Indian Oil Corporation Ltd.

Company Overview
Indian Oil Corporation Ltd. (IOCL), India's largest commercial ISO-9002 certified enterprise and as a leading public sector enterprise of India, is the highest ranked Indian company in the prestigious Fortune 'Global 500' listing. IOCL is the 20th largest petroleum company in the world. Established in 1959 as Indian Oil Company Ltd., Indian Oil Corporation Ltd was formed in 1964 with the merger of Indian Refineries Ltd. (Estd. 1958). It was originally incorporated as IOCL in the year 1964. Indian Oil and its subsidiaries account for 47% petroleum products market share, 40.4% refining capacity and 67% downstream sector pipelines capacity in India. IOCL a traditional manufacturer of refined petroleum products, the new building blocks for global ambition of the corporation are the Petrochemicals, Natural Gas, Exploration & Production, Overseas Business, Consultancy, Bio fuels and Hydrogen, etc.

Key Accounting Policies

Finished products, other than lubricants, are valued at cost determined on First in First Out' basis or net realizable value, whichever is lower. Lubricants are valued at cost on weighted average basis or net realizable value, whichever is lower. Assets, other than LPG Cylinders and Pressure Regulators, costing up to Rs.5, 000/-per item are depreciated fully in the year of capitalisation. Costs incurred on computer software purchased/developed resulting in future economic benefits, are capitalised as Intangible Asset and amortised over a period of three years beginning from the quarter in which such software is capitalised. However, where such computer software is still in development stage, costs incurred during the development stage of such software are accounted as 'Work-in ProgressIntangible Assets'. Cost of Right of Way for laying pipelines is capitalised. However, such Right of Way being perpetual in nature is not amortised. Estimated amount of contracts remaining to be executed on capital account above Rs.5 lakhs, in each case, are considered for disclosure. The Company is following the Successful Efforts Method' of accounting for Oil & Gas exploration and production activities

Ratio Analysis:-

1. Return on net worth: This ratio also known as overall profitability ratio compares the after tax income with the capital employed and indicates return on investment. Due to increase in sales by 25% in the year 2010-11 the RONW has improved substantially from 1.69% (2009-2010) to 14.89 %. 2. Return on assets: This ratio measures the relationship between net profits and assets and shows whether the assets are properly utilised or not. It has decreased from 11.43% to 10.85%. This is because of almost 14% rise in fixed assets which in turn is mainly due to almost 30% increase in plant and machinery. Such a drastic change in value of fixed assets was not seen in past. 3. Leverage / Financial Risk: This ratio shows 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 ratio has increased from 0.88 in the year 2009-10 to 0.95 in the year 2010-11.The company has been aggressive in financing. There has been a significant increase in the secured loans and unsecured loans, which shows the company has been aggressive in financing its growth with debt. 4. Fixed assets turnover ratio: There has been a decrease in this ratio from 6.37 for the year 2009-10 to 5.69 in 2010-11, which indicates that heavy investment in plant and machinery in 2010-2011 has not been reflected in the sales turnover. 5. Current ratio: This ratio indicates the companys commitment to meet its short term obligations. Its a measure of its short term solvency. This ratio increased to 0.909 in the year 2010-11 from 0.836 in 2009-10. This is mainly due to the fact that the current assets of the company has increase by over 41% from 2010 to 2011 which is mainly attributed to unprecedented growth in inventories. 6. Inventory turnover ratio: This ratio shows that how many times a companysinventory is sold and replaced over a period. This ratio has reduced to 6.58 in 2010-11 from 7.16 in 2009-10. It indicates that in spite of increased sales,the companys inventory turnover ratio has reduced. It might be due to high inventory levels which could not be matched with similar increase in sales. The company should increase turnover ratio and reduce inventory cost. 7. Raw material/COGM: This ratio indicates what percentage of the COGM the cost of raw material constitutes. This ratio has remained almost constant. Since the company is expecting to increase sales in coming years, it would increase the purchase of raw material. 9. Profit margin: This is a ratio of profitability that indicates the profit earned by a company from its operating activities to the total income earned by the company. The profit margin has decreased from 4.01 % in 2009-10 to 3.49 % in 2010-11. It means that that company has not been able to control its operating cost as compared to previous year, which has resulted in the decrease of profit margin.