ASSIGNMENT ON

FINANCIAL STATEMENT ANALYSIS

Of

RELIANCE INDUSTRIES LIMITED

Submitted by:

Ritesh Kumar Mishra (2011MB89)

Submitted to:

Dr. Tanuj Nandan

SCHOOL OF MANAGEMENT STUDIES

MOTILAL NEHRU NATIONAL INSTITUTE OF TECHNOLOGY

INTRODUCTION Reliance Industries Ltd. (RIL) was incorporated on 11 February 1966 as Reliance Textile Industries Pvt. Ltd. in Mumbai, Maharashtra. During the same year, it established a synthetic fibres mill at Naroda in Gujarat. The company converted itself into a public limited company on 28 June 1975 and the name was changed to Reliance Textiles Industries Ltd. with effect from 9 July 1975. The company was renamed as Reliance Industries Ltd. on 27 June 1985. The equity shares of the company was listed on the Bombay Stock Exchange (BSE) in 1977. RIL is the flagship company of the Reliance Group. The company was promoted by Late Dhirubhai H Ambani and he managed the company till 1986. The company's management was handed over to his sons Mukesh Ambani and Anil Ambani in 1986 due to ill health of Dhirubhai H Ambani. The Hazira complex of RIL manufactures a wide range of polymers, polyesters, fibre intermediates and petrochemicals. Its polymer business is integrated with its cracker facility at Hazira and its Jamnagar refinery, ensuring feedstock availability at all times. RIL is the largest producer of polyester fibre and yarn in the world. RIL's polyester segment constitutes filament yarn business, staple fibre business and textured yarn business (PFY, PSF, PET). It also manufactures polyester intermediates like paraxylene (PX), purified terephthalic acid (PTA) and mono ethylene glycol (MEG). The product portfolio also includes petrochemicals like ethylene glycol, olefins, aromatics, linear alkyl benzene (LAB) and polyethylene terephthalate (PTA).

HISTORY
The Reliance empire headed for a split in 2005, after a feud over ownership issues cropped up between the two Ambani brothers. As a result, RIL demerged its investments in power generation and distribution, financial services and telecommunication services into three separate entities during 2005-06. The group headed by Mukesh Ambani Reliance Industries group retained RIL and other companies spanning the petroleum value chain. Anil Ambani's group was renamed as Reliance Anil Dhirubhai Ambani Group (Reliance ADA Group) and was given the ownership of the demerged companies, Reliance Energy, Reliance Infocomm and Reliance Capital. The existing shareholders then received shares in the new entities in the same proportion of their equity holdings in RIL. Mukesh Ambani is the Managing Director of RIL. Nikhil R Meswani, Hital R Meswani, H S Kohli and P M S Prasad are Executive Directors. Late R Ravimohan - who was with Crisil as Managing Director & CEO for 16 years joined the Reliance Board as Executive Director in August 2007. However, his tenure ended soon after his demise in December 2009. The company's business spans the entire petroleum value chain. It operates in three major segments viz. exploration & production of crude oil & gas, refining & marketing of petroleum products and production of petrochemicals & its intermediates. In 2002--03, RIL acquired 26 per cent stake in IPCL through Government of India's disinvestment plan. Later, RIL increased its holding and finally merged IPCL into itself during 2006--07. This acquisition enabled RIL expand its hold in the petrochemicals market. The company's Jamnagar refinery plant in Gujarat is a 33 million tonnes per annum fully integrated refinery with downstream petrochemicals units. It accounts for 22.2 per cent of the total refining capacity in India. It produces a range of petroleum products including cooking gas, transport fuels and petrochemical feedstocks. With a complexity index of 11.3 (as defined by the Nelson Complexity Index) RIL's refinery is able to process heavier and sour varieties of crude oil as compared to other refineries in India. This enables the company to benefit from lower input cost compared to light crude oils.

RATIO ANALYSIS
Ratio analysis is a process of identifying the financial strengths and weaknesses of the firm. This may be accomplished either through a trend analysis of the firms ratios over a period of time or through a comparison of the firms ratios with its nearest competitors and with the industry averages. Ratio analysis is a very useful tool to raise relevant questions on a number of managerial issues. It provides clues to investigate those issues in detail. However, caution needs to be applied while interpreting ratios as they are calculated from the accounting numbers. Accounting numbers suffer from accounting policy changes, arbitrary allocation procedures and inflation.

1. PROFITABILITY RATIO
A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.

a) Gross Profit Margin Ratio:

The gross profit margin reflects the efficiency with which management produces each unit of product. This ratio indicates the average spread between the cost of goods sold and the sales revenue. Gross Profit Margin Ratio = (Gross Profit / Sales) * 100 Gross profit = PBDITA (profit before depreciation, interest, tax and amortization)
Mar 2006 12 mths 25.6968428 Mar 2007 12 mths 27.63904 Mar 2008 12 mths 33.5296761 Mar 2009 12 mths 19.9176605 Mar 2010 12 mths 17.102993 Mar 2011 12 mths 19.1169587

Analysis: Decrease in gross profit ratio indicates that direct expenses are increasing and cost of goods sold is increasing. b) Net Profit Margin Ratio: Net profit margin ratioestablishes the relationship between net profit and sales and indicates management efficiency in manufacturing, administrating and selling of the product.Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross profit. Net Profit Margin Ratio = (Net Profit / Sales) * 100
Mar-06 12 mths Mar-07 12 mths Mar-08 12 mths Mar-09 12 mths Mar-10 12 mths Mar-11 12 mths

20.1077116

20.9963331

27.1424728

14.8533828

12.3210514

14.0526032

Analysis:Previously the net profit was increasing but after 2008 it goes down, this indicates operating expenses increases year to year.

c) Operating Ratio:
The operating ratio is a financial term defined as a company's operating expenses as a percentage of revenue. This financial ratio is most commonly used for industries which require a large percentage of revenues to maintain operations, such as railroads. Operating ratio= (Cost of Goods Sold + Operating Expenses)/Net Sales
Mar-06 12 mths 13.596038 Mar-07 12 mths 13.419113 Mar-08 12 mths 19.2609135 Mar-09 12 mths 12.0490989 Mar-10 12 mths 8.93445911 Mar-11 12 mths 9.53575427

Analysis:In the previous years the operating ratio decreases but after 2008 it starts increasing,
this indicates that cost of goods sold increases in the later years.

2) SOLVENCY RATIO
The solvency ratio is a measure of the risk an insurer faces of claims that it cannot absorb. The amount of premium written is a better measure than the total amount insured because the level of premiums is linked to the likelihood of claims.

a) Debt Equity Ratio:

The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. Closely related to leveraging, the ratio is also known as Risk, Gearing or Leverage. The two components are often taken from the firm's balance sheet or statement of financial position (so-called book value), but the ratio may also be calculated using market values for both, if the company's debt and equity are publicly traded, or using a combination of book value for debt and market value for equity financially. Debt Equity Ratio = Long Term Debt / Share Holders Fund
2006
0.4842445

2007
0.45381485

2008
0.48370757

2009
0.64495705

2010
0.4868464

Analysis:Decreasing ratio indicates that the borrowing is decreasing year by year.

b) Interest Coverage Ratio:

A ratio showing the interest coverage of a firm, calculated by dividing long-term debt by the amount of capital available: Int coverage ratio = (Net Profit before intrest and tax/Intrest on long term debt)
2006
13.2151897

2007
13.2376823

2008
22.3794823

2009
11.764566

2010
11.4071712

Analysis:It indicates that the company is borrowing less from outside in the later years.

c) Proprietary Ratio or Equity Ratio:

The equity ratio is a financial ratio indicating the relative proportion of equity used to finance a company's assets. The two components are often taken from the firm's balance sheet or statement of financial position (so-called book value), but the ratio may also be calculated using market values for both, if the company's equities are publicly traded. Equity Ratio = Proprietary Fund / Total Assets
2006
10.4143681

2007
11.3283399

2008
14.5678594

2009
7.72997703

2010
6.53080734

Analysis: In the year 2008 it increases, which shows that the business expands but in the later years it decreases which indicates that the business is not expanded.

3) ACTIVITY RATIOS:
Activity ratios measure the effectiveness of the firms use of resources.

a) Credit Turnover Ratio:

A ratio of how effectively a publicly-traded company manages the credit produce revenues. Credit Turnover Ratio = (Net Credit Purchase/Average Crediter) to

2006
5.06534406

2007
6.50428265

2008
6.25600054

2009
6.90899599

2010
7.52305615

Analysis: In the previous years it decreases, which indicates that the sales are less but later it increases which indicates that the sales are increased.

b) Net Working Capital Turnover Ratio: Working capital is used by lenders to help gauge the ability for a company to weather difficult financial periods. Working capital is calculated by subtracting current liabilities from current assets. Due to differences in businesses and the fact that working capital is not a ratio but an absolute amount, it is difficult to predict what the ideal amount of working capital would be for your business. Net Working Capital Turnover Ratio = Net Sales/Net Working Capital
2006
10.1762691

2007
-1.89251647

2008
-4.25095602

2009
-30.3190695

2010
-11.7278764

Analysis:It decreases which is not good for the company because all the assets are not utilized by the company.

c) Inventory Turnover Ratio:

In accounting, the Inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year. The equation for inventory turnover equals the cost of goods sold divided by the average inventory. Inventory turnover is also known as inventory turns, stockturn, stock turns, turns, and stock turnover. Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory

2006
19.0819892

2007
25.7662195

2008
24.4095763

2009
23.5442617

2010
21.7793414

Analysis:It indicates that the cost of goods is increasing due to which the company earns less profit.

Appendices
Appendix I Appendix II Appendix III Appendix IV Brief Profile of Company Assets Liabilities Income and Expenditure

APPENDIX I
Brief profile

Reliance Industries Ltd.

Website: www.ril.com

Industry

Petroleum products (Refineries) 19786

Industry P/E Incorporation Year

45.6 1966

ROC Reg. No. Reliance Group [Mukesh Ambani] Ownership Registered office address

Maker Chambers IV, 3rd Floor, 222 Nariman Point, Mumbai - Maharashtra Tel no. Fax no. ISIN Code BSE Demat Code BSE Listing group NSE Scrip Code Face value (Rs) Beta Listed On INE002A01018 500325 A RELIANCE 10 1.015 Ahmedabad , Bangalore , Bombay , Cochin , Calcutta , Delhi , Luxembourg , Madras , National , Pune , Uttar Pradesh (Kanpur) 30325000 22785111

Company Background Reliance Industries Ltd. (RIL) was incorporated on 11 February 1966 as Reliance Textile Industries Pvt. Ltd. in Mumbai, Maharashtra. During the same year, it established a synthetic fibres mill at Naroda in Gujarat. The company converted itself into a public limited company on 28 June 1975 and the name was changed to Reliance Textiles Industries Ltd. with effect from 9 July 1975. The company was renamed as Reliance Industries Ltd. on 27 June 1985. The equity shares of the company was listed on the Bombay Stock Exchange (BSE) in 1977.

RIL is the flagship company of the Reliance Group. The company was promoted by Late Dhirubhai H Ambani and he managed the company till 1986. The company's management was handed over to his sons Mukesh Ambani and Anil Ambani in 1986 due to ill health of Dhirubhai H Ambani. The Reliance empire headed for a split in 2005, after a feud over ownership issues cropped up between the two Ambani brothers. As a result, RIL demerged its investments in power generation and distribution, financial services and telecommunication services into three separate entities during 2005-06. The group headed by Mukesh Ambani - Reliance Industries group retained RIL and other companies spanning the petroleum value chain. Anil Ambani's group was renamed as Reliance Anil Dhirubhai Ambani Group (Reliance ADA Group) and was given the ownership of the demerged companies, Reliance Energy, Reliance Infocomm and Reliance Capital. The existing shareholders then received shares in the new entities in the same proportion of their equity holdings in RIL.

Mukesh Ambani is the Managing Director of RIL. Nikhil R Meswani, Hital R Meswani, H S Kohli and P M S Prasad are Executive Directors. Late R Ravimohan - who was with Crisil as Managing Director & CEO for 16 years joined the Reliance Board as Executive Director in August 2007. However, his tenure ended soon after his demise in December 2009. The company's business spans the entire petroleum value chain. It operates in three major segments viz. exploration & production of crude oil & gas, refining & marketing of petroleum products and production of petrochemicals & its intermediates. In 2002--03, RIL acquired 26 per cent stake in IPCL through Government of India's disinvestment plan. Later, RIL increased its holding and finally merged IPCL into itself during 2006--07. This acquisition enabled RIL expand its hold in the petrochemicals market.

The company's Jamnagar refinery plant in Gujarat is a 33 million tonnes per annum fully integrated refinery with downstream petrochemicals units. It accounts for 22.2 per cent of the total refining capacity in India. It produces a range of petroleum products including cooking gas, transport fuels and petrochemical feedstocks. With a complexity index of 11.3 (as defined by the Nelson Complexity Index) RIL's refinery is able to process heavier and sour varieties of crude oil as compared to other refineries in India. This enables the company to benefit from lower input cost compared to light crude oils.

The Hazira complex of RIL manufactures a wide range of polymers, polyesters, fibre intermediates and petrochemicals. Its polymer business is integrated with its cracker facility at Hazira and its Jamnagar refinery, ensuring feedstock availability at all times. RIL is the largest producer of polyester fibre and yarn in the world. RIL's polyester segment constitutes filament yarn business, staple fibre business and textured yarn business (PFY, PSF, PET). It also manufactures polyester intermediates like paraxylene (PX), purified terephthalic acid (PTA) and mono ethylene glycol (MEG). The product portfolio also includes petrochemicals like ethylene glycol, olefins, aromatics, linear alkyl benzene (LAB) and polyethylene terephthalate (PTA).

APPENDIX II
Assets Mar 2006 12 mths 91927.92 4714.28 75289.97 1186.41 1569.32 6470.88 2210.15 486.91 0 29253.38 0 62674.54 5846.18 3116.78 10 1490.91 1228.48 0 0 0.01 0 3825.26 1513.99 780.71 121.7 19932.3 2146.16 10119.82 6836 830.32 4642.15 0 93216.87 Mar 2007 12 mths 107060.9 7410.37 86727.89 1207.37 1765.94 7117.72 2421.2 410.41 0 35872.31 0 71188.59 16251.34 12974.87 460 1942.16 767.26 0 0 200.55 93.5 14145.57 1952.94 24454.46 297.64 23731.91 1835.35 12136.51 9446.62 313.43 6181.44 0 117650.92 Mar 2008 12 mths 127234.94 7039.02 90240.14 659.19 1990.1 21586.8 4300.65 1419.04 0 42345.47 0 84889.47 22063.6 13271.35 4779.57 320 2139.84 0 0 1552.84 0 18761.62 1517.76 53446.09 310.53 36574.83 4280.05 14247.54 17671.96 375.28 6311.01 0 150149.44 Mar 2009 12 mths 218672.53 9584.57 123755.11 761.23 3903.65 51948.64 11624.14 17095.19 0 49285.64 0 169386.89 21606.49 6937.83 11071.72 0 2233.45 0 0 1363.49 0 18720.21 1143.17 2930.63 247.51 49836.26 22176.53 14836.72 11655.91 1167.1 4876.01 0 245953.16 Mar 2010 12 mths 228003.53 10058.96 134276.62 741.96 6282.09 10685.62 64505.08 1453.2 0 62604.82 0 165398.71 23228.62 8138.63 5940.6 779.07 8369.97 0 0 0.35 0 14790.71 8432.52 9027.29 242.95 59085.51 13462.65 26981.62 17373.75 1267.49 3293.59 0 251249.38

Reliance Industries Ltd.

Rs. Crore (Non-Annualised) Gross fixed assets Land & building Plant & machinery Transport & comm. equipment/infrastructure Furniture,amenities & other fixed assets Capital work-in-progress Intangible assets Net pre-operative expenses pending allocation Net lease reserve adjustment Less: Cumulative depreciation Less: Arrears of depreciation Net fixed assets Investments Equity shares Preference shares Mutual funds Debt instruments Approved securites (slr/statutory req.) Assisted companies Others Less: Provision for dimunition in value of investments Group companies Non-group companies Market value of quoted investments Deferred tax assets Current assets Cash & bank balance Inventories Receivables Expenses paid in advance Loans & advances Deferred revenue expenditure Total assets

Mar 2011 12 mths 234071.53 10311.83 136197.72 748.29 6804.7 10933.53 67189.43 1886.03 0 78545.5 0 155526.03 37651.54 13903.51 7768.55 5897 10082.46 0 0 0.02 0 22383.54 15263.06 15839.31 180.95 84129.6 27134.86 29825.38 25940.8 1228.56 7412.23 0 284900.35

APPENDIX III
Liabilities Mar 2006 12 mths 49804.26 2500 1393.51 1393.17 0 0 0 48411.09 41994.66 15465.57 26529.09 1766.24 4650.19 0 21865.61 12466.1 4142.82 8323.28 0 0 6038.35 0 6038.35 0 1150.53 0 0 0 0 0 0 0 2210.63 7664.9 14200.71 981.4 16454.48 12166.87 0 Mar 2007 12 mths 63967.13 2500 1393.51 1393.21 0 0 60.14 62513.78 58095.57 21330.2 36765.37 1766.24 2651.97 0 27825.73 16992.89 7270.27 9722.62 0 0 5346.26 0 5346.26 0 876.95 0 0 0 0 0 0 25.02 4584.61 9569.12 18256.61 1173.3 18578.4 16467.24 0 Mar 2008 12 mths 79766.2 2500 1453.65 1453.39 0 0 0 78312.81 75675.31 21312.02 54363.29 1766.24 871.26 0 38162.08 27453.47 7442.33 20011.14 0 0 5800.52 0 4118.12 0 1075.22 0 0 0 0 0 0 27.62 3805.25 8282.57 29879.51 926 24038.09 20590.45 0 Mar 2009 12 mths 126372.97 2500 1573.79 1573.53 0 0 69.25 124730.19 110839.15 51454.96 59384.19 2106.29 11784.75 0 73904.48 60724.82 6224.29 54500.53 0 0 8642.12 0 8642.12 0 0 0 0 0 0 0 0 22.4 4515.14 10697.92 63206.56 742.3 35701.9 31579.09 0 Mar 2010 12 mths 137170.61 5000 3270.37 3270.37 0 0 0 133900.24 123688.12 50688.67 72999.45 1407.85 8804.27 0 62494.69 47159.59 4215.62 42943.97 0 0 9682.82 0 9682.82 0 1234.67 0 0 0 0 500 0 18.31 3899.3 11670.5 50824.19 175 40414.83 36055.6 0

Reliance Industries Ltd.

Rs. Crore (Non-Annualised) Net worth Authorised capital Issued equity capital Paid up equity capital (net of forfeited capital) Forfeited equity capital Paid up preference capital (net of forfeited capital) Capital contibution, suspense and application money Reserves & surplus Free Reserves Security premium reserves (Net of deductions) Other free reserves Specific Reserves Revaluation Reserves Less Accumulated losses Total borrowings Bank borrowings Short term bank borrowings Long term bank borrowings Financial institutional borrowings Central & state govt. (usually sales tax deferrals) Debentures / bonds Convertible Non-convertible Fixed deposits Foreign borrowings Of which : euro convertible bonds Borrowings from corporate bodies Group / associate cos. Borrowings from promoters / directors Commercial paper Hire purchase borrowings Deferred credit Other borrowings Secured borrowings Unsecured borrowings Current portion of long term debt Current liabilities & provisions Sundry creditors Acceptances

Mar 2011 12 mths 151548.85 5000 3273.37 3273.37 0 0 8.53 148266.95 141392.1 50878.24 90513.86 1407.85 5467 0 67396.68 53085.23 11992.17 41093.06 0 0 10007.82 0 10007.82 0 312.17 0 0 0 0 0 0 15.22 3976.24 10571.21 56825.47 655 54212.07 48837.59 0

Deposits & advances from customers & employees Interest accrued Share application money Other current liabilities Provisions Deferred tax liability Total liabilities Net worth (net of reval & DRE) Contingent liabilities

0 310.23 0 86.4 3890.98 5092.52 93216.87 45154.07 33224.6

0 314.57 0 83.72 1712.87 7279.66 117650.92 61315.16 55950.68

0 376.99 0 78.03 2992.62 8183.07 150149.44 78894.94 46880.76

0 1017.26 1.42 93.23 3010.9 9973.81 245953.16 114588.22 45172.43

0 469.22 1.36 323.22 3565.43 11169.25 251249.38 128366.34 32883.22

0 490.82 1.36 318.82 4563.48 11742.75 284900.35 146081.85 59643.6

APPENDIX IV
Income and expenditure indexed

Reliance Industries Ltd.

Mar-06 Rs. Crore 12 mths Total Income 100 Sales Industrial Sales Income from non-financial services Income from financial services Interest Dividends Treasury operations Prior period income & extraordinary income Change in stock Total Expenses Raw materials expenses Packaging expenses Purchase of finished goods Power, Fuel & water charges Compensation to employees Indirect taxes Royalties, technical know-how fees, etc. Lease rent & other rent Repairs and maintenance Insurance premium paid Outsourced mfg jobs Outsourced professional jobs Directors fees Selling and distribution expenses Travel expenses Communication expenses Printing & Stationery expenses Misc. expenses Other operational expenses of indl. enterprises Operational exp. of non fin service enterprises Share of loss in partnership firms/subs/JV etc Lease equalisation adjustment Loss on securitisation of assets/loans Fee based financial service expenses Treasury operations expenses Total provisions Write-offs Less: Expenses capitalised Less: DRE & expenses charged to others 100 100 55.48442 71.68364 0 113.0978 0 2104.97 463.2096 785.0458 386.1716 19.50496 100 205.6353 0 466.9436 0 0 100 107.287 198.4914 213.914 240.4838 257.9753 100 100 100 100 100 100 100 100 663.9107 176.0505 125.563 162.4904 208.1424 139.3939 122.1781 145.7025 516.2342 185.3797 133.6865 163.7185 248.8161 630.303 129.2421 188.6662 176.4635 146.6259 149.1262 200.755 253.11 60.60606 137.4864 140.1581 16.53591 164.1504 223.1916 424.0563 204.6593 57.57576 169.6733 66.48853 4.103802 224.7874 242.4522 545.6135 258.7172 63.63636 219.1632 82.53173 100 100 100 100 72.38418 197.3104 214.0171 71.69803 238.7679 179.0903 216.4117 54.44531 87.64531 292.7765 249.0449 41.80958 119.0646 236.134 240.2146 80.39804 58.19691 196.7329 268.1966 102.1575 100 100 100 100 100 100 100 100 100 100 100 132.3193 132.796 132.878 59.08494 66.18443 58.49431 480.4367 4.500735 282.5949 30.71523 129.7746 138.0042 162.4958 156.264 156.3619 68.25573 1110.495 139.8336 81.86275 6603.246 828.3228 -87.6111 150.3087 162.2148 165.3714 164.184 164.2992 60.55954 345.3705 330.3819 132.8431 481.115 772.943 20.06203 161.2589 187.1254 226.7371 224.8539 225.0242 71.68973 531.6761 445.0736 10.73975 1136.583 453.7975 185.2435 230.8926 263.343 291.9145 290.2134 290.4464 80.74942 583.1637 553.2945 10.69519 901.6736 383.8608 152.1709 295.7883 343.588 12 mths 12 mths 12 mths 12 mths 12 mths Mar-07 Mar-08 Mar-09 Mar-10 Mar-11

Prior period & extraordinary expenses Interest paid Financial charges on instruments Expenses incurred on raising deposits/debts Depreciation Amortisation Provision for direct taxes PAT PBDITA PBDTA PBT

100 100

315.1272 135.4237

80.85676 122.7686

5170.683 198.9636

391.9679 225.2668

775.3681 263.1682

100 100 100 100 100 100

141.5842 157.3823 131.6955 136.9721 137.0683 135.6346

142.5248 216.7046 215.0806 193.3962 197.7853 215.3296

152.7618 190.9845 168.803 169.3591 167.5193 172.2046

308.6389 263.281 179.0171 220.3658 220.0612 191.9392

400.1159 302.4946 223.68 274.657 275.371 235.7664