A COMPARATIVE STUDY OF DOWNSREAM

REFINERIES(IOC, HPCL, BPCL) THROUGH

FINANCIAL RATIO ANALYSIS WITH
SPECIAL REFERENCE TO INDIAN OIL
CORPORATION.

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CHAPTER – 1

introduction

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 INTRODUCTION

Financial Management is the specific area of finance dealing with

the financial decision corporations make, and the tools and analysis used to make
the decisions. The discipline as a whole may be divided between long-term and
short-term decisions and techniques. Both share the same goal of enhancing firm
value by ensuring that return on capital exceeds cost of capital, without taking
excessive financial risks.

Capital investment decisions comprise the long-term choices about

which projects receive investment, whether to finance that investment with equity
or debt, and when or whether to pay dividends to shareholders. Short-term
corporate finance decisions are called working capital management and deal with
balance of current assets and current liabilities by managing cash, inventories, and
short-term borrowings and lending (e.g., the credit terms extended to customers).

Corporate finance is closely related to managerial finance, which is

slightly broader in scope, describing the financial techniques available to all forms
of business enterprise, corporate or not.

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WHAT AREDOWNSTREAM REFINERIES ?

The petroleum industry is usually divided into three major

components: Upstream, midstream and downstream. Midstream operations are
usually included in the downstream category.
The downstream oil sector is a term commonly used to refer to
the refining of crudeoil, and the selling and distribution of naturalgas and products
derived from crude oil. Such products include liquefied
petroleumgas(LPG), gasolineorpetrol, jetfuel, diesel oil,
other fueloils,asphalt and petroleum coke.
The downstream sector includes oilrefineries[1], petrochemical plants, petroleum
product distribution, retail outlets and natural gas distribution companies. The
downstream industry touches consumers through thousands of products such as
petrol, diesel, jet fuel, heatingoil,
asphalt, lubricants, syntheticrubber, plastics, fertilizers, antifreeze, pesticides, phar
maceuticals, natural gas and propane.

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NEED FOR THE STUDY
1. The study has great significance and provides benefits to various
parties whom directly or indirectly interact with the company.

2. It is beneficial to management of the company by providing crystal

clear picture regarding important aspects like liquidity, leverage, activity and
profitability.

3. The study is also beneficial to employees and offers motivation by

showing how actively they are contributing for company’s growth.

4. The investors who are interested in investing in the company’s shares

will also get benefited by going through the study and can easily take a
decision whether to invest or not to invest in the company’s shares.

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OBJECTIVES OF THE PROJECT

The major objectives of the resent study are to know about financial
strengths and weakness of IOC, HPCL and BPCL through FINANCIAL RATIO
ANALYSIS.

The main objectives of resent study aimed as:

To evaluate and compare the performance of the companies by using

ratios as a yardstick to measure the efficiency of the companies. To understand the
liquidity, profitability and efficiency positions of the companies during the study
period. To evaluate and analyze various facts of the financial performance of the
[Link] make comparisons between the ratios during different periods.

OBJECTIVES

1. To study the present financial system at these three

downstream companies.

2. To determine the Profitability, Liquidity Ratios.

3. To analyze the capital structure of the companies with the

help of      Leverage ratio.

4. To offer appropriate suggestions for the better

performance of the organizations.

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RESEARCH METHODOLOGY.

Research is a systematic method of finding solutions to problems. It is

essentially an investigation, a recording and an analysis of evidence for the
purpose of gaining knowledge.

According to Clifford woody, “research comprises of defining and

redefining problem, formulating hypothesis or suggested solutions, collecting,
organizing and evaluating data, reaching conclusions, testing conclusions to
determine whether they fit the formulated hypothesis”

Methods of Data Collection: The information is collected through secondary

sources during the project. That information was utilized for calculating
performance evaluation and based on that, interpretations were made.

Sources of secondary data:

1. Most of the calculations are made on the financial statements of the

company provided statements.

2. Referring standard texts and referred books collected some of the

information regarding theoretical aspects.

3. Method- to assess the performance of he company method of

observation of the work in finance department in followed.

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Nature of Research: Descriptive research, also known as statistical research,
describes data and characteristics about the population or phenomenon being
studied. Descriptive research answers the questions who, what, where, when
and how. Although the data description is factual, accurate and
systematic, the research cannot describe what caused a situation. Thus,
descriptive research cannot be used to create a causal relationship, where one
variable affects another. In other words, descriptive research can be said to have a
low requirement for internal validity.

Variables of the Study: The direct variable of the study is the employee
[Link] variables are the incentives, interpersonal relations,
career development opportunities and performance appraisal system.

Presentation of Data: The data are presented through charts and tables.

Tools and Techniques for Analysis: Correlation is used to test the hypothesis and
draw inferences.

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LIMITATIONS

1. The study provides an insight into the financial, personnel, marketing

and other aspects of LANCO. Every study will be bound with certain
limitations.

2. The below mentioned are the constraints under which the study is
carried out.

3. One of the factors of the study was lack of availability of ample

information. Most of the information has been kept confidential and as
such as not assed as art of policy of company.

Time is an important limitation. The whole study was conducted in a

period of 60 days, which is not sufficient to carry out proper interpretation and
analysis.

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CHAPTER-2

COMPANY PROFILE

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 INDIAN OIL CORPORATION

COMPANY OVERVIEW

India’s Flagship National Oil Company, Incorporated as Indian Oil Company

Ltd. on 30th June 1959, it was renamed as Indian Oil Corporation Ltd. on 1st
September 1964 following the merger of Indian Refineries Ltd. (established
1958) with it. Indian Oil and its subsidiaries account for approximately 48%
petroleum products market share, 34% national refining capacity and 71%
downstream sector pipelines capacity in India.

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

refineries with a combined refining capacity of 60.2 million metric tones per
annum. These include two refineries of subsidiary Chennai Petroleum
Corporation Ltd. 

The Corporation's cross-country network of crude oil and product pipelines,

spanning over 10,550 km and the largest in the country, meets the vital energy
needs of the consumers in an efficient, economical and environment-friendly
manner. 

IndianOil is currently investing Rs. 47000 crore in augmentation of refining

and pipeline capacities, expansion of marketing infrastructure and product
quality upgradation.

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VISION OF IOC

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AWARDS AND RECOGNITION

 IndianOil yet again clinched the top slot among the seven Indian companies featured in
the Fortune 'Global 500' listing of the world's largest companies for 2008, improving its
ranking to 105.

 IndianOil was the only petroleum company among 100 other industrial giants to emerge
as 'The Most Trusted Fuel Pump Brand' in ET's Brand Equity annual survey for the year
2008. Among the 'Top 50 Service Brands' of the country, it bagged the 7th position.

 IndianOil received the coveted World Petroleum Congress Excellence Award 2008 at
Madrid, Spain, in the technical development category for its pathbreaking R&D work in
hydro-processing technology for Green Fuels.

 IndianOil won the SCOPE Gold Trophy for Environmental Excellence & Sustainable
Development and Commendation Certificate for Good Corporate Governance for the
year 2007-08.

KEY CHALLENGES OF IOC

• Ensure accounting of correct quantities in business transactions

• Ensure on-time update of end-product rates
• Prevent delays in signing of joint certificates (JCs)
• Prevent mismatch between JC and system quantities to prevent disputes in transactions
• Use correct valuation for transactions.

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 HINDUSTAN PETROLEUM CO. LIMITED
HPCL is a Fortune 500 company, with an annual turnover of  Rs. 1,08,599
Crores and sales/income from operations of Rs 1,14,889 Crores (US$ 25,306
Millions) during FY 2009-10, having about 20% Marketing share in India and a
strong market infrastructure. 

HPCL operates 2 major refineries producing a wide variety of petroleum fuels &
specialties, one in Mumbai (West Coast) of 6.5 Million Metric Tonnes Per
Annum(MMTPA) capacity and the other in Vishakapatnam, (East Coast) with a
capacity of7.5 MMTPA. HPCL holds an equity stake of 16.95% in Mangalore
Refinery & Petrochemicals Limited, a state-of-the-art refinery at Mangalore with a
capacity of 9 MMTPA. In addition, HPCL is constructing a refinery at Bhatinda, in
the state of Punjab, as a Joint venture with  Mittal Energy Investments Pte. Ltd. 

HPCL also owns and operates the largest Lube Refinery in the country producing
Lube Base Oils of international standards, with a capacity of 335 TMT. This Lube
Refinery accounts for over 40% of the India's total Lube Base Oil production.
HPCL's vast marketing network consists of 13 Zonal offices in major cities
and 101 Regional Offices facilitated by a Supply & Distribution infrastructure
comprising Terminals, Aviation Service Stations, LPG Bottling Plants, and Inland
Relay Depots & Retail Outlets, Lube and LPG Distributorships. HPCL, over the
years, has moved from strength to strength on all fronts. The refining capacity
steadily increased from 5.5 MMTPA in 1984/85 to 13 MMTPA presently. On the
financial front, the turnover grew from Rs. 2687 Crores in 1984-85 to an
impressive Rs 1,16,428Crores in FY 2008-09.

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MISSION AND VISSION OF HPCL

HPCL, along with its joint ventures, will be a fully integrated company in the
hydrocarbons sector of exploration and production, refining and marketing;
focusing on enhancement of productivity, quality and profitability; caring for
customers and employees; caring for environment protection and cultural
heritage. 

It will also attain scale dimensions by diversifying into other energy related fields
and by taking up transnational operations."

Our Vision

To be a World Class Energy Company known for caring and delighting the
customers with high quality products and innovative services across domestic and
international markets with aggressive growth and delivering superior financial
performance. The Company will be a model of excellence in meeting social
commitment, environment, health and safety norms and in employee welfare and
relations.

AWARDS AND RECOGNITION

 HPCL Wins CIO 100 Award for the fourth Time in a Row
 Enterprise Connect Award 2009
 SAIL HR Excellence Award
 Reader’s Digest ‘Trusted Brand Gold Award 2009’
 Golden Peacock Corporate Governance Award 2008
 National Award For Excellence In Cost Management

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 BHARAT PETROLEUM CORPORATION LIMITED

Bharat Petroleum Corporation Limited (BPCL) is engaged in the petroleum

industry in India. During the fiscal year ended March 31, 2009 (fiscal 2009), the
aggregate refinery throughput at BPCL’s Refineries at Mumbai and Kochi, along
with that of BPCL’s subsidiary company, Numaligarh Refinery Limited (NRL),
was 22.20 million metric tons (MMT). The Company is engaged in downstream
petroleum sector, which consists of refining and marketing activities. BPCL holds
61.65% interest in NRL as on March 31, 2009. Bharat PetroResources Limited
(BPRL), a 100% subsidiary of the Corporation, holds 50% equity in VB (Brazil)
Petroleo Private Ltda., a joint venture company. BPRL has participating interests
in nine exploration blocks. BPRL also has participating interests in five blocks in
the United Kingdom, Australia and Oman. Its subsidiaries include Bharat
PetroResources JPDA Limited, BPRL International BV, BPRL Ventures BV and
BPRL Ventures Mozambique BV.

VISION OF THE COMPANY

 We are a leading energy company with global presence through sustained

aggressive growth and high profitability
 We are the first choice of customers, always
 We exploit profitability growth opportunity outside energy
 We are the most environment friendly company
 We are a great organisation to work for
 We are a learning organisation
 We are a model corporate entity with social responsibility.

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AWARDS AND RECOGNITIONS

 BPCL IN THE FORTUNE 2009 GLOBAL 500 LIST

 BPCL recognized as ‘Business Superbrand 2008’!
 BPCL Wins Asian CSR Award 2008
 BPC Lifts Marketing Company of the Year Award

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 RATIO ANALYSIS
FINANCIAL ANALYSIS

Financial analysis is the process of identifying the financial strengths

and weaknesses of the firm and establishing relationship between the items of the
balance sheet and profit & loss account.

Financial ratio analysis is the calculation and comparison of ratios,

which are derived from the information in a company’s financial statements. The
level and historical trends of these ratios can be used to make inferences about a
company’s financial condition, its operations and attractiveness as an investment.
The information in the statements is used by

 Trade creditors, to identify the firm’s ability to meet their claims i.e.
liquidity position of the company.

 Investors, to know about the present and future profitability of the company
and its financial structure.

 Management, in every aspect of the financial analysis. It is the responsibility

of the management to maintain sound financial condition in the company.

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RATIO ANALYSIS
The term “Ratio” refers to the numerical and quantitative relationship
between two items or variables. This relationship can be exposed as

 Percentages

 Fractions

 Proportion of numbers

Ratio analysis is defined as the systematic use of the ratio to interpret

the financial statements. So that the strengths and weaknesses of a firm, as well as
its historical performance and current financial condition can be determined. Ratio
reflects a quantitative relationship helps to form a quantitative judgment.

STEPS IN RATIO ANALYSIS

 The first task of the financial analysis is to select the information relevant to
the decision under consideration from the statements and calculates
appropriate ratios.

 To compare the calculated ratios with the ratios of the same firm relating to
the pas6t or with the industry ratios. It facilitates in assessing success or
failure of the firm.

 Third step is to interpretation, drawing of inferences and report writing

conclusions are drawn after comparison in the shape of report or
recommended courses of action.

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BASIS OR STANDARDS OF COMPARISON

Ratios are relative figures reflecting the relation between variables.

They enable analyst to draw conclusions regarding financial operations. They use
of ratios as a tool of financial analysis involves the comparison with related facts.
This is the basis of ratio analysis. The basis of ratio analysis is of four types.

 Past ratios, calculated from past financial statements of the firm.

 Competitor’s ratio, of the some most progressive and successful competitor

firm at the same point of time.

 Industry ratio, the industry ratios to which the firm belongs to

 Projected ratios, ratios of the future developed from the projected or pro
forma financial statements

NATURE OF RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial

statements. It is the process of establishing and interpreting various ratios for
helping in making certain decisions. It is only a means of understanding of
financial strengths and weaknesses of a firm. There are a number of ratios which
can be calculated from the information given in the financial statements, but the
analyst has to select the appropriate data and calculate only a few appropriate
ratios. The following are the four steps involved in the ratio analysis.

 Selection of relevant data from the financial statements depending upon the
objective of the analysis.

 Calculation of appropriate ratios from the above data.

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  Comparison of the calculated ratios with the ratios of the same firm in the
past, or the ratios developed from projected financial statements or the ratios
of some other firms or the comparison with ratios of the industry to which
the firm belongs.

INTERPRETATION OF THE RATIOS

The interpretation of ratios is an important factor. The inherent

limitations of ratio analysis should be kept in mind while interpreting them. The
impact of factors such as price level changes, change in accounting policies,
window dressing etc., should also be kept in mind when attempting to interpret
ratios. The interpretation of ratios can be made in the following ways.

 Single absolute ratio

 Group of ratios

 Historical comparison

 Projected ratios

 Inter-firm comparison

GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS

The calculation of ratios may not be a difficult task but their use is not
easy. Following guidelines or factors may be kept in mind while interpreting
various ratios are

 Accuracy of financial statements

 Objective or purpose of analysis

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  Selection of ratios

 Use of standards

 Caliber of the analysis

IMPORTANCE OF RATIO ANALYSIS

Aid to measure general efficiency

Aid to measure financial solvency

Aid in forecasting and planning

Facilitate decision making

Aid in corrective action

Aid in intra-firm comparison

Act as a good communication

Evaluation of efficiency

Effective tool

LIMITATIONS OF RATIO ANALYSIS

 Differences in definitions

 Limitations of accounting records

 Lack of proper standards

 No allowances for price level changes

 Changes in accounting procedures

 Quantitative factors are ignored

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  Limited use of single ratio

 Background is over looked

 Limited use

 Personal bias

CLASSIFICATIONS OF RATIOS

The use of ratio analysis is not confined to financial manager only.

There are different parties interested in the ratio analysis for knowing the financial
position of a firm for different purposes. Various accounting ratios can be
classified as follows:

1. Traditional Classification

2. Functional Classification

3. Significance ratios

[Link] Classification

It includes the following.

 Balance sheet (or) position statement ratio: They deal with the relationship
between two balance sheet items, e.g. the ratio of current assets to current
liabilities etc., both the items must, however, pertain to the same balance
sheet.

 Profit & loss account (or) revenue statement ratios: These ratios deal with
the relationship between two profit & loss account items, e.g. the ratio of
gross profit to sales etc.,

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  Composite (or) inter statement ratios: These ratios exhibit the relation
between a profit & loss account or income statement item and a balance
sheet items, e.g. stock turnover ratio, or the ratio of total assets to sales.

2. Functional Classification

These include liquidity ratios, long term solvency and leverage ratios,
activity ratios and profitability ratios.

3. Significance ratios

Some ratios are important than others and the firm may classify them
as primary and secondary ratios. The primary ratio is one, which is of the prime
importance to a concern. The other ratios that support the primary ratio are called
secondary ratios.

IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS ARE

[Link] ratio

2. Leverage ratio

3. Activity ratio

4. Profitability ratio

1. LIQUIDITY RATIOS

Liquidity refers to the ability of a concern to meet its current

obligations as & when there becomes due. The short term obligations of a firm can
be met only when there are sufficient liquid assets. The short term obligations are
met by realizing amounts from current, floating (or) circulating assets The current
assets should either be calculated liquid (or) near liquidity. They should be
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convertible into cash for paying obligations of short term nature. The sufficiency
(or) insufficiency of current assets should be assessed by comparing them with
short-term current liabilities. If current assets can pay off current liabilities, then
liquidity position will be satisfactory.

To measure the liquidity of a firm the following ratios can be

calculated

 Current ratio

 Quick (or) Acid-test (or) Liquid ratio

 Absolute liquid ratio (or) Cash position ratio

(a) CURRENT RATIO:

Current ratio may be defined as the relationship between

current assets and current liabilities. This ratio also known as Working capital ratio
is a measure of general liquidity and is most widely used to make the analysis of a
short-term financial position (or) liquidity of a firm.

Current assets

Current ratio =

Current liabilities

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Components of current ratio

CURRENT ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Bills receivable Bills payable

Inventories Short-term advances

Work-in-progress Sundry creditors

Marketable securities Dividend payable

Short-term investments Income-tax payable

Sundry debtors  

Prepaid expenses  

(b) QUICK RATIO

Quick ratio is a test of liquidity than the current ratio. The term
liquidity refers to the ability of a firm to pay its short-term obligations as & when
they become due. Quick ratio may be defined as the relationship between quick or
liquid assets and current liabilities. An asset is said to be liquid if it is converted
into cash with in a short period without loss of value.

Quick or liquid assets

Quick ratio =

Current liabilities

Components of quick or liquid ratio

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 QUICK ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Bills receivable Bills payable

Sundry debtors Short-term advances

Marketable securities Sundry creditors

Temporary investments Dividend payable

  Income tax payable

(c) ABSOLUTE LIQUID RATIO

Although receivable, debtors and bills receivable are generally more

liquid than inventories, yet there may be doubts regarding their realization into
cash immediately or in time. Hence, absolute liquid ratio should also be calculated
together with current ratio and quick ratio so as to exclude even receivables from
the current assets and find out the absolute liquid assets.

Absolute liquid assets

Absolute liquid ratio =

Current liabilities

Absolute liquid assets include cash in hand etc. The acceptable forms
for this ratio is 50% (or) 0.5:1 (or) 1:2 i.e., Rs.1 worth absolute liquid assets are
considered to pay Rs.2 worth current liabilities in time as all the creditors are nor
accepted to demand cash at the same time and then cash may also be realized from
debtors and inventories.

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Components of Absolute Liquid Ratio

ABSOLUTE LIQUID ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Interest on Fixed Deposit Bills payable

  Short-term advances

  Sundry creditors

  Dividend payable

  Income tax payable

2. LEVERAGE RATIOS

The leverage or solvency ratio refers to the ability of a concern to

meet its long term obligations. Accordingly, long term solvency ratios indicate
firm’s ability to meet the fixed interest and costs and repayment schedules
associated with its long term borrowings.

The following ratio serves the purpose of determining the solvency of

the concern.

 Proprietory ratio

(a) PROPRIETORY RATIO

A variant to the debt-equity ratio is the proprietory ratio which is also

known as equity ratio. This ratio establishes relationship between share holders
funds to total assets of the firm.

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Shareholders funds

Proprietory ratio =

Total assets

SHARE HOLDERS FUND TOTAL ASSETS

Share Capital Fixed Assets

Reserves & Surplus Current Assets

  Cash in hand & at bank

  Bills receivable

  Inventories

  Marketable securities

  Short-term investments

  Sundry debtors

Prepaid Expenses

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2. DEBT- EQUITY RATIO

The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion

of shareholders' equity and debt used to finance a company's [Link] related
to leveraging, the ratio is also known as Risk, Gearing or Leverage. The two
components are often taken from the firm's balance sheet or statement of financial
position (so-called book value), but the ratio may also be calculated using market
values for both, if the company's debt and equity are publicly traded, or using a
combination of book value for debt and market value for equity financially.

DE RATIO = LONG TERMS DEBTS/SHAREHOLDERS FUNDS

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3. ACTIVITY RATIOS

Funds are invested in various assets in business to make sales and earn
profits. The efficiency with which assets are managed directly effect the volume of
sales. Activity ratios measure the efficiency (or) effectiveness with which a firm
manages its resources (or) assets. These ratios are also called “Turn over ratios”
because they indicate the speed with which assets are converted or turned over into
sales.

 Working capital turnover ratio

 Fixed assets turnover ratio

 Capital turnover ratio

 Current assets to fixed assets ratio

(a) WORKING CAPITAL TURNOVER RATIO

Working capital of a concern is directly related to sales.

Working capital = Current assets - Current liabilities

It indicates the velocity of the utilization of net working capital. This

indicates the no. of times the working capital is turned over in the course of a year.
A higher ratio indicates efficient utilization of working capital and a lower ratio
indicates inefficient utilization.

Working capital turnover ratio=cost of goods sold/working capital.

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Components of Working Capital

CURRENT ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Bills receivable Bills payable

Inventories Short-term advances

Work-in-progress Sundry creditors

Marketable securities Dividend payable

Short-term investments Income-tax payable

Sundry debtors  

Prepaid expenses  

(b) FIXED ASSETS TURNOVER RATIO

It is also known as sales to fixed assets ratio. This ratio measures the
efficiency and profit earning capacity of the firm. Higher the ratio, greater is the
intensive utilization of fixed assets. Lower ratio means under-utilization of fixed
assets.

Cost of Sales

Fixed assets turnover ratio =

Net fixed assets

Cost of Sales = Income from Services

Net Fixed Assets = Fixed Assets - Depreciation

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 (c) CAPITAL TURNOVER RATIOS

Sometimes the efficiency and effectiveness of the operations are

judged by comparing the cost of sales or sales with amount of capital invested in
the business and not with assets held in the business, though in both cases the same
result is expected. Capital invested in the business may be classified as long-term
and short-term capital or as fixed capital and working capital or Owned Capital and
Loaned Capital. All Capital Turnovers are calculated to study the uses of various
types of capital.

Cost of goods sold

Capital turnover ratio =

Capital employed

Cost of Goods Sold = Income from Services

Capital Employed = Capital + Reserves & Surplus

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 (d) CURRENT ASSETS TO FIXED ASSETS RATIO

This ratio differs from industry to industry. The increase in the ratio
means that trading is slack or mechanization has been used. A decline in the ratio
means that debtors and stocks are increased too much or fixed assets are more
intensively used. If current assets increase with the corresponding increase in
profit, it will show that the business is expanding.

Current Assets

Current Assets to Fixed Assets Ratio =

Fixed Assets

Component of Current Assets to Fixed Assets Ratio

CURRENT ASSETS FIXED ASSETS

Cash in hand Machinery

Cash at bank Buildings

Bills receivable Plant

Inventories Vehicles

Work-in-progress  

Marketable securities  

Short-term investments  

Sundry debtors  

Prepaid expenses  

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4. PROFITABILITY RATIOS

The primary objectives of business undertaking are to earn profits.

Because profit is the engine, that drives the business enterprise.

 Net profit ratio

 Return on total assets

 Reserves and surplus to capital ratio

 Earnings per share

 Operating profit ratio

 Price – earning ratio

 Return on investments

(a) NET PROFIT RATIO

Net profit ratio establishes a relationship between net profit (after tax)
and sales and indicates the efficiency of the management in manufacturing, selling
administrative and other activities of the firm.

Net profit after tax

Net profit ratio=

Net sales

Net Profit after Tax = Net Profit (–) Depreciation (–) Interest (–) Income Tax

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Net Sales = Income from Services

It also indicates the firm’s capacity to face adverse economic

conditions such as price competitors, low demand etc. Obviously higher the ratio,
the better is the profitability.

(b) RETURN ON TOTAL ASSETS

Profitability can be measured in terms of relationship between net

profit and assets. This ratio is also known as profit-to-assets ratio. It measures the
profitability of investments. The overall profitability can be known.

Net profit

Return on assets =

Total assets

Net Profit = Earnings before Interest and Tax

Total Assets = Fixed Assets + Current Assets

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 (c) RESERVES AND SURPLUS TO CAPITAL RATIO

It reveals the policy pursued by the company with regard to growth

shares. A very high ratio indicates a conservative dividend policy and increased
ploughing back to profit. Higher the ratio better will be the position.

Reserves& surplus

Reserves & surplus to capital =

Capital

(d) EARNINGS PER SHARE

Earnings per share is a small verification of return of equity and is

calculated by dividing the net profits earned by the company and those profits after
taxes and preference dividend by total no. of equity shares.

Net profit after tax

Earnings per share =

Number of Equity shares

The Earnings per share is a good measure of profitability when

compared with EPS of similar other components (or) companies, it gives a view of
the comparative earnings of a firm.

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 e) OPERATING PROFIT RATIO

Operating ratio establishes the relationship between cost of goods sold

and other operating expenses on the one hand and the sales on the other.

Operating cost

Operation ratio =

Net sales

However 75 to 85% may be considered to be a good ratio in case of a

manufacturing under taking.

Operating profit ratio is calculated by dividing operating profit by

sales.

Operating profit = Net sales - Operating cost

Operating profit

Operating profit ratio =

Sales

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 (f) PRICE - EARNING RATIO

Price earning ratio is the ratio between market price per equity share
and earnings per share. The ratio is calculated to make an estimate of appreciation
in the value of a share of a company and is widely used by investors to decide
whether (or) not to buy shares in a particular company.

Generally, higher the price-earning ratio, the better it is. If the price
earning ratio falls, the management should look into the causes that have resulted
into the fall of the ratio.

Market Price per Share

Price – Earning Ratio =

Earnings per Share

Capital + Reserves & Surplus

Market Price per Share =

Number of Equity Shares

Earnings before Interest and Tax

Earnings per Share =

Number of Equity Shares

~ 40 ~
 (g) RETURN ON INVESTMENTS

Return on share holder’s investment, popularly known as Return on

investments (or) return on share holders or proprietor’s funds is the relationship
between net profit (after interest and tax) and the proprietor’s funds.

Net profit (after interest and tax)

Return on shareholder’s investment =

Shareholder’s funds

The ratio is generally calculated as percentages by multiplying the

above with 100.

~ 41 ~
CHAPTER- 3

DATA ANALYSIS AND INTERPRETATION

~ 42 ~
 I. LIQUIDITY RATIOS
1. Current Ratio = Current Assets/ Current Liabilities.

For IOC

Current Ratio of IOC

Year Current Assets Current Liabilities Ratio

2006  38423.26 27890.47   1.37

2007 39060.38 29709.08 1.31

2008 52931.30 34580.98 1.53

2009 44535.19  35358.04 1.25 

2010 59,388.80 44,751.73 1.32

FOR HPCL

Current Ratio of HPCL

Year Current Assets Current Liabilities Ratio

 2006 11,009.98   7,954.89  1.38

2007 11464.70 10119.49 1.13

2008 19297.37 12433.69 1.55

2009 15992.69 11755.81 1.36

~ 43 ~
 2010 20,641.94 16,555.11 1.24

Current ratio of BPCL

Current Ratio of BPCL

Year Current Assets Current Liabilities Ratio

2006   13,528.98  10,978.85  1.23

14841.
2007 40 12957.44 1.14

2008 20971.33 16365.51 1.28

 
2009 17275.18 14694.12 1.17
2010 24,883.94 17,990.45 1.38

~ 44 ~
 GRAPHICAL PRESENTATION

1.6
1.4
1.2
2006
1
2007
0.8 2008
2009
0.6 2010
0.4
0.2
0
IOC HPCL BPCL

INTERPRETATION

The current ratio with 2:1 (or) more is considered as satisfactory position of the [Link]
compared, IOC and HPCL have almost similar ratio although the five years with small changes.
But the current ratio of all three companies is not seemed satisfactory.

In IOC, Inventories and Loans & Advances are higher in 2008 than that in 2007 & 2009. The
sundry debtors have increased due to the increase to corporate taxes. And provisions is also very
less in 2008 which makes its liabilities lesser than 2007&09. In 2010, the current assets increase
due to increase in inventories and loans & advances, which again increases current ratio.

In HPCL and BPCL ,the current ratio follows the same pattern as of IOC. It increased in 2008
and then decrease again in 2009. It is due to rise in inventories and loans & advances in 2008 in
both companies. In case of BPCL, the current assets are increasing more than liabilities and
hence, the current ratio increases.

~ 45 ~
 2. QUICK RATIO = QUICK ASSETS/CURRENT LIABILITIES

 FOR IOC

Quick Ratio of IOC

Year Quick Assets Current Liabilities Ratio

 2006  14286.17  27890.47  .51

2007 14357.69 29709.08 .48

2008 21989.82 34580.98 .63

2009 19385.59 35358.04 .54

2010 22984.72 44,751.73 .51

FOR HPCL

Quick Ratio of HPCL

Year Quick Assets Current Liabilities Ratio

2006  3199.69  7,954.89 .40

2007 3366.3 10119.49 .33

2008 7277.09 12433.69 .58

2009 7199.45 11755.81 .61

2010 8062.72 16,555.11 .49

~ 46 ~
FOR BPCL

Quick Ratio of BPCL

Year Quick Assets Current Liabilities Ratio

2006   6904.58  10,978.85  .62

2007 8872.32 12957.44 .68

2008 9001.03 16365.51 .55

 
2009 7200.11 14694.12 .49
2010 10265.73 17,990.45 .57

~ 47 ~
 GRAPHICAL PRESENTATION
0.7

0.6

0.5

2006
0.4
2007
2008
0.3 2009
2010
0.2

0.1

0
IOC HPCL BPCL

INTERPRETATION

Quick assets are those assets which can be converted into cash with in a short period of
time, say to six months. So, here the inventories which are with the long period does not
include in the quick assets.

In IOC, the ratio is increasing in 2008 and then again decreasing in next consequent years.
It is due to increase of the sundry debtors and loans and advances in year 2008 and these
are decreasing in 2009 & 2010. Because of this ratio is showing such pattern.

In HPCL, the ratio is less in 2007, it keeps on increasing till 2009 and decreases in 2010,
but very less increment is there in year 2009. There is decrease in the liabilities, but the
quick assets increase very little that keeps the ratio high in 2009.

In BPCL, due to increase of current liabilities in 2007, the ratio decreases in that year. It
first increases and then decreases due to the fluctuation in the quick assets which are
effected by sundry debtors.

~ 48 ~
 3. ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID
ASSETS/CURRENT LIABILITIES

FOR IOC

Absolute Liquid Ratio of IOC

Year Absolute Liquid Assets Current Liabilities Ratio

 2006  962.23  27890.47  .03

2007 925.97 29709.08 .03

2008 824.43 34580.98 .02

2009 798.02 35358.04 .02

2010 1,315.11 44,751.73 .03

FOR HPCL

Absolute Liquid Ratio of HPCL

Year Absolute Liquid Assets Current Liabilities Ratio

 2006  85.66  7,954.89  .02

86
2007 .79 10119.49 .008

2008 294.01 12433.69 .02

2009 608.31 11755.81 .05

2010 243.17 16,555.11 .01

~ 49 ~
FOR BPCL

Absolute Liquid Ratio of BPCL

Year Absolute Liquid Assets Current Liabilities Ratio

 2006  244.87  10,978.85  .02

2007 259.15 12957.44 .02

2008 490.96 16365.51 .03

 
2009 293.88 14694.12 .02
2010 424.65 17,990.45 .02

~ 50 ~
GRAPHICAL PRESENTATION

0.05

0.05

0.04

0.04

0.03 2006
2007
0.03 2008
2009
0.02
2010
0.02

0.01

0.01

0
IOC HPCL BPCL

INTERPRETATION

The current assets which are ready in the form of cash are considered as absolute liquid assets.
Here, the cash and bank balance and the interest on fixed assets are absolute liquid assets.

In IOC, the absolute liquid ratio in the year 2008 & 2009, the cash and bank balance is decreased
due to decrease in the deposits. This decreases the ratio. In 2010, again the liquidity increases
due to availability of cash in hand.

In HPCL, there is continuous increase in the ratio and there is a huge increase in the cash and
bank balances and also the current liabilities decrease which shoots up its absolute liquid ratio in
2009. This increases its current liquidity. In 2010 the liability increases and the cash decreases.

And in BPCL, the ratio increases in year 2008 and then decreases due to the fluctuation in the
absolute assets i.e, cash and bank balance.

~ 51 ~
II. LEVERAGE RATIOS

1. PROPRIETORY RATIO = Shareholders fund/Total Assets

FOR IOC

Proprietory Ratio of IOC

Year Shareholders fund Total Assets Ratio

 2006  29302.67  467474.79  .62

2007 34857.29 52996.41 ..65

2008 43619.52 72577.32 .60

2009 43998.18 67329.51 .65

2010 50,552.93 122238.5 .41

FOR HPCL

Proprietory Ratio of HPCL

Year Shareholders fund Total Assets Ratio

 2006 8735.74  18427.18  .47

2007 9598.65 22919.7 .42

2008 10563.29 29319.64 .36

2009 10730.63 28479.43 .65

2010 11,557.97 36029.167 .32

FOR BPCL

~ 52 ~
 Proprietory Ratio of BPCL

Year Shareholders fund Total Assets Ratio

 2006  9077.88  30905.82  .29

2007 10273.54 34298.98 .30

2008 11676.84 42472.26 .27

2009 12128.11 39797.51 .30

2010 13086.71 50296.46 .26

~ 53 ~
 GRAPHICAL PRESENTATION

0.7

0.6

0.5

2006
0.4
2007
2008
0.3 2009
2010
0.2

0.1

0
IOC HPCL BPCL

INTERPRETATION

The proprietary ratio establishes the relationship between shareholders funds to

total assets. It determines the long-term solvency of the firm. This ratio indicates
the extent to which the assets of the company can be lost without affecting the
interest of the company.

In IOC, HPCL & BPCL, the proprietary ratio follows the same pattern. It first
decreases in year 2008 and then increase again in year 2009.

The share holder’s funds include capital and reserves and surplus. The reserves
and surplus is increased due to the increase in balance in profit and loss account,
which is caused by the increase of income from services.

Total assets, includes fixed and current assets. And the cost of current assets in
2008 is very high and the fixed assets are almost same which affected the
proprietary ratio.

~ 54 ~
 2. DEBT-EQUITY RATIO = DEBT(long-term loans)/EQUITY

FOR IOC

Debt-Equity Ratio of IOC

Year Debt Equity Ratio

 2006  26404.31  29302.67  .90

2007 27082.69 34857.29 .78

2008 35523.17 41086.25 .87

 
2009 44972.06 43998.18 1.02
2010 44,566.25 50,552.93 .88

FOR HPCL

Debt-Equity Ratio of HPCL

Year Debt Equity Ratio

 2006  6663.83  8735.74  .77

2007 10517.53 9598.65 1.096

2008 16786.70 10563.29 1.589

 
2009 22755.17 10730.63 2.120
2010 21,302.37 11,557.97 1.84

~ 55 ~
 FOR BPCL

Debt-Equity Ratio of BPCL

Year Debt Equity Ratio

 2006  8373.6  9077.88  .92

2007 21102.78 10273.54 2.05

2008 26699.22 11676.84 2.29

2009 21102.78 10273.54 2.05

2010 22195.2 13086.71 1.69

~ 56 ~
 GRAPHICAL REPRESENTATION

2.5

1.5 2006
2007
2008
2009
1
2010

0.5

0
IOC HPCL BPCL

INTERPRETATION
The debt- equity ratio compares the total debts with the total assets. Higher liabilities imply
greater financial risk. It measures the degree of indebtedness of the firm out of the total financing
of the firm.

IOC has the low DE Ratio. It implies a low risk to lenders and creditors of the firm and also non-
existence of trading on equity. Its Debt as well as equity is increasing every year which increases
its ratio. But in 2010, the debt portion decreases.

In HPCL, the ratio is increasing year after year as the company is incorporating more debt from
outside. But the debt decreases to much extent in 2010 same as IOC.

BPCL has high DE Ratio. There is huge increase in debt in year 2008 which increases its ratio
and the debt decreases again in 2009 and 2010 and so as the debt-equity ratio.

~ 57 ~
 [Link] ACTIVITY RATIOS

1. WORKING CAPITAL TURNOVER RATIO

= Net Sales/working capital

 Working capital = Current Assets – Current Liabilities.

FOR IOC

Working Capital Turnover Ratio of IOC

Year Net Sales Working Capital Ratio

 2006  1,67,085.86  6,484.63  25.76

2007 199396.17 9351.30 20.66

2008 224428.14 18350.32 12.23

2009 262654.42 9177.15 28.62

2010 2,56,912.75 9,881.06 26.00

FOR HPCL

Working Capital Turnover Ratio of HPCL

Year Net Sales Working Capital Ratio

 2006 70,615.68  1,670.65  42.26

2007 83571.14 1345.21 62.10

2008 96442.92 6863.68 14.05

2009 109377.60 4236.88 25.81

2010 101,347.51 4,086.83 24.8

~ 58 ~
FOR BPCL

Working Capital Turnover Ratio of BPCL

Year Net Sales Working Capital Ratio

 
2006  74,432.14  2,550.13  29.19

2007 92839.06 1883.97 49.28

2008 107057.16 4605.83 23.24

2009 129532.80  2581.06 50.18

2010 1,17,782.48 6,893.49 17.10

~ 59 ~
 GRAPHICAL REPRESENTATION

70

60

50

2006
40
2007
2008
30 2009
2010
20

10

0
IOC HPCL BPCL

INTERPRETATION

In this graph it is clearly shown that the working capital turnover ratio of all the three companies
is least in the year 2008. A high WCT Ratio reflects the better utilization of the working capital
of the company. The working capital is also increased greater due to the increase in from
services because the huge increase in current assets.

In IOC, there is high net sales but the working capital is very high which keeps the ratio low.

In HPCL, the working capital is very less in 2007 which increases the ratio, but the working
capital increases in the next years.

In BPCL, the net sales is increasing every year. But there is huge increase in the working capital
in 2008 which lower down the ratio. But again it increases in 2009.

~ 60 ~
 2. FIXED ASSETS TURNOVER RATIO
= Cost of sales/Net fixed assets
 Cost of Sales = Income from Services
 Net Fixed Assets = Fixed Assets – Depretiation

FOR IOC

Fixed Assets Turnover Ratio of IOC

Year Net Sales Net Fixed Assets Ratio

 2006  1,67,085.86  22821.96  7.32

2007 199396.17 30584.62 6.52

2008 224428.14 29882.93 7.51

 
2009 262654.42 31570.47 8.32
2010 2,56,912.75 38353.9 6.70

FOR HPCL

Fixed Assets Turnover Ratio of HPCL

Year Net Sales Net Fixed Assets Ratio

 2006 70,615.68  6648.43  10.6

2007 83571.14 12360.40 6.76

2008 96442.92 14394.41 6.70

 
2009 109377.60 15674.53 6.98
2010 101,347.51 14056.15 7.21

~ 61 ~
FOR BPCL

Fixed Assets Turnover Ratio of BPCL

Year Net Sales Net Fixed Assets Ratio

 
2006  74,432.14  9149.37  8.13

2007 92839.06 10076.93 9.12

2008 107057.16 10870.46 9.85

2009 129532.80 10890.26 11.89

2010 1,17,782.48 12427.03 9.48

~ 62 ~
 GRAPHICAL REPRESENTATION

12

10

8
2006
2007
6 2008
2009
4 2010

0
IOC HPCL BPCL

INTERPRETATION

This ratio shows the firm’s ability in generating sales from all financial resources
committed to total assets. The ratio indicates the account of one rupee investment
in fixed assets.

The ratio of BPCL is bit higher than that of two as the net fixed assets are higher
in BPCL which raise its fixed assets ratio over others.

And in all the companies the fixed assets turnover ratio is increasing for three
years.

The income from services is greatly increased in the current years due to the
increase in the Operations & Maintenance fee due to the increase in extra invoice
and the net fixed assets are reduced because of the increased charge of
depreciation. Finally, that effected a huge increase in the ratio compared with the
previous three year’s ratio.

~ 63 ~
 3. CAPITAL TURNOVER RATIO
= Cost of Goods Sold/Capital Employed
Cost of Goods Sold = Income from Services
Capital Employed = Capital + Reserves and Surplus

FOR IOC

Capital Turnover Ratio of IOC

Year Cost of Goods Sold Capital Employed Ratio

 2006  1,67,085.86  29302.67  5.70

2007 199396.17 34857.29 5.72

2008 224428.14 41086.25 5.46

2009 262654.42 43998.18 5.97

2010 2,56,912.75 50,552.93 5.08

FOR HPCL

Capital Turnover Ratio of HPCL

Year Cost of Goods Sold Capital Employed Ratio

 2006 70,615.68  8396.8  8.40

2007 83571.14 9598.65 8.70

2008 96442.92 10563.29 9.13

 
2009 109377.60 10730.63 10.19
2010 101,347.51 11,557.97 8.67

~ 64 ~
 FOR BPCL

Capital Turnover Ratio of BPCL

Year Cost of Goods Sold Capital Employed Ratio

 
 2006 74,432.14  9077.88  8.19

2007 92839.06 10273.54 9.04

2008 107057.16 11676.84 9.17

2009 129532.80 12128.11 10.68

2010 1,17,782.48 13086.71 9.00

~ 65 ~
 GRAPHICAL REPRESENTATION

12

10

8
2006
2007
6 2008
2009
2010
4

0
IOC HPCL BPCL

INTERPRETATION

This is another ratio to judge the efficiency and effectiveness of the company like
profitability ratio.

IOC is having lesser capital turnover ratio than rest two oil companies. And that of
HPCL and BPCL is almost same increasing over four years and then decreases in
recent year. The cost of goods of IOC is higher, but its capital reserves are far
greater because of high general reserves which lessen its capital turnover ratio.

The income from services is greatly increased compared with the previous year
and the total capital employed includes capital and reserves & surplus. Higher ratio
shows that the greater sales are being made per rupee of Capital Employed in the
firm and there is higher profit.

~ 66 ~
 4. CURRENT ASSETS TO FIXED ASSETS RATIO
= Current Assets/Fixed Assets
FOR IOC

Current Assets to Fixed Assets Ratio of IOC

Year Current Assets Fixed Assets Ratio

 2006  38423.26 25,023.42  1.53

2007 39060.38 33141.41 1.18

2008 52931.30 32558.56 1.63

 
2009 44535.19  34392.45 1.29
2010 59,388.80  41,132.99 1.44

FOR HPCL

Current Assets to Fixed Assets Ratio of HPCL

Year Current Assets Fixed Assets Ratio

 2006 11,009.98   7,337.40  1.5

2007 11464.70 8,820.84 1.29

2008 19297.37 11,929.28 1.61

2009 15992.69 11,654.55 1.37

2010 20,641.94 19,194.26 1.07

~ 67 ~
 FOR BPCL

Current Assets to Fixed Assets Ratio of BPCL

Year Current Assetss Fixed Assets Ratio

 9,917.37
 2006  13,528.98 1.36

14841. 10,981.04
2007 40 1.35

11,968.67
2008 20971.33 1.75

11,965.79
2009 17275.18 1.44
13,669.35
2010 24,883.94 1.82

~ 68 ~
 GRAPHICAL REPRESENTATION

1.8

1.6

1.4

1.2 2006
2007
1 2008
2009
0.8
2010
0.6

0.4

0.2

0
IOC HPCL BPCL

INTERPRETATION

The graph shows that IOC is having good current assets to fixed assets ratio. it’s
having current assets as well as fixed assets higher than that of two companies due
to which its ratio has increased.

And in all the companies, the ratio is the highest. Current assets are increased due
to the increase in the sundry debtors and loans & advances, and the net fixed assets
of the firm are decreased due to the fall in proposed division and corporate
dividend tax and there is no major increment in the fixed assets.

The increment in current assets and the decrease in fixed assets resulted an increase
in the ratio of 2008 compared with the previous year

~ 69 ~
 IV. PROFITABILITY RATIOS

1. NET PROFIT RATIO

= Net profit after tax/Net sales
 Net profit after tax = Net profit(-) Depreciation(-) Interest(-)
 Income tax.
 Net sales = Income from services

FOR IOC

Net Profit Ratio of IOC

Year Net profit after tax Net sales Ratio

 2006  4,238.43  1,67,085.86  .026

2007 5,449.42 199396.17 .027

2008 6,078.13 224428.14 .027

2009 7,648.90 262654.42 .029

2010 10,304.14 2,56,912.75 .040

FOR HPCL

Net Profit Ratio of HPCL

Year Net profit after tax Net sales Ratio

 2006  164.05 70,615.68  .0023

2007 1571.17 83571.14 .019

2008 1134.88 96442.92 .012

2009 574.98 109377.60 .005

2010 1,301.37 101,347.51 .013

FOR BPCL

~ 70 ~
 Net Profit Ratio of BPCL

Year Net profit after tax Net sales Ratio

 2006  430.79   74,432.14  .0058

2007 2,149.62 92839.06 .023

2008 1,353.26 107057.16 .013

2009 2,528.77 129532.80 .019

2010 1,597.73 1,17,782.48 .013

~ 71 ~
GRAPHICAL REPRESENTATION

0.04

0.04

0.03

0.03
2006
2007
0.02 2008
20009
0.02 2010

0.01

0.01

0
IOC HPCL BPCL

INTERPRRETATION

The net profit ratio is the overall measure of the firm’s ability to turn each rupee of income
from services in net profit. If the net margin is inadequate the firm will fail to achieve
return on shareholder’s funds. High net profit ratio will help the firm service in the fall of
income from services, rise in cost of production or declining demand.

The net profit of IOC is the highest among the three oil companies because the income from
services is more to much extent. And in the next consequent year the ratio is increasing as
the income from services decreases than the last year i.e., 2010.

In HPCL net profit ratio is very less in 2006 as the net of t profit of the company is very low & it
fluctuates in the following years. In BPCL the net profit after tax is increasing and decreasing
after every alternate year due to corporate taxes, which makes the ratio fluctuating every year.

~ 72 ~
 2. RESERVES AND SURPLUS TO CAPITAL RATIO

= Reserves& Surplus/Capital
FOR IOC

Reserves and surplus to capital ratio of IOC

Year Reserves and Surplus Capital Ratio

 8,777.88
 2006  17,513.02  .50

9,912.00 21,102.78
2007 .47

11,315.30 26,699.22
2008 .42

11,766.57   33,299.52
2009 .35

12,725.17 35,281.91
2010 .36

FOR HPCL

Reserves and surplus to capital ratio of HPCL

Year Reserves and Surplus Capital Ratio

2006   8,396.80  15,399.57  .54

9,259.7
2007 0 20,116.18 .46

10,224.
2008 28 27,349.99 .37

2009 10,391.62   33,485.80 .31

2010 11,218.96 32,860.34 .34

~ 73 ~
 FOR BPCL

Reserves and surplus to capital ratio of BPCL

Year Reserves and Surplus Capital Ratio

 8,777.88  17,513.02
 2006  .50

21,102.78
2007 9912 .47

26,699.22
2008 11315.30 .42

 
33,299.52
2009 11766.57 .35
12,725.17 35,281.91
2010 .36

~ 74 ~
 GRAPHICAL REPRESENTATION

0.6

0.5

0.4
2006
2007
0.3 2008
2009
2010
0.2

0.1

0
IOC HPCL BPCL

INTERPRETATION

The ratio is used to reveal the policy pursued by the company a very
high ratio indicates a conservative dividend policy and vice-versa. Higher the ratio
better will be the position.

This ratio is showing almost the same pattern for the five years in all
three companies. It’s decreasing continuously because the capital of the
companies is increasing at faster rate than the reserves and surplus. And the
capital decreases in the recent year due to reduction in unsecured loans and
payment of the dividends.

~ 75 ~
 3. EARNINGS PER SHARE
= Net profit after tax/No of Equity Share

FOR IOC

Earning per share of IOC

Year Net Profit No. of equity shares Ratio

 2006  4,238.43  116.79  36.29

2007 5,449.42 119.24 46.66

2008 6,078.13 119.24 50.98

2009 7,648.90 119.65 64.15

2010 10,304.14 242.79 42.44

FOR HPCL

Earning per share of HPCL

Year Net Profit No of equity shares Ratio

 2006  164.05  33.96  4.83

2007 1571.17 45.53 34.51

2008 1134.88 72.15 15.65

2009 574.98 23.84 24.12

2010 1,301.37 32.52 40.02

~ 76 ~
 FOR BPCL

Earning per share of BPCL

Year Net sales No. of equity shares Ratio

2006   430.79  30  14.36

2007 2,149.62 36.15 59.46

2008 1,353.26 36.15 37.43

2009 2,528.77 36.15 69.94

2010 1,597.73 36.15 44.19

~ 77 ~
 GRAPHICAL REPRESENTATION

70

60

50

2006
40
2007
2008
30 2009
2010
20

10

0
IOC HPCL BPCL

INTERPRETATION

Earnings per share ratio are used to find out the return that the shareholder’s earn from their
shares. After charging depreciation and after payment of tax, the remaining amount will be
distributed by all the shareholders.

EPS of IOC is aapreciable and it has been increasing continuously every year as the net sales of
the company is increasing and the number of shares is same. But in 2010 it decreased due to
increase in the number of shares.

In HPCL, both the net sale and the number of shares are fluctuating every year, due to which the
EPS is fluctuating & in BPCL there is not much fluctuation in no. of shares, but net profit after
tax is changing every year which is fluctuating their earning per share ratio.

Net profit after tax is decreased due to the huge decrease in the income e from services. That is
the amount which is available to the shareholders to take.

~ 78 ~
 4. OPERATING PROFIT RATIO
= Operating Profit/Net Sales
Operating Profit = Net Sales –Operating cost

FOR IOC

Operating-Profit Ratio of IOC

Year Operating Profit Net Sales Ratio

 2006 7,809.26  1,67,085.86 .05

2007 10762.18 199396.17 .05

2008 11295.90 224428.14 .05

2009 13,524.35 262654.42 .05

2010 12453.59 2,56,912.75 .048

FOR HPCL

Operating-Profit Ratio of HPCL

Year Operating Profit Net Sales Ratio

 2006  814.94 70,615.68  .01

2007 2,518.74 83571.14 .03

2008 1,846.68 96442.92 .02

2009 3,291.02 109377.60 .03

2010 2,543.18 101,347.51 .02

~ 79 ~
FOR BPCL

Operating-Profit Ratio of BPCL

Year Operating Profit Net Sales Ratio

 2006  1,101.16   74,432.14  .015

2007 3,717.79 92839.06 .04

2008 3,150.97 107057.16 .03

2009 4,540.63 129532.80 .03

2010 2,434.51 1,17,782.48 .02

~ 80 ~
GRAPHICAL REPRESENTATION

0.05

0.05

0.04

0.04

0.03 2006
2007
0.03 2008
2009
0.02
2010
0.02

0.01

0.01

0
IOC HPCL BPCL

INTERPRETATION

The operating profit ratio is used to measure the relationship between net profits and sales of a
firm. Depending on the concept, it will decide.

The operating profit ratio of IOC is higher than that of two companies because of high operating
profit of the company. There is more purchases of raw material. It has been almost at the same
level for all the year.

In HPCL & BPCL it is pretty low and is fluctuating every year. And in the recent year the
operating profits reduced to low value which decreases the ratio.

~ 81 ~
 5. PRICE-EARNING RATIO = Market Price Per Share/No. of Equity
Share
 Market Price Per Share = (Capital + Reserves & Surplus)/

No. of Equity Shares

 EPS = Earning Before Interest& Tax/No. of Equity Share

FOR IOC

Price Earning Ratio of IOC

Year Market price per share EPS Ratio

 2006  250.90  36.29 6.91

2007 292.93 46.66 6.28

2008 344.57 50.98 6.76

2009 362.2 64.15 5.65

2010 208.22 42.44 4.91

FOR HPCL

Price Earning Ratio of HPCL

Year Market price per share EPS Ratio

 2006  246.46  4.83  51.02

2007 210.82 34.51 6.10

2008 146.41 15.65 9.35

2009 450.11 24.12 18.66

2010 356.03 40.02 8.89

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FOR BPCL

Price Earning Ratio of BPCL

Year Market price per share EPS Ratio

 2006 302.60  14.36  21.07

2007 284.19 59.46 4.76

2008 322.92 37.43 8.63

2009 335.49 69.94 4.80

2010 362.01 44.19 8.19

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GRAPHICALREPRESENTATION

60

50

40
2006
2007
30 2008
2009
2010
20

10

0
IOC HPCL BPCL

INTERPRETATION

The ratio is calculated to make an estimate of application in the value of share of a company. The
investor’s expectations are reflected in the market price of the shares

The graph shows that price-earning ratio of IOC is decreasing from 2006 to 2010 due to increase
in the market price of the share and EPS is decreasing.

In HPCL the EPS in 2006 is very low which is shooting up its price earning ratio upto 50. In
year 2009 also, it increased at rapid. Its because of decrease in EPS due to less earnings after tax.

But BPCL’s ratio shows the different pattern because its EPS has increased as the net sales of the
company increased. In 2006, EPS is very low due to which PER is high. And then every next
year the ratio is fluctuating due to fluctuation in the EPS.

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 CHAPTER – 4

FINDINGS&
CONCLUSION.

FINDINGS OF THE STUDY

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 The Current Ratio of IOC is higher in each of the three years. And the
companies are having the highest ratio in year 2008 due to more
acquisition of current assets in that year.
 Quick asset ratio is highly affected by the sundry debtors. HPCL is more
capable over others in the current year to convert its assets quickly into
cash and is more efficient to meet its short-term liabilities.
 The absolute liquidity ratio analysis shows that HPCL is having strong
position of holding ready cash in the current year. IOC & BPCL are more or
less have the same capability of absolute liquidity.
 The proprietary ratio in three years shows that IOC is more capable in long-
term solvency. It has more shareholders capital as well as total assets. And
all of the three companies are having lowest ratio in year 2008 because of
rise in the current and fixed assets.
 The Debt-Equity ratio of IOC is low as the company is more dependent on
shareholders rather than borrowing from outside. BPCL’s DE Ratio is high
and hence having high degree of financial leverage.
 The working capital turnover ratio of IOC Is the least as its current assets
are high. The ratio of BPCL is appreciable. It means there is high
profitability in the company.
 IOC has high fixed assets turnover ratio. It means the company is utilizing its
fixed assets efficiently.
 Both HPCL as well as BPCL have high capital turnover ratio. It means the
sales made per rupee of Capital Employed in the firms is greater and hence
higher is the profit. Whereas in IOC there is low sales in relation to
excessive capital is being used.
 The analysis of current assets to fixed assets depicts that the IOC has the
higher ratio. IOC has current as well as fixed ratio in large quantity which
provides the company to make more profits by utilizing them.
 The net profit ratio of IOC shows that the company is efficient in
manufacturing, administrative, selling and distributing the product. And
there is high increase in corporate taxes every year.

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  BPCL has the high return on assets. It means that high profit is earned by
the firm per rupee of assets used.
 The reserves & surplus and the capital employed in the companies are not
same and not changing over the years.
 EPS of companies is fluctuating every year due change in net sales. ROE of
IOC is constant for two years with still greater amount of PAT indicating an
increasing EPS.
 The Price Earning ratio of IOC & HPCL is high, indicating that the share has
low risk and investor expect high dividend growth.

 The shareholders of BPCL are getting high returns on their funds in the
company.

FINDINGS OF THE STUDY

 The Current Ratio of all three companies is not appreciable and not
satisfactory because of high current liabilities due to short term borrowings
from the government. The current ratio of the three companies is more or
less following the same pattern. And the companies are having the highest
ratio in year 2008 due to more acquisition of current assets in that year.
 Quick asset ratio is highly affected by the sundry debtors. IOC is slightly
more capable over others in the current year to convert its assets quickly
into cash and is more efficient to meet its short-term liabilities.

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 The absolute liquidity ratio analysis shows that HPCL is having strong
position of holding ready cash in the current year. IOC & BPCL are more or
less have the same capability of absolute liquidity.
 The proprietary ratio in three years shows that IOC is more capable in long-
term solvency. It has more shareholders capital as well as total assets. And
all of the three companies are having lowest ratio in year 2008 because of
rise in the current and fixed assets.
 The Debt-Equity ratio of IOC is low as the company is more dependent on
shareholders rather than borrowing from outside. BPCL’s DE Ratio is high
and hence having high degree of financial leverage.
 The working capital turnover ratio of IOC Is the least as its current assets
are high. The ratio of BPCL is appreciable. It means there is high
profitability in the company.
 IOC has high fixed assets turnover ratio. It means the company is utilizing its
fixed assets efficiently.
 Both HPCL as well as BPCL have high capital turnover ratio. It means the
sales made per rupee of Capital Employed in the firms is greater and hence
higher is the profit. Whereas in IOC there is low sales in relation to
excessive capital is being used.
 The analysis of current assets to fixed assets depicts that the IOC has the
higher ratio. IOC has current as well as fixed ratio in large quantity which
provides the company to make more profits by utilizing them.
 The net profit ratio of IOC shows that the company is efficient in
manufacturing, administrative, selling and distributing the product. And
there is high increase in corporate taxes every year.
 BPCL has the high return on assets. It means that high profit is earned by
the firm per rupee of assets used.
 The reserves & surplus and the capital employed in the companies are not
same and not changing over the years.

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 EPS of companies is fluctuating every year due change in net sales. ROE of
IOC is constant for two years with still greater amount of PAT indicating an
increasing EPS.
 The Price Earning ratio of IOC & HPCL is high, indicating that the share has
low risk and investor expect high dividend growth.

 The shareholders of BPCL are getting high returns on their funds in the
company.

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CONCLUSION
 The short term solvency of IOC & HPCL is fine but that of BPCL is quite
low. But no company is touching the general standard of 2:1 of current ratio.
The quick ratio of firms are not good enough far away from the normal
standard of 1:1.
So all the Liquidity Ratios indicate not good enough short term
solvency/liquidity position of the firm.
 All the Leverage Ratio depict that none of the company has a sound
financial position. These are more in debt. But IOC position is better than
that of the two in terms of leverage. The shareholders’ funds are satisfactory.
The firms are paying high interest on the outstanding debts which makes
unfavorable trading on equity due to high debt, which increases risk for
shareholders.
 As far as the Activity and Turnover ratios are concerned, nothing concrete
can be said as the results of three companies are very fluctuating every year
in term of sales.
 In the year 2008 all three companies are showing good results and the
turnover is satisfactory. But it decrease in 2009 due to decrease in working
capital, the fixed assets of the companies which affected their sales. And
IOC is very strong in acquisition of the fixed assets as well as current assets.
 On the basis of various profitability ratios the sales of the firms is found to
be decreasing in the last year. But BPCL has managed well to maintain its
net profit. The share value of HPCL is better.
 This analysis shows that the companies were in strong position in year 2008,
but the recession in 2009 has highly affected the companies growth and their
profit came down and they are more in debts.

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~ 91 ~