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A STUDY ON FINANCIAL PERFORMANCE OF

OIL AND NATURAL GAS CORPORATION (ONGC)

A Project Report submitted to the


JAMAL MOHAMED COLLEGE (AUTONOMOUS)
Affiliated to Bharathidasan University, TIRUCIRAPPALLI.
In partial fulfillment of the requirements for the Award of the Degree of
MASTER OF COMMERCE

Submitted By
A.AARIF KHAN
(Reg.No.11PCO 001)

Under the guidance of


Prof. R. KHADER MOHIDEEN
Principal & Head, Department of Commerce

POST GRADUATE AND RESEARCH DEPARTMENT OF COMMERCE


JAMAL MOHAMED COLLEGE (Autonomous)
Nationally accredited with ‘A’ Grade by NAAC – CGPA 3.6 out of 4.0
Affiliated to Bharathidasan University
TIRUCHIRAPPALLI – 620 020

APRIL 2013
Prof. R. KHADER MOHIDEEN
Principal & Head, Department of Commerce
Jamal Mohamed College (Autonomous)
Tiruchirappalli – 620 020.

Date:

CERTIFICATE

This is to certify that the Project Work is done under my guidance


and the Dissertation entitled “A STUDY ON FINANCIAL
PERFORMANCE OF OIL AND NATURAL GAS CORPORATION
(ONGC) ” submitted by A. AARIF KHAN (Reg. No. 11PCO 001) in
partial fulfillment of the requirements for the award of the Degree of
MASTER OF COMMERCE of Jamal Mohamed college (Autonomous)
affiliated to Bharathidasan University, Tiruchirappalli – 620020 for the
academic period 2011-2013 is the original work of the candidate.

SIGNATURE OF THE SIGNATURE OF THE


HEAD OF THE DEPARTMENT PROJECT ADVISOR

SIGNATURE OF THE EXTERNAL EXAMINAR


ACKNOWLEDGEMENT

At the out set, I wish to express my sincere thanks to the


Almighty for showering his blessing on me to complete this project.

I am deeply indebted to Dr. R.KHADER MOHIDEEN M.Com,


M.B.A., M.Phil., Ph.D., Principal and Head, Department of Commerce,
for his guidance and assistance in carrying out the project work.

I am very much grateful to Dr. A.M.MOHAMED SINDHASHA


M.Com., M.B.A., M.Phil., Ph.D., M.Sc(Psy), Additional Vice Principal
and HOD In-Charge Department of Commerce, for his support and
providing necessary facility to carry out my project.

I sincerely thank the Faculty Members, Department of


Commerce for their encouragement and support.

Last but not least I like to thank my Parents and beloved friends
for their moral support for completing this project work successfully.

A.AARIF KHAN
CHAPTER 1
INTRODUCTION

1.1 INTRODUTION
Finance is regarded as the base of a business enterprise. This is
because in the modern money-oriented economy, finance is one of the basic
foundations of all kinds of economics activities. Finance provides access to the
entire source being employed in manufacturing and merchandising activities. It
has rightly been said that business means money to make more money.
However, it is also true that money begets more money only when it is properly
managed. Hence, efficient management of every business enterprise is closely
linked with efficient management of its finance.

In general, finance may be defined has a provision of money at the time


it is wanted. Finance function may be defined as the procurement of funds and
their affective utilization. Some of the authoritative definitions are as follows.

In the words of Guthman and Dougall, “Business finance may be defined


as the activity concerned with planning, raising, controlling and administering of
the funds in the business”.

Business finances is that business activities which is concerned with the


acquisition and conservation of capital funds in meeting financial needs and
overall objectives of a business enterprise”.

Finance mainly involves rising of funds and their effective utilization


keeping in view the overall objectives of the firm. This requires great caution
and wisdom on the part of management. The management makes use of
various financial techniques, devices, etc, for administering the financial affairs
of the firm ink the most effective and efficient way.

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1.2 FINANCIAL MANAGEMENT
Financial management is the managerial activity which is concerned with
the planning and controlling of the firm’s financial resources.

“Financial management is concerned with the efficient use of an


important economic resource, namely capital funds”.

Financial management is necessary for the proper management of


funds. Finance manager must see that the funds are procured in the manner
that the risk, cost and control considerations are properly balanced in a given
situation and there is optimum utilization of funds.

“Financial management is concerned with management decisions that


result in the acquisition and financing of long term and short term credit for the
firm. As such it deals with the situations that require selection of specific assets
as well as the problem of size and growth of an enterprise. The analysis of
these decisions is based on the expected inflows and their effects upon
managerial objectives”.

In the modern economy, finance is one of the basic foundations of all


kinds of economics activities. It is the master key, which provides the access to
all the sources for the being employed in manufacturing and merchandising
activities. Efficient management of every business enterprise is closely linked
with efficient management of finances. Finance is the only common
denominator for vast range of corporate objectives. The major part of any
corporate plan must be expresses in financial term.

Finance is a specialized function and it draws heavily on their related


functions, finance has undergone a significant change and is concerned with
flow of funds and decisions relating to business operations effecting the
valuation of the firm. Finance functions cover decisions relating to investment,
financing and dividends.

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1.3 SIGNIFICANCE OF THE STUDY
So this core industry requires a huge amount of finance. Finance as a
resource, in this industry needs to be improved today. Improvement of financial
is possible by way proper planning and utilization of funds. Finance is a means
which improves the performance of this core industry. Financial analysis helps
a company to diagnose its profitability and financial soundness.

Due to the above reasons this study namely “Financial statement


analysis of OIL AND NATURAL GAS CORPORATION “is necessary and is
undertaken.

1.4 OPERATIONAL DEFINITIONS AND CONCEPTS


Finance
Finance in common parlance refers to money. The edifice of modern
economy stands on the foundation of money i.e. finance. All economic
activities centre on making of money. Finance is the backbone of all activities
whether it is manufacturing, or servicing. The entire idea of dong any economic
activity is to make more money out of money. However, this is possible only
when the finance is properly and prudently managed. So it goes without saying
that efficient management of an enterprise is closely related to efficient
management of its finances.

Financial Statement
A financial statement is an organized collection of data according to
logical and consistent accounting procedures. Its purpose is to convey an
understanding of some financial aspects of a business firm. It may show a
position at a moment of time as in the case of a balance sheet, or may revel a
series of activities over a given period of time, as in the case of an income
statement.

Basically there are two types of financial statement. They are income
statement and balance sheet.

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Financial Statement Analysis
It is the process of identifying the financial strength and weakness of a
firm from the available accounting data and financial statement. The analysis is
done by properly establishing the relationship between the items of Balance
Sheet and Profit and Loss Account. The first task of financial analyst is to
determine the information in relevant to the decision under consideration from
the total information contained in the financial statement. The second step is to
arrange information in a way to highlight significant relationship. The final step
to provide is information and drawing of inferences and conclusion. Thus
financial analysis is the process of selection relating and evaluation of the
accounting data/information.

This study contains the following analyses


• Ratio Analysis
• Trend Analysis
• Common Size Balance Sheet
• Comparative Balance Sheet

Comparative Financial Statement


Comparative financial statements are those statements which have been
designed in a way so as to provide time perspective to the consideration of
various elements of financial position embodied in such statements. In these
statements, figures for two or more periods are placed side by side to facilitate
comparison.

But the income statement and balance sheet can be prepared in the
form of comparative financial statement.

Comparative Balance Sheet


Comparative balance sheet as on two or more different dates can be
used for comparing assets and liabilities and finding out any increase or
decrease in those items. Thus, while in a single balance sheet the emphasis is

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on present position, it is on change in the comparative balance sheet. Such a
balance sheet is very useful in studying the trends in an enterprise.

Common-Size Financial Statement


Common-size financial statements are those in which figures reported
are converted into percentages to some common base. In the income
statement the sales figure is assumed to be 100 and all figures are expressed
as a percentage of sales. Similarly, in the balance sheet, the total of assets or
liabilities is taken as 100 and all the figures are expressed as a percentage of
this total.

WORKING CAPITAL MANAGEMENT


Decisions relating to working capital and short term financing are
referred to as working capital management. These involve managing the
relationship between a firm’s short-term assets and its short term liabilities.
The goal of working capital management is to ensure that the firm is able to
continue its operations and that it has sufficient cash flow to satisfy both
maturing short-term debt and upcoming operational expenses.

By definition, working capital management entails short term decision-


generally, relating to the next one year periods- which are “reversible”. These
decisions are therefore not taken on the same basis as capital Investment
Decisions (NPV or Related, as above) rather they will be based on cash flows
and/or profitability.

One measure of cash flow is provided by the cash conversion cycle-the


Net number of days from the outlay of cash for Raw material to receiving
payment from the customer. As a management tool, this metric makes explicit
the inter-relatedness of decisions relating to inventories, accounts receivable
and payable, and cash. Because this number effectively corresponds to the
time that the firm’s cash is tied up in operations and unavailable for other
activities, management generally aims at a low net count.

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In this context, the most useful measure of profitability is Return on
Capital (ROC). The result is shown as a percentage, determined by dividing
relevant income for the 12month by capital employed; Return on Equity (ROE)
shows this result for the firms share holders. Firm value is enhanced when,
and if, the return on capital, which results from working capital management,
exceeds the cost of capital, which results from capital investment decisions as
above. ROC measures are therefore useful as a management tool, in that link
short-term decision making. Economic Value Added (EVA).

Trend Analysis
Trend Analysis is a comparative study of the financial statement of
several years.

Ratio
Ratio is a mathematical expression of relationship between figures which
have connection in one way or the other. Ratios are expressed in two ways:
1. Times: One value is divided by another value. The expression is
“number of times”
2. Percentage: The quotient obtained above is multiplied by 100. This
gives the%

Ratio Analysis
Ratio analysis is a widely used tool of financial analysis. The term ratio
in it refers to the relationship expressed in mathematical terms between two
individual figures or group of figures connected with each other in some logical
manner and are selected from financial statement of the concern. The ratio
analysis is based on the fact that single accounting figures by it self may not
communicate any meaningful information but when expressed as a relative to
some other figures, it may definitely provide some significant information the
relationship between two or more accounting figure / group is called a financial
ratio helps to express the relationship between two accounting figures in such a

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way that users can draw conclusions about the performance, strengths and
weakness of a firm.

Accounting Ratio
The arithmetical method of ascertaining the interrelation between any
two numeric data ex- pressed in accounting statements is known as Accounting
Ratio. The definition implies that in use of an accounting ratio both the
components in the form of numerals or variables used in computing a ratio are
taken from the financial statements prepared in financial accounting. For
example it can be stated that if in a concern the Sales of a particular year is Rs.
2.00.000 and the Net Profit is Rs. 40,000 Sales Ratio becomes 1:5 or 1/5
indicates that the Net Profit of the concern for that year is one-fifth portion of its
Sales or for Sales of Rs. 5 Net Profit is Rs. 1. In this case Sales and Net Profit
both these variable are taken out of the Profit and Loss Account prepared in
financial accounting. For this reason this ratio is stated as Accounting Ratio. In
the opinion of J. Batty, accounting ratio “is used to describe significant
relationships which exist between figures shown on a Balance Sheet, in a Profit
and Loss Account in a Budgetary Control System or in any other part of the
accounting organization”.

Steps in Ratio Analysis


The following steps are followed in analysis through accounting ratios:

(i) Collection of information: In the first step of ratio analysis raw data is
collected from the financial statements for computing different ratios.

(ii) Computation of ratios: In the second step necessary ratios are


computed between the figures having cause and effect inter-relationship.
Such ratios may be expressed in terms of times, multiples, proportion or
percentage depending on the specific requirement.

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(iii) Making comparison: The ratios computed are compared with the ratios
of the past year or years of the same concern or with the standard ratios
of the industry to which the concern belongs.

(iv) Arriving at decisions on comments: In the next step the significance


of these ratios must be conceived on the basis of comparative
interrelationship among them in such a manner so that adequate
comments can be made for helping the users of accounting information
to arrive at their decisions.

(v) Preparing report: In the final step necessary reports are to be prepared
for communicating analyzed information and the relevant comments to
the management.

Significance of Financial Statement Analysis:


1. Judging the earning capacity or profitability of a business concern.
2. Analyzing the short term and long term solvency of the business
concern.
3. Helps in making comparative studies between various firms.
4. Assists in preparing budgets.

Limitations of Financial Statement Analysis


Analysis of financial statements helps to ascertain the strength and
weakness of the business concern, but at the same time it suffers from the
following limitations.
• It analyses what has happened till date and does not reflect the future.
• It ignores price level changes.
• Financial analysis takes into consideration only monetary matters,
qualitative aspects are ignored.
• The conclusions of the analysis are based on the correctness of the
financial statements.
• Analysis is a means to an end and not the end itself.

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• As there is variation in accounting practices followed by different firms a
valid comparison of their financial analysis is not possible.

There are different ways by which financial statement analysis can be


undertaken and one among them is “Ratio Analysis”.

CLASSIFICATION OF RATIOS:
a) Liquidity Ratios
b) Leverage Ratios
c) Activity Ratios
d) Profitability Ratios

A) Liquidity Ratios
These ratios portray the capacity of the business unit to meet its short
term obligation from its short-term resources (i.e0 Current Ratio, Quick Ratio.

Current Ratio:
Current ratio may be defined as the relationship between current assets
and current liabilities it is the most common ratio of measuring liquidity. It is
calculated by dividing current assets and current liabilities. Current assets are
those, the amount of which can be realized with in a period of one year.
Current liabilities are those amounts which are payable with in the period of the
year.

Current assets
Current Assets = –––––––––––––––––––––
Current liabilities

Liquid Ratio:
The term ‘liquidity’ refers to the ability of a firm to pay its short-term
obligation as and when they become due. The term quick assets or liquid
assets refers current assets which can be converted into cash immediately it

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comprises all current assets except stock and prepaid expenses it is
determined by dividing quick assets by quick liabilities.

Liquid assets
Liquid Ratio = –––––––––––––––––––––––
Liquid liabilities

B) Leverage Ratios
Many financial analyses are interested in the relative use of debt and
equity in the firm. The term ‘solvency’ refers to the ability of a concern to meet
its long-term obligations. Accordingly, long-term solvency ratios indicate a
firm’s ability to meet the fixed interest and cost and repayment schedule
associate with its long-term borrowings. (i.e) Debt Equity Ratio, Proprietary
Ratio, etc….

Debt equity Ratio:


It expresses the relationship between the external equities and internal
equities or the relationship between funds and ‘owners’ capital. It is a popular
measure of the long-term financial solvency of a firm. The relationship is
shown by the debt equity ratio. The ratio indicates the relative proportion of
debt and equity in financing the assets of a firm. This ratio is computed by
dividing the total debt of the firm by its equity (i.e) net worth.

Outsider’s funds
Debt equity Ratio= ––––––––––––––––––
Proprietor’s funds

Proprietary ratio:
Proprietary ratio relates to the proprietors funds to total assets. It
reveals the owners contribution to the total value of assets. This ratio shows
the long-time solvency of the business it is calculated by dividing proprietor’s
funds by the total tangible assets.
Proprietor’s funds
Proprietary Ratio = –––––––––––––––––––––
Total tangible assets

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Fixed assets to net worth Ratio:
The ratio shows the relationship between fixed assets and proprietors
funds. The purpose of ratio is to find out the percentage of the owners fund
invested in fixed assets.

Fixed assets
Fixed assets to net worth Ratio= –––––––––––––––––––
Proprietor’s funds

Ratio current assets to proprietor’s funds:


The ratio of current assets to proprietor’s funds establishes the
relationship between current assets and proprietor’s funds.

Current assets
Ratio current assets to proprietors funds= –––––––––––––––––––––––
Proprietor’s funds

Ratio of current assets to fixed assets:


The ratio establishes the relationship between current assets and fixed
assets.
Current assets
Ratio of current assets to fixed assets = –––––––––––––––––––
Fixed assets

Stock to working capital Ratio:


Stock on inventory
Stock to working capital Ratio = ––––––––––––––––––––––
Working capital

C) Activity Ratios
These ratios evaluate the use of the resources of the business concern
along with the use of the components of total assets. They are intended to
measure the effectiveness of the assets management the efficiency with which
the assets are used would be reflected in the speed and rapidity with which the
assets are converted into sales. The greater the rate of turnover, the more

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efficient the management would be (i.e) Stock Turnover Ratio, Fixed Assets
Turnover Ratios etc.

Fixed assets turnover Ratio:


The ratio indicates the extent to which the investment in fixed assets
contribution towards sales. If the compared with a previous year. It indicates
whether the investment in fixed assets has been judious or not the ratio is
calculated as follows.

Net sales
Fixed assets turnover Ratio= –––––––––––––––
Fixed assets

Working capital turnover Ratio:


Working capital turnover ratio indicates the velocity of the utilization of
net working capital. The ratio indicates the number of times the working capital
is turned over in the course of a year. It is a good measure over-trading and
under-trading.
Net sales
Working capital turnover Ratio = ––––––––––––––––––––
Net working capital

Return on total assets:


Profitability can be measured in terms of relationship between net profit
and total assets. It measures the profitability of investment. The overall
profitability can be known by applying this ratio.
Net profit
Return on the assets = –––––––––––––––––––– x 100
Total assets

Return on proprietor’s funds:


This ratio shows the rate of profit on proprietor’s funds. It relates the
profit available for the share holders to their total investment.

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Net profit after interest & tax
Return on proprietor’s funds = –––––––––––––––––––––––––––––
Proprietor’s funds

D) Profitability Ratios:
The profitability ratios of a business concern can be measured by the
profitability ratios. These highlight the end result of business activities by which
alone the overall efficiency of a business unit can be judged, (i) Gross Ratios,
Net Profit Ratio.

Net profit Ratio:


Net profit ratio establishes a relationship between net profit (after taxes)
and sales. It is determined by dividing the net income after tax to the net sales
for the period and measures the profit per rupee of sales.

Net profit
Net profit ratio = –––––––––––––––––– x 100
Net sales

Expenses Ratio:
This ratio establishes the relationship between various indirect expenses
to net sales.

Administrative expenses Ratio:


Administrative expenses
Administrative expense Ratio = ––––––––––––––––––––––––– x 100
Sales

Selling & distribution expenses Ratio:

Selling and distribution expenses


Selling & distribution expenses Ratio = ––––––––––––––––––––––––––– x 100
Sales

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CLASSIFICATION OF ACCOUNTING RATIO AND ITS FORMULAS:

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CHAPTER II
REVIEW OF LITERATURE

INTRODUCTION
It is mandatory to review the literature available with respect to the area
of the research study. Measuring the performance of the corporate sector has
always been an area of controversies form the point of view of the government,
share holders, prospective investors, creditors, employees and any other stock
holder. Several studies have been undertaken to evaluate the financial
performance in the corporate sector. This chapter presents some of the
examples of various studies conducted by financial analysis.

S. Bain study in (1951) of 42 four digit us manufacturing Industries to


establish for the period 1936 – 40 was a pioneering work on profitability.
He has sought to establish the relationship between concentration and
profitability for this he regressed average, after tax return on equity of
the liquidity firms on eight firm’s concentration ratio. He found that the
relationship was positive, between concentration and profitability.

Hall. M. and Weiss I.W., (1967) in their important study found that size
of the firm as a major determinant of profitability. They found after tax on
equity of individual firm (341 large U.S. industries corporations)
significantly related more with size of the firm than with concentration.

Altman (1968) in his study on “Financial Ratios, Discriminate analysis


and prediction of corporate Bankruptcy”, took 66 firms in general and
applied multiple discriminate analysis to discriminate the failed firms
from the non-failed firms, on the basis to the weighted combination of
working capital to total liabilities, cumulative retained earnings to total
Assets, market value of equity to book value of total debt and sales to
total Assets, market value of equity to book value of total debt and sales
tot total Assets, he was able to predict the bankruptcy with 45 percent

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degree of accuracy. He also revealed that the predictive ability of the
model declined.

Edward I Altman (1986) in the Dean Solvency predictors. He was the


first person to successfully use step-wise multiple discriminate analysis
to develop a prediction model with a high degree of accuracy using the
sample of 66 companies, 33 failed and 33 successful, Altman’s model
achieved an accuracy rate of as percent. Altman’s model takes the
following form.
Z = 1.2 A + 1.4 B + 3.3 C + 0.6 D + 0.99 E
A = Working Capital to total assets
B = Retained earnings to total assets
C = EBIT to total assets
D = Market value of equity / Book value of liabilities
E = Sales to total assets.

Smith K.V (1974) readers to profitability US liquidity trade in working


capital management. The study suggested that parallel monthly for costs
of liquidity and profitability can be useful in evaluating tradeoff between
two goals. This study also discussed individual and collect effects of
account receivables, inventories, accounts payable and other ocular on
profitability and liquidity.

Hilton (1976) in his study he pointed out that the rate of interest is used
as a proxy for the opportunity cost of carrying stock or as a measure of
the cost of funds needed to hold inventories. The study also found that
inventories generally accumulate with expansion of economic activities
of the company.

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Ramamoorthy (1978) has found profitability and solvency as the twin
goals of working capital management. According to him a firm’s survival
and growth depend on its ability to achieve these goals. If liquid Assents
can pay off current liabilities, financial strength can be created and the
firm can sustain its Neputation.

Bhabatosh Banerjee (1979) has analyzed the different turnover ratios


such as debtors, creditors and the stock turnover ratio. The cash
position and cash movement is also examined with the effect of the
liquidity ratio.

Singh (1981) has found out that the size of the unit has a significant role
in the capital structure of the cement industry. His study has revealed
that the returns and profitability can be increased by increasing the size
firm small to big.

Desai, B.H (1983) “The capital structure is a part of financial structure


and is a structure of funds to finance all the fitted Assets. Which a
company is supposed to keep permanently carrying in the business”.

Pandey (1985) conducted another empirical study examining the


industrial patterns, trend and volatilities of Leverage and the impact of
size profitability and growth on leverage.

George Paul (1985) studied the financial performance of diversified


companies in India. A comparative study of diversified and Non-
diversified companions. The financial performance of 32 relatively
matched pairs of diversifying and non- diversifying generally outperform
non- diversifying on indicators of growth, profitability, safety and market
evaluation. However inter- industry differences in the benefits of
diversification are selectively useful.

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Kumar (1985) in this study on “Corporate Growth and profitability in the
Large Indian companies” has examined the relationship between
profitability and growth in 83 large companies in India’s corporate sector
during 1969-70. The study reveals a significant inter- Industry difference
in the growth process of firms under study. The very low value or R2 in
all the cases shows that only a small fraction of the growth firm in India
corporate sector has been explained by profitability.

Dr. P.K. Bhattacharyya (1987) analysed the capital structure and


profitability of central sector under takings. According to him
government’s liberal policy of granting loan to public enterprise which
severely curtailed their profitability. He suggested the enlargement of
equity base and improvement of profitability of such enterprises.

Harbir Sing (1990) in his study has stated that the financial health of a
company can be improved if stringent control is exercised on raw
materials, stores and spares and also by reducing the unprofitable
investment blocked in current assets. The cash flow can be regulated if
the companies prepare weekly cash flow statement and also cash
budget on a regular basis.

Panigrahi (1990) in his study discussed the objectives of working capital


analysis and its impact on profitability. The study reveals that liquidity
position is not satisfactory. The impact of working capital ratios on
profitability showed both negative and positive impacts on profitability in
transport sector.

Srinivasa Rao. G. and Indrasense Reddy. P (1995) in their study


entitled Financial performance in paper Industry. A case study stated
that the financial position of the company has been improving form year
to year. The company’s performance in relations to generating internal
funds in the form of reserve and surplus was excellent and also sounded

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as it was revealed by current on quick ratios which were above the
standard. The solvency ratios showed that the company had been
following the policy of low capital gearing from this year. The
performance of the company in relation to its profitability was not up to
the Expected level. The company’s ability to utilize assets for generation
of sales has been improved much during the study period as it was
revealed by its turnover ratios.

Van Horne, J.C (1996) study pointed that “the term liquidity means the
ability of an organization to realize value in money the most liquid among
all assets”.

Sakthivel Murgan. M (1999) in his study on working capital


management – A case analysis revealed that one of the several
indicators of efficient management of working capital is to examine
whether adequate liquidity is maintained. The ‘Z’ score analysis reveals
that the organization. Maintains the ‘Z’ score above 3 points for all the
year taken for the study. This shown that the company is maintaining
adequate working capital by investing sufficient funds in its current
assets, is also able to meat the current obligations without inviting the
risk of bankruptcy.

Rajeswari N. (2000) in her study, an attempt has been made to


evaluate the efficiency of liquidity management in Tamil Nadu cement
corporation. The ratios namely current Ratio, quickly ratio and absolute
liquid ratio have been used. The study shows that the liquidity position of
TANCEM is not stable due to abnormal increases of ideal assets by the
corporation during the study period.

Business wire New York year Dec 2008


It will help you to identify and explain information sources besides
annual financial statements and supplementary information; learn the

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mechanics of the accounting process, which is the foundation for
financial reporting assess the securities valuation implications of any
financial statement element or transaction comprehend income
statements, Balance sheet and Cash flow statements and become
familiarized with the different financial analysis techniques such as ratio
analysis and common size financial statements that provide valuable
insight into a company’s operation risk characteristics and valuation
beyond what readily apparent by examining raw data.

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CHAPTER-III
INDUSTURY PROFILE

3.1 History of the oil industry in India


The history of the Indian oil industry extends back to the period of the
British Raj, at a time when petroleum first became a primary global energy
source.

Colonial rule, 1858-1947


The first oil deposits in India were discovered in 1889 near the town of
Digboi in the state of Assam.[1] This discovery came on the heels of industrial
development. The Assam Railways and Trading Company (ARTC) had
recently opened the area for trade by building a railway and later finding oil
nearby. The first well was completed in 1890 and the Assam Oil Company was
established in 1899 to oversee production. At its peak during the Second
World War the Digboi oil fields were producing 7,000 barrels per day.[citation
needed] At the turn of the century however as the best and most profitable
uses for oil were still being debated, India was seen not as a producer but as a
market, most notably for fuel oil for cooking. As the potential applications for oil
shifted from domestic to industrial and military usage this was no longer the
case and apart from its small domestic production India was largely ignored in
terms of oil diplomacy and even written off by some as hydrocarbon barren.
Despite this however British colonial rule laid down much of the country’s
infrastructure, most notably the railways.

Independence, 1947-1991
After India was granted independence in 1947, the new government
naturally wanted to move away from the colonial experience which was
regarded as exploitative. In terms of economic policy this meant a far bigger
role for the state. This resulted in a focus on domestic industrial and
agricultural production and consumption, a large public sector, economic
protectionism, and central economic planning.

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The foreign companies continued to play a key role in the oil industry. Oil
India Limited was still a joint venture involving the Indian government and the
British owned Burma Oil Company (presently, BP) whilst the Indo- Stanvac
Petroleum project in West Bengal was between the Indian government and the
American company SOCONY-Vacuum (presently, ExxonMobil).[5] This
changed in 1956 when the government adopted an industrial policy that placed
oil as a “schedule A industry” and put its future development in the hands of the
state.[5] In October 1959 an Act of Parliament was passed which gave the
state owned Oil and Natural Gas Commission (ONGC) the powers to plan,
organize, and implement programmes for the development of oil resources and
the sale of petroleum products and also to perform plans sent down from
central government. In order to find the expertise necessary to reach these
goals foreign experts from West Germany, Romania, the US, and the Soviet
Union were brought in. The Soviet experts were the most influential and they
drew up detailed plans for further oil exploration which were to form part of the
second five-year plan. India thus adopted the Soviet model of economic
development and the state continues to implement five-year plans as part of its
drive towards modernity. The increased focus on exploration resulted in the
discovery of several new oil fields most notably the off-shore Bombay High field
which remains by a long margin India’s most productive well.

Liberalization, 1991-present
The process of economic liberalization in India began in 1991 when
India defaulted on her loans and asked for a $1.8 billion bailout from the IMF.
This was a trickle-down effect of the culmination of the cold war era; marked
by the 1991 collapse of the Soviet Union, India’s main trading partner. The
bailout was done on the condition that the government initiates further reforms,
thus paving the way for India’s emergence as a free market economy.

For the ONGC this meant being reorganized into a public limited
company (it is now called for Oil and Natural Gas Corporation) and around 2%

26
of government held stocks were sold off. Despite this however the
government still plays a pivotal role and ONGC is still responsible for 77% of
oil and 81% of gas production while the Indian Oil Corporation (IOC) owns
most of the refineries putting it within the top 20 oil companies in the world.
The government also maintains subsidized prices. As a net importer of oil
however India faces the problem of meeting the energy demands for its
rapidly expanding population and economy and to this the ONGC has pursued
drilling rights in Iran and Kazakhstan and has acquired shares in exploration
ventures in Indonesia, Libya, Nigeria, and Sudan.

India’s choice of energy partners however, most notably Iran led to


concerns radiating from the US. A key issue today is the proposed gas pipeline
that will run from Turkmenistan to India through politically unstable Afghanistan
and also through Pakistan. However despite India’s strong economic links with
Iran, India voted with the US when Iran’s nuclear program was discussed by the
International Atomic Energy Agency although there are still very real differences
between the two countries when it comes to dealing with Iran.

27
3.2 ONGC- A PROFILE

OIL AND NATURAL GAS CORPORATION (ONGC)


Oil and Natural Natural Gas corporation (ONGC) an Indian multinational
oil and gas company headquartered in Dehradun, India. It is one of the largest
Asia based oil and gas exploration and production companies, and produces

28
around 77% of India's crude oil (equivalent to around 30% of the country's total
demand) and around 81% of its natural gas. It is one of the largest publicly
traded companies by market capitalization in India. ONGC has been ranked
357th in the Fortune Global 500 list of the world's biggest corporations for the
year 2012. It is also among the Top 250 Global Energy Company by Platts.

HISTORY
1961 to 2000
Since its inception, ONGC has been instrumental in transforming the
country's limited upstream sector into a large viable playing field, with its
activities spread throughout India and significantly in overseas territories. In the
inland areas, ONGC not only found new resources in Assam but also
established new oil province in Cambay basin (Gujarat), while adding new
petroliferous areas in the Assam-Arakan Fold Belt and East coast basins (both
inland and offshore). ONGC went offshore in early 70's and discovered a giant
oil field in the form of Bombay High, now known as Mumbai High. This
discovery, along with subsequent discoveries of huge oil and gas fields in
Western offshore changed the oil scenario of the country. Subsequently, over 5
billion tonnes of hydrocarbons, which were present in the country, were
discovered. The most important contribution of ONGC, however, is its self-
reliance and development of core competence in E&P activities at a globally
competitive level.

ONGC became a publicly held company in February 1994, with 20% of


its equity were sold to the public and eighty percent retained by the Indian
government. At the time, ONGC employed 48,000 people and had reserves
and surpluses worth 104.34 billion, in addition to its intangible assets. The
corporation's net worth of 107.77 billion was the largest of any Indian company.

2000 to present:
• In 2003, ONGC Videsh acquired Talisman Energy's 25% stake in the
Greater Nile Oil project.

29
• In 2006 a commemorative coin set was issued to mark the 50th
anniversary of the founding of ONGC, making it only the second Indian
company (State Bank of India being the first) to have such a coin issued
in its honour.
• In 2011, ONGC applied to purchase of 2000 acres of land at Dahanu to
process offshore gas.
• ONGC Videsh, along with Statoil ASA (Norway) and Repsol SA (Spain),
has been engaged in deepwater drilling off the northern coast of Cuba in
2012.
• On 11 August 2012, ONGC announced that it had made a large oil
discovery in the D1 oilfield off the West coast of India, which will help it
to raise the output of the field from 2/23/13 Oil and Natural Gas
Corporation around 12,500 barrels per day (bpd) to a peak output of
60,000 bpd.
• In November 2012, ONGC Videsh agreed to acquire ConocoPhillips'
8.4% stake in the Kashagan oilfield in Kazakhstan for around US$5
billion, in ONGC's largest acquisition to date. The acquisition is subject
to the approval of the governments of Kazakhstan and India and also to
other partners in the Caspian Sea field waiving their pre-emption rights.

ONGC Videsh:
• ONGC Videsh Limited (OVL) is the international arm of ONGC. It was
rechristened on 15 June 1989. It currently has 14 projects across 16
countries. Its oil and gas production reached 8.87 MMT of O+oEG in
2010, up from 0.252 MMT of O+OEG in 2002/03.

ONGC Tripura Power Company:


• ONGC Tripura Power Company Ltd (OTPC) is a joint venture which was
formed in September 2008 between ONGC, Infrastructure Leasing and
Financial Services Limited and the Government of Tripura. It is
developing a 726.6 MW CCGT thermal power generation project at

30
Palatana in Tripura which will supply electricity to the power deficit areas
of the north eastern states of the country.

Frontiers of Technology
State-of-the-art seismic data acquisition, processing and interpretation
facilities
Uses one of the Top Ten Virtual Reality Interpretation facilities in the
world
Alliances with Transocean, Schlumberger, Halliburton, Baker Hughes,
IPR, Petrobras, Norsk, ENI and Shell
One of the biggest ERP implementations in the Asia

Best In Class Infrastructure And Facilities


The Company operates with 27 Seismic crews, manages 240 onshore
production installations, 202 offshore installations, 77 drilling (plus 44
hired) and 58 work-over rigs (plus 30 hired), owns and operates more
than 26,598 kilometers of pipeline in India, including 4,500 kilometers of
sub-sea pipelines.
ONGC has adopted Best-in-class business practices for modernization,
expansion and integration of all Infocom systems.

Financials (2011-12)
ONGC group's turnover during 2011-12 has been Rs. 150,185 Crore
with net profit of Rs. 28,144 Crore. ONGC paid the highest-ever dividend
of Rs. 8,342 Crore. The Net Worth of ONGC Group of companies is Rs.
135,266 Crore.
During 2011-12, the turnover of ONGC (on standalone basis) has been
Rs. 76,887 Crore with net profit of Rs.25,123 Crore; the highest-ever
despite sharing under-recovery of Rs.44,466 Crore to the Oil Marketing
Companies (OMCs) as per the instructions of the Government of India.
Net worth of ONGC (on standalone basis) has been Rs.1,11,784 Crore.

31
OVL's consolidated gross revenue increased by 21% from Rs. 18,671
Crore during 2010-11 to Rs.22,637 Crore during 2011-12 and
consolidated net profit increased by 1% from Rs. 2,621 Crore during
2010-11 to Rs. 2,721 Crore during 2011-12.
The turnover of MRPL has been Rs.52,207 Crore, up 19% from
Rs.43,800 Crore and net profit has been Rs.909 Crore during 2011-12.

MOU ratings
MOU performance rating of ONGC during the last four years is as given
below:

Year Score Grading/Rating

2007-08 1.81 Very good

2008-09 1.70 Very good

2009-10 1.53 Very good

2010-11 1.79 Very good

Corporate Social Responsibility


In recognition of its role as a 'responsible leader', ONGC continues its
quest to make positive, tangible difference in the lives of the vulnerable and
disadvantaged. With a business paradigm that is based on an interconnected
vision - of people's welfare, societal growth and environmental conservation,
ONGC in 2011-12 continued to cater to the developmental needs across the
following focus areas:
Education including vocational courses;
Health Care;
Entrepreneurship (self-help & livelihood generation) schemes;
Infrastructure support roads, bridges, Schools, hospitals in around our
operational areas.
Environment protection, ecological conservation, promotion;
Protection of heritage sites, UNESCO heritage monuments etc.;

32
Promotion of artisans, craftsman, musicians, artists etc. for preservation
of heritage, art & culture;
Women's empowerment, girl child development, gender sensitive
projects;
Water management including ground water recharge;
Initiatives for physically and mentally challenged;
Sponsorship of seminars, conferences, workshops etc. and
Promoting sports/sports persons; supporting agencies promoting sports /
sports persons.

Corporate Governance
ONGC has taken structured initiatives towards Corporate Governance
and its practices which evolve around multi-layered checks and balances to
ensure transparency. Apart from the mandatory measures required to be
implemented as a part of Corporate Governance, ONGC has gone the extra
mile in this regard and has implemented the Whistle Blower Policy, Annual
Report on working of the Audit & Ethics Committee, MCA Voluntary Guidelines
on Corporate Governance, Enterprise-wide Risk Management (ERM)
framework.

Health, Safety & Environment


ONGC has implemented globally recognized QHSE management
systems conforming to requirements of ISO 9001, OHSAS 18001 and ISO
14001 at ONGC facilities and certified by reputed certification agencies at all its
operational units. Corporate guidelines on incident reporting, investigation and
monitoring of recommendations has been developed and implemented for
maintaining uniformity throughout the organization in line with international
practice.

During 2011-12, 20% reduction in incidents achieved, 131 environmental


clearance (EC/TOR) obtained, 4 Lakh Ringal Bamboo Planted in Upper
Himalayas, 25000 MT of oily waste treated using Bioremediation, 412

33
installations certified with QHSE, 240 operational units audited for HSE
Performance, 130 employees trained on HUET, 14 HSE awareness programs
completed.

Corporate Disaster Management Plan and guidelines have been


developed for uniform disaster management all across ONGC. ONGC has also
developed Occupational Health physical fitness criteria for employees deployed
for offshore operations. Occupational Health module has now been populated
on SAP system.

Human Resources
ONGC has vast pool of skilled and talented professionals – the most
valuable asset for the company. 32,909 ONGCians (as on 31st March, 2012)
dedicate themselves for the excellent performance of the company. ONGC
extends several welfare benefits to the employees and their families by way of
comprehensive medical care, education, housing and social security.

Vision Statement:
To be global leader in integrated energy business through sustainable
growth, knowledge excellence and exemplary governance practices.

World Class
Dedicated to excellence by leveraging competitive advantages in R&D
and technology with involved people.
Imbibe high standards of business ethics and organizational values.
Abiding commitment to safety, health and environment to enrich quality
of community life.
Foster a culture of trust, openness and mutual concern to make working
a stimulating and challenging experience for our people.
Strive for customer delight through quality products and services.

34
Integrated In Energy Business
Focus on domestic and international oil and gas exploration and
production business opportunities.
Provide value linkages in other sectors of energy business.
Create growth opportunities and maximize shareholder value.

Dominant Indian Leadership


Retain dominant position in Indian petroleum sector and enhance India's
energy availability.

Registered Address
Jeevan Bharti Building,
Tower II,,124, Indira Chowk
New Delhi
Delhi
110001

Tel: 011-23310156 011-23323201


Fax: 011-23316413
Email: secretariat@ongc.co.in
Website: http://www.ongcindia.com
Group: Public Sector

Management - ONGC
Name Designation

Sudhir Vasudeva Chairman & Managing Director

K S Jamestin Director - Human Resources

A Giridhar Government Director

Deepak Nayyar Independent Director

S K Barua Independent Director

35
Anita Das Part Time Non Official Director

Pronip Kumar Borthakur Director

Deepak Nayyar Additional Director

Joeman Thomas Director

O P Bhatt Additional Director

S V Rao Director

Aloke Kumar Banerjee Director – Finance

D Chandrasekharam Independent Director

Arun Ramanathan Independent Director

Om Prakash Bhatt Independent Director

Shaktikanta Das Government Director

Shashi Shanker Director

Arun Ramanathan Additional Director

S K Barua Additional Director

Shaktikanta Das Government Director

36
CHAPTER-IV
RESEARCH METHODOLOGY

4.1 Research Problem


• The main purpose of the study is to determine the working and growth of
the ONGC through its financial statements.
• The aim of financial performance is to assess the ONGC financial
stability.

4.2 Objectives of the study


• To bring out the origin and growth of the ONGC of India in the Country.
• To know the financial position and profitability of the ONGC.
• To analyze the financial performance of the ONGC as a whole.
• To offer suggestion for further improvement in the performance of the
ONGC.

4.3 Research Design


The descriptive form of research is adopted for study. The major
purpose of descriptive research is description of state of affairs of the
institutions as it exits at present. The nature and characteristics of the financial
statements of OIL AND NATURAL GAS CORPORATION have been described
in this study.

4.4 Nature of Data

The data required for the study has been collected from secondary
sources. The relevant figures were taken from annual reports, journals and
contents gathered from internet.

37
4.5 Methods of Data Collection

This study was based on the annual report of OIL AND NATURAL GAS
CORPORATION. Hence the information related to, profitability, short term and
long term solvency and turnover are required for attaining the objectives of the
percent study.

4.6 Tools Applied

To have a meaningful analysis and interpretation of various data


collected the following tools were made, for of this study.

Comparative statement
Common size Statement
Ratio analysis
Trend Analysis

4.7 Period of Study:


This study covers a period of years from 2007-08 to 2011-12. Data
relate to 5 years were collected from the website of ONGC.

4.8 Scope of the Study:


The present is study is meant for the ONGC under the study because it
deals with Financial performance of the ONGC by analyzing the Profit and Loss
account and the Balance sheet.

4.9 LIMTATIONA OF THE STUDY


All ratios could not be used for analyzing the financial performance of
the ONGC.
The study was based on published annual reports.
Due to time constraint the period of study is for five years only.

38
CHAPTER-V
FINANCIAL PERFORMANCE OF ONGC- AN ANALYSIS

RATIOS
5.1 CURRENT RATIO
It is used for measuring short-term liquidity or solvency. Whether the
current assets of the firm are sufficient to meet its current liabilities that is
assessed through the current ratio

Current assets
Current Assets= –––––––––––––––––––
Current liabilities

TABLE - 5.1

(Rs. In Crores)

CURRENT CURRENT RATIO


YEAR
ASSESTS ( ) LIABLITIES ( ) (TIMES)

2007-08 66,604.64 64,252.78 1.04

2008-09 84,037.65 87,930.19 0.96

2009-10 90,788.99 80,711.49 1.12

2010-11 92,596.56 1,03,793.58 0.89

2011-12 79,688.44 77,778.95 1.02


(SOURCE: FINANCIAL REPORTS OF ONGC)

39
INTERPRETATION:
The Ideal Standard is 2:1. In no year the standard ratio was reached by
the company.
The short term solvency ratio had been fluctuating during the period of
study. It ranged between “0.89 to 1.12”.
A low current ratio than the standard indicates a bad liquidity, over-
trading, less Working capital and unsatisfactory debt repayment capacity
of the firm.
The investment of creditors in a firm having a low current ratio may not
be too safe.

CHART - 5.1

CURRENT RATIO
1.20
1.12

1.04 1.02
1.00 0.96
0.89

0.80

0.60
CURRENT RATIO

0.40

0.20

0.00
2007-08 2008-09 2009-10 2010-11 2011-12

40
5.2 QUICK RATIO:
It is used to verify the short-term liquidity position of the firm as indicated
by the current ratio and supported by the quick ratio. It is in fact used to
measure the cash position of the firm.

(Cash + Marketable Securities)


Liquid Ratio= –––––––––––––––––––––––––––––
Quick or Liquid Liabilities

TABLE- 5.2

(Rs. In Crores)

CURRENT
YEAR QUICK ASSETS ( ) RATIO
LIABLITIES ( )

2008 7,750.04 64,252.78 0.12

2009 8,907.15 87,930.19 0.10

2010 8,569.57 80,711.49 0.11

2011 19,839.92 1,03,793.58 0.19

2012 41,057.56 77,778.95 0.53


(SOURCE: FINANCIAL REPORTS OF ONGC)

41
INTERPRETATION:
The ideal standard is 1:1. The Current Liability was fluctuating during the
period of study.
The Liquid Ratio was below the standard throughout the period of study.
During period 2008 to 2011 it was very low ranging from 0.10 to 0.19 and in
2012 it increased to 0.53.
Since the current ratio and the quick ratio were not satisfactory a low
absolute liquid ratio indicates that the debt repayment capacity of the firm
was not sound.

CHART 5.2

QUICK RATIO

0.60

0.50

0.40

0.30
0.20 QUICK RATIO

0.10
0.00
2007-08
2008-09
2009-10
2010-11
2011-12

42
5.3 TOTAL ASSETS TURNOVER RATIO:
It is used to measure the managerial efficiency with which the firm has
utilised its investment in fixed assets and its overall activity. It indicates the
generation of sales for per rupee invested in fixed asset.

TOTAL INCOME
TOTAL ASSETS TURNOVER RATIO = ––––––––––––––––
TOTAL ASSETS

TABLE- 5.3

(Rs. In Crores)

RATIO
YEAR TOTAL INCOME ( ) TOTAL ASSETS ( )
(%)

2007-08 1,01,115.25 80,175.90 1.26

2008-09 1,07,999.69 1,00,193.98 1.08

2009-10 1,07,232.27 1,26,775.78 0.85

2010-11 1,24,294.52 1,23,620.37 1.01

2011-12 1,55,709.69 1,53,870.74 1.01


(SOURCE: FINANCIAL REPORTS OF ONGC)

43
INTERPRETATION:
The table shows that Fixed Asset during the period is almost increasing
trend due to new addition in the assets and sales shows increasing trend.
Total Turnover Ratio was ranged between “0.85 to 1.26”. It shows that the
company is doing extremely well.
A high fixed assets turnover ratio is an indicator of efficient utilisation of
fixed assets in generating sales. It reveals that use of less fixed assets
made possible higher generation of sales.

CHART-5.3

TOTAL ASSETS TURNOVER RATIO


140.00
126.12

120.00
107.79

100.00 100.55 101.20

84.58
80.00

TOTAL ASSETS TURNOVER


60.00 RATIO

40.00

20.00

0.00
2007-08
2008-09
2009-10
2010-11
2011-12

44
5.4 PROPRIETARY/ NETWORTH RATIO:
It is used in the analysis of long-term solvency and financial stability of
tie firm. The proportion of total assets of a firm collected through proprietors
fund can be understood from this ratio.

SHAREHOLDER’S FUND
PROPRIETARY/ NETWORTH RATIO= –––––––––––––––––––––––––
TOTAL ASSETS

TABLE- 5.4

(Rs. In Crores)

SHARE HOLDER'S
YEAR TOTAL ASSETS ( ) RATIO
FUND ( )

2007-08 78,086.62 80,175.90 0.97

2008-09 92,223.50 1,00,193.98 0.92

2009-10 1,01,406.64 1,26,775.78 0.80

2010-11 1,15,327.25 1,23,620.37 0.93

2011-12 1,36,439.13 1,53,870.74 0.89


(SOURCE: FINANCIAL REPORTS OF ONGC)

45
INTERPRETATION:
The Ideal Norms is 1:3 (33%) of Total Assets collected through
proprietary capital. Here Proprietary Ratio was high ranging between
“0.80 to 0.97”. It was adequate and above the standard norms.
A high proprietary ratio indicates more use of proprietors funds in
acquiring total assets of the firm.
This situation shows a favourable long-term solvency and a satisfactory
financial stability of the firm. So a high proprietary ratio is favourable to
the long-term creditors and investors.

CHART- 5.4

PROPRIETARY/NETWORTH RATIO
0.97
1.00 0.93
0.92
0.89
0.90
0.80
0.80

0.70

0.60

0.50 PROPRIETARY/NETWORTH
RATIO
0.40

0.30

0.20

0.10

0.00
2007-08 2008-09 2009-10 2010-11 2011-12

46
5.5 NET PROFIT/ GROSS MARGIN RATIO:
It is used to measure the overall profitability and the efficiency of the
Management in generating additional revenue over and above the total
operating costs.
It does not make any difference between operating and non operating
expenses and shows the relation between net profit and net sales.

NET PROFIT
NET PROFIT/ GROSS MARGIN RATIO= --------------------X 100
NET SALES

TABLE – 5.5

(Rs. In Crores)

YEAR NET PROFIT ( ) NET SALES ( ) RATIO

2007-08 20,221.05 96,772.56 20.90

2008-09 20,170.88 1,04,634.68 19.28

2009-10 19,727.57 1,02,223.99 19.30

2010-11 22,824.97 1,18,002.86 19.34

2011-12 28,428.91 1,47,305.72 19.30


(SOURCE: FINANCIAL REPORTS OF ONGC)

47
INTERPRETAION:
The Net Profit Ratio shows that the Net Contribution made by sales of rupee
1 to the owners fund.
The study unit showed and average of 19.5%.
The table shows that the higher Net profit Ratio by the corporation, this
indicates better overall profitability and managerial efficiency.
It expresses how much the total revenue earned is more than the total
expenses incurred.

CHART – 5.5

NET PROFIT/GROSS MARGIN RATIO


21.00 20.90

20.50

20.00

19.50
19.28 19.30 19.34 NET PROFIT/GROSS
19.30 MARGIN RATIO

19.00

18.50

18.00
2007-08 2008-09
2009-10
2010-11
2011-12

48
5.6 INTEREST COVERAGE RATIO:
It is used for measuring long-term solvency and the effect of fixed
interest charges on profit earned. It explains the relation between earnings
before interest and tax and the interest paid on debt capital. From the lenders’
viewpoint it is used to measure the safety of return on investment.

EBIT
INTEREST COVERAGE RATIO= ––––––––––––––––––––––––––––––
FIXED INTEREST CHARGES

TABLE – 5.6

(Rs. In Crores)

FIXED INTEREST
YEAR EBIT ( ) RATIO
CHARGE ( )

2007-08 40,595.98 135.30 300.04

2008-09 42,861.48 238.51 179.71

2009-10 44,818.98 502.19 89.25

2010-11 48,299.16 457.15 105.65

2011-12 58,725.50 434.94 135.02


(SOURCE: FINANCIAL REPORTS OF ONGC)

49
INTERPRETAION:
The table show that the earnings before interest and tax and the operating
profit are same. So the interest coverage ratio measures as to how many
times the interest burden of the firm is covered by the operating profit of the
firm.
The highest was 300.14 times in the year 2008 it indicates better debt
servicing capacity. It is beneficial from the viewpoints of both the firm and
the lenders. From the viewpoint of the firm it is beneficial because it
indicates more shock absorbing capacity in case of lower profit and the
reduced risk of default in interest payment.
The lowest was 4.17 in the year 2011 it reveals that the lenders have a low
safety of return on their investment, it is also unfavourable to the firm
because in such case the firm’s profitability in relation to its interest payment
commitment is low and it is not in a position to take recourse to further debt
financing in case of any need.

CHART- 5.6

INTEREST COVERAGE RATIO


350.00

300.00 300.04

250.00

200.00
179.71 INTEREST COVERAGE
150.00 RATIO
135.02

100.00 105.65
89.25

50.00

0.00
2007-08 2008-09 2009-10 2010-11 2011-12

50
5.7 OPERATING RATIO:
It is used to analyse profitability and managerial efficiency. It explains
the proportion of operating expenses in sales of rupee 1.

(Cost of Goods Sold + Operating Expenses)


Operating ratio = –––––––––––––––––––––––––––––––––––––x 100
Net Sales

TABLE – 5.7

(Rs. In Crores)

COST OF GOODS
YEAR SOLD+OPERATING NET SALES ( ) RATIO
EXPENSES ( )

2007-08 56,286.67 96,772.56 58.16

2008-09 61,428.80 1,04,634.68 58.71

2009-10 57,777.89 1,02,223.99 56.52

2010-11 70,595.39 1,18,002.86 59.83

2011-12 89,044.34 1,47,305.72 60.45


(SOURCE: FINANCIAL REPORTS OF ONGC)

51
INTERPRETATION:
Generally the range of 70% to 80% is accepted standard ratio. Here the
corporation has not reached the standards during the study period.
The highest was 60.45% during the year 2011-12 and the lowest was
56.52% during the year 2009-10.
A low operating ratio indicates that the firm has more surpluses in its hand
after meeting operating costs. This surplus can be used for payment of tax,
payment of dividend, transfer to reserve, etc. Therefore, an indicator of high
profitability and good efficiency.

CHART -5.7

OPERATING RATIO
61.00

60.45
60.00
59.83

59.00
58.71

58.16
58.00

OPERATING RATIO
57.00
56.52
56.00

55.00

54.00
2007-08 2008-09 2009-10 2010-11 2011-12

52
5.8 OPERATING PROFIT RATIO:
If this ratio is used along with other profitability ratios it provides a more
meaningful Interpretation of a firm’s profitability and managerial efficiency. It is
relevant to mention in this context that the operating profit ratio and the
operating ratio are complementary to each other. If a firm’s operating ratio is
80% its operating profit ratio will be (100-80)% or 20%.

Operating Profit
Operating profit Ratio = –––––––––––––––––– x100
Net Sales

TABLE- 5.8

(Rs. In Crores)

OPERATING
YEAR NET SALES ( ) RATIO
PROFIT ( )

2007-08 40,595.98 96,772.56 41.95

2008-09 42,861.48 1,04,634.68 40.96

2009-10 44,818.98 1,02,223.99 43.84

2010-11 48,299.16 1,18,002.86 40.93

2011-12 58,725.50 1,47,305.72 39.87


(SOURCE: FINANCIAL REPORTS OF ONGC)

53
INTERPRETATION:
The table shows that operating profit ratio of ONGC had been ranging
between 39.87% to 43.84%.
Generally an operating profit in the range of 20% to 25% is acceptable
standard in manufacturing firms.
Here it is seen that it was above the standards. This is the indicator of good
profitability and efficient managerial ability.

CHART- 5.8

OPERATING PROFIT RATIO


45.00

44.00 43.84

43.00

41.95
42.00

40.96 40.93
41.00
OPERATING PROFIT RATIO

40.00 39.87

39.00

38.00

37.00
2007-08 2008-09 2009-10 2010-11 2011-12

54
5.9 DIVIDEND PAYOUT RATIO:
It is used to assess the scope of dividend of the equity shareholders and
the extent of self financing made by the company.

Dividend per Share


Dividend Payout ratio = –––––––––––––––––––––
Earning per Share

TABLE- 5.9

(Rs. In Crores)

DIVIDEND PER EARNING PER


YEAR RATIO
SHARE ( ) SHARE ( )

2007-08 32.00 94.54 33.85

2008-09 32.00 94.31 33.93

2009-10 33.00 92.23 35.78

2010-11 17.50 26.68 65.59

2011-12 9.75 33.23 29.34


(SOURCE: FINANCIAL REPORTS OF ONGC)

55
INTERPRETATION:
The table shows that how much percentage of dividends paid by the
company from the profit earned by the company.
The highest payout ratio was 65.59% during the year 2010-11 and
lowest was the 29.34% during the year 2011-12.
From the viewpoint of the financial health of the company a high
dividend payout ratio is never desirable because in such case retention
of profit becomes less.
A low dividend payout ratio indicates less distribution and more retention
is helpful for the sustained growth of the company.

CHART- 5.9

DIVIDEND PAY OUT RATIO

70.00 65.59

60.00

50.00

40.00 35.78
33.85 33.93
DIVIDEND PAY OUT RATIO
29.34
30.00

20.00

10.00

0.00
2007-08 2008-09 2009-10 2010-11 2011-12

56
5.10 RETURN ON PROPRIETOR'S FUND:
It is used to analyse the profitability of the firm from the point of view of
funds employed and to evaluate the efficiency of the management. This ratio
explains the Relationship between the operating profit i.e. net profit before
interest and tax and Proprietor’s fund.

Net Profit before Interest and Tax


Return on proprietor’s fund= –––––––––––––––––––––––––––––– x 100
Proprietors Funds or Equity

TABLE - 5.10

(Rs. In Crores)

NET OPERATING
PROPRIETOR'S
YEAR PROFIT AFTER TAX RATIO
FUND ( )
( )

2007-08 20,221.05 78,086.62 25.90

2008-09 20,170.88 92,223.50 21.87

2009-10 19,727.57 1,01,406.64 19.45

2010-11 22,824.97 1,15,327.25 19.79

2011-12 28,428.91 1,36,439.13 20.84


(SOURCE: FINANCIAL REPORTS OF ONGC)

57
INTERPRETATION:
The table reveals that how much percentage of return from the
Proprietor’s fund. Here highest was 25.90% during the 2007-08 and
lowest was the 19.45%.
This ratio is a real test of the profitability and managerial efficiency. The
higher the return on Proprietor’s fund the higher is the profitability and
the sound is the managerial ability.
From the viewpoint of shareholders and the management a high return
on capital employed is always favourable.

CHART – 5.10

RETURN ON PROPRIETOR'S FUND

30.00

25.90

25.00
21.87
20.84
19.45 19.79
20.00

RETURN ON PROPRIETOR'S
15.00
FUND

10.00

5.00

0.00
2007-08 2008-09 2009-10 2010-11 2011-12

58
TREND ANALYSIS
Trend analysis is very helpful in making a comparative study of the
financial statements of several years. Under this technique, information for a
number of years is taken up and one year-usually the first year-is taken as the
base year. Each item of the base year is taken as 100 and on that basis the
percentages for the other years are calculated.

5.11 TREND ANALYSIS OF SALES:

TABLE -5.11

Year Sales ( ) Trend % Difference %

2007-08 1,01,834.91 100.00 0

2008-09 1,09,412.94 107.44 7

2009-10 1,06,638.27 97.46 -3

2010-11 1,23,157.47 115.49 15

2011-12 1,51,121.10 122.71 23


(SOURCE: FINANCIAL REPORTS OF ONGC)

59
INTERPRETATION:
From the above table- 5.11, the sales have been raising year after year
except the year 2009-10.
It can be seen that there has been steep rise from 2007-2008 to 2008-
2009 (i.e) Rs.1,01,834.91 to Rs.1,09,412.94.
There is a slight decrease in the year 2009-10 , increase of 15% in the
year 2010-11 and increase of 23% in the year 2011-12.

CHART -5.11

TREND PERCENTAGE OF SALES


140.00

120.00 122.71
115.49
107.44
100.00 100.00 97.46

80.00
TREND PERCENTAGE OF
60.00 SALES

40.00

20.00

0.00
2007-08 2008-09 2009-10 2010-11 2011-12

60
TREND ANALYSIS OF NET PROFIT

TABLE – 5.12

TREND PERCENTAGE OF NET PROFIT

NET PROFIT
Year Trend % Difference %
( )

2007-08 20,221.05 100.00 0

2008-09 20,170.88 99.75 -0.25

2009-10 19,727.57 97.80 -2.20

2010-11 22,824.97 115.70 15.70

2011-12 28,428.91 124.55 24.55


(SOURCE: FINANCIAL REPORTS OF ONGC)

INTERPRETATION:
The table shows that Trend percentage of Net profit was fluctuating
during the period of study.
The lowest was 97.80% during the year 2009-10. A low net profit ratio
reveals that the net earning is insufficient and the profitability and
managerial efficiency were not up to the mark.
Here we can clearly see that for the past two years 2010-11 and 2011-
12 it was in the increasing Trend. The highest is 124.55% (i.e) 24.55%
higher than the base year.
A higher net profit ratio indicates better overall profitability and
managerial efficiency. It expresses how much the total revenue earned
is more than the total expenses incurred.
If a firm has a low net profit ratio in spite of having a high gross profit
ratio, it seems that it has excessive indirect expenses on which it has not
been able to enforce control.

61
TABLE 5.12

TREND PERCENTAGE OF NET PROFIT


140.00

120.00

100.00

80.00
TREND PERCENTAGE OF
60.00 NET PROFIT

40.00

20.00

0.00
2007-08 2008-09 2009-10 2010-11 2011-12

62
5.13 TREND ANALYSIS OF TOTAL ASSETS

TABLE -5.13

TREND PERCENTAGE OF TOTAL ASSETS

TOTAL
Year Trend % Difference %
ASSETS ( )

2007-08 80,175.90 100.00 0

2008-09 1,00,193.98 124.97 24.97

2009-10 1,26,775.78 126.53 26.53

2010-11 1,23,620.37 97.51 -2.49

2011-12 1,53,870.74 124.47 24.47


(SOURCE: FINANCIAL REPORTS OF ONGC)

INTERPRETATION:
The table 5.13 shows that there is a slight fluctuation in the Total Assets.
If the total assets of a firm increase without any corresponding increase
in its operating profit, the return on total assets will come down. It
reveals that the increase in investment has not resulted in the welfare of
the owners.
Here we can clearly understood that the operating profit adequate from
the table 5.8 which shows that it is resulted in the welfare of the
owners.

63
CHART -5.13

TREND PERCENTAGE OF TOTAL ASSETS


140.00

124.97 126.53 124.47


120.00

100.00 100.00 97.51

80.00
TREND PERCENTAGE OF
60.00 TOTAL ASSETS

40.00

20.00

0.00
2007-08 2008-09 2009-10 2010-11 2011-12

64
5.14 TREND ANALYSIS OF TOTAL LIABLITIES

TABLE – 5.14

TREND PERCENTAGE OF TOTAL LIABLITIES

TOTAL
Year Trend % Difference %
LIABLITIES ( )

2007-08 64,252.78 100.00 0

2008-09 87,930.19 136.85 36.85

2009-10 80,711.49 91.79 -8.21

2010-11 1,03,793.58 128.60 28.60

2011-12 77,778.95 74.94 -25.06


(SOURCE: FINANCIAL REPORTS OF ONGC)

INTERPRETATION:
The Table-5.14 shows that there is a fluctuation in the Total liabilities.
There is increase by 36.85% in the year 2008-09, decrase by -8.21% in
the year 2009-10, increase by 28.60 in the year 28.60% and decrease
by -25.06 in the year 2011-12.
Here it is evident from the table 5.1 the ONGC has not reached the
standard ratio of 2:1. The investment of creditors in a firm having a low
current ratio may not be too safe.

65
TABLE – 5.14

TREND PERCENTAGE OF TOTAL LIABLITIES


160.00

140.00
136.85
128.60
120.00

100.00 100.00
91.79
80.00 TREND PERCENTAGE OF
74.94 TOTAL LIABLITIES
60.00

40.00

20.00

0.00
2007-08 2008-09 2009-10 2010-11 2011-12

66
5.15 TREND ANALYSIS OF EARNING PER SHARE

TABLE – 5.15

TREND PERCENTAGE OF EARNING PER SHARE (EPS)

EARNING PER
Year Trend % Difference %
SHARE ( )

2007-08 94.54 100.00 0

2008-09 94.31 99.76 -0.24

2009-10 92.23 97.79 -2.21

2010-11 26.68 28.93 -71.07

2011-12 33.23 124.55 24.55


(SOURCE: FINANCIAL REPORTS OF ONGC)

INTERPRETATION:
The table-5.15 shows that the Earning per Share is in decreasing trend
except in the year 2011-12 (i.e) 24.55%
A high price earning ratio indicates either a fall in earning per share or
an increase in market price per share. A high price earning ratio
resulting from increased market price per share is beneficial to the
shareholders. It indicates high managerial efficiency, high profitability
and good market reputation.
A low price earning ratio not caused by an increased earning indicates
reduced market price per share. It also reveals a low level of managerial
efficiency and profitability. It is against the interest of the shareholders.
If the low price earning ratio is caused by an increased earning per
share it does not indicate an unfavourable situation for the shareholders.

67
TABLE – 5.15

TREND PERCENTAGE OF EARNING PER


SHARE (EPS)
140.00

120.00

100.00

80.00
TREND PERCENTAGE OF
60.00 EARNING PER SHARE (EPS)

40.00

20.00

0.00
2007-08 2008-09 2009-10 2010-11 2011-12

68
TABLE-15.16 COMMON SIZE BALANCE SHEET 2008-2009

PARTICULARS 2008 ( ) PERCENTAGE 2009 ( ) PERCENTAGE


SOURCES OF FUND
Equity Share Capital 2138.89 2.67 2138.89 2.13
Share Application Money 14.58 0.02 0.00 0.00
Reserves 75933.15 94.71 90084.61 89.91
Net worth 78086.62 97.39 92223.50 92.04
Secured Loans 697.97 0.87 680.92 0.68
Unsecured Loans 246.50 0.31 5878.21 5.87
Total Debt 944.47 1.18 6559.13 6.55
Minority Interest 1144.83 1.43 1411.35 1.41
Total Liabilities 80175.92 100.00 100193.98 100.00
APPLICATION OF
FUNDS
Gross Block 76216.22 95.06 89828.65 89.65
Less: Accum.
54242.39 67.65 59929.17 59.81
Depreciation
Net Block 21973.83 27.41 29899.48 29.84
Capital Work in
50694.15 63.23 70056.07 69.92
Progress
Investments 4482.14 5.59 3480.35 3.47
Inventories 7298.48 9.10 6542.39 6.53
Sundry Debtors 7046.94 8.79 7181.35 7.17
Cash and Bank Balance 703.10 0.88 1725.80 1.72
Total Current Assets 15048.52 18.77 15449.54 15.42
Loans and Advances 27203.37 33.93 47718.36 47.63
Fixed Deposits 24352.75 30.37 20869.75 20.83
Total CA, Loans &
66604.64 83.07 84037.65 83.87
Advances
Current Liabilities 38391.38 47.88 53574.13 53.47
Provisions 25861.40 32.26 34356.06 34.29
Total CL & Provisions 64252.78 80.14 87930.19 87.76
Net Current Assets 2351.86 2.93 -3892.54 -3.89
Miscellaneous
673.92 0.84 650.62 0.65
Expenses
Total Assets 80175.92 100.00 100193.98 100.00
(SOURCE: FINANCIAL REPORTS OF ONGC)

69
INTERPRETATION:
The above statement shows the percentage of various assets and
liabilities on the total.

During the year 2008, Net worth is 97.39%, total debt was 1.18% and
Minority interest was 1.43% of the Total Liabilities. It is clear from the
above statement that the majority 97.39% of Total Liabilities constitute
Net Worth.

During the year 2008 Net Block is 27.41%, Capital Work in progress
was 63.23%, investments is 5.59%, Net current assets was 2.93% and
Miscellaneous expenses 0.84% of the total assets. It was clear from the
above statement that the majority 63.23% of Total Assets constitute to
Capital Work in progress.

During the year 2009, Net worth is 92.04%, total debt is 6.55% and
Minority interest was 1.41% of the Total Liabilities. It is clear from the
above statement that the majority 92.04% of Total Liabilities constitute
Net Worth.

During the year 2009 Net Block is 29.84%, Capital Work in progress
was 69.92%, investments is 3.47%, Net current assets was -3.89% and
Miscellaneous expenses 0.65% of the total assets. It was clear from the
above statement that the majority 69.92% of Total Assets constitute to
Capital Work in progress.

70
TABLE-15.17 COMMON SIZE BALANCE SHEET 2009-2010

PARTICULARS 2009 ( ) PERCENTAGE 2010 ( ) PERCENTAGE


SOURCES OF FUND
Equity Share Capital 2138.89 2.13 2138.89 1.69
Reserves 90084.61 89.91 99267.75 78.30
Networth 92223.50 92.04 101406.64 79.99
Secured Loans 680.92 0.68 789.35 0.62
Unsecured Loans 5878.21 5.87 22936.61 18.09
Total Debt 6559.13 6.55 23725.96 18.71
Minority Interest 1411.35 1.41 1643.16 1.30
Total Liabilities 100193.98 100.00 126775.76 100.00
APPLICATION OF
FUNDS
Gross Block 89828.65 89.65 99731.19 78.67
Less: Accum.
59929.17 59.81 65816.45 51.92
Depreciation
Net Block 29899.48 29.84 33914.74 26.75
Capital Work in
70056.07 69.92 76782.91 60.57
Progress
Investments 3480.35 3.47 5159.31 4.07
Inventories 6542.39 6.53 8240.01 6.50
Sundry Debtors 7181.35 7.17 7142.35 5.63
Cash and Bank Balance 1725.80 1.72 1427.22 1.13
Total Current Assets 15449.54 15.42 16809.58 13.26
Loans and Advances 47718.36 47.63 53022.40 41.82
Fixed Deposits 20869.75 20.83 20957.01 16.53
Total CA, Loans &
84037.65 83.87 90788.99 71.61
Advances
Current Liabilities 53574.13 53.47 40417.59 31.88
Provisions 34356.06 34.29 40293.90 31.78
Total CL & Provisions 87930.19 87.76 80711.49 63.66
Net Current Assets -3892.54 -3.89 10077.50 7.95
Miscellaneous
650.62 0.65 841.32 0.66
Expenses
Total Assets 100193.98 100.00 126775.78 100.00

(SOURCE: FINANCIAL REPORTS OF ONGC)

71
INTERPRETATION:
The above statement shows the percentage of various assets and
liabilities on the total.

During the year 2009, Net worth is 92.04%, total debt was 6.55% and
Minority interest was 1.41% of the Total Liabilities. It is clear from the
above statement that the majority 92.04% of Total Liabilities constitute
Net Worth.

During the year 2009 Net Block was 29.84%, Capital Work in progress
was 69.92%, investments was 3.47%, Net current assets was -3.89%
and Miscellaneous expenses 0.65% of the total assets. It is clear from
the above statement that the majority 69.92% of Total Assets constitute
to Capital Work in progress.

During the year 2010, Net worth is 79.99%, total debt was 18.71% and
Minority interest was 1.30% of the Total Liabilities. It was clear from the
above statement that the majority 79.99% of Total Liabilities constitute
Net Worth.

During the year 2010 Net Block was 26.75%, Capital Work in progress is
60.57%, investments is 4.07%, Net current assets was 7.95% and
Miscellaneous expenses 0.66% of the total assets. It is clear from the
above statement that the majority 60.57% of Total Assets constitute to
Capital Work in progress.

72
TABLE-15.18 COMMON SIZE BALANCE SHEET 2010-2011
PARTICULARS 2010 ( ) PERCENTAGE 2011 ( ) PERCENTAGE
SOURCES OF FUND
Equity Share Capital 2138.89 1.69 4277.76 3.46
Share Application Money 0.00 0.00 0.00 0.00
Reserves 99267.75 78.30 111049.49 89.83
Networth 101406.64 79.99 115327.25 93.29
Secured Loans 789.35 0.62 778.27 0.63
Unsecured Loans 22936.61 18.09 5512.96 4.46
Total Debt 23725.96 18.71 6291.23 5.09
Minority Interest 1643.16 1.30 2001.88 1.62
Total Liabilities 126775.76 100.00 123620.36 100.00
APPLICATION OF
FUNDS
Gross Block 99731.19 78.67 108941.27 88.13
Less: Accum.
65816.45 51.92 73083.35 59.12
Depreciation
Net Block 33914.74 26.75 35857.92 29.01
Capital Work in
76782.91 60.57 94807.31 76.69
Progress
Investments 5159.31 4.07 3356.10 2.71
Inventories 8240.01 6.50 8567.57 6.93
Sundry Debtors 7142.35 5.63 9772.39 7.91
Cash and Bank Balance 1427.22 1.13 10067.53 8.14
Total Current Assets 16809.58 13.26 28407.49 22.98
Loans and Advances 53022.40 41.82 45568.34 36.86
Fixed Deposits 20957.01 16.53 18620.73 15.06
Total CA, Loans &
90788.99 71.61 92596.56 74.90
Advances
Current Liabilities 40417.59 31.88 65063.43 52.63
Provisions 40293.90 31.78 38730.15 31.33
Total CL & Provisions 80711.49 63.66 103793.58 83.96
Net Current Assets 10077.50 7.95 -11197.02 -9.06
Miscellaneous
841.32 0.66 796.06 0.64
Expenses
Total Assets 126775.78 100.00 123620.37 100.00

(SOURCE: FINANCIAL REPORTS OF ONGC)

73
INTERPRETATION:
The above statement shows the percentage of various assets and
liabilities on the total.
During the year 2010, Net worth was 79.99%, total debt was 18.71%
and Minority interest is 1.30% of the Total Liabilities. It is clear from the
above statement that the majority 79.99% of Total Liabilities constitute
Net Worth.

During the year 2010 Net Block is 26.75%, Capital Work in progress is
60.57%, investments was 4.07%, Net current assets is 7.95% and
Miscellaneous expenses 0.66% of the total assets. It was clear from the
above statement that the majority 60.57% of Total Assets constitute to
Capital Work in progress.

During the year 2011, Net worth was 93.29%, total debt is 5.09% and
Minority interest was 1.62% of the Total Liabilities. It was clear from the
above statement that the majority 93.29% of Total Liabilities constitute
Net Worth.

During the year 2011 Net Block was 29.01%, Capital Work in progress is
76.69%, investments is 2.71%, Net current assets was -9.06% and
Miscellaneous expenses 0.64% of the total assets. It was clear from the
above statement that the majority 76.69% of Total Assets constitute to
Capital Work in progress.

74
TABLE-15.18 COMMON SIZE BALANCE SHEET 2011-2012
PARTICULARS 2011 ( ) PERCENTAGE 2012 ( ) PERCENTAGE
SOURCES OF FUND
Equity Share Capital 4277.76 3.46 4277.76 2.78
Share Application Money 0.00 0.00 0.00 0.00
Reserves 111049.49 89.83 132161.37 85.89
Networth 115327.25 93.29 136439.13 88.67
Secured Loans 778.27 0.63 5958.75 3.87
Unsecured Loans 5512.96 4.46 9264.44 6.02
Total Debt 6291.23 5.09 15223.19 9.89
Minority Interest 2001.88 1.62 2208.43 1.44
Total Liabilities 123620.36 100.00 153870.75 100.00
APPLICATION OF
FUNDS
Gross Block 108941.27 88.13 180143.61 117.07
Less: Accum.
73083.35 59.12 80801.20 52.51
Depreciation
Net Block 35857.92 29.01 99342.41 64.56
Capital Work in
94807.31 76.69 49698.13 32.30
Progress
Investments 3356.10 2.71 2920.71 1.90
Inventories 8567.57 6.93 13168.01 8.56
Sundry Debtors 9772.39 7.91 11714.33 7.61
Cash and Bank Balance 10067.53 8.14 27889.55 18.13
Total Current Assets 28407.49 22.98 52771.89 34.30
Loans and Advances 45568.34 36.86 26916.55 17.49
Fixed Deposits 18620.73 15.06 0.00 0.00
Total CA, Loans &
92596.56 74.90 79688.44 51.79
Advances
Current Liabilities 65063.43 52.63 51233.68 33.30
Provisions 38730.15 31.33 26545.27 17.25
Total CL & Provisions 103793.58 83.96 77778.95 50.55
Net Current Assets -11197.02 -9.06 1909.49 1.24
Miscellaneous
796.06 0.64 0.00 0.00
Expenses
Total Assets 123620.37 100.00 153870.74 100.00
(SOURCE: FINANCIAL REPORTS OF ONGC)

75
INTERPRETATION:
The above statement shows the percentage of various assets and
liabilities on the total.
During the year 2011, Net worth was 93.29%, total debt was 5.09% and
Minority interest was 1.62% of the Total Liabilities. It was clear from the
above statement that the majority 93.29% of Total Liabilities constitute
Net Worth.

During the year 2011 Net Block is 29.01%, Capital Work in progress was
76.69%, investments is 2.71%, Net current assets was -9.06% and
Miscellaneous expenses 0.64% of the total assets. It was clear from the
above statement that the majority 76.69% of Total Assets constitute to
Capital Work in progress.

During the year 2012, Net worth was 88.67%, total debt was 9.89% and
Minority interest was 1.44% of the Total Liabilities. It was clear from the
above statement that the majority 88.67% of Total Liabilities constitute
Net Worth.

During the year 2012 Net Block was 64.56%, Capital Work in progress
was 32.30%, investments was 1.90% and Net current assets was 1.24%
of the total assets. It is clear from the above statement that the majority
64.56% of Total Assets constitute to net block.

76
TABLE – 5.20 COMPARITIVE BALANCE SHEET 2008-09
INCREASE/
PARTICULARS 2008 ( ) 2009 ( )
DECREASE PERCENTAGE
SOURCES OF FUND
Equity Share Capital 2138.89 2138.89 0.00 0.00
Share Application Money 14.58 0.00 -14.58 -100.00
Reserves 75933.15 90084.61 14151.46 18.64
Networth 78086.62 92223.50 14136.88 18.10
Secured Loans 697.97 680.92 -17.05 -2.44
Unsecured Loans 246.50 5878.21 5631.71 2284.67
Total Debt 944.47 6559.13 5614.66 594.48
Minority Interest 1144.83 1411.35 266.52 23.28
Total Liabilities 80175.92 100193.98 20018.06 24.97
APPLICATION OF FUNDS
Gross Block 76216.22 89828.65 13612.43 17.86
Less: Accum. Depreciation 54242.39 59929.17 5686.78 10.48
Net Block 21973.83 29899.48 7925.65 36.07
Capital Work in Progress 50694.15 70056.07 19361.92 38.19
Investments 4482.14 3480.35 -1001.79 -22.35
Inventories 7298.48 6542.39 -756.09 -10.36
Sundry Debtors 7046.94 7181.35 134.41 1.91
Cash and Bank Balance 703.10 1725.80 1022.70 145.46
Total Current Assets 15048.52 15449.54 401.02 2.66
Loans and Advances 27203.37 47718.36 20514.99 75.41
Fixed Deposits 24352.75 20869.75 -3483.00 -14.30
Total CA, Loans &
66604.64 84037.65
Advances 17433.01 26.17
Current Liabilities 38391.38 53574.13 15182.75 39.55
Provisions 25861.40 34356.06 8494.66 32.85
Total CL & Provisions 64252.78 87930.19 23677.41 36.85
Net Current Assets 2351.86 -3892.54 -6244.40 -265.51
Miscellaneous Expenses 673.92 650.62 -23.30 -3.46
Total Assets 80175.92 100193.98 20018.06 24.97

(SOURCE: FINANCIAL REPORTS OF ONGC)

77
INTERPRETATION:
Form the above Comparative Balance sheet as on 31.3.2009 Net worth
has increase 18.10% Secured Loan has decreased by -2.44% and
Minority interest increased by 23.28%.

Here Net block has increase 36.07% capital work in progress has
increased by 38.19% Investments has decreased by -22.35%, Net
current assets has decreased by -265.51% and Miscellaneous expenses
decreased by -3.46%

78
TABLE – 5.21 COMPARITIVE BALANCE SHEET 2009-10

INCREACE/
PARTICULARS 2009 ( ) 2010 ( )
DECREASE PERCENTAGE
SOURCES OF FUND
Equity Share Capital 2138.89 2138.89 0.00 0.00
Reserves 90084.61 99267.75 9183.14 10.19
Networth 92223.50 101406.64 9183.14 9.96
Secured Loans 680.92 789.35 108.43 15.92
Unsecured Loans 5878.21 22936.61 17058.40 290.20
Total Debt 6559.13 23725.96 17166.83 261.72
Minority Interest 1411.35 1643.16 231.81 16.42
Total Liabilities 100193.98 126775.76 26581.78 26.53
APPLICATION OF FUNDS
Gross Block 89828.65 99731.19 9902.54 11.02
Less: Accum. Depreciation 59929.17 65816.45 5887.28 9.82
Net Block 29899.48 33914.74 4015.26 13.43
Capital Work in Progress 70056.07 76782.91 6726.84 9.60
Investments 3480.35 5159.31 1678.96 48.24
Inventories 6542.39 8240.01 1697.62 25.95
Sundry Debtors 7181.35 7142.35 -39.00 -0.54
Cash and Bank Balance 1725.80 1427.22 -298.58 -17.30
Total Current Assets 15449.54 16809.58 1360.04 8.80
Loans and Advances 47718.36 53022.40 5304.04 11.12
Fixed Deposits 20869.75 20957.01 87.26 0.42
Total CA, Loans &
84037.65 90788.99
Advances 6751.34 8.03
Current Liabilities 53574.13 40417.59 -13156.54 -24.56
Provisions 34356.06 40293.90 5937.84 17.28
Total CL & Provisions 87930.19 80711.49 -7218.70 -8.21
Net Current Assets -3892.54 10077.50 13970.04 -358.89
Miscellaneous Expenses 650.62 841.32 190.70 29.31
Total Assets 100193.98 126775.78 26581.80 26.53

(SOURCE: FINANCIAL REPORTS OF ONGC)

79
INTERPRETATION:
Form the above Comparative Balance sheet as on 31.3.2010 Net worth
has increase 9.96% Secured Loan has increased by 15.92%, Total Debt
has increased by 261.72% and Minority interest increased by 16.42%.

Here Net block has increase 13.43% capital work in progress has
increased by 9.60%, Investments has increased by 48.24%, Net
current assets has decreased by -358.89% and Miscellaneous
expenses increased by 29.31%

80
TABLE – 5.22 COMPARITIVE BALANCE SHEET 2010-11

INCREACE/
PARTICULARS 2010 ( ) 2011 ( )
DECREASE PERCENTAGE
SOURCES OF FUND
Equity Share Capital 2138.89 4277.76 2138.87 100.00
Reserves 99267.75 111049.49 11781.74 11.87
Networth 101406.64 115327.25 13920.61 13.73
Secured Loans 789.35 778.27 -11.08 -1.40
Unsecured Loans 22936.61 5512.96 -17423.65 -75.96
Total Debt 23725.96 6291.23 -17434.73 -73.48
Minority Interest 1643.16 2001.88 358.72 21.83
Total Liabilities 126775.76 123620.36 -3155.40 -2.49
APPLICATION OF FUNDS 0.00
Gross Block 99731.19 108941.27 9210.08 9.23
Less: Accum. Depreciation 65816.45 73083.35 7266.90 11.04
Net Block 33914.74 35857.92 1943.18 5.73
Capital Work in Progress 76782.91 94807.31 18024.40 23.47
Investments 5159.31 3356.10 -1803.21 -34.95
Inventories 8240.01 8567.57 327.56 3.98
Sundry Debtors 7142.35 9772.39 2630.04 36.82
Cash and Bank Balance 1427.22 10067.53 8640.31 605.39
Total Current Assets 16809.58 28407.49 11597.91 69.00
Loans and Advances 53022.40 45568.34 -7454.06 -14.06
Fixed Deposits 20957.01 18620.73 -2336.28 -11.15
Total CA, Loans & Advances 90788.99 92596.56 1807.57 1.99
Current Liabilities 40417.59 65063.43 24645.84 60.98
Provisions 40293.90 38730.15 -1563.75 -3.88
Total CL & Provisions 80711.49 103793.58 23082.09 28.60
Net Current Assets 10077.50 -11197.02 -21274.52 -211.11
Miscellaneous Expenses 841.32 796.06 -45.26 -5.38
Total Assets 126775.78 123620.37 -3155.41 -2.49

(SOURCE: FINANCIAL REPORTS OF ONGC)

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INTERPRETATION:
Form the above Comparative Balance sheet as on 31.3.2011 Net worth has
increase 13.73% Secured Loan has decreased by -75.96%, Total Debt has
decreased by 73.48% and Minority interest increased by 21.83%.

Here Net block has increase 5.73% capital work in progress has increased
by 23.47%, Investments has decreased by -34.95%, Net current assets
has decreased by -211.11% and Miscellaneous expenses decreased by
-5.38%.

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TABLE – 5.23 COMPARITIVE BALANCE SHEET 2011-12

INCREACE/
PARTICULARS 2011 ( ) 2012 ( )
DECREASE PERCENTAGE
SOURCES OF FUND
Equity Share Capital 4277.76 4277.76 0.00 0.00
Reserves 111049.49 132161.37 21111.88 19.01
Networth 115327.25 136439.13 21111.88 18.31
Secured Loans 778.27 5958.75 5180.48 665.64
Unsecured Loans 5512.96 9264.44 3751.48 68.05
Total Debt 6291.23 15223.19 8931.96 141.97
Minority Interest 2001.88 2208.43 206.55 10.32
Total Liabilities 123620.36 153870.75 30250.39 24.47
APPLICATION OF FUNDS
Gross Block 108941.27 180143.61 71202.34 65.36
Less: Accum. Depreciation 73083.35 80801.20 7717.85 10.56
Net Block 35857.92 99342.41 63484.49 177.04
Capital Work in Progress 94807.31 49698.13 -45109.18 -47.58
Investments 3356.10 2920.71 -435.39 -12.97
Inventories 8567.57 13168.01 4600.44 53.70
Sundry Debtors 9772.39 11714.33 1941.94 19.87
Cash and Bank Balance 10067.53 27889.55 17822.02 177.02
Total Current Assets 28407.49 52771.89 24364.40 85.77
Loans and Advances 45568.34 26916.55 -18651.79 -40.93
Fixed Deposits 18620.73 0.00 -18620.73 -100.00
Total CA, Loans &
92596.56 79688.44
Advances -12908.12 -13.94
Current Liabilities 65063.43 51233.68 -13829.75 -21.26
Provisions 38730.15 26545.27 -12184.88 -31.46
Total CL & Provisions 103793.58 77778.95 -26014.63 -25.06
Net Current Assets -11197.02 1909.49 13106.51 -117.05
Miscellaneous Expenses 796.06 0.00 -796.06 -100.00
Total Assets 123620.37 153870.74 30250.37 24.47

(SOURCE: FINANCIAL REPORTS OF ONGC)

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INTERPRETATION:
Form the above Comparative Balance sheet as on 31.3.2012 Net worth
has increase 18.31% Secured Loan has increased by 68.05%, Total
Debt has increased by 141.97% and Minority interest increased by
10.32%.

Here Net block has increase 177.04% capital work in progress has
decreased by -47.58%, Investments has decreased by -12.97% and Net
current assets has decreased by -117.05%.

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CHAPTER VI

6.1 INTRODUCTION:
From the foregoing chapters the following inferences have been made:

6.2 INFERENCES

• During 2011-12, the turnover of ONGC (on standalone basis) has been
Rs. 76,887 Crore with net profit of Rs.25,123 Crore; the highest-ever
despite sharing under-recovery of Rs.44,466 Crore to the Oil Marketing
Companies (OMCs) as per the instructions of the Government of India.
Net worth of ONGC (on standalone basis) has been Rs.1,11,784 Crore.

• Short term Solvency Ratio had been fluctuating during the study period. It
ranged between “0.89 to 1.12”. Investment of creditors in the corporation
might not be too safe. Because the Current Ratio was low (i.e) below 2.

• Liquid Ratio was below the standard (i.e) 1 through out the period from
2008 to 2011, it was very low ranging from “0.10 to 0.19” and in 2012, it
increased to just 0.53 but not atleast 1.

• Total Assets Turnover Ratio was ranged between “0.85 to 1.26”. It


decreased in the first three years (2008-10) and increased in the recent
two years (2011-12).

• Proprietory Ratio was ranging between “0.80 to .97”. It is adequate and


above the standard norms (0.33). It indicates the better overall profitability
and managerial efficiency of the corporation.

• Operating Ratio prevailed between “56.52 to 60.45” ,which was low (70%
to 80%) that the corporation had less surpluses in its hand after meeting
operating cost. Therefore it affects the profitability of the corporation.

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• Operating Profit Ratio of ONGC had been ranging between 38.87% to
43.84%. This is the indicator of good profitability and efficient managerial
ability of the corporation.

• In the year 2010-11, the Dividend Payout Ration of 65.59% was highest
during the study period. From the view point of financial health of the
company a high Dividend Payout Ratio is never desirable because in
such case the retention of profit become less.

• Return on Proprietors fund was ranging between 19.45% to 25.90%. The


higher return on profitability and the sound is the managerial ability.

• Sales in the Corporation had been rising year after year.

• Total Liabilities increased by 36.85%, in the year 2008-09 decreased by


-8.21% in the year 2009-10 increased by 28.60% and decreased by
25.06% in the year 2011-12. This fluctuation is not desirable to the growth
of the Corporation.

• During the year 2008, Networth was 97.39%. Total Debt was 1.18% and
Minority interest was 1.43% of Total Liabilities. It is clear from the above
result that the majority (97.39%) of total liabilities constitutes Networth.

• During the year 2012, Net Block was 64.56%, Capital Work in Progress
was 32.30%, investment was 1.90% and Net Current Asset was 1.24% of
Total Assets. It is clear from the above statement the majority (64.56%) of
Total Liability constitute to Net Block.

6.3 SUGGESTIONS

• The Corporation has to increase the Current Assets to meet out Current
Liabilities and to maintain Standard norms of 2:1.

• The Corporation has to try to increase the Operating Ration by way of


reducing the Operating Cost in order to boost up its Profitability..

86
• The Corporation should maintain the Quick Assets properly to face the
emergency needs of cash.

• The corporation should have less Dividend Payout Ratio (i.e) less
distribution and more retention is helpful for the substained growth of the
company.

• The Fixed Assets of Corporation should be used more effectively to


reduce the cost of production and maintain their sales.

• The company shall increase the profitability so as to improve the


effectiveness and soundness of the organisation.

6.4 CONCLUSION
The Growth and Development of the organisation is highly depending on
financial position. From the above study it is concluded that the company’s fund
position is good in terms of key financial indicators of the performance. ONGC
one of the largest Asia based Oil and Gas exploration and Production
Companies. But in recent years there is a slow downs in the business activities
due to recession and more subsidies. Proper steps to be taken by the company
to overcome its adverse economic condition and make better profit with its
sound Financial Recourses experienced technically skilled Human Resource
and with help of continuous research the company can restore its reputation
and efficiently in near future.

87
BIBLIOGRAPHY
Books:

• Agarwal M. R. “Financial Management”, RBSA Publisher, Jaipur, 4th ed.


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Press Pvt. Ltd., Kolkata, 1999.

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2004.

• Chandra Prasanna “Financial Management: Theory and Practice”, Tata


McGraw-Hill Publishing Company Ltd. New Delhi, 6thed. 2005.

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Services (P) Ltd., 2004.

• Hampton John J. “Financial Decision Making”, Prentice Hall Publication


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Chaitanya Publishing House, Allahabad, 2001 Kumar Arun & Sharma
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Journals and Newspapers:
• The Times of India
• Economic Times
• The Business Line

Websites:
• www.wikipedia.org
• www.mckinsey.com
• www.ongcindia.com
• www.moneycontrol.com

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