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Investment decision.
Financing decision.
INVESTMENT DECISION
It is also known as capital budgeting. It involves the decision of allocation of capital
or commitment of funds to long term assets that would yield benefit in future. It is a
significant aspect in taking and measuring the prospective profitability of investments.
FINANCING DECISION
It is the second important function to be performed by the financial manager. He must
strive to obtain the best financial mix or optimum capital structure for his firm. A proper
balance will have to be struck between investment and risk.
DIVIDEND DECISION
It is the third financing decision. The finance manager should decide whether the firm
should distribute all profits or retain them or distribute a portion to retain their balance. The
optimum dividend policy is to maximize the market shares.
LIQUIDIY DECISION
Current asset management affects the firms liquidity is yet other important finance
function. Current assets should be managed efficiently for safeguarding the firm against the
dangers of illiquidity and insolvency. Investment in current assets affects the firms
profitability, liquidity and risk. Thus a proper trade off must be achieved between
profitability and liquidity.
IMPORTANCE OF THIS STUDY
The subject matter of financial management is of immense interest for every financial
analyzer. It needs special attention because of the complexities involve in managing cash in
present day industrial function.
2
Here the study tries to reveal the companys position and performance by
evaluating the relationship between various components parts of financial
statements.
Ration analysis has been taken as a tool in assessing the performance of the company
in respect of the following aspects.
Liquidity Position.
Long-term solvency.
Profitability.
Activity.
FINANCE DEPARTMENT
The functions within the finance department are diverse with distinction procedure for
accounts related to personnel, purchase, costing, budgets, tax and duties, audit, general a/c,
bank and payroll, bills etc.
Payroll Section Functions
Effect various recoveries through payroll and remit the same to concerned
agencies.
BUDGET SECTION
Budget preparation- every year two separate budgets are prepared
Both the budget is usually prepared during September/ October every year. Two types
of estimates are prepared for both the budget i.e., the Revise Estimate (RE) and budget
Estimate (BE). RE is the revised budget for the current year and BE is the budget for the next
year.
GENERAL ACCOUNTING SECTION
Ledger scrutiny
On the financial front, the Net income form Sales/operations grew from IN 2687
crores in 1984-85 to IN 2,06,529 crores in financial year 2012-13. During FY 2013-14, its net
profit was IN 1740 crores.
Operations
HPCL operates two 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 of 8.3
MMTPA. HPCL holds an equity stake of 16.95% in Mangalore Refinery & Petrochemicals
Limited (MRPL), a state-of-the-art refinery at Mangalore with a capacity of 9 MMTPA.
Another Refinery of 9 MMTPA, set up in Bathinda, Punjab by HMEL, a Joint Venture with
Mittal Energy Investments Pte.Ltd. HMEL has commenced commercial operations.
HPCL has signed a MOU with Government of Rajasthan for setting up a Refinery
near Barmer in Rajasthan. It would be operated under a JV Company called HPCL-Rajasthan
Refinery Limited.HPCL also owns and operates the largest lube refinery in India producing
Lube Base Oils of international standards, with a capacity of 335 TMT. This lube refinery
accounts for over 40% of India's total lube base oil production.
Presently HPCL produces over 300+ grades of lubes, specialities and greases. The
marketing network of HPCL consists of 13 zonal offices in major cities and 101 regional
offices facilitated by a Supply & Distribution infrastructure comprising Terminals, Aviation
Service Facilities, LPG Bottling Plants, Lube filling plants, Inland Relay Depots, Retail
Outlets (Petrol Pumps) and LPG & Lube Distributorships. HPCL has state of art information
technology infrastructure to support its core business. The data center is located at Hitech city
in Hyderabad.
Products
1. Petrol : Known as Motor Spirit (MS) in Oil Industry. HPCL markets the product
through its retail pumps spread all over India. Its principle consumers are regular
personal vehicle owners.
2. Diesel : Known as High Speed Diesel (HSD) in Oil Industry. HPCL markets the
products through its retail pumps as well as terminals and depots. Its consumers are
not only regular auto owners but also transport agencies, industries etc.
3. Lubricants : Riding on its brand - HPLubes, HPCL is the market leader in lubricant
and associated products. It commands over 30% of market share in this sector. The
popular brands of HP lubes are Laal Ghoda, Milcy, Thanda Raja, Koolgard, Racer4,
etc.
4. LPG : HPGAS, The HPCL brand of LPG is a popular brand across India for domestic
and industrial uses.
5. Aviation Turbine Fuel With major ASF(Air Service Facility) present in all major
airports of India. HPCL is a key player in this sector supplying ATF to major airlines.
It has an accomplishment of sorts to supply fuel to US Air Force 1.
6. Bitumen & Furnace Oil
Refineries
HPCL has a number of refineries in India. Some are listed below:
1. Mumbai Refinery - 6.5 Million Metric Tonnes (MMT) Capacity
2. Visakhapatnam Refinery - 8.3 MMT at Visakhapatnam
3. Mangalore Refinery Pvt. Ltd. - 9.69 MMT at Mangalore, Karnataka(HPCL has
16.65% Stake).
7
4. Guru Gobind Singh Refinery - 9 MMT at Bathinda, Punjab (HPCL & Mittal Energy
each have 49% stake).
5. Barmer Refinery -9 MMT Capacity. It is a Joint Venture with Rajasthan Government.
International rankings
1. HPCL is a Fortune Global 500 company as per the ranking of 2013 and was ranked at
position 259.
1. HPCL was featured on the Forbes Global 2000 list for 2013 at position 1217
1. It is 10th most valuable brand in India according to an annual survey conducted by
Brand Finance and The Economic Times in 2010.
Recognition and awards
1. NDTV Profit Business Leadership Award
2. Readers Digest Trusted Brand Asia Platinum Award
3. Golden Peacock Corporate Governance Award 2008
4. CIO 100 Award 2008
5. India Star Award
6. OISD Safety Award
7. National Award For Excellence In Cost Management
8. Greentech Environment Excellence Award 2008
9. Best HR Practices in People Management
Industry
Petroleum Refining
Nishi Vasudeva
Sector
Energy
Established on
1974
Products
Location
Mumbai, India
Website
http://www.hindustanpetroleum.com
Telephone Number
08577-200166
help@hindustanpetroleum.com
Employees
10634
10
Ratio analysis reveals only the past performance of firm it is not necessary that the
same conditions have to be repeated in the future.
The finding of the study are based only upon the Hindustan Petroleum Corporation
Limited finding of this study may not be generalized.
Since the study is based on the secondary data, all the limitation of secondary date
is applicable for this study also.
11
6. REVIEW OF LITERATURE
Literature Review was done by referring previous studies, articles and books to know
the areas of study and analyze the gap or study not done so far.
Mahes chand garg (2002) 1, he made a study on Determinants of capital structure in India
in selected cotton, chemical, engg,. The conclusion is that assets composition collateral value
life corporate sizes are most significant factors in deciding capital structure of these industries.
Barnes (2002) 2, points out for statistical testing that the residual is typically heteroscedastic.
For a discussion also see Garcia-Ayuso. The second model in McDonald and Morris is Y(i) =
b'X(i) + e'(i) that is without the intercept to tackle heteroscedasticity. Dropping the intercept
from the model is not always enough to treat the heteroscedasticity .
Gombola & Kertz (2003) 3, - include cash-flow based financial ratios in their factorization of
40 financial ratios for a sample of 119 Compustat.. Contrary to the earlier studies, the cashflow based financial ratios load on a distinct factor. The results are not sensitive to using
historical costs vs. general price-level adjusted data. Similar results on the empirical
distinctiveness of cash flow ratios are later obtained in a study that also introduces marketbased ratios to the analysis.
M.Radha (2003) 4, made a comparative study on The capital structure and profitability of
India Airlines and Air India. She found that return on capital employed, liquidity and
turnover were positively associated with debt equity ratio. She suggested that both the
corporations should try to use less interest bearing loans.
12
Christopher.j. green, victor murinde and joy suppakitjarak (2003) 5, analysed The
financial structure of quoted and unquoted Indian non-financial companies comparatively
using sources, user approach and asset liability approach. According to them, unquoted
companies heavily relied on internal funds than quoted companies.
Fosberg (2004)
Corporate Governance, 4(1):31-38. Found that the debt ratio decreases as agency costs
decrease because of an increasing proportion of ownership by management, and that those
banks with fewer shareholders have more debt than banks with many shareholders. The link
between fewer shareholders and more debt suggests that shareholders, who are able to
influence capital structure in their favors, do so in a way that increases the level of debt.
Parkar (2004) 7, - studied the size of the capital structure analysis is and its components and
management in factoring companies. They also studied the correlation between and
profitability of factoring companies. They concluded that the sundry debtors amount due to
creditors are the major component of current assets current liability respectively in
determining the size of the financial analysis.
Ezzamel, Brodie & Mar-Molinero (2004) 8, -detect instability in the factors of financial
ratios for a sample of UK banks.
5. Christopher.j. green, victor murinde and joy suppakitjarak (2003) The financial structure of quoted and
unquoted Indian non-financial companies
6. Fosberg (2004) - Agency problems and debt financing: leadership structure effects,
7. Parkar (2004)- Financial analysis is and its components and management in factoring companies
8. Ezzamel, Brodie & Mar-Molinero (2004) Financial ratios for a sample of UK banks
13
McDonald & Morris (2004-2005) 9, - present the first extensive empirical studies of the
statistical validity of the financial ratio method. The authors use three models with two
samples, one with a single industry the other with one randomly selected bank from each
(four-digit SIC) industry branch to investigate the implications of homogeneity on
proportionality.
The first model is the traditional model for replacement of financial ratios by bivariate
regression, with intercept Y(i) = a + bX(i) + e(i). The above model is central in this area. It is
characteristic that the testing for proportionality is considered in terms of testing the
hypothesis H0: a = 0.
Graham (2005) 10, - How big are the tax benefits of debt? The Journal of Finance, found
that companies with unique products, low asset collateral or large future growth opportunities
in other words, banks at early stages of development (infancy to adolescence) tend to have
lower levels of debt than banks in the stable or aristocracy life stages.
Buijink & Jegers (2006) 11, - studies the financial ratio distributions from year to year from
2003 to 2006 for 11 ratios in Belgian banks corroborating the results of the earlier papers in
the field. Refined industry classification brings less extreme deviation from normality. They
also point to the need of studying the temporal persistence of cross-sectional financial ratio
distributions and suggest a symmetry index for measuring it.
9. McDonald & Morris (2004-2005) Financial report on statistical validity of the financial ratio method.
10. Graham (2005) - The Journal of Finance How big are the tax benefits of debt for
companies.
11. Buijink & Jegers (2006) The studies the financial ratio distributions from year to year from 2003 to 2006
14
Carlos Correia (2012)12, from his study it is concluded that any analysis of the firm, whether
by management, investors, or other interested parties, must include an examination of the
companys financial data. The most obvious and readily available source of this information
is the firms annual report. The financial statements shall, in conformity with generally
accepted accounting practice for the financial year.
Greninger et al.(2010)13, identified that refined financial ratios using a Delphi study in the
areas of liquidity, savings, asset allocation, inflation protection, tax burden, housing expenses
and, insolvency. Based on the Delphi findings, they proposed a profile of financial wellbeing for the typical family and individual.
Rachchh Minaxi A (2011)14, he suggested that the financial statement analysis involves
analyzing the financial statements to extract information that can facilitate decision making.
It is the process of evaluating the relationship between component parts of the financial
statements to obtain a better understanding of an entitys position and performance.
Susan Ward (2013)15, emphasis that financial analysis using ratios between key values help
investors cope with the massive amount of numbers in company financial statements. For
example, they can compute the percentage of net profit a company is generating on the funds
it has deployed. All other things remaining the same, a company that earns a higher
percentage of profit compared to other companies is a better investment option.
15
M Y Khan & P K Jain (2011)16, from his study it is concluded that the Financial statements
provide a summarized view of the financial position and operations of a firm. Therefore, much
can be learnt about a firm from a careful examination of its financial statements as invaluable
documents / performance reports. The analysis of financial statements is, thus, an important
aid to financial analysis.
Jonas Elmerraji (2014)17, tries to say that ratios can be an invaluable tool for making an
investment decision. Even so, many new investors would rather leave their decisions to fate
than try to deal with the intimidation of financial ratios. The truth is that ratios aren't that
intimidating, even if you don't have a degree in business or finance.
Elizabeth Duncan and Elliott (2014)18, form his study he stated that the paper in the title of
efficiency, customer service and financing performance among Australian financial
institutions showed that all financial performance measures as interest margin, return on
assets, and capital adequacy are positively correlated with customer service quality scores.
T.S.Reddy and Y. Hari Prasad Reddy (2009)19, have stated that The statement disclosing
status of investments is known as balance sheet and the statement showing the result is known
as profit and loss account
Chidambaram Rameshkumar & Dr. N. Anbumani (2011)20, he argue that Ratio Analysis
enables the business owner/manager to spot trends in a business and to compare its
performance and condition with the average performance of similar businesses in
the same industry.
16. M Y Khan & P K Jain (2011) - Capital structure and capital performance
17. Jonas Elmerraji (2014) - Financial statement analysis
18. Elizabeth Duncan and Elliott (2014) Finance performance analysis through Australian finance magazine
19 T.S.Reddy and Y. Hari Prasad Reddy (2009) Financial statements and investments.
20.Chidambaram Rameshkumar & Dr. N. Anbumani (2011)-Finance and Ratio Analysis.
16
7. RESEARCH METHODOLGY
The data that has been collected from various sources and presented in the form of
materialistic information is known as research methodology. Research methodology is a
systematic way to solve any research problem. It may be understood as a science of studying
how research is done scientifically.
RESEARCH DESIGN
This research study adopts an Empirical research methodology. Such research is often
conducted to answer a specific question or to test a hypothesis. Any conclusions drawn are
based upon hard evidence gathered from information collected from real life experiences or
observations. This helps to understand and respond to dynamics of situations. This research is
widely used in stock market research, analysis of financial statement, and other socio-science
related researches.
DATA COLLECTION METHOD
Data collection methods are an integral part of research design. Problems researched
with the use of appropriate methods greatly enhance the value of the research. In this study,
the data are collected from the secondary sources. Secondary data are indispensable for most
organizational research. Such data can be internal or external to the organization and accessed
through the internet or perusal of recorded or published information. Secondary data can be
used, among other things, for forecasting sales by considering models based on past sales
figures, and through extrapolation.
There are several sources of secondary data, including books and periodicals,
government publications of economic indicators, census data, statistical abstracts, databases,
the media, annual reports of companies, etc.
17
Also included in secondary sources are schedules maintained for or by key personnel
in organizations, the desk calendar of executives, and speeches delivered by them. Much of
such internal data, though, could be proprietary and not accessible to all. The advantage of
seeking secondary data sources is savings in time and costs of acquiring information. Hence
it is important to refer to sources that offer current and up-to-date information. For this
research, the data is collected from the annual reports of the company from the year 20122015. The annual report can be considered as the most important and reliable source of
financial data.
TOOLS USED
The following are the financial tools used for analysis and interpretation of this study
which is based on receivables management.
Ratios.
Liquidity ratio
Profitability ratio
Activity ratio
Leverage ratio
18
1. Liquidity ratio
Current ratio
Quick ratio
2. Profitability ratio
Operating profit
3. Activity ratio
Collection period
4. Leverage ratio
Debt ratio
19
Ratio analysis of financial statements stands for the process of determining and
presenting the relationship of items and group of items in the statements. Ratio analysis can
be used both in trend analysis and static analysis. A creditor would like to know the ability of
the company, to meet its current obligation and therefore would think of current and liquidity
ratio and trend of receivable.
Major tool of financial are thus ratio analysis and Funds Flow analysis.
20
LIQUIDITY RATIOS
CURRENT RATIO
Current ratio is also known as short-term solvency ratio or working capital ratio.
Current ratio is used to assess the short-term financial position of the business. Current assets
are cash and those cash equivalent of a business which can be converted into cash within a
short period of time not exceeding a year. Cash in hand, cash at bank, bills receivables,
sundry debtors, accrued incomes, prepaid expenses, inventory, short term loans provided,
advance given etc are the examples of current assets.
Current liabilities are those obligations of a business, which are to be paid within in a
short period of time not exceeding a year. Bills payable ,sundry creditors, short term loan
taken, income tax payable, dividend payable, advance incomes, accrued expenses are the
examples of current liabilities. In other words, it is an indicator of the firm's ability to meet its
short-term obligations. Current ratio is calculated by using following formula:
Current assets
Current ratio
=
Current liabilities
21
TABLE NO: 1
TABLE SHOWING CURRENT RATIO
Year
Current Asset
Current Liability
Ratio
(in Rs)
(in Rs)
2010-2011
19,778.16
22,687.45
0.871
2011-2012
23,246.07
28,524.19
0.815
2012-2013
21,520.87
27,760.56
0.775
2013-2014
24,276.07
28,306.24
0.857
2014-2015
16,592.38
31,493.92
0.527
INTERPRETATION
The above table reveals the current ratio in Hindustan Petroleum Corporation. Current
ratio shows in the year 2010-2011, 2011-2012, 2012-2013, 2013-2014 and 2014-2015 is
0.871, 0.815, 0.775, 0.857 and 0.527. The ratio increased from 2010-2011 (0.871) to 20112012 (0.815). Then the ratio decreased to 0.775 during 2012-2013. Then it increased during
the year 2013-2014 (0.857) and decreased to 0.527 during 2014-2015.
22
CHART NO: 1
CURRENT RATIO
0.871%
0.857%
0.815%
0.900%
0.775%
0.800%
0.700%
0.527%
Ratio
0.600%
0.500%
0.400%
0.300%
0.200%
0.100%
0.000%
2010-2011
2011-2012
2012-2013
Year
23
2013-2014
2014-2015
QUICK RATIO
Quick ratio is another measure of a company's liquidity. Quick ratio is also known as
liquid ratio or acid test ratio.
This ratio is used to assess the firms short term liquidity. The relationship of liquid
asset to current liabilities is known as quick ratio. It is otherwise called as liquid ratio or acid
test ratio.
However, although it is used to test the short-term solvency or liquidity position of the
firm, it is a more stringent measure of liquidity than the current ratio.
Liquid assets
Quick Ratio
=
Current Liabilities
24
TABLE NO: 2
TABLE SHOWING QUICK RATIO
Year
Quick Asset
Current Liability
Ratio
(in Rs)
(in Rs)
2010-2011
12470.78
22,687.45
0.549
2011-2012
11047.21
28,524.19
0.388
2012-2013
5145.51
27,760.56
0.185
2013-2014
12331.72
28,306.24
0.436
2014-2015
9412.83
31,493.92
0.299
INTERPRETATION
The above table reveals the Quick ratio in Hindustan Petroleum Corporation. Quick
ratio shows in the year 2010-2011, 2011-2012, 2012-2013, 2013-2014 and 2014-2015 is
0.549, 0.388, 0.185, 0.436 and 0.299. The ratio decreased from 2010-2011 (0.549) to 20112012 (0.388). Then the ratio decreased to 0.185 during 2012-2013. Then it increased during
the year 2013-2014 (0.436) and decreased to 0.299 during 2014-2015.
25
CHART NO: 2
QUICK RATIO
0.600%
0.549%
0.500%
0.436%
0.388%
0.400%
Ratio
0.299%
0.300%
0.185%
0.200%
0.100%
0.000%
2010-2011
2011-2012
2012-2013
Year
26
2013-2014
2014-2015
Sales
Net Working Capital
=
Working Capital
27
TABLE NO: 3
TABLE SHOWING WOKING CAPITAL TURNOVER RATIO
Year
Sales
Working Capital
Times
(in Rs)
(in Rs)
2010-2011
133,671.82
1,981.84
67.448
2011-2012
178,335.82
1,583.10
112.649
2012-2013
206,731.26
2,525.56
81.855
2013-2014
223,271.33
2,030.30
109.969
2014-2015
206,626.18
2,414.66
85.571
INTERPRETATION
The above table reveals the working capital turnover ratio in Hindustan Petroleum
Corporation. Working capital turnover ratio shows in the year 2010-2011, 2011-2012, 20122013, 2013-2014 and 2014-2015 is 67.448, 112.649, 81.855, 109.969 and 85.571. The ratio
increased from 2010-2011 (67.448) to 2011-2012 (112.649).
28
CHART NO: 3
CHART SHOWING NET WORKING CAPITAL RATIO
112.649%
109.969%
120.000%
85.571%
100.000%
81.855%
Ratio
80.000%
67.448%
60.000%
40.000%
20.000%
0.000%
2010-2011
2011-2012
2012-2013
Year
29
2013-2014
2014-2015
PROFITABILITY RATIOS
GROSS PROFIT RATIO
Gross profit margin shows the company can return income at the gross level. This
ratio helps to control inventory usage and production performance and fixing unit price of
goods. Firm must control production expenses such as raw material, freight and transport
expenses to have good gross profit margin.
This ratio determines the overall efficiency of the business. The relationship of gross
profit to sales is known as net profit ratio.
Gross profit
Gross Profit Ratio
100
Net sales
30
TABLE NO: 4
TABLE SHOWING GROSS PROFIT RATIO
Year
Gross Profit
Net Sales
Times
(in Rs)
(in Rs)
2010-2011
2,352.97
133,671.82
1.75
2011-2012
1,219.73
178,335.82
0.68
2012-2013
1,361.17
206,731.26
0.65
2013-2014
2,673.88
223,271.33
1.19
2014-2015
4,149.65
206,626.18
INTERPRETATION:
The above table reveals the gross profit ratio in Hindustan Petroleum Corporation.
gross profit ratio shows in the year 2010-2011, 2011-2012, 2012-2013, 2013-2014 and 20142015 is 1.75,0.68,0.65,1.19 and 2.
31
CHART NO: 4
GROSS PROFIT RATIO
2.00%
2.00%
1.75%
1.50%
Ratio
1.19%
1.00%
0.68%
0.65%
0.50%
0.00%
2010-2011
2011-2012
2012-2013
Year
32
2013-2014
2014-2015
This ratio determines the overall efficiency of the business. The relationship of net
profit to sales is known as net profit ratio.
Net profit
Net Profit Ratio
100
Net sales
33
TABLE NO: 5
TABLE SHOWING NET PROFIT RATIO
Year
Net Profit
Net Sales
Times
(in Rs)
(in Rs)
2010-2011
1,539.01
133,671.82
0.011
2011-2012
911.43
178,335.82
0.005
2012-2013
904.71
206,731.26
0.004
2013-2014
1,733.77
223,271.33
0.007
2014-2015
2,733.26
206,626.18
0.013
INTERPRETATION:
The above table reveals the net profit ratio in Hindustan Petroleum Corporation. Net
profit ratio shows in the year 2010-2011, 2011-2012, 2012-2013, 2013-2014 and 2014-2015
is 0.0110,0.005,0.004,0.007 and 0.013.
34
CHART NO: 5
NET PROFIT RATIO
0.013%
0.014%
0.012%
0.011%
0.010%
0.007%
Ratio
0.008%
0.005%
0.006%
0.004%
0.004%
0.002%
0.000%
2010-2011
2011-2012
2012-2013
Year
35
2013-2014
2014-2015
This ratio determines the operating efficiency of the business concern. Operating ratio
measure the amount of expenditure incurred in production, sales and distribution of output.
The relationship between operating cost to sales is known as operating ratio.
Operating Ratio
100
Net sales
36
TABLE NO: 6
TABLE SHOWING OPERATING PROFIT RATIO
Year
Operating Profit
Net Sales
Ratio
(in Rs)
(in Rs)
2010-2011
3,481.32
133,671.82
0.026
2011-2012
4,131.34
178,335.82
0.023
2012-2013
4,261.66
206,731.26
0.020
2013-2014
5,237.73
223,271.33
0.023
2014-2015
5,666.59
206,626.18
0.027
INTERPRETATION:
The above table reveals the operating profit ratio in Hindustan Petroleum Corporation.
Operating profit ratio shows in the year 2010-2011, 2011-2012, 2012-2013, 2013-2014 and
2014-2015 is 0.026,0.023,0.020,0.023 and 0.027. The ratio decreased from 2010-2011
(0.026) to 2011-2012 (0.023). Then the ratio decreased to 0.020 during 2012-2013. Then it
increased during the year 2013-2014 (0.023) and again increased to 0.027 during 2014-2015.
37
CHART NO: 6
OPERATING PROFIT RATIO
0.027%
0.030%
0.026%
0.023%
0.023%
0.025%
0.020%
Ratio
0.020%
0.015%
0.010%
0.005%
0.000%
2010-2011
2011-2012
2012-2013
Year
38
2013-2014
2014-2015
ACTIVITY RATIOS
Receivables constitute a significant portion of the total assets of the business. When a
firm seller goods or services on credit, the payments are postponed to future dates and
receivables are created. If they sell for cash no receivables created.
Meaning
Receivable are asset accounts representing amounts owed to the firm as a result of
sale of goods or services in the ordinary course of business.
Purpose of receivables
Accounts receivables are created because of credit sales. The purpose of receivables is
directly connected with the objectives of making credit sales. The objectives of credit sales
are as follows
Increasing profits.
Meeting competition.
The main factors that affect the size of the receivables are
Level of sales.
Credit period.
Cash discount.
39
Capital costs
This is because there is a time lag between the sale of goods to customers and the
payment by them. The firm has, therefore to arrange for additional funds to meet its
obligations.
Administrative costs
Firm incur this cost for manufacturing accounts receivables in the form of salaries to
the staff kept for maintaining accounting records relating to customers.
Collection costs
The firm has to incur costs for collecting the payments from its credit customers.
Defaulting costs
The firm may not able to recover the over dues because of the inability of customers.
Such debts treated as bad debts.
Receivables management
Receivables are direct result of credit sale. The main objective of receivables
management is to promote sales and profits until that point is reached where the ROI in
further funding of receivables is less than the cost of funds raised to finance that additional
credit (i.e.; cost of capital). Increase in receivables also increases chances of bad debts. Thus,
creation of receivables is beneficial as well as dangerous.
40
Ratio Analysis is one of the important techniques that can be used to check the
efficiency with which receivables management is being managed by a firm. The most
important ratios for receivables management are as follows.
41
This ratio is otherwise called as stock turnover ratio. It indicates whether stock has
been efficiently used or not. It establishes the relationship between the cost of goods sold
during a particular period and the average amount of stock in the concern.
=
Average Inventory
42
TABLE NO: 7
TABLE SHOWING INVENTORY TURNOVER RATIO
Year
Net Sales
Inventories
Times
(in Rs)
(in Rs)
2010-2011
133,671.82
16,622.28
8.041
2011-2012
178,335.82
19,454.53
9.167
2012-2013
206,731.26
16,438.70
12.546
2013-2014
223,271.33
18,775.41
11.891
2014-2015
206,626.18
12,972.26
15.928
INTERPRETATION
The above table reveals the inventory turnover ratio in Hindustan Petroleum
Corporation. Inventory turnover ratio shows in the year 2010-2011, 2011-2012, 2012-2013,
2013-2014 and 2014-2015 is 8.041, 9.167, 12.546, 11.891 and 15.928. The ratio increased
from 2010-2011 (8.401) to 2011-2012 (9.167).
43
CHART NO: 7
INVENTORY TURNOVER RATIO
15.928%
16.000%
12.546%
14.000%
11.891%
12.000%
9.167%
Ratio
10.000%
8.041%
8.000%
6.000%
4.000%
2.000%
0.000%
2010-2011
2011-2012
2012-2013
Year
44
2013-2014
2014-2015
To solve the difficulty arising out of the non-availability of the information in respect
of credit sales and average debtors the alternative method is to calculate the debtors turnover
in terms of relationship between total sales and closing balance of debtors.
In other words, the DTR is a test of the liquidity of the debtors of a firm. The liquidity
of firms receivables can be examined in two ways they are DTR and Average Collection
Period.
=
Average Trade Debtors
45
TABLE NO: 8
TABLE SHOWING DEBTORS TURNOVER RATIO
Year
Total Sales
Debtors
Times
(in Rs)
(in Rs)
2010-2011
133,671.82
23,629.09
5.657
2011-2012
178,335.82
27,479.25
6.489
2012-2013
206,731.26
32,458.27
6.369
2013-2014
223,271.33
31,930.05
6.992
2014-2015
206,626.18
17,055.64
12.115
INTERPRETATION
Debtors constitute an important constituent of current assets and therefore the quality
of the debtors to a great extent determines a firms liquidity. It shows how quickly
receivables or debtors are converted into cash. The higher the ratio, the better it is, since it
would indicate that debts are being collected promptly. The above table reveals the debtors
turnover ratio in Hindustan Petroleum Corporation. Debtors turnover ratio shows in the year
2010-2011, 2011-2012, 2012-2013, 2013-2014 and 2014-2015 is 5.657,6.489,6.369,6.992
and 12.115.
46
CHART NO: 8
DEBTORS TURNOVER RATIO
14.000%
12.115%
12.000%
10.000%
Ratio
8.000%
6.992%
6.489%
6.369%
5.657%
6.000%
4.000%
2.000%
0.000%
2010-2011
2011-2012
2012-2013
Year
47
2013-2014
2014-2015
Days/months in a year
Debt collection period = _______________________________
Debtors turnover ratio
48
TABLE NO: 9
TABLE SHOWING DEBT COLLECTION PERIOD
Debt collection
Year
Days
365
5.657
2010-2011
365
6.489
2011-2012
365
6.369
2012-2013
365
6.992
2013-2014
365
12.115
2014-2015
64.27
56.31
57.38
52.20
30.12
INTERPRETATION
49
CHART NO: 9
DEBT COLLECTION PERIOD
70.00%
64.27%
57.38%
56.31%
60.00%
52.20%
50.00%
40.00%
Ratio
30.12%
30.00%
20.00%
10.00%
0.00%
2010-2011
2011-2012
2012-2013
Year
50
2013-2014
2014-2015
LEVERAGE RATIOS
DEBT RATIO
A company may raise debt in various ways. It may be in the form of debenture or loan
borrowed from financial or public institutions for a certain period of time at a specific rate of
interest. The debenture or bond may be issued at par, discount or premium. If forms the basis
for calculating cost of debt.
Formula
Interest
Debt ratio
100
Total debt
51
TABLE NO: 10
TABLE SHOWING DEBT RATIO
Year
Interest
Total debt
Cost of debt
( in Rs)
( in Rs)
( in % )
892.06
23,629.09
3.77
2,224.27
27,479.25
8.09
2,019.33
1832,458.27
0.11
1,336.36
31,930.05
4.18
706.59
17,055.64
4.13
2010-2011
2011-2012
2012-2013
2013-2014
2014-2015
Source: Secondary data
INTERPRETATION
The above table depicts the cost of debt in Hindustan Petroleum Corporation It was
clear that the cost of debt shows a fluctuating trend during the five years of the study period.
The cost of debt was high in the year 2011-2012 with 8.09% and low in the year 2012-2013
with 0.11%. The ratio decreased from 2010-2011 (3.77) to 2011-2012 (8.09). Then the ratio
decreased to 0.11 during 2012-2013. Then it increased during the year 2013-2014 (4.18) and
decreased to 4.13 during 2014-2015.
52
CHART NO: 10
DEBT RATIO
8.09%
9.00%
8.00%
7.00%
Ratio
6.00%
4.18%
5.00%
4.13%
3.77%
4.00%
3.00%
2.00%
0.11%
1.00%
0.00%
2010-2011
2011-2012
2012-2013
Year
53
2013-2014
2014-2015
Total Liabilities
Debt Equity Ratio
=
Shareholders Equity
54
TABLE NO: 11
TABLE SHOWING DEBT EQUITY RATIO
Year
Share Fund
Ratio
(in Rs)
(in Rs)
2010-2011
36,174.90
339.01
106.707
2011-2012
40,601.77
339.01
119.765
2012-2013
46,184.67
339.01
136.233
2013-2014
46,942.21
339.01
138.468
2014-2015
33,077.73
339.01
97.571
INTERPRETATION:
The above table reveals the debt equity ratio in Hindustan Petroleum Corporation.
Debt equity ratio shows in the year 2010-2011, 2011-2012, 2012-2013, 2013-2014 and 20142015 is 0.347,0.323 ,0.2970.319 and 0.484. The ratio increased from 2010-2011 (106.707) to
2011-2012 (119.765). Then the ratio increased to 136.233 during 2012-2013. Then it
increased during the year 2013-2014 (138.468) and decreased to 97.571 during 2014-2015.
55
CHART NO: 11
DEBT EQUITY RATIO
136.233%
138.468%
140.000%
119.765%
120.000%
106.707%
97.571%
100.000%
Ratio
80.000%
60.000%
40.000%
20.000%
0.000%
2010-2011
2011-2012
2012-2013
Year
56
2013-2014
2014-2015
57
TABLE NO: 12
TABLE SHOWING CAPITAL EMPLOYED NETWORTH
Year
Total assets
Current liabilities
(in Rs)
(in Rs)
2010-2011
36,174.90
22,687.45
13,487.45
2011-2012
40,601.77
28,524.19
17,922.42
2012-2013
46,184.67
27,760.56
18,424.11
2013-2014
46,942.21
28,306.24
18,635.97
2014-2015
33,077.73
31,493.92
1,583.81
INTERPRETATION:
The above table reveals the debt equity ratio in Hindustan Petroleum Corporation.
Debt equity ratio shows in the year 2010-2011, 2011-2012, 2012-2013, 2013-2014 and 20142015 is 13,487.45,17,922.42,18,424.11,18,635.97 and 1,583.81. The ratio increased from
2010-2011 to 2011-2012.
58
CHART NO: 12
CAPITAL EMPLOYED NETWORTH
17,922.42
20,000.00
18,424.11
18,635.97
18,000.00
16,000.00
13,487.45
14,000.00
Ratio
12,000.00
10,000.00
8,000.00
6,000.00
1,583.81
4,000.00
2,000.00
0.00
2010-2011
2011-2012
2012-2013
Year
59
2013-2014
2014-2015
9. FINDINGS
The following are the findings interpreted through financial performance analysis of
Hindustan Petroleum Corporation.
Current ratio was low during 2014-2015 with 0.527 % and high during 2010-2011
with 0.871 %
Quick ratio was high during 2010-2011 with 0.549 and low during 2012-2013
with the value 0.185
Working capital turnover ratio is low during 2010-2011 with the value 67.448 and
high during 2011-2012 with the value 112.64
Proprietary ratio was high with value 1.212 in 2010-2011. Low ratio was shown
during 2011-2012 with the value 0.170
Gross profit ratio was high during 2014-2015 with 2 and low during 2012-2013
with the value 0.65
Net profit ratio was high during last financial year 2014-2015 with 0.013 and low
during 2012-2013 with the value 0.004
Operating profit ratio was high during 2014-2015 with the value 0.027 and low
during 2012-2013 with the value 0.020. Overall it shows fluctuation trend.
Inventory turnover ratio shows increasing trend. The ratio was high during 20142015 with the value 15.928 and low during 2010-2011 with the value 8.041
Debtors turnover ratio was high during 2014-2015 with the value 12.115 and low
during 2010-2011 with the value 5.657
Even though Debt collection period remains similar in all years, the ratio was little
low during 2014-2015 with the value of 30.12
60
Debt ratio was high during 2011-2012 with the value 8.09 and low during 20122013 with the value 0.11
Debt equity ratio was high during 2013-2014 with the value 138.46 and low
during 2014-2015 with the value 97.57
Capital Employed Net worth ratio was high during 2013-2014 with the value
18,635.97 and low during 2014-2015 with the value 1,583.81
Cash ratio was high during 2014-2015 with the value 1.09 and low during 20112012 with the value 0.35
Creditors turnover ratio was high during 2010-2011 with the value 0.078 and low
during 2014-2015 with the value 0.053. The Creditors turnover ratio of Hindustan
Petroleum Corporation shows decreasing trend in last 5 years
Cash to current assets turnover ratio was high during 2012-2013 with the value
5.84 and low during 2011-2012 with the value 0.90
Cash turnover ratio was high during 2011-2012 with the value 17.81 and low
during 2014-2015 with the value 5.99
61
10. SUGGESTIONS
The following are the suggestion made to the company for the development, they are
as follows
The company has to no change its debt equity proposition by introducing more
equity fund rather than paying high rate of interest on debt.
In future the company can use equity capital for long term obligations and debt capital
for the short term obligations as equity capital is best suitable for long run and debt
capital is best suited for activities.
The financial decision of the company should be shaped in such a way, that it should
support the companys capital structure.
The company has to retain its leadership position in the tires industries and it can try to
get first position.
62
11. CONCLUSION
The present business world is becoming more complex because of its dynamic nature.
Low rate of financial leverage indicates a low interest outflow and consequently lower
borrowings in the company. The result of capital structure and financial analysis of Hindustan
Petroleum Corporation reveals that its operations during the study period were satisfactory.
Financial management means the entire gamut of managerial efforts devoted to the
management of finance both its resources and its uses in the enterprise. It is being rightly said
that business needs money to make more money. Hence efficient management of even
business enterprise is closely linked with efficient management of its finance. The overall
result of capital structure and financial analysis of Hindustan Petroleum Corporation reveals
that its operations during the study period were satisfactory.
63
BIBLIOGRAPHY
Books
I.M. Pandey- Financial Management, Vikas publishing house, New Delhi, 1999.
R.S.N. Pillai & V. Bagavathi, Statistics, S. Chand & Company ltd., New Delhi,
2000.
Journals
Web Sources
http://fortune.com/global500/
http://www.moneycontrol.com/india/stockpricequote/refineries/hindustanpetroleu
mcorporation/HPC
https://en.wikipedia.org/wiki/Hindustan_Petroleum
www.economictimes.com
www.hindustanpetroleum.com/
64