COMPANY PROFILE

1.1 HISTORY OF THE ORGANISATION The story of oil exploration in India began in the dense jungles and swamps of Assam in the 19th century. United by geography with Burma and caught up in the crosscurrents of history, the region had the common blessing of commercial oil. Digboi Well No-1(1889-1890):- The well, started in September 1889, was completed in November 1890 as a producer at a total depth of 662 ft, with an initial production of 200 gallons per day. The decision to drill was taken by the Directors of the AR&T Co. in 1888 under the direction of Mr. W L Lake, an employee of the company and an oil enthusiast. Uphill and Downhill (1890 1920):- After the successful completion of the first well, Digboi Well No-2 was started in February 1891 in the same area, only to be abandoned as dry at 720 ft. The drilling activities of AR&T progressed satisfactorily with 11 wells yielding oil in 1894. A new firm the Assam Oil Company (AOC), led by the same Chairman, Lord Ribblesdale - was promoted in 1899 to take over the petroleum interests of AR&T, including the Digboi and Makum concessions. The AOC inherited 14 producing wells, with a total production of 50 barrels of oil per day. Almost immediately on inception, the company expanded the concessional area of the field by purchasing the rights of the Assam Oil Syndicate. In 1912 the rotary system was introduced, Well 47 being the first well to be drilled by this
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method. Production almost trebled from 43 bpd in 1901 to 120 bpd in 1902, rising steadily to 247 bpd in 1911, and reaching a maximum of 435 bpd in 1917. By 1920, the AOC had completed 80 wells with a total average production of 350 bpd.

After math of Success (19531959):-The Nahorkatiya oilfield was discovered in 1953. However, by 1956 only 16 wells had been drilled, and evidence suggested subsurface faults which could have acted either as barriers or conduits to oil movement. Despite this meagre evidence, the AOC announced in September 1956 that proved and probable reserves in the Nahorkatiya area were sufficient to plan a production target of nearly 2.5 million tons of oil per year with 45 million cubic feet of gas per day. On the basis of this assurance, fortified later in the year by new discoveries at Hugrijan and Moran, a public sector refinery was initiated in 1959 at Guwahati with help from Romania. The success of Naharkatiya Well No-1 set in motion a series of activities. The Burma Oil Company signed a Promotion Agreement with the Government of India (GoI) in January 1958 to form a company - Oil India Private Limited (OIL) - to take over the management of the AOC-discovered fields of Nahorkatiya and Moran. OIL was incorporated on 18 February 1959, with two-thirds of the shares held by BOC and the rest by GOI. The Agreement assured Burma Oil a dividend of 10% and Digboi Refinery 1.3 million barrels of oil per year. Mr.W.P.G. Maclachlan, a key player in the negotiation ,became the first Chairman of, OIL.

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INTRODUCTION OF THE ORGANISATION

Oil India Limited

Type Industry Founded Headquarter s Key people

State-owned enterprise Oil and Gas February 18, 1959

Duliajan, India

Nayan Mani Borah (Chairman & MD) Fuels

Products

Lubricants Petrochemicals 8072.80 crore (US$ 1.53 billion) (200910) 2619.52 crore (US$ 497.71 billion)

Revenue

Profit

(2009-10) Working capital Page Oilindia.nic.in

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Website

The journey of oil exploration in India began in the dense jungles and swamps of Assam in the 19th century, in the year 1889. United by geography with Burma and caught up in the cross-currents of history, the region had the common blessing of commercial oil.

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Oil India (OIL) is a large state-owned oil and gas company in India under the administrative control of the Ministry of Petroleum and Natural Gas of the Government of India. OIL is engaged in the business of exploration, development and production of crude oil and natural gas, transportation of crude oil and production of liquid petroleum gas. The story of Oil India Limited (OIL) traces and symbolises the development and growth of the Indian petroleum industry. From the discovery of crude oil in the far east of India at Digboi, Assam in 1889 to its present status as a fully integrated upstream petroleum company, OIL has come far, crossing many milestones. On February 18, 1959, Oil India Private Limited was incorporated to expand and develop the newly discovered oil fields of Naharkatiya and Moran in the Indian North East. In 1961, it became a joint venture company between the Indian Government and Burma Oil Company Limited, U.K. In 1981, OIL became a wholly-owned Government of India enterprise. Today, OIL is a premier Indian National Oil Company engaged in the business of exploration, development and production of crude oil and natural gas, transportation of crude oil and production of LPG. OIL also provides various E&P related services and holds 26% equity in NRL.

The Authorized share capital of the Company is Rs. 500 Crores. The Issued, Subscribed and Paid share capital of
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the company is Rs. 240.45 Crores. At present, The Government of India, the Promoter of the Company is holding 78.43% of the total Issued & Paid-up Capital of the Company. The balance 21.57% of the Equity capital is held by others. OIL has over 1 lakh sq km of PEL/ML areas for its exploration and production activities, most of it in the Indian North East, which accounts for its entire crude oil production and majority of gas production. Rajasthan is the other producing area of OIL, contributing 10 percent of its total gas production. Additionally, Oils exploration activities are spread over onshore areas of Ganga Valley and Mahanadi. OIL also has participating interest in NELP exploration blocks in Mahanadi Offshore, Mumbai Deepwater, Krishna Godavari Deepwater, etc. as well as various overseas projects in Libya, Gabon, Iran, Nigeria and Sudan. In a recent CRISIL-India today survey, OIL was adjudged as one of the five best major PSUs and one of three best energy sector PSUs in the country. In the year 2010 OIL also achieved Navratna Award from the government of India. The company has over 100,000 square kilometers of license areas for oil and gas exploration. It has emerged as a consistently profitable international company with exploration blocks as far as Libya and sub-Saharan Africa. In recent years, OIL has stepped up E & P activities significantly including Gas monetization in the North-East
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India. OIL has set up the NEF (North East Frontier) project to intensify its exploration activities in the frontier areas in North East, which are logistically very difficult and geologically complex. Presently, seismic surveys are being carried out in Manbhum, Pasighat and other Trust Belt areas. The Company operates a crude oil pipeline in the North East for transportation of crude oil produced by both OIL and ONGCL in the region to feed Numaligarh, Guwahati, Bongaigaon and Barauni refineries and a branch line to feed Digboi refinery.

1.2 OILs Core Purpose Statement The fastest growing energy company with global presence providing value to stakeholders OIL's Vision Oil India is the fastest growing Energy Company with highest profitability. Oil India delights the customers with quality products and services at competitive prices. Oil India is a Learning and Organization, aspirations nurturing with best

initiatives, practices.

innovations

Oil India is a team, committed to honesty, integrity, transparency and

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 Oil India is fully committed to safety, health and environment. Oil India is a responsible corporate citizen deeply committed to socio-economic development in its areas of operations.

1.3 INCEPTION OF OIL In 1953, the first oil discovery of independent India was made at Nahorkatiya near Digboi and then at Moran in 1956. The success at Nahorkatiya was the culmination of a long story of failure, frustration and despair in the oil exploration activities of Upper Assam. It was also the prelude to a string of oil exploration programmes elsewhere in the country. Oil India Private Ltd. was incorporated on February, 18, 1959, for the purpose of development and production of the discovered prospects of Nahorkatiya and Moran and to increase the pace of exploration in the Northeast India. It was registered as a Rupee Company with two-third shares owned by AOC/BOC and one-third by the Government of India (GOI). By a subsequent agreement on 27th July, 1961, GOI and BOC transformed OIL to a Joint Venture Company (JVC) with equal partnership. OIL remained a Joint Venture Company for over two decades. On 14th October, 1981 Oil India Limited
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(OIL) became a wholly owned Government of India enterprise by taking over BOC's 50% equity and the management of Digboi oilfields changed hands from the erstwhile AOC to OIL. During this span of time, a total of 1001 wells were drilled in the Digboi oilfield in an area of only 13 sq. kms. with peak production achievement of 900 Kilo Liters per day (KLPD).

1.4 PRESENT ACTIVITIES The Company presently produces around 3.30 MMTPA of crude oil (around 59,000 barrels per day), over 5 MMSCMD of Natural Gas and over 50,000 Tonnes of LPG annually. Most of this emanates from its traditionally rich oil and gas fields concentrated in the North-Eastern part of India. OIL's intensely rich oilfields in upper Assam include Naharkatiya (since 1953), Moran (since 1956) and Jorajan (since 1967) which are under production till date. Some of its recent oilfields include those in Dikom, Kathaloni and Shalmari oilfields. The search for newer avenues has seen OIL spreading out its operations in the offshore of Orissa, desert of Rajasthan, plains of Utter Pradesh, riverbeds of Brahmaputra and Coastal of Saurasthra and Cauvery basin

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1.5 OIL's CORPORATE OBJECTIVES OIL Believes "superlative efforts precede superlative results". To serve that very purpose, OIL has set the highest challenges for itself to measure up to. Its Organisational agenda is to : Accelerate exploratory efforts increase hydrocarbon reserves. in order to

Speedy development of discovered fields and increase recovery from depleting and developed fields, To augment crude oil and gas production. Ensure adequate return on capital by capacity utilisation, cost effectiveness and optimum productivity. Ensure proper development utilization of human resources.
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 Diversify into the field of oilfield services: indigenous and overseas. Undertake overseas venture in exploration, development of oil and natural gas resources. Promote oil related research and development activities. Maintain a professional and efficient corporate character. Maintain and promote environmental - friendly measures. Enhance safety measures in operations.

1.6 BUSINESS OPPORTUNITIES With the liberalization policy of the Government of India and keeping in view the dismantling of the Administered Pricing Mechanism, the Company decided to expand its business activities both within and outside the country and also into hydrocarbon related ventures like gas based power generation, etc. In the E&P sector, within the country, the Company has signed Production Sharing Contracts (PSC) with private companies like Essar Oil, Hindustan Oil Exploration Company (HOEC), General Fiber Dealer Ltd. (GFDL), Polish Oil and Gas Company (POGC), Geoenpro Petroleum Limited, Enpro India Limited,
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Geopetrol International Limited, etc.

Inc,

Reliance

Industries

Within the country, the Company besides bidding on its own has joined hands with ONGCL, GAIL and IOC in acquiring blocks for exploration offered under New Exploration Licensing Policy (NELP) of the Government of India. Outside the country, the company is actively looking for opportunities overseas and is examining few of the offers. The Company has joined hands with ONGCVidesh and IOC to jointly bid for an Exploration Service Contract in Iran. Additionally, the Company has the requisite experience and expertise to provide oilfield services like drilling, cementing, oilfield management, 2-D land and 3-D seismic data acquisition and processing etc. and would welcome opportunities to provide these services.

The Company is in the process of providing technical consultancy to a private party in bidding for and development of marginal oil field in Nigeria. Within the country, and specifically in the NORTH EAST, the Company would also welcome business opportunities in the gas based industries including power sector, trunk pipeline ventures, back-up facilities for lease of telecommunication bandwidths, etc.
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1.7 ACHIEVEMENTS OIL bags India Pride Awards Oil India Limited received the silver award in the Oil & Gas category of India Pride Awards -Dainik Bhaskar group. The award was received by Shri N.M. Borah, Chairman & Managing Director, Oil India Limited. OIL Receives PSU award Oil India Limited received the Heavyweight Miniratna PSU award at the 2nd, Dalal Street
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Investment Journal PSU Award 2010, ceremony at New Delhi on 6th April, 2010. OIL bags "PSU with the highest Book Value" award Oil India Limited was conferred with the PSU with the highest Book Value award by Dalal Street, the renowned Financial and Investment Journal. The award was given away by the Honble Chief Minister of Delhi Shrimati Sheila Dikshit at a glittering ceremony at New Delhi on 24th March, 2009. Shri N.M. Borah, Chairman and Managing Director, while accepting the award thanked the organizers for instituting the award and gave the credit for the recognition to the employees of Oil India Limited.

1.8 Awards & Accolades

Rated No. 1 Public Sector Company, 2006 by the Department of Public Enterprises, Government of India based on performance "Excellent" performance rating by Government of India for past 4 years
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 Performance Excellence Award, 2005-06 by the Indian Institution of Industrial Engineering (IIIE) Counted among the 5 Best Public Sector Undertakings and the 3 Best in the Energy Category by the India Today-CRISIL Survey in 2005 Best Project Award for Corporate Social Responsibility, 2005 by TERI, among 130 participating companies Corporate Social Responsibility Award, 2003-04, by TERI for good corporate citizenship and sustainable initiatives among companies with turnover above Rs 500 crore Green Tech Award for Environment Management, 2002 Golden Peacock Award Responsibility, 2002 for Corporate Social

Special Commendation Award for Human Resource Management, 2001-2002 by National Petroleum Management Programme - for OILs continuously evolving technology and business environment and the Companys initiatives to enhance safety in operations and quality of work life via good practices Excellent Performing Public Sector Enterprise Award, 1998-99 "Excellent" performance rating by Government of India for 1997-98, 1998-99 and 1999-2000 Longest Accident Free Period - 1997-98, 1998-99 Excellent Performing Public Sector Enterprise Award, 1998-99
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 Excellence in Riverbed Survey Award, 1998-99 Best Oil & Gas Processing Unit Award, 1997-98 International Green Land Society National Award, 1997-98 for best energy conservation and implementation Corporate Performance Award 1985 from Harvard Business School Association of India and Economic Times Ranked 1 fir Profitability in terms of paid-up capital, net assets and sales from 1981-82 to 1983-84 by the Indian Institute of Public Opinion, among 100 largest corporate enterprises in India

1.9 Accreditations
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 ISO-9000:2000 Certification System) : LPG Plant

(Quality

Management

ISO-9001:2000 Certification: Gas Based Power Plant ISO-9000:2000 (Quality Management System) : Trunk Pipeline ISO: 9001:2000: OIL Hospital at Duliajan ISO-14001 (Environment Management) : Trunk Pipeline OHSAS 18001 (Occupational Health Assessment Series) : Trunk Pipeline and Safety

ISO/IEC 17025: 2005 accreditation by NABL, Government of India for OILs R&D Department, the first among E&P company laboratories to get this accreditation

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1.9 EXPLORATIONS OILs systematic and scientific approach to exploration has been rewarded with a high success ratio of 65% of exploratory wells drilled. OIL also possesses 2D and 3D seismic data acquisition capabilities, with excellent support services ranging from satellite navigation systems to remote blasting units. OIL owns a vast array of advanced computing systems and experienced personnel to process and interpret geoscientific data through integrated exploration applications such as Remote Sensing, Structural and Stratigraphic Interpretation, Seismic Attribute Analysis, Source Rock Evaluation, Biostratigraphy, Petrophysics, Sequence Stratigraphy, Basin Analysis, Techno-economic Evaluation, etc. Formation evaluation through an integrated approach of geological, geophysical, geo-chemical and reservoir engineering studies has allowed OIL to develop and exploit deep (3500-4700 m) thin sand prospects. Today, these reservoirs contribute over 50% of OILs production. It is envisaged that the current introduction of extensive 3D seismic will assist in reservoir management in both new as well as ageing fields, heralding a new chapter in reservoir engineering studies. OIL has so far acquired, processed and interpreted over 70,000 line km of 2D and 5,000 sq km of 3D seismic data in a variety of terrains, including hills, deserts, rivers, marshes, etc.

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1.10 Reservoir Management OIL has pioneered the implementation of the concepts of modern reservoir management in the Indian oil industry. Numerical reservoir simulation, introduced by OIL in India for the first time in the early seventies, has remained its forte since inception. Simulation has been used as an important tool for management planning, production forecasting and decision making. Based on numerical simulation studies, gas and water injection, and water and polymer flooding projects have been successfully implemented in OILs fields, yielding recoveries averaging over 20% in excess of the recoverable solely by primary depletion. OIL has also developed special expertise in reservoir management of ageing fields. Today, OIL has state-of-theart numerical reservoir simulators with dedicated workstations and a valuable knowledge-base to handle costeffective reservoir evaluation, development and management in all demanding environments. An integrated database management system designed and developed in-house has been extremely efficient in processing / analysing reservoir monitoring data. Apart from routine activities for reservoir surveillance, many other operations such as transient well tests, nodal analysis, collection of crude / condensate / gas samples for PVT
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analysis, analysis of side-wall and conventional cores, etc. are carried out as an integral part of reservoir management.

1.11 PRODUCTION and SPECIAL SERVICES OIL has accumulated over a hundred years of experience in oil and gas production since the discovery of Digboi oilfield in 1889. From well completion to well bore servicing, installation, operation and maintenance of modern surface handling facilities, OIL has the expertise to manage the entire range of operations required for onshore oil and gas production. About 50% of crude oil production comes from depleting oilfields. Artificial lifting and EOR techniques adopted since late 1960s have played an important role in augmenting production and enhancing the ultimate recovery from these oilfields.
CRUDE OIL PRODUCTION PERFORMANCE CRUDE OIL PRODUCTION YEAR in(MMT) 200607 3.017 200708 3.101 200809 3.468 200910 3.572 201011 3.568
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201112

3.842

OIL produces around 5 MMSCUMD of natural gas and has a dedicated pipel in network for collection and supply of gas as fuel and feedstock to nearby industries such as refineries, fertilizer and petrochemical plants, power generation plants and 200 tea gardens. Over 90% of the internal energy requirement of varied oilfield plants and equipment is met by natural gas.
GAS PRODUCTION PERFORMANCE YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 GAS PRODUCTION in (MMSCM) 2264.57 2340.46 2268.38 2415.6 2471.899 2178.15

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OIL utilises a SCADA (Supervisory Control and Data Acquisition) system for online monitoring of production, injection, storage-cum-flowback and distribution of natural gas. It has the expertise to design, install and commission gas compressor stations and gas collection and distribution networks. OIL achieved natural gas production of 2264.57 MMSCUM and sale 1767.505 MMSCUM during 2006-2007.
PRODUCTION PERFORMANCE OF LPG YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 LPG PRODUCTION in (MT) 43750 48165 47610 44950 45010 52020

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An LPG plant was set up in 1982 to process 2.2 MMSCMD of gas using the Turbo Expander Technology for the first time in Asia. This plant is producing over 50,000 MT of LPG annually with feedstock supplied from Oils internal gas production, due to efficient operation and maintenance. The plant also handles LPG bottling.

PIPELINE OIL, the pioneer in crude oil transportation in south-east Asia, owns and operates 1,432 km of cross-country crude oil pipelines. Commissioned in 1962, Oils crude oil pipeline traverses 79 river crossings, including the mighty Brahmaputra River rushing through paddy fields, tropical rain forests and the worlds greatest watershed zone - the Teesta Area. The state-of-the-art pipeline can transport over 8.0 MTPA of crude oil, feeding 4 Public Sector Refineries in North-east India. OIL owns 10 crude oil pumping stations and 17 repeater stations spread across the eastern India states of Assam, West Bengal and Bihar. SPECIALIZED SERVICES
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 Hot Tapping Stoppling Pipe Cutting and Shearing off RESEARCH & DEVELOPMENT OIL is carrying out research and field trials in development of intelligent Cathodic Protection System, which will help in acquisition and monitoring of real time PSP data and control of impressed current and voltage, besides mitigating abnormal conditions, to keep the pipeline and associated systems under protection at all times and in all conditions.

1.12 PERFORMANCE The company has been consistently showing excellent financial performance over the year and has been able to build up a strong financial base. The company has been able to improve the financial position year after year because of
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sound financial management. The company has also been able to maintain a consistently healthy return on its capital employed. FINANCIAL PERFORMANCE OF NET WORTH, REVENUE, PROFIT (Rs. In bn)
PERFORMANCE OF NET WORTH, REVENUE, PROFIT (RS in bn)
YEAR 200607 200708 200809 200910 201011 201112 NET WORTH 64 79 93.31 137.45 156.02 180.71 REVENUE 54 61 72.41 79.06 83.03 98.63 PROFIT 16 18 22 26.11 28.88 34.47

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FINANCIAL PERFORMANCE OF PROFITABILITY OF OIL DULIAJAN

PROFITABILITY OF OIL DULIAJAN
YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 PBIDT 27.56 30.57 37.73 43.8 48.05 45 PBT 24.83 27.13 33.87 38.95 43.13 51.02 PAT 16.4 17.89 21.62 26.11 28.88 34.47

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FINANCIAL PERFORMANCE OF DIVIDEND PAYOUT DIVIDEND PAYOUT

YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 DIVIDEND in % of PAT 33.93 32.9 30.19 31.32 31.23

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FINANCIAL PERFORMANCE OF DISTRIBUTED DIVIDENDS

DISTRIBUTED DIVIDENDS (%) YEAR 200607 200708 200809 200910 201011 201112 DIVIDENDS 260 275 305 340 375

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FINANCIAL PERFORMANCE OF EARNING PER SHARE OF OIL INDIA

EARNING PER SHARE OF OIL YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 EPS 77 84 101 114 120 143

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FINANCIAL PERFORMANCE OF DEBT EQUITY RATIO OF OIL INDIA

DEBT EQUITY RATIO YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 RATIO 0.12 0.02 0.006 0.003 0.066

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FINANCIAL PERFORMANCE OF BOOK VALUE PER SHARE (Rs.)

BOOK VALUE PER SHARE (Rs)
YEAR 200607 200708 200809 200910 201011 201112 BOOK VALUE PER SHARE 320 371 436 572 649

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FINANCIAL PERFORMANCE OF RETURN ON NET WORTH RETURN ON NET WORTH (%)

YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 RETURN ON NET WORTH (%) 23.94 22.55 23.17 18.99 18.51

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1.13 50 GLORIOUS YEARS OF OIL Its celebration time for Team OIL and the

Companys FLASHBACK:

stakeholders!

By arrangement with the AR&T Co Ltd., the Burma Oil Company (BOC) of UK, which was at that time operating in Burma across the Patkai Hills, took over the operation of the Assam Oil Company of the in 1921. BOC/AOC and continued intensified development Digboi oilfield

exploration activities. In 1953, the first oil discovery of independent India was made at Nahorkatiya, repeated at Moran in 1956. Oil India Private Ltd. was incorporated on February 18, 1959 for the development and production of the discovered prospects of Nahorkatiya and Moran and to increase the pace of exploration in Northeast India. It was registered as a
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Rupee Company with two-third shares owned by AOC/BOC and one-third by the Government of India (GoI). Via a subsequent agreement on July 27, 1961, GoI and BOC transformed OIL into a Joint Venture Company (JVC) with equal partnership. OIL remained a JVC for over two decades. On October 14, 1981 Oil India Limited (OIL) became a wholly-owned GoI enterprise by taking over BOCs 50% equity, and the management of Digboi oilfield changed hands from the erstwhile AOC to OIL.

GOLDEN JUBILEE CELEBRATIONS OIL has celebrated two milestone years till date. First was the Silver Jubilee Year 1984, and second, a hundred years of the discovery of crude oil in Digboi in 1989. The Digboi discovery was celebrated primarily because OILs legacy has its roots in Asias first and the worlds second commercially successful oil exploration activity at Digboi, Assam in 1889. The Silver Jubilee Year was celebrated in 1984 because on February 18, 1959, Oil India as a Company (Oil India Private Limited) was born. Though the nature of ownership changed from the private sector to the public sector, Oil India in essence retained its name and continued to carry out its core activity as an E&P company. Today as the pioneering and second-largest national upstream Oil and Gas Company with
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a pan Indian presence and growing global footprint, OIL is all set to conquer newer horizons of all-round growth and excellence.

2. METHODOLOGY USED
Methodology of the study refers to the methods used to collect the required data for research work. The data required has been collected from the following sources:

PRIMARY SOURCES:
Discussions with the management. Briefings with the concerned officers.

SECONDARY SOURCES:
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 The secondary data of the organization helped me a lot. I have collected all the figures from the Annual Reports and Financial Statements of Oil India Ltd. Records of the company: This helped me to get details regarding the history of the organization. Library Research: A number of books on finance were referred to collect the oriental background related to finance. Oil India Ltd website.

3. CONCEPTS OF WORKING CAPITAL AND ITS WORKING

3.1 Working capital (abbreviated WC) is a financial metric which represents operating liquidity available to a business, organization or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is calculated as current assets minus current liabilities. It is a derivation of working capital that is commonly used in valuation techniques such as DCFs (Discounted cash flows). If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.
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There are 2 concepts of working capital : Gross and Net. The term gross working capital also referred to as a working capital means the total current assets. The term net working capital can be defined in 2 ways. The most common definition of net working capital is the different between current assets and current liabilities Alternate definition of net working capital is that portion of current assets which is financed with long term funds.

Net Working Capital = Current Assets Current Liabilities Net Operating Working Capital = Current Assets Non Interest-bearing Current Liabilities Equity Working Capital = Current Assets Current Liabilities Long-term Debt

A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash

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3.2DETERMINANTS OF WORKING CAPITAL: Numbers of rules are formulated to determine the working capital requirement of the firm. a large number of factors influence the working capital needs of the firm. All these factors have different importance, also the importance of the factor change for a firm over time. Therefore analysis of the relevant factor should be made in order to determine the total investment in working capital requirements of the firm. Nature and size of business Seasonality of operation Production policy Marketing conditions Business cycle fluctuation Credit policy Conditions of supply Working capital policy Current assets in relation to sales

NET WORKING CAPITAL OF OIL INDIA LIMITED FOR THE LAST 6 YEARS

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TEMS

200607

200708

200809 501 404.73 6070.01 352.47 0.07

2000910

201011

2011-12

INVENTO RIES DEBTORS CASH & BANK INTEREST ACCRUED INTEREST ON INVESTM ENT LOAND & ADVANCE S GROSS WORKING CAPITAL CURRENT LIABILITIE S PROVISIO NS NET WORKING CAPITAL

533.32 1051.81 10935.48 701.62

1027.14 8355.35 1463.67 1627.70 5263.99

1205.86

3141.86

1216.69 12806.64

Working Capital Management

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Working capital management involves the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash. In other words Working Capital is the money used to make goods and attract sales. The less Working Capital used to attract sales, the higher is likely to be the return on investment. Working Capital management is about the commercial and financial aspects of Inventory, credit, purchasing, marketing, and royalty and investment policy. The higher the profit margin, the lower is likely to be the level of Working Capital tied up in creating and selling titles. The faster that we create and sell the higher is likely to be the return on investment.

NEED FOR WORKING CAPITAL: In order earn sufficient profits a firm has to depend on its sales activities apart from others . We know that sales are not analysis converted into cash immediately. i.e, there is a time lack between the sale of a product and the realization of cash so, an adequate amount of working capital is required by a firm in the form of different current assets for its activities to continue un interrupted and to tackle the problem that may arise because of the time lay. Practically this happens simply owing to the operating cycle (or) cash cycle, involves the following steps.

Conversion of cash into inventory. Conversion of inventory into receivables. Conversion of receivables into cash.

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The task of the financial manager in managing working capital efficiency is to ensure sufficient liquidity in the operation of the enterprise. The liquidity of a business firm is measured by its ability to satisfy short term obligations as they become due. The three basics measure of a firms overall liquidity are: The acid test ratio The net working capital The current ratio In brief , they are useful in inter firm comparison of liquidity . Net working capital as a measure of liquidity, is not very useful for comparing the performance of different firms, but it is quite useful for internal control. The net working capital helps in comparing the same firm over time. NATURE OF WORKING CAPITAL: The term working capital refers to current assets which may be defined as

Those which are convertible in to cash or equivalents with in a period of one year and Those which are required to meet day operations.

This fixed assets as well as current assets, both required investment of funds. So, the management of working capital and of fixed assets, appearently seen to involve same type of consideration but it is not so. The management of capital involves different concepts and methodology than the techniques used in fixed assets management. The reason for this different is obvious. The very basics of fixed assets decision process (i.e the capital budgeting) and the working capital decision process are different. The fixed assets involve long period perspective and therefore, the concept of time value of money is applied where as in working capital the time horizon is limited, in general, to one year
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only and the time value of money concept is not considered. The fixed assets the long term profitability of the while the current assets affect the short term liquidity position. Managing current assets may require more attention than managing fixed assets. The financial manager must.

Therefore continuously monitor the assets to ensure that the desire levels are being maintained. Since the amount of money invested in current assets can change rapidly. So does the financing required. Miss management of current assets can be costly. Too large an investment in current means tying up funds that can be productively used else where (or it means added interest cost if the firm has borrowed funds to finance the investment in current assets). Excess investment may also expose the firm to undue risk. Example: In case, the inventory cannot be sold or the receivable cannot be collected. On the other hand, too little investment also can be expensive for example: insufficient inventory may mean that sales are lost as the goods which a customer wants are not available. The results is that financial managers spend a large chunk of their time managing the current assets because level of these assets changes quickly and a lack of attention paid to them may result in appreciably lower profits for firm. So, in the working capital management, a financial manager is faced with decisions involving some consideration as follows:

What should be the total investment in working capital of the firm? What should be the level of individual current assets? What should be the relative proportion of different sources to financial the working capital requirements?
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Thus the working capital management may be defined as the management of firms sources and uses of working capital in order to maximize the wealth of the share holders. The proper working capital management requires both the medium term planning (say up to 3 years) and the immediate to changes arising due to fluctuation in operating levels of the firm.

THE OPERTING CYCLE AND THE WORKING CAPITAL NEEDS: The working capital requirement of a firm depends, to a great extent up on the operating cycle of the firm. The operating cycle may defined as the duration from the procurement of goods or raw materials and ending with sales realization. The length and nature of the operating cycle may differ from one firm to another depending up or the size and nature of the firm. In a treading concern there is a serious of activities starting from procurement of goods ending with realization of sales revenue. Similarly in case manufacturing concern . This serious start form procurement of raw material and ending with the sales realization of finished foods. In both the cases however there is a time gap between the happening of the first event and the happening of last event . This time gap is called operating cycle. Thus the operating cycle of a firm consists of time required for the completion of chronological sequence of some or all of the following:

Procurement of raw material and services Conversion of raw material in the work in progress. Conversion of work in progress in to finished goods.
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Sales of finished goods. (Cash or credit). Conversion of receivable into cash.

Figure 1: Operating cycle

CASH

RAW MATERIAL

CONVERSI ON OF RECEIVABL ES

WORK IN PROGRESS

SALES

FINISHED GOODS

The firm is after required to extend credit facilities to customers. The finished goods must be kept in store to take care of the orders and minimum cash balance must be maintained. It must also have minimum of raw material to have smooth and uninterrupted production process. So in order to have a proper and smooth running of the business activities, the firm must make investment in all these
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current assets. This requirement of funds depend up on the operating cycle period of the firm and also denoted as the working capital needs of the firm. OPERATING CYCLE PERIOD: The length or time duration of the operating cycle of any firm can be defined as the sum of its inventory conversion period and the receivable conversion period. INVENTORY CONVERSION PERIOD: It is the time required for the conversion of raw material in to finished goods sales. In a manufacturing concern the ICP is consisting of raw materials conversion period (RMCP), work in progress conversion period (WPCP), and the finished goods conversion period (FGCP). The RMCP refers to the period for which the raw material is generally kept in store before is issued to the production department. The WPCP refers to the period for which the raw material remains in the production process before it is taken out as a finished unit. The FGCP refers to the period for which finished units remain in stores before being sold to the customers. RECEIVABLES CONVERSION PERIOD: (RCP) It is the time required to convert the credit sales in to cash realization. It refers to the period between the occurrence of credit sales and collection of debtors. The total of ICP and RCP is also known as total operating cycle period (TOCP). The firm might be getting some credit facilities from the supplier of raw material wage earners etc. this period for which the payment it these parties are deferred or delayed is known as deferral period. The net operating cycle of a firm is arrived at by deducting the deferral period from total operating cycle period. Thus NOC = TOCP-D = ICP+RCP- DP. OPERATING CYCLE The duration of time required for completing the following sequences of events in case of manufacturing firm called the operating cycle.

Conversion of cash into raw material.

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Conversion of raw material into work in progress. Conversion of work in progress into finished goods. Conversion of finished goods into debtors & bills receivable through sale. Conversion of debtors & bills receivable into cash.

CASH, ACCOUNTS RECIEVABLE, RAW MATERIAL, FINISHED GOODSWORK IN PROGRESS. The duration of the operating cycle for the purpose of estimating working capital requirement is equivalent to the sum of duration of each of these tables less the credit period allowed by the suppliers of the firm.

FACTORS DETERMINING WORKING CAPITAL REQUIERMENT OF OIL INDIA LTD

Nature of Business: OIL is in the business of exploration and production (E & P) of hydrocarbons. E&P business require large capital expenditure in the development of platforms, rigs, pipelines etc, to extract the oil lying down beneath the earth crust. So huge amount of money gets blocked in the form of machinery forming fixed assets of the company. Hence, it can be said that high initial investment is required in the business. Business Cycle Fluctuations: In one of the worst global recessions witnessed by the world in 2008-09, OIL has not only stood up the pressure but also help the Indian economy
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to get back to the track. There were not major fluctuations in the business cycle of OIL and entire working capital management went swiftly. Seasonal Operations: Being an oil exploration and

production company, operations of OIL go on throughout the year as demand of oil is very high as compared to its supply. So the requirement of working capital almost remains constant throughout the year. Market Competitiveness: In terms of the market

competitiveness, OIL has the second major chunk of market share after ONGC. Although there are some other E&P companies also working such as CAIRNS ENERGY, RIL (RELIANCE INDUSTRIES LTD) but the very low production of crude oil by these companies as compared to OIL and ONGC makes the OIL second largest firm in the market. Credit Policy: OIL has the very strict credit policy for the OMCs such as IOC (Indian Oil Corporation), HPCL (Hindustan Petrleum Corp. Ltd), BPCL (Bharat Petroleum Corp.Ltd), GAIL (Gas authority Of India Ltd). OIL gives the credit period of 15 days for the supply of crude oil and 7 days credit period for the natural gas.

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WORKING CAPITAL POLICY FOLLOWED IN OIL INDIA

There are three types of working capital policies which a firm may adopt. Namely: Moderate working capital policy, Conservative working capital policy and Aggressive working capital policy. These policies describe the relationship between sales level and the level of current assets.

Current Assets Conservative

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Moderate

Aggressive

Sales Levels Oil India follows the CONSERVATIVE working capital policy, as the increase in sales result in more than proportionate change (more than 4 times) in current assets. This means that percentage increase in sales (4.68%) is much more to the increase in current assets (20.63%).

The calculations are as follows:

SALES (Rs. In crores) For 2010-11: 8320.60 For 2011-12: 9863.23

Increase in sales = 9863.23-8320.60 = 1542.63

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Percentage Increase in sales = 1542.63/8320.60*100 = 18.54% CURRENT ASSETS (Rs. In crores) For 2010-11: 14057.78 For 2011-12: 15948.50 Increase in Current Assets = 15948.50-14057.78 = 1890.72 Percentage Increase in Current Assets =

1890.72/14057.78*100 =13.45%

This type of policy has many implications:

The risk of insolvency of the firm decreases as the firm maintains higher liquidity. The firm is exposed to lower risk, as it may be able to face unexpected change in the market. Increased investment in current assets will result in decrease in profitability of the firm.
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CURRENT

ASSETS

AND

CURRENT

LIABILITIES OF OIL INDIA

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TEMS

200607

200708

200809 501 404.73 6070.01 352.47 0.07

2000910

201011

2011-12

INVENTO RIES DEBTORS CASH & BANK INTEREST ACCRUED INTEREST ON INVESTM ENT LOAND & ADVANCE S GROSS WORKING CAPITAL CURRENT LIABILITIE S PROVISIO NS NET WORKING CAPITAL

533.32 1051.81 10935.48 701.62

1027.14 8355.35 1463.67 1627.70 5263.99

1205.86

3141.86

1216.69 12806.64

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1 6000 1 4000 1 2000 1 0000 80 00 60 00 40 00 20 00 0 2 007 2 00 82 0092 010 2 011 20 12 Current assets Current liabilities Net working capital

Figure 2 From the above figure we have a clear picture of the amount of Current assets and Current liabilities of Oil India. They have a very sound working capital. Their Current assets is in an increasing trend making the company more liquid.

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Current Ratio: This ratio is an indicator of the firms commitment to meet its short-term liabilities. The current ratio is the ratio of current assets and current liabilities. Formula= Current assets Current liabilities Standard Ratio is 2:1 2006-07 Current Ratio = 2007-08 Current Ratio = 2008-09 Current Ratio = 2009-10 Current Ratio = 2010-11 Current Ratio = 5510.67 = 5.33:1 1031.99 6176.56 = 3.52:1 1754.05 8355.35 = 2.70:1 3091.36 12269.54 = 3.75:1 3269.29 14801.05 = 4.45:1 3321.61 2011-12 Current Ratio = 15948.50 = 5.08:1 3141.86

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Working Capital Turnover Ratio: This ratio indicates whether working capital has been effectively utilized in sales or not. So we should know it by calculating following ratio. Formula= Total sales Net working capital Here, Net Working Capital = Current Assets Current Liabilities 2006-07 Working Capital Turnover Ratio = 2007-08 Working Capital Turnover Ratio = 2008-09 Working Capital Turnover Ratio = 2009-10 Working Capital Turnover Ratio = 2010-11 Working Capital Turnover Ratio = 5285.09 4478.68 5965.31 4422.51 7139.72 5263.99 7748.56 9000.25 8113.22 = 0.70:1 11479.44 2011-12 Working Capital Turnover Ratio = 9863.23 = 0.77:1 12806.64 = 0.86:1 = 1.35:1 = 1.34:1 = 1.18:1

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Debt Equity Ratio: This ratio tells us about the position of total debt of the company with respect to the total equity. Formula= Debt . Equity Shareholders Funds 2006-07 Debt Equity Ratio = 2007-08 Debt Equity Ratio = 2008-09 Debt Equity Ratio = 2009-10 Debt Equity Ratio = 2010-11 Debt Equity Ratio = 814.01 6849.07 174.89 7932.97 56.45 9331.02 37.50 13763.79 1026.79 15601.87 2011-12 Debt Equity Ratio = 1051.81 18070.67 = 0.058:1 = 0.06:1 = 0.003:1 = 0.006:1 = 0.02:1 = 0.12:1

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Total Assets to Debt Ratio: This ratio measures the extent of the coverage of long term debt by total assets. The higher the total assets to debt ratio indicate that assets have been mainly financed by the owners funds, and the long term debt is adequately covered by assets. Formula: Total assets Long term debt 1 2006-07 Total Assets to Debt Ratio = 8467.48 = 10.40:1 814.00 2007-08 Total Assets to Debt Ratio = 8974.51 = 51.32:1 174.88 2008-09 Total Assets to Debt Ratio = 10288.75 = 182.26:1 56.45 2009-10 Total Assets to Debt Ratio = 14805.70 = 394.82:1 37.50 2010-11 Total Assets to Debt Ratio = 17942.19 = 17.47:1 1026.79 2011-12 Total Assets to Debt Ratio = 22681.27 = 100:0 0

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Return on Capital Employed: This ratio tells us that how effectively a company is making use of its resources. It gives the return on the total amount of money that is in use in an organization. Formula= PBIDT . Total capital employed 2006-07 Return on Capital Employed = 2007-08 Return on Capital Employed = 2008-09 Return on Capital Employed = 2009-10 Return on Capital Employed = 2010-11 Return on Capital Employed = 2011-12 Return on Capital Employed = 2756.13 * 100 = 39% 7141.36 3057.31 * 100 = 41% 7393.26 3773.33 * 100 = 42% 8919.22 4380.11 * 100 = 34% 13019.15 4805.23 * 100 = 31% 15727.73 4805.23 * 100 = 31% 15727.73

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Return on Shareholders Funds: This ratio is very important from shareholders point of view in assessing whether their investment in the firm generates a reasonable return or not. It should be higher than the return on investment otherwise it would imply that companys funds have not been employed profitably. Formula= Profit after tax Shareholders Funds 2006-07 Return on Shareholders Funds = 1639.98 = 0.24 6849.07 2007-08 Return on Shareholders Funds = 1788.93 = 0.23 7932.97 2008-09 Return on Shareholders Funds = 2161.68 = 0.23 9331.01 2009-10 Return on Shareholders Funds = 2610.52 = 0.19 13763.79 2010-11 Return on Shareholders Funds = 2887.73 = 0.19 15601.87 2011-12 Return on Shareholders Funds = 3446.92 = 0.19 18070.67

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Receivable Turnover Ratio: is one of the accounting activity ratios, a financial ratio. This ratio measures the number of times, on average receivables are collected during the period. A popular variant of the receivables turnover ratio is to convert it into an Average Collection Period in terms of days. Remember that the Receivable turnover ratio is figured as "turnover times" and the Average collection period is in "days". Formula= Credit sales Average receivables 2006-07 Receivables Turnover Ratio = = 2007-08 Receivables Turnover Ratio = = 2008-09 Receivables Turnover Ratio = = 2009-10 Receivables Turnover Ratio = = 2010-11 Receivables Turnover Ratio = = 2011-12 Receivables Turnover Ratio = = 5285.09 = 11 471.37 365/11 = 33.18 days 5965.31 = 11.70 509.84 365/11.70 = 31.19 days 7139.72 = 14.05 507.86 365/14.05 = 25.97 days 7748.56 = 14.55 532.20 365/14.55 = 25.08 days 8113.22 = 17.84 454.57 365/17.84 = 20.41 days 9863.23 = 15.33 643.23 365/15.33 = 23.81 days Inventory Turnover Ratio: In accounting the Inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year. The equation for inventory turnover equals
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the cost of goods sold divided by the average inventory. Inventory turnover is also known as inventory turns, stock turns, turns, and stock turnover. Formula = Cost of goods sold Average receivables

2006-07 Inventory Turnover Ratio = = 2007-08 Inventory Turnover Ratio = = 2008-09 Inventory Turnover Ratio = = 2009-10 Inventory Turnover Ratio = = 2010-11 Inventory Turnover Ratio = = 2010-11 Inventory Turnover Ratio = =

5285.09 = 13.09 403.48 365/13.09 = 27.88 days 5965.31 = 13.89 429.46 365/13.89 = 26.27 days 7139.72 = 15 475.95 365/15 = 24.33 days 7748.56 = 16.23 477.19 365/16.23 = 22.48 days 8113.22 = 17.01 476.87 365/17.01 = 21.45 days 9863.23 = 15.33 643.23 365/15.33 = 23.81 days

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We should be aware of these problems the following are some of the limitationsof ratio analysis:

It is difficult to decide on the proper basis of comparison. The comparison is rendered difficult because of differences in situations of two companies or of one company over years. The price level changes make the interpretation of ratios invalid. The differences in the definitions of items in the balance sheet and the profit & loss statement make the interpretation of ratios difficult. The ratios calculated at a point of time or less informative and defective as they suffer from short term changes. Difference in accounting policies and accounting period make the accounting data of firms non comparable as also the accounting ratios. It is very difficult to generalize weather a particular ratio is good or bad. For ex: a low current ratio may be said bad from the point of view of low liquidity. But a high current ratio may not be good. As this may result from in efficient working capital management.

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Sensitivity analysis Sensitivity analysis (SA) is the study of how the variation (uncertainty) in the output of a statistical model can be attributed to different variations in the inputs of the model. Put another way, it is a technique for systematically changing variables in a model to determine the effects of such changes. In any budgeting process there are always variables that are uncertain. Future tax rates, interest rates, inflation rates, headcount, operating expenses and other variables may not be known with great precision. Sensitivity analysis answers the question, "if these variables deviate from expectations, what will the effect be (on the business, model, system, or whatever is being analyzed)?" In more general terms uncertainty and sensitivity analysis investigate the robustness of a study when the study includes some form of statistical modeling Sensitivity analysis can be useful to computer modelers for a range of purposes including:

Support decision making or the development of recommendations for decision makers (e.g. testing the robustness of a result); Enhancing communication from modelers to decision makers (e.g. by making recommendations more credible, understandable, compelling or persuasive); Increased understanding or quantification of the system (e.g. understanding relationships between input and output variables); and Model development (e.g. searching for errors in the model).

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Sensitivity analysis of Working Capital of Oil India Here we will systematically increase all the elements of working capital of Oil India by 20% and then will try to find out its effect on the total working capital of Oil India. We will have a clear view of which is more sensitive to change and which is less

SENSITIVE ANALYSIS OF INVENTORY

YEAR Working capital Inventor y Inventor y after 20% increase Effect on Total working capital 2006-07 200708 4478.68 408.02 489.62 4422.5 1 450.89 541.07 200809 200910 201011 11479.4 4 500.36 600.43 201112 12806. 64 533.32 639.98

5263.9 9000.2 9 5 501 453.38

601.20 544.05

4560.28

4512.6 9

5364.1 9090.9 9 2

11579.5 1

12913. 30

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Percenta ge increase

1.82

2.03

1.90

1.01

0.87

.83

14000 12000 10000 8000 6000 4000 2000 0 2006- 2007- 2008- 2009- 2010- 201107 08 09 10 11 12 OldWorking C apital New working capita

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SENSITIVE ANALYSIS OF SUNDRY DEBTORS

YEAR Working capital Sundry debtors Sundry debtors after 20% increase Effect on Total working capital Percentag e increase

200607 4478.6 8 408.67 490.40

200708 4422.5 1 610.99 733.18

200809 5263.9 9 404.73 485.67

200910 9000. 25 659.6 7 791.6 0

201011 11479. 44 249.47 299.36

20112012 12806.6 4 1051.81 1262.17

4560.4 1

4544.7 0

5344.9 3

9132. 18

11529. 33

13017

1.82

2.76

1.54

1.47

0.43

1.64

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14000 12000 10000 8000 6000 4000 2000 0 2006- 2007- 2008- 2009- 2010- 201107 08 09 10 11 12 OldWorking C apital New Working C apital

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SENSITIVE BALANCE

ANALYSIS

OF

CASH

AND

BANK

YEAR Working capital Cash and Bank balance Cash and Bank balance after 20% increase Effect on Total working capital increase

200607 4478. 68 3275. 70 3930. 84

200708

200809

200910

201011 11479. 44 11769. 28 14123. 13

201112 12806. 64 10935. 48 13122. 58

4422.5 5263.9 9000.2 1 9 5 4280.8 6070.0 8542.9 3 1 1 5136.9 7284.0 10251. 9 1 49

5133. 82

5278.6 6477.9 10708. 7 9 83

13833. 29

14993. 74

Percentage 14.62

19.36

23.06

18.98

20.50

17.08

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16000 14000 12000 10000 8000 6000 4000 2000 0 20 0607 20 0708 20 0809 20 0910 20 1011 20 1112

OldWorking C apital New Working C apital

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SENSITIVE ANALYSIS OF INTEREST ACCRUED ON TERM LOANS

YEAR Working capital

2006- 200707 08 4478. 68

200809

200910

201011

201112 12806. 64 701.62

4422.5 5263.9 9000.2 11479. 1 9 5 44 228.36 352.47 306.61 474.77

Interest 157.2 accrued on 0 term loans Interest 188.6 accrued on 4 term loans after 20% increase Effect on Total working capital increase 4510. 12

274.03 422.96 367.93 569.72

841.94

4468.1 5334.4 9061.5 11574. 8 8 7 39

12946. 96

Percentage 0.70

1.03

1.34

0.68

0.83

1.10

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14000 12000 10000 8000 6000 4000 2000 0 2006- 2007- 2008- 2009- 2010- 201107 08 09 10 11 12 OldWorking C apital New Working C apital

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SENSITIVE ANALYSIS OF INTEREST ACCRUED ON INVESTMENT

YEAR Working capital

2006- 200707 08 4478. 68

200809

200910

201011

201112 12806. 64

4422.5 5263.9 9000.2 11479. 1 9 5 44 0.06 0.07 0.04 0.07

Interest 0.05 accrued on investmen t Interest 0.06 accrued on investmen t after 20% increase Effect on Total working capital 4478. 69

0.07

0.08

0.05

0.08

4422.5 5267 2

9000.2 11479. 6 45

Percentage 0.000 increase 2

0.0002 0.0002 0.0001 0.0001

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14 000 12 000 10 000 8000 6000 4000 2000 0 2006- 2 007- 2008- 2009- 20 1007 08 0 9 10 11 Old W orking Capital N ew W orking Capital

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SENSITIVE ADVANCES

ANALYSIS

OF

LOANS

AND

YEAR Working capital Loans and advances Loans and advances after 20% increase Effect on Total working capital Percentag e increase

2006- 200707 08 4478. 68 1261. 07 1513. 28

200809

200910

201011

201112 12806. 64
1205.86

4422.5 5263.9 9000.2 11479. 1 9 5 44 605.48 1027.1 2306.9 1807.1 4 3 0 726.57 1232.5 2768.3 2168.5 6 1 2

1447.0 3

4730. 89

4543.6 5469.4 9461.6 11840. 0 1 3 86

13047. 81

5.63

2.74

3.90

5.13

3.14

1.88

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1 4 0 0 0 1 2 0 0 0 1 0 0 0 0 8 0 0 0 6 0 0 0 4 0 0 0 2 0 0 0 0 2 0 0 6 -0 7 2 0 0 7 -0 8 2 0 0 8 -0 9 2 0 0 9 -1 0 2 0 1 0 -1 1 2 0 1 1 -1 2 OldWork ingC a pita l NewWork ingCa pita l

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SENSITIVE ANALYSIS OF CURRENT LIABILITIES

YEAR Working capital Current liabilities Current liabilities after 20% increase Effect on Total working capital Percentag e decrease

2006- 200707 08 4478. 68 781.8 0 938.1 6

200809

200910

201011

201112 12806. 64 3141.8 6 3770.2 3

4422.5 5263.9 9000.2 11479. 1 9 5 44 1101.6 1463.6 1804.5 2099.5 0 7 3 9 1321.9 1756.4 2165.4 2519.5 2 0 3 0

4322. 32

4202.1 4971.2 8639.3 11059. 9 6 5 53

13435. 01

3.49

4.98

5.56

4.01

3.66

4.91

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1 6000 1 4000 1 2000 1 0000 80 00 60 00 40 00 20 00 0 200 6- 20 07- 2 008 - 2009 - 201 0- 20 1107 08 09 10 1 1 12

Old W orkingCapital New W orkingCapital

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SENSITIVE ANALYSIS OF PROVISIONS

YEAR Working capital Provisions Provisions after 20% increase Effect on Total working capital Percentag e decrease

2006- 200707 08 4478. 68 250.1 7 300.2 0 4428. 65

200809

200910

201011

201112 12806. 64 1216.6 9 1460.0 2 13049. 98

4422.5 5263.9 9000.2 11479. 1 9 5 44 652.46 1627.7 1464.7 1222.0 0 6 2 782.95 1953.2 1757.7 1466.4 4 1 2 4292.0 4938.4 8707.3 11235. 2 5 0 04

1.12

2.95

6.18

3.25

2.13

1.90

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14000 12000 10000 8000 6000 4000 2000 0 2006- 2007- 2008- 2009- 2010- 201107 08 09 10 11 12 Old Working Capital NewWorking Capital

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Findings:
The financial performance of the company is very sound as the current ratio is above 2:1 but still the companys current ratio is much more than standard ratio of 2:1. In 2007 it was as high as 5.33 than it came down but in 2012 it again went up to 5.08:1. So company should try to control assets as it is not better for the health of the company. The companys working capital position is moderate in the last six years. Position of company has become better and company is able to meet its current obligations whenever it is required. The debt equity ratio of the company is less which is favorable for the health of the company as it means that total debt is reducing with every passing year and company is operating on their own capital. Although the profit of the company has increased in the last five years but the total return on the capital employed has come down from 39% on 2007 to 31% in 2011. ROCE is fluctuating because of unmannered investments in oil producing properties such as basins and oil fields which has lead to decrease in ROCE despite of increase in profits. The company has an average receivables turnover of 23.81 days which is good from the companies point of view.

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 They even have an Inventory turnover of 23.81 days. Which mean that the goods are sold out within 23.81 days. The companys total assets to debt ratio decreased in the last year of 2011 to 17.47 from 394.82 of 2010.Low debt ratio provides security to creditors and indicates reasonable funding and adequate security of debt.

The sensitive analysis of working capital clearly shows that cash and bank balance is the most sensitive to the working capital of the company. It has an average sensitivity of 19% towards the total working capital of the company. The second most sensitive is the current liabilities with a sensitivity of around 4%. Whereas the least sensitive is the interest accrued on investment, it is nearly nil. The second least sensitive is interest accrued on term loans with a sensitivity of around 1%.

Recommendations:
The financial performance of the company is sound but still the companys current ratio is much more than standard ratio of 2:1. So the company should keep a check on the amount it invests on its assets. ROCE is fluctuating because of unmannered investments in oil producing properties so it is
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recommended that the management makes prudent investments. The goal of shortening customers payment terms must be balanced against the risk of jeopardizing the relationship. Increased investment in current assets is resulting in decreased profitability of the firm. So it is suggested that the management give ample attention on this regard. The company has a huge amount of idle cash which is not active so the management should try to figure out how best to make use of the idle cash. The company may take out some new ventures. The sensitive analysis of working capital clearly shows that cash and bank balance is the most sensitive to the working capital. So it is suggested that the management should give proper attention on how they manage their cash and bank balance. The second most sensitive was the current liabilities so it will be wise to keep a check on the current liabilities that they accumulate.

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CONCLUTION
All the ratios of the company are satisfactory. The company has been making profits presently and is making efficient utilization of funds. The profit of the company can be increased by making more appropriate management decisions so that all the people are better prepared for future events. However the management should give proper attention on how they manage their cash and bank balance. In other words how to use the idle cash for better results.

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BIBLIOGRAPHY
Oil India Annual Reports. CFA level one books. Financial Management By T. Mark

WEBLIOGRAPHY
WWW.GOOGLE.COM WWW.OILINDIA.IN WWW.OILWEB.COM WWW.WIKIPEDIA.COM

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