Capital Structure Analysis of Indian Oil

Corporation Limited (IOCL)

A PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE
DEGREE OF MASTER OF BUSINESS ADMINISTRATION
DEPARTMENT OF MANAGEMENT STUDIES, PONDICHERRY
UNIVERSITY

UNDER THE GUIDANCE

OF

Institutional guide:
Dr. M.Basheer Ahmed Khan
Department of Management
Studies
Pondicherry University
Submitted By:
Kankan Deka

Organisational
guide:
Mr. Himangshu
Bardoloi
Accounts Officer
Guwahati Refinery
(IOCL)

Regn. No.13397039
MBA 2

rd

Year.

DECLARATION
I hereby declare that the project report titled CAPITAL
STRUCTURE ANALYSIS OF INDIA OIL CORPORATION
LIMITED submitted in partial fulfillment of the requirement
for the award of the degree of MASTER OF BUSINESS
ADMINISTRATION at Department of Management Studies,
Pondicherry University is an original piece of work and not
submitted for award of any other degree, diploma, fellowship,
or any other similar title or prizes.
As per my knowledge and belief, the substance in the report
does not form the part of any other business or research
work. Also, this report has never been submitter earlier or
used for any academic purpose.

Date-29.08.14 Kangkan deka

Place- Guwahati

Regn no. 13397039

MBA, 3

rd

semester

Pondicherry
University

GUIDES CERTIFICATE
Certified that this report entitled CAPITAL STRUCTURE
ANALYSIS OF INDIAN
OIL

CORPORATION

LIMITED

is

submitted

in

partial

fulfillment for the award of MBA is record of independent

research work carried out by KANGKAN DEKA under my
guidance and no part of this corporate Exposure Training has
been previously submitted earlier for the award of any
degree/diploma.

Professor & Head

Faculty Guide:

Dr. T .Nambirajan

Dr.M.Basheer Ahmed Khan

Department Of Management
Studies

Department Of Management

Studies

Pondicherry University

Pondicherry university

ACKNOWLEDGEMENTS
This project, though an individual project, wouldnt have been
possible without the constant help and guidance of a few
individuals whose support has been vital to the completion of
the project.
At the outset, I would like to thank Mr. Hitesh Barman
(Manager Vigilance department) for providing me the
opportunity to do a project at Indian Oil Corporation limited.
This research project would not have been possible without
the support of many people. I wish to express my gratitude to
my supervisor, Mr. Vishal Maheshwari, who was abundantly
helpful

and

offered

invaluable

assistance,

support

and

guidance. Deepest gratitude are also due to the members of

the finance department, Ms. Rina Choudhary, Mr. Munin
Baradakai without whose knowledge and assistance this
study would not have been successful.

I would also like to convey my thanks to my college faculty,

Prof. M. Basheer
Ahmed Khan.
And finally I wish to express my love and gratitude to my
beloved family; for their understanding & endless love
through the duration of my internship.

Place: Guwahati

Kangkan deka

MBA 2

nd

year

Pondicherry
University
4

TABLE OF
CONTENTS
CHAPTER 1: INTRODUCTION TO THE
PROJECT 1.1: Introduction
to the topic 1.2: Objective
of the study
CHAPTER 2: PROFILE OF THE COMPANY AND THE
MARKET SCENARIO 2.1: Origin of oil industry
in India.
2.2: About IOCL and Guwahati
refinery. 2.3: Vision, Mission
and values.
CHAPTER 3: RESEARCH
METHODOLOGY 3.1:
Research design.
3.2: Data source and
collection. 3.3: Capital
structure analysis.
CHAPTER 4: DATA INTERPRETATION AND
ANALYSIS CHAPTER 5: CONCLUSION
5.1: FINDINGS

5.2:
SUGGESTIONS
5.3:
LIMITATIONS
5.4:
CONCLUSION
CHAPTER 6: BIBLIOGRAPHY
5

CHAPTER 1: INTRODUCTION TO
THE PROJECT

Introduction to the topic:

Capital Structure of a Company refers to the composition or

make up of its Capitalization and it includes all long term
Capital resources i.e. loans, reserves, shares and bond. It
shows the mix of a company's long-term debt, specific shortterm debt, common equity and preferred equity. The capital
structure is how a firm finances its overall operations and
growth by using different sources of funds. In finance, capital
structure refers to the way a corporation finances its assets
through

some

combination

of

equity,

debt,

or

hybrid

securities. A firm's capital structure is then the composition or

'structure' of its liabilities. For example, a firm that sells $20
billion in equity and $80 billion in debt is said to be 20%
equity-financed and 80% debt-financed. The firm's ratio of
debt to total financing, 80% in this example is referred to as
the firm's leverage. In reality, capital structure may be highly
complex and include tens of sources. Gearing Ratio is the
proportion of the capital employed of the firm which come
from outside of the business finance, e.g. by taking a short
term loan etc.Debt comes in the form of bond issues or longterm notes payable, while equity is classified as common
stock, preferred stock or retained earnings. Short-term debt
such as working capital requirements is also considered to be
part of the capital structure structure. A company's proportion
of short and long-term debt is considered when analyzing

capital Structure. When people refer to capital structure they

are most likely referring to a firm's debt-to-equity ratio, which
provides insight into how risky a company is. Usually a
company more heavily
7

financed by debt poses greater risk, as this firm is relatively

highly levered. The long term creditors would judge the
soundness of the firm on the basis of the long term financial
strength measured in terms of ability to pay the interest
regularly as well as repay the installment of the principal on
due dates or in one lump sum at the time of maturity.
Accordingly, there are two different, but mutually dependent
and interrelated, types of leverage ratio First Ratio which are
based on the relationship between borrowed funds and
owners capital. In this Paper, researcher explain the different
leverage ratio as also how they can be used to draw
inferences regarding the financial soundness of the firm.

OBJECTIVES OF THE STUDY

To examine the Capital Structure policy and pattern of

IOCL.

To understand the capital structure of Indian Oil

Corporation

To identify the share capital and debt of the company.

To Find out the earnings per share

To Find out the leverage

To give suggestions for improvement of the Capital Structure

composition of Indian Oil corporation Ltd

Evaluate the contents of IOCL Debts and Equity.

CHAPTER 2: PROFILE OF THE

COMPANY AND THE
MARKET SCENARIO

10

COMPANY OVERVIEW
INDIAN OIL CORPORATION LTD
IOCL (Indian Oil Corporation) was formed in 1964 as the result
of merger of Indian Oil Company Ltd. (Estd. 1959) and Indian
Refineries Ltd. (Estd. 1958).
Indian Oil Corporation Ltd. is currently India's largest company
by sales with a turnover of Rs. 2 441 329 600, and profit of Rs.
25 994 000 for fiscal 2009.
Indian Oil Corporation Ltd. is the highest ranked Indian
company in the prestigious Fortune Global 500. It is ranked
at 109th position in 2010. It is also the 20th largest petroleum
company in the world.
Indian Oil and its subsidiaries today accounts for 49%
petroleum products market share in India.
Indian Oil group has sold 59.29mn tonnes of Petroleum
including 1.74mn tonnes of natural gas in the domestic
market and exported 3.33mn tonnes in the yr 2008-09.
IOCL GROUP
IOCL Group consists of Indian Oil Corporation Ltd. and the
following subsidiaries:
Lanka IOC Ltd
Indian Oil (Mauritius) Ltd.
IOCL Middle East FZE
Indian Oil Technologies Ltd.
Chennai Petroleum Corporation Ltd. (CPCL)

Bongaigaon Refinery & Petrochemicals Ltd (BRPL)

11

Location of IOCL
in India
1
2

The current Refining capacity stands at 55.01 million ton per

annum.
Yet another refinery is being set up on the East Coast at Paradip
(Orissa). The outlay includes provision for Expansion of Barauni
Refinery, Quality improvement for HSD at Haldia, Gujarat,
Mathura, Grass Root Refinery in Eastern Sector, Residue Up
gradation at Gujarat, and Implementation of Lube Quality
improvement at Haldia etc.
The company is mainly controlled by the Government of India
which owns approx.. 79% shares in the company. It is one of the
Maharatna status companies of India apart from Coal India
Limited, NTPC Limited, Oil and Natural Gas Corporation, Steel
Authority of Indian Limited, Bharat Heavy Electricals Limited and
Gas Authority of India Limited.
Indian Oil Corporation Limited operates a network of 11,214 km
long crude oil, petroleum product and gas pipelines with a
capacity of 77.258 million metric tonnes per annum of oil and 10
million metric standard cubic meter per day of gas. Cross-country
pipelines are globally recognized as the safest, cost-effective,
energy-efficient and environment friendly mode for transportation
of crude oil and petroleum products. Indian Oil has one of the
largest petroleum marketing and distribution networks in Asia
with over 35,000 marketing points.

13

VISION OF IOCL
A major diversified, transnational, integrated energy company,
with national leadership and a strong environment conscience,
playing a national role in oil security & public distribution.
MISSION OF IOCL
IOCL has the following mission:
To achieve international standards of excellence in all aspects
of energy and diversified business with focus on customer
delight through value of products and services and cost
reduction.
To maximize creation of
satisfaction for the stakeholders.

wealth,

value

and

To attain leadership in developing, adopting and

assimilating state-of- the-art technology for competitive
advantage.

To provide technology and services

sustained Research and Development.

through

To foster a culture of participation and innovation

for employee

growth and contribution.

To cultivate high standards of business ethics and
Total Quality Management for a strong corporate
identity and brand equity.

To help enrich the quality of life of the community

and preserve ecological balance and heritage through a

strong environment conscience.

14

VALUES OF IOCL
Values exist in all organizations and are an integral part of any
it. Indian Oil nurtures a set of core values:
1. CARE
2. INNOVATION
3. PASSION
4. TRUST

OBJECTIVES OF INDIAN OIL

IOCL has defined its objectives for succeeding in its mission.
These objectives are:
To serve the national interests in oil and related
sectors in accordance and consistent with Government
policies.

To ensure maintenance of continuous and smooth

supplies of petroleum products by way of crude oil

refining, transportation and marketing activities and to
provide appropriate assistance to consumers to conserve
and use petroleum products efficiently.
To enhance the country's self-sufficiency in crude oil
refining and build expertise in laying of crude oil and
petroleum product pipelines.

To further enhance marketing infrastructure and

reseller network for providing assured service to
customers throughout the country.

To create a strong research & development base in

refinery processes, product formulations, pipeline

transportation and alternative fuels

15

with a view to minimizing/eliminating imports and to

have next
generation products.
To optimize utilization of refining capacity
maximize distillate yield and gross refining margin.

and

To maximize utilization of the existing facilities for

improving efficiency and increasing productivity.

To minimize fuel consumption and hydrocarbon loss in

refineries and stock loss in marketing operations to
effect energy conservation.

To earn a reasonable rate of return on investment.

To avail of all viable opportunities, both national and

global, arising out of the Government of Indias policy of
liberalization and reforms.

To

achieve

acquisitions,

higher
integration

growth

through

and

mergers,

diversification

by

harnessing new business opportunities in oil exploration

&

production,

petrochemicals,

natural

gas

and

downstream opportunities overseas.

7

To

inculcate

strong

core

values

among

the

employees and continuously update skill sets for full

exploitation of the new business opportunities.
8

To develop operational synergies with subsidiaries and

joint ventures and continuously engage across the

hydrocarbon value chain for the benefit of society at
large.

16

Major Divisions of IOCL:

IOCL

Indian Oil Corporation Limited (Indian Oil) owns and operates a

network of crude oil and petroleum product pipeline in India. It
has two divisions: Refineries Division and Marketing Division. The
Refineries Division is focused on managing the public sector
refineries and the Marketing Division is focused on distribution not
only the entire production of public sector refineries but also the
deficit products imported. It is organized in two segments: sale of
petroleum products, and other businesses, which comprises sale
of imported crude oil, sale of gas, petrochemicals, explosives and
cryogenics,

wind

mill

power

generation

and

oil

and

gas

exploration

activities

jointly

undertaken

unincorporated
17

in

the

form

of

joint ventures. The Digboi Refinery of Assam Oil Division

processed 0.623 million metric tons (MMT) of crude oil during the
year. The Division sold about 1.067 MMT of products. IBP Division
comprises the explosives and cryogenics business.

18

CHAPTER 3: RESEARCH
METHODOLOGY

1
9

RESEARCH DESIGN
A research design is the specification of method and procedure for
accruing the information needs. It is overall operational pattern of
frame work of project that stipulates what information is to be
collected for source by the procedures.
Descriptive Research design is appropriate for this study.
Descriptive study is used to study the situation. This study helps
to describe the situation. A detail description about present and
past situation can be found out by the descriptive study .
DATA SOURCE AND COLLECTION
This research is based on secondary data. This means the data
are already available, i.e. the data which have been already
collected and analyzed by someone else.
Secondary data are used for the study of ratio analysis of this
company and also its competitors. To collect the data, company
annual report, internet websites has been used.
Analyzing and interpreting the information available in the financial statements
and drawing meaningful conclusions from them.

20

CAPITAL STRUCTURE
A mix of a company's long-term debt, specific short-term
debt, common equity and preferred equity . The capital
structure is how a firm finances its overall operations and
growth by using different sources of funds.

Debt comes in the form of bond issues or long-term notes

payable, while equity is classified as common stock, preferred
stock or retained earnings. Short-term debt such as working
capital requirements is also considered to be part of the
capital structure. But the IOCL does not issue the preference
shares and debenture to the public of the company

COMPONENTS OF CAPITAL
STRUCTURE:

CAPITAL STRUCTURE

Shareholders funds
funds

Borrowed

-equity capital -debenture (Nil)

-preference capital (Nil) -Term loan

21

CHAPTER 4: DATA
ANALYSIS

2
2

SHARE
CAPITAL
600
0
500
0
400
0
300
0
200
0
100
0

Authori
sed
Capital

(CR)
Issued
Capital
(CR)

0
2014

CA
A PI
U TA
T L:
H The
O
RI

ma
xim
um

S equ
E ity
D cap
ital

an

raise,

which is
cmentione
od in the
m
Memoran
pdum
of
aAssociati
non
and
yArticles
of
cAssociati
aon of the

Co d
mp cap

de

face

value

of

an ital.

bthe

y.

yshares

Ho SS

that

we UE

thave

ver D

hbeen

CA

eissued to
the

sh PI
are

ssharehol

pre

hders.

mi
um
is
ex
clu
de
d
fro
m
the
de
fini
tio
n
of
aut
hor
ize

TA
L:
Iss
ued
cap

aIssued
rshare
ecapital
hand

ital

oshare

is

l premium

the

drepresen

am

et

oun

ramount

t of

sinvested

no

. by

mi

I sharehol

nal

tders

val

the

the

the
in

ue

i company.

of

sIt is also

sha

known as

re

tthe

hel

hsubscrib

ed

A
pit na
al ly
or
si
su
s:
ca

bs

But
her
be e,
d IOC
sh L
are iss
ca ued
pit ver
al. y
cri

ll
IN
ePrevious
syears if I
scompare
d
to
sAuthorize
hd capital.
aIOCL
is
ronly
eissued
the
climited
ashare to
pthe
i sharehol
tders
a
23

Paid up capital

Instrument

Shares(nos)

Face
value

2013 2014

Equity
share

2427952482

10

2427.95

2012 2013

Equity
share

2427952482

10

2427.95

2011 2012

Equity
share

2427952482

10

2427.95

2010 2011

Equity
share

1192374306

10

1192.37

2009 2010

Equity
share

1192374306

10

1192.37

2008 2009

Equity
share

778674809

10

778.67

From -

To

Capital

Paid up capital:
The amount of a company's capital that has been funded by
shareholders, Paid-up capital can be less than a company's
total capital because a company may not issue all of the
shares that it has been authorized to sell. Paid-up capital can
also reflect how a company depends on equity financing .
Here, from 2011 to 2013, the companys Paid up capital
remain same. Its means the IOCL collected average funded by

shareholders and they have to issue more share capital to

shareholders in future periods.

24

TOTAL DEBT
The IOCL has only two debts

Secured loan
Unsecured loan
Total debt means here included debenture, Bonds, Long term
loans, short term loan etc. But Indian Oil Corporation limited
(IOCL) did not issued debenture, bonds etc.

Secured loan:
Secured loans are those loans that are protected by an asset
or collateral of some sort. The item purchased, such as a
home or a car, can be used as collateral, and a lien is placed
on such item. The finance company or bank will hold the deed
or title until the loan has been paid in full, including interest
and all applicable fees. Other items such as stocks, bonds, or
personal property can be put up to secure a loan as well.
Secured loans are usually the best (and only) way to obtain
large amounts of money. A lender is not likely to loan a large
amount with assurance that the money will be repaid. Putting
your home or other property on the line is a fairly safe
guarantee that you will do everything in your power to repay
the loan.

25

Secured loans usually offer lower rates, higher borrowing

limits and longer repayment terms than unsecured loans. As
the term implies, a secured loan means you are providing
"security" that your loan will be repaid according to the
agreed terms and conditions. It's important to remember, if
you are unable to repay a secured loan, the lender has
recourse to the collateral you have pledged and may be able
to sell it to pay off the loan.

Unsecured loan:
On the other hand, unsecured loans are the opposite of secured loans and
include things like credit card purchases, education loans, or personal
(signature) loans. Lenders take more of a risk by making such a loan, with no
property or assets to recover in case of default, which is why the interest rates
are considerably higher. If you have been turned down for unsecured credit,
you may still be able to obtain secured loans, as long as you have something
of value or if the purchase you wish to make can be used as collateral.
When you apply for a loan that is unsecured, the lender believes that you can
repay the loan on the basis of your financial resources. You will be judged
based on the five (5) C's of credit -- character, capacity, capital, collateral, and
conditions these are all criteria used to assess a borrower's creditworthiness.
Character, capacity, capital, and collateral refer to the borrower's willingness
and ability to repay the debt. Conditions include the borrower's situation as
well as general economic factors.

26

SECURED LOAN

25000
20000
15000
10000

(CR)

5000
0

2014 2013 2012 2011 2010

(CR) 17866 13046 20380 18292
17565

Analysi
s:
In 2014 the secured loan proportion is high than 2013. The
India oil corporation limited (IOCL) has try to reduce the
secured loan because secured loan effect the assets of the
company and it will be effect on future periods so the IOCL
Increasingly firms are moving from secured debt to unsecured
debt in order to free their assets.
Secured loans have the largest positive impact on Companys credit when
they are repaid. If company have never taken a secured loan, companys credit
may be low despite your good record of repayment.

27

UNSECURED LOAN
70000
60000
50000
40000
30000

(CR)

20000
10000
0

2014 2013 2012 2011 2010

5727
32354.2 26273.8
(CR) 62733.1
8
27406.7

Analysis:
Here unsecured loan is constantly high from 2010 to 2013.
Indian oil corporation limited ( IOCL).Unsecured loan is more
better than secured loan Because secured loan will be affect
the assets of the company in future period of time so the IOCL
has increasing the unsecured loan for reducing the risk of the
company . Most of the company has preferred the unsecured
debt which will not affect any assets of the company.
In some cases, IOCL may be able to reduce IOCL unsecured
debts by negotiating with creditors for a lower balance. Either
IOCL can talk to creditors on IOCL own, or IOCL can solicit the

help of a credit counseling

28

organization. In some cases, credit counselors can negotiate

with creditors better than debtors can. However, if IOCL
choose to work with a credit counselor make sure the
organization is reputable.

EARNING BEFORE INTEREST AND

TAX
Earnings before interest and tax A measure of a Indian oil
corporation limited (IOCL) earning power from ongoing
operations, equal to earnings before deduction of interest
payments and income tax. EBIT excludes income and
expenditure from unusual, non-recurring or discontinued
activities. In the case of a IOCL with minimal depreciation and
amortization activities, EBIT is watched closely by creditors,
since it represents the amount of cash that such a company
will be able to use to pay off creditors. also called operating
profit.
As

you can re-arrange the formula to be calculated as follows:

EBIT Revenue - COGS=

Operating Expenses

Also known as Profit before Interest & Taxes (PBIT), EBIT equals Net
Income with interest and taxes added back to it.
EBIT was the precursor to the EBITDA calculation, which

includes
depreciation and amortization expenses.

29

Financial managers spend a considerable amount of time

analyzing and understanding their EBIT. EBIT is short for
earnings before interest and taxes and is synonymous with
net operating income. EBIT is calculated by taking revenue
and subtracting cost of goods sold and all operating
expenses. The calculation is useful because it provides a look
at how profitable a business is before loan decisions and tax
considerations are included to arrive at net income. If you
plan on improving EBIT while holding sales constant, your only
option will be to reduce costs.

30

Earnings before interest and tax

20000
15000
(C
R)

10000
5000
0

2014
2013
2012
2011
2010
13359.4 12050.6 16773.8 11157.0 15057.9
( CR)
3
5
8
5
6

Analysis:
In 2014, the operating profit of Indian oil corporation limited
(IOCL) is Rs 13359.43 (Cr). But at present generally they are
earning average operating profits. so IOCL has try to reduce
the long term borrowed fund and issue the more share capital
to the shareholders in different areas.
Analyze

Indian

Oil

Corporation

limited

(IOCL)

internal

structure and look for areas where operations can be

centralized

or

more

productive.

For

instance,

labor

is

sometimes redundant or inefficiently organized. Writing out

your processes in a flow diagram can help you identify and
eliminate or reorganize them. Consider introducing new, longterm cost saving technologies for inventory, production and
sales. These systems can greatly increase efficiency, creating

costs savings.
31

EARING PER SHARE (EPS)

Earnings per share represent a portion of a company's profit
that is allocated to one share of stock. Therefore, if you were
to multiply the EPS by the total number of shares a company
has, you'd calculate the company's net income. EPS is a
calculation that many people who watch the stock market pay
attention to.

When calculating, it is more accurate to use a weighted

average number of shares outstanding over the reporting
term, because the number of shares outstanding can change
over time. However, data sources sometimes simplify the
calculation by using the number of shares outstanding at the
end of-the-period.

Diluted EPS expands on basic EPS by including the shares of

convertibles or warrants outstanding in the outstanding
shares number.

32

EPS of IOCL Shareholders from 2010

to 2014:
50
40
30
20
10
0 201 201 201 201
4
3
2
1
2010
28.9 20.6 16.2 30.6
(Rs) 1
1
9
7
42.1

Analysis:
In 2014, IOCL shareholders earned per share of Rs 28.91. But
in 2010, EPS was Rs 42.1. At that time shareholders of IOCL
was earned more than last year. So constantly decreasing the
earning capacity of shareholders of the IOCL, But still there
EPS is good if I compared to other companies.
IOCL is to increase earnings or decrease the number of
shares. In order to increase earnings, a business has to
increase revenues, reduce expenses or both. In order to

(R
s)

decrease the number of shares, do a share buyback from

shareholders.
33

LEVERAGE
The degree to which an investor or business is utilizing
borrowed money. Companies that are highly leveraged may
be at risk of bankruptcy if they are unable to make payments
on their debt; they may also be unable to find new lenders in
the future. Leverage is not always bad, however; it can
increase the shareholders ' return on investment and often
there

are

tax

advantages

associated

with

borrowing.

Components of leverage are:

LEVERAGE
Financial leverage
leverage

Operating

Financial leverage:
Financial leverage is a leverage created with the help of debt
component in the capital structure of a company. Higher the
debt, higher would be the financial leverage because with
higher debt comes the higher amount of interest that needs
to be paid. Leverage can be both good and bad for a business
depending on the situation. If a firm is able to generate a

higher return on investment (ROI) than the interest rate it is

paying, leverage will have its positive effect shareholders
return. The darker side is that if the said
34

situation is opposite, higher leverage can take a business to a

worst situation like bankruptcy. the Degree of Financial
Leverage (DFL) can be calculated with the following formula:
DFL = % Change in EPS / % Change in EBIT
Where EPS is the Earnings per Share and EBIT is the Earnings before interest
and Taxes.
Operating leverage:
Operating leverage, just like the financial leverage, is a result
of operating fixed expenses. Higher the fixed expense, higher
is the operating leverage.
Like the financial leverage had an impact on the shareholders
return or say earnings per share, operating leverage directly
impacts the operating profits (Profits before Interest and Taxes
(PBIT)). Under good economic conditions, due to operating
leverage, an increase of 1% in sales will have more than 1%
change in operating profits.
The formula used for determining the Degree of Operating Leverage or DOL
is as follows:
DOL = % Change in EBIT / % Change in Sales
So, Indian oil corporation limited (IOCL) need to be very
careful in adding any of the leverages to your business viz.
financial leverage or operating leverage as it can also work as
a double edged sword.

35

Degree Financial leverage of

IOCL:
2
1.5
1
(Ratio)
0.5
0
(Ratio)
1.61

2014 2013 2012 2011 2010

1.91

1.49

1.31 1.11

Analysis:
In 2014 degree of financial leverage of Indian Oil Corporation
limited (IOCL) ratio is 1.61 and it has constantly higher than
previous years.
By borrowing funds, the IOCL incurs a debt that must be paid.
But, this debt is paid in small installments over a relatively
long period of time. This frees funds for more immediate use.
Indian Oil Corporation limited that successfully uses leverage
demonstrates by its success that it can handle the risks
associated with carrying debt. This can become an important
factor when additional financing is needed. Not only will loans

more likely be available, but they will be available at more

attractive interest rates. Like individuals, companies with solid
financials.
36

Degree of Operating leverage of Indian Oil

Corporation
limited (IOCL):

1.15
1.1
1.05
1

(Ratio

0.95
0.9
(Ratio)
1.12

2014 2013 2012 2011 2010

1.14

1.09

1.13 1.01

Analysis:
In 2014 Indian oil corporation limited has degree of operating
ratio is 1.12
.which is constantly almost same from 2011 to 2014.
According to this chart IOCL having a good position in future
period of time. The more operating leverage a company has,
the more it has to sell before it can make a profit. IOCL with a
high operating leverage must generate a high number of
sales to cover high fixed costs, and as this sales increase, so
does the profitability of the company. Conversely, a company
with a lower operating leverage will not see a dramatic

improvement in profitability with higher volume, because

variable costs, or costs that are based on the number of units
sold, increase with volume.
37

Total leverage of Indian Oil

Corporation limited:

3
2.5
2
(Rati
o)

1.5
1
0.5
0

2014 2013 2012

(Ratio) 1.82

2.43

1.64

2011 2010
1.49

1.21

Analysis:
Combined or total leverage measures total risk of the Indian
oil

corporation

limited

(IOCL).

In

this

year

Indian

Oil

Corporation has minimum risk than last year which ratio was
2.43. In this diagram is measured by percentage change in
earning per share (EPS) due to percentage change in sales.
IOCL ask their existing shareholders to issuing common stock
rights. Stock rights allow existing shareholders to purchase
additional shares at below-market prices, in order to raise
equity. While this practice does improve a companys financial
strength, it also dilutes the current shareholders percentage

of ownership.

38

CHAPTER5:
CONCLUSION

3
9

FINDINGS
IOCL has issued less shares capital to the shareholders,

constantly from 2010 to 2014. IOCL does not fulfill the of

authorized share capital which is mention in memorandum of
association.
IOCL, Preference share and Debenture not existent in the
industry.

The return on investment ratio of IOCL is the lowest

among its competitors which imply that the degree of

efficiency of IOCL in utilizing the funds entrusted by
shareholders and long term creditors is lower than its
competitors.
IOCL has maximum no of total debts in the period of 2014,
if I compared with previous years.

In 2014, unsecured loan is constantly higher than previous

years.

In 2014, IOCL has maintained the secured loan amounts.

Which is mostly remain same with previous years.

EBIT is very less in 2014; it is constantly decreasing from

2010 to 2014.

In 2014, earning per share (EPS) value is Rs 28.91, which

is higher than 2013 but overall five years, IOCL shareholders
has earned minimum EPS in 2014.

IOCL has Degree of operating leverage almost same with

last five years. IOCL having a good position in future period

of time.

40

In 2014, degree of financial leverage is very high than

previous years, IOCL incurs a debt that must be paid. But,

this debt is paid in small installments over a relatively long
period of time.
The overall efficiency of IOCL is higher than those of its
competitors in previous years of comparison.

SUGGESTIONS
The company should utilize the debt funds more efficiently
to maximize shareholders return.

Increasingly firms are moving from secured debt to

unsecured debt in order to free their assets.

For IOCL, to issue maximum number of share to the public

and they have to reduce the share price is minimum. And

IOCL try to fulfill the limit of authorized share capital.
IOCL have to reduce total debts of the company against of
issuing more share to the public.

IOCL, Need to minimize the degree of financial leverage

.otherwise which will be affect in future period of time.

The company should try to increase the profit before

interest and tax so that the Investments in the firm are

attractive as the investors would like to invest only where
the return is higher.

41

The company can invest in marketable securities to

improve its cash position.

IOCL can try to reduce the secured loan because
secured loan can be affect the assets of the company in
future.

LIMITATIONS OF THE STUDY

1

The scope of the study is limited to Guwahati Refinery.

Time taken to complete the study is very limited.

The analysis of the analysis of the companies and
suggestion totally depends upon the information shared.

Non-monetary aspects are not considered making the

results unreliable.

CONCLUSION
From the above discussion it can be concluded that Indian Oil
Corporation limited running with low debt fund. Therefore, they
may increase it to get benefits of low cost capital. It has found
that IOCL largely employing shareholders funds in their as sets it
has crossed even 100% in the first two years. Moreover EOL is on
high degree financial risk. Therefore, they may reduce the debt
capital and employ more equity fund. The study undertaken has
brought in to the light of the following conclusions. According to
this project I came to know that from the analysis of capital
structure analysis it is clear that Indian Oil Corporation Ltd have
been doing a satisfactory job. But the firm has certain areas to
ponder upon like capital employment. So the firm should focus on
getting of profits in the coming years by taking care internal as

well as external factors. And with regard to resources, the firm is

take utilization of the borrowed fund in a right place.
42

BIBLIOGRA
PHY

4
3

WEBSITE REFERENCES:
1

www.moneycontrol.com

www.iocl.com

BOOKS REFERENCES:

K.R Das, Priti chandna B.B Dam, & Anju Kakoty

st

Edition (2013):Financial Statement Analysis.

THANK YOU

44

Financial statements of Indian Oil Corporation Ltd.

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