A PROJECT REPORT ON FINANCIAL ANALYSIS AT INDIAN OIL CORPORATION LIMITED (MATHURA REFINERY) FOR THE PARTIAL FULFILLMENT OF POST
GRADUATE DIPLOMA IN MANAGEMENT
Mr. L. P. Bhattrai (Finance Manager)
shweta sharma PGDM Roll no. 09cbspgdm72 Chandigarh business
1. 2. 3. 4.
Preface Acknowledgement Objective Introduction About IOCL 4.1. Corporate history of IOCL 4.2. Vision and mission 4.3. Objective and obligation 4.4. Organization setup and structure 4.5. Recognitions and awards 5. Introduction about Mathura Refinery 5.1. Major Features 5.2. Objective and Contribution 5.3. Structure 5.4. Capital Structure 6. Overview about finance department 7. Brief outline about Financial Statement Analysis 7.1. Tools and Techniques 7.2. Process 7.3. Purpose and significance 7.4. Limitations 8. About ratio analysis 8.1. Classification of ratios 9. Samples & Tools 9.1. Comparative Profit & Loss Account 9.2. Comparative Balance sheet 10.Ratio Analysis of Mathura Refinery 11.About trend analysis 12.Trend Analysis of Mathura Refinery 13.Observation And Suggestions 14.Bibliography
In the broad sense training is necessary to make the students of professional institutions familiar with the industrial environment. This not only helps professionals to speedily accommodate themselves in industries but also to have better usage of their studies. To be dynamic, strategic and work aggressively they need to know the policies, procedures and trends going in the present industrial environment apart from their studies. The training fulfills all these needs. Whether it is the question of demonstrating a modernized procedure, step by step to an old production hand or guiding a new division head through the intricacies of preparing his own budget, the responsible supervisor or manager must make the trainee learn and communicate. The purpose and objective of the study is to analyze the different aspect of financial position of the organization and list out the suggestions based on the studies. The main source of the study is secondary data collected from the annual and other public reports and other information received from Indian Oil Corporation limited Mathura Refinery. The analysis of the data is carried out by the various modern and standard tools to achieve the objective of the study.
At the onset I must bow down in reverence to the Almighty who blessed us with the understanding and perseverance that is needed in this kind of project. I would like to thanks Mr. Vijay Mohan, Chief Manager (MS& TRG) IOCL (Mathura Refinery) for giving me the opportunity to work with them and providing me with necessary resources for our project. I take this opportunity to extend my sincere thanks to Mr. L.P Bhattrai (Finance Manager) and my project guide in the company, Mr. Harsh Kumar (DY. Finance Manager), Mr. Anshul Bansal (Accounts Officer), Mr. Saurabh Agrawal (Accounts Officer), and Mr. Anivesh Prasad (Accounts Officer) Mathura Refinery without whose co-operation, carrying out this project would have been impossible. I would also like to thank the whole Finance Department & Internal Audit Department, IOCL Mathura Refinery for making me familiar with the intricacies of project development and ensuring that work is in a systematic way. Also, I would like to extend my gratitude to my institute- Chandigarh Business School for giving me an opportunity to have a practical experience of job. A warm thanks to all my Colleague Trainees for their cooperation and support throughout the development process of this project.
OBJECTIVE OF THE STUDY
My main objective of the study is to analysis the financial position of Mathura Refinery. Compare the current year (2008-09) financial position with the last year (2007-08) financial position. In this year Mathura Refinery established some new policies for reducing expenses, increasing workers efficiencies and controls the quality and wastages. So by the help of this analysis I want to find out• • What is the actual financial position of this year? What are the impacts of these policies on the financial position?
Introduction about IOCL
Indian Oil Corporation Limited
Indian Oil Corporation Ltd. (Indian Oil) was formed in 1964 through the merger of Indian Oil Company Ltd. (Estd. 1959) and Indian Refineries Ltd. (Estd. 1958). It is currently India's largest company by sales with a turnover of Rs. 220,779 crore (US $ 53 billion), the highest– ever for an Indian company and profit after tax of Rs. 7499 crore (US $ 1.73 billion) for fiscal 2006-07. IndianOil is also the highest ranked Indian company in the prestigious Fortune 'Global 500' listing, at 153rd position. It is also the 21st largest petroleum company in the world.
India’s Downstream Major
IndianOil and its subsidiaries account for 46.9% petroleum products market share among public sector oil companies, 40.4.% national refining capacity and 67% downstream sector pipelines capacity. For the year 2006-07, the Indian Oil group sold 54.9 million tones of petroleum products. This includes sale of natural gas, which has gone up to 1.5 million tones from 1.3 million tonnes in the previous year. In addition, product exports went up to 3.1 million tones from 2 million tones in the previous year. The Indian Oil Group of companies owns and operates 10 of India’s 18 refineries with a combined refining capacity of 60.2 million tones per annum (1.2 million barrels per day). These include two refineries of subsidiary Chennai Petroleum Corporation Ltd. (CPCL) and one of Bongaigaon Refinery and Petrochemicals Limited (BRPL). The Company’s cross-country crude oil and product pipelines network spanning over 9,300 km meets the vital energy needs of the country. To maintain its competitive edge and leadership status, Indian Oil is investing Rs. 43,250 crore (US $ 10. 65 billion) during the XI Plan period (2007-12) in integration and diversification projects, besides refining and pipeline capacity augmentation, product quality up gradation and expansion of marketing infrastructure.
Network Beyond Compare
As the flagship national oil company in the downstream sector, IndianOil, together with its IBP Division reaches precious petroleum products to millions of people everyday through a countrywide network of around 32,550 sales points. They are backed for supplies by 177 bulk storage terminals and depots, 97 aviation fuel stations and 90 Indane LPG bottling plants. IndianOil operates the largest and the widest network of petrol & diesel stations in the country, numbering around 16,455. It reaches Indane cooking gas to the doorsteps to over 46.4 million households in 2,709 markets through a network of 4,996 Indane distributors. Indian Oil’s ISO-9002 certified Aviation Service commands a 63% market share in aviation fuel business, meeting the fuel needs of domestic and international flag carriers, private airlines and the Indian Defence Services. IndianOil also enjoys a dominant share of the bulk consumer business, railways, state transport undertakings, industrial, agricultural and marine sectors. Indian Oil's world class R&D Centre is perhaps Asia's finest. Besides pioneering work in lubricants formulation, refinery processes, pipeline transportation and alternative fuels such as bio-diesel, the Centre is also the nodal agency of the Indian hydrocarbon sector for ushering in Hydrogen fuel in the country. Indian Oil joined the league of global technology providers in 2006-07 with its in-house developed IndMax technology selected for the 4 MMTPA Fluidized Catalytic Cracking (FCC) unit at the Corporation’s upcoming 15 MMTPA refinery-cumpetrochemicals complex at Paradip in Orissa, as well as for the FCC unit coming up at BRPL.
At Indian Oil, customers always get the first priority. New initiatives are launched round- theyear for the convenience of the various customer segments. Exclusive XTRACARE petrol & diesel stations unveiled in select urban and semi-urban markets offer a range of value-added services to enhance customer delight and loyalty. Similarly, large format Swagat brand outlets cater to highway motorists, with multiple facilities such as food courts, first aid, rest rooms and dormitories, spare parts shops, etc. Specially formatted Kisan Seva Kendra outlets meet the diverse needs of rural populace, offering a variety of products and services such as seeds, fertilizers, pesticides, farm equipment, medicines, spare parts for trucks and tractors, tractor engine oils and pumpset oils, besides auto fuels and kerosene. SERVO press has been recently launched as one-stop shop for auto care services. To safeguard the interest of our valuable customers, interventions like retail automation, vehicle tracking and marker systems have been introduced to ensure quality and quantity of petroleum products.
Synergy through Subsidiaries
A wholly owned subsidiary, Indian Oil Technologies Ltd., is commercializing the innovations and technologies developed by Indian Oil’s R&D Centre, across the globe. Merger of Bongaigaon Refinery & Petrochemicals Ltd. with the parent company is in process.
IndianOil has set its sight to reach US$ 60 billion revenues by the year 2011-12 from current earnings of US$ 53 billion. The road map to attain this milestone has been laid through vertical integration – forward into petrochemicals and backwards into exploration & production of oil – and diversification into natural gas business, besides globalisation of its marketing operations. In petrochemicals, IndianOil is currently implementing a master plan envisaging Rs. 30,000 crore (US$ 6.8 billion) investment by the year 2011-12. Through the world-scale Linear Alkyl Benzene plant for detergents manufacture at Gujarat Refinery, the Corporation has already captured 38% market share and product has been exported to Indonesia, Turkey, Thailand, Vietnam, Norway and Oman. An integrated Paraxylene/Purified Terephthalic Acid plant for polyster intermediates is already in operation at Panipat, while a Naphtha Cracker with downstream polymer units is coming up at Panipat. IndianOil’s refinery-cum-petrochemicals complex at Paradip on the east coast to strengthen its presence in the sector is proposed to be completed by 2011-12. In exploration & production (E&P), IndianOil has bagged eight blocks under NELP (New Exploration Licencing Policy) in India, in consortium with other companies. It has also acquired participating interest in on-shore blocks in Assam and Arunachal Pradesh region. Overseas ventures include two gas blocks in Sirte Basin of Libya, the Farsi Exploration Block in Iran, onshore farm-in arrangements in Gabon, an onland block in Nigeria and two on-shore blocks in Yemen. The Corporation is also exploring opportunities to acquire a suitable medium-sized E&P company to quickly consolidate its upstream portfolio. In natural gas business, IndianOil is targeting sale of 2 million tonnes in 2007-08, up from 1.5 million tonnes in 2006-2007. An LNG import terminal and city gas distribution projects are in the pipeline in partnership with GAIL(India) and Great Eastern Energy Corporation Ltd.
To emerge as a transnational energy major, Indian Oil has set up subsidiaries in Sri Lanka, Mauritius and UAE and is simultaneously scouting new opportunities in energy markets in Asia and Africa. Indian Oil subsidiary, Lanka IOC Ltd., operates 151 retail outlets commanding a 20% market share. Its oil terminal at Trincomalee is also Sri Lanka’s largest petroleum storage facility. Lanka IOC occupies the No. 2 spot among the top 50 listed companies operating in Sri Lanka and is ranked No. 5 among the leading brands in the island nation. An 18,000 TPA lube blending plant at Trincomalee will be operational soon. Indian Oil (Mauritius) Ltd. has also garnered a 16% market share, which includes aviation fuelling and bunkering business. It operates a modern petroleum bulk storage terminal at Mer Rouge port, besides petrol & diesel stations. Besides expansion of retail network, the first ISO9001 product-testing laboratory has been commissioned in Mauritius. It is partnering Shell, Caltex-Chevron and Total to build an aviation jet fuel depot at the SSR international airport at a cost of US$ 16 million. The Corporation’s UAE subsidiary, IOC Middle East FZE, which oversees business expansion in the Middle East is blending SERVO lubricants, marketing petroleum products and lubricants in the Middle East, Africa and CIS countries.
CORPORATE HISTORY OF IOCL
The Path of Growth 1958 Indian Refineries Ltd. was formed with Mr. Feroze Gandhi as Chairman. 1959 Indian Oil Company Ltd. was established on 30th June 1959 with Mr S. Nijalingappa as the first Chairman. 1960 Agreement for supply of SKO and HSD was signed with the then USSR. M.V: "Uzhgorod" carrying the first parcel of 11,390 tones of HSD docked at Pir Pau Jetty in Mumbai on 17th August 1960. 1962 Guwahati Refinery was inaugurated by Pt. Jawaharlal Nehru. Construction of Barauni Refinery commenced. 1963 Foundation was laid for Gujarat Refinery Indian Oil Blending Ltd. (a 50:50 Joint Venture between IndianOil and Mobil) was formed. 1964 Indian Oil Corporation Ltd. was born on 1st September, 1964 with the merger of Indian Refineries Ltd. with Indian Oil Company Ltd. Barauni Refinery was commissioned. The first petroleum product pipeline from Guwahati to Siliguri (GSPL) was commissioned. 1965 Gujarat Refinery was inaugurated by Dr. S.Radhakrishnan, the then President of India. Barauni-Kanpur Pipeline (BKPL) and Koyali- Ahmedabad product Pipeline (KAPL) commissioned. Indian Oil People maintained the vital supply of Petroleum products to Defense in 1965 War.
1966 The first long-term agreement was signed for harmonious employee relations. 1967 Haldia Baraurii Pipeline (HBPL) was commissioned. Bitumen and Marine Bunker business began. 1968 Techno-economic studies for Haldia-Calcutta, Bombay-Pune and Bombay-Manmad Pipelines submitted to the Government. 1969 IndianOil undertook the marketing of Madras Refinery products. 1970 IndianOil acquired 60% majority shares of IBP. The same was offloaded in favour of the President of India under a Directive in 1972. 1971 Dealership/reservation was extended to war widows, disabled Defence personnel, Freedom Fighters, etc. after 1971 War. 1972 R&D Centre was established at Faridabad. SERVO, the first indigenous lubricant was launched. 1973 Foundation-stone of Mathura Refinery was laid by Mrs Indira Gandhi, the then Prime Minister of India. 1974 Indian Oil Blending Ltd. (IOBL) became the wholly owned subsidiary of IndianOil. Marketing Division attained a new watershed with a market participation of 64.2%. 1975 Haldia Refinery was commissioned. Multipurpose Distribution Centres were introduced at 132 Retail Outlets pioneering rural convenience. 1976 Private petroleum companies nationalised.
Burmah Shell became BPC. 1977 R&D Centre launched Nutan wick stove. 1978 Phase-wise commissioning of Salaya-Mathura Crude Oil Pipeline (SMPL) began. 1979 Barauni Refinery and Bongaigaon Refinery and Petrochemicals Ltd. (BRPL) affected by Assam agitation. 1980 The second Oil Shock was witnessed as a result of Iranian Revolution. Crude Oil price flared to a new high of $32 per barrel. 1981 Digboi Refmery and Assam Oil Company's (AOC) marketing operations were vested in IndianOil. It became Assam Oil Division (AOD) of IndianOil. 1982 Mathura Refinery was commissioned. Mathura-Jalandhar Pipeline (MJPL) was commissioned. 1983 Massive augmentation of LPG storage and distribution facilities were undertaken. Proposal for the 6 MMTPA Refinery at Karnal was submitted at an estimated cost of Rs l,181 Crore.
“A Major, Diversified, Transnational, Integrated Energy Company, with National leadership and a Strong Environment Conscience, playing a National Role in Oil Security & Public Distribution.”
To achieve international standards of excellence in all aspects of energy and diversified business with focus on customer delight through value of products and services, and cost reduction. To maximize creation of wealth, value and satisfaction for the stakeholders. To attain leadership in developing, adopting and assimilating state of the art technology for competitive advantage. To provide technology and services through sustained Research and Development. To foster a culture of participation and innovation for employee growth and contribution. To cultivate high standards of business ethics and Total Quality Management for a strong corporate identity and brand equity. To help enrich the quality of life of the community and preserve ecological balance and heritage through a strong environment conscience.
To serve the national interest in the oil and related sectors in accordance and consistent with government policies. To ensure and maintain continuous and smooth supplies of petroleum product by way of crude refining, transportation and efficiency. To earn a reasonable rate of interest on investment. To work towards the achievement of self- sufficiency in the field of oil refining and by setting up adequate capacity and to build up expertise in laying of crude and petroleum product pipeline. To create a strong R&D base in the field of oil refining and stimulate the development of new products formulations with a import and to have next generation products. To maximize utilization of the existing facilities in order to improve efficiency and increase productivity. To optimize utilization of its existing capacity and maximize distillate yield from refining of crude oil to minimize foreign exchange outgo. To minimize fuel consumption in refineries and stock losses in marketing operation to effect energy conservation. To further enhance distribution network for providing assured service to customer throughout the country through expansion of reseller network as per marketing plan/ government approval. To avail of viable opportunities, both national and global, arising out of the liberalization policies being pursued by the government. minimize / eliminate their marketing activities and to provide appropriate assistance to the Consumer to conserve and use petroleum product
To achieve higher growth through integration, mergers, acquisitions and diversification by harnessing new business opportunities like petrochemicals, power, lube business, consultancy abroad and exploration & production.
Towards customers and dealers To provide prompt, courteous and efficient service and quality products at fair and reasonable prices. Towards suppliers To ensure prompt dealings with integrity, impartiality and courtesy and promote ancillary industries. Towards employees Develop their capability and advancement through appropriate training and career planning. Expeditious redressal of grievances Fair dealings with recognized representatives of employees in pursuance of healthy trade union practice and sound personnel policies. Towards community To develop techno-economically viable and environment-friendly products for the benefit of the people. To encourage progressive indigenous manufacture of products and materials so as to substitute imports. To ensure safety in operations and highest standards of environment protection in its manufacturing plants and townships by taking suitable and effective measures.
Towards Defense Services To maintain adequate supplies to Defense Services during normal and emergency situations as per their requirement at different locations.
Indian Oil Corporation Limited is a wholly Government owned Private Limited Company registered under the Companies Act, 1956 and is managed by a Board of Directors who are appointed by the President of India. The Memorandum and Articles of Association of the Company are as stated in the Ministry of Finance, Company Law Board Order No.8/1/64CL. III dated 31.8.1964, and as amended from time to time. The activities of the company are divided at present into three divisions i.e. (I) Marketing Division, (2) Refineries & Pipelines Division; and (3) Assam Oil Division. For research and development, R&D Centre has also been established. The Refineries & Pipelines Division of the Company is mainly concerned with the construction and operation of Refineries and Pipelines. The Refineries & Pipelines Division is the successor to the erstwhile Indian Refineries Limited, a Government of India Undertaking, which was incorporated on 22.8.1958 as a private limited company. Later on, it was amalgamated with Indian Oil Company Limited vide amalgamation order No. 8/1/64-CL. III dated 31.8.1964. A Pipeline Division was created out of the erstwhile Indian Refineries Limited and it came into being with effect from 11.3.1965. With the completion of the construction of pipelines projects in hand, the Pipelines Division was abolished with effect from 23.2.1968 vide Government of India letter No. 25(3)/66-OR-IOC dated 16.2.1968. Since then the Pipelines Wing forms part of the Refineries & Pipelines Division of the Corporation. The three divisions of the Corporation are being managed separately and each division is headed by a Director (In charge) of the Division. The Research & Development Centre is also headed by a Director (R&D). The Divisions and R&D Centre have their own Finance Departments reporting to respective Director (In charge) and prepare their own budgets, Accounts and Operational programmes. Separate Balance Sheets and Profit & Loss Accounts are prepared by Refineries and Pipelines Wings of R&P Division, Marketing Division, Assam Oil Division and R&D Centre and are presented to the Board of Directors each year. For coordination of finance functions of all the divisions and to provide guidelines on financial/accounting matters, a Corporate Finance Department is also functioning under Director (Finance) in Chairman's Office. For the purpose of meeting the requirements of Companies Act, consolidation of the Balance Sheets and Profit & Loss Accounts of the Divisions and R&D Centre is done by Marketing Division, Bombay and a consolidated Balance Sheet and Profit & Loss Account is prepared for the Corporation as a whole. An organgram of Finance Department in R&P Division is attached at Annexure-I.
The Registered Office of the Company is at G-9, Western Express Highway, Ali Yavar Jung Marg, Bandra (East) Bombay-400051. The functional Head Office of the Refineries & Pipelines Division is situated at New Delhi. The Chairman's Office is also at New Delhi. The General Manager (Finance) is the Head of Finance Department. In Refineries & Pipelines Division. The G. M. (Finance) is appointed by the Board and is delegated with specific financial powers and act as a principal staff Adviser to the Director (R&P) on all financial matters. All the proposals involving financial implications are required to bear the concurrence of the G. M. (Finance) before they are submitted for approval of Director (R&P). However, in certain matters specified in manual of delegation of powers, no financial concurrence is called for. Similarly, at the Refineries/Pipeline units, the Deputy General Manager (Finance)/Chief Finance Manager/Senior Finance Manager acts as a principal staff adviser on all financial matters to the Executive Director General Manager.
Indian Oil carries its activities through its five divisions namely: 1. 2. 3. 4. 5. Refinery Division Pipe Line Division Marketing Division Assam Oil Division Research and Development Division
The company is managed by a Board of Directors. Besides the Chairman, the Board has the following full time directors. 1. 2. 3. 4. 5. Director (Refinery) Director (Pipeline) Director (Marketing) Director (Finance) Director (Personnel) REFINERIES: Refineries Guwahati Barauni Gujrat Haldia Mathura Panipat Refinery Year of commencement 1962 1964 1965 1975 1982 1999
Besides the above refineries, the refinery namely Digboi refinery is in AOD with installed capacity of 5 million tones. One more proposed refinery Paradip refinery is also under construction with the capacity of 6.0 million tones. SUBSIDARIES: Indian Oil Blending Limited Chennai Petroleum Corporation Limited Bongaigaon Refinery and Petrochemicals Limited
IBP Co. Limited Indian Oil Mauritius Limited Lanka IOC (P.) Limited IOCL Middle East FZE Dubai
REFNERIES PIPELINES & MARKETING SET-UP OF IOC
SHARE OF IOCL IN DIFFERENT AREAS
Indian Oil controls 10 of India's 18 refineries - at Digboi, Guwahati, Barauni, Koyali, Haldia, Mathura, Panipat, Chennai, Narimanam and Bongaigaon - with a current combined rated capacity of 54.20 million metric tonnes per annum (MMTPA) or one million barrels per day (bpd). Indian Oil accounts for 42% of India's total refining capacity.
Indian Oil owns and operates India's largest network of crosscountry crude oil and product pipelines of nearly 8,000 km, with a combined capacity of 56.85 MMTPA. Indian Oil also operates two Single Buoy Mooring systems in the high seas off Vadinar coast in the Gulf of Kutch for receipt of crude oil. Indian Oil owns & operates 69% of India's downstream pipeline throughput capacity.
Indian Oil’s countrywide network of over 22,000 retail sales points is backed for supplies by its extensive, well spread out marketing infrastructure comprising 165 bulk storage terminals, installations and depots, 95 aviation fuel stations and 87 LPG bottling plants. Its subsidiary, IBP Co. Ltd, is a stand-alone marketing company with a nationwide retail network of over 3000 sales points. Indian Oil caters to over 56% of India's petroleum consumption.
RECOGNITION / AWARDS
ENERGY CONSERVATION National Energy Conservation Award - First Prize in Refinery Sector in 1991, 1996 & 1998, Second Prize in 1997 & 2000, and Certificate of Merit in 1999 by Ministry of Power. MoP&NG Award for best improvement in Energy Conservation in 1994-95. MoP&NG Award for best performance in furnace/ boiler efficiency during survey conducted in OCF-1998. MoP&NG Award for lowest steam leak during survey conducted in OCF-1996, 1999 & 2001. Award from Ministry of Power for the Energy conservation for the year 2004-05. OGCF Award for Insulation Effectiveness of Furnace/Boiler for the year 2006. Mathura refinery has wins national energy conservation award 2006.
ENVIRONMENT MANAGEMENT ISO 14001 certification for Environment Management System in July’96 - First refinery in Asia and the 3rd in the world in the refining sector to achieve this distinction. Peacock National Environment Award in 1998. Green Tech. Environment Excellence Award - First Prize in Oil Sector in 2000 & Second Prize in Refinery Sector in 2001. First Refinery among all IOCL refineries to get Recertification under ISO14001:2004(EMS) version in July05.
SAFETY • • • • First refinery in the world to receive OHSMS certification in Nov’98. British Safety Council Award in 1990, 1992, 1993, 1995, 1997, 1999, 2000 & 2001. National Safety Award in 1988, 1992, 1993 & 1994. Ogale Shield (for minimum fire accidents amongst IOC Refineries) - 1987-88, 198990, 1990-91, 1993-94, 1995-96 , 1997-98 & 2004-05.
OISD Award for second best safety performance for the year 2004-05.
QUALITY ASSURANCE • • • • • • • ISO 9002 certification for Quality Management System in Sep’95. Golden Peacock National Quality Award in 1996 & 1997. Rajiv Gandhi National Quality Award in 1997. Golden Peacock National Training Award in 1997. NABL Accreditation for Lab in July’98. Rajiv Gandhi National Quality Award - “Best of all” received in Jan’2000. Golden Peacock National Innovation Award received in Jan’2000.
NATIONAL ENERGY CONSERVATION AWARD - 2006 FROM MINISTRY OF POWER Mathura Refinery received 2nd prize in National Energy Conservation award – 2006 for Refinery Sector. This is the highest declared award in this category for the year. OGCF AWARD-2006 FROM MOP&NG Mathura Refinery received 2nd Prize in Category-2 (Insulation Effectiveness of Furnace/Boiler).The Insulation Effectiveness survey of Furnace/Boiler was conducted simultaneously at all refineries during Jan 17-20, 2006 by a CHT team during OGCF-2006. SHRI ANIL RAJ TROPHY FOR THE YEAR 2005-06 Mathura refinery was awarded ‘Shri Anil Raj Trophy’ based on 2005-06 performances for achieving maximum reduction in energy consumption and hydrocarbon loss amongst IOCL refineries. Mathura registered an improvement of over 8 % over previous best performance in a financial year.
MATHURA REFINERY – A PROFILE (A UNIT OF IOCL)
The beginning of Mathura Refinery, the sixth of IOCL was commissioned in January 1982 to meet the ever-growing demand of petroleum products in northwest region of the country. Foundation of Mathura Refinery was laid by the First lady Prime Minister of India Ms Indira Gandhi. It was commissioned in January 1982 and its inauguration was done by Mr. P. Shivshankar in July 1982 who was Petroleum Minister at that time. The first distillation process was started on 19th January 1982 and its inauguration was done by Russian Experts and P. Shivshankar on 14th May, 1983. Mathura Refinery presently operates @ 8.0 MMTPA crude processing level and is meeting the product demand of North-West region of the country including the National Capital Delhi. The Refinery processes low sulphur crudes from Bombay High, Nigeria, and high sulphur crudes from Middle East Countries. The process configuration of the Refinery employs the state-of-the-art technologies with minimal impact on the environment. Various steps have been taken by Mathura Refinery to monitor and control the emission of Sulphur Dioxide. Mathura Refinery is the only refinery in the country to have set up the concern of community and archeological sites. These Ambient Air Monitoring Stations were commissioned before commissioning of the Refinery in 1981 and being continuously operated thereafter.
The Refinery has full-fledged ETP comprising of physical, chemical and biological treatment facilities. The treated effluent from the Refinery fully meets the MINAS(Minimal National Standards), the prescribes effluent discharge standards.
For the protection of the land environment, Mathura Refinery has initiated biodegradation of oily sludge through "Oilivorous-S", an oily sludge degrading bacterial consortium developed by IOC(R&D) in collaboration with Tata Energy Research Institute.
A beautiful eclogical park has been developed in an area of 4.45 acres. During the recent survey, the experts from the BNHS (Bombay Natural History Society) have identified 96 species of birds of which 30 migratory ones in the park giving a testimony of richness of life in the ecosystem.
Mathura Refinery has done extensive tree plantation in and around Refinery. The Refinery ahs also taken extra-ordinary initiatives to provide green cover to the archeological heritage sites especially the Taj Mahal by planting 1,15,000 trees in the Taj region.
“GREEN REFINERY, CLEAN REFINERY, MATHURA REFINERY” - MOTTO OF MATHURA REFINERY
Mathura Refinery is the third biggest refinery in India with a capacity of 8.0 MMTPA. It is the major supplier for various petroleum products in Northern India. It is a ISO 14001 and ISO 9001 certified unit of Indian Oil. Its capacity utilization is more than hundred percent. Mathura Refinery prepares annual budgets for rural development every year. IOCL Mathura Refinery is just 56 Km. away from Taj Mahal so it has to incur a lot of expenditure so as to ensure that the pollution is minimum. A pace setter among the Indian Refineries has become a model for synthesizing refining technology with environment. Power is supplied for the whole processing through Thermal Power Station (TPS) in which 2 of the 3 turbines are used at a time having a capacity of 12.5 MW per turbine and total capacity of 3 turbines is 37.5 MW (Mega Watt). The Raw Material for refinery is basically Crude Oil from Bombay offshore and imported crude oil from Australia in the east and Nigeria and Venezuela. Products are dispatched from this refinery through Train, Road and Mathura, Delhi, Ambala and Jalandhar pipeline. Its main products are: LPG (Liquefied Petroleum Gas) Sulphur ATF (Aviation Turbine Fuel) HSD (High Speed Diesel) MS (Motor Spirit) LDO (Light Diesel Oil) Naphtha (Fertilizer use)
FO (Furnace Oil) HPS (Heavy Petroleum Stock) RFO (Residual Fuel Oil) Superior Kerosene MS-93 OCTANE etc.
OBJECTIVES & CONTRIBUTION
It has the objective of “Green Refinery Clean refinery”. The unit has contributed lot on the part of environment.
Broadly Mathura Refinery apart from its Headquarter governed by following departments namely: 1. Personnel and Administration Department 2. Training Department 3. Management Services Department 4. Vigilance Department 5. Internal Audit Department 6. Medical Department 7. Materials Department 8. Production Department 9. Fire and Safety Department 10. Power and Utilities Department 11. Maintenance Department 12. Process Project Department 13. Technical service Department 14. Finance Department
1. Personnel Department:
The primary function of the department are planning & organizing manpower requirement, estimating vacancies, recruitment to seek and attract qualified applicants to fill vacancies at lower level, organizational planning to determine the organizational structure, selection, staffing, internal transfers and promotions, recreation, communication, employee discipline, performance evaluation, medical services, grievance handling etc. The primary objectives of personnel department are to design and develop an organizational structure with well defined relationships commensurate with the business plans and corporate strategies, promote and develop cooperative attitude among employees for fostering harmonious relations and cultivate the sense of belonging, evolve progressive and pragmatic personnel policies, promote and inculcate the culture of employees’ participation in management, inculcate productivity consciousness among the employees etc.
2. Training Department:
The department is primarily responsible for fulfilling the low-level training needs of refinery employees and to develop the capability and proficiency of employees and their
advancement through appropriate training and continuous knowledge updating to face corporate challenges and new technologies.
3. Management Services Department:
The department is primarily responsible for fulfilling the data base requirement, EDP requirements, programming developing & maintenance.
4. Vigilance Department:
The department is primarily responsible for running of the organization free of frauds, mistakes etc. in each department.
5. Internal Audit Department:
The department is primarily responsible for routine check-up of general day-to-day working of the organization in order to have the organization free of frauds, mistakes etc. in each department.
6. Medical Department:
The department is working under the personnel & administration department and is responsible for the medical awareness and medical requirements of the employees.
7. Materials Department:
The department is primarily responsible for making an integrated approach to the improvement in Total Materials Management with active involvement of all concerned at the grass root level The main function of the department are planning material cycle by avoiding over stocking, locking up of capital, developing new sources of supply, maintain good suppliers relations, to procure desired quality material at the appropriate time and at reasonable prices, to maintain an effective inventory control system, to encourage progressive indigenous development of imported spares/equipment, to ensure prompt dealings with impartiality, integrity and courtesy towards vendors and suppliers, to promote ancillary and auxiliary industries, transportation, receipts, inspection, warehousing, preservation, issue, accounting, to help in physical verification and reconciliation of stores, economic disposal of surplus and scrap, inventory control including codification, standardization, variety reduction, value analysis, ABC analysis, FSN analysis etc.
8. Production Department:
The primary function of the department is to receive the crude oil and refining it through distillation process in order to converting it into the finished product.
Products which are being refined in the Mathura Refinery are Liquefied Petroleum Gas, Naphtha (Fertilizer use), Aviation Turbine Fuel, Superior Kerosene, Bitumen, Furnace Oil, Heavy Petroleum Stock, Light Diesel Oil, High Speed Diesel, Motor Spirit, Residual Fuel Oil, and Heavy Petroleum Stock, MS-93. Among the given products of Mathura Refinery, Sulphur is the by-product, which Refinery produces because of environmental factors. The main processing units are:1) CDU (Crude Distillation Unit) 2) VDU (Vacuums Distillation Unit) 3) FCCU (Fluid Catalyst Cracking Unit) 4) GCU (Gas Concentration Unit) 5) VBU (Visbreker Unit) 6) BBU (Bitumen Unit) 7) SRU (Sulphur Recovery Unit) 8) ARU (Ammine Regircration Unit 9) PRU (Poly Propylene Recovery Unit) 10) CRU (Catalytic Reformer Unit) 11) MSPF (Matching Secondary Process Facilities Unit) 12) DHDS (Diesel Hydro De Sulphurization Unit) 13) HGU (Hydrogen Generation Unit) 14) SRU (Sulphur Recovery Unit) 15) GT (Gas Turbine)-Phase 2 etc.
9. Fire and Safety Department:
The department is primarily responsible for fire & safety arrangement and awareness in the organization in order to have the organization and its employee working in safety environment. Its main function is to prevent and overcome the hazardous situations.
10. Power and Utilities Department:
The department is primarily responsible for providing and maintaining the power supply and public utility works in refinery as well as in township.
11. Maintenance Department:
Maintenance department has its three divisions namely:
I. Mechanical maintenance – Responsible for mechanical maintenance work in the refinery. II. Instrumentation maintenance – Responsible for instrumental maintenance work in the refinery. III. Civil maintenance – Responsible for civil maintenance work in the refinery.
12. Process Project Department:
The department is primarily responsible for project work implementing in the refineries mainly of process units. Its main function is to procurement of material, plant construction and its commissioning.
13. Technical service Department:
The department is primarily responsible for technical aspects of the refineries mainly production and working of units.
Head Office Account
Since Mathura Refinery is the unit of Indian Oil, its main capital structure i.e. share capital, debentures etc are accounted for at the Head Office level. At Mathura Refinery only Head Office account is maintained in which annual profit is transferred besides various transaction with Head Office.
OVERVIEW ABOUT FINANCE DEPARTMENT
To provide high quality financial staff support for decision-making and control to all levels of Management-corporate, divisional, Unit and location to enable the achievement of overall corporate objectives and goals. To play a lead role in scanning the domestic and international financial environment, the formulation and implementation of all financial policies and plans for different time spans consistent with and conducive to the business plans for expansion, diversification, productivity etc. To interact pro-actively with the relevant Government agencies on pricing and investment and with financial institutions, depositors and creditors, with sensitivity and promptness, for mobilization and provision of funds for uninterrupted operations and project execution optimal costs. To maintain, review and update all relevant accounting records, systems and procedures for discharging the fiduciary responsibilities and enabling compliance with statutory obligations. To inculcate financial awareness, cost benefits attitudes and system orientation in the entire organization. To develop the human resources, systems and techniques of finance for continuing innovation and contribution towards IOC corporate excellence. To develop long term corporate plans to provide adequate growth of the activities of the corporation. To continue to make an effort in bringing reduction in the cost of production of petroleum products by means of systematic cost control measures. To endeavor to complete all plan projects within stipulated time and within stipulated cost estimates.
To ensure adequate return on the capital employed and maintain a reasonable annual dividend on its equity capital. To ensure maximum economy in expenditure. To manage and operate the facilities in an efficient manner so as to generate adequate internal resources to meet revenue cost and requirements for project investment, without budgetary support. To develop long term corporate plans to provide for adequate growth of the activities of the Corporation. To endeavor to reduce the cost of producti9n of petroleum products by means of systematic cost control measures. To endeavor to complete all planned projects within the stipulated time and cost estimates.
To inculcate cost consciousness in the user departments. Development of Standard Refining costs at each unit level. Proper implementation of budgetary control and submission of MIS in time. To keep the level of inventories below the level fixed by the Board and outstanding debts, loans and advances and claims at bare minimum. Ensure payment on due date to various agencies. Monitor capital expenditure to ensure completion within stipulated time and cost. Optimize utilization of working capital.
Efficient management of Funds.
FUNCTIONS OF THE FINANCE DEPARTMENT
Management of financial resources for meeting the Corporations prograrnmes of operations and capital expenditure including investment of surplus fund, if any. Ensuring uniform financial and accounting policies and procedures, to the extent possible, in the Division. Establish and maintain a system of financial scrutiny and internal checks and render advice on financial matters including examinations of feasibility studies and detailed project reports. Establishment and maintain an appropriate system of Budgetary Control and Management Information System for different levels of the Management. Carry out periodical/special studies with a view to control costs, reduce expenditure, economy in administrative expenditure, improve efficiency to maximize profitability of the Corporation Maintain the financial accounts, cost accounts and other relevant books and records in accordance with the various statutory and other requirements. Advise on corporate cash planning, credit policy and pricing policies of the Corporation. Ensuring that the Corporation acts in all financial and accounting matters as per approved policies of the Corporation within the framework of Government policy for public enterprises.
VARIOUS SECTIONS IN FINANCE DEPARTMENT
MAIN ACCOUNTS SECTION :
The books of accounts in the Division shall be maintained on the double entry system of accounting. All items of income and expenditure shall be brought into books on accrual basis. A decentralized system of accounting shall be followed whereby each unit/branch office of R&P Division is considered as a separate accounting unit and separate sets of books of accounts are maintained by each unit/branch office. Annexure III-I depicts the Refinery/Pipelines units operating as separate Accounting Centres. With a view to have uniformity in the classification of expenditure at all units and branch offices, the Head Office has prescribed Chart of Accounts (Revised) effective from 1.4.1987 containing Main Codes and sub-codes with a provision for cost centres. Any change/addition to the Main Code/Sub Codes requires prior approval of Head Office. Request for additions to/change in Main Code/Sub Code shall be made to CFM, HO. Some of the main cost centres have also been standardized. Additional cost centres may be opened by units as and when necessary under intimation to HO. Keeping in view the requirements of the Companies' Act, the Head Office has prescribed forms (Annexure III-2) for preparation of Balance Sheet and Profit & Loss Account. Each unit of Refinery/Pipeline shall prepare a Profit and Loss Account at the end of every quarter and finally at the end of the financial year in the prescribed forms and according to the normal accounting principles. The Profit & Loss Account should incorporate all items of income and expenditure concerning the relevant period/financial year and should depict the true and fair view of the rest of operations during the period/year. Similarly each unit of Refinery/Pipeline shall prepare a Balance Sheet at the end of each quarter/ financial year in prescribed form showing all items of assets and liabilities on the last day of the quarter/financial year. For items, such as contingent liabilities, etc. explanatory notes have to be given in the final accounts in accordance with the normal accounting principles. The Balance Sheet and Profit & Loss Account along with the supporting schedules of each unit are audited by the auditors on the basis of transactions recorded and information available at the units after which they are to be signed for identification and sent to Head Office of Refineries/Pipelines as the case may be. The Balance Sheets and Profit & Loss Accounts of all the units/branches are consolidated at the Refinery/Pipeline Head Office after making such further adjustments that may be found necessary. The net balance of the Profit & Loss
Account of each unit is to be transferred to the Refinery/Pipeline Head Office Account as per instructions issued by the Head Office.
The transactions relating to procurement of materials from the indenting stage to the payment stage have been divided in various parts whereby each part of the work is handled by an independent agency till the transaction is completely closed. This division of work between various agencies operates. Detailed procedure as prescribed in the Materials Management Manual is to be followed for all purchases. The authority to place indent for materials is subject to provisions in the approved budgets. Indents for materials on capital account are raised against capital/additional facilities budgets and on revenue account against purchase budget. Indents for project materials required for execution of works are to be The necessity for purchase of the required materials is to be determined solely by the indenting department and approved by indent approving authority as provided in Materials Management Manual. The indents are to be raised for the right quantity and at the right time. The indenting departments are answerable for any stock outs or overstocking of the materials. The Purchases are to be made in accordance with the Tendering Procedure prescribed in the Materials Management Manual. The objective of the Tendering Procedure is to ensure that right quality of materials are purchased from competitive sources and on best available terms and rates, keeping in view the delivery considerations. It is also necessary to ensure that no undue advantage accrues to any particular supplier while finalizing a purchase contract. After the tenders are invited by the Materials Department. The selection of suppliers and the placement of purchase order is done as per recommendations of the Tender committee with the concurrence of Finance Department. The placement of purchase orders is to be approved by the competent authority in accordance with the financial limits prescribed as per delegation of powers.
FUNCTIONS The Section dealing with the accounting of purchases is responsible for: Scrutiny and concurrence of purchase proposals;
Deposits and advance payments to suppliers: Passing of bills for supplies received. Pricing of Goods Receipt Notes.
Accounting of cash purchases made by the Materials Department; Arrangement for insurance of transit risk; Maintenance of books of accounts; Sales Tax matters.
Appointments for vacancies are made either by recruitment or by departmental promotion or by deputation from Govt. /other Department. Against leave vacancies officiating appointments are permitted in certain cases. All appointments are made in accordance with the rules prescribed Manual. The matter relating to recruitment, promotion, transfer, suspension, is dealt with by the personal department. In each case office order is issued by the personal department. After observing the prescribe procedure and given the fixation copies of these office orders are sent to the finance department for the drawing the pay & allowance incumbents. Rules for pay and allowances are prescribed by Head Office from time to time. The eligibility for special types of allowances such as special allowances, shift allowance etc. is determined by Personnel Department and the intimations are sent to Finance Department for employees eligible for such allowances. With a view to ensure easy identification each employee shall be allotted a Permanent employee number by the Office where the employee first joins. This number remains unaltered as long as the employee continues in service in the Corporation. This number shall not be allotted to any other employee even if he/she leaves the Corporation. This permanent number is allotted from the block numbers allotted to various units as under: The annual increments are drawn quarterly on April 1st, July 1st, October 1st and January 1st each year. The eligibility of an employee for annual increment with reference to a particular quarter of the year is determined as per rules in the Personnel Manual. For all employees, annual increment is drawn automatically as and when it is due unless there is an intimation from the Personnel Department to the contrary. Under the present rules, the
date of increment once fixed remains unchanged except for leave without pay in certain cases when increment is shifted to next quarter by the Office Order from Personnel Department. Rules for various types of advances are prescribed in the Personnel/ Administration Manual. Applications for various advances are received by the Personnel/Administration Department through the department concerned. They examine the eligibility of each applicant as per rules and sanctions are forwarded to Finance. Based on the sanctions, payment is made by Finance and the recovery is affected in installments as per rules. Payments relating to leave travel concession advance, lump sum payment in lieu of LTC facility, leave encashment etc., are made on the basis of advice received from Personnel Department in each case. The eligibility relating to the LTC Block and the number of tickets as well as leave encashed shall be examined by the Personnel Department. The amount payable shall be determined by the Finance as per rules. The authority for dealing with cases relating to termination of services, voluntary retirement resignation, retirement etc rests with the Personnel Department. Payment for retrenchment compensation, gratuity, terminal leave. Actual period of work remaining unpaid etc. shall be made by Finance as per rules on receipt of advice and No Dues Certificate from the Personnel Deptt. Claims for T.A., medical expenses including post retirement medical facilities, conveyance reimbursement, Meal/Conveyance for additional and extended duties, etc. are settled by Finance in accordance with the rules and procedure prescribed from time to time in each case. Various statutory returns such as returns under Factories Act, ESI Act, and Provident Fund Act etc. are submitted by the Personnel Department. Monetary figures wherever necessary are provided by Finance.
FUNCTIONS Function of the Section dealing with Establishment can be broadly classified as follows: Scrutiny and concurrence of proposals from Personnel Department. Payment of Salaries and Allowances. Advances to employees. Deductions from Pay Bills. Other Welfare Schemes including Gratuity. Personal Claims and other payments. Statutory and Statistical requirements.
Cash section shall be responsible for: Receipts of cash, cheques and bank drafts. Payment by cash, cheques, bank drafts. Handling of bank deposits/ withdrawals, custody of cash and transfer of funds.
Security arrangement for cash handling.
Safe custody of valuables & documents. Petty cash Imprest. Maintenance of subsidiary cash credit account & special cash credit. Accounts. Maintenance of cash book and bank cash books.
ACOCUNTING OF ASSETS:
For all items of fixed assets such as buildings, plant & machinery, furniture & fixtures etc. asset register shall be maintained by the Finance Department for complying the various accounting provisions under the Companies Act and the Income Tax Act. Adequate depreciation on the cost of fixed assets shall be charged to the Profit & Loss Account before ascertaining the profit. The acquisition cost of assets should include all expenses for bringing the asset into existence. Such cost, therefore, includes purchase cost, erection cost; supervision cost etc. incurred up to the stage the asset is ready for commissioning The Companies Act prescribes the minimum quantum of depreciation which should be charged to the profits of limited company before such profits are
distributed as dividend, Keeping in view the statutory requirements and the effective life of the assets, the Board of Directors have prescribed the rates of depreciation for various categories of assets on straight line method. The rates of depreciation admissible under the Income Tax Act are based on written-down value method and are different from the rates adopted by the Company, for its annual accounts. As such for compliance of the income tax requirements, details of depreciation at income tax rate are being maintained separately by Marketing Division, Bombay. In case any item of asset is discarded, sold or written off, the difference between the sale price of such asset and the written-down value shall be adjusted in the books of accounts as loss or gain. Inter-unit and Inter-divisional transfer of movable assets shall be done through the stores Department. After issue of the asset item the issue voucher as usual shall be sent to Finance, who on the basis of the identification number available in the issue voucher shall write the same in their asset ledger for future reference. Physical verification of all assets shall be undertaken at least~ once in every three years. The verification team shall start on the basis of the identification. FUNCTIONS Following are the main functions in respect of accounting of assets: Capitalization of the cost of acquisition of assets. Accounting of depreciation Transfers, disposal and discarding of assets Maintenance of Asset Ledger Arrangement for physical verification of assets. Preparation of schedules for Balance Sheet.
The Oil Movement and Storage Section in the Refinery is responsible for handling of receipt, storage and dispatch transactions for crude oil and oil products. The receipt transactions comprise crude oil supplies and finished products manufactured and/or procured from outside
for blending, if any. Dispatch of finished products is based on the advice from the Marketing Division. FUNCTIONS Accounting of Crude Oil receipts Accounting of Customs Duty on Crude Oil Accounting of finished products receipts Accounting of dispatch of products Excise procedure and accounting Material balance and production statistics.
STORES SECTION: The Section dealing with accounting of stores in the Finance Department shall have following functions: Passing and accounting of transportation bills. Accounting of receipts, issues, return and transfer of materials. Accounting of imported materials for capital works and operations maintenance. Stock verification. Accounting for sale of surplus materials.
While the important functions of the department have been dealt with separately in the earlier chapters, there are several miscellaneous jobs required to be carried out by the department. The miscellaneous jobs can be broadly divided into following categories: Accounting of cash imprest & advance for company. Passing of bills of miscellaneous nature.
Miscellaneous recoveries from outsiders Inter –sectional coordination.
FINANCIAL STATEMENT ANALYSIS
Financial statements are the means of communicating accounting information which s generated in the various accounting processes to the external users of accounts. The external users include (i) investors (ii) employees (iii) lenders (iv) suppliers and the trade creditors (v) customers (vi) government and other agencies (vii) the public at large. In India a complete set of financial statements includes (i) a balance sheet (position statement) (ii) a profit and loss statement (income statement) & (iii) schedules and notes forming part of balance sheet and profit and loss account. In many countries financial statements also include a statement of changes in financial position (which may be presented in a variety of ways like as a statement of cash flows or a statement of funds flow). Therefore “financial information which is the information relating to the financial position of any firm when presented in a capsule and concise form is known as the financial statement. Analysis of financial statement is a systematic process of the critical examination of the financial information contained in the financial statements in order to understand and make decisions regarding the operations of the firm. The Analysis of the Financial Statements is a study of relationships among various financial facts and figures as set out in the financial statements i.e. Balance Sheet and Profit and Loss Account. The complex data given in these financial statements is divided into simple and valuable elements and significant relationships are established between the elements of the same statements or different financial statements. This process of division, establishing relationship and interpretation therefore to understand the working and financial position of a business is known as analysis of financial statements. In the words of MYER – “Financial Statement analysis is largely a study of relationships among the various financial factors in a business as disclosed in a single set of statements and a study of trends of these factors, as shown in the series of financial statements.”
TOOLS OR TECHNIQUES OF FINANCIAL STATEMENTS ANALYSIS
Financial statements indicate certain absolute information about assets, liabilities, equity, revenues, expenses and profit or loss of an enterprise. Various techniques are applied for analyzing the financial statements. Following tools and techniques for analysis of the statements: 1. Comparative Financial Statements: Comparative Financial Statements are the statements in which figures for two or more periods are placed side by side along with change in figures in absolute and percentage form to facilitate comparison. Both Income Statement and Position Statement are prepared in the form of comparative Financial Statements. 2. Common Size Financial Statement: It expresses all figures of financial statements as percentage of common base. In the P&L account the sale 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 percentage of sales. 3. Trend Percentages: Trend percentages are immensely helpful in making comparative study of the financial statements for several years. The method of calculating trend percentages involves calculation of percentage relation relationship that each item bears to the same item in the base year. 4. Fund Flow Statement: It shows the changes in working capital position. It shows the sources from which the working capital was obtained and the purposes for which it was used.
5. Cash Flow Statement: It shows the changes in cash position from one period to another. It shows the sources from which cash was received and the purpose for which it was used.
It expresses the relationship between two financial variables taken from financial statements of an accounting period in the form of ratios.
PROCESS OF FINANCIAL STATEMENT ANALYSIS
The functions which are used in the process of analysis and interpretation are: 1. Re-arrangement of financial statements: For analysis it is necessary to reclassify the data contained in the financial statement into purposive classes so that maximum information from every analysis can be obtained. Rearrangement and reclassification of different data depend upon the purpose of analysis. 2. Comparison: After classification into different categories, it is necessary to derive comparative data of the same enterprise of the past periods if it is a time series analysis. In case of cross sectional analysis it is necessary to derive comparative data of the same accounting period of similar or comparable enterprises. For this comparative study is necessary. 3. Analysis: Comparative financial data are then analyzed with reference to financial characteristics like profitability, solvency and liquidity. 4. Interpretation: The concluding part of financial statement analysis is the interpretation of financial information generated in the process of financial statement analysis. The interpretation should be precise and pointed towards indicating the movement of various financial characteristics.
PURPOSES AND SIGNIFICANCE OF FINANCIAL ANALYSIS
Financial analysis serves the following purposes and that brings out the significance of such analysis. 1. Judging the earning capacity or profitability: On the basis of financial statements the earning capacity of the business concern may be computed. In addition to this the future earning capacity of the concern may be forecasted. 2. Judging the managerial efficiency: It helps in pinpointing the managers would have shown better efficiency and the areas of inefficiencies. Any favorable or unfavorable variations can be identified and reasons thereof can be ascertained to pinpoint managerial efficiency or deficiency. 3. Judging the short and long term solvency of the concern: This may judge the solvency of the concern. Debenture holders and lenders judge the ability of the company to pay the principal and interest as most of the companies raise a portion of their capital requirement by issuing debentures and raising long term loans. Trade creditors are mainly interested in assessing the short term solvency of the business as they want to know that the business is in position to pay debts as and when they fall due. 4. Inter firm comparison: Inter firm comparison is not possible without a proper analysis of the financial statements based on ratios. 5. Making forecast and preparing budgets: Past data helps a lot in assessing developments in the future.
LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS
1. Historical Analysis: Financial statements analysis is historical analysis. It analyses what had happened till date. It does not reflect the future. 2. Ignores Price Level Changes: Price level changes and purchasing power of money are inversely related. A change in the price level makes analysis of financial statement of different accounting years invalid because accounting records ignore change in the value of money. 3. Qualitative Aspect Ignored: Qualitative aspect like quality of management, quality of labor force, public relations is ignored while carrying out the analysis of financial statements only. 4. Suffers From The Limitations of Financial Statements: As it is based on the information of the financial statements hence, it suffers from all such limitations from which the financial statements suffer. 5. Not Free From Bias: In many situation the accountant has to make choice out of alternatives available e.g. choice in the method of inventory valuation or method of depreciation etc. Since the subjectivity is inherent in the personal judgment. 6. Variation in Accounting practices: For cross-sectional analysis it is necessary that accounting practices followed by the firm do not vary significantly. If there is any variation then a valid comparison of their financial statements is not possible.
A ratio is an arithmetical expression of relationship between two related or Interdependent items. Ratio analysis is a technique of analyzing the financial statements and refers to analysis of financial statements by computation of ratios. In other words, ratio analysis is a process of determining and interpreting relationship between the items of financial statements to provide a meaningful understanding of the performance and financial position of an enterprise.
Ratios are regarded as the true test of earning capacity, financial soundness and operating efficiency of a business organization. In other words, the objectives of using ratios in accounting and financial management analysis are to test the Profitability, Financial position (Liquidity and Solvency) and Operating efficiency of an enterprise.
ADVANTAGES AND USES:
Ratio analysis is an important technique of financial analysis. It is an accounting tool to present accounting variables in simple concise intelligible and understandable form. It is a means for judging the financial health of the concern. The advantages derived by an enterprise by the use of accounting ratios are: Useful in analysis of financial statements. Useful in simplifying accounting figures. Useful in judging the operating efficiency of business. Useful for forecasting purposes.
Useful in locating the weak spots of the business. Useful in Inter-firm and Intra-firm comparison.
Except in a few cases ratios by themselves are not significant they assume significance only when compared with the relevant ratios of other firms or of previous periods. The profit of a firm to sales is 5%: whether is satisfactory or not will depend upon the figures for previous years or figures for other firms. If other firms earn 6% this firm is doing not as well as it should: if the firm earned 4.5% of sales on profit in the previous year it must be considered to have done better this year by earning 5% if other firms earn 6% this firm is not doing as well as it should. Thus to get the correct interpretation from the ratios relating to an enterprise they must be set against ratios of the previous period or of other firms. The following are the limitations of ratios: False result. Different meanings are put on different terms. Not comparable if different firms follow different accounting policies. Affect of price level changes. Results may be misleading in the absence of absolute data. Ignores qualitative factors. Difficult to forecast future on the basis of past facts. Difficult to evolve a standard ratio. Ratios may be worked out for insignificant and unrelated figure. Window dressing. Personal bias.
Classification of Ratios
A. Liquidity Ratios: 1. 2. 3. 4.
Current Ratio Quick Ratio Absolute Quick Ratio Interval Measure
B. Leverage Ratios: 1. Total Debt Ratio 2. Debt Equity Ratio 3. Interest Coverage C. Activity Ratios: 1. 2. 3. 4. 5. 6. 7. Capital Turnover Ratio Fixed Assets Turnover Ratio Net Assets Turnover Ratio Working Capital Turnover Ratio Inventory Turnover Ratio Days Of Inventory Holding Debtor Turnover Ratio
D. Profitability Ratios: 1. Gross Profit Ratio 2. Net profit ratio 3. Return On Investment Ratio 4. Operating ratio 5. Return on shareholder’s fund 6. Return on equity shareholder’s fund 7. Earning per share 8. Proprietary ratio
SAMPLES & TOOLS
Samples used in the financial analysis of Mathura Refinery are following:
Profit & Loss account of the unit for the years 2005-06 & 2006-07. Balance Sheet of the unit for the years 2005-06 & 2006-07. Various schedules relevant to the Profit & Loss account and Balance Sheet.
The tools used in financial analysis of Mathura Refinery are following:
Comparative Balance Sheet. Comparative Profit and Loss Account. Various standards ratio. Trend Analysis.
COMPARATIVE PROFIT AND LOSS ACCOUNT
The Profit & Loss account gives the results of the operations of a business. The comparative Profit & Loss A/c gives an idea of the progress of a business over a period of times. The changes in absolute data in money values and percentages can be determined to analyze the profitability of the business.
Comments and Interpretations of Comparative Profit and Loss Account: In the financial year 2006-07, there has been increase in throughput (TMT) 945.307 which is 8882.872 in current year and in 2005-06 was 7937.564. In the financial year 2006-07, there has been a normal increase in the total production transferred to marketing division of Mathura Refinery. It has increased by Rs. 2851crore i.e. 21.84% from previous financial year.
Power and fuel has also decreased significantly by Rs 33crore, which is due to increase the own production. Chemicals, stores & spares has increased by Rs.27.29crore in the year 2006-07. This is mainly due to major shutdown in June of this year. In this year a special chemical which is one time was used which is a very costly chemical. Repairs and maintenance has increased by Rs.8.20crore. This is due to shutdown in the company with another reason of special expenditure on a Gas Turbine(GT) for repairs in this year. Office, administration, selling and other expenses has increased by Rs. 42.38crore which is mainly due to exchange infatuation. Depreciation has been decreased by 2.62crore. The main reason for such a decrease is decapitalization of plant units during the year.
COMPARATIVE BALANCE SHEET
The comparative balance sheet analysis is the study of the trend of the same items, groups of items and computed items in two balance sheets of the unit on different dates. The changes in periodical balance sheet items reflect the conduct of a business. The changes can be observed by the comparison of the balance sheet at the beginning and at the end of a period and these changes can help in forming an opinion about the progress of a unit. Comments and Interpretations of Comparative Balance sheet:
The working capital has decreased by Rs. 91.73crore. In the year 2006-07 it is Rs. 976.86crore whereas in the year 2005-06 it was Rs. 1068.59crore.This is mainly due to increase the current liability in the current year. Fixed asset has decreased by Rs. 128.3crore In the year 2006-07 it is Rs. 2452.59crore whereas in the year 2005-06 it was Rs. 2580.89crore.This is mainly due to transfer the assets to marketing division and decapitalization of assets in MSQ and DHDT project. Reserve & surplus, which is having only current year profit, has decreased by Rs. 517.19crore with respect to previous year. Intangible assets have decreased by Rs. 29.84Lakh. This is due to prior year impact of delaying capitalization on computer software.
RATIO ANALYSIS OF MATHURA REFINERY
(Figures in lakh)
(A) LIQUIDITY RATIO
1. CURRENT RATIO
Meaning: This ratio establishes a relationship between current assets and current liabilities. Objective: The objective of computing this ratio is to measure the ability of the firm to meet its short term obligation and to reflect the short-term financial strength/solvency of a firm. In other words, the objective is to measure the safety margin available for short-term creditors. Higher the ratio means better capacity to meet its current obligation.
CURRENT RATIO =
CURRENT ASSETS CURRENT LIABILITIES
IN THE YEAR 2006-07 298590.86 = -------------- = 1.49 200904.39
IN THE YEAR 2005-06 242825.54 = -------------- = 1.79 135966.40
Interpretation: Traditionally a current ratio of 2:1 is considered to be a Satisfactory ratio. On the basis of this traditional rule , if the current ratio is 2 or more, it means the firm is adequately liquid and has the ability to meets it current obligation but if the current ratio is less than two it means the firm has difficulties in meeting its current obligations. The logic behind this rule is that even if the value of current assets
becomes half , the firm can still meet its short term obligations. Here the current ratio in the year 2006-07 is 1.49:1 that is less than the last year ratio which is 1.79:1.
2. QUICK RATIO
Meaning: This ratio establishes a relationship between quick assets and current liabilities. This ratio is a fairly stringent measure of liquidity. It is based on those current assets which are highly liquid. Objective: The objective of computing this ratio is to measure the ability of the firm to meet its short-term obligations as and when due without relying upon the realization of stock.
QUICK RATIO =
QUICK ASSETS / LIQUID ASSETS CURRENT LIABILITIES IN THE YEAR 2005-06 121904.80 = ------------- = 0.89 135966.40
IN THE YEAR 2006-07 184370.79 = ------------- = 0.92 200904.39
Interpretation: It indicates rupees of quick assets available for each rupee of current liability.Tradionally a quick ratio of 1:1 is considered to be a satisfactory ratio but here in the year 06-07 quick ratio is 0.92:1 is increased compared to the last year ratio 0.89:1 and this is due to increase in cheques in hand.
3. ABSOLUTE QUICK RATIO
Meaning: This ratio establishes a relationship between absolute quick assets (Cash & bank & marketable securities) and current liabilities.
ABSOLUTE QUICK RATIO = CASH+BANK+MARKETABLE SECURITIES CURRENT LIABILITIES
IN THE YEAR 2006-07 26.25 = ------------- = 0.00013:1 200904.39 =
IN THE YEAR 2005-06 1.37 ------------ = 0.000010:1 135966.40
Interpretation: Here the absolute quick ratio 0.00013:1 in year 2006-07 is high .000010:1 last year 2005-06. It means company increases the absolute assets.
4. INTERVAL MEASURE
Meaning: An Interval measure relates liquid assets to average daily operating cash outflows. Daily operating expenses will be equal to cost of good sold plus selling, administrative and general expenses less depreciation divided by number of days.
INTERVAL MEASURE = CURRENT ASSETS –INVENTORY AVERAGE DAILY OPERATING EXPENSES
IN THE YEAR 2006-07 184370.79 = ----------- = 1326.40 139.66
IN THE YEAR 2005-06 121904.83 = ----------- = 940.48 129.62
Interpretation: Interval measure indicates that it has sufficient liquid assets to fiancés its operations for 1326.40 days as compare to last year that is 940.48 days even if does not receive any cash. it is good indicator for company.
(B) LEVERAGE RATIO
1. DEBT RATIO
Meaning: This ratio use to know the proportion of the interest–bearing debt (funded debt) in the capital structure.
DEBT RATIO = TOTAL DEBT CAPITAL EMPLOYED
IN THE YEAR 2006-07 182431.52 = ----------- = 0.55 331389.75
IN THE YEAR 2005-06 166107.96 = ----------- = 0.45 366857.01
2. DEBT EQUITY RATIO
Meaning: This ratio indicates the relationships between the external equities or the outsider funds and the internal equities or the shareholder fund. Objective: The objective of computing the ratio is to measure the relative proportion of debt and equity financing the assets of a firm. DEBT EQUITY RATIO = TOTAL DEBT NET WORTH
IN THE YEAR 2006-07 182431.52 = ----------- = 1.22 148958.23
IN THE YEAR 2005-06 166107.96 = ----------- = 0.83 200749.05
Interpretation: It indicates the margin of safety to long-term creditors. A low debt-equity ratio implies the use of more equity than debt which means a large safety margin for creditors since owner’s equity is treated as a margin of safety by creditors and vice versa. Here the debts-equity ratio in year 2006-07 is 1.22:1 that is high compare to 0.83:1 last year 2005-06. It indicates that low risk of creditors.
3. INTEREST COVERAGE RATIO
Meaning: This ratio establishes a relationship between profit before interest and taxes and interest on long-term debt. Objective: Interest coverage ratio is used to test the debt servicing capacity of a firm. This ratio indicates the number of times interest is covered by the profit available to pay the interest charges. INTEREST COVERAGE RATIO = EARNINGS BEFORE INTEREST AND TAX INTEREST IN THE YEAR 2006-07 156511.31 = ----------- = 20.72 7553.07 IN THE YEAR 2005-06 207087.38 = ----------- = 32.67 6338.32
Interpretation: Here the interest coverage ratio in the year 06-07 is 20.72 times that is low by the last year which was 32.67 times and it is bad indicator for the company. This is because of long term debts are increase and Earnings before Interest and Tax are decrease.
(C) ACTIVITY RATIO
1. CAPITAL TURNOVER RATIO
Meaning: This ratio establishes a relationship between net sales and capital employed. Objective: The objective of computing this ratio is to determine the efficiency with which the capital employed is utilized.
CAPITAL TURNOVER RATIO = NET SALES / COST OF GOODS SOLD CAPITAL EMPLOYED
IN THE YEAR 2006-07 2148768.71 ----------- = 6.48 331389.75
IN THE YEAR 2005-06 1763645.49 ----------- = 4.81 366857.01
Interpretations: It indicates the firm ability to generate sales per rupee of capital employed. In general higher the ratio more efficient the management and utilization the capital employed. A too high ratio may indicate the situation of an over-trading or under –capitalization if current ratio is lower than that required reasonably and vice versa. Here the capital turn over ratio in the year 2006-07 is 6.48 that is more than the last year ratio which is 4.81 that is more impact full.
2. FIXED ASSETS TURNOVER RATIO
Meaning: This ratio establishes a relationship between net sales and fixed assets. Objectives: The objective of computing this ratio is to determine the efficiency with which fixed assets are utilized. A high ratio indicates a high degree of efficiency in the utilization of fixed assets and a low ratio represents inefficient use of assets. FIXED ASSTS TURNOVER RATIO = NET SALES / COST OF GOODS SOLD NET FIXED ASSETS IN THE YEAR 2006-07 2148768.71 ----------- = 8.93 240692.92 IN THE YEAR 2005-06 1763645.49 = ----------- = 6.91 255298.39
Interpretation: It indicates the firm ability to generates sales per rupee of investments in fixed assets. In general higher the ratio the more efficient the management and utilization of fixed assets and vice versa. It may be noted that there is no direct relation ship between sales and
fixed assets. Since sales are influenced by the other factors. This is due to because of two reasons: Because of higher volumes of production And the other is old establishment of this company i.e. 1982.
3. NET ASSETS TURNOVER RATIO
NET ASSETS TURNOVER RATIO = SALES NET ASSETS
IN THE YEAR 2006-07 = 2148768.71 -------------- = 6.27 342945.59
IN THE YEAR 2005-06 1763645.49 = -------------- = 4.83 364948.56
Interpretation: Net assets turnover of 6.27 times implies that company is producing 6.27 of sales for 1 Rs. of capital employed in net assets.This ratio increased due to (a) old establishment and low capital cost of IOCL (b) increase in throughput of approx 12%.
4. WORKING CAPITAL TURNOVER RATIO
Meaning: This ratio indicates whether or not working capital has been effectively utilized in making sales means it shows the number of times working capital has been employed in the process of carrying on of the business. WORKING CAPITAL TURNOVER RATIO = NET SALES NET CURRENT ASSETS IN THE YEAR 2006-07 2148768.71 -------------- = 21.99 97686.46 IN THE YEAR 2005-06 1763645.49 -------------- = 16.50 106859.13
Interpretation: it indicates the firm’s ability to generate sales per rupee of working capital .in general, higher the ratio, the more efficient the management & utilization of working capital & vice versa. here the working capital turnover ratio is a high that is good.
5. INVENTORY TURNOVER RATIO
Meaning: This ratio measures how fast the stock is moving through the firm and generating sales. Objective: The objective of computing this ratio is to determine the efficiency with the inventory is utilized. STOCK TURNOVER RATIO = COST OF GOODS SOLD AVERAGE STOCK \ IN THE YEAR 2006-07 1970537.83 = ----------- = 31.50 62547.53 IN THE YEAR 2005-06 1501295.84 = ----------- = 27 55579.70
Interpretation: it indicates the speed with which the inventory is converted into sales. in general, a high ratio indicates efficient performance since an improvement in the ratio shows that either the same volume of sales has been maintained with a lower investment in stocks, or the volume of sales has increased without any increase in the amount of stocks. However, too high ratio and too low ratio call for further investigation. A too high ratio may be the result of very low inventory levels, which may result in frequent stock-out, and thus the firm may incur high stock out costs. On the other hand, a too low ratio may be the result of excessive inventory levels: slow moving or obsolete inventory and thus the firm may incur high carrying costs. Thus a firm should have neither a very high nor a very low stocks turnover ratio: it should have a satisfactory level here the stocks turnover ratio in year 2006-07 is31.50 that is high to 27 last year 2005-06.
6. DAYS OF INVENTORY HOLDING
Meaning: It indicates that how many days the company has holding the inventory that’s why production of the company will be continue.
DAYS OF INVENTORY HOLDING =
INVENTORY TURNOVER IN THE YEAR 2006-07 360 = ----------31.50 = 12 days IN THE YEAR 2005-06 360 = ----------27 = 14 days
Interpretation: The inventory holding days of the year 12 days that is less than 14 days in the year 2005-06. This is a good indicator because of decrease the carrying and storing cost in the current year.
7. DEBTORS TURNOVER RATIO
Meaning: This ratio establishes a relationship between net credit sales and average trade debtors. Objective: The objective of computing this ratio is to determine the efficiency with which the trade debtors are managed. DEBTORS TURNOVER RATIO = NET CREDIT SALES AVERAGE TRADE DEBTORS Interpretation: It indicates the speed with which the debtors turnover on an average each year. in general, a high ratio indicates the shorter collection period, which implies prompt payments by debtors and a low ratio indicates a longer collection period which implies delayed payments by debtors. Note: Here are no debtors available in Mathura Refinery because refinery did not sale his product out. It only transfer the all products to the marketing division of Indian oil
1. GROSS PROFIT RATIO
Meaning: This ratio indicates the relationship between gross profit and net sales. Higher ratio, low cost of goods sold. Objective: The main objective of computing this ratio is to determine the efficiency with which production or purchase operations are carried on. GROSS PROFIT RATIO = GROSS PROFIT * 100 NET SALES IN THE YEAR 2005-06 262349.65 -------------- = 14.87% 1763645.49
IN THE YEAR 2006-07 178232.88 -------------- = 8.29% 2148768.71
Interpretation: This ratio indicates (a) an average gross margin earned on a sale of Rs.100 (b) what portion of sales is left to cover operating expenses and non operating expenses, to pay dividend and to create reserves. higher the ratio, the more efficient the production and purchase management but here the gross profit ratio of 8.29% in year 06-07 is less than 14.87% last year. This change due to change in government policy because of government fix the prices of the raw material of the company and in this year it gives the less margin of profit on sale and that’s why this ratio decreases.
3. NET PROFIT RATIO
Meaning: This ratio establishes the relationship between net profit and sales. Objective: The main Objective of net profit ratio is to determine the overall efficiency of the business. Higher the net profit ratio, better it is for the business.
NET PROFIT =
NET PROFIT * 100 NET SALES IN THE YEAR 2005-06 200749.05 ------------- = 11.38% 1763645.49
IN THE YEAR 2006-07 148958.23 ------------- = 6.93% 2148768.71
Interpretation: This ratio indicates (a) an average net margin earned on sales of Rs.100, (b) what portion of sales is left to pay divided & to create reserves, (c) firm’s capacity to withstand
adverse economic conditions when selling price is declining, cost of production is rising & the demand for the product is falling. Higher the ratio, greater is the capacity of the firm to withstand adverse economic condition and vice versa. Here the net profit ratio in current year 06-07is 6.93% that is less 11.38% of last year 05-06. This change due to change in government policy because of government fix the prices of the raw material of the company and in this year it gives the less margin of profit on sale and that’s why this ratio decreases. It should be increase more.
63. RETURN ON INVESTMENT RATIO
Meaning: It is also called as Return on Capital Employed. It indicates the percentage of return on the capital employed in the business. This ratio judges the overall performance and efficiency of the business. It shows how efficiently the resources invested in the business are being used. This ratio is also used to compare the profitability and efficiency over previous years. RETURN ON INVESTMENT RATIO = EBIT*100 NET ASSETS
IN THE YEAR 2006-07 156511.3 = --------------342945.59 = 45.64%
IN THE YEAR 2005-06 207087.37 = ---------------- = 56.74% 364948.56
Interpretation: The ROI comes to 45.64% for the year 2006-07 that is less 56.74% for the last year ratio, which was recorded in negative change in % terms i.e. 17.54%. . This is not a good sign of the company. This change is due to decrease the profit of the Company.
4. OPERATING RATIO
Meaning: This ratio measures the relationship between operation cost and net sale. Objective: The main objective of computing this ratio is to determine the operational efficiency of the business with which production or purchase and selling operation are carried on. OPERATING RATIO = OPERATING COST * 100 NET SALES
IN THE YEAR 2006-07 50275.85 = ------------ *100 = 2.34% 2148768.71
IN THE YEAR 2005-06 46088.14 = ---------------*100 = 2.61% 1763645.49
Interpretation: This ratio indicates an average operating cost incurred on a sale of goods worth Rs.100.Lower the ratio, greater is the operating profit to cover the non-operating expenses, to pay dividend and to create reserves and vice versa. Here the operating ratio in year 2006-07 is 2.34% that is less than 2.61% last year 2005-06. This change is due to increase the sale because of operational efficiency of the company.
5. RETURN ON SHAREHOLDER’S FUND (RETURN ON EQUITY)
Meaning: This ratio measures a relationship between net profit after interest and tax and shareholder’s funds. Objective: The objective of computing this ratio to find out how efficiently the funds supplied by the equity shareholder’s have been used. RETURN ON SHAREHOLDER’S FUND = PBIT 100 SHAREHOLDER’S FUND
Interpretation: This ratio indicates the firm ability of generating profit per rupee of shareholder’s funds. Higher the ratio, more efficient the management and utilization of shareholder’s funds. Note: Mathura refinery is a production unit so there is no any type of shares is issued.
6. RETURN ON EQUITY SHAREHOLDER’S FUND
Meaning: This ratio measures relationship between net profit after interest ,tax, and preference dividend and equity shareholder’s funds. Objective: The objective of computing this ratio is to find out how efficiently the funds supplied by the equity shareholders have been used.
RETURN ON EQUITY SHAREHOLDER FUND = PAT * 100 EQUITY SHAREHOLDERS FUND Interpretation: This ratio indicates the firm’s ability of generating profit per rupee of equity shareholder’s funds. Higher the ratio, the more efficient the management and utilization of equity shareholder’s funds. Note: Mathura refinery is a production unit so there is no any type of shares is issued.
7. EARNING PER SHARE
Meaning: This ratio measures the earning available to an equity shareholder to an equity shareholder on a per share basis. Objective: The objective of computing this ratio is to measure the profitability of the firm on per equity share basis. EARNING PER SHARE = PROFIT AFTER INTEREST & TAX *100 NUMBER OF EQUITY SHARE Note: Mathura refinery is a production unit so there is no any type of shares is issued.
8. PROPRIETARY RATIO
Meaning: This ratio shows the extent to which the total assets have been financed by the proprietor. Higher the ratio, greater the satisfaction for lenders and creditors. Objective: The objective of computing this ratio is to find out how the proprietor’s have financed the assets. PROPRIETARY RATIO = SHAREHOLDER’S FUND/ PROPRIETARY FUNDS*100 TOTAL ASSETS
Note: Mathura refinery is a production unit so there is no any type of shares is issued. So there is only reserve and surplus are available.
In simple words, trend means any general tendency. Analysis of these general tendencies is called ‘Trend Analysis’. Trend analysis is one of the tools to analyze the financial statements of any organization. In trend or time series analysis the direction upwards or downwards is shown and involves the computation of the percentage relationship that each item bears to the same item in the base year. Trend analysis has major importance in the interpretation of financial statements. The main purpose of this analysis is to know the trend of available financial information or knowledge. In the analysis done of Mathura Refinery Financial Year is taken from 2000 to 2007 as regards to turnover and profit before tax. Trend analysis can be studied in the following methods: A. Trend Ratios B. By using Graphs
A. By Trend Ratios
It is a method of statistical calculation. Financial data related to different groups are collected and grouped. Thereafter by assuming data of any one year as base, relatives are calculated. Each item of the base year is taken as 100 and on that basis the percentages of each of the items of the rest year are calculated. The following is the formula for calculation: TREND RATIO = CURRENT YEAR * 100
B. By Using Graphs
In this method, financial data is plotted on graphs. By plotting different points on graph, picture of scattered points is made and by joining these points a curve can be made. A straight line from the middle of this curve are scattered in the proportion to the curve trend. Sometimes, trend ratios are plotted on the graph paper in place of absolute values. Presentation through diagram is easy to understand.
TREND ANALYSIS OF MATHURA REFINERY
As regards to turnover:
In respect of turnover if we do trend analysis we find that the turnover of mathura refinery is quite increasing from 2000-01 to 2006-07. Trend ratio are as follows from 2000-01 to 2006-07: YEAR SALES VOLUME (Rs. Crore) 8475 8716 10982 11220 1207 17636 21487 TREND RATIOS
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
100 102.9 129.6 132.4 132.2 208.1 253.5
REASONS FOR CHANGE Due to increase in throughput. Due to increase in product prices
As regards to Profit:
In respect to profit if we do trend analysis we find that there is fluctuation in the profit sometimes it increase to a great extent and sometimes it lowers down. Trend ratios are as follows from 2000-01 to 2006-07:
(Rs. Crore) 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 235 486 2006 1931 1624 2007 1489 100 206.8 853.6 821.7 691.1 854 633.6
REASONS FOR CHANGE Due to LTS in the current year and Provision of bonus in the year on actual basis. Due to past Settlement of arrears of personnel (includes performance Linked Incentives). Variation in crude prices.
Increasing in cost of production mainly due to increase in chemical , stores and spares cost.
OBSERVATION AND SUGGESTIONS
We have observed and find out that the inventory of stores and spares has increased by Rs.21crore in this year (2006-07) in comparison to last year (200506). By which we can draw the opinion that funds of the company has been blocked in such holding of stores and spares. We observed that the Compound Annual Growth Rate (CAGR) of the turnover and profit before tax of the company are increased by respectively 18.27% and 18.26% in last five years. Administered Price Mechanism (APM) was abolished on 1st April 2002. The prices of the product of IOCL i.e. MS, HSD, LPG, SKO are still controlled by the government. This affects the profitability of the company. The prices of the crude oil controlled by international market and selling price of the some finished products of the company control by the government to some extent. So the company should improve the operational efficiency through better utilization of chemical and spares control the power and fuel, cost control in variable items to increase the profit. As after dismantling Administered Price Mechanism (APM) on petroleum product, the prices for the same will depend on the market forces. To compete in such a environment, it needs to have an effective cost management system which we ensure effective pricing and costing of products. This is the major key factor in petro refineries. INCREASING CUSTOMER FOCUS AND LOYALTY Before competition has established itself, organization must ensure loyalty of their large existing customer base, including retail and industrial consumers.
Financial Management Financial Management
I. M. Pandey M. Y. Khan & P. K. Jain
Balance Sheets of IOCL Mathura Refinery (2005–06 & 2006-07) Profit & Loss Accounts of IOCL Mathura Refinery (2005–06 & 2006-07) Website of IOCL (www.iocl.com) Intranet of IOCL (galaxy)