COMPREHENSIVE FINANCIAL REPORT ANALYSIS OF INDIAN OIL CORPORATION BY Arvind.D 2016PGP081 Siddharth R 2016PGP376 Vinayagavel S 2016PGP428

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1 COMPREHENSIVE FINANCIAL REPORT ANALYSIS OF INDIAN OIL CORPORATION BY Arvind.D 216PGP81 Siddharth R 216PGP376 Vinayagavel S 216PGP428

2 1. Common size Balance sheet and Income statement:- NORMAL BALANCE SHEET COMMON SIZE BALANCE SHEET PARTICULARS March March March March Equity & Liabilities crores crores % % Shareholders fund 2, , Share capital 73, , , , Minority Interest 1, , Non-current liabilities Long-term borrowings 3, , Deferred tax liabilities 9, , Other Long-term Liabilities 18, , Long-term provisions 2, , , , Current liabilities Short-term borrowings 2, , Trade payables (A) total outstanding dues to micro and small enterprises (B) total outstanding dues to 24, , creditors other than micro and small enterprises Other current Liabilities 29, , Short-term provisions 29, , ,4, ,2, TOTAL 2,42, ,33, ASSETS Non-current assets Fixed Assets (i) Tangible assets 1,1, , (ii) Intangible assets (iii) Capital work-in-progress 22, , (iv) Intangible assets under development 3, , ,28, ,17, Non-current investments 8, , Deferred tax assets Long-term loans and advances 1, , Other non-current assets ,47, ,35, Goodwill on Consolidation

3 Current assets Current investments 7,11.5 7, Inventories 42, , Trade receivables 8, , Cash and Bank Balances 2, , Short-term loans and advances 31, , Other current assets 2, , , , TOTAL 2,42, ,33, Normal Income Statement Common Size Income Statement PARTICULARS MARCH 215- MARCH 214- MARCH MARCH crores crores % % Revenue from operations 4,21, ,86, (Gross) Less: Excise Duty 65, , Revenue from operations (Net) 3,55, ,49, Other income 2, , Total Revenue 3,58, ,53, Expenses Cost of materials consumed 1,68, ,48, Purchases of Stock-in-Trade 1,17, ,4, Changes in Inventories (Finished 3, , Goods, Work-In Progress and Stock-in-trade) Employee benefits expenses 8, , Finance costs 3, , Depreciation, Depletion, Amortisation and Impairment on a) Tangible Assets 5, , b) Intangible Assets , , Other expenses 35, , Total expenses 3,42, ,48, Profit before Prior Periods, 15, , Exceptional Items and Tax Income / (Expenses) pertaining (14.39).3 (.3) to Prior Periods (Net) Profit before Exceptional 15, , Items and Tax Exceptional Items 1, , Profit before Tax 17, ,

4 Tax expense Current tax 3, , MAT Credit Entitlement (1,98.97) (164.44) (.3).3 Deferred tax 2, Profit for the year 11, , Less: Share of Minority (4.24).1 (.8) Profit for the Group 11, , Earning per Equity Share (1) Basic (2) Diluted Face Value Per Equity Share (`) DuPont Chart analysis:- Particulars Net profit margin Assets turnover Financial leverage ROE The graphical representation of Assets turnover, Net profit margin, Financial leverage and ROE are as follows Assets turnover Net profit margin Assets turnover Net profit margin

5 7 Financial leverage Financial leverage ROE ROE

6 From the above graph it is clear that Return on Equity is higher than the past four years. The above graphs and tables also depict that Net profit margin also increased while Asset turnover and financial leverage also reduced. Financial leverage fall is good since it describes that the equity is the major contributor of assets and hence debt is low which reduces the risk associated with fixed interest payment obligation. The asset turnover has to be increased to improve the efficiency of asset utilization. 3. LIQUIDITY POSTION OF COMPANY:- The liquidity position of a company is determined by the liquidity ratios such as Current ratio, Quick ratio and Super quick ratio. The required details from the Annual report are:- Particulars Current Assets Current Liabilities Closing Inventory A/Cs receivable Current ratio Quick ratio Super quick ratio.59.61

7 Current ratio Quick ratio Super quick ratio For the FY215-16, Current Ratio:- For a successful company the range of the current ratio should be 1.5 to 2. Since here the current ratio is.91(less than 1), it is clear that the company is in problem in meeting its short term financial obligation. Quick Ratio:- Quick Ratio = (Current Assets Closing inventory)/current liabilities = / =.68 In the field of business, an organization should have Quick ratio of 1 or above. Here the ratio.68 states that the Organization is not good in Liquidity condition. The significant variation between Quick ratio and Current ratio indicates that closing inventory is high. This is in turn means effective utilization of inventory is low. Super Quick Ratio:- Super Quick Ratio = (Current Assets Closing Inventory A/Cs receivable)/current liabilities =.59 From the quick ratio itself, it is clear that Company s liquidity position is not so good. In addition to that Super Quick Ratio shows that (difference i.e.68 t.59) Accounts receivable of the organization is contributing more.

8 Apart from the calculated values of ratios of this year, it is also clear from the bar chart that the ratios are in declining path compared with that of previous year which is a serious issue to be taken care off. 4. Comment on Solvency position:- The solvency position of an organization can be determined by calculating Solvency ratio and other ratios such as Debt to equity, Debt to assets and Interest coverage. Solvency Ratio = PAT + Depreciation / Short term liabilities + Long term liabilities = ( )/( ) =.11 Solvency ratio should be higher for an organization since it depicts the ability to meet short term and long term liabilities with the current cash flow. IOC ltd needs to increase its Solvency ratio. Total Debt to Equity Ratio = Total Debt / Share holder s Equity Year Total debt to equity ratio Debt to equity ratio.6 Debt to equity ratio

9 Here the debt ratio.71 indicates that the borrowings of IOC is less and thereby stating that the equity (investment) by owners is more. An effective organization should have balanced debt equity level rather than inclined towards one. Debt to Assets = Total debt / Total Assets = / =.21 In spite of lower Solvency ratio, the IOC ltd has lower Debt to assets ratio. Interest Coverage ratio = EBIT / Interest Expense = / = 5.75 The interest coverage ratio is good enough showing the ability of IOC ltd to repay its Interests. Overall IOC ltd needs to improve its Solvency position as it is in the risky stage of having low solvability. 5. Comment on Profitability of IOC ltd:- The profitability of an organization basically depends on Cost of production, Market share and Sales. It can be interpreted by calculating profitability ratios such as Operating profit, Net profit margin, Return on Total Assets and Return on Shareholder s equity. PARTICULARS Operating Profit Net profit margin Return on assets Return on Shareholder s Equity

10 Operating profit Net profit margin Return on assets Return on shareholder's equity The above bar chart clearly indicates that the Profitability of the organization IOC ltd has increased compared to the previous year. Since the company is good in profitability position growth it should increase its revenue instead of fall in revenue occurred this year ( revenue while revenue ). 6. Economic Value Added:- Economic value added is the extra value acquired than the required return for the Share holder s equity. Economic value added (EVA) can be calculated as follows:- EVA = Net operating Profit after tax Invested capital*wacc Net operating profit after tax = EBIT (1-t), where t tax Particulars NOPAT WACC 9.72% EVA

11 Economic value added describes the operation profit generated in excess to that of cost of capital employed in the business. The EVA crores describes that IOC is efficient in shareholder value creation thereby uses the operation profit excess for next year rather than borrowings. Hence IOC is efficient in financial performance and creating value to the shareholders equity. 7. MARKET VALUE ADDED:- MARKET VALUE ADDED Total number of shares issued Number of shares held as treasury stock Current share price Total invested capital plus 8277 retained earnings Cost of treasury stock Number of Shares Outstanding Market Capitalization = Total Shareholders' Equity = Total Invested Capital + Retained Earnings Cost of Treasury Stock 8277 Market Value Added for Shareholders = Market Value Added for all Investors = Market Value of Equity Total Shareholders' Equity + Market Value of Debt Book Value of Debt Valuation Ratios:- Price per book Value Stock price per share/shareholder s equity per share Stock price per share 564 shareholder s equity per share Price per book Value Price/Cash Flow Ratio Stock price per share/operating cash flow per share Stock price per share 564 operating cash flow per share Price/Cash Flow Ratio

12 Price/Earnings Ratio Stock price per share/eps Stock price per share 564 EPS Price/Earnings Ratio Price/Sales Ratio Stock price per share/net sales (revenue) per share Stock price per share 564 net sales (revenue) per share Price/Sales Ratio Dividend Yield Annual dividend per share/stock price per share Annual dividend per share stock price per share 564 Dividend Yield Market efficiency:- Market efficiency is the measure of error in the markets be unbiased i.e, price can be greater than or lesser than the true value as long the deviation is random. The factors which affect the market efficiency are factors such as (i) (ii) (iii) (iv) (v) Taxes Subsidies Quotas High transaction costs Public goods For IOC he major core product is Crude oil. The crude oil price is mainly influenced by two factors such as (i) Crude oil price in market (ii) Taxes fixed by government In India among the two factors, it is the government Tax imposition decides the market efficiency. Even though the International price of crude is lower than how it is used to be in 21, still Petrol and diesel prices are high. This is mainly because of heavy imposition of Tax.

13 Apart from the state government also impose taxes on the Prices. This leads to differential price in different states. There by affecting the market efficiency of Indian oil corporation. These are all influencing much in IOC than other field / market business as because Oil production is a public sector. 1. Leverage Ratios:- The leverage ratio of an organization indicates the ability of an organization to repay and also the economic and financial stability of the organization. The most commonly used ratios are (i) (ii) (iii) (iv) Debt to equity ratio Long term debt to equity ratio Debt ratio Interest coverage ratio Year Total Debt to equity Ratio

14 1.4 Total Debt to Equity Ratio Series Year Long term debt Equity ratio Long term debt to equity ratio Long term debt to equity ratio

15 Debt to Assets = Total debt / Total Assets = / =.21 In spite of lower Solvency ratio, the IOC ltd has lower Debt to assets ratio. Interest Coverage ratio = EBIT / Interest Expense = / = Equity Investor Perspective:- Debt-to-equity ratio Total debt / Total Equity Total debt Total Equity debt-to-equity ratio Financial leverage ratio Avg. Total Assets/ Avg. Total Equity Avg. Total Assets Avg. Total Equity Financial leverage ratio Net Profit Margin x Asset Turnover x Financial Leverage return on equity (ROE): Ratio Net Profit Margin.26 Asset Turnover 1.65 Financial Leverage Ratio 3.27 return on equity (ROE): debt-to-capitalization ratio Long-term Debt / (Long-Term Debt + minority interest + equity) Long-term Debt 52,469 Long-Term Debt + minority interest + equity debt-to-capitalization ratio Degree of financial leverage (DFL) EBIT/(EBIT-Interest) EBIT (EBIT-Interest) DFL

16 The above values indicate the performance of the organization and its effective utilization and management of equity. The degree of financial leverage is of effective performance range 1.1 to Key Financial Performance ratios:- Working Capital Ratio = Current assets/ current liabilities Current assets 94, current liabilities 1496 Working Capital Ratio.91 Quick Ratio = (Current assets inventories) / current liabilities Current assets inventories 7336 current liabilities 1496 Quick Ratio Earnings per Share = Net income / No. of stocks Net income No. of stocks 2,428 Earnings per Share Price-Earnings Ratio = Share price of the company / EPS Share price of the company EPS Price-Earnings Ratio Debt-Equity Ratio =( long term + short term debts ) / share holders equity ( long term + short term debts ) 5849 share holders equity Debt-Equity Ratio Return on Equity = Net earnings / common equity Net earnings 185 common equity Return on Equity

17 13. CEO analysis over performance:- An organization s performance can be determined by following analysis, Financial analysis Operation analysis Solvency Profitability Economic and Market value Investor s perspective analysis. From the report and analysis, it is clear that Solvency of IOC ltd is lower. At the same when it comes to leverage the Debt to equity ratio, Long term debt to equity and Interest coverage ratio depicts that the leverage situation of organization is good. The market value and Earnings per share indicates that the overall status in the market. The return on equity is steadily increasing for the organization (from.71 to.14). It indicates the efficiency of IOC ltd in effective utilization of Equity of Shareholders. The Financial performance key factors depicts the proper functioning of organization in production, revenue, repay ability of payables and debts and also its improvement in usage of equity and reducing the borrowings there by reducing debt. The profitability of IOC is described by the operation profit margin, Net profit margin return on assets and return on shareholder s equity. The comparison of these values with previous financial year and also other companies report states that profitability of IOC is steadily increasing. The earning per share and the market value of share indicates the economic value and market value of organization. It also describes about the belief on Financial strength and stability of IOC in market.