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PROJECT REPORT
ON

ANALYSIS OF FINANCIAL
STATMENT
OF

RELIANCE INDUSTRIES
PROJECT GUIDE:TEJAS PAREKH (MBAGJ0042)
PAREPARED BY: JAYA MAHAJAN

MBA 4TH SEM (FINANCE)


ROLL NO.1402012461
SIKKIM MANIPAL UNIVERSITY
2015-2016

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CERTIFICATE
TO WHOM SO EVER IT MAY CONCERN

This is to certify that JAYA MAHAJAN (Roll No. 1402012461) a student of


M.B.A. (Finance) of Sikkim Manipal University, Sikkim, has done his
project work on the subject name ANALYSIS OF FINANCIAL STATMENT
He has done project during the period 1-5-2016 to 28-07-2016 under the
guidance of Dr. Rashmi Nair, in RELIANCE INDUSTRIES LTD, Hazira, Surat
(GUJARAT).
During the period of his project work with us we have found his conduct and
character are good.
We wish him good luck for and all the best in his career.
For RELIANECE INDUSTRIES LTD.
(Dr. Rashmi Nair)
Assi. Manager Finance & Admin Dept.

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DECLARATION
I hereby declare that the project entitle A STUDY ON CAPITAL
STRUCTURE Submitted in partial fulfillment of the requirements for
award of the degree of MBA at BARODA Institute of Technology, affiliated
to Sikkim Manupal University, Sikkim, is an authentic work and has not
been submitted to any other University/Institute for award of any
degree/diploma.

JAYA MAHAJAN
(1402012461)
MBA, BIMS
Sikkim Manipal University
VADODARA, GUJARAT

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ACKNOWLEDGEMENT

Firstly, I would like to express our immense gratitude towards our


institution BARODA Institute of Management Studies, which created a great
platform to attain profound technical and management skills in the field of MBA,
thereby fulfilling our most cherished goal.
I would thank all the finance department of RELIENCE INDUSTIES LTD,
specially Dr. Rashmi Nair

(Asst Manager Finance), and the employees in the

finance department for guiding me and helping me in successful completion of


the project.
I am very much thankful to our professor Mr. Tejas Parekh (Internal Guide)
for extending his cooperation in doing this project.
I am also thankful to our project coordinator Mr. Dalvadi for extending his
cooperation in completion of Project.
I convey my thanks to my beloved family and my faculty who helped me
directly or indirectly in bringing this project successfully.
JAYA MAHAJAN
(1402012461)

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INDEX
SR. NO.

PARTICULER

PAGE NO.

DECLARATION

ACKNOWLEDGEMENT

INTRODUCTION TO THE TOPIC

REVIEW OF LITERATURE

13

COMPOSITION AND OBSERVATION

28

COMPANY PROFILE

30

COMPANYS VISION, MISSION AND VALUE

34

DIRECTORS REPORT

36

MANAGEMENTS DISCUSSION

39

10

AUDITORS REPORT

55

11

EBIT EPS DATA ANALYSIS

57

12

RATIO ANALYSIS

66

13

FINDINGS

95

14

FINDINGS

96

15

RECOMMENDATIONS

97

16

SUGGESTIONS

98

17

BIBLIOGRAPHY

99

18

FINANCIAL HIGHLIGHTS

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100

INTRODUCTION TO
THE TOPIC

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CAPITAL STRUCTURE DEFINED:


The assets of a company can be financed either by increasing the owners
claim or the creditors claim. The owners claims increase when the form raises
funds by issuing ordinary shares or by retaining the earnings, the creditors
claims increase by borrowing .The various means of financing represents the
financial structure of an enterprise .The financial structure of an enterprise is
shown by the left hand side. (Liabilities plus equity) of the balance sheet.
Traditionally, short-term borrowings are excluded from the list of methods of
financing the firms capital expenditure, and therefore, the long term claims are
said to form the capital structure of the enterprise .The capital structure is used
to represent the proportionate relationship between debt and equity .Equity
includes paid-up share capital, share premium and reserves and surplus.

The financing or capital structure decision is a significant managerial


decision .It influences the shareholders returns and risk consequently; the
market value of share may be affected by the capital structure decision. The
company will have to plan its capital structure initially at the time of its
promotion.

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NEED AND IMPORTANCE OF CAPITAL STRUCTURE:

The value of the firm depends upon its expected earnings stream and the
rate used to discount this stream. The rate used to discount earnings stream its
the firms required rate of return or the cost of capital. Thus, the capital
structure decision can affect the value of the firm either by changing the
expected earnings of the firm, but it can affect the reside earnings of the
shareholders. The effect of leverage on the cost of capital is not very clear.
Conflicting opinions have been expressed on this issue. In fact, this issue is one
of the most continuous areas in the theory of finance, and perhaps more
theoretical and empirical work has been done on this subject than any other.

If leverage affects the cost of capital and the value of the firm, an
optimum capital structure would be obtained at that combination of debt and
equity that maximizes the total value of the firm or minimizes the weighted
average cost of capital. The question of the existence of optimum use of
leverage has been put very succinctly by Ezra Solomon in the following words.
Given that a firm has certain structure of assets, which offers net operating
earnings of given size and quality, and given a certain structure of rates in the
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capital markets, is there some specific degree of financial leverage at which the
market value of the firms securities will be higher than at other degrees of
leverage?

The existence of an optimum capital structure is not accepted by all.


These exist two extreme views and middle position. David Durand identified the
two extreme views the net income and net operating approaches.

SCOPE OF THE STUDY:


A study of the capital structure involves an examination of long term as well as
short term sources that a company taps in order to meet its requirements of
finance. The scope of the study is confined to the sources that RELIEANCE
INDUSTRIES tapped over the years under study i.e. 2014-2015.

PROBLEM STATEMENT:

Capital structure is the mixture of the debt and equity capital maintained and
used by a firm to finance itself. There is no common ground among the
researcher on this subject. This seeming common ground on the topic is fact
that no single theory of capital structure is able to explain the observed capital
structure decision and performance of the firms. The problem is how we can
better utilize the capital structure of the company

OBJECTIVES OF THE STUDY:


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1. To study of solvency of the company from the point of view long term,
medium term, and short

term and immediate prospect.

2. To Study the capital structure of RELIENACE INDUSTRIES Ltd through EBIT-EPS


analysis
3. Study effectiveness of financing decision on EPS and EBIT of the firm.
4. Examining the financing trends in the RELIENACE INDUSTRIES Ltd for the
period of 2014- 15.
5. Study debt/equity ratio of RELIENACE INDUSTRIES Ltd for 2014-15.
6. To measure Profitability of the RELIENACE INDUSTRIES Ltd.
7. To ascertain credit standing of the RELIENACE INDUSTRIES Ltd.
8. To measure operational efficiency of the RELIENACE INDUSTRIES Ltd.
9. To check effective utilization of the RELIENACE INDUSTRIES Ltd.
10. Effective investment analysis of the RELIENACE INDUSTRIES Lt

RESEARCH METHODOLOGY AND DATA ANALYSIS


Data relating to RELIANCE Industries. Has been collected through
SECONDARY SOURCES:
Published annual reports of the company for the year 2014-15.
Literature review of the companys documentary.

PRIMARY SOURCES:
Detailed discussions with Assistant finance manager.
Discussions with other members of the Finance department.

DATA ANALYSIS
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The collected data has been processed using the tools of


Ratio analysis
Graphical analysis
Year-year analysis
These tools access in the interpretation and understanding of the Existing
scenario of the Capital Structure.

LIMITATION OF EPS AS A FINANCING-DECISION CRITERION

EPS is one of the mostly widely used measures of the companys


performance in practice. As a result of this, in choosing between debt and equity
in practice, sometimes too much attention is paid on EPS, which however, has
serious limitations as a financing-decision criterion.

The major short coming of the EPS as a financing-decision criterion is that


it does not consider risk; it ignores variability about the expected value of EPS.
The belief that investors would be just concerned with the expected EPS is not
well founded. Investors in valuing the shares of the company Consider both
expected value and variability.

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REVIEW OF
LITERATURE

REVIEW OF LITERATURE
CAPITAL STRUCTURE DEFINED:
The assets of a company can be financed either by increasing the owners claim
or the creditors claim. The owners claims increase when the form raises funds
by issuing ordinary shares or by retaining the earnings, the creditors claims
increase by borrowing .The various means of financing represents the financial
structure of an enterprise .The financial structure of an enterprise is shown by
the left hand side (liabilities plus equity) of the balance sheet. Traditionally,
short-term borrowings are excluded from the list of methods of financing the
firms capital expenditure, and therefore, the long term claims are said to form
the capital structure of the enterprise .The capital structure is used to represent
the proportionate relationship between debt and equity .Equity includes paid-up
share capital, share premium and reserves and surplus.
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The financing or capital structure decision is a significant managerial decision .It


influences the shareholders returns and risk consequently; the market value of
share may be affected by the capital structure decision. The company will have
to plan its capital structure initially at the time of its promotion.
FACTORS AFFECTING THE CAPITAL STRUCTURE:
LEVERAGE: The use of fixed charges of funds such as preference shares,
debentures and term-loans along with equity capital structure is described
as financial leverage or trading on. Equity. The term trading on equity is
used because for raising debt.

DEBT /EQUITY RATIO-Financial institutions while sanctioning long-term


loans insists that companies should generally have a debt equity ratio of
2:1 for medium and large scale industries and 3:1 indicates that for every
unit of equity the company has, it can raise 2 units of debt. The debtequity ratio indicates the relative proportions of capital contribution by
creditors and shareholders.

EBIT-EPS ANALYSIS-In our research for an appropriate capital structure we


need to understand how sensitive is EPS (earnings per share) to change in
EBIT (earnings before interest and taxes) under different financing
alternatives.
The other factors that should be considered whenever a capital structure
decision is taken are

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Cost of capital
Cash flow projections of the company
Size of the company
Dilution of control
Floatation costs

FEATURES OF AN OPTIMAL CAPITAL STRUCTURE:


An optimal capital structure should have the following features,
1. PROFITABILITY: - The Company should make maximum use of leverages at a
minimum cost.
2. FLEXIBILITY: - The capital structure should be flexible to be able to meet the
changing conditions .The company should be able to raise funds whenever the
need arises and costly to continue with particular sources.
3. CONTROL: - The capital structure should involve minimum dilution of control
of the company.
4. SOLVENCY: - The use of excessive debt threatens the solvency of the
company. In a high interest rate environment, Indian companies are beginning to
realize the advantage of low debt.

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CAPITAL STRUCTURE AND FIRM VALUE:


Since the objective of financial management is to maximize shareholders
wealth, the key issue is:
What is the relationship between capital structure and firm value? Alternatively,
what is the relationship between capital structure and cost of capital?
Remember that valuation and cost of capital are inversely related. Given a
certain level of earnings, the value of the firm is maximized when the cost of
capital is minimized and vice versa.
There are different views on how capital structure influences value. Some
argue that there is no relationship what so ever between capital structure and
firm value; other believe that financial leverage (i.e., the use of debt capital) has
a positive effect on firm value up to a point and negative effect thereafter; still
others contend that, other things being equal, greater the leverage, greater the
value of the firm.

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CAPITAL STRUCTURE AND PLANNING:


Capital structure refers to the mix of long-term sources of funds. Such as
debentures, long term debt, preference share capital including reserves and
surplus (i.e., retained earnings) The board of directors or the chief financial
officer (CEO) of a company should develop an appropriate capital structure,
which are most factors to the company. This can be done only when all those
factors which are relevant to the companys capital structure decision are
properly analysed and balanced. The capital structure should be planned
generally keeping in view the interests of the equity shareholders, being the
owners of the company and the providers of risk capital (equity) would be
concerned about the ways of financing a companys operations. However, the
interests of other groups, such as employees, customers, creditors, society and
government, should also be given reasonable consideration. When the company
lays down its objective in terms of the shareholders wealth maximization
(SWM), it is generally compatible with the interests of other groups. Thus while
developing an appropriate capital structure for its company, the financial
manager should inter alia aim at maximizing the long-term market price per
share. Theoretically, there may be a precise point or range within an industry
there may be a range of an appropriate capital structure with in which there
would not be great differences in the market value per share. One way to get an
idea of this range is to observe the capital structure patterns of companies vis-vis their market prices of shares. It may be found empirically that there are not
significant differences in the share values within a given range. The
management of a company may fix its capital structure near the top of this
range in order to make maximum use of favorable leverage, subject to other
requirements such as flexibility, solvency, control and norms set by the financial
institutions, the security exchange Board of India (SEBI) and stock exchanges.

FEATURES OF AN APPROPRIATE CAPITAL STRUCTURE: The board of Director or the chief financial officer (CEO) of a company should
develop an appropriate capital structure, which is most advantageous to the
company. This can be done only when all those factors, which are relevant to
the companys capital structure decision, are properly analyzed and
balanced. The capital structure should be planned generally keeping in view
the interest of the equity shareholders and financial requirements of the
company. The equity shareholders being the shareholders of the company
and the providers of the risk capital (equity) would be concerned about the
ways of financing a companys operation. However, the interests of the other
groups, such as employees, customer, creditors, and government, should
also be given reasonable consideration. When the company lay down its
objectives in terms of the shareholders wealth maximizing (SWM), it is
generally compatible with the interest of the other groups. Thus, while
developing an appropriate capital structure for it company, the financial
manager should inter alia aim at maximizing the long-term market price per
share. Theoretically there may be a precise point of range with in which the
market value per share is maximum. In practice for most companies with in
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an industry there may be a range of appropriate capital structure with in


which there would not be great differences in the market value per share.
One way to get an idea of this range is to observe the capital structure
patterns of companies Vis-a Vis their market prices of shares. It may be
found empirically that there is no significance in the differences in the share
value with in a given range. The management of the company may fit its
capital structure near the top of its range in order to make of maximum use
of favorable leverage, subject to other requirement (SEBI) and stock
exchanges.
A SOUND OR APPROPRIATE CAPITAL STRUCTURE SHOULD HAVE THE
FOLLOWING FEATURES
1) RETURN: the capital structure of the company should be most
advantageous, subject to the other considerations; it should generate
maximum returns to the shareholders without adding additional cost to
them.
2) RISK: the use of excessive debt threatens the solvency of the company. To
the point debt does not add significant risk it should be used other wise it
uses should be avoided.
3) FLEXIBILITY: the capital structure should be flexibility. It should be possible
to the company adopt its capital structure and cost and delay, if warranted
by a changed situation. It should also be possible for a company to provide
funds whenever needed to finance its profitable activities.
4) CAPACITY: - The capital structure should be determined within the debt
capacity of the company and this capacity should not be exceeded. The debt
capacity of the company depends on its ability to generate future cash flows.
It should have enough cash flows to pay creditors, fixed charges and
principal sum.
5) CONTROL: The capital structure should involve minimum risk of loss of
control of the company. The owner of the closely held companys of
particularly concerned about dilution of the control.
APPROACHES TO ESTABLISH APPROPRIATE CAPITAL STRUCTURE:
The capital structure will be planned initially when a company is incorporated
.The initial capital structure should be designed very carefully. The
management of the company should set a target capital structure and the
subsequent financing decision should be made with the a view to achieve
the target capital structure .The financial manager has also to deal with an
existing capital structure .The company needs funds to finance its activities
continuously. Every time when fund shave to be procured, the financial
manager weighs the pros and cons of various sources of finance and selects
the most advantageous sources keeping in the view the target capital
structure. Thus, the capital structure decision is a continues one and has to
be taken whenever a firm needs additional Finances.
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The following are the three most important approaches to decide about a firms
capital structure.
EBIT-EPS approach for analyzing the impact of debt on EPS.
Valuation approach for determining the impact of debt on the shareholders
value.
Cash flow approached for analyzing the firms ability to service debt.
In addition to these approaches governing the capital structure decisions, many
other factors such as control, flexibility, or marketability are also considered in
practice.
EBIT-EPS APPROACH:
We shall emphasize some of the main conclusions here .The use of fixed cost
sources of finance, such as debt and preference share capital to finance the assets
of the company, is known as financial leverage or trading on equity. If the assets
financed with the use of debt yield a return greater than the cost of debt, the
earnings per share also increases without an increase in the owners investment.
The earnings per share also increase when the preference share capital is used to
acquire the assets. But the leverage impact is more pronounced in case of debt
because
1. The cost of debt is usually lower than the cost of performance share capital and
2. The interest paired on debt is tax deductible.
Because of its effect on the earnings per share, financial leverage is an
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important consideration in planning the capital structure of a company. The


companies with high level of the earnings before interest and taxes (EBIT) can make
profitable use of the high degree of leverage to increase return on the shareholders
equity. One common method of examining the impact of leverage is to analyze the
relationship between EPS and various possible levels of EBIT under alternative
methods of financing.
The EBIT-EPS analysis is an important tool in the hands of financial manager to get
an insight into the firms capital structure management .He can considered the
possible fluctuations in EBIT and examine their impact on EPS under different
financial plans of the probability of earning a rate of return on the firms assets less
than the cost of debt is insignificant, a large amount of debt can be used by the firm
to increase the earning for share. This may have a favorable effect on the market
value per share. On the other hand, if the probability of earning a rate of return on
the firms assets less than the cost of debt is very high, the firm should refrain from
employing debt capital .it may, thus, be concluded that the greater the level of EBIT
and lower the probability of down word fluctuation, the more beneficial it is to
employ debt in the capital structure However, it should be realized that the EBIT
EPS is a first step in deciding about a firms capital structure .It suffers from certain
limitations and doesnt provide unambiguous guide in determining the capital
structure of a firm in practice.

RATIO ANALYSIS: The primary user of financial statements are evaluating part performance and
predicting future performance and both of these are facilitated by comparison.
Therefore the focus of financial analysis is always on the crucial information
contained in the financial statements. This depends on the objectives and purpose
of such analysis. The purpose of evaluating such financial statement is different
form person to person depending on its relationship. In other words even though the
business unit itself and shareholders, debenture holders, investors etc. all under
take the financial analysis differs. For example, trade creditors may be interested
primarily in the liquidity of a firm because the ability of the business unit to play
their claims is best judged by means of a thorough analysis of its l9iquidity. The
shareholders and the potential investors may be interested in the present and the
future earnings per share, the stability of such earnings and comparison of these
earnings with other units in three industry. Similarly the debenture holders and
financial institutions lending long term loans maybe concerned with the cash flow
ability of the business unit to pay back the debts in the long run. The management
of business unit, it contrast, looks to the financial statements from various angles.
These statements are required not only for the managements own evaluation and
decision making but also for internal control and overall performance of the firm.
Thus the scope extent and means of any financial analysis vary as per the specific
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needs of the analyst. Financial statement analysis is a part of the larger information
processing system, which forms the very basis of any decision making process.
The financial analyst always needs certain yardsticks to evaluate the efficiency and
performance of business unit. The one of the most frequently used yardsticks is
ratio analysis. Ratio analysis involves the use of various methods for calculating and
interpreting financial ratios to assess the performance and status of the business
unit. It is a tool of financial analysis, which studies the numerical or quantitative
relationship between with other variable and such ratio value is compared with
standard or norms in order to highlight the deviations made from those
standards/norms. In other words, ratios are relative figures reflecting the
relationship between variables and enable the analysts to draw conclusions
regarding the financial operations. However, it must be noted that ratio analysis
merely highlights the potential areas of concern or areas needing immediate
attention but it does not come out with the conclusion as regards causes of such
deviations from the norms. For instance, ABC Ltd. Introduced the concept of ratio
analysis by calculating the variety of ratios and comparing the same with norms
based on industry averages. While comparing the inventory ratio was 22.6 as
compared to industry average turnover ratio of 11.2. However on closer sell tiny
due to large variation from the norms, it was found that the business units
inventory level during the year was kept at extremely low level. This resulted in
numerous production held sales and lower profits. In other words, what was initially
looking like an extremely efficient inventory management, turned out to be a
problem area with the help of ratio analysis? As a matter of caution, it must
however be added that a single ration or two cannot generally provide that
necessary details so as to analyze the overall performance of the business unit.

In order to arrive at the reasonable conclusion regarding overall performance of the


business unit, an analysis of the entire group of ratio is required. However, ration
analysis should not be considered as ultimate objective test but it may be carried
further based on the out come and revelations about the causes of variations.
Sometimes large variations are due to unreliability of financial data or inaccuracies
contained therein therefore before taking any decision the basis of ration analysis,
their reliability must be ensured. Similarly, while doing the inter-firm comparison,
the variations may be due to different technologies or degree of risk in those units
or items to be examined are in fact the comparable only. It must be mentioned here
that if ratios are used to evaluate operating performance, these should exclude
extra ordinary items because there are regarded as nonrecurring items that do not
reflect normal performance.
Ratio analysis is the systematic process of determining and interpreting the
numerical relationship various pairs of items derived from the financial statements
of a business. Absolute figures do not convey much tangible meaning and is not
meaningful while comparing the performance of one business with the other.
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It is very important that the base (or denominator) selected for each ratio is
relevant with the numerator. The two must be such that one is closely connected
and is influenced by the other
CAPITAL STRUCTURE RATIOS
Capital structure or leverage ratios are used to analyse the long-term solvency or
stability of a particular business unit. The short-term creditors are interested in
current financial position and use liquidity ratios. The long-term creditors world
judge the soundness of a business on the basis of the long-term financial strength
measured in terms of its ability to pay the interest regularly as well as repay the
installment on due dates. This long-term solvency can be judged by using leverage
or structural ratios.
There are two aspects of the long-term solvency of a firm:1. Ability to repay the principal when due, and
2. Regular payment of interest, there are thus two different but mutually dependent
and interrelated types of leverage ratio such as:
3. Ratios based on the relationship between borrowed funds and owners capital,
computed form balance sheet eg: debt-equity ratio, dividend coverage ratio, debt
service coverage ratio etc.,
THE CAPITAL STRUCTURE CONTROVERSY:
The value of the firm depends upon its expected earnings stream and the rate used
to discount this stream. The rate used to discount earnings stream its the firms
required rate of return or the cost of capital. Thus, the capital structure decision can
affect the value of the firm either by changing the expected earnings of the firm,
but it can affect the reside earnings of the shareholders. The effect of leverage on
the cost of capital is not very clear. Conflicting opinions have been expressed on this
issue. In fact, this issue is one of the most continuous areas in the theory of finance,
and perhaps more theoretical and empirical work has been done on this subject
than any other.
If leverage affects the cost of capital and the value of the firm, an optimum capital
structure would be obtained at that combination of debt and equity that maximizes
the total value of the firm or minimizes the weighted average cost of capital. The
question of the existence of optimum use of leverage has been put very succinctly
by Ezra Solomon in the following words.
Given that a firm has certain structure of assets, which offers net operating earnings
of given size and quality, and given a certain structure of rates in the capital
markets, is there some specific degree of financial leverage at which the market
value of the firms securities will be higher than at other degrees of leverage?
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The existence of an optimum capital structure is not accepted by all. These exist
two extreme views and middle position. David Durand identified the two extreme
views the net income and net operating approaches.
1. Net Income Approach:
Under the net income approach (NI), the cost of debt and cost of equity are
assumed to be independent to the capital structure. The weighted average cost of
capital declines and the total value of the firm rise with increased use of leverage.
2. Net Operating Income Approach:
Under the net operating income (NOI) approach, the cost of equity is assumed to
increase linearly with average. As a result, the weighted average cost of capital
remains constant and the total value of the firm also remains constant as leverage
is changed.
3. Traditional Approach:
According to this approach, the cost of capital declines and the value of the firm
increases with leverage up to a prudent debt level and after reaching the optimum
point, coverage cause the cost of capital to increase and the value of the firm to
decline. Thus, if NI approach is valid, leverage is significant variable and financing
decisions have an important effect on the value of the firm. On the other hand, if
the NOI approach is correct then the financing decisions should not be a great
concern to the financing manager, as it does not matter in the valuation of the firm.
Modigliani and Miller (MM) support the NOI approach by providing logically
consistent behavioral justifications in its favor. They deny the existence of an
optimum capital structure between the two extreme views; we have the middle
position or intermediate version advocated by the traditional writers.
Thus these exists an optimum capital structure at which the cost of capital is
minimum. The logic of this view is not very sound. The MM position changes when
corporate taxes are assumed. The interest tax shield resulting from the use of debt
adds to the value of the firm.
This advantage reduces the when personal income taxes are considered.
Capital Structure Matters: The Net Income Approach:
The essence of the net income (NI) approach is that the firm can increase its value
or lower the overall cost of capital by increasing the proportion of debt in the capital
structure.
The crucial assumptions of this approach are:

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1.The use of debt does not change the risk perception of investors; as a result, the
equity capitalization rate, kc and the debt capitalization rate, kd, remain constant
with changes in leverage.
2.The debt capitalization rate is less than the equity capitalization rate (i.e. kd<ke)
3.The corporate income taxes do not exist. The first assumption implies that, if ke
and kd are constant increased use by debt by magnifying the shareholders earnings
will result in higher value of the firm via higher value of equity consequently the
overall or the weighted average cost of capital ko, will decrease.
The overall cost of capital is measured by equation: (1)
It is obvious from equation 1 that, with constant annual net operating income (NOI),
the overall cost of capital would decrease as the value of the firm v increases. The
overall cost of capital ko can also be measured by
KO = Ke - (Ke - Kd) D/V
As per the assumptions of the NI approach Ke and Kd are constant and Kd is less
than Ke. Therefore, Ko will decrease as D/V increases. Equation 2 also implies that
the overall cost of capital Ko will be equal to Ke if the form does not employ any
debt (i.e. D/V =0), and that Ko will approach Kd as D/V approaches one.
NET OPERATING INCOME APPROACH
According to the met operating income approach the overall capitalization rate and
the cost of
debt remain constant for all degree of leverage.

rA and rD are constant for all degree of leverage. Given this, the cost of equity can
be
expressed as.

The critical premise of this approach is that the market capitalizes the firm as a
whole at discount rate, which is independent of the firms debt-equity ratio. As a
consequence, the decision between debt and equity is irrelevant. An increase in the
use of debt funds which are apparently cheaper or offset by an increase in the
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equity capitalization rate. This happens because equity investors seek higher
compensation as they are exposed to greater risk arising from increase in the
degree of leverages. They raise the capitalization rate rE (lower the price earnings
ratio, as the degree of leverage increases.

The net operating income position has been \advocated eloquently by David
Durand. He argued that the market value of a firm depends on its net operating
income and business risk. The change in the financial leverage employed by a firm
cannot change these underlying factors. It merely changes the distribution of
income and risk between debt and equity, without affecting the total income and
risk which influence the market value (or equivalently the average cost of capital) of
the firm. Arguing in a similar vein, Modigliani and Miller, in a seminal contribution
made in 1958, forcefully advanced the proposition that the cost of capital of a firm
is independent of its capital structure.
COST OF CAPITAL AND VALUATION APPROACH
The cost of a source of finance is the minimum return expected by its suppliers. The
expected return depends on the degree of risk assumed by investors. A high degree
of risk is assumed by shareholders than debt-holders. In the case of debt-holders,
the rate of interest is fixed and the company is legally bound to pay dividends even
if the profits are made by the company. The loan of debt-holders is returned within a
prescribed period, while shareholders will have to share the residue only when the
company is wound up. This leads one to conclude that debt is cheaper source of
funds than equity. This is generally
The case even when taxes are not considered. The tax deductibility of interest
charges further reduces the cost of debt. The preference share capital is also
cheaper than equity capital, but not as cheap as debt. Thus, using the component,
or specific, cost of capital as criterion for financing decisions and ignoring risk, a
firm would always like to employ debt since it is the cheapest source of funds.

27 | P a g e

CASH FLOW APPROACH:


One of the features of a sound capital structure is conservatism does not mean
employing no debt or small amount of debt. Conservatism is related to the fixed
charges created by the use of debt or preference capital in the capital structure and
the firms ability to Generate cash to meet these fixed charges. In practice, the
question of the optimum (Appropriate) debt equity mix boils down to the firms
ability to service debt without any threat of insolvency and operating inflexibility. A
firm is considered prudently financed if it is able to service its fixed charges under
any reasonably predictable adverse conditions. The fixed charges of a company
include payment of interest, preference dividend and principal, and they depend on
both the amount of loan securities and the terms of payment. The amount of fixed
charges will be high if the company employs a large amount of debt or preference
capital with short-term maturity. Whenever a company thinks of raising additional
debt, it should analyse its expected future cash flows to meet the fixed charges. It is
mandatory to pay interest and return the principal amount of debt of a company not
able to generate enough cash to meet its fixed obligation, it may have to face
financial insolvency. The companies expecting larger and stable cash inflows in to
employ fixed charge sources of finance by those companies whose cash inflows are
unstable and unpredictable. It is possible for high growth, profitable company to
suffer from cash shortage if the liquidity (working capital) management is poor. We
have examples of companies like BHEL, NTPC, etc., whose debtors are very sticky
and they continuously face liquidity problem in spite of being profitability servicing
debt is very burdensome for them. One important ratio which should be examined
at the time of planning the capital structure is the ration of net cash inflows to fixed
changes (debt saving ratio). It indicates the number of times the fixed financial
obligation are covered by the net cash inflows generated by the company.
LIMITATION OF EPS AS A FINANCING-DECISION CRITERION
EPS is one of the mostly widely used measures of the companys performance in
practice. As a result of this, in choosing between debt and equity in practice,
sometimes too much attention is paid on EPS, which however, has serious
limitations as a financing-decision criterion.
The major short coming of the EPS as a financing-decision criterion is that it does
not consider risk; it ignores variability about the expected value of EPS. The belief
that investors would be just concerned with the expected EPS is not well founded.
Investors in valuing the shares of the company consider both expected value and
variability.
EPS VARIABILITY AND FINANCIAL RISK: The EPS variability resulting form the use of leverage is called financial risk.
28 | P a g e

Financial risk is added with the use of debt because of


(a) The increased variability in the shareholders earnings and
(b) The threat of insolvency. A firm can avid financial risk altogether if it does not
employ any debt in its capital structure. But then the shareholders will be deprived
of the benefit of the financial risk perceived by the shareholders, which does not
exceed the benefit of increase EPS. As we have seen, if a company increase its debt
beyond a point the expected EPS will continue to increase but the value of the
company increases its debt beyond a point, the expected EPS will continue to
increase, but the value of the company will fall because of the greater exposure of
shareholders to financial risk in the form of financial distress. The EPS criterion does
not consider the long-term perspectives of financing decisions. It fails to deal with
the risk return trade-off. A long term view of the effects of the financing decisions,
will lead one to a criterion of the wealth maximization rather that EPS maximization.
The EPS criterion is an important performance measure but not a decision criterion.
Given limitations, should the EPS criterion be ignored in making financing decision?
Remember that it is an important index of the firms performance and that investors
rely heavily on it for their investment decisions. Investors do not have information in
the projected earnings and cash flows and base their evaluation and historical data.
In choosing between alternative financial plans, management should start with the
evaluation of the impact of each alternative on near-term EPS. But managements
ultimate decision making should be guided by the best interests of shareholders.
Therefore, a long-term view of the effect of the alternative financial plans on the
value of the shares should be taken, o management opts for a financial plan which
will maximize value in the long run but has an adverse impact in near-term EPS, and
the reasons must be communicated to investors. A careful communication to
market will be helpful in reducing the misunderstanding between management and
Investors.

29 | P a g e

COMPOSITION AND OBSERVATION


The sources tapped by RELIENCE Industries Ltd. Can be classified into:
Shareholders funds resources
Loan fund resources
SHAREHOLDER FUND RESOURCES:
Shareholders fund consists of equity capital and retained earnings.
EQUITY CAPITAL BUILD-UP
1.From 1995, the Authorized capital is Rs.5000 Crore of equity shares at Rs.10 each.
The issued
equity capital is RS. 3232 Crore at Rs.10 each for the period 2014-2015 and
subscribed and
paid-up capital is RS. 3232 Crore at Rs.10 each for the period 2014-2015.
3.There is no increase of in the equity from 2013-2014 to 2014-2015.
RETAINED EARNINGS COMPOSITION
This includes
Capital Reserve
Share Premium Account
General Reserve
Contingency Reserve
Debentures Redemption Reserve
Investment Allowance Reserve
30 | P a g e

Profit & Loss Account


1. The profit levels, company dividend policy and growth plans determined. The
amounts transferred from P&L A/c to General Reserve. Contingency Reserve and
Investment Allowance Reserve.
2. The Investment Allowance Reserve is created for replacement of long term leased
assets and this reserve was removed from books because assets pertaining to such
reserves ceased to exist. The account was transferred to investment allowance
utilized.
Capital structure describes how a corporation has organized its capitalhow it
obtains the financial resources with which it operates its business. Businesses adopt
various capital structures to meet both internal needs for capital and external
requirements for returns on shareholders investments. As shown on its balance
sheet, a company's capitalization is constructed from three basic blocks:
1. Long-term debt. By standard accounting definition, long-term debt includes
obligations that are not due to be repaid within the next 12 months. Such debt
consists mostly of bonds or similar obligations, including a great variety of notes,
capital lease obligations, and mortgage issues.
2. Preferred stock. This represents an equity (ownership) interest in the corporation,
but one with claims ahead of the common stock, and normally with no rights to
share in the increased worth of a company if it grows.
3. Common stockholders' equity. This represents the underlying ownership. On the
corporation's books, it is made up of: (I) the nominal par or stated value assigned to
the shares of outstanding stock; (2) the capital surplus or the amount above par
value paid the company whenever it issues stock; and (3) the earned surplus (also
called retained earnings), which consists of the portion of earnings a company
retains after paying out dividends and similar distributions. Put another way,
common stock equity is the net worth after all the liabilities (including long-term
debt), as well as any preferred stock, are deducted from the total assets shown on
the balance sheet. For investment analysis purposes, security analysts may use the
company's market capitalizationthe current market price times the number of
common shares outstandingas a measure of common stock equity. They consider
this market-based figure a more realistic valuation.

31 | P a g e

COMPANY
PROFILE
32 | P a g e

COMPANY PROFILE

Reliance
At a Glance

Reliance Industries Limited (RIL) is Indias largest private sector company with
businesses across the energy and materials value chain and a strong presence in
the rapidly expanding retail and telecommunication sectors.
RIL is the first private sector company from India to feature in Fortune Global 500
list of Worlds Largest Corporations for the last ten consecutive years. RIL ranked
107th in terms of revenues and 128th in terms of profits in 2013. RIL's international
debt is rated by Moodys at investment grade Baa2, with positive outlook and by
S&P at BBB+ with a negative outlook, which are one notch and two notches above
Indias sovereign rating, respectively.
Reliance is the only Asian company in the oil & gas sector to be rated two notches
above the sovereign by S&P. Reliance is now rated higher than some of its global
emerging market peers demonstrating its strength and competitive position in the
refining and petrochemicals sectors. The rating also underpins Reliances position as
a leading large-scale, integrated and efficient oil refining and petrochemicals
company.
Exploration and Production
In our domestic upstream business, production from the KG-D6 block continued to
decline during the year. The fall in production is mainly attributed to the geological
complexity and natural decline in the fields and higher than envisaged water
ingress. Several activities were therefore undertaken to sustain production and
enhance recovery from the existing producing fields. During the year, two
significant discoveries were made in the KG basin and Cauvery basin. Development
activities in the two CBM blocks is gathering momentum. The new discoveries and
the efforts to enhance recovery will strengthen Indias energy security.

33 | P a g e

Reliance continued to balance its international portfolio by evaluating new blocks


and assigning existing blocks. Reliances Shale Gas business continued on its
growth path and has now achieved materiality in many respects. Our investments in
the US Shale Gas ventures have started creating value for our shareholders. This
business achieved record revenues and EBITDA for the year with significant growth.
Reliance's share of net sales was at 131 BCFe in CY 2013, a growth of 54% y-o-y on
account of about 1.6 fold increase in number of wells put on production from end of
CY 2012.
Consumer Businesses
We are delighted that our retail business continues to sustain its leadership position
across several formats. It has become Indias largest retailer by revenues. It
achieved the milestone of over 10 million square feet of retail space during the year.
It also achieved break-even on a net profit basis during the year. Our retail offerings
continue to delight our customers reflected in a record number of repeat customers
and a healthy

Refining and Marketing


RIL is among the top ten private players in the refining business globally. RIL's
Jamnagar Complex has become the petroleum hub of the world and represents
about 2% of global crude processing capacity. This asset has placed both RIL, as
well as India, high on the world energy map.
Core Strengths & Key Advantages
Large scale and highly complex refinery
128 different grades of crude processed which is over 40% of world-traded crude
More than 50% of total refinery crude diet is "advantaged"
World-class logistics infrastructure
Strategic location, port-based, fully-integrated manufacturing facility
Efficient crude sourcing
Global reach with product storages at key destinations
Refinery utilisation rates consistently surpassing global averages
Energy efficient refiner - operating cost per barrel among the lowest in the world
Flexibility to alter the product slate/adapt to the changing market dynamics

Petrochemicals
RIL is one of the leading petrochemicals producers, globally, with state-ofthe-art, world-scale petrochemical plants. RIL has carved a niche for itself in
34 | P a g e

terms of product quality and customer service. Its product portfolio includes
Polymers, Polyester & Fibre intermediates and Chemicals & Elastomer.
Core Strengths & Key Advantages
Fully-integrated operations
Balanced portfolio of naphtha and gas-based crackers along with matching downstream
capacities
Leading market share in various products
Manufacturing operations across 11 locations in India
Among the lowest operating costs in the industry
Focus on high growth markets
Capital expenditure plans to enhance production capacity by more than 60% to service the
large growing domestic market
Likely to be among the top five petrochemical producers by capacity, globally, post
completion of petrochemical and fibre expansion plans

Exploration and Production


RIL is Indias largest private sector E&P operator with robust domestic as well as
international asset portfolio. Its assets include KG-D6, Panna-Mukta, Tapti and two
CBM blocks in addition to several domestic and international blocks. Additionally,
RIL has three joint ventures in North America in shale gas with Pioneer Natural
Resources, Chevron and Carrizo.
Core Strengths & Key Advantages
Strong off-shore capabilities in India
Strategic partnership with BP for domestic upstream business
Leveraging the existing infrastructure, knowledge and experience
Outstanding growth pace in unconventional shale gas business
Balanced portfolio consisting of conventional and unconventional, deepwater and shallow
water, onshore and off-shore, hydrocarbon resource play

Retail
RIL is fulfilling the vision of creating an inclusive growth framework by forging
enduring bonds between millions of farmers, consumers and small retailers,
supported by a world-class supply chain. In-store initiatives, wide product choices
and value merchandising are key enablers for robust growth.
35 | P a g e

Core Strengths & Key Advantages


Pan India store network 20 states
Leveraging world-class supply chain in creating partnerships with kiranas and small
shopkeepers
Association with leading international renowned brands
Committed to deliver quality products and services
Market leaders in digital, lifestyle and value formats
Continuous focus on own label products

Companys Vision, Mission and Value

Our Vision,
Through sustainable measures, create value for the nation, enhance quality of life
across the entire socio-economic spectrum and help spearhead India as a global
leader in the domains where we operate.

Our Mission,
Create value for all stakeholders .
Grow through innovation.
Lead in good governance practices.
Use sustainability to drive product development and enhance operational
efficiencies.
Ensure energy security of the nation
36 | P a g e

Foster rural prosperity

Our Value
Our growth and success are based on the ten core values of Care, Citizenship,
Fairness, Honesty, Integrity, Purposefulness, Respect, Responsibility, Safety and
Trust

Major achievement for the year by the


company
RIL's Chairman and Managing Director, Shri Mukesh D. Ambani, received the
'NDTV 25 Greatest Living Legends of India' Award from the Honourable
President of India, Shri Pranab Mukherjee

CSR
Oliver Kinross Asia Oil & Gas Award 2013 for Corporate Social Responsibility Company of the Year (RIL KG-D6)
Best ART (Anti-Retroviral Therapy) Centre Award 2013 by Gujarat State AIDS
Control Society (GSACS) on World AIDS Day (Hazira Manufacturing Division)

Quality
CII Six-Sigma National Award for 2013 in the Continuous and Bulk
Organizations category (Vadodara Manufacturing Division)
Health, Safety and Environment
Golden Peacock National Award for Occupational Health & Safety 2012-13 in
the petrochemical sector (Nagothane Manufacturing Division)
International Safety Award 2014 with distinction for Health and Safety
Management System performance for 2013 (Jamnagar SEZ Refinery)
Technology & Innovation

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l 3rd National Award, 2013, for Technology Innovation in Petrochemical &


Downstream Plastic Processing Innovation award from Ministry of Chemicals
& Fertilizers, Government of India (Reliance Technology Group)
Retail
Asian Human Capital Award 2013 - Special Commendation Prize for Work
Smart - A Business Excellence and Workforce Enablement Programme
(Reliance Retail Academy)
Star Retailer Award 'Consumer Durables Retailer of the Year 2013' (Reliance
Digital)
Sustainability
CII-ITC Sustainability Awards 2013 - Indias Most Sustainable Companies
(Hazira Manufacturing Division)
Golden Peacock Award for Sustainability 2013 (Nagothane Manufacturing
Division)

38 | P a g e

Directors
Report

Directors Report
Dear Members,
Your Directors are pleased to present the 40th Annual Report and the
Companys audited accounts for the financial year ended March 31, 2015.
Financial Results
The Companys financial performance, for the year ended March 31, 2015 is
summarised below:
Results of Operations
Operating in a volatile and uncertain environment, the Company
demonstrated the resilience of its business model. The Companys best-in39 | P a g e

class refining configuration and integrated petrochemical business enabled it


to deliver robust profits in the financial year 2014-15. The highlights of the
Companys performance are as under:
1

Revenue from operations increased by 8.1% to Rs. 401,302 crore ($


67.0 billion)

Exports increased by 15.3% to Rs.275,825 crore ($ 46.0 billion)

PBDIT increased by 2.7% at Rs. 39,813 crore ($ 6.6 billion)

Profit Before Tax increased by 5.8% at Rs.27,818 crore ($ 4.6 billion)

Cash Profit increased by 1.0% to Rs.30,795 crore ($ 5.1 billion)

Net Profit increased by 4.7% to Rs.21,984 crore ($ 3.7 billion)

Gross Refining Margin was $ 8.1 / bbl for the year ended March 31,
2014
The consolidated revenue from operations of the Company for the year ended
March 31, 2014 was Rs. 446,339 crore ($ 74.5 billion), an increase of 9.3% on a
year-on-year basis.
The Company is one of Indias largest contributors to the national exchequer
primarily by way of payment of taxes and duties to various government agencies.
During the year, a total of Rs. 31,374 crore ($ 5.2 billion) was paid in the form of
various taxes and duties.
The Company featured in the Fortune Global 500 list of the worlds largest
corporations for the tenth consecutive year and was ranked 107th in terms of
revenues and 128th in terms of profits.
Dividend
Your Directors have recommended a dividend of ` 9.50 per equity share (last year `
9.00 per equity share) for the financial year ended March 31, 2014, amounting to `
3,268 crore (inclusive of tax of ` 475 crore), one of the highest payout by any
private sector domestic company. The dividend payout is subject to approval of
members at the ensuing Annual General Meeting.
The dividend will be paid to members whose names appear in the Register of
Members as on May 19, 2014; in respect of shares held in dematerialised form, it
will be paid to members whose names are furnished by National Securities
Depository Limited and Central Depository Services (India) Limited, as beneficial
owners as on that date.
The dividend payout for the year under review has been formulated in accordance
with shareholders aspirations and the Companys policy to pay sustainable
40 | P a g e

dividend linked to long term growth objectives of the Company to be met by internal
cash accruals.
Credit Rating
The Company continues to have the highest domestic credit ratings of AAA from
CRISIL (S&P subsidiary) and India Ratings & Research (a Fitch Group Company).
Moodys has reaffirmed investment grade rating for international debt, as Baa2
positive outlook (local currency issuer rating), which is one notch higher than the
countrys sovereign rating. During the year, S&P upgraded the Companys
international debt rating to BBB+ negative outlook, which is now two notches
above Indias sovereign rating. Strong credit ratings by leading international
agencies reflect the Companys financial discipline and prudence.
Employees Stock Option Scheme
The Human Resources, Nomination and Remuneration Committee of the Board of
Directors of the Company, inter alia, administers and monitors the Employees
Stock Option Scheme of the Company in accordance with the Securities and
Exchange Board of India (Employee Stock Option Scheme and Employee Stock
Purchase Scheme) Guidelines, 1999 (the SEBI Guidelines).
The applicable disclosures as stipulated under the SEBI Guidelines as on March 31,
2014 (cumulative position) with regard to the Employees Stock Option Scheme are
provided in Annexure I to this Report.
The issuance of equity shares pursuant to exercise of options does not affect the
Statement of Profit and Loss of the Company, as the exercise is made at the market
price prevailing as on the date of the grant plus taxes as applicable.
The Company has received a certificate from the Auditors of the Company that the
Scheme has been implemented in accordance with the SEBI Guidelines and the
resolution passed by the shareholders. The certificate would be placed at the
Annual General Meeting for inspection by members.

41 | P a g e

Managements
Discussion
and Analysis

42 | P a g e

Managements Discussion and Analysis


FORWARD-LOOKING STATEMENT
The report contains forward-looking statements, identified by words like plans,
expects, will, anticipates, believes, intends, projects, estimates and so on.
All statements that address expectations or projections about the future, but not
limited to the Companys strategy for growth, product development, market
position, expenditures and financial results, are forward-looking statements. Since
these are based on certain assumptions and expectations of future events, the
Company cannot guarantee that these are accurate or will be realised. The
Companys actual results, performance or achievements could thus differ from
those projected in any forward-looking statements. The Company assumes no
responsibility to publicly amend, modify or revise any such statements on the basis
of subsequent developments, information or events.
OVERVIEW
The global economy began its modest recovery in FY 2014-15 with improved
demand from OECD economies in the second half of 2013. While the trend is
expected to accelerate in the current year, the positive outlook is subdued by the
potential consequences of tapering of some of the US Federal Reserves
Quantitative Easing (QE) policies which were undertaken in the aftermath of global
financial crises. Emerging markets like India faced multiple challenges: capital
outflows, intense exchange rate pressures and volatile current account movement.
A combination of persistent inflation, fiscal imbalances, external sector
vulnerabilities and low investments resulted in sluggish domestic demand growth.
Fiscal and monetary initiatives taken by the Indian government and the Reserve
Bank of India (RBI) helped stabilize financial market conditions, but the domestic
macro-economic environment still remains challenging.
Economic recovery in the US and Europe had a positive impact on oil demand,
which increased by 1.3 million barrels per day (MMBPD) in 2013. Crude oil prices
fluctuated extensively, driven by supply concerns in Libya, South Sudan, West Africa
and Iraq. Higher US shale oil production helped offset the impact of these
disruptions with Brent crude oil prices averaging marginally lower at $ 108.7 per
barrel in 2013.
Operating in a volatile and uncertain environment, Reliance Industries Limited (RIL)
demonstrated the resilience of its business model. RILs best-in-class refining
configuration and integrated petrochemical business enabled it to deliver robust
profits in FY 2014-15. The Company achieved:
Highest ever Revenue of Rs.4,01,302 crore ($ 67.0 billion) and Net profit of
Rs.21,984 crore (3.7
billion)
43 | P a g e

Record Exports of Rs.2,75,825 crore ($ 46.0 billion)


Record Refining business EBIT Rs.13,220 crore ($ 2.2 billion)
Highest ever consolidated Revenue and Net profit of Rs.4,46,339 crore ($ 74.5
billion) and Rs.
22,493 crore ($ 3.8 billion) respectively
Dividend of 95%, highest ever payout of Rs.3,268 crore ($ 545 million)

Operationally, downstream segments continued to deliver superior performance


with operating rates of over 100%. RIL processed 68.0 million tonnes (MMT) of crude
oil at its Jamnagar refinery complex. The KG-D6 (JV) facility produced 2.31 million
barrels (MMBL) of crude and condensate and 178.3 billion cubic feet (BCF) of natural
gas. RILs share of gross JV production in US Shale was 154 BCFe in 2013 reflecting
a growth of 52% over previous year.
The Company featured in the Fortune Global 500 list of the worlds largest
corporations for the tenth consecutive year and was ranked 107th in terms of
revenues and 128th in terms of profits.
HIGHLIGHTS AND KEY EVENTS
RIL delivered strong results across its refining, petrochemicals and international E&P
businesses whilst continuing to grow and invest in its energy value chain. In
addition, substantial progress was made in consumer-facing businesses - retail and
telecom.
Refining Record earnings
The refining business had a record performance during the year delivering the
highest ever annual contribution to the Companys EBIT. RILs refining margins at $
8.1/bbl significantly outperformed regional benchmarks as the superior
configuration of its refineries enabled it to benefit from stable middle distillate
margins and widening light-heavy crude oil differentials.
Petrochemicals New PFY plant commissioned
Petrochemical business EBIT margins improved to 8.9% from 8.3% in the previous
year driving a 17.5% growth in EBIT to Rs.8,612 crore, with an improvement in
polymer chain margins.
Polyester Filament Yarn (PFY) plant at Silvassa was commissioned successfully
during FY 2014-15. Three products Partially Oriented Yarn (POY), Fully Drawn Yarn
(FDY) and Polyester Textured Yarn (PTY) are being produced at the site and all units
are now fully operational. The new PFY plant at Silvassa is one of the most
automated and environment friendly plants globally. It is co-located with RILs
44 | P a g e

existing texturizing facility at Silvassa eliminating the packaging and logistics costs.
The entire production from this facility has been successfully placed in the domestic
and international markets. With the commissioning of this ultra-modern PFY facility,
RILs total PFY capacity, including the facilities at Recron (wholly owned subsidiary
in Malaysia) is now in excess of 1.5 MMTPA. The polyester
facility is the first amongst a series of projects which will add significantly to RILs
petrochemical volumes and enhance cost-competitiveness.
Oil & Gas New discoveries and growth in Shale
The US shale gas business is now a material contributor to RILs consolidated
profits. The shale business delivered revenues of $ 819 million and EBITDA of $ 616
million in 2013 on the back of a 52% growth in volumes to 154 BCFe. Proved
reserves of shale gas increased 43% to 2.66 TCFe.
In May 2013, RIL and its partners made a significant gas and condensate discovery
(MJ-1) in the KG-D6 block of Krishna Godavari basin, off the eastern coast of India.
This discovery is expected to add to the hydrocarbon resources in the KG-D6 block.
In August 2013, RIL and BP also announced a new gas condensate discovery off
Indias east coast in the Cauvery basin. The discovery, in the deepwater block CYD5, is situated 62 kilometres from the coast in the Cauvery Basin and is the second
gas discovery in the block.
Retail business Indias largest retail chain
Reliance Retail has become Indias largest retailer by revenues. FY 2014-15
revenues grew 34% to Rs.14,496 crore, while EBITDA was at Rs.363 crore. The retail
business also achieved two major milestones in FY 2014-15. It crossed 10 million
square feet of retail space and broke even on a net profit basis during the year. The
Company enhanced its presence across various format sectors. Reliance Retail now
operates 1,691 stores across 146 cities.
Reliance Jio accelerated efforts to roll-out 4G services
Reliance Jio Infocomm Ltd. (RJIL) successfully acquired the right to use spectrum in
14 key circles across India in the 1,800 MHz band in the spectrum auction
conducted by Department of Telecommunications (DoT), Government of India (GoI).
RJIL will use this spectrum in conjunction with its pan India 2,300 MHz spectrum
acquired earlier to provide seamless 4G services using FDD-LTE on 1,800 MHz and
TDD-LTE on 2,300 MHz through an integrated ecosystem. Following the acquisition,
RJIL holds the largest quantum of liberalised spectrum, with the longest residual
spectrum life.
Earlier in the year, RJIL received Unified License for all 22 Service Areas across India
and became the first telecom operator in the country to get a pan India license. The
45 | P a g e

license allows RJIL to offer all telecom services including voice telephony under a
single license. The Company has migrated from its existing ISP license, along with
Broadband Wireless Access (BWA) spectrum, to the Unified License.

RIL delivered superior financial performance with improvements across key


parameters.
Revenue from operations of Rs.4,01,302 crore ($ 67.0 billion), increased 8.1% on
a y-o-y basis. Higher prices accounted for 7.7% growth in revenue and increase in
volumes accounted for 0.4% growth in revenue. Revenues were positively impacted
by a sharp movement in exchange rate, with a 10.4% depreciation of the Indian
ruspee vis--vis the US dollar. Exports were higher by 15.3% at Rs.2,75,825 crore ($
46.0 billion) as against Rs.2,39,266 crore in FY 2012-13.
1
Refining business contributes 78% of revenues (including inter-divisional
transfer) and grew by
8.4% as compared to previous year. The growth in
revenue was driven by 8.1% increase in prices
and 0.3% higher volumes
2
Petrochemicals business accounted for 21% of revenues and grew by 9.5% as
compared to previous year. The During the year, Reliance Jio announced telecom
infrastructure sharing
arrangements with Reliance Communications, Bharti
Airtel, Bharti Infratel and Viom Networks.
These agreements are aimed at
avoiding duplication of infrastructure, whilst also helping to
preserve
capital
and the environment. The infrastructure tie-ups will enable the accelerated rollout of RJILs state-of-the-art 4G services.
3

Credit rating upgrade

4
S&P upgraded RILs international debt rating to BBB+ with a negative
outlook, which is now
two notches above Indias sovereign rating. The upgrade
confirms RILs strong financial metrics and liquidity position in the sector.
1
growth in revenue was contributed by 8.6% increase in price and 0.9% higher
volumes
2
Oil & gas business revenue declined by 26.7% as compared to previous year
largely on account of 39.7% decline in production
Operating profit before other income and depreciation increased marginally from
Rs.30,787crore to Rs.30,877 crore ($ 5.2 billion) in FY 2014-15 with higher
contribution from refining and petrochemical business, partly offset by lower
contribution from the upstream business. Higher cost of crude oil and other raw
materials in rupee terms resulted in a 7.6% increase in cost of raw materials to
Rs.3,29,313 crore ($ 55.0 billion). Net operating margin was lower at 7.9%
compared to 8.5% in the previous year due to reduced contribution from oil & gas
business.
46 | P a g e

Other income was higher at Rs.8,936 crore ($ 1.5 billion) as against Rs.7,998 crore
in the previous year, largely on account growth in revenue was contributed by 8.6%
increase in price and 0.9% higher volumes
Oil & gas business revenue declined by 26.7% as compared to previous year largely
on account of 39.7% decline in production Operating profit before other income and
depreciation increased marginally from Rs.30,787crore to Rs.30,877 crore ($ 5.2
billion) in FY 2014-15 with higher contribution from refining and petrochemical
business, partly offset by lower contribution from the upstream business. Higher
cost of crude oil and other raw materials in rupee terms resulted in a 7.6% increase
in cost of raw materials to Rs.3,29,313 crore ($ 55.0 billion). Net operating margin
was lower at 7.9% compared to 8.5% in the previous year due to reduced
contribution from oil & gas business.
Other income was higher at Rs.8,936 crore ($ 1.5 billion) as against Rs.7,998 crore
in the previous year, largely on account.

RILs consolidated fixed assets stood at Rs. 2,32,911 crore ($ 38.9 billion) as of
31st March, 2015. This includes fixed assets of Rs. 81,789 crore of its subsidiaries
mainly in Reliance Jio Infocomm, Reliance Holding USA and Reliance Retail.
RILs gross debt on a consolidated basis was at Rs. 1,38,761 crore ($ 23.2
billion). This includes standalone gross debt of Rs. 89,968 crore and subsidiary debt
mainly raised by Reliance Holding USA (Rs. 32,122 crore), Reliance Jio Infocomm
(Rs. 14,763 crore) and Recron Malaysia (Rs. 1,592 crore).
Consolidated cash and marketable securities were at Rs. 90,637 crore ($ 15.1
billion), resulting in consolidated net debt of Rs. 48,124 crore ($ 8.0 billion).
LIQUIDITY AND CAPITAL RESOURCE
RILs cash and marketable securities as at 31st March, 2015 amounted to Rs.
88,190 crore ($ 14.7 billion), as compared to Rs. 82,975 crore at the beginning of
the year. RILs total debt stood at Rs. 89,968 crore ($ 15.0 billion) up from Rs.
72,427 crore last year. RILs gross debt to equity ratio including long-term and short-

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term debt as on 31st March, 2015 stood at 0.45, net debt to equity ratio was 0.01,
and net gearing was 0.8%.
RIL moved from a net cash position at the beginning of the year, to a marginal net
debt level during the course of the year as it drew down on funding to part finance
the expansion of its petrochemical capacities and setting up the new gasification
plant and refinery off-gas cracker over the next two to three years.
The Company continued to efficiently manage its short-term resources by placing
them in liquid instruments and highly rated securities, such as bank fixed deposits,
CDs, Government securities and corporate bonds. RIL raises capital resources in line
with its strategy of extending the average maturity of its long term debt, at a
competitive cost and tying up financing at early stages of project execution. RIL
continuously undertakes liability management to reduce cost of debt and to
diversify its liability mix.
RILs financial discipline and prudence is reflected in the strong credit ratings
ascribed by rating agencies.
In May 2013, S&P upgraded RILs international debt rating to BBB+ with a negative
outlook which is two notches above Indias sovereign rating. S&Ps rating upgrade
took cognizance of RILs plans to invest significantly in growing its businesses over
the next 3 years. S&P believes that the expansion program would further strengthen
RILs competitive position and profitability. The upgrade confirms RILs strong
financial metrics and liquidity position in the sector.
Moodys has rated RILs international debt at investment grade Baa2, with positive
outlook which is one notch above Indias sovereign rating.
RILs long-term debt is rated AAA by CRISIL and Ind AAA by Fitch, the highest
rating awarded by both these agencies. Similarly, RILs short-term debt is rated P1+
by CRISIL, the highest credit rating assigned in this category.
RILs superior credit profile is reflected in its lending relationships, with over 100
banks and financial institutions having commitments to RIL.
In continuation of the fund raising programme initiated in FY 2012-13, RIL tied up
facilities of around $ 3.15 billion equivalent to part finance the petrochemical
expansions and petcoke gasification projects through landmark transactions.
During FY 2015-15, RIL signed $ 500 million equivalent facilities backed by two
Export Credit Agencies (ECAs) which included $ 300 million facility from Export
Credits Guarantee Department (ECGD), the UK ECA, and $ 200 million equivalent
facility from The Compagnie Franaise dAssurance pour le Commerce Extrieur
(COFACE), the French ECA. These facilities will be drawn over the next two to three
years as the projects progress and will have a door-to-door tenor of over 10 to 13
years. These deals were accorded Better than Sovereign rating by both the ECAs.
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This is the first time these agencies accorded such a rating to any corporate in their
history, re-emphasising RILs creditworthiness in international debt markets.
For the ECA deals, RIL has received the TFR Deals of the Year award for 2013 from
Trade and Forfaiting Review, Deals of the Year 2013 award from Trade Finance
Magazine and GTR Best Deal of 2013 award from Global Trade Review and TFX
Perfect 10 Deals of the Year award for 2013 from Trade and Export Finance.
The syndicated loan deal of $ 1.75 billion equivalent completed during the year
represented the largest bank group in Asia in the last two years. The deal enjoyed a
strong participation of 30 international banks, despite turbulent market conditions.
This unsecured syndicated loan has a tenor in excess of five years and has one of
the longest tenors for a senior unsecured corporate loan in Asia this year.
Additionally, loans aggregating $ 900 million were raised through a mix of club and
bilateral loans during a period of extreme volatility in INR/USD currency with the INR
witnessing sharp depreciation. One of the loans (8.75 years tenor) probably has the
longest tenor for a senior unsecured corporate loan in Asia in 2013.
During FY 2015-15, Reliance Holding USA Inc. (RHUSA) through its wholly owned
subsidiary tied up five year revolving reserve based lending facility with a maximum
commitment of $ 300 million to finance the capital expenditure. With this, the total
reserve based lending commitments of RHUSA across its subsidiaries aggregates to
a maximum of $ 1.3 billion. In addition to this, another wholly owned subsidiary of
RHUSA executed a five year unsecured term loan facility with a maximum
commitment of $ 350 million.
During FY 2015-15, Reliance Jio Infocomm Limited raised financing from banks and
other institutions aggregating over Rs. 3,700 crore to part finance the capital
expenditure.
RIL has also been awarded the Best Borrower of the Year 2013 in Asia by Finance
Asia and Best Issuer of the Year 2013 in Asia by The Asset, two of Asias leading
financial publications.
97.0% of long-term debt and 62.3% of RILs short-term debt were denominated in
foreign currencies. The proportion of long-term debt to total debt is 74.7%.
Business Performance
REFINING AND MARKETING
Market environment and outlook Global
Crude oil
Oil markets broadly followed trends of recent years and prices remained within the
range established therein.
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New refining capacity in the Middle East, Asia and increased utilisation of the
resurgent US industry led to a weaker refining margin environment. However, the
flexibility and capability in the Reliance system in terms of feedstock run, product
flexibility and efficient product placement, coupled with a weaker rupee allowed
R&M to deliver a record performance in FY 2015-15.
Global economy and oil demand
The macro-economic environment began to show signs of recovery, led by the
OECD countries. Major economic
indicators from USA demonstrated positive
sentiments and the country posted strong GDP numbers across the quarters. The EU
zone, which had witnessed a recession in 2012, recovered in 2015-15. Emerging
markets in contrast struggled to sustain their high growth rates and deal with
inflationary pressures. China in particular looks to have moved to a more moderate
growth path.
Against this mildly positive economic backdrop, oil demand grew by 1.3 MMBPD to
91.4 MMBPD. Non-OECD countries led by China contributed to almost the entire oil
demand growth. Relatively sluggish economic activity and increasing energy
efficiency has led to a decline in absolute demand in developed economies.
Oil supply
On the supply side, overall supply increased by 0.6 MMBPD, led by Non-OPEC supply
which grew by 1.3 MMBPD during 2013 reducing the call on OPEC.
Geo-political tension and social unrest in several major oil exporting countries in the
Middle East and Africa impacted oil supplies. As a result, there were periods when
over 3 MMBPD were removed from the market.
The US shale oil revolution has led to a surge in the North American oil production,
contributing significantly to the OECD oil supplies. In 2013, US oil production
(including NGLs) increased by 1 MMBPD to 10.3 MMBPD, contributing to
fundamental changes in global oil trade flows. The increased US oil production is
replacing Latin American and West African crude imports into US, resulting in
increased flows to Asia.
Oil prices
Countervailing factors impacted oil markets in 2013. The geo-political environment
continued to remain volatile leading to supply disruptions. Despite reduced call on
OPEC, geo-political concerns on supply outlook together with actual disruptions,
kept Brent oil prices in the $ 90 to $ 115 per barrel range that has been established
over recent years.
Some de-bottlenecking in crude transportation infrastructure, including huge growth
in rail facilities, partly helped US crude prices recover versus Brent and Dubai.
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However, WTI is likely to continue to trade at a discount to global benchmarks due


to infrastructure and regulatory constraints. In FY 2015-15, Brent to WTI crude
differential narrowed to $ 8.6/bbl as compared to $ 18.1/bbl inFY 2012-13.
Refining margins
The dominant impact on global margins and trade flows was the increase in US
product exports, mainly as a result of higher operating rates, ramp-up of new
facilities and addition of some simple refining capacity. New capacity also came onstream in China and in the Middle East with the Jubail refinery ramping up
production during the year.
On the positive side - impact of material closures in the Atlantic region last year,
high incidences of unplanned outages and delayed commissioning of refineries,
provided some support to margins. Demand for refined products was also higher
than estimates at the beginning of the year. On an annualized basis margins were
weaker as compared to the previous year.
The year witnessed significant divergence in regional margins. US refineries
benefitted from low energy and cheap feedstock prices. While the narrowing of
Brent-WTI differential had a negative impact, absolute refining margins in the US
continue to be at high levels. Growth in demand emanated largely from the Eastern
hemisphere, providing support to Asian margins, including Reliance. European
refining margins witnessed dual pressure on account of increased import availability
from the US and ME region and weak local demand. Continued margin pressure on
European refining system could lead to further capacity rationalization.
RIL refining margins outperformed Singapore benchmark, widening the premium
over the benchmark to $ 2.2/bbl during FY 2015-15. RIL benefited from its ability to
run advantaged feedstock, flexibility to upgrade low value products and the
capacity to switch production to the most valuable product as the market evolved.
Middle distillates
Middle distillates (diesel and jet/kerosene) continued to remain the key contributors
to complex refining margins. In 2013, middle distillate demand grew by over 450
KBD, contributing almost 35% of global oil demand growth. In line with seasonal
patterns, gasoil cracks started low in the first quarter but gained strength through
the year as demand picked up. Demand for gasoil remained supported by growing
industrial activity and a colder-than-expected winter in the US. Subsidies on diesel
in most of the emerging Asian economies continue to support strong demand
growth.
Jet witnessed a low margin environment throughout the year amid ample supplies
and warmer weather in North Asia, where kerosene is used for heating.

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Indian diesel demand shrank by 1%, the first decline in over a decade. This was
partly in response to the slowdown in industrial activity and in part due to the
removal of subsidies to the commercial sector.
Light distillates
Light ends witnessed a mixed year. Gasoline cracks remained subdued through the
major part of the year, except the US driving season and the last quarter of the
year. The cracks averaged lower at $ 12.7/bbl during the year as compared to $
15.4/bbl in the previous year. Naphtha cracks held relatively stable during the first
half of the FY 2015-15 amid an increase in naphtha demand from Asian
petrochemical sector while the overall naphtha supply swelled. Cracks improved
during the second half of the year on back of firm petrochemical demand.
Freezing temperatures across US provided significant support to light-ends during
the winter period. Material increase in use of propane for heating in US resulted in
higher LPG prices globally. This supported naphtha prices as an alternate feedstock
for crackers.
Fuel oil
Fuel Oil (FO) cracks were strong in the first quarter of FY 2015-15, due to restricted
supply of blending components to produce on-spec marine fuels. Cracks were also
supported by reduction in Russian exports of Straight Run Fuel Oil due to the start of
new upgrading capacities. On
the demand side, teakettle refineries reduced throughput and used crude as
feedstock due to poor margins, capping further gains. However, FO cracks collapsed
in the second half of the year, on account of weak bunker demand in Asia, higher
stocks and below average Japanese power sector demand. Cracks improved
marginally in January due to seasonal winter demand, lower inflows from west and
improved demand as feedstock from teakettle refineries ahead of Lunar New Year.
Subsequently, cracks have drifted lower on flat bunker demand.
RIL is able to upgrade its heavy liquid products into higher value products, and
largely tends to benefit in weakness of fuel oil as it lowers the prices of heavy crude
oil.
Crude differentials
A key determinant of complex refining margins has been the differential between
light and heavy crudes. Arab Light Heavy crude differential widened to $ 4.2/bbl in
FY 2015-15 as compared to $ 3.6/bbl in the previous year. Heavier crudes,
particularly from Latin American sources were also available at significantly higher
differentials during FY 2015-15 with incremental light oil supply in North America.
While new refineries that are getting built are increasingly complex and require
heavy crudes as feedstock, crude production increase is more on the lighter side
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over the next few years supporting wider Light-Heavy differentials in the coming
years.
New refinery additions and expansions in existing refineries were partly offset by
closures in the US, Europe and Japan, leading to a net capacity addition of about 0.9
MMBPD; oil demand growth was higher at 1.3 MMBPD, with a reversal of the
declining trend in OECD demand witnessed over the last three years.
These refinery closures also resulted in improved average refinery utilisation rates
in North America (84.8% in 2013 compared to 84.1% in 2012). However, in Europe,
utilisation rates (76.4% compared to 79.8% in 2012) decreased due to weak
margins. Asian operating rates were at 85.4%.
Refining business and competitive position
RILs core business model for R&M segment is to acquire the most advantageous
crudes from across the world, process them optimally using its complex refining
assets and place high quality products in the most profitable markets using its
supply chain/logistics infrastructure. Along with this, RIL manages operational,
financial (business) and regulatory risks efficiently, which helps outperformance
over its regional peers.
Scale and complexity
The scale and complexity of RILs assets strongly support its business model. The
Jamnagar supersite, which processes close to 1.4 MMBPD of crude, is among the
largest and most complex refining assets in the world. It is composed of two refinery
systems, one of which caters to domestic and export demand while the other is
dedicated to the export market. The configuration of the refinery gives RIL the
technical ability to process almost all grades of crude oil produced and meet the
increasingly differentiated and more demanding product specifications.
Sourcing the most advantageous crude
The crude and supply trading teams select a crude diet using processes that are
optimised against the tremendous flexibility of the system, and then source the
most advantageous crudes across the globe. To date, the refinery has processed
128 different grades of crudes in addition to other semi-refined feedstock from
simple refineries.
Flexibility to alter the products
The configuration of RILs assets also allows for tremendous amount of flexibility to
alter the product slate and thus adapt to the changing market dynamics. The
facilities at Jamnagar enable RIL to produce products capable of meeting the most
stringent environmental norms, even after processing high sulphur feedstock. This
gives RIL a competitive advantage in catering to the needs of many markets across
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the world. This year Jamnagar produced seven new product grades, catering to
specific needs, helping RIL penetrate into high value niche markets. Significant
flexibility to increase the production by a scale of 2-3 times in Jet and Alkylate and
grade switching capabilities in gasoil help RIL capture market opportunities.
Integrated supply and trading
RILs integrated Supply and Trading team works with the refinery on a real time
basis to optimise the asset utilisation and place RILs products most profitably
across the globe. RILs global footprint includes trading offices in Houston, London,
Singapore and Mumbai which gives it a global coverage for crude supplies and
market outlets. The product trading team identifies the market shorts and
collectively places the products in the highest netback regions. Tankage
at the major trading hubs allows RIL to move its selling point closer to market,
helping to serve customers better, benefit from the seasonality capturing the upside
from the resulting market structure and taking advantage of prompt local
opportunities.

World class logistics infrastructure


Jamnagar refineries are supported by world-class logistics infrastructure, including a
marine facility, giving access to the worlds largest crude and product vessels. This
allows berthing of ships ranging from small chemical carriers to VLCCs. On the
refined product side, the ability to load LR2 sized vessels allows RIL to optimise on
the freight for delivery to its storage locations, helping maintain cost
competitiveness at distant locations.
Asset optimisation model
In addition to installing world-class assets, RIL excels in managing and utilizing its
assets most efficiently to generate greater value for its shareholders. RILs asset
optimization model is based on the principles of Safety, Operational Excellence and
Continuous Improvement.
Safety focus
RILs foremost priority is safe and reliable operations. RIL extensively utilizes
DuPonts safety processes and programmes, the recognized leader in the industry. A
better safety performance, not only enhances life and effectiveness of human and
capital assets, but also improves their availability and reduces losses due to safety
incidents.

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RILs HSE systems are aligned with recognised management systems and global
best practices. Most manufacturing units have been awarded ISO 14001:2004 and
OHSAS 18001:2007 certifications.
Operational excellence and continuous improvement
RIL implements a culture of continuous improvement, sponsored by top
management and supported by technology excellence and innovation. Centres of
Excellence (CoE) ensure that RIL adopts the latest and best industry standards,
processes, tools and applications available. The adoption of such global standards
and processes has enabled RILs refinery utilisation rates to consistently surpass
global averages and maintain operating costs per barrel which are amongst the
lowest in the world. In pursuit of achieving excellence in operations and energy
conservation, several profitability improvement and energy conservation projects
are identified and executed on non-going basis

R&M segment had a record year with the highest ever annual EBIT of Rs. 13,220
crore. Gross Refining Margin (GRM) averaging $ 8.1/bbl, as against $ 9.2/bbl in FY
2012-13. EBIT increased on account of stable middle distillate cracks, improved
light-heavy crude differentials and favourable currency movement. Though refining
margins remained weaker compared to last year, RIL performed significantly better
than the benchmark Singapore GRM which averaged at $ 5.9/bbl during the year.
RIL refineries processed 68 MMT of crude oil during the year, at an operating rate of
110%. It processed 10 new crude grades during the year, taking the total number of
crudes processed to 128.
Total exports of refined products reached $ 41.1 billion during the year compared to
$ 39.3 billion for the previous year.
Overall, effective utilisation of secondary processing units, innovative approach to
optimise logistics cost and utilisation, production flexibility to swing to higher net-

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back products and sourcing of best value feed stock enabled RIL to sustain its
performance even in a challenging margin environment.
Retail distribution network
GAPCO group owns and operates large storage facilities and has a retail distribution
network in Tanzania, Uganda, Rwanda and Kenya. It has significantly improved its
standing in the East African market and has emerged as a key supplier to the
neighboring countries. During 2013, 3.2 million Kilo Litres (mkLs) of petroleum
products were sold, up from 1.74 mkLs in 2012.
On the domestic retail side, nearly 300 retail outlets are operational, mainly in
Southern and Western India. There have been some positive signs in the market,
with step-wise price deregulation, but resuming operations in all geographies and
scaling up of sales will be possible after complete implementation of market
determined prices for gasoline and diesel.
Capex and growth plans
Petcoke gasification project utilising the bottom of barrel
One of RILs key strategies, going forward, is setting up the petcoke gasification
project which is expected to put RILs energy and hydrogen costs at par or better
than the refineries in the US, where natural gas prices have fallen dramatically with
the shale revolution. The project is designed to deliver a step change reduction in
energy costs, substituting imported LNG with Coke /Coal.
The project is based on the E-gas technology (owned by CB&I) and is currently in
the execution stage. Engineering and Procurement activities are nearing completion
and construction activities are progressing rapidly. Delivery of key units has started
at the site. Construction of the petcoke storage dome in Gasification complex is in
the final stages of completion. RIL is aiming for a phased start-up of the gasifiers.
Manpower resources and construction plans are aligned to execute the project on
schedule.
The coke gasification project is designed to run on both coal and petcoke, giving RIL
the flexibility to optimise based on relative economics. RIL is looking for various
sourcing options for petcoke from the refiners in India, Middle East and North
America. RIL is also evaluating coal import options from key coal exporting countries
Australia, Indonesia and South Africa.
The gasification assets, delivered with Reliances project execution capabilities, are
expected to enhance its refining profitability significantly. This project is expected to
make RILs energy costs competitive with the best in the industry.
PETROCHEMICALS

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RIL is one of the most integrated petrochemicals producers globally, with operations
ranging from the production of feedstock and intermediates to end products in both
the polyester and polymer chain. This vertical integration from refining to
petrochemical end products imparts RIL with the fundamental strength of feedstock
safety, scalability, product diversification and economies of scale.
RIL has a balanced portfolio of naphtha and gas based crackers, along with
matching downstream capacities. RILs petrochemical products portfolio includes
polymers (PE, PP, PVC), fibre intermediates (PX, PTA, MEG), polyester products (PFY,
PSF, PET), elastomers and solvents.
The combination of world-scale capacity and deep integration has a positive impact
on the Companys operating margins and reduces exposure to the cyclicality of
markets and raw material prices. The Company believes that this strategy is also
important in maintaining domestic market leadership in its major product lines and
is a source of competitive advantage.
RIL constantly focuses on technology, cost improvements and safe practices, whilst
continuing to invest in high growth opportunities.
Market Environment
Olefins and Polymers
Ethylene is the base raw material used in manufacturing of polymers like
Polyethylene (PE), Polyvinyl chloride (PVC) and polystyrene, and chemicals like
ethylene oxide and ethylene glycols.
The development of US shale gas reserves has had a profound impact on the global
chemical industry. With prices for ethane, the primary US ethylene feedstock, down
60% versus its historical averages, the US is today the second lowest cost region in
the world to produce chemicals (after the Middle East). Today, 69% of US ethylene is
produced from ethane versus 17% from propane and 6% from naphtha. In contrast,
Europe and Asia, which have limited amounts of natural gas, developed as crude oil
based chemical producing regions. Naphtha, a derivative of crude oil, is the primary
ethylene feedstock in these regions.
Global ethylene operating rates improved marginally to 85.8% in 2013, higher than
the five-year average of 85.4%. Ethylene prices and margins increased globally,
supported by stable crude oil and naphtha prices, along with tight supply due to
regional cracker turnarounds. Asian ethylene margins improved during the year led
by firm PE demand, despite high ethylene prices.
Global incremental ethylene supplies are likely to be constrained in 2015 due to
project delays. The current expectation for incremental capacities in 2015 is 37%
lower as compared to early 2013 estimates of 7.3 MMTPA. Major project delays are
largely in the North East Asian region. The global ethylene cycle is likely to stay
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strong over the next 3-4 years with the next major wave of capacity addition (US
shale gas based) expected from 2017-18. This could be further delayed due to
engineering and construction bottlenecks. Even with key pieces of equipment likely
to be built offshore, availability of skilled labour is likely to be a limiting factor for
the rate and cost at which new US ethylene capacity comes on-line.
The global thermoplastics market in 2013 was estimated at 208 MMT. PE accounted
for 39%, Polypropylene (PP) 27% and PVC 19%, respectively, of the global
thermoplastic market. Demand for these polymers (PE, PP, PVC) grew by 3.4%
during 2013 driven by North America, China and marginal improvement in European
market. The demand for these polymer products is likely to grow at CAGR of
approximately 4% over the next five year period.

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Auditors Report

Auditors and Auditors Report


M/s. Chaturvedi & Shah, Chartered Accountants, Deloitte Haskins & Sells LLP,
Chartered Accountants and M/s. Rajendra & Co., Chartered Accountants, Statutory
Auditors of the Company, hold office till the conclusion of the ensuing Annual
General Meeting and are eligible for re-appointment.

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The Company has received letters from all of them to the effect that their reappointment, if made, would be within the prescribed limits under Section 141(3)(g)
of the Companies Act, 2013 and that they are not disqualified for re-appointment.
The Notes on Financial Statements referred to in the Auditors Report are selfexplanatory and do not call for any further comments.
Secretarial Audit Report
As a measure of good corporate governance practice, the Board of Directors of the
Company appointed Dr. K.R. Chandratre, Practising Company Secretary, to conduct
the Secretarial Audit. The Secretarial Audit Report for the financial year ended
March 31, 2015, is provided in the Annual Report.
The Secretarial Audit Report confirms that the Company has complied with all the
applicable provisions of the Companies Act, 1956, the 98 sections of the Companies
Act, 2013 notified vide Ministry of Corporate Affairs Gazette Notification No. S.O.
2754(E) dated September 12, 2013, the Securities Contracts (Regulation) Act, 1956,
Depositories Act, 1996, the Foreign Exchange Management Act, 1999 to the extent
applicable to Overseas Direct Investment (ODI), Foreign Direct Investment (FDI) and
External Commercial Borrowings (ECB), all the Regulations and Guidelines of SEBI as
applicable to the Company, including the Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the Securities
and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, the
Securities and Exchange Board of India (Employee Stock Option Scheme and
Employee Stock Purchase Scheme) Guidelines, 1999, the Securities and Exchange
Board of India (Issue and Listing of Debt Securities) Regulations, 2008, Listing
Agreements with the Stock Exchanges and the Memorandum and Articles of
Association of the Company.
Particulars of Employees
In terms of the provisions of Section 217(2A) of the Companies Act, 1956, read with
the Companies (Particulars of Employees) Rules, 1975, as amended, the names and
other particulars of the employees are set out in the annexure to the Directors
Report. Having regard to the provisions of Section 219(1)(b)(iv) of the said Act, the
Annual Report excluding the aforesaid information is being sent to the members of
the Company. Any member interested in obtaining such particulars may write to the
Company Secretary of the Company.

EBIT EPS DATA ANALYSIS


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a. RETURN ON ASSETS
In this case profits are related to assets as follows

b). RETURN ON CAPITAL EMPLOYED


Here return is compared to the total capital employed. A comparison of this ratio
with that of
other units in the industry will indicate how efficiently the funds of the business
have been
employed. The higher the ratio the more efficient is the use of capital employed.

(Total capital employed = Fixed assets + Current assetsCurrent liabilities)


YEAR 2009-2010

YEAR 2010-2011

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YEAR 2011-2012

YEAR 2012-2013

YEAR 2015-2015

EBIT LEVELS

The higher the quotient, the greater the leverage. In RELIANCE Industries
case it is increasing because of decrease in EBIT levels to 2015-2015. In the
year 2011-12 and 2012-13 the EBIT level has decrease substantially because
of because of low demand and the policies of Govt.

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Graph

INTERPRETATION
The EBIT level in 2009-10 is at 33041 Crore and is increase in every year till
2010-11. Because ofslump in the international market less realization. The
EBIT levels in 2011-12 and 2012-13 it
was decrease 3% and 34%
respectively, again started growingand reached to 27818 crore in 2015-15
because of the sale price increase
and increase in demand. The
infrastructure program taken up by the Govt. to boost oil exploration and
liberalization policies are making profits.
PERFORMANCE
EPS ANALYSIS

INTERPRETATION

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The PAT is in an increasing trend from 2009 because of increase in sale prices
and also decreases in the cost of manufacturing. In 2012 even the cost of
manufacturing has increased by 5% because of low sales volume PAT has
decrease considerably, which leads to lower EPS, but for the year 2013 and
2015 EPS increase as increase in PAT.
EBIT EPS CHART
One convenient and useful way showing the relationship between EBIT and
EPS for the alternative financial plans is to prepare the EBIT-EPS chart. The
chart is easy to prepare since for any given level of financial leverage, EPS is
linearly related to EBIT. As noted earlier, the formula for calculating EPS is

We assume that the level of debt, the cost of debt and the tax rate are
constant. Therefore in equation, the terms (1-T)/N and INT (=iD) are constant:
EPS will increase if EBIT increases and fall if EBIT declines. Can also be written
as follows

Under the assumption made, the first part of is a constant and can be
represented by an EBIT is a random variable since it can assume a value
more or less than expected. The term (1 T)/N are also a constant and can be
shown as b. Thus, the EPS, formula can be written as: EPS = a + bEBIT
FINANCIAL LEVERAGE
INTRODUCTION:
Leverage, a very general concept, represents influence or power. In financial
analysis leverage represents the influence of a financial variable over same
other related financial variable. Financial leverage is related to the financing
activities of a firm. The sources from which funds can be raised by a firm,
from the viewpoint of the cost can be categorized into:
Those, which carry a fixed finance charge.
Those, which do not carry a fixed charge.

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The sources of funds in the first category consists of various types of long
term debt including loans, bonds, debentures, preference share etc., these
long-term debts carry a fixed rate of interest which is a contractual obligation
for the company except in the case of preference shares. The equity holders
are entitled to the remainder of operating profits if any.

Financial leverage results from presence of fixed financial charges in eh firms


income stream. These fixed charges dont vary with EBIT or operating profits.
They have to be paid regardless of EBIT availability. Past payment balances
belong to equity holders. Financial leverage is concerned with the effect of
changes I the EBIT on the earnings available to shareholders.
DEFINITION:
Financial leverage is the ability of the firm to use fixed financial charges to
magnify the effects of changes in EBIT on EPS i.e., financial leverage involves
the use of funds obtained at fixed cost in the hope of increasing the return to
shareholder. The favorable leverage occurs when the Firm earns more on the
assets purchase with the funds than the fixed costs of their use. The adverse
business conditions, this fixed charge could be a burden and pulled down the
companies wealth
MEANING OF FINANCIAL LEVERAGE:
As stated earlier a company can finance its investments by debt/equity. The
company may also use preference capital. The rate of interest on debt is
fixed, irrespective of the companys rate of return on assets. The company
has a legal banding to pay interest on debt .The rate of preference dividend is
also fixed, but preference dividend are paid when company earns profits. The
ordinary shareholders are entitled to the residual income. That is, earnings
after interest and taxes belong to them. The rate of equity dividend is not
fixed and depends on the dividend policy of a company. The use of the fixed
charges, sources of funds such as debt and preference capital along with
owners equity in the capital structure, is described as financial leverages
or gearing or trading or equity. The use of a term trading on equity is
derived from the fact that it is the owners equity that is used as a basis to
raise debt, that is, the equity that is traded upon the supplier of the debt has
limited participation in the companies profit and therefore, he will insists on
protection in earnings and protection in values represented by owners
equitys.
FINANCIAL LEVERAGE AND THE SHAREHOLDERS RISK

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Financial leverage magnifies the shareholders earnings we also find that the
variability of EBIT causes EPS to fluctuate within wider ranges with debt in the
capital structure that is with more debt EPS raises and falls faster than the
rise and fall in EBIT. Thus financial leverage not only magnifies EPS but also
increases its variability. The variability of EBIT and EPs distinguish between
two types of risk operating risk and financial risk. The distinction between
operating and financial risk was long ago recognized by Marshall in the
following words.
OPERATING RISK: Operating risk can be defined as the variability of EBIT (or return on total
assets). The environment internal and external in which a firm operates
determines the variability of EBIT. So long as the environment is given to the
firm, operating risk is an unavoidable risk. A firm is better placed to face such
risk if it can predict it with a fair degree of accuracy.

THE VARIABILITY OF EBIT HAS TWO COMPONENTS


1. Variability of sales
2. Variability of expenses
1. VARIABILITY OF SALES:
The variability of sales revenue is in fact a major determinant of operating
risk. Sales of a company may fluctuate because of three reasons. First the
changes in general economic conditions may affect the level of business
activity. Business cycle is an economic phenomenon, which affects sales of all
companies. Second certain events affect sales of company belongings to a
particular industry for example the general economic condition may be good
but a particular industry may be hit by recession, other factors may include
the availability of raw materials, technological changes, action of
competitors, industrial relations, shifts in consumer preferences and so on.
Third sales may also be affected by the factors, which are internal to the
company. The change in management the product market decision of the
company and its investment policy or strike in the company has a great
influence on the companys sales.
2. VARIABILITY OF EXPENSES: Given the variability of sales the variability of EBIT is further affected by the
composition of fixed and variable expenses. Higher the proportion of fixed
expenses relative to variable expenses, higher the degree of operating
leverage. The operating leverage affects EBIT. High operating leverage leads
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to faster increase in EBIT when sales are rising. In bad times when sales are
falling high operating leverage becomes a nuisance; EBIT declines at a
greater rate than fall in sales. Operating leverage causes wide fluctuations in
EBIT with varying sales. Operating expenses may also vary on account of
changes in input prices and may also contribute to the variability of EBIT.
FINANCIAL RISK: For a given degree of variability of EBIT the variability of EPS and ROE
increases with more financial leverage. The variability of EPS caused by the
use of financial leverage is called financial risk. Firms exposed to same
degree of operating risk can differ with respect to financial risk when they
finance their assets differently. A totally equity financed firm will have no
financial risk. But when debt is used the firm adds financial risk. Financial risk
is this avoidable risk if the firm decides not to use any debt in its capital
structure.

MEASURES OF FINANCIAL LEVERAGE: The most commonly used measured of financial leverage are:
1.Debt ratio: the ratio of debt to total capital, i.e.,

Where, D is value of debt, S is value of equity and V is value of total capital D


and S may be measured in terms of book value or market value. The book
value of equity is called not worth.
2.Debt-equity ratio: The ratio of debt to equity, i.e.,

3.Interest coverage: the ration of net operating income (or EBIT) to interest
charges, i.e.,

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The first two measures of financial leverage can be expressed in terms of


book or market values. The market value to financial leverage is the erotically
more appropriate because market values reflect the current altitude of
investors. But, it is difficult to get reliable information on market values in
practice. The market values of securities fluctuate quite frequently.
There is no difference between the first two measures of financial leverage in
operational terms. They are related to each other in the following manner.

These relationships indicate that both these measures of financial leverage


will rank companies in the same order. However, the first measure (i.e., D/V)
is more specific as its value ranges between zeros to one. The value of the
second measure (i.e., D/S) may vary from zero to any large number. The
debt-equity ratio, as a measure of financial leverage, is more popular in
practice. There is usually an accepted industry standard to which the
companys debt-equity ratio is compared. The company will be considered
risky if its debt-equity ratio exceeds the industry-standard. Financial
institutions and banks in India also focus on debt equity ratio in their lending
decisions. The first two measures of financial leverage are also measures of
capital gearing. They are static in nature as they show the borrowing position
of the company at a point of time.

These measures thus fail to reflect the level of financial risk, which inherent in
the possible failure of the company to pay interest repay debt. The third
measure of financial leverage, commonly known as coverage ratio, indicates
the capacity of the company to meet fixed financial charges. The reciprocal of
interest coverage that is interest divided by EBIT is a measure of the firms
incoming gearing. Again by comparing the companys coverage ratio with an
accepted industry standard, the investors, can get an idea of financial risk
68 | P a g e

.however, this measure suffers from certain limitations. First, to determine


the companys ability to meet fixed financial obligations, it is the cash flow
information, which is relevant, not the reported earnings. During recessional
economic conditions, there can be wide disparity between the earnings and
the net cash flows generated from operations. Second, this ratio, when
calculated on past earnings, does not provide any guide regarding the future
riskiness of the company. Third, it is only a measure of short term liquidity
than of leverage.
FINANCIAL LEVERAGE AND THE SHARE HOLDERS RETURN:
The primary motive of a company in using financial leverage is to magnify
the shareholders return under favorable economic conditions. The role of
financial leverage in magnifying the return of the shareholders is based under
assumption that the fixed charges funds (such as the loan from financial
institutions and other sources or debentures) can be obtained at a cost lower
than the firms rate of return on net assets. Thus, when the difference
between the earnings generalized by assets financed by the fixed charges
funds and cost of these funds is distributed to the shareholders, the earnings
per share (EPS) or return on equity increase. However, EPS or ROE will fall if
the company obtains the fixed charges funds at a cost higher than the rate of
return on the firms assets. It should, there fore, be clear that EPS, ROE and
ROI are the important figures for analyzing the impact of financial leverage.
COMBINED EFFECT OF OPERATING AND FINANCIAL LEVERAGES
Operating and financial leverages together cause wide fluctuations in EPS for
a given change in sales. If a company employs a high level of operating and
financial leverage, even a small change in the level of sales will have
dramatic effect on EPS. A company with cyclical sales will have a fluctuating
EPS; but the swings in EPS will be more pronounced if the company also uses
a high amount of operating and financial leverage. The degree of operating
and financial leverage can be combined to see the effect of total leverage on
EPS associated with a given change in sales. The degree of combined
leverage (DCL) is given by the following equation:

Yet another way of expressing the degree of combined leverage is as follows:

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Since Q (S-V) is contribution and Q (S-V)-F-INT is the profit after interest but
before taxes, Equation 2 can also be written as follows:

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Ratio
analysis

Ratio analysis
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Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the


indicated quotient of two mathematical expressions and the relationship between
two or more things. In financial analysis, a ratio is used as a benchmark for
evaluation the financial position and performance of a firm.
The absolute
accounting figures reported in the financial statements do not provide a meaningful
understanding of the performance and financial position of a firm. An accounting
figure conveys meaning when it is related to some other relevant information. For
example, an Rs.5 core net profit may look impressive, but the firms performance
can be said to be good or bad only when the net profit figure is related to the firms
Investment.
The relationship between two accounting figures expressed mathematically,
is known as a financial ratio (or simply as a ratio). Ratios help to summarize large
quantities of financial data and to make qualitative judgment about the firms
financial performance. For example, consider current ratio. It is calculated by
dividing current assets by current liabilities; the ratio indicates a relationship- a
quantified relationship between current assets and current liabilities.
This
relationship is an index or yardstick, which permits a quantitative judgment to be
formed about the firms liquidity and vice versa. The point to note is that a ratio
reflecting a quantitative relationship helps to form a qualitative judgment. Such is
the nature of all financial ratios.

Standards of comparison:
The ration analysis involves comparison for a useful interpretation of the financial
statements. A single ratio in itself does not indicate favorable or unfavorable
condition. It should be compared with some standard. Standards of comparison
may consist of:

Past ratios, i.e. ratios calculated form the past financial statements of the
same firm;

Competitors ratios, i.e., of some selected firms, especially the most


progressive and successful competitor, at the same pint in time;

Industry ratios, i.e. ratios of the industry to which the firm belongs; and

Protected ratios, i.e., developed using the protected or pro-forma, financial


statements of the same firm.
In this project calculating the past financial statements of the same firm does ratio
analysis.

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1.1 Theoretical background:

1.1.1 Use and significance of ratio analysis:The ratio is one of the most powerful tools of financial analysis.
It is used as a device to analyze and interpret the financial health of enterprise.
Ratio analysis stands for the process of determining and presenting the relationship
of items and groups of items in the financial statements. It is an important
technique of the financial analysis. It is the way by which financial stability and
health of the concern can be judged. Thus ratios have wide applications and are of
immense use today. The following are the main points of importance of ratio
analysis:
a) Managerial uses of ratio analysis:1. Helps in decision making:Financial statements are prepared primarily for decision-making. Ratio analysis
helps in making decision from the information provided in these financial
Statements.
2. Helps in financial forecasting and planning:Ratio analysis is of much help in financial forecasting and planning. Planning is
looking ahead and the ratios calculated for a number of years a work as a guide for
the future. Thus, ratio analysis helps in forecasting and planning.
3. Helps in communicating:The financial strength and weakness of a firm are communicated in a more easy
and understandable manner by the use of ratios. Thus, ratios help in
communication and enhance the value of the financial statements.
4. Helps in co-ordination:Ratios even help in co-ordination, which is of at most importance in effective
business management. Better communication of efficiency and weakness of an
enterprise result in better co-ordination in the enterprise
5. Helps in control:73 | P a g e

Ratio analysis even helps in making effective control of business.The weaknesses


are otherwise, if any, come to the knowledge of the managerial, which helps, in
effective control of the business.

b) Utility to shareholders/investors:An investor in the company will like to assess the financial position of the concern
where he is going to invest. His first interest will be the security of his investment
and then a return in form of dividend or interest. Ratio analysis will be useful to the
investor in making up his mind whether present financial position of the concern
warrants further investment or not.
C) Utility to creditors: The creditors or suppliers extent short-term credit to the concern. They are
invested to know whether financial position of the concern warrants their payments
at a specified time or not.

d) Utility to employees:The employees are also interested in the financial position of the concern especially
profitability. Their wage increases and amount of fringe benefits are related to the
volume of profits earned by the concern.
e) Utility to government:Government is interested to know overall strength of the industry. Various financial
statement published by industrial units are used to calculate ratios for determining
short term, long-term and overall financial position of the concerns.
f) Tax audit requirements:Sec44AB was inserted in the income tax act by financial act; 1984.Caluse 32 of the
income tax act requires that the following accounting ratios should be given:
Gross profit / turnover.
Net profit / turnover.
Stock in trade / turnover.
Material consumed /finished goods produced.

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Further, it is advisable to compare the accounting ratios for the year under
consideration with the accounting ratios for earlier two years so that the auditor can
make necessary enquiries, if there is any major variation in the accounting ratios.

1.1.2 Limitations:
Ratio analysis is very important in revealing the financial position and soundness of
the business. But, inspite of its advantages, it has some limitations which restrict its
use. These limitations should be kept in mind while making use of ratio analysis for
interpreting the financial the financial statements. The following are the main
limitations of ratio analysis:
1. False results:Ratios are based upon the financial statement. In case financial statement are in
correct or the data of on which ratios are based is in correct, ratios calculated will all
so false and defective. The accounting system it self suffers from many inherent
weaknesses the ratios based upon it cannot be said to be always reliable.
2. Limited comparability:The ratio of the one firm cannot always be compare with the performance of other
firm, if uniform accounting policies are not adopted by them. The difference in the
methods of calculation of stock or the methods used to record the deprecation on
assets will not provide identical data, so they cannot be compared.
3. Absence of standard universally accepted terminology:Different meanings are given to a particular term, egg. Some firms take profit before
interest and tax; others may take profit after interest and tax. A bank overdraft is
taken as current liability but some firms may take it as non-current liability. The
ratios can be comparable only when all the firms adapt uniform terminology.
4. Price level changes affect ratios:The comparability of ratios suffers, if the prices of the commodities in two different
years are not the same. Change in price effect the cost of production, sale and also
the value of assets. It means that the ratio will be meaningful for comparison, if the
prices do not change.
5. Ignoring qualitative factors:75 | P a g e

Ratio analysis is the quantitative measurement of the performance of the business.


It ignores qualitative aspect of the firm, how so ever important it may be. It shoes
that ratio is only a one sided approach to measure the efficiency of the business.
6. Personal bias:Ratios are only means of financial analysis and an end in it self. The ratio has to be
interpreted and different people may interpret the same ratio in different ways.
7. Window dressing:Financial statements can easily be window dressed to present a better picture of its
financial and profitability position to outsiders. Hence, one has to be very carefully
in making a decision from ratios calculated from such financial statements.
8. Absolute figures distortive:Ratios devoid of absolute figures may prove distortive, as ratio analysis is primarily
a quantitative analysis and not a qualitative analysis.

1.1.3 Classification of ratios:


Several ratios, calculated from the accounting data can be grouped into various
classes according to financial activity or function to be evaluated. Mangement is
interested in evaluating every aspect of the firms performance. They have to
protect the interests of all parties and see that the firm grows profitably.In view of
thee reqirement of the various users of ratios, ratios are classified into following four
important categories:

Liquidity ratios

- short-term financial strength

Leverage ratios

- long-term financial strength

Profitability ratios

- long term earning power

Activity ratios

- term of investment utilization

Liquidity ratios measure the firms ability to meet current obligations;


Leverage ratios show the proportions of debt and equity in financing the firms
assets;
Activity ratios reflect the firms efficiency in utilizing its assets; and
Profitability ratios measure overall performance and effectiveness of the firm

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LIQUIDITY RATIOS:
It is extremely essential for a firm to be able to meet the obligations as they
become due. Liquidity ratios measure the ability of the firm to meet its current
obligations (liabilities). The liquidity ratios reflect the short-term financial strength
and solvency of a firm. In fact, analysis of liquidity needs the preparation of cash
budgets and cash and funds flow statements; but liquidity ratios, by establishing a
relationship between cash and other current assets to current obligations, provide a
quick measure of liquidity. A firm should ensure that it does not suffer from lack of
liquidity, and also that it does not have excess liquidity. The failure of a company to
meet its obligations due to lack of sufficient liquidity, will result in a poor credit
worthiness, loss of credit worthiness, loss of creditors confidence, or even in legal
tangles resulting in the closure of the company. A very high degree of liquidity is
also bad; idle assets earn nothing. The firms funds will be unnecessarily tied up in
current assets. Therefore, it is necessary to strike a proper balance between high
liquidity and lack of liquidity.
The most common ratios which indicate the extent of liquidity are lack
of it, are:
Current ratio
Quick ratio.
Cash ratio and
Networking capital ratio

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1. Current Ratio:
Current ratio is calculated by dividing current assets by current liabilities.

Current assets include cash and other assets that can be converted into cash within
in a year, such as marketable securities, debtors and inventories. Prepaid expenses
are also included in the current assets as they represent the payments that will not
be made by the firm in the future. All obligations maturing within a year are
included in the current liabilities. Current liabilities include creditors, bills payable,
accrued expenses, short-term bank loan, income tax, liability and long-term debt
maturing in the current year.
The current ratio is a measure of firms short-term solvency. It indicates the
availability of current assets in rupees for every one rupee of current liability. A
ratio of greater than one means that the firm has more current assets than current
claims against them Current liabilities.
Calculation
For the year 2015-15

Graphical presentation

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For the year 2012-13

Interpretation
For the current Ratio standard ratio is 1:2. Here current Ratio is 1.61 for the year
2015-15 and 1.72 for the year 2012-13. In comparison there was decrease in 0.11 in
the ratio, which not good for the company as they are not utilizing their credibility in
the market and using access current asset then required.

2. Quick Ratio:
Quick ratio also called Acid-test ratio, establishes a relationship
between quick, or liquid, assets and current liabilities. An asset is a liquid if it can be
converted into cash immediately or reasonably soon without a loss of value. Cash is
the most liquid asset. Other assets that are considered to be relatively liquid and
included in quick assets are debtors and bills receivables and marketable securities
(temporary quoted investments). Inventories are considered to be less liquid.
Inventories normally require some time for realizing into cash; their value also has a
tendency to fluctuate. The quick ratio is found out by dividing quick assets by
current liabilities.

Calculation
For the year 2015-15
2012-13

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For the year

Graphical presentation

Interpretation
For the quick Ratio standard ratio is 1:1. Here current Ratio is 0.58 for the
year 2015-15 and 0.77 for the year 2012-13. In comparison there was decrease in
0.19 in the ratio, which not good for the company as they under utilizing their quick
asset with cash management, and company might face liquidity problem, if it
continues for long time.

3. Cash Ratio:
Since cash is the most liquid asset, it may be examined cash ratio and its
equivalent to current liabilities. Trade investment or marketable securities are
equivalent of cash; therefore, they may be included in the computation of cash
ratio:

Calculation
For the year 2015-15

Graphical presentation

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For the year 2012-13

Interpretation
For the cash Ratio standard ratio is 1:1. Here current Ratio is 0.43 for the year
2015-15 and 0.39 for the year 2012-13. In comparison there was increase in 0.04 in
the ratio, which good for the company as they utilizing their cash with proper cash
management, and company utilize more cash, and company can some cash to
other project so that they can capitalize the additional cash.

4. Net Working Capital Ratio


The difference between current assets and current liabilities excluding short
term bank borrowings in called net working capital (NWC) or net current assets
(NCA). NWC is sometimes used as a measure of firms liquidity. It is considered that
between two firms the one having larger NWC as the greater ability to meet its
current obligations. This is not necessarily so; the measure of liquidity is a
relationship, rather than the difference between current assets and current
liabilities. NWC, however, measures the firms potential reservoir of funds. It can
be related to net assets (or capital employed):
Formula:

Calculation
For the year 2015-15
2012-13

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For the year

Graphical presentation

Interpretation
For the Net working capital ratio standard ratio is 0.50. Here working capital
turnover Ratio is 0.14 for the year 2015-15 and 0.258 for the year 2012-13. In
comparison there was decrease in 0.09 in the ratio, means company better utilizing
their working capital, with comparison with previous year current liability increased
but less proportionately with current liability. It indicates that company better utilize
their current Assets.

5. DEBT RATIO:
Several debt ratios may be used to analyze the long term solvency of the firm The
firm may be interested in knowing the proportion of the interest bearing debt (also
called as funded debt) in the capital structure. It may, therefore, compute debt
ratio by dividing total debt by capital employed or net assets. Capital employed will
include total debt and net worth.
Formula:

Calculation
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For the year 2015-15


2012-13

For the year

Graphical presentation

Interpretation
Debt ratios may be measure the long term solvency of the company. Here
DEBT Ratio is 0.135 for the year 2015-15 and 0.107 for the year 2012-13. In
comparison there was increase ratio in 0.03 in the ratio, means company raised
more fund from DEBT, it will cost a lot in the form of interest. While as company also
increased their net assets.

6. Debt-Equity Ratio:
The relationship describing the lenders contribution for each rupee of the
owners contribution is called debt-equity (DE) ratio is directly computed by dividing
total debt by net worth:
Formula
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Calculation
For the year 2015-15
2012-13

For the year

Graphical presentation

Interpretation
Debt-Equity Ratio indicates how effectively the total debt utilized with
comparison total wealth of the company. Here Ratio is 0.396 for the year 2015-15
and 0.340 for the year 2012-13. In comparison there was increase ratio in 0.05 in
the ratio, means company raised more fund from DEBT, it will cost a lot in the form
of interest. While as company also increased their net assets. This indicates that
company using leverage by using debt for operation with comparison equity fund.

7. Capital Employed to Net worth Ratio


It is another way of expressing the basic relationship between debt
and equity. One may want to know: How much funds are being contributed together
by lenders and owners for each rupee of owners contribution? Calculating the ratio
of capital employed or net assets to net worth can find this out:
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Formula:

Calculation
For the year 2015-15

For the year 2012-13

Graphical presentation:

Interpretation
Capital employed Ratio indicates funds are being contributed together by
lenders and owners for each rupee of owners contribution the company. Here Ratio
is 0.74 for the year 2015-15 and 0.738 for the year 2012-13. In comparison there
was increase ratio in 0.002 in the ratio, means company using their working capital
more effectively.

COVERAGE RATIO:

8. Interest Coverage Ratio:

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Debt ratios described above are static in nature, and fail to indicate the firms ability
to meet interest (and other fixed charges) obligations. The interest coverage
ratio or the times interest-earned is used to test the firms debt-servicing
capacity. the interest coverage ratio is computed by dividing earnings before
interest and taxes(EBIT)by interest charges:
Formula:

Calculation
For the year 2015-15
2012-13

For the year

Graphical presentation

Interpretation
Interest coverage Ratio indicates interest cast paid by to company for the
debt used with comparison total earnings before interest and tax. Here Ratio is 6.86
for the year 2015-15 and 7.499 for the year 2012-13. It indicate there is minor
increment in the interest paid with comparison company have earned more
earnings before interest and tax.

ACTIVITY RATIOS:
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Funds of creditors and owners are interested in various assets to


generate sales and profits. The better the management of assets, the larger the
amount of sales. Activity ratios are employed to evaluate the efficiency with which
the firm manages and utilizes its assets. These ratios are also called turnover ratios
because they indicate the speed with which assets are being converted or turned
over. into sales.

9. Net Assets Turnover Ratio:

Net assets turnover can be computed simply by dividing sales by net sales
(NA)
It may be recalled that net assets (NA) include net fixed assets (NFA) and net
current assets (NCA), that is, current assets (CA) minus current liabilities (CL). Since
net assets equal capital employed, net assets turnover may also be called capital
employed, net assets turnover may also be called capital employed turnover.
Formula

Calculation:
For the year 2015-15
2012-13

For the year

Graphical presentation

Interpretation
Net assets turnover Ratio indicates how effectively net asset are being used
by the company to generate the sale. Here Ratio is 1.47 for the year 2015-15 and
1.57 for the year 2012-13. In comparison there was decrease in ratio in 0.10. It

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show company dont haves used their net asset to maximize their sales comparing
with last year performance.

10. Total Assets Turnover:


Some analysts like to compute the total assets turnover in addition to or
instead of the net assets turnover. This ratio shows the firms ability in generating
sales from all financial resources committed to total assets.
Total Assets (TA) include net fixed Assets (NFA) and current assets (CA)
(TA=NFA+CA)
Formula

Calculation:
For the year 2015-15
2012-13

For the year

Graphical presentation

Interpretation
This ratio shows the firms ability in generating sales from all financial
resources committed to total assets. Here Ratio is 1.09 for the year 2015-15 and
1.16 for the year 2012-13. In comparison there was decrease ratio in 0.015 in the

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ratio. It indicates companies dont utilize its total asset properly to generate more
sales comparing with previous year. Company must need to improve the same.

11. Current Assets Turnover


A firm may also like to relate current assets (or net working gap) to sales. It
may thus complete networking capital turnover by dividing sales by net working
capital.
Formula

Calculation:
For the year 2015-15
2012-13

Graphical presentation

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For the year

Interpretation
Current assets turnover Ratio indicates how effectively Current asset are being used
by the company to generate the sale. Here Ratio is 2.96 for the year 2015-15 and
2.57 for the year 2012-13. In comparison there was decrease in ratio in 0.40. it
show company not effectively used their net asset to maximize their sales
comparing with last year performance.

12. Fixed Assets Turnover:


The firm to know its efficiency of utilizing fixed assets separately. This ratio
measures sales in rupee of investment in fixed assets. A high ratio indicates a high
degree of utilization in assets and low ratio reflects the inefficient use of assets

Formula

Calculation:

For the year 2015-15


2012-13

Graphical presentation

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For the year

Interpretation
Fixed assets turnover Ratio indicates how effectively fixed asset are being used by
the company to generate the sale. Here Ratio is 1.72 for the year 2015-15 and 2.12
for the year 2012-13. In comparison there was decrease in ratio in 0.40. it show
company not effectively used their fixed asset to maximize their sales comparing
with last year performance. It shows the poor performance of the company.

13. Working Capital Turnover Ratio:


Working Capital of a concern is directly related to sales. The current assets like
debtors, bills receivable, cash, and stock etc. change with the increase or decrease
in sales. The Working Capital is taken as:
Working Capital = Current Assets Current Liabilities
. A higher ratio indicates the efficient utilization of working capital and the
low ratio indicates inefficient utilization of working capital.
Formula:

Calculation:
For the year 2015-15

For the year 2012-13

Graphical presentation

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Interpretation
This Ratio indicates the velocity of the utilization of net working capital. This Ratio
indicates the number of times the working capital is turned over in the course of a
year. This Ratio measures the efficiency with which the working capital is being used
by a. Here Ratio is 10.08 for the year 2015-15 and 6.11 for the year 2012-13. In
comparison there was increase of 4 Rs. Which show good condition of the company.

PROFITABILITY RATIOS
A company should earn profits to survive and grow over a long period of
time. Profits are essential, but it world be wrong to assume that every action
initiated by management of a company should be aimed at maximizing profits,
irrespective of concerns for customers, employees, suppliers or social
consequences. It is unfortunate that the word profit is looked upon as a term of
abuse since some firms always want to maximize profits ate the cost of employees,
customers and society. Except such infrequent cases, it is a fact that sufficient
profits must be able to obtain funds from investors for expansion and growth and to
contribute towards the social overheads for welfare of the society.
Profit is the difference between revenues and expenses over a period of
time (usually one year). Profit is the ultimate output of a company, and it will have
no future if it fails to make sufficient profits. Therefore, the financial manager should
continuously evaluate the efficiency of the company in terms of profit. The
profitability ratios are calculated to measure the operating efficiency of the
company. Besides management of the company, creditors and owners are also
interested in the profitability of the firm. Creditors want to get interest and
repayment of principal regularly. Owners want to get a required rate of return on
their investment. This is possible only when the company earns enough profits.
Generally, two major types of profitability ratios are calculated:

Profitability in relation to sales.

Profitability in relation to investment.

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14. Gross profit margin.


Gross profit is obtained when factory expenses and other direct expenses are
deducted from total revenue. Gross profit margin indicates that how much direct
expenses are occurred for total sales done for the particular financial year.
Formula

Calculation
For the year 2015-15

For the year 2012-13

Graphical presentation

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Interpretation:
Gross profit Ratio indicates basic profit earnings by the company with respect of the
sales done that year. Here Ratio is 6.93 for the year 2015-15 and 7.08 for the year
2012-13. In comparison there was decrease in gross profit margin about 0.07 paisa
which is minor and can be consider as constant. Which show same performance of
the company.

15. Net Profit Margin


Net profit is obtained when operating expenses; interest and taxes are
subtracted form the gross profit margin ratio is measured by dividing profit after tax
by sales, Net profit ratio establishes a relationship between net profit and sales and
indicates and managements in manufacturing, administrating and selling the
products. This ratio is the overall measure of the firms ability to turn each rupee
sales into net profit. If the net margin is inadequate the firm will fail to achieve
satisfactory return on shareholders funds. This ratio also indicates the firms
capacity to withstand adverse economic conditions.
Formula

Calculation
For the year 2015-15

For the year 2012-13


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Graphical presentation

Interpretation
Net profit Ratio indicates basic profit earnings by the company with respect of the
sales done that year. Here Ratio is 5.47 for the year 2015-15 and 5.66 for the year
2012-13. In comparison there was decrease in net profit margin about 0.19 paisa
which is minor and can be consider as constant. Which show same performance of
the company with comparison to previous year.

16. Operating Expense Ratio:


The operating expense ratio explains the changes in the profit margin
(EBIT to sales) ratio. This ratio is computed by dividing operating expenses viz., cost
of goods sold plus selling expense and general and administrative expenses
(excluding interest) by sales.
Formula

Calculation
For the year 2015-15

Graphical presentation

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For the year 2012-13

Interpretation
How effective company manage their production and other expenses by the
company with respect of the sales done that year. Here Ratio is 0.102 for the year
2015-15 and 0.104 for the year 2012-13. In comparison there was decrease in
operating expenses about 0.002 paisa which good control of production and other
expenses by the company with comparison total sales made by the company.

17. Return on Investment (ROI)


The term investment may refer to total assets or net assets. The funds
employed in net assets in known as capital employed. Net assets equal net fixed
assets plus current assets minus current liabilities excluding bank loans.
Alternatively, capital employed is equal to net worth plus total debt.
The conventional approach of calculating return of investment (ROI)
is to divide PAT by investments. Investment represents pool of funds supplied by
shareholders and lenders, while PAT represent residue income of shareholders;
therefore, it is conceptually unsound to use PAT in the calculation of ROI. Also, as
discussed earlier, PAT is affected by capital structure. It is, therefore, more
appropriate to use one of the following measures of ROI for comparing the operating
efficiency of firms:
Formula

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Calculation
For the year 2015-15

For the year 2012-13

Graphical presentation

Interpretation
Return on Asset Ratio indicates assets are being used very effectively with
comparison total earning. Here Ratio is 0.07 for the year 2015-15 and 0.08 for the
year 2012-13. In comparison there was decrease in ratio in 0.01 in the ratio. Which
not actually good indication.
Since taxes are not controllable by management, and since firms opportunities for
availing tax incentives differ, it may be more prudent to use before tax to measure
ROI. Many companies use EBITDA (Earnings before Depreciation, Interest, Tax and
Amortization) instead of EBIT to calculate ROI.

18. Return on Equity (ROE)


Common or ordinary shareholders are entitled to the residual profits.
The rate of dividend is not fixed; the earnings may be distributed to shareholders or
retained in the business. Nevertheless, the net profits after taxes represent their
return. The shareholders equity or net worth will include paid-up share capital, share
premium, and reserves and surplus less accumulated losses. Net worth also be
found by subtracting total liabilities from total assets. The return on equity is net
profit after taxes divided by shareholders equity, which is given by net worth:
Formula

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Calculation
For the year 2015-15

For the year 2012-13

Graphical presentation

Interpretation
ROE indicates how well the firm has used the resources of owners. In fact,
this ratio is one of the most important relationships in financial analysis. The
earning of a satisfactory return is the most desirable objective of business. The
ratio of net profit to owners equity reflects the extent to which this objective has
been accomplished. This ratio is, thus, of great interest to the present as well as
the prospective Shareholders and also of great concern to management, which has
the responsibility of maximizing the owners welfare. Ratio indicates funds are being
contributed together by lenders and owners for each rupee of owners contribution
the company. Here Ratio is 0.11 for the year 2015-15 and 0.09 for the year 2012-13.
In comparison there was increase ratio in 0.02 in the ratio. Which show good
condition.

19. Earnings per Share (EPS)


The profitability of the shareholders investments can also be measured in
many other ways. One such measure is to calculate the earnings per share. The
earnings per share (EPS) are calculated by dividing the profit after taxes by the total
number of ordinary shares outstanding.
Formula

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Calculation
For the year 2015-15

For the year 2012-13

Graphical presentation

Interpretation
Earnings per share Ratio indicates how much company earns after tax in the
proportion with number of equity share. Here Ratio is 68.02 for the year 2015-15
and 65.05 for the year 2012-13. In comparison there was increase ratio in 3 Rupees,
it show company have earn more EPS then previous period. It indicates company
has shown good performance for this compared with previous year.

20. Dividends per Share (DPS or DIV)


The net profits after taxes belong to shareholders. But the income,
which they will receive, is the amount of earnings distributed as cash dividends.
Therefore, a large number of present and potential investors may be interested in
DPS, rather than EPS. DPS is the earnings distributed to ordinary shareholders
dividend by the number of ordinary shares outstanding.
Formula

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Calculation
For the year 2015-15

For the year 2012-13

Graphical presentation

Interpretation
Dividend per share Ratio indicates how much of share have been distributed
for the profit to the share owners contribution the company. Here Ratio is 8.64 for
the year 2015-15 and 8.13 for the year 2012-13. In comparison there was increase
0.51 paisa. Which is like constant dividend payout This will sustain the trust of the
share holder. And attract new share holders to invest to company and also
maximize the wealth of the company.

21. Dividend Payout Ratio


The Dividend payout Ratio or simply payout ratio is DPS ( or total equity
dividends) divided by the EPS ( or profit after tax):
Formula

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Calculation
For the year 2015-15

For the year 2015-15

Graphical presentation

Interpretation
Dividend Payout Ratio indicates how much of share have been distributed for
the profit to the share owners contribution the company to earning per share( net
earning). Here Ratio is 7.87 for the year 2015-15 and 8.00 for the year 2012-13. In
comparison there was decrease 0.13 paisa. This is like constant dividend payout.
This will sustain the trust of the share holder.

FINDINGS

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1. There has been a remarkable increase Gross Sales and with the performance of
All the department and has narrowed and contributing to the EBIT. The Gross Profit
Has considerably increased 1600 Crore from in Last year. The interest payment has
increased by 170 Cr in the Current year and the Profit before Tax at 27,818 Crore
when compared to 26,284 Crore in Last year.
2. The profit After Tax has came 21,984 Crore to 21,003 Crore

in Current year

because of demand in international market.


3. The PAT is in an increasing trend from 2008-2009 because of increase in sale
prices and also decreases in the cost of manufacturing. In 2010 and 2011even the
cost of manufacturing has increased by 5% because of higher sales volume PAT has
increased considerably, which leads to higher EPS, which is at 83.80 in 2010.
4. The EBIT level in 2009 is at 33041 Crore and is increasing every year till 2010-11.
Because of government policy and low demand in market The EBIT levels in 2012
and 2013 decreased significantly but again started growing and reached to 27818
Crore.
5. The EPS of the company also increased considerably which investors in coming
period. The company has taken up a plant expansion program during the year to
increase the production activity and to meet the increase in the demand.
6. Because of decrease in Non-Operating expenses to the time of the Net profit has
increased. It stood at in current year increase because of redemption of debenture
and cost reduction. A dividend of Rs.3093 Crore as declared during the year at 9 %
on equity.

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CONCLUSIONS
1) Sales in 2015-2015 is at 4, 01,200 Crore and in 2012-2013 3, 71,021 Crore those
in a increase trend to the extent of 10% every year. On the other hand
manufacturing expenses are at 3, 29,313 from 2015-2015. There has been
significant increase in cost of production during 2012-2013 because of increase in
Royalty.
2) The interest charges were 4053 Crore in 2015 and 3505 Crore in 2013
respectively shows that the company redeemed fixed interest bearing funds from
time to time out of profit from 2012-2013.Debantures were partly redeemed with
the help of debenture redemption reserve and other references.
3) The PAT (Profit After Tax) in 2015-2015 is at 21984 Crore. The PAT has increased
in prices in during the above period. The profit has increased almost 15% during the
period 2015-2015.
4) Debentures were redeemed by transfers to D.R.R. in 2012-2013.
5) A steady transfer for dividend during 2008-2009 from P&L appropriation but in
2008 there is no adequate dividend equity Shareholders.
6) The share capital of the company remained in unchanged during the three-year
period because of no public issues made by the company.
7) The secured loans have decreased consistently from 2012-2013 and slight
increase in 2015-15.
RECOMMENDATIONS ON RELIANCE INDUSTRIES LTD

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The Board recognizes the importance of two-way communication with


shareholders and giving a balanced report of results and progress and
responding to questions and issues raised in a timely and consistent manner.
The Company Secretary plays a key role in ensuring that the Board
procedures are followed and regularly reviewed. The Company Secretary
ensures that all relevant information, details and documents are made
available to the Directors and senior management for effective decisionmaking at the meetings.
Significant changes in accounting policies and internal controls
Takeover of a company or acquisition of a controlling or substantial stake in
another company
Statement of significant transactions, related party transactions and
arrangements entered by unlisted subsidiary companies
Issue of securities including debentures
Appointment of and fixing of remuneration of the Auditors as recommended
by the Audit Committee
Internal Audit findings and External Audit Reports (through the Audit
Committee)
Proposals for major investments, mergers, amalgamations and
reconstructions
Status of business risk exposures, its management and related action plans
Making of loans and investment of surplus funds
Borrowing of monies, giving guarantees or providing security in respect of
loans
Buyback of securities by the Company
Diversify the business of the Company

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SUGGESTIONS:

1. The company has to maintain the optimal capital structure and leverage so that
in coming years it can contribute to the wealth of the shareholders.
2. The mining loyalty contracts should be revised so that it will decrease the direct
in the production
3. The company has to exercise control over its outside purchases and overheads
which have effect on the profitability of the company.
4. As the interest rates in pubic Financial institutions are in a decreasing trend after
globalization the company going on searching for loan funds at a less rate of
interest as in the case of international fund.
5. Efficiency and competency in managing the affairs of the company should be
maintained.

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BIBLIOGRAPHY
1) Financial Management:

Khan & Jain

2) Financial Management:

I.M. Pandey

3) Financial Management:
4) News Papers:
5) Websites:
www.RIL.com
www.capiatalindia.com
www.moneycontrol.com

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Prasanna Chandra

Financial Express &Economic Times

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