1.

INTRODUCTION TO THE STUDY

Finance is the lifeblood of business. In our present day economy, finance is
defined as the provision of money at the time when required. Every enterprise, whether
big, medium, small needs finance to carry on the business operations to achieve their
targets. In Brooke bond tea company private ltd. finance is indispensable today that it is
rightly said to be in lifeblood of an enterprise. Without adequate finance no enterprise can
possibly accomplish its objectives.
Finance function is most important to all the business functions. It remains a focus
of all activities. It is not possible to substitute this function because the business will close
down in the absence of finance. The need for money is continuous. It starts with the
setting up of an enterprise and remains at all times. The development and expansion of
the business needs more commitment for funds. These funds have to be raised from
various sources.
The inflow and outflow of funds should properly match. The finance is the nerve
centre of the business. It is essential to the smooth running of the business. Finance
involves three important functions. Whether the enterprise is public or private, it involves
raising of funds, investment of funds and utilization of returns earned from investment.
These functions are known as financing investment and dividend decision respectively.
Financing decision involves

Investment decision.

Financing decision.

Dividend decision & Liquidity decision.

INVESTMENT DECISION
It is also known as capital budgeting. It involves the decision of allocation of capital
or commitment of funds to long term assets that would yield benefit in future. It is a
significant aspect in taking and measuring the prospective profitability of investments.
FINANCING DECISION
It is the second important function to be performed by the financial manager. He must
strive to obtain the best financial mix or optimum capital structure for his firm. A proper
balance will have to be struck between investment and risk.
DIVIDEND DECISION
It is the third financing decision. The finance manager should decide whether the firm
should distribute all profits or retain them or distribute a portion to retain their balance. The
optimum dividend policy is to maximize the market shares.
LIQUIDIY DECISION
Current asset management affects the firms liquidity is yet other important finance
function. Current assets should be managed efficiently for safeguarding the firm against the
dangers of illiquidity and insolvency. Investment in current assets affects the firms
profitability, liquidity and risk. Thus a proper trade off must be achieved between
profitability and liquidity.
IMPORTANCE OF THIS STUDY
The subject matter of financial management is of immense interest for every financial
analyzer. It needs special attention because of the complexities involve in managing cash in
present day industrial function.
2

The important aspect is the estimation of how much of finance.

The business organization requires and for what purpose.

The most important area of financial management is the working capital

management.

Here the study tries to reveal the companys position and performance by
evaluating the relationship between various components parts of financial
statements.

Ration analysis has been taken as a tool in assessing the performance of the company
in respect of the following aspects.

Liquidity Position.

Long-term solvency.

Profitability.

Activity.

FINANCE DEPARTMENT
The functions within the finance department are diverse with distinction procedure for
accounts related to personnel, purchase, costing, budgets, tax and duties, audit, general a/c,
bank and payroll, bills etc.
Payroll Section Functions

Preparation and disbursement of salaries and wages to managerial and non

managerial employees.

Effect various recoveries through payroll and remit the same to concerned
agencies.

Processing of various personal payments. Advances etc.

3

Keeps books of a/c for the above transaction.

BUDGET SECTION
Budget preparation- every year two separate budgets are prepared

Control Capital Expenditure.

Control Revenue Expenditure.

Both the budget is usually prepared during September/ October every year. Two types
of estimates are prepared for both the budget i.e., the Revise Estimate (RE) and budget
Estimate (BE). RE is the revised budget for the current year and BE is the budget for the next
year.
GENERAL ACCOUNTING SECTION

Maintenance of registers for fixed assets, giving details of depreciation and

classification of assets etc.

Ledger scrutiny

Inter unit reconciliation for inter unit transactions.

Cash and Bank Accounts Section is responsible for:

Receipt of cash, cheques, bank drafts, and postal orders.

Payment of cash, cheques, bank drafts, and letters of authority

Handling of bank deposits/withdrawals, custody of cash and inter unit transfer of

funds.

Maintenance of petty cash books and cash books.

Reconciliation of bank accounts

2. INTRODUCTION TO THE COMPANY

The company Hindustan Petroleum Corporation Limited (HPCL) (BSE: 500104,
NSE: HINDPETRO) is an Indian state-owned oil and natural gas company with its
headquarters at Mumbai, Maharashtra and with Navratna status. HPCL has been ranked
260th in the Fortune Global 500 rankings of the world's biggest corporations (2013) and 4th
among India's Companies for the year 2012. HPCL has about 25% marketing share in India
among PSUs and a strong marketing infrastructure. The Government of India owns 51.11%
shares in HPCL and others are distributed amongst financial institutes, public and other
investors.
HISTORY
HPCL was incorporated in 1974 after the takeover and merger of Erstwhile Esso
Standard and Lube India Limited by the Esso (Acquisition of Undertakings in India) Act
1974. Caltex Oil Refining (India) Ltd.- CORIL was taken over by Govt. of India. in 1976 and
merged with HPCL in 1978 by the CORIL-HPCL Amalgamation Order, 1978. Kosan Gas
Company was merged with HPCL in 1979 by the Kosangas Company Acquisition Act, 1979.
In 2003, following a petition by the Centre for Public Interest Litigation (CPIL), the
Supreme Court of India restrained the Central government from privatizing Hindustan
Petroleum and Bharat Petroleum without the approval of Parliament. As counsel for the
CPIL, Rajinder Sachar and Prashant Bhushan said that the only way to disinvest in the
companies would be to repeal or amend the Acts by which they were nationalized in the
1970s. As a result, the government would need a majority in both houses to push through any
privatization. HPCL has been steadily growing over the years. The refining capacity steadily
increased from 5.5 million metric tonnes in 1984/85 to 14.80 million metric tonnes (MMT) as
of March 2013.
5

On the financial front, the Net income form Sales/operations grew from IN 2687
crores in 1984-85 to IN 2,06,529 crores in financial year 2012-13. During FY 2013-14, its net
profit was IN 1740 crores.

Operations
HPCL operates two major refineries producing a wide variety of petroleum fuels &
specialties, one in Mumbai (West Coast) of 6.5 Million Metric Tonnes Per Annum
(MMTPA) capacity and the other in Vishakapatnam, (East Coast) with a capacity of 8.3
MMTPA. HPCL holds an equity stake of 16.95% in Mangalore Refinery & Petrochemicals
Limited (MRPL), a state-of-the-art refinery at Mangalore with a capacity of 9 MMTPA.
Another Refinery of 9 MMTPA, set up in Bathinda, Punjab by HMEL, a Joint Venture with
Mittal Energy Investments Pte.Ltd. HMEL has commenced commercial operations.
HPCL has signed a MOU with Government of Rajasthan for setting up a Refinery
near Barmer in Rajasthan. It would be operated under a JV Company called HPCL-Rajasthan
Refinery Limited.HPCL also owns and operates the largest lube refinery in India producing
Lube Base Oils of international standards, with a capacity of 335 TMT. This lube refinery
accounts for over 40% of India's total lube base oil production.
Presently HPCL produces over 300+ grades of lubes, specialities and greases. The
marketing network of HPCL consists of 13 zonal offices in major cities and 101 regional
offices facilitated by a Supply & Distribution infrastructure comprising Terminals, Aviation
Service Facilities, LPG Bottling Plants, Lube filling plants, Inland Relay Depots, Retail
Outlets (Petrol Pumps) and LPG & Lube Distributorships. HPCL has state of art information
technology infrastructure to support its core business. The data center is located at Hitech city
in Hyderabad.

Products
1. Petrol : Known as Motor Spirit (MS) in Oil Industry. HPCL markets the product
through its retail pumps spread all over India. Its principle consumers are regular
personal vehicle owners.
2. Diesel : Known as High Speed Diesel (HSD) in Oil Industry. HPCL markets the
products through its retail pumps as well as terminals and depots. Its consumers are
not only regular auto owners but also transport agencies, industries etc.
3. Lubricants : Riding on its brand - HPLubes, HPCL is the market leader in lubricant
and associated products. It commands over 30% of market share in this sector. The
popular brands of HP lubes are Laal Ghoda, Milcy, Thanda Raja, Koolgard, Racer4,
etc.
4. LPG : HPGAS, The HPCL brand of LPG is a popular brand across India for domestic
and industrial uses.
5. Aviation Turbine Fuel With major ASF(Air Service Facility) present in all major
airports of India. HPCL is a key player in this sector supplying ATF to major airlines.
It has an accomplishment of sorts to supply fuel to US Air Force 1.
6. Bitumen & Furnace Oil
Refineries
HPCL has a number of refineries in India. Some are listed below:
1. Mumbai Refinery - 6.5 Million Metric Tonnes (MMT) Capacity
2. Visakhapatnam Refinery - 8.3 MMT at Visakhapatnam
3. Mangalore Refinery Pvt. Ltd. - 9.69 MMT at Mangalore, Karnataka(HPCL has
16.65% Stake).
7

4. Guru Gobind Singh Refinery - 9 MMT at Bathinda, Punjab (HPCL & Mittal Energy
each have 49% stake).
5. Barmer Refinery -9 MMT Capacity. It is a Joint Venture with Rajasthan Government.
International rankings
1. HPCL is a Fortune Global 500 company as per the ranking of 2013 and was ranked at
position 259.
1. HPCL was featured on the Forbes Global 2000 list for 2013 at position 1217
1. It is 10th most valuable brand in India according to an annual survey conducted by
Brand Finance and The Economic Times in 2010.
Recognition and awards
1. NDTV Profit Business Leadership Award
2. Readers Digest Trusted Brand Asia Platinum Award
3. Golden Peacock Corporate Governance Award 2008
4. CIO 100 Award 2008
5. India Star Award
6. OISD Safety Award
7. National Award For Excellence In Cost Management
8. Greentech Environment Excellence Award 2008
9. Best HR Practices in People Management

3. PROFILE OF THE COMPANY

Name of the company

Hindustan Petroleum Corporation

Industry

Petroleum Refining

Name of the CEO

Nishi Vasudeva

Sector

Energy

Established on

1974

Products

Oil and natural gas company

Location

Mumbai, India

Website

http://www.hindustanpetroleum.com

Telephone Number

08577-200166

E-Mail

help@hindustanpetroleum.com

Employees

10634

4. OBJECTIVES OF THE STUDY

To compute the financial performance of the company.

To analyze the profitability of solvency position of the company.

To analyze the efficiency of the firm through ratios.

To analyze way & means to improve the present condition.

To examine the overall performance of the company.

10

5. LIMITATIONS OF THE STUDY

The study is based on the accounting information. Therefore it is subject to change

based on the market to demand conditions.

Datas may not be accurate.

Ratio analysis reveals only the past performance of firm it is not necessary that the
same conditions have to be repeated in the future.

The finding of the study are based only upon the Hindustan Petroleum Corporation
Limited finding of this study may not be generalized.

Since the study is based on the secondary data, all the limitation of secondary date
is applicable for this study also.

The study is limited to the past 5 years data only.

11

6. REVIEW OF LITERATURE
Literature Review was done by referring previous studies, articles and books to know
the areas of study and analyze the gap or study not done so far.
Mahes chand garg (2002) 1, he made a study on Determinants of capital structure in India
in selected cotton, chemical, engg,. The conclusion is that assets composition collateral value
life corporate sizes are most significant factors in deciding capital structure of these industries.
Barnes (2002) 2, points out for statistical testing that the residual is typically heteroscedastic.
For a discussion also see Garcia-Ayuso. The second model in McDonald and Morris is Y(i) =
b'X(i) + e'(i) that is without the intercept to tackle heteroscedasticity. Dropping the intercept
from the model is not always enough to treat the heteroscedasticity .
Gombola & Kertz (2003) 3, - include cash-flow based financial ratios in their factorization of
40 financial ratios for a sample of 119 Compustat.. Contrary to the earlier studies, the cashflow based financial ratios load on a distinct factor. The results are not sensitive to using
historical costs vs. general price-level adjusted data. Similar results on the empirical
distinctiveness of cash flow ratios are later obtained in a study that also introduces marketbased ratios to the analysis.
M.Radha (2003) 4, made a comparative study on The capital structure and profitability of
India Airlines and Air India. She found that return on capital employed, liquidity and
turnover were positively associated with debt equity ratio. She suggested that both the
corporations should try to use less interest bearing loans.

1.Mahes chand garg (2002) - Determinants of capital structure in India

2.Barnes (2002) Financial statement using residual is typically heteroscedastic
3.Gombola & Kertz (2003) Financial ratios in their factorization
4.M.Radha (2003) The capital structure and profitability of India Airlines and Air India.

12

Christopher.j. green, victor murinde and joy suppakitjarak (2003) 5, analysed The
financial structure of quoted and unquoted Indian non-financial companies comparatively
using sources, user approach and asset liability approach. According to them, unquoted
companies heavily relied on internal funds than quoted companies.

Fosberg (2004)

- Agency problems and debt financing: leadership structure effects,

Corporate Governance, 4(1):31-38. Found that the debt ratio decreases as agency costs
decrease because of an increasing proportion of ownership by management, and that those
banks with fewer shareholders have more debt than banks with many shareholders. The link
between fewer shareholders and more debt suggests that shareholders, who are able to
influence capital structure in their favors, do so in a way that increases the level of debt.
Parkar (2004) 7, - studied the size of the capital structure analysis is and its components and
management in factoring companies. They also studied the correlation between and
profitability of factoring companies. They concluded that the sundry debtors amount due to
creditors are the major component of current assets current liability respectively in
determining the size of the financial analysis.
Ezzamel, Brodie & Mar-Molinero (2004) 8, -detect instability in the factors of financial
ratios for a sample of UK banks.

5. Christopher.j. green, victor murinde and joy suppakitjarak (2003) The financial structure of quoted and
unquoted Indian non-financial companies
6. Fosberg (2004) - Agency problems and debt financing: leadership structure effects,
7. Parkar (2004)- Financial analysis is and its components and management in factoring companies
8. Ezzamel, Brodie & Mar-Molinero (2004) Financial ratios for a sample of UK banks

13

McDonald & Morris (2004-2005) 9, - present the first extensive empirical studies of the
statistical validity of the financial ratio method. The authors use three models with two
samples, one with a single industry the other with one randomly selected bank from each
(four-digit SIC) industry branch to investigate the implications of homogeneity on
proportionality.
The first model is the traditional model for replacement of financial ratios by bivariate
regression, with intercept Y(i) = a + bX(i) + e(i). The above model is central in this area. It is
characteristic that the testing for proportionality is considered in terms of testing the
hypothesis H0: a = 0.
Graham (2005) 10, - How big are the tax benefits of debt? The Journal of Finance, found
that companies with unique products, low asset collateral or large future growth opportunities
in other words, banks at early stages of development (infancy to adolescence) tend to have
lower levels of debt than banks in the stable or aristocracy life stages.
Buijink & Jegers (2006) 11, - studies the financial ratio distributions from year to year from
2003 to 2006 for 11 ratios in Belgian banks corroborating the results of the earlier papers in
the field. Refined industry classification brings less extreme deviation from normality. They
also point to the need of studying the temporal persistence of cross-sectional financial ratio
distributions and suggest a symmetry index for measuring it.

9. McDonald & Morris (2004-2005) Financial report on statistical validity of the financial ratio method.

10. Graham (2005) - The Journal of Finance How big are the tax benefits of debt for
companies.
11. Buijink & Jegers (2006) The studies the financial ratio distributions from year to year from 2003 to 2006

14

Carlos Correia (2012)12, from his study it is concluded that any analysis of the firm, whether
by management, investors, or other interested parties, must include an examination of the
companys financial data. The most obvious and readily available source of this information
is the firms annual report. The financial statements shall, in conformity with generally
accepted accounting practice for the financial year.
Greninger et al.(2010)13, identified that refined financial ratios using a Delphi study in the
areas of liquidity, savings, asset allocation, inflation protection, tax burden, housing expenses
and, insolvency. Based on the Delphi findings, they proposed a profile of financial wellbeing for the typical family and individual.
Rachchh Minaxi A (2011)14, he suggested that the financial statement analysis involves
analyzing the financial statements to extract information that can facilitate decision making.
It is the process of evaluating the relationship between component parts of the financial
statements to obtain a better understanding of an entitys position and performance.
Susan Ward (2013)15, emphasis that financial analysis using ratios between key values help
investors cope with the massive amount of numbers in company financial statements. For
example, they can compute the percentage of net profit a company is generating on the funds
it has deployed. All other things remaining the same, a company that earns a higher
percentage of profit compared to other companies is a better investment option.

12. Carlos Correia (2012) Capital structure analysis in India.

13. Greninger et al.(2010) - Financial ratios using a Delphi study
14. Rachchh Minaxi A (2011) - Financial statement analysis
15. Susan Ward (2013) Financial analysis Magazine.

15

M Y Khan & P K Jain (2011)16, from his study it is concluded that the Financial statements
provide a summarized view of the financial position and operations of a firm. Therefore, much
can be learnt about a firm from a careful examination of its financial statements as invaluable
documents / performance reports. The analysis of financial statements is, thus, an important
aid to financial analysis.
Jonas Elmerraji (2014)17, tries to say that ratios can be an invaluable tool for making an
investment decision. Even so, many new investors would rather leave their decisions to fate
than try to deal with the intimidation of financial ratios. The truth is that ratios aren't that
intimidating, even if you don't have a degree in business or finance.
Elizabeth Duncan and Elliott (2014)18, form his study he stated that the paper in the title of
efficiency, customer service and financing performance among Australian financial
institutions showed that all financial performance measures as interest margin, return on
assets, and capital adequacy are positively correlated with customer service quality scores.
T.S.Reddy and Y. Hari Prasad Reddy (2009)19, have stated that The statement disclosing
status of investments is known as balance sheet and the statement showing the result is known
as profit and loss account
Chidambaram Rameshkumar & Dr. N. Anbumani (2011)20, he argue that Ratio Analysis
enables the business owner/manager to spot trends in a business and to compare its
performance and condition with the average performance of similar businesses in
the same industry.
16. M Y Khan & P K Jain (2011) - Capital structure and capital performance
17. Jonas Elmerraji (2014) - Financial statement analysis
18. Elizabeth Duncan and Elliott (2014) Finance performance analysis through Australian finance magazine
19 T.S.Reddy and Y. Hari Prasad Reddy (2009) Financial statements and investments.
20.Chidambaram Rameshkumar & Dr. N. Anbumani (2011)-Finance and Ratio Analysis.

16

7. RESEARCH METHODOLGY
The data that has been collected from various sources and presented in the form of
materialistic information is known as research methodology. Research methodology is a
systematic way to solve any research problem. It may be understood as a science of studying
how research is done scientifically.
RESEARCH DESIGN
This research study adopts an Empirical research methodology. Such research is often
conducted to answer a specific question or to test a hypothesis. Any conclusions drawn are
based upon hard evidence gathered from information collected from real life experiences or
observations. This helps to understand and respond to dynamics of situations. This research is
widely used in stock market research, analysis of financial statement, and other socio-science
related researches.
DATA COLLECTION METHOD
Data collection methods are an integral part of research design. Problems researched
with the use of appropriate methods greatly enhance the value of the research. In this study,
the data are collected from the secondary sources. Secondary data are indispensable for most
organizational research. Such data can be internal or external to the organization and accessed
through the internet or perusal of recorded or published information. Secondary data can be
used, among other things, for forecasting sales by considering models based on past sales
figures, and through extrapolation.
There are several sources of secondary data, including books and periodicals,
government publications of economic indicators, census data, statistical abstracts, databases,
the media, annual reports of companies, etc.

17

Also included in secondary sources are schedules maintained for or by key personnel
in organizations, the desk calendar of executives, and speeches delivered by them. Much of
such internal data, though, could be proprietary and not accessible to all. The advantage of
seeking secondary data sources is savings in time and costs of acquiring information. Hence
it is important to refer to sources that offer current and up-to-date information. For this
research, the data is collected from the annual reports of the company from the year 20122015. The annual report can be considered as the most important and reliable source of
financial data.
TOOLS USED
The following are the financial tools used for analysis and interpretation of this study
which is based on receivables management.

Ratios.

Common size statement

Fund flow analysis

Ratio analysis tools used here are

Liquidity ratio

Profitability ratio

Activity ratio

Leverage ratio

18

1. Liquidity ratio

Current ratio

Quick ratio

Net working capital ratio

2. Profitability ratio

Gross profit margin

Net profit margin

Operating profit

3. Activity ratio

Inventory turnover ratio

Debtor turnover ratio

Collection period

4. Leverage ratio

Debt ratio

Debt equity ratio

Capital employed net worth

19

8. ANALYSIS AND INTERPRETATION

RATIO ANALYSIS
Ratio Analysis is a powerful tool financial analysis. Alexander Hall first presented it
in 1991 in Federal Reserve Bulletin. Ratio Analysis is a process of comparison of one figure
against other, which makes a ratio and the appraisal of the ratios of the ratios to make proper
analysis about the strengths and weakness of the firms operations. The term ratio refers to
the numerical or quantitative relationship between two accounting figures.

Ratio analysis of financial statements stands for the process of determining and
presenting the relationship of items and group of items in the statements. Ratio analysis can
be used both in trend analysis and static analysis. A creditor would like to know the ability of
the company, to meet its current obligation and therefore would think of current and liquidity
ratio and trend of receivable.

Major tool of financial are thus ratio analysis and Funds Flow analysis.

20

LIQUIDITY RATIOS
CURRENT RATIO
Current ratio is also known as short-term solvency ratio or working capital ratio.
Current ratio is used to assess the short-term financial position of the business. Current assets
are cash and those cash equivalent of a business which can be converted into cash within a
short period of time not exceeding a year. Cash in hand, cash at bank, bills receivables,
sundry debtors, accrued incomes, prepaid expenses, inventory, short term loans provided,
advance given etc are the examples of current assets.

Current liabilities are those obligations of a business, which are to be paid within in a
short period of time not exceeding a year. Bills payable ,sundry creditors, short term loan
taken, income tax payable, dividend payable, advance incomes, accrued expenses are the
examples of current liabilities. In other words, it is an indicator of the firm's ability to meet its
short-term obligations. Current ratio is calculated by using following formula:

Current assets
Current ratio

=
Current liabilities

21

TABLE NO: 1
TABLE SHOWING CURRENT RATIO

Year

Current Asset

Current Liability

Ratio

(in Rs)

(in Rs)

2010-2011

19,778.16

22,687.45

0.871

2011-2012

23,246.07

28,524.19

0.815

2012-2013

21,520.87

27,760.56

0.775

2013-2014

24,276.07

28,306.24

0.857

2014-2015

16,592.38

31,493.92

0.527

Source: Secondary data

INTERPRETATION

The above table reveals the current ratio in Hindustan Petroleum Corporation. Current
ratio shows in the year 2010-2011, 2011-2012, 2012-2013, 2013-2014 and 2014-2015 is
0.871, 0.815, 0.775, 0.857 and 0.527. The ratio increased from 2010-2011 (0.871) to 20112012 (0.815). Then the ratio decreased to 0.775 during 2012-2013. Then it increased during
the year 2013-2014 (0.857) and decreased to 0.527 during 2014-2015.
22

CHART NO: 1
CURRENT RATIO

0.871%

0.857%
0.815%

0.900%

0.775%

0.800%
0.700%
0.527%

Ratio

0.600%
0.500%
0.400%
0.300%
0.200%
0.100%
0.000%
2010-2011

2011-2012

2012-2013
Year

23

2013-2014

2014-2015

QUICK RATIO
Quick ratio is another measure of a company's liquidity. Quick ratio is also known as
liquid ratio or acid test ratio.
This ratio is used to assess the firms short term liquidity. The relationship of liquid
asset to current liabilities is known as quick ratio. It is otherwise called as liquid ratio or acid
test ratio.

However, although it is used to test the short-term solvency or liquidity position of the
firm, it is a more stringent measure of liquidity than the current ratio.

Liquid assets
Quick Ratio

=
Current Liabilities

Liquid assets = Total current asset - stock - prepaid expenses

24

TABLE NO: 2
TABLE SHOWING QUICK RATIO

Year

Quick Asset

Current Liability

Ratio

(in Rs)

(in Rs)

2010-2011

12470.78

22,687.45

0.549

2011-2012

11047.21

28,524.19

0.388

2012-2013

5145.51

27,760.56

0.185

2013-2014

12331.72

28,306.24

0.436

2014-2015

9412.83

31,493.92

0.299

Source: Secondary data

INTERPRETATION

The above table reveals the Quick ratio in Hindustan Petroleum Corporation. Quick
ratio shows in the year 2010-2011, 2011-2012, 2012-2013, 2013-2014 and 2014-2015 is
0.549, 0.388, 0.185, 0.436 and 0.299. The ratio decreased from 2010-2011 (0.549) to 20112012 (0.388). Then the ratio decreased to 0.185 during 2012-2013. Then it increased during
the year 2013-2014 (0.436) and decreased to 0.299 during 2014-2015.
25

CHART NO: 2
QUICK RATIO

0.600%

0.549%

0.500%

0.436%
0.388%

0.400%

Ratio

0.299%

0.300%
0.185%
0.200%

0.100%

0.000%
2010-2011

2011-2012

2012-2013
Year

26

2013-2014

2014-2015

NET WORKING CAPITAL RATIO

The net working capital ratio measures how well a company is utilizing its working
capital to support a given level of sales. Working capital is current assets minus current
liabilities. A high turnover ratio indicates that management is being extremely efficient in
using a firm's short-term assets and liabilities to support sales.

A measurement comparing the depletion of working capital to the generation of sales

over a given period is the working capital ratio. This provides some useful information as to
how effectively a company is using its working capital to generate sales.
The net working capital ratio measures the companys net sales from the working
capital generate. Note another ratio exists, the sales to interchange the usual components of
working capital.

Sales
Net Working Capital

=
Working Capital

27

TABLE NO: 3
TABLE SHOWING WOKING CAPITAL TURNOVER RATIO

Year

Sales

Working Capital

Times

(in Rs)

(in Rs)

2010-2011

133,671.82

1,981.84

67.448

2011-2012

178,335.82

1,583.10

112.649

2012-2013

206,731.26

2,525.56

81.855

2013-2014

223,271.33

2,030.30

109.969

2014-2015

206,626.18

2,414.66

85.571

Source: Secondary data

INTERPRETATION

The above table reveals the working capital turnover ratio in Hindustan Petroleum
Corporation. Working capital turnover ratio shows in the year 2010-2011, 2011-2012, 20122013, 2013-2014 and 2014-2015 is 67.448, 112.649, 81.855, 109.969 and 85.571. The ratio
increased from 2010-2011 (67.448) to 2011-2012 (112.649).

28

CHART NO: 3
CHART SHOWING NET WORKING CAPITAL RATIO

112.649%

109.969%

120.000%

85.571%

100.000%
81.855%

Ratio

80.000%

67.448%

60.000%

40.000%

20.000%

0.000%
2010-2011

2011-2012

2012-2013
Year

29

2013-2014

2014-2015

PROFITABILITY RATIOS
GROSS PROFIT RATIO
Gross profit margin shows the company can return income at the gross level. This
ratio helps to control inventory usage and production performance and fixing unit price of
goods. Firm must control production expenses such as raw material, freight and transport
expenses to have good gross profit margin.

This ratio determines the overall efficiency of the business. The relationship of gross
profit to sales is known as net profit ratio.

Gross profit
Gross Profit Ratio

100
Net sales

30

TABLE NO: 4
TABLE SHOWING GROSS PROFIT RATIO

Year

Gross Profit

Net Sales

Times

(Profit before tax)

(in Rs)

(in Rs)

2010-2011

2,352.97

133,671.82

1.75

2011-2012

1,219.73

178,335.82

0.68

2012-2013

1,361.17

206,731.26

0.65

2013-2014

2,673.88

223,271.33

1.19

2014-2015

4,149.65

206,626.18

Source: Secondary data

INTERPRETATION:

The above table reveals the gross profit ratio in Hindustan Petroleum Corporation.
gross profit ratio shows in the year 2010-2011, 2011-2012, 2012-2013, 2013-2014 and 20142015 is 1.75,0.68,0.65,1.19 and 2.

31

CHART NO: 4
GROSS PROFIT RATIO
2.00%
2.00%

1.75%

1.50%

Ratio

1.19%

1.00%
0.68%

0.65%

0.50%

0.00%
2010-2011

2011-2012

2012-2013
Year

32

2013-2014

2014-2015

NET PROFIT RATIO

Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as
percentage. The net profits are obtained after deducting income-tax and, generally, non
operating expenses and incomes are excluded from the net profits for calculating this ratio.

This ratio determines the overall efficiency of the business. The relationship of net
profit to sales is known as net profit ratio.

Net profit
Net Profit Ratio

100
Net sales

33

TABLE NO: 5
TABLE SHOWING NET PROFIT RATIO

Year

Net Profit

Net Sales

Times

(Profit after taxes)

(in Rs)

(in Rs)

2010-2011

1,539.01

133,671.82

0.011

2011-2012

911.43

178,335.82

0.005

2012-2013

904.71

206,731.26

0.004

2013-2014

1,733.77

223,271.33

0.007

2014-2015

2,733.26

206,626.18

0.013

Source: Secondary data

INTERPRETATION:

The above table reveals the net profit ratio in Hindustan Petroleum Corporation. Net
profit ratio shows in the year 2010-2011, 2011-2012, 2012-2013, 2013-2014 and 2014-2015
is 0.0110,0.005,0.004,0.007 and 0.013.

34

CHART NO: 5
NET PROFIT RATIO

0.013%
0.014%

0.012%

0.011%

0.010%
0.007%

Ratio

0.008%
0.005%
0.006%

0.004%

0.004%

0.002%

0.000%
2010-2011

2011-2012

2012-2013
Year

35

2013-2014

2014-2015

OPERATING PROFIT RATIO

Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales.
It is generally expressed in percentage. Operating ratio measures the cost of operations per
dollar of sales. This is closely related to the ratio of operating profit to net sales.

This ratio determines the operating efficiency of the business concern. Operating ratio
measure the amount of expenditure incurred in production, sales and distribution of output.
The relationship between operating cost to sales is known as operating ratio.

Cost of goods sold + Operating expenses

Operating Ratio

100

Net sales

36

TABLE NO: 6
TABLE SHOWING OPERATING PROFIT RATIO

Year

Operating Profit

Net Sales

Ratio

(in Rs)

(in Rs)

2010-2011

3,481.32

133,671.82

0.026

2011-2012

4,131.34

178,335.82

0.023

2012-2013

4,261.66

206,731.26

0.020

2013-2014

5,237.73

223,271.33

0.023

2014-2015

5,666.59

206,626.18

0.027

Source: Secondary data

INTERPRETATION:

The above table reveals the operating profit ratio in Hindustan Petroleum Corporation.
Operating profit ratio shows in the year 2010-2011, 2011-2012, 2012-2013, 2013-2014 and
2014-2015 is 0.026,0.023,0.020,0.023 and 0.027. The ratio decreased from 2010-2011
(0.026) to 2011-2012 (0.023). Then the ratio decreased to 0.020 during 2012-2013. Then it
increased during the year 2013-2014 (0.023) and again increased to 0.027 during 2014-2015.
37

CHART NO: 6
OPERATING PROFIT RATIO

0.027%

0.030%
0.026%
0.023%

0.023%

0.025%
0.020%

Ratio

0.020%

0.015%

0.010%

0.005%

0.000%
2010-2011

2011-2012

2012-2013
Year

38

2013-2014

2014-2015

ACTIVITY RATIOS
Receivables constitute a significant portion of the total assets of the business. When a
firm seller goods or services on credit, the payments are postponed to future dates and
receivables are created. If they sell for cash no receivables created.

Meaning

Receivable are asset accounts representing amounts owed to the firm as a result of
sale of goods or services in the ordinary course of business.

Purpose of receivables

Accounts receivables are created because of credit sales. The purpose of receivables is
directly connected with the objectives of making credit sales. The objectives of credit sales
are as follows

Achieving growth in sales.

Increasing profits.

Meeting competition.

Factors affecting the size of Receivables

The main factors that affect the size of the receivables are

Level of sales.

Credit period.

Cash discount.

39

Costs of maintaining receivables

The costs with respect to maintenance of receivables are as follows.

Capital costs

This is because there is a time lag between the sale of goods to customers and the
payment by them. The firm has, therefore to arrange for additional funds to meet its
obligations.

Administrative costs

Firm incur this cost for manufacturing accounts receivables in the form of salaries to
the staff kept for maintaining accounting records relating to customers.

Collection costs

The firm has to incur costs for collecting the payments from its credit customers.

Defaulting costs

The firm may not able to recover the over dues because of the inability of customers.
Such debts treated as bad debts.

Receivables management

Receivables are direct result of credit sale. The main objective of receivables
management is to promote sales and profits until that point is reached where the ROI in
further funding of receivables is less than the cost of funds raised to finance that additional
credit (i.e.; cost of capital). Increase in receivables also increases chances of bad debts. Thus,
creation of receivables is beneficial as well as dangerous.
40

Finally management of accounts receivable means as the process of making decisions

relating to investment of funds in this asset which result in maximizing the overall return on
the investment of the firm.

Receivables management and Ratio Analysis

Ratio Analysis is one of the important techniques that can be used to check the
efficiency with which receivables management is being managed by a firm. The most
important ratios for receivables management are as follows.

Inventory turnover ratio

Debtor turnover ratio

Debt collection period

41

INVENTORY TURNOVER RATIO

Inventory turnover is the ratio of cost of goods sold by a business to its average
inventory during a given accounting period. It is an activity ratio measuring the number of
times per period, a business sells and replaces its entire batch of inventory again.

This ratio is otherwise called as stock turnover ratio. It indicates whether stock has
been efficiently used or not. It establishes the relationship between the cost of goods sold
during a particular period and the average amount of stock in the concern.

Cost of Goods Sold

Inventory Turnover Ratio

=
Average Inventory

42

TABLE NO: 7
TABLE SHOWING INVENTORY TURNOVER RATIO

Year

Net Sales

Inventories

Times

(in Rs)

(in Rs)

2010-2011

133,671.82

16,622.28

8.041

2011-2012

178,335.82

19,454.53

9.167

2012-2013

206,731.26

16,438.70

12.546

2013-2014

223,271.33

18,775.41

11.891

2014-2015

206,626.18

12,972.26

15.928

Source: Secondary data

INTERPRETATION

The above table reveals the inventory turnover ratio in Hindustan Petroleum
Corporation. Inventory turnover ratio shows in the year 2010-2011, 2011-2012, 2012-2013,
2013-2014 and 2014-2015 is 8.041, 9.167, 12.546, 11.891 and 15.928. The ratio increased
from 2010-2011 (8.401) to 2011-2012 (9.167).

43

CHART NO: 7
INVENTORY TURNOVER RATIO

15.928%
16.000%
12.546%

14.000%

11.891%

12.000%
9.167%

Ratio

10.000%

8.041%

8.000%

6.000%

4.000%

2.000%

0.000%
2010-2011

2011-2012

2012-2013
Year

44

2013-2014

2014-2015

DEBTORS TURNOVER RATIO

Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of
debt collection of a firm. In simple words it indicates the number of times average debtors
(receivable) are turned over during a year.
This is also called as Debtors Velocity or Receivable turnover ratio. A firm sells
goods on credit and cash basis. When the extends credits to its customers, book debts are
created in the firms account. It is most essential that a reasonable quantitative relationship
between outstanding receivables and sales should always be maintained.

To solve the difficulty arising out of the non-availability of the information in respect
of credit sales and average debtors the alternative method is to calculate the debtors turnover
in terms of relationship between total sales and closing balance of debtors.

In other words, the DTR is a test of the liquidity of the debtors of a firm. The liquidity
of firms receivables can be examined in two ways they are DTR and Average Collection
Period.

Net Credit Sales

Debtors Turnover Ratio

=
Average Trade Debtors

45

TABLE NO: 8
TABLE SHOWING DEBTORS TURNOVER RATIO

Year

Total Sales

Debtors

Times

(in Rs)

(in Rs)

2010-2011

133,671.82

23,629.09

5.657

2011-2012

178,335.82

27,479.25

6.489

2012-2013

206,731.26

32,458.27

6.369

2013-2014

223,271.33

31,930.05

6.992

2014-2015

206,626.18

17,055.64

12.115

Source: Secondary data

INTERPRETATION

Debtors constitute an important constituent of current assets and therefore the quality
of the debtors to a great extent determines a firms liquidity. It shows how quickly
receivables or debtors are converted into cash. The higher the ratio, the better it is, since it
would indicate that debts are being collected promptly. The above table reveals the debtors
turnover ratio in Hindustan Petroleum Corporation. Debtors turnover ratio shows in the year
2010-2011, 2011-2012, 2012-2013, 2013-2014 and 2014-2015 is 5.657,6.489,6.369,6.992
and 12.115.
46

CHART NO: 8
DEBTORS TURNOVER RATIO

14.000%

12.115%

12.000%

10.000%

Ratio

8.000%

6.992%

6.489%

6.369%

5.657%
6.000%

4.000%

2.000%

0.000%
2010-2011

2011-2012

2012-2013
Year

47

2013-2014

2014-2015

DEBT COLLECTION PERIOD

Debtors collection period is nothing but the period required to collect the money
from the customers after the credit sales. A speed collection reduces the length of operating
cycle and vice versa. The more quickly the customers pay, the less risk from bad debts, the
lower the expenses of collection and more liquid the nature of this asset. It indicates the speed
with which debts are collected.

Days/months in a year
Debt collection period = _______________________________
Debtors turnover ratio

48

TABLE NO: 9
TABLE SHOWING DEBT COLLECTION PERIOD

Debt collection
Year

Days

Debt turnover ratio

period

365

5.657

2010-2011
365

6.489

2011-2012
365

6.369

2012-2013
365

6.992

2013-2014
365

12.115

2014-2015

64.27

56.31

57.38

52.20

30.12

Source: Secondary data

INTERPRETATION

The debt collection period of Hindustan Petroleum Corporation is worst. It is taking

more than a year for collecting debts. Standard Debt Collection Period of a firm is less than
90 days. The firm is maintaining good debt collection period. The debt collection period
gradually decreases. During 2013-2014 the debt collection period is 11.5 days. Debts can be
collected within 12 days by the firm. The ratio decreased from 2010-2011 (64.27) to 20112012 (56.31). Then the ratio increased to 57.38 during 2012-2013. Then it decreased during
the year 2013-2014 (52.20) and decreased to 30.12 during 2014-2015.

49

CHART NO: 9
DEBT COLLECTION PERIOD

70.00%

64.27%
57.38%

56.31%
60.00%

52.20%

50.00%

40.00%
Ratio

30.12%

30.00%

20.00%

10.00%

0.00%
2010-2011

2011-2012

2012-2013
Year

50

2013-2014

2014-2015

LEVERAGE RATIOS
DEBT RATIO
A company may raise debt in various ways. It may be in the form of debenture or loan
borrowed from financial or public institutions for a certain period of time at a specific rate of
interest. The debenture or bond may be issued at par, discount or premium. If forms the basis
for calculating cost of debt.

Formula

Interest
Debt ratio

100
Total debt

51

TABLE NO: 10
TABLE SHOWING DEBT RATIO
Year

Interest

Total debt

Cost of debt

( in Rs)

( in Rs)

( in % )

892.06

23,629.09

3.77

2,224.27

27,479.25

8.09

2,019.33

1832,458.27

0.11

1,336.36

31,930.05

4.18

706.59

17,055.64

4.13

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015
Source: Secondary data

INTERPRETATION

The above table depicts the cost of debt in Hindustan Petroleum Corporation It was
clear that the cost of debt shows a fluctuating trend during the five years of the study period.
The cost of debt was high in the year 2011-2012 with 8.09% and low in the year 2012-2013
with 0.11%. The ratio decreased from 2010-2011 (3.77) to 2011-2012 (8.09). Then the ratio
decreased to 0.11 during 2012-2013. Then it increased during the year 2013-2014 (4.18) and
decreased to 4.13 during 2014-2015.

52

CHART NO: 10
DEBT RATIO

8.09%

9.00%
8.00%
7.00%

Ratio

6.00%
4.18%

5.00%

4.13%

3.77%
4.00%
3.00%
2.00%
0.11%

1.00%
0.00%
2010-2011

2011-2012

2012-2013
Year

53

2013-2014

2014-2015

DEBT EQUITY RATIO

Debt Equity ratio is the ratio of total liabilities of a business to its shareholders'
equity. It is a leverage ratio and it measures the degree to which the assets of the business are
financed by the debts and the shareholders' equity of a business.
The financing total assets of a business concerns is done by owners equity as well as
outside debts. How much fund has been provided by the owners and how much by outsiders
in the acquisition of total assets is a very significant factor affecting the long-term solvency
position of a concern.

Total Liabilities
Debt Equity Ratio

=
Shareholders Equity

54

TABLE NO: 11
TABLE SHOWING DEBT EQUITY RATIO

Year

Long Term Debt

Share Fund

Ratio

(in Rs)

(in Rs)

2010-2011

36,174.90

339.01

106.707

2011-2012

40,601.77

339.01

119.765

2012-2013

46,184.67

339.01

136.233

2013-2014

46,942.21

339.01

138.468

2014-2015

33,077.73

339.01

97.571

Source: Secondary data

INTERPRETATION:

The above table reveals the debt equity ratio in Hindustan Petroleum Corporation.
Debt equity ratio shows in the year 2010-2011, 2011-2012, 2012-2013, 2013-2014 and 20142015 is 0.347,0.323 ,0.2970.319 and 0.484. The ratio increased from 2010-2011 (106.707) to
2011-2012 (119.765). Then the ratio increased to 136.233 during 2012-2013. Then it
increased during the year 2013-2014 (138.468) and decreased to 97.571 during 2014-2015.
55

CHART NO: 11
DEBT EQUITY RATIO

136.233%

138.468%

140.000%
119.765%
120.000%

106.707%

97.571%

100.000%

Ratio

80.000%

60.000%

40.000%

20.000%

0.000%
2010-2011

2011-2012

2012-2013
Year

56

2013-2014

2014-2015

CAPITAL EMPLOYED NETWORTH

Capital employed is presented as deducting the current liabilities from the current
assets. It can be defined as equity plus loans which are subject to interest. To define it
properly, capital employed can be expressed as the total amount of capital that has been
utilized for acquisition of profits. It also refers to the value of all assets (fixed as well as
working capital) employed in a business.
As explained by Investopedia, capital employed is a term that s used commonly, but is
a little difficult to be defined for it is used in different contexts. However, all the definitions
usually refer to the investment required for the functioning of a business. Employing
capital indicates making an investment in the business.
Formula for Capital Employed
The general formula used for computing capital employed is:
Capital employed Net worth = Total Assets Current Liabilities

57

TABLE NO: 12
TABLE SHOWING CAPITAL EMPLOYED NETWORTH

Year

Total assets

Current liabilities

(in Rs)

(in Rs)

Capital employed net

worth ratio
%

2010-2011

36,174.90

22,687.45

13,487.45

2011-2012

40,601.77

28,524.19

17,922.42

2012-2013

46,184.67

27,760.56

18,424.11

2013-2014

46,942.21

28,306.24

18,635.97

2014-2015

33,077.73

31,493.92

1,583.81

Source: Secondary data

INTERPRETATION:

The above table reveals the debt equity ratio in Hindustan Petroleum Corporation.
Debt equity ratio shows in the year 2010-2011, 2011-2012, 2012-2013, 2013-2014 and 20142015 is 13,487.45,17,922.42,18,424.11,18,635.97 and 1,583.81. The ratio increased from
2010-2011 to 2011-2012.

58

CHART NO: 12
CAPITAL EMPLOYED NETWORTH

17,922.42

20,000.00

18,424.11

18,635.97

18,000.00
16,000.00

13,487.45

14,000.00

Ratio

12,000.00
10,000.00
8,000.00
6,000.00
1,583.81

4,000.00
2,000.00
0.00
2010-2011

2011-2012

2012-2013
Year

59

2013-2014

2014-2015

9. FINDINGS
The following are the findings interpreted through financial performance analysis of
Hindustan Petroleum Corporation.

Current ratio was low during 2014-2015 with 0.527 % and high during 2010-2011
with 0.871 %

Quick ratio was high during 2010-2011 with 0.549 and low during 2012-2013
with the value 0.185

Working capital turnover ratio is low during 2010-2011 with the value 67.448 and
high during 2011-2012 with the value 112.64

Proprietary ratio was high with value 1.212 in 2010-2011. Low ratio was shown
during 2011-2012 with the value 0.170

Gross profit ratio was high during 2014-2015 with 2 and low during 2012-2013
with the value 0.65

Net profit ratio was high during last financial year 2014-2015 with 0.013 and low
during 2012-2013 with the value 0.004

Operating profit ratio was high during 2014-2015 with the value 0.027 and low
during 2012-2013 with the value 0.020. Overall it shows fluctuation trend.

Inventory turnover ratio shows increasing trend. The ratio was high during 20142015 with the value 15.928 and low during 2010-2011 with the value 8.041

Debtors turnover ratio was high during 2014-2015 with the value 12.115 and low
during 2010-2011 with the value 5.657

Even though Debt collection period remains similar in all years, the ratio was little
low during 2014-2015 with the value of 30.12

60

Debt ratio was high during 2011-2012 with the value 8.09 and low during 20122013 with the value 0.11

Debt equity ratio was high during 2013-2014 with the value 138.46 and low
during 2014-2015 with the value 97.57

Capital Employed Net worth ratio was high during 2013-2014 with the value
18,635.97 and low during 2014-2015 with the value 1,583.81

Cash ratio was high during 2014-2015 with the value 1.09 and low during 20112012 with the value 0.35

Creditors turnover ratio was high during 2010-2011 with the value 0.078 and low
during 2014-2015 with the value 0.053. The Creditors turnover ratio of Hindustan
Petroleum Corporation shows decreasing trend in last 5 years

Cash to current assets turnover ratio was high during 2012-2013 with the value
5.84 and low during 2011-2012 with the value 0.90

Cash turnover ratio was high during 2011-2012 with the value 17.81 and low
during 2014-2015 with the value 5.99

61

10. SUGGESTIONS
The following are the suggestion made to the company for the development, they are
as follows

The company has to no change its debt equity proposition by introducing more
equity fund rather than paying high rate of interest on debt.

In future the company can use equity capital for long term obligations and debt capital
for the short term obligations as equity capital is best suitable for long run and debt
capital is best suited for activities.

Equity capital should be maintained at the same level.

The financial decision of the company should be shaped in such a way, that it should
support the companys capital structure.

The company has to retain its leadership position in the tires industries and it can try to
get first position.

Fixed assets should be managed efficiently.

62

11. CONCLUSION
The present business world is becoming more complex because of its dynamic nature.
Low rate of financial leverage indicates a low interest outflow and consequently lower
borrowings in the company. The result of capital structure and financial analysis of Hindustan
Petroleum Corporation reveals that its operations during the study period were satisfactory.
Financial management means the entire gamut of managerial efforts devoted to the
management of finance both its resources and its uses in the enterprise. It is being rightly said
that business needs money to make more money. Hence efficient management of even
business enterprise is closely linked with efficient management of its finance. The overall
result of capital structure and financial analysis of Hindustan Petroleum Corporation reveals
that its operations during the study period were satisfactory.

63

BIBLIOGRAPHY
Books

Brian Kline, Financial Statement, Atlantic publishing company, New York,

2007.

I.M. Pandey- Financial Management, Vikas publishing house, New Delhi, 1999.

Mukherjee & Hanif, Financial Accounting, Tata McGraw-Hill Education, 2003

R. Kothari , Research methodology, Wilry Estern ltd., New Delhi, 2003.

R.S.N. Pillai & V. Bagavathi, Statistics, S. Chand & Company ltd., New Delhi,
2000.

Journals

ICFAI journal of Applied Economics

Thomson Reuters Journal Citation Reports

Web Sources

http://fortune.com/global500/

http://www.moneycontrol.com/india/stockpricequote/refineries/hindustanpetroleu
mcorporation/HPC

https://en.wikipedia.org/wiki/Hindustan_Petroleum

www.economictimes.com

www.hindustanpetroleum.com/

64