IOCL Ratios

To study Ratio Analysis of Indian Oil Corporation Ltd.

Chapter 1

INTRODUCTION

A tool used by individuals to conduct a quantitative analysis of

information in a company's financial statements. Ratios are calculated from

current year numbers and are then compared to previous years, other

companies, the industry, or even the economy to judge the performance of

the company. Ratio analysis is predominately used by proponents of

fundamental analysis Ratio analysis is a method of analyzing data to

determine the overall financial strength of a business. Financial analysts take

the information off the balance sheets and income statements of a business

and calculate ratios that can then be used to make assessments of the

operating ability and future prospects of that business. These ratios are useful

only when compared to other ratios, such as the comparable ratios of similar

businesses or the historical trend of a single business over several business

cycles. There are various ratios that measure a company's efficiency, short-

term strength, and solvency.

The type of ratio analysis that is most effective depends upon who

needs the information. Credit analysts are concerned with risk evaluation, and

they therefore will concentrate of ratios that measure whether a company can

pay its financial obligations and how much debt is involved in capital structure.

On the opposite end of the spectrum, analysts looking at a business in terms

of an investment opportunity will employ ratios that determine if a company is

efficient and how great is its potential profitability.

For example, knowing that a company has a particular as determined

by a corresponding ratio is meaningless by itself. Financial analysts know it's

more important to determine how that ratio looks in terms of other similar

companies, or even how that ratio looks compared to prior profitability levels

of that same company. In addition, these ratios must be studied over a proper

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time period, allowing for major changes within the company to be taken into

consideration.

Ratio analysis is useful in determining the solvency of a business and

the amount of reliance it has on its creditors. Specific ratios included in this

group are current ratio, which measures financial strength by dividing a

company's assets by its and, which takes the essence of the current ratio but

excludes. By focusing on of a business, a quick ratio can measure its strength

even in a worst-case scenario whereby all of its funding was suddenly

removed.

In contrast, income statement analysis is more concerned with the

profitability of a business. Among this type of ratio analysis, ratio measures

the profit from sales available to pay while margin ratio is an indicator on the

company's financial return on sales. Ratios known as management ratios can

also be calculated from balance sheet information. These ratios measure

efficiency in terms of collecting accounts receivable and managing inventory,

the ability to turn assets into profit, and how much of a return the owners of

the business are getting on their investment.

RATIO ANALYSIS

Ratio Analysis compares significant numbers from your financial

statements. Rather than focusing on specific volumes, ratios are indicators of

the broad state of your business.

What they indicate is dependent upon the nature of your company,

comparisons to your company’s historical ratio values, and Comparisons to

competitive companies in the same industry.

Financial ratios are useful to you and potential investors because they

allow comparisons to be made between your business and others of the same

type.

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Standard ratios for many industries are available from on-line database

services and are also published in various reference books available at most

libraries.

As part of an agreement for financing, your lender or investor may

require that you maintain certain ratios. Any ratio that must be maintained at a

specific value as part of a financing agreement should be calculated and

monitored on a timely basis. If you neglect to do this, you risk being out of

complain with your lender or investor, which could result in the debt being

called for immediate repayment.

ADJUSTED EPS

Net income-dividend on preferred stock

Average outstanding share

The portion of a company's profit allocated to each outstanding share

of common stock. Earnings per share serves as an indicator of a company's

profitability.

Earnings per share are generally considered to be the single

most important variable in determining a share's price. It is also a major

component used to calculate the price-to-earnings valuation ratio.

DIVIDEND PER SHARE

Dps = d- sd

S

D - Sum of dividends over a period (usually 1 year)-

SD - Special, one time dividends

S - Shares outstanding for the period

The the sum of declared dividends for every ordinary share issued.

Dividend per share (DPS) is the total dividends paid out over an entire year

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(including interim dividends but not including special dividends) divided by the

number of outstanding ordinary shares issued.

Dividends per share are usually easily found on quote pages as the

dividend paid in the most recent quarter which is then used to calculate the

dividend yield. Dividends over the entire year (not including any special

dividends) must be added together for a proper calculation of DPS, including

interim dividends. Special dividends are dividends which are only expected to

be issued once so are not included. The total number of ordinary shares

outstanding is sometimes calculated using the weighted average over the

reporting period.

PROFITABILITY RATIOS

A class of financial metrics that are used to assess a business's ability

to generate earnings as compared to its expenses and other relevant costs

incurred during a specific period of time. For most of these ratios, having a

higher value relative to a competitor's ratio or the same ratio from a previous

period is indicative that the company is doing well.

One of the primary reasons for operating most businesses is to

generate profits. If you have outside investors, the return on their investment

often comes from the net income the business generates (rather than from the

sale of the business or some other form of pay back). There are many ways to

measure

Return on Investment (ROI). Return on Equity and Return on Assets,

as shown below, are two easily calculated methods.

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OPERATING PROFIT MARGIN (RETURN ON SALES - ROS)=

Operating profit margin = Operating income

Total revenue

A ratio used to measure a company's pricing strategy and operating

efficiency.This value measures the percent of revenue remaining after paying

all operating expenses (Operating Income). The operating profit margin is

your operating income (gross profit minus all operating expenses) divided by

your gross sales expressed as a percentage.

Operating margin gives analysts an idea of how much a company

makes (before interest and taxes) on each dollar of sales. When looking at

operating margin to determine the quality of a company, it is best to look at

the change in operating margin over time and to compare the company's

yearly or quarterly figures to those of its competitors. If a company's margin is

increasing, it is earning more per dollar of sales. The higher the margin, the

better.

GROSS PROFIT MARGIN

Gross Profit

Gros Profit Margin =

Total Revenue

This value measures the percent of money your company generated

over the cost of producing your goods or services. In other words, gross profit

margin (or percent) is the ratio of your net sales (gross sales minus your cost

of goods sold) divided by your gross sales, expressed as a percentage. You

can do very well here when you really understand the value your product or

service bring to your customers – your prices need not be built upon your

costs. Better to determine the real value to your customers and sell them on

that. This way you will enjoy higher gross margins

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http://beginnersinvest.about.com/od/incomestatementanalysis/a/revenue-and-sales.htm

http://beginnersinvest.about.com/od/incomestatementanalysis/a/gross-profit.htm


NET PROFIT MARGIN

Option 1: Net Income after Taxes

Revenue

Option 2: (Net Income + Minority Interest + Tax-Adjusted Interest)

Revenue

This is the profit you made on this business. The net income divided by

your gross sales, expressed as a percentage. Your company’s after-tax profit

margin tells you (and investors) the percentage of money your company

actually earns per dollar of sales. Interpretation is similar to your profit margin,

the after tax profit margin is more stringent as it takes into account taxes.

Looking at the earnings of a company often doesn't tell the entire story…

Profit can increase, but it does not mean that its profit margin is improving.

For example, if your company increases sales, and if costs also rise, you’ll

have a lower profit margin then had been seen with a lower profit. This

indicates that costs need to be better controlled.

All three of these above percentages should usually be included on

your income statements. To analyze your profitability, compare these

percentages to your industry’s averages or those of your immediate

competitors (if you can obtain this information). Of course, you’ll always want

to compare your current year’s profitability percentages to the percentages

from your company’s previous years in order to determine how well you are

progressing.

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REPORTED RETURN ON NET WORTH (%)

Net income

Reported Return on NET Worth = x 100

Shareholders equity

The amount of net income returned as a percentage of shareholders

equity. Return on equity measures a corporation's profitability by revealing

how much profit a company generates with the money shareholders have

invested.

The ROE is useful for comparing the profitability of a company to that

of other firms in the same industry. There are several variations on the

formula that investors may use:

1. Investors wishing to see the return on common equity may modify

the formula above by subtracting preferred dividends from net income and

subtracting preferred equity from shareholders' equity, giving the following:

return on common equity (ROCE) = net income - preferred dividends /

common equity.

2. Return on equity may also be calculated by dividing net income

by average shareholders' equity. Average shareholders' equity is calculated

by adding the shareholders' equity at the beginning of a period to the

shareholders' equity at period's end and dividing the result by two.

3. Investors may also calculate the change in ROE for a period by

first using the shareholders' equity figure from the beginning of a period as a

denominator to determine the beginning ROE. Then, the end-of-period

shareholders' equity can be used as the denominator to determine the ending

ROE. Calculating both beginning and ending ROEs allows an investor to

determine the change in profitability over the period

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LEVERAGE RATIOS

Long term debt / Equity

The long term debt to equity ratio is simply similar to gearing, except

that short term debt is excluded from the calculation. This is most simply

interpreted as a measure of capital structure, but is also used as a measure of

financial strength.

One shortcoming of the use of long term debt/equity with regard to

capital structure is that borrowing that appears to be short term on the face of

the balance sheet may in fact be rolled over or be provided from a continuing

facility such as an overdraft (which may be provided for many years, even

though re-payable on demand) — so its economic effect is that of long term

debt.

TOTAL DEBT TO OWNERS’ EQUITY

Total liabilityTotal Debt to Owners Equity =

Shareholders equity

A measure of a company's financial leverage calculated by dividing its

total liabilities by stockholders' equity. It indicates what proportion of equity

and debt the company is using to finance its assets.

The debt to equity ratio is a common benchmark used to measure the

leverage within a business. To relate Return on Equity to the Debt-to-Worth

ratio, you need to remember that given a fixed total asset figure,

the greater the debt, the lower the net worth. Therefore, given two companies

of identical asset size and profitability, the company with the higher debt to

worth ratio will also have a higher return on equity ratio. When potential

lenders and investors consider the risks of investing in your business, they will

look at your return on equity ratio. If the ratio is the same as lower risk

investments such as certificates of deposit or US Treasury bills, it does not

make sense for them to invest in your company.

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http://moneyterms.co.uk/long-term-debt-equity/

http://moneyterms.co.uk/balance_sheet/

http://moneyterms.co.uk/capital-structure/

http://moneyterms.co.uk/current_liabilities/

http://moneyterms.co.uk/gearing/

http://moneyterms.co.uk/long_term_liabilities/


A high debt/equity ratio generally means that a company has been aggressive

in financing its growth with debt. This can result in volatile earnings as a result

of the additional interest expense.

If a lot of debt is used to finance increased operations (high debt to

equity), the company could potentially generate more earnings than it would

have without this outside financing. If this were to increase earnings by a

greater amount than the debt cost (interest), then the shareholders benefit

as more earnings are being spread among the same amount of shareholders.

However, the cost of this debt financing may outweigh the return that the

company generates on the debt through investment and business activities

and become too much for the company to handle. This can lead to

bankruptcy, which would leave shareholders with nothing. The debt/equity

ratio also depends on the industry in which the company operates. For

example, capital-intensive industries such as auto manufacturing tend to have

a debt/equity ratio above 2, while personal computer companies have a

debt/equity of under 0.5.

FIXED ASSETS TURNOVER RATIO

Net salesFix asset turnover =

Net property, plan and equipment

A financial ratio of net sales to fixed assets. The fixed-asset turnover

ratio measures a company's ability to generate net sales from fixed-asset

investments - specifically property, plant and equipment (PP&E) - net of

depreciation. A higher fixed-asset turnover ratio shows that the company has

been more effective in using the investment in fixed assets to generate

revenues.

This ratio is often used as a measure in manufacturing industries,

where major purchases are made for PP&E to help increase output. When

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companies make these large purchases, prudent investors watch this ratio in

following years to see how effective the investment in the fixed assets was.

LIQUIDITY RATIOS

Current assetCurrent ratio =

Current liabilityA liquidity ratio that measures a company's ability to pay short-term

obligations. Also known as "liquidity ratio", "cash asset ratio" and "cash ratio"

The ratio is mainly used to give an idea of the company's ability to pay

back its short-term liabilities (debt and payables) with its short-term assets

(cash, inventory, receivables). The higher the current ratio, the more capable

the company is of paying its obligations. A ratio under 1 suggests that the

company would be unable to pay off its obligations if they came due at that

point. While this shows the company is not in good financial health, it does not

necessarily mean that it will go bankrupt - as there are many ways to access

financing - but it is definitely not a good sign.

The current ratio can give a sense of the efficiency of a company's

operating cycle or its ability to turn its product into cash. Companies that have

trouble getting paid on their receivables or have long inventory turnover can

run into liquidity problems because they are unable to alleviate their

obligations. Because business operations differ in each industry, it is always

more useful to compare companies within the same industry. This ratio is

similar to the acid-test ratio except that the acid-test ratio does not include

inventory and prepaids as assets that can be liquidated. The components of

current ratio (current assets and current liabilities) can be used to derive

working capital (difference between current assets and current liabilities).

Working capital is frequently used to derive the working capital ratio, which is

working capital as a ratio of sales.

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LIQUID OR LIQUIDITY OR ACID TEST OR QUICK RATIO:

Total Current Assets

Total Current Liabilities

A class of financial metrics that is used to determine a company's

ability to pay off its short-terms debts obligations. Generally, the higher the

value of the ratio, the larger the margin of safety that the company possesses

to cover short-term debts. These values come from your balance sheet and

are a measure of your liquidity. Your current ratio indicates your ability to pay

your current debt out of your current assets. The higher the ratio, the greater

your “cushion.” Although a satisfactory value for a current ratio varies from

industry to industry, a general rule of thumb is that a current ratio of 2 to 1 or

greater is fairly healthy. Thinking in terms of dollars, a 2 to 1 ratio means that

you have 94rupees of current assets from which to pay every 47rupees of

current bills.

A smaller current ratio may mean that you have successfully

negotiated to pay your suppliers later than the usual 30 days, which

essentially gives your company an interest-free source of cash. Let’s say your

current assets are 7, 05,000 rupees and current liabilities are 4, 70,000rupees

this gives you a current ratio of 1.5 to 1. In this scenario, you could improve

your current ratio to 2 to 1 by paying 2,35,000 RS of your current liabilities

with your current assets, reducing both by If your suppliers were willing to

wait for payment without charging you interest, this would probably be a bad

idea (unless your 2,35,000 RS financing agreement requires you to maintain a

current ratio of 2 to 1).

Common liquidity ratios include the current ratio, the quick ratio and the

operating cash flow ratio. Different analysts consider different assets to be

relevant in calculating liquidity. Some analysts will calculate only the sum of

cash and equivalents divided by current liabilities because they feel that they

are the most liquid assets, and would be the most likely to be used to cover

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short-term debts in an emergency. A company's ability to turn short-term

assets into cash to cover debts is of the utmost importance when creditors are

seeking payment. Bankruptcy analysts and mortgage originators frequently

use the liquidity ratios to determine whether a company will be able to

continue as a going concern

INVENTORY TURNOVER RATIO

COGSInventory Turnover Ratio =

Inventory

A ratio showing how many times a company's inventory is sold and

replaced over a period.

The days in the period can then be divided by the inventory turnover

formula to calculate the days it takes to sell the inventory on hand or

"inventory turnover days". Although the first calculation is more frequently

used, COGS (cost of goods sold) may be substituted because sales are

recorded at market value, while inventories are usually recorded at cost. Also,

average inventory may be used instead of the ending inventory level to

minimize seasonal factors.

This ratio should be compared against industry averages. A low

turnover implies poor sales and, therefore, excess inventory. A high ratio

implies either strong sales or ineffective buying. High inventory levels are

unhealthy because they represent an investment with a rate of return of zero.

It also opens the company up to trouble should prices begin to fall.

Number of times inventory turns in period. High turn can indicate better

liquidity or good merchandising or shortage of needed inventory for sales.

Low turn can mean overstocking, obsolescence, builds to inaccurate sales

forecast – can also a planned inventory build-up in anticipation of possible

material shortages.

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PAYOUT RATIOS

Dividend payout ratio (net profit)

Dividend Payment per Share Dividend Payout Ratio = ------------------------------------ Earnings per Share

The percentage of earnings paid to shareholders in dividends.

The payout ratio provides an idea of how well earnings support the dividend

payments. More mature companies tend to have a higher payout ratio.

In the U.K. there is a similar ratio, which is known as dividend cover. It

is calculated as earnings per share divided by dividends per share.

Earning retention ratio

Net income-dividendsEarning retention ratio = ---------------------------

Net income

The percent of earnings credited to retained earnings. In other words,

the proportion of net income that is not paid out as dividends. The retention

ratio is the opposite of the dividend payout ratio. In fact, it can also be

calculated as one minus the dividend payout ratio.

COMPONENT RATIOS

Working Capital Cycle

Net SalesReceivables Turnover = --------------------------------

Trade Account Receivable

An accounting measure used to quantify a firm's effectiveness in

extending credit as well as collecting debts. The receivables turnover ratio is

an activity ratio, measuring how efficiently a firm uses its assets.

(Sales/Receivables Ratio) Measures number of times AR turns over

during the period. Higher the turn, shorter the time between sale and

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collection of the cash. Does not take into consideration seasonal fluctuations

or a large proportion of cash sales compared to total sales.

By maintaining accounts receivable, firms are indirectly extending

interest-free loans to their clients. A high ratio implies either that a company

operates on a cash basis or that its extension of credit and collection of

accounts receivable is efficient.

A low ratio implies the company should re-assess its credit policies in

order to ensure the timely collection of imparted credit that is not earning

interest for the firm.

Sales / Working Capital turnover

SalesSales / Working Capital turnover = ----------------------

Working capital

A measurement comparing the depletion of working capital to the

generation of sales over a given period. This provides some useful

information as to how effectively a company is using its working capital to

generate sales.

Net Working Capital equals current assets minus current liabilities.

Working Capital measures the margin of protection for current creditors and

reflects your ability to finance current operations. Comparing sales

to working capital this way measures how efficiently your working capital is

employed. Low ratio may mean ineffective use of WC. High ratio may mean

“overtrading”— a vulnerable position for creditors.

A company uses working capital (current assets - current liabilities) to

fund operations and purchase inventory. These operations and inventory are

then converted into sales revenue for the company. The working capital

turnover ratio is used to analyze the relationship between the money used to

fund operations and the sales generated from these operations. In a general

sense, the higher the working capital turnover, the better because it means

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that the company is generating a lot of sales compared to the money it uses

to fund the sales.

OPERATING RATIOS

Operating ratios help measure the effectiveness of management

performance.

Gross Profit x 100Gross profit ratio = ----------------------- Net Sales

Gross profit ratio may be indicated to what extent the selling prices of

goods per unit may be reduced without incurring losses on operations. It

reflects efficiency with which a firm produces its products. As the gross profit

is found by deducting cost of goods sold from net sales, higher the gross profit

better it is. There is no standard GP ratio for evaluation. It may vary from

business to business. However, the gross profit earned should be sufficient to

recover all operating expenses and to build up reserves after paying all fixed

interest charges and dividends.

Operating Ratio

Operating ExpenseOperating Ratio = ------------------------

Net Sales

This ratio shows management efficiency by comparing your operating

expenses to your net sales. The Smaller the ratio, the greater your company’s

ability to generate a profit if revenue decreases this ratio

However, does not take into account any debt repayment or debt increase.

The smaller the ratio, the greater the organization's ability to generate profit if

revenues decrease. When using this ratio, however, investors should be

aware that it doesn't take debt repayment or expansion into account.

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Chapter 2

INTRODUCTION TO ORGANISATION

Indian Oil owns and operates 6 of the refineries with a combined

refining capacity of over 25 million tones per annum (5,00,000bpd). Another 6

million tones per annum (1,20,000bpd) refinery will be ready during fiscal

1997. Constant technology up gradation enables achievement of over 100%

capacity utilization.

Indian Oil has the largest network of over 5,300 km onshore crude oil

and petroleum product pipelines in the country which operate at over 100%

capacity and are equipped with latest technology.

Indian Oil sold 41.97 million tones of petroleum products during the

year 1996-97. It markets 55% of the petroleum products consumption of India.

In aviation fuels, its market participation is 69%. Its nationwide retail network

of nearly 18,000 sales points (6,731 petrol stations, 3,413 kerosene dealers,

2,834 LPG distributors and 4,820 bulk consumer outlets) is backed for

supplies by 178 bulk storage terminals and depots having a tank age of five

million kilolitres. There are 92 aviation fuel stations besides 39 LPG bottling

plants with a capacity of 1.5 million tones to cater to nearly 15 million

customers in over 1,300 towns all over the country.

Indian Oil is India’s flagship national oil company, with Business

interests straddling the entire hydrocarbon Value chain and the highest

ranked Indian corporate in the prestigious Fortune ‘Global 500’ listing. With

over a 34,000- strong workforce, Indian Oil has been meeting India’s energy

demands for over five decades. The company’s operations are strategically

structured along business verticals - Refineries, Pipelines, Marketing, R&D

and Business Development.

To achieve the next level of growth, Indian Oil is currently forging

ahead on a well laid-out road map through vertical integration – upstream into

oil exploration & production (E&P) and downstream into petrochemicals – and

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diversification into natural gas marketing and alternative energy, besides

globalization of its downstream operations. Having set up subsidiaries in Sri

Lanka, Mauritius and the United Arab

Emirates (UAE), Indian Oil is simultaneously scouting for new business

opportunities in the energy markets of Asia and Africa. Indian Oil and its

subsidiaries have a dominant share of the petroleum products market share,

national refining capacity and the downstream sector pipelines capacity in

India.

With a steady aim of maintaining its position as a market leader and

providing best quality products and services, Indian Oil is currently investing

Rs. 47,000 crore in a host of projects for augmentation of refining and

pipelines capacities, expansion of marketing infrastructure and product quality

up gradation.

The Indian Oil Group of companies owns and operates 10 of India’s 20

refineries and the largest network of crude oil and profile product pipelines in

the country.

Indian Oil has a keen customer focus and a formidable network of

customer touch-points dotting the landscape across urban and rural India,

backed for supplies by bulk storage terminals and depots, aviation fuel

stations and LPG gas bottling plants. Indian Oil’s ISO-9002 certified Aviation

Service commands a dominant market share in aviation fuel business,

successfully servicing the needs of domestic and international flag carriers,

private airlines and the Indian Defense Services.

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ORGANIZATION CHART

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Chapter 3REVIEW OF LITERATURE

1) Using Financial Statements & Ratio Analysis to manage your

business effectively; Kobus Barnard AGA (SA) – B.Compt. (Hons)

(2007)

This case study will help with a better understanding of business by

using simple but effective tools such as ratio analysis to identify areas of

concern, in order to take corrective action with the ultimate aim of converting

profits into cash. After completing this workshop you will be able to read and

use financial information to more effectively manage your profitability, asset

efficiency and cash flows and more confidently liaise with your accountant or

bank manager on the financial health of your business. The case study covers

Concepts and rules used in preparing financial statements, with a focus on

IFRS for SME’s. The Statement of Financial Position, Comprehensive Income

and Cash Flow statement are examined in detail, with a 5-point methodology

used in reading these statements. Introduction of ratio analysis to understand

the key relationships between the three financial statements. A Financial

Analysis workbook is introduced using a case study for practical application.

Focus is on what the three key users of the financials will be looking at:

SARS, Bankers and owners of the business

2) Ratio analysis featuring the dupont method: an overlooked

topic in the finance module of small business management and

entrepreneurship courses; Thomas J. Liesz (2006)

Many business students, along with a lot of small business

management instructors, tend to shy away from quantitative analysis.

The qualitative aspects of a business – such as generating novel

product ideas and creating marketing campaigns– are far more “fun” than

record keeping and financial analysis. However, there is much evidence that

a lack of financial control is often a quick path to business failure. According

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to Dun & Bradstreet’s Business Failure Records (1994), “poor financial

practices” is second only to “economic conditions” as a cause of business

failures. Further, studies have been published as far back as 80 years ago

(see Meech (1925)), as well as more recently (such as those published by

Bruno, Leidecker, and Harder (1987); Gaskill, Van Auken, and Manning

(1993); Lauzen (1985); and Wood (1989) that specifically cite poor financial

control as a chief cause of unsuccessful businesses. Firer (1999), and more

recently Kelly (2005), stress the importance of monitoring the “financial

health” of a small business.

3) Financial Ratio Analysis; Chetan Bhargav (2004)

Ratio analysis is a process of determining and interpreting

relationships between the items of financial statements to provide a

meaningful understanding of the performance and financial position of an

enterprise. Ratio analysis is an accounting tool to present accounting

variables in a simple, concise, intelligible and understandable form. As per

Myers “Ratio analysis is a study of relationship among various financial

factors in a business” Objectives of Financial Ratio Analysis The objective of

ratio analysis is to judge the earning capacity, financial soundness and

operating efficiency of a business organization. The use of ratio in accounting

and financial management analysis helps the management to know the

profitability, financial position and operating efficiency of an enterprise.

4) How accouting ratios affecting an investor’s decision, some

cases of construction companies; by Nguyen Thi Kim Thoa (2008)

Accounting ratios are values of the relationships between 2 related

accounts that appear in the financial statements such as: income statement,

balance sheet, cash flows statement, and changes in equity. They present a

company condition in the previous time, and predict by how the company will

operate in the future. This research works to evaluate the values of

accounting ratios to make investment decisions. By conducting of standard

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financial statements, calculating of accounting ratios and comparing these

ratios in variety of companies are a burning issue and crucial mission to

investors. As Vietnam is a developing and urbanizing country, it is a benefit

condition for construction industry to grow. This project aims to discover

definitions of accounting or financing ratios also the calculations of these

accounting, and then it shows how of accounting ratios affect on investor’s

decision making. The results of the study provide evidence to measure ratios

and lastly it show out some recommendations and suggestions in applying

accounting ratios in investment decisions to investors.

5) FINANCIAL RATIO ANALYSIS: PUTTING THE NUMBERS TO

WORK; By John Bajkowski (2010)

Financial statement analysis consists of applying analytical tools and

techniques to financial statements in an attempt to quantify the operating and

financial conditions of a firm. The emphasis of the analysis changes

depending upon one’s relationship with the company. A credit analyst

extending a shortterm, unsecured loan to a company will examine the firm’s

cash flow and the liquidity of the company’s assets. A stock investor, on the

other hand, is primarily looking for future growth in cash flow and earnings.

Investors typically examine variables that might significantly impact a firm’s

financial structure, sales, earnings production, and dividend policy. Having

examined the structure and basic interpretation of the balance sheet, income

statement, and statement of cash flows in the first three parts of this series on

financial statement analysis, we come to the central issue of how the data can

be used in investment analysis. [Note: All of the articles from this series can

be found on the AAII Web site in the section titled “Focus on Financial

Statements” in the stocks area of our Web site (www.aaii.com/stocks)]. This

article will consider financial ratio construction and interpretation with a focus

on ratios grouped into operating performance and liquidity and financial risk

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categories. The financial data used to illustrate the ratios will be taken from

the balance sheet and income statements developed previously in this series

6) Ratio Analysis: Financial Benchmarks For The Club Industry

Raymond S. Schmidgall and Agnes L. DeFranco (2003)

General managers of clubs are often inundated with operations and

member- ship issues and may not be able to spend quality time engaging in

the analysis of the financial health of the club. With the aid of a handful of

ratios, general managers and club controllers can assess the business trends

and financial viability of their operations very easily. The top ratios used by

club managers are: payroll cost percentage, cost of food sold percentage,

cost of beverage sold percentage, current ratio, and debt-equity ratio. The

results of several ratios focusing primarily on clubs' balance sheets are

presented in this article. The purpose of this study is to provide the industry

with some new and meaningful measurements. As seen from the results,

certain ratios (such as profit margins and cost percentages) are more often

used than others in the club business. Others, such as current ratio or cash

flows to short- and long-term debt, are also important. Ratio analysis is a

powerful financial and diagnostic tool.

7) Analyzing Financial Information Using Ratios ; Kate Barr (2005)

Leaders of nonprofits who seek to understand the organization’s

financial situation usually start by reviewing the financial reports.

Understanding the financial information is the building block of any financial

discussion. Beyond understanding the reports, much can be learned from

analysis of the information and interpretation of what it is telling you. The

basic analysis includes comparing financial reports to a benchmark such as

the budget or the financial report from the previous year. One essential

question is: does this information match our expectations? For a more

technical financial analysis, ratios can be used to deepen the understanding

RIMS Chandrapur 22


and interpretation. Financial ratios are an established tool for businesses and

nonprofits. While there are dozens of ratios that can be calculated, most

nonprofits can use a handful of them to learn more about their financial

condition. This tool provides the description and calculation of 14 ratios

including a mix of balance sheet and income statement ratios. Individual

nonprofits must decide for themselves which calculations are valuable.

8) Ratio Analysis for the Hospitality Industry: A cross Sector

Comparison of Financial Trends in the Lodging, Restaurant, Airline and

Amusement Sectors; Woo Gon Kim, Baker Ayoun (2002)

This study uses ratio analysis to examine salient financial trends within

four major sectors of the hospitality industry for the 1997-2001 period –

namely lodging, restaurants, airlines and the amusement sectors. Cross-

sectional analysis results indicate that at least for the test period, eight out of

thirteen financial ratios were statistically different across the four hospitality

segments. As such, financial trends and cross sectional anomalies within the

examined hospitality industry segments are better understood. This study has

compared key financial ratios of four segments of the hospitality industry.

These segments are hotels and motels, restaurant, amusement and

recreational services, and airline companies. Both types of ratio analysis were

performed. Trend analysis of the financial ratios indicated that the ratios

measuring profitability (namely, net profit margin, ROA, and ROE) are the

lowest for the amusement and recreational services segment compared with

the other three segments. However, companies in each of these segments

have varied levels in terms of these ratios. Except for the amusement and

recreational services segment, other hospitality industry segments achieved

steady levels of liquidity over the five-year period as measured by the current

and quick ratios.

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9) Financial Indicators for Critical Access Hospitals; Chris Haris

(2009)

The purpose of this project was to develop and disseminate

comparative financial indicators specifically for Critical Access Hospitals

(CAHs) using Medicare Cost Report (Healthcare Report Information System)

data. A Technical Advisory Group of individuals with extensive experience in

rural hospital finance and operations provided advice to a research team from

the University of North Carolina at Chapel Hill. A literature review identified

114 financial ratios that have proven useful for assessing financial condition.

Twenty indicators deemed appropriate for assessment of CAH financial

condition were chosen. In September 2004, the CEOs of 853 CAHs were

mailed a CAH Financial Indicators Report© (the Report) that included values

specifically for their CAH and national median values. State-level reports

were sent to State Flex Coordinators.

10) The Impact of Financial Ratio Analysis on Financial Decisions;

Laura Lase (2003)

The objective clearly sets out the project aim for the current dissertation. The

study will cover the financial ratio analysis highlighting different ratios which

are commonly used by companies and shareholders to evaluate the financial

position of the company at any point in time. However, the availability of up to

date companies' information is somewhat limited for its external users. This

restricts the use of financial ratio analysis by shareholders. Management of a

company is considered as internal user and shareholders orinvestment

companies or research analysts are considered as external users. The study

will estimate the impact of financial ratios on financial decisions of both

internal users and external users of information. A case study of Muslim

Commercial Bank, a local bank incorporated in Pakistan would be

investigated and compared with its competitor bank – Habib Bank Limited that

is also based in Pakistan. Both primary and secondary sources will be

RIMS Chandrapur 24


collected and subject to different analytical procedures. For primary results

Likert modeling will be used to determine the level of impact on financial

decisions. While on the other hand secondary sources will be used for

performing a financial ratio analysis of the banks under review. Overall

conclusions regarding the topic will be presented in the final chapter of the

current dissertation.

11) A Review of the Theoretical and Empirical Basis of Financial

Ratio Analysis; Timo Salmi, Teppo Martikainen (2011)

This paper provides a critical review of the theoretical and empirical

basis of four central areas of financial ratio analysis. The research areas

reviewed are the functional form of the financial ratios, distributional

characteristics of financial ratios, classification of financial ratios, and the

estimation of the internal rate of return from financial statements. It is

observed that it is typical of financial ratio analysis research that there are

several unexpectedly distinct lines with research traditions of their own. A

common feature of all the areas of financial ratio analysis research seems to

be that while significant regularities can be observed, they are not necessarily

stable across the different ratios, industries, and time periods. This leaves

much space for the development of a more robust theoretical basis and for

further empirical research.

12) Financial Management and Ratio Analysis for Cooperative

Enterprises; David S. Chesnick RBS Agricultural Economist (2003)

This study discusses differences in financial management and goals

between the investor-oriented firms and cooperatives. It briefly reviews what

bankers look for when appraising potential borrowers. A summary of standard

financial ratios used to analyze a variety of business structures is included,

along with other modified ratios to address deficiencies evident in standard

ratios. Financial reports contain a lot of information. The main objective of

RIMS Chandrapur 25


financial analysis is to sort through that information to find useful and relevant

data in analyzing a business. Literature is rich with financial analysis tools that

examine the performance and strength of businesses. However, not all

businesses are alike. Differences between IOFs and cooperatives mean that

some standard financial analyses do not relate well with cooperatives. This is

especially relevant for profit-oriented ratios. This report provides a supplement

to standard analysis with an eye toward cooperatives. Some ratios help

analyze the cooperative’s financial performance and cash flow analysis.

Managers and creditors should find these findings helpful in appraising the

financial strength of the cooperative. While there is no set standard at this

time, using these analysis tools should help the cooperative develop its own

performance measurements.

13) Liquidity Analysis Using Cash Flow Ratios and Traditional

Ratios: The Telecommunications Sector in Australia ; Ross Kirkham

(2003)

The purpose of this study is to examine the value in analysis of the

liquidity of companies using the traditional ratios as compared to the more

recently devised cash flow ratios. The study revealed that differences existed

between the traditional liquidity ratios and the cash flow ratios. A conclusion

based solely on the traditional ratios could well have lead to an incorrect

decision regarding the liquidity of a number of companie. In ceratin instances

that may have been that a company was deemed to be liquid when it faced

cah flow problems or that a company was not liquid when in fact it had

sufficient cash flow resources. The results support the proposition that

analysis based on the traditional liquidity ratios is best compared against the

cash flow ratios before reaching any conclusions regarding the financial

liquidity position.

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14) the effect of financial ratios, firm size and cash flows from

operating activities on earnings per share: (an applied study: on

jordanian industrial sector); khalaf Taani (2006)

The objective of this study is to examine the effect of accounting

information on earning per share (EPS) by using five categories of financial

ratios. A sample of 40 companies listed in the Amman Stock Market was

selected. To measure the impact of financial ratios on EPS multiple

regression method and stepwise regression models are used by taking

profitability, liquidity, debit to equity, market ratio, size which is derived from

firm’s total assets, and cash flow from operation activities as independent

variables ,and EPS (Earning Per Share) as dependent variable. The results

show that profitability ratio (ROE), Market ratio (PBV), cash flow from

operation/sales, and leverage ratio (DER) has significant impact on earning

per share.

15) Application of the Factor Analysis on the Financial Ratios and

Validation of the Results by the Cluster Analysis: An Empirical Study on

the Indian Cement Industry; Anupam De, Gautam Bandyopadhyay, B.N.

Chakraborty (2008)

The initial objective of the study was to identify the underlying ategories

present amongst the financial ratios so as to confirm or modify the

conventional categorization of financial ratios. Another objective of this study

was to reduce the number of financial ratios to a smaller number of financial

ratios which can capture almost the same amount of desired information as

the original larger set of ratios could do. We started the study with 44 financial

ratios of 130 India Iron and Steel companies for a period of 10 years grouped

in 7 conventional categories. However, with the help of a series of statistical

analysis, we could reach to a final conclusion which speaks about the

presence of 8 underlying categories. A comparison can be made between the

categories of financial ratios used in the study and categories appeared in the

final results.

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16) Ratio analysis - case study - Stortford Yachts Limited; Bob

This case study is intended as a self-test exercise on all of ratio

analysis. The answers are given as popup boxes to each question. However,

do try to work through them all first before submitting to temptation. The more

you practise calculating ratios, the easier it gets - we promise! Paul Marriot is

the director of Stortford Yachts Ltd. The company has traded for 30 years and

has in the past achieved very good levels of growth and return on capital, but

this is now changing. In recent time it has failed to introduce new product

lines, relying on traditional products and little has been invested in Research

or Product Development. You are a business planning consultant for a firm of

Management Consultants. Stortford Yachts is one of your clients. In recent

times the business has experienced increased turnover but a downturn in

overall performance. Paul Marriot has had a meeting with your Director and

he has stated that he wants to introduce tighter management control within

the company by introducing a system of responsibility accounting.

17) Analysis And Interpretation Of Financial Statements: Case

Studies; Sudip Das (2008)

Financial statements are formal records of the financial activities of a

business, person, or other entity and provide an overview of a business or

person's financial condition in both short and long term. They give an

accurate picture of a company’s condition and operating results in a

condensed form. Financial statements are used as a management tool

primarily by company executives and investor’s in assessing the overall

position and operating results of the company. Analysis and interpretation of

financial statements help in determining the liquidity position, long term

solvency, financial viability and profitability of a firm. Ratio analysis shows

whether the ompany is improving or deteriorating in past years. Moreover,

Comparison of ifferent aspects of all the firms can be done effectively with

this. It helps the clients to decide in which firm the risk is less or in which one

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they should invest so that maximum benefit can be earned. Mining industries

are capital intensive; hence a lot of money is invested in it. So before

investing in such companies one has to carefully study its financial condition

and worthiness. Unfortunately very limited work has been done on analysis

and interpretation of financial statements of Indian for mining companies. An

attempt has been carried out in this project to analyze and interpret the

financial statements of five coal and non- coal mining companies.

18) Decision making techniques A CIMA case study l; Jenipher

Pringley (2010)

Businesses generate a huge amount of data. Management accountants

can use a number of the company’s key accounting statements to extract

greater meaning from this information.

Prospect plc - Balance sheet/statement of financial position as at 31 March

2012

The income statement sets out the total sales revenue and subtracts

the costs of generating that revenue to give operating profit. This is the

surplus earned by the normal operations of the company and tells us most

about underlying business performance.

To continue to use the earlier illustrative example, Prospect plc is

expanding rapidly as it builds a commercial property portfolio consisting

mainly of shops and offices. The company receives rents and also benefits

from any profits when it sells property and sites.

The result is a danger signal! Management accountants investigate this

sort of data in order to alert managers to worrying trends, as well as to

possible opportunities.

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19) An example of the use of financial ratio analysis: the case of

Motorola; H. W. Collier; T. Grai; S. Haslit; C. B. McGowan (2007)

In this paper, we demonstrate the use of actual financial data for

financial ratio analysis. We construct a financial and industry analysis for

Motorola Corporation. The objective is to show students exactly how to

compute ratios for an actual company. This paper demonstrates the

difficulties in applying the principles of financial ratio analysis when the data

are not homogeneous as is the case in textbook examples. We use Motorola

as an example because the firm has several segments, two of which account

for the ajority of sales and represent two industries (semi-conductor and

communications) that have different aracteristics. The case illustrates the

complexity of financial analysis.

20) The role of ratio analysis in business decisions a case study

of o. jaco bros. ent. (nig.) ltd., aba, abia state; ilorah fabian uzochukwu

(2010)

Accounting information provided by means of financial statements- The

income statement and the Balance Sheet are often in summarized form.

Viewed on the surface, the truths about the results and the financial position

of a business hidden in them remain veiled. To be of optimal benefit and as

well enable the users make well – informed decisions, financial statements

need to be analyzed by means of ratios. Therefore, in order to establish the

role of ratio analysis in business decisions, this research is carried out, using

O. Jaco Bros. Ent. (Nig.) LTD., Aba Abia State as the Case study. The

researcher made use of both primary and secondary sources of data

collection. However, for the former, questionnaires were administered,

whereas for the later, relevant were received. The data Collected via the

primary data sources were analyzed using simple averages and percentages.

After ratios analysis conducted on the chapter four, mode at 95 level of

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confidence (5% level of significance). Finally, it was established that ratios

analysis evils business decision.

21) Ratio anaylsis (Profitability analysis) Operating profit; Mack

Roswell (2003)

Ratios are determined from a company's financial information and used

for comparison purposes, e.g. operating profit to sales. This can be set out in

the form: Operating Profit : Revenue. Alternatively, it can be set out as a

percentage. If you refer back to the Profit and Loss Account, you can see the

operating profit margin shown in the chart. This figure is crucial to Cadbury

Schweppes as it relates to the second performance goal.

Here is another ratio you will find in your current course. This ratio

shows whether the company owes more money to its suppliers and bankers

than the assets it holds in the form of stocks, debtors and cash. If this number

is less than 1, then the company's short-term or liquid assets are greater then

its short-term liabilities.

This ratio is used in different ways for small and large companies.

Businessmen and women considering whether to trade with a new small

company would prefer to see this figure at 1.5 or above - as an indication that

the company is solvent and will be able to pay its debts. For large established

companies with good credit ratings, a lower ratio indicates an efficient use of

capital.

22) Company ratio analysis- case study of Tesco.; Peter Samsburg

(2011)

In 2010, the turnover of Tesco was Â£56,910m, compared to 2011, it

was Â£60,931m. In the first year of Tescoâs financial period, the company

had a total of Â£41,57m expenses and a final profit of Â£2336.0m while in

2011 they had a total expense of Â£42,21m and a profit of Â£2671.0m. This

meaning that they made a profit, as the total profit the company made was

greater than their expenses, which also increased in the following year, 2011.

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It was observed that the more money they spent in the running of the

company, the more profit they made at the end of the year.

It was found that from the estimated gross profit that, for every Â£1 of

turnover the company made a profit. This can be seen as the gross profit for

the year 2010, came to 8.10% while that of 2011 came up to 8.30%.

23) A financial Ratio Analysis of Commercial Bank Performance

in South Africa Mabwe Kumbirai and Robert Webb* (2001)

This paper investigates the performance of South Africa’s commercial

banking sector for the period 2005- 2009. Financial ratios are employed to

measure the profitability, liquidity and credit quality performance of five large

South African based commercial banks. The study found that overall bank

performance increased considerably in the first two years of the analysis. A

significant change in trend is noticed at the onset of the global financial crisis

in 2007, reaching its peak during 2008-2009. This resulted in falling

profitability, low liquidity and deteriorating credit quality in the South African

Banking sector.

24) Financial Ratio Analysis, Using Annual Statement STUDIES

General: Mhd. Tariq Husain (2006)

Accounting ratios are probably the most widely used indictors in

bankruptcy studies and therefore in supplier solvency risk assessments. In

identifying which contractors pose the greatest potential risk of non-

performance, published financial statements provide readily available

information. Ratio analysis of non-public companies may be suspect since it is

based on self-disclosure. The Securities and Exchange Commission (SEC)

has identified critical information that they believe a potential equity holder

should have of firms. Since there is a high likelihood that a potentially

insolvent firm can also become a non-performing supplier, we may use the

financial statements to gain crucial business information. A brief review of the

RIMS Chandrapur 32


literature suggests that there may be over a hundred ratios that can be

calculated from accounting numbers included in financial statements. Many of

these, however, will reflect similar attributes. Some means is generally used

to reduce the number of ratios to manageable proportions and avoid

duplication.

25) Financial ratio analysis of dcc bank limited rajnandgaon a

case study Anil Kumar Soni & Harjinder Pal Singh Saluja (2010)

District Central Cooperative Bank plays a vital role in the agriculture

and rural development of the Rajnandgaon. The DCC Bank has more reached

to the rural area of Rajnandgaon, through their huge network. The DCC Bank

Rajnandgaon acts as intermediaries between State Cooperative Bank (Apex

Bank) and Primary Agriculture Cooperative Societies (PACSs). The success

of cooperative credit movement in a district is largely depends on their

financial strength. DCC Bank is a key financing institution at the district level

which shoulders responsibility of meeting credit needs of different types of

cooperatives in the district. At present, most of the district central ooperative

banks are facing the problems of overdue, recovery, nonperforming assets

and other problems. Therefore, it is necessary to study financial ratios of DCC

Bank Rajnandgaon. This paper attempts to analyze the financial ratios of

DCC Bank Rajnandgaon during the period 2008-2009 to 2010-2011. An

analytical research design (Financial Ratio Analysis) is followed in the present

study. The study is based on secondary data. Empirical results show positive

and ufficient growth of DCC Bank Rajnandgaon. The liquidity and solvency

position of the bank was found to be sound.

RIMS Chandrapur 33


26) Fuzzy Expert System for Financial Ratio Analysis (Case Study:

Cement Industry) J. Nazemi*, M.R. Asgari & S. A. Banijamali (2007)

This paper presents a new mathematical programming model for an

integrated production and air transportation in supply chain management with

sequence-dependent setup times in order to design an applied procedure for

the production and distribution schedule. The aim of this model is to minimize

the total supply chain cost consisting of the costs of distribution, production

earliness and tardiness, and delivery. Because of the complexity and NP-

hardness of this problem, two meta-heuristics based on genetic algorithm

(GA) and variable neighborhood search (VNS) are proposed. The parameters

of these algorithms and their appropriate operators are set and determined by

the use of the Taguchi experimental design. Then, the quality of the results

obtained by these algorithms is compared. The computational results show

that the developed VNS outperforms the proposed GA.

27) Analysis ratios for detecting financial statement fraud By

Cynthia Harrington, Associate Member, CFA (2006)

Detection of financial statement fraud is on the front burner. With

billions of losses behind us from such companies as Enron, Tyco, and

WorldCom, the numbers of cases has slowed but not stopped. Catching the

deeds early is important because the average financial statement fraud costs

businesses an average of $1 million, according to the ACFE's 2004 Report to

the Nation. Analysis ratios tested by an Indiana University professor show

promise in identifying possible infractions and helping CFEs focus their efforts

once retained to look into suspicions. Although the study is now six years old,

it appears to be increasingly used to help detect signs of financial

manipulations.

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28) Victoria's Milling Case; Essay by renesmee, College,

Undergraduate, January 2010

Point of View:Assumed in this case is the perspective of VICMICO’s

Finance OfficerProblem:What are the possible causes of VICMICO’s cash

flow problem and how can they be addressed?Case Context:This case

requires an analysis of Victoria Milling Co.’s financial statements in order to

present a comprehensible explanation regarding the company’s debt position.

This paper utilizes the concept of Ratio Analysis to solve the afore-mentioned

problem. The case also examines issues of cash flow problem for VICMICO in

light of a formation of a working committee consisting of VICMICO’s

stakeholders. A statement released by VICMICO’s Board Chairman reported

that 70- 80% of VICMICO’s problem was due to the crisis of the whole

industry. Massive importation and dwindling prices of sugar were observed.

29) Case study – Horizontal trend analysis; Business Accounting

and Finance 2nd Edition Catherine Gowthorpe 2005 Thomson Learning

Ben asks Barney for the company figures towards the end of 20X4, but

Barney is able to provide figures up to 31 March 20X3 only. Nine months or

so after the yearend of 31 March 20X4 it would be reasonable to expect 20X4

accounts to be available. If they are not yet available it may indicate some

serious administrative problems within the business. There would be good

grounds for serious doubts if the accounts had been prepared but Barney

was unwilling to provide them. The question could be easily resolved by

checking the latest filing at Companies House. Also, the information Barney

provides is limited to the basic profit and loss and balance sheet statements.

Although he assures Ben that the audit report is fine, he does not include it in

the information; nor are the notes to the accounts or the directors’ report

made available. This looks a little suspect.

RIMS Chandrapur 35

http://www.writework.com/user/460933


30) Comparison between Financial Ratios Analysis and Balanced

Scorecard; Khalad M.S. Alrafadi and Mazila Md-Yusuf Graduate

Business School, Faculty of Business Management, (2005)

Financial ratios have long been used as a tool to evaluate the overall

financial performance of a company. However, in early 1990s, a new method

called Balanced Scorecard has been introduced by Robert Kaplan and David

Norton to evaluate the overall controlling of a company. This study is a

conceptual paper comparing between the financial ratios analysis and

balanced scorecard method. The objective of this paper is to compare

between the benefits and problems of using financial ratios analysis and

Balanced Scorecard method in evaluating the overall control of the company.

As a result, we found that the Balanced Scorecard is more efficient than

financial ratios analysis.

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Chapter 4

RESEARCH METHODOLOGY

Definition:

Methodology refers to the body of method used in conducting a study.

Different type of method is used in social research. In selecting method a

researcher should take in to account not only the suitability of method but also

adequate knowledge of method.

PRIMARY DATA:

Primary data can be collected either through experiment or through

survey. It the researcher conducts an experiments, he observes some

cluantitive measurements, or the data with help of which he examine the truth

contained in the hypothesis. Primary data can be obtained by common or by

observation. Common involve questioning respondents either verbally or in

writing. It is the data collected for one’s own research purpose. In my project

the primary sources of data used are-

1. Desk Procedures:-

It used as the tool to understand the general procedures of Accounting

Department of the company.

2. Accounting Policies:-

The Accounting Policies help me lot in getting all the accounting concepts

clear. It was also useful in understanding the accounting procedures.

3. Formal Discussions:-

I got a lot of opportunities to get into formal discussion with the Project

guide and manager of company.

4. Observation:-

One of the methods that I used to collect the data was the observation, the

careful observation of company’s overall activities and functioning gave me

good insight into the topic under study.

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Primary data collection methods can be classified as:-

1) Survey (Techniques) Method

2) Observational Method

SECONDARY DATA:

Secondary data is data, which has been collected by individual or

agencies for purpose other than those of our particular research study. In my

project the secondary data used is books, internet sites, company sites,

memorandum of settlement and company’s documents.

This method includes the collection of data by using various system,

such like Internet, News paper etc.

Some of various systems are:

1. Internet.

2. News paper.

3. Magazines etc.

STATISTICAL PROCESSING

1) Ratio Analysis

2) Tabulation of data

3) Line and pie graphs.

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OBJECTIVES OF THE STUDY

1) To study and express the relationship between two values of the

comparative statement.

2) To study the various ratios to determine the relationship of different

factor which have impact on the financial position of the company

3) To study the operating efficiency of profitability of the company

4) To study the liquidity position

IMPORTANCE AND SCOPE OF THE STUDY

1) This study will help to know financial position of Indian Oil Corporation.

2) It also covers study of balance sheets of last five years.

3) It helps to know different financial aspects in Company.

4) It will also helpful in knowing financial management of company.

HYPOTHESIS

1) The study of ratio analysis play very important role to obtained financial

data easily.

2) There is considerable increase in net sales compared to previous years

sales.

3) Company has strict control over total expenditure when compared with

increase in production.

4) There is considerable increase in earning per share.

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DATA ANALYSIS AND INTERPRETATION

Mar ' 13 Mar ' 12 Mar ' 11 Mar ' 10Income

Operating income 2,69,438.08

3,07,123.99 2,47,359.24

2,16,498.85

Expenses

Material consumed 2,35,668.52

2,75,383.54 2,21,256.55

1,93,471.53

Manufacturing expenses

1,755.28 1,500.51 1,558.14 1,112.87

Personnel expenses

5,723.96 5,686.96 2,894.86 2,586.80

Selling expenses 10,488.13 9,684.04 8,753.07 7,733.07

Administrative expenses

1,824.74 1,888.60 2,004.30 1,375.23

Expenses capitalised

-1,121.28 -544.01 -403.58 -542.83

Cost of sales 2,54,339.35

2,93,599.64 2,36,063.34

2,05,736.67

Operating profit 15,098.73 13,524.35 11,295.90 10,762.18

Other recurring income

3,320.35 2,709.59 2,422.73 1,836.69

Adjusted PBDIT 18,419.08 16,233.94 13,718.63 12,598.87

Financial expenses 1,572.35 4,020.98 1,589.73 1,496.25

Depreciation 3,227.14 2,881.71 2,709.70 2,590.31Other write offs 133.98 317.64 236.53 113.43

Adjusted PBT 13,485.61 9,013.61 9,182.67 8,398.88Tax charges 3,097.87 1,364.71 3,104.54 2,949.46Adjusted PAT 10,387.74 7,648.90 6,078.13 5,449.42Non recurring items -130.67 -5,615.51 705.81 1,973.32

Other non cash adjustments

-36.52 915.26 178.64 76.73

Reported net profit 10,220.55 2,948.65 6,962.58 7,499.47

Earnings before appropriation

15,525.63 8,254.63 6,962.58 7,499.47

Equity dividend 3,156.34 910.48 655.81 2,250.89

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Profit loss account in crore


Preference dividend - - - -

Dividend tax 508.83 154.74 76.48 361.72Retained earnings 11,860.46 7,189.41 6,230.29 4,886.86

RIMS Chandrapur 41


Balance sheet In crore

Mar ' 13 Mar ' 12 Mar ' 11 Mar ' 10Sources of fundsOwner's fundEquity share capital 2,427.95 1,192.37 1,192.37 1,168.01Share application money - 21.60 - 24.36Preference share capital - - - -Reserves & surplus 48,124.88 42,789.29 39,893.88 33,664.92Loan fundsSecured loans 18,292.45 17,565.13 6,415.78 5,671.42Unsecured loans 26,273.80 27,406.93 29,107.39 21,411.27Total 95,119.08 88,975.32 76,609.42 61,939.98Uses of fundsFixed assetsGross block 71,780.60 62,104.64 56,731.50 54,770.29Less : revaluation reserve - - - -Less : accumulated depreciation

30,199.53 27,326.19 23,959.68 21,400.07

Net block 41,581.07 34,778.45 32,771.82 33,370.22Capital work-in-progress 21,268.63 18,186.05 9,170.22 4,394.30

Investments 22,370.25 32,232.13 21,535.78 19,990.86Net current assetsCurrent assets, loans & advances

60,971.48 45,234.47 53,506.07 43,966.26

Less : current liabilities & provisions

51,090.52 41,493.74 40,499.06 39,938.93

Total net current assets 9,880.96 3,740.73 13,007.01 4,027.33Miscellaneous expenses not written

18.17 37.96 124.59 157.27

Total 95,119.08 88,975.32 76,609.42 61,939.98Book value of unquoted investments

22,370.25 29,527.27 18,682.05 17,137.21

Market value of quoted investments

23,844.00 15,318.66 21,437.75 17,958.41

Contingent liabilities 25,715.07 26,317.31 25,574.96 22,676.47Number of equity shares outstanding (Lacs)

24279.52 11923.74 11923.74 11680.12

RIMS Chandrapur 42


RATIO ANALYSIS AND INTERPRETATION

1) Adjusted EPS (Rs)

Net income-dividend on preferred stock

Average outstanding share

Year 2013 Year 2012 Year 2011 Year 20100

10

20

30

40

50

60

70

42.78

64.15

50.9846.66

Interpretation:

In the year 2009 there was adjusted eps was 36.29, the average

annual growth is17.88% As we can see in graph the rise in the adjusted eps

from 2009 to 2012 but in the year 2013 there is fall in Adjusted EPS (Rs)

Thus the adjusted EPS of the company is reduced in year 2013 as

compared to that previous years.

RIMS Chandrapur 43

Year Mar

2013

Mar

2012

Mar

2011

Mar

2010

Adjusted EPS (Rs) 42.78 64.15 50.98 46.66


2) Dividend per share

Dps = d- sd

S


2

4

6

8

10

12

14

16

18

20

13

7.5

5.5

19

Interpretation:

In year 2010 there is noted highest growth among the five year

because equity dividend was greater than 2009, 2011, 2012. In 2013 equity

dividend is maximum than 4 years but dividend per share could not rise

because share outstanding period was maximum.

Divident per share is decreased every year which is not good sign.

RIMS Chandrapur 44

Year Mar 2013 Mar 2012 Mar 2011 Mar 2010

Dividend per

share

13.00 7.50 5.50 19.00


3) Profitability ratio:

a) Operating Profit Margin (Return On Sales - ROS)=

Operating profit margin = Operating income

Total revenue


1

2

3

4

5

6 5.6

4.4 4.564.97

Interpretation:

Higher the profit margin is better for Operating profit margin, the

highest profit margin is noted in year 2013 company’s pricing strategy and

operating efficiency is better in year 2013. That indicates increase in operating

income of the company.

RIMS Chandrapur 45

Years Mar

2013

Mar

2012

Mar

2011

Mar

2010

Operating margin (%) 5.60 4.40 4.56 4.97


Gross profit margin (%)

Gross Profit

Total Revenue


0.5

1

1.5

2

2.5

3

3.5

4

4.5

54.4

3.46 3.473.77

Interpretation:

In the year 2009 it is noted that was lowest among the years. Year after

year the profit margin is increasing so that company profit margin is better

Gross profit margin of the company is highest in year 2013 as

compared to that of previous years which indicates good financial position of

the company.

RIMS Chandrapur 46

Years March

2013

March

2012

March

2011

March

2010

Gross profit margin (%) 4.40 3.46 3.47 3.77

http://beginnersinvest.about.com/od/incomestatementanalysis/a/revenue-and-sales.htm

http://beginnersinvest.about.com/od/incomestatementanalysis/a/gross-profit.htm


Net Profit Margin=

Option 1: Net Income after Taxes

Revenue

Year 2013 2012 2011 2010

Net profit margin (%) 3.74 0.95 2.78 3.43


0.5

1

1.5

2

2.5

3

3.5

4

3.74

0.950000000000001

2.78

3.43

Interpretation:

From the figure it is noted that net profit margin was decreased in 2012

because there was decrease in net income after tax, but it showing rise in

year 2013 because net income after tax was maximum in this year compare

to other year. Increase in Net profit margin indicates good financial condition

of the company.

RIMS Chandrapur 47


REPORTED RETURN ON NET WORTH (%)

Reported return on net worth (%)

Net income x 100

Shareholders equity


5

10

15

20

25

20.22

6.71

16.99

21.62

Interpretation:

The average rise in reported return on net worth is 20.35 from 2009 to

2013 so that we can say that the company profit is better from shareholder

fund.

RIMS Chandrapur 48

Years March

2013

March

2012

March

2011

March

2010

Reported return on

net worth (%)

20.22 6.71 16.99 21.62


LEVERAGE RATIOS:

a) Long term debt / Equity:


0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

0.40.43

0.34

0.38

Interpretation:

Long term debt/equity ratio is 0.40 in 2013, and 0.43 in year 2011, 0.34

in year 2011 and 0.38 in year 2010. There is increase long term debt/equity in

last four years.

There is showing average financial growth that is recorded16.66%

RIMS Chandrapur 49

Years 2013 2012 201

1

2010

Long term debt / Equity 0.40 0.43 0.34 0.38


b) Total debt to equity


0.2

0.4

0.6

0.8

1

1.2

0.88

1.020.860000000000

001 0.770000000000001

Interpretation:

The total debt/equity is highest in year 2012 and decreased in year

2013. Which shows that the company uses the financial budgets are in

average level.

RIMS Chandrapur 50

years 2013 2012 201

1

2010

Total debt/equity 0.88 1.02 0.86 0.77


Fixed assets turnover ratio

net sales

Net property, plan and equipment


1

2

3

4

5

6

3.78

4.98

4.383.97

Interpretation:

Fixed asset turnover ratio is decreased in year 2013 as compared to

that of in previous three years.

In the year 2012 it was noted that the company is used the net

property, plan effectively so that graph is in gone high than other years

RIMS Chandrapur 51

year 2013 201

2

2011 2010

Fixed assets turnover ratio 3.78 4.98 4.38 3.97


5) LIQUIDITY RATIOS:

a) Current ratio: Current asset

Current liability

2013 2012 2011 2010

Current Assets

60971.48 45,234.47 53,506.07 43,966.26

Current Liabilities

51090.52 41,493.74 40,499.06 39,938.93

Current Ratio

1.193401 1.0901517 1.3211682 1.1008372


0.2

0.4

0.6

0.8

1

1.2

1.4

1.191.09

1.32

1.1

Interpretation:

The entire ratio shows more than 1 so that it directs us that company is

having good financial condition

RIMS Chandrapur 52

years 2013 2012 2011 2010

Current ratio 1.19 1.09 1.32 1.10


Acid test ratio or liquid test ratio or quick ratio:

Liquid asset

Liquid liability

Year 2013

Year 2012

Year 2011

Year 2010

0 0.1 0.2 0.3 0.4 0.5 0.6

0.44

0.46

0.54

0.47

Interpretation:

Larger the acid test ratio shows higher the margin of safety, in he year

20118 it was noted greater than of other 4 year because total current asset

was noted maximum in year 2013 it fall down because liquid liability was

maximum and liquid asset was also greater

RIMS Chandrapur 53

Year

2013 201

2

2011 2010

Quick ratio 0.44 0.46 0.54 0.47


Inventory Turnover ratio

COGS

Inventory


2

4

6

8

10

12

14

8.37

13.98

9.0910.1

Interpretation:

High inventory levels are unhealthy because they represent an

investment with a rate of return of zero. It also opens the company up to

trouble should prices begin to fall. That is showing in year 2012. But this ratio

is decreased in year 2013.

RIMS Chandrapur 54

Years 2013 2012 2011 2010

Inventory turnover ratio 8.37 13.98 9.09 10.10


6) PAYOUT RATIOS:

A) Dividend Payout Ratio =

Dividend Payment per Share

Earnings per Share


5

10

15

20

25

30

35

4035.86 36.11

10.51

34.83

Interpretation:

The payout ratio provides an idea of how well earnings support the

dividend payments. In year 2011 it was noted the fall in dividend payout ratio

because the dividend per share was low If there is dividend profit ratio is

maximum, than it shows better performance of company

RIMS Chandrapur 55

Years 2013 2012 2011 2010

Dividend payout ratio (net

profit)

35.86 36.11 10.51 34.83


b) Earning retention ratio

Net income-dividends

Net income


10

20

30

40

50

60

70

80

90

64.72

86.08 87.96

52.06

Interpretation:

Tracking year-on-year earnings retention ratios is important

to fundamental analysis to investigate whether a company is increasing or

decreasing its rate of re-investment

It is noted the fluctuation in Earning retention ratio showing average

0.06%growth only

RIMS Chandrapur 56

year 2013 2012 2011 2010

Earning retention ratio 64.72 86.08 87.96 52.06

http://financial-dictionary.thefreedictionary.com/Fundamental+Analysis


c) Cash earnings retention ratio


10

20

30

40

50

60

70

80

90

100

73.35

90.19 91.89

67.96

Interpretation:

Tracking year-on-year earnings retention ratios is important

to fundamental analysis to investigate whether a company is increasing or

decreasing its rate of re-investment Showing the average growth 0.01 during

four years

RIMS Chandrapur 57

year 2013 2012 2011 2010

Cash earnings retention ratio 73.35 90.19 91.89 67.96

http://financial-dictionary.thefreedictionary.com/Fundamental+Analysis


7) Coverage ratios

a)Financial charges coverage ratio(pre tax)


2

4

6

8

10

1211.71

4.04

8.63 8.42

Interpretation:

Financial charges coverage ratio is 11.71 in year 2013 which is highest

as compared to previous years.

The figure showing the average profit is of Financial charges coverage

ratio (pre tax) is 0.26 so that financial charges coverage ratio very low

RIMS Chandrapur 58

Years 2013 2012 2011 2010

Financial charges coverage

ratio(pre tax)

11.71 4.04 8.63 8.42


Sales / Working Capital turnover

Sales

Working capital

YEAR 2013 2012 2011 2010

W.C 11.65 16.144 25.74 46.82


5

10

15

20

25

30

35

40

45

50

11.65

16.144

25.74

46.82

Interpretation:

The figure showing that in year 2010 the company shows that company

is not using sales and working capital properly. It arised in year 2012 but fall

from 2011 to 2013

RIMS Chandrapur 59


Financial ratios of the company

RIMS Chandrapur 60

2013 2012 2011 2010Adjusted EPS (Rs) 42.78 64.15 50.98 46.66Dividend per share 13.00 7.50 5.50 19.00Profitability ratios

Operating margin (%) 5.60 4.40 4.56 4.97Gross profit margin (%) 4.40 3.46 3.47 3.77Net profit margin (%) 3.74 0.95 2.78 3.43Reported return on net worth (%)

20.22 6.71 16.99 21.62

Return on long term funds (%) 21.20 20.72 19.54 20.59Leverage ratios

Long term debt / Equity 0.40 0.43 0.34 0.38Total debt/equity 0.88 1.02 0.86 0.77Owners fund as % of total source

53.14 49.44 53.63 56.25

Fixed assets turnover ratio 3.78 4.98 4.38 3.97Liquidity ratios

Current ratio 1.19 1.09 1.32 1.10Current ratio (inc. st loans) 0.76 0.60 0.83 0.79Quick ratio 0.44 0.46 0.54 0.47Inventory turnover ratio 8.37 13.98 9.09 10.10Payout ratios

Dividend payout ratio (net profit)

35.86 36.11 10.51 34.83

Earning retention ratio 64.72 86.08 87.96 52.06Cash earnings retention ratio 73.35 90.19 91.89 67.96Coverage ratiosFinancial charges coverage ratio(pre tax)

11.71 4.04 8.63 8.42


Chapter 5

FINDINGS AND CONCLUSION

The rise in the adjusted eps from 2009 to 2012 but in the year 2013

there is fall in Adjusted EPS (Rs)

In year 2010 there is noted highest growth among the five year

because equity dividend was greater than 2009, 2011, 2012. In 2013 equity

dividend is maximum than 4 years but dividend per share could not rise

because share outstanding period was maximum

Operating profit margin, the highest profit margin is noted in year 2013

company’s pricing strategy and operating efficiency is better in year 2013

In the year 2009 it is noted that was lowest among the years. Year after

year the profit margin is increasing so that company profit margin is better

Net profit margin was decreased in 2012 because there was decrease

in net income after tax, but it showing rise in year 2013 because net income

after tax was maximum in this year compare to other year.

The average rise in reported return on net worth is 20.35 from 2009 to

2013 so that we can say that the company profit is better from shareholder

fund. In the year 2012 it was noted that the company is used the net property,

plan effectively The Current ratio shows more than 1 so that it directs us that

company is having good financial condition . Larger the acid test ratio shows

higher the margin of safety, in he year 20118 it was noted greater than of

other 4 year because total current asset was noted maximum in year 2013 it

fall down because liquid liability was maximum and liquid asset was also

greater High inventory levels are unhealthy because they represent an

investment with a rate of return of zero. It also opens the company up to

trouble should prices begin to fall. That is showing in year 2012. In year 2009

the company shows that company is not using sales and working capital

properly. It arised in year 2010 but fall from 2011 to 2013

RIMS Chandrapur 61


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http://capetownchamber.com/events/using-financial-statements-ratio-analysis-to-manage-your-business-effectively/

http://capetownchamber.com/events/using-financial-statements-ratio-analysis-to-manage-your-business-effectively/


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RIMS Chandrapur 63


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RIMS Chandrapur 64

http://www.writework.com/user/460933


BIBLIOGRAPHY

1) Financial Management,- Sushil Gupta ,6th edition, Kalyani Publishers

2) “Financial Management theory and practice”; Prasnna Chandra 7th

edition , Tata McGraw hills publishing house

3) New age international publisher research methodology methods and

techniques”; C.R Kothari second rived edition

WEBSITES:

1) www.wikipedia.com

2) www.investopedia.com

3) www.moneycontrol.com

4) www.iocl.com

RIMS Chandrapur 65

http://www.iocl.com/

http://www.moneycontrol.com/

http://www.investopedia.com/

http://www.wikipedia.com/

IOCL Ratios

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