A Project Report on

“Liquidity, Efficiency, Solvency, & Profitability Analysis”

At
Essar Oil Limited
Vadinar, Jamnagar

Submitted to
The School of Management, Sumandeep Vidyapeeth

In the partial fulfillment of the award of the MBA Degree

Submitted by
Yogesh Jethva
SM20090012

Under the Guidance of

Faculty Guide Company Guide

Pinkal Shah Mr. Yogesh Sharma
Lecturer Finance Manager
School of Management Essar Oil Limited
Sumandeep Vidyapeeth Jamnagar
Piparia, Vadodara Gujarat

July, 2010

DECLARATION
 THE SCHOOL OF MANAGEMENT SUMANDEEP VIDYAPEETH
UNIVERSITY, AT+PO-PIPARIYA, WAGHODIA, VADODARA Declare that this
project report entitled, “Liquidity, Efficiency, Solvency, & Profitability analysis of Essar
Oil Limited ” It is the result of my own research and hard work of 2 Months of the
academic year 2010-2011 and has not been previously submitted to any university for any
other purpose.

Date: Signature

Place: Baroda (Yogesh Jethva)

PREFACE
 The objective of this study is to test the Liquidity, Efficiency, Solvency,
Profitability of Essar Oil Limited through the help of various ratios.

This report is the reflection of what I studied, and some things that I came to
know during my training. The knowledge I obtained will be helpful to my studies and in
future also.

ACKNOWLEDGEMENT
 It is my pleasure that this opportunity to state my excited sense of thanks to
my guide “Pinkal Shah” “from “THE SCHOOL OF MANEGEMENT for helpful
advice. This report is guided by their co-operation and practicable suggestion.

I get chance to recognized my gratitude to director “PROF. B.S.PATEL” of

“THE SCHOOL OF MANEGEMENT”

I would like thank to my God because without his blessing no work can be
completed, I am also very thankful to my parents for their moral support during the
project and the people who directly or indirectly gives a fretfully on in preparing this
report.

Date:

PLACE: PIPARIYA, VADODARA

EXECUTIVE SUMMARY
As the part of Sumandeep Vidyapeeth University MBA College curriculum, summer
internship provides the opportunity to get the exposure of working culture of the
organization.
Financial analysis is the process of identifying the financial strength and weaknesses of the
firm by properly establishing relationship between the items of the balance sheet and the
profit and loss account. Financial analysis can be undertaken by management of the firm, or
by parties outside the firm, viz. owners, creditors, investors and others. The nature of analysis
will differ depending on the purpose of the analysis.

My objective and purpose of this study is to analysis of liquidity, efficiency, solvency and
profitability, to find out the degree of deviation from each standard related with liquidity,
efficiency, solvency and profitability. And understand the Core function like Finance,
Marketing, HR, and Production.

Now the methodology of the research is secondary data collection. The whole data was
collected through company financial report, balance sheet, and profit & loss account of the
last 5 years of the company.

Here current ratio is decrease because of high investment in inventory. Also the Acid
test ratio and Absolute test ratio is increase from in this year because of cash
management and debtors management. Here also cash management and debtor’s
management are more efficient then the inventory management. Debt equity ratio is
increasing the last year because of increasing of secured loan as well as unsecured
loan. Net worth ( proprietary ) ratio is decrease and fixed assets to net worth ratio is
increase because of capitalized the company in 2008-09 so that it is increase and also
related to net profit and net profit is also increase which is good sign for the company.
Net profit ratio and operating profit ratio is increase because they are maintaining their
solvency and efficiency of the company. And expenses ratio is also decrease and
expanses ratio is more decrease than company have also benefit of economic scale. So
that it is good sign of the company.

Company must maintain their current assets and current liability so that current ratio is
increase in near future. Company decreases their debt so that company repayment
their loans as early as possible so that company can decrease their debt equity ratio. In
solvency currently they are maintain their inventory, fixed and current asset so that if
they maintain same as in future so that is good sign for the company. In profitability
ratio, company decrease their expense as possible as they can so that it helpful of
profit in future.

CONTENT
No. Title Page
No.
Ch 1. Topic:
 Why, Whom, Where, When and How.
Definition and Background information about the topic.
Identifying the variables and parameters for the particular study.
Ch 2.1 Company Profile:
History

Benchmark & Milestone

Growth & Development

Vision, Mission, Spirit

Who’s who

Ch 2.2 Industry Profile:

Competitive Scenario
Market Share
Industry Life – Cycle
Govt. Rules & regulation
Ch 3.
Overview of Functional Area:
Finance

Marketing

Human Resource

Operations

Ch 4. Model Application:
Strategic Advantage Profile.

Porter’s Five Forces Model.

ETOP (Environmental Threat & Opportunity Profile).

BCG (Model).

Value Chain

Environmental Framework:
Economic
Political
Social
Technological
Legal
Ch 5. Research Methodology:
Objectives and purpose of the study
Scope of the study, Benefits of the study
Assumptions

Types of research design

Unit of Analysis
Methods of data Collection

Appropriate tools for data analysis

Limitations of the study.

Ch 6. Data Collection & Analysis:

Ch 7. Findings:
Ch 8. Suggestions/Recommendations:
Ch 9. Bibliography/Annexure
 SELECTION OF TOPIC

Liquidity, efficiency, solvency and profitability

Analysis of Essar oil ltd

WHY:
To measure these four parameters of company. We know that company’s past, present, future
data analysis is one of the important factor. So that I have to analysis of Liquidity, Efficiency,
Solvency, & Profitability Analysis of the Essar Oil Ltd.

WHOM:
The main purpose to choose this topic was to evaluate the financial position of the company.
This topic was decided by me & consolation with finance department.

WHERE:
The Analysis of Company’s Liquidity, efficiency, solvency and profitability analysis at Essar
Oil Ltd.

WHEN:
The time period of this research is 1 May, 2010 to 30 June, 2010. Using the data of last Five
years.

HOW:
The Calculating of liquidity, efficiency, solvency and profitability from Balance sheet and
profit & loss a/c by using Last Five financial Year of the Company.
 INTRODUCTION OF FINANCIAL STATEMENT

The basis for financial planning, analysis and decision making is the financial
information. Financial information is needed to predict, compare and evaluate the Firm’s
earning ability. It is also required to aid in economic decision making –investment and
financing decision- making. The financial information of an enterprise is contained in the
financial statements or accounting reports. Three basic financial; statement of great
significance to owners, management and investors are balance sheet, profit and loss account
and cash flow statement.

Finance is the set of activities dealing with the management of funds. More specifically, it is
the decision of collection and use of funds. It is a branch of economics that studies the
management of money and other assets. Finance is also the science and art of determining if
the funds of an organization are being used properly. Through financial analysis, companies
and businesses can take decisions and corrective actions towards the sources of income and
the expenses and investments that need to be made in order to stay competitive.

BALANCE SHEET
Balance sheet is the most significant financial statement. It indicates the financial condition
or the state of affairs of a business at a particular moment of time. More specifically, balance
sheet contains information about resource and obligations of a business entity and about its
owner in the business at a particular point of time. Thus, the balance sheet of a firm prepared
on 31 March reveals the firm’s financial position on this specific date. In the language of
accounting balance sheet communicate information about assets, liabilities and owners equity
of business firm as on a specific date. It provides a snapshot of the financial position of the
firm at the close of firms accounting period.

PROFIT AND LOSS ACCOUNT

Balance sheet is considered as a very significant statement by bankers and other leaders
because it indicates the firm’s financial solvency and liquidity, as measured by its resources
and obligations. However, creditors, particularly bankers and financial analysts in India have
recently started paying more attention to the firm’s earning capacity as a measure of its
financial strength. The earning capacity and potential of a firm are reflected by its b profit
and loss a/c. the profit and loss account is a “score-board” of the firms performance during a
period of time. The generally accepted convention is to show one year’s events in the profit
and loss account. Since the profit and loss account reflects the results of operations for a
period of time. It is a flow statement. In contrast, the balance sheet is a, stock, or status
statement as it shows assets, liabilities and owner’s equity at a point of time.
Introduction of financial analysis and types of analysis
Types of financial analysis
Vertical analysis Financial analysis is the process of identifying the financial strength and
weaknesses of the firm by properly establishing relationship between the items of the balance
sheet and the profit and loss account. Financial analysis can be undertaken by management of
the firm, or by parties outside the firm, viz. owners, creditors, investors and others. The
nature of analysis will differ depending on the purpose of the analysis.

Technique for identifying relationship between items in the same financial statement by
expressing all amounts as the percentage of the total amount taken as 100. In a balance shit,
for example, cash and other assets are shown as a percentage of the total assets and, in an
income statement, each expense is shown as a percentage of the sales revenue financial
statement. Using this technique are called financial statement

Horizontal analysis

Comparative study of a balance sheet or income statement for two or more accounting
periods, to compute both total and relative variances for each line item.

Cash Flow statement

A revenue or expense stream that changes a cash account over a given period. Cash inflows
usually arise from one of three activities - financing, operations or investing - although this
also occurs as a result of donations or gifts in the case of personal finance. Cash outflows
result from expenses or investments. This holds true for both business and personal finance

Fund flow statement

One of the quarterly financial reports a publicly traded company is required to disclose to the
SEC and the public. It provides aggregate data regarding all cash inflows a company receives
from both its ongoing operations and its external investment sources as well as all cash
outflows that pay for business activities and investments during a specified quarter

Time series analysis

An analysis of the relationship between variables over a period of time. Time-series analysis
is useful in assessing how an economics or other variable changes over time. For example,
one may conduct a time-series analysis on stocks to help determine its volatility.
RATIO ANALYSIS
Introduction of ratio analysis
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the
indicated quotient of two mathematical expressions” and as “the relationship between two or
more things” in financial analysis, a ratio is used as a benchmark for evaluating the financial
position and performance of a firm. The absolute accounting figures reported in the financial
statements do not provide a meaningful understanding or the performance and financial
position of the firm. An accounting figure conveys meaning when it is related to some
another relevant information. For example, an Rs 5 crores net may look impressive, but the
firm’s performance can be said to be good or bad only when the net profit figure is related to
the firm’s investment. The relationship between two accounting figures, expressed
mathematically, is known as a financial ratio. Ratio helps to summaries large quantities of
financial data and to make qualitative judgment about the firm’s financial performance. For
example, consider current ratio. It is calculated by dividing current assets by current
liabilities, the ratio indicts the relationship – a quantified relationship between current assets
and current liabilities. This relationship is an index or yardstick, which permits a qualitative
judgment to be formed about the firm’s ability to meet its current obligations. it measures the
firms liquidity. The greater the ratio, the greater the firm’s liquidity and vice versa. The point
to note is that a ratio reflecting a quantities relationship helps to form a qualitative judgment.

Standards of comparison
The ratio analysis involves comparison for a useful interpretation of the financial statement.
A single ratio in itself does not indicate favorable or unfavorable condition. It should be
compared with some standard. Standard of comparison may consist of;

• Past ratio: i.e., ratio calculated from the past financial statement of the same firm.
• Competitors ratios: ratio of some selected firms, especially the most progressive and
successful competitor, at the same point in time.
• Industry ratios: i.e., ratios of the industries to which the firm belongs and
• Projected ratio: i.e., ratio develop using the projected, or proforma, financial statement
of the same firm.
Types of ratio
Several ratios, calculated from the accounting data, can be groups into various classes
according to financial activity or function to be evaluated. As stated earlier, the parties
interested in financial analyses are short and long term creditors, owners and management.
Short term creditors, main interest is in the liquidity position or the short term solvency of the
firm. Long term creditors, on the other hand, are more interested in the long term solvency
and profitability of the firm. Similarly, owners concentrate on the firm’s profitability and
financial condition. Management is interested in evaluating every aspect of the firm’s
performance. They have to protect the interest of all parties and see that firm grows
profitability. In view of the various users of ratios, we may classify them into the following
four important categories:

(1) Liquidity ratio (2) Leverage ratio

• Current ratio • Debt ratio

• Acid-test ratio • Debt equity ratio
• Cash ratio • Capital employed to
• Net working capital ratio net worth ratio
• Absolute liquidity ratio • Other debt ratio

(1) Activity ratio (2) Profitability ratio

• Inventory turnover ratio • Gross profit margin

• Debtor turnover ratio ratio
• Assets turnover ratio • Net profit margin ratio
• Fixed and current • Operating expenses
assets turnover ratio ratio
Working capital turnover ratio • Return on investment
ratio
• Return on equity ratio
• Earnings per share ratio
• Dividend per share
ratio
• Price earnings ratio
Liquidity ratio measure the firm’s ability to meet current obligations; leverage ratio show the
proportions of debt and equity in financial the firm’s assets; activity ratio reflect the firm’s
efficiency in utilizing its assets, and profitability ratio measured overall performance and
effectiveness of the firm.

THEORATICALE FRAME WORK

(1)Variables

Different ratios, actual and historical

Current ratio Quick ratio

Cash ratio Interval measure ratio

Net working capital ratio Debt ratio

Debt equity ratio capital employed to net worth ratio

Coverage ratio Inventory turnover ratio

Debtor’s term over ratio Assets turnover ratio

Total turnover ratio Fixed assets turnover ratio

Current turnover ratio Gross profit margin ratio

Net profit margin ratio Net profit after tax ratio

Operating expenses ratio Cost of goods sold ratio

Return on investment ratio Return on equity ratio

Earnings per share ratio Dividends per share ratio

Dividend pays out ratio Dividend and earning yield ratio

Price earnings ratio Market value to book value ratio

(Note: Here researcher may use the past data and find out any deviation in four functions like
Liquidity, efficiency, solvency and profitability and current that deviation.)
 LITERATURE REVIEW

The Profitability of Technical Analysis: A Review

Cheol-ho park

(korea capital market institute)

Scott H. Irwin

(University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer

Economics), October 2004

Summery
The purpose of this report is to review the evidence on the profitability of technical analysis.
The empirical literature is categorized into two groups, "early" and "modern" studies,
according to the characteristics of testing procedures. Early studies indicated that technical
trading strategies were profitable in foreign exchange markets and futures markets, but not in
stock markets before the 1980s. Modern studies indicated that technical trading strategies
consistently generated economic profits in a variety of speculative markets at least until the
early 1990s. The data snooping, ex post selection of trading rules or search technologies, and
difficulties in estimation of risk and transaction costs. Future research must address these
deficiencies in testing in order to provide conclusive evidence on the profitability of technical
trading strategies.

Minimum Capital Requirements X

Profitability

Leao, L. C. G

Ph. D. – Ibmec-Mg, Brasil

Cristino, M. A. B.

M. Sc. – Crediarcos, Brasil

Summary:
The predominant aspect of this article is the approach of cooperative foundations of doctrine
and the requirement of minimum capital to cover risks, and their influence, or not, the
profitability of credit cooperatives of Sicoob Central Crediminas. In this context, the
activities of credit cooperatives involve taking various types of risks such as credit, market,
liquidity, operationa and reputation. Aware that non-identification and measurement of
exposures taken can lead to imbalances of property and to cause a collapse in the credit
cooperative, make the relevant empirical research that is proposed this paper, especially
considering the events after August 2008. It is through a regression analysis; the known
association of these variables, with the intention of contributing to a better understanding of
the current status of cooperative credit to the standards imposed on minimum capital and thus
is able to suggest reasons that explain the results.

Role of Financial Variables in Explaining the Profitability of North Dakota Farm

Supply and Grain Marketing Cooperatives

Gregory McKee, Assistant Professor, Department of Agribusiness and Applied Economics,

North Dakota State University. Fargo, ND, 58108 USA. Phone: 701-231-8521. E-mail:
gregory.mckee@ndsu.edu.

Summary:
This paper examines the profitability of a balanced sample of 58 North Dakota farm supply
and grain marketing cooperatives over the period 2003-2007. Our findings reveal that
increased liquidity tended to allow farm supply cooperatives to operate more efficiently, but
reduced the efficiency of cooperatives which provide farm supply and grain marketing
services. These results suggest strategies for cooperatives during times of illiquidity and other
credit constraints for achieving profitability objectives.

Liquidity, solvency, and efficiency?

An empirical analysis of the Japanese banks’ distress

Marie-Joe Bou-Said 1

Philippe Saucier

Summary:

The long lasting banking crisis in Japan raised questions on the real origin of the persistent
and even

Increasing fragility of Japanese financial institutions. Although the dominant view points out
accumulation of risky assets in the second half of the 1980’s as the main cause for 1990’s
bank distress, after the assets bubble had collapsed, it is also argued that poor efficiency in
bank management could explain difficulties to resume with sound operation.
INSOLVENCY PREDICTION IN THE PORTUGUESE TEXTILE INDUSTRY
Carmem Pereira Leal

UTAD University, Portugal.

E-mail: cleal@utad.pt

Summary:

This study explores the main characteristics of the business bankruptcy phenomenon. Some
financial ratios are analysed in the context of bankruptcy prediction in Portuguese textile
industry, using statistical instruments of multivariate analysis, particularly the discriminate
analysis and the conditional analysis of probability (legit). Although these models have been
frequently used, it must be underlined that the great popularity assigned to financial ratios as
indicators of the firms’ financial health, is still evident in some of the most recent research.
 Company Profile
History
The Ruia family’s origins are in Rajasthan. Sometime in the 19th century, they moved to
Mumbai and set up their own business. In 1956, Mr. Nandkishore Ruia, father of Mr. Shashi
Ruia and Mr. Ravi Ruia, moved to Chennai, capital of the south Indian state of Tamil Nadu,
to begin independent business activities. He mentored his two sons in the intricacies of
business. When Mr. Nandkishore Ruia passed away in 1969, the brothers laid the foundation
of the Group.
The Essar Group began its operations with the construction of an outer breakwater in Chennai
port. It quickly moved to capitalize on every emerging business opportunity, becoming
India’s first private company to buy a tanker in 1976. The Group also invested in a diverse
shipping fleet and oilrigs, when the Government of India opened up the shipping and drilling
businesses to private players in the 1980s.
Then, in the 1990s, Essar began its steelmaking business by setting up India’s first sponge
iron plant in Hazira, a coastal town in the western Indian state of Gujarat. The Group went on
to build a pellet plant in Visakhapatnam, and eventually a fully integrated steel plant in
Hazira.
Through the 1990s, with the gradual liberalization of the Indian economy, Essar seized every
opportunity that came its way. It diversified its shipping fleet, started oil & gas exploration
and production, laid the foundation of its oil refinery at Vadinar, Gujarat, and set up a power
plant near the steel complex in Hazira. The construction business helped the Group build
most of its business assets. Essar also entered the GSM telephony business, establishing
India’s first mobile phone service in Delhi (branded Essar Cellphone) with Swiss PTT as the
joint venture partner.
The 21st century for the Essar Group has been all about consolidating and growing the
businesses, with mergers and acquisitions, new revenue streams and strategic geographical
expansion.

Benchmark & Milestone

Benchmark
• Expansion of existing 10.5-million tone refinery to 34 million tones
 • Additional single point mooring system to handle crude

Milestone
The 1990s, with the gradual liberalization of the Indian economy, Essar seized every
opportunity that came its way. It diversified its shipping fleet, started oil & gas exploration
and production, laid the foundation of its oil refinery at Vadinar, Gujarat.

Essar oil Ltd is the first private Ltd company of oil & gas refinery in India & Essar oil Ltd is
second largest Private sector company in India.

• Q3 EBITDA jumps to Rs228 crore against a negative EBITDA of Rs740 crore in Q3

of FY 2009
• EBIDTA for the nine-month period ended December 2009 increases to Rs1,255 crore
against Rs77 crore for the corresponding year-ago period
• Crude throughput increased 9.3% to 3.51 MMT in Q3 of FY 2010 from 3.21 MMT in
the corresponding quarter of FY 2009

Growth & Development

Today, the Group continues to expand its global footprint, focusing on markets in Asia,
Africa, Europe, Americas and Australia. Essar invests significantly in the latest technology to
drive forward and backward integration in its businesses, and on leveraging synergies
between these businesses. It also focuses on in-house research and innovation to be a low-
cost manufacturer with high quality products and innovative customer offerings.
Alongside its ambitious business pursuits, Essar has been committed to its social
responsibility. The Group runs community outreach initiatives in all its plant locations, with a
focus on education, healthcare, environmental and agricultural development, and self-
employment.
Essar Oil Ltd (EOL, NSE: ESSAROIL) operates a fully integrated oil company. Its assets
include developmental rights in proven exploration blocks, a 10.5 MTPA refinery in the west
coast of India and close to 1,500 oil retail stations across India. Plans are under way to
increase its exploration acreage in various parts of the globe, expand its refinery capacity to
34 MMTPA and open 5,000 retail outlets.
• Reputed international agency, NSAI, has certified the in-place resource at the
company’s Raniganj block in West Bengal to be at a level of 3.1 tcf and recoverable
reserve of about 1 tcf with upside potential.
• Gas flow has already started and sales are likely to commence from Q4 FY2010.
• The company has been announced the winner of the Rajmahal CBM block in
Jharkhand at the closing of the CBM – IV round of bidding. DGH estimates indicate
Rajmahal to be a very good CBM play with 3.2 TCF of in-place resource.
• The refinery is currently operating at 14 MMTPA at a capacity utilization of 133%.
Total crude processed in the 2nd quarter of FY 2010 has been 3.63 MMT, its highest
ever.
• Production of higher margin light and middle distillates has jumped to 75% during Q2
of FY 2010 from 65% of all products during Q2 of FY 2009
• The company has finalized its agreement with Indian Oil for the sale of its products
and sourcing of products from IOC’s supply locations.
• Retail operations have been hit by surge in crude prices, with no corresponding
adjustment in retail selling prices. The company is making significant efforts to
increase its non-fuel revenues to complement its retail sales.
• Plans are afoot to expand retail outlets to 1500 during FY 2010

Vision Mission Spirit

Vision:
We will be a respected global entrepreneur, through the power of positive action.
Mission
We are committed to innovative growth, through our personal passion, reinforced by a
professional mindset, creating value for all those we touch.
Spirit
The Essar Group has changed significantly in recent years and continues to evolve, to keep
pace with the changing times. We have undertaken a sustainable journey of transformation by
foraying into new international markets, and exploring new business areas in a bid to keep
our entrepreneurial spirit alive, and to continue growing.
To mark the phenomenal growth witnessed over the last four decades, the Group recently
unveiled its new brand identity marking a very important milestone in its journey and
reflecting a new beginning for the Group. A new brand identity reinforces all the positives to
fulfill our vision to be a global entrepreneur through the power of positive action.
We aim to have a robust value system comprising positive attitude, positive action and
positive achievement.
Privately owned and professionally managed, the Group is judiciously invested in the
commodity, annuity and services businesses. Forward and backward integration, the use of
state-of-the-art technology, in-house research and innovation have made Essar Global a force
to reckon with in each of its businesses.
Finally, the Essar way is all about keeping its entrepreneurial spirit alive, and to keep
growing with a passion to progress and the power to succeed with a renewed strength of
purpose and commitment.

Who’s Who
Promoter Directors

Mr Shashi Ruia Mr Ravi Ruia Mr Prashant Ruia

Chairman Vice Chairman Group Chief Executive
Essar Group Essar Group Essar Group

Mr Anshuman Ruia Ms Smiti Kanodia Mr Rewant Ruia

Promoter Director Promoter Director Promoter Director
Essar Group Essar Group Essar Group

Board of Directors

Mr Shashi Ruia — Chairman

Mr Prashant Ruia — Director
 Mr Anshuman Ruia — Director
Mr Naresh Nayyar — Managing Director
Mr P Sampath — Director, Finance
Mr Dilip J Thakkar — Director
Mr KN Venkatsubramanian — Director
Mr K V Krishnamurthy — Director
Dr G Goswami — IDBI Bank Limited, Nominee
Mr VK Sinha — LIC of India, Nominee
Mr RP Singh — IFCI Limited, Nominee

Oil & Gas executive committee members

Promoter Directors
Mr Naresh Nayyar — MD and CEO, Essar Oil Ltd.
Mr Shishir Agrawal — Director and CEO, Essar Exploration and Production (I) Ltd.
Mr Iftikhar Nasir — Executive Director, Strategy and Business Development
Mr Naren Vachharajani — CEO, Refinery Operations and International Trade
Mr P Sampath — Director Finance, Essar Oil Ltd.
Mr S Thangapandian — CEO, Marketing
Mr Shaffi Sheikh — Company Secretary and Head, Legal
Mr C Manoharan — Head, Refinery
Mr Raahil Burhaani — Chief Information Officer
Mr DK Jha — Sr VP and Head, EPS
Mr K Govindarajan — CEO, Projects
Mr Kaustubh Sonalkar — Head, Human Resources
Mr T Srinivas — Head, International Supply and Trading
 Industry Profile

Competitive Scenario
Public Sector

ONGC- Oil & Natural Gas Corporation

IOC- Indian Oil Corporation

BPCL- Bharat Petroleum Corporation Ltd

HPCL- Hindustan Petroleum Corporation Ltd

GSPC- Gujarat State Petroleum Corporation

Private Sector

RIL- Reliance Industrial Ltd

CEI- Cairns Energy India

Market share
Essar oil ltd is one of the best organizations in India. Essar oil ltd is second largest refinery in
India. Market position of the Essar Oil Ltd is quite good as camper to other company. Market
share of Essar oil ltd is around 22% in India so the good contribution of product oil & gas by
the Essar oil ltd. So we can say that the Essar Oil Ltd is not leading company of oil & gas
product but his contribution is good & market position is also good.
 ➢ The market positioning is quite good then the other company.

➢ Company provides good facilities to the customers.

➢ Well formed & organized built company.

➢ Continuous new technology adopt by the company.

Industry Life Cycle & Growth

The product life cycle concept describes the various stages in the life of a product from
introduction to decline. A product which is introduced will eventually die out but the number
of year in each stage, particularly the ones generating maximum yield.

Indian Petroleum Company is most important for the Indian market. Because of limited
sources of oil & gas product & also limited industry of oil & gas product in India. The
industrial life cycle of the petroleum industry is as better to the past. Now, the petroleum
industry continues growth & development in India.

So that we can say that the Indian petroleum industry is on the stage of growth in industrial
life cycle.

Essar oil ltd was launched a new product then immediate aim would be to gain a foothold in
the market & gradually establish itself.

Essar oil ltd continues growth because 2008/09 Essar Oil Ltd have huge loss but in 2009/10
Essar have nearby his BEP level. So that continues growth of Essar oil ltd.

➢ Essar oil revenue increase 19.7% in Q3 of FY 2009-2010 to Rs 11,421 crore from

Rs 9541 crore in the corresponding quester of FY 2008-2009.
➢ Essar oil is currently operating 1500 retail outlets with a pan- India footprint. This
has increased from the 983 active outlets the company had in Dec 2008.
➢ Essar assets include development right in proven exploration blocks a 10.5 MMTPA
refinery in the west cost of Indian & close to1500 oil retail stations across India
plans are under way to increase its exploration in various parts of the globe, expand
its refinery capacity to 34 MMPTA & open 5000 retail outlets.
So that we can say that Essar oil ltd is now on the stage of growth in the industrial life cycle.

Government Rule & Regulation

➢ Consuming or being in possession of alcohol or illegal drugs on company premises, or
on any company job site, is prohibited
➢ Fighting, horseplay, practical jokes or otherwise interfering with other workers is
prohibited.
➢ Theft, vandalism or any other abuse or misuse of company property is prohibited.
➢ All unsafe acts and conditions, including "near miss" incidents, are to be reported to
appropriate supervision promptly.
➢ All incidents that result in damage or injury are to be reported to a supervisor
immediately.
➢ First aid treatment is to be obtained promptly for any injury.
➢ Hard hats, safety boots and safety glasses are to be worn at all times on all job sites.
➢ All work shall be carried out in accordance with appropriate safe work practices and the
supervisor's direction.
➢ Only those tools that are in good repair, with all guards and safety devices in place,
shall be used.
➢ Every worker shall keep his/her work area neat, clean and orderly.
Overview Functional Area
Marketing
Essar Oil serves retail customers through a modern, country-wide network of over 1,000
retail outlets. Essar was the first private, Indian company to enter petro retailing, looking
beyond urban marketers and reaching out to consumers deep in India’s heartland. Essar Oil
offers a wide range of products to bulk customers in the industrial and transport sectors. EOL
has product off take and infrastructure sharing agreements with oil PSUs, namely Bharat
Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL) and
Indian Oil Corporation (IOCL). It has received approvals to supply Aviation Turbine Fuel
(ATF) to the Indian Armed Forces.

To serve customers under the retail brand “Essar Oil”, we have built a modern, countrywide
distribution network of 2000 filling stations. These are designed as complete retail outlets,
offering value-added amenities and services in accordance with what customers want in
individual markets. Looking beyond the saturated urban markets, we are reaching out to
consumers deep in India’s heartland. In addition to petrol, diesel and lubricants, we will
market a full range of fuels including naphtha, kerosene and fuel oil.

Structure Of Marketing Department:

Marketing department

S&D MCO Marketing Accounts

MCO ROAD MCO RAIL MCO MARINE

Supply & Distribution:

S&D department is a part of the marketing department; which is responsible for seeking of
availability of refinery products to customers and also seeks that all the refinery products are
being distributed properly in the domestic market.

To ensure proper distribution of refinery products, S&D on behalf of EOL has entered in to
purchase and sales agreement with several oil marketing companies like IOC, HPCL and
BPCL. It has also entered in to similar contract with private players like RIL, SHELL etc.

MCO (Marketing Co-ordination Office)

MCO is also a part of marketing department which is basically responsible for operational
activities i.e. distribution of petroleum products (loading of petroleum product).

Presently Essar Oil distribute its products through three modes i.e. Rail, Road and marine. so
in order to carry out the distribution process smoothly MCO has been divided in to three
divisions namely MCO- Rail, MCO-Road and MCO- Marine.

Retail Business

The retail business unit of Essar Oil is oriented towards delivering better and faster service to
its consumers. Essar pioneered the concept of setting up retail outlets using the franchisee-
owned, franchisee-operated model. We have more than 1,000 retail outlets across the country,
with plans to set up more than 5,000 outlets. Our retail outlets seek to redefine the way fuels
are retailed in India. Essar supplies its retail outlets with its branded petrol ‘PUNCH’ and
high speed diesel. A host of other products are available that complement petrol (MS) and
diesel (HSD), and services that cater to customers’ requirements in different markets. Essar
has entered into tie-ups with leading companies like Castrol (for lubes), Pepsi and Coca Cola
(for beverages), Biostad and Rallis (for fertilizers), TATA Indicom (for PCO booths) and
HDFC.

Essar Retail Strategy:

•Switch from distribution mode to “marketing value-added” mode
•Choose franchisee rout
 Faster implementation of retail network
 Low Cost Quick Payback
•Objective is to acquire a national 10% market share in transportation fuels in diesel
And petrol.

•Average sales per outlet to exceed 150KL per month.

Essar Retail Outlet Model:

•Franchisee owned franchise operated model

 The business model of Essar is a trendsetter in the Indian Petro-Retailing industry.
 The model is based on the franchise format.
 Franchisee leases his land to ESSAR OIL LTD for a period of 30 years.
 Franchisee makes the investment in site for retail outlet development.
 Franchisee operates and runs the retail outlet.

•The leased land attracts 5%per annum as lease rent on assessed value of land.
•The total investment made by the Franchisee attracts 5% p.a. return on normative
Cost.

• Additionally, Franchisee earns commission on per KL sales of MS and HSD which is

10% higher than PSU commissions.

•We have slab based commission system.

Distribution Network:
R
Road
Tanker/road
Primary supply
Inland
Terminal
Customer (retail/bulk)
O
location
depot
A
D

Product Distribution Process:

Refinery
 (Product produced)

PIT

(Product Intermediate Tank)

Dispatch Tank

Gantry

Tank Truck/

Tank Wagon

Logistic Department

Logistic is the process of strategically managing the procurement, movement and storage
Of materials, parts and finished inventory (and the related information flows) through the
Organization and its marketing channels in such a way that current and future profitability
And maximized through the cost-effective fulfillment of orders.
The mission of logistics management is to plan and co-ordinate all those activities
Necessary to achieve desired levels of delivered service and quality at lowest possible
Cost.
“The scope of logistics spans the organization, from the management to raw materials
Through to the delivery of the final product.”
Materials Flow
suppliers procurement operations distribution Customers

Requirements information flow

Logistics management, from this system viewpoint, is the means whereby the needs of
Customers are satisfied through the co-ordination of the materials and information flows
That extends from the marketplace, through the firm and its operations and beyond that to
Suppliers.

Distribution
The logistics chain includes the owners (wholesalers and retailers), manufacturers' agents,
and transportation channels that an item passes through between initial manufacture and final
purchase by a consumer. At each stage, goods belong (as assets) to the seller until the buyer
accepts them. Distribution includes four components:

1. Manufacturers' agents: Distributors who hold and transport a consignment of

finished goods for manufacturers without ever owning it. Accountants refer to
manufacturers' agents' inventory as in order to differentiate it from goods for sale.

2. Transportation: The movement of goods between owners, or between locations of

a given owner. The seller owns goods in transit until the buyer accepts them. Sellers
or buyers may transport goods but most transportation providers act as the agent of
the owner of the goods.
 3. Wholesaling: Distributors who buy goods from manufacturers and other suppliers
(farmers, fishermen, etc.) for re-sale work in the wholesale industry. A wholesaler's
inventory consists of all the products in its warehouse that it has purchased from
manufacturers or other suppliers. A produce-wholesaler (or distributor) may buy from
distributors in other parts of the world or from local farmers. Food distributors wish to
sell their inventory to grocery stores, other distributors, or possibly to consumers.

4. Retailing: A retailer's inventory of goods for sale consists of all the products on its
shelves that it has purchased from manufacturers or wholesalers. The store attempts to
sell its inventory (soup, bolts, sweaters, or other goods) to consumers.

Finance
Financial management involves the application of general management principles to
particular finance operations. It is that part of management which is concerned mainly with
raising funds in the most economic and suitable manner, using these funds as profitability as
possible; planning future operations; and controlling current performances through financial
accounting, cost a/c, budgeting, statistics and other means.

Financial management provides the best guide for future resource allocation by a firm.
Financial management is important because it has an impact on all the activities of a firm.
Financial management is concerned with those managerial decisions which result in the
acquisition and financing of long term and short term assets of a firm.

Structure

Finance Manager.
 Accounts Officer.

Accountant & Staff.

The above organizational chart is an illustration as to how the authority and responsibility has
been delegated at Essar Oil Limited. EOL follows line organization structure as authority
depends from the top of hierarchy to its bottom level and responsibility runs from bottom
level to the top of hierarchy.

Financial planning

One of the most important functions of finance manager is that of planning. Financial
planning is essentially concerned with the economical procurement and profitable use of
funds – a use which is determined by realistic inventories decisions. Financial planning helps
management to avoid waste by providing policies and procedures which make possible a
closer coordination between various functions of the business enterprise. Financial planning
is responsibility of top level management.

Budget

Budget generally refers to a list of all planned expenses and revenues. A budget is an
important concept in microeconomics, which uses a budget line to illustrate the trade-offs
between two or more goods. In other terms, a budget is an organizational plan stated in
monetary terms.

The purpose of Budgeting is to:

 1. Provide a forecast of revenues and expenditures i.e. construct a model of how our
business might perform financially speaking if certain strategies, events and plans are
carried out.

2. Enable the actual financial operation of the business to be measured against the
forecast.

In Essar, for the simplicity of work, the budget section is divided in two sub-sections:

➢ Capital Expenditure Budget

➢ Operating Expenditure Budget

Capital Expenditure Budget:

Capital expenditures (CAPEX) are expenditures creating future benefits. A capital

expenditure is incurred when a business spends money either to buy fixed assets or to add to
the value of an existing fixed asset with a useful life that extends beyond the taxable year.
Capex are used by a company to acquire or upgrade physical assets such as equipment,
property, or industrial buildings. In accounting, a capital expenditure is added to an asset
account ("capitalized"), thus increasing the asset's basis (the cost or value of an asset as
adjusted for tax purposes). Capex is commonly found on the Cash Flow Statement as
"Investment in Plant Property and Equipment" or something similar in the Investing
subsection.

For tax purposes, capital expenditures are costs that cannot be deducted in the year in which
they are paid or incurred, and must be capitalized. The general rule is that if the property
acquired has a useful life longer than the taxable year, the cost must be capitalized. The
capital expenditure costs are then amortized or depreciated over the life of the asset in
question. As stated above, capital expenditures create or add basis to the asset or property,
which once adjusted, will determine tax liability in the event of sale or transfer.
Included in capital expenditures are amounts spent on:

1. Acquiring fixed assets

2. Fixing problems with an asset that existed prior to acquisition

3. Preparing an asset to be used in business

4. Legal costs of establishing or maintaining one's right of ownership in a piece of

property

5. Restoring property or adapting it to a new or different use

6. Starting a new business

In Essar, for budget planning purpose, each and every department is assigned a cost center
code. Each department has to define its budget by estimating the assets they want to buy in
that year. According to that, budget is allocated to the various cost centers by the budget
department. Each department has to manage within the allocated budget. If at the end of the
year they found that their expenses are more than the budget allocated to them, than that
department has to give justification about the over expenditure to the budget department.

Operating Expenditure Budget:

An operating expense, operating expenditure, operational expense, operational expenditure or
OPEX is an on-going cost for running a product, business, or system. Its counterpart, a
capital expenditure (CAPEX), is the cost of developing or providing non-consumable parts
for the product or system. For example, the purchase of a photocopier is the CAPEX, and the
annual paper and toner cost is the OPEX. For larger systems like businesses, OPEX may also
include the cost of workers and facility expenses such as rent and utilities.

In business, an operating expense is a day-to-day expense such as sales and administration, or

research & development, as opposed to. In short Production, costs, and pricing, this is the
money the business spends in order to turn inventory into throughput. Operating expenses
also include depreciation of plants and machinery which are used in the production process.

On an income statement, "operating expenses" is the sum of a business's operating expenses

for a period of time, such as a month or year.

• Accounting expenses

• License fees

• Maintenance and repairs

• Advertising
• Office expenses

• Supplies

• Attorney fees and legal fees

• Utilities, such as telephone

• Insurance

• Property management

• Property taxes

• Travel and vehicle expenses

• Leasing commissions

• Salary and wages

• For OPEX, the budget allocation is done in the same way as is done in CAPEX. For
budget planning purpose, each and every department is assigned a cost center code.
Each department has to define its budget by estimating the assets they want to buy in
that year. According to that, budget is allocated to the various cost centers by the
budget department. Each department has to manage within the allocated budget. If at
the end of the year they found that their expenses are more than the budget allocated
to them, than that department has to give justification about the over expenditure to
the budget department.
• For Essar Oil Ltd. the main sources of fixed capital are equity shares. To maintain
appropriate fixed capital the company follows various measures. The company
maintains the liquidity. Excess loans taken from the bank is repaid. Fixed capital is
mainly required for the fixed assets like machineries, land and building and other
assets. Following are the Written down value of fixed assets of Essar Oil Ltd. As at
March 31 2009.

• Land : - Rs. 60.11 Crores

• Buildings : - Rs. 249.99Crores

• Plant and machinery : - Rs. 12029.58 Crores

 • Furniture and fixtures : - Rs. 2,00 Crores

• Office equipment : - Rs. 12.93 Crores

• Vehicle : - Rs. 5.12 Crores

SOURCES OF FINANCE
When a firm wants to invest in long term or short term assets, it must find the means to
finance them. The firm can rely to some extent on funds generated internally. However, in
most cases internal resources are not enough to support investment plans. When that happens
the firm may have to curtail its investment plan or seek external sources of finance. Most
firms choose the later course of action. They supplement internal funding with external
funding rising from a variety of sources.

The following sources of long-term finance commonly employed by business firms: -

• Retained Earnings.
• Equity Capital.
• Debentures.
• Term Loans.
The following sources of short term finance are commonly employed by business firms: -

• Short Terms Loans.

• Commercial Banks.
• Finance Companies.
• Accrual Accounts.
• Indigenous Bankers.
• Advances from Customers.
• Miscellaneous Sources.
Essar Oil Ltd. has planned the sources of finance on the basis of their requirements. For long
term finances sources employed by the company are equity shares, debentures etc. For short
term finances the sources employed by the company are loans from banks, loans from
financial institution.

CAPITAL STRUCTURE
Capital structure is sometime known as the financial plan. It is the permanent financing of the
firm represented by long term share capital by equity shares and preference shares.

In capital structure the proportion of capital is to decide with regard to use of debt and equity.
The requisition of proportion arises because if company issues only ownership capital then it
cannot satisfy the main objective i.e. to maximize the shareholders return and if the company
issues more borrowed capital then it has to pay compulsory interest and thus it reduces
shareholders capital.

Thus the mixture of debt and equity is called capital structure. Capitalization is the sum total
of all kinds of long term securities as well as surplus which are not meant for distribution.
The amount of capital at any time should not exceed not should be less than the amount
required in both the situation company will be the loser.

Capitalization means the total amount of a company capital of total volume of its capital
stock. In other words, we can say that the capitalization means the total borrowed capital and
ownership capital of the firm. If the resource funds and retained profit increases with the
growth of company it means capitalization of the company is increasing.

WORKING CAPITAL MANAGEMENT

Working Capital may be regarded as the lifeblood of a business. Its effective provisions can
do much to ensure success of a business, while its inefficient management can lead not only
to loss of profits but also to the ultimate downfall of what otherwise might be considered as a
promising concern.

The term working capital is commonly used for the requirement of capital for daily operation
of a business i.e. for purchase of raw material, payment of salaries and wages to the
employees, rent for the building, electric charges, etc. and working capital is concerned with
the problem that arrives to attempt to manage, current assets, relationship that exist between
them.
Current assets means, “Those assets which are easily converted into cash within one year.”

Inventory: Inventories are being valued at the lower of cost and net realizable value. The
cost of inventory is determined using the weighted average cost formula.
Amount of Inventory is as follows:

Raw material = Rs.1137.05crore

Work-in-progress = Rs.614.22crore

Traded/finished goods = Rs.289.31crore

Store and spare parts = Rs.184.04crore

Other consumables = Rs.26.31crore

Total = Rs.2250.93crore.

Market Capital

During the year, pursuant to shareholders approval obtained at Extraordinary General

Meeting held on 18th December, 2007, the company allotted 27,771,948 equity shares of Rs.
10/- each of the overseas depositories for Global Depository Shares (GDSs) on issue of GDSs
aggregating to US$129.418 million to promoters on preferential issue basis.

Authorized share capital: Rs.5, 000.00crore

Issued share capital: Rs.1263.46crore

Paid up share capital: Rs.1201.53crore

Human Resource
Human Resource Management

At the Essar Group, they believe that excellent individuals build excellent companies. And by
transforming each employee into a highly motivated, satisfied and productive team member,
they will create an outstanding organization. They also understand that each individual has
unique talents and expectations from the organization. Based on those principles, human
resources development at Essar is customized, flexible and well planned. Every Essar
employee is meticulously selected and given the freedom to be innovative, within a work
culture that is non-bureaucratic and result-oriented. They work with employees to develop
personalized and flexible individual plans for career growth, retention and compensation
within a carefully structured work framework. Through extensive career mapping, they offer
a choice of career paths that could include job rotations across functions and Group
Companies. Essar's wide range of businesses and exciting pace of growth presents a range of
opportunities and exposure that only a few others can match. The Group has a very serious
commitment to continuous training and development. Essar Learning Centre provides year-
round training. Thus, a career with Essar will offer a unique opportunity to unlock your own
potential and realize excellence.
Management Structure

Managing Director/ Executive Director/ CEO/Head of Corporate

functions

Senior Vice President

Vice President

General Manager

Joint General Manager

Deputy General Manager

Senior Manager

Manager

Deputy Manager

Senior Officer

Officer

General Information

Office timing

 General shift: 7:30a.m. To 5:30p.m.

 Shift A: 6a.m. to 2p.m.
 Shift B: 2p.m. to 10p.m.
 Shift C: 10p.m. to 6a.m.
The A, B and C shift is currently to operation department.
Mobile Phone

The facility of mobile phones to the employees is totally need based and depends on the
nature of job responsibility entrust to the employee. This will be decided by the respected
HOD and approved by the Head.

Canteen facility

Three canteens functioning at site, where breakfast/ snacks are available in the morning hour
and lunch from 12:00p.m. To 2:30p.m. At fixed charges. Tea, coffee etc is served in the
office two times in the morning hour and once in the afternoon.

Mail Room

A full fledge mail office functions from Refinery Administration Building, Wing No. 2
courier service, postal stationary items etc are available on payment. The mail room person
can be contacted at extant 1118

Transportation Facility

 The company provides free bus services to commute to and from all corners of Jamnagar,
Sikka and Khambhalia.
 This facility is provided up to M6 (DGM) and M5 & above to made their own
arrangements.
 Employee sitting beyond 7:30p.m. Can request for vehicle from transport department.
Attendance & leave rules

Attendance

All employees are expected to reach the place of work at least five minutes before the
commencement of working hours.
All employees have to sign the attendance muster.

Leave rules

All confirmed employees will be entitled to 26 working day earned leave in a leave year from
the date of joining. An employee on probation can avail earned leave on completion of 3
months of probation.

All confirmed employee will be entitled to 12 working days as medical/ casual leave out of
which 5 working days may be avail of as a casual leave.

Salary Structure

EOL has flexi CTC concept, which offers employees to modify their CTC Components. CTC
include Basic, PF, Superannuation, Gratuity, Food Allowances, Conveyance Allowance
Certain special allowances, HRA, LTA, Medical, Variable allowances, etc.

Recruitment at EOL

For new position arising due to project expansion and for other higher positions EOL first
prefers departmental candidates if they are suitable to job. Then priority is given to relatives
of employees. If still suitable candidates are not found then it goes for other sources of
recruitment.

RECRUITMENT PROCESS

Interviews at EOL

At Essar, usually semi-structured interviews are conducted so as to know the inside out of
candidates.

Interviewers often make observations and take notes of candidate’s response given during the
interview, body language, subject knowledge, way of reply and behavior, nervousness,
aggression, overall impression created by the candidate, check leadership qualities, analytical
skills, communication skills, personality and attitude, etc.
Due weight age is given to the habits and actual facts noticed during the interview for the
final selection. Past work experience is also assessed so as to predict the future performance.

Types of Appointments

Permanent Appointment

All the regular roll employees are permanent employees and are employed in different levels
i.e. M-11 to M-01 (lower to higher). Services of such employees are transferable to any part
of India as per requirement of the company.

Contractual Appointment

Such employees are appointed for a particular project. As soon as the project gets complete,
they are released or the company may extend their services for another project if they are
suitable to job. They are known as project roll employees. Their services are non transferable.

Consultants/Advisers

Certain highly experience personnel, usually above the age of 50 are appointed on contractual
bases for specific project or assignment in different functional areas for specific time duration
to guide existing employees and share their experience and impart knowledge of respective
field.

Trainees

Fresh graduate/Post graduate Engineers, Diploma Engineers and fresher from management
field are appointed as trainees by campus interviews. If they succeed in training which last
usually for one year they will be absorbed in the management cadre as per their qualification.
DET are put at M-11, MT and GET at M-10 level.

Induction & Orientation

The objective of induction and orientation programmed is to introduce the new employee and
the organization with each other, to help them become acquainted and explain upcoming one
what is expected from him on the job. New employee is introduced with various department
personals, he is made familiar with the work culture so that he can adopt and adjust himself in
the same as early as possible.

Sometimes few materials like handbook etc. may be provided which contain information
related to business group, ongoing projects, employee compensation benefits, personnel
policies, sources of information, employee daily routine and inside out of the company.

Checklist for induction programmed at EOL:

1. Briefing about company objectives, policies, practices and regulations.

2. Introduce new employee to his colleagues.
3. Provide assistance for any query like accommodation etc.
4. Explain working condition.
 Method and mode of reporting
 Safety and accident preventions
 Holidays and leaves
 Transportation facility
 Working hours and break time
 Security formalities for entry and exit
 Communication system
 Overtime policy

5. Explain company standard as to the following:

 Handling confidential information
 Attendance and punctuality
 Performance norms
 Wearing uniform
 Discipline and behavior, safety rules
INDUCTION PROGRAMME

Complete Joining Formalities

Briefing about Business Group/Company Objectives

Explain Company Standards

Explain Working Condition

Introduction to Staff

Offer Assistance for accommodation etc.

Release Employee to his Department

Management trainee programmed

Through the management trainee Programmed, Essar hires post graduate management
students from top ranking business schools throughout India. Trainees are initially hired as a
group resource for a range of functions such as marketing, finance, human resources and
operations. Essar makes selections between December and February, through a rigorous
selection process. Selected candidates then go through a comprehensive one-month induction
Programmed, which includes classroom sessions, an introduction to all the group companies,
plants and corporate functions, and a six-day executive leadership camp at the Essar Learning
Centre. Soon after the induction, in an interview with corporate human resources each trainee
has the opportunity to discuss mutual expectations, a career map and the group company and
assignment that he or she will be posted to. Trainees are confirmed after completing the one-
year management trainee Programmed. Depending on their capabilities, management trainees
can usually look forward to a faster career track, an expanded role and eventually, a
leadership position within the organization.
Welfare Activities and Facilities
Welfare activities are carried on at Essar, not as a social or legal liability but as a parental
care. Essar is commuted to take a due care of its employee’s personal life including their
family members.

Following are the glimpse of the same…

• Bachelor Colony
ECL provides a bachelor colony at Vadinar site that includes around 200 employees of
all levels. Colony also provides very good facilities like cricket ground, volleyball
ground, and recreation hall with carom board, table tennis, television etc.
• Labor Colonies
GOMTI, YAMNOTRY, PRAYAG and MYTHOI are four labor colonies with best
infrastructure that includes around 13,000 workers.
• Employee entitlements
• Various events, Programmers, get to gather, parties, festival celebration, sports activities,
etc. are arranged on frequent basis.
• Bank Account
All the employees have their salary account with banks designated by Essar Oil Limited
under the corporate arrangement.
• Leave Rules
All the confirmed employees are entitled to get 26 working days leave in a year and 12
working days leave as a medical/casual leaves
• Accident Insurance
• Medical facilities
• Free transportation facilities
• Canteen facility
STATUTORY FACILITIES

• Shelters, Rest rooms and Lunch room

• First-aid facilities
• Storing facilities
• Washing facilities
• Urinal and Toilet facilities
• Sitting Facilities
• Canteen facilities
Labor Welfare, as define in a resolution in 1947 by ILO is “such services, facilities and
amenities as adequate canteen, ret and recreation facilities, arrangement of travel to & from
work, and for the accommodation of workers employed at a distance from their houses and
such other services, amenities and facilities which contribute to improve the conditions under
which workers are employed.

NON STATUTORY FACILITIES

Following are the non statutory facilities provided by the company on volunteer basis so as to
motivate and facilitate the employees.

•Education help
•Sports activities
•Uniform
•Cultural events on Establishment Day
•Snacks and tea
•Medical reimbursement
•Winter wear
•Long service award
Operation
REFINERY DIVISION
Essar Oil Refinery at Vadinar in Jamnagar, Gujarat is ideally located in India's West Coast in
close place to the crude rich Gulf States. Vadinar is an all-weather deep-draft natural port.
More than 60% of India's crude imports land in and around this region.

The company has already embarked up gradation of the expanding the refining capacity at
Vadinar from the present capacity 10.5 MMTPA to 34 MMTPA with an investment of close
to Rs.10 Billion (USD 2.2 billion).

The refinery is fully integrated with its own dedicated 120 MW co-generation power plant,
port and terminal facilities. It includes a Single Point Mooring (SPM) capable of handling
vessels up to 350, 000 DWT with a capacity; marine product dispatch capacity of 14
MMTPA; rail -car and truck loading facilities.

OIL EXPLORATION & PRODUCTION

Essar Oil was among the first private sector company in India who had participated in 1993’s
bidding round for exploration blocks. It currently has participation interest in several blocks
in India and overseas for exploration, production and development of oil, gas and coal bed
methane.

In order to strike a right balance between Exploration as well as Production, Essar Oil has
constantly looked out for new opportunities. Company’s current Geo-graphical areas of focus
are Indian sub-continent, the Middle East, Saharan Africa, Australia, Russia etc.

Company’s current E&P portfolio comprises Nine Onshore and Three Offshore blocks for
oil, gas and CBM in India, Madagascar, Myanmar and Nigeria with total acreage of about
46,000 sq. km. in onshore and 4,600 sq. km. in offshore, held under Essar Exploration &
Production Limited.

In the early 1990's and undertake drilling, hydro-fracturing and de-watering of 3 CBM wells,
in the Cambay Basin, near Mehsana, Gujarat, India.

EEPL was setup and is also currently augmenting, a highly enriched technical team and
highly motivated management team, consisting of specialists in finance, business
development, logistics, human resources, and project consultancy.
PLANT LOCATION
ESSAR REFINERY AT VADINAR
The refinery at Vadinar, India of Essar Oil Limited was commissioned on November 28,
2006. The refinery has the most advanced configuration with following major process units:

Crude Distillation Unit (CDU)

This is a mother unit in which crude oil is fractionated into different products like light
naphtha, heavy naphtha, Lkero, Hkero, LGO and HGO by distillation process.
The unit has major equipments like world's tallest crude distillation column, fired heater,
network of heat exchangers, coolers and air coolers, pumps, compressors and vessels.
The unit operation is fully automatic with the most advanced instrumentation and control
system to ensure safe and the most energy efficient operation.

Vacuum Distillation Unit (VDU)

This is a basic unit to upgrade the atmospheric residual oil received from CDU through
distillation process carried out under vacuum and to derive the products like vacuum
distillate, LVGO, HVGO and HHVGO.
The unit has major equipments like vacuum distillation column, ejector system, fired heater,
pumps, vessels and the integrated network of heat exchangers, coolers and air coolers with
CDU.

Vis Reaker Unit (VBU)

The vacuum residue received from VDU is further upgraded to derive more distillates by
thermal cracking process in this unit.
The thermal cracking takes place in the furnace and distillates are obtained through two stage
distillation in atmospheric and vacuum distillation columns.

Fluid Catalytic Cracking Unit (FCCU)

The LVGO and HVGO (received from VDU) as well as gas oils obtained from VBU are
further upgraded into useful products like LPG, gasoline, diesel components, etc. through
catalytic cracking process carried out in the specially designed reactor in this unit.
The catalyst is also continuously regenerated and reused in the unit to reduce production cost
drastically

Saturated Gas Unit (SGU)

Refinery gases and light naphtha steams are processed in this unit to recover LPG
components and reduce gaseous losses such as to maximize LPG production.

Naphtha Hydrotreater and Catalytic Reformer Unit (NHT-CCR)

Naphtha produced in the refinery is processed in this unit to produce high octane blending
component to boost octane of the gasoline pool.

Treating Units

The products like LPG, gasoline, kerosene, ATF, diesel, etc. obtained from various units in
the refinery undergo finishing treatments to meet the highest quality standards for these
products mainly w.r.t. sulfur and olefins contents.
The refinery has following treating units:
a) Diesel Hydro Desulfurization Unit( Under construction)
b) Kerosene Treating Unit
c) Gasoline Treating Unit
d) LPG Treating Unit
Automation of Refinery Operation

The operation of the entire refinery involving all the process units and all the facilities is
made fully automatic with the most advanced instrumentation and control system to ensure
safe and the most energy efficient operation.

Organizational & group structure

Essar Group
Essar Steel Ltd
Essar Oil Ltd

Essar Power Ltd

Essar Construction Ltd

Essar Shipping & Logistic Ltd

Essar Telecom Ltd

Essar Bpo (Agies Ind ) Ltd

Essar Agro Ltd

Model Application
A. Strategic Advantage Profile:
 The Strategic Advantage Profile analysis is nothing but the strength and the weakness
of the company. It includes every aspect which connects to the betterment of the
company and also to know at which place the company is lacking.

So, this is the reason why the company makes up to the SAP analysis. And, the
strength and the weakness of the company is treated to be one of the important factor
to get to know about the company’s future courses, the improvement sessions, the
collectivism, and also the improvising part.

Let us see the strength and the weakness of the company as per the departments in a
tabular measurement way:

Areas Performance Importance

Strength Weakness Rating
Major Minor Neutral Minor Major High Medium Low
MARKETING
1. Company ✔ 3
Reputation
2. Market Share ✔ • 3
3. Customer ✔ 2
Satisfaction
4. Customer ✔ 3
Retention
5. Product ✔ 3
Quality
6. Service ✔ 2
Quality
7. Pricing ✔ 1
8. Distribution ✔ 3
Effectiveness

FINANCE
1. Cost of ✔ 2
Capital
2. Cash Flow ✔ 2
3. Financial ✔ 2
Stability
4. Financial ✔ 1
Growth

Human Resource
1. Recruitment ✔ 2
2. Trainee ✔ 2
programmed
3. Welfare ✔ 3
activities &
facilities
 Symbols Rating System
✔ RATING
3 GOOD
2 SATISFACTORY
1 BAD

This is the rating which I took into consideration in the study of the company. And, by
this you can easily judge the company’s strengths and weaknesses.

Still, the company is lacking in some course of actions but the stages of the
improvements are going high.

A. Porter’s 5 Forces Model:

The Porter's 5 Forces tool is a simple but powerful tool for understanding where
power lies in a business situation. This is useful, because it helps you understand both
the strength of your current competitive position, and the strength of a position you're
looking to move into.
The tool is used to identify whether new products, services or businesses have the
potential to be profitable. However it can be very illuminating when used to
understand the balance of power in other situations too.
Under stated is the Porter’s 5 Forces Model:

Supplier Power

Barriers to Threats of
Entry RIVALRY
Substitutes

Buyer Power

1) Supplier Power:
Here you assess how easy it is for suppliers to drive up prices. This is driven by the
number of suppliers of each key input, the uniqueness of their product or service,
their strength and control over you, the cost of switching from one to another, and so
on. The fewer the supplier choices you have, and the more you need suppliers' help,
the more powerful your suppliers are.
Suppliers large
Similar products
Differentiation of inputs
Impact of inputs

2) Barriers to Entry:
Power is also affected by the ability of people to enter your market. If it costs little in
time or money to enter your market and compete effectively, if there are few
economies of scale in place, or if you have little protection for your key technologies,
then new competitors can quickly enter your market and weaken your position.
No technology protection
Brand Identity
Government Policy
Capital requirements
New product launch

3) Buyer Power:
 Here you ask yourself how easy it is for buyers to drive prices down. Again, this is
driven by the number of buyers, the importance of each individual buyer to your
business, the cost to them of switching from your products and services to those of
someone else, and so on.
Price sensitivity
Brand identity
High buyer power
Product differentiation

4) Threats of substitution:
This is affected by the ability of your customers to find a different way of doing what
you do
Price Performance
Competitors
Relationship Management
Switching costs

5) Rivalry:
What is important here is the number and capability of your competitors – if you have
many competitors, and they offer equally attractive products and services, then you’ll
most likely have little power in the situation. If suppliers and buyers don’t get a good
deal from you, they’ll go elsewhere. On the other hand, if no-one else can do what
you do, then you can often have tremendous strength.

B. ETOP:

ETOP is commonly used to report the external environment situation. It is used to relate
to external business environment. It considers with the external factors of the company.
And, also deals with the Opportunities and Threats.

ETOP includes some environment factors like economic, social, technological, political,
legal affect by the organization. The economic factors like the employment, income,
inflation, recession, productivity and wealth of the consumers & firm. So that economic
factors is also affected to the orgnization.The income of the people is also affected like
the income increases of the people they purchase more product but their income is low
then people purchase less product. The inflation is at the least base of the economic
factors which could be affected but it also has a bit of play in market. The pricing factor is
also affect, internal & external factor affect to the organization.
Environment Threats:

1. The main threats are Adverse Macroeconomic Factors in the organization.

2. The Essar oil ltd some Stringent Regulations in the organization.

3. The Essar oil ltd Intense Domestic Competition to the organization

4. The Essar oil ltd main threats are income of the people & inflation rate..

Opportunity Profile:

1. The Essar oil ltd considering New Assets Acquisition in the organization.

2. The Essar oil ltd is the Coalbed Methane Operations in the organization.

3. The Essar oil ltd is the Expansion Plans for the refinery of the organization.

4. The progressive report shows the company is getting into and taking improvements
steps in the field itself by the help of the technology, by the time in this moving
technological world.

5. The Essar oil ltd provides employment to the people.

A. BCG Matrix:
BCG Matrix is basically based on the study of the review note. It is a study of relation
between market share and market growth. And, the level of high and low rating scale is
classified.

BCG Matrix Model:

Now, here it says like the rating scale relation between Market Share and Market Growth.

– The Market share serves the measure of strength in the market.

– The Market growth rate provides a measure of market attractiveness.

Let us see it in detail in further:

1. Stars:
Stars are high growth businesses or products competing in markets where they are
relatively strong compared with the competition. Need of the heavy investment is
necessary to sustain growth.
So, in here, the company relates to heavy investment and in return the heavy returns
for their customers.
So, majorly the STARS Stage is not in the suitable position to be called to be the
company’s motive for long term periods. They relate this activity in the initial stages
as to get into market and held their position.

2. Cash Cows:
Cash cows are low-growth businesses or products with a relatively high market share.
These are mature, successful businesses with relatively little need for investment.
They need to be managed for continued profit - so that they continue to generate the
strong cash flows that the company needs for its Stars.
 The investments are made to give the best out of the company. There is a stagnant
appeal growth in the company which lead the company to this level where it is
successful and mature in flowing of funds and profits.

3. Question Marks:
Question marks are businesses or products with low market share but which operate
in higher growth markets. This suggests that they have potential, but may require
substantial investment in order to grow market share at the expense of more powerful
competitors.

It is never in the stage like this where they need potential to be grown up. From the
initial stage only the company is in the pathway of growth and development. And,
there grow up into the market share in the market; they had been successful in
generating funds for their expenses at the vital intervals.

4. Dogs:
The term "dogs" refers to businesses or products that have low relative share in
unattractive, low-growth markets. Dogs may generate enough cash to break-even, but
they are rarely, if ever, worth investing in.

Our company situation has never been into such practices to be into such stages. In
here, it says that the company can get into such low practices.

Finding
Now, we can say that Essar Oil Ltd is in the cash cows stage in present. As, from the
establishment in year 1990, the investments are made to give the best out of the
company. There is a stagnant appeal growth in the company which lead the company
to this level where it is successful and mature in flowing of funds and profits.

A. VALUE CHAIN:
The value chain as a tool for identifying ways to create more customer value. Every firm
is a synthesis of activities that are performed to design, produce, and market, deliver, and
support its product. Value chain identifies nine value creating activities consist of five
primary activities and four support activities.

The primary activity includes the following points:

• Inbound Logistics
• Operations
• Outbound Logistics
• Marketing & Sales
• Service

Now let us see the above points into the company’s terms:

1. Inbound Logistics:
Bringing new material into the business is the purpose of the inbound logistics.
The Essar oil ltd is purchase 40% of crude for the oil & gas product by nearest place
& More than 60% of India's crude imports land in and around different region. This
row material goes to the operation for the further process.

2. Operations:
Operation relates with the motive, goal and subject. A specific goal for the inputs
made in the inbound stage. So, we have to define a goal for the inputs made.
The Essar oil ltd the row material of the further processing in to the refinery &
different product produces by the company like Naphtha, Heavy Naphtha, Lkero,
Hkero, LPG, Gas, Diesel, Oil etc

3. Outbound Logistics:
It relates to the finished goods. The product now are been manufactured and are ready
to be launched into the market for their sales and stacks.
The product is produces then the product sales in to the market. Different product
sales in different market. The Essar oil ltd is also sales the product in different state of
India & also export the product in different country.

4. Marketing & Sales:

The marketing and sales plays a vital role in the part of the oil manufacturing for the
company because if marketing is done in a proper way then it is obvious that the sales
of the oil would take place.

And, if sales are made in the proper channel then the marketing could be carried out
as well. So, sales and marketing are inter related. And, it also includes the channel of
distribution.

5. Services:
It leads the after sales services and the in - stock services given by the company. The
services provided to the customers of the company also plays major role in success of
product launch. Because, customers if are in trouble using it then there should be
someone who can guide them at the trouble shoot.
Environmental Framework
Economic

Economic factors, such as employment, income, inflation, interest rates, exchange rate,
recession productivity, and wealth, that influence the buying behavior of consumers and
firms. The economical environment affects the company in many ways.

➢ As, it relates to the factors like employment, and employment plays in the affecting
factors because if the recruits are not placed properly then it do affect. Because it is
like the right person at right place.
➢ The income factor plays like the income redemption to the employees of the
company. And, with it the payments should be made unbiased and towards his
capability.
➢ The inflation is at the least base of the economic factor which could be affected but it
also has a bit of play in market.
➢ The most important is the pricing factor in which the people are most interested.
➢ The recession is also important factor affect to the company & market.

Social

Social environment affects people live and behave as they do.

➢ The social environment affects the Company in the greater way because the Company
is serving to the societal benefits.
➢ The prevention facilities are concern to the social living only.
➢ The company proved different type of facilities like Education, social welfare activity
& so on
➢ The company is affected by social environment are:
 External Factors

Relationship

Customerization

Preventive measures

Well – Being facilities

Satisfaction level

Internal Factor

Employee’s stagnancy

Benefits to the employees

Payment benefits

Delegation of work force

Technological
➢ The technology is the most important of the company.
➢ The technological factor plays an important role in the company’s positional scenario.
➢ They are totally measured as the development of the company.
➢ The technical factors are affected in the internal courses only.
➢ The present scenario of the company can be measured through the technical aspects
which takes place in the company at the time of the activist of the company. The way
of treating, operating, analyzing, etc can be included in the technological factors of
the company.
➢ The present scenario of the company as per the technological factor is concerned are
as under
• Operating facilities
• Analyzing
• Billing
• Filling
• Payment
• Operating facilities
• Billing
• Filling
• Payment
• Conferencing
• Training
➢ The progressive report shows the company is getting into and taking improvements
steps in the field itself by the help of the technology, by the time in this moving
technological world.
Political
➢ The basic understanding of the political legal environment is when the government
implement's laws and regulations which affect the way a business operate.

➢ The political factors are affecting in the way of the government rules and regulations.

➢ The format of the start the business, the form filling, the prescribed relative
documentaries, the sanction planning of the company.

➢ These all are factors which are the affecting the company in the current scenario but
still the political issue in the profession of the oil industry is at its least possession.

Legal
➢ Sets the basic rules for how a business can operate in society.
➢ Without legalization the company cannot make its place on the market.
➢ The legal aspect also includes the government. Because the highest authority is the
government.
➢ So, for that the basic rules are to be followed to reunite any of the company.
➢ So, legal environment also play a part to be followed into the company and it does
affect vigorously.
➢ There are various steps to be carried out for the legalization and that is included in the
legal environment.

RESEARCH METHODOLOGY

Objective and purpose of the study

• To analysis of liquidity, efficiency, solvency and profitability
• To find out the degree of deviation from each standard related with liquidity,
efficiency, solvency and profitability.
• To do detail inquiry to fill gap of deviation
• To understand the Core function like Finance, Marketing, HR, Production.

Scope of the study

The time period of this research is within two month at Essar Oil Ltd. Basically
quantitative data collection of the last Five year. This analysis is just for the Essar oil
ltd at Jamnagar.
Benefits of the study
For company

• Company is able to know existing position of a four function like Liquidity,

efficiency, solvency and profitability
• Company is also able to know the deviation in the Liquidity, efficiency, solvency and
profitability
• And how to improve this deviation of liquidity, efficiency, solvency and profitability.

For reader

• It can be useful to those who want to do further research on this topic as guidance.

Assumption
• Researcher may assume that the primary and secondary data is fair.
• Primary data collected by the researcher is true to the extent possible.
• No adjustment has been done in the data collect for secondary sources.

Types of research design

Here researcher take a descriptive research design because of the variable is well known and
well define and existing theory of analysis of financial statement for module liquidity,
efficiency, solvency, and profitability is going to be check in Essar Oil Ltd. Also well aware
about the problem and subject of the research and also we know the various techniques to
solving particular problem.

Unit of analysis

The unit of analysis is as under:

Current ratio Quick ratio

Cash ratio Interval measure ratio

Net working capital ratio Debt ratio

Debt equity ratio capital employed to net worth ratio

Coverage ratio Inventory turnover ratio

Debtor’s term over ratio Assets turnover ratio

Total turnover ratio Fixed assets turnover ratio

Current turnover ratio Gross profit margin ratio

Net profit margin ratio Net profit after tax ratio

Operating expenses ratio Cost of goods sold ratio

Return on investment ratio Return on equity ratio

Earnings per share ratio Dividends per share ratio

Dividend pays out ratio Dividend and earning yield ratio

Price earnings ratio Market value to book value ratio

Methods of data collection

Secondary methods:

Researcher is use primary methods as well as secondary methods because they may use the
profit and loss account and balance sheet of the company for the last five year analysis so it is
secondary methods.

Primary methods:

I have relied on the facts and figures as published in the Financials of Essar Oil Limited and
also conducted interviews on test basis to modify/change any assumption that I have made in
the analysis of data of Essar Oil Limited

Appropriate tools for data analysis

We may use statically tools like central tendency measure of variation and mathematical tools
like ratio analysis

Limitation of the study

• The main limitation of this research is short period of time and other factor is cost
 • Data is closed so there is a chance of deviation in actual situation
• Researcher has retied on primary & secondary data as available from time to time.

DATA COLLECTION
The data are collocated from publish financial report and also from the balance sheet and
profit and loss account of company.

Note:
The company has commenced commercial production of Refinery on May 1, 2008. All
Expenditure pertaining to the completed Refinery being advances on capital account, capital
work in progress & expenditure during construction have been capitalized during the year
2008-09. Hence it will not be possible to compare effectively the financial results of the
organization over a period of time due to the capitalized effect.
 Data analysis
Liquidity
1. Current Ratio

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Current Ratio 0.85 0.98 1.17 1.05

0.92

Current Ratio refers to the ability of a firm to meet its obligation in the short run,
usually one year. Normally, High Current Ratio is considered to be a sign of Financial
Strength.

An indication of a company's ability to meet short-term debt obligations; the higher the ratio,
the more liquid the company is. Current ratio is equal to current assets divided by current
liabilities. If the current assets of a company are more than twice the current liabilities, then
that company is generally considered to have good short-term financial strength. If current
liabilities exceed current assets, then the company may have problems meeting its short-term
obligations. The ratio is mainly used to give an idea of the company's ability to pay back its
short-term liabilities (debt and payables) with its short-term assets (cash, inventory,
receivables). The higher the current ratio, the more capable the company is of paying its
obligations.

2. Acid-Test Ratio
Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Acid-Test Ratio 0.53 0.34 0.31 1.01 0.81

Acid-Test Ratio is more conservative measure of liquidity.

The ratio of current assets less inventories to total current liabilities. This ratio is the most
stringent measure of how well the company is covering its short-term obligations, since the
ratio only considers that part of current assets which can be turned into cash immediately
(thus the exclusion of inventories). The ratio tells creditors how much of the company's short
term debt can be met by selling all the company's liquid assets at very short notice. also
called acid-test ratio.
A stringent test that indicates whether a firm has enough short-term assets to cover its
immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than
the working capital ratio, primarily because the working capital ratio allows for the inclusion
of inventory assets.
 3. Absolute Liquidity Ratio

Ratio 2008-09 2007-08 2006-07 2005-06 2004-

05

Absolute liquidity Ratio 0.17 0.13 0.16 0.58

0.57

A subsequent innovation in ratio analysis, the Absolute Liquidity Ratio

eliminates any unknowns surrounding receivables.

Absolute liquidity is represented by cash and near cash items. It is a ratio of absolute liquid
assets to current liabilities. In the computation of this ratio only the absolute liquid assets are
compared with the liquid liabilities. The absolute liquid assets are cash, bank and marketable
securities. It is to be observed that receivables (debtors/accounts receivables and bills
receivables) are eliminated from the list of liquid assets in order to obtain absolute4 liquid
assets since there may be some doubt in their liquidity.

Solvency
1. Debt Equity Ratio
Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Debt Equity Ratio 2.80 2.78 2.86 2.41

2.13
 A measure of a company's financial leverage calculated by dividing its total
liabilities by stockholders' equity. It indicates what proportion of equity and debt the
company is using to finance its assets.

A high debt/equity ratio generally means that a company has been aggressive in financing its
growth with debt. This can result in volatile earnings as a result of the additional interest
expense. If a lot of debt is used to finance increased operations (high debt to equity), the
company could potentially generate more earnings than it would have without this outside
financing. If this were to increase earnings by a greater amount than the debt cost (interest),
then the shareholders benefit as more earnings are being spread among the same amount of
shareholders. However, the cost of this debt financing may outweigh the return that the
company generates on the debt through investment and business activities and become too
much for the company to handle.

2. Net worth (Proprietary) Ratio

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Net Worth Ratio 0.17 0.17 0.19 0.26

0.27

This ratio relates the shareholder's funds to total assets. Proprietary / Equity ratio
indicates the long-term or future solvency position of the business.
Shareholder's funds include equity share capital plus all reserves and surpluses items.
Total assets include all assets. In that case the total shareholder's funds are to be
divided by total tangible assets. As the total assets are always equal to total liabilities.

This ratio throws light on the general financial strength of the company. It is also
regarded as a test of the soundness of the capital structure. Higher the ratio or the
share of shareholders in the total capital of the company, better is the long-term
solvency position of the company. A low proprietary ratio will include greater risk to
the creditors.
 3. Fix Assets to Net worth Ratio

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Fix Assets to
Net Worth Ratio 3.52 0.12 0.07 0.07
0.06

Measure of the solvency of a firm, this ratio indicates the extent to which the owners'
cash is frozen in the form of brick and mortar and machinery, and the extent to which
funds are available for the firm's operations.

Fixed assets are going to be a stable source of income over a period. Variable will
change in price over a given period. Where variable can bring a higher rate of return
fixed will always bring a steady sure rate of return.

Note:
The company has commenced commercial production of Refinery on May 1, 2008. All
Expenditure pertaining to the completed Refinery being advances on capital account, capital
work in progress & expenditure during construction have been capitalized during the year
2008-09. Hence it will not be possible to compare effectively the financial results of the
organization over a period of time due to the capitalized effect.

4. Current Assets to Net worth Ratio

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Current Assets to
Net Worth Ratio 1.65 2.10 1.55 0.37
0.47
This Ratio Shows extent to which share holder own fund sunk into CA assets. Higher the
ratio, stronger the financial position of business and vice versa

5. Current Liability to Net worth Ratio

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Current Liability to
Net Worth Ratio 1.93 2.15 1.33 0.36
0.51

A measure of the extent to which the enterprise is using creditor funds versus their own
investment to finance the business.

It Indicates reliance on the equity for payment of debt. It is one of the measures of the
solvency of a firm. Higher percentages mean significant pressure on future cash flows.
 6. Interest Coverage Ratio

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Interest Coverage Ratio 1.61 -8.43 -8.36 -18.61

-144.58

A calculation of a company's ability to meet its interest payments on outstanding debt.

Interest coverage ratio is equal to earnings before interest and taxes for a time period, often
one year, divided by fix interest expenses for the same time period. The lower the interest
coverage ratio, the larger the debt burden is on the company. A ratio used to determine how
easily a company can pay interest on outstanding debt. The interest coverage ratio is
calculated by dividing a company's earnings before interest and taxes (EBIT) of one period
by the company's interest expenses of the same period.
The lower the ratio, the more the company is burdened by debt expense. When a company's
interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be
questionable. An interest coverage ratio below 1 indicates the company is not generating
sufficient revenues to satisfy interest expenses.
 7. Inventory Turnover Ratio

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Inventory Turnover Ratio 91.91 1.20 2.15 7.73

14.55

Although the first calculation is more frequently used, sales may be substituted because sales
are recorded at market value, while inventories are usually recorded at cost. Also, average
inventory may be used instead of the ending inventory level to minimize seasonal factors.

This ratio should be compared against industry averages. A low turnover implies poor sales
and, therefore, excess inventory. A high ratio implies either strong sales or ineffective
buying.

This ratio reveals how well inventory is being managed. It is important because the more
times inventory can be turned in a given operating cycle, the greater the profit.
Note:
The company has commenced commercial production of Refinery on May 1, 2008. All
Expenditure pertaining to the completed Refinery being advances on capital account, capital
work in progress & expenditure during construction have been capitalized during the year
2008-09. Hence it will not be possible to compare effectively the financial results of the
organization over a period of time due to the capitalized effect.

8. Working Capital Turnover Ratio

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Working Capital
turnover Ratio -37.20 -3.20 0.72 14.70
-10.90
A measurement comparing the depletion of working capital to the generation of sales over a
given period. This provides some useful information as to how effectively a company is
using its working capital to generate sales.

A company uses working capital to fund operations and purchase inventory. These operations
and inventory are then converted into sales revenue for the company. The working capital
turnover ratio is used to analyze the relationship between the money used to fund operations
and the sales generated from these operations. In a general sense, the higher the working
capital turnover, the better because it means that the company is generating a lot of sales
compared to the money it uses to fund the sales.

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

9. Fix Assets Turnover Ratio

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Fix Assets
Turnover Ratio 2.98 1.31 2.41 3.45 7.21

A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a
company's ability to generate net sales from fixed-asset investments - specifically property,
plant and equipment (PP&E) net of depreciation. A higher fixed-asset turnover ratio shows
that the company has been more effective in using the investment in fixed assets to generate
revenues.

This ratio is often used as a measure in manufacturing industries, where major purchases are
made for PP&E to help increase output. When companies make these large purchases,
prudent investors watch this ratio in following years to see how effective the investment in
the fixed assets was.

Note:
The company has commenced commercial production of Refinery on May 1, 2008. All
Expenditure pertaining to the completed Refinery being advances on capital account, capital
work in progress & expenditure during construction have been capitalized during the year
2008-09. Hence it will not be possible to compare effectively the financial results of the
organization over a period of time due to the capitalized effect.

10.Current Assets Turnover Ratio

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Current assets
Turnover Ratio 6.34 0.07 0.10 0.68
0.93

Ratio that indicates how efficiently a firm is using its current assets to generate
revenue. Current Assets Turnover ratio shows the productivity of the company's
current assets.

Note:
The company has commenced commercial production of Refinery on May 1, 2008. All
Expenditure pertaining to the completed Refinery being advances on capital account, capital
work in progress & expenditure during construction have been capitalized during the year
2008-09. Hence it will not be possible to compare effectively the financial results of the
organization over a period of time due to the capitalized effect.

11.Total Assets Turnover Ratio

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Total Assets
Turnover Ratio 1.83 0.03 0.03 0.07
0.12

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue -
the higher the number the better. It also indicates pricing strategy: companies with low profit
margins tend to have high asset turnover, while those with high profit margins have low asset
turnover.

Note:
The company has commenced commercial production of Refinery on May 1, 2008. All
Expenditure pertaining to the completed Refinery being advances on capital account, capital
work in progress & expenditure during construction have been capitalized during the year
2008-09. Hence it will not be possible to compare effectively the financial results of the
organization over a period of time due to the capitalized effect.

Profitability
1. Operating profit Ratio

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Operating Profit Ratio 3.20.% -6.31% -8.31% -10.41%

3.60%
Operating profit ratio earned by the concern from its business operation & not from the other
sources. While calculating the net profit of the concern all income either they are not part of
the business operating profit like rent from tenants, interest on investment etc are added & all
non operating expenses are deducted.

Operating profit ratio shows the relationship between operating profit & net sales.

Operating profit ratio indicates the earning capacity of the concern on the basis of its business
operation & not from earning the other sources. It shows whether the business is able to stand
in the market or not.

2. Expense Ratio

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Expense Ratio 1.00 1.10 1.13 1.24

1.08
For a operating costs, including management fees, expressed as a percentage of the average
net assets for a given time period. The expense ratio does not include brokerage costs and
various other transaction costs that may also contribute to a total expenses.

An expense ratio is determined through an annual calculation, where a operating expenses are
divided by the sales under management. Operating expenses are taken out of a fund's assets
and lower the return to a investors.

Note:
The company has commenced commercial production of Refinery on May 1, 2008. All
Expenditure pertaining to the completed Refinery being advances on capital account, capital
work in progress & expenditure during construction have been capitalized during the year
2008-09. Hence it will not be possible to compare effectively the financial results of the
organization over a period of time due to the capitalized effect.

3. Net Profit Ratio (After Tax)

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Net Profit Ratio -1.37% -7.32% -14.24%

-14.71% 0.94%
The net profit ratio is net profit expressed as a percentage of total sales. Net profit is taken
before tax and other indirect costs.
Essentially the net profit ratio tells us about how the company's profits relate to their sales.
Different industries have fundamentally different net profit ratios. The net profit ratio can tell
us about the nature of the industry the company is operating in as well as serving to compare
past performances of a company.
NP ratio is used to measure the overall profitability and hence it is very useful to proprietors.
The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to
achieve a satisfactory return on its investment.
This ratio also indicates the firm's capacity to face adverse economic conditions such as price
competition, low demand, etc. Obviously, higher the ratio the better is the profitability. But
while interpreting the ratio it should be kept in minds that the performance of profits also be
seen in relation to investments or capital of the firm and not only in relation to sales.

4. Return on Net Worth

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Return on net Worth

Ratio 14.34% -1.14% -2.25% -3.72%
0.41%

Effective measure to know sustainable profitability. Return on net worth represents the profit
after tax & Net worth.

Note:
The company has commenced commercial production of Refinery on May 1, 2008. All
Expenditure pertaining to the completed Refinery being advances on capital account, capital
work in progress & expenditure during construction have been capitalized during the year
2008-09. Hence it will not be possible to compare effectively the financial results of the
organization over a period of time due to the capitalized effect.

5. Return on Total Resources

Ratio 2008-09 2007-08 2006-07 2005-06 2004-05

Return On Total
Resources Ratio -2.50% -0.19% -0.43% -0.98%
0.11%

Return on total Resources is Represent profit after tax & total assets.

Note:
The company has commenced commercial production of Refinery on May 1, 2008. All
Expenditure pertaining to the completed Refinery being advances on capital account, capital
work in progress & expenditure during construction have been capitalized during the year
2008-09. Hence it will not be possible to compare effectively the financial results of the
organization over a period of time due to the capitalized effect.
Findings
➢ Here current ratio is decrease because of high investment in inventory.

➢ Also the Acid test ratio and Absolute test ratio is increase from in this
year because of cash management and debtors management.

➢ Here also cash management and debtor’s management are more efficient
then the inventory management.

➢ Debt equity ratio is increasing the last year because of increasing of

secured loan as well as unsecured loan.

➢ Net worth ( proprietary ) ratio is decrease and fixed assets to net worth
ratio is increase because of capitalized the company in 2008-09 so that it
is increase and also related to net profit and net profit is also increase
which is good sign for the company.

➢ Here all the ratio is increasing then the last year because of company is
capitalized and these are related with profitability ratio. and reflect the
liquidity and efficiency.

➢ Net profit ratio and operating profit ratio is increase because they are
maintaining their solvency and efficiency of the company. And expenses
ratio is also decrease and expanses ratio is more decrease than company
have also benefit of economic scale. so that it is good sign of the
company.
Suggestion

➢ Company must maintain their current assets and current liability so that
current ratio is increase in near future.

➢ Company decreases their debt so that company repayment their loans as

early as possible so that company can decrease their debt equity ratio.

➢ In solvency currently they are maintain their inventory, fixed and current
asset so that if they maintain same as in future so that is good sign for the
company.

➢ In profitability ratio, company decrease their expense as possible as they

can so that it helpful of profit in future.

Bibliography
Essar.com
Essarnet.com

Annexure
Essar balance sheet & profit/loss account