COMPREHENSIVE FINANCIAL REPORT ANALYSIS OF INDIAN OIL CORPORATION 215-16 BY Arvind.D 216PGP81 Siddharth R 216PGP376 Vinayagavel S 216PGP428
1. Common size Balance sheet and Income statement:- NORMAL BALANCE SHEET COMMON SIZE BALANCE SHEET PARTICULARS March 215-16 March 214-15 March 215-16 March 214-15 Equity & Liabilities crores crores % % Shareholders fund 2,427.95 2,427.95 1 1 Share capital 73,566.1 66,44.32 3.4 28.4 75,993.96 68,832.27 31.4 29.4 Minority Interest 1,414.33 1,73.33.6.5 Non-current liabilities Long-term borrowings 3,367.12 36,795.89 12.5 15.7 Deferred tax liabilities 9,656.44 6,883.52 4 3 Other Long-term Liabilities 18,19.9 15,454.21 7.4 6.6 Long-term provisions 2,475.89 2,321.15 1 1 6,519.35 61,454.77 25 26.3 Current liabilities Short-term borrowings 2,482.47 21,358.2 8.5 9.1 Trade payables (A) total outstanding dues to 27.8 14.5.1.6 micro and small enterprises (B) total outstanding dues to 24,893.16 31,478.11 1.3 13.5 creditors other than micro and small enterprises Other current Liabilities 29,59.72 23,776.3 12 1.2 Short-term provisions 29,633.48 25,756.13 12.2 11 1,4,96.63 1,2,382.97 43 43.8 TOTAL 2,42,24.27 2,33,743.34 1 1 ASSETS Non-current assets Fixed Assets (i) Tangible assets 1,1,223.27 76,47.21 41.8 32.5 (ii) Intangible assets 697.76 663.19.3.3 (iii) Capital work-in-progress 22,634.18 36,718.15 9.4 15.7 (iv) Intangible assets under development 3,878.94 3,659.92 1.6 1.6 1,28,434.15 1,17,88.47 53.1 5 Non-current investments 8,666.59 8,761.11 3.6 3.7 Deferred tax assets 4.64 47.97.2.2 Long-term loans and advances 1,183.7 9,68.41 4.2 4.1 Other non-current assets 145.76 21.52.6.9 1,47,47.84 1,35,77.48 6.9 58 Goodwill on Consolidation 79.5 7.48.3.3
Current assets Current investments 7,11.5 7,37.57 2.9 3.13 Inventories 42,94.67 49,917.39 17.4 21.4 Trade receivables 8,66.38 7,648.35 3.6 3.3 Cash and Bank Balances 2,13.65 1,224.89.8.5 Short-term loans and advances 31,793.4 28,92. 13.1 12.4 Other current assets 2,91.59 2,947.18 1.2 1.3 94,474.38 97,965.38 39 41.9 TOTAL 2,42,24.27 2,33,743.34 1 1 Normal Income Statement Common Size Income Statement PARTICULARS MARCH 215- MARCH 214- MARCH 215-16 MARCH 214-15 16 15 crores crores % % Revenue from operations 4,21,737.38 4,86,38.69 1 1 (Gross) Less: Excise Duty 65,81.76 36,531.93 15.6 7.5 Revenue from operations (Net) 3,55,926.62 4,49,56.76 84.4 92.5 Other income 2,246.8 4,25.89.5.9 Total Revenue 3,58,172.7 4,53,712.65 84.9 93.3 Expenses Cost of materials consumed 1,68,141.76 2,48,712.16 4 51.2 Purchases of Stock-in-Trade 1,17,361.72 1,4,817.4 27.8 29 Changes in Inventories (Finished 3,721.72 9,854.11.9 2 Goods, Work-In Progress and Stock-in-trade) Employee benefits expenses 8,227.62 7,662.49 2 1.6 Finance costs 3,629.98 4,174.64.9.85 Depreciation, Depletion, Amortisation and Impairment on a) Tangible Assets 5,775.64 5,74.33 1.4 1 b) Intangible Assets 142.87 144.68.3.3 5,918.51 5,219.1 1.4 1.1 Other expenses 35,292.21 31,912.19 8.4 6.6 Total expenses 3,42,293.52 4,48,352. 81.2 92.3 Profit before Prior Periods, 15,879.18 5,36.65 3.8 1.1 Exceptional Items and Tax Income / (Expenses) pertaining 15.12 (14.39).3 (.3) to Prior Periods (Net) Profit before Exceptional 15,894.3 5,346.26 3.8 1.1 Items and Tax Exceptional Items 1,364.25 1,668.9.3.3 Profit before Tax 17,258.55 7,14.35 4.1 1.5
Tax expense Current tax 3,939.37 1,388.18.9.28 MAT Credit Entitlement (1,98.97) (164.44) (.3).3 Deferred tax 2,812.43 918.83.7.2 Profit for the year 11,65.72 4,871.78 2.8 1 Less: Share of Minority 386.5 (4.24).1 (.8) Profit for the Group 11,219.22 4,912.2 2.7 1 Earning per Equity Share (1) Basic 46.21 2.23.1.4 (2) Diluted 46.21 2.23.1.4 Face Value Per Equity Share (`) 1 1.2.2 2. DuPont Chart analysis:- Particulars 215-16 214-15 213-14 212-13 211-12 Net profit margin.26.117.15.12.16 Assets turnover 1.65 1.93 1.67 1.58 1.49 Financial leverage 3.27 3.43 4.13 4.28 6.46 ROE.15.78.11.8.7 The graphical representation of Assets turnover, Net profit margin, Financial leverage and ROE are as follows Assets turnover Net profit margin 3.5 3 2.5 2 1.5 1.5 Assets turnover.3.25.2.15.1.5 Net profit margin
7 Financial leverage 6 5 4 3 Financial leverage 2 1 211-12 212-13 213-14 214-15 215-16.16 ROE.14.12.1.8.6 ROE.4.2 211-12 212-13 213-14 214-15 215-16
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 215-16 214-15 Current Assets 94474.38 97965.38 Current Liabilities 1496.63 12382.97 Closing Inventory 24138.21 27828.95 A/Cs receivable 866.38 7648.35 Current ratio.91.96 Quick ratio.68.685 Super quick ratio.59.61
1.9.8.7.6.5.4 214-15 215-16.3.2.1 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 = 7336.17/1496.63 =.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.
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 = (1165.72 + 5918.51)/(6519.31+1496.63) =.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 215-16.71 214-15.81 213-14 1.31 212-13 1.32 211-12 1.3 1.4 1.2 1.8 Debt to equity ratio.6 Debt to equity ratio.4.2 215-16 214-15 213-14 212-13 211-12
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 = 5849.59 / 24224.27 =.21 In spite of lower Solvency ratio, the IOC ltd has lower Debt to assets ratio. Interest Coverage ratio = EBIT / Interest Expense = 2888.53/3629.98 = 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 215-16 214-15 Operating Profit 5.86 2.5 Net profit margin 3.26 1.8 Return on assets 8.6 4.79 Return on Shareholder s Equity 15.27 7.8
18 16 14 12 1 8 6 215-16 214-15 4 2 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 (215-16 revenue 355926.62 while 214-15 revenue 44956.76). 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 215-16 NOPAT 14621.971 WACC 9.72% EVA 4283.67
Economic value added describes the operation profit generated in excess to that of cost of capital employed in the business. The EVA 4283.67 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 2427952482 Number of shares held as treasury stock Current share price 561.45 Total invested capital plus 8277 retained earnings Cost of treasury stock Number of Shares Outstanding 2427952482 Market Capitalization = 136317392118.9 Total Shareholders' Equity = Total Invested Capital + Retained Earnings Cost of Treasury Stock 8277 Market Value Added for 569392118.9 Shareholders = Market Value Added for all Investors = Market Value of Equity Total Shareholders' Equity + Market Value of Debt Book Value of Debt 1667235 8. 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 37.36733 Price per book Value 1.83533637 Price/Cash Flow Ratio Stock price per share/operating cash flow per share Stock price per share 564 operating cash flow per share 19.2581734 Price/Cash Flow Ratio 5.16285199
Price/Earnings Ratio Stock price per share/eps Stock price per share 564 EPS 42.83 Price/Earnings Ratio 13.16833995 Price/Sales Ratio Stock price per share/net sales (revenue) per share Stock price per share 564 net sales (revenue) per share 1439.279484 Price/Sales Ratio.391862738 Dividend Yield Annual dividend per share/stock price per share Annual dividend per share 13.74471785 stock price per share 564 Dividend Yield.243767 9. 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.
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 215-16.71 214-15.81 213-14 1.31 212-13 1.32 211-12 1.3
1.4 Total Debt to Equity Ratio 1.2 1.8.6 Series 1.4.2 215-16 214-15 213-14 212-13 211-12 Year Long term debt Equity ratio 215-16.47 214-15.56 213-14.57 212-13.39 211-12.38.6 Long term debt to equity ratio.5.4.3 Long term debt to equity ratio.2.1 215-16 214-15 213-14 212-13 211-12
Debt to Assets = Total debt / Total Assets = 5849.59 / 24224.27 =.21 In spite of lower Solvency ratio, the IOC ltd has lower Debt to assets ratio. Interest Coverage ratio = EBIT / Interest Expense = 2888.53/3629.98 = 5.75 11. Equity Investor Perspective:- Debt-to-equity ratio Total debt / Total Equity Total debt 5849.59 Total Equity 75993 debt-to-equity ratio.669135 Financial leverage ratio Avg. Total Assets/ Avg. Total Equity Avg. Total Assets 237883 Avg. Total Equity 72412 Financial leverage ratio 3.285132 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):.14283 debt-to-capitalization ratio Long-term Debt / (Long-Term Debt + minority interest + equity) Long-term Debt 52,469 Long-Term Debt + minority interest + equity 135886 debt-to-capitalization ratio.386125134 Degree of financial leverage (DFL) EBIT/(EBIT-Interest) EBIT 17476 (EBIT-Interest) 13846.1 DFL 1.26216464
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 1.5. 12. Key Financial Performance ratios:- Working Capital Ratio = Current assets/ current liabilities Current assets 94,474.38 current liabilities 1496 Working Capital Ratio.91 Quick Ratio = (Current assets inventories) / current liabilities Current assets inventories 7336 current liabilities 1496 Quick Ratio.675683984 Earnings per Share = Net income / No. of stocks Net income 355926 No. of stocks 2,428 Earnings per Share 146.595126 Price-Earnings Ratio = Share price of the company / EPS Share price of the company 565.6 EPS 146.6 Price-Earnings Ratio 3.858117326 Debt-Equity Ratio =( long term + short term debts ) / share holders equity ( long term + short term debts ) 5849 share holders equity 75993 Debt-Equity Ratio.66912742 Return on Equity = Net earnings / common equity Net earnings 185 common equity 75993 Return on Equity.142184149
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.