A Study on Financial Performance of Reliance Industries Limited

Transcription

1 Volume-5, Issue-2, April-2015 International Journal of Engineering and Management Research Page Number: A Study on Financial Performance of Reliance Industries Limited R. Ramanan MBA, School of Management, SASTRA University, Thanjavur , Tamil Nadu, INDIA ABSTRACT The concept of financial performance analysis is the process of identifying financial strength of the company with the help of its Profit and loss account, and Balance sheet. Reliance Industries Limited (RIL), is India s largest private sector company with business across the energy and materials value chain and a strong presence in the rapidly expanding retail and telecommunication sectors. The financial performance analysis of the company is done for the period of five years, starting from the financial year to The objective of this study to evaluate the financial position of the company, analyze financial changes and identify future result by using ratio and trend analysis. To know whether the business is making profit or not, is maintaining liquidity position, and know the dividend growth of the company. The ratios used in this project are in terms of solvency, turnover, and profitability ratios. The trend analysis has done for the indicators such as Sales and Expenses. The company performance was good during the period 2010 and 2011, but in 2012 and 2013 the company performance was not good, due to recession in European countries and affected the exports of the company. Then slowly the global economic condition was improved a little bit in 2014, and the customer demand for the retail products and oil exports increased in the year Keywords---- Balance Sheet, Profit and Loss Account, Ratios, Trend analysis. I. INTRODUCTION Financial performance analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing the relationship between the items of balance sheet and profit and loss account. There are many tools to find financial performance of the company, one of the most useful tools is ratio and trend analysis. The financial analysis is done to find the firm s current position with that of market situation. This analysis is used by creditors, shareholders, board. II. OBJECTIVE To evaluate the financial position of Reliance Industries Ltd in terms of solvency, profitability, turnover ratios for the years from to To identify any consistent results or trends by using trend analysis To analyze the financial changes over a period of five years. To suggest effective measures in the existing system of the company. III. RESEARCH METHODOLOGY The secondary data were collected from company s annual reports and their websites. The data collected on different aspects were analyzed. The period of study for the project is 5 years ( to ). IV. SCOPE OF THE STUDY The study covers almost the entire area of financial operations covered by Reliance Industries Limited the study has been conducted with the help of data obtained from audited financial records. The audited financial records are the company annual reports pertaining to past 5 years from to and the audited financial records are obtained from the company s annual report. The researcher tries to measure the performance of the organization. V. TOOLS APPLIED FOR ANALYSIS VI. The tools applied are ratio and trend analysis LIMITATIONS OF THE STUDY The study is restricted for a period of five years 665 Copyright Vandana Publications. All Rights Reserved.

2 The analysis is based on annual reports of the company. VII. REVIEW OF LITERATURE Yunus, N.M., Malik, S.A. (2012) states that the use of financial model is to predict the performance of a company. The theoretical analysis in the development of model is done using the matrix solution of the Matlab software. The model is then validated with the actual company's business performance to determine the predicting accuracy. Hooks, Jill. (2007) found that this research examines the financial performance of three entities over a fifteen year period. The aim is to determine the influence of corporatization, commercialization and ownership form on the reported financial performance of three entities. Wei, Sun. (2010) found that this paper discusses some theories of the system of performance evaluation, analyses merit and disadvantage of these theories. this paper brings forward the system of performance evaluation with method of fuzzy mathematics. This paper validates the correctness of the system of performance evaluation with the example. Hajek, P., & Olej, V. (2014) found that this paper develops a methodology to extract concepts containing qualitative information from corporate annual reports. The methodology makes it possible to easily compare the concepts with future financial performance. The results suggest that annual reports differ in terms of the concepts emphasized reflecting future financial performance. Rungi, M., Stulova, V. (2013) states that the current study investigates the impact of absorptive capacity on financial performance in the context of corporate acquisitions. A quantitative research was carried out based on European ICT companies that were subject to acquisition in The results demonstrate that absorptive capacity entails a direct effect on financial performance. VIII. ANALYSIS AND INTERPRETATIONS the company is increasing its debt component in the capital structure. It shows that company has the scope to increase fund through debt because of low debt component. This shows good sign but in case the company wants to develop more, it has good scope raising fund through debt, is possible one. From the above chart, it is clearly showing that the company is maintaining minimum cash coverage ratio due to increasing in the current liabilities component. Though the cash level is increased in all the years yet it shows downward trend due to constant increasing in current liabilities. Hence it is not a good sign for the company. the company has keeping more or less ideal ratio but in the year 2014 it is decreasing because the current liabilities is increasing more than the current asset, as a result it keeps down in the final year, if this situation keeps on moving then the company cannot meet its current liability. Hence this position is good but it is recommended that the company has to increase current asset more than current liabilities 666 Copyright Vandana Publications. All Rights Reserved.

3 due to mismanagement in the fixed asset and causes slight variation in this ratio. Hence it is good sign that it is more than one time. From the above chart it is understandable that the company met ideal ratio only in the year 2012 and It is decreasing trend because the company is keeping more stocks in the subsequent years, if it keeps on holding more stocks then the company cannot convert it into cash quickly. Hence it is recommended that the company must reduce stock levels the company is maintaining some portion of cash for maintaining or increasing its sales, when this ratio is in increasing trend it shows a way that the company can give more credit facilities and maintain additional inventory to promote its sales. This shows that the company has a way to boost up its sales activity, a little further. it is decreasing trend till 2013 and it increased in 2014, it shows that the company can pay its ongoing interest payment. The low debt service ratio indicates that more financial risk, because the company is not able to generate funds for interest payments. From the above table, it is clearly showing that the company is utilizing the asset efficiently till the year 2012 and in the year 2013 and 2014 it is reduced Projected trend analysis for the period of , for sales shows a good result, as it keeps on increasing trend. Due to this increasing volume, the company can generate a better return and growth of the company in future. With this rising trend it shows that 667 Copyright Vandana Publications. All Rights Reserved.

4 the company product/services, is availed by more customers From the analysis of Fixed asset turnover ratio, it is found that the company had utilizing the asset efficiently in all the years. It has reached the ideal ratio in all the years. From the analysis of sales to working capital ratio, it is found that the company has utilized its working capital usefully for sales in the year 2011, but it is reduced in the year 2012 and 2013, and increased in the year Projected trend analysis for the period of , for expenses trend is increasing one and it is not a good sign. The company might have control over its expenses, because the profit will reduce if the expenses increasing. Though the tax payment will differ because of the expenses increasing, it does affect the company performance. IX. FINDINGS From the analysis of Debt-Equity ratio, it is found that the company is using low debt, the company is focusing on shareholders not creditors. From the analysis of Current ratio, it is found that the company has good liquidity position it can able to meet its current liabilities. From the analysis of Quick ratio, it is found that the company has meet ideal ratio in the year 2012 and It decreased in the year From the analysis of cash coverage ratio, it is found that the company has low ratio in the year 2010 then increased till 2013, finally in the year 2014 it decreased. From the analysis of debt service ratio, it is found that the company interest payment is decreasing till 2013 from 2010, then in the year 2014 it increased a little bit. X. RECOMMENDATIONS The company has to go for more debt component, because the company is using low debt component and moreover it can develop further business activities with the help of more funds. The company has to control over expenses, because the expenses is keep on increasing in all the years, and it results in decreasing in profit available for shareholders. The company has to maintain adequate cash level to meet out its immediate requirement, because the company maintains less cash availability The company inventories is keep on increasing from the beginning of the year, so it has to take necessary steps like sales promotion, advertising to clear the stocks because it affects the liquidity position. The company has to properly utilize the assets efficiently to generate more profits, because from the year 2010 till 2014, the company s assets efficiency in generating profit is decreasing, slowly. 668 Copyright Vandana Publications. All Rights Reserved. XI. CONCLUSIONS During the financial year , Reliance industries limited had given dividend of Rs. 7 per share in the year 2010, against given Rs.13 per share in the year 2009, because the company need capital for its growth plans, even though the profit is increased. The projects like KG D6 and SEZ, refineries at Jamnagar started for past one year period from 2010, was a successful one. During the financial year , Reliance Industries limited had made a record performance in profit growth because the projects in Jamnagar namely KG D6 and SEZ refinery was successful and also the Indian s consumer demand was high in manufacturing The company had given an increase in one rupee of dividend per share, Rs.8 per share in the year 2011 compared to previous year Rs. 7 per share in During the financial year , was a challenging year because economic uncertainty prevails in Europe (debt crisis), and slows down of economic growth across Asia. These result in inverse impact of customer demand for products and services. Anyhow the company increased profit a little bit from previous year.

5 During the financial year , the company performance was not so good because the European was full of uncertainty, recession, and unemployment. This leads to market slowdown and impacted demand, and the oil price went up. The expenses went up because of change in economic factor and the company is largest contributor by payment of taxes. So the profit was reduced. During the financial year , the company performance was boosted up, economic recovery in Europe and U.S made a positive impact in customer demand of oil and gas, and some pressure was raised like rupee value depreciated against dollars. The projects like setting up of 4G telecom has improved. So now the performance of Reliance Industries limited is reinstating to its original place. REFERENCE [1] Ali, H., & Ahmad, I., & Bahrudin, N,Z, (2011). Assessing the financial performance of SMEs through Islamic financing schemes, IEEE International journal, PP [2] Atan, R., & Raman, Abdul. & Suryani, & Sawiran, & Sahar, Mohamed. & Nafsiah. & Rasid. (2010). Financial performance of Malaysian local authorities: A trend analysis, IEEE International journal, PP [3] Chien-Chuan Lin, & Chao-Lin Tuan, & Wei-Neng Yang, & Ke-Chung Peng. (2011). An application of Entropy weight and Super-efficiency models on financial performance of Taiwanese listed food companies, IEEE International journal, PP [4] Hajek, P., & Olej, V. (2014). Comparing corporate financial performance and qualitative information from annual reports using self-organizing maps, IEEE International journal, PP [5] Ignatius, J., & Behzadian, M., & Malekan, H,S., & Lalitha, D. (2012). Financial performance of Iran's Automotive sector based on PROMETHEE II, IEEE International journal, PP [6] Jiaming Ma, & Fei Huang, & Xincheng Lu. (2011). Vertical mergers and acquisitions of listed coal company's financial performance evaluation, IEEE International journal, PP Copyright Vandana Publications. All Rights Reserved.