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FINANCIAL ANALYSIS

Summer Internship Project Report


Submitted to
The Placement Committee
Indian Institute of Management, Bodhgaya
2016-18

Done By
Abijith T Cherian
PGP 029/02
IIM Bodh Gaya
IIM BG Summer Internship Report

1. ACKNOWLEDGEMENT

The completion of this Project would have been impossible without the material and moral support from
various people. It is my obligation, therefore to extend my gratitude to each of them.
I am greatly indebted to Ms. Nimmy Thomas, Deputy Manager, Finance for her effective supervis io n,
dedication and support towards the completion of this project. I also express my sincere gratitude to Mr. N
Srikanth, Chief Manager, Finance for his mentoring and guidance throughout the project. I am also thankful
to all other staff members of HPCL South Zone office, Chennai, for their support.
Its my great pleasure to thank Dr. Sudhir Jaiswall, Guest Faculty, Finance and Control group, Indian Institute
of Management, Calcutta, who has shown a keen interest in clarifying my various doubts, swiftly responding
to all my queries.
I am also thankful to the Placement committee of my institute, Indian Institute of Management, Bodhgaya, for
giving me an opportunity to do this internship for the partial fulfillment of the requirements for the award of
the degree of Post Graduate Programme in Management.

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IIM BG Summer Internship Report

2. ABSTRACT

The purpose of this report is to summarize my summer internship project, done in partial fulfillment of the
requirements for the award of the degree of Post Graduate Programme in Management, from Indian Institute
of Management, Bodh Gaya. The Internship is done at Hindustan Petroleum Corporation Limited (HPCL),
Zonal Office, South Zone, Chennai from 3 rd April to 2nd June 2017.
In this report, various financial ratio analysis is done for three major Public sector petroleum companies in
India, namely, Hindustan Petroleum Corporation Limited (HPCL), Bharat Petroleum Corporation Limited
(BPCL), and Indian Oil Corporation Limited (IOCL). The data from FY 2012-13 to FY 2015-16 is used for
the analysis. Common Size Statement and Horizontal Analysis is prepared for each of the three companies to
find out the trend over the period. Also, various ratios are calculated, namely liquidity ratios, leverage ratios,
activity ratios, profitability ratios and valuation ratios, to analyze both intra and inter-company variations. Du
Pont analysis is also done for all the three companies to have a deeper understanding of the Return on Equity
values over the years.

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IIM BG Summer Internship Report

3. TABLE OF CONTENTS
1. Acknowledgment 2
2. Abstract 3
3. Table of Contents 4
4. HPCL Introduction 5
a. Financial Performance Analysis
i. Trend Analysis
ii. Vertical Analysis
5. BPCL Introduction 6
a. Financial Statement Analysis
i. Trend Analysis
ii. Vertical Analysis
6. IOCL Introduction 7
a. Financial Statement Analysis
i. Trend Analysis
ii. Vertical Analysis
7. Liquidity Ratio Analysis 8
a. Cash Ratio
b. Quick Ratio 9
c. Current Ratio
d. Inventory to Working Capital Ratio 10
8. Solvency Ratio Analysis 11
a. Debt to Asset Ratio
b. Debt to Equity Ratio 12
c. Equity Ratio
9. Efficiency Ratio Analysis 13
a. Asset Turnover Ratio
b. Inventory Turnover Ratio 14
c. Fixed Assets Turnover Ratio
10. Profitability Ratio Analysis 15
a. Return on Assets
b. Return on Equity 16
c. Gross Profit Margin
d. Net Profit Margin 17
e. Operating Profit Margin
11. Valuation Ratio Analysis 18
a. Earnings Per Share
b. Dividend Per Share
12. Du Pont Analysis 19
13. Bibliography 20
14. Disclaimer 21

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IIM BG Summer Internship Report

4. HPCL: INTRODUCTION

Hindustan Petroleum Corporation Limited (HPCL) is an Indian state-owned oil and


natural gas company with its headquarters at Mumbai, Maharashtra. It has about 25%
market-share in India among public-sector companies (PSUs) and a strong marketing
infrastructure. The Government of India owns 51.11% shares in HPCL and others are
distributed amongst financial institutes, public and other investors. The company is ranked
367th on the Fortune Global 500 list of the world's biggest corporations as of 2016. HPCL
was incorporated in 1974 after the takeover and merger of erstwhile Esso Standard and
Lube India Limited by the Esso (Acquisition of Undertakings in India) Act 1974. Caltex
Oil Refining (India) Ltd. (CORIL) was taken over by the Government of India in 1976 and
merged with HPCL in 1978 by the CORIL-HPCL Amalgamation Order, 1978.

a) FINANCIAL PERFORMANCE ANALYSIS

TREND ANALYSIS VERTICAL ANALYSIS


450 60.00
400 50.00
350
300 40.00
Percentage

250 30.00
200 20.00
150
100 10.00
50 0.00
0
12-13 13-14 14-15 15-16
FY

Sales Revenue Gross Profit


Operating Profit PAT 12-13 13-14 14-15 15-16

i)Trend Analysis: ii)Vertical Analysis:


The Sales Revenue has decreased by nearly 13.14 percent There is a gradual increase in the percentage share of
from FY 2012-13 to FY 2015-16, making an average common stockholders equity, in total equity and
negative growth of 4.3 percent per year. However, there liabilities, from 18 percent in FY 2012-13 to 26 percent
is a substantial reduction in Cost of Goods sold by around in FY 2015-16. This is mainly due to an increase of 34.6
17.3 percent from FY 2012-13 to FY 2015-16. This has percentage in the share of reserves and surplus during
helped the company to increase the Gross Profit these four years. The share of long term liabilities has
significantly, by around 85 percent in these years, i.e. an increased from 25 percent in FY 2012-13 to 36 percent
average increase in gross profit by 28 percent per year. in FY 2015-16. There is a gradual reduction in the share
The Operating profit has increased by around 85 percent of Current liabilities from 57 percent in FY 2012-13 to
from FY 2012-13 to FY 2015-16, giving an annual 38 percent in FY 2015-16. The share of Plant, Property
average increase of around 28 percent. Overall, there is a and Equipment have increased from 29.5 percent in FY
constant increase in Profit after Tax from 904.71 Cr in 2012-13 to 47 percent in FY 2015-16. There is also a
FY 2012-13 to 3862.74 Cr in FY 2015-16. decrease in the share of Current assets from 50 percent
in FY 2012-13 to 39 percent in FY 2015-16.

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5. BPCL: INTRODUCTION

Bharat Petroleum Corporation Limited (BPCL) is an Indian state-controlled oil and gas
company headquartered in Mumbai, Maharashtra. The Corporation operates two large
refineries of the country located at Mumbai and Kochi. The Government of India owns
54.93% shares in BPCL and others are distributed amongst financial institutes, public and
other investors. The company is ranked 358th on the Fortune Global 500 list of the world's
biggest corporations as of 2016. BPCL traces its history to 1928 when the Burmah Shell
Oil Storage & Distribution Company of India was incorporated in England to enter the
petroleum products business in India. The business of the Company grew substantially
given the international backing of Shell and it achieved the leadership position in India. In
1952, Shell and Burmah Oil Company set up Burmah Shell Refineries to set up a refinery
in Mumbai. The entire operations of Burmah Shell in India were nationalised in 1976 and
the Refinery and Marketing Companies were merged to form BPCL.

a) FINANCIAL PERFORMANCE ANALYSIS

TREND ANALYSIS VERTICAL ANALYSIS


300 70
60
250
PERCENTAGE

50
200 40
Percentage

30
150 20
10
100
0
50

0
12-13 13-14 14-15 15-16

Sales Revenue Gross Profit


Operating Profit PAT 12-13 13-14 14-15 15-16

i)Trend Analysis: ii)Vertical Analysis:


The Sales Revenue has decreased by nearly 21.16 percent There is a gradual increase in the percentage share of
from FY 2012-13 to FY 2015-16, making an average common stockholders equity, in total equity and
negative growth of 7.05 percent per year. On the other liabilities, from 25 percent in FY 2012-13 to 36 percent
hand, there is a substantial reduction in Cost of Goods in FY 2015-16. The Share Capital stood at 723.08 Cr
sold by around 25.0 percent from FY 2012-13 to FY throughout, whereas the Reserves and Surplus
2015-16, resulted in a significant increase in the Gross increased by around 66 percentage. The share of long
Profit by around 56 percent in these years, i.e. an average term liabilities has increased from 11 percent in FY
increase in gross profit by 19 percent per year. The Net 2012-13 to 23 percent in FY 2015-16. There is a
Operating Profit has increased by 81 percent from FY gradual decrease in the share of Current liabilities from
2012-13 to FY 2015-16, with an average annual increase 64 percent in FY 2012-13 to 42 percent in FY 2015-16.
of around 27 percentage. The Profit After Tax (PAT) has The share of Plant, Property and Equipment have
increased from 2642.9 Cr in FY 2012-13 to 7431.88 Cr increased from 25 percent in FY 2012-13 to 31 percent
in FY 2015-16, resulting in an average increase of around in FY 2015-16. There is also a decrease in the share of
60 percent every year, with a positive growth throughout Current assets from 57 percent in FY 2012-13 to 37
these years. percent in FY 2015-16.
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6. IOCL: INTRODUCTION

Indian Oil Corporation Limited (IndianOil) is India's Largest Commercial Enterprise,


with a net profit of 103.99 billion (US$1.6 billion) for the financial year 2015-16. In
accordance with its corporate vision of being The Energy of India, IndianOil has been
successfully meeting the energy demands of India for more than five decades. It is the
leading Indian Corporate in Fortune's prestigious Global 500 listing of world's largest
corporates at 161st position for the year 2016, and has a 33,000-strong workforce.
IndianOil's business interests overlap the entire hydrocarbon value-chain, including
refining, pipeline transportation, marketing of petroleum products, exploration and
production of crude oil, natural gas and petrochemicals. Also, IndianOil has ventured into
alternative energy and globalisation of downstream operations.

a) FINANCIAL PERFORMANCE ANALYSIS

TREND ANALYSIS VERTICAL ANALYSIS


250.00 70
60
Percentage

200.00 50
40
Percentage

150.00 30
20
100.00 10
0
50.00

0.00
12-13 13-14 14-15 15-16

Sales Revenue Gross Profit


Operating Profit PAT 12-13 13-14 14-15 15-16

i)Trend Analysis: ii)Vertical Analysis:


The Sales Revenue has decreased by nearly 21.58 percent The percentage Share of Common stockholders equity
from FY 2012-13 to FY 2015-16, making an average in Total Equity and Liabilities has increased from 27
negative growth of 7.2 percent per year. However, there percentage in FY 2012-13 to 33 percentage in FY 2015-
is a substantial reduction in Cost of Goods sold by around 16. The Share Capital stood constant at 2427.95 Cr
26.03 percent from FY 2012-13 to FY 2015-16. This has over these years. The Share of Long Term Liabilities
helped the company to increase the Gross Profit by has increased constantly from FY 2012-13 to FY 2014-
around 50.10 percent in these years, i.e. an average 15, and shows a slight decrease afterwards. There is a
increase in gross profit by 16.7 percent per year. The Net gradual reduction in the share of Current liabilities from
Operating Profit has increased by around 45 percentage 55 percent in FY 2012-13 to 43 percent in FY 2015-16.
form FY 2012-13 to FY 2015-16, giving an annual The share of Plant, Property and Equipment have
average increase of 15.2 percentage. The Profit After increased from 27 percent in FY 2012-13 to 40 percent
Tax(PAT) has increased significantly by around 108 in FY 2015-16. Other Non-Current Assets has
percentage from 5005.17 Cr in FY 2012-13 to increased from 16 to 21 percent during these years.
10399.03 Cr in FY 2015-16. There is also a decrease in the share of Current assets
from 57 percent in FY 2012-13 to 39 percent in FY
2015-16.

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IIM BG Summer Internship Report

7. LIQUIDITY RATIO ANALYSIS


Liquidity describes the state of a companys assets, in terms of how quickly and easily it can turn those assets into cash
when necessary. When we use a liquidity ratio to analyze a businesss financial statements, we are basically determining
its ability to cover its short-term debts, and this can give you some idea of how successful it will be in continuing its
current operations.
More specifically, the liquidity ratio measures a companys liquid assets against its liabilities, and there are several
versions of this measurement including cash ratio, quick ratio, current ratio etc. Each version is valuable in its own way,
but whether you are measuring a companys income alone against its liabilities, or a combination of its cash on hand
plus receivables, the higher the ratio value involved, the more confidence you can have in a companys current ability
to service its short-term debt load.

(a) CASH RATIO


As one of the most extreme measures of the companys liquidity, or its ability to pay out its current debts, the cash ratio
examines only an organization's available cash or cash equivalents. The Cash ratio/ Cash coverage ratio measures the
actual rupee amounts found in a companys bank accounts and held in such investments such as marketable securities
that can be immediately converted into cash. The ratio then compares these amounts against the companys current
liabilities.
Unlike other coverage ratio calculations, like the quick ratio or current ratio, the cash ratio offers a much more
conservative assessment of how capable a business currently is of servicing its short-term debt load, because it doesnt
take assets like trade receivables or inventory into account. Since receivables may take weeks or months, and inventory
may take years to sell, the cash coverage ratio may well give the truest picture of a companys liquidity position.

&
=

There are some situations where a companys use of its cash may be restricted by certain loan agreements, minimum
bank balance requirements, or mandates imposed upon the use of funds by the firms board of directors.

Cash ratio of all the companies are at


lower side, with values less than 0.25.
CASH RATIO
HPCL and BPCL have higher cash 0.25
coverage ratio compared to IOCL.
Usually a Cash coverage ratio of 0.5 or 0.2
higher represent a positive scenario,
where the company can cover its 0.15
current debts using cash alone. Here
the companies may need to use other 0.1
short term assets like receivables to
fully pay out its current liabilities. 0.05
Usually, cash ratio can be best
analysed in conjugation with other 0
debt coverage ratios, and with other HPCL BPCL IOCL

liquidity ratios in particular. 12-13 13-14 14-15 15-16

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IIM BG Summer Internship Report

(b) QUICK RATIO


As other liquidity ratios, the quick ratio will also help us to gauge a companys asset liquidity. The quick ratio is also
known as acid test ratio. By measuring the combined total of an organization's cash and cash equivalents against its
current liabilities, we can determine the companys ability to fund its short-term debts only using those quick assets that
can be easily converted to cash like Trade receivables and marketable securities.

(, , )
=

QUICK RATIO The Quick Ratio of HPCL, with


values greater than or equal to 0.5 on
0.7 every year, is the highest in all the
0.6 four years, compared to BPCL and
0.5 IOCL. BPCL is having the lowest
0.4 Quick ratio, with values moving
around 0.3. The Quick ratio value of
0.3
IOCL is almost constant at around
0.2
0.47. For any company, a value
0.1 greater than or equal to 1 indicates
0 that the company is in a position to
HPCL BPCL IOCL pay off its short-term debts with its
12-13 13-14 14-15 15-16 liquid assets.

(c)CURRENT RATIO
Unlike the most narrowly focused quick ratio that only considers easily cashable. Or quick assets, the current ratio takes
a broader view of liquidity by including such assets such as inventory in its calculation. By measuring all of a companys
current assets against its current liabilities, one can arrive at a figure that will indicate how likely that company is to
have enough resources to support its debt over the next year.

The Current ratio of HPCL is greater


than 1 for three consecutive financial
CURRENT RATIO
years from FY 2013-14 to FY 2015- 1.4
16. In most of the years HPCL is 1.2
having higher Current ratio 1
compared to BPCL and IOCL. The 0.8
value of 1:1 is considered to be the 0.6
bare minimum as an acceptable level 0.4
of liquidity, since it means there 0.2
would be no short-term assets left
0
over if all short-term debts were paid HPCL BPCL IOCL
off. Ideally a current ratio of 2:1
provides a more comfortable buffer. 12-13 13-14 14-15 15-16

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IIM BG Summer Internship Report

(d)INVENTORY TO WORKING CAPITAL RATIO


The total current assets that a company has on hand at any given time, in excess of its current liabilities, is known as its
working capital. These funds are what allow a business to run its daily operations. One of the short-term assets held by
many companies is the cash invested in its inventory. But if this inventory amount is relatively large compared to another
asset, it can skew the perception of just how readily available a firms cash truly is for paying off short-term debts.
Sometimes a companys inventory can suffer from extremely low turnover. The inventory to working capital ratio allows
calculating exactly what proportion of a businesss working capital is tied up in its inventory, giving a more accurate
picture of its liquidity position.


=
+

The average inventory to working


INVENTORY TO WORKING CAPITAL capital ratio of HPCL over the 4 years
RATIO is 1.475, and is the lowest compared to
3.5
BPCL with an average value of 1.985
and IOCL with an average value of
3
1.66. There is a high variation in the
2.5 value of BPCL compared to HPCL and
2 IOCL which is almost constant over the
1.5 four years. The lower a companys
1 inventory to working capital ratio, the
0.5
higher its liquidity. So, the liquidity of
HPCL is higher compared to that of
0
HPCL BPCL IOCL
BPCL and IOCL. But the ideal value of
inventory to working capital ratio is
12-13 13-14 14-15 15-16 considered as 1.

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IIM BG Summer Internship Report

8. SOLVENCY RATIO ANALYSIS


Also, known as Leverage ratios, solvency ratios directly measure a companys total debt against its assets, equity and
earnings. Unlike liquidity that deals with an ability to handle short-term debt, Solvency deals with a companys ability
to service its long-term liabilities. In other words, does the company have the resources to support its continuing financial
obligations, and are those resources based on equity or debt? For example, a business with a highly variable, or
unpredictable income, runs a far greater risk of insolvency when it chooses to fund large portions of its operations with
borrowed money, rather than with its own assets.
While both Solvency and Liquidity ratios are essential in measuring a companys ability to pay off debt, solvency ratios
are more concerned with long-term sustainability. And unlike liquidity, a higher solvency ratio value id less desirable,
since it may indicate that a business has incurred higher debt load than it can handle.
(a)DEBT TO ASSET RATIO
The debt to asset ratio is the financial calculation that allows one to evaluate a companys leverage situation. This is
accomplished by measuring the percentage of a firms assets that are funded by creditors, rather than by investors. When
one needs to examine the company as a potential investment, the debt to asset ratio offers a clear picture of just how
much of that companys resources are derived from borrowing money, and how much can be attributed to investor
equity. This is an important piece of information to understand because one need to feel confident that a business is
capable of meeting its debt obligations, while still being in a position to offer a decent return on investment to its
shareholders. The more the companys assets that are funded by creditors, the higher the firms debt load becomes. The
more debt a business accumulates, the riskier an investment it represents, since it may eventually find itself in the
unfortunate position of being unable to repay its loans.

Because the debt to asset ratio takes such a broad look at a companys solvency, it cant accommodate every possible
financial scenario. While it will provide some insight into how well a firms assets support its debt commitments, the
debt to asset ratio treats all liabilities equally. This is the case whether the debts are short term, long term, necessary or
unnecessary to the companys overall level of operational efficiency.

The Debt to Asset ratio of all the three


DEBT TO ASSET RATIO
companies are less than 1. HPCL is
having the highest debt to asset ratio, 0.9
compared to both BPCL and IOCL. For 0.8
all the three companys there is a 0.7
decreasing trend in debt to asset ratio
0.6
from FY 2012-13 to FY 2015-16,
which is a positive scenario. The higher 0.5
the debt to asset ratio, the more 0.4
leveraged a company is, and the greater 0.3
the chance it will fall short in meeting
its debt obligations. When the debt to 0.2

asset ratio is less than 1, the situation 0.1


provides a company with some 0
financial breathing space, if the interest HPCL BPCL IOCL
rate suddenly increase or business
12-13 13-14 14-15 15-16
revenue decrease temporarily.

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IIM BG Summer Internship Report

(b)DEBT TO EQUITY RATIO


The Debt to Equity ratio is one of the most important measures of solvency that can be used while investigating the
company as a potential investment. Essentially, its a gauge of risk, which examines the relationship between how much
of a companys financing comes from debt, and how much comes from shareholder equity. The more debt a business
takes on to fund its operations, the greater level of risk it assumes since a higher percentage of its financing is provided
by creditors as opposed to investors.

=

When the Debt to Equity ratio is equal to


DEBT TO EQUITY RATIO
1, it means that the assets of a company
5 are both financed by both creditors and
4.5 investors. Any value greater than 1
4 indicates a potentially higher level of
3.5 financial risk. Here BPCL is having
3
comparatively lower debt to equity ratio
2.5
and HPCL is having the highest Debt to
2
Equity ratio, making it financially riskier
1.5
compared to BPCL and IOCL. The Debt
1
to Equity ratio of HPCL has decreased
0.5
from 4.55 in FY 2012-13 to 2.84 in FY
0
HPCL BPCL IOCL
2015-16, which is a positive indicator, that
the company is gradually becoming less
12-13 13-14 14-15 15-16 risky with respect to Debt to Equity ratio.

(c)EQUITY RATIO
All of a companys assets are the result of shareholders equity, loans from creditors, or a combination of both. The
equity ratio is a simple calculation that can show how much of a companys assets are funded by owner shares. The
equity ratio will provide information on both debt situation and long-term financial stability.

=

The closer to 100 percent a firms


EQUITY RATIO
equity ratio, the closer it is to
financing all of its assets with 0.4
shareholders equity. Here BPCL is 0.35
having the highest equity ratio in 0.3
most of the years compared to 0.25
HPCL and IOCL. There is an 0.2
increasing trend in equity ratios 0.15
from FY 2012-13 to FY 2015-16 of 0.1
all the companies, except IOCL 0.05
which shows a decrease in 2nd year, 0
otherwise gives an increasing trend. HPCL BPCL IOCL
This gives a positive outlook for the
sector, with respect to Equity ratios. 12-13 13-14 14-15 15-16

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9. EFFICIENCY RATIO ANALYSIS

Efficiency ratios can be used to measure how well a


business is using its assets and liabilities to generate sales
and income. This ratio helps to translate a companys
efficiency in areas like debt repayment, receivables
collection, and equity usage, into actual numbers that can
compare the performance of one business with another in
the same industry. In a sense, efficiency ratio helps to give
a picture of the companys profitability, as more efficiently
the company manages its resources, the more likely for it
to become and remain profitable. It also tells the
effectiveness of organizations management team.
Efficiency ratios may either measure the value of a
companys assets against its sales, or its payables against
its total supplier purchases.

(a)ASSET TURNOVER RATIO


Asset turnover ratio is one of the many efficiency ratios that helps to evaluate how well a company is using its assets to
generate income. To accomplish this, the ratio directly measures a firms net sales against its average assets, to determine
exactly what percentage of those sales is being produced from each rupee of a companys resources.

An Asset turnover ratio of 1 means that a firm is generating a rupee in sales for every rupee in assets that it owns.
Generally, a higher ratio is more desirable, as it tells that the company is using its resources in most efficient manner
possible to produce income. When the ratio value is very low, on the other hand, it tells that the business has a lot of
money invested in assets, but isnt seeing a huge return on those assets in terms of revenue. In the case of lower value,
it can be probably assumed that the business isnt managed efficiently or its experiencing manufacturing or production
difficulties that are impacting sales.

Asset Turnover ratio is highest for


ASSET TURNOVER RATIO
BPCL compared to HPCL and IOCL
4 in each of the 4 years from FY 2012-
3.5 13 to FY 2015-16. The Asset
turnover ratio for both HPCL and
3
BPCL is greater than 2.5 in all the
2.5 years and that of IOCL in greater
2 than 1.5 in all these 4 years. It means
that all the companies are utilizing
1.5
its resources in most efficient
1 manner possible to produce income.
0.5
Thought the Asset turnover ratio of
HPCL varies little, it needs to see
0 with some caution that the ratio of
HPCL BPCL IOCL
both BPCL and IOCL is constantly
12-13 13-14 14-15 15-16 decreasing throughout these years.

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IIM BG Summer Internship Report

(b)INVENTORY TURNOVER RATIO


In measuring the rate at which a companys merchandise is sold over a given period of time, the inventory turnover ratio
compares average inventory levels against the cost of goods sold. When there is a relatively low turnover of inventory,
it can be an indication that poor planning is involved on the part of the firms management, or that the expected level of
sales has declined for some reason. Neither of this scenario is desirable over the long run, since inventory that is slow
to turn over ties up companys working capital in an asset that can be difficult to liquidate.

=

The inventory turnover ratio of


BPCL is the highest with an average
INVENTORY TURNOVER RATIO
of 15.6, then comes HPCL with 14.3 20
and then OCL with 9.2. A higher
inventory turnover value is usually 15
viewed as more positive outcome,
indicating that the companys 10
inventory is brought and sold off
quickly and efficiently. This means 5
that the overall flow of goods
through the business is streamlined, 0
and that the company doesnt have a HPCL BPCL IOCL
lot of stagnant funds sitting around
12-13 13-14 14-15 15-16
in the form of unsold merchandize.

(c)FIXED ASSETS TURNOVER RATIO


Unlike Asset turnover ratio, Fixed Asset turnover ratio measures how well a company is using its fixed assets to generate
income. Generally speaking, higher the ratio the better because a high ratio indicated the business has less money tied
up in fixed assets for each unit of rupee of sales revenue. A declining ratio may indicate that the business is overinvested
in the plant, equipment or other fixed assets.

=

Fixed Asset turnover ratio also


FIXED ASSETS TURNOVER RATIO follows a similar trend as of Asset
8 turnover ratios, with highest Fixed
7 asset turnover ratio for BPCL
6 followed by HPCL and IOCL, for
5 each year. The ratio of all the three
4 companys show a decreasing trend
3 from FY 2012-13 to FY 2015-16,
2 indicating an overinvestment in
1 plant, equipment or other fixed
0
assets. Since all these companies
HPCL BPCL IOCL belong to similar industry, this
common declining trend need not be
12-13 13-14 14-15 15-16 a cause of great concern.

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10.PROFITABILITY RATIO ANALYSIS

As the name implies, a profitability ratio simply measures an


organizations ability to generate profits from its regular
business operations. Most profitability ratios determine a
companys return on investment from their inventory and
other assets, and so are related in some ways to the
companys efficiency. More Specifically, the profitability
ratio can help to measure business income against various
groupings of business expenses, in order to better evaluate
the level of a companys earnings. This is best done in
comparison with a direct competitor, or over a period of
time, in which case a higher or rising ratio value will tell
whether the companys profitability level is better than other,
or is improving. Profitability is also a reflection on a
companys ability to manage debt, and to remain solvent.

(a)RETURN ON ASSETS
By calculating firm's Return on Assets (ROA), one can measure its net earnings against its total assets to determine just
how successfully it's using its resources to generate profit from its regular business operations. Not only this will allow
one to judge how efficient a companys management team is at generating earnings, it can also indicate just how capable
the company is of funding its own growth and expansion. Considering the fact that the entire purpose behind a firms
asset is to produce revenue, the return on assets ratio should play a critical role in the evaluation of a potential investme nt.

A higher return on Asset is generally a more desirable outcome since it means that a business is handling its resources
more effectively in the production of income. The higher the result of the ratio, the more profitable a companys assets
are.

The Return on Assets (ROA) of


RETURN ON ASSETS
BPCL is the highest in each of the
four years compared to both HPCL 12
and IOCL, making it the most
10
profitable company in this measure.
The most positive factor is that both 8
Percentage

HPCL and BPCL shows an


increasing trend in return on assets 6
from FY 2012-13 to FY 2015-16,
4
and IOCL also shows an increasing
trend except for FY 2014-15. This 2
means that the entire industry is
capable of making more and more 0
HPCL BPCL IOCL
income without increasing the assets
in the same proportion. 12-13 13-14 14-15 15-16

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IIM BG Summer Internship Report
(b)RETURN ON EQUITY
The Return on Equity (ROE) ratio allows one to calculate the returns a company is able to generate from the equity that
the shareholders have invested in it. The more capable a company is of yielding a profit from equity, the higher its return
on equity will be. This ratio allows one to know exactly how much net income a firm is producing from each rupee of
the equity invested by its common shareholders.

=

The Return on Equity (ROE) of BPCL


RETURN ON EQUITY
is the highest in each of the four years
35 compared to both HPCL and IOCL,
30 making it the most profitable company
in this measure. The most positive
25
factor is that both HPCL and BPCL
Percentage

20 shows an increasing trend in return on


15
equity from FY 2012-13 to FY 2015-
16, and IOCL also shows an increasing
10 trend except for FY 2014-15. This
5 means that the entire industry is
capable of making more and more
0
HPCL BPCL IOCL
income without increasing the assets in
the same proportion. A higher ratio
12-13 13-14 14-15 15-16 indicates a higher level of profitability.

(c)GROSS PROFIT MARGIN


The Gross Profit Margin measures a firms revenue against the variable costs that is required to produce those revenues,
in order to determine the percentage of profits that are being generated. This value demonstrates a companys ability to
operate cost effectively since the money that is available to fund operations and future growth comes in large part from
the profit that is created when goods or services are sold.

=

The higher a companys Gross Profit


Margin, the more money its generating GROSS PROFIT MARGIN
in profits through the sale of its goods 12
or services. Here, all the companys,
i.e. HPCL, BPCL and IOCL shows 10
very similar trend in Gross Profit from
8
FY 2012-13 to FY 2015-16, with IOCL
Pecentage

having slightly higher Gross Profit 6


Margin Over BPCL, which is slightly
higher than HPCL in most of the years. 4
There is a sudden increase in Gross
2
Profit for all the three companies in FY
2015-16, which is due to the reduction 0
in crude oil prices and a proportionate HPCL BPCL IOCL
increase in Gross profit during this
12-13 13-14 14-15 15-16
year.

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IIM BG Summer Internship Report
(d)NET PROFIT MARGIN
Net Profit Margin is one of the most useful financial ratios to evaluate the companys overall performance for investment
purposes. By measuring net income against revenues, the Net profit margin ratio demonstrates exactly what percentage
of each sales rupee remains as profit after a companys expenses have been paid.

=

NET PROFIT MARGIN BPCL has got the highest Net Profit
Margin from FY 2013-14 to FY 2015-
4.5 16. The Net Profit Margin of all the
4 three companies are showing an
3.5 upward trend from FY 2012-13 to FY
3 2015-16, except for IOCL, which
Percentage

2.5 shows a decreasing trend in FY 2014-


2 15 by a small margin. There is a huge
1.5 increase in Net Profit Margin of all
1
companies in FY 2015-16, which can
0.5
possibly be attributed to the reduction
in the crude oil prices. The Net Profit of
0
HPCL BPCL IOCL
HPCL in FY 2015-16 is 3862.74 Cr,
that of BPCL is 7431.88 Cr and for
12-13 13-14 14-15 15-16 IOCL, it is 10399.03 Cr.

(e)OPERATING PROFIT MARGIN


Like the Net Profit Margin, the operating profit margin gives the companys efficiency in more detail, where generating
profit from revenues is concerned. But while both calculations measure profits against costs, the operating profit margin
scrutinizes a narrower scope of operational and overhead expenses, excluding such costs as interest payments and taxes.
This ratio will give a middle-of-the-road view of how effective a company is in managing and controlling its expenditure
as a whole.

The Operating Profit Margin also


OPERATING PROFIT MARGIN
follows the same trend as that of
Gross Profit Margin and Net 7
Profit Margin, with BPCL 6
recording the highest value in
5
most of the years. Both HPCL and
Percentage

BPCL shows an increasing trend 4


in the Operating profit margin 3
from FY 2012-13 to FY 2015-16.
In case of IOCL, there is an 2
increasing trend except in FY 1
2014-15. The higher the value
0
more revenue is available to fund HPCL BPCL IOCL
the companys non-operational
costs, such as interest payments. 12-13 13-14 14-15 15-16

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IIM BG Summer Internship Report
11.VALUATION RATIO ANALYSIS
Business valuation ratios are particularly useful for comparing companies within the same market sector, or within the
entire market as a whole, because they define how cheap or expensive an investment in terms of its potential for profit.
(a)EARNINGS PER SHARE
Earnings per share are the portion of the companys profit allocated to each outstanding share of common stock. Earnings
per share also serve as an indicator of companys profitability.

=

The EPS of HPCL is the highest


EARNINGS PER SHARE
in both FY 2013-14 and 2015-
120 16, compared to BPCL and
100 IOCL, while BPCL is having
the highest EPS in both FY
80
2012-13 and 2013-14. The EPS
Rupees

60 shows and increasing trend for


40
both HPCL and BPCL from FY
2012-13 to FY 2015-16,
20 whereas for IOCL it increases
0 from FY 2012-13 to FY 2013-
HPCL BPCL IOCL 14, and then it slightly
decreases in FY 2014-15, and
12-13 13-14 14-15 15-16
increases further.

(b)DIVIDEND PER SHARE


Dividend per share is the sum of declared dividends issued by a company for every ordinary share outstanding. DPS is
a great way for a company to signal strong performance to its shareholders. For this reason, many companies that pay
a dividend focus on adding to its DPS.

The Dividend per share of


HPCL is highest compared to
DIVIDEND PER SHARE
BPCL and IOCL in FY 2014- 40
15 to FY 2015-16. In FY 2012- 35
13 to FY 2013-14, the DPS of 30
HPCL is marginally less than 25
that of BPCL. The DPS of 20
IOCL is comparatively lower 15
in all the years. For IOCL,
10
though the DPS decreased from
5
8.7 to 6.6 from FY 2013-14
0
to FY 2014-15, it managed to
HPCL BPCL IOCL
give 14 as divided in FY
2015-16. 12-13 13-14 14-15 15-16

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IIM BG Summer Internship Report

12.DUPONT ANALYSIS
DuPont analysis is a method of performance measurement that was started by the DuPont Corporation in the 1920s. The
Du Pont identity breaks down Return on Equity (that is, the returns that investors receive from the firm) into three
distinct elements. This analysis enables the analyst to understand the source of superior (or inferior) return by
comparison with companies in similar industries (or between industries).

=
Where
ROE (Return on Equity) = Net Income/Average Equity %
NPM (Net Profit Margin) = Net Income/Net Sales %
ATO (Asset Turnover) = Net Sales/Average Total Assets
FLM (Financial Leverage Multiplier) = Average Total Assets/Average Equity

HPCL
6 25
5 20
4
15
3
10
2
1 5
0 0
12-13 13-14 14-15 15-16

FLM (x) ATO (x) NPM (%) ROE (%)

BPCL
5 40
4 30
3
20
2
1 10
0 0
12-13 13-14 14-15 15-16

FLM (x) ATO (x) NPM (%) ROE (%)

IOCL
4 20
3 15
2 10
1 5
0 0
12-13 13-14 14-15 15-16

FLM (x) ATO (x) NPM (%) ROE (%)

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IIM BG Summer Internship Report

13. BIBLIOGRAPHY
1. http://www.hindustanpetroleum.com/Financial
2. https://www.bharatpetroleum.com/Bharat-Petroleum-For/Investors/Our-Financials/Annual-Reports.aspx
3. https://www.iocl.com/AboutUs/FinancialPerformance.aspx
4. https://wealthyeducation.com/
5. http://www.blog.sanasecurities.com/how-do-oil-marketing-companies-make-money/
6. http://simplestudies.com/profitability_and_coverage_analysis.html/page/13
7. http://www.moneycontrol.com/

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IIM BG Summer Internship Report

14. DISCLAIMER

This disclaimer informs readers know that this report is done as part of my internship at Hindusta n
Petroleum Corporation Limited (HPCL), Zonal office, South Zone, Chennai, in partial fulfillment of the
requirements for the award of the degree of Post Graduate Programme in Management, from Indian
Institute of Management, Bodh Gaya. The analysis, views and the opinions expressed in this report belong
solely to the author, and not necessarily to any employees or stakeholders related to Hindustan Petroleum
Corporation Limited (HPCL).

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