SUMMER TRAINING REPORT

on
“INVESTMENT ANALYSIS”
at

For partial completion of under-Graduation degree of

BACHELOR OF BUSINESS ADMINISTRATION
BBA-5th Sem.
(2021-24)

Under the guidance of: Submitted by

Asstt. Prof. Manjeet Singh
Roll. No.
Reg. No.

Sh. L. N. Hindu College

Bhiwani Road Rohtak, Haryana 124001
Tel:01262-265888, 01262-297800 Mob:8222 831 831, 8278 219 796
Email: [email protected] Website: https://www.himtrtk.com/
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 DECLARATION

I Manjeet Singh student Roll No, Class BBA (5th Sem.) of SH. L N. Hindu

College, ROHTAK hereby declare that I have done the project on “INVESTMENT

ANALYSIS” has been personally done by me under the guidance of Asstt. Prof. Mr.

Satnarain Singh in SH. L. N. Hindu College Rohtak of BBA Program- during academic

session-2023-24. All the data represented in this project is true & correct to the best of my

knowledge & belief.

I also declare that this project report is my own preparation and not copied from anywhere else

SIGNATURE OF FACULTY SIGNATURE OF RESEARCHER

(MANJEET SINGH)

DATE:
PLACE:

PRINCIPAL

2
August 2024

To Whomsoever it may concern

Ther is to certify that Mr. Manjeet Singh S/o Mr. Shiv Charan, Class BBA 5th sem.
Roll No._________, a student of SH. L N Hindu College, ROHTAK did his
project training at Reliance Industries Limited from July 01, 2024 to July 31, 2024. He
has successfully completed his internship of 1 month.

During his tenure, we found him active and competent in executing all assigned
tasks, and his services were found to be satisfactory.

We wish his great success in all of his future endeavors.

Mr. Mukesh Singh

(Senior HR Manager)

© 2024 Reliance Industries Limited. All rights reserved.

 PREFACE

Many people consider investing to be a daunting activity. They are bewildered by the
profusion and proliferation of investment alternatives, rattled by the fluctuations in
Investment prices, overwhelmed by the presence of mighty institutional investors,
confused by exotic instruments and complicated investment strategies, confused by
the intricacies of the tax system, and exasperated by the Investment scams that
periodically rock market.

Notwithstanding these concerns, investing can be fairly manageable, rewarding, and

enjoyable experience, if we adhere to certain principles and guidelines. By this we can
expect and hope to maximize our returns by diversifying our investments into suitable
portfolios. For this, each and every investor has to be well educated about economy,
investment options, market conditions and its consequences.

The main objective is to select the suitable investment criteria like if we want better
returns, or consider risk factors, or liquidity or safety of principal. By this we can set
our portfolio objectives and construct our portfolio according to our needs and manage
it with respect to the market conditions and the securities fairing in the market.

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 ACKNOWLEDGEMENT

I extend my special gratitude to my Thesis Guide Mr. Rahul Khanna for supporting
methroughout this project.

I wish to acknowledge my sincere gratitude and indebtedness to my thesis guide

Asstt. Prof. _________________ of SH. L. N. Hindu College Rohtak for their
valuable guidance and constructive suggestions in the preparation of thesis

I extend my gratitude to all my colleagues for their encouragement, support, guidance

and assistance for preparing the thesis

Manjeet Singh

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 Executive Summary

The project assigned to me was to study the financial health of any organization in the country.

I decided to choose one of India’s largest companies in a sector that has rapidly grown over the

last few years and a company where leaders like Mr. Dhirubhai Ambani, or rather, a company

that has been made Mr. Dhirubhai Ambani.

Through this report, I try and analyze the financial environment in which Reliance Industry

Limited is operating.

Through a thorough financial analysis, my aim to understand the financial factors is influencing

the company and its decision making. Later, I try and evaluate the various ratios to appreciate

their impact on company’s performance over the last four years

The financial statements of last four years are identified, studied and interpreted in light of

company’s performance. Critical decisions of distributing dividends, Issue of bonus Debentures

and other current news are analyzed and their impact on the bottom line of the company is

assessed.

Finally, I study ratio analysis, fund flow analysis and cash flow analysis of the company to

analyzing the financial position of the company in last four years.

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 Introduction

The study of financial statement is prepared for the purpose of

presenting a periodical review or report by the management of and deal with the
state of investment in business and result achieved during the period under
review. They reflect the financial position and operating strengths or weaknesses
of the concern by properly establishing relationship between the items of the
balance sheet and remove statements.

Financial statement analysis can be under taken either by the management

of the firm or by the outside parties. The nature of analysis defers depending
upon the purpose of the analysis. The analyst is able to say how well the firm
could utilize the resource of the society in generating goods and services.
Turnover ratios are the best tools in deciding these aspects.

Hence it is overall responsibility of the management to see that the

resource of the firm is used most efficiently and effectively and that the firm’s
financial position is good. Financial statement analysis does indicate what can be
expected in future from the firm.

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Meaning of Financial Statement

Financial statements refer to such statements which contains financial information about an

enterprise. They report profitability and the financial position of the business at the end of

accounting period. The team financial statement includes at least two statements which the

accountant prepares at the end of an accounting period. The two statements are: -

• The Balance Sheet

• Profit And Loss Account

They provide some extremely useful information to the extent that balance Sheet mirrors the

financial position on a particular date in terms of the structure of assets, liabilities and owners

equity, and so on and the Profit and Loss account shows the results of operations during a certain

period of time in terms of the revenues obtained and the cost incurred during the year. Thus the

financial statement provides a summarized view of financial position and operations of a firm

Meaning of Financial Analysis

The first task of financial analysis is to select the information relevant to the decision under

consideration to the total information contained in the financial statement. The second step is to

arrange the information in a way to highlight significant relationship. The final step is

interpretation and drawing of inference and conclusions. Financial statement is the process of

selection, relation and evaluation.

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Features of Financial Analysis

• To present a complex data contained in the financial statement in simple and

understandable form.

• To classify the items contained in the financial statement inconvenient and rational

groups.

• To make comparison between various groups to draw various

conclusions.

Purpose of Analysis of financial statements

• To know the earning capacity or profitability.

• To know the solvency.

• To know the financial strengths.

• To know the capability of payment of interest & dividends.

• To make comparative study with other firms.

• To know the trend of business.

• To know the efficiency of mgt.

• To provide useful information to mgt

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Procedure of Financial Statement Analysis

• The following procedure is adopted for the analysis and interpretation of financial

statements:-

• The analyst should acquaint himself with principles and postulated of accounting. He

should know the plans and policies of the managements that he may be able to find out

whether these plans are properly executed or not.

• The extent of analysis should be determined so that the sphere of work may be decided.

If the aim is find out. Earning capacity of the enterprise then analysis of income statement

will be undertaken. On the other hand, if financial position is to be studied then balance

sheet analysis will be necessary.

• The financial data be given in statement should be recognized and rearranged. It will

involve the grouping similar data under same heads. Breaking down of individual

components of statement according to nature. The data is reduced to a standard form. A

relationship is established among financial statements with the help of tools & techniques

of analysis such as ratios, trends, common size, fund flow etc.

• The information is interpreted in a simple and understandable way. The significance and

utility of financial data is explained for help indecision making.

• The conclusions drawn from interpretation are presented to the management in the form

of reports.

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Analyzing financial statements involves evaluating three characteristics of a company: its

liquidity, its profitability, and its insolvency. A short-term creditor, such as a bank, is primarily

interested in the ability of the borrower to pay obligations when they come due. The liquidity of

the borrower is extremely important in evaluating the safety of a loan. A long-term creditor, such

as a bondholder, however, looks to profitability and solvency measures that indicate the

company’s ability to survive over a long period of time. Long-term creditors consider such

measures as the amount of debt in the company’s capital structure and its ability to meet interest

payments. Similarly, stockholders are interested in the profitability and solvency of the company.

They want to assess the likelihood of dividends and the growth potential of the stock.

Comparison can be made on a number of different bases.

Following are the three illustrations:

1. Intra-company basis.

This basis compares an item or financial relationship within a company in the current year with

the same item or relationship in one or more prior years. For example, Sears, Roebuck and Co.

can compare its cash balance at the end of the current year with last year’s balance to find the

amount of the increase or decrease. Likewise, Sears can compare the percentage of cash to

current assets at the end of the current year with the percentage in one or more prior years. Intra-

company comparisons are useful in detecting changes in financial relationships and significant

trends.

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2. Industry averages.

This basis compares an item or financial relationship of a company with industry averages (or

norms) published by financial ratings organizations such as Dun & Bradstreet, Moody’s and

Standard & Poor’s. For example, Sears’s net income can be compared with the average net

income of all companies in the retail chain-store industry. Comparisons with industry averages

provide information as to a company’s relative performance within the industry.

3. Intercompany basis.

This basis compares an item or financial relationship of one company with the same item or

relationship in one or more competing companies. The comparisons are made on the basis of the

published financial statements of the individual companies. For example, Sears’s total sales for

the year can be compared with the total sales of its major competitors such as Kmart and Wal-

Mart. Intercompany comparisons are useful in determining a company’s competitive position.

Tools of Financial Statement Analysis

Various tools are used to evaluate the significance of financial statement data. Three commonly

used tools are these:

• Ratio Analysis

• Funds Flow Analysis

• Cash Flow Analysis

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 ➢ Ratio Analysis:

• Fundamental Analysis has a very broad scope. One aspect looks at the general

(qualitative) factors of a company. The other side considers tangible and measurable

factors (quantitative). This means crunching and analyzing numbers from the financial

statements. If used in conjunction with other methods, quantitative analysis can produce

excellent results.

• Ratio analysis isn't just comparing different numbers from the balance sheet, income

statement, and cash flow statement. It's comparing the number against previous years,

other companies, the industry, or even the economy in general. Ratios look at the

relationships between individual values and relate them to how a company has performed

in the past, and might perform in the future.

Meaning of Ratio:

A ratio is one figure express in terms of another figure. It is a mathematical yardstick that

measures the relationship two figures, which are related to each other and mutually

interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is

an expression relating one number to another. It is simply the quotient of two numbers. It can be

expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as “so many

times”. As accounting ratio is an expression relating two figures or accounts or two sets of

account heads or group contain in the financial statements.

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Meaning of Ratio Analysis:

Ratio analysis is the method or process by which the relationship of items or group of items in

the financial statement are computed, determined and presented.

Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial

health and profitability of business enterprises. Ratio analysis can be used both in trend and static

analysis. There are several ratios at the disposal of an analyst but their group of ratio he would

prefer depends on the purpose and the objective of analysis.

While a detailed explanation of ratio analysis is beyond the scope of this section, we will focus
on a technique, which is easy to use. It can provide you with a valuable investment analysis tool.

This technique is called cross-sectional analysis. Cross-sectional analysis compares financial

ratios of several companies from the same industry. Ratio analysis can provide valuable

information about a company's financial health. A financial ratio measures a company's

performance in a specific area. For example, you could use a ratio of a company's debt to its

equity to measure a company's leverage. By comparing the leverage ratios of two companies,

you can determine which company uses greater debt in the conduct of its business. A company

whose leverage ratio is higher than a competitor's has more debt per equity. You can use this

information to make a judgment as to which company is a better investment risk.

However, you must be careful not to place too much importance on one ratio. You obtain a better

indication of the direction in which a company is moving when several ratios are taken as a

group.

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 Objective of Ratios:

Ratios are worked out to analyze the following aspects of business organization-

A) Solvency-

1) Long term

2) Short term

3) Immediate

B) Stability

C) Profitability

D) Operational efficiency

E) Credit standing

F) Structural analysis

G) Effective utilization of resources

H) Leverage or external financing

STEPS IN RATIO ANALYSIS:

• The first task of the financial analysis is to select the information relevant to the decision
under consideration from the statements and calculates appropriate ratios.

• To compare the calculated ratios with the ratios of the same firm relating to the pas6t or
with the industry ratios. It facilitates in assessing success or failure of the firm.

• Third step is to interpretation, drawing of inferences and report writing conclusions are
drawn after comparison in the shape of report or recommended courses of action.

• Third step is to interpretation, drawing of inferences and report writing conclusions are
drawn after comparison in the shape of report or recommended courses of action.

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 Pre-Requisites to Ratio Analysis:

In order to use the ratio analysis as device to make purposeful conclusions, there are certain pre-
requisites, which must be taken care of. It may be noted that these prerequisites are not
conditions for calculations for meaningful conclusions. The accounting figures are inactive in
them & can be used for any ratio but meaningful & correct interpretation & conclusion can be
arrived at only if the following points are well considered.

1) The dates of different financial statements from where data is taken must be same.

2) If possible, only audited financial statements should be considered, otherwise there must be

sufficient evidence that the data is correct.

3) Accounting policies followed by different firms must be same in case of cross section analysis

otherwise the results of the ratio analysis would be distorted.

4) One ratio may not throw light on any performance of the firm. Therefore, a group of ratios must

be preferred. This will be conductive to counter checks.

5) Last but not least, the analyst must find out that the two figures being used to calculate a ratio

must be related to each other, otherwise there is no purpose of calculating a ratio.

GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS:

The calculation of ratios may not be a difficult task but their use is not easy.
Following guidelines or factors may be kept in mind while interpreting various ratios are

• Accuracy of financial statements

• Objective or purpose of analysis

• Selection of ratios

• Use of standards

• Caliber of the analysis

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Importance of Ratio Analysis:

As a tool of financial management, ratios are of crucial significance. The importance of ratio

analysis lies in the fact that it presents facts on a comparative basis & enables the drawing of

interference regarding the performance of a firm. Ratio analysis is relevant in assessing the

performance of a firm in respect of the following aspects:

1] Liquidity position

2] Long-term solvency

3] Operating efficiency

4] Overall profitability

5] Inter firm comparison

6] Trend analysis.

1] Liquidity position: -

With the help of Ratio analysis conclusion can be drawn regarding the liquidity position of a

firm. The liquidity position of a firm would be satisfactory if it is able to meet its current

obligation when they become due. A firm can be said to have the ability to meet its short-term

liabilities if it has sufficient liquid funds to pay the interest on its short maturing debt usually

within a year as well as to repay the principal. This ability is reflected in the liquidity ratio of a

firm. The liquidity ratio is particularly useful in credit analysis by bank & other suppliers of short

term loans.

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2] Long-term solvency: -

Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This
respect of the financial position of a borrower is of concern to the long-term creditors, security
analyst & the present & potential owners of a business. The long-term solvency is measured by
the leverage/ capital structure & profitability ratio Ratio analysis s that focus on earning power &
operating efficiency.
Ratio analysis reveals the strength & weaknesses of a firm in this respect. The leverage ratios, for
instance, will indicate whether a firm has a reasonable proportion of various sources of finance
or if it is heavily loaded with debt in which case its solvency is exposed to serious strain.
Similarly the various profitability ratios would reveal whether or not the firm is able to offer
adequate return to its owners consistent with the risk involved.

3] Operating efficiency:

Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint of

management, is that it throws light on the degree of efficiency in management & utilization of its

assets. The various activity ratios measure this kind of operational efficiency. In fact, the

solvency of a firm is, in the ultimate analysis, dependent upon the sales revenues generated by

the use of its assets- total as well as its components.

4] Overall profitability:

Unlike the outsides parties, which are interested in one aspect of the financial position of a firm,

the management is constantly concerned about overall profitability of the enterprise. That is, they

are concerned about the ability of the firm to meets its short term as well as long term obligations

to its creditors, to ensure a reasonable return to its owners & secure optimum utilization of the

assets of the firm. This is possible if an integrated view is taken & all the ratios are considered

together.

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5] Inter firm comparison:

Ratio analysis not only throws light on the financial position of firm but also serves as a

stepping-stone to remedial measures. This is made possible due to inter firm comparison &

comparison with the industry averages. A single figure of a particular ratio is meaningless unless

it is related to some standard or norm. One of the popular techniques is to compare the ratios of a

firm with the industry average. It should be reasonably expected that the performance of a firm

should be in broad conformity with that of the industry to which it belongs. An inter firm

comparison would demonstrate the firms position vice-versa its competitors. If the results are at

variance either with the industry average or with those of the competitors, the firm can seek to

identify the probable reasons & in light, take remedial measures.

6] Trend analysis:

Finally, ratio analysis enables a firm to take the time dimension into account. In other words,

whether the financial position of a firm is improving or deteriorating over the years. This is

made possible by the use of trend analysis. The significance of the trend analysis of ratio lies in

the fact that the analysts can know the direction of movement, that is, whether the movement is

favorable or unfavorable. For example, the ratio may be low as compared to the norm but the

trend may be upward. On the other hand, though the present level may be satisfactory but the

trend may be a declining one.

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 Advantages of Ratio Analysis:

Financial ratios are essentially concerned with the identification of significant accounting data

relationships, which give the decision-maker insights into the financial performance of a

company. The advantages of ratio analysis can be summarized as follows:

➢ Ratios facilitate conducting trend analysis, which is important for decision making and

forecasting.

➢ Ratio analysis helps in the assessment of the liquidity, operating efficiency, profitability and

solvency of a firm.

➢ Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons.

➢ The comparison of actual ratios with base year ratios or standard ratios helps the management

analyze the financial performance of the firm.

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Limitations of Ratio Analysis:

Ratio analysis has its limitations. These limitations are described below:

1] Information problems

➢ Ratios require quantitative information for analysis but it is not decisive about analytical

output.

➢ The figures in a set of accounts are likely to be at least several months out of date, and so

might not give a proper indication of the company’s current financial position.

➢ Where historical cost convention is used, asset valuations in the balance sheet could be

misleading. Ratios based on this information will not be very useful for decision-making.

2] Comparison of performance over time

➢ When comparing performance over time, there is need to consider the changes in price. The

movement in performance should be in line with the changes in price.

➢ When comparing performance over time, there is need to consider the changes in technology.

The movement in performance should be in line with the changes in technology.

➢ Changes in accounting policy may affect the comparison of results between different

accounting years as misleading.

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3] Inter-firm comparison

➢ Companies may have different capital structures and to make comparison of performance

when one is all equity financed and another is a geared company it may not be a good

analysis.

➢ Selective application of government incentives to various companies may also distort

intercompany comparison. Comparing the performance of two enterprises may be misleading.

➢ Inter-firm comparison may not be useful unless the firms compared are of the same size and

age, and employ similar production methods and accounting practices.

➢ Even within a company, comparisons can be distorted by changes in the price level.

➢ Ratios provide only quantitative information, not qualitative information.

• Ratios are calculated on the basis of past financial statements. They do not indicate future
trends and they do not consider economic conditions.Evaluation of efficiency

• Effective tool

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CLASSIFICATIONS OF RATIOS:

The use of ratio analysis is not confined to financial manager only. There are
different parties interested in the ratio analysis for knowing the financial position of a firm for
different purposes. Various accounting ratios can be classified as follows:

1. Traditional Classification

2. Functional Classification

3. Significance ratios

1. Traditional Classification

It includes the following.

• Balance sheet (or) position statement ratio: They deal with the relationship between two
balance sheet items, e.g. the ratio of current assets to current liabilities etc., both the items
must, however, pertain to the same balance sheet.

• Profit & loss account (or) revenue statement ratios: These ratios deal with the relationship
between two profit & loss account items, e.g. the ratio of gross profit to sales etc.,

• Composite (or) inter statement ratios: These ratios exhibit the relation between a profit &
loss account or income statement item and a balance sheet items, e.g. stock turnover ratio,
or the ratio of total assets to sales.

2. Functional Classification

These include liquidity ratios, long term solvency and leverage ratios, activity
ratios and profitability ratios.

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3. Significance ratios

Some ratios are important than others and the firm may classify them as primary
and secondary ratios. The primary ratio is one, which is of the prime importance to a concern.
The other ratios that support the primary ratio are called secondary ratios.

IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS ARE

1. Liquidity ratio

2. Leverage ratio

3. Activity ratio

4. Profitability ratio

1. LIQUIDITY RATIOS

Liquidity refers to the ability of a concern to meet its current obligations as &
when there becomes due. The short term obligations of a firm can be met only when there are
sufficient liquid assets. The short term obligations are met by realizing amounts from current,
floating (or) circulating assets The current assets should either be calculated liquid (or) near
liquidity. They should be convertible into cash for paying obligations of short term nature. The
sufficiency (or) insufficiency of current assets should be assessed by comparing them with short-
term current liabilities. If current assets can pay off current liabilities, then liquidity position will
be satisfactory.

To measure the liquidity of a firm the following ratios can be calculated

• Current ratio

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

• Absolute liquid ratio (or) Cash position ratio

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 (a) CURRENT RATIO:

Current ratio may be defined as the relationship between current assets

and current liabilities. This ratio also known as Working capital ratio is a measure of general
liquidity and is most widely used to make the analysis of a short-term financial position (or)
liquidity of a firm.

Current assets

Current ratio = Current Liabilities

Components of current ratio

CURRENT ASSETS CURRENT LIABILITIES

Cash in hand Out standing 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

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 (b) QUICK RATIO:

Quick ratio is a test of liquidity than the current ratio. The term liquidity refers to
the ability of a firm to pay its short-term obligations as & when they become due. Quick ratio
may be defined as the relationship between quick or liquid assets and current liabilities. An asset
is said to be liquid if it is converted into cash with in a short period without loss of value.

Quick or liquid assets

Quick ratio = Current Liabilities

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

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 (c) ABSOLUTE LIQUID RATIO

Although receivable, debtors and bills receivable are generally more liquid than
inventories, yet there may be doubts regarding their realization into cash immediately or in time.
Hence, absolute liquid ratio should also be calculated together with current ratio and quick ratio
so as to exclude even receivables from the current assets and find out the absolute liquid assets.

Absolute liquid assets

Absolute liquid ratio = Current liabilities

Absolute liquid assets include cash in hand etc. The acceptable forms for this ratio
is 50% (or) 0.5:1 (or) 1:2 i.e., Rs.1 worth absolute liquid assets are considered to pay Rs.2 worth
current liabilities in time as all the creditors are nor accepted to demand cash at the same time
and then cash may also be realized from debtors and inventories.

Components of Absolute Liquid Ratio

ABSOLUTE LIQUID ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Interest on Fixed Deposit Bills payable

Short-term advances

Sundry creditors

Dividend payable

Income tax payable

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2. LEVERAGE RATIOS

The leverage or solvency ratio refers to the ability of a concern to meet its long
term obligations. Accordingly, long term solvency ratios indicate firm’s ability to meet the fixed
interest and costs and repayment schedules associated with its long term borrowings.

The following ratio serves the purpose of determining the solvency of the concern.

• PROPRIETORY RATIO

A variant to the debt-equity ratio is the proprietory ratio which is also known as
equity ratio. This ratio establishes relationship between share holders funds to total assets of the
firm.

Shareholders funds

Proprietory ratio = 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

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3. ACTIVITY RATIOS

Funds are invested in various assets in business to make sales and earn profits.
The efficiency with which assets are managed directly effect the volume of sales. Activity ratios
measure the efficiency (or) effectiveness with which a firm manages its resources (or) assets.
These ratios are also called “Turn over ratios” because they indicate the speed with which assets
are converted or turned over into sales.

• Working capital turnover ratio

• Fixed assets turnover ratio

• Capital turnover ratio

• Current assets to fixed assets ratio

(a) WORKING CAPITAL TURNOVER RATIO

Working capital of a concern is directly related to sales.

Working capital = Current assets - Current liabilities

It indicates the velocity of the utilization of net working capital. This indicates the
no. of times the working capital is turned over in the course of a year. A higher ratio indicates
efficient utilization of working capital and a lower ratio indicates inefficient utilization.

Working capital turnover ratio=cost of goods sold/working capital.

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Components of Working Capital

CURRENT ASSETS CURRENT LIABILITIES

Cash in hand Out standing 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

(b) FIXED ASSETS TURNOVER RATIO

It is also known as sales to fixed assets ratio. This ratio measures the efficiency
and profit earning capacity of the firm. Higher the ratio, greater is the intensive utilization of
fixed assets. Lower ratio means under-utilization of fixed assets.

Cost of Sales

Fixed assets turnover ratio = Net fixed assets

Cost of Sales = Income from Services

Net Fixed Assets = Fixed Assets - Depreciation

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(c) CAPITAL TURNOVER RATIOS

Sometimes the efficiency and effectiveness of the operations are judged by

comparing the cost of sales or sales with amount of capital invested in the business and not with
assets held in the business, though in both cases the same result is expected. Capital invested in
the business may be classified as long-term and short-term capital or as fixed capital and
working capital or Owned Capital and Loaned Capital. All Capital Turnovers are calculated to
study the uses of various types of capital.

Cost of goods sold

Capital turnover ratio = Capital employed

Cost of Goods Sold = Income from Services

Capital Employed = Capital + Reserves & Surplus

(d) CURRENT ASSETS TO FIXED ASSETS RATIO

This ratio differs from industry to industry. The increase in the ratio means that
trading is slack or mechanization has been used. A decline in the ratio means that debtors and
stocks are increased too much or fixed assets are more intensively used. If current assets increase
with the corresponding increase in profit, it will show that the business is expanding.

Current Assets

Current Assets to Fixed Assets Ratio = Fixed Assets

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Component of Current Assets to Fixed Assets Ratio

CURRENT ASSETS FIXED ASSETS

Cash in hand Machinery

Cash at bank Buildings

Bills receivable Plant

Inventories Vehicles

Work-in-progress

Marketable securities

Short-term investments

Sundry debtors

Prepaid expenses

4. PROFITABILITY RATIOS

The primary objectives of business undertaking are to earn profits. Because profit
is the engine, that drives the business enterprise.

• Net profit ratio

• Return on total assets

• Reserves and surplus to capital ratio

• Earnings per share

• Operating profit ratio

• Price – earning ratio

• Return on investments

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 (a) NET PROFIT RATIO

Net profit ratio establishes a relationship between net profit (after tax) and sales
and indicates the efficiency of the management in manufacturing, selling administrative and
other activities of the firm.

Net profit after tax

Net profit ratio= Net sales

Net Profit after Tax = Net Profit (–) Depreciation (–) Interest (–) Income Tax

Net Sales = Income from Services

It also indicates the firm’s capacity to face adverse economic conditions such as
price competitors, low demand etc. Obviously higher the ratio, the better is the profitability.

(b) RETURN ON TOTAL ASSETS

Profitability can be measured in terms of relationship between net profit and

assets. This ratio is also known as profit-to-assets ratio. It measures the profitability of
investments. The overall profitability can be known.

Net profit

Return on assets = Total assets

Net Profit = Earnings before Interest and Tax

Total Assets = Fixed Assets + Current Assets

28
 (c) RESERVES AND SURPLUS TO CAPITAL RATIO

It reveals the policy pursued by the company with regard to growth shares. A very
high ratio indicates a conservative dividend policy and increased ploughing back to profit.
Higher the ratio better will be the position.

Reserves& surplus

Reserves & surplus to capital = Capital

(d) EARNINGS PER SHARE

Earnings per share is a small verification of return of equity and is calculated by

dividing the net profits earned by the company and those profits after taxes and preference
dividend by total no. of equity shares.

Net profit after tax

Earnings per share = Number of Equity shares

The Earnings per share is a good measure of profitability when compared with
EPS of similar other components (or) companies, it gives a view of the comparative earnings of a
firm.

29
 (e) OPERATING PROFIT RATIO

Operating ratio establishes the relationship between cost of goods sold and other
operating expenses on the one hand and the sales on the other.

Operating cost

Operation ratio = Net sales

However 75 to 85% may be considered to be a good ratio in case of a

manufacturing under taking.

Operating profit ratio is calculated by dividing operating profit by sales.

Operating profit = Net sales - Operating cost

Operating profit

Operating profit ratio = Sales

(f) PRICE - EARNING RATIO

Price earning ratio is the ratio between market price per equity share and earnings
per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a
company and is widely used by investors to decide whether (or) not to buy shares in a particular
company.

Generally, higher the price-earning ratio, the better it is. If the price earning ratio
falls, the management should look into the causes that have resulted into the fall of the ratio.

30
 Market Price per Share

Price – Earning Ratio = aEarnings per Share

Capital + Reserves & Surplus

Market Price per Share = Number of Equity Shares

Earnings before Interest and Tax

Earnings per Share = Number of Equity Shares

(g) RETURN ON INVESTMENTS

Return on share holder’s investment, popularly known as Return on investments

(or) return on share holders or proprietor’s funds is the relationship between net profit (after
interest and tax) and the proprietor’s funds.

Net profit (after interest and tax)

Return on shareholder’s investment = Shareholder’s funds

The ratio is generally calculated as percentages by multiplying the above with 100.

31
Purpose of Ratio Analysis:
1] To identify aspects of a business’s performance to aid decision making

2] Quantitative process – may need to be supplemented by qualitative factors to get a complete

picture.

3] 5 main areas-

➢ Liquidity – the ability of the firm to pay its way

➢ Investment/shareholders – information to enable decisions to be made on the extent of the

risk and the earning potential of a business investment

➢ Gearing – information on the relationship between the exposure of the business to loans as

opposed to share capital

➢ Profitability – how effective the firm is at generating profits given sales and or its capital

assets

➢ Financial – the rate at which the company sells its stock and the efficiency with which it

uses its assets

32
Role of Ratio Analysis:

It is true that the technique of ratio analysis is not a creative technique in the sense that it uses the

same figure & information, which is already appearing in the financial statement. At the same

time, it is true that what can be achieved by the technique of ratio analysis cannot be achieved by

the mere preparation of financial statement.

Ratio analysis helps to appraise the firm in terms of their profitability & efficiency of

performance, either individually or in relation to those of other firms in the same industry. The

process of this appraisal is not complete until the ratio so computed can be compared with

something, as the ratio all by them do not mean anything. This comparison may be in the form of

intra firm comparison, inter firm comparison or comparison with standard ratios. Thus proper

comparison of ratios may reveal where a firm is placed as compared with earlier period or in

comparison with the other firms in the same industry.

Ratio analysis is one of the best possible techniques available to the management to impart the

basic functions like planning & control. As the future is closely related to the immediate past,

ratio calculated on the basis of historical financial statements may be of good assistance to

predict the future. Ratio analysis also helps to locate & point out the various areas, which need

the management attention in order to improve the situation.

As the ratio analysis is concerned with all the aspect of a firms financial analysis i.e. liquidity,

solvency, activity, profitability & overall performance, it enables the interested persons to know

the financial & operational characteristics of an organisation & take the suitable decision.

33
Fund Flow Analysis:

Fund may be interpreted in various ways as

(a) Cash,

(b) Total current assets,

(c) Net working capital,

(d) Net current assets.

For the purpose of fund flow statement the term means net working capital. The flow of fund

will occur in a business, when a transaction results in a change i.e., increase or decrease in the

amount of fund.

According to Robert Anthony the funds flow statement describes the sources from which

additional funds were derived and the uses to which these funds were put.

In short, it is a technical device designed to highlight the changes in the financial condition of a

business enterprise between two balance sheets.

Different names of Fund-Flow Statement

➢ A Funds Statement

➢ A statement of sources and uses of fund

➢ A statement of sources and application of fund

➢ Where got and where gone statement

➢ Inflow and outflow of fund statement

Objectives of Fund Flow Statement

34
 The main purposes of FFS are:

• To help to understand the changes in assets and asset sources which are not readily evident in

the income statement or financial statement.

• To inform as to how the loans to the business have been used.

• To point out the financial strengths and weaknesses of the business.

Format of Fund Flow Statement

Sources Applications

Fund from operation Fund lost in operations

Non-trading incomes Non-operating expenses

Issue of shares Redemption of redeemable preference

share

Issue of debentures Redemption of debentures

Borrowing of loans Repayment of loans

Acceptance of deposits Repayment of deposits

Sale of fixed assets Purchase of fixed assets

Sale of investments (Long Purchase of long term investments

Term)

Decrease in working capital Increase in working capital

Steps in Preparation of Fund Flow Statement.

1. Preparation of schedule changes in working capital (taking current items only).

35
2. Preparation of adjusted profit and loss account (to know fund from or fund lost in operations).

3. Preparation of accounts for non-current items (Ascertain the hidden information).

Preparation of the fund flow statement.

Cash Flow Statement:

Cash is a life blood of business. It is an important tool of cash planning and control. A firm

receives cash from various sources like sales, debtors, sale of assets investments etc. Likewise,

the firm needs cash to make payment to salaries, rent dividend, interest etc.

Cash flow statement reveals that inflow and outflow of cash during a particular period. It is

prepared on the basis of historical data showing the inflow and outflow of cash.

Objectives of Cash Flow Statement

1. To show the causes of changes in cash balance between the balance sheet dates.

2. To show the actors contributing to the reduction of cash balance inspire of increasing of profit or

decreasing profit.

Uses of Cash Flow Statement

1. It explaining the reasons for low cash balance.

2. It shows the major sources and uses of cash.

3. It helps in short term financial decisions relating to liquidity.

4. From the past year statements projections can be made for the future.

5. It helps the management in planning the repayment of loans, credit arrangements etc.

Steps in Preparing Cash Flow Statement

1. Opening of accounts for non-current items (to find out the hidden information).

36
2. Preparation of adjusted P&L account (to find out cash from operation or profit, and cash lot in

operation or loss).

3. Comparison of current items (to find out inflow or outflow of cash).

4. Preparation of Cash Flow Statement.

To preparing Account for all non-current items is easier for preparing Cash Flow Statement.

Cash from operation can be prepared by this formula also.

Net Profit + Decrease in Current Assets - Increase in Current Assets

OR OR

Increase in Current Liabilities Decrease in Current Liabilities.

Usefulness of the Statement of Cash Flows

The information in a statement of cash flows should help investors, creditors, and others assess

the following aspects of the firm’s financial position.

• The entity’s ability to generate future cash flows.

By examining relationships between items in the statement of cash flows, investors and

others can make predictions of the amounts, timing, and uncertainty of future cash flows

better than they can from accrual basis data.

37
 • The entity’s ability to pay dividends and meet obligations.

If a company does not have adequate cash, employees cannot be paid, debts settled, or

dividends paid. Employees, creditors, and stockholders should be particularly interested

in this statement, because it alone shows the flows of cash in a business.

• The cash investing and financing transactions during the period.

By examining a company’s investing and financing transactions, a financial statement

reader can better understand why assets and liabilities changed during the period.

1. The reasons for the difference between net income and net cash

Net income provides information on the success or failure of a business enterprise. However,

some are critical of accrual basis net income because it requires many estimates. As a result, the

reliability of the number is often challenged. Such is not the case with cash. Many readers of the

statement of cash flows want to know the reasons for the difference between net income and net

cash provided by operating activities. Then they can assess for themselves the reliability of the

income number.

In summary, the information in the statement of cash flows is useful in answering the following

questions.

➢ How did cash increase when there was a net loss for the period?

➢ How were the proceeds of the bond issue used?

➢ How were the expansions in the plant and equipment financed?

➢ Why were dividends not increased?

➢ How was the retirement of debt accomplished?

➢ How much money was borrowed during the year?

➢ Is cash flow greater or less than net income?

38
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 *** Cash lost in debentures ***

debentures

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

Cash from operation can be calculated in two ways:

Cash Sales Method

Cash Sales – (Cash Purchase + Cash Operation Expenses)

Net Profit Method

It can be prepared in statement form or by Adjusted Profit and Loss Account.

39
 Objective of Study

To understand the information contained in financial statements with a view to know the strength

or weaknesses of the firm and to make forecast about the future prospects of the firm and thereby

enabling the financial analyst to take different decisions regarding the operations of the firm.

1. To study the present financial system at Reliance Industry.

2. To determine the Profitability, Liquidity Ratios, Cash flow and Fund flow statement.

3. To analyze the capital structure of the company with the help of Leverage ratio.

4. To offer appropriate suggestions for the better performance of the organization

40
 Research Methodology

➢ Research is defined as a systematic, gathering recording and analysis of data about

problem relating to any particular field.

➢ It determines strength reliability and accuracy of the project.

1. Research Design: Research Design pertains to the great research approach or strategy

adopted for a particular project. A research project has to be the conducted scientifically

making sure that the data is collected adequately and economically.

The study used a descriptive research design for the purpose of getting an insight over the

issue. It is to provide an accurate picture of some aspects of market environment. Descriptive

research is used when the objective is to provide a systematic description that is as factual and

accurate as possible.

2. Method of Data Collection:

Secondary Data: Through the internet and published data

41
Company Profile

The Reliance group, founded by Dhirubhai H Ambani (1932-2002), is India’s largest private

sector enterprise, with businesses in the energy and material value chain. The flagship company,

Reliance Industries Limited, is a Fortune Global 500 company and is the largest private sector

company in India. The chairman of the company is Mukesh Ambani.

The company is India’s largest petrochemical firm and among the country’s largest companies

(along with the likes of Indian Oil and Tata Group). Oil refining and the manufacture of

polyfines account for nearly all of Reliance’s sales. It also makes textiles and explores for oil and

gas, though those businesses are relatively small. In 2009 the company merged with its oil and

gas refining subsidiary (Reliance Petroleum) in order to boost the operational and financial

synergies of Reliance as a major refining company.

Reliance Industries Limited (NSE: RELIANCE) is India's largest private sector conglomerate

(by market value) , with an annual turnover of US $ 35.9 billion and profit of US$ 4.85 billion

for the fiscal year ending in March 2008 making it one of India's private sector Fortune Global

500 companies, being ranked at 206th position (2008). It was founded by the Indian industrialist

Dhirubhai Ambani in 1966. Ambani has been a pioneer in introducing financial instruments like

fully convertible debentures to the Indian stock markets. Ambani was one of the first

entrepreneurs to draw retail investors to the stock markets. Critics allege that the rise of Reliance

42
Industries to the top slot in terms of market capitalization is largely due to Dhirubhai's ability to

manipulate the levers of a controlled economy to his advantage. Though the company's oil-

related operations form the core of its business, it has diversified its operations in recent years.

After severe differences between the founder's two sons, Mukesh Ambani and Anil Ambani, the

group was divided between them in 2006. In September 2008, Reliance Industries was the only

Indian firm featured in the Forbes's list of "world's 100 most respected companies

Stock

According to the company website "1 out of every 4 investors in India is a Reliance

shareholder.”. Reliance has more than 3 million shareholders, making it one of the world's most

widely held stocks. Reliance Industries Ltd, subsequent to its split in January 2006 has continued

to grow. Reliance companies have been among the best performing in the Indian stock market.

Products

Reliance Industries Limited has a wide range of products from petroleum products,

petrochemicals, to garments (under the brand name of Vimal), Reliance Retail has entered into

the fresh foods market as Reliance Fresh and launched a new chain called Delight Reliance

Retail and NOVA Chemicals have signed a letter of intent to make energy-efficient structures.

The primary business of the company is petroleum refining and petrochemicals. It operates a 33

million tone refinery at Jamnagar in the Indian state of Gujarat. Reliance has also completed a

second refinery of 29 million tons at the same site which started operations in December 2008.

The company is also involved in oil & gas exploration and production. In 2002, it struck a major

find on India's eastern coast in the Krishna Godavari basin. Gas production from this find was

43
started on April 2, 2009. As of the end of 3rd quarter of 2009-2010, gas production from the KG

D6 ramped up to 60 MMSCMD.

Subsidiaries

Major Subsidiaries & Associates

• Reliance Petroleum Limited (RPL) was a subsidiary of Reliance Industries Limited

(RIL) and was created to exploit the emerging opportunities, creating value in the

refining sector worldwide. Currently, RPL stands amalgamated with RIL.

• Reliance Life Sciences is a research-driven, biotechnology-led, life sciences organization

that participates in medical, plant and industrial biotechnology opportunities.

Specifically, these relate to Biopharmaceuticals, Pharmaceuticals, Clinical Research

Services, Regenerative Medicine, Molecular Medicine, Novel Therapeutics, Bio-fuels,

Plant Biotechnology and Industrial Biotechnology.

• Reliance Industrial Infrastructure Limited (RIIL) is engaged in the business of setting up

/ operating Industrial Infrastructure that also involves leasing and providing services

connected with computer software and data processing.

• Reliance Institute of Life Sciences (Rils) established by Dhirubhai Ambani Foundation,

is an institution of higher education in various fields of life sciences and related

technologies.

• Reliance Logistics (P) Limited is a single window solutions provider for transportation,

distribution, warehousing, logistics, and supply chain needs, supported by in house state

of art telemetric and telemetry solutions.

44
 • Reliance Clinical Research Services (RCRS), a contract research organization (CRO)

and wholly owned subsidiary of Reliance Life Sciences, has been set up to provide

clinical research services to pharmaceutical, biotechnology and medical device

companies.

• Reliance Solar, The solar energy initiative of Reliance aims to bring solar energy systems

and solutions primarily to remote and rural areas and bring about a transformation in the

quality of life.

• Relicord is the first and one of the most dependable stem-cell banking services of South

East Asia offered by Mukesh Ambani controlled Reliance Industries.

Reliance's Oil & Gas find

Andhra Pradesh near Vishakhapatnam. It was the largest discovery of natural gas in world in

financial year 2002-2003. On 2 April 2009, Reliance Industries (RIL) commenced natural gas

production from its D-6 block in the Krishna-Godavari (KG)

The gas reserve is 7 trillion cubic feet in size. Equivalent to 1.2 billion barrels (165 mil in 2002,

Reliance found natural gas in the Krishna Godavari basin off the coast of lion tonnes) of crude

oil, but only 5 trillion cubic feet are extractable.

On 2008 Oct 8, Anil Ambani's Reliance Natural Resources took Reliance Industries to the

Bombay High Court to uphold a memorandum of understanding that said RIL will supply the

natural gas at $2.34 per million British thermal units to Anil Ambani.

45
Reliance Retail

Reliance Retail is the retail business wing of the Reliance business. Many brands like Reliance

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

Trends, Reliance AutoZone, Reliance Super, Reliance Mart, Reliance iStore, Reliance Home

Kitchens, and Reliance Jewel come under the Reliance Retail brand. Reliance saw opportunity in

retailing chicken, mutton and other meat products (halal and non-halal) through one of its retail

arms called "Delight Non Veg." One of the Delight outlets has been shut down due to protest by

anti-animal cruelty activists at Gandhi Nagar, Delhi who want Reliance to close its non-veg food

marketing.

Environmental record

Reliance Industry is the world’s largest polyester producer and as a result one of the largest

producers of polyester waste in the world. In order to deal with this large amount of waste they

had to create a way to recycle the waste. They operate the largest polyester recycling center that

uses the polyester waste as a filling and stuffing. They use this process to develop a strong

recycling process which won them a reward in the Team Excellence competition.

Reliance Industries backed a conference on environmental awareness in New Delhi in 2006. The

conference was run by the Asia Pacific Jurist Association in partnership with the Ministry of

Environment & Forests, Govt. of India and the Maharashtra Pollution Control Board. The

conference was to help bring about new ideas and articles on various aspects of environmental

protection in the region. Maharashtra Pollution Control Board invited various industries

complied with the pollution control norms to take active part in the conference and to support as

46
a sponsor. The conference proved effective as a way to promote environmental concern in the

area.

Awards & Recognition

• International Refiner of the Year in 2005 at the 23rd Annual Hart's World Refining and

Fuels Conference.

Awards for managers

• Mukesh D. Ambani received the United States of America-India Business Council

(USIBC) leadership award for "Global Vision" 2007 in Washington in July 2007.

• Mukesh D. Ambani was conferred the Asia Society Leadership Award by the Asia

Society, Washington, USA, May 2004.

• Mukesh D. Ambani ranked 13th in Asia's Power 25 list of The Most Powerful People in

Business published by Fortune magazine, August 2004.

• Mukesh D. Ambani is Economic Times Business Leader of the Year.

47
Current composition of the Board and

Category of Directors are as Follows:

"Between my past, the present and the future, there is one common Factor:
Relationship and Trust. This is the foundation of our growth."

Shri Dhirubhai H. Ambani

Chairman Reliance Group

December 28, 1932 - July 6, 2002

Board of Directors of Reliance Industries Limited

48
 Shri Mukesh D Ambani

Chairman & Managing

Director

Shri Nikhil R. Meswani Shri Hital R. Meswani Shri .S.Kohli

Executive Director Executive Director Executive Director

Shri PMS Prasad Shri R. Ravimohan Shri Ramniklal H.

Executive Director Executive Director Ambani

Shri Mansingh L. Shri Yogendra P. Trivedi Dr. D. V. Kapur

Bhakta

49
 Shri M. P. Modi Prof. Ashok Misra Prof. Dipak C Jain

MISSION & VISION

“Continuously innovate to remain Partners in human progress by Harnessing science &

technology in the petrochemicals domain”

OUR MISSION

“Be a globally preferred Business associate with responsible Concern for ecology, society, and
stakeholder’s value”.

VALUES & QUALITY POLICY YOUR VALUES

“Integrity, Respect for People, Unity of Purpose, Outside-in Focus, Agility and Innovation”.

QUALITY POLICY

“Bare committed to meet customers’ requirements through continual improvement of our quality
management systems. We shall sustain organizational excellence through visionary leadership
and innovative efforts”.

Reliance Industries Balance Sheets from 2006 to 2009

50
 in Rs. Cr.

Mar '06 Mar '07 Mar '08 Mar '09

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

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

51
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 2006 to 2009

in Rs. Cr.

Mar '06 Mar '07 Mar '08 Mar '09

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

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

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

53
 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

Earning 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
 Financial Position of Reliance Industries Ltd.

After going through the various ratios, fund flow and cash flow analysis would like to state that:

• The long-term solvency of the company is very satisfactory.

• Immediate solvency position of the company is also quite satisfactory. The company can

meet its urgent obligations immediately.

• Credit policies are effective.

• Overall profitability position of the company is quite satisfactory.

• Dividend payout ratio is satisfactory. Dividend paid in all years to its shareholders.

• The company is paying promptly to the suppliers.

• The return on capital employed is satisfactory.

• The profitability position of the company is very satisfactory.

55
Data analysis and Interpretation
Calculation and Interpretation of Ratios

1] Current Ratio:

Formula:

Current assets
Current ratio = Current liabilities

YEAR 2005-2006 2006-2007 2007-2008 2008 -2009

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

Current assets

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
 60,000.00 56,298.09

50,000.00 44,743.86 45,675.71

40,000.00
32,221.16 Current assets
30,210.99
30,000.00 24,696.15 25,858.06 Current liabilities
21,547.00
Current ratio
20,000.00

10,000.00
1.14 1.16 1.38 1.23
0.00
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

In Reliance Industries Ltd. the current ratio is 1.23:1 in 2008-2009. It means that for one rupee of

current liabilities, the current assets are 1.23 rupee is available to the them. In other words the

current assets are 1.23 times the current liabilities.

Almost 4 years current ratio is same but current ratio in 2007-2008 is bit higher, which makes

company sounder. The consistency increase in the value of current assets will increase the ability

of the company to meets its obligations & therefore from the point of view of creditors the

company is less risky.

Thus, the current ratio throws light on the company’s ability to pay its current liabilities out of its

current assets. The Reliance Industries Ltd. has a goody current ratio.

57
2] Quick Ratio:

Formula:

Quick assets

Quick ratio = Quick liabilities

YEAR 2005-2006 2006-2007 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

58
 50,000.00
45,675.71
45,000.00

40,000.00 36029.91
35,000.00 32,221.16

30,000.00
25,858.06 Quick assets
24,227.75
25,000.00 21,547.00 Quick liabilities
18,674.48 Liquid ratio
20,000.00
14,576.33
15,000.00

10,000.00

5,000.00
0.67 0.69 0.75 0.78
0.00
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

The liquid or quick ratio indicates the liquid financial position of an enterprise. Almost

in all 4 years the liquid ratio is same, which is better for the company to meet the

urgency. The liquid ratio of the Reliance Industries Ltd. has increased from 0.67 to 0.78

in 2008-2009 which shows that company follow low liquidity position to achieve high

profitability.

This indicates that the dependence on the long-term liabilities & creditors are more & the

company is following an aggressive working capital policy.

Liquid ratio of Company is not favorable because the quick assets of the company are

less than the quick liabilities. The liquid ratio shows the company’s ability to meet its

immediate obligations promptly.

3] Proprietary Ratio:
59
Formula:

Proprietor’s fund

Proprietary ratio = Total assets

OR

Shareholders fund

Proprietary ratio = Fixed assets + current assets

YEAR 2005-2006 2006-2007 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

60
 2,00,000.00 1,89,655.07

1,80,000.00

1,60,000.00

1,40,000.00 1,26,372.97
1,20,000.00 1,05,405.58 Proprietary fund
1,00,000.00 87,439.93 Total fund
81,448.60
80,000.00 68,520.72 63,967.13 Proprietary ratio

60,000.00 49,804.26

40,000.00

20,000.00
0.72 0.73 0.77 0.66
0.00
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

The Proprietary ratio of the company is 0.66 in the year 2008-2009. It means that the for every

one rupee of total assets contribution of 66 paisa has come from owners fund & remaining

balance 34 paisa is contributed by the outside creditors. This shows that the contribution by

owners to total assets is more than the contribution by outside creditors. As the Proprietary ratio

is very favorable of the company. The Company’s long-term solvency position is very sound.

61
4] Stock Working Capital Ratio:

Formula:

Stock

Stock working capital ratio = Working Capital

YEAR 2005-2006 2006-2007 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

62
 16,000.00 14,836.72
14,247.54
14,000.00
12,522.70
12,136.51
12,000.00
10,622.38
10,119.82
10,000.00
Stock
8,000.00 Working Capital
Stock working capital ratio
6,000.00
4352.93
4,000.00 3149.15

2,000.00
3.21 2.78 1.13 1.39
0.00
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

This ratio shows that extend of funds blocked in stock. The amount of stock is decreasing from

the year 2005-2006 to 2008-2009. However in the year 2008-2009 it has increased a little to. In

the year 2007-2008 the sale is increased which affects decrease in stock that effected in increase

in working capital in 2007-2008.

It shows that the solvency position of the company is sound.

63
5] Capital Gearing Ratio:

Formula:

Preference capital+ secured loan

Capital gearing ratio = Equity capital & reserve & surplus

YEAR 2005-2006 2006-2007 2007-2008 2008 -2009

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

Secured loan
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

64
 1,40,000.00
1,26,372.97

1,20,000.00

1,00,000.00
81,448.60
80,000.00
63,967.13
Secured loan
60,000.00 49,804.26

40,000.00 Equity capital &

reserves &
surplus
20,000.00 Capital gearing
9,569.12 10,697.92
7,664.90 6,600.17 ratio
16% 15% 8.20% 8.50%
0.00
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

Gearing means the process of increasing the equity shareholders return through the use of debt.

Capital gearing ratio is a leverage ratio, which indicates the proportion of debt & equity in the

financing of assets of a company.

For the last 2 years [i.e.2007-2008 TO 2008-2009] Capital gearing ratio is all most same which

indicates, near about 8.5% of the fund covering the secured loan position. But in the year 2005-

2006 the Capital-gearing ratio is 16%. It means that during the year 2005-2006 company has

borrowed more secured loans for the company’s expansion.

65
6] Debt Equity Ratio:

Formula:

Total long term debt

Debt equity ratio = Total shareholders fund

YEAR 2005-2006 2006-2007 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

66
 1,40,000.00
1,26,372.97

1,20,000.00

1,00,000.00
81,448.60
80,000.00 73,904.48 Long term debt
63,967.13
Shareholders fund
60,000.00 49,804.26 Debt Equity Ratio

36,479.68
40,000.00
27,825.73
21,865.61
20,000.00

0.44 0.44 0.45 0.59

0.00
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

The debt equity ratio is important tool of financial analysis to appraise the financial structure of

the company. It expresses the relation between the external equities & internal equities. This

ratio is very important from the point of view of creditors & owners.

The rate of debt equity ratio is increased from 0.44 to 0.59 during the year 2005-2006 to 2008-

2009. This shows that with the increase in debt, the shareholders fund also increased. This

shows long-term capital structure of the company is sound. The lower ratio viewed as favorable

from long term creditor’s point of view.

67
7] Gross Profit Ratio:

Formula:

Gross profit

Gross profit ratio = Net sales * 100

YEAR 2005-2006 2006-2007 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

68
 160000
1,41,959
1,33,805.78
140000

120000 1,11,699.03

100000
80,877.79 Gross profit
80000 Net sales
Gross profit Ratio
60000

40000 30,086.28
25,439.43 25,758.20
18345.48
20000
22.7 22.7 22.4 18.14
0
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

The gross profit is the profit made on sale of goods. It is the profit on turnover. In the year 2005-

2006 the gross profit ratio is 22.7%. It has decreased to 18.14% in the year 2008-2009 due to

increase in sales with corresponding more increase in cost of goods sold.

It is continuously declined from 2005-2006 t0 2008-2009 due to high cost of purchases &

overheads. Although the gross profit ratio is declined during the years 2005-2006 to 2008-2009.

The net sales and gross profit is continuously increasing from the year 2005-20063 to 2008-

2009.

69
8] Operating Ratio:

Formula:

Operating Profit

Operating ratio = Net sales *100

Operating profit = COGS+ operating expenses

YEAR 2005-2006 2006-2007 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%

70
 1,60,000.00
1,41,959
1,40,000.00 1,33,805.78

1,18,234.17
1,20,000.00 1,11,699.03
1,09,506.10

1,00,000.00 91,947.72
80,877.79 COGS + Operating expenses
80,000.00 68,550.24 Net sales
Operating ratio
60,000.00

40,000.00

20,000.00
84.75% 82.31% 81.80% 83.28%
0.00
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

The operating ratio shows the relationship between costs of activities & net sales. Operating ratio

over a period of 4 years when compared that indicate the change in the operational efficiency of

the company.

The operating ratio of the company has decreased in 3 year and increase a little in last year. This

is due to increase in the cost of goods sold, which in 2005-2006 was 84.75%, in 2006-2007 was

82.31%, in 2007-2008 was 81.80% & in 2008-2009 it is 83.28%. Though the cost has increased

in 2006-2007 as compared to 2005-2006, it is reducing continuously over the next two years,

indicate downward trend in cost but upward / positive trend in operational performance.

71
9) Net Profit Ratio:

Formula:

Net Profit After Tax

Net profit ratio = Net sales * 100

YEAR 2005-2006 2006-2007 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%

72
 1,60,000.00
1,41,959.00
1,33,805.78
1,40,000.00

1,20,000.00 1,11,699.03

1,00,000.00
80,877.79 NPAT
80,000.00 Net sales
Net profit ratio
60,000.00

40,000.00
19,458.29
11,943.40 15,309.32
20,000.00 9,069.34
11.21% 10.69% 14.54% 10.78%
0.00
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

The net profit ratio of the company is high in all year but the net profit is increasing order from

this ratio of 4 year it has been observe that the from 2005-2006 to 2007-2008 the net profit is

increased and it decreased in the year 2008-2009.

Profitability ratio of company shows considerable increase in 3 years and decreased in the last

year. Company’s sales have increased in 3 years and decreased in the last year. At the same time

company has been successful in controlling the expenses i.e. manufacturing & other expenses.

It is a clear index of cost control, managerial efficiency & sales promotion.

73
10] Stock Turnover Ratio:

Formula:

Cost Of Goods Sold

Stock Turnover Ratio = Average stock

YEAR 2005-2006 2006-2007 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

74
 Stock Turnover Ratio
4.5
4
3.5
3
2.5
2
1.5 Stock Turnover Ratio
1
0.5
0
5,49,90 5,97,58 6,73,11 6,89,30
18,90,98 21,96,32 28,33,02 25,72,26
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

Stock turnover ratio shows the relationship between the sales & stock it means how stock is

being turned over into sales.

The stock turnover ratio is 2001-2002 was 3.4 times which indicate that the stock is being turned

into sales 3.4 times during the year. The inventory cycle makes 3.4 rounds during the year. It

helps to work out the stock holding period, it means the stock turnover ratio is 3.4 times then the

stock holding period is 3.5 months [12/3.4=3.5months]. This indicates that it takes 3.5 months

for stock to be sold out after it is produced. For the last 4 years stock turnover ratio is lower than

the standard but it is in increasing order. Inurn the year 2001-2002 to 2004-2005 the stock

turnover ratio has improved from 3.4 to 3.73 times, it means with lower inventory the company

has achieved greater sales. Thus, the stock of the company is moving fast in the market.

75
11] Return on Capital Employed:

Formula:

Net Profit After Tax

Return on capital employed = Capital employed *100

YEAR 2005-2006 2006-2007 2007-2008 2008 -2009

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

NPAT

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

76
 2,50,000.00

2,00,277.45
2,00,000.00

1,45,415.73
1,50,000.00
NPAT
1,17,928.28
Capital employed

1,00,000.00 Return on capital employed

71,669.87

50,000.00
19,458.21 15,308.32
9,069.34 11,943.40
12.65% 8.21% 16.50% 7.64%
0.00
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

The return on capital employed shows the relationship between profit & investment. Its purpose

is to measure the overall profitability from the total funds made available by the owner &

lenders.

The return on capital employed of Rs.7.64 indicate that net return of Rs. 7.64 is earned on a

capital employed of Rs.100. this amount of Rs. 7.64 is available to take care of interest, tax,&

appropriation.

The return on capital employed is show-mixed trend, i.e. it decrease in 2006-2007 , then increase

in 2007-2008 and finally decrease in 2008-2209.In 2007-2008 It is highest that is 16.50%. This

indicates a very high profitability on each rupee of investment & has a great scope to attract large

amount of fresh fund.

77
12] Earning Per Share:

Formula:

Net Profit After Tax – Preference Dividend

Earning per share = Number of equity share

YEAR 2005-2006 2006-2007 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

78
 15,737.98
16,000.00 14,536.49
13,935.08 13,935.08
14,000.00

12,000.00

10,000.00

8,000.00 No.ofequity share

6,000.00 Earning per share

4,000.00

2,000.00
65.08 85.71 133.86 97.28
0.00
906,934 11,943,40.00 19,458,29.00 15,309,32.00
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

Earning per share is calculated to find out overall profitability of the company. Earning per

share represents the earning of the company whether or not dividends are declared.

The Earning per share is 97.28 means shareholder gets Rs. for each share of Rs. 10/-. In other

words the shareholder earned Rs. 97.28 per share.

The net profit after tax of the company is increasing in all years accepts 2008-2009. Therefore

the shareholders earning per share is increased continuously from 2005-2006 to 2007-2008 by

65.08-133.86% and decrease in 2008-2009 to 97.28%. This shows it is continuous capital

appreciation per unit share for consecutive three years and capital depreciation per unit share in

the last year.

The above analysis shows the Earning per share and Dividend per share is increasing rapidly. It

is beneficial to the shareholders and prospective investor to invest the money in this company.

79
13] Dividend Payout Ratio:

Formula:

Dividend per share

Dividend Payout ratio = Earning per share * 100

YEAR 2005-2006 2006-2007 2007-2008 2008 -2009

Dividend per share 10.00 10.33 11.22 12.05

Earning per share 65.08 85.71 133.86 97.28

Dividend payout
15.36% 12.05% 8.38% 12.38%
ratio

80
 133.86
140

120
97.28
100
85.71

80 Dividend per share

65.08
Earning per share
60
Dividend payout ratio

40

20 10 10.33 11.22 12.05

15.36% 12.05% 8.38% 12.38%
0
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

The company earned profit in all four years. So its declare dividend in all four years. In the year

2005-2006, 2006-2007 and 2008-2009 the Dividend payout ratio is 15.36, 12.05 and 12.38

respectively. In the year 2007-2008 the company has declared the dividend 8.38 because the

company has not earned more profit in the year 2001-2002 hence the company has not declared

more dividends in the year 2008-2009. However the company has declared more dividends in

the year 2005-2006 as the company has sufficient profit. From this one can say that the company

is more conservative for expansion.

81
14] Cost of Goods Sold Ratio:

Formula:

Cost Of Goods Sold

Cost of goods sold Ratio = Net sales * 100

YEAR 2005-2006 2006-2007 2007-2008 2008 -2009

COGS 62,532.31 86,259.6 103,719.5 116,200.8

Net sales 80,773.79 111,699.03 133,805.78 141,959.00

Cost of goods sold

77.31 77.22 77.51 81.85
ratio

82
 1,60,000.00
1,41,959.00
1,40,000.00 1,33,805.78

1,16,200.80
1,20,000.00 1,11,699.03
1,03,719.50
1,00,000.00
86,259.60
80,773.79 COGS
80,000.00 Net sales
62,532.31
Cost of goods sold ratio
60,000.00

40,000.00

20,000.00
77.31 77.22 77.51 81.85
0.00
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

This ratio shows the rate of consumption of raw material in the process of production. In the year

2005-2006 the cost of goods sold ratio is 77.31% so the gross profit is 22.69%. It indicates that

in 2005-2006, the 77.31% of raw material is consumed in the process of production.

During the 3 years the rate of cost of goods sold ratio is almost same and it increased in last year

however the gross profit & sales is increased during the same period.

83
15] Cash Ratio:

Formula:

Cash + Bank + Marketable securities

Cash ratio = Total current liabilities

YEAR 2005-2006 2006-2007 2007-2008 2008 -2009

Cash + Bank +

Marketable 239.31 308.31 217.79 500.13

securities

Total current 25,858.06

21,547.00 32,221.16 45,675.71
liabilities

Cash ratio 0.011 0.011 0.006 0.010

84
 50000 45,675.71
45000
40000
35000 32,221.16 Cash + Bank + Marketable
30000 securities
25,858.06
25000 21,547.00 Total current liabilities

20000
Cash ratio
15000
10000
5000 239.31 0.011 308.31 0.011 217.79 0.006 500.13 0.01
0
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

This ratio is called as super quick ratio or absolute liquidity ratio. In the year 2005-2006 the cash

ratio is 0.011 & remains same in the year 2006-2007. Then it is decreased to 0.006 in the year

2007-2008 & increased in the year 2008-2009 t0 0.010.

This shows that the company has little cash, bank balance, & marketable securities to meet any

contingency.

85
16] Return on Proprietors Fund Ratio:

Formula:

Net Profit After Tax

Return on proprietors fund = Proprietor’s fund * 100

YEAR 2005-2006 2006-2007 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

86
 1,40,000.00
1,26,372.97

1,20,000.00

1,00,000.00
81,448.60
80,000.00 NPAT
63,967.13
Proprietors fund
60,000.00 49,804.26 Return on proprietors fund

40,000.00
19,458.29
15,309.32
20,000.00 9,069.34 11,943.40
18.2 16.67 23.89 12.11
0.00
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

Return on proprietors fund shows the relationship between profits & investments by proprietors

in the company. In the year 2005-2006 the return on proprietors fund is 18.20% it means the net

return of Rs. 18.20 approximately is earned on the each Rs. 100 of funds contributed by the

owners.

During the last 4 years the rate of return on proprietors fund is in fluctuating order. The return on

proprietors fund during the year 2005-2006 to 2008-2009 is decreased from 18.20% to 12.11%

and it is maximum in the year 2007-2008.

It shows that the company has very large returns available to take care of high dividends, large

transfers to reserve etc. & has a great scope to attract large amount of fresh fund from owners.

87
17] Operating Profit Ratio:

Formula:
Operating profit

Operating profit ratio = Net sales *100

YEAR 2005-2006 2006-2007 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

88
 1,60,000.00
1,41,959
1,40,000.00 1,33,805.78

1,20,000.00 1,11,699.03

1,00,000.00
80,877.79 NPAT
80,000.00 Proprietors fund
Return on proprietors fund
60,000.00

40,000.00
20,405.91 22,432.52 24,152.39
14,458.74
20,000.00
17.87 18.26 16.76 17.04
0.00
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:

Operating profit ratio shows the relationship between operating profit & the sales. The operating

profit is equal to gross profit minus all operating expenses or sales less cost of goods sold and

operating expenses.

The operating profit ratio of 17.04% indicates that average operating margin of Rs.17 is earned

on sale of Rs. 100. This amount of Rs. 17 is available for meeting non operating expenses. In the

other words operating profit ratio 17.04means that 17.04% of net sales remains as operating

profit after meeting all operating expenses.

During the last 4 years the operating profit ratio is remains almost same. It indicates that the

company has great efficiency in managing all its operations of production, purchase, inventory,

selling and distribution and also has control over the direct and indirect costs. Thus, company has

a large margin is available to meet non-operating expenses and earn net profit.

89
Calculations and Interpretation of Fund Flow Statement

Fund flow statement (in Rs. Cr.)

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Source of funds

Issue of shares
1,393.17 1,393.21 1,453.39 1,573.53
Long term borrowings
21,865.61 27,825.73 36,479.68 73,904.48

Operating profit
14,458.74 20,405.91 2,432.52 24,152.39

37,717.52 49,624.85 60,365.59 99,630.4

Application of funds

Investment
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

Payment dividends
1393.51 1,440.44 1,631.24 1,897.05

Payment of tax
1,642.72 2,585.35 3,559.85 3,137.34

19,000.23 32,413.64 39,954.74 40,139.29

Net increase in working capital

18,717.29 17,211.21 20,410.85 59,491.11

90
Comments

• The fund flow analysis shows that the funds increase continuously from the year 2006-

2009 due to the maximum long term borrowings and more operating profit .The funds are

maximum in the year 2009 because in this year the company borrowed maximum long

term loan.

• The application of funds also increases continuously from the tear 2006 to 2009. It was

minimum in the year 2006 and maximum in the year 2009.

• The net working capital available to the company was maximum in the year 2009 shows

the high liquidity position of the firm and it was minimum in the year 2007 shows the

low liquidity position of the firm.

91
Calculations and Interpretation of Cash Flow Statement

Cash flow Statement (in Rs. Cr).

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Profit before tax

18,433.23 23,010.14 14,520.47 10,704.06

Net cash flow-operating activity

18,245.86 17,426.74 16,870.55 10,301.58

Net cash used in investing activity

-24,084.20 -23,955.08 -18,567.01 -12,130.88

Net cash used in fin. Activity

23,732.58 8,973.04 306.08 366.67

Net inc/dec in cash and equivalent

17,894.24 2,444.70 -1,390.38 -1,462.63

Cash and equivalent begin of year

4,282.29 1,835.35 3,225.73 3,608.79

Cash and equivalent end of year

22,176.53 4,280.05 1,835.35 2,146.16

92
Comments:

• The cash flow statement shows that the net profit before tax increased continuously in the

year 2006, 2007 and 2008 but decreased in the year 2009 due to the excessive liquidity.

• The net cash from the operating activities continuously increased from the 2006 to 2009,

which shows the sound position of the firm.

• The statement shows that net cash from investing activities is negative in all four years

that means the firm is not enough contribute in investing activities.

• The net cash used in financing activities is maximum in the year 2008 and 2009 in

comparison to 2006 and 2007, when company contributed fewer amounts in financing

activities.

• The cash and cash equivalents of the firm decreased in the year 2006 and 2007, which

shows the low liquidity position of the firm in these years. The cash and cash equivalents

of the firm increased in the year 2008 and 2009 showing the high liquidity position of the

firm.

• The opening cash and cash equivalents are minimum in the year 2008 and maximum in

the year 2009. The Closing cash and cash equivalents maximum in the year 2009 and

minimum in the year 2007 shows the firm maintain the maximum liquidity position in

the year 2009.

93
 Findings

1. The current ratio has shown non fluctuating trend as 1.14, 1.16, 1.38 and 1.23 during 2006,

2007, 2008 and 2009.

2. The quick ratio is also in non fluctuating trend throughout the period 2006 – 09 resulting as

0.67, 0.69, 0.75, 0.78.The Company believes in high profitability and low liquidity position.

3. The proprietary ratio has shown a non fluctuating trend. The proprietary ratio is decreased

compared with the last year.

4. The stock working capital ratio decreased from 3.21 to 1.39 in the year 2006 – 09.

5. The capital gearing ratio is decreased form 2006 – 08 (0.16, 0.15 and 0.82) and increased in

2009 to 0.85.

6. The debt-equity ratio increased from 0.44-0.59 in the year 2006-09.

7. The gross profit ratio is in fluctuation manner. It decreased in the current year compared with

the previous year from 23.1% to 18.97%.

8. The net profit ratio is also decreased in the current year compared with the previous year from

14.54% to 10.78%.

9. The operating ratio is increased in the current year compared with the previous year from

81.8% to 83.28%.

10. The return on capital employed is increased in the year 2006 and 2008 while it decreased in

the year 2007 and 2009.

94
11. The earning per share is maximum in the year 2007-2008 and minimum in the year 2005-

2006.

12. Dividend payout ratio is maximum in the year 2005-2006 and minimum in the 2007-2008.

13. Cost of goods sold shows a non fluctuating pattern in the year 2005-2008 and increased in

the year 2008-2009.

14. The cash ratio shows a non fluctuating pattern in the year 2006, 2008 and 2009 but decreased

in the year 2008.

15. Return on proprietorship fund is maximum in the year 2007-2008 and minimum in the year

2008-2009.

16. The operating profit ratio shows almost similar pattern in all years but it is maximum in the

year 2006-2007 and minimum in the year 2007-2008.

17..The net working capital available to the company was maximum in the year 2009 shows the

high liquidity position of the firm and it was minimum in the year 2007 shows the low

liquidity position of the firm.

95
 Suggestion & Recommendation

1. Liquidity refers to the ability of the concern to meet its current obligations as and when these

become due. The company should improve its liquidity position.

2. The company should make the balance between liquidity and solvency position of the

company.

3. The profit ratio is decreased in current year so the company should pay attention to this

because profit making is the prime objective o every business.

4. The cost of goods sold is high in every year so the company should do efforts to control it.

5. The long term financial position of the company is very good but it should pay a little

attention to short term solvency of the company.

96
 Conclusion

The company’s overall position is at a very good position. The company achieves sufficient
profit in past four years. The long term solvency position of the company is very good. The
company maintains low liquidity to achieve the high profitability. The company distributes
dividends every year to its share holders. The profit of the company decreased in the last year
due to maintaining the comparatively high liquidity. The net working capital of the company is
maximum in the last year shows the maximum liquidity.

97
 Bibliography

REFERENCE BOOKS –

▪ FINANCIAL MANAGEMENT

▪ Theory, Concepts & problems

▪ R.P.RUSTAGI

▪ FINANCIAL MANAGEMENT By- M.R. Agrawal

ANAUAL REPORTS OF RELIANCE INDUSTRIES LIMITED

▪ 2005-2006

▪ 2006-2007

▪ 2007-2008

▪ 2008-2009

WEBSITES -

▪ www.ril.com

▪ www.moneycontrol.com

▪ www.wikipedia.com

98
 APPENDIX

---------- in Rs. Cr. -------

Balance Sheet of Reliance Industries

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 1,393.09 1,393.17 1,393.21 1,453.39 1,573.53

Equity Share Capital 1,393.09 1,393.17 1,393.21 1,453.39 1,573.53

Share Application
0.00 0.00 60.14 1,682.40 69.25
Money

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

36,280.3 43,760.9 59,861.8 112,945.4

Reserves 77,441.55
5 0 1 4

Revaluation Reserves 2,729.88 4,650.19 2,651.97 871.26 11,784.75

40,403.3 49,804.2 63,967.1 126,372.9

Networth 81,448.60
2 6 3 7

Secured Loans 7,972.90 7,664.90 9,569.12 6,600.17 10,697.92

10,811.6 14,200.7 18,256.6

Unsecured Loans 29,879.51 63,206.56
9 1 1

18,784.5 21,865.6 27,825.7

Total Debt 36,479.68 73,904.48
9 1 3

59,187.9 71,669.8 91,792.8 117,928.2 200,277.4

Total Liabilities
1 7 6 8 5

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

99
 Application Of Funds

Gross Block 55,125.82 84,970.13 99,532.77 104,229.10 149,628.70

Less: Accum. Depreciation 24,872.83 29,253.38 35,872.31 42,345.47 49,285.64

Net Block 30,252.99 55,716.75 63,660.46 61,883.63 100,343.06

Capital Work in Progress 4,829.29 6,957.79 7,528.13 23,005.84 69,043.83

Investments 17,051.46 5,846.18 16,251.34 20,516.11 20,268.18

Inventories 7,412.88 10,119.82 12,136.51 14,247.54 14,836.72

Sundry Debtors 3,927.81 4,163.62 3,732.42 6,227.58 4,571.38

Cash and Bank Balance 384.51 239.31 308.35 217.79 500.13

Total Current Assets 11,725.20 14,522.75 16,177.28 20,692.91 19,908.23

Loans and Advances 13,869.67 8,266.55 12,506.71 18,441.20 13,375.15

Fixed Deposits 3,224.28 1,906.85 1,527.00 5,609.75 23,014.71

Total CA, Loans & Advances 28,819.15 24,696.15 30,210.99 44,743.86 56,298.09

Deffered Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 17,917.41 17,656.02 24,145.19 29,228.54 42,664.81

Provisions 3,847.57 3,890.98 1,712.87 2,992.62 3,010.90

Total CL & Provisions 21,764.98 21,547.00 25,858.06 32,221.16 45,675.71

Net Current Assets 7,054.17 3,149.15 4,352.93 12,522.70 10,622.38

Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00

Total Assets 59,187.91 71,669.87 91,792.86 117,928.28 200,277.45

Contingent Liabilities 6,579.47 24,897.66 46,767.18 37,157.61 36,432.69

Book Value (Rs) 270.35 324.03 439.57 542.74 727.66

100
 ------------------- in Rs. Cr. -------------------
Profit & Loss account of Reliance Industries
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Income

Sales Turnover 73,164.10 89,124.46 118,353.71 139,269.46 146,328.07

Excise Duty 7,245.27 8,246.67 6,654.68 5,463.68 4,369.07

Net Sales 65,918.83 80,877.79 111,699.03 133,805.78 141,959.00

Other Income 1,573.70 546.96 236.89 6,595.66 1,264.03

Stock Adjustments -524.35 2,131.19 654.60 -1,867.16 427.56

Total Income 66,968.18 83,555.94 112,590.52 138,534.28 143,650.59

Expenditure

Raw Materials 47,418.04 59,739.29 80,791.65 98,832.14 109,284.34

Power & Fuel Cost 907.94 1,146.26 2,261.69 2,052.84 3,355.98

Employee Cost 846.40 978.45 2,094.09 2,119.33 2,397.50

Other Manufacturing Expenses 303.97 668.31 1,112.17 715.19 1,162.98

Selling and Admin Expenses 3,000.27 5,872.33 5,478.10 5,549.40 4,736.60

Miscellaneous Expenses 217.30 300.74 321.23 412.66 562.42

Preoperative Exp Capitalised -9.60 -155.14 -111.21 -175.46 -3,265.65

Total Expenses 52,684.32 68,550.24 91,947.72 109,506.10 118,234.17

101
 Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Operating Profit 12,710.16 14,458.74 20,405.91 22,432.52 24,152.39

PBDIT 14,283.86 15,005.70 20,642.80 29,028.18 25,416.42

Interest 1,486.54 893.61 1,298.90 1,162.90 1,774.47

PBDT 12,797.32 14,112.09 19,343.90 27,865.28 23,641.95

Depreciation 3,784.57 3,400.91 4,815.15 4,847.14 5,195.29

Other Written Off 0.00 0.00 0.00 0.00 0.00

Profit Before Tax 9,012.75 10,711.18 14,528.75 23,018.14 18,446.66

Extra-ordinary items -1.31 0.88 0.51 48.10 0.00

PBT (Post Extra-ord Items) 9,011.44 10,712.06 14,529.26 23,066.24 18,446.66

Tax 1,505.00 1,642.72 2,585.35 3,559.85 3,137.34

Reported Net Profit 7,571.68 9,069.34 11,943.40 19,458.29 15,309.32

Total Value Addition 5,266.28 8,810.95 11,156.07 10,673.96 8,949.83

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 1,045.13 1,393.51 1,440.44 1,631.24 1,897.05

Corporate Dividend Tax 146.58 195.44 202.02 277.23 322.40

Per share data (annualised)

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

Earning Per Share (Rs) 54.34 65.08 85.71 133.86 97.28

Equity Dividend (%) 75.00 100.00 110.00 130.00 130.00

Book Value (Rs) 270.35 324.03 439.57 542.74 727.66

102