CONTENTS

Sr. No.
1

2
3
4
5
6
7
8
9
10

Particulars
Company Profile
Introduction
History
Group Profile
Vision & Mission
Awards and honors
Basic Accounting Terminology
Introduction of Working Capital
Objective Behind The Study
Types of Working Capital
Principle of Working Capital Management
Factors Determining of Working Capital
Sources of Working Capital
Methods of Calculation of Require of Working
Capital
Working Capital Cycle
Components Of Working Capital
Management of Working Capital
Ratio Analysis
Lyondell Deal
RIL, Barabanki Division
Bibliography

Company Profile
Reliance Industries
GROWTH IS LIFE

Introduction
The Reliance Industries India group is India's largest private
sector conglomerate. The Reliance Industries Limited was
started by the legendary Late Dhirubhai H. Ambani. After a
humble start in the late 1970's as a textile company its success
skyrocketed and now covers almost all industry verticals.

Today, Reliance Industries generates revenues in excess of USD

22 billion and exports products worth USD 7 billion to more
than 100 countries. The Reliance Industries Limited is a 'Fortune
Global 500 company' and employs more than 25,000
professionals across the world. Reliance enjoys leadership in
polyester yarn & fiber produce and is among the top 5 players in
the world in major petrochemical products. Reliance Industries
Limited holds largest Oil & Gas exploration area in India and
has achieved 74 % success rate in terms of discoveries.
Reliance Industries India has been a pioneer in the equity culture
cult and is highly respected for its corporate transparency, deep
market penetration ability, innovations and above all for its
ability to generate 'products & services' for all sections of the
society.
Its guardianship for India Inc. stupendous growth has been
felicitated with no of awards in areas like Quality, Energy
Management, Health Safety & Environment, Exports and Retail
& Franchising. It also bagged 'Golden Peacock Award' for
Corporate Management in 2005-2006 and enjoys high corporate
ranking in Fortune Global 500 Company.

History
From a humble textile company to
Fortune 500 Company

The Reliance Group, founded by Dhirubhai H. Ambani (1932-2002), is

India's largest private sector enterprise, with businesses in the energy and
materials value chain. Group's annual revenues are in excess of US$ 28
billion. The flagship company, Reliance Industries Limited, is a Fortune
Global 500 company and is the largest private sector company in India.
Backward vertical integration has been the cornerstone of the evolution
and growth of Reliance. Starting with textiles in the late seventies,
Reliance pursued a strategy of backward vertical integration - in
polyester, fibre intermediates, plastics, petrochemicals, petroleum
refining and oil and gas exploration and production - to be fully
integrated along the materials and energy value chain.
Reliance enjoys global leadership in its businesses, being the largest
polyester yarn and fibre producer in the world and among the top five to
ten producers in the world in major petrochemical products.

Group Profile
Major Subsidiaries Reliance Petroleum Limited

 Reliance Netherlands BV (including Trevira)

Reliance Retail Limited
Ranger Farms Private Limited
Retail Concepts and Services Private Limited
Reliance Retail Insurance Broking Limited
Reliance Dairy Foods Limited
Reliance Retail Finance Limited
Reliance Jamnagar Infrastructure Limited
Reliance Haryana SEZ Limited
Reliance Industrial Investment & Holdings Limited
Reliance Ventures Limited
Reliance Strategic Investments Limited
Reliance Exploration & Production - DMCC
Reliance Industries (Middle East) DMCC
Reliance Global Management Services (P) Limited
Major Associates Indian Petrochemicals Corporation Limited
Reliance Industrial Infrastructure Limited

Vision & Mission

Mukesh Ambani, chairman of Reliance Industries Ltd, Indias largest
private company, laid down a road map for business transformation and
value creation for the company at its 35th annual general meeting.
This has been a truly transformational year at Reliance Industries (RIL).
The successful commissioning of the KG-D6 oil and gas production
fields and the safe start-up of the world-class, complex refinery in the

Special Economic Zone at Jamnagar catapults RIL into the league of

integrated energy companies globally. RIL is now among the ten largest
non-state owned refining companies and one of the largest deep water oil
and gas operators in the world.
Through these path-breaking initiatives, RIL is set to radically change
Indias energy landscape. Gas production from KG-D6 will double
Indias indigenous production while the new refinery will make India a
major supplier of green-fuels to the world.
Over the years, our initiatives have enabled the enrichment of millions of
lives in India. We focused on improving efficiency, leveraging on the
quality of our assets and remaining nimble. This reflects the strength of
our business model, robustness of our systems and processes, farsighted
planning, meticulous execution and above all, our indomitable will to
succeed.
While staying focused on our long-term strategy, we have remained
committed to protecting our employees, ensuring their safety, supporting
local communities and safeguarding the environment. Looking forward,
we see exciting opportunities for growth in the energy sector.
At RIL, we have always invested aggressively into businesses of the
future. Our recent investments in the oil and gas and refining businesses
have created a strong growth platform. RIL is on its way to becoming a
competitive, integrated, global energy company.

Awards and honors

Shri Mukesh Ambani was awarded the Defense India Excellence Award
2007. The Award is a salute to those who have made the country proud.

Shri Mukesh Ambani was conferred the Leadership Award for Global
Vision by the United States India Business Council.

Shri Mukesh Ambani was elected to be a member of the Honorary Fellows

of The Institution of Chemical Engineers, UK.

Dr. R. A. Mashelkar received 'Foreign Fellow' from Australian Academy of

Technological Sciences and Engineering (ATSE) in 2008.

RIL continues to be featured, for the fifth consecutive year, in the Fortune
Global 500 list of 'World's largest corporations'; ranking for 2009 is as
follows:
o Ranked 264th in terms of sales
o Ranked 117th in terms of profits

RIL won the Golden Peacock Global Award for Excellence in Corporate
Governance for the year 2008.

Jamnagar Manufacturing Division bagged the 'Refinery of the Year Award

for 2008', for second successive year from 'Petroleum Federation of India'.

Shri Mukesh Ambani received the American India Foundation's (AIF),

USA, 'The 2008 Annual Spring Gala Award' in 2008.

Shri Mukesh Ambani was conferred the Leadership Award for Global
Vision by the United States India Business Council.

Basic Accounting Terminologies

Introduction
Every human being consciously engages himself in some meaningful activity.
Although the measure of success may vary in each case one has to be careful and
cautious at every stage in his life. Bookkeeping and accountancy is a science, which
has attracted the attention all such human activities. Accounting enables a person to
assess the risk appropriate steps.

Account an account denotes a summarized record of transactions pertaining to one

person, one kind of asset, or one class of income, or one class of income or loss.

Assets properties of every description owned by a person will be called assets for
example land and building, plant and machinery, cash balance, bank balance etc.

Bad debts which are irrecoverable and written off from debtors A/C as a loss are
termed as bad debts.

Casting means the totaling of the books of account casting has to be done of the
ledger accounts and also of a journal.
Creditor a creditor is a person to whom we owe something. He is the person to whom
we have to pay.

Capital the dictionary meaning of the term capital is wealth capital is the total
account invested in business the capital of a business is the claim of the owner to the
business is the claim of the owner to the business.

Debtor is person who owes something he is the person who has to pay to other
person.

Drawing is the total amount withdrawn by a trader from his business for meeting
personal expenses. Trader becomes a debtor of business by the amount withdrawn by
him from business for private purpose.

Discount it is an allowance or a concession allowed by the receiver of benefit to the

giver of benefit. It is normally allowed to the customers, debtors, and retailers etc. the
discount may be classified in two ways.
1) Cash discount.
2) Trade discount.
Cash discount it is discount allowed to customer as an inducement to make payment
immediately. Cash discount is closely related to cash receipt and cash payment. When

cash is received, discount is allowed is a loss to a business while cash discount

received is a gain to him.
Trade discount it is an allowance made by a wholesaler to a retailer in order to
enable the retailer to sell the articles at list prices and earn a reasonable margin of
profit. The amount of trade discount is deducted from the invoice; therefore, it has no
connection as to the receipt and payment of cash. Hence, trade discount does not
appear in the books of accounts.

Entry the term entry refers to the recording of a transaction in the books of account.
It is the primary record of a transaction in the books called journal or any other
subsidiary journal.

Expenses the effort made by business to obtain the revenues are termed as expenses.
It is the amount spent on manufacturing and selling of goods and services.

Folio it means the page number of the book of original entry or of the ledger by
writing folio i.e. page number, one can easily find out on what page the original entry
is made and on what page the entry is made in the main book.

Goods commodities in which a trader deals are called as goods.

Insolvent a person is said to be insolvent when his liabilities are more than asset
Insolvency when the liabilities of a firm are greater than its assets, it is referred to
as insolvency indicating the liabilities of a business to meet all its liabilities. Such a
business firm is said insolvent.

Journal is the book 0f accounts in which business transaction are first recorded. It is
a book of prime entry or first entry.

Liabilities debts owed by a person are called liabilities. Liabilities represent the
total amount to creditors. Debts arise because, goods may be purchased out but

payment may not be made at the time of purchasing the goods. Therefore the total
amount payable to creditors will be the liabilities.

Narration it is a brief explanation or description on to a journal entry it is given on

the line just below the journal entry within the brackets.

Posting transaction entered in the original books of entry are also to be recorded in
the ledger on the basis of the entry made in the original book is called posting.

Purchases the goods bought for resale or manufacture and resale are called
purchases. Purchases may be classified as
1) Cash purchase
2) Credit purchase

Revenue it represent the accomplishment of the enterprise until the company has
been successful in selling its products, no revenue is realized. Revenue is the amount
that adds to the capital.

Sales the goods sold by a business for cash or on credit are called sales. The sales
may be classified as;
1) Cash sales
2) Credit sales

Solvent a person is said to be solvent when his assets are equal to or more than his
liabilities.

Stock goods unsold lying with a business on any given date is called as stocks.
Transactions a transaction are an exchange of money or moneys worth between
two parties. It is dealing between two parties. It is dealing between two or more
persons.
The transactions are classified on the basis of exchange of goods and service they
may be.

1) Barter transactions.
2) Monetary transactions.
Monetary transactions are classified in the two types.
1) Cash transactions.
2) Credit transactions.

Book keeping is defined as the process of analyzing, classifying and recording

transaction in a systematic manner to provide the information about the financial
affairs of the business concerns.

Accounting is a wider concept, which includes book keeping accounting, is

involved not only maintaining records, but also balancing of accounts, interrupting the
balances, preparation of summaries, drawing conclusions from the summaries
knowing the results of financial transactions etc.

Classification of accounts.
Accounts are classified in to four types
1) Personal accounts.
2) Real accounts.
3) Nominal accounts.
Personal accounts DEBIT THE RECIVER AND CREDIT THE GIVER
Real accounts

DEBIT WHAT COMES IN AND CREDIT WHAT GOES OUT

Nominal accounts DEBIT EXPENSES AND LOSSES AND CREDIT GAINS OR

INCOMES.

Journal is derived from the French word jour which means a day journal is the
book of original entry or primary entry. It is a book of daily record first of all the

business transactions are recorded in the journal and subsequently they are posted in
the ledger.

Ledger a group of accounts is known as ledger a ledger is the principle book of

account a journal is meant for passing the entries of business transaction. A ledger is a
bound book. It contains many pages, which are called folios. These pages are
consecutively numbered. For each account a separate page is kept. Every ledger has
an index. It is generally an alphabetic index one page is allotted for each alphabet. All
the accounts commencing with that particular alphabet are indicated on that particular
page only. The page number on which the particular account appears is shown in the
index.

Ledger posting
After the transaction has been analyzed into its debit and credit elements in a journal,
each such debit and credit elements must be transferred in a journal accounts. The
process of transfer of entries from journal to ledger account is called ledger posting.

Trial balance
After posting the transaction to respective ledger accounts they are balanced and then
a trial balance is drawn. A trial balance is a statement, which shows the list of
accounts showing debit balances and list of accounts showing credit balance. If
double entry principles are strictly followed the total of the entire debit balances must
agree with the total of all the credit balance.

Trade discount

The amount of trade discount is deducted from the bill itself. Therefore, a trade
discount does not appear in the books of accounts. If a trade discount is given in the
transaction, the amount of such a trade discount is deducted from the gross value of
purchase and only the net value (arrived at after allowing a trade discount) is recorded
in the purchase books.

Debit note
A debit note is sent to the supplier when the goods purchased from him are returned.
A debit note is a statement sent by the buyer to the supplier stating the full details of
the good returned. It is sent along with the goods. It intimates the supplier that his
account has been debited by the value of the good returned to him.

Credit note
A credit note is sent to the customers when we receive goods returned from them. It
gives the full details of the good returned by the customer. Credit notes are generally
is printed in red ink. Transaction is recorded in this book on the basis of credit notes.

Trial balance
The dictionary for accountants written is a list or abstract of the balance or of total
debits and total credits of the accounts in a ledger, the purpose being to determine the
equality of posted debits and credits and to establish a basic summary for financial
statements.

Subsidiary books (sub division of journal)

If all the business transaction were recorded in one and the same journal, the journal
would be bulky and cumbersome. It would be very difficult to make clerks to work on

the same journal at one and the same time. Instead of recording all the transaction in
on and the same journal, they are recorded in separate journals meant for the purpose.
Therefore, in order to meet the requirements of modern business, the original
journal is divided into the following
Purchase book
Sales book
Purchase return book
Sales return book
Cash book
Bills receivable book.
Bills payable book.
Journal proper.

Final accounts
The final accounts are prepared to find out the profit or loss and to know the financial
position of the business. These account consist of
The trading account
The profit and loss account
Balance sheet

Trading account
A trading account is prepared to find out the gross profit or gross loss in the
business done during the year. The gross profit is the difference between the cost
of goods sold and the sale proceed without any deduction of indirect expenses.
Hence, in the trading account it is necessary to include all items of expenses
directly affecting the cost of goods sold. The cost of goods sold includes the

purchase price of the good sold plus buying and bringing expenses and the
expenses of conversion of raw material into saleable finished goods.

Profit and loss account

Profit and loss account is another summary account, which is prepared after
preparation of trading account. Trading account does not disclose the net income
or loss. There are other expenses in order to ascertain the profit or not loss.

Balance sheet
A balance sheet is a statement of the financial position of a business on a given
date. It is a snapshot of the financial condition of the business. The balance sheet
is not account; it is only a statement showing asset and liabilities of the business.
It is important to note that the balance sheet always balances. The total value of
the assets is always equal to the capital and liabilities.
We can define balance sheet as a statement of financial position of any
economics unit as at a given moment of time, its assets, at cost, depreciated cost or
another indicated value, its liabilities and its ownership equities

Introduction
Of Working Capital
Meaning:
Working capital could be defined as the portion of assets used in current
operations. The movements of the funds from capital to income and profits and back
to working capital are one of the most important characteristics of the business. This
cyclical operation is concerned with utilization of the funds with the hope that will
return with an additional amount called income. If the operations of the company are
to run smoothly, a proper relationship between fixed capital and current capital has to
maintain.
Sufficiently liquidity is important and must be achieved and maintained to
provide that funds to pay off obligation as they arise.

The adequacy of cash and other current assets together with their efficient
handling, virtually determine the survival or demise of the company. A businessman
should be able to judge the accurate requirement of working capital and should be
quick enough to raise the enquired funds to finance he working capital needs.
Working capital is also called as net current assets, it is the excess of current assets
over current liabilities. All organization has to carry working capital. It is important
from the point of view of both liquidity and profitability. Poor management of
working capital means that funds that unnecessarily tied up in idle assets hence
educing liquidity and also reducing ability to invest in productive assets such as plant
and machinery. So affecting profitability.
The term working capital refers to current assets, which may be defined as:
i)

Those which are convertible into cash or equivalents with the period of
one year and

ii)

Those which are required to meet day to day operations,

The fixed as well as current assets, both requires investment of Funds. So the
management of working capital and fixed assets apparently seem to involve it type of
consideration but it is no so. The management of working capital involve different
concept and methodology than the techniques used in fixed assets management.

Objective behind the Study

Of Working Capital &
Research Methodology
Working capital management is very important in modern business. The analysis
of working capital is also very useful for short-term management of funds. The
following are objective of study:

1) To make. Items wise analysis of the elements or component of working capital

to identify the items responsible for change in working capital.
2) To calculate working capital for Four Month.

Scope & Limitation of the Study

1. The Study is limited to Four Month projected performance of the
Company.
2. The data used in this study have been given commercial Manager. As
per the requirement and necessary some data are grouped and sub
grouped.
3. For making a clear-cut opinion, Ratio technique of financial
management has been used.

Data & Methodology of the Study:

The data of Reliance Industries Ltd. For the four Month used in this study
have been taken from company. Editing, classification and tabulation of the financial
data, which are collected from the above-mentioned sources, have been done as per
the requirement of the study.

Types of working capital

Net Working
The type, kinds of a thing
are depending upon the different
utilization
Gross
Workingof
Capital
Capital
working capital. It prominently works in the direction of performing different
Negative
functions
in different situation and in the context of divergent variables. So following
Working
Capital
are some important types of working capital.
Types of
Working Capital

Permanent
Working capital

Cash Working
Capital

Balance Sheet
Working Capital

Temporary
Working Capital

1) Net Working Capital:

Term Net working capital can be define in two way
i)

It is the difference between current assets and current liabilities.

ii)

Amount left for operational requirement.

2) Gross Working Capital:

Gross working capital means the total current assets.
3) Permanent Working Capital:
It is the minimum amount of the current assets, which are needs to conduct the
business even during the dullest season of the year. This amount varies from year
to year depending upon the growth of a company and stage of the business cycle
in which it operates. It is the amount of funds required to produce the goods and
services, which are necessary to satisfy demand at a particular point.

It represents the current assets, which are required on a continuing basis over the
year. It is maintain as the medium to carry on operation at any time. Permanent
working capital has following features:
i)

It is classified on the basis of the time factor.

ii)

Its size increase with the growth of the business.

iii)

It constantly shifted from one asset to another and continues to remain in

the business process.

4) Temporary Working Capital:

It represents the additional assets, which are required at different times during
the operating year. Seasonal working capital is the additional amount of current
assets particularly cash, receivables, and inventory which is required during the
more active business seasons of the year. It is the temporary investment in the
current assets and possesses the following features:
a) It is not always gainfully employed, though is May also shift
from one asset to another as permanent working capital does.
b) It is particularly suited to business of seasonal on cyclical
nature.
5) Balance Sheet Working Capital:
The balance sheet working capital is one, which is calculated from the items
appearing in the balance sheet. Gross working capital, which is represented by the
excess of current assets over current liabilities, is example of the balance sheet
working capital.
6) Cash Working Capital:

It is one, which is calculated from the items appearing in the Profit and Loss
Account. It shows the real flow of money or value at a particular time and
considered to be most realistic approach in working capital management. It is the
basic of the operation cycle concept, which has assumed a great importance in
financial management in recent year. The reason is that the cash working capital
indicates he adequacy of the cash flow which is an essential pre-requisite of a
business.
7) Negative Working Capital:
It emerges when current liabilities exceeds current assets, such a situation is
absolutely theoretical and occurs when a firm is nearing a crisis of some
magnitude.

Principles of Working Capital

Management:
There are some principles of sound working capital management policy. They
are as follows:
1) Principle of Risk Variation:
Risk here refers to inability of a firm to meet its obligation when they become
due for payment. Large investment in current assets with less dependence on a short
term borrowing increase liquidity, reduces dependence on short term borrowing
increases liquidity, reduces risk.

2) Principle of Cost of Capital:

The various sources of rising of working capital finance have different cost of
capital and the degree of risk involved. A sound working capital management should
always try to achieve a proper balance between these two.
3) Principle of Equity position:
According this principle, the amount of working capital invested in each
component should be adequately justified by a firms equity position. Every rupee
invested in the current assets should contribute to the net worth of the firm.
4) Principle of Maturity of Payment:
This principle is concerned with planning he sources of finance for working
capital. According to this principle, a firm should make every efforts related to
maturity of payment & its flow of internally generated funds. Maturity pattern of
various current obligations is an impotent factor in risk assumptions and risk
assessment.

Factors determining working

capital
1) Nature or character of Business:
The working capital requirement of a firm basically depends upon the nature
of its business. Public utility undertaking like Electricity, Water Supply, and Railways
need very limited working capital because they offer cash sales only and supply
services, not products and as such no funds are tied up in inventories and receivables.

On the other hand trading and financial firms require less investment in fixed assets
but they have to invest large amount in current assets like inventories, receivables and
cash. So they need large amount of working capital.
2) Production cycle:
Another factor, which has a bearing on the quantum of working capital, is the
production cycle. The term production or manufacturing cycle refers to the time
involved in the manufacturing of goods. It covers the time span between the
procurement of raw material and the completion of the manufacturing process leading
to the production of finished goods.
In other words, there is sometime gap before raw material becomes finished
goods. To sustain such activities that need for working capital is obvious. The longer
time span (production cycle) the large will be the tied up funds and therefore, larger is
working capital need and vice versa.

3) Production Policy:
In certain industry the demand is subject to wide fluctuations due to seasonal
variations. The requirement of working capital in such case, depend upon the
production policy.

The production can be either kept steady by accumulating

inventories during slack period with a view to meet high demand during peak season
of the production could be curtailed during the slack season and increased during the
peak season. If policy is to keep production steady by accumulating inventories it will
require higher working capital.

4) Credit Policy:
The credit terms granted to customers have a bearing in the magnitude of
working capital by determining the level of book debts. The credit sales result in
higher book debs. Higher book debts mean more working capital. On the other hand,
if liberal credit terms are available from the supplies of goods trade needs less
working capital.
The working capital requirement of a business are thus, affected by term of
purchase and sale, and the ole given to credit by a company in its dealing with
creditors and debtors.
5) Growth and Expansion:
The working capital requirement of concern increases with the growth and
expansion of its business activities. Although, it is difficult to determine the
relationship between the growth in the volume of business and the growth in the
working capital of a business, yet it may be concluded that for normal rate of
expansion in the volume of business. We may have retained profits to provide for me
working capital but in fast growing concern, we shall require lager amount of working
capital.
6) Seasonal Variation:
In certain industry raw material is no available throughout the year. They have
to buy raw material in bulk during the season to ensure uninterrupted flow and
process them during the entire year. So a huge amount is blocked in form of row
material during the peak season, which gives more requirements for working capital
and less requirement during the slack season.
7) Earning Capacity:

Some firm have more earning capacity than others due to quality of the
products, monopoly condition etc. Such firms with high earning capacity may
generate cash profits from operations and contribute to their working capital.
8) Dividend Policy:
The dividend policy of a concern influences on the requirement of the working
capital. A firm that maintains a steady high rate of cash dividend irrespective of its
profits level needs more working capital than the firm that retains large part of its
profits and does not pay at high rate of cash dividend.
9) Other Factors:
Certain other factors such as operating efficiency, management ability,
irregularities in supply, import policy, assets structure, importance of labour, banking
facilities etc., also influence the requirement of working capital.

Sources of Working Capital

Mainly there are two sources of working capital:
i. Permanent or Fixed working capital
ii. Temporary or
iii. , which is variables working capital
In any concern, a part of the working capital investments are as investment in
fixed assets. This is so because there is always a minimum level of current assets,

which are continuously required by the enterprise to carry out its day-to-day business
operation and this minimum, cannot be expected to reduce at any time. This minimum
level of current assets need long term working capitalpermanently blocked.
Similarly, some amount of working capital may be required to meet the seasonal
demands and some special exigencies such as rise in prices, strikes, etc. this gives rise
to short term working capital which is required for day to day transaction also.
The fixed proportion of working capital should be generally financed from the fixed
capital sources while the temporary or variable working capital equipment may be
met from the short term sources of capital.

Sources of Working Capital

Long term Sources

Short Term sources

Shares

Commercial Banks

Debentures

Indigenous Banks

Public Deposits

Trade Creditors

Plugging back of Profits

Installment Credit

Loans from Financial institution

Advances
Account receivable
Credit
Accrued Expenses

Methods of CalculationDiffered
of Income
Required Working Capital
Commercial Paper
The methods of calculation of required working capital are as follows:

Working Capital Cycle:

The working capital cycle is also known as operating cycle. It refers to the
duration between the firms payment of cash for raw material, entering into

production and inflow of cash from debtors and realization of receivables. Simply
speaking, operating cycle is the duration between the outflow of cash and inflow
of cash and this may be evidenced from the following working capital cycle.

Receivables

Cash

Raw Material

Finished Goods

Work In Process

The above and network diagram may offer a clear picture of a complete
working capital i.e. it is a cash phenomenon. In the diagram, raw material, stock refers
to material only. In work in process, components involve are raw material, wages, and
overhead more specifically manufacturing overheads. Finished stock consist
components of material, wages and overheads inclusive of factory, office and
administration and selling and distribution. Debtors include material, wages,
overheads and profits. Credit involves for the components of raw material, etc.
something a contingency margin is also given while estimating the working capital
requirement.
The operating cycle consists of him following events, which continues
throughout his life of a firm remaining engaged in commercial activities.
Avg. Stock of Raw Material

1) Raw Material Holding Period =

Avg. Cost of Consumption per day
Avg. Stock of Work in Process
2) Work in Process Holding Period =
Avg. Cost of Production per day
Avg. Stock of Finished Goods
3) Finished Goods Holding Period =
Avg. Cost of Goods Sold per day
Avg. Book Debt
4) Receivables Collection Period =
Avg. Credit Sales per day
Avg. Trade Creditors
5) Creditors Collection Period =
Avg. Credit Purchased per day

In the form of a simple equation working capital cycle or operating cycle can
be represented as bellow:

O = R+W+F+D-C
Where, O = Operating Cycle (In Days)
R = Raw Materials Holding Period
W = Work in Process Holding Period
F = Finished Goods Holding Period
D = Receivables Collection Period
C = Creditors Collection Period.

Total Operating Cost

Working Capital Required =
Number of Operating Cycle

Components of Working Capital:

Current Assets:
i)

Stock of Raw Material (formonth consumption)

ii)

Work In Process (forMonth)

a) Raw Materials
b) Direct Labour
c) Overheads

iii)

Stock of Finished Goods (formonth sales)

iv)

Sundry Debtors or Receivables (formonth sales)

v)

Payments in Advance (if any)

vi)

Balance of Cash (required to meet day-to-day Expenses)

vii)

Any Other (if any)

Amount
-----------

--------------------------

Less: Current Liabilities:

i)

Creditors (formonth purchase of raw materials)

------

ii)

Outstanding Expenses (for month)

------

iii)

Others (if any)

------

Working Capital (CA CL)

Add: Provision/ Margin for contingencies
Net Working Capital Required

Management of working capital:

-----------------------

Working capital, in general practice, refers to him excess of current assets over
current liabilities. Management of working capital therefore, is concerned with
problems that arise in attempting to mange him current assets, current liabilities, and
interrelationship that exists between them. In other word it refers to all aspects of
administration of both current assets and current liabilities.
The basic goal of working capital management is to manage the current assets
and current liabilities of a firm in such way that a satisfactory level of working capital
is maintained, i.e. neither inadequate nor excessive. This is so because both
inadequate as well as excessive working capital position is bad for the business.
Inadequacy of working capital, may lead the firm insolvency and excessive working
capital implies idle funds, which earn no profit for the business. Working capital
management policies of the firm have a great effect on its profitability, liquidity and
structural health of the organization. In this context, working capital management is
three-dimensional nature:
1) Dimension I is concerned with the formulation of the policy with regard to
profitability, risk and liquidity.
2) Dimension II is concerned with the decision about his composition and level
of current assets.
3) Dimension III is concerned with the decision about his composition and level
of current liabilities.

This dimension aspect of his working capital has been more clearly and precisely
Explain by the following diagram.

Profitability, Risk &

Liquidity
Dimension I

Dimension III

Dimension
II
Composition
& Level of
current assets

Composition & level

Of current Liabilities

Ratio Analysis

Absolute figures expressed in monetary terms in financial statements themselves are

meaningless. These figures often do not convey much meaning unless expressed in
relation to other figures. Thus, we can say that the relationship between two figures
expressed in arithmetical terms is called a ratio.

Objects and Advantages of Ratio

Analysis:Financial statements i.e. Profit & loss account & Balance sheet prepared at the end of
the year do not always convey to the reader the real profitability & financial health of
the business. They contain various facts & figures & it is for the reader to conclude,
whether these facts indicate a good or bad managerial performance. Ratio analysis is
the most important tool of analyzing these financial statements. It helps the reader in
giving tongue to the mute heaps of figures given in financial statements. Some
important objects & advantages are as follow:

Helpful in analysis of financial statements

Simplification of accounting Data
Helpful in locating the weak spot of the Business
Fixation of Ideal Standards
Effective Control

Limitations of Ratio Analysis:Ratio analysis is a very important tool of financial analysis. But despite its being
indispensable; the ratio analysis suffers from a number of limitations. These
limitations should be kept in mind while making use of the ratio analysis.

False accounting data gives False Ratios

Ratio Analysis becomes less effective due to price level changes.
Comparison not possible if different firms adopt different Accounting Policies.
Lack of proper Standards
Window-Dressing

Classification of Ratio Analysis:-

Ratios can be classified into the four categories as follows:

Liquidity Ratio

Leverage or Capital Structure Ratio

Activity Ratio

Profitability Ratio or Income Ratio

Liquidity Ratio:Liquidity refers to the ability of the firm to meet its current liabilities. These ratios
are used to assess the short- term financial position of the concern. They indicate the
firms ability to meet its current obligation out of current resources. It can be
classified as follow:
I.
Current Ratio
II.
Quick/Acid Test Ratio

Leverage or Capital Structure Ratio:These ratios are calculated to assess the ability of the firm to meet its long term
liabilities as & when they become due. Leverage or Capital Structure ratios disclose
the firms ability to meet the interest costs regularly & long term indebtedness at
maturity. It can be classified as follow:
I.
Debt Equity Ratio
II.
Debt to Total Fund Ratio
III.
Proprietary Ratio
IV.
Capital Gearing Ratio
V.
Interest Coverage Ratio

Activity Ratio:These ratios are calculated on the basis of cost of sales or sales, therefore, these
ratios are also called as Turnover Ratio. These ratios indicate how efficiently the
capital is being used to obtain sales; how efficiently the fixed assets are being used to
obtain sales; and how efficiently the working capital and stock is being used to obtain
sales. It includes the following:
I.
Stock Turnover or Inventory Turnover Ratio
II.
Debtors or Receivable Turnover Ratio
III.
Average Collection Period
IV.
Creditors or Payables Turnover Ratio
V.
Fixed Assets Turnover Ratio
VI.
Working Capital Turnover Ratio

Profitability Ratio or Income Ratios:-

The main object of all the business concerns is to earn profit. Profit is the
measurement of the efficiency of the business. Equity shareholders of the company
are mainly interested in the profit ability of the company. Profitability ratios include
the following:
Profitability Ratios based on sales:a)
Gross Profit Ratio
b)
Net Profit Ratio
c)
Operating Ratio
d)
Expenses Ratio

a)
b)
c)
d)

Profitability Ratios based on Investment

Return on Capital Employed
Return on Shareholders Funds
Earning per Share
Dividend per Share

Reliance Industries Ltd. Ratio

Analysis
Industr
y
BSE
Code
Market
Lot

Diversifi
ed
500325
1

Adjusted E P S
(Rs.)
Adjusted Cash
EPS (Rs.)
Reported EPS
(Rs.)
Reported
Cash
EPS (Rs.)
Dividend
Per
Share
Operating Profit
Per Share (Rs.)
Book Value (Excl
Rev
Res)
Per
Share (Rs.)
Book Value (Incl
Rev
Res)
Per
Share (Rs.)
Net
Operating
Income
Per
Share (Rs.)
PER
SHARE
RATIOS

Busines
s Group
NSE
Code
Face
Value

Ambani
Group
RELIANC
E
Rs.
10.00

Chairma
n
ISIN No
Book
Closure

Mr. Mukesh
D Ambani
INE002A010
18
21/10/2015

Mar '
09

Mar '
08

Mar '
07

Mar '
06

Mar '
05

100.13

93.80

87.29

65.37

52.52

133.14

127.14

121.84

89.78

79.68

97.28

133.86

85.71

65.08

54.34

130.29

167.20

120.26

89.49

81.49

13.00

13.00

11.00

10.00

7.50

153.47

154.32

146.44

103.76

91.21

728.22

554.41

440.10

324.11

270.43

803.12

560.40

459.13

357.49

290.03

902.02

920.48

801.57

580.39

473.04

704.28

520.59

416.90

301.36

247.94

16.76

18.26

17.87

19.28

13.14

13.95

13.67

13.54

PROFITABILITY
RATIOS
Operating
17.01
Margin (%)
Gross
Profit 13.35
Margin (%)

Net Profit Margin

(%)
Adjusted
Cash
Margin (%)
Adjusted Return
On Net \
Worth (%)
Reported Return
On Net Worth
(%)
Return On long
Term Funds (%)

10.65

14.45

10.64

11.13

11.25

14.58

13.73

15.13

15.35

16.49

13.76

17.28

19.85

20.17

19.42

13.36

24.66

19.49

20.08

20.09

11.34

17.18

19.83

18.88

19.44

Long Term Debt / 0.59

Equity
Total Debt/Equity 0.64

0.35

0.32

0.36

0.40

0.46

0.45

0.48

0.49

Owners fund as 60.77

% of total Source
Fixed
Assets 1.01
Turnover Ratio

68.38

68.76

67.37

66.72

1.29

1.13

0.95

1.20

1.23

1.39

1.17

1.15

1.32

Current
Ratio 1.08
(Inc. ST Loans)
Quick Ratio
0.90

1.01

0.77

0.83

1.07

0.93

0.68

0.67

0.96

Inventory
Turnover Ratio

10.57

10.65

9.60

10.87

9.80

13.75

17.52

15.73

7.85

9.80

12.74

10.49

86.01

86.50

82.56

83.72

LEVERAGE
RATIOS

LIQUIDITY
RATIOS
Current Ratio

12.92

PAYOUT
RATIOS
Dividend payout 14.49
Ratio (Net Profit)
Dividend payout 10.82
Ratio
(Cash
Profit)
Earning
85.92
Retention Ratio

Cash
Earnings 89.41
Retention Ratio

89.68

90.33

87.30

89.27

1.97

1.64

1.75

1.69

19.95

16.06

16.84

9.48

21.90

13.90

14.95

8.64

76.98

73.86

72.32

73.86

71.93

2.18

2.41

3.27

5.85

2.76

61.22

56.80

52.40

38.10

36.02

95.74

93.96

94.04

95.41

91.73

0.74

0.69

0.73

0.72

0.63

30.61

33.14

34.57

34.58

34.58

COVERAGE
RATIOS
Adjusted
Cash 3.53
Flow Time Total
Debt
Financial
14.58
Charges
Coverage Ratio
Fin.
Charges 12.56
Cov.Ratio
(Post
Tax)
COMPONENT
RATIOS
Material
Cost
Component(%
earnings)
Selling
Cost
Component
Exports
as
percent of Total
Sales
Import Comp. in
Raw
Mat.
Consumed
Long term assets
/ Total Assets
Bonus
Component
In
Equity
Capital
(%)

Liquidity Ratio
Current Ratio:The current ratio is a financial ratio that measures whether or not a firm has enough
resources to pay its debts over the next 12 months. It is expressed as follow:-

Current Ratio = 1.23

It is important to note that a very high ratio of current assets to current liabilities may
be indicative of slack management practices, as it might signal excessive inventories
for the current requirement & poor credit management in terms of overextended
accounts receivable. At the same time, the firm may not be making full use of its
current borrowing capacity.
Although there is no hard & fast rule, conventionally, a current ratio of 2:1 is
considered satisfactory. The logical underlying the conventional rule is that even with
a drop out of 50% in the value of current assets, a firm can meet its obligations.

The current ratio of the company is 1.23:1 that is less than 1.5:1. From the graph we
find that, from the last three years the current ratio first rises & then decline.so we can
say that the companys short term financial position is not good.

Quick Ratio:Quick ratio indicates whether the firm is in a position to pay its current liabilites
within a month or immediately. It is expressed as follows:

Quick Ratio = Quick Assets

Current Liabilities
Quick ratio = 0.90

The acid test ratio is a rigorous of a firms ability to service short term
liabilities. The usefulness of the ratio is the fact that it is widely accepted as the best
available test of the liquidity position of the firm. That means the acid test ratio is
superior to the current ratio.
This interpretation of the liquidity position of the firm needs modification in the
light of the quick ratio. Generally speaking, an acid- test ratio of 1:1 is considered
satisfactory as a firm can easily meet all current claims.

The quick ratio of the company is 0.90:1 which is less than 1:1. From the graph also
we find that from the last three years the ratio first rise then decline. So we can say
that the company is not in the position to pay its current liabilities instantly.

Activity Ratio
Inventory Turnover Ratio:In business management, the Inventory turnover is an equation that measures the
number of times inventory is sold or used over in a period such as a year. The
equation equals the cost of goods sold divided by the average inventory. Inventory
turnover is also known as inventory turns, stock turnover.
The formula for inventory turnover:

Inventory Turnover Ratio= 12.9

A low turnover rate may point to overstocking, obsolescence, or deficiencies
in the product line or marketing effort. However, in some instances a low rate may be

appropriate, such as where higher inventory levels occur in anticipation of rapidly

rising prices or shortages.

The Inventory Turnover ratio of the company is 12.9. From the graph we find that
from the last three years the ratio is increasing. It is a good sign for the company.
From the graph we can say that the management is using the stock efficiently.

Fixed Assets Turnover Ratio:This formula is used for calculating this ratio:

Fixed Assets Turnover Ratio =

Cost of goods sol

Net fixed Assets

Net Fixed Assets = Fixed Assets - Deprecation

Fixed Assets Turnover Ratio = 1.01
This ratio is of particular importance in manufacturing concerns where the
investment in fixed assets is quite high. This ratio reveals how efficiently the fixed
assets are being utilized. Compare with the previous year, if there is increase in this
ratio, it will indicate that there is better utilization of fixed assets. If there is a fall in
the ratio, it will show that fixed assets have not been used as efficiently, as they have
been used in the previous year.

From the graph we find that, from the last three years the ratio had first increase then
decrease. So we can say that the company is not using its assets properly.

Profitability Ratio or Income Ratio

Profitability Ratios based on sales:Gross Profit Ratio:First some basic profitability equations:
Gross Profit Margin =

Gross Profit
* 100
Turnover

Remember:
Turnover = Sales
Gross Profit = Turnover - Cost of Sales
Gross Profit Ratio = 13.35
The gross profit margin ratio tells us the profit a business makes on its cost of sales, or
cost of goods sold. It is a very simple idea and it tells us how much gross profit per
turnover our business is earning.

Here are a few examples of the gross profit margins from different businesses:

Leisure International Manufacturer Retailer Discount Refining Pizza

&

Airline

Airline

Accounting

Restaurants Software

Hotels
Gross

9.64%

5.62%

35.14%

11.41%

27.46%

11.99%

47.52%

89.55%

profit

From the table we find that gross profit ratio should be more than 11.99%.The Gross
Profit ratio of the company is 13.35.From the graph we find that, from the last three years the
ratio first decrease then increase. So we can say that the company is doing good.

Net Profit Ratio:Net Profit Margin =

Net Profit
* 100
Turnover

Remember:
Net Profit = Gross Profit - Expenses
Net Profit ratio= 10.65%
The net profit margin ratio tells us the amount of net profit over turnover of a business
has earned. That is, after taking account of the cost of sales, the administration costs,
the selling and distributions costs and all other costs, the net profit is the profit that is
left, out of which they will pay interest, tax, dividends and so on.
Here are a few examples of the net profit margins from the same businesses we saw in
the gross profit margin section:

Leisu Internation Manufacturer Retailer Discount Refining Pizza

re

& al Airline

Airline

Accountin

Restaura g

Hotel

nts

Software

7.55%

27.15%

s
Net

7.36% 4.05%

10.48%

1.63%

10.87%

12.63%

Profit

A high net profit margin would ensure adequate return to the owners as well
as enable a firm to withstand adverse economic conditions when selling price is
decling, cost of production is rising & demand for the product is falling.
A low net profit margin has the opposite implications. However, a firm with a
low margin, can earn a high rate of return on investments if it has a high inventory
turnover. The net profit ratio of the company is 10.65%. From the graph we also find
that, from the last three years the net profit ratio first rise then decline but company
has a high inventory turnover ratio. So we can say that the company is in a good
position.

Operating Ratio:This ratio measures the proportion of an enterprises cost of sales and operating
expenses in comparison to its sales:

Operating Ratio=Cost of Goods sold + Operating Expenses*100

Net Sale

Operation ratio = 17.01%

Operating ratio & operating profit ratio are inter related. Total of both these
ratios will be 100. A rise in Operating Ratio will lead to a similar amount of decline
in Operating Profit Ratio & vice versa.
Operating ratio is a measurement of the efficiency and profitability of the
business enterprise. The ratio indicates the extent of sales that is absorbed by the cost
of good sold and operating expenses. Lower the operating ratio, the better it is,
because it will leave higher margin of profit on sales.

The operating ratio of the company is 17.01. From the graph we find that, from the
last three years the ratio first decline then increase. So the companys operating profit
ratio is less from the last year because its operating ratio increase. So we can say that
company is not in a good position.

Profitability Ratios based on Investment:Earning Per Share:This ratio can be expressed as follows:
EPS = Net profit available to equity shareholders/No. of ordinary shares
outstanding
EPS = 97.28
EPS is a widely used ratio. Yet, EPS as a measure of profitability of a firm from
the owners point of view should be used cautiously as it does not recognize the effect
of increase retention of earnings. It does not necessarily follow that the firms
profitability has improved because the increased profits to the owners may be the
effect of an enlarged equity capital as a result of profit retentions, though the number
of ordinary shares outstanding still remains constant.

As a profitability ratio, the EPS can be used to draw inferences on the basis of (i)
its trends over a period of time (ii) comparison with the EPS of other firms & (iii)
comparison with the industry average. From the graph we found that the profit
available to the equity shareholders on a per share basic is going down.

Dividend per Share:Dividend per Share is the dividend paid to the shareholders on a per share basis. In
other words,
DPS is the net distributed profit belonging to the shareholders dividend by the
number of ordinary shares outstanding. That is:
DPS = Dividend paid to ordinary shareholders/Number of ordinary shares
outstanding
DPS = 13.0

The Dividend per Share would be a better indicator than Earning per Share. Like
the earning per share, the dividend per share also should not be taken at its face value
as the increased dividend per share may not be a reliable measure of profitability as
the equity base may have increased retention without any change in the number of

outstanding shares. From the graph we found that from the last three years the DPS
first increase then since last two years the dividend per share is constant.

Leverage or Capital Structure Ratio

Debt Equity Ratio:The D/E ratio is an important tool of financial analysis to appraise the financial
structure of a firm. It has important implication from the view-point of the creditors,
owners & the firm itself. The ratio reflects the relative contribution of creditors &
owners of business in its financing. A high ratio shows a large share of financing by
the creditors of the firm; a low ratio implies a smaller claim of creditors. The D/E
ratio indicates the margin of safety to the creditors.
This ratio can be expressed as follows:

D/E Ratio = Longterm debt/ Shareholders equity

D/E Ratio = 0.59

If the D/E ratio is high, the owners are putting up relatively less money of their
own. It is danger signal for the creditors. A high debt-equity ratio has equally serious
implications from the firms point of view also. A high proportion of debt in the
capital structure would lead to inflexibility in the operations of the firm as creditors
would exercise pressure & interfere in management.
A low debt equity ratio has just the opposite implications. To the creditors, a
relatively high stake of the owners implies sufficient safety margin & substantial
protection against shrinkage in assets
.
From the graph we find that, from the last three years th debt-equity ratio is
increasing.

Lyondell Deal

Len Blavatnik led Lyondell Basell is claiming RILs $12Bn now $13.5 Bn
valuation as too low.

Len bought Basell Polyolefins from Royal Dutch Shell and BASF for $5.7Bn
in August 2005.

In 2007, it bought Lyondell Chemical Company for $12.7Bn, hence making

the total investment close to $19Bn.

Lyondells buyout was majorly funded by debt from a consortium of lenders

which included Merrill Lynch, Goldman Sachs, Citigroup, ABN-Amro and
UBS among others.

Demand for products suddenly collapsed in the second half of 2008 and the
company was unable to pay fees and interest totaling $281Mn on a bridge loan
due on 19th Dec09.

The US unit of Lyondell Basell filed for Chapter 11 bankruptcy protection in

Jan'09 to facilitate a restructuring of its $26Bn debt.

During bankruptcy, Lyondell Basell added further burden to its existing debt
by obtaining $8Bn in debtor-in-possession (DIP) financing to fund continuing
operations.

The DIP financing included two credit agreements: a $6.5Bn term loan
(comprising $3.25Bn in new loans and a $3.25Bn roll-up of existing loans)
and a $1.62Bn asset-based lending facility.

Lyondell has submitted a restructuring plan which involved LBI repaying its
$8Bn bankruptcy loan in full and giving an equity stake in the new firm to
lenders, including sponsors of the $2.8Bn rights offering.

Law firm Milbank Tweed Hadley & McCloy is representing the lenders group.

What is Reliance offering?

RIL is offering about $13.5Bn for Lyondell Basell which posted $50.7Bn in
sales last year, valuing Lyondell 1/4th of sales.

The petrochemical company has $27.1Bn of assets and $19.3Bn of debt,

according to its bankruptcy filing.

RIL also made a statement recently that it will not buy Lyondells debt.

RIL has enough resources to buy Lyondell. It has $4 Bn of cash, $8 Bn of

treasury stock.

Will the transaction go through if the debt is left out?

Whether the asset will sell or not is tied up to what debtors get out of it.

Earlier in 2008, Citigroup sold $1.9 Bn of its Lyondell loan to Apollo

Management at about 85 cents to a dollar, the prices of which tumbled to 44
cents to a dollar just after the crash.

If we consider a pricing of 75 cents to dollar for the Lyondell debt which

currently stands at $26Bn, the cost of debt alone would be about $19Bn.

We wonder if RIL were to go for a $10Bn loan - which Wall street will
syndicate - how they would like to syndicate a loan that pays them back their
bad debt with haircuts...

Lyondell Basell which employs more than 17000 people generates about 34%
of its revenue from fuels, 30% from chemicals and 35% from plastics.

RIL, Barabanki Division

Barabanki Manufacturing Division located near Lucknow, Uttar Pradesh, is

spread over 106 acres. It manufactures Black Fibre.

Barabanki Manufacturing Division (formerly known as India Polyfibres

Limited) was commissioned in January, 1987 by RPG Group with technical
collaboration from M/s. Du Pont, USA to manufacture 15,000 MT per annum
of Commodity Polyester Staple Fibre.

In 1999, the Company started producing Dope Dyed Black Polyester Staple
Fibre. Necessary changes & modifications in the Plant & Machinery were
carried out to undertake test / trial runs for ascertaining technical viability,
determine modifications & additional equipment required for sustained
operations and simultaneously adheres with the desired quality levels.

It is for the first time that Black Fibre has been produced by continuous
process on PTA route anywhere in the world. Today Barabanki Manufacturing
Division is the largest producer of Dope Dyed Black Polyester Staple Fibre in
the
world
and
about
20
%
of
it
is
exported.

In 2003, company further developed a new product named as Dope Dyed

Super Black Polyester Staple Fibre & Tow.

In 2004, further capacity of 10,000 MT per annum was added by installing an

extrusion based Spinning Plant. With this addition the present installed
capacity of Barabanki Manufacturing Division is 40,000 MT per annum

In 2006, a new product "Dope Dyed Navy Blue PSF" was added in its product
portfolio. Few more colors like Dope Dyed Dark Grey, Sky Blue, Parrot
Green, Chocolate Brown, Renol Red and Coffee Brown can be easily
manufactured.

Steam is now generated through Husk boiler at low cost.

Total number of employees are nearly 500 (50% are on contract basis).

Bibliography

1. Book about Excise Manual

-

By R. K. Jain

2. Annual Report of Reliance Industries Limited

3. Financial Management by
-

Khan & Jain

S. N. Maheshwari

4. www.ril.com