CHAPTER - 1

INTRODUCTION

Meaning of Financial Management:

Financial management may be defined as planning, organizing, directing and controlling
the financial activities of an organization. According to Guttmann and Douglas, financial
management means, “the activity concerned with the planning, raising, controlling and
administering of funds used in the business.” It is concerned with the procurement and utilization
of funds in the proper manner.

Financial activities deal with not only the procurement and utilization of funds but also
with the assessing of needs for funds, raising required finance, capital budgeting, distribution of
surplus, financial controls, etc.

Definitions of Financial management

“Financial management is properly viewed as an integral part of overall management

rather than as a staff specially concerned with funds raising operations. - Ezra Solomon

Financial management is a body of business concerned with the efficient and effective
use of either equity capital, borrowed cash or any other business funds as well as taking the right
decision for profit maximization and value addition of an entity. - Kepher Petra

Finance management not only for the business, but also for every expenses. Like its for
the home base expenses or the government expenses. The government also need to manage the
finance for the develop of the country and the household also need to manage their expenses
properly -Vinod Verma

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Objectives of Financial Management:
 Main objective of financial management is wealth maximization.

 Maximization of owners’ wealth is possible when the capital invested initially increases
over a period of time.

 Wealth maximization means maximizing the market value of investment in shares of the
company.

Wealth of shareholders = Number of shares held ×Market price per share.

In order to maximize wealth, financial management must achieve the following objectives:

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Scope

The scope of financial management has undergone far reaching changes over time. The
finance function assumes a lot of significance in the modern days in view of the increased size of
business operations and growing complexities associates thereto. The scope of financial
management can be studied in two broad categories i.e.,

1. Traditional Approach 2. Modern Approach

scope

Traditional approach Modern approach

Traditional Approach

 The scope of finance management, in the narrow sense means procurement or

arrangement of funds.
 The finance manager was treated as just provider of funds,
 The utilization or administering resources was considered outside the purview of the
finance function.

As per this approach, the following aspects only were included in the scope of financial
management:

(i) Estimation of requirements of finance,

(ii) Arrangement of funds from financial institutions,
(iii) Arrangement of funds through financial instruments such as shares, debentures, bonds
and loans, and
(iv) Looking after the accounting and legal work connected with the raising of funds.

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Modern Approach

 Since 1950s, the approach and utility of financial management has started
 Financial management is considered as vital and an integral part of overall management.
 The emphasis of Financial Management has been shifted from raising of funds to the
effective and judicious utilization of funds.
 The modern approach is analytical way of looking into the financial problems of the
firm.
 the finance manger is required to look into the financial implications of every decision to
be taken by the firm.

Functions of Financial Management:

The functions of financial management can be broadly classified into three major decisions

1. Investment Decisions
2. Financing Decisions
3. Dividend Decisions

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1. Investment Decisions:
 The Investment Decision is Concerned with the selection of assets
 The assets of business firm includes long term assets ( fixed assets) and short term assets
( current assets).
 Long term assets will yield a return over a period of time in future, whereas short term
assets are those assets which are easily convertible into cash within an accounting period
 The long term investment decision is known as Capital Budgeting and short term
investment decision is identified as Working Capital Management.

2. Financing Decisions:
 It is the second important decision is financing decision.
 The financing decision is concerned with capital mix (Financing-mix) or capital structure
of a firm.
 The term capital structure refers to the proportion of debenture capital (debt) and equity
share capital.

3. Dividend Decisions:

 The third important major decision is the dividend policy decision.

 Dividend policy decisions are concerned with a distribution of profits of a firm to the
shareholders.
 The decision will depend upon the preferences of the shareholders.
 The dividend payout ratio is to be determined in the light of the objectives of maximizing
the market value of the share.

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The Functional areas of Modern Financial Management:

Evolution of Financial Management

Its evolution may be divided in to three phases

The traditional phase

The transitional phase

The Modern phase

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The Traditional Phase

This phase has lasted for about four decades. Its finest expression was shown in the
scholarly work of Arthur S.Dewing in his book tilted the financial policy of corporation in
1920’s.Inthise phase the focus of financial management was on four selected aspects.

 It treats the entire subject of finance from the outsider’s point of view rather than the
financial decision maker in the firm
 It places much importance of corporation finance and too little on the financing problems
of non-financial corporate enterprises
 The sequence of treatment was on certain episodic events like formation. Issuance of
capital major expansion, merger, reorganization and liquidation during the life cycle of an
enterprise
 It laid heavy emphasis on long-term financing, institutions, instrument, procedures used
in capital markets and legal aspects of financial events. That is it lacks emphasis on the
problems of working capital management.

The Transitional Phase

It began in the early 1940’s and continued though the early 1950’s. The nature of
financial management in the phase is almost similar to that of the earlier phase, but more
emphasis is given to the day-to-day problems faced by the finance managers.

The Modern Phase

It began in the mid 1950’s and has shown commendably development with combination
of ideas from economic and statistics had led the financial management to the more analytical
and quantitative. The main issue of this phase is rational matching of funds to their uses, which
leads to the maximization of shareholder’s wealth.

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Difference Between Profit Maximization and Wealth Maximization: (Table :1.1)

Advantages Disadvantages
i. Guide for Future Activities: i. Setting of Standards:
Financial control provides the base for future One of the important tasks of financial control
financial activities. It provides guidance to is to compare the actual performance with the
finance manager about how to perform a standard performance but determination of
financial activity. standard performance for a job is a difficult

ii. Controlling Finance: ii. Rigidity:

Financial control not only provides the base for Standard is fixed by taking into account certain
future financial activities but also provides parameters but when the actual job is
tools for checking actual performance with performed, conditions may not remain the
standard performance same as set at the time of fixing the standards.

iii. Increases Managerial Efficiency: iii. Difficulty in Implementation of

Financial control ensures proper financial Control Measures:
Financial control measures can be imple-
discipline in an organization. It also ensures
mented at the beginning of a process. But
optimal utilization of resources.
difficult when the process is in operation.

iv. Ascertaining Adequate Capital: iv. High Costs:

Financial control helps ascertain adequate Implementation of financial control tools in an
amount of capital and thus the problems organization requires a lot of money. Thus,
associated with under-capitalization and over- financial control is a costly affair.
capitalization can be avoided
v. Maintenance of Financial Stability: v.Time Consuming
Financial control increases productivity and
Financial needs and decisions change
efficiency of the concern. Productivity and
constantly due to market variables. This means
efficiency increases the earnings of the concern
that you may have to revisit your financial
and the increase in earnings increases the
decisions often to ensure you update them in
financial strength of the concern
case any changes have occurred

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Profit Maximisation Vs Wealth Maximisation:
 Total profits are not as important as earnings per share.

 Even maximisation of earnings per share is not enough because it does not specify the
timing or duration of expected returns.

 Further, it does not consider the risk of uncertainty of the future earnings. Hence, wealth
maximisation is appropriate and it is possible by maximising the market price per share.

 According to Prof. Ezra Soloman, wealth maximisation also maximises the achievement
of other objectives.

 Maximisation of wealth of the firm implies maximisation of value of owner’s share

capital reflected in the market price of shares. Therefore, the operative objective of
financial management implies maximisation of market price of sharesy.

Significance of Wealth Maximization

The company although requires more from the economic welfare of the shareholders
cannot forget others who directly or indirectly work for the overall development of the company.
Wealth Maximization takes care of: -
1. Lenders and creditors
2. Workers and employees
3. Public or society
4. Management or employer

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 PROFIT MAXIMIZATION WEALTH MAXIMIZATION

Profit Maximization is based on the increase of Wealth Maximization is based on the cash
sales and profits of the organization. flows into the organization.

Focused On

Profit Maximization emphasizes on short term Wealth Maximization emphasizes on long

goals. term goals.

Time Value of Money

Wealth Maximization considers the time

Profit Maximization ignores the time value of
value of money. In wealth maximization, the
money. Time value of money refers the money
future cash flows are discounted at an
receivable today is more valuable than the
suitable discounted rate to represent their
money which is going to be received in future.
present value.

Risk

Profit Maximization ignore the risk and Wealth Maximization considers the risk and
uncertainty. uncertainty.

Reliability

Wealth maximization objectives ensure fair

In the new business environment Profit
return to the shareholders, reserve funds for
maximization is regarded as unrealistic,
growth and expansion, promoting financial
difficult, inappropriate and immoral.
discipline in the management.

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Introduction to Ratio Analysis
Meaning of Ratio: - A ratio is simple arithmetical expression of the relationship of one
number to another. It may be defined as the indicated quotient of two mathematical expressions.

According to Accountant’s Handbook by Wixon, Kell and Bedford, “a ratio is an

expression of the quantitative relationship between two numbers”.

Ratio Analysis: - Ratio analysis is the process of determining and presenting the relationship
of items and group of items in the statements. According to Batty J. Management Accounting
“Ratio can assist management in its basic functions of forecasting, planning coordination, control
and communication”.

It is helpful to know about the liquidity, solvency, capital structure and profitability of an
organization. It is helpful tool to aid in applying judgement, otherwise complex situations.
Ratio analysis can represent following three methods.
Ratio may be expressed in the following three ways:

1. Pure Ratio or Simple Ratio: - It is expressed by the simple division of one number by
another. For example, if the current assets of a business are Rs. 200000 and its current liabilities
are Rs. 100000, the ratio of ‘Current assets to current liabilities’ will be 2:1.

2. ‘Rate’ or ‘So Many Times :- In this type , it is calculated how many times a figure is,
in comparison to another figure. For example, if a firm’s credit sales during the year are Rs.
200000 and its debtors at the end of the year are Rs. 40000, its Debtors Turnover Ratio is
200000/40000 = 5 times. It shows that the credit sales are 5 times in comparison to debtors.

3. Percentage: - In this type, the relation between two figures is expressed in hundredth. For
example, if a firm’s capital is Rs.1000000 and its profit is Rs.200000 the ratio of profit capital, in
term of percentage, is 200000/1000000*100 = 20%

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ADVANTAGE OF RATIO ANALYSIS

1. Helpful in analysis of Financial Statements.

2. Helpful in comparative Study.
3. Helpful in locating the weak spots of the business.
4. Helpful in Forecasting.
5. Estimate about the trend of the business.
6. Fixation of ideal Standards.
7. Effective Control.
8. Study of Financial Soundness.

LIMITATIONS OF RATIO ANALYSIS

1. Comparison not possible if different firms adopt different accounting policies.

2. Ratio analysis becomes less effective due to price level changes.
3. Ratio may be misleading in the absence of absolute data.
4. Limited use of a single data.
5. Lack of proper standards.
6. False accounting data gives false ratio.
7. Ratios alone are not adequate for proper conclusions.
8. Effect of personal ability and bias of the analyst.

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 NEED FOR THE STUDY

 Financial analysis is of immense use to a finance manager as it helps in carrying out

planning and control functions while preparing a financial plan for the company

 Finance manager must know the impact of financial decision on financial conditions and
profitability of the firm.

 The tools of financial analysis serve as had made to management for determining the
impact of his decisions.

 The present study is helpful to the company to know the deficiencies in the ratio analysis
practices of ONGC Ltd. So the necessary steps will be taken to improve asset position.

 The study given the solvency/liquidity position of the company and the optimum cash
balance to meet the day to day requirements of the company which is really helpful to the
finance department of ONGC Ltd.

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 SCOPE OF THE STUDY

 The study based on company analysis.

 The study is based on five consecutive years from 2012-2017.
 The study is related with various aspects of ratio analysis like current assets, current
liabilities.
 The information collected from primary and secondary data.
 The calculation may be done in various analyses through some selected ratio.

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 OBJECTIVES OF THE STUDY

 To know the financial position of the ONGC Ltd .

 To measure the efficiency of the company.
 To measure the financial efficiency of the firm
 To compare the present financial performance of the company with that of the past
years.
 To find out the profitability of the organization during the study period.

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 METHODOLOGY OF THE STUDY

The study is carried on with the co-operation of the management who permitted to carry
out the study and provided the required data. The data is collected both from primary and
secondary resources.

Primary Data
The data is mainly collected by personnel discussions and interviews with the relevant
persons of the company.

Secondary Data
The secondary data is mainly collected from journals, magazines and books available on
the subject, profile of the company and financial statements.

Data Collection
The data collection from the company files, financial assets, balance sheets, and from
library books and other articles from the websites.

Data Analysis
The analyses used in the study are tabulation of charts, graphs and mathematical tools for
representation and schedule of ratios, common size statement, and comparative analysis.

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 LIMITATIONS OF THE STUDY

 Since the study is based on ratios instant price level changes cannot be reflected.
 The study is conducted with the secondary data which is taken from the ONGC Ltd.
annual reports.
 The ratios are generally calculated from the fast financial statements and there are no
indicators of future.
 Since the period of study is short, it also forms one of the above limitation
 Ratio analysis is based on accounting data not economic data.

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 CHAPTER – II
PROFILE OIL AND GAS INDUSTRY IN INDIA

Introduction
 The oil and gas sector is among the six core industries india

 In 1997–98, the New Exploration Licensing Policy (NELP) was envisaged to fill the
ever-increasing gap between India’s gas demand and supply.

 The Government of India has adopted several policies to fulfil the increasing demand.
The government has allowed 100 per cent Foreign Direct Investment (FDI) in many
segments of the sector,

History of oil and gas industry

 Oil and gas industry in Ukraine has long history, the first historical data on oil production
in Western Ukraine appeared in the14th century.

 Ukraine was the first country in the world to deliver natural gas to other countries

 In the 1820s, the commercial production of oil started in the Boryslav, Pre-Carpathian
region.

 At that time it was the largest oil producing region in Europe.

 At the beginning of the 20th century the volume of production reached 2 million tons per
year.

 After World War II, oil and gas industry of Ukraine developed rapidly as a result of the
discovery of significant hydrocarbon

 In 1972 the industry reached the peak level of oil and gas condensate production (14.4
million tons), and in 1975, the peak level of natural gas production (68.7 bcm).

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Major sources of energy in the world

On the basis of use, energy is divided into

(i) Commercial and

(ii) Non-commercial energy.

Commercial energy is used by production sector while almost whole of the non-conmercial
energy is consumed by the household sector.

To meet this type of use of energy there are so many sources of energy some of them are

sources

coal petrolum natural gas hydro power

atomic energy solar energy wind energy

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Sources of Energy

1. Coal:
 Coal is the main source of energy in India and it accounts
for about 67% of country’s commercial requirements. In
2005-06,

 India ranks third in the world regarding coal production

after China and America.

2. Petroleum:
 Petroleum consumption has been increasing faster than
the petroleum production in India.

 As a result India’s dependence on imports of crude oil

has been rising to meet the domestic requirement of
petroleum.

3. Natural Gas:

 Natural gas can be used for both domestic and industrial

purposes.

 It finds application in the power, fertiliser and

petrochemical industries.

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4. Hydro Power:
 In countries like Norway and Brazil its contribution is more
than 90% in their total electricity generation.

 To meet the requirement duringTwelfth Five Year Plan, a

shelf of 87 hydro projects of capacity 20,334 MW has been
tentatively identified

5. Atomic Energy:
 India is now one of the few countries which have made
considerable progress in the field of atomic energy.

 In 2009, 17 atomic reactors were working in the country

with total energy production of 4120 MW. Five other
atomic reactors are under construction.

 Atomic energy can be produced by using uranium and thorium. Monazite is the source of
thorium. It is found in Kerala, Karnataka and Bihar.

6. Solar Energy:

 This energy is increasingly being used for varied purposes,

such as water heating, cooking, electrification, distillation
of water, timber seasoning, etc.

 It has been estimated that India can generate 20 MW solar

powers per square km land area.

 However, a major problem in harnessing solar energy is that it is not available in a

concentrated form. Moreover, it is highly variable

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Renewable and Non-Renewable Natural Resources
 All resources of living and non-living provided by nature are called natural resources.
Hence land, water, air, minerals, forest, all forms of energy,

 Resources means“the interaction of matter and energy for the functioning of organisms,
populations and ecosystems”.

 Natural resources are necessary for the fulfilment of physiological and socio-economic
needs of individual and community as a whole.

Depending on the origin and sustainability, natural resources are divided into two types. These
are:

(1) Renewable and

(2) Non renewable resources.

1. Renewable resources:
 Resources which are reproducible are called Renewable resources.

 Natural vegetation, wildlife, soil, water, wind energy etc. are in this category.

 Renewable resources are regenerated or regrouped by natural processes in a particular pe-

riod of time.

2. Non-renewable resources:
 Resources which cannot be replaced if used once are called non-renewable.

 Resources obtained from minerals, fossil are in this category.

 Nature has provided limited supply of these resources. Continuous use of these resources
depletes its stock and future demands cannot be fulfilled as these resources are not
replaceable.

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World oil and gas reserves country wide

1. VENEZUELA

Proven oil reserves in 2013 (billion barrels): 297.6. Total oil supply in 2012 (thousand barrels
per day): 2,489.2
Venezuela surpassed Saudi Arabia last year to become the holder of the largest oil reserves in the
world..

2. SAUDI ARABIA
Proven oil reserves (billion barrels): 267.91. Total oil supply in 2012 (thousand barrels per day):
11,545.7
Saudi Arabia has almost one-fifth of the world’s proven oil reserves and ranks as the largest
producer and exporter of oil in the world.

3. CANADA

Proven oil reserves: 173.105. Total oil supply in 2012 (thousand barrels per day): 3,854.4
Canada’s oil sands are a significant contributor to the recent growth in the world’s liquid fuel
supply and comprise the vast majority of the country’s proven oil reserves.

4. IRAN

Proven oil reserves: 154.58. Total oil supply in 2012 (thousand barrels per day): 3,538.4
International sanctions have drastically impacted Iran’s energy sector – the country’s oil
production fell dramatically in 2012,

5. IRAQ
Proven oil reserves: 141.35. Total oil supply in 2012 (thousand barrels per day): 2,986.6
Despite having large proven oil reserves, increases in oil production have fallen behind
ambitious targets because of infrastructure constraints and political disputes, says EIA.

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6. KUWAIT

Proven oil reserves: 104. Total oil supply in 2012 (thousand barrels per day): 2,796.8
Kuwait boasts the second largest oil reserves in the GCC, behind Saudi Arabia and is also among
the world’s top 10 largest exporters of total oil products.

7. UNITED ARAB EMIRATES

Proven oil reserves: 97.8. Total oil supply in 2012 (thousand barrels per day): 3,213.2
Enhanced oil recovery techniques continue to underpin strong crude oil production totals and are
an important strategy for extending the life of the country’s aging oil fields, states EIA.

8. RUSSIA

Proven oil reserves: 80. Total oil supply in 2012 (thousand barrels per day): 10,397
Russia, which also holds the world’s largest natural gas reserves and the second-largest coal
reserves, is the second biggest oil supplier in the world after Saudi Arabia.

9. LIBYA

Proven oil reserves: 48.01. Total oil supply in 2012 (thousand barrels per day): 1,483
The holder of Africa’s largest proven oil reserves, Libya saw a disruption in oil production due
to conflict, but the country has recovered, and subsequently, has begun to increase supplies.

10. NIGERIA

Proven oil reserves: 37.2. Total oil supply in 2012 (thousand barrels per day): 2,524.1

Nigeria’s hydrocarbon resources are the mainstay of the country’s economy, but EIA states that
development of the sector is often constrained by instability in the Niger Delta.

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Government Initiatives

Some of the major initiatives taken by the Government of India to promote oil and gas sector are:

 The Government of India plans to merge state oil companies to create an integrated oil
major that could compete globally, and utilise the synergy between various state entities
for achieving efficiency and cost competitiveness in order to create more value for all
shareholders.

 The Government of India plans to unveil a new policy for renewing and extending the
lease of 28 oil and gas blocks in the country, with a view to attract more investments into
these fields.

 The Cabinet Committee on Economic Affairs, Government of India, has approved the
awarding of contracts on 23 onshore and 8 offshore contract areas of discovered small oil
and gas fields that earlier belonged to Oil and Natural Gas Corporation (ONGC) and Oil
India Limited (OIL).

 India and Russia have agreed to enhance their bilateral engagement by signing three
Memorandum of Understanding (MoU) on October 15, 2016 for co-operation in the field
of hydrocarbons sector during the India-Russia Annual Summit held at Goa.

 The Ministry of Mines plans to restart operations in several hundred mines across the
country in order to raise the share of mining and quarrying industry in India’s Gross
Value Addition (GVA) by one percentage point from 2.4 per cent at present, over the
next two-to-three years.

 The Union Cabinet has approved the National Mineral Exploration Policy (NMEP),
which will pave the way for auction of 100 prospective mineral blocks to attract private
sector in exploration, besides involving state-run agencies.

 MrDharmendraPradhan, Minister of State for Petroleum and Natural Gas and

MrPrakashJavadekar, Minister of State for Environment, Forests and Climate Change
have launched a pilot programme, aimed at introducing compressed natural gas (CNG) as
fuel for two-wheelers.

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Energy consumption pattern by source wise

 World energy consumption is the total energy used by the entire human civilization.
Typically measured per year

 It involves all energy harnessed from every energy source applied towards humanity's
endeavours across every single industrial and technological sector,

 World Energy Consumption has deep implications for humanity's socio-economic-

political sphere.

 Institutions such as the International Energy Agency (IEA), the U.S. Energy Information
Administration (EIA), and the European Environment Agency record and publish energy
data periodically.

 Improved data and understanding of World Energy Consumption may reveal systemic
trends and patterns,

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 Market Share of Oil and Gas
Companies
11% 1%
IOCL
28%
18% ONGC

20% 22% Reliance

OPEC Countries

 The Organization of the Petroleum Exporting Countries (OPEC) is a permanent,

intergovernmental Organization, created at the Baghdad Conference by Iran,

 Iraq, Kuwait, Saudi Arabia and Venezuela. The five Founding Members were later joined
by ten other Members:

 OPEC's objective is to co-ordinate and unify petroleum policies among Member

Countries, in order to secure fair and stable prices for petroleum producers

 an efficient, e regular supply of petroleum to consuming nations and a fair return on

capital to those investing in industry

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Those Countries are

1) Saudi Arabia

2) Iran

3) Iraq

4) Kuwait

5) Venezuela

6)Qatar

7)Indonesia

8)Libya

9) United Arab Emirates

10)Algeria

11)Nigeria

12)Angola

Upstream And Down Stream Of Oil And Gas

 Upstream" and "downstream" are business terms applicable to the production processes.

 Industries that commonly use this terminology include the metals industry, oil, gas,
biopharmaceutical and biotechnology industries.

 Upstream, downstream and midstream make up the stages of the production process for
these and other industries.

Upstream

 The upstream stage of the production process involves searching for and extracting raw
materials.

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  The upstream part of the production process does not do anything with the material itself,
such as processing the material.

 Thus, any industry that relies on the extraction of raw materials commonly has an
upstream stage in its production process.

Examples of Upstream Processes

In the petroleum industry, locating underground or underwater oil reserves characterizes the
upstream process. Additionally, the upstream process in this industry involves bringing oil and
gas to the surface.

Downstream

 The downstream stage in the production process involves processing the materials
collected during the upstream stage into a finished product.

 The downstream stage further includes the actual sale of that product to other businesses,
governments or private individuals.

 The type of end user will vary depending on the finished product.

Examples of Downstream Processes

In the oil and gas industry, the downstream process consists of converting crude oil into other
products and then selling those products to customers. Thus, oil refineries represent structures
that operate within the downstream process.

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Oilfields (Regulation and Development) Act, 1948

• Basic enabling statute for licensing and leasing of petroleum and gas blocks by the
appropriate government. Covers mineral oils which are defined as including natural gas
and petroleum [S.3(c)]. Mining lease is defined exhaustively to cover all forms of
exploring and exploiting mineral oils and all purposes connected thereto [S.3(d)]

• Empowers central government to make rules with regard to mining leases [S.5]

• Also empowers central government to make rules for the development of mineral oil

Land acquisition Act, 1894

• The law deals with the acquisition of land for Public purpose. The Act is a general Act
which deals with the procedure and the conditions under which a land can be acquired.

• The only requirement is that the land can only be acquired for public purpose as per
Section 3(f) of the Act.

The Petroleum Act, 1934

• The act deals with import, transport, storage, production, refining, and blending of
petroleum. The Act is one of the oldest acts in the oil and gas sector. Earlier to this act the
rules regarding the above specified activities were separate for separate States.

• The Petroleum Minerals Pipelines (Acquisition of Right of users in Land) Act, 1962

Industry Players Across The World

The global oil and gas industry is in the midst of one of the severest downturns in 30
years, as the perfect storm of overproduction and geopolitical tensions have seen oil prices
plunge. However, the fact remains that the industry has produced some of the largest companies
in known history.

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Top 10 oil and gas companies in the world

10. OJSC Lukoil 5. Saudi Arabian Oil Company

Revenue (2014): $144.17 billion Revenue (2014): $378 billion
Country of Origin: Russia Country of Origin: Saudi Arabia
Founded: 1991 Founded: 1933

9. Chevron Corporation 4. ExxonMobil

Revenue (2014): $211.97 billion Revenue (2014): $411.94 billion

Country of Origin: USA Country of Origin: USA
Founded: 1879 Founded: 1999

8. Kuwait Petroleum Corp 3. Royal Dutch Shell

Revenue (2014): $252 billion Revenue (2014): $421.1 billion

Country of Origin: Kuwait Country of Origin: UK/Netherlands
Founded: 1980 Founded: 1907

7. Total S.A. 2. China National Petroleum Corp.

(Petrochina)
Revenue (2014): $236.1 billion
Country of Origin: France Revenue (2014): $432 billion
Founded: 1924 Country of Origin: China
Founded: 1988
6. BP
1. Sinopec
Revenue (2014): $358.7 billion Revenue (2014): $437.6 billion

Country of Origin: UK Country of Origin: China

Founded: 1909 Founded: 2000

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Oil & Gas Industry in India
Oil supply and demand in India
 Oil consumption is estimated to expand at a CAGR of 3.3 per cent during FY2008–16E to reach
4.0 mbpd by 2016

 Due to the expected strong growth in demand, India’s dependency on oil imports is likely to
increase further

 Rapid economic growth is leading to greater outputs, which in turn is increasing the demand of
oil for production and transportation

 With rising income levels, demand for automobile is estimated to increase

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Conclusion:

• The Indian oil and gas sector is one of the six core industries in India and has very
significant forward linkages with the entire economy. Government has taken many steps
to regulate it. The Steps are also taken to increase the Indigenous oil and gas reserves.

• Although there are few loopholes which should be taken care of as soon as possible, one
major drawback in the E&P sector is that the Regulatory Body (DGH) does not have any
statutory value. The decisions of the DGH are merely advisory in nature and the
Government is not to follow them.

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 CHAPTER-III
PROFILE OF ONGC LIMITED
Introduction:

 Maharatna ONGC is the largest producer of crude oil and natural gas in India,
contributing around 70 per cent of Indian domestic production.

 The crude oil is the raw material used by downstream companies like IOC, BPCL, HPCL
to produce petroleum products like Petrol, Diesel, Kerosene, Naphtha, Cooking Gas-LPG

 ONGC is India’s Top Energy Company and ranks 20th among global energy majors
(Platts).

 ONGC ranks 14th in ‘Oil and Gas operations’ and 220th overall in Forbes Global 2000.
Acclaimed for its Corporate Governance practices, Transparency International has ranked
ONGC 26th among the biggest publicly traded global giants.

 It is one of the most valued public enterprise in India, and one of the highest profit-
making and dividend-paying.

 ONGC has a unique distinction of being a company with in-house service capabilities in
all areas of Exploration and Production of oil & gas and related oil-field services.

 Winner of the Best Employer award, a dedicated team of over 33,927 professionals toil
round the clock in challenging locations.

 Its wholly-owned subsidiary ONGC Videsh Limited (OVL) is the biggest Indian
multinational in the energy space,

 Participating in 36 oil and gas properties in 17 countries. ONGC subsidiary Mangalore

Refinery and Petrochemicals Limited (MRPL) is a Schedule ‘A’ Miniratna, with a single-
location refining capacity of 15 million tons per annum.

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 Vision and mission

Vision
To be global leader in integrated energy business through sustainable growth, knowledge
excellence and exemplary governance practices.

Mission

World Class
 Dedicated to excellence by leveraging competitive advantages in R&D and technology with
involved people.
 Imbibe high standards of business ethics and organizational values.
 Abiding commitment to safety, health and environment to enrich quality of community life.
 Foster a culture of trust, openness and mutual concern to make working a stimulating and
challenging experience for our people.
 Strive for customer delight through quality products and services.

Integrated In Energy Business

 Focus on domestic and international oil and gas exploration and production business
opportunities.
 Provide value linkages in other sectors of energy business.
 Create growth opportunities and maximize shareholder value.

Dominant Indian Leadership

 Retain dominant position in Indian petroleum sector and enhance India's energy availability.

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ONGC Organogram:

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History of ONGC

1947 – 1960

 During pre-independence, the Assam Oil Company in the North-Eastern and Attack Oil
company in North-Western part of undivided India

 The major part of Indian sedimentary basins was deemed

to be unfit for development of oil and gas resources.

 After independence, the Government realized the

importance of oil and gas for rapid industrial
development and its strategic role in defence.

 Until 1955, private oil companies mainly carried out exploration of hydrocarbon
resources of India.

 In 1955, Government of India decided to develop the oil and natural gas resources in the
various regions of the country as part of Public Sector development.

 With this objective, an Oil and Natural Gas Directorate was set up in 1955 under the then
Ministry of Natural Resources and Scientific Research.

1961 – 1990

 Since its inception, ONGC has been instrumental in

transforming the country's limited upstream sector into a
large viable playing field,
 In the inland areas, ONGC not only found new resources
in Assam but also established new oil province in Cambay
basin (Gujarat),
 ONGC went offshore in early 70's and discovered a giant oil field in the form of Bombay
High, now known as Mumbai High.

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 After 1990

 The liberalized economic policy, adopted by the

Government of India in July 1991, sought to deregulate
and de-license the core sectors with partial disinvestments

 As a consequence thereof, ONGC was re-organized as a

limited Company under the Company's Act, 1956 in
February 1994.

 After the conversion of business of the erstwhile Oil & Natural Gas Commission to that
of Oil & Natural Gas Corporation Limited in 1993, the Government disinvested 2 per
cent of its shares through competitive bidding.

 Subsequently, ONGC expanded its equity by another 2 per cent by offering shares to its
employees.

Exploration

 Discovered six out of seven producing Basins in India. Located 8.78 billion tonnes of Oil & Oil
Equivalent in Indian Basins with over 400 discoveries

 ONGC is the largest exploration acreage and mining lease holder in India

 83% of established reserves (out of 10.9 BT) in the country has been discovered by ONGC.

 22 new discoveries - 10 new prospects, 12 new pools in FY’15

 Reserve Replenishment Ratio (RRR) for the last ten years has been more than One (3P
Reserves)

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 Production

 ONGC has been able to arrest decline in majority of its matured fields (of vintage 30-50 years)
that contribute 72% of the company’s O+OEG production through its majorly successful
technology-intensive IOR and EOR.

 1184 oil wells and 151 gas wells in offshore and 4735 oil wells and 606 gas wells in onshore as
on April 1, 2015

 Western Offshore production up by 7.5% (16.20 MMT in FY’15 against 15.54 MMT in FY’14)

 Produces 1.2 million barrels of oil equivalent per day

 ONGC accounts 69% of Crude oil & 70% of Natural Gas production

 Produced 1,743 Million Metric Tonnes of Oil Equivalent so far

Arrested decline in 14 major fields producing for over 30 years, vis-a-vis global decline rate of
7% from matured fields

Competitive strength

 All crudes are sweet and most (76%) are light, with sulphur percentage ranging from 0.02-0.10,
API gravity range 26°-46° and hence attract a premium in the market.

 Strong intellectual property base, information, knowledge, skills and experience

 Maximum number of Exploration Licenses, including competitive NELP rounds. ONGC has
bagged 121 of the 235 Blocks (more than 50%) awarded in the 8 rounds of NELP.

 ONGC owns and operates more than 26,600 kilometers of pipelines in India, including sub-sea
pipelines. No other company in India operates even 50 per cent of this route length

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Corporate social responsibility

In recognition of its role as a 'responsible leader', ONGC continues its quest to make
positive, tangible difference in the lives of the vulnerable and disadvantaged, especially in and
around its operational areas. With a business paradigm that is based on an interconnected vision -
of people's welfare, societal growth and environmental conservation, ONGC continues to cater to
the developmental needs across the following focus areas:

 Education including vocational courses;

 Health Care;
 Entrepreneurship (self-help & livelihood generation) schemes;
 Infrastructure support roads, bridges, Schools, hospitals in around our operational areas
 Environment protection, ecological conservation, promotion;

Achivements and Awards OF ONGC

 ONGC improves its brand valuation – 7th in India -20 July 2016

 D K Sarraf felicitated as Legend CMD of the Year -20 July 2016

 ONGC bags ICC PSE Excellence Awards 2015 in multiple categories -07 July 2016

 ONGC receives Bhamashah Award for setting up Smart Classes -02 July 2016

 Former Director U N Bose gets Outstanding Achievement Award for E&P contributions

-13 June 2016

 ONGC secures top international award for Online Internal Communications

-20 May 2016

 ONGC receives Scope Excellence award from Hon’ble President -11 April 2016

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Financial And Operation Highlights Of Company

Operation Highlights

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Financial Highlights

42
Company Presence , Locations, Branches

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 ASSETS/ PLANTS BASINS INSTITUTES

 Mumbai High Asset,  Western Offshore Basin,  KeshavaDevMalaviya

Mumbai Mumbai Institute of Petroleum
Exploration (KDMIPE),
Dehradun

 .Neelam&Heera Asset,  Western Onshore Basin  Institute of Drilling

Mumbai Vadodara Technology (IDT),
Dehradun
 Bassein& Satellite Asset,  KG Basin, Rajamundry  Institute of Reservoir
Mumbai Studies, Ahmedabad
 Uran Plant, Uran  Cauvery Basin , Chennai  . Institute of Oil & Gas
Production Technology,
Navi Mumbai
 Hazira Plant, Hazira  Assam & Assam-Arakan  . Institute of Engineering &
Basin , Jorhat Ocean Technology, Navi
Mumbai
 .Ahmedabad Asset,  CBM- BPM Basin ,  . Geo- data Processing &
Ahmedabad Kolkata Interpretation Center
(GEOPIC), Dehradun
 Ankleshwar Asset,  .Frontier Basin , Dehradun  ONGC Academy ,
Mehsana Dehradun

 .Mehsana Asset, Mehsana  Institute of Petroleum

Safety, Health &Environme
Management, Goa
 Rajamundry Asset,  Institute of Biotechnology
Rajamundry &Geotectonics Studies,
Jorhat
 . Karaikal Asset, Karaikal  School of Maintenance
Practices, Vadodara
 . Assam Asset, Nazira  Regional Training
Institutes, Navi Mumbai,
Chennai, Sivasagar&
Vadodara.
 Tripura Asset, Agartala

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SWOT Analysis for ONGC

ONGC SWOT Analysis

1. ONGC is India’s largest crude oil and natural gas producer

2. Strong brand name of ONGC company
3. High profit making and high revenues
4. Has over 30,000 employees in its workforce
5. ONGC produces about 30% of India's crude oil requirement
6. Contributes 70%+ of India's crude oil production and 80%+ of
Strengths India's natural gas production
7. Commemorative Coin set was released to mark 50 Years of ONGC

8. Strong advertising and branding of the company along with

recognition from several awards

9. Owned by the Govt of India, ONGC has got a strong financial

backing

1. Being a government organization, slow bureaucratic decisions can

Weaknesses reduce efficiency

2. Intense competition means limited market share growth for ONGC

1. Increasing fuel/oil prices means higher margins for ONGC

2. Increasing natural gas market
Opportunities
3. ONGC can increase business by more oil well discoveries
4. Expand global export market and have international tie-ups

1.Government regulations affects business of ONGC

2.High competition form Indian as well as global oil companies
Threats
3.Hybrid and electric cars in the market can reduce fuel consumption

4. Fluctuating crude oil prices can affect the business

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 CHAPTER- IV
THEORETICAL FRAMEWORK OF RATIO ANALYSIS

Concept of Ratio Analysis

 Financial statements contain many information (figures) relating to profit or loss and
financial position of the business.

 Ratio analysis as a technique or analysis of financial statements uses this method of

comparing the various items found in financial statements.

 Ratio analysis is used to evaluate various aspects of a company’s operating and financial
performance such as its efficiency, liquidity, profitability and solvency.

 The trend of these ratios over time is studied to check whether they are improving or
deteriorating.

 Ratio is used to describe significant relationships which exist between figures shown in a
balance sheet, in a profit and loss account or in any other part of the accounting
organization.

Definitions of Ratio Analysis

“ratio analysis is largely a study of relationship among the various financial factors in
business as disclosed by a single set of statements and a study of the trend of these factors as
shown in a series of statements.

- MYRERS

“Ratio analysis is a process of evaluating the relationship between component parts of

financial statement to obtain a better understanding of a firm’s position and performance.

- METCALF and TITARD

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Nature of the Ratio Analysis

a) External Analysis :-It is made by those who do not have access to the detailed
records of the company, this group, which has to depend almost entirely on published
financial statements, includes investors, credit agencies and governmental agencies
regulating a business in nominal way. The position of the external analyst has been
improved in recent times owing to the governmental regulations requiring business
undertaking to make available detailed information to the public through audited
accounts.

b) Internal Analysis:-The internal analysis is accomplished by those who have access to

the books of accounts and all other information related to business. While conducting this
analysis, the analyst is a part of the enterprise he is analyzing. Analysis for managerial
purposes is an internal type of analysis and is conducted by executives and employees of
the enterprise as well as governmental and court agencies which may have regulatory and
other jurisdiction over the business.

c) Horizontal Analysis:-When financial statements for a number of years, are review

and analyzed, the analysis is called ‘horizontal analyses. As it is based on data from year
to year rather than on one date or period of time as a whole, this is also known as
‘dynamic analyses. This is very useful for long term trend analysis and planning.

d) Vertical Analysis:-It is frequently used for referring to ratios developed for one date
or for one accounting period. Vertical analysis is also called ‘Static Analysis’. This is not
very conducive to proper analysis of the firm’s financial position and its interpretation as
it does not enable to study data in perspective. This can only be provided by a study
conducted over a number of years so that comparisons can be affected. Therefore,
vertical analysis is not very useful.

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Objectives of Ratio Analysis
Ratio Analysis is very much helpful in assessing the financial position and profitability of
a concern. The man objectives of analyzing the financial statements are as follows.

1. The comparative study in regard to one firm with another firm or one department with
another department is possible by the analysis of financial statements.

2. Analysis of past results in respects of earning and financial position of the enterprise is of
great help in forecasting the future results. Hence it helps in preparing budgets.

3. It facilitates the assessments of financial stability of the concern.

4. The analysis would enable the present and the future earning capacity and the
profitability of the concern.

5. The operational efficiency of the concern as a whole as well as department wise can be
assessed. Hence the management can easily locate the areas of efficiency and
inefficiency.

6. The solvency of the firm, both short-term and long-term, can be determined with the help
of financial statement analysis which is beneficial to trade creditors and debenture
holders.

7. The long-term liquidity position of funds can be assessed by the analysis of financial
statements.

Advantages of ratio analysis:

1. Forecasting and Planning:

The trend in costs, sales, profits and other facts can be known by computing ratios of

relevant accounting figures of last few years. This trend analysis with the help of ratios may be
useful for forecasting and planning future business activities.

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2. Budgeting:

Budget is an estimate of future activities on the basis of past experience. Accounting

ratios help to estimate budgeted figures. For example, sales budget may be prepared with the
help of analysis of past sales.

3. Measurement of Operating Efficiency:

Ratio analysis indicates the degree of efficiency in the management and utilisation of its

assets. Different activity ratios indicate the operational efficiency. In fact, solvency of a firm
depends upon the sales revenues generated by utilizing its assets.

4. Communication:
Ratios are effective means of communication and play a vital role in informing the
position of and progress made by the business concern to the owners or other parties.

5. Control of Performance and Cost:

Ratios may also be used for control of performances of the different divisions or
departments of an undertaking as well as control of costs.

6. Inter-firm Comparison:
Comparison of performance of two or more firms reveals efficient and inefficient firms,
thereby enabling the inefficient firms to adopt suitable measures for improving their efficiency.

The best way of inter-firm comparison is to compare the relevant ratios of the organisation with
the average ratios of the industry.

7. Indication of Liquidity Position:

Ratio analysis helps to assess the liquidity position i.e., short-term debt paying ability of a

firm. Liquidity ratios indicate the ability of the firm to pay and help in credit analysis by banks,
creditors and other suppliers of short-term loans.

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8. Signal of Corporate Sickness:
A company is sick when it fails to generate profit on a continuous basis and suffers a

severe liquidity crisis. Proper ratio analysis can give signal of corporate sickness in advance so
that timely measures can be taken to prevent the occurrence of such sickness.

9. Aid to Decision-making:
Ratio analysis helps to take decisions like whether to supply goods on credit to a firm,
whether bank loans will be made available etc.

10. Simplification of Financial Statements:

Ratio analysis makes it easy to grasp the relationship between various items and helps in
understanding the financial statements.

Limitations of Ratio Analysis:

The technique of ratio analysis is a very useful device for making a study of the financial

health of a firm. But it has some limitations which must not be lost sight of before undertaking
such analysis.

Some of these limitations are:

1. Limitations of Financial Statements:

Ratios are calculated from the information recorded in the financial statements. But

financial statements suffer from a number of limitations and may, therefore, affect the quality of
ratio analysis.

2. Historical Information:
Financial statements provide historical information. They do not reflect current
conditions. Hence, it is not useful in predicting the future.

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3. Different Accounting Policies:
Different accounting policies regarding valuation of inventories, charging depreciation
etc. make the accounting data and accounting ratios of two firms non-comparable.

4. Lack of Standard of Comparison:

No fixed standards can be laid down for ideal ratios. For example, current ratio is said to

be ideal if current assets are twice the current liabilities. But this conclusion may not be

justifiable in case of those concerns which have adequate arrangements with their bankers for

providing funds when they require, it may be perfectly ideal if current assets are equal to or
slightly more than current liabilities.

5. Quantitative Analysis:
Ratios are tools of quantitative analysis only and qualitative factors are ignored while

computing the ratios. For example, a high current ratio may not necessarily mean sound liquid
position when current assets include a large inventory consisting of mostly obsolete items.

6. Window-Dressing:
The term ‘window-dressing’ means presenting the financial statements in such a way to

show a better position than what it actually is. If, for instance, low rate of depreciation is

charged, an item of revenue expense is treated as capital expenditure etc. the position of the

concern may be made to appear in the balance sheet much better than what it is. Ratios computed
from such balance sheet cannot be used for scanning the financial position of the business.

7. Changes in Price Level:

Fixed assets show the position statement at cost only. Hence, it does not reflect the
changes in price level. Thus, it makes comparison difficult.

8. Causal Relationship Must:

Proper care should be taken to study only such figures as have a cause-and-effect
relationship; otherwise ratios will only be misleading.

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9. Ratios Account for one Variable:
Since ratios account for only one variable, they cannot always give correct picture since

several other variables such Government policy, economic conditions, availability of resources
etc. should be kept in mind while interpreting ratios.

10. Seasonal Factors Affect Financial Data:

Proper care must be taken when interpreting accounting ratios calculated for seasonal

business. For example, an umbrella company maintains high inventory during rainy season and

for the rest of year its inventory level becomes 25% of the seasonal inventory level. Hence,
liquidity ratios and inventory turnover ratio will give biased picture.

Factors Affecting the Efficency of Ratios

Ratios by themselves mean nothing. Caution has to be exercised in using ratios. They must
always be compared with:
a) A norm or a target,
b) Previous ratios in order to assess trends, and
c) The ratios achieved in other comparable companies (inter-company comparison).

Types of Ratios

. • Liquidity ratio

.
• Leverage ratio

. • Activity ratio.

. • Profitability ratio.

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Short term solvency position of ONGC:/Liquid ratios
Liquidity ratio refers to the ability of a firm its obligation in the short run, usually one
year. The short – term obligations are met by realizing amounts from current, floating or
circulating assets. Liquidity ratios are generally based on the relationship between current assets
and current liabilities. The sufficiency or insufficiency of current assets should reassessed by
comparing them with current liabilities.
The important liquidity ratios are
 Current ratio
 Quick ratio
 Absolute ratio

Liquidity
ratio

Absolute
Current ratio Quick ratio
ratio

CURRENT RATIO
Current ratio is an indicator of the firm’s commitment of its short term liabilities. This
ratio is an index of the concern financial stability since it show the extent of the working capital
which is derived by the current assets with the current liabilities.

Current Assets
Curent Ratio =
Current Liabilities

Current Assets Included

Cash in hand, cash at bank debtors, bills receivables, stock and prepaid expenses etc.

Current Liabilities Included

Creditors, bills payable, other current liabilities, short term provision etc.

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Advantages of the Current Ratio
 It often tells how fast the products sell, thus the company can optimize its production.

 Companies with fast selling products, that is, one with a high Current ratio figure, can
utilize the just-in-time production system,

Disadvantages of the Current Ratio

 A drawback of the Current Ratio is that it tells nothing about the profitability of the
company or of the product.

 A product may sell fast, but it may generate large losses to the company.

 It does not tell whether the production cost are too high, or sales prices are too low, or
possibly a combination of the two.

Standard ratio: - According to accounting principles, a current ratio of 2:1 are supposed to
be an ideal ratio.


It means that current assets of a business should, at least, be twice of its current
liabilities. The higher ratio indicates the better liquidity position; the firm will be able to pay its
current liabilities more easily. If the ratio is less than 2:1, it indicates lack of liquidity and
shortage of working capital.

QUICK RATIO
Quick ratio is also termed as acid ratio. Current assets include inventories and prepaid
expenses which are not easily convertible into cash within a short period. If an asset is liquid it
can be converted into cash immediately or reasonably soon without a loss of value. It measures
the firm’s capacity to pay off current obligations immediately and is more rigorous test of
liquidity than current ratio.

Current Assets − Stock

Quick Ratio =
Current Liabilities

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Standard ratio: - An ideal quick ratio is said to be 1:1. If it is more, it is considered to be
better. This ratio is a better test of short-term financial position of the company.

ABSOLUTE LIQUID RATIO

Absolute liquid ratio is represented by cash and near cash items. It is a ratio of absolute
liquid assets to current liabilities. In the computation of this ratio only the absolute liquid assets
are compared with the liquid liabilities. The absolute liquid assets are cash, bank and marketable
securities. It is to be observed that receivables (debtors / accounts receivables and bills
receivables) are eliminated from the list of liquid assets in order to obtain absolute liquid assets
since there may be some doubt in their liquidity.

Absolute Liquid Assets

Absolute Liquid Ratio =
Current Liabilities
Significance
The standard ratio of absolute liquidity is 0.75:1, i.e., for every one liability there will be 0.75 of
liquid assets

Long term solvency position of ONGC /Leverage Ratios

Leverage ratio measures the relative contribution of stock holders and creditors. Leverage
ratio indicates the extent to which the business is relevant on debt financing (creditor’s money
versus owner’s equity). Leverage ratio which shows the extent that debt is used in a company’s
capital structure. A company is deemed to be financially sound if it is in a position to carry on its
business smoothly and meet all its obligations of both long term as well as short term without
strain. Thus its financial position has to be judged from two angles long term and short term.

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  Debt – equity ratio
 Debt ratio
 Capital gearing ratio
 Interest – coverage ratio
 Proprietary ratio
 Inventories to net working capital

LEVERAGE
RATIOS

Debt – Interest Proprietary

equity ratio Debt ratio coverage ratio ratio

Capital Inventories to
net working
gearing ratio capital

DEBT – EQUITY RATIO

It measures the ratio of Long-term debt to share holder’s funds. Idle Ratio usually
recommended is 2:1 As such if the debt is less than two times the equity. The logical conclusion
is that the financial structure of the concern is sound. On the other hand if the debt is more than
two times the equity, the conclusion is the financial structure of the undertaking is weak.

Long Term Debt

Debt equity Ratio =
Share Holder ′ sFunds

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Standard ratio

It measures the ratio of Long-term debt to share holder’s funds. Idle Ratio usually
recommended is 2:1 As such if the debt is less than two times the equity. The logical conclusion
is that the financial structure of the concern is sound. On the other hand if the debt is more than
two times the equity, the conclusion is the financial structure of the undertaking is weak.

DEBT RATIO
Debt ratio analysis is the long term solvency of a firm. It indicates the preparation of the
interest being debt in the capital structure.

Total Debt
Debt Ratio =
Net Assets
Total Debt Includes
Short and long term borrowings from financial institutions, debentures / bonds deferred
payment for buying capital equipments, bank borrowings public deposits and any other interest
bearing loans. (Secured and UN secured loans)

Net Assets Include

Net fixed assets (NFA) means current assets are current assets minus current liabilities
excluding interest bearing short debt for working capital.

PROPRIETARY RATIO

It indicates the extent to which assets are financed by owner’s funds. The ratio
established the relationship between shareholders funds and the total assets of the firm. The ratio
of proprietor’s funds to total funds is an important ratio for determining long term solvency of a
firm.

Share holder funds

Proprietary Ratio = X 100
Total Assets

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Standard ratio
This ratio should be 33% or more than that. A higher proprietary ratio is generally treated an
indicator of sound financial position from long-term point of view, because it means that the firm
is less dependent on external sources of finance.

If the ratio is low, it indicates that long-term loans are less secured and they face the risk
of losing their money.

INVENTORY TO WORKING CAPITAL RATIO

Inventory to working capital ratio is an important indicator of a company’s operation

efficiency. A low value of 1 or less of inventory to working capital means that a company has
high liquidity of current asset. While it may also mean insufficient inventories. A high value
inventory to working capital ratio means that a company is carrying too much inventory in stock.
Because excessive inventories can place a heavy burden on the cash resources of a company, it is
not favorable for management.
Inventory
Inventory to Working Capital ratio =
net working capital
Net working capital = current assets – current liabilities

Activity position of ONGC

Funds are invested in various assets in business to make sales and earn profits. The
efficiency with which assets are managed directly affects the volume of sales. The better the
management of assets, the large is the amount of sales and the profits. Activity ratios measure the
efficiency with which a firm manages its resources or assets. These ratios also called turnover
ratios because they indicate the speed with which assets are converted or turned over into sales.

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 Debtor’s turnover ratio
 Working capital turnover ratio
 Capital turnover ratio.
 Fixed assets turnover ratio
 Total assets turnover ratio

DEBTORS TURNOVER RATIO

 Debtor’s turnover ratio indicates the velocity of debt collection of a firm.

 In simple words it indicates the number of times average debtors are turned over during a
year.
 Generally, the higher the value of debtor’s turnover, the more efficient is the management
of the credit.
 The analysis of the ratio supplements the information regarding the liquidity of one item
of current assets of the firm.
 The ratio measures how rapidly receivable are collected. A higher ratio indicates shorter
time-lag between credit sales & cash collection.
 A low ratio that debits are not being collected rapidly.

Net Credit Sales

Debtors Turnover Ratio =
Average Debtors

opening debtors+closing debtor

Average debtors =
2

Significance of the Ratio

 Accounts receivable turnover ratio or debtor’s turnover ratio indicates the number of
times the debtors are turned over a year.
 The higher the value of debtor’s turnover the more efficient is the management of
debtors or more liquid the debtors are.

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  Similarly, low debtors turnover ratio implies inefficient management of debtors or less
liquid debtors.
 It is the reliable measure of the time of cash flow from credit sales.

WORKING CAPITAL TURNOVER RATIO

The ratio indicates the velocity of utilization of net working capital & the number of
times the working capital over in the covers of years. It measures the efficiency with which the
working capital is being used by the firm. A higher ratio indicates efficient utilization of working
capital.

Net Sales
Working Capital Turnover Ratio =
Working Capital
Significance
The working capital turnover ratio measures the efficiency with which the working
capital is being used by a firm. A high ratio indicates efficient utilization of working capital and
a low ratio indicates otherwise. But a very high working capital turnover ratio may also mean
lack of sufficient working capital which is not a good situation

CAPITAL TURNOVER RATIO

Capital turnover ratio is the relationship between sales & capital employed. This ratio
calculated to measure the efficiency or effectiveness with which a firm utilizes its recourses of
the capital employed. As capital invested in a business to make sales & earn profits, it is the
indicator of overall profitability of a concern.

Net Sales
Capital Turnover Ratio =
Capital

Capital employed = Total assets – current liabilities

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TOTAL ASSETS TURNOVER RATIO
Total assets turnover ratio is also known as sales to total assets ratio. This ratio measures
the efficiency and profit earning capacity of the concern. Higher the ratio, greater is the intensive
utilization of fixed assets. Lower ratio means under utilization of fixed assets.

Net Sales
Total Assets Turnover Ratio =
Total Assets

FIXED ASSETS TURNOVER RATIO

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

Net Sales
Fixed Assets Turnover Ratio =
Fixed Assets

Significance: -
This ratio is particular importance in manufacturing concerns where the investment in
fixed asset is quit high. Compared with the previous year, if there is increase in this ratio, it will
indicate that there is better utilization of fixed assets. If there is a fall in this ratio, it will show
that fixed assets have not been used as efficiently, as they had been used in the previous year.

Profitability position of ONGC:

Profitability is a measure of efficiency and it provides an incentive to achieve efficiency.
Profitability also indicates public acceptance of the product and shows that the firm can produce
competitively. Moreover profits provide the money for paying the debt incurred to finance the
project and the internal financing or expansion. The status of profitability depends upon the
quantum of sales, nature of cost and proper use of financial resources.

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  Net profit ratio
 Operating profit ratio
 Earning per ratio
 Rate of return on investment
 Return on shareholders’ equity

NET PROFIT RATIO

The net profit ratio is net profit expressed as a percentage of total sales. Essentially the
net profit ratio tells us about how the company’s profit relates to their sales. Different industries
have fundamentally different net profit ratios. The net profit ratio can tell us about the nature of
the industry the company is operating in as well as serving to compare past performance of a
company.

Net Profit
Net Profit Ratio = X 100
Net Sales
Significance:
NP ratio is used to measure the overall profitability and hence it is very useful to
proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not be able
to achieve a satisfactory return on its investment.

This ratio also indicates the firm's capacity to face adverse economic conditions such as
price competition, low demand, etc. Obviously, higher the ratio the better is the profitability. But
while interpreting the ratio it should be kept in minds that the performance of profits also is seen
in relation to investments or capital of the firm and not only in relation to sales.

RATE OF RETURN ON INVESTMENT

Rate of return on capital employed or investment is directly related with net profit ratio &
capital turnover ratio. In fact, return on capital employed or investment can be improved either
by improving net profit ratio or capital turnover ratio or both.

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 Total earnings
Rate Of Return on Investments =
Capital Employed

Capital employed = Total assets – current liabilities

Significance of Return on Employed Ratio Capital

 Return on capital employed ratio is considered to be the best measure of profitability in
order to assess the overall performance of the business.
 It indicates how well the management has used the investment made by owners and
creditors into the business.
 It is commonly used as a basis for various managerial decisions. As the primary objective
of business is to earn profit, higher the return on capital employed, the more efficient the
firm is in using its funds.

EARNINGS PER SHARE (E.P.S.)

This ratio measures the profit available to the equity shareholders on a per share basis.
All profit left after payment of tax and preference dividend are available to equity shareholders.

profit after tax −Dividend on Preference Shares

Earnings Per Share =
No.of Equity Shares

equity share capital

Number of equity shares =
face value per share

Significance: - This ratio helpful in the determining of the market price of the equity share of
the company. The ratio is also helpful in estimating the capacity of the company to declare
dividends on equity shares.

63
 CHAPTER-V
DATA ANALYSIS & INTERPRETATION

CURRENT RATIO
Current ratio is an indicator of the firm’s commitment of its short term liabilities. This
ratio is an index of the concern financial stability since it show the extent of the working capital
which is derived by the current assets with the current liabilities.

Current Assets
Curent Ratio =
Current Liabilities

Table-5.1 (Rs. In millions)

YEARS CURRENT ASSETS CURRENT LIABILITIES RATIO

2012-13 277208 211420 3.54
2013-14 301633 191735 1.74
2014-15 298433 190798 1.56
2015-16 304268 174739 1.57
2016-17 365844 109368 1.31
SOURCE: Annual Reports and accounts of the ONGC Co. Ltd. from 2012-13 to 2016-17

64
 Graph -5.1

CURRENT RATIO
3.54

1.74
1.56 1.57
1.31

2012-13 2013-14 2014-15 2015-16 2016-17

Source: Table 5.1

Interpretation :
The Current ratio of ONGC Company is showed in Table 5.1 the current ratio
showed a decreasing trend during the study period of 2012-2013 to 2016-2017. The highest
value of current ratio is 3.54 in the year 2012-2013 and the lowest value of current ratio is 1.31
in the year 2016-2017. The average ratio is 1.94.The ideal norm of current ratio is 2:1. The ratio
showed good sign in the year 2012-2013 only.

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QUICK RATIO

Current Assets − Stock

Quick Ratio =
Current Liabilities

Table- 5.2 (Rs. In millions)

YEARS CURRENT ASSET CURRENT LIABILITES RATIO

2012-13 305671 109368 2.8
2013-14 247224 174739 1.41
2014-15 239608 190798 1.25
2015-16 241998 191735 1.26
2016-17 220788 211420 1.04
SOURCE: Annual Reports and accounts of the ONGC Co. Ltd. from 2012-13 to 2016-17

Graph- 5.2

QUICK RATIO
2.8

1.41
1.25 1.26
1.04

2012-13 2013-14 2014-15 2015-16 2016-17

Source- Table 5.2

Interpretation
The liquidity ratio of ONGC Company is showed in Table No.5.2 The liquidity Ratio
Showed a decreasing trend from 2.8 in 2012-13 to 1.04 in 2016-17. The average of the ratio
ranged between 1.55.
The ideal liquidity ratio is 1:1. From the above observation, ONGC ltd is at a good sign
for the five years and it reaches standard ratio from 2012-13 to 2016-17.

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ABSOLUTE LIQUID RATIO
Absolute Liquid Assets
Absolute Liquid Ratio =
Current Liabilities

Table – 5.3 (Rs. In millions)

YEARS 𝐀𝐁𝐒𝐎𝐋𝐔𝐓𝐄 𝐋𝐈𝐐𝐔𝐈𝐃 𝐀𝐒𝐒𝐄𝐓𝐒 CURRENT LIABILITIES RATIO
2012-13 201246 109368 1.84
2013-14 132186 174739 0.75
2014-15 107989 190798 0.56
2015-16 27601 191735 0.14
2016-17 99566 211420 0.47
SOURCE: Annual Reports and accounts of the ONGC Co. Ltd. from 2012-13 to 2016-17

Graph – 5.3

ABSOLUTE RATIO
1.84

0.75
0.56
0.47

0.14

2012-13 2013-14 201-15 2015-16 2016-17

Source – Table 5.3

Interpretation
The Absolute Liquidity Ratio of ONGC Ltd. is showed in Table 5.3. The Absolute Liquidity
Ratio shows a decreasing trend from 1.84 in 2012-13 to 0.47 in the year 2016-17. The average
ratio showed during the study period is 0.75.The standard ratio of Absolute liquidity is 0.75:1.
From the above observation, The Absolute liquidity of ONGC Ltd reaches the standard, so it is a
good sign. But for the year between 2014-15 to 2016-17 the ratio is less than the standard ratio.

67
DEBT – EQUITY RATIO

Long Term Debt

Debt equity Ratio =
Share Holder ′ sFunds

Table – 5.4 (Rs. In millions)

YEARS 𝐋𝐎𝐍𝐆 𝐓𝐄𝐑𝐌 𝐃𝐄𝐁𝐓 𝐒𝐇𝐀𝐑𝐄 𝐇𝐎𝐋𝐃𝐄𝐑′ 𝐒𝐅𝐔𝐍𝐃𝐒 RATIO
2012-13 330729 1129377 0.29
2013-14 361996 1244346 0.29
2014-15 434837 1367066 0.31
2015-16 443054 1445840 0.30
2016-17 471107 1518359 0.31
SOURCE: Annual Reports and accounts of the ONGC Co. Ltd. from 2012-13 to 2016-17

Graph- 5.4

Debt – Equity Ratio

0.31 0.31

0.3

0.29 0.29

2012-13 2013-14 2014-15 2015-16 2016-17

Source- Table 5.4

Interpretation

From the above table 5.4,Debt equity Ratio of ONGC ltd from 2012-13 to 2016-17. The
trend of the ratio is in fluctuating trend. The highest value of the ratio is 0.31 in the year 2014-15
and 2016-17.lowest value of the ratio is 0.29 in the year 2012-13 and 2013-14. The average
value of the ratio is 0.30.

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DEBT RATIO
Total Debt
Debt Ratio =
Net Assets

Table – 5.5 (Rs. In millions)

YEARS 𝐓𝐎𝐓𝐀𝐋 𝐃𝐄𝐁𝐓 𝐍𝐄𝐓 𝐀𝐒𝐒𝐄𝐓𝐒 RATIO
2012-13 587710 1466797 0.40
2013-14 536734 1606528 0.33
2014-15 625634 1802086 0.34
2015-16 634789 1889064 0.33
2016-17 682527 1989637 0.34
SOURCE: Annual Reports and accounts of the ONGC Co. Ltd. from 2012-13 to 2016-17

Graph – 5.5

Debt Ratio
0.4

0.33 0.34 0.33 0.34

2012-13 2013-14 2014-15 2015-16 2016-17

Source – Table 5.5

Interpretation

The above table 5.5 shows Debt Ratio of ONGC ltd from 2012-13 to 2016-17. The trend of the
ratio is in fluctuating trend. The highest value of the ratio is 0.40 in the year 2012-13 lowest
value of the ratio is 0.33 in the year 2013-14 and 2015-16. The average value of the ratio is 0.35.

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PROPRIETARY RATIO

Share holder funds

Proprietary Ratio = X 100
Total Assets

Table- 5.6 (Rs. In millions)

YEARS 𝐒𝐡𝐚𝐫𝐞 𝐡𝐨𝐥𝐝𝐞𝐫 𝐟𝐮𝐧𝐝𝐬 𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬 RATIO
2012-13 1129377 1717276 0.65
2013-14 1244346 1781267 0.69
2014-15 1367066 1992884 0.68
2015-16 1445840 2080799 0.69
2016-17 1518359 2201057 0.69
SOURCE: Annual Reports and accounts of the ONGC Co. Ltd. from 2012-13 to 2016-17

Graph- 5.6

Proprietary Ratio
0.69 0.69 0.69
0.68

0.65

2012-13 2013-14 2014-15 2015-16 2016-17

Source - Table 5.6

Interpretation

The above table 5.6 shows Proprietary Ratio of ONGC ltd from 2012-13 to 2016-17.
The trend of the ratio is in fluctuating trend. The highest value of the ratio is 0.69 in 3 years.
lowest value of the ratio is 0.65 in the year 2012-13. The average value of the ratio is 0.68. i.e.,
more than the standard ratio. So we can conclude that ONGC is financially sound in long term
point of view.

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INVENTORY TO WORKING CAPITAL RATIO
Inventory
Inventory to Working Capital ratio =
net working capital

Table – 5.7 (Rs. In millions)

YEARS 𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐍𝐞𝐭𝐰𝐨𝐫𝐤𝐢𝐧𝐠𝐜𝐚𝐩𝐢𝐭𝐚𝐥 RATIO
2012-13 51654 100846 0.51
2013-14 57044 129529 0.44
2014-15 58825 107635 0.54
2015-16 59635 109898 0.54
2016-17 56420 65788 0.86
SOURCE: Annual Reports and accounts of the ONGC Co. Ltd. from 2012-13 to 2016-17

Graph – 5.7

Inventory to Working Capital ratio

0.86

0.51 0.54 0.54

0.44

2012-13 2013-14 2014-15 2015-16 2016-17

Source- Table 5.7

Interpretation

The above table 5.7 shows Inventory to Working Capital ratio of ONGC ltd from 2012-
13 to 2016-17. The trend of the ratio is in increasing trend. The highest value of the ratio is 0.86
in 2016-17. lowest value of the ratio is 0.44 in the year 2013-14. The average value of the ratio is
0.59.

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DEBTORS TURNOVER RATIO
Net Credit Sales
Debtors Turnover Ratio =
Average Debtors

Table – 5.8 (Rs. In millions)

YEARS 𝐍𝐞𝐭 𝐂𝐫𝐞𝐝𝐢𝐭 𝐒𝐚𝐥𝐞𝐬 𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐃𝐞𝐛𝐭𝐨𝐫𝐬 RATIO
2012-13 765151 65293 11.71
2013-14 830053 75147 11.04
2014-15 838903 108720 7.71
2015-16 828710 53077 15.61
2016-17 783680 94400 8.3
SOURCE: Annual Reports and accounts of the ONGC Co. Ltd. from 2012-13 to 2016-17

Graph- 5.8

Debtors Turnover Ratio

15.61
11.71 11.04
7.71 8.3

2012-13 2013-14 2014-15 2015-16 2016-17

Source – Table 5.8

Interpretation :
The above table 5.8 shows the analysis of Debtors Turnover Ratioof ONGC ltd. during
the study period from 2012-13 to 2016-17. The analysis of Debtors Turnover Ratio showed
andecreasing trend for the first year and then next year showed increasing trend and then after
decreasing trend. The highest value of the ratio is 15.61 in the year 2015-16 and lowest value of
the ratio is 7.71 in the year 2014-15.

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WORKING CAPITAL TURNOVER RATIO

Net Sales
Working Capital Turnover Ratio =
Working Capital
Table – 5.9 (Rs. In millions)
YEARS 𝐍𝐞𝐭 𝐒𝐚𝐥𝐞𝐬 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚l RATIO
2012-13 765151 100846 7.58
2013-14 830053 129529 6.40
2014-15 838903 107635 7.80
2015-16 828710 109898 7.54
2016-17 783681 65788 11.91
SOURCE: Annual Reports and accounts of the ONGC Co. Ltd. from 2012-13 to 2016-17

Graph – 5.9

Working Capital Turnover Ratio

11.91

7.58 7.8 7.54

6.4

2012-13 2013-14 2014-15 2015-16 2016-17

Source – Table 5.9

Interpretation:
The above table 5.9 shows Working Capital turnover ratio of ONGC ltd from 2012-13 to
2016-17. The trend of the ratio is in fluctuating trend. The highest value of the ratio is 11.91 in
2016-17. Lowest value of the ratio is 6.4 in the year 2013-14. The average value of the ratio is
8.24.

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CAPITAL TURNOVER RATIO
Net Sales
Capital Turnover Ratio =
Capital
Table – 5.10 (Rs. In millions)
YEARS 𝐍𝐞𝐭 𝐂𝐫𝐞𝐝𝐢𝐭 𝐒𝐚𝐥𝐞𝐬 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 RATIO
2012-13 765151 1460797 0.52
2013-14 830053 1606528 0.52
2014-15 838903 1802086 0.46
2015-16 828710 1889064 0.43
2016-17 783681 1892680 0.44
SOURCE: Annual Reports and accounts of the ONGC Co. Ltd. from 2012-13 to 2016-17

Graph – 5.10

Capital Turnover Ratio

0.52 0.52
0.46 0.44
0.43

2012-13 2013-14 2014-15 2015-16 2016-17

Source – Table 5.10

Interpretation:
The capital turnover ratio of ONGC Company is showed in Table 5.10 the capital
turnover ratio showed a fluctuating trend during the study period of 2012-2013 to 2016-2017.
The highest value of capital turnover ratio is .052 in the year 2013-2014 and the lowest value of
capital turnover ratio is 0.43 in the year 2015-2016. The average ratio is 0.46.. The ratio showed
good sign in the year 2012-2013 and 2013-14.

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TOTAL ASSETS TURNOVER RATIO
Net Sales
Total Assets Turnover Ratio =
Total Assets

Table – 5.11 (Rs. In millions)

YEARS 𝐍𝐞𝐭 𝐂𝐫𝐞𝐝𝐢𝐭 𝐒𝐚𝐥𝐞𝐬 𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬 RATIO
2012-13 765151 1717276 0.44
2013-14 830053 1781267 0.46
2014-15 838903 1992884 0.42
2015-16 828710 2080790 0.40
2016-17 783681 2201058 0.36
SOURCE: Annual Reports and accounts of the ONGC Co. Ltd. from 2012-13 to 2016-17

Graph – 5.11

Total Assets Turnover Ratio

0.44 0.46
0.42 0.4
0.36

2012-13 2013-14 2014-15 2015-16 2016-17

Source – Table 5.11

Interpretation

The above table shows Total Assets Turnover Ratio of ONGC ltd from 2012-13 to 2016-
17. The Total Assets Turnover Ratio showed decreasing trend in last four years from 2013-
2014 to 2016-17 and in starting two year showed an increasing trend. The highest value 0.46 in
the year 2013-14.The lowest value 0.36 in the year 2016-17. The average ratio of selected
company during the study period is 0.416.

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FIXED ASSETS TURNOVER RATIO
Net Sales
Fixed Assets Turnover Ratio = Fixed Assets

Table – 5.12 (Rs. In millions)

YEARS 𝐍𝐞𝐭 𝐂𝐫𝐞𝐝𝐢𝐭 𝐒𝐚𝐥𝐞𝐬 𝐅𝐢𝐱𝐞𝐝 𝐀𝐬𝐬𝐞𝐭𝐬 RATIO
2012-13 765151 954003 0.80
2013-14 830053 1048154 0.79
2014-15 838903 1216204 0.69
2015-16 828710 1267809 0.65
2016-17 783681 1371017 0.57
SOURCE: Annual Reports and accounts of the ONGC Co. Ltd. from 2012-13 to 2016-17

Graph – 5.12

Fixed Assets Turnover Ratio

0.8 0.79
0.69 0.653
0.57

2012-13 2013-14 2014-15 2015-16 2016-17

Source – Table 5.12

Interpretation:

The above table 5.12 shows Fixed Assets Turnover Ratio of ONGC ltd from 2012-13 to
2016-17. The Fixed Assets Turnover Ratio showed decreasing trend in last five years from
2012-2013 to 2016-17. The highest value 0.80 in the year 2012-13.The lowest value 0.57 in the
year 2016-17. The average ratio of selected company during the study period is 0.70.

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NET PROFIT RATIO
Net Profit
Net Profit Ratio = X 100
Net Sales
Table – 5.13 (Rs. In millions)
YEARS 𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭 𝐍𝐞𝐭 𝐬𝐚𝐥𝐞𝐬 RATIO
2012-13 251230 765151 32.8%
2013-14 209257 830053 25.2%
2014-15 220948 838903 26.3%
2015-16 177330 828710 21.3%
2016-17 160036 783681 20.4%
SOURCE: Annual Reports and accounts of the ONGC Co. Ltd. from 2012-13 to 2016-17

Graph – 5.13

Net Profit Ratio

32.80%

25.20% 26.30%
21.30% 20.40%

2012-13 2013-14 2014-15 2015-16 2016-17

Source – Table 5.13

Interpretation
The table 5.13 shows the Net Profit Ratio of the ONGC ltd from 2012-13 to 2016-17.
The Net Profit Ratio showed fluctuating trend during the study period. The highest value of the
ratio was 32.80% in the year 2012-13 and the lowest values of the ratio was 20.40% in the year
2016-17. The average value of the net profit ratio of the above said company was 25.2% during
the study period. The net profit ratio is in good position because it has succeeded in increasing its
sales.

77
RATE OF RETURN ON INVESTMENT

Total earnings
Rate Of Return on Investments =
Capital Employed

Table – 5.14 (Rs. In millions)

YEARS 𝐓𝐨𝐭𝐚𝐥 𝐞𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐄𝐦𝐩𝐥𝐨𝐲𝐞𝐝 RATIO
2012-13 366426 1460797 25%
2013-14 305443 1606528 19%
2014-15 324319 1802086 17.9%
2015-16 265552 1889064 14%
2016-17 233903 1989637 11%
SOURCE: Annual Reports and accounts of the ONGC Co. Ltd. from 2012-13 to 2016-17

Graph – 5.14

Rate of Return on Investment

25%

19% 17.90%
14%
11%

2012-13 2013-14 2014-15 2015-16 2016-17

Source – Table 5.14

Interpretation
From the above table shows the return on investment ratio of ONGC ltd. during the study
period from 2012-13 to 2016-17. The return on investment ratio is showed in decreasing trend
during the study period. The highest value of the ratio is 25% in the year 2012-13 and the lowest
value of the ratio is 11% in the year 2016-17. The average of the ratio is 17.38%.

78
EARNINGS PER SHARE (E.P.S.)
profit after tax −Dividend on Preference Shares
Earnings Per Share =
No.of Equity Shares

Table – 5.15 (Rs. In millions)

YEARS 𝐩𝐫𝐨𝐟𝐢𝐭𝐚𝐟𝐭𝐞𝐫𝐭𝐚𝐱 𝐍𝐨. 𝐨𝐟 𝐄𝐪𝐮𝐢𝐭𝐲 𝐒𝐡𝐚𝐫𝐞𝐬 RATIO
2012-13 251230 8555.52 29.36
2013-14 209257 8555.52 24.45
2014-15 220948 8555.52 25.82
2015-16 177330 8555.52 20.7
2016-17 160036 8555.52 18.7
SOURCE: Annual Reports and accounts of the ONGC Co. Ltd. from 2012-13 to 2016-17

Graph – 5.15

Earnings per Share (E.P.S.)

29.36
25.82
24.45
20.7
18.7

2012-13 2013-14 2014-15 2015-16 2016-17

Source – Table 5.15

Interpretation
The table 5.15 shows the Earnings Per Share of the of ONGC ltd. during the study period
from 2012-13 to 2016-17., The Earnings Per Share Showed decreasing trend during the study
period from 2014-15 to 2016-17. The highest value of the ratio was 29.36 in the year 2012-13
and the lowest value of the ratio was 18.7 in the year 2016-17. The average value of Earnings Per
Share of the above said company was 23.8 during the study period.

79
 CHAPTER-VI
FINDINGS
 The current ratio of The Oil and Natural Gas Corporation Ltd, Rajamundry is less than the
norm 2:1 from 2013-14 to 2016-17. It means that the short term solvency position of the
company is not at good sign.

 In General, the quick ratio has been representing the standard norm of 1:1. The short term
solvency position regarding the quick ratio of this company during the period 2012-13 is
satisfying the standard norm. It means that The Oil and Natural Gas Corporation Ltd,
Rajamundry, performance of liquidity position is in good sign.

 Absolute Liquid Ratio was less than the standard i.e., 0.75:1. It was decreased due to lower
profit. Working Capital funds were not invested properly and not utilized well for the sake
of the company. Therefore company is advised to not invest its liquid fund on long term
assets.

 The net profit of Oil and Natural Gas Corporation Ltd, Rajamundry is declined due to the
excess payments of indirect expenditure.

 The debtor’s turnover ratio during 2012-13 to 2016-17 was fluctuating. There was a
decreasing trend in this ratio which indicated that the credit facility allowed by the company
was not properly utilized by the customers. The decreasing trend is because of two reasons:
decrease in debtors and increase in cash sales. This impacted the debtor’s turnover.

 The inventory to working capital ratio was not good during the study period. Due to high
value of inventory there is insufficient coverage of working capital in the company.
Therefore, an immediate increase in sales or additional capital into the company is necessary
in order to continue its operations.

80
 It must be carefully planned as it affects the company’s capacity to maintain a uniform
dividend policy during difficult trading periods. It reveals the suitability of company’s
capitalization.

 The proprietary ratio of the company showed fluctuating trend during in the span of study
period, which meant that the company was using outsider’s liability in the total assets.

 As the net profit is declining from year to year and is represents low inventory turnover.

 The cash turnover ratio explains the speed with which cash is turned over. The higher the
turn over, the less the cash balances required for any given level of sales; and other things
remaining constant, it implies greater efficiency.

81
 SUGGESTIONS

 It is suggested that the company has make investments on current assets to strengthen short
term solvency and to meet the short term creditor’s position regarding their Maintenance of
adequate liquidity throughout the future
.
 The company has provided credit facility and it was not properly utilized by the customers.
Therefore, the company has faced the problem of inadequacy of working capital.

 EBIT should be improved for the purpose of improving debt service coverage.

 It is suggested to ONGC Ltd to decrease debt equity volume because it is going to get greater
risk.

 It is suggested that ONGC Ltd should increase the usage of existing fixed assets with full of
extent to get maximum profitability

 The finished goods turnover ratio of the Company is fluctuated and not up to the mark. It is
suggested that the company has to increase the cost of goods sold.

 It is suggested that the management should try to utilize their production capacity fully in
order to reduce factory overheads and to utilize their fixed assets properly.

 To strengthen the financial efficiency, long-term funds have to be used to finance core
current assets and a part of temporary current assets. It is better if the company can reduce
the over sized short- term loans and advances eliminates the risk arranging finance regularly.

82
 CONCLUSION

I have done my project in Oil and Natural Gas Corporation Ltd, Rajamundry. I have
made an analysis of the overall financial position of the company. My focus of attention was in
the areas of Liquidity, Profitability, and analysis of receivables and cash management. Through
the analysis, I observed some findings and for which I have made few suggestions which will
help the company for the maintenance of adequate liquidity position in the company to make
progress in its activities and thus to reach its goal.

83
 BIBLIOGRAPHY

Books

 S.N.Maheswari – Financial Accounting Analysis - S.Chand& Sons Publications

 G.SudershanReddy - Financial Management – Himalaya Publishing House.
 I.M. Panday – Financial Management – Vikas Publication
 Booklets & other publications of the ONGC ltd
 Annual Report of the ONGC ltd

WEBSITES

www.google.com

www.moneycontrol.com

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