Volume 2, Number 3, July September 2013

ISSN (P):2279-0896, (O):2279-090X

FINANCIAL PERFORMANCE OF RELIANCE INDUSTRIES LIMITED

Anusha Agarwal19 ABSTRACT An economy is the backbone of every country. To carry its business operation each enterprise needs finance to carry on its business operation. Therefore, we can say that finance is the lifeblood of the business. Finance is base for every kind of business activity. In the competitive world, every enterprise tried to compete and because of globalization, they do their operation better than the others so that they are able to survive in this globalize world. Therefore, the management of finance plays an important role for the success of an organization. For this, the financial status of every organization plays a dominant role, which can be studied through the financial statements. This paper will study the financial performance of Reliance Industries Limited. After this study, we can come to know the financial position of the company in last ten years. KEYWORDS Financial Performance, Globalization, Financial Statement, Position etc. INTRODUCTION Financial analysis is the selection, evaluation and interpretation of financial data, along with other pertinent information, to assist in investment and financial decision-making. One of the most fundamental facts about businesses is that the operating performance of the firm shapes its financial structure. It is also true that the financial situation of the firm can also determine its operating performance. The financial statements are therefore important diagnostic tools for the informed manager. As we, are aware the finance is the base for every business activities. Therefore, it is essential to analyze the financial performance of the company with their financial statement. Against their background, a study was conducted about the financial performance of Reliance Industries limited in this research paper. COMPANY PROFILE Reliance Industries Ltd (RIL), the countrys highest valued company, is on the way to becoming the number one retailer in India, seven years after it diversified into this sector from its mainstay of refining and the petrochemicals business. The Reliance Group, founded by Dhirubhai H. Ambani (1932-2002), is India's largest private sector enterprise, with businesses in the energy and materials value chain. Group's annual revenues are in excess of US$ 66 billion. The flagship company, Reliance Industries Limited, is a Fortune Global 500 company and is the largest private sector company in India. Backward vertical integration has been the cornerstone of the evolution and growth of Reliance. Starting with textiles in the late seventies, Reliance pursued a strategy of backward vertical integration - in polyester, fibre intermediates, plastics, petrochemicals, petroleum refining and oil and gas exploration and production - to be fully integrated along the materials and energy value chain. The Group's activities span exploration and production of oil and gas, petroleum refining and marketing, petrochemicals (polyester, fibre intermediates, plastics and chemicals), textiles, retail, infotel and special economic zones. Reliance enjoys global leadership in its businesses, being the largest polyester yarn and fibre producer in the world and among the top five to ten producers in the world in major petrochemical products. Major Group Companies are Reliance Industries Limited, including its subsidiaries and Reliance Industrial Infrastructure Limited. LITERATURE REVIEW Dr. Sanjay J. Bhayani has written a book Practical Financial Statement Analysis published by Raj book Enterprise the study covered 18 cement companies for the period from 1990-91 to 1996-97. He studied analysis of activity and analysis of financial structure. He made several suggestions for the strenghethening the financial soundness. Mr. Ramesh H. Davada has written a research paper Social Performance through Value Added Report ing An Empirical Study of Reliance Industries Ltd. published by Research Expo International Multidisciplinary Research Journal in June 2012. He studied the concept of Value Added Reporting, to evaluate performance of the Reliance Industries limited with value added accounting and finally to study intra firm comparison of last seven years performance. Nandi (2011) attempted to examine the influence of working capital management on corporate profitability. For assessing impact of working capital management on profitability of National Thermal Power Corporation Ltd. during the period of 10 years i.e., from 1999-2000 to 2008-09. Pearsons coefficient of correlation and multiple regression analysis between some ratios relating to
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Assistant Professor, I.T.S., Uttar Pradesh, India, anushaagarwal@its.edu.in 573 | P a g e

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ISSN (P):2279-0896, (O):2279-090X

working capital management and the impact measure relating to profitability ratio (ROI) had been computed and applied. An attempt had been undertaken for measuring the sensitivity of return of investment (ROI) to changes in the level of working capital leverage (WCL) of the studying company. Mallick and Sur (1998) attempted to analyze the impact of working capital management on profitability in Indian Tea industry with the help of some statistical tools and techniques. The study revealed that, out of the nine ratios relating to working capital management five ratios registered positive association and the remaining four ratios showed negative correlation with the profitability indicator. Rao & Rao (1999) undertook a similar type of study where ten ratios relating to working capital management were selected. Out of these indicators, positive association was noticed only in three. Edward J. Riedl, Suraj Srinivasen (2007) has written a research paper on Signaling Firm Performance through Financial Statement Presentation: An analysis using special items, they attempted to investigate whether presentation of special items within the financial statements reflects the firm is underlying economic performance or opportunism. They either examine the presentation of recognized special items as a separate line item on the income statement or aggregated within another line item with disclosure only in the footnotes. Our study is motivated by standard-setting interest in performance reporting and financial statement presentation, as well as prior research investigating managers presentation choices in other contexts. Professor Richard G.P. McMahon has written a paper on Business growth, performance, and the financial reporting practices of Australian. This paper describes an exploratory study of the impact of financial reporting practices upon business growth and performance outcomes amongst small and medium-sized enterprises (SMEs) engaged in manufacturing in Australia. The study is able to establish some statistically significant bivariate associations between the extent and frequency of financial reporting undertaken and certain measures of SME growth and performance. OBJECTIVES OF STUDY The objectives of the study are as follows: To analyze the Liquidity position of the Reliance Industries Ltd. To know the profitability position of the Reliance Industries Ltd. To analyze the Long term solvency position of the Reliance Industries Ltd. To find out the degree of association between liquidity and profitability, being two key determinants of financial performance, of the company under study.

HYPOTHESIS OF STUDY The selection of the topic is made with a view to evaluate the overall financial performance of Reliance Industries Limited. The following hypotheses are formulated in order to test their validity. Ho1: There is negative relationship between liquidity position and Return on Capital Employed Ho2: There is negative relationship between profitability position and Return on Capital Employed Ho3: There is negative relationship between long-term solvency position and Return on long-term funds.

RESEARCH METHODOLOGY The study has been carried out by adopting the proper methodology: Data: Secondary data has been used for the study. The data has been collected from website, newspapers, business magazines and journals. Type of Data: Time series data of Reliance Industries Limited have been taken from the annual report of the company for the study in this paper. The data is been extracted from capital line. Period of study: Data has been collected from April 2004 until March 2013. Sample size: 10 years. Type of research: This research is exploratory in nature. Tools used: To test the hypothesis, Ratio Analysis, Correlation Analysis and T-test is applied. T= r (N-2) (1-r2) Test applied: T Test

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Volume 2, Number 3, July September 2013 Where, t r N = test of significance = rank coefficient of correlation = No. of pairs of observation

ISSN (P):2279-0896, (O):2279-090X

T Test is applied at 5% and 1% level of significance. The degree of freedom is (n-2). DATA ANALYSIS & INTERPRETATION Table-1: Correlation Analysis between the Selected Ratios Relating to Liquidity Position and Return on Capital Employed of Reliance Industries Limited for the Period from 2003-04 to 2012-13 Inventory Turnover Ratio 8.8 10.87 9.6 10.65 10.57 12.92 8.29 9.59 10.42 8.69 0.11 Debtors Turnover Ratio 16.82 18.52 19.99 28.29 26.87 26.29 23.67 17.05 18.4 23.78 0.07 Fixed Assets Turnover Ratio 0.97 1.2 0.96 1.13 1.29 1.01 1.24 1.58 2.05 2.24 (0.38) Total Assets Turnover Ratio 0.99 1.17 1.21 1.26 1.15 0.79 1.48 1.66 1.91 2.04 (0.29) Return on Capital employed 13.51 18.26 17.37 18 15.68 10.96 11.35 12.6 12.18 12.5

Year Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Correlation ( r ) Calculated value of \t\ with (n-2) d. f. 2.11 1.07 0.32 0.20 1.17 0.85 Sources: Annual Report of Reliance Industries Limited Note: Tabulated value of t with (n-2) d .f. i.e., 8 d. f. both at 5% and 1% levels of significance for both tailed tests are 2.31 and 3.36 respectively. The calculated value of \t\ of the correlation coefficient is lower than the tabulated values of t both at 5% and 1% levels of significance so, the correlation coefficients are not statistically significant both at 5% and 1% levels of significance. Since the computed value is less than the table value the null hypothesis (Ho) is to be accepted which states that there is a negative relationship liquidity position and Return on Capital Employed and alternative hypothesis (H1) is rejected. Table-2: Correlation Analysis between Selected Ratios Relating to Profitability Condition and Return on Capital Employed of Reliance Industries Limited for the Period from 2003-04 to 2012-13 Gross Profit Net Profit Operating Profit Return on Capital Year (%) (%) Ratio (%) Employed Mar-04 12.11 10.65 18.54 13.51 Mar-05 13.54 8.35 19.28 18.26 Mar-06 13.67 8.08 17.87 17.37 Mar-07 13.95 5.99 18.26 18 Mar-08 13.14 5.7 16.76 15.68 Mar-09 13.35 9.79 17.01 10.96 Mar-10 10.13 11.25 15.6 11.35 Mar-11 9.76 11.13 15.24 12.6 Mar-12 6.8 10.64 10.25 12.18 Mar-13 5.91 14.45 8.54 12.5 Correlation ( r ) 0.61 (0.72) 0.56 Calculated value of \t\ with (n-2) d. f. 2.80 4.18 2.27 Sources: Annual Report of Reliance Industries Limited Note: (i) Tabulated value of t with (n-2) d .f. i.e., 8 d. f. both at 5% and 1% levels of significance for both tailed tests are 2.31 and 3.36 respectively. Since, the calculated value of \t\ of the correlation coefficient between ROCE and Operating Profit Ratio is lower than the tabulated value of t at 5% level of significance, so the correlation coefficient between ROCE and ITR is not statistically significant at 5% level of significance. Except this, in all other cases, the calculated values of \t\ are higher than the tabulated

Current Ratio 0.98 1.07 0.83 0.77 0.98 1.06 1.04 1.16 1.44 1.43 (0.60)

Quick Ratio 0.92 0.97 0.67 0.69 0.89 0.87 0.69 0.94 1.17 1.12 (0.35)

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ISSN (P):2279-0896, (O):2279-090X

values of t at 5%, so the correlation coefficients are statistically significant both at 5% levels of significance. Since the computed value is more than the table value the null hypothesis (Ho) is to be rejected which states that there is a positive relationship between profitability position and Return on Capital Employed and alternative hypothesis (H1) is accepted. Table-3: Correlation Analysis between the Selected Ratios Relating to Long Term Solvency Position of the Company and Return on Long Terms Funds of Reliance Industries Limited for period from 2003-04 To 2012-13 Debt Equity Long Term Debt Interest Total Debt to Return on Long YEAR Ratio Equity Ratio Cover Owners Fund term funds Mar-04 0.66 0.5 4.96 0.66 14.99 Mar-05 0.5 0.41 7.02 0.5 19.44 Mar-06 0.48 0.37 13.28 0.48 18.88 Mar-07 0.45 0.32 13.51 0.45 19.83 Mar-08 0.46 0.35 17.05 0.46 17.18 Mar-09 0.65 0.59 11.85 0.65 11.34 Mar-10 0.49 0.44 10.97 0.49 11.71 Mar-11 0.46 0.38 11.66 0.46 13.37 Mar-12 0.36 0.3 10.12 0.36 12.78 Mar-13 0.3 0.24 9.66 0.3 13.14 Correlation ( r ) (0.04) (0.27) 0.17 (0.04) Calculated value of \t\ with (n-2) d. f. 0.11 0.83 0.49 0.11 Sources: Annual Report of Reliance Industries Limited Note: (i) Tabulated value of t with (n-2) d .f. i.e., 8 d. f. both at 5% and 1% levels of significance for both tailed tests are 2.31 and 3.36 respectively. The calculated value of \t\ of the correlation coefficient is lower than the tabulated values of t both at 5% and 1% levels of significance so, the correlation coefficients are not statistically significant both at 5% and 1% levels of significance. Since the computed value is less than the table value the null hypothesis (Ho) is to be accepted, which states that there is a negative relationship between long-term solvency position and Return on long-term funds and alternative hypothesis (H1) is rejected. FINDINGS The calculated value of the correlation coefficient between current ratio and ROCE is (-) 0.60. It signifies that there is moderately negative association between these two variables and this relationship is statistically insignificant at both 5% and 1% level of significance. Therefore, we conclude that there is negative relationship between Current ratio and ROCE. The calculated value of the correlation coefficient between Quick Ratio and ROCE is (-).35. It signifies that there is moderately negative association between these two variables and this relationship is statistically insignificant at both 5% and 1% level of significance. Therefore, we conclude that there is negative relationship between Quick ratio and ROCE. The calculated value of the correlation coefficient between Inventory Turnover Ratio and ROCE is .11 It signifies that there is moderately positive association between these two variables but this relationship is statistically insignificant at both 5% and 1% level of significance. Therefore, we conclude that there is negative relationship between Inventory Turnover Ratio and ROCE. The calculated value of the correlation coefficient between Debtors Turnover Ratio and ROCE is .07. It signifies that there is moderately positive association between these two variables but this relationship is statistically insignificant at both 5% and 1% level of significance. Therefore, we conclude that there is negative relationship between Debtors Turnover Ratio and ROCE. The calculated value of the correlation coefficient between Fixed Assets Turnover Ratio and ROCE is .38 It signifies that there is moderately positive association between these two variables but this relationship is statistically insignificant at both 5% and 1% level of significance. Therefore, we conclude that there is negative relationship between Fixed Assets Turnover Ratio and ROCE. The calculated value of correlation coefficient between Total Assets Turnover Ratio and ROCE is (-).29. It signifies that there is moderately negative association between these two variables and this relationship is statistically insignificant at both 5% and 1% level of significance. Therefore, we conclude that there is negative relationship between Total Assets Turnover Ratio and ROCE. The calculated value of correlation coefficient between Gross Profit Ratio and ROCE is .61 It signifies that there is moderately positive association between these two variables and this relationship is statistically significant at both 5% and 1% level of significance. Therefore, we conclude that there is positive relationship between Gross Profit Ratio and ROCE. The calculated value of the correlation coefficient between Net Profit Ratio and ROCE is (-).72. It signifies that there is moderately negative association between these two variables and this relationship is statistically significant at both 5% and 1% level of significance. Therefore, we conclude that there is positive relationship between Net Profit Ratio and ROCE.

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The calculated value of the correlation coefficient between Operating Profit Ratio and ROCE is .56 It signifies that there is moderately positive association between these two variables and this relationship is statistically insignificant at both 5% and 1% level of significance. Therefore, we conclude that there is negative relationship between Operating Profit Ratio and ROCE. The calculated value of the correlation coefficient between Debt Equity Ratio and RLTF is (-).04. It signifies that there is moderately negative association between these two variables and this relationship is statistically insignificant at both 5% and 1% level of significance. Therefore, we conclude that there is negative relationship between Debt Equity Ratio and RLTF. The calculated value of correlation coefficient between Long Term Debt Equity Ratio and RLTF is (-).27. It signifies that there is moderately negative association between these two variables and this relationship is statistically insignificant at both 5% and 1% level of significance. Therefore, we conclude that there is negative relationship between Long Term Debt Equity Ratio and RLTF. The calculated value of the correlation coefficient between Interest Cover Ratio and RLTF is .17. It signifies that there is moderately positive association between these two variables and this relationship is statistically insignificant at both 5% and 1% level of significance. Therefore, we conclude that there is negative relationship between Interest Cover Ratio and RLTF. The calculated value of the correlation coefficient between Total Debt to Owners Fund and RLTF is (-).04. It signifies that there is moderately negative association between these two variables and this relationship is statistically insignificant at both 5% and 1% level of significance. Therefore, we conclude that there is negative relationship between Debt Equity Ratio and RLTF. CONCLUSION After data, analysis certain interpretations had been done related to financial performance of Reliance Industries Limited taking into consideration the three broad areas i.e. liquidity, profitability and long-term solvency position. Taking these areas into consideration, finally we can conclude that there is negative association between the liquidity position and return on capital employed. There is positive association between profitability condition and return on capital employed and finally there is negative association between solvency condition and return on long-term funds. From 2004-11 the company was in very risky situation as they were not able to meet out the liquid assets but from 2011 with the combined efforts, the liquidity position improved. The companys profitability condition had improved and it is best in 2013. The financial obligations were paid prop erly after 2011. Besides this, the company should not stop formulating adequate policies to keep a well-monitored performance for better profitability, reliability & consistency. REFERENCES 1. 2. 3. 4. 5. 6. 7. 8. 9. Brockwell, P., & Davis, R. (2001). Time Series: Theory and Methods. New York. Springer-Verlag. Duda, R., Hart, P., & Stork, D. (2000). Pattern Classification (2nd ed.). Wiley-Interscience. Bernstein, L. A., & Wild, J. J. (2004). Analysis of Financial Statements. New Delhi: Tata Mcgraw Hill Publishing Company Limited, pp. 111-150. Khan, M. Y., & Jain, P. K. (2005). Financial Management-Text, Problems and Cases. New Delhi: Tata McGraw Hill Publishing Company Limited, pp. 7.1-7.66. Foster, G. (2002). Financial Statement Analysis. Delhi: Pearson Education (Singapore) Private Limited, pp. 57-93. Pandey, I. M. (2004). Financial Management. New Delhi: Vikash Publishing House Private Limited, pp. 517-540. Bhaduri, Horne, & Wachowicz, Jr. Fundamentals of Financial Management (2th ed.). Pearson Education. Nair, Sauja R. Marketing Research (1st ed.). Himalaya Publishing House. Retrieved from www.ril.com/html/aboutus/aboutus.html

10. Retrieved from www.moneycontrol.com>MARKETS>SHAREPRICE>REFINERIES 11. Retrieved from http://Researchjournals.in/documents/published/2236.pdffinancial 12. Retrieved from http://www.office.microsoft.com/en-in/excel-help/ttest-HP005209325.aspx 13. Retrieved from www.gifted.uconn.edu/siegle/research/correlation/excel.htm 14. Retrieved from http://www.hbs.edu/faculty/Publication%20Files/09-031_14dc7ae0-dbdd-47c5-868f-dbbaa8605360.pdf 15. Retrieved from www.flinders.edu.au/socsci/business/research/papers/98-7.doc

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