A Project Report on

Financial Analysis of Indian Oil Corporation Limited

Submitted to

Finance Department, Punjab State Office

In partial fulfilment for the award of the degree Of

MASTER IN BUSINESS ADMINISTRATION

IN

FINANCE Guided by Mr. Sandeep Dhingra Assistant Manager Punjab state office, IOCL

Submitted by Meenakshi Mattoo, MBA 24-11

The University of Jammu

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ACKNOWLEDGMENT

I would like to take this opportunity to show the deep sense of gratitude and obligation to all the people who have provided me with inspiration, guidance and help during the preparation of the project. My sincere regard to Mr. SUNIL KHURANA, Senior Finance Manager, Indian Oil Corporation Limited, Chandigarh for allowing me to undergo this training. I express my deepest gratitude to Mr. Sandeep Dhingra, Assistant Manager, PSO, Indian Oil Corporation Limited, for his invaluable guidance and blessings. I am very grateful to him for providing me with an environment to complete my project successfully. I would like to thank him for his unwavering support during the entire course of my project work. I would also like to thank all the staff members of PSO, Indian Oil Corporation Limited for their help in making this project a successful one. Regards to Mr. SUNIL TAPWAL for his able guidance and unflinching support during the project.

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TABLE OF CONTENTS
INTRODUCTION: Indian Petroleum Industry. 5 Indian petroleum sector.. 5 Organisation of petroleum industry in India.. 7 INDIAN OIL CORPORATION.. 8 Vision mission and values. 10 Objectives and obligations .... 12 Financial objectives.... 14 Indian oil logo. 14 Organisational structure of IOCL .. 15 Joint ventures and subsidiaries... 16 Administered price mechanism.. 18 BUSINESSES OF IOCL ....... 19 Refining .. 19 Pipelines.. 19 Marketing 20 Research and development..... 21 Natural gas.. 22 Exploration and production 22 Petrochemicals 23 Major products of IOCL. 24 Directors.. 25 SAP.. 26 Introduction. 26 Application of SAP in IOCL.. 31 Important terms used in SAP. 33
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T-Codes... 34 FINANCIAL STATEMENTS..... 39 Balance sheet.. 39 Income statement 43 Cash flow statement 45 BALANCE SHEET OF IOCL 45 PROFIT AND LOSS ACCOUNT OF IOCL.. 46 FINANCIAL ANALYSIS... 46 FINANCIAL RATIO ANALYSIS.. 47 RATIOS OF IOCL.. 50 Liquidity ratios 50 Turnover ratios 53 Solvency ratios 58 Profitability ratios... 61 Investor ratios. 66 Coverage ratios... 68 BIBLIOGRAPHY.. 71

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INTRODUCTION: Indian Petroleum Industry

The energy sector plays an important role in the socio-economic development of the nation. The development often depends on the sustainable energy supply/availability from sources like coal, hydroelectricity, oil, gas and nuclear power, which are typically called the five primary constituents of conventionally used energy. India being one of the fastest growing economies of the World is heavily dependent on the energy supplies and is currently the fourth largest consumer in the Asia-Pacific region after Japan, China and South Korea.

Indian Petroleum Sector

India has been following the mixed economy socialist pattern ever since its independence. After the Independence, the Oil Industry in India was a very small one in size and Oil was produced mainly from Assam and the total amount of Oil production was very less. This small amount of production made experts doubt Indias ability to search for reserves & predicted a dull oil industry. The government declared the oil industry in India as the core sector industry under Industry Policy Resolution Bill in 1954. Oil exploration and production in India is done by companies like NOC or National Oil Corporation, ONGC or Oil and Natural Gas Corporation and OIL who are actually the oil companies in India that are owned by the government under the Industrial Policy Rule. The Oil Industry in India fulfils about 70 percent of its demand through importing oil from other oil producing countries in the Middle East.

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The Oil that is produced by the Oil Industry in India provides more than 35 percent of the energy that is primarily consumed by the people of India. This amount is expected to grow further with both economic and overall growth in terms of production as well as percentage. The downstream refinery and marketing segment of the petroleum sector are dominated by three large PSUs namely Indian Oil, Bharat Petroleum and Hindustan Petroleum. It is basically a consortium between the above said companies to provide goods and services to the other company if in case the other company is not having refinery or other facilities at a particular place. This is being done to avoid the transit cost which may be involved when the company gets the products from its far off refinery and thus to help the economy as the whole. All taxes and duties are payable by the assisted company. This sector is witnessing enormous amounts of activity due to the crude prices soaring high, the mounting losses of the oil marketing companies and the entry of private players in this sector and hence demands of liberalization of the sector to make it a level playing field for all the other companies.

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ORGANISATION OF PETROLEUM INDUSTRY IN INDIA

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INDIAN OIL CORPORATION

In order to ensure greater efficiency and smooth working in the petroleum sector, Government of India decided to merge the refineries and the distribution activities. The Indian Refineries and Indian Oil Company were combined to form the giant Indian Oil Corporation (IOCL) on 1st September 1964, with its registered office at Bombay. In 1967, the pipeline division of the corporation was merged with the refineries division. Research &Development of Indian Oil Came into Existence in 1972. In October 1981 Assam Oil Company was nationalized and has been amalgamated with IOCL as Assam Oil Division (AOD).

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Indian Oil and its subsidiaries account for a 47% share in the petroleum products market, 34% share in refining capacity and 67% downstream sector pipelines capacity in India.

As the flagship national oil company in the downstream sector, Indian Oil reaches precious petroleum products to millions of people every day through a countrywide network of about 34,000sales points. They are backed for supplies by 166 bulk storage terminals and depots, 101 aviation fuel station sand 89 Indane (LPG) bottling plants. About 7,100 bulk consumer pumps are also in operation for the convenience of large consumers, ensuring products and inventory at their doorstep. Indian Oil operates the largest and the widest network of petrol & diesel stations in the country, numbering over 19,000. It provides Indane cooking gas to the doorsteps of over 50 million households in nearly 2,700 markets through a network of about 5,000 Indane distributors. Indian Oils ISO-9002 certified Aviation Service commands over 62% market share in aviation fuel business, meeting the fuel needs of domestic and international flag carriers, private airlines and the Indian Defence Services. The Corporation also enjoys a dominant share of the bulk consumer business, including that of railways, state transport undertakings, and industrial, agricultural and marine sectors.

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Vision, Mission and Values

A major diversified, trans-national, integrated energy company, with national leadership and a strongenvironment conscience, playing a national role in oil security & public distribution.

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Mission
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.

Values Care stands forEmpathy Understanding Cooperation Empowerment Passion stands forCommitment Dedication Pride Inspiration Ownership Zeal & Zest Innovation stands forCreativity Ability to learn/absorb Flexibility Change Trust stands forDelivered promises Reliability Integrity Truthfulness Transparency

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OBJECTIVES & OBLIGATIONS OF IOCL

Objectives:
To serve the national interests in oil and related sectors in accordance and consistent with Government policies. To ensure maintenance of continuous and smooth supplies of petroleum products by way of crude oil refining, transportation marketing activities and to provide appropriate assistance to consumers to conserve and use petroleum products efficiently. To enhance the country's self-sufficiency in crude oil refining and build expertise inlaying of crude oil and petroleum product pipelines. To further enhance marketing infrastructure and reseller network for providing assured service to customers throughout the country. To create a strong research & development base in refinery processes, product formulations, pipeline transportation and alternative fuels with a view to minimizing/eliminating imports and to have next generation products. To optimize utilization of refining capacity and maximize distillate yield and gross refining margin. To maximize utilization of the existing facilities for improving efficiency and increasing productivity. To minimize fuel consumption and hydrocarbon loss in refineries and stock loss in marketing operations to effect energy conservation. To earn a reasonable rate of return on investment. To avail of all viable opportunities, both national and global, arising out of the Government of Indias policy of liberalization and reforms.

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To achieve higher growth through mergers, acquisitions, integration and diversification by harnessing new business opportunities in oil exploration production, petrochemicals, natural gas and downstream opportunities overseas.

To inculcate strong core values among the employees and continuously update skill sets for full exploitation of the new business opportunities.

To develop operational synergies with subsidiaries and joint ventures and continuously engaged across the hydrocarbon value chain for the benefit of society at large.

Obligations:
Towards customers and dealers:-To provide prompt, courteous and efficient service and quality products at competitive prices. Towards suppliers:-To ensure prompt dealings with integrity, impartiality and courtesy and help promote ancillary industries. Towards employees:-To develop their capabilities and facilitate their advancement through appropriate training and career planning. To have fair dealings with recognised representatives of employees in pursuance of healthy industrial relations practices and sound personnel policies. Towards community:-To develop techno-economically viable and environmentfriendly products. To maintain the highest standards in respect of safety, environment protection and occupational health at all production units. Towards Defence Services:-To maintain adequate supplies to Defence and other paramilitary services during normal as well as emergency situations.

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Financial Objectives
To ensure adequate return on the capital employed and maintain a reasonable annual dividend on equity capital. To ensure maximum economy in expenditure. To manage and operate all 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 Corporations business. To reduce the cost of production of petroleum products by means of systematic cost control measures and thereby sustain market leadership through cost competitiveness. To complete all planned projects within the scheduled time and approved cost.

Indian Oil logo

The saffron circle represents energy as a derivative of the Sun, connoting life and the future. The dark blue outer ring and the horizontal band symbolize technology for harnessing this energy.

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The selection of the colours is based on the principle that saffron represents the heat or the energy that the company is contributing and the dark blue colour encircling it gives the control to use the energy.

Organisation Structure of IOCL

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Joint ventures and subsidiaries of Indian Oil

Joint Ventures (as on 31.03.2011)
Name of JV Date of Promoters & Equity Incorporation

Avi-Oil India Pvt. Ltd.

04.11.1993

NYCO SA, France and Balmer Lawrie & Co. Ltd. Indian Oil BPCL DIAL

Delhi Aviation Fuel Facility Pvt. 28.03.2010 Ltd Green Gas Ltd. Indo Cat Pvt. Limited 07.10.2005 01.06.2006

GAIL (India) Ltd. Intercat, USA Oiltanking GmbH, Germany. Petronas, Malaysia

IOT Infrastructure & Energy 28.08.1996 Services Ltd. SIndian Oil Petronas Private 03.12.1998 Ltd. Indian Oil Skytanking Limited 21.08.2006

Indian Oil, IOT Infrastructure & Energy Services Ltd. (Formerly IOTL-India Oil Corporation Ltd. Tanking Ltd.) & Skytanking Holding GmbH, Germany: 33.33% each Indian Oil Trimurti Holding Corporation Marubeni Corporation Indian Ruchi Soya Industries Limited Lubrizol Inc., USA Indian NPCIL Oil Oil

Indian Limited

Synthetic

Rubber 06.07.2010

Indian Oil Ruchi Biofuels LLP

28.05.2010

Lubrizol India Private Limited

01.04.2000

NPCIL-Indian Oil Nuclear 06.04.2011 Power Corporation Limited

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Petronet LNG Limited

02.04.1998

Bharat Petroleum Corporation Ltd., Oil & Natural gas Corporation Ltd., GAIL (India) Ltd, Gaz de France, ADB Bharat Petroleum Corporation Ltd., Hindustan Petroleum Corporation Ltd., Reliance Industries Limited, Infrastructure Leasing & Financial Services Ltd. Trust Company Limited, ICICI Bank Ltd., State Bank of India., Essar Oil Limited.

Petronet India Limited

26.05.1997

Petronet VK Limited

21.05.1998

Petronet India Limited , Reliance Industries Limited & Essar Oil Limited., State Bank of India, Gujarat Industry Investment Corporation, Kandla Port Trust, Infrastructure Leasing & Financial Services Limited.; Canara Bank

Suntera Nigeria 205 Limited

09.05.2006

Indian Oil Corporation Ltd. & Oil India., Suntera Resources Ltd.

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Subsidiaries of IOCL
Indo Mobil Ltd. (50%); Avi-Oil Ltd. (25%); Indian Oil tanking Ltd. (25%); Petronet India Ltd. (16%); Petronet VK Ltd. (26%); Petronet CTM Ltd. (26%); Petronet CIPL Ltd. (12.5%); IndianOil Petronas Ltd. (50%); Indian Oil Panipat Power Consortium Ltd. (26%); Indian Oil TCG Petrochem Ltd. (50%); Librizol India Pvt. Ltd. (50%).

ADMINISTERED PRICE MECHANISM

Petroleum sector remains regulated through the mechanism of administered price. All resources are made available by the Government. The pricing policy tries to maintain a balance between the inherent conflict between the social objective of the oil companies and their commercial viability. Prices of petroleum products (mainly petrol, diesel & kerosene) are determined so that a satisfactory level of capacity utilization cost of production and reasonable amount of return on investment is ensured. Thus the prices set by the government are acceptable to all the Oil Manufacturing Companies and they provide each other with the material at the pre determined prices. At the same time, to ensure availability of this commodity to the weaker sections of the society, cross subsidy across different products was introduced. Considering the interests of the companies APM permits these companies to introduce premium products for to increase the revenues.

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Businesses of Indian Oil Corporation

Refining
Born from the vision of achieving self-reliance in oil refining and marketing for the nation, Indian Oil has gathered a luminous legacy of more than 100 years of accumulated experiences in all areas of petroleum refining by taking into its fold, the Digboi Refinery commissioned in1901.IndianOil controls 10 of Indias 21 refineries. The group refining capacity is 65.7 million metric tonnes per annum- the largest share among refining companies in India. It accounts for 34% share of national refining capacity. The strength of Indian Oil springs from its experience of operating the largest number of refineries in India and adapting to a variety of refining processes along the way. The Corporation has commissioned several grass root refineries and modern process units. Procedures for commissioning and start-up of individual units and the refinery have been well aid out and enshrined in various customized operating manuals, which are continually updated. Innovative strategies and knowledge-sharing are the tools available for converting challenges into opportunities for sustained organisational growth. With strategies and plans for several value-added projects in place, Indian Oil refineries will continue to play a leading role in the downstream hydrocarbon sector for meeting the rising energy needs of our country.

Pipelines
The pipelines transport petroleum products from refineries to demand areas and crude oil from ports as well as domestic sources to the inland refineries. IOCL operates a network of

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10329 km long crude oil and petroleum product pipelines with a capacity of 71.60 million metric tonnes per annum which accounts for 67% downstream sector pipelines in India. Indian Oil's oldest pipeline, the Guwahati - Siliguri Pipeline commissioned way back in 1964, is still being operated at designed pressure and capacity. All Indian Oil pipelines are certified to ISO 14001:1996 environment management system and ISO 9001:2000 quality management system. The Pipelines Division is focused on maintaining Indian Oil's leadership in the complex business scenario and is extending full logistics support to its sister divisions of Refineries and Marketing for enabling the Corporation to remain competitive. Pipelines are globally recognized as the safest, cost-effective, energy-efficient and environment-friendly mode for transportation of crude oil.

Marketing
Marketing handles the process of selling and distribution of all the petro products. Marketing has control all the operation of transport the product in every division. IOCL has 16 state offices and over 100 decentralized administrative offices coordinate the country wide marketing operations. Indian Oil has one of the largest petroleum marketing and distribution networks in Asia, with over 35,000 marketing touch points. From the icy heights of the Himalayas to the sun-soaked shores of Kerala, from Kutch on India's western tip to Kohima in the verdant North East, Indian Oil is truly 'in every heart, in every part'. Indian Oil's vast marketing infrastructure of petrol/diesel stations, Indane (LPG) distributorships, SERVO lubricants & greases outlets and large volume consumer pumps are backed by bulk storage terminals and installations, inland depots, aviation fuel stations, LPG bottling plants and lube blending plants amongst others. Several landmark surveys continue to rate Indian Oil as the dominant energy brand in the country and an enduring symbol for high quality petroleum products and services. Indian Oil has been adjudged India's No. 1 brand by UK-based Brand

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Finance, an independent consultancy that deals with valuation of brands. It was also listed as India's 'Most Trusted Brand' in the 'Gasoline' category in a Readers' Digest - AC Nielsen survey. In addition, Indian Oil topped The Hindu Business lines "India's Most Valuable Brands" list. However, the value of the Indian Oil brand is not just limited to its commercial role as an energy provider but straddles the entire value chain of gamut of exploration & production, refining, transportation & marketing, petrochemicals & natural gas and downstream marketing operations abroad. Indian Oil is a national brand owned by over a billion Indians and that is a priceless value.

Research & Development

Established in 1972 for the development of lube as well as refining process technologies, the Indian Oil R & D Centre at Faridabad near New Delhi has completed around 30 years of glorious service to the nation.Indian Oil has, till date, invested close to Rs. 1,000 crores in setting up world-class facilities at its R & D Centre for building world-class capabilities in analytical services, engines, test rigs and pilot plants for all major refinery processes, catalyst characterization & development, etc. It plans to invest about Rs. 500 crores during the period 2007-12 to maintain its leadership in downstream R & D activities in the hydrocarbon sector. While continuing with cutting edge R & D in the core areas of lubricants formulations, refinery process technologies and pipeline transportation, the thrust would now be on commercializing the developed technologies and initiating research in new frontier areas such as petrochemicals, coal-to-liquid, gas-to-liquid, alternative fuels, synthetic lubricants, etc. Through these R & D initiatives, Indian Oil will continuously enhance value for all its stakeholders. The R&D Centre continues to provide significant support to the Indian Oil Group refineries in product quality improvement, evaluation of catalysts and additives, health

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assessment of catalysts, material failure analysis, troubleshooting and in improving overall efficiency of operations. Indian Oil is also setting up India's first commercial H-CNG (Hydrogen-Compressed Natural Gas) dispensing station at one of its retail outlets in Delhi in the year 2008 for fuelling experimental vehicles running on H-CNG blends as well as on pure Hydrogen. Indian Oil R&D is also working on production, storage, transportation, distribution and commercialization of Hydrogen as an alternative fuel.

Natural Gas
Over the years, Natural Gas has emerged as the 'fuel of choice' across the World. Natural gas business presents immense opportunities for Indian Oil and has already started generating significant revenues for the Corporation. The Corporation is in the process of sourcing more LNG and expanding its customer base. Within the gas business, city gas distribution is seen as a focus area for rapid growth. Green Gas Ltd., Indian Oil's joint venture with GAIL (India) Ltd., is operational in Agra and Lucknow and plans to expand for city gas distribution in other parts of the country. Indian Oil has the capabilities to supply regassified LNG to customers presently located in the Northern and Western regions of India. With the expansion of the pipeline network in Southern region as well as other parts of the country. The LNG at Doorstep initiative involves making LNG available to the customers not connected by gas pipeline.

Exploration & Production

To enhance upstream integration, Indian Oil has been pursuing exploration & production activities both within and outside the country in collaboration with consortium partners. Recently, Indian Oil was associated with two successful discoveries in oil exploration blocks, one each in India and Iran. Indian Oil and its consortium partners were awarded two

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exploration blocks in Mumbai offshore in Round-VI of bidding under the New Exploration Licensing Policy (NELP). With this, Indian Oil now has an upstream portfolio consisting of participatory interest in eight blocks under NELP and two blocks under CBM, in addition to two farm-in blocks in northeast India and seven blocks overseas. Oil & gas will continue to be the principal energy source in the growing economy. The years ahead, therefore, hold great opportunities and challenges. Guided by its experience and inherent spirit, Indian Oil shall overcome all the challenges as it has been consistently doing in the past, and scale up its operations to capitalize on all opportunities and realize its corporate vision.

Petrochemicals
India is amongst the fastest growing petrochemicals markets in the world. Taking this into consideration and to enhance its downstream integration, IndianOil is focusing on increasing its presence in the domestic petrochemicals sector besides the overseas markets through systematic expansion of customer base and innovative supply logistics. Petrochemicals have been identified as a prime driver of future growth by Indian Oil. The Corporation is envisaging an investment of Rs 30,000 crore in the petrochemicals business in the next few years. These projects will utilise product streams from the existing refineries of Indian Oil, thereby achieving better exploitation of the hydrocarbon value chain. In order to penetrate the petrochemicals market effectively, a separate Strategic Business Unit (SBU) has been created in Indian Oil for marketing of petrochemicals. A robust logistics model has been the key to Indian Oil's success story and facilities have been put in place for seamless product dispatches to customers by rail, road and sea.

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Major Products of Indian Oil

HSD- High Speed Diesel MS-Motor Spirit (Petrol) SKO- Superior Kerosene Oil Bitumen- Material used to lay down roads FO-Furnace Oil ATF- Aviation Turbine Fuel LPG- Liquefied Petroleum Gas LUBE-Lubricating Oil Petrochemicals

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Directors
Mr. RS Butola Chairman Indian Oil

Dr. R K Malhotra Director (Research & Development)

Mr. Sudhir Bhalla Mr. A M K Sinha Director (Human Resources) Director (Planning & Business Development)

Mr. P K Goyal Director (Finance)

Mr. R K Ghosh Director (Refineries)

Mr. Makrand Nene Director (Marketing)

Mr. V S Okhde Director (Pipelines)

Mr. Sudhir Bhargava Additional Secretary Ministry of Petroleum & Natural Gas

Mr. Anees Noorani Managing Director, Zodiac Clothing Company Ltd.

Mr. Michael Bastian Former Chairman & Managing Director, Syndicate Bank

Dr. Indu Shahani Principal, HR College of Commerce & Economics, Mumbai and Sheriff of Mumbai

Prof. Gautam Barua, Director, Indian Institute of Technology,Guwahati

Mr. N.K. Poddar Senior Advocate, Kolkata

Mr. Sudhakar Rao Former Chief Secretary, Karnataka

Mr. V K Bhalla Former Dean of Faculty of Management Studies, New Delhi

Ms. Shyamala Gopinath Former Deputy Governor of Reserve Bank of India

Ms. Sushama Nath Former Finance Secretary Govt. of India

Mr. Shyam Saran Former Foreign Secretary Govt. of India

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SAP
Enterprise Resource Planning (ERP) is one of the latest Information Technology-based business tools being implemented in various organizations across the globe. SAP is one of the most advanced business management applications available in the market today, and supports most of the business processes of manufacturing and distribution companies in a wide variety of industries. SAP stands for Systems, Applications and Products in data processing. It is an ERP program that is developed by a German company. Its database is maintained in Oracle, which is most secured, fastest and versatile language to maintain data. Systems, Applications, Products in data processing, or SAP, was originally introduced in the 1980s as SAP R/2, which was a system that provided users with a soft-real-time business application that could be used with multiple currencies and languages. As clientserver systems began to be introduced, SAP brought out a server based version of their software called SAP R/3, henceforth referred to as SAP, which was launched in 1992. The letter R represents Real Time, and the number 3 is indicative of 3-tier architecture or model on which the software has been designed. SAP also developed a graphical user interface, or GUI, to make the system more user friendly and to move away from the mainframe style user interface. For the next 10 years SAP dominated the large business applications market. It was successful primarily because it was extremely flexible. Because SAP was a modular system (meaning that the various functions provided by it could be purchased piecemeal) it was an extremely versatile system. A company could simply purchase modules that they wanted and
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customize the processes to match the companys business model. SAPs flexibility, while one of its greatest strengths is also one of its greatest weaknesses that lead to the SAP audit.

Features and Functions:

SAP Business gives you instant access to your critical business informationprecisely when you need itto run your business. This comprehensive application covers all your core operations, giving you keen insight so you can confidently make informed business decisions. With SAP Business, virtually all aspects of your businessincluding administration, customer relationship management, operations, distributions, and financialsbecome more agile.

Accounting and Financials Financial accounting

Handle all your financial transactions, including general ledger, journal entries, budgeting, and account setup and maintenance in one system, with comprehensive tools and reports.

Budgeting
Manage budget creation, allocation, and distribution. Provide budget tracking, reporting, and alerts that notify the responsible users whenever a transaction exceeds a monthly or annual budget limit.

Banking
Track all banking processes such as cash receipts, check writing, deposits, advance payments, credit card payments, and account reconciliation.

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Financial reporting
Provide easy-to-use financial reports including balance sheets, profit and loss statements, cash-flow analysis, transaction reports, multi-period comparisons, and budget reports.

Customer Relationship Management (CRM) Sales opportunity management

Manage the entire sales process through different sales stages. Track sales opportunities and activities, analyze their outcome, and forecast revenue potential. You can monitor and analyze sales opportunities using dashboards and sales reports. Web CRM Give your sales team secure access to customer data on the Web wherever they are. Provide a Web-based interface to your customers so they can log inquiries and check order statusall in real time.

Microsoft Outlook integration

Import customer data from SAP Business One into your Microsoft Outlook contacts list. Activities and tasks entered into your calendar in SAP Business One can be synchronized with your schedule in Microsoft Outlook.

Customer service and support

Allow your customer-service and support teams to administer customer warranties and service contracts, manage service calls, and track all customer-interaction activities.

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Business-partner management
Manage the master data for your resellers and channel partners to track sales leads and opportunities including profiles, contact summaries, account balances, and sales- pipeline analyses.

Operations and Distribution Sales and delivery

Generate price quotes, enter customer orders, set up deliveries, update stock levels, report on customers current balances, and manage all billing and accounts receivable.

Purchasing
Manage and maintain your vendor contracts and transactions including the issue of purchase orders, updates to stock quantities, calculations for the value of imported items, returns and credits, and payment processing.

Inventory management
Handle inventory levels, item management, price lists, special price agreements, transfers between warehouses, and stock transactionsall via integration with other processes such as sales and purchasing.

Production planning
Manage your production material requirements through a wizard-based process that enables users to define a planning scenario in five easy steps and predict demand based on forecasts.

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Administration and Reporting Human resources

Capture pertinent information about each employee so you have only one system for maintaining and managing your employee records and data.

Automatic alerts
Define your own alerts and unique workflow processes by establishing approvals, procedures, and steps that are automatically initiated when a specific event occurs.

Dashboards and reports

Create intuitive reports and dashboards for every aspect of your business including customers and suppliers, sales, cash flow, bookkeeping, warehouse stock, financial statements, pricing, and customer activities.

Drag and relate

View important relationships between data and instantly gain a complete understanding of any business transaction by dragging the data you want more information on, positioning it on top of other data, then drilling down for more details.

Customization and integration

Enable users to easily add fields, change forms, and personalize queries and reports. A standard software development kit (SDK) consisting of reusable business objects and userinterface-customization tools is available to customize and integrate SAP Business One to meet your specific industry and business needs.

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APPLICATIONS OF SAP IN IOCL

SAP is one of the most advanced business management applications available in the market today, and supports most of the business processes of manufacturing and distribution companies in a wide variety of industries. Since Indian Oil is also a manufacturing and distribution company, this software package meets the business requirements of our Corporation very well, with little customization.ERP will provide real time, on-line information for decision-making or analysis. That is, whenever data is entered into the SAP R/3 system, it is processed and stored immediately. Since the transactions are simultaneous, the information or data based on these transactions is also up-to-date and readily available at any given time at any location by using USERNAME and PASSWORD. Indian Oil Corporation Ltd. (IOCL) is the 18th-largest petroleum company in the world. As the flagship national oil company in the downstream sector, IOCL delivers petroleum products to millions of consumers via 10 refineries, 34,000 sales points, and a country-wide network of 9,300 kilometres of pipeline. To integrate business processes and establish a standard communication platform, IOCL deployed SAP NetWeaver Process Integration technology and the SAP NetWeaver technology platform. Support for open XML Java standard Integration with the existing SAP ERP application Harmonized with all other components of the SAP NetWeaver technology platform Integration tool for all SAP solutions Support for industry-standard adapters such as RosettaNet and chemical industry data exchange (CIDX)

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Leveraged funding for enterprise resource planning (ERP) deployment for this project too

Deployed more economical option of using open source software Reduced cost of business transactions with other oil companies by accelerating the frequency of settlements from monthly to daily

Completed deployment in 9 months, on time and within budget Operational Benefits Promoted error-free quantity reconciliation at the plant level Streamlined supply chain performance Improved data accuracy by 99% Minimized inventory levels Eliminated paper-based JC exchange process Replaced old system with reconciled data flow Reduced cost of exchanges by as much as 95% Faster response time Handling of the massive database Improved performance and throughput Eliminated performance problems caused by customer programs, expensive structured query language (SQL)

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IMPORTANT TERMS USED IN SAP AND SNAPSHOTS Transaction Code (T-Code)

It is a means to perform a specific task for achieving some desired result. These T-Codes are used to give command to the SAP for performing desired operation. An individual can access only those T-Codes for which authorization is granted to him.

General Ledger (GL Code)

Since IOC is a big organization, it has defined its accounts broadly into various categories. For e.g. sales promotion. Now, sales promotion can be done in different ways like media, gifts, campaigns etc, these can be identified by different GL codes. In a nutshell, GL Codes is used for codification of different types of accounts. For e.g. there is a 10 digit code for a particular GL item. The following sheet shows the display of this head under SAP.

Cost Center
The business of IOCL is spread all over India and also abroad so it is difficult to cover all of its location details. So SAP assigns a specific Cost Center to each and every location to maintain the details of the expenditures of all the locations. This helps and save time of employees.

Commitment Item
A group of expenses having similar nature is called commitment item and is a broad head for e.g. communication expenses which covers telephone charges, internet services, postal services etc. There working under SAP is shown under different codes. For example: C_OVERTIME (controllable expenditure), N_SALARY (Non controllable expenditures).

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Common T-Codes
FB01- For making journal entries

FB05- For making journal entries

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F-30- For making journal entries (relating new entries to entries already made)

FK03- To display vendor

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XK03- To display vendor

XD03- Display customer

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FBL1N- To display Vendors financial data

FBL3N- For ledger display

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FBL5N- To display Customers financial data

FB03- For document display

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FINANCIAL STATEMENTS
Financial statements are summaries of the operating, financing, and investment activities of a business. Financial statements should provide information useful to both investors and creditors in making credit, investment, and other business decisions. And this usefulness means that investors and creditors can use these statements to predict, compare, and evaluate the amount, timing, and uncertainty of potential cash flows. In other words, financial statements provide the information needed to assess a companys future earnings and therefore the cash flows expected to result from those earnings. In this chapter, we discuss the four basic financial statements: the balance sheet, the income statement, the statement of cash flows, and the statement of share holders equity. There are three basic financial statements: Balance sheet Income statement Cash Flow statement

THE BALANCE SHEET

The balance sheet is a summary of the assets, liabilities, and equity of a business at a particular point in timeusually the end of the firms fiscal year. The balance sheet is also known as the statement of financial condition or the statement of financial position. The values shown for the different accounts on the balance sheet are not purported to reflect current market values; rather, they reflect historical costs. Assets are the resources of the business enterprise, such as plant and equipment that are used to generate future benefits. If a company owns plant and equipment that will

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be used to produce goods for sale in the future, the company can expect these assets (the plant and equipment) to generate cash inflows in the future. Liabilities are obligations of the business. They represent commitments to creditors in the form of future cash outflows. When a firm borrows, say, by issuing a long-term bond, it becomes obligated to pay interest and principal on this bond as promised. Equity, also called shareholders equity or stockholders equity, reflects ownership. The equity of a firm represents the part of its value that is not owed to creditors and therefore is left over for the owners. In the most basic accounting terms, equity is the difference between what the firm ownsits assetsand what it owes its creditors its liabilities.

ASSETS
There are two major categories of assets: current assets and noncurrent assets, where noncurrent assets include plant assets, intangibles, and investments. Assets that do not fit neatly into these categories may be recorded as either other assets, deferred charges, or other noncurrent assets.

Current Assets
Current assets (also referred to as circulating capital and working assets) are assets that could reasonably be converted into cash within one operating cycle or one year, whichever takes longer. An operating cycle begins when the firm invests cash in the raw materials used to produce its goods or services and ends with the collection of cash for the sale of those same goods or services. Current assets consist of cash, marketable securities, accounts receivable, and inventories. Cash comprises both currencybills and coinsand assets that are immediately transformable into cash, such as deposits in bank accounts. Marketable securities are securities that can be readily sold when cash is needed. Every company needs to

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have a certain amount of cash to fulfil immediate needs, and any cash in excess of immediate needs is usually invested temporarily in marketable securities.

Noncurrent Assets
Noncurrent assets are assets that are not current assets; that is, it is not expected that noncurrent assets can be converted into cash within an operating cycle. Noncurrent assets include physical assets, such as plant and equipment, and nonphysical assets, such as intangibles. Plant assets are the physical assets, such as the equipment, machinery, and buildings, which are used in the operation of the business. We describe a firms current investment in plant assets by using three values: gross plant assets, accumulated depreciation, and net plant assets. Gross plant and equipment, or gross plant assets, is the sum of the original costs of all equipment, buildings, and machinery the firm uses to produce its goods and services. Depreciation is a charge that accounts for the using up of an asset over the length of an accounting period; it is a means for allocating the assets cost over its useful life. Accumulated depreciation is the sum of all the depreciation charges taken so far for all the companys assets. Intangible assets are the current value of nonphysical assets that represent long-term investments of the company. Such intangible assets include patents, copyrights, and goodwill. The cost of some intangible assets is amortized (spread out) over the life of the asset. Amortization is akin to depreciation: The assets cost is allocated over the life of the asset; the reported value is the original cost of the asset, less whatever has been amortized. The number of years over which an intangible asset is amortized depends on the particular asset and its perceived useful life.

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LIABILITIES
Liabilities, a firms obligations to its creditors, are made up of current liabilities, long-term liabilities, and deferred taxes.

Current Liabilities
Current liabilities are obligations that must be paid within one operating cycle or one year, whichever is longer. Current liabilities include: Accounts payable, which are obligations to pay suppliers. They arise from goods and services that have been purchased but not yet paid. Accrued expenses, which are obligations such as wages and salaries payable to the employees of the business, rent, and insurance. Current portion of long-term debt or the current portion of capital leases. Any portion of long-term indebtednessobligations extending beyond one yeardue within the year. Short-term loans from a bank or notes payable within a year.

The reliance on short-term liabilities and the type of current liabilities depends, in part, on the industry in which the firm operates.

Long term liabilities

Long-term liabilities are obligations that must be paid over a period beyond one year. They include notes, bonds, capital lease obligations, and pension obligations. Notes and bonds both represent loans on which the borrower promises to pay interest periodically and to repay the principal amount of the loan. A lease obligates the lesseethe one leasing and using the leased assetto pay specified rental payments for a period of time. Whether the lease obligation is
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recorded as a liability or is expensed as lease payments made depends on whether the lease is a capital lease or an operating lease. A companys pension and post-retirement benefit obligations may give rise to longterm liabilities. The pension benefits are commitments by the company to pay specific retirement benefits, whereas post-retirement benefits include any other retirement benefit besides pensions, such as health care. Basically, if the fair value of the pension plans assets exceeds the projected benefit obligation (the estimated present value of projected pension costs), the difference is recorded as a long-term asset. If, on the other hand, the plans assets are less than the projected benefit obligation, the difference is recorded as a long-term liability. In a similar manner, the company may have an asset or a liability corresponding to post-retirement benefits

INCOME STATEMENT
An income statement is a summary of the revenues and expenses of a business over a period of time, usually one month, three months, or one year. This statement is also referred to as the profit and loss statement. It shows the results of the firms operating and financing decisions during that time. The operating decisions of the companythose that apply to production and marketinggenerate sales or revenues and incur the cost of goods sold (also referred to as the cost of sales or the cost of products sold). The difference between sales and cost of goods sold is gross profit. Operating decisions also result in administrative and general expenses, such as advertising fees and office salaries. Deducting these expenses from gross profit leaves operating profit, which is also referred to as earnings before interest and taxes (EBIT),

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operating income, or operating earnings. Operating decisions take the firm from sales to EBIT on the income statement. The results of financing decisions are reflected in the remainder of the income statement. When interest expenses and taxes, which are both influenced by financing decisions, are subtracted from EBIT, the result is net income. Net income is, in a sense, the amount available to owners of the firm. If the firm has preferred stock, the preferred stock dividends are deducted from net income to arrive at earnings available to common shareholders. If the firm does not have preferred stock (as is the case with Fictitious and most non fictitious corporations), net income is equivalent to earnings available for common shareholders. The board of directors may then distribute all or part of this as common stock dividends, retaining the remainder to help finance the firm. Companies must report comprehensive income prominently within their financial statements. Comprehensive income is a net income amount that includes all revenues, expenses, gains, and losses items and is based on the idea that all results of the firmwhether operating or non operating should be reflected in the earnings of the company. This is referred to as the all-inclusive income concept. The allinclusive income concept requires that these items be recognized in the financial statements as part of comprehensive income. It is important to note that net income does not represent the actual cash flow from operations and financing. Rather, it is a summary of operating performance measured over a given time period, using specific accounting procedures. Depending on these accounting procedures, net income may or may not correspond to cash flow.

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CASH FLOW STATEMENT:

It is a statement, which measures inflows and outflows of cash on account of any type of business activity. The cash flow statement also explains reasons for such inflows and outflows of cash so it is a report on a company's cash flow activities, particularly its operating, investing and financing activities.

Balance sheet of IOCL

AS ON ASSETS GROSS BLOCK NET BLOCK INTANGIBLE ASSET CAPITAL WIP INVESTMENT DISMANTLED CAPITAL ASSET CURRENT ASSET INVENTORIES DEBTORS CASH AND BANK BALANCE OTHER CURRENT ASSET LOAN AND ADVANCES MISCELLANEOUS EXPENDITURE BALANCE SHEET TOTAL LIABILITIES SHAREHOLDERS FUNDS EQUITY SHARE CAPITAL RESERVE AND SURPLUS LOAN FUNDS DEFERRED TAX LIABILITIES CURRENT LIABILITIES OTHER CURRENT LIABILITIES/PROV BALANCE SHEET TOTAL 2009-2010 (Rs.) in Cr. 71332.52 41132.99 448.08 21226.85 22370.25 41.78 36404.08 5799.28 1315.11 1141.50 14728.83 18.17 144627.02 2010-2011(Rs.) in Cr. 91698.31 57189.02 998.38 12620.44 19544.76 27.25 49284.52 8869.65 1294.42 1206.03 22666.56 15.15 173716.18

2427.95 48124.98 44566.25 4756.11 34480.17 10271.56 144627.02

2427.95 52904.37 52733.87 6336.59 52549.94 6763.46 173716.18

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Profit & Loss Account AS ON NET SALES GROSS PROFIT(PBDT) OPERATING PROFIT(PBIDT) PBT PAT(NET PROFIT) Financial Analysis
Financial analysis is a tool of financial management. It consists of the evaluation of the financial condition and operating performance of a business firm, an industry, or even the economy, and the forecasting of its future condition and performance. It is, in other words, a means for examining risk and expected return. Data for financial analysis may come from other areas within the firm, such as marketing and production departments, from the firms own accounting data, or from financial information vendors such as Bloomberg Financial Markets, Moodys Investors Service, Standard & Poors Corporation, Fitch Ratings, and Value Line, as well as from government publications, such as the Federal Reserve Bulletin. Financial publications such as Business Week, Forbes, Fortune, and the Wall Street Journal also publish financial data (concerning individual firms) and economic data (concerning industries, markets, and economies), much of which is now also available on the Internet. Within the firm, financial analysis may be used not only to evaluate the performance of the firm, but also its divisions or departments and its product lines. Analyses may be performed both periodically and as needed, not only to ensure informed investing

2009-10 (Rs.) in Cr. 249271 18872 14308.14 14106.09 10220.55

2010-11 (Rs.) in Cr. 302954 16336 10597.81 9095.86 7445.48

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and financing decisions, but also as an aid in implementing personnel policies and rewards systems. Outside the firm, financial analysis may be used to determine the creditworthiness of a new customer, to evaluate the ability of a supplier to hold to the conditions of a long-term contract, and to evaluate the market performance of competitors. Firms and investors that do not have the expertise, the time, or the resources to perform financial analysis on their own may purchase analyses from companies that specialize in providing this service. Such companies can provide reports ranging from detailed written analyses to simple creditworthiness ratings for businesses.

FINANCIAL RATIO ANALYSIS

Ratio analysis is such a significant technique for financial analysis. It indicates relation of two mathematical expressions and the relationship between two or more things. Financial ratio is a ratio of selected values on an enterprise's financial statement. There are many standard ratios used to evaluate the overall financial condition of a corporation or other organization. Financial ratios are used by managers within a firm, by current and potential stockholders of a firm, and by a firms creditor. Financial analysts use financial ratios to compare the strengths and weaknesses in various companies. Values used in calculating financial ratios are taken from balance sheet, income statement and the cash flow of company, besides Ratios are always expressed as a decimal values, such as 0.10, or the equivalent percent value, such as 10%.

Essence of ratio analysis:

Financial ratio analysis helps us to understand how profitable a business is, if it has enough money to pay debts and we can even tell whether its shareholders could be happy or not. Financial ratios allow for comparisons: 1. between companies
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2. between industries 3. between different time periods for one company 4. between a single company and its industry average To evaluate the performance of one firm, its current ratios will be compared with its past ratios. When financial ratios over a period of time are compared, it is called time series or trend analysis. It gives an indication of changes and reflects whether the firms financial performance has improved or deteriorated or remained the same over that period of time. It is not the simply changes that has to be determined, but more importantly it must be recognized that why those ratios have changed. Because those changes might be result of changes in the accounting polices without material change in the firms performances. Another method is to compare ratios of one firm with another firm in the same industry at the same point in time. This comparison is known as the cross sectional analysis. It might be more useful to select some competitors which have similar operations and compare their ratios with the firms. This comparison shows the relative financial position and performance of the firm. Since it is so easy to find the financial statements of similar firms through publications or Medias this type of analysis can be performed so easily. To determine the financial condition and performance of a firm, its ratios may be compared with average ratios of the industry to which the firm belongs. This method is known as the industry analysis that helps to ascertain the financial standing and capability of the firm in the industry to which it belongs. Industry ratios are important standards in view of the fact that each industry has its own characteristics, which influence the financial and operating relationships. But there are certain practical difficulties for this method. First finding average ratios for the industries is such a headache and difficult. Second, industries include companies of weak and strong so the averages include them also. Sometimes spread may be so wide that the average may be little

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utility. Third, the average may be meaningless and the comparison not possible if the firms with in the same industry widely differ in their accounting policies and practices. However if it can be standardized and extremely strong and extremely weak firms be eliminated then the industry ratios will be very useful.

Classification of ratios
A financial ratio can give a financial analyst an excellent picture of a company's situation and the trends that are developing. A ratio gains utility by comparison to other data and standards. Financial ratios quantify many aspects of a business and are an integral part of financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Although these categories are not fixed in all over the world however there are almost the same, just with different names: 1. Profitability ratios which use margin analysis and show the return on sales and capital employed. 2. Liquidity ratios measure the availability of cash to pay debt, which give a picture of a company's short term financial situation. 3. Solvency or Gearing ratios measures the percentage of capital employed that is financed by debt and long term finance. Traditionally, the higher the level of gearing, the higher the level of financial risk due to the increase volatility of profits. 4. Turn over Ratios or activity group ratios indicate efficiency of organization to various kinds of assets by converting them to the form of sales. 5. Investors ratios usually interested by investors. 6. Coverage ratios indicate the ability of a firm to pay off the outsiders obligations. Coverage ratios are important financial ratios from the view point of the long term creditors and lenders.

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Ratios of IOCL
Liquidity ratios The two liquidity ratios, the current ratio and the acid test ratio, are the most important ratios in almost the whole of ratio analysis and they are also the simplest to use. Liquidity ratios provide information about a firms ability to meet its short- term financial obligations. They are of particular interest to those extending short term credit to the firm. Two frequently-used liquidity ratios are current and quick ratio. While liquidity ratios are most helpful for short-term creditors/suppliers and bankers, they are also important to financial managers who must meet obligations to suppliers of credit and various government agencies. 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. A complete liquidity ratio analysis can help uncover weaknesses in the financial position of the business. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. 1. CURRENT RATIO: The ratio is mainly used to give an idea of the companys 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 in each year suggests that the company would be able to pay off its obligations if they came due at that point, but the company has shown constant decreasing trend in its financial health in subsequent years, Since low current ratio does not necessarily mean that the firm will go

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bankrupt, but it is definitely is not a good sign. Short term creditors prefer a high current ratio since it reduce their risk.

Particulars

2009-10

2010-11

Current assets(Rs.) (cr.) Current liabilities(Rs.) (cr.) Current ratio

59388.80 44751.13 1.32

83321.18 59313.40 1.40

Current Ratio
1.45

1.4

1.35 Current Ratio 1.3

1.25

1.2 2010 2011

Comments : Though the current ratio increased gradually during the year 2010-11, it is low & unsatisfactory. The ratio can be improved by paying off liabilities and avoiding interest, financing long term operations using more of equity and less of cash.

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2. Quick or Acid-Test Ratio The essence of this ratio is a test that indicates whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. So it is the backing available to liabilities that must be paid almost immediately. Liquid asset is all current assets except the inventories and prepaid expenses, because prepaid expenses cannot be converted to cash. The liquid liabilities include all current liabilities except bank overdraft and cash credit since they are not required to be paid off immediately.

Particulars

2009-10

2010-11

Liquid assets(Rs.) (cr.) Liquid liabilities(Rs.) (cr.) Current ratio

22984.72 44751.13 0.51

34036.66 59313.40 0.57

Quick Ratio
0.58 0.56 0.54 0.52 0.5 0.48 0.46 0.44 0.42 0.4 2009-10 2010-11 Quick Ratio

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Comments: The low quick ratio (less than 1) depicts that company is in a week liquid position. To improve the ratio company should generate more cash through business and finance its operations through long term sources of finance. Emphasis should be laid on strategies to keep liquidity high by maintaining cash flows. TURN OVER RATIOS Accounting ratios that measure a firm's ability to convert different accounts within their balance sheets into cash or sales are called turnover ratios. Companies will typically try to turn their production into cash or sales as fast as possible because this will generally lead to higher revenues. Such ratios are frequently used when performing fundamental analysis on different companies. 1. FIXED ASSETS TURN OVER RATIO: It shows how the company uses its fixed assets to achieve sales. The formula is as follows:

Particulars

2009-10

2010-11

Net sales (Rs.) (in cr.) Fixed assets (Rs.) (in cr.) Fixed asset turnover ratio

249271 41132 6.06

302954 57189.02 5.29

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fixed asset turnover ratio

6.5

5.5 fixed asset turnover ratio 5

4.5

4 2009-10 2010-11

Comments: The ratio has shown decline but is close to the ideal value of 5 which places the company in a good position and depicts efficient utilization of the assets. To maintain this ratio the company should invest using long term finance options in fixed assets and keep a balance by getting rid of unused assets.

2. CURRENT ASSETS TURN OVER RATIO: It is almost like the fixed asset turnover ratio, it calculates the capability of organization to earn sales with usage of current assets. So it indicates with what ratio current assets are turned over in the form of sales. This ratio is calculated as:

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Particulars

2009-10

2010-11

Net sales (Rs.) (in cr.) Current assets (Rs.) (in cr.) Current asset turnover ratio

249271 59388.80 4.19

302954 83321.18 3.64

current asset turnover ratio

4.4 4.2 4 3.8 3.6 3.4 3.2 3 2.8 2009-10 2010-11 current asset turnover ratio

Comments: It depicts the ability of the firm to generate revenue from its assets and a decline in it is not favourable. Though the current assets of the company have also increased but the sales havent increased proportionately which results in a low ratio. 3. WORKING CAPITAL TURNOVER RATIO: It is the relationship between turnover and working capital. It is 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. A company uses working capital to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company. The working capital
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turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. The formula related is:

Particulars

2009-10

2010-11

Net sales (Rs.) (in cr.) Working capital (Rs.) (in cr.) Working capital turnover ratio

249271 14637

302954 24008

17.03

12.62

working capital turnover ratio

18 16 14 12 10 8 6 4 2 0 2009-10 2010-11 working capital turnover ratio

Comments: It is the very important ratio because it depicts how efficiently the funds have been applied. The working capital is the operating liquidity of the company and it increased

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by 65% but the revenues increased by only 20%. The company should take note of it and formulate future strategies accordingly. 4. Capital Employed Turnover Ratio The capital employed turnover ratio tells us the state of the relationship between the shareholders' investment in the business and the sales that the management of the business has been able to generate from it.

Particulars

2009-10

2010-11

Net sales (Rs.) (in cr.) Capital employed (Rs.) (in cr.) Capital employed turnover ratio

249271 78140.24 0.31

302954 100741.78 0.33

capital employed turnover ratio

0.34 0.33 0.32 0.31 0.3 0.29 0.28 0.27 0.26 0.25 2009-10 2010-11 capital employed turnover ratio

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Comments: The turnover ratio shows a minor increase of only 6% though the capital employed increased by about 38%. This employs that the revenues did not increase as anticipated resulting in a very small improvement in the ratio. SOLVENCY OR GEARING RATIOS: Gearing is concerned with the relationship between the long terms liabilities that a business has and its capital employed. The idea is that this relationship ought to be in balance. It is a general term describing a financial ratio that compares some form of owner's equity (or capital) to borrowed funds. The shareholders and lenders of long term loans may be interested in this ratio.

1. Debt Equity ratio: This ratio reflects the relative claims of creditors and share holders against the assets of the firm, debt equity ratios establishment relationship between borrowed funds and owner capital to measure the long term financial solvency of the firm. The ratio indicates the relative proportions of debt and equity in financing the assets of the firm. It is calculated as

Particulars

2009-10

2010-11

Debt (Rs.) (in cr.) Shareholders fund (Rs.) (in cr.) Debt equity ratio

44566 50552.93

52734 55332.32

0.88

0.95

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The debts side consist of all long term liabilities of the firm. The shareholders fund is the share capital plus reserve and surplus.

Debt-Equity Ratio
0.96 0.94 0.92 0.9 0.88 0.86 0.84 0.82 0.8 2009-10 2010-11 Debt-Equity Ratio

Comments: The debt equity ratio of the firm is less than ideal or desired ratio. Though the ratio puts its creditors at lesser risk but raising more funds through debt will help in financing long term projects of the company and reduce burden on the cash and reserves of the company. This ratio is influenced by the nature and business of the company depending on which the financial structure of the company & its sources are decided.

2. Proprietary ratio: It is primarily the ratio between the proprietors funds and total assets. It indicates the relationship between owners fund and total assets. And shows the extent to which the owners funds are sunk in assets or different kinds of it.

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Particulars Proprietors fund (Rs.) (in cr.) Total assets (Rs.) (in cr.) Proprietary ratio

2009-10

2010-11

50552.93

55332.32

144627.02 0.35

173716.18 0.32

Proprietary Ratio
0.36 0.34 0.32 0.3 0.28 0.26 0.24 0.22 0.2 2009-10 2010-11 Proprietary Ratio

Comments: It is an indicator for the company creditors who can ascertain the proportion of shareholders funds in the total assets employed in the firm. A high ratio ensures safety of the creditors. The company is in a weak position in this concern because its ratio is less than acceptable value of 0.5 and has declined further. PROFITABILITY RATIO As the name itself suggests, this ratio is calculated to determine profitability of the firm. The basic objective of almost every business is to earn profit which is essential for survival of the business.
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A business needs profits not only for its existence but also for its expansion and diversification. The investors want an adequate return on their investments, workers want higher wages, creditors want higher security for interest and loan and the list could continue. It is 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.

1. GROSS PROFIT RATIO: The gross profit margin ratio tells us the profit a business makes on its cost of sales. It is a very simple idea and it tells us how much gross profit our business is earning. Gross profit is the profit we earn before we take off any administration costs, selling costs and so on. So we should have a much higher gross profit margin than net profit margin. High ratios are favourable in this, since it indicates the business is earning a good return on the sale of its merchandise.

Particulars

2009-10

2010-11

Gross profit (Rs.) (in cr.) Net sales (Rs.) (in cr.) Gross profit ratio (%)

18872 249271 7.5

16336 302954 5.3

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Gross Profit Ratio

8 7 6 5 4 3 2 1 0 2009-10 2010-11 Gross Profit Ratio

Comments: This gives an idea of the profitability of the company and better ratio indicates a better position of the company. But the ratio declined for the year 2010-11. Though there was an increase in the revenue, the fall in the ratio may be attributed to an increase in the cost of raw materials.

2. NET PROFIT RATIO: This shows the portion of sales available to owners after all expenses. A high profit ratio is higher profitability of the firm. This ratio shows the earning left for shareholder as percentage of Net sales. Net Margin Ratio measures the overall efficiency of production, Administration selling, financing, pricing and Taste Management.

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Particulars

2009-10

2010-11

Net profit (Rs.) (in cr.) Net sales (Rs.) (in cr.) Net profit ratio (%)

10220.55 271074 3.7

7445.48 3028744 2.2

Net Profit Ratio

4 3.5 3 2.5 2 1.5 1 0.5 0 2009-10 2010-11 Net Profit Ratio

Comments: The net profit is an important figure in the statements of a company because it is the major determining factor for the EPS. The ratio shows a decline though the sales increased but the profit made by the company declined. The decline in the net profit may be attributed to the fact that the company follows an Administered Price Mechanism

3. OPERATING NET PROFIT RATIO: This ratio establishes the relation between the net sales and the operating net profit. The concept of operating net profit is different from the concept of net profit, operating net profit is the profit arising out of business operations only. This is calculated as follows: Operating net profit = Net Profit + Non operating expenses non operating income.
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Alternatively, this profit can also be calculated by deducting only operating expenses from the gross profit. This ratio is calculated with help of the following formula,

Particulars Operating net profit (Rs.) (in cr.) Net sales (Rs.) (in cr.) Operating NP ratio (%)

2009-10 14308.14

2010-11 10597.81

271074 5.2

302954 3.5

Operating Profit Ratio

6 5 4 3 2 1 0 2009-10 2010-11

Operating Profit Ratio

Comments: The operating profit is determined by the business operations of the company which are determined by companys business policies and nature of business. The profit shows a decline though the revenues increased because administered price mechanism that the company follows has lowered the profit margin.

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INVESTORS RATIOS 1. EARNINGS PER SHARE: EPS measures the profit earned per share. The higher EPS will attract more investors to acquire shares in the company as it indicates that the business is more profitable enough to pay the dividends in time. So it is of utmost importance to investors in order to decide the prospects. It is calculated as:

Particulars

2009-10

2010-11

Earnings attributable (Rs.) (in cr.) Number outstanding equity shares (Rs.) (in cr.) EPS

10220.55

7445.48

2427952482

2427952482

42.10

30.67

Earning Per Share

45 40 35 30 25 20 15 10 5 0 2009-10 2010-11 Earning Per Share

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NOTE: The Company issued bonus shares to all its shareholders in the ratio 1:1 which increased its shares to 2427952482 from 1213976241 which also increased share capital. This required the company to recast its books and EPS for the year 2008-09. Comments: The earnings per share of the company declined though the sales increased. This is the one of the most important criteria to Measure Companys performance and decline in it affects the market price of company shares.

2. DIVIDEND PAYOUT RATIO EPS described above indicates the amount of profit available for equity share shareholders. Dividend Payout Ratio indicates the percentage of profit distributed as dividends to the shareholders. It measures the relationship between the earning belonging to the equity shareholders and the amount finally paid to them: It is calculated as:

Particulars

2009-10

2010-11

Dividend per share (Rs.) (in cr.) EPS (Rs.) (in cr.) Dividend payout ratio (%)

13

9.5

42.10 30.8

30.67 30.9

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Dividend Payout Ratio

30.95 30.9 30.85 30.8 30.75 30.7 30.65 2009-10 2010-11 Dividend Payout Ratio

Comments: The Company has maintained a good dividend payout ratio of more than 30% which is considered ideal by the investors. It confirms the constant dividend payout policy of the company for its shareholders. COVERAGE RATIO Coverage ratio indicates the ability of a firm to pay off the outsiders obligations. These ratios are important financial ratios from the view point of the long term creditors and lenders. It is because the ratios speak of the ability of the firm to pay off the obligations of creditors and lenders. On the basis of the ratios, the creditors or lenders take a decision on whether to extend credit or loan or whatever kind of financial support to the firm or not. 1. INTEREST SERVICE COVERAGE RATIO Interest service coverage ratio (ISCR) essentially calculates the capacity of a borrower to repay the interest on borrowings. ISCR is a tool for financial institutions to judge the capacity of a borrower to repay the interest on the loan. Is calculated as,

Page | 67

Particulars

2009-10

2010-11

PBT+ Interest+ depreciation (Rs.) (in cr.) Interest (Rs.) (in cr.) ISCR

19556.58

14661.98

2223.35 8.8

2988.11 5.5

ISCR
10 9 8 7 6 5 4 3 2 1 0 2009-10 2010-11 ISCR

Comments: This ratio represents the interest paying capability of the company which is declining. Though the ratio depicts that the company is in a good position to make its interest payments because it is more than ideal value but a further decline in the ratio will not be favourable. 2. DEBT SERVICE COVERAGE RATIO Debt service coverage ratio (DSCR) essentially calculates the repayment capacity of a borrower. Debt Service Coverage ratio is calculated in order to know the cash profit availability to repay the debt including interest. It is very important from the view point of the financing authority as it indicates repaying capability of the entity taking loan.
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It may be calculated as,

Particulars

2009-10

2010-11

PAT+ Interest+ depreciation (Rs.) (in cr.) Interest+ Principal (Rs.) (in cr.) DSCR

15671.04

14980.26

4341.04 3.61

5256.23 2.85

DSCR
4 3.5 3 2.5 2 1.5 1 0.5 0 2009-10 2010-11 DSCR

Comments: The position of the company depicted by this ratio places it in a strong position to make payments of its loans easily. This is advantageous for the company if it wishes to raise more funds through borrowings.

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Summary of ratios
2009-10 Current ratio Quick ratio Fixed asset turnover ratio Current asset turnover ratio Capital employed turnover ratio Working capital turnover ratio Debt-equity ratio Proprietary ratio Gross profit ratio Operating profit ratio Net profit ratio Earnings per share Dividend payout ratio Interest service coverage ratio Debt service coverage ratio 1.32 0.51 6.06 4.19 17.03 0.31 0.88 0.35 7.5 5.2 3.7 42.10 30.8 8.8 3.61 2010-11 1.40 0.57 5.29 3.64 12.63 0.33 0.95 0.32 5.3 3.5 2.2 30.67 30.9 5.5 2.85

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BIBLIOGRAPHY
Annual Reports of Indian oil corporation: 2009-10 to 2010-11 IOCL Manual Financial Management by Brigham and Houston Financial Management by IM Pandey Management Accounting by Shashi Gupta & R.K Sharma Financial Management by Prasanna Chandra Basic Financial Management by MY Khan

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