FORE SCHOOL OF MANAGEMENT

Corporate finance project

INDIAN OIL CORPORATION

Submitted to: Submitted from:

Dr. K. B. Singh Shishir

Saurabh

Dipti

Awanish

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 INTRODUCTION

Capital investment decisions comprise the long-term choices about

which projects receive investment, whether to finance that investment with equity
or debt, and when or whether to pay dividends to shareholders. Short-term
corporate finance decisions are called working capital management and deal with
balance of current assets and current liabilities by managing cash, inventories, and
short-term borrowings and lending (e.g., the credit terms extended to customers).

Corporate finance is closely related to managerial finance, which is

slightly broader in scope, describing the financial techniques available to all forms
of business enterprise, corporate or not.

OBJECTIVES OF THE PROJECT

The major objectives of the resent study are to know about financial
strengths and weakness of IOC through FINANCIAL RATIO ANALYSIS.

The main objectives of resent study aimed as:

To evaluate and compare the performance of the companies by using

ratios as a yardstick to measure the efficiency of the companies. To understand the
liquidity, profitability and efficiency positions of the companies during the study
period. To evaluate and analyze various facts of the financial performance of the
company. To make comparisons between the ratios during different periods.

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OBJECTIVES

1. To study the present financial system at IOCL.

2. To determine the Profitability, Liquidity Ratios.

3. To analyze the capital structure of the companies with the

help of      Leverage ratio.

4. To offer appropriate suggestions for the better

performance of the organizations.

RESEARCH METHODOLOGY.

Research is a systematic method of finding solutions to problems. It is

essentially an investigation, a recording and an analysis of evidence for the purpose
of gaining knowledge.

According to Clifford woody, “research comprises of defining and

redefining problem, formulating hypothesis or suggested solutions, collecting,
organizing and evaluating data, reaching conclusions, testing conclusions to
determine whether they fit the formulated hypothesis”

Methods of Data Collection: The information is collected through secondary

sources during the project. That information was utilized for calculating
performance evaluation and based on that, interpretations were made.

Sources of secondary data:

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 1. Most of the calculations are made on the financial statements of the
company provided statements.

2. Referring standard texts and referred books collected some of the

information regarding theoretical aspects.

3. Method- to assess the performance of he company method of

observation of the work in finance department in followed.

Nature of Research: Descriptive research, also known as statistical research,

describes data and characteristics about the population or phenomenon being
studied. Descriptive research answers the questions who, what, where, when
and how. Although the data description is factual, accurate and
systematic, the research cannot describe what caused a situation. Thus,
descriptive research cannot be used to create a causal relationship, where one
variable affects another. In other words, descriptive research can be said to have a
low requirement for internal validity.

Variables of the Study: The direct variable of the study is the employee
motivation. Indirect variables are the incentives, interpersonal relations,
career development opportunities and performance appraisal system.

Presentation of Data: The data are presented through charts and tables.

Tools and Techniques for Analysis: Correlation is used to test the hypothesis and
draw inferences.

LIMITATIONS

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 1. The study provides an insight into the financial, personnel, marketing
and other aspects of LANCO. Every study will be bound with certain
limitations.

2. The below mentioned are the constraints under which the study is
carried out.

3. One of the factors of the study was lack of availability of ample

information. Most of the information has been kept confidential and as such
as not assed as art of policy of company.

Time is an important limitation. The whole study was conducted in a

period of 60 days, which is not sufficient to carry out proper interpretation and
analysis.

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COMPANY PROFILE

INDIAN OIL CORPORATION

COMPANY OVERVIEW

India’s Flagship National Oil Company, Incorporated as Indian Oil Company

Ltd. on 30th June 1959, it was renamed as Indian Oil Corporation Ltd. on 1st
September 1964 following the merger of Indian Refineries Ltd. (established
1958) with it. Indian Oil and its subsidiaries account for approximately 48%
petroleum products market share, 34% national refining capacity and 71%
downstream sector pipelines capacity in India.

The Indian Oil Group of companies owns and operates 10 of India's 20

refineries with a combined refining capacity of 60.2 million metric tones per
annum. These include two refineries of subsidiary Chennai Petroleum
Corporation Ltd. 

The Corporation's cross-country network of crude oil and product pipelines,

spanning over 10,550 km and the largest in the country, meets the vital energy
needs of the consumers in an efficient, economical and environment-friendly
manner. 

IndianOil is currently investing Rs. 47000 crore in augmentation of refining

and pipeline capacities, expansion of marketing infrastructure and product
quality upgradation.

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VISION OF IOC

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AWARDS AND RECOGNITION

 IndianOil yet again clinched the top slot among the seven Indian companies
featured in the Fortune 'Global 500' listing of the world's largest companies
for 2008, improving its ranking to 105.

 IndianOil was the only petroleum company among 100 other industrial
giants to emerge as 'The Most Trusted Fuel Pump Brand' in ET's Brand
Equity annual survey for the year 2008. Among the 'Top 50 Service Brands'
of the country, it bagged the 7th position.

 IndianOil received the coveted World Petroleum Congress Excellence

Award 2008 at Madrid, Spain, in the technical development category for its
pathbreaking R&D work in hydro-processing technology for Green Fuels.

 IndianOil won the SCOPE Gold Trophy for Environmental Excellence &
Sustainable Development and Commendation Certificate for Good
Corporate Governance for the year 2007-08.

KEY CHALLENGES OF IOC

• Ensure accounting of correct quantities in business transactions

• Ensure on-time update of end-product rates
• Prevent delays in signing of joint certificates (JCs)
• Prevent mismatch between JC and system quantities to prevent disputes in
transactions
• Use correct valuation for transactions.

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 HINDUSTAN PETROLEUM CO. LIMITED
HPCL is a Fortune 500 company, with an annual turnover of  Rs. 1,08,599 Crores
and sales/income from operations of Rs 1,14,889 Crores (US$ 25,306 Millions)
during FY 2009-10, having about 20% Marketing share in India and a strong
market infrastructure. 

HPCL operates 2 major refineries producing a wide variety of petroleum fuels &
specialties, one in Mumbai (West Coast) of 6.5 Million Metric Tonnes Per
Annum(MMTPA) capacity and the other in Vishakapatnam, (East Coast) with a
capacity of7.5 MMTPA. HPCL holds an equity stake of 16.95% in Mangalore
Refinery & Petrochemicals Limited, a state-of-the-art refinery at Mangalore with a
capacity of 9 MMTPA. In addition, HPCL is constructing a refinery at Bhatinda, in
the state of Punjab, as a Joint venture with  Mittal Energy Investments Pte. Ltd. 

HPCL also owns and operates the largest Lube Refinery in the country producing
Lube Base Oils of international standards, with a capacity of  335 TMT. This Lube
Refinery accounts for over 40% of the India's total Lube Base Oil production.
HPCL's vast marketing network consists of 13 Zonal offices in major cities
and 101 Regional Offices facilitated by a Supply & Distribution infrastructure
comprising Terminals, Aviation Service Stations, LPG Bottling Plants, and Inland
Relay Depots & Retail Outlets, Lube and LPG Distributorships. HPCL, over the
years, has moved from strength to strength on all fronts. The refining capacity
steadily increased from 5.5 MMTPA in 1984/85 to 13 MMTPA presently. On the
financial front, the turnover grew from Rs. 2687 Crores in 1984-85 to an
impressive Rs 1,16,428Crores in FY 2008-09.

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MISSION AND VISSION OF HPCL

HPCL, along with its joint ventures, will be a fully integrated company in the
hydrocarbons sector of exploration and production, refining and marketing;
focusing on enhancement of productivity, quality and profitability; caring for
customers and employees; caring for environment protection and cultural
heritage. 

It will also attain scale dimensions by diversifying into other energy related fields
and by taking up transnational operations."

Our Vision

To be a World Class Energy Company known for caring and delighting the
customers with high quality products and innovative services across domestic and
international markets with aggressive growth and delivering superior financial
performance. The Company will be a model of excellence in meeting social
commitment, environment, health and safety norms and in employee welfare and
relations.

AWARDS AND RECOGNITION

 HPCL Wins CIO 100 Award for the fourth Time in a Row
 Enterprise Connect Award 2009
 SAIL HR Excellence Award
 Reader’s Digest ‘Trusted Brand Gold Award 2009’
 Golden Peacock Corporate Governance Award 2008
 National Award For Excellence In Cost Management

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 RATIO ANALYSIS
FINANCIAL ANALYSIS

Financial analysis is the process of identifying the financial strengths

and weaknesses of the firm and establishing relationship between the items of the
balance sheet and profit & loss account.

Financial ratio analysis is the calculation and comparison of ratios,

which are derived from the information in a company’s financial statements. The
level and historical trends of these ratios can be used to make inferences about a
company’s financial condition, its operations and attractiveness as an investment.
The information in the statements is used by

 Trade creditors, to identify the firm’s ability to meet their claims i.e.
liquidity position of the company.

 Investors, to know about the present and future profitability of the company
and its financial structure.

 Management, in every aspect of the financial analysis. It is the responsibility

of the management to maintain sound financial condition in the company.

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RATIO ANALYSIS
The term “Ratio” refers to the numerical and quantitative relationship
between two items or variables. This relationship can be exposed as

 Percentages

 Fractions

 Proportion of numbers

Ratio analysis is defined as the systematic use of the ratio to interpret

the financial statements. So that the strengths and weaknesses of a firm, as well as
its historical performance and current financial condition can be determined. Ratio
reflects a quantitative relationship helps to form a quantitative judgment.

DATA ANALYSIS AND INTERPRETATION

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 I. LIQUIDITY RATIOS
1. Current Ratio = Current Assets/ Current Liabilities.

For IOC

Current Ratio of IOC

Year Current Assets Current Liabilities Ratio

2006  38423.26 27890.47   1.37

2007 39060.38 29709.08 1.31

2008 52931.30 34580.98 1.53

2009 44535.19  35358.04 1.25 

2010 59,388.80 44,751.73 1.32

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 GRAPHICAL PRESENTATION

1.4

1.2

0.8 2006
2007
0.6 2010

0.4

0.2

0
IOC HPCL BPCL

INTERPRETATION

The current ratio with 2:1 (or) more is considered as satisfactory position of the firm.When
compared, IOC and HPCL have almost similar ratio although the five years with small changes.
But the current ratio of all three companies is not seemed satisfactory.

In IOC, Inventories and Loans & Advances are higher in 2008 than that in 2007 & 2009. The
sundry debtors have increased due to the increase to corporate taxes. And provisions is also very
less in 2008 which makes its liabilities lesser than 2007&09. In 2010, the current assets increase
due to increase in inventories and loans & advances, which again increases current ratio.

In HPCL and BPCL ,the current ratio follows the same pattern as of IOC. It increased in 2008
and then decrease again in 2009. It is due to rise in inventories and loans & advances in 2008 in
both companies. In case of BPCL, the current assets are increasing more than liabilities and
hence, the current ratio increases.

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 2. QUICK RATIO = QUICK ASSETS/CURRENT LIABILITIES

 FOR IOC

Quick Ratio of IOC

Year Quick Assets Current Liabilities Ratio

 2006  14286.17  27890.47  .51

2007 14357.69 29709.08 .48

2008 21989.82 34580.98 .63

2009 19385.59 35358.04 .54

2010 22984.72 44,751.73 .51

GRAPHICAL PRESENTATION
0.7

0.6

0.5

2006
0.4
2007
2008
0.3 2009
2010
0.2

0.1

0
IOC HPCL BPCL

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 INTERPRETATION

Quick assets are those assets which can be converted into cash with in a short period of
time, say to six months. So, here the inventories which are with the long period does not
include in the quick assets.

In IOC, the ratio is increasing in 2008 and then again decreasing in next consequent years.
It is due to increase of the sundry debtors and loans and advances in year 2008 and these
are decreasing in 2009 & 2010. Because of this ratio is showing such pattern.

In HPCL, the ratio is less in 2007, it keeps on increasing till 2009 and decreases in 2010,
but very less increment is there in year 2009. There is decrease in the liabilities, but the
quick assets increase very little that keeps the ratio high in 2009.

In BPCL, due to increase of current liabilities in 2007, the ratio decreases in that year. It
first increases and then decreases due to the fluctuation in the quick assets which are
effected by sundry debtors.

3. ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID

ASSETS/CURRENT LIABILITIES

FOR IOC

Absolute Liquid Ratio of IOC

Year Absolute Liquid Assets Current Liabilities Ratio

 2006  962.23  27890.47  .03

2007 925.97 29709.08 .03

2008 824.43 34580.98 .02

2009 798.02 35358.04 .02

2010 1,315.11 44,751.73 .03

GRAPHICAL PRESENTATION

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 0.05

0.05

0.04

0.04

0.03 2006
2007
0.03 2008
2009
0.02
2010
0.02

0.01

0.01

0
IOC HPCL BPCL

INTERPRETATION

The current assets which are ready in the form of cash are considered as absolute liquid assets.
Here, the cash and bank balance and the interest on fixed assets are absolute liquid assets.

In IOC, the absolute liquid ratio in the year 2008 & 2009, the cash and bank balance is decreased
due to decrease in the deposits. This decreases the ratio. In 2010, again the liquidity increases
due to availability of cash in hand.

In HPCL, there is continuous increase in the ratio and there is a huge increase in the cash and
bank balances and also the current liabilities decrease which shoots up its absolute liquid ratio in
2009. This increases its current liquidity. In 2010 the liability increases and the cash decreases.

And in BPCL, the ratio increases in year 2008 and then decreases due to the fluctuation in the
absolute assets i.e, cash and bank balance.

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II. LEVERAGE RATIOS

1. PROPRIETORY RATIO = Shareholders fund/Total Assets

FOR IOC

Proprietory Ratio of IOC

Year Shareholders fund Total Assets Ratio

 2006  29302.67  467474.79  .62

2007 34857.29 52996.41 ..65

2008 43619.52 72577.32 .60

2009 43998.18 67329.51 .65

2010 50,552.93 122238.5 .41

GRAPHICAL PRESENTATION

0.7

0.6

0.5

2006
0.4
2007
2008
0.3 2009
2010
0.2

0.1

0
IOC HPCL BPCL

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 INTERPRETATION

The proprietary ratio establishes the relationship between shareholders funds to

total assets. It determines the long-term solvency of the firm. This ratio indicates
the extent to which the assets of the company can be lost without affecting the
interest of the company.

In IOC, HPCL & BPCL, the proprietary ratio follows the same pattern. It first
decreases in year 2008 and then increase again in year 2009.

The share holder’s funds include capital and reserves and surplus. The reserves
and surplus is increased due to the increase in balance in profit and loss account,
which is caused by the increase of income from services.

Total assets, includes fixed and current assets. And the cost of current assets in
2008 is very high and the fixed assets are almost same which affected the
proprietary ratio.

2. DEBT-EQUITY RATIO = DEBT(long-term loans)/EQUITY

FOR IOC

Debt-Equity Ratio of IOC

Year Debt Equity Ratio

 2006  26404.31  29302.67  .90

2007 27082.69 34857.29 .78

2008 35523.17 41086.25 .87

 
2009 44972.06 43998.18 1.02

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2010 44,566.25 50,552.93 .88

GRAPHICAL REPRESENTATION

2.5

1.5 2006
2007
2008
2009
1
2010

0.5

0
IOC HPCL BPCL

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 INTERPRETATION
The debt- equity ratio compares the total debts with the total assets. Higher liabilities imply
greater financial risk. It measures the degree of indebtedness of the firm out of the total financing
of the firm.

IOC has the low DE Ratio. It implies a low risk to lenders and creditors of the firm and also non-
existence of trading on equity. Its Debt as well as equity is increasing every year which increases
its ratio. But in 2010, the debt portion decreases.

In HPCL, the ratio is increasing year after year as the company is incorporating more debt from
outside. But the debt decreases to much extent in 2010 same as IOC.

BPCL has high DE Ratio. There is huge increase in debt in year 2008 which increases its ratio
and the debt decreases again in 2009 and 2010 and so as the debt-equity ratio.

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 III.THE ACTIVITY RATIOS

1. WORKING CAPITAL TURNOVER RATIO

= Net Sales/working capital

 Working capital = Current Assets – Current Liabilities.

FOR IOC

Working Capital Turnover Ratio of IOC

Year Net Sales Working Capital Ratio

 2006  1,67,085.86  6,484.63  25.76

2007 199396.17 9351.30 20.66

2008 224428.14 18350.32 12.23

2009 262654.42 9177.15 28.62

2010 2,56,912.75 9,881.06 26.00

GRAPHICAL REPRESENTATION

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 70

60

50

2006
40
2007
2008
30 2009
2010
20

10

0
IOC HPCL BPCL

INTERPRETATION

In this graph it is clearly shown that the working capital turnover ratio of all the three companies
is least in the year 2008. A high WCT Ratio reflects the better utilization of the working capital
of the company. The working capital is also increased greater due to the increase in from
services because the huge increase in current assets.

In IOC, there is high net sales but the working capital is very high which keeps the ratio low.

In HPCL, the working capital is very less in 2007 which increases the ratio, but the working
capital increases in the next years.

In BPCL, the net sales is increasing every year. But there is huge increase in the working capital
in 2008 which lower down the ratio. But again it increases in 2009.

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 2. FIXED ASSETS TURNOVER RATIO
= Cost of sales/Net fixed assets
 Cost of Sales = Income from Services
 Net Fixed Assets = Fixed Assets – Depretiation

FOR IOC

Fixed Assets Turnover Ratio of IOC

Year Net Sales Net Fixed Assets Ratio

 2006  1,67,085.86  22821.96  7.32

2007 199396.17 30584.62 6.52

2008 224428.14 29882.93 7.51

 
2009 262654.42 31570.47 8.32
2010 2,56,912.75 38353.9 6.70

GRAPHICAL REPRESENTATION

12

10

8
2006
2007
6 2008
2009
4 2010

0
IOC HPCL BPCL

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 INTERPRETATION

This ratio shows the firm’s ability in generating sales from all financial resources
committed to total assets. The ratio indicates the account of one rupee investment
in fixed assets.

The ratio of BPCL is bit higher than that of two as the net fixed assets are higher
in BPCL which raise its fixed assets ratio over others.

And in all the companies the fixed assets turnover ratio is increasing for three
years.

The income from services is greatly increased in the current years due to the
increase in the Operations & Maintenance fee due to the increase in extra invoice
and the net fixed assets are reduced because of the increased charge of
depreciation. Finally, that effected a huge increase in the ratio compared with the
previous three year’s ratio.

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 3. CAPITAL TURNOVER RATIO
= Cost of Goods Sold/Capital Employed
Cost of Goods Sold = Income from Services
Capital Employed = Capital + Reserves and Surplus

FOR IOC

Capital Turnover Ratio of IOC

Year Cost of Goods Sold Capital Employed Ratio

 2006  1,67,085.86  29302.67  5.70

2007 199396.17 34857.29 5.72

2008 224428.14 41086.25 5.46

2009 262654.42 43998.18 5.97

2010 2,56,912.75 50,552.93 5.08

GRAPHICAL REPRESENTATION

12

10

8
2006
2007
6 2008
2009
2010
4

0
IOC HPCL BPCL

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INTERPRETATION

This is another ratio to judge the efficiency and effectiveness of the company like
profitability ratio.

IOC is having lesser capital turnover ratio than rest two oil companies. And that of
HPCL and BPCL is almost same increasing over four years and then decreases in
recent year. The cost of goods of IOC is higher, but its capital reserves are far
greater because of high general reserves which lessen its capital turnover ratio.

The income from services is greatly increased compared with the previous year
and the total capital employed includes capital and reserves & surplus. Higher ratio
shows that the greater sales are being made per rupee of Capital Employed in the
firm and there is higher profit.

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 4. CURRENT ASSETS TO FIXED ASSETS RATIO
= Current Assets/Fixed Assets
FOR IOC

Current Assets to Fixed Assets Ratio of IOC

Year Current Assets Fixed Assets Ratio

 2006  38423.26 25,023.42  1.53

2007 39060.38 33141.41 1.18

2008 52931.30 32558.56 1.63

 
2009 44535.19  34392.45 1.29
2010 59,388.80  41,132.99 1.44

GRAPHICAL REPRESENTATION

1.8

1.6

1.4

1.2 2006
2007
1 2008
2009
0.8
2010
0.6

0.4

0.2

0
IOC HPCL BPCL

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 INTERPRETATION

The graph shows that IOC is having good current assets to fixed assets ratio. it’s
having current assets as well as fixed assets higher than that of two companies due
to which its ratio has increased.

And in all the companies, the ratio is the highest. Current assets are increased due
to the increase in the sundry debtors and loans & advances, and the net fixed assets
of the firm are decreased due to the fall in proposed division and corporate
dividend tax and there is no major increment in the fixed assets.

The increment in current assets and the decrease in fixed assets resulted an increase
in the ratio of 2008 compared with the previous year

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 IV. PROFITABILITY RATIOS

1. NET PROFIT RATIO

= Net profit after tax/Net sales
 Net profit after tax = Net profit(-) Depreciation(-) Interest(-)
 Income tax.
 Net sales = Income from services

FOR IOC

Net Profit Ratio of IOC

Year Net profit after tax Net sales Ratio

 2006  4,238.43  1,67,085.86  .026

2007 5,449.42 199396.17 .027

2008 6,078.13 224428.14 .027

2009 7,648.90 262654.42 .029

2010 10,304.14 2,56,912.75 .040

GRAPHICAL REPRESENTATION

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 0.04

0.04

0.03

0.03
2006
2007
0.02 2008
20009
0.02 2010

0.01

0.01

0
IOC HPCL BPCL

INTERPRRETATION

The net profit ratio is the overall measure of the firm’s ability to turn each rupee of income
from services in net profit. If the net margin is inadequate the firm will fail to achieve
return on shareholder’s funds. High net profit ratio will help the firm service in the fall of
income from services, rise in cost of production or declining demand.

The net profit of IOC is the highest among the three oil companies because the income from
services is more to much extent. And in the next consequent year the ratio is increasing as
the income from services decreases than the last year i.e., 2010.

In HPCL net profit ratio is very less in 2006 as the net of t profit of the company is very low & it
fluctuates in the following years. In BPCL the net profit after tax is increasing and decreasing
after every alternate year due to corporate taxes, which makes the ratio fluctuating every year.

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 2. RESERVES AND SURPLUS TO CAPITAL RATIO

= Reserves& Surplus/Capital
FOR IOC

Reserves and surplus to capital ratio of IOC

Year Reserves and Surplus Capital Ratio

 8,777.88
 2006  17,513.02  .50

9,912.00 21,102.78
2007 .47

11,315.30 26,699.22
2008 .42

11,766.57   33,299.52
2009 .35

12,725.17 35,281.91
2010 .36

GRAPHICAL REPRESENTATION

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 0.6

0.5

0.4
2006
2007
0.3 2008
2009
2010
0.2

0.1

0
IOC HPCL BPCL

INTERPRETATION

The ratio is used to reveal the policy pursued by the company a very
high ratio indicates a conservative dividend policy and vice-versa. Higher the ratio
better will be the position.

This ratio is showing almost the same pattern for the five years in all
three companies. It’s decreasing continuously because the capital of the
companies is increasing at faster rate than the reserves and surplus. And the
capital decreases in the recent year due to reduction in unsecured loans and
payment of the dividends.

~ 34 ~
 3. EARNINGS PER SHARE
= Net profit after tax/No of Equity Share

FOR IOC

Earning per share of IOC

Year Net Profit No. of equity shares Ratio

 2006  4,238.43  116.79  36.29

2007 5,449.42 119.24 46.66

2008 6,078.13 119.24 50.98

2009 7,648.90 119.65 64.15

2010 10,304.14 242.79 42.44

GRAPHICAL REPRESENTATION

70

60

50

2006
40
2007
2008
30 2009
2010
20

10

0
IOC HPCL BPCL

INTERPRETATION
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Earnings per share ratio are used to find out the return that the shareholder’s earn from their
shares. After charging depreciation and after payment of tax, the remaining amount will be
distributed by all the shareholders.

EPS of IOC is aapreciable and it has been increasing continuously every year as the net sales of
the company is increasing and the number of shares is same. But in 2010 it decreased due to
increase in the number of shares.

In HPCL, both the net sale and the number of shares are fluctuating every year, due to which the
EPS is fluctuating & in BPCL there is not much fluctuation in no. of shares, but net profit after
tax is changing every year which is fluctuating their earning per share ratio.

Net profit after tax is decreased due to the huge decrease in the income e from services. That is
the amount which is available to the shareholders to take.

~ 36 ~
 4. OPERATING PROFIT RATIO
= Operating Profit/Net Sales
Operating Profit = Net Sales –Operating cost

FOR IOC

Operating-Profit Ratio of IOC

Year Operating Profit Net Sales Ratio

 2006 7,809.26  1,67,085.86 .05

2007 10762.18 199396.17 .05

2008 11295.90 224428.14 .05

2009 13,524.35 262654.42 .05

2010 12453.59 2,56,912.75 .048

GRAPHICAL REPRESENTATION

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 0.05

0.05

0.04

0.04

0.03 2006
2007
0.03 2008
2009
0.02
2010
0.02

0.01

0.01

0
IOC HPCL BPCL

INTERPRETATION

The operating profit ratio is used to measure the relationship between net profits and sales of a
firm. Depending on the concept, it will decide.

The operating profit ratio of IOC is higher than that of two companies because of high operating
profit of the company. There is more purchases of raw material. It has been almost at the same
level for all the year.

In HPCL & BPCL it is pretty low and is fluctuating every year. And in the recent year the
operating profits reduced to low value which decreases the ratio.

~ 38 ~
 5. PRICE-EARNING RATIO = Market Price Per Share/No. of Equity
Share
 Market Price Per Share = (Capital + Reserves & Surplus)/

No. of Equity Shares

 EPS = Earning Before Interest& Tax/No. of Equity Share

FOR IOC

Price Earning Ratio of IOC

Year Market price per share EPS Ratio

 2006  250.90  36.29 6.91

2007 292.93 46.66 6.28

2008 344.57 50.98 6.76

2009 362.2 64.15 5.65

2010 208.22 42.44 4.91

GRAPHICALREPRESENTATION

~ 39 ~
 60

50

40
2006
2007
30 2008
2009
2010
20

10

0
IOC HPCL BPCL

INTERPRETATION

The ratio is calculated to make an estimate of application in the value of share of a company. The
investor’s expectations are reflected in the market price of the shares

The graph shows that price-earning ratio of IOC is decreasing from 2006 to 2010 due to increase
in the market price of the share and EPS is decreasing.

In HPCL the EPS in 2006 is very low which is shooting up its price earning ratio upto 50. In
year 2009 also, it increased at rapid. Its because of decrease in EPS due to less earnings after tax.

But BPCL’s ratio shows the different pattern because its EPS has increased as the net sales of the
company increased. In 2006, EPS is very low due to which PER is high. And then every next
year the ratio is fluctuating due to fluctuation in the EPS.

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 CHAPTER – 4

FINDINGS&
CONCLUSION.

FINDINGS OF THE STUDY

 The Current Ratio of IOC is higher in each of the three years. And the
companies are having the highest ratio in year 2008 due to more
acquisition of current assets in that year.
 Quick asset ratio is highly affected by the sundry debtors. HPCL is more
capable over others in the current year to convert its assets quickly into
cash and is more efficient to meet its short-term liabilities.
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 The absolute liquidity ratio analysis shows that HPCL is having strong
position of holding ready cash in the current year. IOC & BPCL are more or
less have the same capability of absolute liquidity.
 The proprietary ratio in three years shows that IOC is more capable in long-
term solvency. It has more shareholders capital as well as total assets. And
all of the three companies are having lowest ratio in year 2008 because of
rise in the current and fixed assets.
 The Debt-Equity ratio of IOC is low as the company is more dependent on
shareholders rather than borrowing from outside. BPCL’s DE Ratio is high
and hence having high degree of financial leverage.
 The working capital turnover ratio of IOC Is the least as its current assets
are high. The ratio of BPCL is appreciable. It means there is high
profitability in the company.
 IOC has high fixed assets turnover ratio. It means the company is utilizing its
fixed assets efficiently.
 Both HPCL as well as BPCL have high capital turnover ratio. It means the
sales made per rupee of Capital Employed in the firms is greater and hence
higher is the profit. Whereas in IOC there is low sales in relation to
excessive capital is being used.
 The analysis of current assets to fixed assets depicts that the IOC has the
higher ratio. IOC has current as well as fixed ratio in large quantity which
provides the company to make more profits by utilizing them.
 The net profit ratio of IOC shows that the company is efficient in
manufacturing, administrative, selling and distributing the product. And
there is high increase in corporate taxes every year.
 BPCL has the high return on assets. It means that high profit is earned by
the firm per rupee of assets used.
 The reserves & surplus and the capital employed in the companies are not
same and not changing over the years.

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  EPS of companies is fluctuating every year due change in net sales. ROE of
IOC is constant for two years with still greater amount of PAT indicating an
increasing EPS.
 The Price Earning ratio of IOC & HPCL is high, indicating that the share has
low risk and investor expect high dividend growth.

 The shareholders of BPCL are getting high returns on their funds in the
company.

FINDINGS OF THE STUDY

 The Current Ratio of all three companies is not appreciable and not
satisfactory because of high current liabilities due to short term borrowings
from the government. The current ratio of the three companies is more or
less following the same pattern. And the companies are having the highest
ratio in year 2008 due to more acquisition of current assets in that year.
 Quick asset ratio is highly affected by the sundry debtors. IOC is slightly
more capable over others in the current year to convert its assets quickly
into cash and is more efficient to meet its short-term liabilities.
 The absolute liquidity ratio analysis shows that HPCL is having strong
position of holding ready cash in the current year. IOC & BPCL are more or
less have the same capability of absolute liquidity.
 The proprietary ratio in three years shows that IOC is more capable in long-
term solvency. It has more shareholders capital as well as total assets. And

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 all of the three companies are having lowest ratio in year 2008 because of
rise in the current and fixed assets.
 The Debt-Equity ratio of IOC is low as the company is more dependent on
shareholders rather than borrowing from outside. BPCL’s DE Ratio is high
and hence having high degree of financial leverage.
 The working capital turnover ratio of IOC Is the least as its current assets
are high. The ratio of BPCL is appreciable. It means there is high
profitability in the company.
 IOC has high fixed assets turnover ratio. It means the company is utilizing its
fixed assets efficiently.
 Both HPCL as well as BPCL have high capital turnover ratio. It means the
sales made per rupee of Capital Employed in the firms is greater and hence
higher is the profit. Whereas in IOC there is low sales in relation to
excessive capital is being used.
 The analysis of current assets to fixed assets depicts that the IOC has the
higher ratio. IOC has current as well as fixed ratio in large quantity which
provides the company to make more profits by utilizing them.
 The net profit ratio of IOC shows that the company is efficient in
manufacturing, administrative, selling and distributing the product. And
there is high increase in corporate taxes every year.
 BPCL has the high return on assets. It means that high profit is earned by
the firm per rupee of assets used.
 The reserves & surplus and the capital employed in the companies are not
same and not changing over the years.
 EPS of companies is fluctuating every year due change in net sales. ROE of
IOC is constant for two years with still greater amount of PAT indicating an
increasing EPS.
 The Price Earning ratio of IOC & HPCL is high, indicating that the share has
low risk and investor expect high dividend growth.

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 The shareholders of BPCL are getting high returns on their funds in the
company.

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CONCLUSION
 The short term solvency of IOC is fine but that of BPCL is quite low. But no
company is touching the general standard of 2:1 of current ratio. The quick
ratio of firms are not good enough far away from the normal standard of 1:1.
So all the Liquidity Ratios indicate not good enough short term
solvency/liquidity position of the firm.
 All the Leverage Ratio depict that none of the company has a sound
financial position. These are more in debt. But IOC position is better than
that of the two in terms of leverage. The shareholders’ funds are satisfactory.
The firms are paying high interest on the outstanding debts which makes
unfavorable trading on equity due to high debt, which increases risk for
shareholders.
 As far as the Activity and Turnover ratios are concerned, nothing concrete
can be said as the results of three companies are very fluctuating every year
in term of sales.
 In the year 2008 all three companies are showing good results and the
turnover is satisfactory. But it decrease in 2009 due to decrease in working
capital, the fixed assets of the companies which affected their sales. And
IOC is very strong in acquisition of the fixed assets as well as current assets.
 On the basis of various profitability ratios the sales of the firms is found to
be decreasing in the last year. But BPCL has managed well to maintain its
net profit. The share value of HPCL is better.
 This analysis shows that the companies were in strong position in year 2008,
but the recession in 2009 has highly affected the companies growth and their
profit came down and they are more in debts.

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