A PROJECT REPORT ON

STUDY ON FINANCIAL ANALYSIS OF RELIANCE INDUSTRIES LIMITED

A Dissertation Report

Submitted in Partial Fulfilment of the Requirements

For the Award of Degree of

BACHELOR OF COMMERCE (HONS.)

TO

IIMT UNIVERSITY, MEERUT

Under the supervision of:- Submitted by:-

RICHA CHAUHAN MAHEK CHAUHAN

ASSISTANT PROFESSOR BCOM (HONS) V SEM

ROLL NO. – 2167005047

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 CERTIFICATE

This is to certify that MAHEK CHAUHAN, Roll No, 2167005047 has been a

Bonafide student of BCOM (HONS.) V SEM during session 2021-24. The enclosed

research project titled “STUDY ON FINANCIAL ANALYSIS OF RELIANCE INDUSTRIES

LIMITED”. has been prepared by her lieu of partial fulfilment for the requirement to

award the degree of BACHELOR OF COMMERCE (HONS.) from IIMT UNIVERSITY,

MEERUT under my supervision during session 2021-24.

Project Coordinator

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 ACKNOWLEDGEMENT

Any task's joy and exhilaration would be incomplete without acknowledging the

names of those who made it possible—their unwavering support and encouragement

that ensures every endeavour is crowned with success.

Presenting this presentation on STUDY ON FINANCIAL ANALYSIS OF RELIANCE

INDUSTRIES LIMITED brings me great delight and pleasure. I would want to take this time

to express my gratitude to all of my faculty teachers for their support and wise counsel

throughout the entire report-writing process.

I am specially thankful and grateful to my project guide RICHA CHAUHAN who

motivated and helped me in accomplished my project.

MAHEK CHAUHAN
BCOM (HONS.) V SEMESTER

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 DECLARATION

I , MAHEK CHAUHAN the student of IIMT UNIVERSITY, MEERUT, Roll no.

2167005047, hereby declare that the project report entitled “STUDY ON FINANCIAL

ANALYSIS OF RELIANCE INDUSTRIES LIMITED” submitted in partial fulfilment of the

requirements for the degree BCOM(HONS.) in academic year 2021-24.

Date-
Place- Meerut
Roll No.- 2167005047

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 TABLE OF CONTENT

S. NO. TOPIC PG NO.

1 EXECUTIVE SUMMARY 6

2 INTRODUCTION 7-44
FINANCIAL ANALYSIS
COMPANY PROFILE

3 LITERATURE REVIEW 45-47

4 OBJECTIVE OF STUDY 48

5 RESEARCH METHODOLOGY 49-50

6 DATA ANALYSIS AND 51-80

INTERPRETATION
7 FINDINGS 81

8 SUGGESTION & 82
RECOMMENDATION
9 CONCLUSION 83

10 BIBLIOGRAPHY 84

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 EXECUTIVE SUMMARY

My task for the project was to research the nation's organizations' financial standing.

I took the decision to select one of the biggest corporations in India, operating in an industry

that has seen tremendous growth in recent years, and a company led by someone like Mr.

Dhirubhai Ambani—or rather, a company that has become Mr. Dhirubhai Ambani.

I attempt to examine the financial landscape that Reliance Industry Limited operates

in with this research.

My goal is to comprehend the financial aspects of the organization and its decision-

making through a comprehensive financial analysis. Later, I make an effort to assess the

different ratios and determine how they have affected the company's performance over the

previous four years.

The last four years' financial statements are located, examined, and evaluated in

relation to the success of the business. The influence of important actions on the company's

bottom line, such as the issuance of bonus debentures and dividend distribution, is evaluated.

In order to analyze the company's financial status throughout the last four years, I

finally review the company's fund flow, cash flow, and ratio analyses.

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 INTRODUCTION

The financial statement analysis is done with the intention of presenting a

management-prepared periodic review or report that addresses the business's investment

status and the outcomes attained during the review period. By correctly creating the

relationships between the components of the balance sheet and removing statements, they

reflect the financial condition and operating strengths and weaknesses of the business.

Both the company's management and outside parties are capable of performing

financial statement analysis. The purpose of the study determines the nature of the analysis.

The analyst can determine how effectively the company could use societal resources to

produce goods and services. The greatest instruments for determining these factors are

turnover ratios.

Therefore, it is the management's general duty to ensure that the company's

resources are employed as effectively and efficiently as possible and that its financial situation

is sound. Analysis of financial statements does reveal future expectations for the company.

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 MEANING OF FINANCIAL STATEMENT

These statements, which provide financial data about a business, are referred to as

financial statements. At the conclusion of the accounting period, they report the business's

profitability and financial status. At the conclusion of an accounting period, the accountant

creates at least two statements that make up the team financial statement. These are the two

claims: -

1-The Balance Sheet

2- Profit and Loss Account

They offer some really helpful data to the extent that balance The profit and loss

account displays the results of operations over a specific time period in terms of the revenues

earned and the costs incurred during the year, while the balance sheet reflects the financial

position on a specific date in terms of the structure of assets, liabilities, owners equity, and

so forth. Consequently, the financial statement offers a condensed perspective of a

company's operations and financial situation.

MEANING OF FINANCIAL ANALYSIS

Finding the information pertinent to the decision under discussion among all the data

in the financial statement is the first step in the financial analysis process. Arranging the data

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to emphasize important relationships is the second phase. Interpreting the data and coming

to conclusions is the last phase. A financial statement is the result of a selection, comparison,

and assessment procedure.

FEATURES OF FINANCIAL ANALYSIS

1-To convey intricate information included in the financial statement in an easy-to-

understand manner.

2- To arrange the elements in the financial statement into sensible and awkward

groupings.

3- The objective is to draw different conclusions by drawing comparisons between

different groups.

PURPOSE OF FINANCIAL STATEMENT

1- To ascertain the profitability or earning potential.

2- To ascertain solvency.

3- To be aware of the financial advantages.

4- To ascertain the ability to pay dividends and interest.

5- To conduct a comparative analysis with other businesses.

6- To understand the business trend.

7- To ascertain the effectiveness of management.

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 8- To give management relevant information.

PURPOSE OF FINANCIAL STATEMENT ANALYSIS

The process for analyzing and interpreting financial accounts is as follows:

1-The analyst should familiarize himself with accounting concepts and theories. He

must to be aware with the management's strategies and policies so that he may determine

whether or not these plans are carried out correctly.

2-In order to decide on the field of work, the scope of the analysis needs to be

established, if discovery is the goal the enterprise's earning potential, an income statement

study will be conducted. On the other side, balance sheet analysis will be required if

financial status is to be examined.

3- The financial information provided in the statement needs to be identified and

reorganized. It will entail putting related data under the same headings.

4-Dissecting each of the statement's constituent parts in accordance with its nature.

Everything is pared down to a standard format. Financial statements are related to one

another through analysis tools and procedures like fund flow, ratios, trends, and common

sizes.

5-The material is presented in an easy-to-understand manner. Financial data's

importance and usefulness are discussed to aid in decision-making.

6-Reports including the results derived from INTERPRETATION are given to

management.

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 Three aspects of a corporation are assessed while analyzing financial statements:

liquidity, profitability, and insolvency. The capacity of the borrower to make payments when

they are due is the main concern of a short-term creditor, such a bank. A borrower's

liquidity is a critical factor in determining how safe a loan is. However, profitability and

solvency metrics that show the company's long-term viability are what long-term creditors,

including bondholders, focus on. Measures including the quantity of debt in the capital

structure of the company and its capacity to pay interest are taken into account by long-

term creditors. In a similar vein, the company's profitability and solvency interest

stockholders. They want to evaluate the stock's growth prospects as well as the likelihood of

dividend payments.

On several grounds, comparisons can be made.

The three situations are as follows:

1. Intra-company basis

On this premise, a financial connection or item inside a corporation in the current

year is compared to the same relationship or item in one or more previous years. For

instance, Sears, Roebuck & Co. can determine how much has increased or decreased by

comparing the cash balance at the conclusion of the current year with the balance from the

previous year. Similarly, Sears is able to contrast the current year's cash to current asset

ratio with that of one or more previous years. Comparing companies within the same

organization might help identify important trends and shifts in the financial ties.

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 2-Industry Averages

This base makes use of industry averages (or norms) released by credit rating agencies

like Moody's, Standard & Poor's, and Dun & Bradstreet to compare a product or a company's

financial connection. One can compare Sears's net income, for instance, to the average net

income of all businesses operating in the retail chain store sector. Information about a

company's relative performance within the industry can be obtained by comparing it to

industry averages.

3-Intercompany basis

This premise contrasts a financial relationship or item from one company with those

from one or more rival companies. The publicly available financial accounts of each company

are the basis for the comparisons. For instance, the annual sales totals of Sears's main rivals,

Kmart and Wal-Mart, can be compared with one another. A company's competitive standing

can be ascertained through intercompany comparisons.

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 COMPANY PROFILE

The largest private sector company in India, the Reliance group was formed by

Dhirubhai H. Ambani (1932–2002), and it operates in the energy and material value chains.

The largest private sector corporation in India, Reliance Industries Limited, is the flagship

company and a Fortune Global 500 company. Mukesh Ambani is the company's chairman.

Along with the likes of Indian Oil and Tata Group, the company is the largest

petrochemical enterprise in India and one of the biggest corporations in the nation. The

production of polyfines and oil refining make up almost all of Reliance's sales.

Although those are relatively tiny enterprises, it also creates textiles and conducts

gas and oil exploration. In an effort to strengthen Reliance's position as a significant refining

company, the company combined with its oil and gas refining unit, Reliance Petroleum, in

2009.

With an annual turnover of US$35.9 billion and a profit of US$ 4.85 billion for the

fiscal year that ended in March 2008, Reliance Industries Limited (NSE: RELIANCE) is the

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largest private sector conglomerate in India (by market value). It is ranked 206th out of 500

private sector Fortune Global 500 companies in India. Dhirubhai Ambani, an Indian

industrialist, launched it in 1966. Financial tools like as fully convertible debentures were

first introduced to the Indian stock markets by Ambani. Among the first businesspeople to

attract regular investors to the stock markets was Ambani.

Opponents claim that Dhirubhai's capacity to use the controls over an economy to

his benefit is a major factor in Reliance Industries' ascent to the top spot in terms of market

value. Even though the company's primary line of business is oil-related, it has recently

expanded into other areas. In 2005, the group was split between Mukesh Ambani and Anil

Ambani, the founder's two sons, due to significant disagreements. Reliance Industries was

the sole Indian company listed on Forbes's list of the "world's 100 most respected

companies" in September 2008.

STOCK-

"One out of every four investors in India is a Reliance shareholder," the company

website states. Reliance is one of the most widely held equities in the world, with over 3

million shareholders. Since its separation in January 2005, Reliance Industries Ltd. has

expanded. In terms of stock market performance, Reliance firms have been among the best

in India.

PRODUCT-

Reliance Industries Limited produces a wide range of goods, including clothing (sold

under the Vimal brand), petrochemicals, and petroleum products. Reliance Retail has

introduced a new chain named Delight and joined the fresh foods industry as Reliance Fresh.

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Reliance Retail and NOVA Chemicals have committed to producing energy-efficient building

materials through a letter of intent. Petrochemicals and petroleum refining are the company's

main operations. In the Indian state of Gujarat, at Jamnagar, it runs a 33 million tone refinery.

At the same location, Reliance developed a second refinery with a capacity of 29 million tons,

which began operations in December 2008. The business also engages in the production and

exploration of oil and gas. It made a significant discovery in the Krishna Godavari basin on the

eastern coast of India in 2002. On April 2, 2009, gas production from this discovery

commenced. By the conclusion of the third quarter of 2009–2010, the KG D6 was producing

60 MMSCMD of gas.

SUBSIDIARIES-

Principal Affiliates & Subsidiaries:-

● Reliance Industries Limited (RIL) established Reliance Petroleum

Limited (RPL) as a subsidiary to capitalize on new possibilities and add value to the

global refining industry. RPL and RIL have merged as of right now.

● Reliance Life Sciences is a biotechnology-led, research-driven life

sciences firm that engages in opportunities related to medicinal, plant, and industrial

biotechnology.

● These pertain specifically to the following areas: biopharmaceuticals,

medications, clinical research services, bio fuels, plant biotechnology, regenerative

medicine, molecular medicine, novel therapeutics, and industrial biotechnology.

● The company Reliance Industrial Infrastructure Limited (RIIL) is

involved in the establishment and management of industrial infrastructure, as well as

leasing and offering services related to data processing and computer software.

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 ● The Dhirubhai Ambani Foundation founded the Reliance Institute of

Life Sciences (Rils), a higher education institution offering courses in a range of life

sciences and allied technologies.

● With state-of-the-art telemetric and telemetry solutions in-house,

Reliance Logistics (P) Limited offers a single point of contact for all logistics, supply

chain, transportation, and distribution needs.

● Reliance Clinical Research Services (RCRS) is a wholly owned subsidiary

of Reliance Life Sciences and a contract research organization (CRO) that was

established to offer clinical research services to biotechnology, pharmaceutical, and

medical device firms.

● Reliance Solar is an effort cantered around solar energy systems and

solutions, primarily targeted at distant and rural areas, with the ultimate goal of

improving people's quality of life.

● Reliance Industries, under the ownership of Mukesh Ambani, provides

the first and most trustworthy stem-cell banking service in Southeast Asia, called

Relicord.

RELIANCE’S OIL AND GAS FIND-

Near Vishakhapatnam, in Andhra Pradesh, in the fiscal year 2002–2003, it was the

greatest natural gas discovery ever made worldwide. Reliance Industries (RIL) started

producing natural gas from its D-6 block in the Krishna-Godavari (KG) on April 2, 2009.

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 The amount of the gas reservoir is seven trillion cubic feet. Only 5 trillion cubic feet of

natural gas can be extracted from the Krishna Godavari basin off the coast of lion tons, which

is equivalent to 1.2 billion barrels (165 million in 2002).

Reliance Natural Resources, led by Anil Ambani, sued Reliance Industries in the

Bombay High Court on October 8, 2008, to uphold a memorandum of understanding that

stated RIL would provide natural gas to Anil Ambani at a rate of $2.34 per million British

thermal units.

RELIANCE RETAIL-

The retail division of the Reliance Company is called Reliance Retail. The

Reliance Retail brand encompasses a number of brands, including Reliance Fresh,

Reliance Footprint, Reliance Time Out, Reliance Digital, Reliance Wellness, Reliance

Trends, Reliance AutoZone, Reliance Super, Reliance Mart, Reliance store, Reliance

Home Kitchens, and Reliance Jewel. Reliance recognized a chance to sell chicken,

mutton, and other meat products—both halal and non-halal—through its "Delight

Non Veg" retail division. Anti-animal cruelty activists in Gandhi Nagar, Delhi, have

shut down one of the Delight locations because they want Reliance to stop

marketing non-vegetarian meals.

ENVIRONMENTAL RECORD-

Being the biggest producer of polyester worldwide, Reliance Industry also

ranks among the top producers of polyester waste. They needed to find a means to

recycle the waste in order to deal with this massive amount of rubbish. They run the

biggest recycling facility for polyester, which they use to stuff and fill. Using this

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method, they created a robust recycling procedure that helped them win the Team

Excellence competition.

In 2005, Reliance Industries supported an environmental awareness

conference held in New Delhi. The Maharashtra Pollution Control Board, the Indian

government's Ministry of Environment and Forests, and the Asia Pacific Jurist

Association collaborated to organize the conference. The goal of the conference was

to introduce fresh perspectives and publications on many facets of environmental

conservation in the area. The Maharashtra Pollution Control Board extended

invitations to a range of industries that adhere to pollution control regulations to

participate actively in the conference and provide sponsorship. The seminar was

successful in raising awareness of environmental issues in the community.

AWARDS AND RECOGNISTION-

2005 saw the 23rd Annual Hart's World Refining and Fuels Conference award

International Refiner of the Year.

AWARDS FOR MANAGERS-

● In July 2007, Mukesh D. Ambani was presented with the

"Global Vision" 2007 leadership award by the United States of America-India

Business Council (USIBC) in Washington.

● In May 2004, the Asia Society in Washington, USA, presented

Mukesh D. Ambani with the Asia Society Leadership Award.

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 ● In August 2004, Fortune magazine released its list of Asia's

Power 25, which included Mukesh D. Ambani as the 13th most powerful

person in business.

● The Economic Times Business Leader of the Year is Mukesh D.

Ambani.

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 TOOLS OF FINANCIAL STATEMENT ANALYSIS

A range of instruments are employed to assess the importance of financial

statement information. These are the three often used tools:

● Ratio Analysis

● Funds Flow Analysis

● Cash Flow Analysis

RATIO ANALYSIS-

The scope of Fundamental Analysis is very vast. A company's general (qualitative)

elements are examined in one aspect. The opposing side takes quantitative, observable, and

quantifiable aspects into account. This entails calculating and interpreting financial

statement data. When combined with other techniques, quantitative analysis can yield very

good outcomes.

Comparing figures from the cash flow, income, and balance sheets is only one aspect

of ratio analysis. The figure is being compared to past performance, other businesses, the

sector, or even the overall state of the economy. Ratios examine the connections between

individual values and make connections between them and the past and potential future

performance of an organization.

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 MEANING OF RATIO-

A ratio is the expression of one number in terms of another. It is a metric used in

mathematics to quantify the relationship between two related and mutually dependent

figures. One way to express a ratio is to divide a given figure by another similar figure. As a

result, a ratio is a statement that compares two numbers. All it is is the product of two

numbers. It can be stated in absolute terms as "so many times," as a fraction, as a decimal,

as a pure ratio, or in other formats. An term linking two numbers, accounts, sets of account

heads, or groups that are included in the financial statements is known as an accounting

ratio.

MEANING OF RATIO ANALYSIS-

The technique or method used to compute, ascertain, and display the relationship

between an item or collection of items in the financial statement is known as ratio analysis.

The goal of ratio analysis is to obtain numerical indicators or benchmarks related to

the stability and profitability of commercial enterprises. Ratio analysis is applicable to both

static and trend analysis. An analyst has access to a variety of ratios, but which group of

ratios he choose will depend on the goal and purpose of the research.

We will concentrate on an approach that is simple to use, even though a thorough

description of ratio analysis is outside the purview of this section. It could offer you a useful

tool for investment analysis.

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 We refer to this method as cross-sectional analysis. Financial ratios from multiple

companies in the same industry are compared using cross-sectional analysis. A company's

financial health can be learned a lot through ratio research. A financial ratio evaluates the

performance of an organization in a particular domain. One way to gauge a company's

leverage would be to look at its debt to equity ratio. You may ascertain which company

employs more debt to conduct business by comparing the leverage ratios of the two

companies. A business has more debt than equity if its leverage ratio is higher than that of

its rivals. Using this information, you may determine which company offers a greater return

on investment.

You must be cautious, though, to avoid giving any one ratio too much weight. When

multiple ratios are examined together, you get a more accurate picture of the direction a

company is heading.

OBJECTIVE OF RATIOS-

1-Solvency-

Long term

Short term

Immediate

2-Stability

3-Profitability

4- Efficiency of operations

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5- Credit standing

6- Structural analysis

7- Efficiency of resources

8- External funding or leverage

STEPS IN RATIO ANALYSIS-

1-The initial responsibility of the financial analysis is to identify from the statements the data

pertinent to the decision being considered and to compute the necessary ratios.

2-The calculated ratios should be compared to industry ratios or the ratios of the same company

about the pass. It makes determining the firm's success or failure easier.

3-The third step involves INTERPRETATION, inference-drawing, and report writing conclusions

that are derived from comparisons in the form of reports or suggested courses of action.

PRE-REQUISITES TO RATIO ANALYSIS-

There are a few prerequisites that must be met in order to use ratio analysis as a tool

to draw meaningful findings. Note that these requirements do not need to be met in order to

do calculations that lead to significant results. The accounting statistics are static and can be

utilized for any ratio; however, only by carefully taking into account the following factors can

a meaningful and accurate INTERPRETATION and conclusion be reached.

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 1) The dates of the various financial statements that are used to collect the data must

match.

2) Only audited financial accounts should, if at all possible, be taken into account; if

not, there needs to be enough proof that the information is accurate.

3) In the case of a cross-section analysis, the accounting policies that various firms use

must be the same; otherwise, the ratio analysis's findings will be skewed.

4) A single ratio might not reveal anything about the firm's performance.

Consequently, a set of ratios has to be chosen. This will facilitate cross-checks.

5) Finally, but just as importantly, the analyst needs to determine that the two figures

being utilized to compute a ratio must be related to one another; otherwise, there would be

no point in doing so.

GUIDELINES FOR USE OF RATIOS-

Although calculating ratios is not hard, using them is not always simple. It is possible

to evaluate different ratios by keeping in mind the following rules or considerations:

1- The precision of the financial accounts

2- The aim or objective of the analysis

3- The choice of ratios

4- Application of criteria; quality of the analysis

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IMPORTANCE OF RATIO ANALYSIS-

Ratios have critical importance as a financial management tool. Ratio analysis is

significant since it allows for the comparison of data and allows conclusions to be drawn

about a company's performance. Ratio analysis is relevant for evaluating a company's

performance in relation to the following elements:

1- Position on liquidity

2- Long-term solvency

3- Efficiency of operation

4- Total financial gain

5- Comparing firms

6- Analyzing trends.

ADVANTAGES OF RATIO ANALYSIS-

Financial ratios are primarily used to identify important relationships in accounting

data that provide decision-makers with information about a company's financial

performance. The following is a summary of ratio analysis's benefits:

1- Ratios make trend analysis easier, which is crucial for forecasting and

decision-making.

2- Ratio analysis aids in evaluating a firm's liquidity, profitability, and

solvency.

3- Ratio analysis serves as a foundation for comparisons between and

within firms.

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 4- The management can assess the firm's financial performance by

contrasting actual ratios with base year ratios or standard ratios.

LIMITATION OF RATIO ANALYSIS-

Ratio analysis is not without its limits. Below is a description of these limitations:

1] Issues with information

Ratios need quantitative data to be analyzed, but the results of the analysis are not

determined by them.

A set of accounts' numbers are probably many months old, thus they might not

accurately reflect the company's financial situation as of right now.

The asset valuations on the balance sheet may be deceptive when the historical cost

convention is applied. Making decisions will not benefit much from ratios based on this data.

2] Performance comparison across time

Price changes must be taken into account when comparing performance over time.

Performance ought to fluctuate in proportion to price variations.

When evaluating performance across time, technological advancements must be

taken into account. Performance should evolve in tandem with technological advancements.

Shifts in accounting guidelines could make it deceptive to compare outcomes across many

fiscal years.

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 3] Comparing firms

Companies may have diverse capital structures, therefore comparing the performance

of two companies that are geared and fully equity financed may not be a suitable analysis.

The distortion of intercompany comparison can also occur from the selective use of

government incentives to different enterprises. Comparing two businesses' performances

could be deceptive.

If the firms being compared are not the same size, age, or use similar manufacturing

techniques and accounting procedures, then inter-firm comparison may not be helpful.

Changes in price levels can affect comparisons, even within the same company.

Ratios only offer quantitative data; they do not offer qualitative data.

A useful instrument.

CLASSIFICATIONS OF RATIOS-

A financial manager is not the only one who uses ratio analysis. The financial status of

a company is of interest to several stakeholders, and the ratio analysis serves these reasons.

The different accounting ratios fall under the following categories:

1. Traditional Classification

2. Functional Classification

3. Significance ratios

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 1. TRADITIONAL CLASSIFICATION

It consists of the subsequent items.

The relationship between two balance sheet items, such as the ratio of current

assets to current liabilities, is dealt with by balance sheet (or position statement)

ratios. Both items must, however, relate to the same balance sheet.

The relationship between two profit and loss account elements, such as the

ratio of gross profit to sales, is the subject of profit and loss account (or) revenue

statement ratios.

Composite or interstate ratios show how an item from the income statement

or profit and loss account and an item from the balance sheet relate to one another.

Examples of these ratios include the ratio of total assets to sales or the stock turnover

ratio.

2-FUNCTIONAL CLASSIFICATION

These consist of profitability ratios, activity ratios, long-term solvency and

leverage ratios, and liquidity ratios.

3-SIGNIFICANCE RATIOS

The company may categorize certain ratios as major and secondary because

they are more significant than others. One is the primary ratio, meaning that it is the

most important ratio for a company. Secondary ratios are the various ratios that

provide support to the primary ratio.

IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS ARE

1. Liquidity ratio

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 2. Leverage ratio

3. Activity ratio

4. Profitability ratio

A- LIQUIDITY RATIO

The ability of a business to pay its present debts as and when they become due is

referred to as liquidity. A company can only satisfy its short-term obligations if it has enough

liquid assets. Realizing certain sums from current, floating, or circulating assets fulfills the

short-term obligations. It is recommended that the present assets be evaluated as either

liquid or almost liquid. They ought to be exchangeable for cash so that short-term debts can

be settled. It is best to evaluate current assets' sufficiency (or lack thereof) by contrasting

them with short-term current obligations. A satisfactory liquidity position will exist if current

assets are sufficient to cover current liabilities.

One can compute the following ratios to assess a company's liquidity:

● Current ratio

● Quick (or) Acid-test (or) Liquid ratio

● Absolute liquid ratio (or) Cash position ratio

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 1- CURRENT RATIO

The link between current assets and current liabilities is known as the current ratio.

This ratio, often referred to as the working capital ratio, is most frequently used to analyze a

company's short-term financial position or liquidity. It is a measure of overall liquidity.

CURRENT RATIO= CURRENTASSETS / CURRENTLIABILITIES

Components of current ratio:-

CURRENT ASSETS CURRENT LIABILITIES

Cash in hand Outstanding or accrued expenses
Cash at bank Bank over draft
Bills receivable Bills payable
Inventories Short-term advances
Work-in-progress Sundry creditors
Marketable securities Dividend payable
Short-term investments Income-tax payable
Sundry debtors
Prepaid expenses

2- QUICK RATIO

A better measure of liquidity than the current ratio is the quick ratio. The ability of a

company to pay its short-term debts as and when they fall due is referred to as liquidity. The

link between quick or liquid assets and current liabilities is known as the quick ratio. If an asset

can be quickly changed into cash without losing value, it is considered liquid.

QUICK RATIO= QUICK ASSETS/ CURRENT LIABILITIES

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Components of quick or liquid ratio:-

QUICK ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses
Cash at bank Bank over draft
Bills receivable Bills payable
Sundry debtors Short-term advances
Marketable securities Sundry creditors
Temporary investments Dividend payable
Income tax payable

3- ABSOLUTE LIQUID RATIO

Debtors and accounts receivable are typically more liquid than inventories, although

there may be uncertainty about whether they will be converted into cash quickly or at all. In

order to determine the absolute liquid assets and remove receivables from the current assets,

the absolute liquid ratio must be computed in addition to the current ratio and quick ratio.

ABSOLUTE LIQUID RATIO= ABSOLUTE LIQUID ASSETS/CURRENT

LIABILITIES

A few examples of absolute liquid assets are cash on hand. The permissible formats

for this ratio are 50%, 0.5:1, or 1:2, meaning that absolute liquid assets valued at Rs. 1 are

thought to be able to satisfy current liabilities valued at Rs. 2 in a timely manner because no

creditor is permitted to demand payment in full at once. Additionally, cash may be realized

from debtors and inventories.

B- LEVERAGE RATIO

The ability of a company to fulfill its long-term obligations is indicated by its leverage

or solvency ratio. As a result, long-term solvency ratios show how well a company can afford

the set interest rates, charges, and repayment plans attached to its long-term loans.

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 To ascertain the solvency of the firm, use the following ratio.

1- PROPRIETARY RATIO

The proprietary ratio, commonly referred to as the equity ratio, is an alternative to

the debt-equity ratio. The relationship between the funds held by shareholders and the

firm's total assets is established by this ratio.

PROPRIETARY RATIO= SHAREHOLDERS FUNDS/

TOTAL ASSETS

SHARE HOLDERS FUND TOTAL ASSETS

Share Capital Fixed Assets
Reserves & Surplus Current Assets
Cash in hand & at bank
Bills receivable
Inventories
Marketable securities
Short-term investments
Sundry debtors
Prepaid Expenses

C- ACTIVITY RATIOS

In order to generate sales and profits, money is invested in a variety of assets in

businesses. The amount of sales is directly impacted by the asset management team's

effectiveness. Activity ratios quantify how well a company manages its assets or resources in

32
terms of efficiency or effectiveness. Because they show how quickly assets are transformed

or changed over into sales, these ratios are often known as "turn over ratios."

● Working capital turnover ratio

● Fixed assets turnover ratio

● Capital turnover ratio

● Current assets to fixed assets ratio

1-WORKING CAPITAL TURNOVER RATIO

A company's working capital and revenues are directly correlated.

WORKING CAPITAL TURNOVER RATIO= COST OF GOODS SOLD /

WORKING CAPITAL

2-FIXED ASSETS TURNOVER RATIO

Another name for it is the ratio of sales to fixed assets. This ratio evaluates the

company's profitability and efficiency. An increased ratio indicates a more intense use of

fixed assets. Underutilization of fixed assets is indicated by a lower ratio.

FIXED ASSETS TURNOVER RATIO= COST OF SALES/ NET FIXED

ASSETS

33
 3-CAPITAL TURNOVER RATIO

Although the same outcome is anticipated in both scenarios, the efficiency and

efficacy of the operations are sometimes assessed by comparing the cost of sales or sales

with the amount of capital invested in the company rather than with assets held in the

company. Investments made in the company can be divided into owned and loaned capital,

fixed and operating capital, and long- and short-term capital. To examine how different

forms of capital are used, all capital turnovers are computed.

CAPITAL TURNOVER RATIO= COST OF GOODS SOLD/ CAPITAL

EMPLOYED

4-CURRENT ASSETS TO FIXED ASSETS RATIO

Industry to industry variations exist in this ratio. An increase in the ratio indicates

either sluggish trading or the usage of mechanization. A decrease in the ratio indicates

either an excessive increase in debtors and stocks or a more intense use of fixed assets. The

business will appear to be growing if current assets rise in tandem with a rise in earnings.

CURRENT ASSETS TO FIXED ASSETS= CURRENT ASSETS/ FIXED

ASSETS

D-PROFITABILITY RATIO

Making money is what any business endeavour wants to achieve most of all.

Considering that the company enterprise's motor is profit.

34
 ● Net profit ratio

● Return on total assets

● Reserves and surplus to capital ratio

● Earnings per share

● Operating profit ratio

● Price – earnings ratio

PURPOSE OF RATIO ANALYSIS-

1] To pinpoint performance indicators for a company in order to facilitate decision-

making

2] Quantitative process: To obtain a full picture, qualitative components might need

to be added.

3] Five primary domains-

● Liquidity: the company's capacity to cover its expenses

● Information on investors and investments that helps determine how

much risk and possible profit a business investment entails

● Information on the connection between the business's exposures to

loans against share capital is known as gearing.

● Profitability refers to the firm's ability to generate profits based on

sales and/or capital assets.

35
 ● Financial: the pace of the company's stock sales and the effectiveness

of its asset utilization

ROLE OF RATIO ANALYSIS-

It is true that ratio analysis is not a creative technique because it just employs the

same data and figures that are there in the financial statement. However, it is also true that

creating financial statements alone will not yield the same results as using the ratio analysis

technique.

Ratio analysis is useful for evaluating a company's profitability and performance

efficiency, either on an individual basis or in comparison to other companies operating in

the same sector. The evaluation process is not over until the ratio that was calculated in this

way can be compared to something, as the ratio on its own has no meaning. There are three

possible formats for this comparison: intra-firm, inter-firm, and comparison using standard

ratios. Therefore, a thorough analysis of ratios can show where a company stands in relation

to previous periods or other companies in the same sector.

One of the best tools available to management for teaching fundamental tasks like

planning and control is ratio analysis. Given how closely the recent past and the future are

connected, ratios derived from historical financial statements can be a useful tool for

forecasting the future. Ratio analysis is also useful in identifying and highlighting the

different areas that require management attention in order to make improvements.

36
 Due to the ratio analysis's comprehensive focus on a company's financial analysis,

which includes liquidity, solvency, activity, profitability, and overall performance, interested

parties can use it to get insight into an organization's operational and financial features and

make informed decisions.

37
 FUND FLOW ANALYSIS-

Fund can be understood in a number of ways, like:

(a) Cash,

(b) Total current assets,

(c) Net working capital,

(d) Net current assets.

In the context of a money flow statement, net working capital is meant by this term.

When a transaction results in a change, such as an increase or decrease in the amount of

funds, the flow of funds occurs in the firm.

Robert Anthony claims that the funds flow statement outlines the sources of

additional funding as well as the purposes for which it was used.

To put it briefly, it's a technical tool used to show how a company's financial

situation has changed between two balance sheets.

OBJECTIVES OF FUND FLOW STATEMENT: -

The fund flow statement serves primary purposes:-

● It provides insight into changes in assets and asset sources that are not

immediately apparent from the income statement or financial statement.

● To provide information about the use of the business's loans.

38
 ● To highlight the company's financial advantages and disadvantages.

PROCEDURE FOR FUND FLOW STATEMENT PREPARATION-

1. Making arrangements for working capital schedule adjustments (taking current

goods only).

2. Creating an adjusted profit and loss account (to determine how much money was

earned or lost during operations).

3. Accounts preparation for out-of-date goods (Find the hidden data).

39
 CASH FLOW STATEMENT

The lifeblood of a firm is cash. It is a crucial instrument for controlling and organizing

funds. Cash for a business comes from a variety of sources, including sales, creditors, asset

sales, investments, etc. Similarly, the business need cash flow to pay salaries, rent, dividends,

interest, and other expenses.

The cash flow statement shows the amount of money coming in and going out over a

specific time period. It is created using past data that illustrates the inflow and outflow of

cash.

OBJECTIVES OF CASH FLOW STATEMENT-

1. To display the reasons behind variations in cash balance between the dates of the

balance sheet.

2. To demonstrate how the actors' contributions to the decline in the cash balance

motivate either an increase or decrease in profit.

USES OF CASH FLOW STATEMENT-

1. It provides an explanation of the low cash balance.

2. It displays the primary cash sources and uses.

3. It supports short-term liquidity-related financial decisions.

4. Future estimates can be established using the statements from the previous year.

40
 5. It assists management in organizing loan payback schedules and credit

agreements, among other things.

PROCEDURE FOR CASH FLOW STATEMENT PREPARATION-

1. Opening accounts for things that aren't currently in use (to uncover hidden

information).

2. The creation of an adjusted profit and loss statement (P&L) to determine cash from

operations and profit.

3. Comparison of existing items (to determine cash input or outflow).

4. Cash flow statement preparation.

It is simpler to prepare the Cash Flow Statement if the Account is prepared for all non-

current items.

THE STATEMENT OF CASH FLOWS UTILITY-

● A statement of cash flows' contents ought to assist creditors, investors,

and other stakeholders in evaluating the following facets of the company's financial

standing: the entity's capacity to produce future cash flows.

● Investors and others can forecast future cash flows more accurately

by looking at the links between items in the statement of cash flows than they can

by using accrual basis data alone. This includes forecasting future cash flows'

quantities, timing, and uncertainty.

41
 ● The capacity of the entity to fulfil its obligations and pay dividends.

● A corporation cannot pay its workers, pay off its obligations, or pay

dividends if it does not have enough cash on hand. This statement alone demonstrates

the cash flows of a corporation, so it should be of particular relevance to creditors,

employees, and stockholders.

● The period's cash financing and investing transactions.

● A reader of financial statements might have a better understanding of

the reasons for changes in assets and liabilities over time by looking into the

investing and financing activities of the organization.

1. The explanations for the variations between net cash and net income-

A company's net income indicates whether it is a success or a failure. However,

because accrual basis net income necessitates numerous assumptions, some criticize it.

As a result, people frequently question the number's dependability. With cash, this is not

the case. The reasons for the discrepancy between net income and net cash supplied by

operational activities are often of interest to readers of the statement of cash flows. They

can then determine whether the income figure is reliable for themselves.

To sum up, the following inquiries can be helped by the data in the cash flow

statement.

● In the event of a net loss over the time, how did cash grow?

● What was the purpose of the bond issue proceeds?

● How were the plant and equipment expansions financed?

● Why didn't dividends get raised?

42
● How did the debt retirement process work out?

● What is the total amount borrowed in a given year?

● Does cash flow exceed or fall short of net income?

43
 FORMAT OF CASH FLOW STATEMENT-

Inflow of Cash Amount Outflow of cash Amount

Opening cash balance *** Redemption of preference ***

shares
Cash from operation *** ***
Redemption of debentures
Sales of assets *** Repayment of loans ***

Issue of debentures *** Payment of dividends ***

Raising of loans *** Pay of tax ***

Collection from debentures *** Cash lost in debentures ***

Refund of tax *** Closing cash balance ***

There are two methods for calculating cash from operations:

Cash Sales Method

Cash Sales – (Cash Purchase + Cash Operation Expenses)

Net Profit Method

44
 LITERATURE REVIEW

Kakani et al.( 2001) examined the determinants of firm performance for 566

Indian firms. They tool ROA, ROCE, cash flow ratio, Sales to asset, gross profit margin,

net profit margin, return on Net worth etc., as dependent variable and size, age,

leverage, working capital ratio, business group affiliation etc., as determinants of firm

performance and found that size, market expenditure and international diversification

had a positive relation with market valuation for firms. A firms ownership composition,

particularly the level of equity ownership by domestic financial Institutions and

Dispersed public shareholders, and the leverage of the firm were important factors

affecting its financial performance.

Krishna Prasad Upadhyay (2004) used different types of financial ratios to

check up the financial performance of the selected finance companies. Basically in this

study he used solvency ratio, liquidity ratio, efficiency ratio, profitability ratio and

valuation ratio. Different measures like return on investment, return on equity, return

on assets, earning per share, dividend per share, and asset utilization ratio are used to

assess the profitability of the companies. He concluded his study stating that the

solvency position of both companies is not sound and credit creation capacity is good in

both the companies in aggregate.

Bala Ramaswmy, Darrylong and Mattew C.H. Yeung (2005) has found

empirical evidence that firm size and the firm ownership are important determinants of

financial performance in the Malaysian palm oil sector-findings lend support to industry

analysts who have highlighted that profitability is higher in privately owned firms.

45
 Woo Gon Kim, Baker Ayoun (2005) the study attempts to investigate the

technique applied in this industry. Hospitability Related industry segments may

comprise hotels, restaurants, airlines, and other amusement and recreational services.

The objective of the study is to provide information toa variety of entities that might be

interested in comparing major financial characteristics of companies on its different

segments. The researcher used financial ratios, time series and Multivariate analysis of

variances’ test as statistical tools. The study concludes that increased volatility of

hospitability industry due to unpredictable external environment for the past four to

five years. More volatile trends are depicted for the other three segments over the time

period of this study.

Myung Ko and Carlos Dorantes (2006) investigates the impact of information

security breaches on firm performance. To evaluate the financial impact of security

breaches related to confidential Information, the “matched sample comparison group”

method is used. The researcher used ratios and two cost related ratios and percentage

of change in sales and operating income to see if these measures are better indicators

for identifying differences in performance considering the context of this study. Profit

ratios have been the most commonly used as performance measures.

Jose M. Moneva, Juana M. Rivera-Lirio, (2007) Maria J. Munoz-Torres analyses

the mission statements and the sustainability reports, of a sample of 52 Spanish listed

firms. Some traditional financial and economic- Indicators are used to analyze the

company’s financial performance. Results show a not very high level of the stakeholder

approach in Spanish companies a high level of publication and quality of sustainability

reports and, finally, a positive and not significant relationship between these variables

and a positive financial performance.

46
 Neumann and Roberts (2008) argued that financial measures are given more

value over non-financial measures and ROI is the single performance measures to which

managers give more weightage.

Efendioglu. M (2010) explores the impact of strategic planning on financial

performance of major industrial enterprises of Turkey. This paper is one of the few

studies to examine the strategic planning process in a sample of firms from a

transitional economy. It can be considered a longitudinal study because it examines a

set of institutions to identify changes in their performance overtime, as they incorporate

the use of strategic tools in a dynamic competitive environment. There search sample

was drawn from the Turkish chamber of industry database which listed the top500

manufacturing firms in 2006. The findings of this study provide a contribution to our

understanding of the nature and practice of strategic planning in Turkish companies

and possibilities of correlations between their efforts and performance.

Mahdi Salehi, Mehrdad Alipour and Morteza Ramazani (2010), the objective

of the article is to establish the extent to which just-in-time may effect to Iranian

company’s financial performance. The researcher used regression analysis as statistical

tool. Eventually the researcher concludes that the application of the JIT system in Iran

increases the financial and non financial performance of the companies. Because of the

weakness in performing the JIT, they cannot benefit from it.

47
 OBJECTIVE OF STUDY

To comprehend the data in financial statements in order to identify the company's

strengths and weaknesses and to project the company's future prospects, allowing the

financial analyst to make various judgments concerning the company's operations.

1. To research Reliance Industry's current financial structure.

2. To ascertain the cash flow, fund flow statement, profitability, and liquidity ratios.

3. To use the leverage ratio to examine the company's capital structure.

4. To make pertinent recommendations for improving the organization's

performance.

48
 RESEARCH METHODOLOGY

Research is the methodical process of collecting, organizing, and evaluating data

regarding issues related to a specific field. It establishes the project's accuracy,

dependability, and strength.

TYPES OF RESEARCH:-

i) Descriptive research:- Involves surveys and fact-finding inquiries of various types.

Descriptive research is primarily concerned with describing the current state of

circumstances. The main feature of this method is that the researcher has no control over

the variables; he can only report what has occurred or is happening.

ii) Analytical research:- Involves analyzing existing facts or information to critically

evaluate the content.

iii) Applied: Aims to solve an immediate problem for a society or corporate entity.

iv) Fundamental research:- Focuses on making broad generalizations and developing

theories. Fundamental research is defined as studies of human behavior conducted with the

goal of developing generalizations about human behavior.

v) Qualitative research:- It refers to phenomena that involve quality or kind. For

example, when we are interested in researching the causes for human conduct (i.e. why

individuals think or do particular things), we frequently refer to 'Motivation Research',

which is an essential sort of qualitative research.

49
 vi) Conceptual research:- Focuses on abstract ideas and theories. It is commonly

employed by philosophers and thinkers to create new concepts or reinterpret old ones.

vii) Empirical research:- It is based solely on experience or observation, without

considering systems or theories. It is data-driven research, resulting in results that may be

verified through observation or experiment.

Research Design

This refers to the excellent research methodology or plan that is used for a specific

project. A scientific approach must be taken when conducting a research project to ensure

that sufficient and cost-effective data collection is made.

Descriptive research design was employed in the study to gain an understanding of

the problem. Its purpose is to accurately depict a few elements of the market environment.

When the goal is to present a methodical description that is as truthful and accurate as

possible, descriptive research is employed.

SOURCES OF DATA

After defining a study problem and developing a research design strategy, data

gathering begins.

There are two types of data available for research:

Primary data:- Which is collected during experiments.

Secondary data:- It refers to previously acquired and evaluated data.

In the present study, secondary data has been used.

50
 DATA ANALYSIS AND INTERPRETATION

RELIANCE INDUSTRIES BALANCE SHEET FROM 2005-2008

Reliance Industries Balance Sheets from 2005 to 2008

in Rs. Cr.

Mar '05 Mar '06 Mar '07 Mar '08

12 months 12 months 12 months 12 months

Sources Of Funds

Total Share Capital 1,393.17 1,393.21 1,453.39 1,573.53

Equity Share Capital 1,393.17 1,393.21 1,453.39 1,573.53

Share Application Money 0.00 60.14 1,682.40 69.25

Preference Share Capital 0.00 0.00 0.00 0.00

Reserves 43,760.90 59,861.81 77,441.55 112,945.44

Revaluation Reserves 4,650.19 2,651.97 871.26 11,784.75

Net worth 49,804.26 63,967.13 81,448.60 126,372.97

Secured Loans 7,664.90 9,569.12 6,600.17 10,697.92

Unsecured Loans 14,200.71 18,256.61 29,879.51 63,206.56

Total Debt 21,865.61 27,825.73 36,479.68 73,904.48

Total Liabilities 71,669.87 91,792.86 117,928.28 200,277.45

Application Of Funds

Gross Block 84,970.13 99,532.77 104,229.10 149,628.70

51
 Less: Accum.

Depreciation 29,253.38 35,872.31 42,345.47 49,285.64

Net Block 55,716.75 63,660.46 61,883.63 100,343.06

Capital Work in Progress 6,957.79 7,528.13 23,005.84 69,043.83

Investments 5,846.18 16,251.34 20,516.11 20,268.18

Inventories 10,119.82 12,136.51 14,247.54 14,836.72

Sundry Debtors 4,163.62 3,732.42 6,227.58 4,571.38

Cash and Bank Balance 239.31 308.35 217.79 500.13

Total Current Assets 14,522.75 16,177.28 20,692.91 19,908.23

Loans and Advances 8,266.55 12,506.71 18,441.20 13,375.15

Fixed Deposits 1,906.85 1,527.00 5,609.75 23,014.71

Total Current Assets,

Loans & Advances 24,696.15 30,210.99 44,743.86 56,298.09

Differed Credit 0.00 0.00 0.00 0.00

Current Liabilities 17,656.02 24,145.19 29,228.54 42,664.81

Provisions 3,890.98 1,712.87 2,992.62 3,010.90

Total Current Liabilities

& Provisions 21,547.00 25,858.06 32,221.16 45,675.71

Net Current Assets 3,149.15 4,352.93 12,522.70 10,622.38

Miscellaneous Expenses 0.00 0.00 0.00 0.00

Total Assets 71,669.87 91,792.86 117,928.28 200,277.45

Contingent Liabilities 24,897.66 46,767.18 37,157.61 36,432.69

Book Value (Rs) 324.03 439.57 542.74 727.66

52
 Reliance Industries Profit & Loss Accounts from 2005 to 2008

in Rs. Cr.

Mar '05 Mar '06 Mar '07 Mar '08

12 months 12 months 12 months 12 months

Income

Sales Turnover 89,124.46 118,353.71 139,269.46 146,328.07

Excise Duty 8,246.67 6,654.68 5,463.68 4,369.07

Net Sales 80,877.79 111,699.03 133,805.78 141,959.00

Other Income 546.96 236.89 6,595.66 1,264.03

Stock Adjustments 2,131.19 654.60 -1,867.16 427.56

Total Income 83,555.94 112,590.52 138,534.28 143,650.59

Expenditure

Raw Materials 59,739.29 80,791.65 98,832.14 109,284.34

Power & Fuel Cost 1,146.26 2,261.69 2,052.84 3,355.98

Employee Cost 978.45 2,094.09 2,119.33 2,397.50

Other Manufacturing Exp. 668.31 1,112.17 715.19 1,162.98

Selling and Admin Exp. 5,872.33 5,478.10 5,549.40 4,736.60

Miscellaneous Expenses 300.74 321.23 412.66 562.42

Preoperative Exp.
-155.14 -111.21 -175.46 -3,265.65
Capitalised

Total Expenses 68,550.24 91,947.72 109,506.10 118,234.17

Operating Profit 3,400.91 4,815.15 4,847.14 5,195.29

53
 PBDIT 0.00 0.00 0.00 0.00

Interest 10,711.18 14,528.75 23,018.14 18,446.66

PBDT 0.88 0.51 48.10 0.00

Depreciation 10,712.06 14,529.26 23,066.24 18,446.66

Other Written Off 1,642.72 2,585.35 3,559.85 3,137.34

Profit Before Tax 9,069.34 11,943.40 19,458.29 15,309.32

Extra-ordinary items 3,400.91 4,815.15 4,847.14 5,195.29

Tax 10,711.18 14,528.75 23,018.14 18,446.66

Reported Net Profit 0.88 0.51 48.10 0.00

Total Value Addition 8,810.95 11,156.07 10,673.96 8,949.83

Preference Dividend 0.00 0.00 0.00 0.00

Equity Dividend 1,393.51 1,440.44 1,631.24 1,897.05

Corporate Dividend Tax 195.44 202.02 277.23 322.40

Per share data (annualized)

Shares in issue (lakh) 13,935.08 13,935.08 14,536.49 15,737.98

Earnings Per Share (Rs) 65.08 85.71 133.86 97.28

Equity Dividend (%) 100.00 110.00 130.00 130.00

Book Value (Rs) 324.03 439.57 542.74 727.66

54
 ANALYSIS- FINANCIAL POSITION OF RELIANCE INDUSTRIES

LIMITED

Following a review of the different ratios, the fund flow and cash flow study

concludes that:

● The company's long-term solvency is quite excellent.

● The company's immediate solvency status is likewise highly

satisfactory. The business can instantly fulfill its pressing responsibilities.

● Credit policies work well.

● The company's overall profitability condition is fairly excellent.

● The payout ratio for dividends is adequate. Dividend distributed to

shareholders annually.

● The business pays its suppliers on time.

● The capital employed yields a reasonable return.

● The company's profitability condition is really satisfactory.

55
 DATA INTERPRETATION

1- CURRENT RATIO

FORMULA-

CURRENT RATIO= CURRENT ASSETS/ CURRENT LIABILITIES

YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

Current assets 24,696.15 30,210.99 44,743.86 56,298.09

Current liabilities 21,547.00 25,858.06 32,221.16 45,675.71

Current ratio 1.14 1.16 1.38 1.23

56
 INTERPRETATION-

Reliance Industries Ltd. 's current ratio for the 2008–2009 period is 1.23:1. This

indicates that they have 1.23 rupees in current assets for every rupee in current

liabilities. To put it another way, current assets exceed current liabilities by 1.23.

The company's soundness is increased by the slightly higher current ratio in

2007–2008 compared to nearly four years of the same ratio. The company will be better

able to fulfil its obligations as a result of the steady increase in the value of its current

assets, making it appear less hazardous to creditors. The current ratio, then, provides

insight into the company's capacity to settle its current debts with its current assets.

The current ratio of Reliance Industries Ltd. is satisfactory.

2- QUICK RATIO

FORMULA-

QUICK RATIO= QUICK ASSETS/ QUICK LIABILITIES

YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

Quick assets 14,576.33 18,674.48 24,227.75 36029.91

Quick liabilities 21,547.00 25,858.06 32,221.16 45,675.71

Liquid ratio 0.67 0.69 0.75 0.78

57
INTERPRETATION-

An organization's liquid financial position is indicated by the quick or liquid

ratio. The liquid ratio has remained nearly constant over the last four years, which

helps the business fulfil the deadline. Reliance Industries Ltd.’s liquid ratio improved

from 0.67 to 0.78 in 2008–2009, indicating that the company pursues a low liquidity

position in order to attain high profitability.

This suggests that the corporation is pursuing an aggressive working capital

program and is more dependent on long-term liabilities and creditors.

Because the company's fast assets are less than its quick liabilities, its liquidity

ratio is unfavourable. The company's capacity to fulfil its short-term obligations on time

is demonstrated by the liquid ratio.

58
3- PROPRIETARY RATIO

FORMULA-

PROPRIETARY RATIO= SHAREHOLDER FUND/ FIXED ASSETS

YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

Proprietary fund 49,804.26 63,967.13 81,448.60 126,372.97

Total Assets 68,520.72 87,439.93 105,405.58 189,655.07

Proprietary ratio 0.72 0.73 0.77 0.66

INTERPRETATION-

In 2008–2009, the company's proprietary ratio was 0.66. This indicates that the

owners' fund contributed 66 rupees for every rupee of the total assets, with outside

59
creditors contributing the remaining 34 rupees. This demonstrates that owners'

contributions to total assets exceed those of external creditors. Given that the

company's proprietary ratio is highly favourable. The Company has excellent long-term

solvency.

4- STOCK WORKING CAPITAL

FORMULA-

STOCK WORKING CAPITAL= STOCK/WORKING CAPITAL

YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

Stock 10,119.82 12,136.51 14,247.54 14,836.72

Working Capital 3149.15 4352.93 12,522.70 10,622.38

Stock working 3.21 2.78 1.13 1.39

capital ratio

60
INTERPRETATION-

This ratio illustrates the amount of money that is blocked in stock. The stock is

getting less during the years of 2005–2005 and 2008–2009. But it has also somewhat

increased in 2008–2009. Increased sales in 2007–2008 led to a decrease in stock, which

in turn caused an increase in working capital during that time.

It demonstrates the company's strong solvency status.

5- CAPITAL GEARING RATIO

FORMULA-

CAPITAL GEARING RATIO= PREFERRENCE CAPITAL+ SECURED LOAN/ EQUITY

CAPITAL+RESERVE & SURPLUS

YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

Secured loan 7,664.90 9,569.12 6,600.17 10,697.92

Equity capital & 49,804.26 63,967.13 81,448.60 126,372.97

reserves & surplus
Capital gearing 16% 15% 8.2% 8.5%
ratio

61
INTERPRETATION=

The technique of using debt to increase the return to equity stockholders is

known as gearing. A capital gearing ratio, often known as a leverage ratio, shows how

much equity and debt a company has borrowed to finance its assets.

The capital gearing ratio has remained relatively consistent over the past two

years (from 2007-2008 to 2008-2009), indicating that approximately 8.5% of the funds

cover the secured loan position. However, the capital-gearing ratio was 16% in 2005–

2005. It indicates that the company took out more secured loans for its growth

throughout the 2005–2005 year.

6- DEBT EQUITY RATIO

FORMULA-

DEBT EQUITY RATIO= DEBT/ SHAREHOLDER FUND

62
 YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

Long term debt 21,865.61 27,825.73 36,479.68 73,904.48

63,967.13
Shareholders fund 49,804.26 81,448.60 126,372.97

Debt Equity Ratio 0.44 0.44 0.45 0.59

INTERPRETATION-

An essential instrument for financial analysis to evaluate the company's financial

structure is the debt-to-equity ratio. It conveys the relationship between internal and

external equity. In the eyes of creditors and owners alike, this ratio is critical.

Between 2005–2005 and 2008–2009, the debt–equity ratio grew from 0.44 to

0.59. This demonstrates that the shareholders' fund expanded along with the debt. This

63
demonstrates the company's healthy long-term capital structure. From the perspective

of the long-term creditors, the lower ratio is considered advantageous.

7- GROSS PROFIT RATIO

FORMULA-

GROSS PROFIT RATIO= GROSS PROFIT/NET SALES *100

YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

Gross profit 18345.48 25,439.43 30,086.28 25,758.2

Net sales 80,877.79 111,699.03 133,805.78 141,959

Gross profit Ratio 22.7 22.7 22.4 18.14

INTERPRETATION-

The profit from the selling of products is known as the gross profit. It's the

turnover profit. The gross profit ratio for 2005–2005 is 22.7%. Due to an increase in

64
sales and a commensurate rise in the cost of products sold, it fell to 18.14% in 2008–

2009.

From 2005–2005 to 2008–2009, it consistently decreased because of the high

cost of purchases and overhead. Despite this, the gross profit ratio decreased from

2005–2005 to 2008–2009. From 2005–20053, when net sales and gross profit peaked,

to 2008–2009, when they continued to rise.

8- OPERATING RATIO

FORMULA-

OPERATING RATIO= OPERATING PROFIT/NET SALES*100

OPERATING PROFIT = COGS+OPERATING EXPENSES

YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

COGS +

Operating 68,550.24 91,947.72 109,506.10 118,234.17

expenses

Net sales 80,877.79 111,699.03 133,805.78 141,959

Operating ratio 84.75% 82.31% 81.80% 83.28%

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INTERPRETATION-

The link between activity expenses and net revenues is shown by the operating

ratio. When comparing the operating ratio over a four-year period, it shows how the

company's operational efficiency has changed.

The company's operating ratio rose somewhat in the previous year after

declining during the previous three. The growth in the cost of goods sold—which was

84.75% in 2005–2005, 82.31% in 2005–2007, 81.80% in 2007–2008, and 83.28% in

2008–2009—is the cause of this. While there has been a rise in costs between 2005 and

2005, during the next two years, there will be a continual decrease, indicating a

downward trend in costs and an upward or positive trend in operational performance.

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9- NET PROFIT RATIO

FORMULA-

NET PROFIT RATIO= NET PROFIT AFTER TAX/NET SALES*100

YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

NPAT 9,069.34 11,943.40 19,458.29 15,309.32

Net sales 80,877.79 111,699.03 133,805.78 141,959.00

Net profit ratio 11.21% 10.69% 14.54% 10.78%

INTERPRETATION-

The company's net profit ratio is high throughout the year, however over the

course of four years, it has been seen that the net profit climbed from 2005–2005 to

2007–2008 and declined in 2008–2009.

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 The company's profitability ratio has significantly increased over the past three

years and declined in the most recent one. The company's revenues have gone up for

the past three years and down for the most recent one. The business has also been

successful in keeping costs, such as those associated with production and other

expenses, under control.

It is an unambiguous measure of administrative effectiveness, cost containment,

and sales promotion.

10- STOCK TURNOVER RATIO

FORMULA-

STOCK TURNOVER RATIO= COGS/AVERAGE STOCK

YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

COGS 18,90,98 21,96,32 28,33,02 25,72,26

Average stock 5,49,90 5,97,58 6,73,11 6,89,30

Stock Turnover
3.4 3.6 4.20 3.73
Ratio

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11- RETURN ON CAPITAL EMPLOYED

FORMULA-

RETURN CAPITAL EMPLOYED= NET PROFIT AFTER TAX/CAPITAL EMPLOYED*100

YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

NPAT 9,069.34 11,943.40 19,458.21 15,308.32

Capital employed 71,669.87 145,415.73 117,928.28 200,277.45

Return on capital
12.65% 8.21% 16.50% 7.64%
employed

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INTERPRETATION-

The relationship between profit and investment is demonstrated by the return

on capital utilized. Its objective is to determine the entire profitability from the total

cash made accessible by the owner & lenders.

The net return of Rs. 7.64 on Rs. 100 of capital employed is indicated by the

return on capital employed of Rs. 7.64. There is Rs. 7.64 available to cover

appropriation, tax, and interest.

The return on capital utilized exhibits a mixed trend, declining in 2005–2007,

increasing in 2007–2008, and then declining in 2008–2209.In 2007-2008 It is highest

that is 16.50%. This suggests a very high rate of return on investment for every rupee

invested and offers a significant chance of drawing in a sizable amount of new capital.

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12- EARNING PER SHARE

FORMULA-

EARNING PER SHARE=NET PROFIT AFTER TAX-PREFERENCE DIVIDEND/NUMBER OF

EQUITY SHARE

YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

NPAT 9,06934 11,943,40.00 19,458,29.00 15,309,32.00

No.of equity share 13,935.08 13,935.08 14,536.49 15,737.98

Earning per share 65.08 85.71 133.86 97.28

INTERPRETATION-

To determine the company's total profitability, earnings per share is computed.

Whether or not dividends are declared, the company's earnings are represented by its

earnings per share.

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 With an earnings per share of 97.28, shareholders receive Rs. for every Rs. 10/-

share. Stated differently, the shareholder received Rs. 97.28 for each share.

With the exception of 2008 and 2009, the company's net profit after taxes has

increased every year. As a result, the shareholders' earnings per share climbed steadily

between 2005 and 2005, rising by 65.08 to 133.86% in 2007 and 2008, and then

declining to 97.28% in 2008. This demonstrates that there has been constant capital

appreciation per share for the past three years, followed by capital depreciation per

share in the final year. The aforementioned research demonstrates the sharp rise in

earnings per share and dividends per share. Putting money into this company will

benefit the shareholders and potential investors.

13- DIVIDEND PAYOUT RATIO

FORMULA-

DIVIDEND PAYOUT RATIO= DIVIDEND PER SHARE/EARNING PER SHARE*100

YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

Dividend per share 10.00 10.33 11.22 12.05

Earnings per share 65.08 85.71 133.86 97.28

Dividend payout
15.36% 12.05% 8.38% 12.38%
ratio

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INTERPRETATION-

All four years the business turned a profit. Declared dividends for each of the

four years. The dividend payout ratio for the years 2005–2005, 2005–2007, and 2008–

2009 is 15.36, 12.05, and 12.38, respectively. Since the company did not make more

money in 2001–2002, it did not declare greater dividends in 2008–2009. As a result, the

company announced an 8.38 dividend in 2007–2008. Nonetheless, because it made

enough money in 2005 and 2005, the corporation announced higher dividends. This

suggests that the business is more cautious about growing.

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14- CASH RATIO

FORMULA-

CASH RATIO= CASH +MARKETABLE SECURITIES+BANKS/TOTAL CURRENT

LIABILITIES

YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

Cash + Bank +

Marketable 239.31 308.31 217.79 500.13

securities

25,858.06
Total current
21,547.00 32,221.16 45,675.71
liabilities

Cash ratio 0.011 0.011 0.006 0.010

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INTERPRETATION-

This ratio is also known as the absolute liquidity ratio or the ultra quick ratio.

The cash ratio is 0.011 in 2005–2005 and stays at that level in 2005–2007.

Subsequently, it dropped to 0.006 in 2007–2008 and rose to 0.010 in 2008–2009.

This demonstrates the lack of marketable securities, bank balance, and cash on

hand for the company to cover unforeseen expenses.

15- RETURN ON PROPRIETORS FUND

FORMULA-

RETURN ON PROPRIETOR FUND= NET PROFIT AFTER TAX/PROPRIETOR FUND*100

YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

NPAT 9,069.34 11,943.40 19,458.29 15,309.32

Proprietors fund 49,804.26 63,967.13 81,448.60 126,372.97

Return on
18.20 16.67 23.89 12.11
proprietors fund

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INTERPRETATION-

The relationship between the company's investments and earnings is

demonstrated by the return on proprietors' funds. The proprietors fund return for the

year 2005–2005 was 18.20%, which indicates that for every Rs. 100 that the owners

contributed, a net return of about Rs. 18.20 was received.

The proprietors fund's rate of return has fluctuated over the past four years.

From 2005–2005 to 2008–2009, the proprietors fund return dropped from 18.20% to

12.11%, reaching its highest point in 2007–2008.

It demonstrates that the business has enormous returns available to cover high

dividends, sizable transfers to reserves, etc., and that it has a great deal of potential to

draw in substantial amounts of new funding from shareholders.

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16- OPERATING PROFIT RATIO

FORMULA-

OPERATING PROFIT RATIO= OPERATING RATIO/NET SALES*100

YEAR 2005-2005 2005-2007 2007-2008 2008 -2009

NPAT 14,458.74 20,405.91 22,432.52 24,152.39

Proprietors fund 80,877.79 111,699.03 133,805.78 141,959

Return on
17.87 18.26 16.76 17.04
proprietors fund

INTERPRETATION-

The link between operating profit and sales is shown by the operating profit

ratio. The operating profit can be calculated as follows: sales less cost of goods sold and

operating expenses, or gross profit less all operating expenses.

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 With a sale of Rs. 100, an average operating margin of Rs. 17 is earned, according

to the operational profit ratio of 17.04%. The sum of Rs. 17 can be used to cover non-

operating costs. Stated otherwise, the operational profit ratio of 17.04 indicates that,

after deducting all operating costs, 17.04% of net sales are left as operating profit. The

operational profit ratio has been relatively constant over the past four years. It shows

that the business is very effective at controlling both direct and indirect costs as well as

all of its production, purchasing, inventory, selling, and distribution activities. As a

result, the business has a sizable margin available to pay for non-operating costs and

turn a profit.

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 FUND FLOW STATEMENT INTERPRETATION-

● According to the fund flow analysis, there was a consistent growth

in funds between 2005 and 2008, which may be attributed to both higher

operating profit and maximum long-term borrowings. Since the corporation took

out the maximum amount of long-term loans in 2008, the funds were at their

highest point during that year.

● Additionally, from 2005 to 2009, there was a constant growth in

the amount of funds applied. It reached its lowest point in 2005 and its highest

point in 2009.

● The company's net working capital was at its highest point in

2009, indicating a strong liquidity position, and at its lowest point in 2007,

indicating a weak liquidity situation.

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 CASH FLOW STATEMENT INTERPRETATION-

● The cash flow statement indicates that in 2005, 2007, and 2008, net profit

before tax climbed steadily. However, in 2009, this increase was reversed due to an

excess of liquidity.

● From 2005 to 2009, the net cash from operational activities climbed

steadily, demonstrating the firm's strong position.

● According to the statement, the net cash from investing operations has

been negative for each of the last four years, indicating that the corporation is not

contributing enough to these activities.

● In 2008 and 2009, the company utilized the largest amount of net cash for

financing activities compared to 2005 and 2007, when the company contributed less

to financing activities.

● The firm's cash and cash equivalents declined in 2005 and 2007,

indicating the negative liquidity position of the company during these years. The

company's cash and cash equivalents increased in 2008 and 2009, demonstrating its

strong liquidity position.

● The initial cash and cash equivalents are at a minimum in 2008 and reach

a high in 2009. The firm maintained its maximum liquidity position in 2009, as

evidenced by the closing cash and cash equivalents maximum in 2009 and minimum

in 2007.

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 FINDINGS

1. There has been no variation in the proprietary ratio's trajectory. In

comparison to the previous year, the proprietary ratio has dropped..

2. There is variability in the gross profit ratio. In comparison to the prior year, it

dropped from 23.1% to 18.97% in the present year.

3. The current year's net profit ratio dropped from 14.54% to 10.78% from the

prior year's level.

4. The highest dividend payout ratio was recorded in 2005–2005, while the

lowest was recorded in 2007–2008.

5. The company's net working capital was at its highest point in 2009, indicating

a strong liquidity position, and at its lowest point in 2007, indicating a weak liquidity

situation.

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 SUGGESTION & RECOMMENDATION

1. The ability of the company to pay its present debts when they fall due is

referred to as liquidity. The business needs to strengthen its liquidity situation.

2. The business needs to strike a balance between its liquidity and solvency.

3. The corporation should take note of the fact that the profit ratio has dropped

this year, as generating profits is the main goal of every organization.

4. Every year, the cost of items sold rises, thus the business needs to work to

keep it under control.

5. The company has excellent long-term financial condition, but it should give its

short-term solvency some thought.

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 CONCLUSION

Overall, the corporation is in a very strong position. The business has made

enough money during the last four years. The company's long-term solvency situation is

excellent. In order to preserve its high profitability, the corporation keeps its liquidity

low. Each year, the corporation pays dividends to its shareholders. The company's profit

declined last year as a result of keeping relatively high liquidity. The company's

maximum net working capital from the previous year indicates its highest level of

liquidity.

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 BIBILIOGRAPHY

REFERENCE BOOKS-

● Financial Management

● Theory, concept & problems

● R.P RUSTAGI

● FINANCIAL MANAGEMENT by MR. Agrawal

ANNUAL REPORTS OF RELIANCE INDUSTRIES LIMITED

● 2005-2006

● 2006-2007

● 2007-2008

● 2008-2009

WEBSITES-

● www.ril.com

● www.moneycontrol.com

● www.wikipedia.com

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