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DMS Case (HPCL)

Shiva Filling Station is experiencing declining profits despite increasing sales. It lacks new initiatives to attract and retain customers against growing competition. Key steps to address this include conducting an operational and financial analysis to identify inefficiencies, introducing new services after market research, investing in marketing, and potentially raising additional funds to finance new initiatives. Financial ratios show low profitability, and drivers include high costs, debt financing, and declining customer acquisition. Strategies suggested include reducing unnecessary expenses, retaining internally generated funds, improving credibility for formal financing, and finding alternatives to cover fixed costs like rent and interest.

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Yashi Sharma
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116 views11 pages

DMS Case (HPCL)

Shiva Filling Station is experiencing declining profits despite increasing sales. It lacks new initiatives to attract and retain customers against growing competition. Key steps to address this include conducting an operational and financial analysis to identify inefficiencies, introducing new services after market research, investing in marketing, and potentially raising additional funds to finance new initiatives. Financial ratios show low profitability, and drivers include high costs, debt financing, and declining customer acquisition. Strategies suggested include reducing unnecessary expenses, retaining internally generated funds, improving credibility for formal financing, and finding alternatives to cover fixed costs like rent and interest.

Uploaded by

Yashi Sharma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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HINDUSTAN PETROLEUM

CORPORATION LIMITED (HPCL)


FINANCIAL EVALUATION OF EXISTING
RETAIL OUTLET SHIVA FILLING STATION
About the Company

1 ESTABLI SHED
i n 1 986 as a S ole pr opr i et or sh ip fir m .

2 AREAS OF OPER AT I O N
Re t ai l de al e r o f pe t r o l , d i e s e l and e ng i ne
oi l

3 LOCATI ON
P r i me lo cat i on w i t h const r u ct ion o f Rin g
Ro ad and t he d ev elopm en t of Resid en t ia l
Ho us i n g.
PROBLEM STATEMENT

NO NEW I N I T I AT I VE O R SE RV ICE S IS BE IN G
I NS PI TE OF I N CR EAS I NG SA L E S, P RO F IT I NTRODUCED T O AT T R A CT N E W CU STO ME RS
AR EN' T I NC R EAS I N G. AND R ETAI N T H EI R L O Y A L TY , D E SP ITE
I NCREASI NG CO MPET I TIO N IN TH E A RE A .
SWOT ANALYSIS
STRENGTHS
High material cost (95-97%).
WEAKNESSES

Prime location. No credible standing in the market.


Sufficient stock of inventory as compared to Unnecessary investments.
other outlets. Borrowed money from informal sources
No risk of baddebts loss. sometimes paying very high cost.
Lease rentals

OPPORTUNITIES THREATS
Increasing competition.
Growing demand (Region experienced a some of the customers who were loyal
significant growth of townships in and around to his station started using other
Shiva’s location.) outlets occasionally.
sales of lubes were still on the lower side but were Options to raise funds to finance the
expected to grow in future. working capital requirements
remained limited
.
RATIO ANALYSIS
L
I R
Current Ratio Quick Ratio Working Capital Q A
Current asset Quick Asset Current Asset - U T
current liabilities Current Current liabilities I I

1440547
liabilities

1440547 - 448230 D O
448230 324619
I S

448230 992317
3.21:1
T
0.72:1 Y
RATIO ANALYSIS
S
Debt To Equity Interest Coverage Debt to Total
O R
Ratio Ratio Asset Ratio
Earning before L A
Total Debt
Total Equity Interest & Tax
Total Debt
Total Asset V T

Interest

E I
1160000
464577
179576
1160000
1624577 N O

78000

S
2.496 : 1

2.302 : 1 0.71 : 1 C

Y
RATIO ANALYSIS PROFITABILITY
RATIOS

Gross Profit Net Profit Return on capital Return on


Ratio Ratio employed Equity
Earning before Net Profit * 100
Gross Profit *100 Net Profit * 100
Interest & Tax*100 Equity
Sales Sales
Capital Employed

1475697 * 100 101576 * 100 101576 * 100


179576 * 100
43421896 43421896 464577
1624577


3.39% 0.23% 11.05% 21.86%


OVERALL, THE KEY STEPS THAT SHIVA FILLING STATION SHOULD TAKE TO
ADDRESS ITS CURRENT ISSUES INCLUDE:

1 CONDUCTING A THOROUGH ANALYSIS OF ITS OPERATIONS AND FINANCIAL


PERFORMANCE TO IDENTIFY AREAS OF INEFFICIENCY AND OPPORTUNITY FOR
IMPROVEMENT

2 INTRODUCING NEW INITIATIVES AND SERVICES TO ATTRACT AND RETAIN


CUSTOMERS & GATHER CUSTOMER FEEDBACK AND CONDUCT MARKET
RESEARCH TO UNDERSTAND THE CHANGING NEEDS OF CUSTOMERS AND
IDENTIFY POTENTIAL NEW SERVICES AND PRODUCTS TO OFFER

3 INVESTING IN MARKETING AND ADVERTISING TO ATTRACT NEW CUSTOMERS

4 CONSIDERING RAISING ADDITIONAL FUNDS TO INVEST IN THESE NEW


INITIATIVES

5 CONTINUOUSLY MONITORING THE PROGRESS AND PERFORMANCE OF THESE


NEW INITIATIVES TO ENSURE THEY ARE EFFECTIVE AND ACHIEVING THE
DESIRED RESULTS
QUESTIONS
1. HOW HAS SHIVA FILLING STATION PERFORMED? HOW WOULD
YOU USE FINANCIAL INFORMATION PROVIDED IN THE CASE TO
EVALUATE PERFORMANCE OF SHIVA FILLING STATION?

I t has not pe rf ormed wel l .


Cost al l ocati on i s n ot don e properl y.
company i s perf ormi n g p oorer i n
p r of i t abi l i ty terms th a n a n i n d us t ry
av e rag e.
Customer ac qui s i ti on ra te i s d ecl i n i n g.
QUESTIONS
2.HOW WOULD YOU FIND WHETHER SHIVA IS RUNNING
PROFITABLE OPERATIONS OR NOT? WHAT ARE DRIVERS OF ITS
FINANCIAL AND OPERATING PERFORMANCE?

we can chec k p rof i ta ba l i t y ra t i os , t h a t i s i n d i ca t i ng f ir m


i s not abl e t o ea rn th e p rof i t t h a t t h e I n d us t ry i s
ear ni n g .
Cos t al l ocati on .
one of the dri v er of th ei r perf orma n ce i s i n crea s ing
sal es.
I n order to o p era te f i rm i s r ai si ng de bt f rom i n f o rma l
sources t hat i s resul ti n g i n h i g h cos t of ca pi t a l .
QUESTIONS
3.WHAT STRATEGIES YOU SUGGEST TO IMPROVE FINANCIAL AND
OPERATING PERFORMANCE OF THE COMPANY? WHAT WOULD YOU
SUGGEST TO CHANGE AND WHY?

Most of the administration expenses are unnecessary expenses


like opening ceremony expenses, gift expenses, gardening
expenses, etc. Firm should invest those funds in attracting
new customers.
He should not withdraw internally generated funds as those
are the main source of finance.
Shiva should improve firm's credibility so that, he may raise
funds from formal sector like banks.
Company should find an alternative to cover its fixed cost that
is lease rentals and interest payment.

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