FSA

Tools and Techniques

Why FSA?

Investors invest by future earnings

Useful in reducing uncertainties about earnings growth
expectations
Only an approximation of economic reality because of

Features of an ideal financial statements

Selective reporting of economic events by the accounting system

Alternative accounting method and estimates

Comparable among companies

Consistent over time
Fully reflecting the economic position of the firm

Why FSA?

Faced with uncertain bad news, accounting tends to

enter it into the records
Faced with uncertain good news, tendency to ignore it
Why demand for bad news..,

Creditors with no upside, but all the downside

Investors believe bad news disclosed by management, but
skeptical of good news unless supported by objective evidence

Management incentives affect believability of their disclosures

Greater degree of verification for gains than for losses

Why FSA?

Impact of differential application of accounting methods

and estimates on financial statements
Financial reporting system..,

Not perfect
Economic events and accounting entries do not correspond
precisely
Diverge across dimensions of..,

Timing capital gain and losses, written down long-lived assets

Recognition accounting for discontinued operations
Measurement

Issues in FSA

Non-comparability of financial statements

Over aggregation

Consolidated financial statement may conceal important

financial information about a diversified firms business
activities

Lack of timeliness

Change in accounting policies

Cross-border comparisons

Stakeholders need more timely information

Managing FSA Issues in Inter Company

Differences in Accounting Policy

Using cash-based accounting numbers for

comparison
Using standardized database
Using adjusted accrual-based data

Interpretation Problems when using

Consolidated Financial Statements

Misleading debt commitment

Misleading liquidity positions
Recourse debt vs. non recourse debt by firms
in the group
Different accounting policies among firms in
same group
Position of profit distribution unclear

Inherent Issues of Financial Statements

Earnings Management Using Discretion Allowed Under GAAP

Taking a bath

Creating hidden reserves

Undisclosed liabilities

Overstating financial performance

Booking too many expenses during good times to avoid

showing expenses during bad times

Off-balance-sheet financing

Pre-booking expenses during bad times

Aggressive accounting practices and fraud

Inherent Issues of Financial Statements

GAAP Limitations

Value of R&D, goodwill, and other self-created

intangible assets are not reported

No adjustments for inflation

Except in cases of liabilities or losses through conservatism

Most assets stated at historical costs

Inflation has been a big issue

Expected performance is not shown

Nobody stops a manager from providing estimates (legal liability)

Consistent with conservatism, objectivity, and verifiability

Trend Analysis

Methods..,

Cautious of..,

10

Percentage changes
Index numbers
Change in accounting policies over time
Change in composition of group
Bonus issues
Rights issues
Share splits
Varying purchasing power of assets
Varying growth in various business segments
Varying dividend cover over years

Trend Analysis

Guidelines..,

Issues in using this..,

11

Choose a normal year with regard to business condition as base

year
Focus only significant items of financial statements
Should adjust financial statements for earlier periods for changes
in accounting policy, procedures and presentations
If the amount is negative in one of the years
No amount for the base period
Base period amount is abnormally small
Item having a value in base period and none in next period

Common Size Analysis

Common size financial statements - compare

companies of different sizes
Useful in understanding the internal makeup of
financial statements
Fails to reflect the relatives sizes of companies under
analysis
Vertical common size..,

12

Compare companies of different sizes

Redress many of distortions of inflation

ONGC BS Sources of Funds

(Rs in Crs)
Share Capital
Reserves Total
Equity Share Warrants
Equity Application Money
Total Shareholders Funds
Secured Loans
Unsecured Loans
Total Debt
Total Liabilities

13

Mar 10
2,138.89
85,143.71
0
0
87,282.60
0
16,405.65
16,405.65
103,688.25

Mar 09
2,138.89
76,596.53
0
0
78,735.42
0
16,035.70
16,035.70
94,771.12

Mar 08
2,138.89
68,478.51
0
0
70,617.40
0
12,482.71
12,482.71
83,100.11

Mar 07
2,138.89
59,785.04
0
0
61,923.93
0
15,109.07
15,109.07
77,033.00

Mar 06
1,425.93
52,533.74
0
0
53,959.67
0
12,722.61
12,722.61
66,682.28

Mar 05
1,425.93
45,419.49
0
0
46,845.42
0
9,916.22
9,916.22
56,761.64

Mar 04
1,425.93
39,117.17
0
0
40,543.10
0
11,407.79
11,407.79
51,950.89

Mar 03
1,425.93
34,313.03
0
0
35,738.96
0
800.23
800.23
36,539.19

Mar 02
1,425.93
28,296.25
0
0
29,722.18
0
3,510.84
3,510.84
33,233.02

Mar 01
1,425.93
28,885.36
0
0
30,311.29
0
4,479.74
4,479.74
34,791.03

ONGC BS VC - Sources of Funds

Share Capital
Reserves Total
Equity Share Warrants
Equity Application Money
Total Shareholders Funds
Secured Loans
Unsecured Loans
Total Debt
Total Liabilities

14

Mar 10
2
82
0
0
84
0
16
16
100

Mar 09
2
81
0
0
83
0
17
17
100

Mar 08
3
82
0
0
85
0
15
15
100

Mar 07
3
78
0
0
80
0
20
20
100

Mar 06
2
79
0
0
81
0
19
19
100

Mar 05
3
80
0
0
83
0
17
17
100

Mar 04
3
75
0
0
78
0
22
22
100

Mar 03
4
94
0
0
98
0
2
2
100

Mar 02
4
85
0
0
89
0
11
11
100

Mar 01
4
83
0
0
87
0
13
13
100

ONGC BS Applications of Funds

(Rs in Crs)
Gross Block
Less : Accumulated Depreciation
Less:Impairment of Assets
Net Block
Lease Adjustment
Capital Work in Progress
Investments
Current Assets, Loans & Advances
Inventories
Sundry Debtors
Cash and Bank
Loans and Advances
Total Current Assets
Less : Current Liabilities and Provisions
Current Liabilities
Provisions
Total Current Liabilities
Net Current Assets
Miscellaneous Expenses not written off
Deferred Tax Assets
Deferred Tax Liability
Net Deferred Tax
Total Assets

15

Mar 10
71,553.78
55,900.09
5.18
15,648.51
0
15,791.03
5,772.03

Mar 09
61,355.61
51,032.99
-91.76
10,414.38
0
16,765.19
5,090.32

Mar 08
Mar 07
Mar 06
Mar 05
Mar 04
Mar 03
Mar 02
Mar 01
57,463.78 52,038.07 47,882.35 42,983.85 41,007.63 39,033.67 37,364.75 35,769.80
46,942.72 43,181.81 40,024.36 37,128.55 35,339.16 33,640.84 31,763.95 29,880.51
3.05
17.14
15.79
18.77
0
0
0
0
10,518.01 8,839.12 7,842.20 5,836.53 5,668.47 5,392.83 5,600.80 5,889.29
0
0
0
0
0
0
0
0
10,967.27 8,225.69 5,783.38 6,054.46 2,104.60 2,006.03 1,667.77 1,663.24
5,899.50 5,702.05 4,888.57 4,036.67 4,421.67 3,982.59 3,323.18 2,360.72

5,052.02 4,420.83 3,874.91 3,390.48 3,038.49 2,392.42 2,405.69 1,571.02 1,452.61 1,536.92
3,058.64 4,083.80 4,360.37 2,759.44 3,704.28 3,729.31 2,317.80 3,935.93 2,251.38 1,733.79
18,231.04 19,096.21 22,417.65 19,280.80 8,812.82 9,466.86 8,741.65 6,109.02 5,545.53 2,054.55
27,803.07 27,359.28 19,574.48 54,214.51 48,660.20 36,959.92 28,170.24 27,270.92 19,924.18 17,061.52
54,144.77 54,960.12 50,227.41 79,645.23 64,215.79 52,548.51 41,635.38 38,886.89 29,173.70 22,386.78
12,087.56
7,785.85
19,873.41
34,271.36
841.32
6,238.76
15,156.97
-8,918.21
103,688.25

14,025.28
7,439.97
21,465.25
33,494.87
650.61
6,036.78
13,839.02
-7,802.24
94,771.12

10,915.14
7,087.40
18,002.54
32,224.87
673.9
4,197.00
11,567.80
-7,370.80
83,100.11

8,816.96
40,121.91
48,938.87
30,706.36
514.06
4,496.27
11,019.02
-6,522.75
77,033.00

6,527.01
31,115.19
37,642.20
26,573.59
366.33
3,633.63
9,988.76
-6,355.13
66,682.28

5,190.42
24,572.09
29,762.51
22,786.00
531.17
2,614.80
8,058.65
-5,443.85
56,761.64

3,563.99
16,094.28
19,658.27
21,977.11
540.68
2,591.37
8,433.39
-5,842.02
51,950.89

3,118.04
22,945.07
26,063.11
12,823.78
130.77
927.88
6,162.72
-5,234.84
36,539.19

2,808.65 2,457.83
15,278.32 11,506.01
18,086.97 13,963.84
11,086.73 8,422.94
210.34
163.52
745.69
0
6,092.75
0
-5,347.06
0
33,233.02 34,791.03

ONGC BS VC - Applications of Funds

Mar 10
Gross Block
69
Less : Accumulated Depreciation 54
Less:Impairment of Assets
0
Net Block
15
Lease Adjustment
0
Capital Work in Progress
15
Investments
6
Current Assets, Loans & Advances 0
Inventories
5
Sundry Debtors
3
Cash and Bank
18
Loans and Advances
27
Total Current Assets
52
Less : Current Liabilities and Provisions
0
Current Liabilities
12
Provisions
8
Total Current Liabilities
19
Net Current Assets
33
Miscellaneous Expenses not written1off
Deferred Tax Assets
6
Deferred Tax Liability
15
Net Deferred Tax
-9
Total Assets
100

16

Mar 09
65
54
0
11
0
18
5
0
5
4
20
29
58
0
15
8
23
35
1
6
15
-8
100

Mar 08
69
56
0
13
0
13
7
0
5
5
27
24
60
0
13
9
22
39
1
5
14
-9
100

Mar 07
68
56
0
11
0
11
7
0
4
4
25
70
103
0
11
52
64
40
1
6
14
-8
100

Mar 06
72
60
0
12
0
9
7
0
5
6
13
73
96
0
10
47
56
40
1
5
15
-10
100

Mar 05
76
65
0
10
0
11
7
0
4
7
17
65
93
0
9
43
52
40
1
5
14
-10
100

Mar 04
79
68
0
11
0
4
9
0
5
4
17
54
80
0
7
31
38
42
1
5
16
-11
100

Mar 03
107
92
0
15
0
11
0
4
11
17
75
106
0
9
63
71
35
0
3
17
-14
100

Mar 02
112
96
0
17
0
5
10
0
4
7
17
60
88
0
8
46
54
33
1
2
18
-16
100

Mar 01
103
86
0
17
0
5
7
0
4
5
6
49
64
0
7
33
40
24
0
0
0
0
100

ONGC Cons BS VC - Sources of Funds

Share Capital
Reserves Total
Equity Share Warrants
Equity Application Money
Total Shareholders Funds
Minority Interest
Secured Loans
Unsecured Loans
Total Debt
Total Liabilities

17

Mar 10
2
78
0
0
80
1
1
18
19
100

Mar 09
2
77
0
0
79
1
0
20
20
100

Mar 08
2
82
0
0
84
1
1
14
15
100

Mar 07
3
77
0
0
79
1
1
19
20
100

Mar 06
2
76
0
0
78
1
1
20
21
100

Mar 05
2
77
0
0
79
1
2
18
20
100

Mar 04
3
71
0
0
74
1
3
22
25
100

Mar 03
3
81
0
0
84
1
10
4
15
100

ONGC Cons BS Applications of Funds

(Rs in Crs)
Gross Block
Less: Accumulated Depreciation
Net Block
Lease Adjustment
Capital Work in Progress
Investments
Current Assets, Loans & Advances
Inventories
Sundry Debtors
Cash and Bank
Loans and Advances
Total Current Assets
Less : Current Liabilities and Provisions
Current Liabilities
Provisions
Total Current Liabilities
Net Current Assets
Miscellaneous Expenses not written off
Deferred Tax Assets
Deferred Tax Liability
Net Deferred Tax
Total Assets

18

Mar 10
101,266.92
67,347.01
33,919.91
0
25,616.42
5,159.31
8,666.91
7,142.35
22,384.22
12,799.78
50,993.26

Mar 09
90,885.12
61,077.41
29,807.71
0
24,758.03
3,480.35

Mar 08
76,978.75
55,001.85
21,976.90
0
14,422.72
4,482.14

Mar 07
70,752.52
49,138.25
21,614.27
0
11,030.28
3,583.23

Mar 06
59,884.50
44,277.96
15,606.54
0
11,660.58
3,557.88

Mar 05
53,364.96
40,312.35
13,052.61
0
11,343.07
2,655.54

Mar 04
51,135.06
37,971.05
13,164.01
0
5,892.15
3,030.73

Mar 03
48,855.54
35,583.29
13,272.25
0
4,397.87
3,060.30

6,956.70 7,738.32 6,242.54 4,943.25 4,196.22 3,552.88 2,563.47

7,181.35 7,046.94 4,816.74 4,427.14 4,709.09 2,931.05 4,284.26
22,595.55 25,055.85 20,675.60 9,105.67 10,221.53 9,648.11 6,481.57
14,395.34 8,133.23 42,778.55 39,250.87 28,372.28 19,718.40 21,449.79
51,128.94 47,974.34 74,513.43 57,726.93 47,499.12 35,850.44 34,779.09

22,681.89 21,052.70
7,942.67
7,600.57
30,624.56 28,653.27
20,368.70 22,475.67
841.32
650.62
7,444.48
7,182.72
17,735.70 16,405.80
-10,291.22 -9,223.08
126,775.76 117,339.10

16,721.35
7,231.10
23,952.45
24,021.89
673.92
5,379.12
14,116.67
-8,737.55
93,108.38

13,377.24
40,594.06
53,971.30
20,542.13
514.08
5,370.27
13,482.13
-8,111.86
84,329.08

9,130.76
31,279.70
40,410.46
17,316.47
366.34
4,831.92
11,995.23
-7,163.31
72,592.71

7,702.55
24,765.33
32,467.88
15,031.24
561.69
3,863.89
9,653.28
-5,789.39
61,394.78

5,616.78
16,116.52
21,733.30
14,117.14
601.99
4,506.83
9,931.81
-5,424.98
56,051.86

4,539.11
22,963.93
27,503.04
7,276.05
230.37
2,767.56
7,479.14
-4,711.58
42,574.57

ONGC Cons BS VC - Applications of

Funds

Gross Block
Less: Accumulated Depreciation
Net Block
Lease Adjustment
Capital Work in Progress
Investments
Current Assets, Loans & Advances
Inventories
Sundry Debtors
Cash and Bank
Loans and Advances
Total Current Assets
Less : Current Liabilities and Provisions
Current Liabilities
Provisions
Total Current Liabilities
Net Current Assets
Miscellaneous Expenses not written off
Deferred Tax Assets
Deferred Tax Liability
Net Deferred Tax
Total Assets

19

Mar 10
80
53
27
0
20
4
0
7
6
18
10
40
0
18
6
24
16
1
6
14
-8
100

Mar 09
77
52
25
0
21
3
0
6
6
19
12
44
0
18
6
24
19
1
6
14
-8
100

Mar 08
83
59
24
0
15
5
0
8
8
27
9
52
0
18
8
26
26
1
6
15
-9
100

Mar 07
84
58
26
0
13
4
0
7
6
25
51
88
0
16
48
64
24
1
6
16
-10
100

Mar 06
82
61
21
0
16
5
0
7
6
13
54
80
0
13
43
56
24
1
7
17
-10
100

Mar 05
87
66
21
0
18
4
0
7
8
17
46
77
0
13
40
53
24
1
6
16
-9
100

Mar 04
91
68
23
0
11
5
0
6
5
17
35
64
0
10
29
39
25
1
8
18
-10
100

Mar 03
115
84
31
0
10
7
0
6
10
15
50
82
0
11
54
65
17
1
7
18
-11
100

ONGC P&L Income

(Rs in Crs)
Sales Turnover
Excise Duty
Net Sales
Other Income
Stock Adjustments
Total Income

20

Mar 10(12) Mar 09(12) Mar 08(12) Mar 07(12) Mar 06(12) Mar 05(12) Mar 04(12) Mar 03(12) Mar 02(12)
60,204.82 63,947.71 60,137.02 56,912.31 48,244.39 46,711.25 32,524.01 34,738.50 23,233.77
241.04
378.75
288.72
276.73
268.69
339.83
436.36
490.39
322.38
59,963.78 63,568.96 59,848.30 56,635.58 47,975.70 46,371.42 32,087.65 34,248.11 22,911.39
4,186.69
5,378.04
5,124.24
5,481.13
3,036.80
1,748.67
1,570.78
2,030.50
1,678.75
118.04
81.1
114.11
-19.72
211.58
29.86
-11.15
21.14
0.22
64,268.51 69,028.10 65,086.65 62,096.99 51,224.08 48,149.95 33,647.28 36,299.75 24,590.36

ONGC P&L VC - Income

Sales Turnover
Excise Duty
Net Sales
Other Income
Stock Adjustments
Total Income

21

Mar
10(12)
94
0
93
7
0
100

Mar
09(12)
93
1
92
8
0
100

Mar
08(12)
92
0
92
8
0
100

Mar
07(12)
92
0
91
9
0
100

Mar
06(12)
94
1
94
6
0
100

Mar
05(12)
97
1
96
4
0
100

Mar
04(12)
97
1
95
5
0
100

Mar
03(12)
96
1
94
6
0
100

Mar
02(12)
94
1
93
7
0
100

Mar
01(12)
95
1
94
6
0
100

ONGC P&L - Expenses

(Rs in Crs)
Mar 10(12) Mar 09(12) Mar 08(12) Mar 07(12) Mar 06(12) Mar 05(12) Mar 04(12) Mar 03(12) Mar 02(12)
Raw Materials
290.53
9,014.99
6,909.37
6,119.03
3,585.65
5,101.32
0
0
0
Power & Fuel Cost
260.38
270.79
317.15
320.28
195.45
214.32
209.22
325.63
405.72
Employee Cost
5,268.50
4,065.62
4,344.89
3,702.08
2,778.14
2,449.64
2,389.76
987.04
682.98
Other Manufacturing Expenses
15,093.71 10,100.40
8,235.43
7,492.59
5,477.56
5,069.72
4,220.24
5,380.90
3,769.98
Selling and Administration Expenses
23,480.56 20,073.93 17,717.95 16,015.02 13,714.62 13,646.96 11,302.78
9,395.11
7,412.92
Miscellaneous Expenses
15,164.17 14,073.16 11,598.60 11,164.69
7,884.55
6,984.63
5,877.29
3,216.08
1,440.40
Less: Pre-operative Expenses Capitalised
21,505.43 14,111.88 10,726.71
8,015.85
6,498.35
5,565.21
4,613.76
0
0
Total Expenditure
38,052.42 43,487.01 38,396.68 36,797.84 27,137.62 27,901.38 19,385.53 19,304.76 13,712.00
Operating Profit
26,216.09 25,541.09 26,689.97 25,299.15 24,086.46 20,248.57 14,261.75 16,994.99 10,878.36
Interest
14.42
118.92
58.96
21.5
29.81
41.17
48.65
113.2
237.81
Gross Profit
26,201.67 25,422.17 26,631.01 25,277.65 24,056.65 20,207.40 14,213.10 16,881.79 10,640.55
Depreciation
1,220.07
1,443.43
1,398.41
1,609.43
2,222.62
543.55
605.66
759.45
786.53
Profit Before Tax
24,981.60 23,978.74 25,232.60 23,668.22 21,834.03 19,663.85 13,607.44 16,122.34
9,854.02
Tax
7,098.06
7,350.98
7,622.89
7,785.00
6,437.61
6,977.38
4,335.84
5,705.23
3,100.00
Fringe Benefit tax
0
70
60
53.33
54.35
0
0
0
0
Deferred Tax
1,115.98
431.44
848.06
186.97
911.29
-296.58
607.17
-112.21
556.15
Reported Net Profit
16,767.56 16,126.32 16,701.65 15,642.92 14,430.78 12,983.05
8,664.43 10,529.32
6,197.87
Extraordinary Items
0
42.91
0
315.05
427.67
0
12.37
-1.59
-4.19
Adjusted Net Profit
16,767.56 16,083.41 16,701.65 15,327.87 14,003.11 12,983.05
8,652.06 10,530.91
6,202.06
Adjst. below Net Profit
0
-0.02
0
0
0
0
0
0
0
P & L Balance brought forward
0.01
0.1
0.04
0.04
0.01
0.03
0.02
0.01
0.01
Statutory Appropriations
0
0
0
0
0
0
0
0
0
Appropriations
16,767.54 16,126.39 16,701.59 15,642.92 14,430.75 12,983.07
8,664.42 10,529.31
6,197.87
P & L Balance carried down
0.03
0.01
0.1
0.04
0.04
0.01
0.03
0.02
0.01
Dividend
7,058.28
6,844.39
6,844.39
6,630.51
6,416.71
5,703.74
3,422.24
4,277.80
1,996.31
Preference Dividend
0
0
0
0
0
0
0
0
0
Equity Dividend %
330
320
320
310
450
400
240
300
140
Earnings Per Share-Unit Curr
72.96
69.96
72.65
68.4
94.89
85.61
57.69
72.18
43.47
Earnings Per Share(Adj)-Unit Curr
Book Value-Unit Curr
408.07
368.11
330.16
289.51
378.42
328.53
284.33
250.64
208.44

22

ONGC P&L VC Expenses

Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing Expenses
Selling and Administration Expenses
Miscellaneous Expenses
Less: Pre-operative Expenses Capitalised
Total Expenditure
Operating Profit
Interest
Gross Profit
Depreciation
Profit Before Tax
Tax
Fringe Benefit tax
Deferred Tax
Reported Net Profit
Extraordinary Items
Adjusted Net Profit
Adjst. below Net Profit
P & L Balance brought forward
Statutory Appropriations
Appropriations
P & L Balance carried down
Dividend
Preference Dividend

23

Mar
10(12)
0
0
8
23
37
24
33
59
41
0
41
2
39
11
0
2
26
0
26
0
0
0
26
0
11
0

Mar
09(12)
13
0
6
15
29
20
20
63
37
0
37
2
35
11
0
1
23
0
23
0
0
0
23
0
10
0

Mar
08(12)
11
0
7
13
27
18
16
59
41
0
41
2
39
12
0
1
26
0
26
0
0
0
26
0
11
0

Mar
07(12)
10
1
6
12
26
18
13
59
41
0
41
3
38
13
0
0
25
1
25
0
0
0
25
0
11
0

Mar
06(12)
7
0
5
11
27
15
13
53
47
0
47
4
43
13
0
2
28
1
27
0
0
0
28
0
13
0

Mar
05(12)
11
0
5
11
28
15
12
58
42
0
42
1
41
14
0
-1
27
0
27
0
0
0
27
0
12
0

Mar
04(12)
0
1
7
13
34
17
14
58
42
0
42
2
40
13
0
2
26
0
26
0
0
0
26
0
10
0

Mar
03(12)
0
1
3
15
26
9
0
53
47
0
47
2
44
16
0
0
29
0
29
0
0
0
29
0
12
0

Mar
02(12)
0
2
3
15
30
6
0
56
44
1
43
3
40
13
0
2
25
0
25
0
0
0
25
0
8
0

Mar
01(12)
0
2
3
17
28
7
0
57
43
2
41
4
37
16
0
0
21
0
21
0
0
0
21
0
6
0

ONGC vs. Peer

Common Size Sources of Funds

Share Capital
Reserves Total
Equity Share Warrants
Equity Application Money
Total Shareholders Funds
Secured Loans
Unsecured Loans
Total Debt
Total Liabilities

24

Industry
Hind.Oil Explor. O N G C Oil India Tata Petrodyne
3.16
7.44
2.06
1.74
24.72
71.45
55.36
82.12
97.99
75.28
0
0
0
0
0
0.09
0
0
0
0
74.7
62.8
84.18
99.73
100
4.87
4.72
0
0
0
20.43
32.48
15.82
0.27
0
25.3
37.2
15.82
0.27
0
100
100
100
100
100

ONGC vs. Peer

Common Size Application of Funds
Gross Block
Less : Accumulated Depreciation
Less:Impairment of Assets
Net Block
Lease Adjustment
Capital Work in Progress
Investments
Current Assets, Loans & Advances
Inventories
Sundry Debtors
Cash and Bank
Loans and Advances
Total Current Assets
Less : Current Liabilities and Provisions
Current Liabilities
Provisions
Total Current Liabilities
Net Current Assets
Miscellaneous Expenses not written off
Deferred Tax Assets
Deferred Tax Liability
Net Deferred Tax
Total Assets

25

Industry
Hind.Oil Explor. O N G C Oil India Tata Petrodyne
46.11
1.93
69.01
23.26
81.36
32.23
1.23
53.91
15.47
64.25
0
0
0
0
0
13.87
0.7
15.09
7.79
17.12
0
0
0
0
0
14.49
3.73
15.23
2.38
12.62
29.63
0.17
5.57
6.23
61.63
3.01
2.62
14.17
17.98
37.77

2.47
2.35
4.56
3.65
13.02

4.87
2.95
17.58
26.81
52.22

3.55
4.78
61.89
18.93
89.16

2.17
6.04
6.4
9.23
23.84

9.15
4.91
14.06
23.71
0.45
3.75
9.09
-5.34
100

3.87
4.83
8.7
4.32
0
7.75
7.45
0.3
100

11.66
7.51
19.17
33.05
0.81
6.02
14.62
-8.6
100

13.07
10.88
23.95
65.2
0.13
0.87
8.27
-7.4
100

3.35
13.53
16.88
6.96
0
4.98
3.31
1.67
100

ONGC vs. Peer

Common Size Profit and Loss
Hind.
Tata
Industry Oil Explor. O N G C Oil India Petrodyne
INCOME :
Sales Turnover
Excise Duty
Net Sales
Other Income
Stock Adjustments
Total Income
EXPENDITURE :
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing Expenses
Selling and Administration Expenses
Miscellaneous Expenses
Less: Pre-operative Expenses Capitalised
Total Expenditure
Operating Profit
Interest
Gross Profit
Depreciation
Profit Before Tax
Tax
Fringe Benefit tax
Deferred Tax
Reported Net Profit
Extraordinary Items
Adjusted Net Profit

26

100
0.39
99.61
7.27
0.14
107.02

100
0
100
23.36
3.55
126.91

100
0.4
99.6
6.95
0.2
106.75

100
0.2
99.8
13.45
-0.13
113.12

100
0
100
8.57
0.65
109.21

4.25
0.5
8.38
23.21
33.55
21.25
28.47
62.68
44.34
1.5
42.84
3.04
39.8
11.57
-0.01
1.66
26.58
0.01
26.58

0
0.61
5.63
9.79
24.47
0.53
0
41.03
85.88
5.74
80.14
33.69
46.45
0.26
0
16.49
29.69
0
29.69

0.48
0.43
8.75
25.07
39
25.19
35.72
63.2
43.54
0.02
43.52
2.03
41.49
11.79
0
1.85
27.85
0
27.85

0.07
0.65
15.22
19.58
31.33
7.24
12.97
61.12
52
0.05
51.95
2.78
49.17
14.69
0
1.53
32.95
0
32.95

0
0.65
2.09
58.32
21.04
1.01
0
83.11
26.1
0
26.1
1.36
24.74
23.88
0
-9.45
10.32
0.86
9.45

ONGC - Bonus History

Year

27

Ratio Book Value(Unit Curr) EPS(Unit Curr)

2006 1:02
378.42
94.89
1995 3:01
477.54
58.11

ONGC - CFS

(Rs in Crs)
10-Mar
9-Mar
8-Mar
7-Mar
6-Mar
5-Mar
4-Mar
3-Mar
2-Mar
1-Mar
Cash Flow Summary
Cash and Cash Equivalents at Beginning of the
19096.21
year
22417.65 19280.79 8812.82
9466.86 8741.64 6109.01 8095.53 4810.53 5817.38
Net Cash from Operating Activities
20388.01 22272.74 21676.23 22910.02 20367.09
15611 11991.68 12951.05 8146.73
7477.4
Net Cash Used in Investing Activities
-13237.1 -17459.91 -10388.03 -5046.97 -11943.15 -8450.59 -7563.71 -7725.97 -1831.38 -4244.69
Net Cash Used in Financing Activities
-8016.08 -8134.27 -8151.34 -7395.08 -9077.98 -6435.19 -1795.34
-7211.6 -3030.35 -4239.56
Net Inc/(Dec) in Cash and Cash Equivalent
-865.17 -3321.44
3136.86 10467.97
-654.04
725.22 2632.63 -1986.52
3285 -1006.85
Cash and Cash Equivalents at End of the year18231.04 19096.21 22417.65 19280.79
8812.82 9466.86 8741.64 6109.01 8095.53 4810.53

28

ONGC Cons CFS

(Rs in Crs)
Cash and Cash Equivalents at Beginning of the year
Net Cash from Operating Activities
Net Cash Used in Investing Activities
Net Cash Used in Financing Activities
Net Inc/(Dec) in Cash and Cash Equivalent
Cash and Cash Equivalents at End of the year

29

10-Mar
22588.35
28783.06
-21101.88
-8272.72
-591.54
21996.81

9-Mar
25048.68
28997.68
-28171.10
-3289.22
-2462.64
22586.04

8-Mar
20670.62
29028.85
-16285.58
-8365.23
4378.04
25048.66

7-Mar
6-Mar
5-Mar
4-Mar
3-Mar
9101.35 10219.54 9645.45 6472.63 8270.00
27790.20 21366.88 18044.42 14123.59 12948.92
-8410.47 -13036.39 -10173.05 -6183.00 -6569.19
-7814.83 -9448.68 -7297.28 -4791.31 -8177.45
11564.90 -1118.19
574.09 3149.28 -1797.72
20666.25 9101.35 10219.54 9621.91 6472.28

ONGC Dividend History

Year End
Dividend
2010
7058.28
2009
6844.39
2008
6844.39
2007
6630.51
2006
6416.71
2005
5703.74
2004
3422.24
2003
4277.8
2002
1996.31
2001
1568.53
2000
926.85
1999
784.27
1998
356.48
1997
285.19
1996
201.66
1995
68.74
1994
0

30

Dividend(%)
330
320
320
310
450
400
240
300
140
110
65
55
25
20
20
20
0

Div Yield(%)
3
4.1
3.26
3.53
5.15
6.8
4.28
12.65
7.68
12.45
7.19
6.97
1.35
1.45
1.42
0
0

ONGC Shareholding Pattern

32

Top Ten Shareholders

33

ONGC Equity History

34

ONGC Dividend History

35

Profit Margin

Expressed as a percentage of sales

Gross profit margin = (1-cost of goods sold) / sales

Depends on corporate strategy

Operating profit margin..,

36

Difficult to calculate as COGS is difficult to get from financial statements

Driven by marketing strategy

= Operating profit / Sales

= EBIT / Sales
= Gross profit margin Operating expense / Sales

Pretax profit margin = EBIT /Sales

Net profit margin = net profit / Sales
Cash profit margin = PBDITA / Sales

Profit Margin

Operating ratio = Operating expense / Sales

37

Also called expenses ratio

Complementary o profit margin ratios

Profitability Ratios

Affects the companys

38

ability to obtain debt and equity financing

liquidity position
ability to grow

Ultimate test of managements operating

effectiveness

Profitability Ratios
Ratios

Formula

Usage

Standard

Means of
Expression

Profit Margin

NI NS

Wide

Industry
specific

Percentage

Cash Return on Sales

NCPOA NS1

Realistic

Compare with
profit margin

Percentage

Asset Turnover

NS Avg. Assets

Wide

Industry
specific

Rate (times)

Return on Assets

NI Avg. Assets

Wide

Industry
specific

Percentage

Return on Common
Stockholders Equity

(NI PD) ACSE2

Wide

DOF

Percentage

1NCPOA

= Net Cash Provided by Operating Activities

2(NI-PD) ACSE = (Net Income-Preferred Dividend) Average common
stockholders
equity
39

Profitability Ratios
Ratios

Formula

Usage

Standard

Means of
Expression

Earnings Per Share

NI WACSO1

Wide

Intra
comparison

Amount

Price-Earnings Ratio

Price EPS

wide

Compare
Peer &
Industry

Proportion

Payout Ratio

DPS/EPS

Wide

1NI

Percentage

WACSO = Net Income Weighted Average Common Shares Outstanding

40

ROCE

= EBIT / Capital employed

Fundamental measure of profitability of a company
Indicator of management efficiency
= Asset turnover x Net profit margin
Factors affecting ROCE..,

41

Asset valuation policies

Depreciation policies
Revaluation policies
Pricing policies
Treatment of goodwill
Treatment of expenses

Used by company as part of their strategic planning

ROCE

= EBIT / Average capital employed

= NOPLAT / Average capital employed

42

NOPLAT = Net profit + LT interest x (1- tax rate)

Difficult to calculate ROCE accurately

Does not provide better insight of overall
profitability and productivity of assets that ROA
Analyst prefer to use ROA than ROCE

Return on Invested Capital (ROIC)

43

Also called return on total capital (ROTC)

Excludes interest free credits and takes into
consideration total investment
= NOPLAT / Average invested capital
= EBIT / Invested capital
Can be calculated with higher accuracy

ROA

Return on assets
= NOPAT / Average net operating assets
Equivalent to ROCE
= Profit margin x Assets turnover

= NOPLAT / Average total assets

44

Profit margin = NOPAT / Operating revenues

Assets turnover = Operating revenues / Average net operating
assets= EBIT / Average total assets
NOPLAT = net operating profit less adjusted tax
Marginal tax rate should be used to calculate the tax implication
Tax expense = current tax + deferred tax

ROA

45

Total assets include interest free credits

It is difficult to adjust implicit interest on interest
free credit in the denominator
Accuracy is lower that that of ROIC

ROA

Factors affecting level of ROA

Age of firm
Age of industry
Degree of competition
Entry restriction levels

Factors affecting composition of ROA

Production process and input mix

Factors affecting variability of ROA

46

Capital intensive vs. labor intensive

Cyclically of demand
Operating leverage of the firm

ROE

= Return on equity
= Net profit attributable to ordinary (common
shareholder) / Average equity of ordinary (common)
shareholder
= Return on net operating assets + gain (- loss) from
net financial leverage

Gain from net financial leverage = Spread x Net financial

leverage effect

Spread = Return on net operating assets Net borrowing cost

Net financial leverage effect = Average net debt / Average
shareholders equity

47

Net debt = Financial liabilities Financial assets

ROE

Positive spread = ROA > NBC

Better to analyze sensitivity of ROE to different levels
of ROA
ROE and ROA are highly correlated
Can be increased by..,

Improving operating performance

48

Improve margin
Improve assets turnover

Reducing net borrowing costs

Increasing net financial leverage

ROE

= Return on net operating assets + [(NOPAT /

Average net assets) (NFE / Average net
debt)] x Net financial leverage
= [Profit margin x Assets turnover] + [Spread x
Net financial leverage]
= ROA x Gain on net financial leverage

49

ROA = Profit margin x Assets turnover

Operating ROE

= EBIT/ Shareholders funds

Consider redeemable preference shares as
quasi - debt
= Financial leverage multiplier x ROCE

50

Financial leverage multiplier = Capital employed /

Shareholders funds
ROCE = Asset turnover x Net profit margin

Return on Ordinary Shareholders

Equity (ROOE)

51

= (Net profit Preference dividend) / Average

ordinary shareholders equity
Preference dividend should be deducted even
of the company did not pay the preference
dividend in the year of consideration

Terminology

Is a measure of cash profit

Cash from operating activities = Cash profit
adjusted for change in amount of working
capital and change in income tax liability
NOPLAT = Net profit + Interest x (1-tax rate)

52

NOPLAT = net operating profit less adjusted tax

Dividend Cover

53

= EPS / DPS
= (EAT Preference dividends) / Dividends on
ordinary shares

Assets Turnover

Types of assets turnover..,

54

Receivables turnover
Inventory turnover
Fixed assets turnover

Net operating assets turnover = Receivables

turnover x Inventory turnover x (Tangible)
Fixed assets turnover

Receivables Turnover

55

= Revenue from credit sales / Average

accounts receivable
Receivables turnover ratio = Sales / Average
trade receivables
Average number days receivables outstanding
= 365 / Receivables turnover

Inventory Turnover

56

= Cost of sales or sales revenue / Average inventories

Average inventory holding period = (Closing inventory /
Cost of sale) x 365
Average no. of days inventory in stock = 365 /
Inventory turnover
RM turnover ratio = Cost of materials consumed /
Average raw material stock
WIP turnover ratio = Cost of production / Average WIP
stock
Finished goods turnover ratio = Cost of goods sold /
Average finished goods stock

Payables Turnover

57

= Credit purchases of goods and services /

Average accounts payable
= AP turnover ratio = Purchases / Average AP
Average no. of days payable outstanding = 365
/ AP turnover

Fixed Assets Turnover

58

= Sales revenue / Average tangible fixed

assets

Working Capital Turnover Ratio

59

= Sales / Average working capital

Current Ratio

= CA / CL
ST obligations covered by cash and trading assets
Affected by sector norms
Increase in current ration may be because of..,

60

Build up of inventory
Permanent expansion of business
Operating losses
Inefficient control over working capital
Adverse litigation
Adverse trading conditions

Quick Ratio

61

= Cash, securities and AR / CL

Also called acid test ratio, liquidity ratio
= (CA Inventory) / CL
= (CA Inventories Prepaid expenses) / CL
= (CA Inventories Prepaid expenses) / (CL
Bank OD)

Cash Ratio

62

= (Cash + Marketable securities) / CL

Cash flow from operations ratio = CFO / CL

Defensive Interval

63

= (Cash+ Marketable securities + AR / Projected operating

outlays) x 365
Shows how long company can fund operations from existing cash
and near-cash resources
Presents the worst case scenario
Period (no. of days) for which the company will be able to maintain
the current level of operation with its present cash resources
Not in common use by analysts
Also called cash burn ratio
Estimates how much time the companies has until it must have a
working business model
No. of days the company can survive with the cash it shas raised
from its investors

Risk Ratios
Liquidity and Solvency

Short-Term Liquidity Ratios

Current Ratio
Quick Ratio
A/R Turnover = Sales/(Average A/R)

A/P Turnover = Purchases/(Average Accounts Payable)

Days Payable Outstanding = 365/(A/P Turnover)

Inventory Turnover = COGS/(Average Inventory)

Long-Term Solvency Ratios

64

Days Receivable Outstanding = 365/(A/R T)

Long-Term Debt Ratio = (LT Debt)/(LT Debt and S.H.E.)

Debt/Equity Ratio = (LT Debt)/(S.H.E.)
Liabilities Assets Ratio = (Total L)/(Total A)
CFO to Total Liabilities = CFO/(Average Total Liabilities)

Risk Ratios
Liquidity and Solvency

Long-Term Solvency Ratios

65

Interest coverage ratio = (Net Income + Interest Expense + Income Tax

Expense) / Interest Expense
Interest coverage ratio using cash flows = (CFO + Cash Payments for
Interest + Cash Payments for Income Taxes)/(Cash Payments for
Interest)
= Liabilities/(Book Value of Equity)
= Liabilities/(Market Value of Equity)
= (Liabilities + Equity)/Equity

Liquidity Ratios

Measures Enterprises

Users

66

Short-term ability to pay its maturing obligations

Ability to meet unexpected needs for cash

Bankers
Suppliers
Other short-term creditors

Liquidity Ratios
Ratios

Formula

Usage

Standard

Means of
Expression

Current ratio

CA CL

Wide

Industry
specific

Proportion

Acid-test ratio

LA CL1

Wide

Industry
specific

Proportion

Current cash debt

coverage ratio

NCPOA Avg. CL2

Realistic

Industry
specific

Proportion

Receivables turnover

NCS ANR3

Wide

Coll. Period
< Cr. period

Rate (times)

Inventory turnover

CGS Avg. Inv.4

Wide

Industry
specific

Rate (times)

1LA

= CA Inventory Prepaid expenses

= Net Cash Provided by Operating Activities
3NCSANR = Net Credit Sales Average Net Receivables
4CGS Avg. Inv. = Cost of Goods Sold Average Inventory
2NCPOA

67

Debt Equity Ratio

= Net debt / Shareholders equity (of group)

Also called..,

68

Financial leverage ratios

Gearing ratios

Debt to Capitalization Ratio

69

= New debt at MV / Shareholders equity at MV

Financial Leverage Multiplier

70

= Capital employed / Shareholders funds

Gearing Ratios

71

= (Total liabilities Current liabilities) / Capital

employed

Times Interest Earned

72

= PBIT / (Interest expense + Capitalized

interest)

Net Debt to OCF Ratio

73

= Net debt / Operating cash flow

Shows how long it will take firm to pay off debt
at current rate of cash flow generation

Earnings Variability of a Firm

Factors influencing earnings variability..,

74

Sensitivity of firms revenues to economic cycle

Firms cost structure = operating leverage

Solvency Ratios

Affects the companys

75

Ability of the company to survive over a long period of time

Ability to repay the face value of debt at maturity

Solvency Ratios
Ratios

Formula

Usage

Standard

Means of
Expression

Debt to Total
Assets Ratio

TD TA

Wide

Industry
specific

Percentage

Times Interest
Earned

IBIT Interest
Expenses

Wide

Industry
specific

Rate (times)

Cash Debt
Coverage Ratio

NCPOA ATL1

Wide

Industry
specific

Rate (times)

1NCPOA

ATL = Net Cash Provided by Operating Activities Average

Total Liabilities

76

Operating Leverage

77

= Contribution margin ratio / Return on sales

= Contribution / Operating income
Measure of OLE is not constant across all
levels of activity
Percentage change in income = OLE x
Percentage change in sales

Financial Leverage

78

= Operating income / Net profit before tax

= EBIT / EBT
FLE is also not constant across all levels of
activity
Percentage change in EBT = FLE x
Percentage in change of operating income

Total Leverage Effect

79

= OLE x FLE
= Contribution / EBT
Not constant across all levels of activity

Operating Leverage

Relative portions of fixed versus variable costs in the

firms total cost structure
Greater operating leverage (a larger fixed cost portion)
makes the operating earnings of a firm more volatile
than sales

During slow periods, operating profits will decline by a larger

percentage than sales
During expansionary periods, operating profits will increase by
a larger percentage than sales

ONGC Key Financial Ratios

10-Mar
0.2
0.2
1.73

9-Mar
0.19
0.19
1.78

8-Mar
0.21
0.21
1.55

7-Mar
0.24
0.24
1.41

6-Mar
0.22
0.22
1.44

5-Mar 4-Mar
0.24 0.16
0.22 0.13
1.45 1.34

3-Mar 2-Mar 1-Mar

0.07 0.13
0.2
0.07 0.13
0.2
1.24 1.37 1.61

25.38
20.2

27.3
21.59

31.82
25.2

33.17
27

35.68
28.63

36.61 31.1
29.71 22.72

46.77 29.84 27.91

32.17 20.65 18.31

Debt-Equity Ratio
Long Term Debt-Equity Ratio
Current Ratio
Turnover Ratios
Fixed Assets
0.58
0.69
0.71
0.72
0.68
0.72 0.54
0.63 0.44 0.46
Inventory
12.71 15.42 16.55
17.7 17.77 19.47 16.36 22.98 15.54 15.24
Debtors
16.86 15.15 16.89
17.61 12.98 15.45 10.4 11.23 11.66 13.67
Interest Cover Ratio
1,733.43 202.64 428.96 1,101.85 733.44 478.63 280.7 143.42 42.44 24.09
PBIDTM (%)
43.54 39.94 44.38
44.45 49.93 43.35 43.85 48.92 46.82 44.89
PBITM (%)
41.52 37.68 42.06
41.62 45.32 42.18 41.99 46.74 43.44 40.41
PBDTM (%)
43.52 39.75 44.28
44.42 49.86 43.26 43.7
48.6 45.8 43.21
CPM (%)
29.88 27.48
30.1
30.31 34.52 28.96 28.5
32.5 30.06 26.6
ROCE (%)
RONW (%)

81

ONGC Valuation Ratios

Price Earning (P/E)

Price to Book Value ( P/BV)
Price/Cash EPS (P/CEPS)
EV/EBIDTA
Market Cap/Sales

82

10-Mar 9-Mar 8-Mar 7-Mar 6-Mar 5-Mar 4-Mar 3-Mar 2-Mar 1-Mar
15.06 11.14 13.51 12.84 13.8 10.31 14.57 4.93 6.29 3.73
2.69 2.12 2.97 3.03 3.46 2.69 2.96 1.42 1.31 0.62
13.96 10.16 12.39 11.57 11.85 9.87 13.57 4.59 5.58 3.08
8.89 6.41 7.49 7.26 7.91 6.24 8.59 2.67
3.4 2.01
3.9 2.61 3.49
3.3 3.87 2.69 3.68 1.46 1.68
0.8

Importance of Shareholder Value

Analysis

83

Take over are based on undervalues assets

Accounting measures are unrelated to share
value
Wider reporting of return to shareholders
Wider adoption and endorsement
Linking executive rewards to shareholders
returns

Value Drivers for Shareholder Value

Creation

84

Sales growth
Operating margin
Fixed capital investment
Working capital investment
Cash taxes
Planning period
Cost of capital

Market Value Added (MVA)

85

MVA = total market value invested capital

Valuation of all future annual EVAs

Economic Value Added (EVA)

Wealth a company creates each year

= net income from operations cost of capital needed to generate
net income
= NOPAT R X CE

86

R = required yield

Substantial part of LT movement in share price is explained by

development of EVA
Very good method of performance measurement and monitoring
of decisions
Also called Alpha NV
Annual increase in EVA is seen as created value than absolute
level

Economic Value Added (EVA)

Achieving increasing in EVA..,

87

Increasing NOPAT
Reducing WACC
Improving utilization of capital employed
Appraising geographic and product segment information
Cost reduction programs
Appraising acquisitions
Divestments
Improving utilization of capital employed

Shareholder Value

88

= IRR on an investment from dividend stream

and realizable value of investment at date of
disposal

Analysis of Growth Potential

Firms growth potential is defined as:

g retention rate return on equity

Called the sustainable growth rate.

constant debt to equity ratio.
retention rate 1-

It assumes a

dividends declared
Operating Income after taxes

ROI

Net Income as
% of Sales

Net Income

Sales

Investment
Turnover

Sales

Investment

Shareowners
Equity

Borrowings

Total liabilities

90

Non borrowed
liabilities

Return on
Total Assets

Net Profit as
% of Sales

Net Profit

Sales

Sales

COGS,
Other taxes,
and Expenses

Turnover

Sales

Total Assets

Long-term
Assets

Current Assets

Inventory

91

Accounts
Receivable

Cash and
Market
Securities

Dupont Analysis
Pretax Profit
Sales
Return on Assets =
(1 - tax rate)

Sales

Assets
Key measure of managements operating performance
Lower the tax rate higher the net income and higher the ROA
Equation focuses on
Factors that can influence companys rate of return on assets
Ways to measure changes in certain assets accounts
Actual return and assets experience during the period
Impact the net income to sales ratio of a falling tax rate

92

ONGC Dupont

PBIDT/Sales(%)
Sales/Net Assets
PBDIT/Net Assets
PAT/PBIDT(%)
Net Assets/Net Worth
ROE(%)

93

10-Mar
43.54
0.59
0.25
63.96
1.18
20.2

9-Mar 8-Mar 7-Mar 6-Mar 5-Mar

39.94 44.38 44.45 49.93 43.35
0.68 0.73 0.74 0.73 0.83
0.27 0.32 0.33 0.36 0.36
63.14 62.58 61.83 59.91 64.12
1.2 1.17 1.24 1.23
1.2
21.59 25.2
27 28.63 29.71

4-Mar
43.85
0.63
0.28
60.75
1.27
22.72

3-Mar
48.92
0.95
0.47
61.96
1.02
32.17

2-Mar
46.82
0.7
0.33
56.97
1.11
20.65

1-Mar
44.89
0.68
0.31
49.27
1.14
18.31

Oracle vs. Peers (2005)

Dupont Analysis

ROE =

Total Assets
Sales
Net Income

Shareholders's Equity
Total Assets
Sales

ROE IBM = 3.195 0.862 0.871 = 23.99%

ROE HP = 2.080 1.211 0.028 = 7.05%
ROE Oracle = 1.934 0.4954 0.2351 = 22.53%
ROESAP = 1.567 0.939 0.176 = 25.90%
94

Cycle in Equity Issue

MMFSL
Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008
Networth
203.26
251.73
405.58
732.79
778.24 1314.27
Authorised equity capital
75
75
75
90
90
110
Issued equity capital
60.62
60.62
70.16
86
86
96.9
Subscribed equity capital
60.62
60.62
70.16
83.31
84.02
95.29
Paid-up equity capital
60.62
60.62
70.16
83.31
84.02
95.29
Paid-up preference capital
0
0
50
50
0
0
PBIT Net of P&E/Avg Networth
82.34
84.83
78.74
65.59
67.53
68.04
PAT Net of P&E/Avg Networth
19.11
25.55
24.3
18.59
16.31
16.26
PAT/Avg Networth
23.65
29.72
25.04
19.02
17.59
16.92
PBIT Net of P&E/Avg Capital Employed
17.11
13.82
11.66
10.56
10.63
12.56
Net Worth / Total Liabilities
13.26
12.25
13
14.56
12.37
18.7
Total borrowings / Total Liabilities
72.43
76.51
78.88
77.47
78.52
72.1

95

ROE Driven Business

NIM margin..,

ROE

FY03: 23.2%
FY07: 18.2%
FY08: 16.9%

ROA

96

FY03: 12.8%
FY07: 9.2%
FY08: 11.3%

FY03: 3.5%
FY07: 2.4%
FY08: 2.7%

MMFSLs Performance Ratios

FY06

FY07

FY08

14.8%

15.1%

18.6%

Cost of funds

6.3%

6.6%

8.6%

Interest spread

8.5%

8.4%

7.2%

Net income margins

9.2%

9.2%

10.4%

ROA

2.7%

2.4%

2.7%

ROE

20.9%

18.2%

16.9%

Equity / TA

13.6%

12.4%

Loans / Assets

83.8%

89.8%

Cost / Income

35.3%

37.6%

Cost / Assets

3.3%

3.5%

Yield on assets

Net Interest Margin: 11.3%

97

32.7%

Key Financial Ratios

SBI

98

2007-08
Return on average assets (%)
0.99%
Return on equity (%)
17.93%
Operating expenses to total income (%)
56.64%
Basic EPS (Rs.)
168.61
Diluted EPS (Rs.)
168.45
Capital Adequacy (Basel I)
13.49%
Tier I
8.95%
Tier II
4.54%
Capital Adequacy (Basel II)
Tier I
Tier II
Net NPAs to Net Advances
1.43%

2008-09
0.94%
16.30%
52.65%
172.68
172.68
12.90%
8.21%
4.69%
14.17%
9.03%
5.14%
1.49%

MMFSL in the Group

FY06 FY07 Weight Growth (%)
Net external revenues (Rs. Mn) 131,578 182,949 100%
39.04%
Automotive
53,441 64,904
35%
21.45%
Farm equipment
34,711 43,602
24%
25.61%
IT services
14,067 31,426
17%
123.40%
Financial services (MMFL) 5,890 8,467
5%
43.75%
Steel processing & trading
7,265
7,877
4%
8.42%
Infrastructure
1,798 1,338
1%
-25.58%
Hospitality
1,527 2,347
1%
53.70%
Systech
6,126 16,991
9%
177.36%
Others
6,753 5,997
3%
-11.20%
99

MMFSL in the Group

FY06 FY07 Weight Growth (%)
PBIT (Rs. Mn)
15,945 23,730
100%
48.82%
Automotive
5,410 6,560
28%
21.26%
Farm equipment
3,140 5,031
21%
60.22%
IT services
2,617 6,862
29%
162.21%
Financial services (MMFL) 1,642 2,076
9%
26.43%
Steel processing & trading
480
493
2%
2.71%
Infrastructure
187
96
0%
-48.66%
Hospitality
320
639
3%
99.69%
Systech
988 1,667
7%
68.72%
1,161
306
1%
-73.64%
10Others
0

MMFSL in the Group

PBIT margin
Automotive
Farm equipment
IT services
Financial services (MMFL)
Steel processing & trading
Infrastructure
Hospitality
Systech
10Others
1

FY06 FY07 Growth (%)

12%
13%
7.04%
10%
10%
-0.16%
9%
12%
27.55%
19%
22%
17.37%
28% 25%
-12.05%
7%
6%
-5.27%
10%
7%
-31.01%
21%
27%
29.92%
16%
10%
-39.17%
17%
5%
-70.32%

Bankruptcy Prediction

Ratios include..,

10
2

Profitability = ROA
Size = Total assets excluding intangibles
Liquidity = Current ratio
Cumulative profitability = Retained profits / Total assets
Capitalization = Market value of equity / Market value of
total capital (five years average data)
Earnings stabilty = SD of ROA (ten years data)

Z-Score Analysis

10
3

Evaluated corporate stability

Predict potential instances of corporate failures
Provides a single score to describe combination of a
no. of key characteristics of a company
Scores is evaluated against identified bench marks

Altmans Z-Score

Proposed by Altman (1968)

Z = 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.999X5

Bench marks..,

10
4

X1 = Working capital / Total assets

X2 = Retained earnings / Total Assets
X3 = EBIT / Total assets
X4 = Market capitalization / Book value of debt
X5 = Sales / Total assets

Companies scoring >3.0: unlikely to fail (considered safe)

Companies scoring <1.8: likely to fail (considered unsafe)

Predictable up to two to three years before the event

Tafflers Z-Score

Unpublished model
Z = C0 + C1X1 + C2X2 + C3X3 + C4X4

Bench marks..,

10
5

X1 = PBT / Current assets (53%)

X2 = CA / CL (13%)
X3 = CL / Total assets (18%)
X4 = No credit interval = length of time which the company can
continue to finance its operations using its own assets with no
revenue inflows (16%)
Companies scoring >0.2: unlikely to fail (considered safe)
Companies scoring <0.2: likely to fail (considered unsafe)

Performance Analysis Score (PAS)

10
6

Adapted Z-score
Evaluates company performance relative to
other companies in the industry
Ranks all company z-scores in percentile terms
Measures relative performance on a scale of 0
to 100
Can be analyzed over time to know fall in Zscore percentiles

A- Scores

Concentrates on non-financial signs o failures

Financial difficulties are the direct results of management defects and errors which
have existed in the company for many years
Defects center on management structure..,

Mistakes on..,

Very high leverage

Overtrading
Failure of the companys main project

Symptoms..,

10
7

Decision making and ability

Accounting systems
Failure response to change

Poor ratios
Poor z-scores
Creative accounting
Delay in investment decisions
Market share drops

A- Scores

10
8

Different scores are allotted to each defect,

mistake and symptoms
Score is compared with benchmark values

Qualitative Factors to be Used by

Financial Statement Users

Obscuring changes in earnings trend

Hiding the failure to achieve analyst forecasts
Changing a reported loss to income or vice versa
Obscuring changes in significant business segments
Increasing management compensation
Affecting compliance with..,

10
9

Regulatory requirement
Loan covenants
Other contracts

Concealing unlawful acts

Looking Beyond the Numbers

11
0

Are the companys revenues tied to one key customer?

To what extent are the companys revenues tied to one key
product?
To what extent does the company rely on a single supplier?
What percentage of the companys business is generated
overseas?
What is the competition?
Does the company invest heavily in R&D?
What is the legal and regulatory environment in which it operates?

Financial Statement Analysis

vs. Efficient Capital Markets

A general description of an efficient market is one in

which, on average, asset prices immediately reflect
changes in underlying economic variables (i.e., market
participants are smart/rational)

Most (but not all) people/investors believe in some degree of

market efficiency

By nature, the financial statement package contains

historical information. So

Financial Statement Analysis

vs. Efficient Capital Markets, cont.

If capital markets are believed to be efficient,

why analyze a set of publicly available
documents about a firm (that, by their very
nature, contain stale information)?
Possible answers..,

Someone must perform the analysis in order for the market to

initially react to the information contained in the financial
statements
Markets might be efficient on average in the aggregate but
temporarily inefficient at the individual firm level.

Financial Statement Analysis

vs. Efficient Capital Markets

Possible answers..,

Financial statements may potentially be biased views (even in

accordance with GAAP) of a firms performance if managers have
incentives to make them so

Quality of Earnings may actually be poor even if the

firm reports profits

There are other needs for financial statement analysis aside from
investing in publicly traded common stocks (bank lending, credit
analysis, etc.)

ONGC
Key Financial Ratios

11
4

Debt-Equity Ratio
Long Term Debt-Equity Ratio
Current Ratio
Turnover Ratios
Fixed Assets
Inventory
Debtors
Interest Cover Ratio
PBIDTM (%)
PBITM (%)
PBDTM (%)
CPM (%)
ROCE (%)
RONW (%)
http://www.capitaline.com

Industry 10-Mar 9-Mar 8-Mar 7-Mar 6-Mar 5-Mar 4-Mar 3-Mar 2-Mar 1-Mar
0.45
0.2 0.19 0.21
0.24 0.22 0.24 0.16 0.07 0.13 0.2
0.22
0.2 0.19 0.21
0.24 0.22 0.22 0.13 0.07 0.13 0.2
1.2
1.73 1.78 1.55
1.41 1.44 1.45 1.34 1.24 1.37 1.61
1.04
0.58 0.69 0.71
0.72 0.68 0.72 0.54 0.63 0.44
18.08 12.71 15.42 16.55
17.7 17.77 19.47 16.36 22.98 15.54
11.44 16.86 15.15 16.89 17.61 12.98 15.45 10.4 11.23 11.66
179.38 1,733.43 202.64 428.96 1,101.85 733.44 478.63 280.7 143.42 42.44
50.59 43.54 39.94 44.38 44.45 49.93 43.35 43.85 48.92 46.82
45.57 41.52 37.68 42.06 41.62 45.32 42.18 41.99 46.74 43.44
50.33 43.52 39.75 44.28 44.42 49.86 43.26 43.7 48.6 45.8
35.12 29.88 27.48 30.1 30.31 34.52 28.96 28.5 32.5 30.06
30.72 25.38 27.3 31.82 33.17 35.68 36.61 31.1 46.77 29.84
29.32
20.2 21.59 25.2
27 28.63 29.71 22.72 32.17 20.65

0.46
15.24
13.67
24.09
44.89
40.41
43.21
26.6
27.91
18.31

Industry Key Ratios

Oil Exploration and Allied Services
Year
No.Of Companies
Key Ratios
Debt-Equity Ratio
Long Term Debt-Equity Ratio
Current Ratio
Turnover Ratios
Fixed Assets
Inventory
Debtors
Interest Cover Ratio
PBIDTM (%)
PBITM (%)
PBDTM (%)
CPM (%)
APATM (%)
ROCE (%)
RONW (%)
http:/ / www. c a pita line . c om

11
5

Latest 2009
15
13
0.45
0.22
1.2

0.32
0.14
1.32

1.04
18.08
11.44
179.38
50.59
45.57
50.33
35.12
30.1
30.72
29.32

0.71
15.98
13.02
26.14
43.33
39.98
41.8
28.73
25.38
22.36
18.74

2008
13
0.31
0.17
1.25

2007
16
0.31
0.16
1.2

2006
18
0.36
0.18
1.22

2005
14
0.44
0.21
1.22

2004
15
0.34
0.13
1.15

2003
15
0.2
0.08
1.14

2002
15
0.17
0.14
1.37

2001
14
0.2
0.2
1.67

0.77
0.75
0.73
1.1 0.81 0.89 0.63
0.7
18.02 17.91 18.26 19.75 16.3 21.82 14.91 15.5
14.53 15.25 11.52
12.9 9.07 9.71 9.86 12.52
28.32 234.19 205.04 217.18 115.5 93.59 35.64 22.3
44.27
44.7 49.79 43.67 45.76 48.92 46.9 44.22
40.19 41.05 44.98 42.06 43.12 46.59 43.33 39.86
42.85 44.52 49.57 43.48 45.38 48.42 45.68 42.43
29.51 30.78 34.49 29.25 30.15 32.74 30.36 26.71
25.43 27.13 29.68 27.64 27.51 30.41 26.79 22.35
25.25 21.95 26.14 31.48 27.43 40.07 28.03 27.94
20.93 19.01 23.42 29.49 23.3 31.31 20.13 18.7

ONGC vs. Peer

Aggregate
Key Ratios
Debt-Equity Ratio
Long Term Debt-Equity Ratio
Current Ratio

11
6

Turnover Ratios
Fixed Assets
Inventory
Debtors
Interest Cover Ratio
PBIDTM (%)
PBITM (%)
PBDTM (%)
CPM (%)
APATM (%)
ROCE (%)
RONW (%)

0.45
0.22
1.2

1.04
18.08
11.44
179.38
50.59
45.57
50.33
35.12
30.1
30.72
29.32

Hind.Oil Explor.Oil India O N G C Tata Petrodyne

0.36
0.36
1.18

0
0
2.43

0.2
0.2
1.73

0
0
1.03

0.16
1.24
0.58
2.56
15.1
12.71
4.5
14.88
16.86
9.09 1,068.14 1,733.43
85.88
52
43.54
52.19
49.22
41.52
80.14
51.95
43.52
63.39
35.74
29.88
29.69
32.95
27.85
4.96
33.65
25.38
3.85
22.6
20.2

0.3
11.29
4.6
0
26.1
24.74
26.1
11.67
10.32
6.02
2.51

11
7