in the business through accounting ratio.9. To make suggestions & recommendations, if any.10.To help in decision-making.11.To forecast whether it would be profitable or not to invest in or to

deal with the company.

Calculation of working capital gives clear idea about the

requirement of the needed inventories in the production and Ratio Analysis gives

idea about performance of the company. Besides that it also takes account of

required current assets. So, the calculation of working capital is an essential part

of financial planning.

My Objective Behind this Project is

To find out all the component that should considered while calculating,working capital in Barauni Refinery Unit (IOCL).

To find out all the component that should considered while calculating,ratio analysis of Barauni Refinery Unit (IOCL).

To find out the problem area which affects the credibility ofcalculating working capital

To overtook the performance of Barauni Refinery Unit (IOCL).


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The working capital management is elaborately done at head office(New Delhi) but still the Barauni Refinery Unit needs to assists the

head office in taking such decisions. How this work is done is the topicof my concern.

With the help of ratio analysis I would like to reveal the financialperformance of the company.

To have a feel of an organization and its working.


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SCOPE

Financial Analysis is the process of identifying the financial strengthsand weaknesses of the firm by properly establishing relationships between the itemsof the Balance Sheet, Trading and Profit & Loss Accounts.

The reasons for selecting this topic can mention with the helpof its different users as follows:

1. CreditorsCreditors are interested in firms ability to meet their claims over a very short

period of time. Their analysis will, therefore, confine to the evaluation of the firmsliquidity position.

2. Financial InstitutionsFinancial Institutions includes Banks, Long Term Moneylenders, etc. They

analyze the firms profit ability over time, its ability to generate cans to be able to payinterest and repay principle and the relationship between various sources of funds.

3. InvestorsInvestors, who have invested their money in the firms shares, are most

concern about the firm's earnings. They restore more confidence in those firms thatshows steady growth in earnings. As such, they concentrate on the analysis of thefirm's present and future profitability. They are also interested in the firm's financialstructure to the extent it influences the firm's earnings, ability and risk.


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CHAPTER-03

COMPANYPROFILE

y INTRODUCTIONy HISTORYy ORGANISATION CHARTy INTERNATIONAL RANKINGy MISSIONy VISIONy VALUEy PRESENT POSITIONy JOINT VENTURESy INANCIAL OBJECTIVEy GROUP COMPANYy PRODUCT & ITS USER


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COMPANY PROFILE

INTRODUCTION

Indian Oil Corporation is an Indian public-sector petroleum company. It isIndias largest commercial enterprise, ranking 116th on the Fortune Global 500 listing(2009). It began operation in 1959 as Indian Oil Company Ltd. The Indian OilCorporation was formed in 1964, with the merger of Indian Refineries Ltd. Indian Oiland its subsidiaries account for a 47% share in the petroleum products market, 40%share in refining capacity and 67% downstream sector pipelines capacity in India. TheIndian Oil Group of Companies owns and operates 10 of India's 19 refineries with acombined refining capacity of 60.2 million metric tons per year.On 30th June 2009IndianOil will complete 50 years of its existence and a series of events are being

planned to celebrate its Golden Jubilee Year.

Indian Oil was formed as joint ventures between one company and

Government of India but later become fully owned government undertaking. IndianOil established as an oil marketing entity on 30th June 1959, Indian Oil company ltd

was renamed Indian Oil Corporation Ltd. on 1st

September 1964 following merger

with the refining entity. Indian Refineries Ltd. that was established in August 1958.

HISTORY

2001:

Public sector oil major Indian Oil Corporation has tied up with Standard CharteredBank to mobilize Rs 400 crore from the overseas market. Stan Chart is the book-runner, lead arranger and the facility agent, and Union Bank of India is the jointarranger for this loan syndication of IOC.

2002:


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Indian Oil Corporation (IOC) has bought out IBPs 25 per cent stake in Indian Oil

Tanking (IOT), a company engaged in the storage and handling of petroleum

products, for Rs 44 crore.

2003:

Indian Oil Corporation (IOC) has appointed McKinsey for conducting a 'structure,

process, people' study.

2004:

Indian Oil Corporation Ltd (IOC), the petroleum refining and marketing major, plansto merge with itself its subsidiary, IBP Ltd, and also set up a new explorationcompany with an investment of $2 billion

2005:

Tata Motors has initiated an informal project with Indian Oil Corporation for the use

of bio-diesel blended fuels in its buses. There is no written agreement between the

two companies for the project.

2006:

Indian Oil Corporation (IOC) has signed an agreement with the West Bengal

government for setting up a petrochemical hub in the state. The company would be

the primary investor in the proposed hub housing petrol, chemical and petrochemical

units.

2007:

Dabur India Ltd has entered into an agreement with Indian Oil Corporation (IOC) to

service rural market demand for consumer goods through the latter's chain of Kisan

Seva Kendra (KSK).

2008:

Haldia refinery alone is expected to save an average Rs450 crore a year once crude is

sourced from Paradip

IOC's refineries had a capacity utilization of 104 per cent in 2008, processing 48.9million tonne of crude oil.

2009:

Essar Oil is reported to have expanded the number of its fuel retail outlets to over

1,000, with plans to have around 1,400 outlets operational by April 2009.

Unconfirmed reports said that Essar claimed a market share of around four per cent,

and was aiming to increase it further to over six per cent


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ORGANISATION CHART OF FINANCE DEPARTMENT

S.BHUNIA

(DFM)

T.CHATTERJEE

(SFM)

A.BASU

(SFM)

B.SETHI

(FM)

A.SONI

(FM)

UMESH PATEL

SACO

PUECHASE/VAT RETURN

G. SHARMA

SACO, WORKS

A.K SHINHA

SACO, MISC & ESTATE

A.KUMAR

ACO, MEDICAL

INSURANCE, AUDIT

S .SANTRA

ACO, MEDICAL

SHALINDER

ACO, OIL CENVENT

V.C JAISWAL

ACO, E&C

S .AGRWAL

ACO, PURCHASE

A.K LAL

(FM)

S.KUMAR

DFM

PAY, CO.ORDINATOR

V.D JHA

SACO, WORKS, CONC.DF

M.KUMAR

SACO, PRODUCTION

TPM, MIS

R.K AGRWAL

SDACO, PURCHAGE

CONC,


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OVE VIE OF B I REFINERY

B i R i was built i collaboration wit Russia and Romania.

Situat d 125 kilometers from Patna, it was built wit an initial cost ofRs. 49.40 crore.

Barauni Refinery was commissioned in 1964 wit a refining capacity of 1 Million

Metric Tones per Annum (MMTPA) and it was dedicated to t e Nation by t e t en

Union Minister for Petroleum, Prof. Humayun Kabir in January 1965. Barauni

Refinery was initially designed to process low sul phur crude oil (sweet crude) of

Assam. After establishment of other refineries in the Northeast, Assam crude is

unavailable for Barauni. Hence, sweet crude is being sourced from African, South

East Asian and Middle East countries like Nigeria, Iraq Malaysia.

Barauni refinery achieved lowest ever 65.5 MBN of energy in the year 2008-

09. It reduced energy consumption by almost 10% over the previous fiscal year of

2007-08. It excellence safety record during the year 2008-09 is another feather.

BarauniRefinery Coker unit was declared as a zero steam leak unitit has avoided anyaccidents in the unit during the year 2008-09

Barauni petrochemicals plant is in the country the second oil refinery in the

public sector and forms an important part ofthe Indian petrochemicalindustry Indian

Oil Corporation Ltd is speeding up work on the high sul phur crude maximization

project atits Barauni refinery in Bihar. The projectis estimated to costRs 790 crore.

U.S SARASWAT

ACO, PREM

R.N PRASAD

SACO, TA, LIC


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INTERNATIONAL RANKING

Indian Oil is the highest ranked Indian company in the prestigious Fortune Global 500listing, the 105

thposition(in 2009) based on fiscal 2007 performance. It is also the

18th largest petroleum company in the world and the number one petroleum tradingcompany among the National Oil Companies in the Asia-Pacific region. IOCL wasfeatured on the 2008 Forbes Global 2000 at position 303.

VISION

A major diversified, trans-national, integrated energy company, with national

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

& public distribution.


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y To help enrich the quality of life of the community and preserve ecologicalbalance and heritage through a strong environment conscience.

FINANCIAL OBJECTIVES

y To ensure adequate return on the capital employed and maintain a reasonableannual dividend on equity capital.

y To ensure maximum economy in expenditure.y To manage and operate all facilities in an efficient manner so as to generate

adequate internal resources to meet revenue cost and requirements for project

investment, without budgetary support.y To develop long-term corporate plans to provide for adequate growth of the

Corporations business.y To reduce the cost of production of petroleum products by means of

systematic cost control measures and thereby sustain market leadershipthrough cost competitiveness.

y To complete all planned projects within the scheduled time and approved cost.

PRESENT POSITION

Today, Indian Oil Corporation Ltd. is the largest commercial enterprise of the

country accounting for almost half of the countrys petroleum consumption today.

Indian Oil has grown 3000 times and is Indias no. 1 company in the prestigious

Fortune Global 500 listing of the worlds largest corporate. Indian Oil is the highest

ranked Indian company in the prestigious Fortune Global 500 listing, the 105th

position(in 2009)

Since Indian Oil has passed 50 summers and 50 winters means it has crossedits 50 years. Therefore this year 2009 marks the 50 golden years of Indian OilCorporation Ltd. Indian Oil is the biggest marketers of liquid gold in the country. ThisGolden Jubilee Celebration is a commemoration of all that the company has achievedthrough the refining and marketing of liquid gold of the standards it has achieved.

JOINT VENTURES

Name Business PartnersAvi -Oil India Pvt. Ltd. Specialty lubricants. NYCO SA, France, and Balmer Lawrie

& Co. Ltd.Green Gas Ltd. City gas distribution GAIL (India) Ltd.

Indo Cat Pvt. Ltd. FCC Catalyst/additive Intercat, USAIOT Infrastructure Terminal ling services Oil tanking GmbH, Germany.Energy Services Ltd.Indian Oil Petronas Pvt. Ltd. Terminal ling services and Petronas, Malaysia.

parallel marketing of LPG


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IndianOil Skytanking Ltd. Aviation fuel facility projects. IOT Infrastructure EnergyServices Ltd.,

Skytanking GmbH, Germany.Lubrizol India Pvt. Ltd. Lube Additives Lubrizol Inc., USA

Petronet LNG Ltd. LNG Imports/distribution BPCL, ONGC, GAIL, Gaz de France,ADB.

Petronet India Ltd. Petroleum product pipeline projects through BPCL, HPCL, RPL,IL&FS, ICICI, SBI, EOL.special purpose vehicles.Petronet VK Ltd. Construct and operate a pipeline for PIL, RPL, EOL, SBI, KPT,GIC, IL&FS, CB.transportation of petroleum productsFrom Vadinar to Kandla.Suntera Nigeria 205 Limited Oil exploration activities. Oil India Ltd., SunteraResources Ltd.BPCL - Bharat Petroleum Corporation Ltd., HPCL -Hindustan Petroleum Corporation Ltd., ONGC - Oil and

Natural Gas Corporation Ltd., GAIL - GAIL(India) Ltd., RPL - Reliance Petroleum Ltd., IL&FS - Infrastructure

Leasing & Financial Services Ltd., ICICI - ICICIBank, SBI - State Bank of India, EOL - Essar Oil Ltd., PIL

- Petronet India Ltd., KPT - Kandla Port Trust, GIIC - GujaratIndustrial Investment Corporation Ltd., CB - Canara Bank.

GROUP COMPANY

Name BusinessChennai Petroleum Corporation Limited Refining of petroleum productsIndianOil (Mauritius) Ltd. Terminalling, Retailing & Aviation refueling

Lanka IOC PLC. Retailing, Terminalling & BunkeringIOC Middle East FZE Lube blending & marketing of petroleum products

IndianOil Technologies Ltd. Marketing of intellectual propertyIndianOil - CREDA Biofuels Limited Plantation of Jatropha and extraction of oil forBio-diesels

Awards & recognitions

l IndianOil received the coveted World Petroleum Congress Excellence Award 2008

at Madrid, Spain, in the technical development category for its pathbreakingR&D work in hydro-processing technology for Green Fuels.

l IndianOil won the SCOPE Gold Trophy for Environmental Excellence &Sustainable Development and Commendation Certificate for GoodCorporate Governance for the year 2007-08.l IndianOil continued to top the annual corporate listings of leading business

publications such as the Economic Times, Business India andBusinessWorld in addition to topping the Oil & Gas category in the FinancialExpress-500 listing.l IndianOil has been ranked as one of Best Employers in a survey conducted byHewitt Associates in association with Outlook Business magazine.


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l IndianOil bagged the prestigious BML Munjals Award for Excellence in Learningand Development for the year 2009 and was the only award winner in the public

sector category.l In recognition of its operational excellence and business solutions, IndianOil l

IndianOil received the 'Oil & Gas Supply Chain Excellence' award at the SecondExpress, Logistics & Supply Chain Conclave (Asia-Pacific) organised by India Times

Mindscape with Business India group.l Indian Express Uptime Champion Award 2008 was conferred on IndianOil'sCorporate Business Technology Centre in recognition of its well designed ITinfrastructure uptime strategy.l In recognition of its Kisan Seva Kendra initiative in rural markets, IndianOilreceived the prestigious 'Most Admired Retailer of the Year - Rural Retailing' awardat the India Retail Forum held in Mumbai.l For the fourth consecutive year, IndianOil was conferred the Safety InnovationAward instituted by the Safety & Quality Forum of the Institution of Engineers(India).

l IndianOil has been conferred the 'Business Superbrand 2008' status by theSuperbrands Council of India.

l IiPM won the ISTD Training Award 2007-08 for innovative training practices.

PRODUCTS

Indian Oil is not only the largest commercial enterprise in the country it is the

flagship corporate of the Indian Nation. Besides having a dominant market share,

Indian Oil is widely recognized as Indias dominant energy brand and customers

perceive Indian Oil as a reliable symbol for high quality products and services. IndianOil is a heritage and iconic brand at one level and a contemporary, global brand at

another level. While quality, reliability and service remains the core benefits to our

customers, our stringent checks are built into operating systems, at every level

ensuring the trust of over a billion Indians over the last four decades. Indian oil has

many products but few products are as follows.

1) Auto Gas


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Auto Gas (LPG) is a clean, high octane, abundant and eco-friendly fuel. It is

obtained from natural gas through fractionation and from crude oil through

refining. It is a mixture of petroleum gases like propane and butane. The

higher energy content in this fuel results in a 10% reduction of CO2 emission

as compared to MS. Auto Gas is a gas at atmospheric pressure and normal

temperatures, but it can be liquefied when moderate pressure is applied or

when the temperature is sufficiently reduced

2) Indian Oil Aviation Service

IndianOil Aviation Service is a leading aviation fuel solution provider in India and the

most-preferred supplier of jet fuel to major international and domestic airlines.

Between one sunrise and the next, IndianOil Aviation Service refuels over 1500

flights from the bustling metros to the remote airports linking the vast Indianlandscape, from the icy heights of Leh (the highest airport in the world at 10,682 ft) to

the distant islands of Andaman & Nicobar. IndianOil is India's first ISO-9002

certified oil company conforming to stringent global quality requirements of aviation

fuel storage & handling. IndianOil Aviation also caters to the fuel requirements of the

Indian Defense Services, besides refueling VVIP flights at all the airports and remote

heli-pads/heli-bases across the Indian subcontinent.


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3) Bitumen:

The common binders used in bituminous road constructions are road tars and

Bitumen. Bitumen has gradually replaced road tar for road construction purposes

mainly because of its greater availability as compared to road tars. It is principally

obtained as a residual product in petroleum refineries after higher tractions like gas,

petrol, kerosene and diesel, etc., are removed generally by distillation from suitable

crude oil. Indian standard institutions define Bitumen as a black or dark brown non-

crystalline soil or viscous material having adhesive properties derived from petroleum

crude either by natural or by refinery processes.

4) High Speed Diesel

Indian Oils XTRAMILE Super Diesel, the leader in the branded diesel

segment is blended with world-class Multi Functional Fuel Additives (MFA).

XTRAMILE has brought in a huge savings in the high mileage commercial

vehicle segment. Transport fleets that operate a large number of trucks

crisscrossing the country are using XTRAMILE to not only obtain a highermileage but also for low maintenance costs.

5) Indane Gas


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Indane is today one of the largest packed-LPG brands in the world. IndianOil

pioneered the launch of LPG in India in the 1970s and transformed the lives of

millions of people with the introduction of the clean, efficient and safe

cooking fuel. LPG also led to a substantial improvement in the health of

women in rural areas by replacing smoky and unhealthy chullahs with Indane.

It is today a fuel synonymous with safety, reliability and convenience .

6) SERVO LUBRICATING AND GREASES

Indian Oils SERVO range of lubricants reigns as the undisputed market

leader in the Indian lubricants market. Known for its cutting-edge technology

and high-quality products, SERVO backed by Indian Oils pioneering R&D,

extensive blending and distribution network, sustained brand enhancement and

new generation packaging is a one-stop shop for complete lubrication

solutions in the automotive, industrial and marine segments.

7) MS/Gasoline:


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Automotive gasoline and gasoline-oxygenate blends are used in internal combustion

spark-ignition engines. These spark ignition engine fuels are primarily used for

passenger cars. XTRAPREMIUM Petrol is Indias leading branded petrol boosted

with new generation multifunctional additives known as friction busters that prevent

combustion chamber deposits. XTRAPREMIUM is custom designed to deliver higher

mileage, more power, better pick up, faster acceleration, enhanced engine cleanlinessand lower emissions.

END USERS

That users which is used the IOCL product in a optimam level and that customer or

buyer, consumer is a End user of the company.

1 Nepal Oil Company2 Barauni thermal Power station3 Tisco Jamshedpur4 IFFCO phulpur5 DIL Panki6 Indian Railway7 Public / People8 Nalco (National aluminum company)9 Balco (Bharat aluminum company)10 Hindalco (Hinduja aluminum company)

.


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AREA OF SUPPLY

1 Bihar

2 Bengal

3 Some parts of U P

4Nepal

(This is all about the Barauni Refinery Supply and the IOCL group supplies his

product in whole India)

CHAPTER-04


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CONCEPTUALBACKGROUNDy RATIO ANALYSISyWORKING CAPITAL MANAGEMENT


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CONCEPTUAL BACKGROUND

(A theoretical framework)

Ratio analysis is widely used-tool of financial analysis. It

can be used to compare the risk and return relationship of firms of different

sizes. It is defined as the systematic use of ratio to interpret the financial

statements so that the strength and weakness of the firm as well as its

historical performance and current financial condition can be determined.

Trend ratios involve a comparison of the ratios of a firm over time, that is,

present ratios are compared with past ratios for the same firm. The

comparison of the profitability of a firm, say, year 1 through 5 is an

illustration of a trend ratio. Trend ratios indicate the direction of change in

the performance-improvement, deterioration or constancy over the years.

Ratio analysis is the process of determining and

interpretation mathematical relationship based on financial statement. The

comparison of financial ratios against the norms established helps to

diagnosis the financial condition and arrive at conclusions.

The comparison of financial ratios is done against the following:-

Standard set Historical figures Inter-firm analysis (head hunting)

Ratio analysis is considered as a powerful tool of

financial analysis through which economic and financial position of the

business can be fully X-rayed. They provide a coordinated frame of

reference for judging financial performance. They convey the entire story of

the financial adventure of the enterprise. They comprehend and simplify a

heap of financial data through one particular figure which conveys the

complete meaning. They focus on the specific relationship in the financial

statements.

RATIO ANALYSIS


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Basis of comparison: -

Ratios are relative figures reflecting the

relationship between variables. This enables the analysis to draw

conclusion regarding financial operations. The use of ratio as a tool of

financial analysis involves their comparison, for a single ratio, like absolute

figures, fails to reveal the true position. For example,

P /E ratio (price/earnings ratio for a particular script) should be compared

over a period of time to get a true picture of company performance.

Thus comparisons with related facts is the basis of ratio analysis

In ratio analysis, four types of comparisons are involved.

Trend Ratio Inter firm comparisons Comparisons of items within a single year s financial statement of a

firm. Comparisons with standard or plans

UTILITY OF RATIO ANALYSIS :-We can use ratio analysis to try to tell us whether the business

1. is profitable.2. has enough money to pay its bills.3. could be paying its employees higher wages.4. is paying its share of tax.5. is using its assets efficiently.6. has a gearing problem.7. is a candidate for being bought by another company.

Ratio analysis helps management and other parties in many ways. The list ofcategories of readers and users of accounts includes the following people and groupsof people.

y Investorsy Lendersy Managers of the organizationy Employeesy Suppliers and other trade creditorsy Customersy Governments and their agenciesy Public


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y Financial analystsy Environmental groupsy Researchers: both academic and professional

Investors To help them determine whether they should buy shares in thebusiness, hold on to the shares they already own or sell the sharesthey already own. They also want to assess the ability of the

business to pay dividends.

Lenders To determine whether their loans and interest will be paid whendue

Managers Might need segmental and total information to see how they fitinto the overall picture

Employees Information about the stability and profitability of theiremployers to assess the ability of the business to provide

remuneration, retirement benefits and employment opportunities

Suppliers andother tradecreditors

Businesses supplying goods and materials to other businesseswill read their accounts to see that they don't have problems:after all, any supplier wants to know if his customers are going to

pay their bills!

Customers The continuance of a business, especially when they have a longterm involvement with, or are dependent on, the business

Governments and

their agencies

The allocation of resources and, therefore, the activities of

business. To regulate the activities of business, determinetaxation policies and as the basis for national income and similar

statistics

Local community Financial statements may assist the public by providinginformation about the trends and recent developments in the

prosperity of the business and the range of its activities as theyaffect their area

Financial analysts They need to know, for example, the accounting conceptsemployed for inventories, depreciation, bad debts and so on

Environmentalgroups

Many organizations now publish reports specifically aimed atinforming us about how they are working to keep theirenvironment clean.

Researchers Researchers' demands cover a very wide range of lines ofenquiry ranging from detailed statistical analysis of the income

statement and balance sheet data extending over many years tothe qualitative analysis of the wording of the statements

Which ratios will each of these groups be interested in?


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When you've filled in the gaps you will appreciate that it gives us some ideas about

the ratios that each of the users we have identified would be interested in looking at.

Interest Group Ratios to watch

Investors Return on Capital Employed

Lenders Gearing ratios

Managers Profitability ratios

Employees Return on Capital Employed

Suppliers and other

trade creditors

Liquidity

Customers Profitability

Governments and their

a encies

Profitability

Local Community This could be a long and

interesting list

Financial analysts Possibly all ratios

Environmental groups Expenditure on anti-pollution

measures

FINANCIAL RATIO :-

There are four types of ratio in finance:-

1. Profitability Ratio2. Turnover Ratio / Activity Ratio3. Financial Ratio / Liquidity Ratio4. Leverage Ratio


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PROFITABILITY RATIO :-These ratios give an idea about the profitability of business firm. Profit &

profitability differ from each other as profit is the difference between income and

expenditure while profitability is measured by comparing the profit with some other

parameter like sales, capital employed, total assets etc. The following are the ratios

under this category:

i. Gross Profit Ratioii. Net Profit Ratio

iii. Operating Net Profit Ratioiv. Operating Ratiov. Return On Capital Employedvi. Return On Equity

vii. Return On total Assetsviii. Earnings Per Share

ix. Price Earnings Ratiox. Dividend Payout Ratio

xi. Dividend Yield Ratio TURNOVER RATIO / ACTIVITY RATIO :-

These ratios are also known as activity or asset management ratios. These

ratios are very important for a business concern to find out how well the facilities at

the disposal of the concern are being used. These ratios are usually calculated on the

basis of sales or cost of goods sold. High turnover ratios indicate better utilization of

resources. The following are the ratios under this category:

i. Working Capital Turnover Ratioii. Debtors Turnover Ratio

iii. Creditors Turnovers Ratioiv. Inventory/Stock Turnover Ratiov. Fixed Assets Turnover Ratio

vi. Sales To Capital Employed FINANCIAL RATIO / LIQUIDITY RATIO :-

These ratios are used to judge a business units ability to meet its short-

term obligations. Liquidity is the basis of survival of any unit & the creditors are more


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interested in liquidity of the business. Liquidity generally based on the relationship

between current assets (the source for meeting short-term obligations) and current

liabilities. The following are the ratios under this category:

i. Current Ratioii. Liquid/ Quick/ Acid Test Ratioiii. Debt-Equity Ratioiv. Propriety Ratiov. Currents Assets To Fixed Assets Ratio

LEVERAGE RATIO :-These ratios are used to analyze the long-term insolvency or stability of a

particular business unit. The short-term creditors are interested in current financial

position

i. Capital Gearing Ratio

Limitations of ratio analysis:-

There may be a difference between the inventory methods followed byvarious firms or different method in the same firm.

Firms follow various methods of depreciation. There may be a difference between the capital structures of the firms. Window dressing, which means artificially improving the financial

statements is another major drawback

Inflationary factors are not taken into consideration. Thus when thepast performance is analyzed, the figures may have become outdated.


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The working capital is the amount resolving capital to meet the day todayrequirements of the firm. The other facets of the working capital is circulating capital,floating capital and moving capital which are required to meet the immediaterequirements of the firm.

The working capital means the funds available for day to day operations ofthe enterprise. It also represents the excess of current assets over the current liabilities,which include the short-term loans.

Working capital, also known as net working capital, is a financial metric

which represents operating liquidity available to a business. Along with fixed assets

such as plant and equipment, working capital is considered a part of operating capital.It is calculated as current assets minus current liabilities. If current assets are less thancurrent liabilities, an entity has a working capital deficiency, also called a workingcapital deficit.

Working capital also gives investors an idea of the company's underlyingoperational efficiency. Money that is tied up in inventory or money that customersstill owe to the company cannot be used to pay off any of the company's obligations.

So, if a company is not operating in the most efficient manner (slow collection), itwill show up as an increase in the working capital. Comparing the working capital

from one period to another can see this; slow collection may signal an underlying problem in the company's operations Positive working capital means that thecompany is able to pay off its short-term liabilities. Negative working capital meansthat a company currently is unable to meet its short-term liabilities with its currentassets.

CONCEPTS OF WORKING CAPITAL

The concepts of working capital can be broadly divided into two categories (i) GrossWorking Capital and (ii) Net Working Capital.

(i) Gross Working Capital:

WORKING CAPITAL MANAGMENT


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This concept implies the total of all current assets of a business firm. A current

asset is that asset which can be converted into cash within an accounting yearor an operating cycle. The current assets include cash and bank balances,

debtors, bills receivables, inventories, prepaid expenses and short-terminvestments.

(ii) Net Working Capital: Net working capital refers to the difference between current assts and currentliabilities. Net working capital can be positive or negative. A positive net workingcapital will arise when current assets exceed current liabilities. A negative networking capital occurs when current liabilities are in excess of current assets.

FACTORS AFFECTING WORKING CAPITAL

The working capital needs of a firm are affected by numerous factors. The importantfactors are as follows:

(i) Nature of business: In some business organizations, the sales are mostly

on cash basis and the operating cycle (explained later) is also very short. In theseconcern, the working capital requirement is comparatively less. Mostly service giving

companies come in this category. In manufacturing concerns, usually the operatingcycle is very long and a firm has to give credit to customers for improving sales. Insuch cases, the working capital requirement is more.

(ii) Production Policy: Working capital requirements also fluctuate accordingto the production policy. Some products have a seasonal demand but in order toeliminate the fluctuations in working capital, the manufacturer plans the production ina steady flow throughout the year. This policy will even out the fluctuations inworking capital.

(iii) Market Conditions: Due to competition in the market, the demands forworking capital fluctuate. In a competitive environment, a business firm has to giveliberal credit to customers. Similarly, it will have to maintain a large inventory offinished goods to service the customers promptly. In this situation, larger amount ofworking capital will be required.

On the other hand, when a firm is in sellers market, it can manage with a

smaller amount of working capital because sales can be made on cash basis and therewill be no need to maintain large inventory of finished goods because customers canbe serviced with delay.

(iv) Seasonal Fluctuation: A firm, which is producing products with seasonaldemands, requires more working capital during peak seasons while the demand forworking capital will go down during slack seasons.


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(v) Growth and expansion activities: The working capital needs of the firmincrease as it grows in terms of sales or fixed assets. A growing firm may need to

invest funds in fixed assets in order to sustain its growth of production and sales. Thiswill in turn increase investments in current assets, which will result in increase in

working capital needs.

(vi) Operating efficiency: The operating efficiency of the firm relates to theoptimum utilization of resources at minimum cost. The firm will be effectivelycontributing to its working capital if it is efficient in controlling operating cost. Theworking capital is better utilized and cash cycle is reduced which decreases workingcapital needs.

(vii) Credit Policy: Credit term granted by the concern to its customers aswell as to its suppliers will also effect the working capital requirements. If the concernhas allowed very liberal credit terms to its customer and has adopted a slack collection

procedure, more funds will be tied in book debts and working capital needs will also

be high. Where suppliers have granted liberal credit terms to the concern, there will beless need for working capital. Not only will the Ratio of cash and credit sales or

purchase also effect the level of working capital.

(viii) Sales Growth: As the sales grow, the working capital needs also go up.Actually it is very difficult to establish an exact proportion of increase in current

assets, as a result of increase in sales. Advance planning of working capital becomesessential because current assets will have to be employed even before growth in sales

takes place. Once sales start increasing, they must be sustained. For this a firm willhave to expand its production facilities, which will require more investments in fixedassets. This will in turn result in more requirements of current assets, which willincrease working capital needs.

(iX) Dividend Policy: A company has to pay dividends in cash as per company Act.1956. If a liberal policy is followed for payment of dividends, more working capitalwill be required. The needs for working capital will be substantially reduced ifdividend policy is conservative.

(X) Working Capital Operating Cycle: in a manufacturing concern the workingcapital cycle starts with the purchase of raw materials and ends with the realization ofcash from the sale of finished products. This involves purchase of raw materials andspares, its conversion into stock of finished goods through work-in-process with

progressive increment of labour and service costs, conversion of finished stock intosales, debtors and receivables and ultimately realization of cash and this cycle

continues again from cash to purchase of raw material and so on.

Thus, there are several factors affecting the working capital requirements.

NEED FOR WORKING CAPITAL MANAGEMENT


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1. There is a positive correlation between the sale of the product of the firmand the current assets. An increase in the sale of the product requires a

corresponding increase in current assets. It is therefore indispensable tomanage the current assets properly and efficiently.

2. More than half of the total capital of the firm is generally invested incurrent assets. It means less than half of the capital is blocked in fixedassets. We pay due attention to the management fixed assets through thecapital budgeting process. Management of working capital too, therefore,attracts the attention of the management.

3. In emergency (non-availability of funds etc.) fixed assets can be acquiredon lease but there is no alternative for current assets. Investment in currentassets, i.e. inventory or receivables can in no way avoided withoutsustaining loss.

4. Working capital needs are more often financed through outside sources soit is necessary to utilize them in the best way possible.

5. The management of working capital is more important for small unitsbecause they scarcely rely on long term capital market and have an easyaccess to short term financial sources i.e. trade credit, short term bank loan

etc.

6. In the modern system approach to management, the operations of the firmare viewed as a total that is an integrated system. In this sense it is not

possible to study one segment of the firm individually or leave it outcompletely. Hence an overall look on the management of working capitalis necessary.

MERITS OF ADEQUATE WORKING CAPITAL

Regular payment of salaries wages and other day-to-day commitments. Sense of security and confidence. Solvency of continuous production. Sound goodwill (Prompt Payment) Easy loams form banks Distribution of dividends. Exploitation of good opportunity. Meeting unseen contingences. Increase in efficiency of fixed assets. High moral. Increase production efficiency.


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Cash discounts. Quick and regular return on investment

EVILS OF INADQUATE WORKING CPITAL

Loss of credit worthiness and goodwill Operating inefficiency. Low rate of return on fixed assets. Increase in business risk. Cannot achieve profit target. Low moral of business executives Weakening of financial capacity Cannot pay day-to-day expenses of its operations. Delaying payments of wages, salaries, etc.

All this indicates that proper estimation of working capital requirements is a mustof running the business efficiently and profitably. Therefore, the basic objective ofworking capital management is manage the firms current assets and current liabilities

in such a way that the satisfactory level of working capital is maintained, i.e. it isneither inadequate not excessive.

In the management of working capital it is mandatory to know that what should be thelevel of current assets. There are two policies, which determines the level of currentassets

Flexible Policy:- Under his policy the investment in current assets ishigh maintains a huge balance of cash and marketable securities,carries a large amount of inventories and grants feverous terms ofcredit to customers, which leads to a high level of debtors.

Restrictive Policy:- Under this policy the investment in the currentassets is low. This means that the firm keeps a small balance of cashand marketable securities, managers with small amount of inventoriesand offers terms of credit, which leads to a low level of debtors.

TYPE OF WORKING CAPITAL


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There are two types of working capital: -

Permanent or Regular Working Capital:- It represents the minimumamount of investment in current assets that is seemed necessary to carry the

operation at time .It is a continuous process of working capital management inany organization . In this process there is a certain level of current assets,

which is maintained every time or every operating cycle.

Variable Working Capital: - It represents additional assets required atdifferent time during the operating year to cover any change or variations formthe normal operations. As for example-during the winter season the sales ofthe winter garments company increase. To fulfill the demand of woolenclothes the company requires additional account of current assets or workingcapital such as-cash, raw material, etc.

However, as a general rule, it can be concluded that in most cases the period which

elapses between purchase of material and the receipt of sale proceeds of the finishedgoods will determine the working capital requirements of any business.

WORKING CAPITAL MANAGEMENT IN CONTEXT TO BARAUNIREFINERY UNIT (IOCL)

Barauni Refinery Unit (IOCL) follows a restrictive policy. It maintains minimumlevel of current assets. But this unit does not maintain the working capital fundseparately, it shows this account in their annual budget. Barauni Refinery Unit doesnot deal directly. All the dealings are handled or controlled by the Head Office.Barauni Refinery Unit does not purchase raw materials directly. Head Office provide

raw materials to this unit as and when required. Through this unit does not purchaseraw materials directly so it has no creditors. The major raw materials for the RefineryDivision being the CRUDE OIL. Since there are not creditors, it acts as a limitation asit does not present the true picture of the working capital requirement for thecorporation. But in spite of this, that all the payments made by the Head Office. The

Naraimo Refinery Unit maintains the working capital at some extent to meet out thefollowing requirements:

To maintain inventories (Raw materials, work-in-process, finished goods, chemical,stores and spares)

To pay wages and salary

To incur day-to-day expenses and overheads cost such as fuel, power and officeexpenses.

Note: To provide credit facilities to the customers is not applicable to BarauniRefinery. It is because the finished products are directly sent to the MarketingDivision. Yet creditors may arise due to the lengthy process of book payment system.


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CHAPTER-05

RESEARCHMETHODOLOGY

y INTRODUCTIONy DEFINITIONy STEPSy RESEARCH DESINEy CHARACTERISTICy HYPOTHESIS


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Research: Introduction

Research is a purposive investigation of hypothetical propositions. Research asa process involves defining and redefining problems, hypothesis formulation,organizing and evaluating data, deriving deductions, inferences and conclusion, aftercareful testing.

Research: Definition

Research concerns itself with obtaining information empiricalobservation that can used to systematically develop logically related propositions so asto attempt to establish casual relationship among variables.

-Black and Champion

Steps in Research Methodology

Step 1: To decide Objective of the study

Study the constituents and the concept of Financial Analysis and Review. Analyze and interpret Financial Position of the INDIAN OIL CORPORATION,

BARAUNI BEGUSARAI.

Step 2: To decide Research Design

What is Research Design? Research Design is a logical and systematic planning and directing of piece of

research. Research design attempts to integrate various aspects of research

study. Such as what, where, when, how, etc. It is a plan structure and strategy

of investigation.


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Research Design used for project

Descriptive Research:

Descriptive study determines the frequency of occurrence of phenomenon of interest

or of its association with something. Descriptive study narrates facts or characteristics.

Descriptive study often helps the researcher to do a lot of spade work and act as launchpads of further researchers.

Descript studies usually employ the principle of sampling as they attempt to make

certain generalizations. They also provide valuable information for policy formulation

(Annual Reports).

Characteristics:

They are well structured. The approach cannot be changed every now and then. Primary data is collected.

Exploratory Research:

Exploratory design aims at discovering more about various dimensionsof the research problem and associated aspects. The first level of exploratory researchaims at discovery of significant variables involved in the situation. The second levelfocuses on relationship among variables.

Characteristics

Focus is to discover ideas. Based on secondary data. Researcher has to change his focus depending on the availability of new ideas.

Step 3: To determine Sources of Data

What are Sources of Data?

A data source is used to carry out or research or to collect fresh data for obtainingresults. There are two sources of data:

Primary Data Secondary DataPrimary Data: Data that is collected for the specific purpose at hand is Primary Data.

Characteristics:

It is expensive mode of data collection. Lot of time is spent. It gives accurate results if sample is efficiently selected.


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Data used is original in nature.Primary data sources used in this project:

Observation Method Questionnaire Method

Secondary Data: Data that has been collected earlier for some purpose other than thepurpose for present study.

Characteristics:

It is economical as the cost of collecting original data is saved. Time involved is comparatively less than primary data.

Secondary data sources used in this project:

Books Journals Website of Company

Step 4: To design Data Collection Forms

There are three types of modes to collect data:

Observatory Method Survey Method Questionnaire Method

As far as my data collection method is concerned used Observational Methodinitially and survey method was used for the study of project.

Step 5: To determine Sampling Design

Sampling is the process of obtaining information about an entire population byexamining only part of it.The items selected constitute what is technically called asSample.

Their selection process or technique is called as Sample Design.

Survey conducted on the basis of sample is Sample Survey.

Step 6: To organize and conduct field survey

The survey was done with the help of non-structured questionnaire, by interviewingthe Corporate Manager to get the feedback.

Step 7: To Process and Analyze collected data


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The study and access of the Financial Position of the company as well as the procedureof the Treasury Management process data collected by survey.

Step 8: To prepare Research Report

The culmination of the entire research process is Research Report.

Definition:

To convey to the interested persons the whole result of the study insufficient detail and so arranged as to enable each reader to comprehend the data andto determine for himself the validity of conclusions.:

-American Marketing Society.

The research report has been prepared according to the report writing principles. I havetried my best to maintain the objectivity, coherence and clarity in the presentation ofthe ideas. The essence of good report is that it effectively communicates its researchfindings.

HYPOTHESIS

Hypothesis testing refers to as Statistical Decision-Making.Hypothesis is a tentative solution or answer to the research problem, which the

researcher has to test based on the available body of knowledge, or on knowledge thatcan be known.

A hypothesis may be defined as a proposition or a set ofpropositions set forth as an explanation for the occurrence of some specific groups ofphenomenon either asserted merely as a provisional conjecture to guide someinvestigation or accepted as highly probable in the light of established facts.


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CHAPTER-08

DATA ANALYSIS,GRAPHICAL

REPRESENTATION &

INTERPRETATION


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GROSS PROFIT RATIO:

Gross profit is the difference between the net sales [sales less sales return] &

the cost of goods sold. This ratio shows the margin left after meeting the purchases &

manufacturing costs. It measures the efficiency of production as well as pricing. A

high gross profit ratio means a high margin for covering other expenses likeadministrative, selling & distribution expenses, i.e. other than the cost of goods sold.

Therefore, higher the ratio, the better it is, it is also important for a business to

maintain this ratio on a higher side, otherwise it will be difficult to cover other

expenses. A firm should compare its gross profit ratio with the industry average to

find out where it stands. A firm can also compare its own ratio of the past with the

current years ratio to find out its performances. This is known as intra-firm

comparison. This ratio is calculated as follows:

Formula:


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(Rs.In Billion)

Particulars 2007 2008 2009 2010

Gross Profit(Rs.) 3.8 9.9 0.56 9.33

Sales(Rs.) 138.25 156.48 196.06 164.81

Gross Profit

Ratio2.75% 6.35% 0.29%

Graphi al Representati n

Gross Profit

Gross ProfitRatio = ------------------------- X 100

Sales

5.67%

0

1

2

3

4

5

6

7

2007 2008 2009 2010

GROSS PROFITRATIO

RATIO

YEAR


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Interpretation:The gross profit ratio shows the overall consistent growth & improving

efficiency of production as well as pricing year by year. Gross profit ratio is lowest in

year 2009 & is highest in year 2010 .

It means year by year the efficiency of the company is improving. The company is in

a sound position for covering the expenses other than cost of goods sold.

NET PROFIT RATIO:

This ratio shows the earnings left for shareholders [equity & preference] as a

percentage of net sales. It measures overall efficiency of all the functions of a

business firm like production, administration, selling, financing, pricing, taxmanagement etc. This ratio is very useful for prospective investors because it reveals

the overall profitability of the firm. Higher the ratio, the better it is because it gives an

idea of overall efficiency of the firm. This ratio is calculated as follows:-

Formula:Net Profit

Net Profit Ratio = ------------------------- X 100

Sales

(Rs. In Billion)

Particulars 2007 2008 2009 2010

Net Profit(Rs.) 77.23 747.72 -646.98 -20.70

Sales(Rs.) 138.25 156.48 196.06 164.81

Net Profit

Ratio0.56% 4.73 % -3.29% -1.25%


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Graphi al Representati n :

Interpretati n:The net profit ratio shows that after 2007 there is increase in the ratio in

2008 & then it down consistently in year 2009 & 2010.

It suggests thatthe earnings low in 2007 for company & more in 2008 than

it down in consecutive years. It also revealthatthe profitability was negative in 2009

than 2010.

OPERATING RATIO:

This ratio establishes the relationship between the net sales and the cost

of goods sold,operating ratio. The concept of operating ratio is different from

-4

-3

-2

-1

0

1

2

3

4

5

2007 2008 2009 2010

NET PROFIT RATIORATIO

YEAR


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the concept of net profit. Operating ratio is the profit arising out of business

operations only. This profit can be calculated by deducting only operating

expenses from gross profit.

Formula:

Cost of goods sold+

Operating expanse

Operating Ratio = ------------------------- X 100

Sales

(Rs. In Billion)Particulars 2007 2008 2009 2010

CODS &

OE(Rs.)13,523.97 14,733.76 19,993.48

Sales(Rs.) 138.25 156.48 196.06 164.81

Operating

Ratio97.82% 94.15 % 101.97%

15,581.55

94.54%


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Interpretati n:This ratio shows thatthere is consistentincrease in operating profit out of

net sales in 2007 & 2009 compare to 2008 & 2010. Itindicatesthatthere is growth inthe operating profit.

OPERATING NET PROFIT RATIO:

90

92

94

96

98

100

102

2007 2008 2009 2010

OPRATING RATIORATIO

YEAR

Operating Profit Ratio = 100 Operating Ratio


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Particulars 2007 2008 2009 2010

Operating Ratio

(%)97.82 94.15 101.97

Operating Profit

Ratio (%)2.18 5.85 -1.97


Interpretati n:This ratio shows thatthere is consistentincrease in operating net profit except 2009.

Itindicates thatthere is growth in the operating net profitfrom 2007 to 2008.

And in year 2009 it slightly lowers down. Means company could make less profit out

of net sale in 2009 than previous year.

-2

-1

0

1

2

3

4

5

6

2007 2008 2009 2010

OPERATING PROFIT

RATIO

RATIO

YEAR

5.46

94.54


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RETURN ON CAPITAL EMPLOYED:

This ratio indicated the percentage of net profits before interest and tax to total

capital employed. This ratio is considered to be a very important one because itreflects the overall efficiency with which capital is used. The ratio of a particular

business should be compared with other business firms in the same industry to find

out the exact position of the business.

Formula:

Net Profit Before Interest & TaxReturn On Capital Employed = -------------------------------------------- X 100

Capital Employed


Net Profit

Before Interest& Tax(Rs.)

0.77 7.44 -6.55 -2.72

Capital

Employed (Rs.)

28.05 25.78 19.28 25.05

ROCE (%) 2.75 28.99 -33.54 -8.26


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Interpretati n:This ratio shows the efficiency ofthe company to utilize its capital

efficiently and effectively. From the above graph, itis clearthatthe ratio is highestin

2008 & lowestin 2009. In year 2008 the capitalis optimally used in proper way. In

year 2009, there is drastic decrease in it. Afterthe year 2009, itis seen the increase in

the ratio which indicates that company was efficiently using its capitalin 2007, 2008,

and 2010 but notin 2009

RET RN ON TOTAL ASSETS:-

The ratio compares the net profit aftertax with the total assets. The formula

for calculation ofthis ration is as follows:

-40

-30

-20

-10

0

10

20

30

2007 2008 2009 2010

RET

RN ON CAPITAL

E

PLOYE

R

ATIO

YEAR


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Formula:

Net Profit After TaxReturn On Total Assets = ----------------------------- X 100

Total Assets

(Rs. In Billion)

Particulars 2007 2008 2009 2010

Net Profit(Rs.) 77.23 747.72 -646.98 -207.08

Total asset(Rs.) 33.56 32.20 28.26 27.75

Ratio 2.17 23.21 -22.88 -7.46


y-25

-20

-15

-10

-5

0

5

10

15

20

25

2007 2008 2009 2010

ROTARATIO

YEAR


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Interpretation:The return on assets in the year 2007 is 2.17, in 2008 is 23.21, in 2009 is -

22.28, and in 2010 is -7.46. This ratios show that there was a good return earned by

the company in the year 2008 on total asset. But in year 2009, it decreases drastically

which indicates that there has been huge investment in the assets and profit has not

increased in the same proportion. From the year 2010, it again decreases which shows

the decrease on assets. The ratio is highest in year 2008 which suggest that the return

is more better than previous years.

WORKING CAPITAL TURNOVER RATIO:

This ratio compares the net sales with net working capital of the business firm.

The indication given by this ratio is the number of times working capital is turned

around in a particular period.The higher ratio, better is the utilization of the working capital and also

indication of lower working capital. However, a very high working capital turnover

ratio is a sigh of over trading and a firm may face shortage of working capital. A firm

should compare this ratio with the ratio of other firms in the same industry and also

with industry average to find out its position as compared to other firms. Similarly, an

intra-firm comparison will also help to find out the comparative performance of the

firm.

Formula:


Sale(Rs.) 138.25 156.48 196.06

Working capital(Rs.) 10.00 8.42 0.57 9.52

Working capital

Turnover Ratio (%)13.82 18.57 339.12

Sale

Working Capital Turnover Ratio = -------------------------

Working capital

17.29

164.81


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Graphi al Representati n:-

Interpretati n:The working capital ratio in the year 2007 is 13.82, in 2008 is 18.57, in 2009

is 339,12 , and in 2010 is 17.29 . This shows thatthe ratio is highestin the year 2009

and is lowestin the year 2007.

This indicates thatthe there is better utilization ofthe working capitalin the

year 2009. In 2007 the working capitalis comparatively less utilized

CRE ITORS T RNOVER RATIO:

Creditors turnover ratio indicates the credit period allowed by the creditors to

the firm. A higherturnover ratio indicated thatthe paymentto creditors is quite

prompt butit also implies thatthe firm isnttaking full advantage ofthe credit

allowed by the creditors. A lower ratio indicates thatthere isnt much promptness in

the payment made to creditors and needs to be improved.

0

50

100

150

200

250

300

350

2007 2008 2009 2010

WORKING CAPITAL

T RNOVER RATIO

RATIO

YEAR


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Formula:


NetCredit Annual

Purchase(Rs.)0.36 0.21 0.46

Average Trade Creditors (Rs.) 0.66 / 2 0.13 / 2 0.41 / 2

Creditor TurnoverRatio (%) 1.10 3.00 2.24


Net credit annual purchase

Creditor TurnoverRatio = --------------------------------------

Average trade creditors

6.4

1.56

0.48 / 2

0

1

2

3

4

5

6

7

2007 2008 2009 2010

CRE

ITORT

RNOVERRATIO

YEAR

RATIO


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Interpretation:The creditors turnover ratio in the year 2007 is 1.10, in 2008 is 3.00, in 2009

is 2.24, and in 2010 is 6.4. This ratios shows that there is highly increase in the 2010

creditors turnover. This further indicates that company is making prompt in makingthe payments year 2010.

AVERAGE PAYMENT RATIO:

This ratio indicates average period allowed by the creditors to pay the

payment. Higher the period it is good for the company as more time span is available

for payment and that amount can be utilize somewhere else. If the period is low then

firm doesnt get much time to use that amount fir some other purpose.

Formula:

365

Average Payment Period = ------------------------------------

Creditors Turnover Ratio

Particulars 2007 2008 2009 2010

Creditor Turnover Ratio

(%)1.10 3.00 2.24 6.4

Average Payment

Period(Days)

331.8 121.7 162.9 57.03


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Interpretati n:The average payment period in the year 2007 is 331.8, 2008 is121.7,2009 is

162.9,2010 is 57.03. which is continuous decreases year by year. Andit further falls .

This indicates thatthe company has made the maximum utilization ofthe credit

period allowed by the creditors in the year decrease year by year except 2009.

INVENTORY / STOCK T RNOVER RATIO:

This ratio establishes a relationship between the cost of goods sold during a

given period and the average amount ofinventory held during that period. The

indication given by this ratio is the number oftimes the finished stockis turned over

during a given accounting period.

The higherthis ratio the betteritis because it shows rapid turnover of stock

and consequently shorter holding period. On the other hand, ifthis ratio is lower, it

willindicate that stockis slow moving and there is a longer holding period.

YEAR

0

50

100

150

200

250

300

350

2007 2008 2009 2010

AVERAGE

AYMENT ERI D

YEAR

ERI


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Formula;

Cost Of Goods Sold

Inventory/Stock TurnoverRatio = -----------------------------------------------------

Average Inventory During That Period

(Rs. In Billion)

Particulars 2007 2008 2009 2010

Cost of goods

sold(Rs.)1,334.44 146.54 195.50

Average

Inventory(Rs.) 0.66 / 2 0.13 / 2 0.41 / 2

0.48 / 2

Inventory Turnover

Ratio(%)403.22 2204.01 947.68


319.74

155.47

0

500

1000

1500

2000

2500

2007 2008 2009 2010

INVENTORYT RNOVER

RATIO

YEAR

RATIO


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Interpretation:The inventory turnover ratio in the year 2007 is 403.22, in 2008 is 2204.01, in

2009 is 947.68, and in 2010 is 319.74. It is shown that the ratio is highest in the year

2008 and is lowest in the year 2010. In indicates that there is rapid turnover in the

2007 which further increases in the 2008. Then there is decrease in the ratio whichindicates that the stock is slow moving and there is a longer holding period.

FIXED ASSETS TURNOVER RATIO:

This ratio indicates the amount of sales realized per rupee of investment in

fixed assets. Fixed assets are those assets, which are not acquired for re-sale. In other

words, they are meant for utilization in the business for the purpose of improving its

earning capacity. Whether this purpose is being fulfilled or not is indicated by this

ratio.

This ratio is more important for manufacturing concern, as it indicates the

utilization of fixed assets. As mentioned above, fixed assets are acquired basically for

improving the earning capacity of the business. However, it is important to find out

whether this purpose is fulfilled or not. This ratio is one of the indicators of the same.

A high ratio indicates higher amount of sales generated per rupee of investment in

fixed assets. A lower ratio indicates lower sales per rupee of fixed assets and hence

the investments in fixed assets arent justified.

Formula:

Net Sales

Fixed Assets Turnover Ratio = ----------------------------

Net Fixed Assets

(Rs. In Billion)

Particulars 2007 2008 2009 2010

Sale(Rs.) 138.25 156.48 196.06

Fixed Asset(Rs.) 18.04 17.36 18.71 15.52

164.81


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Fixed Asset Turnover

Ratio(%)7.66 9.01 10.48


Interpretati n:The fixed assets turnover ratio in the year 2007 is 7.66. It consistently

increases in the following year and becomes 9.01, 10.48 and 10.61. This indicates that

the ratio is highestin the year 2010 and is lowestin the 2007. This shows thatthere is

higher amount of sales generated per rupee ofinvestmentin fixed assets in the 2007

and there is lower sales per rupee of fixed assets in the 2010 .

SALES TO CAPITAL E PLOYED:

This ratio is also known as capitalturnover ratio and indicates sales per rupee

of capital employed. Higherthe ratio, the betteritis, as it willindicate better

utilization of capital employed, which will resultin higher amount ofturnover.

However, a low turnover ratio willindicate lower utilization of capital

employed in making sales.

10.61

0

2

4

6

8

10

12

2007 2008 2009 2010

FIXED ASSETT

RNOVER

RATIO

YEAR

RATIO


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Capital Employed = Shareholders Funds + Long Term Liabilities

Formula:


Net Sales

Sales To Capital Employed Ratio = ----------------------------

Capital Employed

Particulars 2007 2008 2009 2010

Sale(Rs.) 138.25 156.48 196.06

Capital employed(Rs.) 28.05 25.78 19.28 25.05

Sale To Capital

TurnoverRatio (%)4.92 6.06 10.16

164.81

6.58

0

2

4

6

8

10

12

2007 2008 2009 2010

CAPITAL TURNOVER

RATIO

YEAR

RATIO


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Interpretation:The sale to capital employed ratio in the year 2007 is 4.928 , in 2008 is 60.68

, in 2009 is 10.165, in 2010 is 6.58. It is shown in the graph that the ratio is highest in

the year 2009 and is lowest in the year 2007. Higher the ratio, the better it is, as it willindicate better utilization of capital employed, which will result in higher amount of

turnover. However, a low turnover ratio will indicate lower utilization of capital

employed in making sales.

Therefore, the graph indicates that in the 2009 there is better utilization of the

capital employed. Then the rate decreases, and in 2007 there is least utilization of

capital employed.

CURRENT RATIO:

This ratio is calculated by dividing current assets by current liabilities. Current

ratio is also known as solvency ratio as it indicated how the expected current claims

are covered by current assets.

Current Assets mean assets, which have been purchased in order to convert

them into cash or into other current assets within a period of normally one year. These

assets include cash and bank balance, short-term investments, bills receivable,

debtors, short-term loans, inventories and pre-paid expenses.

Current liabilities means liabilities with a short-term duration which is

normally up to one year from date of creation and is paid out of existing current assets

of by creating a new current liability. These liability include, bank overdraft, bills

payable, creditors, provision for taxation, outstanding expenses, unclaimed dividends,

short-term loans, outstanding interest, advance payment received and portion of a debt

expected to mature within a period of one year.

Formula:

Current assets

Current Ratio = ---------------------------------------

Current liabilities


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(Rs. In Billion)

Particulars 2007 2008 2009 2010

Current Asset (Rs.) 15.51 14.8 9.5 12.22

Current Liabilities (Rs.)5.50 6.41 8.9

2.69

CurrentRatio (%) 2.81 2.31 1.06 4.53


Interpretati n:The current ratio does not show a good trend overthe last year. In the year

2007 the current ratio is 2.81, then it consistently falls in the following years and

constantly increase in 2010 .

This indicates that assets in 2010current assets the previous year.

LIQUID / QUICK / ACID TEST RATIO:

This ratio is bettertoolto measure the ability to honor day-to day commitments. Itis

the ratio between the liquid assets and liquid liabilities. From the balance sheet, liquid

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2007 2008 2009 2010

CURRENT RATIO

RATIO

YEAR


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assets are calculated by deducting inventories and prepaid expenses from current

assets. Liquid liabilities are currentliabilities less bank overdraft.

The idealliquid ratio is considered to be 1:1, which means thatliquid current

assets should be equalto the liquid currentliabilities. This ratio indicates whetherthe

firm has the ability to pay its short-term liabilities or not.

Formula:


Liquid Asset (Rs.) 0.000951 0.000345 0.000203 0.000637

Current Liabilities (Rs.) 5.5 6.4 8.9 2.6

Liquid Ratio (%) 0.00017 0.00005 0.00002 0.02494


Liquid assets

Liquid Ratio = ----------------------------------

Currentliabilities

0

0.005

0.01

0.015

0.02

0.025

2007 2008 2009 2010

LIQUID RATIO

YEAR

RATIO


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Interpretation:In the year 2007 the ratio is 0.00017. It increases in 2010 and becomes

0.02494. It further increases in the following years and shows year by year.

The ideal liquid ratio is considered to be 1:1, which means that liquid current

assets should be equal to the liquid current liabilities. From the above graph it is clear

that none of the years ratio is reached to the ideal point. It shows more liquid current

liabilities against liquid current assets.

CURRENT ASSETS TO FIXED ASSETS:

This ratio shows the proportion of current assets to fixed assets.

Formula:

Current Assets

Current Assets To Fixed Assets = -------------------------------

Fixed Assets

(Rs. In Billion)

Particulars 2007 2008 2009 2010

Current Assets(Rs.) 15.51 14.84 9.55 12.22

Fixed Assets(Rs.) 18.04 17.36 18.71 15.52

Ratio(%) 0.86 0.85 0.51 0.78


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Interpretati n:In the year 2007 the ratio of current assets to fixed assets is 0.86. It falls in the

year 2009 to 0.51. It furtherincreases forthe years 2010 and becomes0.78 . The ratio

is highestin 2007 and is lowestin the 2009.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

2007 2008 2009 2010

CURRENTTO

FIXED ASSETSRATIO

YEAR


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WORKING CAPITAL OF IOCL

Current Assets and Current Liabilities of Barauni Refinery Unit (IOCL)

Particulars Amount (Rs)

2008

Amount (Rs)

2007

Current Assets: -InventoriesCash and Bank balanceBook debtsLoans & Advances

Total Current Assets

Current Liabilities: -

Sundry CreditorsSecurity Deposit

Total Current Liabilities

14,845,162,456345,909-

757,205,502

15,602,713,867

6,319,690,27099,144,371

6,418,834,641

15,513,862,950590,054361,769

797,008,840

16,311,823,613

5,416,258,30193,497,716

5,509,756,017

Particulars Amount (Rs)

2010

Amount (Rs)

2009

Current Assets: -

InventoriesCash and Bank balance

Book debts,S DebtorLoans & Advances & other

Total Current Assets

Current Liabilities: -

Sundry CreditorsSecurity Deposit

Total Current Liabilities

12,159,901,8281,200

-62,252,3951,278,204,238

13,375,854,871

2,699,959,331-

10,675,895,540

9,554,181,511-

203,8521,086,257,491

10,640,642,854

8,798,731,535177,492,379

8,976,223,914

Calculation of Working Capital


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(Rs. In Billion)

Particulars 2007 2008 2009 2010

Current assets(Rs.) 16.31 15.60 10.64 13.37

Currentliabilities(Rs.) 5.50 6.41 8.97 10.67

Working capital(Rs.) 10.80 9.18 1.66 2.69


Working Capital = Current assets Currentliabilities

0

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,000

2007 2008 2009 2010

WORKINGCAPITAL

YEAR

CAPITAL


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CHAPTER -09

CONCLUSION AND RECOMMENDATIONS.

After completing this Project Report I would like to conclude that the Ratio

Analysis & Working Capital occupies a major portion of the working of any type

of Organization whether it is small or big. This Project Report has been prepared

highlighting the need, use and the functioning of the Working Capital & Financial

ratio.

After completing this Project Report in Indian Oil Corporation Ltd., Barauni

Refinery Unit, I must say that working condition of Barauni Refinery is very good.

Thats why the position of Barauni Refinery unit is getting better day by day and daysare not far when this Unit will be the best among the all. The Technology is getting

upgraded day by day in order to cope up with rising competition. The cash here is not

dealt with actually but only on books. The chemicals, stores and spares inventories is

kept and maintained as per the past experience. The proper coordination between the

production department, stores and the Finance department has let to the effective and

efficient utilization of Raw Material at its fullest. This Unit provides all relevant

information to the head quarters through application software (SAP), which helps the

head office to take corrective decision.


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CHAPTER -10

LIMITATIONS

The analysis in all the research programmers and conclusion are extremely crucial.

Therefore, earnest of efforts were made to extract the true information and presentthem in a comprehensive manner, yet the findings are tied up within the following

boundaries: -

As our project is based on the data recorded by the company, we face thelimitation of extracting that particular data because our access is limited forthe sake of confidential information of the company.

The grouping of different items in the balance sheet also created hindrances,as it is very difficult to identify which item is clubbed with which head. Butthanks to finance personal who made it easy to understand these clubbing.

Findings of the study are based on the assumptions that the respondents havegiven the correct information.

The research is limited to the period of four years, i.e. 2007,2008,2009, 2010.


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CHAPTER-11

ANNEXURE

SL PARTICULARS Rs. Rs. Rs. Rs.

N0. 31.03.2007 31.03.2008 31.03.2009 31.0

SOURCES OF FUNDS :

1)SHAREHOLDERS'FUNDS

a) SHARE CAPITAL

b) RESERVES ANDSURPLUS 773,326,289 7,448,693,896 6,558,192,045

-1,881,308,013

773,326,289 7,448,693,896 6,558,192,045 -1,881,308,013

2) LOAN FUNDS:

a)SECURED 52,633,569 27,709,539 173,014,641 -49,125,505

I.


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b)UNSECURED

-- -

-

52,633,569 27,709,539 173,014,641 -49,125,505

3) HO ACCOUNTBALANCE(CONTRA) 18,625,031,319 26,215,224,589

TOTAL : (I) 28,475,220,664 26,101,434,754 19,830,047,185 -1,930,433,518

APPLICATION OF FUNDS

1 FIXED ASSETS:

a) GROSS BLOCK 26,456,159,385 27,221,113,703 27,614,632,652 28,743,737,260

b) LESS DEPRECIATION 9,102,240,862 10,522,653,708 11,942,246,630 -13,395,651,228

c) NET BLOCK17,353,918,52

3 16,598,459,995 15,672,386,02215,348,086,032

c) DISMANTALEDCAPITAL STORES 38,905,154 42,207,966

42,161,660

d) CAPITAL WORK INPROGRESS 624,389,998 2,996,169,812

18,048,739,386 17,361,755,147 18,710,763,800

2.INTANGIBLE ASSETS

a) GROSS CARRYINGAMOUNT 50,306,535 72,671,073

70,762,162

b) LESS : ACCUMULATEDAMORTISATION 39,302,779 -57,970,340

c) LESS : ACCUMULATEDIMPAIRMENT LOSS - - - -

d) NET CARRYINGAMOUNT 4,416,387 15,021,355

2 INVESTMENTS2,500

2,500 2,5002,500

PARTICULARS Rs. Rs. Rs. Rs.

31.03.2007 31.03.2008 31.03.2009 31.03.2010

CURRENT ASSETS,LOANS AND ADVANCES

A) CURRENT ASSETS

27,649,260,806

37,352,647

657,468,216

50,306,535

45,890,143

11,003,756

II

-

57,649,718

8,466,645,304

12,791,823


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a) INTEREST ACCRUEDON INVESTMENTS,OTHER

- -

b) INVENTORIES 15,513,862,950 14,845,162,456 9,554,181,511 12,280,694,768

c) BOOK DEBTS 361,769 - -

d) CASH & BANKBALANCE 345,909 203,852 600

B) LOANS ANDADVANCES 757,205,502 1,086,257,491

1,206,606,047

TOTAL- 3 16,311,823,613 15,602,713,867 10,640,642,854

LESS: CURRENTLIABILITIES ANDPROVISIONS

Current liabilities 8,976,223,914

PROVISIONS386,592,574

448618506560,159,41

0-8,488,589,290

NET CURRENT ASSETS 10,415,475,022 8,735,260,720 1,104,259,530

DEFERRED REVENUEEXPENDITURE

VOLUNTRY RETIREMENTCOMPENSATION AS PERLAST ACCOUNT 5,200,124

ADD : EXPENDITUREINCURRED DURING THEYEAR 937,520 2,110,684 - -

LESS: AMORTISEDDURING THE YEAR 2,110,684 -

-

TOTAL : (II) 28,475,220,664 26,101,434,754 19,830,047,185 -29,684,223,135

CONTINGENT LIABILITYNOT PROVIDED FOR

-

-

590,054

797,008,840

6,137,644

-

-

5,509,756,0776,418,834,641

-

-


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(REFER SCHEDULE `R'NOTE-1)

SIGNIFICANTACCOUNTING POLICY - - -

NOTES FORMING PARTOF ACCOUNTS - - - -

OTHER SCHEDULEFORMING PART OFACCOUNTS - - - -

PARTICULARS Rs. Rs. Rs.

31.03.2007 31.03.2008 31.03.2009

I N C O M E

a) TRANSFER OFPRODUCTS TO MKT.DIVISION 165,504,726,378

185,195,412,949

222,419,556,140

164,856,486,498

b) SALE OF CRUDE - - -

SUB - TOTAL :165,504,726,37

8185,195,412,94

9 222,419,556,140

LESS : EXCISE DUTY ONTOP TO MKTG. DIVISION 27,251,648,065 28,705,678,968 26,352,888,742

TRANSFER / SALES (NET)

156,489,733,981 196,066,667,398

NET SURRENDER TO

INDUSTRY POOL A/Cs

'- C.O.P.E.A/C - - -

-DIFFERENCE BETWEEN

EX-REFINERY &

RETENTION PRICE - - -

-DIFFERENCE BETWEENTRANSFER & RETENTION

- - -

-

138,253,078,313


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PRICE

-PRODUCT PATTERNADJUSTMENT - - -

-OVER/UNDERRECOVERY ON LPG

FILLING - - -

-OVER/UNDERRECOVERY ON BITUMENDRUM FILLING - - -

-BITUMEN DRUM COSTDIFFERENCE - - -

-ADVENTITIOUSGAIN/LOSS -

--

-ADDITIONAL RETURN

ON CAPITAL EMPLOYED - - -

-NET WORTH VARIATIN - - -

-MARGIN REVISION - - -

-REFINING COSTESCALATION - -

-INCENTIVE CLAIMS - - -

INTER UNIT TRANSFEROF PRODUCTS

/INTERMEDIATE STOCK 293,563,494 2,148,493,195

COMPENSATION FROM

GOVT. OF INDIA FOR

IRRECOVERABLE TAXES - -

INCREASE/(DECREASE)IN STOCKS 132,982,618 329,303,357

-97,2491,724

OTHER INCOME 873,577,460 1,298,905,000 859,734,048 -1,250,951,933

SERVICE CHARGES FROMPIPELINES 13,892,000 12,948,000

-

433,522,075

-

-

666,842,738


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INTEREST RECEIVED

FROM MKT. DIVISION

-

- - 5,642,945,764

TRANSFER OFELECTRICITY TOPIPELINES 23,627,583 24,230,268 -

TOTAL INCOME: [I] 158,268,549,694 199,456,812,222 164,408,434,140

PARTICULARS Rs. Rs. Rs. Rs.

31.03.2007 31.03.2008 31.03.2009 31.03.2010

E X P E N D I T U R E

MANUFACTURING,ADMINISTRATION,SELLING 149,256,259,584 203,105,371,229

1,644,468,913,0

11

AND OTHER EXPENSES - - -

TRANSFER OF FINISHEDPRODUCTS FROM MKT.DIVISION - - -

TRANSFER OF FINISHEDPRODUCTS FROM OTHERUNITS - 889,720,365 5,642,945,764

DUTIES 28,607,931,742 26,675,004,688 26,318,203,886

LESS : EXCISE DUTY ONTOP TO MKTG. DIVISION 28,705,678,968 26,352,888,742

-

26,470,129,007

DUTIES ( NET ) (97,747,226) 322,115,946 -140,557,710


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DEPRECIATION ANDAMORTISATION 1,445,261,153 1,415,470,529 1,407,346,891

COMMITMENT CHARGES - - -

INTE

SIP Fiance W Ratio

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