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Summer Training Report

On Working Capital Management Of

O.N.G.C
Under the supervision of
Mrs.Rekha Mishra Chief Manager(F & A) O.N.G.C Tel bhavan Branch, Dehradun

BY
Akanksha Tomar Roll no. 10070500163

Submitted To
Department Of Management Studies Dehradun Institute of Technology,Dehradun AUGUST 2011

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Students Declaration

AKANKSHA Depatment of management studies DIT, Dehrarun

Statement by the student

I .. the undersigned, student of Dehradun Institute of Technology Dehradun, declare that this project report titled ... is submitted in partial fulfillment of the requirement for the summer internship project during the Post Graduate Program in Management. I also declare that this is my original work and has not been previously submitted as part of any other degree, diploma of another B-school or University. The findings and conclusions of the data in this report are based on my personal study, during the tenure of my summer internship.

DATE:

AKANKSHA

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EXECUTIVE SUMMARY

Working Capital is the lifeblood and controlling nerve of an organization. ONGC being a large organization, dealing in exploration and exploitation of hydrocarbons requires a large amount of funds. The complexity and risks involved in exploration business like whole procedure of search of oil, geographical and physical conditions, day to day reduction in oil reserves and many other things tend to maintain a substantial amount of working capital. Hence there is a need for proper management of working capital, so that day by day operations do not hamper; at the same time there would not be any idle investment in working capital.

In this project, a modest attempt has been made to analyze the trend in working capital of ONGC during last few years.

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TABLE OF CONTENT
Certificate Executive Summary Company Profile.1-16 Introduction.1 Profile..2 History.3 Different Structures..4 Vission and Mission..6 Achievement/Awards8 Global Ranking10 Products..11 Subsidiaries.12 Joint Ventures.14 Objective of the project.17 Research Methodology..18 Working Capital...20-33 Introduction.20 Concepts of working capital...21 Management of Working capital.23 Components of working capital.24 Need for working capital26 Factors determining working capital..27 Working capital cycle.30 Working capital Policy followed by ONGC..31 Statement of Working Capital of ONGC...32

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Inventory Management34-41 Objective35 Techniques.36 Nature of Inventories of ONGC.39 Receivables Management42-44 Policy followed by ONGC.44 Cash Management45-49 Motives...45 Objective.46 Cash Forecasting47 Cash Flow Statement of ONGC.48 Analysis of Cash Flow Statement..49 Working Capital Ratios...50-76 Liquidity Ratios..50 Leverage Ratios...58 Activity Ratios63 Profitability Ratios.68 Statement of Ratios75 SWOT Analysis77-79 Findings..........80 Suggestions.81 Bibliography...82

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COMPANY PROFILE INTRODUCTION

Oil and natural gas corporation ltd., a Maharatana public sector enterprise is one of the leading enterprises in the country with significant contributors to industrial and economic growth. ONGC is in the business of exploration and production (E&P) of hydrocarbons. ONGC is Indias highest profit making company with record profit exceeding Rs. 16000 crore since the financial year 2009. ONGC has its headquarters at Dehradun and registered office at New Delhi. Its operation is spread all over the country-east to west and north to south and employees over 33000 trained man power. ONGC undertakes socio-economic activities in area where it operates as a part of its social responsibility. The activities include, grants in aid to agencies educational institutes, social welfare organizations development of infrastructure by constructing roads, bridges and plantation of trees etc. ONGC has two subsidiaries as ONGC VIDESH LTD. (OVL) and MANGALORE REFINERY AND PETROCHEMICAL LTD. (MRPL)

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COMPANY PROFILE
During the pre-independence period, the Assam Oil Company in the northeastern and at tock Oil company in north western part of the undivided India were the only oil companies producing oil in the country, with minimal exploration input. After independence, the national Government realized the importance oil and gas for rapid industrial development and its strategic role in defense. Consequently, while framing the Industrial Policy Statement of 1948, the development of petroleum industry in the country was considered to be of utmost necessity. Until 1955, private oil companies mainly carried out exploration of hydrocarbon resources of India. In Assam, the Assam Oil Company was producing oil at Digboi (discovered in 1889) and the Oil India Ltd. (a 50% joint venture between Government of India and Burmah Oil Company) was engaged in developing two newly discovered large fields Naharkatiya and Moran in Assam. In West Bengal, the Indo-Stanvac Petroleum project (a joint venture between Government of India and Standard Vacuum Oil Company of USA)was engaged in exploration work. The vast sedimentary tract in other parts of India and adjoining offshore remained largely unexplored. In 1955, Government of India decided to develop the oil and natural gas resources in the various regions of the country as part of the Public Sector development. With this objective, an Oil and Natural Gas Directorate was set up towards the end of 1955, as a subordinate office under the then Ministry of Natural Resources and Scientific Research. Oil and natural gas corporation ltd., a Maharatana public sector enterprise is one of the leading enterprises in the country with significant contributors to industrial and economic growth. ONGC is in the business of exploration and production (E&P) of hydrocarbons. ONGC is Indias highest profit making company with record profit exceeding Rs. 16000 crores in the financial year 2009. ONGC has its headquarters at Dehradun and registered office at New Delhi. Its operation is spread all over the country-east to west and north to south and employees over 33000 trained man power. ONGC undertakes socio-economic activities in area where it operates as a part of its social responsibility. The activities include, grants in aid to agencies educational institutes, social welfare organizations development of infrastructure by constructing roads, bridges and plantation of trees etc. ONGC has two subsidiaries as ONGC VIDESH LTD. (OVL) and MANGALORE REFINERY AND PETROCHEMICAL LTD. (MRPL)

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COMPANY HISTORY

In April 1956, the Government of India adopted the Industrial Policy Resolution, which placed mineral oil industry among the schedule 'A' industries, the future development of which was to be the sole and exclusive responsibility of the state. Oil and Natural Gas Corporation (ONGC) was set up in 1956with significant contribution in industrial and economic growth of the country. In October, 1959 the Commission was converted into a statutory body by the Oil and Natural Gas Commission Act, 1959.The main objectives of the Commission were to plan, promote, organize and implement program for the development of oil and natural gas resources and the production and sale of oil and natural gas products. ONGC functions as the primary arm of the Government as regards exploration for and exploitation of India's petroleum resources. The Company's revenues are derived primarily from the sale of its production of crude oil, natural gas, liquefied petroleum gas (LPG), C2-C3 (ethane-propane) and natural gasoline (NGL). To strengthen reserves accretion portfolio and open up areas of future exploration ONGC has undertaken an Accelerated Program of Exploration with an outlay of Rs.3958 crores. The main objectives of APEX were Enhancement in seismic surveys, enhancement in exploratory drilling, national seismic program, exploration in frontier areas and acquisition of foreign acreage. ONGC has assimilated various technologies in the field of hydrocarbons explorations and exploitation. The Company owns Dornier-228 aircraft, chetak helicopter, offshore supply vessels and geo-technical survey vessel. It has 2central workshops located at Baroda & Sibsagar, 7 project workshops and 11 auto workshops located at various project sites employing multifarious equipments and machinery. It has also stateof-the- art communication systems both terrestrial and satellite based for meeting operational & MIS requirements of onshore &offshore.

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DIFFERENT STRUCTURES
ONGC Has Different Types Structures like ASSETS/ BASINS/ PLANTS/ REGIONS/ INSTITUTES/ SERVICES: Assets: 1)Mumbai High Asset, Mumbai 2)Neelam & Heera Asset, Mumbai 3)Bassein & Satellite Asset, Mumbai 4)Rajamundry Asset, Rajamundry 5)Ankleshwar Asset, Mehsana 6)Ahmedabad Asset, Ahmedabad 7)Mehsana Asset, Mehsana 8)Cauvery Asset, Karaikal 9)Assam Asset, Nazira 10)Tripura Asset, Agartala Basins: 1)Western Offshore Basin, Mumbai 2)Western Onshore Basin, Baroda 3)K. G. Basin, Rajamundry 4)Cauvery Basin, Chennai 5)Assam & Assam-Arkan Basin, Jorhat 6)CBM- BPM Basin, Kolkata 7)Frontier Basin, Dehradun Plants: 1)Uran Plant, Uran 2)Hazira Plant, Hazira Region: 1)Mumbai Region, Mumbai 2)Western Region, Baroda 3)Eastern Region, Nazira 4)Southern Region, Chennai 5)Central Region, Kolkata Institutes: 1)Keshava Deva Malaviya Insti. of Petroleum Exploration (KDMIPE), Dehradun.

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2)Institute of Drilling Tech., (IDT), Dehradun 3)Institute of Reservoir Studies, Ahmedabad 4)Institute of Oil & Gas Production Tech., Navi Mumbai 5)Institute of Engineering & Ocean Tech.,, Navi Mumbai 6)Geo-data Processing & Interpretation Center (GEOPIC), Dehradun 7)ONGC Academy, Dehradun 8)Institute of Petroleum Safety, Health & Envi. Management, Goa 9)Institute of Biotechnology & Geotectonic Studies, Jorha 10)School of Maintenance Practices, Baroda 11)Regional Training Insti., Navi Mumbai, Chennai, Sivasagar & Baroda Services: 1)Chief Drilling Services, Mumbai 2)Chief Well Services , New Delhi 3)Chief Geo-Physical Services, Dehradun 4)Chief Logging Services, Mumbai 5)Chief Engineering Services, Mumbai 6)Chief Offshore Logistics, Mumbai 7)Chief Technical Services, Dehradun 8)Chief Info-com Services, New Delhi 9)Chief Corporate Planning, New Delhi 10)Chief Human Resource Development, Dehradun 11)Chief Employee Relations, Dehradun 12)Chief Security, New Delhi 13)Company Secretary, New Delhi 14)Chief Marketing, New Delhi 15)Head Corporate Affairs & Co-ordination, New Delhi 16)Head Corporate Communication, New Delhi 17)Chief Material Management, Dehradun 18)Chief Health, Safety & Environment, Mumbai 19)Head Legal, New Delhi 20)Chief Medical, Dehradun 21)Chief Internal audit, New Delhi 22)Head Commercial, New Delhi 23)Chief Exploration & Development, Dehradun

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VISON STATEMENT
To be a world-class Oil And Gas Company integrated in energy business with dominant Indian and global presence. World Class Dedicated to excellence by leveraging competitive advantages in R&D and technology with involved people. Imbibes 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 Indias Energy availability.

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

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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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Achievements / Awards
Secured three out of eight Petro fed Awards 2008, instituted by Petroleum Federation of India (Petro fed), for performance during 2007-08. (April 2009). 1. Leading Oil & Gas Corporate of the year. 2. Exploration & Production Company of the Year. 3. Project Management (above Rs. 2000 Crore) - Company of the Year for the year 2008. 4. Bagged all the National Mines Safety Awards (12 awards), in Oil Mine Category, for the year 2004, 2005 & 2006. (May 2008) 5. Gold Trophy for 'SCOPE Meritorious Award for Good Governance 20062007'. (November 2008) 6. Commendation for Strong Commitment, CII-ITC Sustainability Awards2008. (December 2008) 7. Maiden Golden Peacock Award for Combating Climate Change 2008 instituted by Institute of Directors (IOD). (May 2008) 8. Enterprise Excellence Award in recognition of excellent corporate 9. Performance instituted by Indian Institution of Industrial Engineers (HIE). (May 2008) 10.Best Public Sector Award 2008 instituted by Public Relations Society of India (PRSI). (August 2008) 11.Winner's trophy of the maiden 'Earth Care Award for excellence in climate change mitigation and adaptation' under the category of 'GHG mitigation in the small/ medium and large enterprises' instituted by Times of India and JSW foundation to recognize local and relevant actions to tackle climate change. (April 2008) 12. Awarded the first Dalal Street Investment Journal (DSIJ) PSU Awards 2009 for the category Highest Profit making Enterprise for the FY 2007-08. (March 2009) 13.SAP- Awards for Customer Excellence (ACE) for the year 2008 in the category Extended Supply Chain (SRM)' for implementation of reverse auction process on the SAP-SRM platform; the first PSU to successfully implement the process. (September 2008) 14.Award for Excellence in Environmental Sustainability of Business 200708, instituted by The Federation of Indian Chambers of Commerce and Industry (FICCI). (February 2009) 15.Amity Corporate Excellence Award for Dominant Leadership & Global

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16.Presence instituted by the Amity International Business School, NOIDA. (February 2009) 17.Prime Minister hands over Public Sector Company of the Year Award to ONGC March 24, 2005, ONGC News ONGC has bagged the Business Standard Star Public Sector Company Award for 2004, in the Public Sector category. 18.ONGC enters retail launches OVaL - completes integration March 19, 2005, ONGC News March 19, 2005 will remain a red letter day for ONGC. The cycle Drilling to Dispensing was completed on this day by ONGC. Super CEO- Subir Raha - Business India March 19, 2005 19.ONGC secures Award for its Safety Initiatives February 14, 2005, ONGC News ONGCs high standards in Safety, both in its Offshore and Onshore petroleum operations, have got it the Safety Initiatives Award, constituted by the Institution of Engineers (India). 20.ONGC receives Biggest Wealth Creator Award January 21, 2005, ONGC News ONGC received Biggest Wealth Creator Award amongst all the companies listed on Indian Stock exchanges. C&MD Mr. Subir Raha accepted the award on behalf of 38004 ONGCians, colleagues from OVL, MRPL & ONGC Nile-Ganga BV, at an exclusive function organized in Mumbai on January 19, 2005. The Award was presented by Mr. Ajay Primal, Chairman, Nicholas Piramal India Limited. 21.Mr. Subir Raha bags SCOPE Individual Excellence Award for his outstanding contribution to Public Sector Management ONGC News, 13th January, 2004 Mr. Subir Raha, ONGCs C&MD, has won the SCOPE Award for Excellence and Outstanding Contribution to the Public Sector Management Individual Category, for the year 2002-03. The award carries a gold plaque and a purse of 1 Lakh rupees.

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GLOBAL RANKING: Number one E&P Company in world and 25th among leading global energy majors as per Plats Top 250 Global Energy company rankings 2008; based on assets, revenues, profits and Return on Invested Capital (ROIC) (October 2008). Ranked 23rd among the Global publicly-listed energy companies as per 'PFC Energy 50' list (January 2009). Leading Indian Multinational Enterprise (MIME) as per a recent survey by the Indian School of Business, Hyderabad and the Vale Columbia Center on Sustainable International Investment (VCC) at Columbia University, New York (May 2009). Occupies 152nd rank in the Forbes Global 2000 list 2009 of the world's biggest companies (up 46 notches than last year's rank of 198 th position) based on sales, profits, assets and market capitalization (April 2009). Only company from India to figure in the elite list of 40 global companies as per Return on Revenues (27th rank) and Return on Assets (30th rank) in the Fortune Global 500 list of 2009; with overall rank of 402. (July 2009). Indian Rankings/Recognitions: Ranked 3rd in the Business World Real 500 survey list of the Indian companies on the sum of total assets and total income of a company (October 2008). ONGC ranks as the Numero Uno Oil & Gas Exploration & Production (E&P) Company in Asia, as per Platts 250 Global Energy Companies List for the year 2008. ONGC ranks 23rd Leading Global Energy Major amongst the Top 250 Energy Majors of the World in the Platts List based on outstanding performance in respect of Assets, Revenues, Profits and Return on Invested Capital (RIOC) for the year 2008. ONGC has 9th position in the Industry of Mining, crude oil production. ONGC ranks 239th position in the prestigious Forbes Global 2000 and Numero Uno ranking amongst Indian Companies. ONGC retains Numero Uno position from India in terms of Profits with overall global ranking of 121st. ONGC ranks 21st among the top 50 publicly traded companies in Oil & Gas Industry, based on the year-end market Capitalization by PFC Energy.

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CRISIL and ICRA also reaffirmed ONGC the highest credit rating of AAA and LAAA respectively.

PRODUCTS OF ONGC are: Crude Oil Gas LPG (Liquefied Petroleum Gas) Natural Gas Natural Gas Liquid Aromatic Naphtha Superior Kerosene Oil C2-C3 (Ethane-Propane)

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Subsidiaries:
1).ONGC Videsh Limited (OVL): ONGC Videsh Limited (OVL), the wholly-owned subsidiary of your Company for overseas E&P activities, registered significant performance during 2008-09. It acquired 7 E&P projects in 5 countries during the year. The company presently has participation in 40 projects in 16 countries. Among newly acquired projects, San Cristobal Project in Venezuela and Imperial Energy in Russia, are under production phase; Block BM-Seal-4 and Block BM-Bar-1 in Brazil, Block CPO-5 and Block SSJN-7 in Colombia are under exploration phase. An exploration block AD-7 in Myanmar in which OVL acquired 20% during the year was surrendered after completion of the study phase. Out of 40 projects, OVL is operator in 17 projects and joint operator in 5 projects. OVL is currently producing oil and gas from Greater Nile Oil Project and Block 5A in Sudan, Block 06.1 in Vietnam, Al Surat Project in Syria, Sakhalin-I Project and Imperial Energy in Russia, Mansarovar Energy Project in Colombia and San Cristobal Project in Venezuela. Block BC-10 in Brazil has commenced production from 13th July 2009. Block A-1 and A-3 in Myanmar, North Ramadan Block and NEMED Project in Egypt and Farsi Offshore Block in Iran have discoveries and appraisal work is being carried out. The remaining projects are in exploration phase Direct Subsidiaries of OVL: a) ONGC Nile Ganga B.V.(ONGBV) b) ONGC Narmada Limited (ONL) c) ONGC Amazon Alaknanda Limited (OAAL) d) Jarpeno Limited Joint Venture of OVL: a)ONGC Mittal Energy Limited (OMEL)

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2).Mangalore Refinery & Petrochemicals Limited (MRPL): Your Company continues to hold 71.62% equity stake in MRPL, which have achieved new heights in excellence in both financial and operational performance during the year. Highlights: * Highest-ever Refinery crude thruput at 12.59 MMT; * Highest-ever Turnover at Rs 427,190 million; * Highest-ever Profit before Tax of Rs. 18,120 million; Keeping the Project investment in view, a dividend of 12% has been recommended. MRPL Refinery was awarded 'Oil & Gas Conservation Award - 2008' for Furnace and Boiler Insulation Effectiveness and Efficiency' instituted by Centre for High Technology (CHT), Govt, of India. It has also been awarded 'Energy Efficiency Unit Award' for excellence in energy management 2008 under refinery category, instituted by Confederation of Indian Industries (CM). MRPL continues to be a major exporter of petroleum products with exports valuing Rs. 116,080 million during 2008-09 compared to Rs. 112,320 million during the previous fiscal. It continues to retain its market leader position with respect to sale of Bitumen in its refinery zone. MRPL has been awarded Best Exporter Award (Gold) - 2008, by Federation of Kamataka Chamber of Commerce and Industry (FKCCI). The joint venture of MRPL and Shell Gas B.V., Netherland 'Shell MRPL Aviation Fuel and Services Private Limited' for marketing of Aviation Turbine Fuel (ATF) to both Domestic and International airlines at Indian Airports commenced its operations in August 2008 at Bengaluru Airport and is progressing satisfactorily, achieving sales volume of 35,517 kl during 2008-09. The volumes are likely to grow with commencement of operations at Hyderabad Airport recently. The company has also secured contracting commission (CONCO) business of Air India, Kingfisher and Deccan Cargo at several international Airports like Dubai, Hong Kong etc.

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Joint Ventures/Associates

Petronet LNG Ltd. (PLL): ONGC has 12.5% equity stake in PLL. PLL has started commissioning of Dahej LNG terminal to 10.0 MMTPA capacity and also commenced construction of LNG Receiving and Re-gasification Terminal of 5.0 MMTPA at Kochi. The turnover of PLL during 2008-09 is Rs. 84,287 million (previous year Rs. 65,553 million) and net profit is Rs. 5,184 million (previous year Rs. 4,747 million). PLL has declared a dividend of 17.5% (previous year 15%). Pawan Hans Helicopters Ltd. (PHHL): ONGC, has 21.5% equity stake in PHHL, which provides helicopter support for its offshore operations. PHHL is one of Asia's largest helicopter operators having a well balanced operational fleet of 36 helicopters. PHHL was successful in providing all the 12 Dauphin N & N3 helicopters fully compliant with AS-4 as per the new contract with ONGC. The net profit of PHHL for the year 2007-08 is Rs. 231.7 million (previous year Rs.95.2 million) and it has recommended a dividend of 10%. Petronet MHB Ltd (PMHBL): Petronet MHB Ltd is a JV Pipeline Company of ONGC (28.766% equity), HPCL (28.766%) and PIL (7.898%) and balance equity by banks. This JV company transports MRPL Products to hinterland of Kamataka. Maintaining its turnaround trend the company, as per unaudited results in FY 2008-09, has made a net profit of Rs. 78.1 million (Before Tax) on a throughput of 2.452 MMT against Net profit of Rs. 3.8 million with throughput of 2.14 MMT in FY 2007-08. ONGC Tripura Power Company Ltd. (OTPC):

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Your company has promoted 'ONGC Tripura Power Company Ltd.' with envisaged equity stake of 50% along with Govt of Tripura (0.5%) and IL&FS (26%) to set-up 726.6 MW (363.3x2) gas based Combined Cycle Power Plant (CCPP) at Pallatana, Udaipur in Tripura to monetize its idle gas assets in Tripura state. Generation EPC contract has been awarded to BHEL for supply and commissioning of two CCGT units. Various linkages like gas supply by ONGC and power off-take by NE states have been finalized. Process of financial closure is in progress. Dahej SEZ Ltd. (DSL): Your company with 23% equity stake along with Gujarat Industrial Development Corporation (26%) is developing a multi-product SEZ at Dahej in coastal Gujarat over 1717 hectares of land through a SPV 'Dahej Special Economic Zone Ltd'. SEZ has formatly been approved by Ministry of Commerce & Industry and Gazette notification issued. Torrent Energy Limited (TEL) has been appointed as Co-Developer for Power generation, transmission and distribution network in Dahej SEZ. LOI awarded for infrastructure development job. About 80% of the saleable land has already been allotted to prospective unit holders and allotment of remaining land is in final stages. ONGC Petro-additions Ltd. (OPaL): Your company is promoting a JV company 'ONGC Petro-additions Limited' (OPaL) with 26% equity stake along with GSPC (5%) and GAIL (19%) to implement a mega petrochemical complex comprising of 1.1 MMTPA Ethylene Cracker and global scale polymer units within Dahej SEZ as a step towards downstream integration. OPaL has awarded a Rs. 68,000 million (US$ 1.43 billion) contract to a consortium of Samsung Engineering (Korea) and Linde AG (Germany) for engineering, procurement, construction & commissioning of a Naphtha and Dual-feed Ethylene cracker plant.

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Mangalore Special Economic Zone Ltd (MSEZ): Your company with 26% equity stake along with KIADB (23%) and IL&FS+KCCI (51%) is promoting another SEZ in coastal Mangalore. Ministry of Commerce & Industry has formally notified to set up a Petrochemical Specific SEZ in 1,453 acres of land. Resettlement & Rehabilitation work of Project Displaced People is in progress over 136 acres of land. MSEZ has allotted requisite land to MRPLfor refinery expansion, ONGC Mangalore Petrochemical Ltd (OMPL) for setting up the petrochemical units and ISPRL for strategic crude reserves. ONGC Mangalore Petrochemicals Ltd (OMPL). Your company is also promoting another JV company 'ONGC Mangalore Petrochemicals Limited' (OMPL) with 46% equity participation, along with MRPL (3%) for setting up manufacturing facilities for 0.92 MMTPA ParaXylene and 0.14 MMTPA Benzene from MRPL's aromatic streams in Mangalore SEZ as value addition project. OMPL has engaged PMC & major technology licensors and Site infrastructure development has commenced. Exemption of duties and taxes has been obtained from Mangalore SEZ Development

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OBEJECTIVE OF PROJECT

1) To determine the extent to which the advanced and modern techniques of working capital management is being applied in ONGC. 2) To analyze the pattern and size of investment in current assets. 3) To study the ratios of short term and long term financing. 4) To analyze the working capital and its structure and suggest optimum level of working capital keeping in view of risks and imponderables associated with explorations. 5) Discuss how to determine the optimum level of current assets. 6) To describe different ratios and relationship between them. 7) Explain how to classify working capital according to time and usage. 8) To suggest the measures to improve the current asset structure of ONGC and to understand the two fundamental decision issues on working capital management and the trade offs involved in making these decisions.

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RESEARCH METHODOLOGY USED

Research methodology is a scientific and systematic way to solve research problem. A researcher has to design his methodology, i.e. in addition to the knowledge of methods/ techniques; he has to apply the methodology as well. The methodology deals with the research method and takes in to consideration the logic behind the methods, we use. Following steps have been carried out for the project undertaken:Step 1Get acquainted with the organization to understand its setup in order to be able to appreciate its functioning. Step 2Studied the annual financial report of the company for the last five years and the relevant data was sorted out from the maize of information therein. Step 3Classify the relevant data and carried out the required calculation to determine the ratio to be analyzed. Step 4The results indicate4s for different years were compared and conclusions were drawn and analysis carried out to ascertain the reason for major deviations. There are two types of sources of data collection i.e. 1. Primary Sources 2. Secondary Sources

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Primary Sources:

Discussions with the management briefings with the concerned supervisors and officers.

Secondary Sources: Secondary data are information, which have already been collected by others. In order to carry out this project successful I have also relied on the secondary data already available in following ways:

Through Annual Reports and Financial Statements of ONGC. Through records of the company for getting the history of the company. Through website of ONGC i.e, www.ongcindia.com.

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WORKING CAPITAL

INTRODUCTION:
Business Capital is broadly divided into two groups: Fixed Capital and Working Capital. Fixed Capital refers to the funds invested in fixed assetsof a firm in the form of land, building, machinery etc. Working Capital refers to the funds invested in the current assets of a firm such as raw materials, work-in-progress, finished goods, receivables, cash etc. From the viewpoint of manufacturing process, working capital means that part of capital, which is required to keep the flow of production smooth and continuous. The main point of difference between the fixed capital and working capital is that: Fixed assets are of long run duration and are not converted within a period of one year, whereas the current assets are converted into cash within a period of one year or less. Hence, the problem of fixed assets belongs to the field of capital budgeting, while the problems of current assets belong to the field of working capital management. Working Capital, being lifeblood for any enterprise, its management becomes a crutial exercise for the Financial Manager of a firm. The need of working capital is directly linked to the growth of the firm. Working Capital is as essential as fixed assets in the successful operation of a production unit. In the past, only the problems of the management of fixed capital were given importance in the exercise of financial management. But in the present scenario, looking to the increasing importance of the working capital in any business unit, the exercise of management of working capital has become as much important for a financial manager as the management of fixed capital. Some authors go the extent of saying that financial management means working capital management. Even if this extreme view is regarded as unacceptable, there is no doubt that a large part of a financial managers time and energy is used up in attending to the problems of working capital management. The exercise of working capital management covers the following points to be considered: 1. Estimating the working capital needs 2.Procurement of working capital 3.Optimum utilisation of working capital

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CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital namely: On the basis of concept On the basis of time

ON THE BASIS OF COCEPT It is of two types:

GROSS WORKING CAPITAL According to this concept, working capital refers to the firm's investment in current assets. The amount of current liabilities is not deducted from the total of current assets.This concept views Working Capital and aggregate of Current Assets as two inter-changeable terms. This concept is also referred to as 'Current Capital' or 'Circulating Capital'. Gross Working Capital = Total Current Assets

NET WORKING CAPITAL The Net Working Capital refers to the difference between Current Assets and Current Liabilities or the excess of Current Assets over Current Liabilities. Net Working Capital = Current Assets - Current Liabilities

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ON THE BASIS OF TIME It is of two types: PERMANENT OR FIXED WORKING CAPITAL Permanent or fixed working capital is the minimum amount, which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. There is always a minimum level of current assets, which is continuously required by the enterprise to carry out its normal business operation.

TEMPORARY OR VARIABLE WORKING CAPITAL Temporary or variable working capital is the amount of working capital, which is required to meet the seasonal demands and some special exigencies. Variable working capital can be further as seasonal working capital and special. Most of the enterprise has to provide additional working capital to meet the seasonal and special needs. The capital required to meet the seasonal needs of the enterprise is called seasonal working capital. Special Working Capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing campaigns for conducting research, etc.

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MANAGEMENT OF WORKING CAPITAL

Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable.

Cash management. Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. Inventory management. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow; see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ); Economic production quantity. Debtors management. Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa); see Discounts and allowances. Short-term financing. Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".

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COMPONENTS OF WORKING CAPITAL

CURRENT ASSETS are assets, which are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle. The Current Assets are acquired with the intention of sale or conversion into cash. They include: Cash Inventories Bills Receivable Prepaid Expenses Accrued Income Marketable Securities

CURRENT LIABILITIES represent the obligations of the business and arise in the ordinary- course of operating business. They are expected to be payable within one year.These liabilities are generally said to have claim over Current Assets and must be discharged out of Current Assets. They include: Sundry creditors for supplies/works: Small scale industry Other than small scale industry Liability for royalty /less/ sales tax etc. Liability for oil bonds / on account payment from PPAC Deposits Other Liabilities Unclaimed Dividend Interest accrued but not due on loans Leave encashment Interim dividend Tax on interim dividend

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Tax on proposed final dividend Provisions against non-knowing inventories etc. Provisions for abandonment. Net Working Capital can be positive or negative. A positive Net Working Capital would arise when Current Assets Exceed Current Liabilities. A negative Net Working Capital occurs when Current Liabilities are in excess of Current Assets. 'Net Working Capital' is a qualitative concept, which indicates the liquidity position of the firm and the extent to which Working Capital needs may be financed by permanent sources of funds. Current Assets should be sufficiently in excess of current liabilities to constitute a margin or buffer for obligations maturing within the ordinary operating cycle of a business. A weak liquidity position poses a threat to the solvency of the company and makes it unsafe. Excessive liquidity is also bad. It may be due to mismanagement of Current Assets. Therefore, prompt and timely action should be taken by the management to improve and correct the imbalance in the liquidity of the firm.

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NEED FOR WORKING CAPITAL

The need for working capital cannot be over emphasized. Every business needs some amount of working capital. The need for working capital arises due to the time gap between production and realization of cash from sales. There is an operating cycle involved in the sales and realization of cash. Thus working capital is needed for the following purpose:

For the purchase of raw materials, components and spares. To pay wages and salaries To incur day to day expenses and overhead costs such as fuel, power and office, etc. To meet the selling costs as packing, advertising, etc. To provide credit facilities to the customers. To maintain the inventories of raw material, work in progress, stores and spares and finished stock.

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FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENT

Nature of business
Trading concerns usually have smaller needs of working capital as most of the transactions are undertaken in cash and the length of operating cycle is generally small. However, in certain cases, large inventories of goods may be required and consequently, the working capital may be large. In case of financial concerns there may not be stock of goods but these firms do have to maintain sufficient liquidity all the times. In case of manufacturing concerns, there is a requirement of substantial working capital as operating cycle is usually a longer one and sales are made generally on credit terms. ONGC is in business of exploration and production(E &P) of hydrocarbons. E & P business require large capital expenditure in the development of platforms, rigs, pipelines etc. to extract the oil lying down beneath the earths crust. So huge amount of money gets blocked in the form of machinery forming fixed assets of the company. Hence, it can be said that high initial investment is required in the business. Business Cycle Fluctuation In case of boom conditions, inflationary pressure appears and business activities expand and working capital requirement is more. In case of recession period, there is dullness in business activities and working capital requirement is less. In one of the worst global recessions witnessed by the world in 2008-09, ONGC has not only stood up the pressure but also help the Indian economy to get back to the track. There were not major fluctuations in the business cycle of ONGC and entire working of capital management went swiftly.

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Seasonal Operations If a firm is operating in goods and services having seasonal fluctuations in demand, then the working capital requirement will also fluctuate with every change. e.g. for a cold drink factory demand is higher during summer season and working capital requirement is more. If the operations are smooth and even throughout the year then the working capital requirement will be constant. Being an oil exploration & production company, operations of ONGC go on throughout the year as demand of oil is very high as compared to its supply. So the requirement of working capital almost remains constant throughout the year. Market Competitiveness In view of the competitive conditions prevailing in the market, the firm may have to offer liberal credit terms to the customers, or even larger inventories may be maintained. Thus the working capital requirement is higher. A monopolistic firm may not require large working capital. It may ask the customers to pay in advance or to wait for someone after placing the order. In terms of the market competitiveness, ONGC has the major chunk of market share. Although there are some other E&P companies also working such as OIL (OIL INDIA LTD.), CAIRNS ENERGY, RIL (RELIANCEINDUSTRIES LTD.) but the very low production of crude oil by these companies as compared to ONGC makes the ONGC nearly monopoly firm in the market. Credit Policy The credit policy means the totality of terms and conditions on which goods are sold and purchased. A firm has to interact with two types of credit policies at a time. One, the credit policy of the supplier and two, the credit policy which it extended to its customer ONGC has the very strict credit policy for the OMCs such as IOC (INDIANOIL CRPORATION), HPCL (HINDUSTAN PETROLEUM CORP. LTD.),BPCL (BHARAT PETROLEUM CORP. LTD.), GAIL (GAS AUTHORITYOF INDIA LTD.). ONGC gives the credit period of 15 days for the supply of crude oil and 7 days credit period for the natural gas.

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Supply conditions The time taken by supplier of raw materials, goods etc. after placing an order, also determines the working capital requirement. If goods are received as soon as or in a short period after, then the purchaser will not like to maintain a high level of inventory of that goods. Otherwise, larger inventories should be kept e.g., in case of imported goods. It is often seen that the shopkeepers may not be keeping stock of all items, but whenever there is a demand, they procure from the wholesaler/producer and supply it to their customers.

Growth and Diversification of business Growth and diversification of business call for larger volume of working fund. The need for increased working capital does not follow the growth of business operations but precedes it. Working capital need is in fact assessed in advance in reference to the business plan. Banking Relations A good bank-customer relationship is a pre-requisite of a successful working capital management policy. Commercial banks these days normally finance the working capital gap (based on set norms by Tondon and Chorey Committees) credit Authorization scheme has also been liberalized after 1986. Thus customers receive an assured bank finance which minimizes the need for making over-investment in current assets.

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WORKING CAPITAL CYCLE

Cash flows in a cycle into, around and out of a business. It is the businesss life blood and every managers primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesnt generate surpluses, the business will eventually run out of cash and expire. The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within the business. Good management of working capital will generate cash will help improve profits and reduce risks. There are two elements in the business cycle that absorb cash-Inventory (stocks and work-in-progress) and Receivables (debtors owing you money).The main sources of cash are Payables (your creditors) and Equity and Loans. Each component of working capital (namely inventory, receivables and payables) has two dimensions TIME and MONEY. When it comes to managing working capital time is money. If you can get money to move faster around the cycle (e.g. collect money due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales),the business will generate more cash or it will need to borrow les money to fund working capital. As a consequence, you could reduce the cost of bank interest or youll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively create free finance to help fund sales.

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WORKING CAPITAL POLICY FOLLOWED AT ONGC

There are three types of working capital policies which a firm may adopt i.e. Moderate working capital policy, Conservative working capital policy and Aggressive working capital policy. These policies describe the relationship between sales level and the level of current assets.

ONGC follows the MODERATE Working Capital policy, as the increase in sales result in proportionate change in current assets.This means that percentage increase in sales is nearly equal to increase in current assets .

This type of Policy has many implications: The risk of insolvency of the firm decreases as the firm maintains higher liquidity. The firm is exposed to lower risk, as it may be able to face unexpected change in the market. Increased investment in current assets will result in decrease in profitability of the firm.

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STATEMENT OF NET WORKING CAPITAL OF ONGC FOR LAST 5 YEARS

As on 31st Mar, 2010 Details A) Current assets Inventories Debtors Cash& Bank Balance Deposit with bank under site restoration fund scheme loans and advances& others & interest accrued Total current assets B) Current Liabilities current liabilities and provisions and short term loan( excluding provision for gratuity abandonment & impairment) Total current liabilities working capital ( A-B) 82400 71424 149704 74138 65424 71814 156331 69624 34806 43604 160143 64033 30338 27594 136704 56103 30385 37043 42792 45336 As on 31st Mar, 2009 As on 31st As on As on Mar, 31st Mar 31st Mar, 2008 2007 2006

127998 505664

143953 507146

195745 498331

193214 443953

216059 371615

312877 312877 505664312877 192787

143953 143953 507146143953 172257

176083 176083 498331176083 322248

139932 139932 443953139932 304021

105951 105951 371615105951 265664

Net Working Capital

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600000 500000 400000 Current assets 300000 200000 100000 0 2006 2007 2008 2009 2010 Current Liabilities Working Capital

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INVENTORY MANAGEMENT
Inventory is composed off the assets that will be sold in future in thenormal course of business operations. To the finance manager, theinventory connotes the value of raw materials, consumables, spares, work-in-progress, finished goods and scrap in which the firms funds have been invested. A firm holds inventory mainly for the following motives: a. Transaction Motive b. Precautionary Motive c. Speculative Motive As the inventory involves the investment of the funds, it should be managed properly or rather controlled properly. Inventory management is a planned method to determine which items is to be purchased and how much to be kept in stock, so that the costs of purchase and storage both are minimized without adversely affecting either production or sales. It involves the decision of the firm as to the extent to which inventories can be economically stored. The inventory hold by the firm involves the following cost to the firm: a. Ordering Costs: Every time an order is placed for stock replenishment; certain costs are incurred called as ordering cost. It includes paper work costs, follow up costs, staff costs etc. b. Carrying Costs: Carrying costs are the costs of holding inventory for a given period of time. It includes storage cost, handling cost, insurance cost, obsolesce cost etc.

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Objectives of Inventory Management:

A fundamental objective of a good system of inventory management is to be able to place an order at the right time from the right source to acquire the right quantity at a right price and of right quantity. Mainly there are the following objectives of the Inventory Management: 1. to ensure adequate stock 2. to minimize inventories on hand 3. to maintain continuity in production 4. to minimize the cost of purchasing and storage 5. to minimise the wastage and loss 6. to reduce the risk of deterioration 7. to use the available capital effectively 8. to be helpful in efficient purchasing 9. to give maximum satisfaction to customers 10. to minimise loss due to price decline 11. maximum use of storage capacity 12. proper storage of materials

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Techniques for Inventory Management:

Usually the following techniques are being used by the financial manager for inventory control. a. Determining the Economic Order Quantity(EOQ): Economic Order Quantity is that quantity at which the total ordering costs and inventory carrying costs will be the minimum. A firm is required to consider a number of factors before fixing an economic ordering quantity. Of these factors, important ones are inventory carrying costs and ordering costs. When the inventory carrying cost and ordering cost are in balance, the total cost of ordered quantity is lowest and therefore it is called as economic order quantity. The firm should maintain its inventory at such a level so that its inventory carrying cost and ordering cost are at balance. There are three methods for determining the EOQ: 1. Graphic Method 2. Formula Method 3. Trial and Error Method The results of all three methods are more and less same. b. Determining other inventory levels: In order that the inventory costs are reduced to the minimum and yet the process of production and sales goes on uninterrupted, it is necessary to determine the following inventory levels: 1. Re-order Point or Ordering Level It represents the quantity level at which an order for fresh supplies must be placed with the supplier to replenish the present stock. Generally the following formula is to be used for the purpose: Ordering Level = Maximum Consumption * Maximum Delivery Time 2. Minimum Level The minimum level indicates the lower level of stocks of inventory.

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Min. Level = Re-ordering level Average Consumption of Average Delivery Period 3. Maximum Level The maximum level of inventory indicates the upper limit of level of stocks. It represents the largest quantity of material to be kept in stock. Max. Level = Re-ordering level Minimum Consumption of Minimum Period + Re-ordering Quantity

c. ABC System of Inventory Control : A modern system of inventory control, which is economical, too is ABC System of inventory control. It is Always Better Control (ABC). Some items included in the inventory are of very low value and its detailed accounting is not economical. Hence, such items must be stored in sufficient quantity and its use is not restricted. On the other hand, there are certain items of inventory that represent a large proportion of the total value of inventory. In ABC Analysis all items are divided into three categories A, B and C. In category A, are included those items which are very important and of high value but forms only a small proportion of total quantity of inventory. Strict control over receipts, storage and issue should be exercised over such items. Its requirements must be estimated in advance and its purchases must be planned, so that it is available as and when needed. In category B, those items are included, which are not as important as those are in A group, but are important enough for its proper records to be maintained. Maximum and Minimum levels must be fixed for such items and they must be issued against proper material requisition only. The remaining items must be places in Category C. They are not important from the view point of maintaining control over their receipts and consumption. Little control is to be put on such items. The ABC System of inventory control is very useful for the modern management as it helps in saving their time from the unnecessary work and leads to efficient inventory control.

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d. Perpetual Inventory System : For efficient inventory control, it is necessary that the various items of inventory must be continuously checked and compared with records maintained. This is done by Perpetual Inventory System. Perpetual Inventory means a system of maintaining continuous stock records through bin cards and stores ledger. This implies continuous stock taking in which a certain number of inventory items are checked and verified everyday or at frequent intervals.

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NATURE OF INVENTORIES IN ONGC

Inventories in ONGC are broadly classified into two groups: 1. Stores 2. Spares

Store section comprises of Drill Pipes; Electrical material such as cables, insulating material etc; Chemical, Oil, Grease, Lubricants etc. Spares section comprises of spare parts of drilling equipments, production equipment, geological equipment, workshops, machinery etc.

POLICY 1) Inventory of stores and spares is valued at Weighted Average Cost or Net realizable value, whichever is less. 2) Liability in foreign currency is booked at exchange rate prevailing on date of transaction.

RECOUPMENT OF MATERIALS Recoupment of stores and spares is done on the basis of ABC Analysis. For this, numerical ledger cards are maintained by all material management (MM) organizations in the project. Cards indicate the minimum and maximum levels (safety stock, EOQ) for the purpose of automatic replenishment. Also these cards consist of the last two years total consumption and monthly the current year so that the past and current consumption figures are readily available. Review of each card is conducted at the following stages: 1. When the stocks and dues of item reach the minimum level. This is a must. 2. At time when physical stocks reach the safety stock level.

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3. Irrespective of above two stages, each card should be reviewed annually. 4. In addition to above one should take note of any abnormal issue viz. variation of over 20% consumption over 6 months period.

In order to have an effective control over inventories, the minimum and maximum limits of stores and spares are fixed as: MINIMUM LEVEL: It varies from item to item and range from 0-3 months. MAXIMUM LEVEL: The maximum the quantity to be recouped at a time should be limited to 6months. Quantity required to be recouped should be = Max. (E.O.Q) stock dues on order +known pending demands, if any.

STOCKING OF MATERIALS: 1. All materials are kept in racks / bins. 2. All racks / bins are given numbers. Same is to be recorded on cards. 3. While stocking materials, heavier item will be kept at lower rungs of rack and lighter on higher ones. 4. Fast moving item should be stored at easily accessible place and to nearest point of issue. 5. Stocking of items follow the principle of FIRST IN FIRST OUT (FIFO). PURCHASES ARE MADE THROUGH: i. ii. iii. iv. v. vi. vii. Global Tender Open Tender Limited Tender. Single Tender. Hand quotation for petty orders not consuming more than Rs. 5000/Annual Rate Contracts. Board of officers.

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The levels are fixed according to the corporate cadre for fixed monetary limits. Provisions for emergency purchase is restored if there is a certain breakdown and when it is necessary to restore equipment, machinery or vehicles and the urgency does not permit following the normal methods purchase. Authority is delegated for purchase as per the book of delegated powers. There is a stores procedure for regulating the purchases, issues and disposal of materials

TOTAL INVENTORIES:
2009 - 2010 INVENTORIES FINISHED GOODS (incl. Carbon Credits) RAW MATERIAL in hand in transit STOCK IN PROCESS STORES and SPARES PARTS in hand in transit (incl. inter-project transfers) Total Less: Provision for Non Moving Stores and Spare parts Unrecivable Items TOTAL 19,275.18 2008 - 2009 15,209.57

10,547.66 5,400.09 15,947.75 1,090.92

5,047.45 3,721.26 692.84

46,733.00 3,510.15 50,243.15 4,629.02 45,974.13 112.09 82400.07

40,534.31 4,222.79 4,143.12 138.79 65,423.89

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RECEIVABLES MANAGEMENT
When the goods are sold on credit in business, the price of the goods becomes receivable. In the present economic system, credit sales are essentials, unless the goods sold are in short supply. The money involved in inventories are blocked till future and therefore there is an opportunity cost of receivables. However, the credit sales are also essential in order to meet the sever competition. Thus, the management of receivable requires great care. It must be so managed that the benefit available from additional sales and the cost of funds raised to finance the additional credit coincide. The management of receivables is important in the sense that in India it forms about one-third of current assets. The management of receivable is needed as; a firm has to incur the following cost associated with receivables: 1. Collection Cost i.e. the costs incurred in collecting the payment 2. Default Cost i.e. the bad debt losses arise when a firm is unable to collect some receivable. 3. Opportunity Cost 4. Administrative Cost.

Costs associated with maintaining receivables: Costs of maintaining receivables are: 1. Capital costs: A firm when sells goods credit achieves higher sales. Selling goods on credit has consequences of blocking the firms resources in receivables as there is a time lag between a credit sale and cash receipt from customers. To the extent the funds are held up in receivables, the firm has to arrange for additional funds to meet its own obligation of monthly as well as daily recurring expenditure. Additional funds may have to be raised either out of profits or from outside. In both the cases, the firm incurs a cost. In the former case there is the opportunity cost of the income the firm could have earned had the same been invested in same other profitable avenue. In the latter case of obtaining funds from outside, the firm has to pay interest on

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the loan taken. Therefore, sanctioning credit to customers on sale of goods on credit has a capital cost. 2. Administration Cost: When a firm sells goods on credit it has to incur two types of administration cost viz a. Credit investigation and supervision costs and b. Collection Costs. Before sanctioning credit to any customer the firm has to investigate the credit rating of the customer to ensure that credit given will recovered on time. Therefore, administration costs have to be incurred in this process. Costs incurred in collecting receivables are administrative in nature. These include additional expenses on staff for administering the process of collection of receivables from customers. 3. Delinquency Costs: The firm incurs this cost when the customer fails to pay the amount to it on the expiry of credit period. These costs take the form of sending remainders and legal charges. 4. Bad Debts or Default cost: When the firm is unable to recover the amount due from its customers, it results in bad debts. When a firm relaxes its credit policy, selling to customers with relatively low credit rating occurs. In this process a firm may make credit sales to its customers who do not pay at all. Therefore, the assessing the effect of a change in credit policy of a firm involves examination of : a. b. c. d. e. Opportunity Cost of lost contribution Credit administration Cost Collection Costs Delinquency Cost Bad debt loses

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POLICY FOLLOEWD BY ONGC: Credit Policy: The first step for implementing credit policy will be to gather the information about the customers. This information should be adequate enough so that proper analysis about the financial position of customer is possible. This credit information will certainly help in improving the quality of receivables. This information should be available from financial statements, credit rating agencies, reports firms bank, firms records etc.

Credit Period a. Crude Oil: For local refineries i.e. BPCL and HPCL invoice is raised on weekly basis. The billing to coastal refineries is done on the date of bill of lading. b. Natural Gas: Invoice is raised on the fortnightly basis. 1st fortnight is the 1st day of the month to 15th of the month and 2nd fortnight is 16th day of the month to last day of the month. Payment is done within the 7th day of bill of lading.

Payment Collection from the Refineries Age-wise dues to be received from the debtors are properly maintained. On delayed payments from debtors a debit note for interest is send to concerned refineries.

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CASH MANAGEMENT
Is the maintaining of liquidity of a firm to minimize the risk of insolvency (An insolvent company is one where it is unable to meet its maturing liabilities on time because it has inadequate liquidity to meet its debt obligation) Cash Management is also about the proper balancing of keeping cash without letting it idling around. Remember that profit is not equating to cash flow. A highly profitable company might collapse if without adequate cash flow due to the tying up of companys funds with the accounts receivable and worsen by the needs to make regular payments like wages, rent & utilities, taxes.

Motives/Reasons of Holding Cash:

The Transaction motive:

Maintaining cash for the purpose of meeting cash needs arising in the ordinary course of doing business. Includes regular payments like wages, utilities, acquisition of fixed assets and inventories. Note that the amount of cash needed for transaction requirements depends on the nature of business and varies from industry to industry.

The Precautionary motive:

Maintaining of cash balance as buffer for UNEXPECTED needs that may arise. Either holding in cash or marketable securities that can be liquidated easily.

The Speculative motive:

Holding cash for potential profit making situation like purchasing raw materials in bulk in anticipation of a fall in price.

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OBJECTIVES OF CASH MANAGEMENT

1) To make Payment According to Payment Schedule:Firm needs cash to meet its routine expenses including wages, salary, taxes etc. Following are main advantages of adequate cash1. To prevent firm from being insolvent. 2. The relation of firm with bank does not deteriorate. 3. Contingencies can be met easily. 4. It helps firm to maintain good relations with suppliers. (2) To minimize Cash Balance:The second objective of cash management is to minimize cash balance. Excessive amount of cash balance helps in quicker payments, but excessive cash may remain unused & reduces profitability of business. Contrarily, when cash available with firm is less, firm is unable to pay its liabilities in time. Therefore optimum level of cash should be maintain.

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CASH FORECASTING
As per the existing practice, cash forecast is prepared at Corporate Accounts Section (CAS) after compiling the cash forecasts of all project locations and considering all other payments and receipts of the company on a composite basis. Figure 1 herewith outlines the inflows and outflows that are used in the preparation of the cash forecast.

Inflows and Outflows used in the preparation of cash forecast Opening balance + Inflows(A)-Project outflows(B)-Corporate outflows(C)=Cash Deficit/Surplus
Inflows (A) Sales Receipt Maturity of Investment. Interest on Investment Interest on Loan(s) to Subsidiary(ies)/ Associate(s) Final Dividend Re-payment of loans to subsidiary(ies)/ Associates Interest on Oil bonds Maturity of Oil bond(s) Project Outflows (B) Off-Shore Expenses JV cash calls Sales tax/VAT Cess Royalty Foreign Debt Other payments Corporate Outflows (C) Corporate tax payment Payment to OVL Investments Fringe Benefit Tax Dividend/Other payment CPF soft loan Annual incentive Subsidy TDS on investment

On-Shore Expenses Sales tax/VAT Cess Royalty Indian debt including interest Other payments

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CASH FLOW STATEMENT OF ONGC

INTRODUCTION TO CASH FLOW STATEMENT Cash is the nerve center around which business activity flow. The profit figure is shown in the profit & loss statement in the book profit. It does not represent cash profit. For knowing the cash profit we prepare cash flow statement in the business. This statement provides information about the cash flows of an enterprise. This statement is also useful in taking economic decisions that are taken by users require an evaluation of the ability of an enterprise to generate cash and cash equivalents. The cash flow statement deals with the provision of information about the historical changes in cash. Cash flow statement which classifies cash flows during the period among (i) Operating (ii) investing (iii) financing activities.

CASH FLOW STATEMENT OF ONGC:

Particulars Mar'10 Mar'09 Mar'08 Mar'07 Mar'06 Profit Before Tax 24,983.84 23,895.42 25,234.70 23,980.26 21,392.37 Net Cash Flows from Operating 20,388.01 22,272.74 21,527.63 22,910.02 20,624.23 Activity Net Cash Used in -13,237.10 -17,459.91 -10,239.43 -5,046.97 -12,200.29 Investing Activity Net Cash Used in -8,016.08 -8,134.27 -8,151.34 -7,395.08 -9,077.98 Financing Activity Net Inc/Dec in Cash and Cash -865.18 -3,321.44 3,136.86 10,467.97 -654.04 Equivalent Cash and Cash Equivalent 19,096.21 22,417.66 19,280.79 8,812.82 9,466.86 Beginning of the Year Cash and Equivalent - End of 18,231.04 19,096.21 22,417.66 19,280.79 8,812.82 the Year

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ANALYSIS OF CASH FLOW STATEMENT

Cash Flow From Operating Activities: From the table of cash flow statement of the company we can interpret that in 2009-10 cash from operating activities is decreased as compared to previous year. But in 2009-10 PAT is increased more compared to previous years. The other reason is that current assets of the company is increasing every year excluding 2008 and also current liabilities are increasing with minor changes but in last to last year it decreases. Cash Flow From Investing Activities: From the cash flow statement we can interpret that cash from investing activities is performed very good in last three years. The reason behind it is that the purchase of the fixed assets by the company is increasing. So we can say that the company expands its business. Cash Flow From Financing Activities: From the cash flow statement we can say that the cash from financing activities is increasing year by year. From the cash flow statement we can say that company repaid the borrowing and loan. And also paid to the dividend to the shareholders.

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WORKING CAPITAL RATIOS

Working capital ratios are of following types: Liqiuidity Ratio Leverage Ratio Activity Ratio Profitability Ratio

LIQUIDITY RATIO
It consists of following ratios: CURRENT RATIO Current Ratio is simply current assets divided by current liabilities. Current assets include cash, accounts receivable, marketable securities, inventories, and prepaid items. Current liabilities include accounts payable, notes payable, salaries payable, taxes payable, current maturities of long-term obligations and other current accruals. A low current ratio would imply possible insolvency problems. A very high current ratio might imply that management is not investing idle assets productively. Generally, we want to have a current ratio that is proportional to our operating cycle. We will look at the Operating Cycle as part of asset management ratios. This ratio indicates the short term financial soundness of the company. It judges whether current assets are sufficient to meet the current liabilities. This ratio is calculated on the basis of the following formula:

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Current assets of a firm represents those assets which can be converted into cash within a short period of time not exceeding one year and include cash and bank balance, marketable securities, inventory of finished material, semi-finished and finished goods, debtors, net provision for bad debt and doubtful debts, bill receivable and prepaid expenses.

ONGC Rupees in million 2009-10 Current Assets Current Liabilities Current Ratio 537713 194999 2.75 2008-09 546000 211051 2.58 2007-08 498331 176083 2.83 2006-07 443953 139932 3.17 2005-06 371615 105951 3.50

INDIAN OIL 2009-10 Current Liabilities Current Ratio 2008-09 2007-08 61765.64 17540.57 3.52 2006-07 55106.66 10319.85 5.33 2005-06 45554.74 11667.57 3.90

Current Assets 122695.39 83553.53 32692.87 3.75 30913.63 2.70

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Current Ratio
6 5 4 3 2 1 0 ONGC OIL INDIA 2005-06 3.5 3.9 2006-07 3.17 5.33 2007-08 2.83 3.52 2008-09 2.58 2.7 2009-10 2.75 3.75

The generally accepted norm these days is 2:1

ONGC: INTERPRETATION For ONGC the ratio has increased as compared to the last year. Although the ratio indicates that the company can easily meet its current liabilities, yet too high a ratio is also not beneficial for the company as it shows that due to the poor investment policy of the management. The cash and bank balance are at Rs.108279.29 million out of which Rs.105450.76 million are under fixed deposits which yield low interest rate. This represents the poor investment policy of the management as this amount can be utilized elsewhere.

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INDIAN OIL: INTERPRETATION Current ratio is quite high which shows Oil India has cash and bank balance of Rs.85429.11 million out of which Rs.84150.80 million are under term deposits which generally yields low interest. This represents the poor investment policy of the management as this amount can be utilized elsewhere.

QUICK RATIO Quick ratio also called acid test ratio establishes a relationship between liquid assets and current liabilities. An asset is liquid if it can be converted into cash immediately. Inventories are considered to be less liquid. Inventories normally require some time for realizing into cash. Since certain current assets (such as inventories) may be difficult to convert into cash, we may want to modify the Current Ratio. Also, if we use the LIFO (Last In First Out) Method for inventory accounting, our current ratio will be understated. Therefore, we will remove certain current assets from our previous calculation. This new ratio is called the Acid Test or Quick Ratio; i.e. assets that are quickly converted into cash will be compared to current liabilities. The Acid Test Ratio measures our ability to meet current obligations based on the most liquid assets. Liquid assets include cash, marketable securities, and accounts receivable. The Acid Test Ratio is calculated by dividing the sum of our liquid assets by current liabilities.

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ONGC Rupees in millions 2009-10 CURRENT ASSET CURRENT LIABILITIES INVERTORIES QUICK RATIO 537713 194999 46785.72 2.51 2008-09 546000 211051 40606.71 2.39 2007-08 498331 176083 34806.37 2.63 2006-07 443953 139932 30384.94 2.95 2005-06 371615 105951 23924.19 3.28

INDIAN OIL 2009-10 CURRENT ASSET CURRENT LIABILITIES INVERTORIES QUICK RATIO 122695.39 32692.87 4533.79 3.61 2008-09 83553.53 30913.63 5009.95 2.54 2007-08 61765.64 17540.57 4508.95 3.26 2006-07 55106.66 10319.85 4080.23 4.94 2005-06 45554.74 11667.57 3989.45 3.56

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6 5 4 Quick Ratio 3 2 1 0 ONGC OIL INDIA

2005-06 3.28 3.56

2006-07 2.95 4.94

2007-08 2.63 3.26

2008-09 2.39 2.54

2009-10 2.51 3.61

The generally accepted norm is 1:1 ONGC: INTERPRETATION Since the inventory does not play a major role in the current assets of ONGC, the difference between quick and current ratio is not high. This can be explained by the fact that ONGC being into an exploration sector requires fewer amounts of raw materials.

INDIAN OIL: INTERPRETATION Since the inventory does not play a major role and this can be seen from the difference between the current ratio and quick ratio. Also there has been a significant increase in the quick ratio compared to last year this was mainly due to higher inventories.

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NET WORKING CAPITAL RATIO The net working capital (NWC) ratio is also a measure of the firms liquidity. NWC measures the firms potential reservoir of funds.

ONGC Current Asset Current Liabilities Net Working Capital Net Assets Net Working Capital Ratio 2009-10 537713 194999 342714 864413 0.39647 2008-09 546000 211051 334949 780848 0.428955 2007-08 498331 176083 322249 699435 0.460728 2006-07 443953 139932 304021 614099 0.495068 2005-06 371615 105951 265664 535934 0.495703

INDIAN OIL

Current Asset Current Liabilities Net Working

2009-10 122695.39 32692.87 90003

2008-09 83553.53 30913.63 52639

2007-08 61765.64 17540.57 44225

2006-07 55106.66 10319.85 44786

2005-06 45554.74 11667.57 33887

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Capital Net Assets Net Working Capital Ratio 137454 0.654786 93310 0.56413 79330 0.557481 68491 0.653896 58483 0.579433

Net Working Capital Ratio

0.7 Net Working Capital Ratio 0.6 0.5 0.4 0.3 0.2 0.1 0 ONGC OIL INDIA 2005-06 0.495703 0.579433 2006-07 0.495068 0.653896 2007-08 0.460728 0.557481 2008-09 0.428955 0.56413 2009-10 0.39647 0.654786

ONGC: INTERPRETATION ONGC net working capital (NWC) ratio of 0.39 is low due as the difference between the current assets and current liabilities is less i.e. the current assets are being utilized to cover the current liabilities.

INDIAN OIL: INTERPRETATION Indian Oil has net working capital (NWC) ratio of 0.65 is low due as the difference between the current assets and current liabilities is less. The ratio has increased further from 0.56 to 0.65 in last year due to increase in net worth.

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LEVERAGE RATIOS
Leverage ratios show the proportions of debt and equity in financing the firms assets. They are a measure of the long term financial position of the firm.

DEBT RATIO Several debt ratios may be used to analyze the long term solvency of a firm. The firm may be interested in knowing the proportion of the interest bearing debt in the capital structure. Total debt will include short and long term borrowings from financial institutions, debentures/bonds, deferred payment arrangements for buying capital equipments, bank borrowings, public deposits and any other interest bearing loan.

ONGC Rupees in Million Total Debt Net Asset Debt Ratio 2009-10 50 864413 0.00 2008-09 267 780848 0.000342 2007-08 369 699435 0.000528 2006-07 696 614099 0.001133 2005-06 1069 535934 0.001995

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INDIAN OIL

Total Debt Net Asset Debt Ratio

2009-10 375 137454 0.002728

2008-09 564 93310 0.006044

2007-08 700 79330 0.008824

2006-07 1050 68491 0.01533

2005-06 1791 58483 0.030624

ONGC: INTERPRETATION The debt ratios of ONGC show that the company has been more faithful to equity finance. The ratio states that the company is a more or less ZERO debt financed structure. This is because the company is not involved in investment activities and hence does not need outside finance.

INDIAN OIL: INTERPRETATION Indian Oil has a debt finance cost structureis also around zero. Also, the debt ratio has decreased slightly from 3% to nearly 0% in last few year due to increase in net worth and repayment of loans.

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DEBT TO EQUITY RATIO The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets, in other words, it describes the lenders contribution for each rupee of shareholders contribution. Closely related to leveraging, the ratio is also known as Risk, Gearing or Leverage.

ONGC 2009-10 50 21389 0.00233765 2008-09 267 21389 0.012483 2007-08 369 21389 0.017252 2006-07 696 21389 0.03254 2005-06 1069 14259 0.07497

Total Debt Shareholders' Fund Debt to equity ratio

INDIAN OIL 2009-10 Total Debt Shareholders' Fund Debt to equity ratio 375 2404 0.155990017 2008-09 564 2140 0.263551 2007-08 700 2140 0.327103 2006-07 1050 2140 0.490654 2005-06 1791 2140 0.836916

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INTEREST COVERAGE RATIO The debt ratios described above are static in nature, and fail to indicate the firms ability to meet interest obligations. The interest coverage ratio is used to test the firms debt-servicing capacity; it shows the number of times the interest charges are covered by the funds that are ordinarily available for their payment.

ONGC Rupees in Million 2009-10 EBITDA Interest Interest Coverage Ratio 11,276.89 3.64 2008-09 8,485.40 4.34 2007-08 5,016.88 6.79 2006-07 3,724.81 8.56 2005-06 3,718.44 7.76

41,065.94 36,857.76 34,081.28 31,889.27 28,837.56

INDIAN OIL 2009-10 EBITDA Interest Interest Coverage Ratio 4,013.92 3.65 1099.70 2008-09 3,487.42 8.74 399.02 2007-08 2,796.77 34.36 81.40 2006-07 2,463.64 13.96 176.48 2005-06 2,787.57 16.19 63.28

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ONGC: INTERPRETATION ONGC has a very comfortable interest coverage ratio of 1691, although there has been as significant decrease in the ratio due to higher interest on term loans from banks.

INDIAN OIL: INTERPRETATION Indian Oil has a low interest coverage ratio of 7.45 as it has a high debt finance cost structure of about 50%. However, the ratio has increased in the current year mainly due to i. ii. A decrease in raw materials consumed at 121,193 crore compared to 142,430 last year, and Very low exchange fluctuation, down to 0.69 crore compared to 4,592.90 crore in 2008-09.

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ACTIVITY RATIOS

Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. Activity ratios (also called turnover ratios), can be used to evaluate the benefits produced by specific assets, such as Inventory or accounts receivable, or they can be use to evaluate the benefits produced by all of company's assets collectively. These measures help us gauge how effectively the company is at putting its investment to work. A company invests in assets (e.g., inventory or plant and equipment) and then use these assets to generate revenues. The greater the turnover, the more effectively the company is at producing a benefit from its investment in assets.

INVENTORY TURNOVER RATIO Inventory turnover indicates the efficiency of the firm in producing and selling its product. It indicates how many times inventory is created and sold during the period. Generally, the faster inventory is turned, the less risk of loss and the more efficient management is handling capital.

ONGC 2009-10 Cost Of Goods Sold Avg. Inventory I.T.R 243199 2008-09 232438 2007-08 230215 2006-07 231285 2005-06 210901

46785.72 40606.71 34806.37 30384.94 23924.19 5.198146 5.724128 6.614163 7.61183 8.815387

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INDIAN OIL

Cost Of Goods Sold Avg. Inventory I.T.R

2009-10 40729 4533.79

2008-09 39612 5009.95

2007-08 35648 4508.95

2006-07 30439 4080.23

2005-06 27048 3989.45

8.983433 7.906666 7.906054 7.460119 6.779882

ONGC: INTERPRETATION ONGC is turning its inventory of finished goods into sales 18 times in 2010. In other words it held the average inventory for 22 days in 2009-10. The average inventory turnover (days) is very good.

INDIAN OIL: INTERPRETATION Indian Oil is turning its inventory of finished goods into sales 7 times in 2010 In other words it held the average inventory for 48 days in 2009-10. Also, the inventory turnover days have increased significantly over the past year from 38 to 52 days. This could be due to a reduction in cost of raw materials.

DEBTORS TURNOVER RATIO Debtor's turnover ratio establishes the relationship between the net credit sales and average debtors for the year. It indicates the number of times the debtors turnover in a year. This ratio is calculated as:

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ONGC 2009-10 Sales Debtors Debtors Turnover(times) Collection Period 602517 30586 19.69911 19 2008-09 640039 40838 15.67263 23 2007-08 600651 43604 13.77514 26 2006-07 569134 27594 20.62528 17 2005-06 479897 37043 12.95513 27

INDIAN OIL 2009-10 Sales Debtors Debtors Turnover(times) Collection Period 79379 4533 17.51136 2008-09 72921 5009 14.558 2007-08 60990 6109 9.983631 2006-07 54186 4086 13.26138 2005-06 55740 5340 10.4382

ONGC: INTERPRETATION The above table shows that ONGC is able to turnover it's debtors 14.23 times in the last year. In other words, its debtors remain outstanding for 26 days. The average collection period has increase by 1 day over the last year. INDIAN OIL: INTERPRETATION

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The above table shows that Indian Oil is able to turnover it's debtors 42 times in the last year. In other words, its debtors remain outstanding for 7 days. This is an extremely good collection period, as in India the oil marketing companies (OMC) operate in an Oligopoly market they are able to offer such a small credit period.

CAPITAL EMPOLYED TURNOVER RATIO A firm should manage its assets efficiently to maximize sales. A firms ability to produce large volumes of sales for a given amount of capital employed is the most important aspect of its operating performance. This ratio is calculated as:

ONGC 2009-10 Profit After Tax Capital Employe d Return on Capital Employed 167676 2008-09 161263 2007-08 167016 2006-07 156429 2005-06 144308

738041

640583

604844

540744

493763

22.7190630 3

25.1744114 3

27.6130704 8

28.9284763 2

29.2261672 1

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INDIAN OIL 2009-10 Profit After Tax Capital Employed Return on Capital Employed 28877 157277 2008-09 26105 130191 2007-08 21617 89192 2006-07 17889 73132 2005-06 16400 71413

18.3605995 20.0513092 24.2364786 24.4612482 22.9650064

ONGC: INTERPRETATION In 2008-09, ONGC was able to achieve Rs. 1.06 of sales for every one rupee of capital employed in net assets. However, the ratio has reduced to less than a rupee at 0.94 due to increase in net worth, which in turn was due to higher profit of Rs. 11637736 crores. INDIAN OIL: INTERPRETATION In 2009-10, Indian Oil was able to achieve Rs. 2.3 of sales for every one rupee of capital employed. However, there has been a significant drop in the ratio over the past year as bonus shares in the ratio of one share of Rs 10 for one equity share of Rs 10 held were issued increasing IOCs paid-up equity capital to Rs 2,427.95 crore from Rs 1,138.98 crore.

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PROFITABILITY RATIOS
Profitability ratios are calculated to measure the operating efficiency of the company. Besides management of the company, creditors and owners are also interested in the profitability of the firm. Creditors want to get interest and repayment of principal regularly. Owners want to get a required rate of return on their investment. This is possible only when company earns enough profit. It is of following types:

GROSS PROFIT MARGIN: The gross profit margin reflects the efficiency with which management produces each unit of product. A high gross profit margin relative to the industry average implies that the firm is able to produce at relatively lower cost. It is a sign of good management. A gross margin ratio may increase due to; i) higher sales prices, ii) lower cost of goods sold, iii) a combination of variations in sales prices and costs, iv) an increase in the proportionate volume of higher margin items. A low gross profit margin may reflect higher cost of goods sold due to the firm's inability to purchase raw materials at favourable terms, inefficient utilization of plant and machinery, or over investment in plant and machinery resulting in higher cost of production.

ONGC 2009-10 Sales Cost Of Goods Sold Gross Profit Margin 602517 243199 2008-09 640039 232438 2007-08 600651 230215 2006-07 569134 231285 2005-06 479897 210901

59.64

63.68

61.67

59.36

56.05

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INDIAN OIL 2009-10 Sales Cost Of Goods Sold Gross Profit Margin 79379 40729 2008-09 72921 39612 2007-08 60990 35648 2006-07 54186 30439 2005-06 55740 27048

48.69

45.68

41.55

43.82

51.47

ONGC: INTERPRETATION The higher the gross profit the better it is. In 2008-09 the gross profit was 70% and the gross profit in 2009-10 was 73%, which tells that gross profit has been stable for the past years. Therefore we can say that ONGC is maintaining a very good gross profit ratio. INDIAN OIL: INTERPRETATION In 2008-09 the gross profit was 38% and the gross profit in 2009-10 was 47%, the gross profit increased significantly in the last one year. This was mainly due to reduction in cost of goods sold, which in turn maybe because of reduction in cost of raw materials.

NET PROFIT MARGIN Net profit is obtained when operating expenses interest and taxes are subtracted from the gross profit. This ratio is the overall measure of the firms ability to turn each rupee sales into net profit. If the net margin is inadequate the firm will fail to achieve satisfactory return to shareholders funds. Net profit margin ratio establishes a relationship between net profit

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and sales and indicates management's efficiency in manufacturing, administering and selling the products.

ONGC 2009-10 Profit After Tax Sales Net Profit Margin 167676 602517 27.83 2008-09 161263 640039 25.20 2007-08 167016 600651 27.81 2006-07 156429 569134 27.49 2005-06 144308 479897 30.07

INDIAN OIL 2009-10 Profit After Tax Sales Net Profit Margin 28877 79379 36.38 2008-09 26105 72921 35.80 2007-08 21617 60990 35.44 2006-07 17889 54186 33.01 2005-06 16400 55740 29.42

ONGC: INTERPRETATION As we already know that higher the net profit margin, the better it is for the organization. From the above table it is clear that the net profit margin is almost the same in the both years at around 19%. This is very healthy net profit by ONGC

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INDIAN OIL: INTERPRETATION From the above table we can see that the net profit margin has increased from 1% in 2008-09 to around 5%. This is was mainly due to reduction in expenditure on account of i. Reduction in manufacturing, administration, selling & other expenses ii. Reduced interest on short term bank loans However, even this increased net profit of 5% is not low and should be improved by focusing on operations management.

RETURN ON INVESTMENT ROI is also used for comparing the operating efficiency of firms. The term investment may refer to total assets or net assets. We will calculate RONA return on net assets.

ONGC 2009-10 EBIT Net Assets Return on Investment 229000 864413 26.49 2008-09 198835 780848 25.46 2007-08 216811 699435 31.00 2006-07 211471 614099 34.44 2005-06 199158 535934 37.16

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INDIAN OIL 2009-10 EBIT Net Assets Return on Investment 38951 137454 28.34 2008-09 33870 93310 36.30 2007-08 27134 79330 34.20 2006-07 24826 68491 36.25 2005-06 26744 58483 45.73

ONGC: INTERPRETATION Return on investment for ONGC is 23% for the current year down from 26.6% last year. This was due to increase in net worth (component of net asset), which in turn was due to higher profit of Rs. 11637736 crores. INDIAN OIL: INTERPRETATION Return on investment for Indian Oil is 11% a significant increase from 4% last year. This was due to increase in net worth (component of net asset), which in turn was due to reduction in expenditure on account of: i. ii. Reduction in manufacturing, administration, selling & other expenses Reduced interest on short term bank loans

RETURN ON EQUITY (ROE) Common or ordinary shareholders are entitled to the residual profits. The rate of dividend is not fixed; the earnings may be distributed to shareholders or retained in the business. A return on shareholders' equity is calculated to see the profitability of owner's investment. ROE indicates how well the firm has used the resources of the shareholders.

ROE = PAT/Net Worth

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ONGC 2009-10 PAT Net Worth ROE 167676 864413 19.40 2008-09 161263 780848 20.65 2007-08 167016 699435 23.88 2006-07 156429 614099 25.47 2005-06 144308 535934 26.93

INDIAN OIL 2009-10 PAT Net Worth ROE 26105 137454 18.99 2008-09 21617 93310 23.17 2007-08 17889 79330 22.55 2006-07 16400 68491 23.94 2005-06 16899 58483 28.90

ONGC: INTERPRETATION ONGCs ROI in the current year was 19% on the equity employed last year down from 22% in the previous year. This was due to increase in net worth, which in turn was due to higher profit of Rs. 11637736 crores. INDIAN OIL: INTERPRETATION Indian Oils ROI in the current year was 21% which is significantly more than 5% last year. The improvement was due increase in PAT, which in turn was due to reduction in expenditure on account of: i. ii. Reduction in manufacturing, administration, selling & other expenses Reduced interest on short term bank loans

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EARNINGS PER SHARE (EPS) It is a measure of the profitability of shareholders investments. EPS calculations made over the years indicate whether or not the firms earning power on a per share basis has changed over the period. This ratio is calculated as:

ONGC 2009-10 EPS INDIAN OIL 2009-10 EPS 114 2008-09 101 2007-08 84 2006-07 77 2005-06 79 78.39 2008-09 75.19 2007-08 78.09 2006-07 71.66 2005-06 98.22

ONGC: INTERPRETATION ONGC has a very high EPS of Rs 90, although it has decreased by Rs 2 compared to 2008-09.

INDIAN OIL: INTERPRETATION Indian Oils EPS has increased significantly form Rs 10 to Rs 44 in the last financial year.

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STATEMENT OF RATIOS:

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Investment Valuation Ratios Face Value 10 10 10 10 10 Dividend Per Share 45 31 32 32 33 Operating Profit Per Share (Rs) 188.98 131.65 139.05 150.8 176.27 Net Operating Profit Per Share (Rs) 336.55 266.09 280.83 299.24 281.7 Free Reserves Per Share (Rs) 363.84 275.84 315.74 353.81 392.88 Bonus in Equity Capital 75.49 83.66 83.66 83.66 83.66 Profitability Ratios Operating Profit Margin (%) 56.15 49.47 49.51 50.39 62.57 Profit Before Interest And Tax Margin (%) 46.29 41 40.09 40.66 51.02 Gross Profit Margin (%) 57.71 52.54 42.99 43.58 53.87 Cash Profit Margin (%) 36.65 31.22 31.24 29.05 33.84 Adjusted Cash Margin (%) 35.68 33.18 31.24 29.05 33.84 Net Profit Margin (%) 28.93 25.79 25.93 23.5 26.35 Adjusted Net Profit Margin (%) 27.95 27.75 25.93 23.5 26.35 Return On Capital Employed (%) 37.46 37.12 36.3 34.29 34.54 Return On Net Worth (%) 26.74 25.26 23.87 20.65 19.39 Adjusted Return on Net Worth (%) 26.01 27.4 23.17 19.95 18.84 Return on Assets Excluding Revaluations 12.62 287.11 327.01 365.07 404.14 Return on Assets Including Revaluations 12.62 287.11 327.01 365.07 404.14 Return on Long Term Funds(%) 37.46 37.26 36.3 34.29 34.54 Liquidity And Solvency Ratios Current Ratio 1.42 1.4 1.56 1.45 1.39 Quick Ratio 1.28 1.28 1.39 1.27 1.22 Debt Equity Ratio 0.24 0.24 0.18 0.2 0.19 Long Term Debt Equity Ratio 0.24 0.24 0.18 0.2 0.19 Debt Coverage Ratios Interest Cover 531.99 1,330.19 511.61 273.32 2,483.76 Total Debt to Owners Fund 0.24 0.24 0.18 0.2 0.19 Financial Charges Coverage Ratio 7.76 8.56 6.79 4.34 3.64 Financial Charges Coverage Ratio Post Tax 5.92 6.08 5.11 3.41 2.95 Management Efficiency Ratios Inventory Turnover Ratio 16.42 19.99 122.77 111.98 87.82 Debtors Turnover Ratio 12.91 17.61 16.87 15.16 16.87 Investments Turnover Ratio 121.06 150.64 122.77 111.98 87.82 Fixed Assets Turnover Ratio 1.27 1.31 1.05 1.05 0.85

P a g e | 81 Total Assets Turnover Ratio Asset Turnover Ratio 0.72 1.01 0.74 1.1 0.73 1.05 0.68 1.05 0.73 5.2 144.51 17.03 17.6 10.94 5.36 49.65 39.09 48.6 59.84 0.8 75.4 368.12 10 32 0.58 0.85 0.27 7.42 151.48 4.03 20.13 10.83 7.61 49.02 37.34 49.54 61.83 0.76 78.39 408.08 10 33

Average Raw Material Holding ---Average Finished Goods Held 5.82 4.48 Number of Days In Working Capital 151.62 152.97 Profit & Loss Account Ratios Material Cost Composition 11.79 14.36 Imported Composition of Raw Materials Consumed -20.11 Selling Distribution Cost Composition 10.84 11.7 Expenses as Composition of Total Sales 5.43 5.25 Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit 50.7 48.85 Dividend Payout Ratio Cash Profit 40.01 40.36 Earning Retention Ratio 47.54 54.59 Cash Earning Retention Ratio 58.89 62.02 Adjusted Cash Flow Times 0.71 0.75 Earnings Per Share 101.2 73.14 Book Value 378.42 289.52 Investment Valuation Ratios Face Value 10 10 Dividend Per Share 45 31

5.23 148.96 14.02 17.41 10.88 6.31 47.94 38.83 50.6 60.21 0.62 78.09 330.16 10 32

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SWOT ANALYSIS OF ONGC

STRENGTHS
ONGC is the only company in India who is involved in offshore construction activities related to oil and gas project for more than two decades. The company has an established network in India. The company has gained expertise in the field of onshore and offshore oil exploration. It has rich experiences over the last 25 years in its execution and possesses abundant data associated with this project. ONGC is one of the few companies in the world, which owns and operates a large number of oil field services such as drilling, production testing, geophysical and logistic services. The organization possesses highly skilled manpower at a low cost. ONGC contributes 90% of Indian crude oil production. The operational cost of ONGC is lowest in the world and its reserve level is equivalent to 23 years of production. ONGC can boost of installing 28 processor platforms,132well platforms and more than 4000 km submarine pipelines. Another area of strength of ONGC is its commitment and quality of maintenance management.

WEAKNESS
The purchase procedure of ONGC does not lead to Feasible and past purchase decisions. It is highly regulated by the government therefore the functioning of the organization, as a commercial organization is restricted or constraint. Behaviors of

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the certain reservoir in Mumbai had not been inline with the expectations, which would enroll investment in the future. There has been no major discovery in the past there is lower realization per barrel as compared to international prices. The companys earnings were insulated from the vagaries of global crude oil prices. This will be a weakness for the company when the government decontrols the oil sector.

OPPORTUNITIES
The company has entered into strategic alliance with ioc to form a national oil entity for domestic and global operation. ONGC has been receiving adjusted pries for crude oil and once the government removes the APM, the earning is expected to increase. ONGC has an opportunity for growth in overseas market Through the subsidiary ONGC VIDESH LTD (OVL). Energy utilized of buried coal resources (700-1700M), estimates 63BTEquivalent to 15000 BCM.

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THREATS
Security of personal and property especially crude oil continues to be a cause of concern in certain area. In some areas exploration Campaign Company involves high technology, high investment and high risk. ONGC has a lot of exposure to the group companies in the form of cross holding. This is hampering the financial soundness of the

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FINDINGS & SUGGESTIONS

FINDINGS:
1. THE COMPANY WAS MAINTAING THE EFFICIENT WORKING IN THE PERIOD OF STUDY. 2. INCREASE IN INVENTORY IS NOT BLOCKAGE OF CAPITAL IN ONGC BECAUSE NUMBER OF COMMODITIES IS NOT INCREASING BUT THE PRICE OF COMMODITY IS INCREASING 3. NOW ONGC HAS INTRODUCED A BIT THE CONCEPT OF JIT(JUST IN TIME) TO MAINTAIN THE INVENTORY PROPERLY 4. CURRENT LIABILITY HAS INCREASED, VERY MUCH UPTO 211,051 MILLION IN 2009-10 DUE T O WHICH THE CURRENT RATIO INCREASES. 5. THE STUDY PERIOD SHOWS INCREASE IN THE CURRENT ASSET OVER THE PERIOD FROM RS, 3, 21,658 MILLIONS IN 2007-08 TO RS. 546000 MILLIONS WHICH SHOWS THAT COMPANY HAS ABILITY TO PAY OF ITS CURRENT OBLIGATIONS. 6. THE ACCURACY OF CASH PROJECTION TECHNIQUE IS PROPERLY MAINTAINED BECAUSE IT IS REVIEWED ON WEEKLY BASIS. 7. INVENTORY REPORT OF ONGC WHICH IS VERY IMPORTANT PART IN MANAGING INVENTORY, IS OELABORATED AS PLANT WISE , CSR WISE , SERVICE WISE , DRILLING WISE, WELL WISE, ENGINEERING WISE, ETC WHICH IS VERY HELPFUL IN TAKING QUALITY DECISION MAKING. 8. IN CASH FORECASTING, ONGC FORECASTED A GOOD AMOUNT OF MATURITY OF INVESTMENT AND INTREST ON INVESTMENT

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9. THE OTHER ASSETS HAVE INCREASED AS LOAN AND ADVANCES HAVE INCREASED BECAUSE OF THE ADVANCES TO SUBSIDARIES AND ALSO BECAUSE OF INCREASE ADVANCES.

SUGGESTIONS:

1. THE MANAGEMENT OF WORKING CAPITAL IS VITAL ELEMENT IN PSU THUS , THE COMPANY BOARD OF DIRECTOR IS EXPECTED TO DETERMINE THE REASONABLE LEVEL OF WORKING CAPITAL AND REVIEW THE POSITON FROM TIME TO TIME TO ENSURE THAT THE TOTAL INVESTMENT IN WORKING CAPITAL AS LOW AS POSSIBLE. 2. CASH AND BANK BALANCE OF ONGC HAS DECREASED IN 200809 SO THE COMPANY SHOULD USE IT WITH PROPER CARE. 3. CURRENT LIABILITES OF ONGC HAVE INCREASED VERY MUCH SO COMPANY SHOULD TAKE CARE OF IT BECAUSE ITS EFFECTS THE COMPANYS PROFITABILITY. 4. THERE IS A HUGE RESERVE AND SURPLUS OF ONGC SO COMPANY SHOULD INVEST IN PROFITABLE VENTURE BECAUSE IF A FIRM IS NOT USING MONEY PROPERLY THEN THE TIME VALUE OF MONEY DECREASES AND ULTIMATELY IT WILL BE A LOSS FOR THE COMPANY. 5. ONGC CAN ALSO DIVERSIFY ITS BUSINESS THROUGH ITS INVESTMENT AND IT CAN ENTER INTO POWER BUSINESS.

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BIBLOGRAPHY
Books and readings M.Y KHAN & P.K. JAIN (2007)Financial management. A.K GARG Elements Of Financial Management.

Annual report Annual report- ONGC2007-08 Annual report- ONGC2008-09 Annual report- ONGC2009-10

Website www.ongcindia.com www.economictimes.indiatimes.com www.scribd.com