Working Capital Management is concerned with the problems that arise in attempting to manage the current Assets, current

liabilities and the inter-relationship that exists between them. The aim of working capital management is to manage the concerns current assets and current liabilities in such a way that an adequate working capital is maintained. An adequate level of working capital provides a business with operational flexibility. Emerson has very rightly observed that, business with an adequate level of working capital has more option available to it, and can make its own choice as to when working capital will be used. On the other hand, if a firm is short of working capital, it may be forced to limit business operations, extension of credit to customers and the amount that it invests in inventory. This will adversely affect production as well as sales which in turn will affect probability of a concern.

Meaning and definition There is no universally accepted definition of Working Capital, but the one most widely acceptable is the observation that Working Capital represents the excess of current assets over current liabilities. Although the term Working Capital has been depreciated by the Institute of Chartered Accountants for use in balance sheets and has preferred the term current assets less liabilities nevertheless, for management purposes the former is useful phrase to summarize the factor, which is effective lifeblood of much business.

Importance Study of working capital is of major importance to internal and external analysis because of its close relationship to current day-to-day business. Inadequacy or mismanagement of working capital is the leading cause of business failure. Choyal is of the view that, The working capital of a firm is the lifeblood which flows through the veins and arteries of the structure, Indeed, it engages every part of the structure, gives courage and moral strength to brain (management) and muscles (Personnel), digests to the best degree the raw material used by its constant and regular flow and returns to the heart (Cash flow) for another journey and so when working capital is lacking or slows down, the financial bodies have value just as much as junk. It is reflected by the fact that Financial Manager spends a great deal of time in managing current assets and current liabilities. Arranging short term financing, negotiating favorable credit terms, controlling, administering accounts receivables and monitoring the investment in inventories consume a great deal of their time. In the words of I.M.Pandey: The net Working Capital indicates The liquidity position of the firm. Suggests the extent to which working capital needs may be financed by permanent sources of funds.

INDUSTRY PROFILE

At present, there are seventeen refineries operating in the country, fifteen in public sector unit, and one in private sector. Out of the public sector refineries seven refineries are owned by Indian Oil Corporation, two by Hindustan Petroleum Corporation Limited, two by Chennai Petroleum Corporation Limited and one each by Bharat Petroleum Corporation Limited, Kochi Refineries Limited, Bongaigaon Refineries and Petrochemical Limited and Numaligarh Refineries Limited. The one Refinery in joint sector Mangalore Refineries and Petrochemicals Limited and one by private sector Reliance Petroleum Limited. The installed capacity of the Indian refineries is about 117 million tonnes per annum from which the product availability may be about 108 million tonnes. Taking into account the product availability from the fractionators of about 4.5 million tonnes, the total products availability would be about 113 million tonnes at 100% capacity utilization. While this is on overall basis, product like LPG is in deficit and other products are in surplus, which would necessitate operating refining capacity to match demand or export products depending on refinery economics and logistics. During the year, as a part of reconstructing of downstream oil sector, KRL and NRL have become the subsidiaries of BPCL. Government of India has sold its entire shareholding in BRPL and CPCL to IOCL. subsidiaries of IOCL. Thus, BRPL and CPCL have become

By this arrangement, the refineries have to face the challenge of deregulation, for which the Government of India has already taken measures like phased dismantling of Administered Pricing mechanism for refinery sector, particularly marketing deregulation etc. As per the current program contemplated by the government, the marketing of controlled products has been de regulated from 1.4.2002.

INDUSTRY STRUCTURE

As part of the deregulation of the oil sector as notified by the Government of India in 1997, the oil sector was deregulated in phases. The refining sector was

deregulated in the first phase from 1.4.1998. The oil sector has since been totally deregulated from 1.4.2002. The year 2002-03 was the first year of operation of the oil sector in the deregulated scenario and the prices to the customers were fixed by and large on import parity (IPP) basis.

In the liberalized business scenario, CPCL has completely switched over to Market Driven Pricing Mechanism (MDPM) from APM, ie. Administered Pricing Mechanism.

The table below gives the refining capacities of the oil refineries in India:

Name of the company Assam Oil company, Digboi, Assam IOC, Gauhati, Assam IOC, Barauni, Bihar IOC, Haldia, West Bengal IOC, Koyali, Gujarat IOC, Mathura, UP BPCL, Mumbai HPCL, Vizag HPCL, Mumbai Kochi Refineries Ltd, kerala CPCL, Chennai CPCL, CBR Karnal Refinery, Punjab Mangalore Refineries & Petrochemicals Ltd Reliance Petroleum Corporation Ltd Bongaigoan Refineries & Petrochemicals Ltd

Capacity Million MTs(MMTPA) 0.50 0.85 3.30 2.75 9.50 7.50 6.00 4.50 7.00 7.50 9.50 1.00 6.00 3.00 27.00 2.35

COMPANY PROFILE

Chennai Petroleum Corporation Limited (CPCL), formerly, Madras Refinery Limited (MRL), Chennai was incorporated on Dec-30, 1965 with an authorized capital of Rs. 9 Crore under a formation agreement amongst the government if India, National Iranian Oil company of Iran and AMOCO India Limited Inc., of USA. The initial paid up capital was Rs 8.50 Crore, of which the government of India held 74% and the other two partners held 13% each, AMOCO relinquished their share holdings in 1985 86 in favor

of government of India, and the entire government of Indias share holdings of 51.81 % was disinvested in favor of Indian Oil Corporation on 29/03/2001 and hence CPCL in now a subsidiary of IOCL Chennai Petroleum Corporation Limited is one of the three refineries producing lube stocks. And initial crude refining capacity of 2.5 MMTPA was put up at a cost of Rs 43 Crore. De-bottlenecking then increased the capacity to 2.8 MMTPA in 1972 . A 20000 TPA wax plant was commissioned in March 1984. Expansion of refining capacity to 5.6 MMTPA was completed in 1984 85 at a cost of Rs 170 Crore. The refining capacity was further increased to 6.5 MMTPA by optimization in 1993-94 at a cost of Rs 38 Crore. The 0.5 MMTPA Cauvery basin refinery of CPCL, at Panangudi village near Nagapatnam, TamilNadu went into the commercial production in Nov 1993. The refinery processes indigenous crude available from the near by ONGC fields.

As crude supplies from ONGC fields near by are insufficient to meet the throughput levels of CBR unit, crude is also transported from Manali unit to CBR unit by road to maximum capacity utilization at CBR. The marketing products from this refinery is being done through M/S IBP CO LIMITED. The lube expansion project to increase the lube production from 1, 40,000 TPA to 2, 70,000 TPA at a cost of RS 238.71 Crore was commissioned in 1994. The additional power generation project involving installation of a Boiler and Turbine of 20 MW capacity at a cost of Rs 44 Crore was commissioned in 1994.

The project to install wax hydro-finishing unit in place of existing wax de-oiling unit plant capacity from 20000 TPA to 30000 TPA at a cost Rs 41.32 Crore were commissioned in 1997. The project diesel hydro de-Sulphurisation to reduce the sulphur content in diesel from 1% to 0.25 % by weight has been commissioned during the year 1999-2000. In order to meet the future specifications of 0.5% sulphur in Diesel and to medicate the particulate emissions, a second reactor in Diesel hydro de-sulphuriser unit was installed at a cost of Rs 20 Core in the existing Diesel Hydro de-sulphurisation unit, to produce a eco-friendly fuels. This unit was commissioned in Sep 2001. With a view to ensure reclamation of sewage generator from various refineries buildings and canteen waste waters, project to facilitate their collection, treatment and reuse was implemented in May 2001 at a cost of Rs 2.13 Crore.

As per the directive of OISD, the company has installed and commissioned during Aug 2001, manual call point, fire alarm system project to augment the safety requirements of Manali Refinery and the tank form areas at a cost Rs 1.16 Crore. This project would enable quicker communications and response actions during emergencies. In additions to above, the projects were completed during the year 2001-2002: The facilities to de-bottleneck the existing capacity from 0.5MMTPA to 1.0 MMTPA at Cauvery basin refinery were installed. Two numbers of new crude takes and seven numbers of new product tanks were commissioned. One cell of new cooling tower was

also commissioned. New RO unit was installed for additional requirement of de-materials water for boilers. The company also commissioned the zero discharge projects at a cost RS 4.6 Crores. This project is for the purpose of converting refinery treated effluents into usable water for various process applications and the treated effluent water would end with Zero discharge from the Manali refinery.

Proposed Projects
Power Project The company had signed an Expression of Intention with Neyveli Lignite Corporation (NLC), a premier PSU in the power sector, for the joint development of 492 MW power project. Discussions are on with NLC regarding formations of a joint venture company, carrying on project development activities and fuel supply issues.

Crude unloading facilities for Manali Refinery The company proposes to have new facilities for crude unloading for the Manali refinery, since the life of the existing crude oil pipeline from Chennai port to the Manali Refinery may be outlived by 2006. The transportation of crude oil in very large crude carriers (VLCCs) has also been found to e cost effective as per the study do new by Indian oil tanking limited. The company will benefit transportation costs on completion of this is project. by way of lower crude

Desalination Project
The company is proposing to install a desalination plant to supplement the current raw water requirement at Manali complex and the future requirements of 3MMTPA expansion project, near Chennai on built own and operates (BOO) Basis.

Joint Venture Project

Indian additives Limited (IAL) The performance of Indian additives Ltd, the joint venture of the company with Chevron Oronite Company (LLC) (Successor of Chevron Chemical Corporation) has shown improvements over the previous year and it posted cash profit of Rs 4.89 Crore. Indegeniousing and outsourcing has been taken up in the big way to improve the competitiveness of the unit.

National Aromatics and Petrochemical Corporation Ltd (AROCHEM)

The government of India has approved the memorandum of settlement (MOS) to e entered in to between the company and SPIC; SPIC had indicated that they are in the process of finalizing the financial tie-up with banks and financial institutions.

Research and Development (R & D)

The company recognizes the need for continuous up gradation of technologies and absorption of cutting edge technology to attain leadership position under the liberalized policies of the government. Accordingly, all the facts of the operations if the company receives the focused attention of the management to keep pace with technological developments in the rest of the world.

The company has taken all the required steps to further accelerate and intensify its R&D activities to augment its growth opportunities.

The companys R&D center has been continuously providing technical support service to the refinery in evaluation of crudes, catalyst and feedstock. R&D pilot plants and analytical facilities provide valuable data for solving problems related to the Refinery process units optimizing the operating parameters.

Information Technology

The company firmly believes that Information Technology is integral to all aspects of the companys operations and continuous assimilations of emerging technologies, web enabled business solutions and constant automation is becoming inevitable commercial compulsions to sustain growth and profitability.

Towards achieving this end the company engaged M/S CMC Ltd and M/S RAMCO SYSTEMS LTD for implementing the state-of-art enterprise resource planning (ERP) based business information systems encompassing the functional areas of finance and accounts, material managing, human resources management. Sales and distribution, stock and oil movement, maintenance and project management, the above functional areas were automated, data availability, data integrity and information flow between various modules have been achieved. The system facilitates effective operational monitoring and decision-making, on comprehensive operational report and online information availability.

The company has taken a number of steps for improving network performance over wide area network (WAN) through installation of necessary hardware and software.

Import Substitution and Development of Small Scale Industries. The company continued to give thrust to the development of small-scale industries. The value of import substitution amounted to Rs. 0.69 crore during the year. The company effected purchases to the tune of Rs.1.60 crore during the year from scale industries.

Safety

The company recognizes safety management as an important tool for preventing accidents involving people and property. The company is strongly committed to achieve production without compromising on safety, which is clearly reflected in the safety policy of the company aims at zero accident and freedom from occupational illness at the work place. The safety practices adopted by the company received many accolades from various quarter .the most important ant prestigious among them was the award of the OHSAS 18001 certification for occupational health safety management systems.

The company embarked up on various measures to ensure the safety of its employees and important among them are:

The best practices team formed for safety in refinery operations continued its study developed best practices and safety procedures, which are in line with world-class refineries. Foreign experts carried out the independent safety studies. Each with specific focus, this year.

Recommendations for improvement of refinery safety system given by M\s Solomon associates inc. USA as a part of the Excellency in competitive performance programme were implemented.

Safety study carried out M\s Allianz Singapore as part of reinsurance assessment.

 The five-year safety audit. British safety council carried out U.K out to audit the safety management system, occupational health & hygiene practices. The audit score qualified us for a 3-star award. Efforts being taken to bridge the gaps with a view to achieve 5-star award in future.

M\s CLRI, Chennai, carried out a review of Hazop and risk assessment of the entire refinery complex. The study was completed. The risk potential assessed and found to be within controllable limits.

Two off-site the statutory authorities to check the effectiveness of the off-site emergency plan. Your company conducted mock drills in Manali Ennore area participated in these mock drills.

The company sponsored a workshop on SAFETY IN REFINERIES jointly with oil industry safety directorate at Chennai in which safety professionals from other oil companies participated. Papers on safety were presented, and case studies wee taken up for discussion. Various safety committees regularly meet and discuss safety related issues to enhance safety in the refinery.

Share Holding Pattern

The Companys Authorised Capital was Rs.400 crores and the paid-up share capital was Rs.149.00 crores as on 31.3.2005. The Shareholding pattern as on March 2006 was: (%) Indian Oil Corporation Ltd. Naftiran Intertrade Company Ltd. Financial Institutions/Mutual Funds/Banks/ Insurance Companies Foreign Institutional Investors Corporate Bodies/General Public/Non-Resident Indians etc Total 51.88 15.40 15.16 9.70 7.86 100.00

DIAGRAM

NEED FOR THE STUDY

The study is needed to analyze the working capital management of the company.

The study is being carried out, as it is necessary to identify the over utilization or under utilization of assets to the turnover of the company.

It is also necessary to identify the idle assets and non-utilization of funds.

It is necessary to identify the liquidity dimension of Working Capital and the Profitability.

OBJECTIVE OF THE STUDY

To study the working capital management of Chennai Petroleum Corporation Limited by analyzing the profitability, solvency and liquidity position of the company.

To critically analyze the working capital requirement of Chennai Petroleum Corporation Limited.

To evaluate the operating efficiency of Chennai Petroleum Corporation Limited.

To measure utilization of various assets with the turnover of the company.

To project the future sales, profit and working capital requirements of Chennai Petroleum Corporation Limited.

SCOPE OF THE STUDY

The study finds out the operational efficiency of the organization and suggests the proper utilization and allocation of cash resources, to improve the efficiency of the organization.

The working capital of the organization will be further revealed through the adoption of various techniques available for analysis.

These techniques reveal the measures that can adopt to improve the existing trend

LIMITATION OF THE SYUDY The study will be carried out mainly based on the information gathered from the Secondary Data mainly Balance Sheet and Profit and Loss Account.

The study will be limited to observations of the past. The observation made will be related to laws operated in the past.

Sufficient data will not be made available to study the current operations being carried out in the company.

The company being under the control of Indian Oil Corporation and in the direct administration of the government, it is not in a position to enjoy the full control of ownership. It is also not in a position to fix prices for major products produced by it.

The study will not be carried out from the point of national policies, economic crisis and emergence of war at the countries from which the crude oil is being imported.

In the modern business environment, finance plays a role in every organization. Financial Management is an integral part of the overall management and is mainly concerned with fund raising operations. At present most of the industrial undertakings are faced with the problem of effective utilization of resources. Working Capital is the major importance to internal and external analysis because of its close relationship with the day-to-day operations of a business. Working Capital is the portion of asset of a business, which are used in or related to current operations, and represented at any one time by the operating cycle of such items as against receivables and cash. The present study is an effort to analyze the working capital management of Chennai Petroleum Corporation Limited over a period of time and to provide adequate support for the smooth functioning of the normal business operations of the company. Hence, the analysis of working capital helps the management to have knowledge of current asset required to business concern to have continuous production. It also helps the finance manager to know about the type of product, market share, attitude of the management, cost of funds, inflation the demand and the stages of business cycle.

Statement of the Problem The present study seeks to collect in depth information of the working capital management of Chennai Petroleum Corporation Limited with special emphasis on an examination of the management performance in regard to financial management. One among the reason the company could perform well is the efficient management of the

companys working capital, which automatically includes inventory, account receivables and cash i.e., the proper management of working capital has brought access to this company. The present study undertakes to deal with the net concept of working capital i.e., excess of current assets over current liabilities.

Research Methodology
The project study mainly focuses on the critical assessment of Working Capital Management of Chennai Petroleum Corporation Limited and deals with the liquidity dimension of working capital and the profitability.

Research Design Research is an organized activity focused on specific objective with the support of data collection involving tools for analysis deriving logically sound inferences.

Research Design is purely and simply the framework or plan for a study that guides the collection and analysis of data. The function of researcher is to ensure that requires the data collected or accurate and economically.

Primary Data As a part of strengthening the study, personal contacts are made with the officials and staff members of finance department in the form of discussions and collection of reports.

Secondary Data The Secondary Data are collected from Annual Reports, mainly Balance Sheet, Income and Expenditure and other brouchers of the company.

Method of Collection The data for the analysis are collected and gathered from the printed reports of Chennai Petroleum Corporation Limited like annual reports, official files, records and other available related material.

Period of Study The period of study will be carried out from last five financial years i.e., from 2000 2005.

Tools and techniques for collection of data Ratio analysis and interpretation Statement of changes in working capital Common size balance sheet analysis Comparative balance sheet statement

Statistical Tools Implemented are Z-Score analysis Regression analysis

Ratio Analysis
Current Ratio: Current Assets, Loans & Advances Current Ratio = Current Liabilities & Provisions This ratio measures the solvency of the company in the short-term. Current assets are those assets, which can be converted into cash within a year. Current liabilities and provisions are those liabilities that are payable within a year. A current ratio of 2:1 indicates a highly solvent position. Quick Ratio or Liquid Ratio:

Current Assets, Loans & Advances - Inventories Quick Ratio = Current Liabilities & Provisions Bank Overdraft Quick ratio is used as a measure of the companys ability to meet its current obligations. Since bank overdraft is secured by the inventories, the other current assets must be sufficient to meet other current liabilities. A quick ratio of 1:1 indicates highly solvent position. This ratio is also called the acid test ratio. This ratio serves as a supplement to the current ratio in analyzing liquidity.

Comparative Balance Sheet Statements:

The comparative balance sheet analysis is the study of the trend of the same items, group of items and computed items in two or more balance sheets of the same business enterprise on different dates. The changes in periodic balance sheet items reflect the conduct of a business. The changes can be observed by comparison of the balance sheet at the beginning and at the end of a period and these changes can help in forming an opinion about the progress of an enterprise. Balance sheets as on two or more different dates are used for comparing the assets, liabilities and the net worth of the company. Comparative balance sheet analysis is useful for studying the trends of an undertaking.

Advantages Comparative statements help the analyst to evaluate the performance of the company.

Comparative statements can also be used to compare the performance of the firm with the average performance of the industry between different years.

It helps in identification of the weaknesses of the firm and remedial measures can be taken accordingly.

Common Size Balance Sheet Analysis: A statement in which balance sheet items are expressed as the ratio of each asset to total assets and the ratio of each liability is expressed as a ratio of total liabilities is called common size balance sheet. The figures are shown as percentages of total assets, total assets and total liabilities. The total assets are taken as 100 and different assets are expressed as a percentage of the total. Similarly, various liabilities are taken as a part of total liabilities. The figures shown in financial statements viz., Balance Sheet are converted to percentages so as to establish each element to the total figure of the statement and these statements are called Common Size Statements. These statements are useful in analysis of the performance of the company by analyzing each individual element to the total figure of the statement. These statements will also assist in analyzing the performance over years and also with the figures of the competitive firm in the industry for making analysis of relative efficiency.

Operating Cycle Analysis:

A new concept, which is gaining more and more importance in recent years, is the Operating Cycle Concept of Working Capital. The operating cycle refers to the average time elapses between the acquisition of raw materials and the final cash realization. Operating Cycle consists of four stages:

The raw materials and stores inventory stage. The work-in-progress inventory stage. The finished goods inventory stage. The receivable stage.

Regression Analysis :

A fundamental and versatile research technique that seeks to explain an outcome (dependent) variable in terms of multiple predictor (independent) variables. This analysis reveals the nature and strength of the relationship between each predictor variable and the outcome, independent of the influence from all other predictors. The term typically refers to Ordinary Least Squares (OLS) regression, which models a linear relationship among variables. Z -Score Analysis:

The dozens of financial ratios seem to provide different answers to the same simple question of How will a company do. So, everyone is on the lookout for financial models that summaries one general aspect of overall company performance. An example is the Z score, which reveals the efficiency of working capital management.

The original Z score was created by Edward I Altman at New York University in the mid 1960s and it has stood as the test of time. Out of a selection of 22 financial ratios. Altmann found 5 that could be combined to discriminate between the bankrupt and non-bankrupt companies in this study. The interesting thing about the Z score is that is good analytical tool no matter what shape the company is in. Even if the company is very healthy, if the Z score to fall sharply, warning bells should ring.

The study is needed to identify the current position of the company through ZScore Analysis.

Ratio Analysis and Interpretation

Current Ratio:
Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Current Assets 172673.84 157667.36 211078.23 203573.14 361170.40 (Rs. In Lakhs) Current Liabilities CA/CL 64712.16 2.67 71938.55 2.20 119000.23 1.77 115980.27 1.75 208989.37 1.73

Graphical representation of change of direction of current ratio 3 2.5 2 1.5 1 0.5 0 2000-01 2001-02 2002-03 2003-04 2004-05 CA/CL

Interpretation
The ideal ratio between current assets and current liabilities is 2:1. This is insisted because even if current assets are reduced to half i.e., 1, the creditors will be able to get their dues in full. Here, the ratio is showing a decreasing trend, which may be due to rise in production.

Quick Ratio:
Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Quick Assets 86710.09 81962.52 90770.42 83259.81 119554.60 Quick Liabilities 64712.16 71938.55 119000.23 115980.27 208989.37 (Rs. In Lakhs) QA/QL 1.40 1.14 0.76 0.72 0.57

Graphical representation of change of direction of quick ratio 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2000-01 2001-02 2002-03 2003-04 2004-05 QA/QL

Interpretation
The ideal quick ratio is 1. Here, the analysis shown as decrease trend due to increasing inventory level which has resulted in increase in current liabilities. When there is no corresponding increase in liquidity of current asset, where as the current liabilities as gone up. The quick ratio is tend to decrease since the company is in an oligopolystic market, the company is in an position to liquidate its current asset and gain an recovery of money within shortest possible time. The downward trend in the quick ratio therefore has no significant and is not representational.

TURNOVER RATIOS:

Debtors Turnover Ratio

(Rs. In Lakhs) Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Sales 698269.21 617481.66 807612.81 869351.35 1418835.85 Average Receivables 22954.92 30501.04 48906.84 56759.48 70822.26 Sales/Avg. receivables 30.42 20.24 16.51 15.32 20.03

Graphical representation of change of direction of Debtors Turnover ratio

35 30 25 20 15 10 5 0 2000-01 2001-02 2002-03 2003-04 2004-05 Sales/Avg. receivables

Debtors Collection Period

(Rs. In Days) Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Days in a Debtors Year Turnover Ratio 365 30.42 365 20.24 365 16.51 365 15.32 365 20.03 Year/DTR 12.00 18.03 22.11 23.83 18.22

Graphical representation of change of Debtors Collection Period. 25 20 15 10 5 0 Year/DTR

2000-01 2001-02 2002-03 2003-04 2004-05

Interpretation
The debtors turnover ratio shows a decreasing trend and the debtors collection period is increasing. This implies that the collection of payments from debtors has been delayed. In other words, the company has allowed extended credit period to its customers.

Creditors Turnover Ratio

(Rs. In Lakhs) Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Purchases 628630.94 558658.42 724122.91 768150.85 1275166.14 Average Creditors 53579.19 55809.94 77785.64 96024.94 128634.42 Purchases/Avg. Creditors 11.73 10.01 9.31 7.99 9.91

Graphical representation of change of direction of Creditors Turnover ratio

12 10 8 6 4 2 0 2000-01 2001-02 2002-03 2003-04 2004-05 Purchases/Avg. Creditors

Creditors Collection Period

(Rs. In Days) Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Days in a Creditors Year Turnover Ratio 365 11.73 365 10.01 365 9.31 365 7.99 365 9.91 Year/CTR 31.12 36.46 39.21 45.68 36.83

Graphical representation of change of Creditors Collection Period. 50 45 40 35 30 25 20 15 10 5 0

Year/CTR

2000-01 2001-02 2002-03 2003-04 2004-05

Interpretation
The Creditors turnover ratio shows a decreasing trend and the creditors collection period is increasing. It is only an temporary phenomenon.

Working Capital Turnover Ratio

(Rs. In Lakhs) Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Sales 698269.21 617481.66 807612.81 869351.35 1418835.85 Net Working Capital 107961.68 85728.81 92078.00 87592.87 152181.03 Sales/NWC 6.47 7.20 8.77 9.92 9.32

Graphical representation of change of direction of Working Capital ratio 10 9 8 7 6 5 4 3 2 1 0

Sales/NWC

2000-01 2001-02 2002-03 2003-04 2004-05

Interpretation
This analysis helps to measure effective utilization of Working Capital. Here, as the sales grown the ratio has also gone up, but in the current year 2004-2005, the ratio shows a decreasing trend, which means that the turnover has increased with a lesser working capital as sign of efficient management of working capital.

Fixed Asset Turnover Ratio

(Rs. In Lakhs) Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Sales 698269.21 617481.66 807612.81 869351.35 1418835.85 Fixed Assets 117060.36 114201.89 119827.06 257073.25 331879.70 Sales/Fixed Assets 5.97 5.41 6.74 3.38 4.28

Graphical representation of change of direction of Fixed Asset Turnover ratio

7 6 5 4 3 2 1 0 2000-01 2001-02 2002-03 2003-04 2004-05 Sales/FA

Interpretation
In the year 2003-2004, due to water scarcity the company was shut down for more than 45 days, which resulted in a poor turnover. That resulted in declining in ratio. In the year 2004-05, the company completed 3 Million Met Return Per Annum (MMTPA) during the course of the year, where as the asset position is taken in full.

Inventory Turnover Ratio

(Rs. In Lakhs) Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Sales 698269.21 617481.66 807612.81 869351.35 1418835.85 Average Inventory 32717.91 31275.14 41295.17 53122.37 75967.86 Sales/AI 21.34 19.74 19.56 16.37 18.68

Graphical representation of change of direction of Inventory Turnover ratio

25 20 15 10 5 0 Sales/AI

2000-01

2001-02

2002-03

2003-04

2004-05

Interpretation
This ratio indicates that the stock is moving with a constant range, which is reasonable.

Inventory Turnover Period

(Rs. In Days) Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Days in a Inventory Year Turnover Ratio 365 21.34 365 19.74 365 19.56 365 16.37 365 18.68 Year/ITR 17.10 18.49 18.66 22.30 19.54

Graphical representation of change of Inventory Turnover Period.

25 20 15 10 5 0 Year/ITR

2000-01 2001-02 2002-03 2003-04 2004-05

Interpretation
The inventory turnover period is increasing every year. This is only an temporary phenomenon.

Owned Capital Turnover Ratio

(Rs. In Lakhs) Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Sales 698269.21 617481.66 807612.81 869351.35 1418835.85 Shareholders Fund 124845.62 105122.07 129528.04 161133.04 200433.69 Sales/Sh. Holders Fund 5.59 5.87 6.24 5.40 7.08

Graphical representation of change of direction of Owned Capital Turnover ratio 8 7 6 5 4 3 2 1 0 200001 2001- 200202 03 2003- 200404 05 Sales/Sh. Holders fund

Interpretation
This ratio has shown some improvement over the period of time. This means that the company has made use of the owners fund efficiently. However, the company is searching for the better growth of company by improving the turnover of the company. Thus, its aim now being to maximize the profit and to maximize the wealth of the shareholders.

Comparative Balance Sheet (2000-2001 & 2001-2002)

Particulars Sources of Funds 1.Share Holders Funds a. Capital b. Reserves & Surplus 2.Loan Funds a. Secured Loans b. Unsecured Loans 3.Deferred Tax Liability (Net) Total Application of Funds 1.Fixed Assets a. Gross Block b. Less: Dep & Amortization c. Net Block d. Capital WIP 2.Investments Interest Accrued on Inv. 3.Cur. Assets, Loans & Adv. a. Inventories b. Sundry Debtors c. Cash & Bank Balances d. Other Current Assets e. Loans & Advances 4.Less: Current Liabilities a. Current Liabilities b. Provisions 5.Net Current Assets 6.Miscellaneous Expenditure (to the extent not written off) Total 205603.09 88542.73 117060.36 11732.05 128792.41 1903.04 0.00 85818.49 24179.85 8737.72 1922.63 52015.15 172673.84 56895.41 7816.75 64712.16 107961.68 1434.20 240091.33 210721.86 96519.97 114201.89 50765.85 164967.74 3161.73 0.46 75743.23 36822.23 16584.45 2055.45 26544.51 157749.87 65253.84 6729.30 71983.14 85766.73 1931.94 255828.60 5118.77 7977.24 -2858.47 39033.80 36175.33 1258.69 0.46 -10075.26 12642.38 7846.73 132.82 -25470.64 -14923.97 8358.43 -1087.45 7270.98 -22194.95 497.74 15737.27 2.49 9.01 -2.44 332.71 28.09 66.14 0.00 -11.74 52.28 89.80 6.91 -48.97 -8.64 14.69 -13.91 11.24 -20.56 34.71 6.55 240091.33 14900.33 109945.32 124845.62 3267.56 111978.15 115245.71 14900.33 90221.74 105122.07 3242.94 122550.16 125793.10 24913.43 255828.60 0.00 -19723.58 -19723.55 -24.62 10572.01 10547.39 24913.43 15737.27 0.00 -17.94 -15.80 -0.75 9.44 9.15 0.00 6.55 2000-2001 2001-2002 Absolute Change Change %

Interpretation

Current Financial Position and Liquidity Position The current assets have decreased by Rs.14923 lakhs (8.64%) and sundry debtors have increased by Rs.12642 lakhs (52%). On the other hand, there has been a decrease in inventories amounting to Rs.10075 lakhs. The current liabilities have increased by Rs.7270.98 lakhs (11.24%). This further confirms that the company has no improvement in the short-term financial position.

Long Term Financial Position There is an increase in fixed assets of about Rs.5118 lakhs (2.49%). There is also an increase in long-term loans of about Rs.10572 lakhs (9.44%). This depicts that fixed assets are not only financed from long term sources but part of working capital has also been financed from long term sources. This fact depicts that the policy of the company is to purchase fixed assets from the long-term sources of finance thereby not affecting the working capital. There is an increase in loaned funds than the share capital, so this increases the interest liability for the company.

Profitability of the Concern There is a decrease in the reserves and surplus of the company of about Rs.19723 lakhs (17.94%). This is due to appropriation of deferred tax liability.

Comparative Balance Sheet (2001-2002 & 2002-2003)

Particulars Sources of Funds 1.Share Holders Funds a. Capital b. Reserves & Surplus 2.Loan Funds a. Secured Loans b. Unsecured Loans 3.Deferred Tax Liability (Net) Total Application of Funds 1.Fixed Assets a. Gross Block b. Less: Dep & Amortization c. Net Block d. Capital WIP 2.Investments Interest Accrued on Inv. 3.Cur. Assets, Loans & Adv. a. Inventories b. Sundry Debtors c. Cash & Bank Balances d. Other Current Assets e. Loans & Advances 4.Less: Current Liabilities a. Current Liabilities b. Provisions 5.Net Current Assets 6.Miscellaneous Expenditure (to the extent not written off) Total 210721.86 96519.97 114201.89 50765.85 164967.74 3161.73 0.46 75743.23 36822.23 16584.45 2055.45 26544.51 157749.87 65253.84 6729.30 71983.14 85766.73 1931.94 255828.60 226518.60 106691.54 119827.06 139922.28 259749.34 2397.17 0.00 120307.81 60991.45 901.28 10.41 28867.28 211078.23 101381.83 17618.40 119000.23 92078.00 194.58 354419.09 15796.74 10171.57 5625.17 89156.43 94781.60 -764.56 0.00 44564.58 24169.22 -15683.17 -2045.04 2322.77 53328.36 36127.99 10889.10 47017.09 6311.27 -1737.36 98590.49 7.50 10.54 4.93 175.62 57.45 -24.18 0.00 58.84 65.64 -94.57 -99.49 8.75 33.81 55.37 161.82 65.32 7.36 -89.93 38.54 14900.33 90221.74 105122.07 3242.94 122550.16 125793.10 24913.43 255828.60 14900.39 114627.65 129528.04 17500.00 180067.05 197567.05 27324.00 354419.09 0.06 24405.91 24405.97 14257.06 57516.89 71773.95 2410.57 98590.49 0.00 27.05 23.22 439.63 46.93 57.06 9.68 38.54 2001-2002 2002-2003 Absolute Change Change %

Interpretation

Current Financial Position and Liquidity Position The current assets have increased by Rs.53328 lakhs (33.81%) and sundry debtors have increased by Rs.24169 lakhs (65%). On the other hand, there has been a increase in inventories amounting to Rs.44564 lakhs. The current liabilities have increased by Rs.47017 lakhs (65%). This further confirms that the company has no improvement in the liquidity position.

Long Term Financial Position There is an increase in fixed assets of about Rs.15796 lakhs (7.5%). There is also an increase in long-term loans of about Rs.71773 lakhs (57%). This depicts that fixed assets are not only financed from long term sources but part of working capital has also been financed from long term sources. This fact depicts that the policy of the company is to purchase fixed assets from the long-term sources of finance thereby not affecting the working capital. There is an increase in loaned funds than the share capital, so this increases the interest liability for the company.

Profitability of the Concern There is an increase in the reserves and surplus of the company of about Rs.24405 lakhs (27%). This fact depicts that there is an increase in the profitability of the concern.

Comparative Balance Sheet (2002-2003 & 2003-2004)

Particulars Sources of Funds 1.Share Holders Funds a. Capital b. Reserves & Surplus 2.Loan Funds a. Secured Loans b. Unsecured Loans 3.Deferred Tax Liability (Net) Total Application of Funds 1.Fixed Assets a. Gross Block b. Less: Dep & Amortization c. Net Block d. Capital WIP 2.Investments Interest Accrued on Inv. 3.Cur. Assets, Loans & Adv. a. Inventories b. Sundry Debtors c. Cash & Bank Balances d. Other Current Assets e. Loans & Advances 4.Less: Current Liabilities a. Current Liabilities b. Provisions 5.Net Current Assets 6.Miscellaneous Expenditure (to the extent not written off) Total 226518.60 106691.54 119827.06 139922.28 259749.34 2397.17 0.00 120307.81 60991.45 901.28 10.41 28867.28 211078.23 101381.83 17618.40 119000.23 92078.00 194.58 354419.09 375992.81 118919.56 257073.25 82319.11 339392.40 1196.80 0.00 120313.33 52527.51 1242.89 16.51 29472.90 203573.10 105388.88 10591.39 115980.30 87592.87 141.27 432299.50 149474.21 12228.02 137246.19 -57603.17 79643.02 -1200.37 0.00 5.52 -8463.94 341.61 6.10 605.62 -7505.09 4007.05 -7027.01 -3019.96 -4485.13 -53.31 77880.37 65.99 11.46 114.54 -41.17 30.66 -50.07 0.00 0.00 -13.88 37.90 58.60 2.10 -3.56 3.95 -39.88 -2.54 -4.87 -27.40 21.97 14900.39 114627.65 129528.04 17500.00 180067.05 197567.05 27324.00 354419.09 14900.46 146232.58 161133.04 94728.99 141801.83 236530.80 34635.60 432299.50 0.07 31604.93 31605.00 77228.99 -38265.22 38963.77 7311.60 77880.37 0.00 27.57 24.40 441.31 -21.25 19.72 26.76 21.97 2002-2003 2003-2004 Absolute Change Change %

Interpretation

Current Financial Position and Liquidity Position The current assets have decreased by Rs.7505 lakhs (3.56%) and sundry debtors have decreased by Rs.8463 lakhs (13%). On the other hand, there has been a increase in inventories amounting to Rs.5.52 lakhs.

Long Term Financial Position There is an increase in fixed assets of about Rs.79643 lakhs (30%). There is also an increase in long-term loans of about Rs.77228 lakhs (441%). This depicts that fixed assets are not only financed from long term sources but part of working capital has also been financed from long term sources. This fact depicts that the policy of the company is to purchase fixed assets from the long-term sources of finance thereby not affecting the working capital. There is an increase in loaned funds than the share capital, so this increases the interest liability for the company.

Profitability of the Concern There is a increase in the reserves and surplus of the company of about Rs.31604 lakhs (27%). This fact depicts that there is a increase in the profitability of the concern.

Comparative Balance Sheet (2003-2004 & 2004-2005)

Particulars Sources of Funds 1.Share Holders Funds a. Capital b. Reserves & Surplus 2.Loan Funds a. Secured Loans b. Unsecured Loans 3.Deferred Tax Liability (Net) Total Application of Funds 1.Fixed Assets a. Gross Block b. Less: Dep & Amortization c. Net Block d. Capital WIP 2.Intangible Assets 3.Investments . 4.Cur. Assets, Loans & Adv. a. Inventories b. Sundry Debtors c. Cash & Bank Balances d. Other Current Assets e. Loans & Advances 5.Less: Current Liabilities a. Current Liabilities b. Provisions 6.Net Current Assets 7.Miscellaneous Expenditure (to the extent not written off) Total 14900.46 146232.58 161133.04 94728.99 141801.83 236530.80 34635.60 432299.54 14900.46 185533.23 200433.69 94344.07 145476.99 239821.06 55082.27 495337.02 0.00 39300.65 39300.65 -384.92 3675.16 3290.24 20446.67 63037.56 0.00 26.87 26.87 -0.41 2.59 2.18 59.03 14.58 2003-2004 2004-2005 Absolute Change Change %

375992.81 118919.56 257073.25 82319.11 339392.36 3976.16 1196.80 120313.33 52527.51 1242.89 16.51 29472.90 203573.10 105388.88 10591.39 115980.30 87592.87 141.27 432299.50

470804.58 138924.88 331879.70 4518.00 336397.70 5473.53 1196.80 241615.73 89117.01 970.11 3.65 29463.90 361170.40 185750.36 23239.01 208989.37 152181.03 87.96 495337.02

94811.77 20005.32 74806.45 -77801.11 -2994.66 1497.37 0.00 121302.40 36589.50 -272.78 -12.86 -9.00 157597.26 80361.48 12647.62 93009.10 64588.16 -53.31 63037.56

25.22 16.82 27.54 -94.51 -0.88 37.66 0.00 100.82 69.66 -21.95 -77.89 -0.03 77.42 76.25 1.19 80.19 73.74 -37.74 14.58

Interpretation

Current Financial Position and Liquidity Position The current assets have increased by Rs.157597 lakhs (77.42%) and sundry debtors have decreased by Rs.36589 lakhs (69.66%). On the other hand, there has been a increase in inventories amounting to Rs.121302 lakhs. The current liabilities have decreased by Rs.80361 lakhs (76.25%). This further confirms that the company has improvement in the liquidity position.

Long Term Financial Position There is a decrease in fixed assets of about Rs.2994 lakhs (.88%). There is also an increase in long-term loans of about Rs.3290 lakhs (2.18%). This depicts that fixed assets are not only financed from long term sources but part of working capital has also been financed from long term sources. Also it is clear that there is no addition of fixed assets. This fact depicts that the policy of the company is to purchase fixed assets from the longterm sources of finance thereby not affecting the working capital. There is an increase in loaned funds than the share capital, so this increases the interest liability for the company.

Profitability of the Concern There is a increase in the reserves and surplus of the company of about Rs.39300 lakhs (26.87). This fact depicts that there is a increase in the profitability of the concern.

Common size Balance Sheet Analysis

Values in % Particulars Liabilities a) Current Liabilities Current liab. Provisions Total b) Shareholders Funds Capital Reserves & Surplus Total c) Loan Funds Secured Loans Unsecured Loans Total d) Deferred Tax Liability Total Liabilities Assets a) Net Fixed Assets b) Intangible Assets c) Investments d) Current Assets Inventories Sundry Debtors Cash & Bank Balances Other Current Assets Loans & Advances Total e) Misc. Expenditure Total Assets 42.3 0.0 0.6 28.2 7.9 2.9 0.6 17.1 56.7 0.5 100 50.3 0.0 1.0 23.1 11.2 5.1 0.6 8.1 48.1 0.6 100 54.9 0.0 0.5 25.4 12.9 0.2 0.0 6.1 44.6 0.0 100 62.6 0.0 0.2 21.9 9.6 0.2 0.0 5.4 37.1 0.0 100 47.7 0.8 0.1 34.3 12.7 0.1 0.0 4.2 99.9 0.1 100 2000-01 2001-02 2002-03 2003-04 2004-05

18.7 2.6 21.2 4.9 36.1 41.0 1.1 36.7 37.8 0.0 100

19.9 2.1 22.0 4.5 27.5 32.0 1.0 37.4 38.4 7.6 100

21.4 3.7 25.1 3.1 24.2 27.4 3.7 38.0 41.7 5.8 100

19.2 1.9 21.2 2.7 26.7 29.4 17.3 25.9 43.1 6.3 100

26.4 3.3 29.7 2.1 26.3 28.4 13.4 20.7 34.1 7.8 100

Interpretation
In common size balance sheet analysis in CPCL, it is found that the total assets and liabilities are taken as 100% total and other components of assets and liabilities are also expressed in terms compared to total asset and total liability. The total capital % shows a decreasing trend for the last two years.

There is also a decline in reserves & surplus in the last few years due to introduction of AS-22. The percentage of loan funds is increasing which states the availing of fresh loan from the year 02 to 04 for the purpose of expansion of the business.

The total net worth has decreased by 10%, which is because of fluctuation in the reserves & surplus. The company adopted regrouping of certain loans and advances under crude oil loan transaction in line with industrys practice of representing the same. This has vitiated the trend in current liabilities from the old years.

Fixed assets have increased in figures during all the years of study. It is due to a part of current liability arrives net profit have contributed to the increase in fixed assets.

The current asset part has considerably decreased since 2000 and it is due to decrease in loans and advances. There is no decrease in inventory; it is because the company is doing mass production, so as to reduce the production cost.

STATEMENT OF CHANGES IN WORKING CAPITAL

Changes in Working Capital (2000-2001)

Particulars Current Assets & Adv. Cash and Bank Balance Inventories Sundry Debtors Other Current Assets Loans and Advances Total Current Assets (A) Current liabilities, Prov. Current liabilities Provisions Total Current Liability (B) Net Working Capital (A-B) Net Increase in Working Capital (B/F) Total Interpretation

2000 3472.49 96357.04 21729.98 1631.95 53521.68 176713.14 63214.58 25948.01 89162.59 87550.55 20411.13 107961.68

2001 8737.72 85818.49 24179.85 1922.63 52015.15 172673.84 56895.41 7816.75 64712.16 107961.68

Increase 5265.23

Decrease

10538.55 2449.87 290.68 1506.53

6319.17 18131.26

20411.13 107961.68 32456.21 32456.21

In the year 2001, the inventory level is reduced because of low production. The sundry debtors increased considerably indicating more credit being given to the customers. The cash and bank balance increased because of non-utilization of funds. The total current assets decreased because of decrease in inventory level. The current liabilities decreased because of repayment of loans.

Changes in Working Capital (2001-2002)

Particulars Current Assets & Adv. Cash and Bank Balance Inventories Sundry Debtors Other Current Assets Loans and Advances Total Current Assets (A) Current liabilities, Prov. Current liabilities Provisions Total Current Liability (B) Net Working Capital (A-B) Net Increase in Working Capital (B/F) Total

2001 8737.72 85818.49 24179.85 1922.63 52015.15 172673.84 56895.41 7816.75 64712.16 107961.68

2002 16584.45 75704.85 36822.23 19.89 28535.94 157667.36 65211.73 6726.82 71938.55 85728.81 22232.87

Increase 7846.73

Decrease

10113.64 12642.38 1902.74 23479.21

8316.32 1089.93

22232.87 43811.91 43811.91

107961.68

107961.68

Interpretation In the year 2002, the inventory level is reduced because of not holding up the inventory. The sundry debtors increased considerably indicating more credit being given to the customers. The cash and bank balance include a sum of Rs.162 crores in Term deposits that are earmarked for certain short term obligations maturing with in 2-3 days like payment towards purchase of crude oil. The loans given were reduced because of utilization of funds for production purposes.

Changes in Working Capital (2002-2003)

Particulars Current Assets & Adv. Cash and Bank Balance Inventories Sundry Debtors Other Current Assets Loans and Advances Total Current Assets (A) Current liabilities, Prov. Current liabilities Provisions Total Current Liability (B) Net Working Capital (A-B) Net Increase in Working Capital (B/F) Total

2002 16584.45 75704.85 36822.23 19.89 28535.94 157667.36 65211.73 6726.82 71938.55 85728.81 6349.19 92078.00

2003 901.28 120307.81 60991.45 10.41 28867.28 211078.23 101381.83 17618.40 119000.23 92078.00

Increase

Decrease 15683.17

44602.96 24169.22 9.48 331.34

36170.10 10891.58

6349.19 92078.00 69103.52 69103.52

Interpretation In the year 2003, cash and bank balance reduced indicating lesser liquidity position of the company. However, it shows the best management of surplus funds. The inventory level is raised because of increase in production. The sundry debtors are increasing because of rise in sales level. Loans given were increased slightly. The total current liabilities are increased because of rise in the level of borrowings made by the business.

Changes in Working Capital (2003-2004)

Particulars Current Assets & Adv. Cash and Bank Balance Inventories Sundry Debtors Other Current Assets Loans and Advances Total Current Assets (A) Current liabilities, Prov. Current liabilities Provisions Total Current Liability (B) Net Working Capital (A-B) Net Increase in Working Capital (B/F) Total

2003 901.28 120307.81 60991.45 10.41 28867.28 211078.23 101381.83 17618.40 119000.23 92078.00

2004 1242.89 120313.33 52527.51 16.51 29472.90 203573.14 105388.88 10591.39 115980.27 87592.87 4485.13

Increase 341.61 5.52

Decrease

8463.94 6.10 605.62

4007.05 7027.01

4485.13 12470.99 12470.99

92078.00

92078.00

Interpretation In the year 2004, the inventory is increased slightly. The cash and bank balance raised indicating stability in the liquid position of the company. The level of debtors decreased indicating immediate cash flow into the business. The level of loans given also increased indicating effective utilization of cash. The current liabilities decreased because of repayment efforts.

Changes in Working Capital (2004-2005)

Particulars Current Assets & Adv. Cash and Bank Balance Inventories Sundry Debtors Other Current Assets Loans and Advances Total Current Assets (A) Current liabilities, Prov. Current liabilities Provisions Total Current Liability (B) Net Working Capital (A-B) Net Increase in Working Capital (B/F) Total

2004 1242.89 120313.33 52527.51 16.51 29472.90 203573.14 105388.88 10591.39 115980.27 87592.87 64588.16 152181.03

2005 970.11 241615.73 89117.01 3.65 29463.90 361170.40 185750.36 23239.01 208979.37 152181.03

Increase

Decrease 272.78

121302.40 36589.50 12.86 9.00

80361.48 12647.62

64588.16 152181.03 157891.90 157891.90

Interpretation In the year 2005, the inventory and sundry debtors shows a big hike. It is due to the increase in turnover of the company. The cash and bank balance, Loans and advances have been reduced. It may be due to the repayment of current liabilities. The current liabilities have been decreased, which means that there is an mass payment and settlement of creditors.

Operating Cycle

Year

R.M (a)

WIP (b)

Finished Goods (c)

Drs (d)

Crs (e)

Duration of Operating Operating Cycle Cycle in (a+b+c+d-e) = f Times (365/f)

2000-01 2001-02 2002-03 2003-04 2004-05 Interpretation

18 20 20 25 11

28 14 25 33 14

11 13 14 16 11

11 17 20 21 18

27 32 32 36 37

41 32 47 59 17

8.90 11.41 7.77 6.19 21.47

Operating Cycle refers to the average time elapses between the purchase of raw material and final cash collection. Cash is used to buy the raw materials and other stores. The collection process of the company has improved, but the company is not paying its trading creditors first, instead it has started closing the outside loans. However, the company can improve the turnover because of that reason, the creditors has allowed a maximum credit of 37 days for each supply. The number of cycles if maximized, then it means that the company is able to collect the payments in time and they are using the funds efficiently for the production purposes. If the company maintains the present year situation, then there will be a comfortable growth for the companys business. Operating Cycle shows an increasing trend because of increase in debtors and delayed payments to creditors. The decrease in the operating cycle of times reveals the possibility of delay or decrease in yielding the profit.

Z-Score Analysis for the year 2000-2001 to 2004-2005

The formula for calculating Z-Score analysis is

Z = 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.010X5 Where, Z = Financial Health Score X1 = Working Capital / Total Assets * 100 X2 = Retained Earnings / Total Assets * 100 X3 = EBIT / Total Assets * 100 X4 = Net Worth / Total Liability * 100 X5 = Sales / Total Assets * 100 Year 2000-01 2001-02 2002-03 2003-04 2004-05 Year 2000-01 2001-02 2002-03 2003-04 2004-05 Interpretation X1 37.02 31.17 27.63 18.97 21.61 X2 2.8 1.23 7.32 6.84 26.34 X3 9.56 7.89 17.84 13.40 15.51 X4 40.49 31.48 27.32 29.36 28.46 X5 244.57 228.09 258.92 205.18 201.46 Z-Score 3.48756 3.12141 3.77588 3.00356 3.32527

Z-Value 0.44424 + 0.0392 + 0.31548 + 0.24294 +2.4457 0.37404 + 0.01722 + 0.26037 + 0.18888 + 2.2809 0.33156 + 0.10248 + 0.58872 + 0.16392 + 2.5892 0.22764 + 0.09576 + 0.4522 + 0.17616 + 2.0518 0.25932 + 0.36876 + 0.51183 + 0.17076 + 2.0146

Z-Score more than 3.0 is financially sound and less than 1.8 shows certain in bankruptcy. Z-Score between 1.8 and 3.0 indicating that the company is prone to financial sickness.

Z-Score for CPCL in all the years is more than 3.0. It indicates that the companys financial position is sound in all the years. This is because of increase in turnover, which reacts to the growth in the financial grounds of the company.

The past records of the company have revealed some sickness in finance. For example, in the year 1999-2000, the z-score is less than 3.0, indicating that the company is prone to financial sickness. This was mainly because of the mismatching of product prices with those of crude oil prices under the import parity pricing mechanism. As this year was the second year of free marketing conditions, the volatility in crude prices have much affected the companys financial strength especially when there were huge outstanding from government, and no support under the erstwhile APM mechanism.

From the year 2000-2001 to the year 2004-05, the score is more than 3.0. Indicating sound financial policy.

Regression Analysis
Profit on Sales

Year 2000-2001

Sales (x) Rs.crore 7132

Profit (y) Rs.crore 122

xy 870104

x2 50865424

2001-2002 2002-2003 2003-2004 2004-2005 Total

6273 8629 9475 16295 47804

63 302 400 596 1483

395199 2605958 3790000 9711820 17373081

39350529 74459641 89775625 265527025 519978244

x = independent variable (sales) y = dependent variable (profit) a, b = constants Regression Equation y on x is yc = a + bx To find out the values of a, b y = na + b x xy = a x + b x2 By substituting this Equation 1483 = 5a + 47804 b ------------------(Multiplied by 47804)

17373081 = 47804 a + 519978244 b ------------(Multiplied by 5)

70893322= 86865405 =

239020 a + 2285222416 b 239020 a + 2599891220 b

------------------------------------------------------15972073 = 314668804 b ------------------------------------------------------

b = 0.05076 By substituting b value in Equation (1) 1483 = 5a + 47804 b a = - 188.69 The Future Sales Estimation for the year 2006 is 23000 crore and for the year 2007, it is 25700 crore. By substituting the values of a and b in the regression line y on x is

FOR 2006 y = - 188.69 + 0.05076 (23000) y = Rs. 978.79 cr.

FOR 2007 y = -188.69 + 0.05076 (25700) y = Rs. 1115.84 cr.

Interpretation Here the variable `y is taken as Profit and `x is taken as Sales. The estimated sales for 2006 is based on the actuals for nine months up to December 2005 and realistic estimates for the balance three months of the year 2005-06. The estimated sales for 2006-07 is based on the budget estimates by the organization with a growth rate of about 12% factored over the Revised Estimates for 2005-06.

The projection of Rs. 978.79 cr. and Rs. 1115.84 cr. for the next two years indicates increase in profit due to estimation that the price of Raw Material and Finished goods may vary at a higher rate that result in such a huge increase in profit. Thus the regression analysis estimates a higher quantum of profitability for the organization in the coming two years 2005-06 and 2006-07.

Debtors to Sales

Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

Sales (x) 7132 6273 8629 9475 16295

Debtors (y) 241 368 616 525 891

xy 1718812 2308464 5315464 4974375 14518845

x2 50865424 39350529 74459641 89775625 265527025

Total

47804

2641

28835960

519978244

x = independent variable (sales) y = dependent variable (debtors) a, b = constants

Regression Equation y on x is yc = a + bx To find out the values of a, b y = na + b x x = a x + b x2 By substituting this Equation 2641 = 5a + 47804 b ------------------(* 47804 )

28835960 = 47804 a + 519978244 b ------------(*5)

126250364 =

239020 a + 2285222416 b

144179800 = 239020 a + 2599891220 b ------------------------------------------------------179294436 = 314668804 b

------------------------------------------------------b = 0.05698

By substituting b value in Equation (1) 2641 = 5a + 47804 b a = - 16.56 The Future Sales Estimation for the year 2006 is 23000 crore and for 2007, it is 25700 crore . By substituting the values of a and b in the regression line y on x is FOR 2006 y = - 16.56 + 0.05698 (23000) y = Rs. 1293.95 cr. FOR 2007 y = - 16.56 + 0.05698 (25700) y = Rs. 1447.79 cr.

Interpretation Here the variable `x is taken as Sales and variable `y as Debtors. The estimated sales for 2006 is based on the actual for nine months up to December 2005 and realistic estimates for the balance three months of the year 2005-06. The estimated sales for 2006-07 is based on the budget estimates by the organization with a growth rate of about 12% factored over the Revised Estimates for 2005-06.

The projection of Rs.1293.95 cr. and Rs. 1447.79 cr. indicates increase in debtors due to increase in sales. Most of the sales made by the company is taken as credit sales. So increase in sales will result in increase in the amount of debtors.

Thus the regression analysis estimates a higher quantum of sundry debtors for the organization for the coming two years 2005-06 and 2006-07

Sales vs. Working Capital

Year 20002001 20012002 20022003 20032004 20042005 Total

Sales (x) 7132 6273 8629 9475 16295 47804

Working Capital (y) 1079 857 920 875 1522

Xy 7695428 5375961 7938680 8290625

x2 50865424 39350529 74459641 89775625

2480099 265527025 0 519978244

5253 5410168 4

x = independent variable (sales) y = dependent variable (debtors) a, b = constants Regression Equation y on x is yc = a + bx To find out the values of a, b y = na + b x x = a x + b x2 By substituting this Equation

5253

5a

+ 47804 b

------------------(* 47804 )

54101684 = 47804 a + 519978244 b ------------(*5)

251114412 =

239020 a + 2285222416 b

270508420 = 239020 a + 2599891220 b ------------------------------------------------------19394008 = 314668804 b

------------------------------------------------------b = 0.06163 By substituting b value in Equation (1) 5253 = 5a + 47804 b a = 461.34 The Future Sales Estimation for the year 2006 is 23000 crore and for 2007, it is 25700 crore . By substituting the values of a and b in the regression line y on x is FOR 2006 y = 461.34 + 0.06163 (23000) y = Rs. 1878.90 cr. FOR 2007 y = 461.34 + 0.06163 (25700)

y = Rs. 2045.31 cr.

Interpretation

Here the variable `x is taken as Sales and variable `y as Working Capital. The estimated sales for 2006 is based on the actual for nine months up to December 2005 and realistic estimates for the balance three months of the year 2005-06. The estimated sales for 2006-07 is based on the budget estimates by the organization with a growth rate of about 12% factored over the Revised Estimates for 2005-06. In this analysis, working capital required for the next 2 years is projected. Here the working capital is projected based on estimated future sales that in turn is derived by experience. The projected Working Capital of Rs. 1878.90 cr. and Rs. 2045.31 cr. for the next two years is required because of expected increase in sales. The projection of Rs.1878.90 cr. and Rs. 2045.31 cr. indicates increase in working capital due to increase in production and in sales. Most of the production and other operational requirements like utilities and repairs and maintenance are made by the company out of working capital. So increase in sales will result in increase in the amount of working capital demands also. Thus the regression analysis estimates a higher quantum of working capital (net) for the organization for the coming two years 2005-06 and 2006-07.

This is matched by the working capital / short term funding limits of Rs.1500 crore approved by the board. This working capital demands in funded mainly by the SBI and Canara bank.

Trend Analysis

PARTICULARS Sales PBIT Interest Depreciation PBT PAT Current Assets Current Liabilities Working Capital Net Fixed Assets Capital Employed Net Worth Debt Equity EPS Dividend (%) Dividend Amt

2000-01 100 100 100 100 100 100 100 100 100 100 100 100 100 100 25 100

2001-02 87.95 77.80 97.44 77.45 60.29 52.04 87.40 99.32 79.41 97.46 88.85 83.61 131.18 52.13 20 80.43

2002-03 120.99 213.21 81.13 99.99 330.98 247.40 117.01 164.30 85.29 102.36 94.17 104.80 164.52 247.38 35 140.76

2003-04 132.85 221.97 35.60 115.12 388.16 326.76 112.85 160.13 81.13 220.37 149.12 130.45 158.06 327.16 50 200.97

2004-05 228.47 390.94 119.17 205.21 633.27 487.60 200.22 288.54 140.96 288.19 217.55 162.34 129.03 488.19 120 482.35

Interpretation (i) The sales have continuously increased in all the years except 2002. The percentage in 2005 is 228 as compared to the base of 100 in 2001. The increase in sales is quite satisfactory which is due to the completion of 3 MMTPA refinery expansion and higher value added products

(ii)

The earning has increased substantially in the year 2004 and 2005. This is due to increase in value at production and higher demand for the product.

(iii)

Dividend has been increasing continuously from the year 2001 to 2005 except 2002. There is a decrease in the year 2002 that was due to decrease in earnings. Dividend payment at CPCL show a good track record and shown an increasing trend for the forth coming year.

(iv)

The profitability of the company has increased manifold as evidenced by the absolute numbers of PBT and PAT. The PBT is at 633% and PAT at 487% over the base year figure of 2001.

(v)

Depreciation also has considerably increased due to the completion, commissioning and capitalization of the 3 MMTPA refinery expansions cum modernization project.

(vi)

There is a sharp increase in the working capital limits. The net working capital was Rs.1521 crore for 2005 as against 1079 crore for 2001 which is140% of the base year figure.

(vii)

The long-term borrowings of the company stand at Rs.3000 crore including the foreign currency component of US $ 150 million. Out of this the company has availed about Rs.1800 crore as of December 2005 and US $ 105 million as on the same date (latest figures)

(viii)

The working capital limit has been pegged at Rs.1500 crore which is mainly funded by the SBI and consortium of other banks.

(ix)

The debt equity was at its best in 2001 started slowly moving unfavourably due to huge borrowings resorted to for funding the 3 MMTPA expansion project. As of 2005, it stood at 1.20 which is anyway a better figure

considering the massive expansion programme.

(x)

The EPS has shown remarkable recovery and improvement and it was Rs.40.08 for 2005 as against Rs.8.21 for 2001, which is about 488% over the base year figure.

(xi)

The company has been aggressively pursuing the dividend policy decisions and it declared a whopping 120% dividend for 2004-05 entailing an outgo of Rs.178.71 crore which was equivalent to a payout of about 30%.

 Profitability indicates the efficiency and effectiveness with which the operations are being carried on. It has been found out that the profitability and investments being made by the firm are sound and showing an increasing trend.

The profits achieved by the company shows an increasing trend because of increase in sales and reduction in interest charges for funds borrowed by the company.

The average collection period of the company is showing an increasing rend. This is because of rise in credit giving policy made by the company that is limited for up to 30 days.

The average payment period is also started showing an increasing trend indicating delayed payment being made to the creditors. This indicates more time taken by the company to repay the suppliers. However, the payment period is extended up to 40 days

The inventory turnover of the company is satisfactory. There is no holding up of inventory thereby saving interest on investment amount. This is because of effective production techniques implemented by the company.

 The current financial position of the company compared to the last three years is decreased slightly, which should be taken note.

The fixed asset of the company contributes more than 50% of the total asset position of the company. The company indicating good asset position of the company. The company has also got sufficient reserves and Surplus to meet the future financial contingencies of the company.

The Debt- Equity position of the company is satisfactory but it increased slightly from the last years ratio. This is because of decrease in Current Liability of the Company.

Though the liquidity position of the company is moderate, it showed an decreasing trend for the last two years. This is because of decrease in Other Current Assets of the firm.

It is found that there is an increase in Reserves and Surplus Funds. The Total Resources of the company for the last five years is showing an increase in trend, which will contribute to a major extend for the companys production purposes in future.

There is a sudden decrease in the Cash Balance of the company in the year 20022003. The cash balance has increased in the year 2003-2004.this may be due to prudent investment/portfolio management being forwarded in the company.

 The Working capital position of the company is satisfactory. The working capital is decreased in the year 2003-2004 because of consistency in maintaining the required level of inventories. The Working capital requirement of the company to carry out the production purpose is satisfactory and is not suffering from any inadequacy. It is projected from Z-Score analysis that the company is financially sound in the year 2001-2003. In the year 2003-04, it started showing slightly decreasing trend. But in the current year it started increasing. It is projected from Operation Cycle the rotation of Debtors and Creditors are within the acceptable time period. The Duration of Operation Cycle and operating Cycle in Times is moderate. The Fund Flow Analysis reveals that the Total Sources position of the company is satisfactory and enough to meet the future requirements of the company to carry out its activities. The Common Size Balance sheet shows a decreasing trend in Current Assets and Current Liabilities of the firm indicating changes in policies of repayment made by the company. It is found from the analysis that the company has changed its policy after Administering Price Mechanism (APM). This effect has been mainly focused on Loans and Advances.

 It is projected from Trend Analysis that the sales trend of the company for the last 5 years is satisfactory. This analysis is showing a decreasing tend in all aspects such as Earnings before Interest and tax, Profit After tax, total assets, Net worth and Dividend. It is projected from Regression Analysis that there will be a decrease in profits for the forthcoming year. This may be due to changes in Government Policies and wide fluctuations in Crude Oil Prices etc. Due to sample constraint, this analogy may not however be sustainable. It has been found out that overall solvency position of the company is satisfactory and it shows an increasing trend. This indicates the enhancement of credit worthiness of the company.

 The company may try to reduce the Inventory Turnover Period by using the Inventory Management techniques such as EOQ and ABC analysis. The payment policy adopted by the company to the suppliers can be reviewed. This may result in saving of considerable amount of interest further from 6.3% on long-term loans. The credit policy given can also be reviewed so that considerable amount of funds may not and up locking in debtors. This will result in increase of cash balances of the company. Effective Costing Techniques may be implemented to control the operating expenses incurred by the company. Effective measure have to be carried out to resume the export of petroleum products for the current year, which will add further sophistication and low cost techniques of production. The company may maintain the same Debt-Equity ratio in the future. So that I can increase EPS. For their new products. It is better to choose different debt mix that is cheaper. An alternative proposal of External Commercial borrowings will be cheaper for the company based on terms and conditions of the foreign fluctuations etc.

 There has been slightly decreasing trend in the financial soundness of the company in the near future. Effective steps should be taken to find the root cause and control it. The solvency position of the company can be further improved by arresting the borrowings made by the company. If the steps were not taken, this may affect the long-term credit interest of the company.

 To conclude that, Chennai Petroleum Corporation Limited has mobilized the funds in the same manner the funds are invested productivity in the capital asset as well as working capital. There is a sudden increased in market price during the year 2002-2003 which is because of better control from top-level management. The company has a high operational efficiency, the profits for the company has increased over the past years which proves that the company has taken measure to generate profits by improving its capacity utilization which would maximize the generation of resources for expansion, growth and diversification. There is a sudden increase in market price during the year 2002-2003 which is because of better control from top-level management. The company may take efforts to increase its efficiency in taking control, since the government has dismantled the pricing of he product from 1.4.98 To end with, I conclude that if the company takes the above actions as suggested, the company would remain no one leader in the Indian Petroleum Industry in future, with its excellent past records.

 T.S. Reddy and Y. Hari Prasad Reddy, Financial and Management Accounting, Margham Publications, 2002. ICFAI. Financial Management, ICFAI, 1998. Center for monitoring Indian Economy, Journal, December 2004. C.R Kothari, Research methodology, Warsaw Publications, 2002. Dr. S.N. Maheswari, Principles of Management Accounting, 11th edition, Sultan Chand & Sons, New Delhi, 1996.

Websites: 1. www.cpcl.co.in 2. www.indiainfoline.com