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Capital Structure Analysis of Indian Oil 
Corporation Limited (IOCL) 
A PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE 
DEGREE OF MASTER OF BUSINESS ADMINISTRATION 
DEPARTMENT OF MANAGEMENT STUDIES, PONDICHERRY UNIVERSITY 
UNDER THE GUIDANCE OF 
Institutional guide: 
Dr. M.Basheer Ahmed Khan 
Department of Management 
Studies 
Pondicherry University 
Submitted By: 
Kankan Deka 
Regn. No.-13397039 
MBA 2rd Year. 
Organisational guide: 
Mr. Himangshu Bardoloi 
Accounts Officer 
Guwahati Refinery (IOCL)
DECLARATION 
I hereby declare that the project report titled “CAPITAL STRUCTURE 
ANALYSIS OF INDIA OIL CORPORATION LIMITED” submitted in partial 
fulfillment of the requirement for the award of the degree of MASTER OF 
BUSINESS ADMINISTRATION at Department of Management Studies, 
Pondicherry University is an original piece of work and not submitted for 
award of any other degree, diploma, fellowship, or any other similar title or 
prizes. 
As per my knowledge and belief, the substance in the report does not form 
the part of any other business or research work. Also, this report has never 
been submitter earlier or used for any academic purpose. 
Date-29.08.14 Kangkan deka 
Place- Guwahati Regn no. 13397039 
2 
MBA, 3rd semester 
Pondicherry University
GUIDE’S CERTIFICATE 
Certified that this report entitled “CAPITAL STRUCTURE ANALYSIS OF INDIAN 
OIL CORPORATION LIMITED” is submitted in partial fulfillment for the award 
of MBA is record of independent research work carried out by KANGKAN 
DEKA under my guidance and no part of this corporate Exposure Training has 
been previously submitted earlier for the award of any degree/diploma. 
Professor & Head Faculty Guide: 
Dr. T .Nambirajan Dr.M.Basheer Ahmed Khan 
Department Of Management Department Of Management 
Studies Studies 
Pondicherry University Pondicherry university 
3
ACKNOWLEDGEMENTS 
This project, though an individual project, wouldn’t have been possible 
without the constant help and guidance of a few individuals whose support 
has been vital to the completion of the project. 
At the outset, I would like to thank Mr. Hitesh Barman (Manager – Vigilance 
department) for providing me the opportunity to do a project at Indian Oil 
Corporation limited. 
This research project would not have been possible without the support of 
many people. I wish to express my gratitude to my supervisor, Mr. Vishal 
Maheshwari, who was abundantly helpful and offered invaluable assistance, 
support and guidance. Deepest gratitude are also due to the members of the 
finance department, Ms. Rina Choudhary, Mr. Munin Baradakai without 
whose knowledge and assistance this study would not have been successful. 
I would also like to convey my thanks to my college faculty, Prof. M. Basheer 
Ahmed Khan. 
And finally I wish to express my love and gratitude to my beloved family; for 
their understanding & endless love through the duration of my internship. 
Place: Guwahati Kangkan deka 
4 
MBA 2nd year 
Pondicherry University
TABLE OF CONTENTS 
CHAPTER 1: INTRODUCTION TO THE PROJECT 
5 
1.1: Introduction to the topic 
1.2: Objective of the study 
CHAPTER 2: PROFILE OF THE COMPANY AND THE MARKET SCENARIO 
2.1: Origin of oil industry in India. 
2.2: About IOCL and Guwahati refinery. 
2.3: Vision, Mission and values. 
CHAPTER 3: RESEARCH METHODOLOGY 
3.1: Research design. 
3.2: Data source and collection. 
3.3: Capital structure analysis. 
CHAPTER 4: DATA INTERPRETATION AND ANALYSIS 
CHAPTER 5: CONCLUSION 
5.1: FINDINGS 
5.2: SUGGESTIONS 
5.3: LIMITATIONS 
5.4: CONCLUSION 
CHAPTER 6: BIBLIOGRAPHY
CHAPTER 1: INTRODUCTION TO THE PROJECT 
6
Introduction to the topic: 
Capital Structure of a Company refers to the composition or make up of its 
Capitalization and it includes all long term Capital resources i.e. loans, 
reserves, shares and bond. It shows the mix of a company's long-term debt, 
specific short-term debt, common equity and preferred equity. The capital 
structure is how a firm finances its overall operations and growth by using 
different sources of funds. In finance, capital structure refers to the way a 
corporation finances its assets through some combination of equity, debt, or 
hybrid securities. A firm's capital structure is then the composition or 
'structure' of its liabilities. For example, a firm that sells $20 billion in equity 
and $80 billion in debt is said to be 20% equity-financed and 80% debt-financed. 
The firm's ratio of debt to total financing, 80% in this example is 
referred to as the firm's leverage. In reality, capital structure may be highly 
complex and include tens of sources. Gearing Ratio is the proportion of the 
capital employed of the firm which come from outside of the business 
finance, e.g. by taking a short term loan etc.Debt comes in the form of bond 
issues or long-term notes payable, while equity is classified as common 
stock, preferred stock or retained earnings. Short-term debt such as working 
capital requirements is also considered to be part of the capital structure 
structure. A company's proportion of short and long-term debt is considered 
when analyzing capital Structure. When people refer to capital structure they 
are most likely referring to a firm's debt-to-equity ratio, which provides 
insight into how risky a company is. Usually a company more heavily 
7
financed by debt poses greater risk, as this firm is relatively highly levered. 
The long term creditors would judge the soundness of the firm on the basis 
of the long term financial strength measured in terms of ability to pay the 
interest regularly as well as repay the installment of the principal on due 
dates or in one lump sum at the time of maturity. Accordingly, there are two 
different, but mutually dependent and interrelated, types of leverage ratio 
First Ratio which are based on the relationship between borrowed funds and 
owner’s capital. In this Paper, researcher explain the different leverage ratio 
as also how they can be used to draw inferences regarding the financial 
soundness of the firm. 
8
OBJECTIVES OF THE STUDY 
 To examine the Capital Structure policy and pattern of IOCL. 
 To understand the capital structure of Indian Oil Corporation 
 To identify the share capital and debt of the company. 
 To Find out the earnings per share 
9 
 To Find out the leverage 
 To give suggestions for improvement of the Capital Structure 
composition of Indian Oil corporation Ltd 
 Evaluate the contents of IOCL Debts and Equity.
CHAPTER 2: PROFILE OF THE COMPANY AND THE 
MARKET SCENARIO 
10
COMPANY OVERVIEW 
11 
INDIAN OIL CORPORATION LTD 
IOCL (Indian Oil Corporation) was formed in 1964 as the result of merger of 
Indian Oil Company Ltd. (Estd. 1959) and Indian Refineries Ltd. (Estd. 1958). 
Indian Oil Corporation Ltd. is currently India's largest company by sales with 
a turnover of Rs. 2 441 329 600, and profit of Rs. 25 994 000 for fiscal 2009. 
Indian Oil Corporation Ltd. is the highest ranked Indian company in the 
prestigious Fortune ‘Global 500’. It is ranked at 109th position in 2010. It is 
also the 20th largest petroleum company in the world. 
Indian Oil and its subsidiaries today accounts for 49% petroleum products 
market share in India. 
Indian Oil group has sold 59.29mn tonnes of Petroleum including 1.74mn 
tonnes of natural gas in the domestic market and exported 3.33mn tonnes in 
the yr 2008-09. 
IOCL GROUP 
IOCL Group consists of Indian Oil Corporation Ltd. and the following 
subsidiaries: 
Lanka IOC Ltd 
Indian Oil (Mauritius) Ltd. 
IOCL Middle East FZE 
Indian Oil Technologies Ltd. 
Chennai Petroleum Corporation Ltd. (CPCL) 
Bongaigaon Refinery & Petrochemicals Ltd (BRPL)
Location of IOCL in India 
12
The current Refining capacity stands at 55.01 million ton per annum. 
Yet another refinery is being set up on the East Coast at Paradip (Orissa). The 
outlay includes provision for Expansion of Barauni Refinery, Quality improvement 
for HSD at Haldia, Gujarat, Mathura, Grass Root Refinery in Eastern Sector, 
Residue Up gradation at Gujarat, and Implementation of Lube Quality 
improvement at Haldia etc. 
The company is mainly controlled by the Government of India which owns 
approx.. 79% shares in the company. It is one of the Maharatna status companies 
of India apart from Coal India Limited, NTPC Limited, Oil and Natural Gas 
Corporation, Steel Authority of Indian Limited, Bharat Heavy Electricals Limited 
and Gas Authority of India Limited. 
Indian Oil Corporation Limited operates a network of 11,214 km long crude oil, 
petroleum product and gas pipelines with a capacity of 77.258 million metric 
tonnes per annum of oil and 10 million metric standard cubic meter per day of 
gas. Cross-country pipelines are globally recognized as the safest, cost-effective, 
energy-efficient and environment friendly mode for transportation of crude oil 
and petroleum products. Indian Oil has one of the largest petroleum marketing 
and distribution networks in Asia with over 35,000 marketing points. 
13
14 
VISION OF IOCL 
A major diversified, transnational, integrated energy company, with national 
leadership and a strong environment conscience, playing a national role in oil 
security & public distribution. 
MISSION OF IOCL 
IOCL has the following mission: 
To achieve international standards of excellence in all aspects of energy and 
diversified business with focus on customer delight through value of 
products and services and cost reduction. 
 To maximize creation of wealth, value and satisfaction for the 
stakeholders. 
 To attain leadership in developing, adopting and assimilating state-of- 
the-art technology for competitive advantage. 
 To provide technology and services through sustained Research and 
Development. 
 To foster a culture of participation and innovation for employee 
growth and contribution. 
 To cultivate high standards of business ethics and Total Quality 
Management for a strong corporate identity and brand equity. 
 To help enrich the quality of life of the community and preserve 
ecological balance and heritage through a strong environment 
conscience.
15 
VALUES OF IOCL 
Values exist in all organizations and are an integral part of any it. Indian Oil 
nurtures a set of core values: 
1. CARE 
2. INNOVATION 
3. PASSION 
4. TRUST 
OBJECTIVES OF INDIAN OIL 
IOCL has defined its objectives for succeeding in its mission. These objectives 
are: 
 To serve the national interests in oil and related sectors in accordance 
and consistent with Government policies. 
 To ensure maintenance of continuous and smooth supplies of 
petroleum products by way of crude oil refining, transportation and 
marketing activities and to provide appropriate assistance to 
consumers to conserve and use petroleum products efficiently. 
 To enhance the country's self-sufficiency in crude oil refining and build 
expertise in laying of crude oil and petroleum product pipelines. 
 To further enhance marketing infrastructure and reseller network for 
providing assured service to customers throughout the country. 
 To create a strong research & development base in refinery processes, 
product formulations, pipeline transportation and alternative fuels
with a view to minimizing/eliminating imports and to have next 
generation products. 
 To optimize utilization of refining capacity and maximize distillate yield 
16 
and gross refining margin. 
 To maximize utilization of the existing facilities for improving efficiency 
and increasing productivity. 
 To minimize fuel consumption and hydrocarbon loss in refineries and 
stock loss in marketing operations to effect energy conservation. 
 To earn a reasonable rate of return on investment. 
 To avail of all viable opportunities, both national and global, arising 
out of the Government of India’s policy of liberalization and reforms. 
 To achieve higher growth through mergers, acquisitions, integration 
and diversification by harnessing new business opportunities in oil 
exploration & production, petrochemicals, natural gas and 
downstream opportunities overseas. 
 To inculcate strong ‘core values’ among the employees and 
continuously update skill sets for full exploitation of the new business 
opportunities. 
 To develop operational synergies with subsidiaries and joint ventures 
and continuously engage across the hydrocarbon value chain for the 
benefit of society at large.
IOCL 
17 
Major Divisions of IOCL: 
Indian Oil Corporation Limited (Indian Oil) owns and operates a network of crude 
oil and petroleum product pipeline in India. It has two divisions: Refineries 
Division and Marketing Division. The Refineries Division is focused on managing 
the public sector refineries and the Marketing Division is focused on distribution 
not only the entire production of public sector refineries but also the deficit 
products imported. It is organized in two segments: sale of petroleum products, 
and other businesses, which comprises sale of imported crude oil, sale of gas, 
petrochemicals, explosives and cryogenics, wind mill power generation and oil 
and gas exploration activities jointly undertaken in the form of unincorporated
joint ventures. The Digboi Refinery of Assam Oil Division processed 0.623 million 
metric tons (MMT) of crude oil during the year. The Division sold about 1.067 
MMT of products. IBP Division comprises the explosives and cryogenics business. 
18
CHAPTER 3: RESEARCH METHODOLOGY 
19
20 
RESEARCH DESIGN 
A research design is the specification of method and procedure for accruing the 
information needs. It is overall operational pattern of frame work of project that 
stipulates what information is to be collected for source by the procedures. 
Descriptive Research design is appropriate for this study. 
Descriptive study is used to study the situation. This study helps to describe the 
situation. A detail description about present and past situation can be found out 
by the descriptive study. 
DATA SOURCE AND COLLECTION 
This research is based on secondary data. This means the data are already 
available, i.e. the data which have been already collected and analyzed by 
someone else. 
Secondary data are used for the study of ratio analysis of this company and also 
its competitors. To collect the data, company annual report, internet websites has 
been used. 
Analyzing and interpreting the information available in the financial statements 
and drawing meaningful conclusions from them.
CAPITAL STRUCTURE 
A mix of a company's long-term debt, specific short-term debt, common 
equity and preferred equity . The capital structure is how a firm finances its 
overall operations and growth by using different sources of funds. 
Debt comes in the form of bond issues or long-term notes payable, while 
equity is classified as common stock, preferred stock or retained earnings. 
Short-term debt such as working capital requirements is also considered to 
be part of the capital structure. But the IOCL does not issue the preference 
shares and debenture to the public of the company 
COMPONENTS OF CAPITAL STRUCTURE: 
CAPITAL STRUCTURE 
21 
Shareholder’s funds 
-equity capital 
-preference capital (Nil) 
-- 
Borrowed funds 
-debenture (Nil) 
-Term loan
CHAPTER 4: DATA ANALYSIS 
22
SHARE CAPITAL 
23 
6000 
5000 
4000 
3000 
2000 
1000 
0 
2014 2013 2012 2011 2010 
Authorised Capital 
(CR) 
Issued Capital (CR) 
AUTHORISED CAPITAL: The maximum equity capital a company can 
raise, which is mentioned in the Memorandum of Association and Articles of 
Association of the Company. However, share premium is excluded from the 
definition of authorized capital. 
SSUED CAPITAL: Issued capital is the amount of nominal value of share 
held by the shareholders. It is the face value of the shares that have been 
issued to the shareholders. Issued share capital and share premium 
represent the amount invested by the shareholders in the company. It is also 
known as the subscribed capital or subscribed share capital. 
Analysis: But here, IOCL issued very less share capital IN Previous years if I 
compared to Authorized capital. IOCL is only issued the limited share to the 
shareholders
Paid up capital 
From - To 
Instrument 
Shares(nos) 
Face value 
Capital 
2013 2014 Equity share 2427952482 10 2427.95 
2012 2013 Equity share 2427952482 10 2427.95 
2011 2012 Equity share 2427952482 10 2427.95 
2010 2011 Equity share 1192374306 10 1192.37 
2009 2010 Equity share 1192374306 10 1192.37 
2008 2009 Equity share 778674809 10 778.67 
24 
Paid up capital: 
The amount of a company's capital that has been funded by shareholders, 
Paid-up capital can be less than a company's total capital because a company 
may not issue all of the shares that it has been authorized to sell. Paid-up 
capital can also reflect how a company depends on equity financing. 
Here, from 2011 to 2013, the company’s Paid up capital remain same. Its 
means the IOCL collected average funded by shareholders and they have to 
issue more share capital to shareholders in future periods.
TOTAL DEBT 
25 
The IOCL has only two debts: 
Secured loan 
Unsecured loan 
Total debt means here included debenture, Bonds, Long term loans, short 
term loan etc. But Indian Oil Corporation limited (IOCL) did not issued 
debenture, bonds etc. 
Secured loan: 
Secured loans are those loans that are protected by an asset or collateral of 
some sort. The item purchased, such as a home or a car, can be used as 
collateral, and a lien is placed on such item. The finance company or bank 
will hold the deed or title until the loan has been paid in full, including 
interest and all applicable fees. Other items such as stocks, bonds, or 
personal property can be put up to secure a loan as well. 
Secured loans are usually the best (and only) way to obtain large amounts of 
money. A lender is not likely to loan a large amount with assurance that the 
money will be repaid. Putting your home or other property on the line is a 
fairly safe guarantee that you will do everything in your power to repay the 
loan.
Secured loans usually offer lower rates, higher borrowing limits and longer 
repayment terms than unsecured loans. As the term implies, a secured loan 
means you are providing "security" that your loan will be repaid according to 
the agreed terms and conditions. It's important to remember, if you are 
unable to repay a secured loan, the lender has recourse to the collateral you 
have pledged and may be able to sell it to pay off the loan. 
26 
Unsecured loan: 
On the other hand, unsecured loans are the opposite of secured loans and 
include things like credit card purchases, education loans, or personal 
(signature) loans. Lenders take more of a risk by making such a loan, with no 
property or assets to recover in case of default, which is why 
the interest rates are considerably higher. If you have been turned down for 
unsecured credit, you may still be able to obtain secured loans, as long as you 
have something of value or if the purchase you wish to make can be used as 
collateral. 
When you apply for a loan that is unsecured, the lender believes that you can 
repay the loan on the basis of your financial resources. You will be judged 
based on the five (5) C's of credit -- character, capacity, capital, collateral, and 
conditions – these are all criteria used to assess a borrower's creditworthiness. 
Character, capacity, capital, and collateral refer to the borrower's willingness 
and ability to repay the debt. Conditions include the borrower's situation as 
well as general economic factors.
SECURED LOAN 
2014 2013 2012 2011 2010 
27 
25000 
20000 
15000 
10000 
5000 
0 
(CR) 
(CR) 17866 13046 20380 18292 17565 
Analysis: 
In 2014 the secured loan proportion is high than 2013. The India oil 
corporation limited (IOCL) has try to reduce the secured loan because 
secured loan effect the assets of the company and it will be effect on future 
periods so the IOCL Increasingly firms are moving from secured debt to 
unsecured debt in order to free their assets. 
Secured loans have the largest positive impact on Company’s credit when 
they are repaid. If company have never taken a secured loan, company’s 
credit may be low despite your good record of repayment.
UNSECURED LOAN 
2014 2013 2012 2011 2010 
28 
70000 
60000 
50000 
40000 
30000 
20000 
10000 
0 
(CR) 
(CR) 62733.1 57278 32354.2 26273.8 27406.7 
Analysis: 
Here unsecured loan is constantly high from 2010 to 2013. Indian oil 
corporation limited ( IOCL).Unsecured loan is more better than secured loan 
Because secured loan will be affect the assets of the company in future 
period of time so the IOCL has increasing the unsecured loan for reducing 
the risk of the company . Most of the company has preferred the unsecured 
debt which will not affect any assets of the company. 
In some cases, IOCL may be able to reduce IOCL unsecured debts by 
negotiating with creditors for a lower balance. Either IOCL can talk to 
creditors on IOCL own, or IOCL can solicit the help of a credit counseling
organization. In some cases, credit counselors can negotiate with creditors 
better than debtors can. However, if IOCL choose to work with a credit 
counselor make sure the organization is reputable. 
EARNING BEFORE INTEREST AND TAX 
Earnings before interest and tax A measure of a Indian oil corporation limited 
(IOCL) earning power from ongoing operations, equal to earnings before 
deduction of interest payments and income tax. EBIT excludes income and 
expenditure from unusual, non-recurring or discontinued activities. In the 
case of a IOCL with minimal depreciation and amortization activities, EBIT is 
watched closely by creditors, since it represents the amount of cash that 
such a company will be able to use to pay off creditors. also called operating 
profit. 
As you can re-arrange the formula to be calculated as follows: 
29 
EBIT 
= 
Revenue - COGS-Operating 
Expenses 
Also known as Profit before Interest & Taxes (PBIT), EBIT equals Net 
Income with interest and taxes added back to it. 
EBIT was the precursor to the EBITDA calculation, which includes 
depreciation and amortization expenses.
Financial managers spend a considerable amount of time analyzing and 
understanding their EBIT. EBIT is short for earnings before interest and taxes 
and is synonymous with net operating income. EBIT is calculated by taking 
revenue and subtracting cost of goods sold and all operating expenses. The 
calculation is useful because it provides a look at how profitable a business is 
before loan decisions and tax considerations are included to arrive at net 
income. If you plan on improving EBIT while holding sales constant, your only 
option will be to reduce costs. 
30
Earnings before interest and tax 
2014 2013 2012 2011 2010 
31 
20000 
15000 
10000 
5000 
0 
( CR) 
( CR) 13359.43 12050.65 16773.88 11157.05 15057.96 
Analysis: 
In 2014, the operating profit of Indian oil corporation limited (IOCL) is Rs 
13359.43 (Cr). But at present generally they are earning average operating 
profits. so IOCL has try to reduce the long term borrowed fund and issue the 
more share capital to the shareholders in different areas. 
Analyze Indian Oil Corporation limited (IOCL) internal structure and look for 
areas where operations can be centralized or more productive. For instance, 
labor is sometimes redundant or inefficiently organized. Writing out your 
processes in a flow diagram can help you identify and eliminate or 
reorganize them. Consider introducing new, long-term cost saving 
technologies for inventory, production and sales. These systems can greatly 
increase efficiency, creating costs savings.
EARING PER SHARE (EPS) 
Earnings per share represent a portion of a company's profit that is 
allocated to one share of stock. Therefore, if you were to multiply the EPS by 
the total number of shares a company has, you'd calculate the company's 
net income. EPS is a calculation that many people who watch the stock 
market pay attention to. 
When calculating, it is more accurate to use a weighted average number of 
shares outstanding over the reporting term, because the number of shares 
outstanding can change over time. However, data sources sometimes 
simplify the calculation by using the number of shares outstanding at the end 
of-the-period. 
Diluted EPS expands on basic EPS by including the shares of convertibles or 
warrants outstanding in the outstanding shares number. 
32
EPS of IOCL Shareholders from 2010 to 2014: 
2014 2013 2012 2011 2010 
33 
50 
40 
30 
20 
10 
0 
(Rs) 
(Rs) 28.91 20.61 16.29 30.67 42.1 
Analysis: 
In 2014, IOCL shareholders earned per share of Rs 28.91. But in 2010, EPS 
was Rs 42.1. At that time shareholders of IOCL was earned more than last 
year. So constantly decreasing the earning capacity of shareholders of the 
IOCL, But still there EPS is good if I compared to other companies. 
IOCL is to increase earnings or decrease the number of shares. In order to 
increase earnings, a business has to increase revenues, reduce expenses or 
both. In order to decrease the number of shares, do a share buyback from 
shareholders.
LEVERAGE 
The degree to which an investor or business is utilizing borrowed money. 
Companies that are highly leveraged may be at risk of bankruptcy if they are 
unable to make payments on their debt; they may also be unable to find new 
lenders in the future. Leverage is not always bad, however; it can increase 
the shareholders ' return on investment and often there are tax advantages 
associated with borrowing. Components of leverage are: 
LEVERAGE 
Financial leverage Operating leverage 
34 
Financial leverage: 
Financial leverage is a leverage created with the help of debt component in 
the capital structure of a company. Higher the debt, higher would be the 
financial leverage because with higher debt comes the higher amount of 
interest that needs to be paid. Leverage can be both good and bad for a 
business depending on the situation. If a firm is able to generate a higher 
return on investment (ROI) than the interest rate it is paying, leverage will 
have its positive effect shareholder’s return. The darker side is that if the said
situation is opposite, higher leverage can take a business to a worst situation 
like bankruptcy. the Degree of Financial Leverage (DFL) can be calculated 
with the following formula: 
DFL = % Change in EPS / % Change in EBIT 
Where EPS is the Earnings per Share and EBIT is the Earnings before interest 
and Taxes. 
35 
Operating leverage: 
Operating leverage, just like the financial leverage, is a result of operating 
fixed expenses. Higher the fixed expense, higher is the operating leverage. 
Like the financial leverage had an impact on the shareholder’s return or say 
earnings per share, operating leverage directly impacts the operating profits 
(Profits before Interest and Taxes (PBIT)). Under good economic conditions, 
due to operating leverage, an increase of 1% in sales will have more than 1% 
change in operating profits. 
The formula used for determining the Degree of Operating Leverage or DOL 
is as follows: 
DOL = % Change in EBIT / % Change in Sales 
So, Indian oil corporation limited (IOCL) need to be very careful in adding 
any of the leverages to your business viz. financial leverage or operating 
leverage as it can also work as a double edged sword.
Degree Financial leverage of IOCL: 
2014 2013 2012 2011 2010 
36 
2 
1.5 
1 
0.5 
0 
(Ratio) 
(Ratio) 1.61 1.91 1.49 1.31 1.11 
Analysis: 
In 2014 degree of financial leverage of Indian Oil Corporation limited (IOCL) 
ratio is 1.61 and it has constantly higher than previous years. 
By borrowing funds, the IOCL incurs a debt that must be paid. But, this debt 
is paid in small installments over a relatively long period of time. This frees 
funds for more immediate use. Indian Oil Corporation limited that 
successfully uses leverage demonstrates by its success that it can handle the 
risks associated with carrying debt. This can become an important factor 
when additional financing is needed. Not only will loans more likely be 
available, but they will be available at more attractive interest rates. Like 
individuals, companies with solid financials.
Degree of Operating leverage of Indian Oil Corporation 
limited (IOCL): 
2014 2013 2012 2011 2010 
37 
1.15 
1.1 
1.05 
1 
0.95 
0.9 
(Ratio) 
(Ratio) 1.12 1.14 1.09 1.13 1.01 
Analysis: 
In 2014 Indian oil corporation limited has degree of operating ratio is 1.12 
.which is constantly almost same from 2011 to 2014. According to this chart 
IOCL having a good position in future period of time. The more operating 
leverage a company has, the more it has to sell before it can make a profit. 
IOCL with a high operating leverage must generate a high number of sales to 
cover high fixed costs, and as this sales increase, so does the profitability of 
the company. Conversely, a company with a lower operating leverage will 
not see a dramatic improvement in profitability with higher volume, because 
variable costs, or costs that are based on the number of units sold, increase 
with volume.
Total leverage of Indian Oil Corporation limited: 
2014 2013 2012 2011 2010 
38 
3 
2.5 
2 
1.5 
1 
0.5 
0 
(Ratio) 
(Ratio) 1.82 2.43 1.64 1.49 1.21 
Analysis: 
Combined or total leverage measures total risk of the Indian oil corporation 
limited (IOCL). In this year Indian Oil Corporation has minimum risk than last 
year which ratio was 2.43. In this diagram is measured by percentage change 
in earning per share (EPS) due to percentage change in sales. 
IOCL ask their existing shareholders to issuing common stock rights. Stock 
rights allow existing shareholders to purchase additional shares at below-market 
prices, in order to raise equity. While this practice does improve a 
company’s financial strength, it also dilutes the current shareholders’ 
percentage of ownership.
CHAPTER5: CONCLUSION 
39
FINDINGS 
 IOCL has issued less shares capital to the shareholders, constantly from 
2010 to 2014. IOCL does not fulfill the of authorized share capital which is 
mention in memorandum of association. 
 IOCL, Preference share and Debenture not existent in the industry. 
 The return on investment ratio of IOCL is the lowest among its competitors 
which imply that the degree of efficiency of IOCL in utilizing the funds 
entrusted by shareholders and long term creditors is lower than its 
competitors. 
 IOCL has maximum no of total debts in the period of 2014, if I compared 
40 
with previous years. 
 In 2014, unsecured loan is constantly higher than previous years. 
 In 2014, IOCL has maintained the secured loan amounts. Which is mostly 
remain same with previous years. 
 EBIT is very less in 2014; it is constantly decreasing from 2010 to 2014. 
 In 2014, earning per share (EPS) value is Rs 28.91, which is higher than 2013 
but overall five years, IOCL shareholders has earned minimum EPS in 2014. 
 IOCL has Degree of operating leverage almost same with last five years. 
IOCL having a good position in future period of time.
 In 2014, degree of financial leverage is very high than previous years, IOCL 
incurs a debt that must be paid. But, this debt is paid in small installments 
over a relatively long period of time. 
 The overall efficiency of IOCL is higher than those of its competitors in 
41 
previous years of comparison. 
SUGGESTIONS 
 The company should utilize the debt funds more efficiently to maximize 
shareholders’ return. 
 Increasingly firms are moving from secured debt to unsecured debt in order 
to free their assets. 
 For IOCL, to issue maximum number of share to the public and they have to 
reduce the share price is minimum. And IOCL try to fulfill the limit of 
authorized share capital. 
 IOCL have to reduce total debts of the company against of issuing more 
share to the public. 
 IOCL, Need to minimize the degree of financial leverage .otherwise which 
will be affect in future period of time. 
 The company should try to increase the profit before interest and tax so 
that the Investments in the firm are attractive as the investors would like to 
invest only where the return is higher.
 The company can invest in marketable securities to improve its cash 
42 
position. 
 IOCL can try to reduce the secured loan because secured loan can be affect 
the assets of the company in future. 
LIMITATIONS OF THE STUDY 
 The scope of the study is limited to Guwahati Refinery. 
 Time taken to complete the study is very limited. 
 The analysis of the analysis of the companies and suggestion totally 
depends upon the information shared. 
 Non-monetary aspects are not considered making the results unreliable. 
CONCLUSION 
From the above discussion it can be concluded that Indian Oil Corporation limited 
running with low debt fund. Therefore, they may increase it to get benefits of low 
cost capital. It has found that IOCL largely employing shareholders funds in their 
as sets it has crossed even 100% in the first two years. Moreover EOL is on high 
degree financial risk. Therefore, they may reduce the debt capital and employ 
more equity fund. The study undertaken has brought in to the light of the 
following conclusions. According to this project I came to know that from the 
analysis of capital structure analysis it is clear that Indian Oil Corporation Ltd have 
been doing a satisfactory job. But the firm has certain areas to ponder upon like 
capital employment. So the firm should focus on getting of profits in the coming 
years by taking care internal as well as external factors. And with regard to 
resources, the firm is take utilization of the borrowed fund in a right place.
BIBLIOGRAPHY 
43
44 
WEBSITE REFERENCES: 
 www.moneycontrol.com 
 www.iocl.com 
BOOKS REFERENCES: 
 K.R Das, Priti chandna B.B Dam, & Anju Kakoty 1st Edition 
(2013):Financial Statement Analysis. 
THANK YOU
Financial statements of Indian Oil Corporation Ltd. 
45
46
47
48

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Capital structure Analysis of Indian Oil Corporation Limited (IOCL)

  • 1. Capital Structure Analysis of Indian Oil Corporation Limited (IOCL) A PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION DEPARTMENT OF MANAGEMENT STUDIES, PONDICHERRY UNIVERSITY UNDER THE GUIDANCE OF Institutional guide: Dr. M.Basheer Ahmed Khan Department of Management Studies Pondicherry University Submitted By: Kankan Deka Regn. No.-13397039 MBA 2rd Year. Organisational guide: Mr. Himangshu Bardoloi Accounts Officer Guwahati Refinery (IOCL)
  • 2. DECLARATION I hereby declare that the project report titled “CAPITAL STRUCTURE ANALYSIS OF INDIA OIL CORPORATION LIMITED” submitted in partial fulfillment of the requirement for the award of the degree of MASTER OF BUSINESS ADMINISTRATION at Department of Management Studies, Pondicherry University is an original piece of work and not submitted for award of any other degree, diploma, fellowship, or any other similar title or prizes. As per my knowledge and belief, the substance in the report does not form the part of any other business or research work. Also, this report has never been submitter earlier or used for any academic purpose. Date-29.08.14 Kangkan deka Place- Guwahati Regn no. 13397039 2 MBA, 3rd semester Pondicherry University
  • 3. GUIDE’S CERTIFICATE Certified that this report entitled “CAPITAL STRUCTURE ANALYSIS OF INDIAN OIL CORPORATION LIMITED” is submitted in partial fulfillment for the award of MBA is record of independent research work carried out by KANGKAN DEKA under my guidance and no part of this corporate Exposure Training has been previously submitted earlier for the award of any degree/diploma. Professor & Head Faculty Guide: Dr. T .Nambirajan Dr.M.Basheer Ahmed Khan Department Of Management Department Of Management Studies Studies Pondicherry University Pondicherry university 3
  • 4. ACKNOWLEDGEMENTS This project, though an individual project, wouldn’t have been possible without the constant help and guidance of a few individuals whose support has been vital to the completion of the project. At the outset, I would like to thank Mr. Hitesh Barman (Manager – Vigilance department) for providing me the opportunity to do a project at Indian Oil Corporation limited. This research project would not have been possible without the support of many people. I wish to express my gratitude to my supervisor, Mr. Vishal Maheshwari, who was abundantly helpful and offered invaluable assistance, support and guidance. Deepest gratitude are also due to the members of the finance department, Ms. Rina Choudhary, Mr. Munin Baradakai without whose knowledge and assistance this study would not have been successful. I would also like to convey my thanks to my college faculty, Prof. M. Basheer Ahmed Khan. And finally I wish to express my love and gratitude to my beloved family; for their understanding & endless love through the duration of my internship. Place: Guwahati Kangkan deka 4 MBA 2nd year Pondicherry University
  • 5. TABLE OF CONTENTS CHAPTER 1: INTRODUCTION TO THE PROJECT 5 1.1: Introduction to the topic 1.2: Objective of the study CHAPTER 2: PROFILE OF THE COMPANY AND THE MARKET SCENARIO 2.1: Origin of oil industry in India. 2.2: About IOCL and Guwahati refinery. 2.3: Vision, Mission and values. CHAPTER 3: RESEARCH METHODOLOGY 3.1: Research design. 3.2: Data source and collection. 3.3: Capital structure analysis. CHAPTER 4: DATA INTERPRETATION AND ANALYSIS CHAPTER 5: CONCLUSION 5.1: FINDINGS 5.2: SUGGESTIONS 5.3: LIMITATIONS 5.4: CONCLUSION CHAPTER 6: BIBLIOGRAPHY
  • 6. CHAPTER 1: INTRODUCTION TO THE PROJECT 6
  • 7. Introduction to the topic: Capital Structure of a Company refers to the composition or make up of its Capitalization and it includes all long term Capital resources i.e. loans, reserves, shares and bond. It shows the mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds. In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and $80 billion in debt is said to be 20% equity-financed and 80% debt-financed. The firm's ratio of debt to total financing, 80% in this example is referred to as the firm's leverage. In reality, capital structure may be highly complex and include tens of sources. Gearing Ratio is the proportion of the capital employed of the firm which come from outside of the business finance, e.g. by taking a short term loan etc.Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure structure. A company's proportion of short and long-term debt is considered when analyzing capital Structure. When people refer to capital structure they are most likely referring to a firm's debt-to-equity ratio, which provides insight into how risky a company is. Usually a company more heavily 7
  • 8. financed by debt poses greater risk, as this firm is relatively highly levered. The long term creditors would judge the soundness of the firm on the basis of the long term financial strength measured in terms of ability to pay the interest regularly as well as repay the installment of the principal on due dates or in one lump sum at the time of maturity. Accordingly, there are two different, but mutually dependent and interrelated, types of leverage ratio First Ratio which are based on the relationship between borrowed funds and owner’s capital. In this Paper, researcher explain the different leverage ratio as also how they can be used to draw inferences regarding the financial soundness of the firm. 8
  • 9. OBJECTIVES OF THE STUDY  To examine the Capital Structure policy and pattern of IOCL.  To understand the capital structure of Indian Oil Corporation  To identify the share capital and debt of the company.  To Find out the earnings per share 9  To Find out the leverage  To give suggestions for improvement of the Capital Structure composition of Indian Oil corporation Ltd  Evaluate the contents of IOCL Debts and Equity.
  • 10. CHAPTER 2: PROFILE OF THE COMPANY AND THE MARKET SCENARIO 10
  • 11. COMPANY OVERVIEW 11 INDIAN OIL CORPORATION LTD IOCL (Indian Oil Corporation) was formed in 1964 as the result of merger of Indian Oil Company Ltd. (Estd. 1959) and Indian Refineries Ltd. (Estd. 1958). Indian Oil Corporation Ltd. is currently India's largest company by sales with a turnover of Rs. 2 441 329 600, and profit of Rs. 25 994 000 for fiscal 2009. Indian Oil Corporation Ltd. is the highest ranked Indian company in the prestigious Fortune ‘Global 500’. It is ranked at 109th position in 2010. It is also the 20th largest petroleum company in the world. Indian Oil and its subsidiaries today accounts for 49% petroleum products market share in India. Indian Oil group has sold 59.29mn tonnes of Petroleum including 1.74mn tonnes of natural gas in the domestic market and exported 3.33mn tonnes in the yr 2008-09. IOCL GROUP IOCL Group consists of Indian Oil Corporation Ltd. and the following subsidiaries: Lanka IOC Ltd Indian Oil (Mauritius) Ltd. IOCL Middle East FZE Indian Oil Technologies Ltd. Chennai Petroleum Corporation Ltd. (CPCL) Bongaigaon Refinery & Petrochemicals Ltd (BRPL)
  • 12. Location of IOCL in India 12
  • 13. The current Refining capacity stands at 55.01 million ton per annum. Yet another refinery is being set up on the East Coast at Paradip (Orissa). The outlay includes provision for Expansion of Barauni Refinery, Quality improvement for HSD at Haldia, Gujarat, Mathura, Grass Root Refinery in Eastern Sector, Residue Up gradation at Gujarat, and Implementation of Lube Quality improvement at Haldia etc. The company is mainly controlled by the Government of India which owns approx.. 79% shares in the company. It is one of the Maharatna status companies of India apart from Coal India Limited, NTPC Limited, Oil and Natural Gas Corporation, Steel Authority of Indian Limited, Bharat Heavy Electricals Limited and Gas Authority of India Limited. Indian Oil Corporation Limited operates a network of 11,214 km long crude oil, petroleum product and gas pipelines with a capacity of 77.258 million metric tonnes per annum of oil and 10 million metric standard cubic meter per day of gas. Cross-country pipelines are globally recognized as the safest, cost-effective, energy-efficient and environment friendly mode for transportation of crude oil and petroleum products. Indian Oil has one of the largest petroleum marketing and distribution networks in Asia with over 35,000 marketing points. 13
  • 14. 14 VISION OF IOCL A major diversified, transnational, integrated energy company, with national leadership and a strong environment conscience, playing a national role in oil security & public distribution. MISSION OF IOCL IOCL has the following mission: To achieve international standards of excellence in all aspects of energy and diversified business with focus on customer delight through value of products and services and cost reduction.  To maximize creation of wealth, value and satisfaction for the stakeholders.  To attain leadership in developing, adopting and assimilating state-of- the-art technology for competitive advantage.  To provide technology and services through sustained Research and Development.  To foster a culture of participation and innovation for employee growth and contribution.  To cultivate high standards of business ethics and Total Quality Management for a strong corporate identity and brand equity.  To help enrich the quality of life of the community and preserve ecological balance and heritage through a strong environment conscience.
  • 15. 15 VALUES OF IOCL Values exist in all organizations and are an integral part of any it. Indian Oil nurtures a set of core values: 1. CARE 2. INNOVATION 3. PASSION 4. TRUST OBJECTIVES OF INDIAN OIL IOCL has defined its objectives for succeeding in its mission. These objectives are:  To serve the national interests in oil and related sectors in accordance and consistent with Government policies.  To ensure maintenance of continuous and smooth supplies of petroleum products by way of crude oil refining, transportation and marketing activities and to provide appropriate assistance to consumers to conserve and use petroleum products efficiently.  To enhance the country's self-sufficiency in crude oil refining and build expertise in laying of crude oil and petroleum product pipelines.  To further enhance marketing infrastructure and reseller network for providing assured service to customers throughout the country.  To create a strong research & development base in refinery processes, product formulations, pipeline transportation and alternative fuels
  • 16. with a view to minimizing/eliminating imports and to have next generation products.  To optimize utilization of refining capacity and maximize distillate yield 16 and gross refining margin.  To maximize utilization of the existing facilities for improving efficiency and increasing productivity.  To minimize fuel consumption and hydrocarbon loss in refineries and stock loss in marketing operations to effect energy conservation.  To earn a reasonable rate of return on investment.  To avail of all viable opportunities, both national and global, arising out of the Government of India’s policy of liberalization and reforms.  To achieve higher growth through mergers, acquisitions, integration and diversification by harnessing new business opportunities in oil exploration & production, petrochemicals, natural gas and downstream opportunities overseas.  To inculcate strong ‘core values’ among the employees and continuously update skill sets for full exploitation of the new business opportunities.  To develop operational synergies with subsidiaries and joint ventures and continuously engage across the hydrocarbon value chain for the benefit of society at large.
  • 17. IOCL 17 Major Divisions of IOCL: Indian Oil Corporation Limited (Indian Oil) owns and operates a network of crude oil and petroleum product pipeline in India. It has two divisions: Refineries Division and Marketing Division. The Refineries Division is focused on managing the public sector refineries and the Marketing Division is focused on distribution not only the entire production of public sector refineries but also the deficit products imported. It is organized in two segments: sale of petroleum products, and other businesses, which comprises sale of imported crude oil, sale of gas, petrochemicals, explosives and cryogenics, wind mill power generation and oil and gas exploration activities jointly undertaken in the form of unincorporated
  • 18. joint ventures. The Digboi Refinery of Assam Oil Division processed 0.623 million metric tons (MMT) of crude oil during the year. The Division sold about 1.067 MMT of products. IBP Division comprises the explosives and cryogenics business. 18
  • 19. CHAPTER 3: RESEARCH METHODOLOGY 19
  • 20. 20 RESEARCH DESIGN A research design is the specification of method and procedure for accruing the information needs. It is overall operational pattern of frame work of project that stipulates what information is to be collected for source by the procedures. Descriptive Research design is appropriate for this study. Descriptive study is used to study the situation. This study helps to describe the situation. A detail description about present and past situation can be found out by the descriptive study. DATA SOURCE AND COLLECTION This research is based on secondary data. This means the data are already available, i.e. the data which have been already collected and analyzed by someone else. Secondary data are used for the study of ratio analysis of this company and also its competitors. To collect the data, company annual report, internet websites has been used. Analyzing and interpreting the information available in the financial statements and drawing meaningful conclusions from them.
  • 21. CAPITAL STRUCTURE A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity . The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure. But the IOCL does not issue the preference shares and debenture to the public of the company COMPONENTS OF CAPITAL STRUCTURE: CAPITAL STRUCTURE 21 Shareholder’s funds -equity capital -preference capital (Nil) -- Borrowed funds -debenture (Nil) -Term loan
  • 22. CHAPTER 4: DATA ANALYSIS 22
  • 23. SHARE CAPITAL 23 6000 5000 4000 3000 2000 1000 0 2014 2013 2012 2011 2010 Authorised Capital (CR) Issued Capital (CR) AUTHORISED CAPITAL: The maximum equity capital a company can raise, which is mentioned in the Memorandum of Association and Articles of Association of the Company. However, share premium is excluded from the definition of authorized capital. SSUED CAPITAL: Issued capital is the amount of nominal value of share held by the shareholders. It is the face value of the shares that have been issued to the shareholders. Issued share capital and share premium represent the amount invested by the shareholders in the company. It is also known as the subscribed capital or subscribed share capital. Analysis: But here, IOCL issued very less share capital IN Previous years if I compared to Authorized capital. IOCL is only issued the limited share to the shareholders
  • 24. Paid up capital From - To Instrument Shares(nos) Face value Capital 2013 2014 Equity share 2427952482 10 2427.95 2012 2013 Equity share 2427952482 10 2427.95 2011 2012 Equity share 2427952482 10 2427.95 2010 2011 Equity share 1192374306 10 1192.37 2009 2010 Equity share 1192374306 10 1192.37 2008 2009 Equity share 778674809 10 778.67 24 Paid up capital: The amount of a company's capital that has been funded by shareholders, Paid-up capital can be less than a company's total capital because a company may not issue all of the shares that it has been authorized to sell. Paid-up capital can also reflect how a company depends on equity financing. Here, from 2011 to 2013, the company’s Paid up capital remain same. Its means the IOCL collected average funded by shareholders and they have to issue more share capital to shareholders in future periods.
  • 25. TOTAL DEBT 25 The IOCL has only two debts: Secured loan Unsecured loan Total debt means here included debenture, Bonds, Long term loans, short term loan etc. But Indian Oil Corporation limited (IOCL) did not issued debenture, bonds etc. Secured loan: Secured loans are those loans that are protected by an asset or collateral of some sort. The item purchased, such as a home or a car, can be used as collateral, and a lien is placed on such item. The finance company or bank will hold the deed or title until the loan has been paid in full, including interest and all applicable fees. Other items such as stocks, bonds, or personal property can be put up to secure a loan as well. Secured loans are usually the best (and only) way to obtain large amounts of money. A lender is not likely to loan a large amount with assurance that the money will be repaid. Putting your home or other property on the line is a fairly safe guarantee that you will do everything in your power to repay the loan.
  • 26. Secured loans usually offer lower rates, higher borrowing limits and longer repayment terms than unsecured loans. As the term implies, a secured loan means you are providing "security" that your loan will be repaid according to the agreed terms and conditions. It's important to remember, if you are unable to repay a secured loan, the lender has recourse to the collateral you have pledged and may be able to sell it to pay off the loan. 26 Unsecured loan: On the other hand, unsecured loans are the opposite of secured loans and include things like credit card purchases, education loans, or personal (signature) loans. Lenders take more of a risk by making such a loan, with no property or assets to recover in case of default, which is why the interest rates are considerably higher. If you have been turned down for unsecured credit, you may still be able to obtain secured loans, as long as you have something of value or if the purchase you wish to make can be used as collateral. When you apply for a loan that is unsecured, the lender believes that you can repay the loan on the basis of your financial resources. You will be judged based on the five (5) C's of credit -- character, capacity, capital, collateral, and conditions – these are all criteria used to assess a borrower's creditworthiness. Character, capacity, capital, and collateral refer to the borrower's willingness and ability to repay the debt. Conditions include the borrower's situation as well as general economic factors.
  • 27. SECURED LOAN 2014 2013 2012 2011 2010 27 25000 20000 15000 10000 5000 0 (CR) (CR) 17866 13046 20380 18292 17565 Analysis: In 2014 the secured loan proportion is high than 2013. The India oil corporation limited (IOCL) has try to reduce the secured loan because secured loan effect the assets of the company and it will be effect on future periods so the IOCL Increasingly firms are moving from secured debt to unsecured debt in order to free their assets. Secured loans have the largest positive impact on Company’s credit when they are repaid. If company have never taken a secured loan, company’s credit may be low despite your good record of repayment.
  • 28. UNSECURED LOAN 2014 2013 2012 2011 2010 28 70000 60000 50000 40000 30000 20000 10000 0 (CR) (CR) 62733.1 57278 32354.2 26273.8 27406.7 Analysis: Here unsecured loan is constantly high from 2010 to 2013. Indian oil corporation limited ( IOCL).Unsecured loan is more better than secured loan Because secured loan will be affect the assets of the company in future period of time so the IOCL has increasing the unsecured loan for reducing the risk of the company . Most of the company has preferred the unsecured debt which will not affect any assets of the company. In some cases, IOCL may be able to reduce IOCL unsecured debts by negotiating with creditors for a lower balance. Either IOCL can talk to creditors on IOCL own, or IOCL can solicit the help of a credit counseling
  • 29. organization. In some cases, credit counselors can negotiate with creditors better than debtors can. However, if IOCL choose to work with a credit counselor make sure the organization is reputable. EARNING BEFORE INTEREST AND TAX Earnings before interest and tax A measure of a Indian oil corporation limited (IOCL) earning power from ongoing operations, equal to earnings before deduction of interest payments and income tax. EBIT excludes income and expenditure from unusual, non-recurring or discontinued activities. In the case of a IOCL with minimal depreciation and amortization activities, EBIT is watched closely by creditors, since it represents the amount of cash that such a company will be able to use to pay off creditors. also called operating profit. As you can re-arrange the formula to be calculated as follows: 29 EBIT = Revenue - COGS-Operating Expenses Also known as Profit before Interest & Taxes (PBIT), EBIT equals Net Income with interest and taxes added back to it. EBIT was the precursor to the EBITDA calculation, which includes depreciation and amortization expenses.
  • 30. Financial managers spend a considerable amount of time analyzing and understanding their EBIT. EBIT is short for earnings before interest and taxes and is synonymous with net operating income. EBIT is calculated by taking revenue and subtracting cost of goods sold and all operating expenses. The calculation is useful because it provides a look at how profitable a business is before loan decisions and tax considerations are included to arrive at net income. If you plan on improving EBIT while holding sales constant, your only option will be to reduce costs. 30
  • 31. Earnings before interest and tax 2014 2013 2012 2011 2010 31 20000 15000 10000 5000 0 ( CR) ( CR) 13359.43 12050.65 16773.88 11157.05 15057.96 Analysis: In 2014, the operating profit of Indian oil corporation limited (IOCL) is Rs 13359.43 (Cr). But at present generally they are earning average operating profits. so IOCL has try to reduce the long term borrowed fund and issue the more share capital to the shareholders in different areas. Analyze Indian Oil Corporation limited (IOCL) internal structure and look for areas where operations can be centralized or more productive. For instance, labor is sometimes redundant or inefficiently organized. Writing out your processes in a flow diagram can help you identify and eliminate or reorganize them. Consider introducing new, long-term cost saving technologies for inventory, production and sales. These systems can greatly increase efficiency, creating costs savings.
  • 32. EARING PER SHARE (EPS) Earnings per share represent a portion of a company's profit that is allocated to one share of stock. Therefore, if you were to multiply the EPS by the total number of shares a company has, you'd calculate the company's net income. EPS is a calculation that many people who watch the stock market pay attention to. When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of-the-period. Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number. 32
  • 33. EPS of IOCL Shareholders from 2010 to 2014: 2014 2013 2012 2011 2010 33 50 40 30 20 10 0 (Rs) (Rs) 28.91 20.61 16.29 30.67 42.1 Analysis: In 2014, IOCL shareholders earned per share of Rs 28.91. But in 2010, EPS was Rs 42.1. At that time shareholders of IOCL was earned more than last year. So constantly decreasing the earning capacity of shareholders of the IOCL, But still there EPS is good if I compared to other companies. IOCL is to increase earnings or decrease the number of shares. In order to increase earnings, a business has to increase revenues, reduce expenses or both. In order to decrease the number of shares, do a share buyback from shareholders.
  • 34. LEVERAGE The degree to which an investor or business is utilizing borrowed money. Companies that are highly leveraged may be at risk of bankruptcy if they are unable to make payments on their debt; they may also be unable to find new lenders in the future. Leverage is not always bad, however; it can increase the shareholders ' return on investment and often there are tax advantages associated with borrowing. Components of leverage are: LEVERAGE Financial leverage Operating leverage 34 Financial leverage: Financial leverage is a leverage created with the help of debt component in the capital structure of a company. Higher the debt, higher would be the financial leverage because with higher debt comes the higher amount of interest that needs to be paid. Leverage can be both good and bad for a business depending on the situation. If a firm is able to generate a higher return on investment (ROI) than the interest rate it is paying, leverage will have its positive effect shareholder’s return. The darker side is that if the said
  • 35. situation is opposite, higher leverage can take a business to a worst situation like bankruptcy. the Degree of Financial Leverage (DFL) can be calculated with the following formula: DFL = % Change in EPS / % Change in EBIT Where EPS is the Earnings per Share and EBIT is the Earnings before interest and Taxes. 35 Operating leverage: Operating leverage, just like the financial leverage, is a result of operating fixed expenses. Higher the fixed expense, higher is the operating leverage. Like the financial leverage had an impact on the shareholder’s return or say earnings per share, operating leverage directly impacts the operating profits (Profits before Interest and Taxes (PBIT)). Under good economic conditions, due to operating leverage, an increase of 1% in sales will have more than 1% change in operating profits. The formula used for determining the Degree of Operating Leverage or DOL is as follows: DOL = % Change in EBIT / % Change in Sales So, Indian oil corporation limited (IOCL) need to be very careful in adding any of the leverages to your business viz. financial leverage or operating leverage as it can also work as a double edged sword.
  • 36. Degree Financial leverage of IOCL: 2014 2013 2012 2011 2010 36 2 1.5 1 0.5 0 (Ratio) (Ratio) 1.61 1.91 1.49 1.31 1.11 Analysis: In 2014 degree of financial leverage of Indian Oil Corporation limited (IOCL) ratio is 1.61 and it has constantly higher than previous years. By borrowing funds, the IOCL incurs a debt that must be paid. But, this debt is paid in small installments over a relatively long period of time. This frees funds for more immediate use. Indian Oil Corporation limited that successfully uses leverage demonstrates by its success that it can handle the risks associated with carrying debt. This can become an important factor when additional financing is needed. Not only will loans more likely be available, but they will be available at more attractive interest rates. Like individuals, companies with solid financials.
  • 37. Degree of Operating leverage of Indian Oil Corporation limited (IOCL): 2014 2013 2012 2011 2010 37 1.15 1.1 1.05 1 0.95 0.9 (Ratio) (Ratio) 1.12 1.14 1.09 1.13 1.01 Analysis: In 2014 Indian oil corporation limited has degree of operating ratio is 1.12 .which is constantly almost same from 2011 to 2014. According to this chart IOCL having a good position in future period of time. The more operating leverage a company has, the more it has to sell before it can make a profit. IOCL with a high operating leverage must generate a high number of sales to cover high fixed costs, and as this sales increase, so does the profitability of the company. Conversely, a company with a lower operating leverage will not see a dramatic improvement in profitability with higher volume, because variable costs, or costs that are based on the number of units sold, increase with volume.
  • 38. Total leverage of Indian Oil Corporation limited: 2014 2013 2012 2011 2010 38 3 2.5 2 1.5 1 0.5 0 (Ratio) (Ratio) 1.82 2.43 1.64 1.49 1.21 Analysis: Combined or total leverage measures total risk of the Indian oil corporation limited (IOCL). In this year Indian Oil Corporation has minimum risk than last year which ratio was 2.43. In this diagram is measured by percentage change in earning per share (EPS) due to percentage change in sales. IOCL ask their existing shareholders to issuing common stock rights. Stock rights allow existing shareholders to purchase additional shares at below-market prices, in order to raise equity. While this practice does improve a company’s financial strength, it also dilutes the current shareholders’ percentage of ownership.
  • 40. FINDINGS  IOCL has issued less shares capital to the shareholders, constantly from 2010 to 2014. IOCL does not fulfill the of authorized share capital which is mention in memorandum of association.  IOCL, Preference share and Debenture not existent in the industry.  The return on investment ratio of IOCL is the lowest among its competitors which imply that the degree of efficiency of IOCL in utilizing the funds entrusted by shareholders and long term creditors is lower than its competitors.  IOCL has maximum no of total debts in the period of 2014, if I compared 40 with previous years.  In 2014, unsecured loan is constantly higher than previous years.  In 2014, IOCL has maintained the secured loan amounts. Which is mostly remain same with previous years.  EBIT is very less in 2014; it is constantly decreasing from 2010 to 2014.  In 2014, earning per share (EPS) value is Rs 28.91, which is higher than 2013 but overall five years, IOCL shareholders has earned minimum EPS in 2014.  IOCL has Degree of operating leverage almost same with last five years. IOCL having a good position in future period of time.
  • 41.  In 2014, degree of financial leverage is very high than previous years, IOCL incurs a debt that must be paid. But, this debt is paid in small installments over a relatively long period of time.  The overall efficiency of IOCL is higher than those of its competitors in 41 previous years of comparison. SUGGESTIONS  The company should utilize the debt funds more efficiently to maximize shareholders’ return.  Increasingly firms are moving from secured debt to unsecured debt in order to free their assets.  For IOCL, to issue maximum number of share to the public and they have to reduce the share price is minimum. And IOCL try to fulfill the limit of authorized share capital.  IOCL have to reduce total debts of the company against of issuing more share to the public.  IOCL, Need to minimize the degree of financial leverage .otherwise which will be affect in future period of time.  The company should try to increase the profit before interest and tax so that the Investments in the firm are attractive as the investors would like to invest only where the return is higher.
  • 42.  The company can invest in marketable securities to improve its cash 42 position.  IOCL can try to reduce the secured loan because secured loan can be affect the assets of the company in future. LIMITATIONS OF THE STUDY  The scope of the study is limited to Guwahati Refinery.  Time taken to complete the study is very limited.  The analysis of the analysis of the companies and suggestion totally depends upon the information shared.  Non-monetary aspects are not considered making the results unreliable. CONCLUSION From the above discussion it can be concluded that Indian Oil Corporation limited running with low debt fund. Therefore, they may increase it to get benefits of low cost capital. It has found that IOCL largely employing shareholders funds in their as sets it has crossed even 100% in the first two years. Moreover EOL is on high degree financial risk. Therefore, they may reduce the debt capital and employ more equity fund. The study undertaken has brought in to the light of the following conclusions. According to this project I came to know that from the analysis of capital structure analysis it is clear that Indian Oil Corporation Ltd have been doing a satisfactory job. But the firm has certain areas to ponder upon like capital employment. So the firm should focus on getting of profits in the coming years by taking care internal as well as external factors. And with regard to resources, the firm is take utilization of the borrowed fund in a right place.
  • 44. 44 WEBSITE REFERENCES:  www.moneycontrol.com  www.iocl.com BOOKS REFERENCES:  K.R Das, Priti chandna B.B Dam, & Anju Kakoty 1st Edition (2013):Financial Statement Analysis. THANK YOU
  • 45. Financial statements of Indian Oil Corporation Ltd. 45
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