Ioc ratio analysis asset management using sap

RATIO ANALYSIS AND ASSET MANAGEMENT (USING SAP) AT INDIAN OIL CORPORATION LIMITED-NOIDA

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RATIO ANALYSIS AND ASSET MANAGEMENT (USING SAP)

Industry Guide: XYZ Finance manager, IOCL

Submitted By:

Submitted To:

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ACKNOWLEDGEMENT I would like to sincerely thank Mr. XYZ, Deputy General Manager, Finance Department, IndianOil corporation Ltd, Pipeline division, Noida, for offering me an opportunity to work in such prestigious organization and gain valuable insights and knowledge.

I would also like to express gratitude to Mr. XYZ, Finance Manager, Finance Department, IOCL (Pipeline) and Mr. XYZ, Finance Manager, Finance Department, IOCL (Pipeline) for their unending support and guidance throughout my internship. I am also highly grateful , for his keen support provided for the successful completion of the project.

I am grateful to all the other employees of the Finance department for their invaluable effort made for my benefit.

I am also thankful to each and every one who is directly and indirectly related to my project and has helped me in achieving of my goal.

DATE

PLACE

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List of Symbols & Abbreviation Glossary SCADA

Supervisory Control and Data Acquisition

MMTPA

Million Metric Tonne per Annum

EPS

Earnings per Share

PAT

Profit after Tax

PBIT

Profit before Interest and Tax

PBT

Profit before Tax

CAGR

Compounded Annual Growth Rate.

OMC

Oil Manufacturing Companies

ISO

International Standards Organization

AATS

Administrative Approval and Technical Sanction

SOR

Statement of Rates

PSU

Public Sector Undertaking

HPCL

Hindustan Petroleum Corporation Limited

PWD

Public Works Department

BPCL

Bharat Petroleum Corporation Limited

PF

Provident Fund

SAP

System Application Program

OEM

Original Equipment Manufacturers

LNG

Liquefied natural gas

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Table of Contents

TOPICS

PAGE NO.

EXECUTIVE SUMMARY

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1. Introduction

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2. Conceptual Aspect

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3. Organization overview

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4. Objective of the project

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5. Scope of the project

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6. Research Methodology

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7. Data Analysis & Interpretation

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• Liquidity Ratio • Solvency Ratio • Turnover Ratio • Profitability Ratio 8. Asset Management

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• Asset Management using SAP

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• Functions of SAP

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-Creation of asset -Addition to asset -Inter Company Transfer

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Conclusions

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Recommendations

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Limitations

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Annexure

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References

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Executive Summary

Beginning in 1959 as Indian Oil Company Ltd. Indian Oil Corporation Ltd. was formed in 1964 with the merger of Indian Refineries Ltd. (established 1958). IndianOil and its subsidiary account for approximately 48% petroleum products market share, 34% national refining capacity and 71% downstream sector Pipelines capacity in India. India being the third largest consumer of crude oil consuming 27, 50,000 barrels of crude oil per day is producing only 8,81,000 barrels/day which is around one third of the consumption.

In this project report effort has been done to understand financial performance of the company over the last four years using ratio analysis and the various function of SAP. As the next step, attempt has been made to analyze the financial health of company on the basis of ratio of last 4 years. Thus the main objective of the report is to learn about the modern accounting technique and to analyze the areas of improvement for the company.

As the last step it contains information about various functions of SAP which includes Creation of asset, addition to an asset, transfer and retirement of an asset. It is a software in which all the monetary transactions of the company is been recorded.

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Introduction IOCL is one of the biggest oil producing company in the country. It is a public limited company having its business in the field of LPG, Refineries, Pipelines, marketing exploration and production. It operates a network of 10329 km long crude oil and petroleum product pipelines with a capacity of 71.60 million metric tonnes per annum.

Indianoil has been ranked highest among the Indian company in the fortune global 500 listed company. It has a sustainable growth rate of around 8-9%.

Financial analysis of IOCL includes the analysis of the profit & loss account and balance sheets of the company. For this purpose, method used is ratio analysis. The information has been taken from the Annual reports of the company.

Financial analysis of a company helps in discovering the economic facts about it. It includes ratio analysis as a tool to view the performance of the company. This project report concentrates on ratio analyses of last four years to review the performance of the company and the areas where there is need for improvement.

Efforts is been made to understand the market position of IOCL. Ratio analysis has helped in analysis the track record of the company. It is a company with increasing profits every year which raises its funds mainly from Equity. The Sales and net profit has shown an increasing trend in the last year. In terms of Debt-Equity ratio it shows a scope of raising loans from debt for future growth.

The various functions of SAP which has been presented in the report are been prepared using the manual of SAP which is held with the company for its official use. Along with this, the screenshots which has been pasted are of the actual software of the company. The example which has been quoted of creation, retirement, transfer of asset has been the actual work of the company. The SAP Financial Accounting (FI) Module provides integrated, on-line, real-time functionality for processing, recording and maintaining the financial accounting transactions of the business for external reporting purposes. It helps 7

in recording the purchase of an asset, any addition to it and its transfer from one department to another.

Advantages Ratio analysis is an important technique of financial analysis. It is an accounting tool to present accounting variables in a simple, concise, intelligible and understandable form. It is a means for judging the financial health of the concern. It simplifies, summarises and systematizes a long array of accounting figures to make them understandable. It helps in business planning and forecasting. Accounting ratios are of great assistance in locating the weak spots in the business even though overall performance may be quite low. The objectives of using ratios in accounting and financial management analysis are to test the profitability and financial position of a business.

SAP is the fourth largest software company in the world. SAP is the largest Enterprise Resource Planning (ERP) solution software provider. SAP’s products focus on ERP, which it helped to pioneer, thus it is a tool used for managing the assets properly.

It helps in recording the purchase of an asset, any addition to it and its transfer from one department to another. Asset management systems have evolved from maintenance management systems. Maintenance management systems use work orders for preventive and predictive maintenance, equipment recording and tracking, replacement parts inventory, and maintenance labor scheduling. The goal of asset management is to optimize asset use and manage all maintenance efforts involved in making assets as reliable, accurate, and efficient as possible.

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CONCEPTUAL ASPECT

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Ratio Analysis Ratio Analysis is a tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. There are many ratios that can be calculated from the financial statements pertaining to a company's performance, activity, financing and liquidity.

It is a more focused and comprehensive tool of analysis in that it establishes cause and effect relationships between either two items\ms of balance sheet or of profit and loss account or both the balance sheet as well as profit and loss account. Ratio Analysis enables the manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. Ratios are classified according to their functions and objectives.

Classification of Ratios: Can be broadly classified under four categories:

Liquidity Ratios a) Current Ratio b) Liquid or Quick Or Acid-test Ratio c) Collection Period Allowed to Customer d) Supplier’s Credit Period

Solvency Ratios a) Debt to Total Capital Ratio b) Debt Equity Ratio c) Interest Coverage

Turnover Ratios a) Fixed Assets Turnover Ratio b) Net worth Turnover Ratio c) Working Capital Turnover Ratio

Profitability Ratio

a) Gross Profit to Sales ratio b) Net Profit Margin to Sales Ratio c) Raw Material Consumed Ratio d) Effective Tax Rate

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Liquidity Ratio The capacity of a company to discharge its suppliers and services providers and to meet its present day to day expenses indicates its liquidity and ensures smooth continuity of operations, which in turn have a strong bearing on long term survival of the company. a) Current Ratio This Ratio measures the ability of a company to discharge its day to day bills, or current liabilities, as and when they fall due, out of the cash or near cash, or current assets that it possesses. The ideal current ratio is 2:1.

This ratio helps in studying the structure of the current assets and liabilities of the company with the objective assessing its capacity to discharge its day to day obligations.

This ability enables it to attract cheaper credit and puts the suppliers and institutions in a more comfortable position, and helps to understand the likely extent of short term default risk associated with the company.

Current Assets, Loans & advances Current Ratio = (Times)

Current Liabilities+ Provisions

b) Quick Ratio This ratio measures as to how quick is the ability of a company to discharge its current liabilities net of working capital limits, as and when they fall due, out of cash ,or current assets net of inventories that it possesses. It is obtained by subtracting inventories from current assets and then dividing by current liabilities. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better is the position of the company. The ideal value for this ratio is 1:1.

Current Assets, loans & advances - Inventories Quick Ratio = (Times)

Current Liabilities + provisions

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c) Collection Period Allowed to Customers This Ratio measures the credit period allowed to the customers on credit period allowed to customers on credit sales or how fast a company realizes its outstanding dues.

It helps managers understand the credit period extended by a company to its customers, in comparison to the credit enjoyed from its suppliers. A company extending a shorter and enjoying longer credit periods stands to gain and thus will attract more quality customer at terms favorable to it.

Receivables x 365 Collection Period Allowed = To Customer (Days)

Credit Sales*

* In practice Total Sales

d) Supplier’s Credit Period This ratio measures the average credit period availed by a company from its suppliers on credit on credit purchases or how much leverage it possesses to settle its outstanding payables. This ratio helps managers understand the credit policy extended to a company by its supplier’s vis-à-vis the credit allowed to its customers. A company with shorter collection period allowed to customer and enjoying a longer credit period by its suppliers stands to gain and attract quality suppliers at a favorable term.

Payables x 365 Suppliers’ Credit (Days) = Credit Purchases* * In Practice Total Purchases

Solvency Ratio Solvency ratios help investors assess a company’s ability to meet its long-term obligations. They also tell investors how the company has been financed (debt or equity)

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and whether that is changing over time. It provides a measurement of how likely a company will be to continue meeting its debt obligations. a) Debt to Total Capital Ratio This Ratio indicates what proportion of the permanent capital of a firm consists of long term debt. Here Permanent capital includes shareholders’ equity as well as long term debt.

If the ratio for a firm is 1:2, it implies that one third of the total permanent capital of the firm is in the form of long term debts. Conventionally a ratio of 1:2 is considered to be satisfactory.

Long term Debt Debt to total Capital Ratio = (Times)

Permanent Capital

b) Debt Equity This Ratio measures the proportion of debt and capital (both equity and Preference), in the capital structure of a company. It measures the extent of assets financed through long term borrowings. This ratio helps in assessing whether a company is relying more on debt or capital for financing its assets. Higher the debt more is the financial risk of default in interest and debt service. It also hampers the capacity of a company to raise cheaper funds.

Long Term Debt Debt Equity = (Times) Total Net Worth (Equity shareholders’ Funds+PreferenceCapital)

c) Interest Coverage Ratio This ratio measures the debt servicing capacity of a firm insofar as fixed interest on long term loan is concerned. It is determined by dividing the earning before profit or operating profits by the fixed interest charges on loans. This ratio indicates the extent to which the

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fall in EBIT is tolerable in that the ability of the firm to service its interest payments would not be adversely affected. From the point of view lenders ,the larger the coverage, the greater is the ability of the firm to handle fixed charge liabilities and the more assured is the payment of the interest to them . However too high ratio may imply unused debt capacity and a low ratio is a danger signal that firm is using excessive debt and does not have the ability to offer assured payment of interest to the lenders.

EBIT Interest Coverage (Times) = Interest

Turnover Ratio The are the financial ratios that measure an asset's activity or efficiency in generating or turning-over cash. A high turnover ratio is a sign that the company is producing and selling its goods or services very quickly. a) Fixed Asset Turnover Ratio This ratio measures the extent of turnover or volume of gross income generated by the fixed assets of a company. Higher the ratio, the better, because a high ratio indicates the business has less money tied up in fixed assets for each dollar of sales revenue. A declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed assets.

Net Sales Fixed Asset Turnover = Ratio (Times)

Net Block of Fixed Assets *

*includes both net block of tangible and intangible assets

b) Net worth Turnover Ratio This ratio measures the extent of turnover or volume of gross income generated by the net worth of a company. It is the efficiency in the resource utilization from the angle of the equity shareholders.

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Managers usually look upon a high net worth turnover rate as an indication that a company is using its assets efficiently. A high ratio of sales to net worth can result either from increase in sales or from meager net worth. If high sales are the cause, chances are that the business is in good shape and its credit is strong, but if the cause is low net worth, the company is probably a poor credit risk Net Sales Net Worth Turnover = Ratio (Times)

Equity Shareholders’ Funds or Net Worth

c) Working Capital Turnover Ratio This Ratio indicates whether the working capital has been effectively utilized or not in making sales. It indicates the number of times a unit invested in working capital produces sale. Working capital is computed by deducting Current liabilities from current assets. In fact, in short run it is the current assets and current liability which play a major role.

A careful handling of short term assets funds will mean a reduction in the amount of capital employed thereby improving turnover.

Higher the ratio better it is .How ever a very high ratio may indicate overtrading i.e. the working capital being meager for the scale of operations.

Net Sales Working Capital Turnover = Ratio (Times)

Working Capital

Profitability Ratios Profitability Ratios indicate how well a firm is performing in terms of its ability to generate profit. If a company is having a higher profitability ratio compared to its competitor, it can be inferred that the company is doing better than that particular competitor. The higher or same profitability ratio of a company compared to its previous period also indicates that the company is doing well. a) Gross Profit to Sales Ratio 15

The Gross Profit Percentage is one of several key measurements a company uses in evaluating its financial performance. It helps a company to see what percentage of its earning after costs (for products and/or services) is profit. A higher Gross Profit Percentage is generally preferred as it provides the company with financial resources. A company that has little Gross Profit has limited resources.

Gross Profit x 100 Gross Profit to Sales Ratio (%) = Net Sales b) Net profit Margin to Sales Ratio The Net Profit Margin to Sales is one of several key measurements a company uses in evaluating its financial performance It helps a company to see what percentage of its earning after costs (for products and/or services) is profit. A higher Net profit margin to sales ratio is generally preferred as it provides the company with financial resources. A company that has little Net Profit margin has limited resources

PAT x 100 Net Profit Margin to sales ratio (%) = Net Sales

c) Raw Material Consumed Ratio This ratio is also crucial to the profitability of a company. They enable managers to study which items of costs require attention for minimization. They also enable the management concentrate on cost reduction, particularly during periods of stagnation in the business activity.

Raw Material Consumed x 100 Raw Material = Consumed (%)

Net Sales

d) Effective Tax Rate

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The Ratio measures the actual effective rate at which the company pays income tax on its PBT as against the statutory rate of income tax. It takes into account only the current income tax provision and not the deferred tax.

The Income Tax Act prescribes the manner of taxable profit and statutory rate of tax payable there on. It contains provisions which enable a company to reduce its tax liability and thus have more disposable profit. It helps analysts understand how efficiently or otherwise a company is managing its tax liabilities in accordance with the law of the land.

Current Income Tax x 100 Effective Tax Rate (%) = PBT

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Organization Overview

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Indian Oil Corporation Limited

IOCL is one of the biggest oil producing company in the country. It is a public limited company having its business in the field of LPG, Refineries, Pipelines, marketing exploration and production. Indian Oil Corporation Ltd. is currently India's largest company by sales with a turnover of Rs. 285,337 crore and profit of Rs. 2,950 crore for fiscal 2008-09.

IndianOil is also the highest ranked Indian company in the prestigious Fortune 'Global 500' listing, having moved up 19 places to the 116th position in 2008. It is also the 18th largest petroleum company in the world. For the year 2008-09, the IndianOil group sold 62.6 million tonnes of petroleum products, including 1.7 million tonnes of natural gas, and exported 3.64 million tonnes of petroleum products. The IndianOil Group of companies owns and operates 10 of India's 20 refineries with a combined refining capacity of 60.2 million metric tonnes per annum (MMTPA, .i.e. 1.2 million barrels per day).

It operates a network of 10329 km long crude oil and petroleum product pipelines with a capacity of 71.60 million metric tonnes per annum. Indian oil has been ranked highest among the Indian company in the fortune global 500 listed company.

IndianOil Corporation is India’s largest Public sector enterprise, corporate office in NEW DELHI. It began operation in 1959 as IndianOil Company Ltd. IndianOil and its subsidiaries account for 47% share in petroleum products market, 40.4% share in refining capacity and 67% downstream sector pipelines

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Vision A major diversified, transnational, integrated energy company, with national leadership and a strong environment conscience, playing a national role in oil security & public distribution.

Mission  To achieve international standards of excellence in all aspects of energy and diversified

business with focus on customer delight through value of products

and services, and cost reduction.  To maximize creation of wealth, value and satisfaction for the stakeholders.  To attain leadership in developing, adopting and assimilating state-of-the-art technology for competitive advantage.  To provide technology and services through sustained Research and Development.  To foster a culture of participation and innovation for employee growth and contribution.  To cultivate high standards of business ethics and Total Quality Management for a strong corporate identity and brand equity.

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Objectives • To serve the national interests in oil and related sectors in accordance and consistent with Government policies.

• To ensure maintenance of continuous and smooth supplies of petroleum products by way of crude oil refining, transportation and marketing activities and to provide appropriate assistance to consumers to conserve and use petroleum products efficiently.

• To enhance the country's self-sufficiency in crude oil refining and build expertise in laying of crude oil and petroleum product pipelines.

• To further enhance marketing infrastructure and reseller network for providing assured service to customers throughout the country.

• To create a strong research & development base in refinery processes, product formulations, pipeline transportation and alternative fuels with a view to minimizing/eliminating imports and to have next generation products.

• To optimize utilization of refining capacity and maximize distillate yield and gross refining margin.

• To maximize utilization of the existing facilities for improving efficiency and increasing productivity.

• To minimize fuel consumption and hydrocarbon loss in refineries and stock loss in marketing operations to effect energy conservation.

• To earn a reasonable rate of return on investment.

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• To avail of all viable opportunities, both national and global, arising out of the Government of India’s policy of liberalisation and reforms.

• To achieve higher growth through mergers, acquisitions, integration and diversification by harnessing new business opportunities in oil exploration & production, petrochemicals, natural gas and downstream opportunities overseas.

• To inculcate strong ‘core values’ among the employees and continuously update skill sets for full exploitation of the new business opportunities.

• To develop operational synergies with subsidiaries and joint ventures and continuously engage across the hydrocarbon value chain for the benefit of society at large.

VALUES CARE

INNOVATION

Concern

Creativity

Empathy

Ability to learn

Understanding

Flexibility

Cooperation

Change

Empowerment PASSION

TRUST

Commitment

Delivered Promises

Dedication

Reliability

Pride

Dependability

Inspiration

Integrity

Ownership

Truthfulness

Zeal & Zest

Transparency

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Winner of prestigious awards • IndianOil won Reader’s Digest award for most trusted petrol station brand • IndianOil sweeps five petro fed oil & gas industry award • IndianOil conferred BML Munjal Award 2009 for the Excellence in Learning & Development • IndianOil won the golden peacock award for R & D for the third time • IndianOil wins SCOPE Meritorious Awards for Environmental Excellence & Sustainable Development and Good Corporate Governance • Safety Innovation Award was given to Indian Oil for fourth consecutive year in 2008

Business Profile of IOCL Indian Oil Corporation Ltd. is currently India's largest company by sales with a turnover of Rs. 247,479 crore (US $59.22 billion), and profit of Rs. 6963 crore (US $ 1.67 billion) for fiscal 2007.An energy self-sufficient India can alter the economic, political and manufacturing landscape of the region. Its quest for energy will create new economic and strategic challenges, right from mobilizing capital to engaging in subtle diplomacy.

Indian Oil’s own performance in the financial year 2006-07 was a case of 'exceeding expectations' with both turnover and profits reaching new highs, product sales registering a quantum jump, and the refineries as well as pipelines network enhancing their capacities beyond 60 MMTPA and registering record throughputs. New projects worth Rs. 10,000 crore were put on stream during the year. Among new businesses, the petrochemicals and natural gas verticals and participating interests in a clutch of oil & gas assets in India and abroad has ensured expansion of the upstream portfolio.

Indian Oil has ambitious investment plans of Rs. 43,250 crore in the next five years. By 2011-12, the Indian Oil Group, with 80 MMTPA refining capacity in its fold, would be playing a key role in realizing India’s bid to emerge as an export-oriented hub for finished

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products. The pipelines network, which provides strategic logistics advantage to the marketing operations, is also set to cross the 10,000 km mark in the next two years.

In marketing, Indian Oil is set to leverage the combined strength of over 32,000 marketing touch points, with focus on hitherto untapped rural markets, non-fuel revenues and pure retailing business. Indian Oil aspires to be Asia’s leading commercial R&D organization in the downstream hydrocarbon sector by building on its capabilities in developing innovative technologies, products and processes, and nodal research in alternative fuels.

Beyond core businesses, Indian Oil is working to emerge as a major player in the petrochemicals business by the year 2011-12, with two petrochemical hubs shaping up at Panipat and Paradip. In natural gas business, it is attempting quantum growth in LNG imports, infrastructure and marketing, besides city gas distribution. In the high-risk business of oil exploration & production, IndianOil’s consortium approach with established players is paying off well in terms of exceptional Government support and successful forays in India and abroad. Its current interests are focused on oil equity and sourcing of natural gas, predominantly from African and CIS countries, by leveraging its downstream capabilities to form joint venture partnerships with reputed enterprises overseas.

With India’s energy needs projected to grow by 40% in the next five years, the future is indeed full of promise for IndianOil; a future the 31,700 strong IndianOil team shall build as they fuel the dreams of over a billion of their countrymen.

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BUSINNESS OF IOCL

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BRANDS OF IOCL IndianOil Aviation Service:

Meets complete Aviation Fuel requirements of the Defense Services and for over 75 Domestic and International airlines besides private aircraft operators. IndianOil Aviation Services is ISO 9002 certified and entrusted with WIP refueling for national and overseas dignitaries. Indian Oil's prompt, courteous and 'No-Delay' Aviation Fuel Service has received accolades from major customers. Always on call for providing services in exigencies of war and peace.

Indane LPG

IndianOil Indane LPGas is used in 40 Million homes as cooking fuel and commands over 48% market share in India. Indane LPGas is marketed through a network of 4350 Indane distributors. Widely used in commercial sectors like industries, hotels & restaurants, medical labs, etc. 87 Indane Bottling Plants are spread across the country with a combined bottling capacity of 3.77 MMTPA. Marketed through a network 48 stations out of an industry total of 103 Auto LPG Dispensing Stations.

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SERVO

SERVO is India's largest selling lubricant brand. SERVO range of lubricants enjoys approvals from major Original Equipment Manufacturers (OEMs) including new generation cars. 9,000 Retail Outlets and a countrywide network of SERVO SSls and SSAs Bazaar traders offer SERVO range of lubricants to customers.

Indian Oil Autogas

Autogas (LPG) has been introduced in Hyderabad, Bangalore and Mumbai markets. This alternative fuel is a good business proposition in the long term, and IndianOil intends to further expand its marketing in a big way.

XTRAPREMIUM

IndianOil's branded fuels XtraMile and XtraPremium have made a significant impact in the petroleum retail market.

XTRAPOWER

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IndianOil's XtraPower Fleet Card Program is a complete fleet management solution for Fleet Owners / Operators and Corporate. XtraPower is a Smart Card based Fleet Card Program, which facilitates cashless purchase of fuel & lubes from designated retail outlets of IndianOil through flexible prepaid and credit facilities.

Swagat

To cater the high growth areas of National Highways forming a part of Golden Quadrilateral and N-S, E-W corridors, IndianOil has launched Flagship Outlets, which have been branded as “Swagat� Retail Outlets.

XTRACARE

The launch of XtraCare was the culmination of a series of plans in retail design, product and service up gradation, capability training, automation, loyalty programmed retail site management techniques all benchmarked to global standards.

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PRODUCTS IndianOil is India's largest oil company having Global fortune 135 rating. Its product range covers petrol, diesel, LPG, auto LPG, aviation turbine fuel, lubricants, naphtha, bitumen, paraffin, kerosene etc. Xtra Premium branded petrol, Xtra Mile high speed diesel, Servo lubricants, Indane LPG, Auto gas LPG, Indian Oil Aviation are some of its prominent Brands.

Recently Indian Oil has also introduced a new business line of supplying LNG (Liquefied natural gas) by the cryogenic transportation. The branding called "LNG at Doorstep".

LNG headquarters are located in scope complex, Lodhi Road Delhi.

These are the products: AUTO LPG AVIATION TURBINE FUEL BITUMEN HIGH SPEED DIESEL INDUSTRIAL FUELS FURNACE OIL LIGHT DIESEL OIL LSHS LIQUIFIED PETROLEUM GAS LUBRICANTS AND GREASES MS/ GASOLINE PETROCHEMICALS SUPERIOR KEROSENE OIL CRUDE OIL

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INTRODUCTION OF IOCL (PIPELINE DIVISION) In India’s infrastructure, the petroleum pipelines form a crucial part enabling sustained availability of petroleum products in all parts of the country for economic growth. The pipelines transport petroleum products from refineries to demand areas and crude oil from import terminals as well as domestic sources to the inland refineries. India being a vast country, a wide network of pipelines becomes the paramount requirement of transporting petroleum products to interiors from refineries and crude oil to the land locked refineries.

It is an established fact that pipelines are preferred as a cost effective, energy efficient, safe and environment friendly method of transportation for petroleum products and crude oil and are playing a leading role in meeting the demand for petroleum products in India.

Economic growth and expansion of infrastructure in India offer opportunities to better utilize the existing pipeline network in addition to expand by constructing new pipelines.

IndianOil, the pioneer in cross-country petroleum product pipeline in the Indian subcontinent constructed and commissioned its first petroleum product pipeline, GuwahatiSiliguri Pipeline in the year 1964. Since then IndianOil has mastered the art and technology of pipeline engineering. Over the last four decades the pipeline network of IndianOil has grown to 10,000 km with a capacity of about 62 million metric tonnes per year. Commissioning of new projects worth about Rs. 2,300 crore including LPG and RLNG pipelines will reach the capacity to 75 million metric tonnes per annum with a network of over 10,000 km.

IndianOil’s sustained pursuit and implementation of proven safety and environmental management systems have brought rich results. All operating pipeline units have been accredited with ISO 9000 and ISO 14001 certificates.

Various initiatives in the field of project management, operations and maintenance including training in countries like Oman, Ethiopia, Kuwait and Sudan have been undertaken.

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Today IndianOil is well placed to provide seamless services in the entire spectrum of petroleum pipelines covering techno-economic feasibility studies, design and detailed engineering, project execution, operations and maintenance, consultancy services in augmentation and modernization, etc.

Supervisory Control and Data Acquisition (SCADA) and application software expertise are available from project implementation to commissioning including field services, maintenance and operational support. Tanker handling, petroleum product and crude oil accounting, quality control, ocean loss control, pigging procedure development and analysis of pigging data, selection, testing and evaluation of drag reducers, operations and maintenance of tank farm and pump stations are other areas of expertise available with IndianOil’s Pipelines Division.

PIONEER IN PIPELINE TECHNOLOGY

Today with a proven record in pipelines project management, IndianOil is well placed to provide seamless services in the entire spectrum of petroleum pipelines covering technoeconomic feasibility studies, design and detailed engineering, project execution, operation, maintenance and consultancy services in areas for capacity augmentation, modernization etc.

Supervisory Control and Data Acquisition (SCADA) and application software expertise are available from project implementation to commissioning including field services,

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maintenance and operational support. Tanker handling, product and crude oil accounting, quality control, ocean loss control, pigging procedure development and analysis of pigging data, selection, testing and evaluation of drag reducers, operations and maintenance of tank farm and pump stations etc, are other areas of expertise available with IndianOil Pipelines.

IndianOil’s sustained pursuit and implementation of proven Safety and Environmental Management Systems have brought rich results. All operating pipeline units have been accredited with ISO 9000 and ISO 14001 certificates.

Various initiatives in the field of project management, operation and maintenance including training in countries like Oman, Ethiopia, Kuwait and Sudan have been undertaken. Long distance pipelines are the most viable, economic, safest and environment friendly mode to transport crude oil and petroleum products.

IndianOil, as an environment conscious corporate entity, has pioneered in transportation of petroleum products from its refineries to the various major demand centres of this geographically vast country, and feeding the landlocked refineries through underground crude oil pipelines. IndianOil operates a total network of 8952 km crude oil and petroleum product pipelines with a combined capacity of 60.42 million tones per annum throughput, consisting of 2813 km long crude oil pipeline network with a capacity of 28.50 million metric tonnes and 6139 km long petroleum product pipelines with a capacity of 31.92 million metric tonnes.

Started with the commissioning of the 435 km long Guwahati-Siliguri Pipeline on October 25, 1964, IndianOil today is the leader in pipeline engineering, construction, operations, and maintenance and training services. With over four decades experience, the highly qualified pipeline professionals execute pipeline projects from concept to commissioning and provide services for construction supervision, project management, operation and maintenance.

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IOCL’s Pipeline network in India

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OIL COMPANIES IN INDIA The companies taken for the research are: • Hindustan Petroleum Corporation Limited • Bharat Petroleum Corporation Limited • Indian Oil Corporation Limited

Hindustan Petroleum Corporation Limited VISION 2020 To be a World Class Energy Company known for caring and delighting the customers with high quality products and innovative services across domestic and international markets with aggressive growth and delivering superior financial performance. The company will be a model of excellence in meeting social commitment, environment, health and safety norms and in employee welfare and relations.

FINANCIAL AND STRATEGIC ANALYSIS REVIEW HPCL is an Indian energy company engaged in the refining of crude oil, marketing of oil products; and oil and gas exploration and production. It is a huge Public Sector Undertaking (PSU) with a Navratna status in India. It accounts for about 16% of the market share and 10.3% of India’s refining capacity. HPCL operates two major refineries

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in India, one in Mumbai with 5.5 MMTPA capacity and the other in Vishakapatnam with a capacity of 7.5 MMTPA. These refineries produce a wide variety of petroleum fuels and specialties. Global Markets Direct, the leading business information provider, presents an in-depth business, strategic and financial analysis of Hindustan Petroleum Corporation Limited. This shows its strategic reviews as well as its business and operation structure

Bharat Petroleum Corporation Limited CORPORATE VISION • Make BPCL a great place to work • Effective boundary management • Fulfill social responsibilities • Apply the best technologies • Be an ethical company • Strong and dynamic system • Sound business performance and operational efficiency • Develop cohesive corporate strategy • Establish first class brand and corporate image • Have excellent customer caring and customer service FINANCIAL AND STRATEGIC ANALYSIS REVIEW Bharat Petroleum Corporation Limited (BPCL) is a public limited oil and gas company.

The company has its operational presence in the Indian Petroleum Industry in various verticals. BPCL is engaged in the business of refining, storing, marketing and distribution of petroleum products. The company’s major refineries are located at Mumbai and Kochi.

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BPCL produces a host of petroleum products including gasoline, diesel and kerosene, liquefied petroleum gas, automotive and industrial lubricants, fuel oils and aviation fuels and distributes the same through its widespread retail network base.

Global Markets Direct, the leading business information provider, presents an in-depth business, strategic and financial analysis of Bharat Petroleum Corporation Limited. The report provides a comprehensive insight into the company, including business structure and operations, executive biographies and key competitors. The hallmark of the report is the detailed strategic analysis and Global Markets Direct’s views on the company.

IndianOil Corporation Limited VISION A major diversified, transnational, integrated energy company, with national leadership a strong environment conscience, playing a national role in oil security & public distribution.

FINANCIAL AND STRATEGIC REVIEWS Indian Oil Corporation Limited (IOCL) is India's largest oil company. Its main activities are petroleum refining, operation of crude oil and petroleum products pipelines, petroleum products marketing and research and development. It is involved in the exploration of oil and gas and the sale of petroleum products, imported crude oil and gas. It mainly operates in India, as well as certain Asian and African countries. IOCL owns nearly 9,300 km of pipelines and operates a network of 17,574 petrol and diesel stations; more than 34,000

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marketing touch points, along with its marketing subsidiary, IBP Co. Ltd. The company is headquartered in New Delhi, India and employs 31,945 people.

Global Markets Direct, the leading business information provider, presents an in-depth business, strategic and financial analysis of Indian Oil Corporation Limited. The report provides a comprehensive insight into the company, including business structure and operations, executive biographies and key competitors. The hallmark of the report is the detailed strategic analysis and Global Markets Direct’s views on the company.

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OBJECTIVE, SCOPE & RESEARCH METHODLOGY

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OBJECTIVES •

To analyze financial position of IOCL from 2004-05 to 2007-08, with the help of ratio analysis

•

To understand the asset management in IOCL by using SAP

SCOPE OF STUDY The scope of my study is confined to Indian Oil Corporation Ltd. (finance department).The study has been conducted on Ratio Analysis & Management of assets using SAP in IOCL. The management and other interested punters can use this study for decision making and improving its control on financial drawbacks to improve the financial performance of the company. The management can use this study for proper use of SAP in managing the assets of the company and understanding the problems involved in it.

RESEARCH METHODOLOGY Research Design: The study has been mainly secondary, and secondary data was collected from annual reports and manual of SAP held with the company for its official use. Discussed with managers who use SAP for assets management to know the functioning of SAP and the problem related to operation faced by the employee.

Period of Study: The duration of my training was of 54 days i.e.1st June’09 to 24th July’09.

Data Collection & Analysis: The information was gathered regarding my Summer Training Report on Ratio Analysis and Assets Management (using SAP), its creation to its transfer using SAP through mainly secondary sources.

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Data has been collected for four financial years from the annual reports and websites of the company. Various Ratios like were calculated and analyzed and finally compared the ratios for different years from 2004-05 to 2007-08 taken for project. After analysis and comparison interpretation was made for every ratio which could be beneficial for the company.

The various functions of SAP which has been presented in the report are been prepared using the manual of SAP along with the screen shots, has been pasted are of the actual software of the company.

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DATA ANALYSIS & INTERPRETATION

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Liquidity Ratios a) Current Ratio Curr ent Ratio 1.53

1.55 1.5 1.45

1.43

1.42

1.4 1.35

1.31

1.3 1.25 1.2 2004-05

2005-06

2006-07

2007-08

The current ratio in year 2004-05 was 1.43 which decreased and became 1.42 in year 2005-06 and further decreased to 1.31 in the year2006-07 which means that the ability of IOCL the ability of the company to meet its short term liabilities was decreasing year after year, but in the year 2007-08 it increased to 1.53, the reason being the increase of current asset of around 6000 crores in inventories and increase of around 7000 cr. in loans and advances in the year 2008. b) Quick Ratio

Quick Ratio 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

0.63 0.55

2004-05

0.47

0.48

2005-06

2006-07

2007-08

The Quick Ratio of IOCL for 4 years is represented in the above chart. As can be seen the quick ratio in the year 2004-05 was 0.55 which decreased to 0.47 in the year 2005-06 ,remained almost constant for the next year and then increased to 0.63 in the year 2007-

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08.So the company’s ability to meet its short-term obligations with its most liquid assets increased in the year 2007-08. c) Collection Period Allowed to Customers Collection Period 14

13

14

11

12

10

10 8 6 4 2 0 2004-05

2005-06

2006-07

2007-08

As we can see from the chart the collection period of IOCL was initially 14 days in the year 2004-05, which decreased till 2007-08 to 10 days, Thus IOCL was able to decrease its collection period over the years from 2004-05 to 2007-08 which is beneficial for the company as it can recover its money from its customers faster. d) Supplier’s Credit Period

Suppliers' Credit 100

100

100 98 95

96

93

94 92 90 88 2004-05

2005-06

2006-07

2007-08

As shown in the graph that the IOCL’s suppliers’ credit period allowed by its suppliers was 100 days in 2004-05, which decreased to 95 days in 2005-06 and further decreased in 2006-07, but company regained 100 days as the credit period allowed by suppliers, so it is good for the company as now it gets more days to pay back its suppliers.

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Solvency Ratios a) Debt to Total Capital Ratio

Debt to Total Capital Ratio 0.6 0.4

0.39

0.47

0.44

0.46

2005-06

2006-07

2007-08

0.2 0 2004-05

As shown in the graph the debt to total capital ratio is showing an increasing trend ,with debt equity ratio 0.39 times in the year 2004-05 to 0.46 times in the year 2007-08.The debt to total ratio is near about to the ideal ratio of 1:2,this is a good sign for the company.

Thus nearly one third of the total permanent capital of the firm is in the form of long term debts. In the year 2006-07 there is a slight decrease in the debt equity ratio which is due to the fact that since 2006-07 the percentage change in the permanent capital is more than that of previous years. b) Debt Equity Debt Equity 0.5702

0.6 0.5 0.4

0.4224 0.348

0.3899

0.3 0.2 0.1 0 2004-05

2005-06

2006-07

2007-08

The debt equity ratio is first increasing till 2005-06 and then decreasing from 2006-07.

The ideal debt equity ratio is 2:1 which is far more than the actual debt equity ratio of IOCL.Thus company should try to increase its debt equity ratio.

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c) Interest Coverage Ratio Interst Coverage 29.5

30

24.44 17.44

20

20.87

10 0 2004-05

2005-06

2006-07

2007-08

The Interest Coverage ratio is showing an increasing trend since the year 2005-06 (17.44 times) to 2007-08 (29.5 times)But the interest coverage ratio in the year 2004-05 is quite high, the reason the interest being quite low in the year 2004-05.

The ratio indicates the extent to which the fall in EBIT is quite tolerable in that the ability of the firm to service its interest payments would not be adversely affected. Thus this is a good sign for the company.

Turnover Ratio a) Fixed Asset Turnover Ratio Fixed AssetTurnover Ratio 7 6.5 6

6.88

6.61 5.97

5.8447

5.5 5 2004-05

2005-06

2006-07

2007-08

The fixed asset turnover ratio have not been showing any particular pattern though the net sales increased from 2004-05 (Rs.136654.73 cr.) to 2007-08 (Rs. 224428.14cr.).As the ratio is going up in 2007-08, it is good for the company.

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b) Networth Turnover Ratio Netw orth Turnover Ratio 5.8

5.645

5.7

5.6

5.462

5.4

5.259

5.2 5 2004-05

2005-06

2006-07

2007-08

The net worth turnover ratio for IOCL has been increasing since 2004-05 to 2006-07 by virtue of increase in net sales. But in 2007-08 the networth turnover ratio decreased to 5.462(times). The networth has been increasing since 2004-05(136654.37 cr.) to 200708(224428.14 cr.),and so was the

trend in

net sales ,so this is beneficial for the

company .But the increase in the networth in the year 2007-08 has been quite more then the previous years ,that was the reason behind the dip in the value of networth turnover ratio in the year 2007-08. c) Working Capital Turnover Ratio

Working Capital Turnover Ratio 20 15 10

15.97 12.9

11.49

9.69

5 0 2004-05

2005-06

2006-07

2007-08

The working capital turnover ratio is showing an increasing trend during the four years, except in 2007-08 .The net sales has been improving year by year and the working capital also kept increasing all these four years. So this is a good sign for company .The dip in 2007-08 in working capital turnover ratio may be accounted because of increase in

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current liability by more than 50% over its previous year, due to increase in total outstanding dues of creditors other than micro enterprises and small enterprises.

Profitability Ratios a) Gross Profit to Sales Ratio Gross Profit Ratio 8

6.38

6

7.33

6.38

6

4 2 0 2004-05

2005-06

2006-07

2007-08

Though the chart doesn’t show any particular pattern, the net sales increased in all the four years, where as there was increase in gross profit till 2007-08 (14622), the increase in the gross profit was around 47% as compared to that of previous year. It decreased to 14339 in the year 2007-08 that is the reason behind the dip in the gross profit ratio in the year 2007-08. b) Net profit Margin Ratio Net Profit Margin to sales Ratio 4

3.57

3

3.76 3.1

2.97

2 1 0 2004-05

2005-06

2006-07

2007-08

The graph for Net profit margin does not follow any particular pattern. The net sales have been showing an increasing trend, but so is not the case with PAT. It is showing an increasing trend till the year 2004-05 (4891.38 cr.) to 2006-07(7499.47cr.). In the year 2007-08 PAT was 6962.58 cr. one of the reason behind this may be the increase in current tax from 2111.53 cr. in 2006-07 to 3084 .13cr. in the year 2007-08.

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The decrease in the net profit margin ratio in 2005-06 was because the percent change in PAT was small, but the percentage change in net sales was about 21% compared to the increase in net sales in the year 2004-05. c) Raw Material Consumed Ratio Raw Materials Consumed Ratio 50 40

36.19

41.25

44.4

45.15

30 20 10 0 2004-05

2005-06

2006-07

2007-08

The Raw material consumed ratio has been increasing through all the four years. Since both the amount of raw material consumed and net sales increased. As the ratios are increasing this shows that the raw material consumed increasing this is good for the company, shows proper utilization of raw materials. d) Effective Tax Rate Effective Tax Rate 40

20

30.59

27.16

30

20.13

17.28

10 0 2004-05

2005-06

2006-07

2007-08

The effective tax ratio is not showing any particular pattern in the four financial years.

Though the current income tax of the company has been increasing, so is not the case with the PBT.It was almost same in the year 2004-05 to 2005-06 then increased in 2006-07 drastically and in 2007-08 it decrease by a small amount.

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ASSET MANAGEMENT

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Asset management is a very broad term. It can be defined as a process that helps in gaining of assets, along with their use and disposal for the proper utilization of asset throughout the life of the assets. It also manages and maintains any costs and risks associated with the assets. It is not something you can buy, but rather a discipline you must follow in order to maintain your assets.

There are many different means of asset management. The method is different from asset to asset. There are companies and software products like SAP available to assist in asset management. Irrespective of the method, there are many similar things that your asset manager system should incorporate with: 1. Optimize asset use and manage all maintenance efforts involved by making assets as accurate, reliable, and efficient as possible.

2. Reducing the demand for new assets and thus save money by using demand management techniques and maintaining current assets.

3. Always provides a report on the value of the assets, along with any costs involved in maintaining the assets.

Asset management using SAP The Asset Accounting sub-module manages a company’s fixed assets. Within the Financial Accounting system, FI-AA serves as a sub-ledger to the General Ledger, providing detailed information on asset-related transactions.

Key element in asset accounting is: 1. Account Determination 2. Asset Class 3. Asset Master Record 4. Depreciation Area 5. Depreciation Key

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Key master data in asset accounting Account determination: defines the level at which g/l accounts are defined for asset accounting.

Asset class: defines all assets which depreciate in a similar manner are grouped to one asset class. The depreciation rates are maintained at asset class level.

Assets master record: defines the complete details like asset capitalizations date, location to which it belongs, voucher ref no, IRno, vendor particulars etc Depreciation area: defines the different depreciation books maintained Ex. Companies Act, Income tax Act and Employee Assets depreciation Depreciation keys: defines the different rates of depreciation for different assets classes. It will also have the method of depreciation, salvage value of assets. Sec 56 of the companies act states the depreciation rate of the entire asset used by the company.

Key Asset Transactions Acquisitions Scrapping/ Dismantling of Assets Sale of Assets Asset Transfers Depreciation

Functions of SAP The SAP Financial Accounting (FI) Module provides integrated, on-line, real-time functionality for processing, recording and maintaining the financial accounting

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transactions of the business for external reporting purposes, it performs various functions like: a) CREATION OF ASSET Firstly we say that creation and display of asset both follow the same path. Asset master has already been created in SAP so we cannot show creation of asset and we can only show how to create the asset master through display. But the first 3 snapshots are also needed in the creation of asset master.

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The initial screen is displayed. We will create asset master for “Wooden Almirah”. Here we put the asset class, it is group of asset to which the asset belongs (F2000001).Group of assets means that all the assets of similar nature will be put together like machinery, furniture, and computer equipments. Then put the company code (9201-for Pipeline division). In a big company like IOCL there are many departments like Pipeline divisions, marketing, HR therefore different codes are assigned to the departments. If this type of asset already exists we need to put the reference no. of the similar asset. By putting the reference number, SAP will copy the details of the particular asset into the new asset.

Asset class code for Furniture should be initiated with ‘F’ and it consists of 8 Alfa Numerical letters i.e., F2000001.

Now from the drop down button we choose the asset class for Almirah.

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We can also create asset master by taking reference form existing asset. From this snapshot we had to choose the similar asset reference no. i.e. 50000288 while searching in Asset Description.

After completing 3 snapshots we have displayed the necessary inputs given at the time of creation of asset master.

The code for displaying asset is AS03.

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In the GENERAL option, here we put description, asset main no. text, account determination and Serial no.Serial no. is the code of the asset in the system which was used before SAP. Serial no. for Furniture which is used in office and for personal use is 11701 & 11702.

Also put the capitalization date, the date when we start to use the assets. Deactivation is the estimated time period after which the asset will become obsolete.

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Moving on to TIME-DEPENDENT option, we put cost centre to which the asset belongs.

P1212 is cost centre for Pipeline Office. Also put the employee code no. which is the code of the employee who has created the asset i.e. 94098 in this

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In the ALLOCATION option, we put political state code, suppose it is WB (West Bengal).It will locate the office in west Bengal. In the insurance category we will put a particular division in the office be it HR, Finance or marketing. Then in the Insurance group put the asset code .By filling these entire column we can locate any asset of any division in any state.

Now go to the ORIGIN option. Employees are treated as Vendor in SAP so we put the employee’s no. in vendor field.

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Then go to the DEPRECIATION AREAS option. Depreciation areas mean the areas to which the asset belongs. It maintains the 3 aspects. i)

Companies Act,

ii)

Income Tax act.

iii)

Employee Depreciation

Depreciation key is the rate of depreciation. From the drop down menu we choose the depreciation key mentioned for wooden almirah for different aspects.

Section 56 of the companies act mentions the minimum rate of depreciation and its method to be charged on all the assets of the company Now we save the page and the final outcomes will display.

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b) ADDITION TO ASSET

After creation of asset master, the asset is capitalized in the above snapshot. We have capitalized the asset by using the code F-91 and the addition to the asset by Rs. 20000/and liability for the same in favor of employee concerned. c) INTER-COMPANY ASSET TRANSFER This transaction is used to process an asset transfer between two company codes.

The

transaction is relevant when the employees are transferred from one unit to another unit.

The transfer is done for those assets which are not own by the employees but which are provided by the company to its employees and after a certain period of time depending upon asset to asset, the employee become its owner. However for each asset, which is being transferred we will have to carry out the transaction. The accounting entry in both the company code will hit the inter company clearing account, at the end of the period the account the account will have net of balance which should be nil.

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An asset can be transferred from one location to another location in such case there will be Inter company transfer of asset.

Now we shall transfer the same asset (WOODEN ALMIRAH-50000338, already created) to the location using the code ABT 1N.

First we go to the transaction data and put document date which means the date of purchase of asset. Then put the posting date which is the date of entry in SAP, asset value date which means the first date of the quarter and then text. We have to mention the transferee Company code i.e., Chennai’s unit (9291) in this case.

Then go to ADDITIONAL DETAILS In this snapshot ADDITIONAL DETAILS we put period as 2 (from the beginning of fiscal year), document type as AA (means Asset Accounting) & transfer Variant as Z4 (means gross method). Also mention the reference.

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Then again go to the TRANSACTION DATA. Click on New asset and Master Data. In this displayed snapshots we put cost centre code of transferee company, P7106 in this case for Chennai. Then click on additional data.

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After clicking the additional data you will see the screen of creation of data.

In the GENERAL DATA option we put asset description, asset main no. text, account determination and serial no. We have to put quantity as 1 and the repeat the process for creation of asset upto depreciation areas.

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As usual we choose the depreciation key from the drop down button of respective areas.

Then Click on “Go back option”

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Here we apply the depreciation key as per IT rule i.e., 10% for this asset being a furniture item and its useful life. Group asset is the asset where the same depreciation key is applied i.e. 10% in this case. Go to the go back option.

Now press the Simulate button.

, the document as per the next page will be

displayed.

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This is the final page and it displays the asset is getting transferred in the books of Chennai.

Conclusions On the basis of analysis of different ratios, it was found that the financial performance is growing with some downfalls.

1. The net sales of the company have been showing an increasing trend in all the four years.

In the year 2004-05 it was136654.37 cr. and in the year 2007-08 it reached to 224428.14 cr. The percentage increase in year 2005-06 and in the year 2006-08 was almost same i.e. 21% increase. But in the year 2007-08 the increase in the net sales was 12.5%.

2. The current ratio of IOCL has increased from the 1.43 to 1.53 in the year 2007-08. It looks that company’s ability to meet the current liability has increased .The percentage increase in current liability (and provisions) has been almost the same i.e. near about 66

16% in all the four years .But the percentage increase in current assets has been quite varying, the maximum variation being in the year 2007-08 with percentage increase of 35%.The reason behind this significant increase in current assets is the increase in inventories (6238.79cr.) and amount recoverable from government of India (7497,48cr.).The company must further try to reach the ideal ratio of 2:1 in the coming years.

3. The world economy witnessed many new developments during the year 2007-08. A period of robust growth was followed by fears of a slow down. The slowdown in the advanced economies came in face of a major financial crisis the US subprime crisis.

The pace of economic growth of India consequently slowed down to 9% from 9.6% in the previous fiscal. Inflationary pressures, after being sub ducted for most of the year, flared up in the fourth quarter of 2007-08. During 2007-08, to ease the financial burden on public sector OMCs, the Government of India raised the prices of petrol and diesel marginally (the international price of crude oil went above 80 US$ per barrel).Besides this the Government also issued oil bonds to the OMCs to partially compensate for the losses suffered by them on account of inadequate pass through of prices to the consumers.

4. The debt equity ratio has been quite varying from 0.348 in 2004-05 to 0.3899 in the year 2007-08.The debt equity ratio in the year 2005-06 is 0.5702 .The reason behind this increment in the value of debt equity ratio is the percentage increase in the Long term loans i.e. by 84% over its previous year, which further resulted because of increase in unsecured loans and advances from banks and other organizations, and increase in secured loans from bonds and loans and advances from CCIL (2600 cr.).

5. The quick ratio of the IOCL has increased during all the four years, from the year 200405 (0.553 times) to 2007-08 (0.635 times).The increase has mainly been because of the significant percentage increase in the current assets as the percentage change of current liability was almost the same during these four years and so was with the inventories.

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SAP 1. SAP-FICO module provides an advance accounting package and also provides guidelines in well and good manner.

2. In this module the creation, display and reconciliation of asset are defined easily Inter company asset transfer can be maintained through SAP without difficulties

Recommendations Financial Analysis ►The liquidity position of the company is up to the mark, but the rate of increase in the current asset is less than that of current liability. The company should try to reach the ideal ratio of 2:1 by increasing the current asset. ►It is a company with increasing profits every year which raises its funds mainly from equity. The company should try to increase debt in the capital structure which will not only reduce the tax paid by the company but also will be a cheap source of finance. ►The turnover ratio of the company is also healthy but, needs to improve it by increasing net sales of the company and thus increasing an asset’s efficiency in generating cash.

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►The profitability performance of the company is in good shape, but needs to be further increased as it provides the company with financial resources.

SAP ► On basis of observation & interaction with the employees I found that they required training of SAP, so that they would be able to do optimal utilization of SAP. ►The user must be trained from time to time as the SAP system is very vast. The company using SAP must be having strong intranetworking system and there should be back up of the network connectivity to prevent malfunctioning of system. ►The user managing the asset should update the asset record in SAP on daily basis.

Company should hire employees with good computer knowledge as minimum training would be required which would help in cost cutting

Limitations ● Accounting ratios by themselves are not significant; they assume significance only when compared with the relevant ratios of the other firms or of previous periods. ● Ratios may be affected by window dressing. Manipulation of accounts is a way to conceal vital facts and present the financial statements better than what actually is. ● Accounting ratios are, as a matter of fact, tools of quantitative analysis only. But some times it is quite possible that the qualitative factors may override the quantitative aspect. ● Ratios are calculated from the figures appearing in the financial statements. So reliability of ratio and its analysis is dependent upon the correctness of the financial statements. ● Personal judgments play an important role in preparing financial statements and therefore, the accounting ratios are also not free from limitations. ● Availability of data, time and internal information about the company without which true financial analysis would is not possible.

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â—? Limitation of Asset management using SAP is that it is costly, requires high understanding of the process and is time consuming for implementation. It also needs huge documentation.

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References  Annual Reports of IOCL for the period of 2004-2008 Books:  Financial management by M Y Khan  Financial management by I M Pandey  Financial Accounting for managers by Ambrish Gupta  Basic Financial Accounting for management by Paresh Shah  Introduction to accountancy by T.S Grewal Websites:  Indianoil Corporation limited

www.iocl.com

 BP Statistics

www.bp.com

 World Economics

www.economywatch.com

 Wikipedia

wikipedia.com

 Investopedia

investopedia.com

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