Anda di halaman 1dari 49

Financial Analysis of Indian IOCL

1
FINANCIAL STATEMENT ANALYSIS
OF
INDIAN OIL CORPORATION LTD

SUBMITTED TO
PROF.SAROJ ROUTRAY

SUBMITTED BY
Manish Kumar (135)
Sipra Routaray (143)
Nirupama Ghosh Dastidar(153)

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

ACKNOWLEDGEMENT 2

At the outset we express our most sincere grateful acknowledgement


to the holy sanctum “KIIT school of management” the temple of
learning, for giving us an opportunity to pursue the management course
thus help shaping our career.

We also wish to express our deep sense of gratitude to our


PROJECT GUIDE Prof. S. K. Routray , for his continuous and tireless
support and advice not only during the course of our project but also
during the period of our stay in “KIIT school of management”.

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

Contents 3
 Acknowledgement

 Overview of IOCL

 Vision, mission and values

 Objectives

 Financial analysis
- Liquidity ratios
- Solvency ratios
- Profitability ratios
- Market based ratios
- Activity ratios

 Bibliography

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

EXECUTIVE SUMMARY 4

The basic objective of our project was to undertake a detailed financial


statements analysis of Indian Oil Corporation Ltd. from the financial year 2006-
2007 and 2007-2008 using the annual report of the company for the period besides
the data from the database of Centre for Monitoring Indian Economy. To get a
better idea about the trend in the company we did the analysis for 3 years i.e. 2005-
2006 to 2007-2008. This includes studying the financial position of the company to
analysis the performance besides determining the EBIT & EPS Analysis and also
the Economic Value Analysis of the Indian Oil Corporation Ltd . In this project
we have discussed regarding various Liquidity Ratios, Solvency Ratios,
Profitability Ratios, Activity ratios, market capitalization ratios of the company
over a period of three financial years ranging from 2005 to 2008.

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

OVERVIEW OF INDIAN OIL CORPORATION 5


Indian Oil Corporation is an Indian public-sector petroleum company. It is India’s
largest commercial enterprise, ranking 116th on the Fortune Global 500 listing
(2008). It began operation in 1959 as Indian Oil Company Ltd. The Indian Oil
Corporation was formed in 1964, with the merger of Indian Refineries Ltd. Indian
Oil and its subsidiaries account for a 47% share in the petroleum products market,
40% share in refining capacity and 67% downstream sector pipelines capacity in
India. The Indian Oil Group of Companies owns and operates 10 of India's 19
refineries with a combined refining capacity of 60.2 million metric tons per year.

Indian Oil operates the largest and the widest network of fuel stations in the
country, numbering about 17606 (15557 regular ROs & 2049 Kissan Sewa
Kendra). It has also started Auto LPG Dispensing Stations (ALDS). It reaches
Indane cooking gas to over 47.5 million households through a network of 4,990
Indian distributors.

In addition, Indian Oil's Research and Development Center (R&D) at Faridabad


supports, develops and provides the necessary technology solutions to the
operating divisions of the corporation and its customers within the country and
abroad.

Subsequently, Indian Oil Technologies Limited - a wholly owned subsidiary, was


set up in 2003, with a vision to market the technologies developed at IndianOil's
Research and Development Center. It has been modeled on the R&D marketing
arms of Royal Dutch Shell and British Petroleum.

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

Vision, Mission & Values 6

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

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 maximise 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.

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL
Values - Values we nurture
7
Care - stands for

 Concern
 Empathy
 Understanding
 Cooperation
 Empowerment

Innovation - stands for

 Creativity
 Ability to learn
 Flexibility
 Change

Passion - stands for

 Commitment
 Dedication
 Pride
 Inspiration
 Ownership
 Zeal & Zest

Trust - stands for

 Delivered Promises
 Reliability
 Dependability

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL
 Integrity
8
 Truthfulness
 Transparency

Objectives of IOCL

• 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
and 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 in laying 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 optimise utilisation of refining capacity and maximize distillate
yield and gross refining margin.
• To maximise utilisation of the existing facilities for improving
efficiency and increasing productivity.

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

• To minimise fuel consumption and hydrocarbon loss in refineries


9
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 India’s policy of liberalization
and reforms.
• 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.

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 Corporation’s business.

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

• To reduce the cost of production of petroleum products by means


10
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.

Shareholding in Indian Oil

Shareholding
FIIs
Others
Public 1% 16%
3%

Promoters
80%

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

11
Share Holding %age

Promoters 80.35

Public 2.73

FIIs 1.37

Others 15.55

Expanding Horizons
Indian Oil is currently metamorphosing from a pure sectoral company with
dominance in downstream in India to a vertically integrated, transnational energy
behemoth. The Corporation is already on the way to becoming a major player in
petrochemicals by integrating its core refining business with petrochemical
activities, besides making large investments in E&P and import/marketing ventures
for oil&gas in India and abroad.

Besides two refining subsidiaries, Chennai Petroleum Corporation Ltd. and


Bongaigaon Refinery& Petrochemicals Ltd., subsidiaries are operational in Sri
Lanka, Mauritius, and UAE.

With a vision to evolve into a major technology provider through excellence in


management of knowledge and innovation, Indian Oil has launched Indian Oil
Technology Ltd. to market the intellectual properties developed by Indian Oil's
R&D Centre

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL
Market Share of various Companies in this sector in December 2008
12
(in ’000 tonnes)

%age Dec-08

IOCL 30.98 4167

BPCL 11.76 1582

HPCL 9.76 1313

RIL 21.62 2908

ESSAR 8.00 1076

OTHERS 17.88 2405

Total 13451

Market Share

OTHERS
18% IOCL
31%
ESSAR
8%

RIL
21% BPCL
12%
HPCL
10%

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

Awards and Accolades 13


 Business Super brand 2008
 3rd most valuable company in India
 BML Munjal Award 2009 for Excellence in Learning & Development
 World Petroleum Congress Excellence Award 2008
 2nd amongst the India’s Top 50 Most Valuable Brands
 ‘Most Admired Retailer-Rural’ in 2008

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

FINANCIAL ANALYSIS 14

This is defined as the relationship, or proportion that one amount bears to


another. A ratio may be expressed in percentage in which the base, is taken as
equal to 100 and the quotient is expressed as per hundred of the base. Financial
ratios express relationship between two figures or two groups of figures which are
related to each other.

Liquidity Ratios
These are the indicators of the ability of the company to convert its assets
into cash or to obtain cash to meet short term obligations.

 Working Capital

Working capital is a widely used measure of liquidity. This is given by the


following:-
Working Capital = Current Assets – Current Liabilities

It is important as a measure of liquid assets that provide safety cushion to


creditors. It is also important to measure the liquid reserve available to meet
contingencies and uncertainties in a company’s cash inflows.
Working capital is a double edged sword. Companies need working capital
to effectively operate yet working capital is costly as it must be financed and can
entail other operating costs such as credit losses and storage and logistics costs.

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

15
Trend Analysis :

2005-2006 2006-2007 2007-2008

CA 46962.96 48699.65 67270.45

CL 33598.62 36729.43 44387.72

WORKING 13364.34 11970.22 22882.73


CAPITAL

As can be observed, working capital has decreased in 2006-07 but in 2007-08


working capital has increased and it is due to the increase in current assets . Current
liabilities have also shown an increase. However that has been offset by the
increase in the current assets.

 Current Ratio
It is calculated as
Current Ratio = Current Assets / Current Liabilities
Standard Norm: 2:1

Relevance:
• Current Liability coverage: Higher the current ratio, greater is the assurance we
have that current liabilities will be paid.

• Buffer against losses: Current Ratio shows the margin of safety available to
cover shrinkage in non cash current asset values when ultimately disposing off or
liquidating them.

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL
• Reserve of liquid funds: It is the measure of margin of safety against
16
uncertainties and random shocks to the company’s cash flows.

Limitations:
It is static measure of resources available at a point in time to meet the current
obligations. The current reservoir of cash does not have a logical or causal relation
to its future cash flows. These cash flows depend on factor excluded from the ratio
i.e sales, expenditure, cash, profits.

2005-2006 2006-2007 2007-2008

CA 46962.96 48699.65 67270.45

CL 33598.62 36729.43 44387.72

CURRENT 1.3978 1.3259 1.5155


RATIO

Liquid Ratio
It is calculated as follows
Liquid Ratio = Liquid assets / Liquid liabilities
Standard Norm: 1:1
A more stringent test of the liquidity uses the Liquidity ratio, also known as the
Quick or the Acid Test Ratio which includes the assets most quickly convertible to
cash. This is a better test of liquidity as it handles issues of window dressing.

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

2005-2006 2006-2007 2007-2008


17

Liquid Asset 18323.23 19709.93 30049.38

Liquid Liability 33598.62 36729.43 44387.72

LIQUID RATIO 0.545 0.537 0.677

 Absolute Liquid Ratio:


It is calculated as
Absolute Liquid Ratio = Absolute Liquid assets / Absolute Liquid Liabilities

2005-2006 2006-2007 2007-2008

Absolute Liquid 1052.85 1076.73 1060.22


Asset
Absolute Liquid 33598.62 36729.43 44387.72
Liablity
ABSOLUTE 0.031 0.029 0.024
LIQUID RATIO

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL
Trend Analysis:
18
2005-2006 2006-2007 2007-2008

Current ratio 1.3978 1.3259 1.5155

Liquid ratio 0.545 0.537 0.677

Absolute liquid 0.031 0.029 0.024


ratio

As can be observed, the liquidity ratios have been increasing over the years. This
can be mainly attributed to the increase in the current assets over the last 3 years.
The current assets have seen a jump by 43% in the last 3 years. Even though the
current liabilities have gone up by 32%, this increase has been adjusted by the huge
increase in the current assets to give increasing liquidity over the years.

2005-2006 2006-2007 2007-2008

46962.96 48699.65 67270.45


CURRENT ASSETS

33598.62 36729.43 44387.72


CURRENT
LIABILITIES

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

Liquidity Ratios 19

1.6000

1.4000

1.2000

1.0000
CURRENT RATIO
0.8000
LIQUID RATIO
0.6000
ABSOLUTE LIQUID
RATIO
0.4000

0.2000

0.0000
2005-2006 2006-2007 2007-2008

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

Solvency Ratios 20
 Debt Equity Ratio:
It is a measure of a company's financial leverage calculated by dividing its
total liabilities by stockholders' equity. It indicates what proportion of equity and
debt the company is using to finance its assets.
DER = LTL / Shareholder's Equity
A high debt/equity ratio generally means that a company has been
aggressive in financing its growth with debt. This can result in volatile earnings as
a result of the additional interest expense.
If a lot of debt is used to finance increased operations (high debt to equity),
the company could potentially generate more earnings than it would have without
this outside financing. If this were to increase earnings by a greater amount than
the debt cost (interest), then the shareholders benefit as more earnings are being
spread among the same amount of shareholders. However, the cost of this debt
financing may outweigh the return that the company generates on the debt through
investment and business activities and become too much for the company to
handle. This can lead to bankruptcy which would leave shareholders with nothing.
The debt/equity ratio also depends on the industry in which the company operates.

2005-2006 2006-2007 2007-2008


DEBT 30063 29473.22 38818.52

SHAREHOLDERS 30640.94 36544.27 43619.52


FUND

DEBT-Equity Ratio 0.981 0.807 0.890

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

 Debt Ratio: 21

It is a ratio that indicates what proportion of debt a company has relative to its
assets. The measure gives an idea to the leverage of the company along with the
potential risks the company faces in terms of its debt-load.

Debt Ratio = Total Debt / Total Assets

A debt ratio of greater than 1 indicates that a company has more debt than assets,
meanwhile, a debt ratio of less than 1 indicates that a company has more assets
than debt. Used in conjunction with other measures of financial health, the debt
ratio can help investors determine a company's level of risk.

2005-2006 2006-2007 2007-2008

DEBT 30063 29473.22 38818.52

TOTAL ASSETS 101556.51 110504.36 135139.31

DEBT RATIO 0.296 0.267 0.287

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

 Equity Ratio:
22
Total assets divided by shareholder equity. Asset/equity ratio is often used as a
measure of leverage

Equity Ratio = Net worth / Total Assets

2005-2006 2006-2007 2007-2008

NET WORTH 30640.94 36544.27 43619.52

TOTAL ASSETS 101556.51 110504.36 135139.31

EQUITY RATIO 0.302 0.331 0.323

 Interest Coverage Ratios:


The interest coverage ratio is a measurement of the number of times a company
could make its interest payments with its earnings before interest and taxes; the
lower the ratio, the higher the company’s debt burden.
ICR = EBIT / Total Interest Expense

2005-2006 2006-2007 2007-2008

EBIT 8545.2 13353.82 14291.66

INTEREST 1252.77 1743.01 1803.9

INT. COVERAGE 6.821 7.661 7.923


RATIO

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

 Debt Capital Employed Ratio: 23

It is calculated as

Debt capital Employed Ratio = Debt / Capital Employed

2005-2006 2006-2007 2007-2008

DEBT 30063 29473.22 38818.52

CAPITAL 60703.94 66017.49 82438.04


EMPLOYED
Debt-Total Capital 0.495 0.446 0.471
Ratio

Trend Analysis :

2005-2006 2006-2007 2007-2008

Debt-Total Asset 0.296 0.267 0.287


Ratio

Debt Equity Ratio 0.981 0.807 0.890

Equity Ratio 0.302 0.331 0.323

Interest Coverage 6.821 7.661 7.923


Ratio

Debt Ratio 0.495 0.446 0.471

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL
As can we observed the debt ratio has first decreased and then increased.
24
This is responsible for the trend of the Debt Equity Ratio. The equity ratio has
increased over the years implies that the net worth of the company as part of total
assets has increased.
The interest coverage ratio has increased 16% in the selected period. This
increase in the ICR can be attributed to the 67% increase in EBIT which is more
than the increase in interest rate (44% increase).

Solvency ratios
1.000
0.900
0.800
0.700
0.600
DEBT EQUITY RATIO
0.500
DEBT-CAPITAL EMPLOYED
0.400 RATIO
0.300 DEBT TOTAL ASSET RATIO

0.200
0.100
0.000
2005-2006 2006-2007 2007-2008

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

Profitability Ratios 25

The profitability ratios give an indication of the ability of the company to generate
profits.

 Profit Margin Ratios:


The profit margin ratios state how much profit the company makes for every
dollar of sales. The net profit margin ratio is the most commonly used profit
margin ratio.
A low profit margin ratio indicates that low amount of earnings, required to
pay fixed costs and profits, are generated from revenues. A low profit margin ratio
indicates that the business is unable to control its production costs.
The profit margin ratio provides clues to the company's pricing, cost
structure and production efficiency. The profit margin ratio is a good ratio to
benchmark against competitors.

 Net Profit Margin Ratio (PAT to Sales):

Net Profit Margin Ratio (After Tax Margin Ratio) = Net profit after tax / sales.

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

26
2005-2006 2006-2007 2007-2008

PAT (Rs. Crore) 5115.14 8178.44 8549.64

SALES (Rs. 192668.86 228938.27 259207.14


Crore)

NET PROFIT 0.027 0.036 0.033


MARGIN RATIO

 Operating Profit Margin (PBIT to Sales ):

Operating Profit Margin (Operating Margin)


= Net Income before Interest and Taxes / Sales

2005-2006 2006-2007 2007-2008


8545.2 13353.82 14291.66
PBIT (Rs. Crore)
SALES (Rs. Crore) 192668.86 228938.27 259207.14

OPERATING 0.044 0.058 0.055


PROFIT MARGIN

 Gross Profit Margin Ratio :

Gross Profit Ratio = Gross Profit / Net Sales

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

27
The gross profit ratio is primarily a test of the efficiency of purchases and sales
management. No ideal standard is fixed for this ratio, but the gross profit ratio
must be adequate.

2005-2006 2006-2007 2007-2008

GROSS PROFIT 9931 14339 14622

SALES 192668.86 228938.27 259207.14

GROSS PROFIT 0.052 0.063 0.056


MARG IN RATIO

Trend Analysis :

2005-2006 2006-2007 2007-2008

Net Profit Margin 2.7 3.6 3.3


(%age)

Operating Profit 4.4 5.8 5.5


Margin (%age)

Gross Profit 5.2 6.3 5.6


Margin (%age)

As can we observed, the Net Profit Margin Ratio and the Operating Profit Margin
Ratio have both increased over the years. While the former has shown a 22%

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL
increase, the later has shown a 25% increase. The gross profit margin also has
28
increased 7.6% which is a factor for increase in profit margins.

Capital Market Analysis


700

600

500

400
Axis Title

Market price per share


Book Value per share
300
Net Worth per share

200

100

0
2005-2006 2006-2007 2007-2008

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

Return on Investment 29

The ROI is perhaps the most important ratio of all. It is the percentage of return on
funds invested in the business by its owners. In short, this ratio tells the owner
whether or not all the effort put into the business has been worthwhile. If the ROI
is less than the rate of return on an alternative, risk-free investment such as a bank
savings account, the owner may be wiser to sell the company, put the money in
such a savings instrument, and avoid the daily struggles of small business
management. The ROI can be calculated in three ways:
Return on Investment = Return on Net worth
= Return on Capital Employed
= Return on Total Assets
Return on invested capital is an important indicator of a company’s long term
financial strength. It uses key summary features from both the income statement
and the balance sheet to assess profitability. It can effectively convey the return on
invested capital from varying perspectives of different financing contributors.

Return on Net worth (RONW)


Net after Tax Profit divided by Net Worth, this is the 'final measure' of
profitability to evaluate overall return. This ratio measures return relative to
investment in the company. So to say Return on Net Worth indicates how well a
company leverages the investment in it. It may appear higher for startups and sole
proprietorships due to owner
compensation draws accounted as net profit.
RONW = PAT / Net Worth

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

2005-2006 2006-2007 2007-2008


30
PROFIT AFTER TAX 5115.14 8178.44 8549.64

NET WORTH 30063 36544.27 43619.52

RETURNS ON NET WORTH 0.170 0.224 0.234

Return on Capital Employed (ROCE)


It is a ratio that indicates the efficiency and profitability of a company's capital
investments. It is calculated as:
ROCE = Profit Before Interest and Taxation / Capital Employed
ROCE should ideally be higher than the rate at which the company borrows,
otherwise any increase in borrowing will reduce shareholders' earnings.

2005-2006 2006-2007 2007-2008


Profit before int. & 8545.2 13353.82 14291.66
taxes (Rs. Crore)
Capital employed 60703.94 66017.49 82438.04
Return on capital 0.141 0.202 0.173
employed

Return on Total Assets (ROTA)


It is a measure of how effectively a company uses its assets. It is calculated by
ROTA = (Income before interest and tax) / (Fixed Assets + Current Assets).

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL
It is also an indicator of how profitable a company is relative to its total assets and
31
how efficient management is at using its assets to generate earnings.

2005-2006 2006-2007 2007-2008

Profit before interest & 8545.2 13353.82 14291.66


taxes
Total assets 101556.51 110504.36 135139.31

Return on total assets 0.084 0.121 0.106

Analysis of Return on Investment


We can see from above tables that overall Return on investments has been
dwindling . Though Return on Net Worth has been increasing over a period of
three years but Return on capital employed & Return on total assets increased in
the year 2006-07 but declined in the year 2007-2008. This can be attributed to the
fact, decline in Earning per share.
Return on Net Worth increased by 31.76% in 2006-07 but there was a substantial
decrease in the growth rate. In 2007-08 it only increased by 4%. Return on capital
employed & return on total assets increased by 43.26% & 44% respectively but
there was a sudden decline in these ratios in the year 2007-08 (14% decline in
ROCE & 12% decline in ROTA) basically due to rise in price of crude petroleum
oil.

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL
Earning per share
32
Companies often use a weighted average of shares outstanding over the reporting
term. EPS can be calculated for the previous year ("trailing EPS"), for the current
year ("current EPS"), or for the coming year ("forward EPS"). Note that last year's
EPS would be actual, while current year and forward year EPS would be estimates.
It is EPS = Total Earnings / Number of shares outstanding.
2005-2006 2006-2007 2007-2008

EPS -14.32 -66.52 -100.93

EARNING PER SHARE


0
2005-2006 2006-2007 2007-2008

-20

-40
Axis Title

-60
EARNING PER SHARE

-80

-100

-120
Year

ANALYSIS
EPS has been constantly & drasticly declining. The basic cause of this is constant
rise in price of crude petroleum in the world market . Sales & cost of production
both are increasing simultaneously , which has led to constant declining in EPS.

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

Market Based Ratios 33


Price Earning Ratio
It is a valuation ratio of a company's current share price compared to its per-
share earnings. EPS is usually from the last four quarters (trailing P/E), but
sometimes it can be taken from the estimates of earnings expected in the next four
quarters (projected or forward P/E). A third variation uses the sum of the last two
actual quarters and the estimates of the next two quarters. It is also known as "price
multiple" or "earnings multiple". In general, a high P/E suggests that investors are
expecting higher earnings growth in the future compared to companies with a
lower P/E.
P/E Ratio = Market Value per share / Earnings per share
PE Ratio over the Years
2005-2006 2006-2007 2007-2008
Market price per 584.15 399.6 445.6
share (Rs.)
Earning Per Share -14.32 -66.52 -100.93
Price earning Ratio -40.79 -6.01 -4.41

Note –EPS has been for this taken directly from the CMIE database.
19
Analysis
Though the PE ratio is negative but it is increasing due to the reason that Market
price per share is increasing & it is negative because the EPS is negative. PE ratio
in the year 2007-08 has increased by 36.28% due to the rise in market price per
share.
an

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

34
PRICE EARNING RATIO
0.00
-5.00 2005-06 2006-07 2007-08

-10.00
-15.00
-20.00
PRICE EARNING RATIO
-25.00
-30.00
-35.00
-40.00
-45.00

2002005 2003-24
Market Capitalization
Market capitalization indicates the public’s opinion of the company’s net worth. It
is a determining factor in stock evaluation. It is calculated as follows:
Market Capitalization = Market Value * No of Shares

2005-2006 2006-2007 2007-2008

Market price per 584.15 399.6 445.6


share
No.of shares 1168012200 1168012200 1192374306

Market 68229.43266 46673.76751 53132.19908


capitalisation (Rs.
Crores)

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL
Market Capitalization to Net Worth
35
This is a ratio of market capitalization to net worth of the company. This indicates
how much of the market capitalization is driven by the shareholder’s fund. It is
expressed as follows:

Market Capitalization to Net worth = Market Capitalization / Net worth

2005-2006 2006-2007 2007-2008


Market capitalisation in 68229.43266 46673.76751 53132.19908
crores
Networth 30640.94 36544.27 43619.52
Market capitalisation to 2.227 1.277 1.218
Networth

Market to book Ratio

2005-2006 2006-2007 2007-2008

Market price 584.15 399.6 445.6

Book value of 250.88 302.22 344.58


shares
Market to book 2.328 1.322 1.293
value

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

Activity Ratios 36
Debtor turnover ratio

Debtors turnover ratio indicates the relation between net credit sales and average
accounts receivables of the year. This ratio is also known as Debtors’ Velocity.

Debtors Turnover Ratio = Net Credit Sales/Average Accounts Receivables


Average Accounts Receivables = [Opening Debtors and B/R + Closing Debtors
and B/R]/2
Credit Sales = Total Sales – Cash Sales

Objective and Significance: This ratio indicates the efficiency of the concern to
collect the amount due from debtors. It determines the efficiency with which the
trade debtors are managed. Higher the ratio, better it is as it proves that the debts
are being collected very quickly.

Debtor Days
A ratio used to work out how many days on average it takes a company to get paid
for what it sells. It is calculated by dividing the figure for trade debtors shown in its
accounts by its sales, and then multiplying by 365.

Debtor days = (debtors ÷ Sales) ×365


This indicates whether debtors are being allowed excessive credit. A high figure
(more than the industry average) may suggest general problems with debt
collection or the financial position of major customers.

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

37
2005-2006 2006-2007 2007-2008

Sales (Rs. Crore) 192668.86 228938.27 259207.14

Average debtors 10685.16 11662.78 16461.09


(Rs.Crore)
Debtors Turnover 18.03144361 19.62981982 15.74665712
ratio
Debtor days 19.96512358 18.33944495 22.86199524

Objective and Significance: This ratio indicates how quickly and efficiently the
debts are collected. The shorter the period the better it is and longer the period
more the chances of bad debts. Although no standard period is prescribed
anywhere, it depends on the nature of the industry.
Analysis
With the increase in overall sales the credit sales of the company is also rising
which results in increase in average debtors.The increase in average debtors lead
to increase in debtor turnover ratio.

Creditors' Turnover Ratio

CTR =Net credit prchases/Average payables(creditor + BP)

Net credit purchases = total purchases – cash purchases – purchase return


Creditor Days
A ratio used to work out how many days on average it takes a company to pay its

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL
creditors. It is calculated by dividing the trade creditors shown in its accounts by its
38
cost of sales, or sales, and then multiplying by 365
Creditor Days = (Creditors / Sales ) * 365
Lengthening creditor days may mean that a company is heading for financial
problems as it is failing to pay creditors, on the other hand it may mean that a
company is simply getting better at getting good credit terms out of its suppliers
(improving its working capital management), or that its pattern of purchasing has
changed.

2005-2006 2006-2007 2007-2008

Purchases 84985.45 99462.67 112741.54

Average Creditors 13473.46 14708.76 18019.23

Creditors turnover 6.30761883 6.762138345 6.256734611


ratio
Creditors day 57.07383558 53.23759758 57.53800063

Fixed Assets Turnover Ratio:


Fixed assets turnover ratio establishes a relationship between net sales and
net fixed assets. This ratio indicates how well the fixed assets are being utilised.

Fixed Assets Turnover Ratio = Net Sales/Net Fixed Assets

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL
In case Net Sales are not given in the question cost of goods sold may also be used
39
in place of net sales. Net fixed assets are considered cost less depreciation.

Objective and Significance: This ratio expresses the number to times the fixed
assets are being turned over in a stated period. It measures the efficiency with
which fixed assets are employed. A high ratio means a high rate of efficiency of
utilisation of fixed asset and low ratio means improper use of the assets.

2005-2006 2006-2007 2007-2008


Sales (Rs.Crore) 192668.86 228938.27 259207.14

Fixed assets (Rs. Crore) 41949.98 42329.94 46970.47

Fixed assets turnover 4.592823644 5.408424156 5.518512802

Fixed assets turnover is increasing due to implementation high technology


machineries for exploration of oil refineries.

Total Assets turnover Ratio


Total assets turnover ratio establishes relationship between sales and total assets.
Total assets turnover ratio = sales/total assets

2005-2006 2006-2007 2007-2008


Total Asset turnover ratio
Sales 192668.86 228938.27 259207.14
Total Asset 101556.51 110504.36 135139.31
Total Asset turnover ratio 1.897159128 2.071757802 1.918073579

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL
Current asset turnover ratio
40

Current Asset turnover ratio


Sales 192668.86 228938.27 259207.14

Current Asset 46962.96 48699.65 67270.45

Current Asset turnover ratio 4.102570622 4.701024956 3.853209544

Networth turnover ratio

Net worth turnover ratio


Sales 192668.86 228938.27 259207.14

Net Worth 30640.94 36544.27 43619.52

Net Worth turnover ratio 6.287955265 6.264683082 5.942457414

Capital Turnover Ratio:

Capital turnover ratio establishes a relationship between net sales and capital
employed. The ratio indicates the times by which the capital employed is used to
generate sales. It is calculated as follows: -

Capital Turnover Ratio = Net Sales/Capital Employed

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL
Where Net Sales = Sales – Sales Return
41
Capital Employed = Share Capital (Equity + Preference) + Reserves and Surplus +
Long-term Loans – Fictitious Assets.

Objective and Significance: The objective of capital turnover ratio is to calculate


how efficiently the capital invested in the business is being used and how many
times the capital is turned into sales. Higher the ratio, better the efficiency of
utilisation of capital and it would lead to higher profitability.

2005-2006 2006-2007 2007-2008

Sales 192668.86 228938.27 259207.14

Total Capital 60703.94 66017.49 82438.04

Total Capital turnover ratio 3.173910293 3.467842688 3.144266166

Gross fixed asset ratio


2005-2006 2006-2007 2007-2008
Sales 192668.86 228938.27 259207.14

Gross Fixed Asset 41949.98 42329.94 46970.47

Gross Fixed Asset 4.592823644 5.408424156 5.518512802


turnover ratio

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

42
0.250

0.200

0.150
RETURNS ON NET WORTH
Return on CAPITAL EMPLOYED

0.100 RETURN ON TOTAL ASSET

0.050

0.000
2005-2006 2006-2007 2007-2008

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

Debtors/Creditors turnover Ratios 43

20

18

16

14

12
Debtors turnover
10 Creditors Turnover
8

0
2005-2006 2006-2007 2007-2008

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

ECONOMIC VALUE ADDED 44

EVA ANALYSIS
Particulars 2006-2007 2007-2008
BETA 0.376 0.468

NOPAT 7498.56 6961.66

NET WORTH 34857.29 41086.25


(Rs. Crore)

DEBT (Rs.Crore) 27077.88 35520.88

TOTAL CAP. 61935.17 76607.13


(Rs. Crore)

Cost of Equity 8.034 8.042

Cost of Debt 3.935 3.221

WACC 6.242 5.807

EVA (Rs. Crore) 3632.764 2513.412

Profit is the output of the GAAP driven accounting assumptions. One of the
important accounting assumptions is that the interest is treated as an expense,
whereas the dividend is treated as distribution of profit. Sometimes, such
KIIT SCHOOL OF MANAGEMENT
Financial Analysis of Indian IOCL
assumption result in situations where the company show the accounting profit but
45
may be destroying the wealth of the shareholders. To address such anomaly, the
concept of the residual profit (from the economics literature) has been made
popularized as Economic Value Added by Stern and Stewart EVA measures
whether the operating profit is enough compared to the total costs of capital
employed. Stewart defined EVA as Net operating profit after taxes (NOPAT)
subtracted with a capital charge.

Economic Value Added is calculated as follows:

• EVA = NOPAT – Capital Charge

• NOPAT = Net Operating Profit After Tax (before interest)

• Capital Charge = Cost of both Debt and Equity

• Capital Charge = WACC * CE

• Capital Charge = Ke*Capital + Kd*Debt

EVA = NOPAT - (Cost of Capital * Capital Employed)

Cost of capital = Cost of Equity x Proportion of equity from capital + Cost of debt
x Proportion of debt from capital x (1-tax rate)

Cost of capital or Weighted average cost of capital (WACC) is the average cost of
both equity capital and interest bearing debt. Cost of equity capital is the
KIIT SCHOOL OF MANAGEMENT
Financial Analysis of Indian IOCL
opportunity return from an investment with same risk as the company has. Cost of
46
equity is usually defined with Capital asset pricing model (CAPM). The estimation
of cost of debt is naturally more straightforward, since its cost is explicit. Cost of
debt includes also the tax shield due to tax allowance on interest expenses. The
idea behind EVA is that shareholders must earn a return that compensates the risk
taken. In other words equity capital has to earn at least same return as similarly
risky investments at equity markets. If that is not the case, then there is no real
profit made and actually the company operates at a loss from the viewpoint of
shareholders. On the other hand if EVA is zero, this should be treated as a
sufficient achievement because the shareholders have earned a return that
compensates the risk. This approach – using average risk-adjusted market return as
a minimum requirement - is justified since that average return is easily obtained
from diversified long-term investments on stock markets. Average long-term stock
market return reflects the average return that the company generate from their
operations.

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

EVA (Rs. Crore) 47


4000

3632.764
3500

3000

2500 2513.412

2000

1500

1000

500

0
2006-2007 2007-2008

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

Appendix
48
Executive Summary of the Company:-
Indian Oil Corpn. Ltd. Mar 2006 Mar 2007 Mar 2008
Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths
-
Total income 201908.8 244282.8 274659.63
Sales 199430.9 238498.4 270582.36
Income from financial services 1577.58 5193.82 3239.19

Total expenses 199593.8 236603.5 269656.06


Raw material expenses 74560.17 88482.51 101494.57
Power, fuel & water charges 335.06 415.3 498.76
Compensation to employees 1860.19 2620.86 2914.21
Indirect taxes 19351.37 22545.4 24196.34
Selling & distribution expenses 6040.23 7071.35 7637.44
Other operational exp. of indl. enterprises 24.25 40.31 50.25
Other oper. exp. of non-fin. service enterprises 0 0 0

PBDITA 9886.94 14617.69 14500.44


PBDTA 8916.67 13151.76 13038.99
PBT 6704.74 10448.02 10092.76
PAT 4914.36 7498.56 6961.66

Net worth 29302.67 34857.29 41086.25


Paid up equity capital (net of forfeited capital) 1168.01 1168.01 1192.37
Reserves & surplus 28134.66 33664.92 39893.88

Total borrowings 26403.72 27077.88 35520.88


Current liabilities & provisions 31511.84 34979.13 42251.7

Total assets 91897.74 102643.1 124776.91


Gross fixed assets 53305.23 59195.7 65966.92
Net fixed assets 34669.25 37764.52 41942.04
Investments 14526.39 19997.86 21546.28
Current assets 42382.32 44368.08 60624.06
Loans & advances 5.7 6.27 6.68

KIIT SCHOOL OF MANAGEMENT


Financial Analysis of Indian IOCL

49
Bibliography
 CMIE database

 www.iocl.com

 www.wikipedia.com

 Financial management by I.M.Pandey

 www.nseindia.com

KIIT SCHOOL OF MANAGEMENT