FORE SCHOOL OF MANAGEMENT CORPORATE FINANCE PROJECT INDIAN OIL CORPORATION

Submitted to: Dr. K. B. Singh

Submitted from: 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

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period. To evaluate and analyze various facts of the financial performance of the company. To make comparisons between the ratios during different periods.

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. ~3~

Sources of secondary data: 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 systematic, the the research data description is factual, accurate and

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. ~4~

LIMITATIONS

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

Indias 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. ~6~

VISION OF IOC

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AWARDS AND RECOGNITION y 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. y 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. y 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. y 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 transactions Use correct valuation for transactions.

disputes in

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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 y y y y y y HPCL Wins CIO 100 Award for the fourth Time in a Row Enterprise Connect Award 2009 SAIL HR Excellence Award Readers 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 companys financial statements. The level and historical trends of these ratios can be used to make inferences about a companys financial condition, its operations and attractiveness as an investment. The information in the statements is used by y Trade creditors, to identify the firms ability to meet their claims i.e. liquidity position of the company. y Investors, to know about the present and future profitability of the company and its financial structure. y 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 y Percentages y Fractions y 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 2006 2007 2008 2009 2010 Current Assets 38423.26 39060.38 52931.30 44535.19 59,388.80 Current Liabilities 27890.47 29709.08 34580.98 35358.04 44,751.73 Ratio 1.37 1.31 1.53 1.25 1.32

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GRAPHICAL PRESENTATION

1.4 1.2 1 0.8 0.6 0.4 0.2 0 IOC HPCL BPCL 2006 2007 2010

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 2006 2007 2008 2009 2010 Quick Assets 14286.17 14357.69 21989.82 19385.59 22984.72 Current Liabilities 27890.47 29709.08 34580.98 35358.04 44,751.73 Ratio .51 .48 .63 .54 .51

GRAPHICAL PRESENTATION
0.7 0.6 0.5 2006 0.4 0.3 0.2 0.1 0 IOC HPCL BPCL 2007 2008 2009 2010

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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 ASSETS/CURRENT LIABILITIES FOR IOC

ABSOLUTE

LIQUID

Absolute Liquid Ratio of IOC Year 2006 2007 2008 2009 2010 Absolute Liquid Assets 962.23 925.97 824.43 798.02
1,315.11

Current Liabilities 27890.47 29709.08 34580.98 35358.04 44,751.73

Ratio .03 .03 .02 .02 .03

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GRAPHICAL PRESENTATION

0.05 0.045 0.04 0.035 0.03 0.025 0.02 0.015 0.01 0.005 0 IOC HPCL BPCL 2006 2007 2008 2009 2010

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 2006 Shareholders fund 29302.67 Total Assets 467474.79 Ratio .62

2007 2008 2009 2010

34857.29 43619.52 43998.18

50,552.93

52996.41 72577.32 67329.51 122238.5

..65 .60 .65 .41

GRAPHICAL PRESENTATION

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0.7 0.6 0.5 2006 0.4 0.3 0.2 0.1 0 IOC HPCL BPCL 2007 2008 2009 2010

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 ~ 20 ~

FOR IOC

Debt-Equity Ratio of IOC Year 2006 Debt 26404.31 Equity 29302.67 Ratio .90

2007 2008 2009 2010

27082.69 35523.17 44972.06

44,566.25

34857.29 41086.25

.78 .87 43998.18 1.02

50,552.93

.88

GRAPHICAL REPRESENTATION

2.5

2 2006 1.5 2007 2008 1 2009 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 nonexistence 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 y Working capital = Current Assets Current Liabilities.
FOR IOC Working Capital Turnover Ratio of IOC Year 2006 2007 2008 2009 2010 Net Sales
1,67,085.86

Working Capital
6,484.63

Ratio 25.76 20.66 12.23 28.62 26.00

199396.17 224428.14 262654.42

2,56,912.75

9351.30 18350.32 9177.15

9,881.06

GRAPHICAL REPRESENTATION

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70 60 50 2006 40 30 20 10 0 IOC HPCL BPCL 2007 2008 2009 2010

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 y Cost of Sales = Income from Services y Net Fixed Assets = Fixed Assets Depretiation
FOR IOC Fixed Assets Turnover Ratio of IOC Year 2006 2007 2008 2009 2010 Net Sales
1,67,085.86

Net Fixed Assets 22821.96 30584.62 29882.93

Ratio 7.32 6.52 7.51 31570.47 8.32

199396.17 224428.14 262654.42

2,56,912.75

38353.9

6.70

GRAPHICAL REPRESENTATION

12 10 8 6 4 2 0 IOC HPCL BPCL 2006 2007 2008 2009 2010

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INTERPRETATION This ratio shows the firms 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 years 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 2006 2007 2008 2009 2010 Cost of Goods Sold
1,67,085.86

Capital Employed 29302.67 34857.29 41086.25 43998.18

50,552.93

Ratio 5.70 5.72 5.46 5.97 5.08

199396.17 224428.14 262654.42

2,56,912.75

GRAPHICAL REPRESENTATION

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12 10 8 6 4 2010 2 0 IOC HPCL BPCL

2006 2007 2008 2009

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 2006 2007 2008 2009 2010 Current Assets 38423.26 39060.38 52931.30 44535.19 59,388.80
41,132.99

Fixed Assets
25,023.42

Ratio 1.53 1.18 1.63 34392.45 1.29 1.44

33141.41 32558.56

GRAPHICAL REPRESENTATION

2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 IOC HPCL BPCL 2006 2007 2008 2009 2010

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INTERPRETATION

The graph shows that IOC is having good current assets to fixed assets ratio. its 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 y Net profit after tax = Net profit(-) Depreciation(-) Interest(-) y Income tax. y Net sales = Income from services
FOR IOC Net Profit Ratio of IOC Year 2006 2007 2008 2009 2010 Net profit after tax
4,238.43 5,449.42 6,078.13 7,648.90 10,304.14

Net sales
1,67,085.86

Ratio .026 .027 .027 .029 .040

199396.17 224428.14 262654.42

2,56,912.75

GRAPHICAL REPRESENTATION

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0.04 0.035 0.03 0.025 0.02 0.015 0.01 0.005 0 IOC HPCL BPCL 2006 2007 2008 20009 2010

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 2006 9,912.00 2007 11,315.30 2008 11,766.57 2009 33,299.52 .35 26,699.22 .42 Reserves and Surplus 8,777.88 Capital 17,513.02 21,102.78 .47 Ratio

.50

12,725.17 2010

35,281.91 .36

GRAPHICAL REPRESENTATION

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0.6 0.5 0.4 0.3 0.2 2010 0.1 0 IOC HPCL BPCL

2006 2007 2008 2009

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.

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3. EARNINGS PER SHARE

= Net profit after tax/No of Equity Share

FOR IOC

Earning per share of IOC Year 2006 2007 2008 2009 2010 Net Profit
4,238.43 5,449.42 6,078.13 7,648.90 10,304.14

No. of equity shares 116.79 119.24 119.24 119.65 242.79

Ratio
36.29 46.66 50.98 64.15 42.44

GRAPHICAL REPRESENTATION

70 60 50 2006 40 30 20 10 0 IOC HPCL BPCL 2007 2008 2009 2010

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INTERPRETATION Earnings per share ratio are used to find out the return that the shareholders 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.

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4. OPERATING PROFIT RATIO = Operating Profit/Net Sales Operating Profit = Net Sales Operating cost
FOR IOC

Operating-Profit Ratio of IOC Year 2006 2007 2008 2009 2010 Operating Profit
7,809.26 1,67,085.86

Net Sales

Ratio .05 .05 .05 .05 .048

10762.18 11295.90
13,524.35

199396.17 224428.14 262654.42

2,56,912.75

12453.59

GRAPHICAL REPRESENTATION

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0.05 0.045 0.04 0.035 0.03 0.025 0.02 0.015 0.01 0.005 0 IOC HPCL BPCL 2006 2007 2008 2009 2010

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.

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5. PRICE-EARNING RATIO = Market Price Per Share/No. of Equity Share y Market Price Per Share = (Capital + Reserves & Surplus)/ No. of Equity Shares y EPS = Earning Before Interest& Tax/No. of Equity Share
FOR IOC

Price Earning Ratio of IOC Year 2006 2007 2008 2009 2010 Market price per share 250.90 292.93 344.57 362.2 208.22 EPS
36.29 46.66 50.98 64.15 42.44

Ratio 6.91 6.28 6.76 5.65 4.91

GRAPHICALREPRESENTATION

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60 50 40 30 20 2010 10 0 IOC HPCL BPCL

2006 2007 2008 2009

INTERPRETATION The ratio is calculated to make an estimate of application in the value of share of a company. The investors 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 BPCLs 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

y 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. ~ 41 ~

y 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. y 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. y The proprietary ratio in three years shows that IOC is more capable in longterm 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. y 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. y 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. y IOC has high fixed assets turnover ratio. It means the company is utilizing its fixed assets efficiently. y 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. y 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. y 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. y BPCL has the high return on assets. It means that high profit is earned by the firm per rupee of assets used. y The reserves & surplus and the capital employed in the companies are not same and not changing over the years. ~ 42 ~

y 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. y The Price Earning ratio of IOC & HPCL is high, indicating that the share has low risk and investor expect high dividend growth. y The shareholders of BPCL are getting high returns on their funds in the company.

FINDINGS OF THE STUDY

y 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. y 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. y 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. y The proprietary ratio in three years shows that IOC is more capable in longterm 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. ~ 43 ~

y 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. y 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. y IOC has high fixed assets turnover ratio. It means the company is utilizing its fixed assets efficiently. y 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. y 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. y 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. y BPCL has the high return on assets. It means that high profit is earned by the firm per rupee of assets used. y The reserves & surplus and the capital employed in the companies are not same and not changing over the years. y 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. y The Price Earning ratio of IOC & HPCL is high, indicating that the share has low risk and investor expect high dividend growth. y The shareholders of BPCL are getting high returns on their funds in the company.

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CONCLUSION
y 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. y 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. y 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. y 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. y 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. y 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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