ANALYSIS OF ACCOUNTING SYSTEM & FINANCIAL RATIOS AT GAIL India Limited Agartala, Tripura A Project Report submitted in partial

fulfilment of the requirements of the award of the degree of POST GRADUATE DIPLOMA IN MANAGEMENT Submitted by Chaitali Paul Reg. No. 420920241 UNDER THE GUIDANCE OF Prof.Sabitha Rani

M.S. Ramaiah Management Institute M.S.Ramaiah Nagar MSRIT Post Bangalore -560054.

Batch: 2009-10

STUDENTS DECLARATION

I declare that the project titled Analysis of Accounting System & Financial Ratios is an original project done by me and no part of the project is taken from any other project or materials published or otherwise or submitted earlier to any other college or university.

___________________ Students Signature

ACKNOWLEDMENT I take this opportunity to express my gratitude to all those who supported and helped me directly and indirectly in completion of the project successfully and without whose constant guidance ,support and help it would not have been possible for me to accomplish this project. At the very beginning I would like to extend my special gratitude to our beloved and training Officer Mr.R.R.Paul for inspiring me to take up this project. I wish to acknowledge my sincere gratitude and indebtedness to my Project Guide Prof.Sabitha Rani of MS Ramaiah Management Institute, Bangalore for her valuable guidance and constructive suggestions in the preparation of the Project report. I would also like to extend my heartful thanks to Mr.R.R.Paul Manager (F&A) who has provided me with all kinds of information and friends for their continuous encouragement for preparing the project report.

INDEX
Sr. no.
1. 2. 3. 4. 5.

Content
Cover and title of the project Certificate Student declaration Acknowledgement Organisational study 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 Vission and mission Projcets Corporate strategy Business segment performance Business initiative Subsidiaries and joint ventures Major products and brands Introduction to oil industry Budget allocation and expenditure Financial highlights

Page
1 2 3 4 8 12 13 15 17 20 23 28 30 41 48

6. 7. 8.

Executive summary Introduction Statement of the problem

57 58 83

9. 10. 11.

Scope of the study Objectives of the study Techniques used in the study

84 84 84

12. 13. 14. 15. 16.

Sources of data Limitations Findings and conclusions Bibliography Search engine

85 85 86 87 87

PART-1: ORGANISATIONAL STUDY: The setting up of GAIL (India) LTD., formerly known as GAS AUTHORITY OF INDIA LTD. of service to the nation. Since 1984, GAIL has made significant contribution to the nations economy by supplying natural gas through its pipeline network for Generation of over 87,000 MW of power Production of over 145million tones of urea Production of LPG for over 7 cr. Households in the country
Over5.7 lakhs vehicles in the country today running on CNG

In August 1984, heralded a new era of

natural gas in the country. GAIL is now completing 25 glorious years

supplied by GAIL and over 7 lakhs households on piped natural gas (PNG) in the country.
Production of petrochemicals of around 4 lakhs MTs which is

used in the plastic industry. The natural gas infrastructure of around 7,000 km. accounting for over 82% of total pipeline infrastructure in India, set up so far by Gail has contributed enormously to the economically and socially critical sectors such as fertilizers and power. GAIL has the distinction of pioneering the clean fuel revolution for transport sector in the country with the introduction of CNG in Delhi and Mumbai which has significantly helped in reducing pollution levels in these two cities.

It provides ready market access to the domestic gas producers, making gas available to the customers including those remotely located and devoid of market access. It has provided cheaper, environment friendly alternative fuel and has reduced importdependency as natural gas has substituted liquid fuel such as Naphtha, fuel oil, etc. GAILs pipeline network to the gas consumers in the states of GUJRAT, MAHARASHTRA, RAJASTHAN, MADHYA PRADESH DELHI HARYANA, UTTAR PRADESH ANDHRA PRADESH, TAMILNADU ASSAM
TRIPURA.

In addition to supplying natural gas to various consumers, GAIL has also setup 7 LPG plants and a petrochemical plant to extract value added products from gas. GAIL produces around 1.35 MMTPA of liquid Hydrocarbon including LPG from domestic consumption.

10

In the area of corporate social responsibility, one of the major projects of GAIL has been setting up of AIR POLLUTION RELATED DISEASE DIAGNOSTIC CENTRES (APRDCs) in over 20 cities in various parts of the country, at a cost of about Rs. 4 cr. APRDC also works as R&D for development of facilities for diagnosing suspended particles, which are known to cause acute heart diseases. Ujjain, 28th July 2006. Dr U D Choubey, Director (Marketing), GAIL (India) Limited inaugurated the Air Pollution Research and Disease Diagnostic Centre (APRDC) at Ujjain Charitable Trust Hospital and Research Center, Ujjain. The senior officials of GAIL were present on the occasion. With the APRDC going functional, the hospital has acquired a system for pulmonary lung function testing and other base line investigation of air pollution related diseases. The APRDC at Ujjain is nineteenth of the 23 such centres to become operational. All these APRDCs have been sponsored by GAIL in 23 cities in India. To Combat the Pollution, GAIL is set to supply Natural Gas in 23 cities under Blue Sky Project in Mumbai, Pune, Sholapur, Agra, Allahabad, Kanpur, Lucknow, Mathura, Ahmedabad, Hyderabad, Vijayawada, Gwalior, Indore, Jhansi, Bareily, Delhi, Ujjain, Kota, Kochi, Rajahmundry, Chennai, Bangalore. Air Pollution is said to be reduced as a consequence to supply of CNG to transport sector and piped Natural Gas for domestic and commercial usage in these cities. GAIL has initiated steam conversion project based on waste heat recovery system from GAILs gas turbines. This rare, multi-benefit project would not only utilize clean development mechanism (CDM) for power generation, but also lead to conversion of gas as well as increased energy efficiency.
11

Gail has consistent track record of

dividend payment. So far GAIL has disbursed dividend of Rs. 6,230 cr. to the shareholders including Govt. of India, which is more than seven times the original investment of rs.845.65 cr. by the Government in its equity capital. The Government has been disinvesting its shareholding in GAIL from time to time, bringing down its equity holding to 57.345 % and thereby contributing to the exchequer and additional amount of Rs. 3400 cr. The history of GAIL (India) Ltd., erstwhile Gas Authority of India Ltd., is closely aligned to the growth of the Petroleum Industry in India. Till the mid eighties, state owned public sector undertaking in the upstream and downstream segments were concentrating on effective sourcing and utilization of the oil resources of the country. ONGC have already made important guest discoveries in the western offshore south bassein fields which could not be utilized in the absence of gas piping infrastructure. the country. The government embarked upon a planned and focused development of the natural gas sector in

12

VISION AND MISSION

Vision
Be the leading company in natural gas and beyond with global all stakeholders and environmental responsibility.

13

Mission

ptimize the effective and economic use of natural gas and its fractions to the benefit of

nat

Projects
Gas Rehabilitation and Expansion Project (GREP)

14

In 1998-99, the capacity of HVJ pipeline was expanded to 33.4 MMSCMD under the gas rehabilitation and expansion project. By construction of a loop line of 505km. from Vijaipur to Dadri and increasing compression capacity of existing compressor stations and adding 2 more compressor stations Vaghodia and Khera. Pipeline in North-eastern Regions. GAIL is also operating in 69 km. regional pipeline in Assam and Tripura. The pipelines existing in Assam supply gas to GAIL LPG plant and ASEB. In Tripura the pipelines are connecting ONGC gas fields at Agartala dome, Rokhia and Konaban. GAIL is also supplying natural gas to Tripura natural gas co. ltd. Pipeline in Rajasthan GAIL laid the first pipeline in the country in desert area from Gamnewala upto Ramgarh (66km.) to supply gas to RSEBs power plant. Pipeline in Gujarat Gujarat has huge resources of natural gas. GAIL has laid Pipeline in north Gujarat and south Gujarat regions to supply gas to consumers which include power plants, fertilizers and other industrial units. Pipeline in Maharashtra Around 125 km Pipeline network from Ex-Uran terminal in

Maharashtra is being operated by Gail to supply gas from Uran gas

15

fields to consumers in Mumbai region. Major consumers include RCF Thal, RCF Trombay, MGL, IPCL, Ispat Industries, etc.

Growth The company has completed nearly two and half decades of an eventful journey. Starting with a natural gas transmission co., it is Having started as a gas transmission today and integrated energy company along the natural gas value chain with global footprints. company in the year 1984, it grew organically over the years by building a large network of natural gas trunk pipelines covering a length of around 7000 km. and over 1900 LPG Pipeline Transmission network. The Company is adding another 5000 km. of new pipelines by the year 2011 at the estimated cost of Rs. 14,500 cr. Which have been approved by the Board of the Company under Navratna Powers. Today the company has interest in the business of natural gas, LPG, liquid Hydrocarbons and Petrochemicals, Exploration and Production, City Gas Distribution and is steadily developing its overseas presence. The major focus of the company is to maintain its dominant position in the gas business, specially the transmission segment. The thrust is to continue the relationship with existing customers as well as add new customers. These new Pipeline would include large trunk Pipelines along with smaller Pipelines which would connectivity along trunk lines so that prospective sources and consumers are connected.

16

Corporate strategy adopted by Gail The company has develop a long term strategic plan which has been reoriented during the year, keeping in view the unfolding demand and supply scenario, entry of new competitors, and changing dynamics in the market place. The goal set by the company includes doubling of top and bottom lines in the near future. The strategy developed to realize the set goals is as under: 1. Tying up with producers and suppliers for marketing and transmission of natural gas on long term and sustainable basis. This is likely to be realized by security more gas from new gas finds and pursuing early finalization of contract with customers and suppliers. 2. Expanding of the pipeline structure from 7000 km. to 12000 km. with the laying of new pipelines by 2011-12. 3. Pursuing of city gas distribution opportunities in the country. This requires the introduction of Compressed Natural Gas for the automotive sector and Piped Natural Gas for commercial and domestic use in 230 cities in a phased manner.

17

The company also plans to strengthen E&P capability and resources by participating as major partner/operator in domestic E&P bidding. gas. This would help in developing E&P as a self sustainable business for augmenting additional supplies of natural This would involve investment both domestic on-land and offshore fields, with a balance portfolio of developmental and exploratory projects. The natural gas demand in India is at an inflection point and increase forces are at work that could dramatically increase the natural gas demand. The present sources of natural gas are projected to deplete in the coming years and therefore, there is a need to look at new sources that are coming up. The company is aggressively pursuing gas sourcing options both from the new domestic sources as well through international sources by way of Pipelines and LNG routes. Collectively, such a rapid rise in expected demand and realignment of sources of gas supply will interact to determine the robust future gas structure. In the area of Petrochemical business, the company is examining the possibility of expansion of petrochemical complex and exploring Greenfield opportunities in the sector in India and abroad. On the globalization front, the company is stepping areas having synergy with existing businesses by entering into new and emerging gas rich countries with focus on sourcing of gas and participating in downstream activities.

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Business segment performance The company has been achieving an all round excellent rating by government of India since a MOU signing. under. 1) Natural gas The company owns and operates a network of 7000km. of natural gas high pressure trunk Pipeline. It supplies over 80 million cubic meter of natural gas per day as fuel to power plants, feedstock for gas based fertilizers plants to over 500 small, medium and large industrial units to meet their energy and process requirements. The companys share of gas transmission business is 79% and it holds 70% market share in gas marketing in India. Natural Gas continues to
19

During the year under

review, the segment wise business performance of the company is as

constitute the core business of the company. During the year 200809, a gas sale has increased marginally to 69.10 MMSCMD from 67.83 MMSCMD in the previous financial year. The company continues to have focus on securing gas supplies from international markets. LNG and transnational Pipelines are the two prevalent modes of cross border gas trade and the company has been making all efforts to bring Natural Gas in the country. 2) Petrochemicals The company owns and operates gas based integrated petro chemical plant at Pata, UP with a capacity of producing 4, 10,000 TPA of polymers i.e. HDPE and LLDPE, which has been enhanced by 1, 00,000 TPA from the earlier capacity of 3, 10,000 TPA. The company is currently in the process of setting up of 2, 80,000 TPA Assam Petrochemical Complex at an investment of Rs. 5460 cr. During 200809, the production of polymer was 3, 86,000 MT and polymer sales was 3, 91,000 MT. 3) LPG Transmission and other Liquid Hydrocarbons The company has 7 LPG plants in the country. In the year 2008-09, total liquid hydrocarbon liquid production was over 1.348 million MT which mainly include 1.043 million MT of LPG, 0.156 million MT of Propane and 0.074 million of Pentane. The company is the only company in India which owns and operates Pipelines for LPG Transmission. IT has 1900 km LPG Pipeline network, 1300 km. of which connects western and northern parts of India and
20

600 km. of network is in the southern part of the country. The LPG transmission system has a capacity to transport 3.8 MMTPA of LPG. LPG transmission throughput was 2.754 million MT in the year 200809.

4) Exploration and Production In line the companys strategy and towards integration along the energy chain, E&P activities had gathered momentum. The gas discoveries in blocks A1 and A3 in Myanmar is maturing to development stage and various studies preliminary to finalization of the development plan and its implementation are underway. Presently, the company is involved in oil and gas exploration activities over and acreage of 1.7 lakhs sq km. The company now holds a participating interest between10% to 80% in 27 oil and gas exploration blocks. Of these 9 are on land blocks and 18 are off shore blocks. In India, there are 24 blocks which are in basins such as Mahanadi, Bengal, Gujarat-Saurashtra, Mumbai, Cambay, Assam and Cauvery. The company has got stake in A1 and A3 blocks in Myanmar and block no. 56 in Oman. . 5) Coal Bed Methane The company has been participating interest in 3 coal bed methane blocks within the area of 1561 sq.km. two of which are in Chhattisgarh
21

and one in Jharkhand. These blocks were awarded to GAIL consortium in CBM-III bidding round. 6) Telecommunication Leveraging on its Pipeline network, the company has build up an OFC network for leasing of bandwidth as a carriers carrier. The companys telecom business unit-GAILTEL has approximately 13,000 km. network. During the year under review, GAILTEL achieved profit before tax of Rs.3 cr.

22

Business Initiatives With changes taking place in the gas market GAIL is continuously evolving strategies to prepare itself for the regulatory scenario. With enactment of petroleum and Natural Gas Regulatory Board Act 2006, by parliament and announcement of gas Pipeline policy by Government of India for business of Natural Gas transmission, Refining, Processing, Storage, Transport, Distribution and marketing, the regulator will oversee and promote the development of Natural Gas sector and also envisages an arms length relationship between transmission activity and marketing/exploration activity.

PIPELINE PROJECTS During the financial year 2007-08 the company has completed a major Pipeline project from Dahej to Dabhol via Panvel to supply gas to RGPPL which started supplying much needed power to the state of Maharashtra. Branch and spur lines to consumers like Deepak Fertilizers, MSEB Uran, BPCL and other consumers in the state of Maharashtra have also been completed. The works for providing the connectivity to Pune city and the consumers of Thal/Usar region is under progress. Connectivity to RELs east west Pipeline which will transport gas from Kakinada to Gujarat is being provided at Oduru in Andhra Pradesh, Mhaskal in Maharashtra and Ankot in Gujarat to enable the flow of gas to
23

consumers in various regions enabling optimum utilization of networks on national basis. The company has received grant of authorization for laying new Pipeline viz. Dadri-Bawana-Nangal Pipeline; ChainsaJhajjar-Hissar Pipeline; Dabhol-Banglore Pipeline; Jagdishpur-Haldiya Pipeline and Kochi-Kanjirkodd-Mangalore/Bangalore Pipeline In addition to the above, the company would also augment the GREP (VIjaipur-Dadri) Pipeline in Dahej-Vijaipur Pipeline (DVPL). These projects are at various stages of implementation. The foremost among them is the Pipeline from Vijaipur to Bawana which envisages supply of gas to Pragati Power at Bawana targeted to supply Power to NCR before commcement of Common Wealth Games 2010. These projects will also enable company to maintain its dominant position in the gas transmission and distribution business.

24

25

26

Subsidiaries and joint Venture. Subsidiaries Gail Gas Ltd. The company has formed a wholly owned subsidiary named GAIL GAS LTD. for implementing and CNG corridors in the country. Pipeline infrastructure in the country. Gail Global (Singapore) Pte. Ltd. The company has wholly owned subsidiary, namely, GAIL Global (Singapore) Pte.Ltd. to manage investments in abroad. The company is looking for further business opportunities through this subsidiary company. Brahmaputra Cracker and Polymer Ltd. The company has 70% equity share with Oil India Ltd. (OIL) Numaligarh Refinery Ltd. (NRL), Govt. of Assam, each having 10% equity share. The authorized capital of the company is Rs. 1200 cr. A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and Polymer Ltd. (BCPL), and all the three suppliers namely ONGC, OIL and NRL. Joint Ventures Avantika Gas Ltd (AGL)
27

The

subsidiary company will act as a vehicle for bidding for laying of

AGL is a JV of a company and Hindustan Petroleum Corporation Ltd. (HPCL) for implementation of city gas projects in the cities of MP. AGL has started projects implementation activities in the city of Indore. The company has 22.5% stake in the company along with HPCL as equal partner.

Bhagyanagar gas Ltd. BGL is currently operating three auto LPG stations in Hyderabad and one auto LPG station in Tirupathi. It is currently operating six CNG stations in Vijayawada and three LPG stations in Hyderabad. The company has 22.5% stake in the company along with HPCL as equal partner.

Central U.P. Gas Ltd. CUGL is currently operating five CNG stations in Kanpur, one CNG station in Bareily. And one CNG station in Kanpur is under commissioning. CNGL is building MDPE network for supply of PNG to domestic, commercial and

28

industrial sector in the city of Kanpur. The company has 22.5% stake in the company along with BPCL as equal partner. Green Gas Ltd. (GGL) GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra. GGL will also take up project implementation in other cities of Western UP on the basis of Gas availability and project viability. The company has 22.5% stake in the company along with IOC as equal partner. Indraprastha Gas Ltd. (IGL) IGL is supplying piped gas to around one lakh domestic, 276 commercial, 16 small industrial consumers and CNG to our 1.35 lakhs vehicles through 153 CNG Stations. IGL is catering to worlds largest CNG bus fleet of over 11,000 buses in Delhi. The company has 22.5% stake in the company along with BPCL as equal partner.

Mahanagar Gas Ltd. MGL has set up 128 CNG stations catering to over 1.85 lakhs vehicles spread over Mumbai, Thane, Mira-Bhayandar and Navi-Mumbai areas besides supplying PNG to over 3.40 lakhs domestic, 907 commercial
29

and 36 small industrial consumers. The company has 49.7% stake in the company along with British Gas as equal partner. Maharashtra Natural Gas Ltd (MNGL) MNGL is a JV of the company and Bharat Petroleum Corp. Ltd. (BPCL) for implementation of city gas project in Pune city. The company has 22.5% stake in the company along with BPCL as equal partner. Petronet LNG Ltd. (PLL) PLL was formed for setting up of LNG import and regasification facilities. PLL has a long turn LNG supply contract with Ras Gas, Qatar for import of 7.5 MMTPA. PLL Dahej terminal is being expanded to 10MMTPA capacity. The company has 12.5% stake in the company along with BPCL, IOCL and ONGL as equal partner. Ratnagiri Gas & Power Pvt. Ltd. (RGPPL) RGPPL is a JV company between this company, NTPC, Financial Institution and MSEB. The company has 28.33% stake in the company along with NTPC as equal partner. The capacity of Ratnagiri Gas and Power Station is 2150MW. The company has made an investment of Rs. 500 crores and has approved additional equity of Rs. 475 crores to RGPPL, out of the Rs. 475 crores..

30

Tripura Natural Gas Company Ltd. (TNGCL) TNGCL is presently supplying gas to 6600 domestic, 104 commercial, 21 industrial consumer and has set up one CNG Station in Agartala city. The company has 29% stake in the company. The company has approved formation of City Gas project in Vadodara with Vadodara Mahanagar Sewa Sadan (VMSS) with 26% equity, while VMSS have 24% equity. The balance of 50% equity will be held by strategic investor and public. And JV agreement has also been sign with HPCL for City Gas analysis in Rajasthan. The company is IT savvy organization and has been continuously adopting state-of-the-art IT solutions keeping pace with fast changing industry. These solutions are not only helping in continuous improvement in efficiency and productivity but also ensuring right information to right person by use of latest security solutions. Continuing with IT initiatives, the company has launched e-tendering portal in 2007 and a large number of domestic and international tenders are being processed through this transparent and secured system across all offices. There have been a number of e-initiatives for increasing business process efficiency and development of manpower. Your company has introduced several other web based online applications like online Recruitment, e-Performance Management System (e-PMS), Grievance Redressal system, Online Vigilance Complaint Registration system, eBudgeting System which has led to enhancing transparency, ready

31

and structured availability of information, enhancing speed of operation and facilitating efficient decision making. Another major initiative towards IT risk management was to set up the state-of-the art 3 way Disaster Recovery (DR) Centre at Jaipur. This will ensure resumption of business operations in the eventuality of any disaster like Fire, Flood, Earthquake, Cyber Attack etc. in the primary data centre at Noida. The DR setup will ensure uninterrupted IT operation and business continuity of the company.

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Team GAIL - People, Performance & Pride Team GAIL comprises of a young group of 2,198 executives, the average age being 36 years. Of these, 1,447 executives deal with the day-to-day execution of the ground-level work. The youngest members belong to this group hence the team is always abuzz with enthusiasm and zeal. The 567 executives in the middle order management carry out the administration and supervision of work. The 114 senior executives are involved in decision-making and setting
33

targets. Their leadership provides direction to GAIL, taking the Company from strength to strength. GAIL's pride is the strong 1,050-member technical team. Engineers recruited mostly from premier technical institutes have built GAIL. Eighty MBAs working with the Company have helped infuse the spirit of excellence. Finance, one of the key ingredients of business, is entrusted with finance professionals, mostly Chartered Accountants and Cost Accountants. Professionals from Humanities in the team have brought about the creative and the artistic aspect of the company to the fore. The organisation's 1,268 non-executives assist in the corporate legwork.

INTRODUCTION TO OIL & GAS INDUSTRY

34

Oil industry's major segments encompass all the steps involved in finding, producing, processing, transporting and marketing oil and natural gas. The major players of this industry in India comprises of ONGC, HPCL, BPCL, IOCL, IPCL, CAIRN ENERGY LTD., ESSAR, RPL, etc. This industry includes the global processes of exploration, extraction, refining, transporting (often by oil tankers and pipelines), and; Marketing petroleum products. The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics. The industry is usually divided into three major
35

components: upstream, midstream and downstream. Midstream operations are usually included in the downstream category. Petroleum is vital to many industries, and is of importance to the maintenance of industrialized civilization itself, and thus is a critical concern for many nations. Oil accounts for a large percentage of the worlds energy consumption, ranging from a low of 32% for Europe and Asia, up to a high of 53% for the Middle East. Other geographic regions consumption patterns are as follows: South and Central America (44%), Africa (41%), and North America (40%). The world consumes 30 billion barrels (4.8 km) of oil per year, with developed nations being the largest consumers. 24% of the oil produced in 2004 was consumed in the United States. The production, distribution, refining, and retailing of petroleum taken as a whole represents the world's largest industry in terms of dollar value.

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WORLDWIDE OIL CONSUMPTION

60 CONSUMPTION (%) 50 40 30 20 10 0 EUROPE AND ASIA MIDDLE EAST SOUTH AND CENTRAL AMERICA REGION AFRICA NORTH AMERICA Series1

Petroleum exports have also emerged as the single largest foreign exchange earner, accounting for 17.24 per cent of the total exports in 2007-08. Growth continued in 2008-09 with the export of petroleum products touching US$ 18.34 billion during April-September 2008. In November 2008, the Cabinet Committee on Economic Affairs awarded 44 oil and gas exploration blocks under the seventh round of auction of the New Exploration Licensing Policy (Nelp-VII). The overall number of blocks brought under exploration now exceeds 200. Oil Companies, Petroleum Companies, Oil & Gas Company

37

Petroleum companies, also known as Oil companies or Oil & Gas companies, have formed a key part of the global economy for the last decade, since petroleum or crude oil has become our main fuel source. Not only have these petroleum companies become amongst the biggest companies in the world, but thanks to the fundamental importance of this limited resource, they have also become embroiled in a complex political world of government and national objectives, international relations - and all too often, outright war. Oil companies, among the largest employers in the world, cater to the global energy demand. Their areas of functioning can be grouped into the following:
Production: This involves the extraction of crude oil from

reserves, followed by its refinement in processing plants.

Distribution: The daily distribution quota is delivered to various

sectors

(e.g.

automobiles,

agriculture,

residential).

This

is

followed by the commercialization of oil products.

PETROLEUM Petroleum is a naturally occurring liquid found in rock formations. It consists of a complex mixture of hydrocarbons of various molecular
38

weights, plus other organic compounds. It is generally accepted that oil, like other fossil fuels, formed from the fossilized remains of dead plants and animals by exposure to heat and pressure in the Earth's crust over hundreds of millions of years. Over time, the decayed residue was covered by layers of mud and silt, sinking further down into the Earths crust and preserved there between hot and pressured layers, gradually transforming into oil reservoirs. The oil and natural gas industry shares a keen interest in the policy issues arena. As demand for energy to keep our homes, vehicles, and businesses running continues to increase, so does our advancement in technology, allowing us to provide safe, reliable, and affordable energy. While serious challenges face our nation on a variety of fronts, oil and natural gas industry representatives remain actively engaged with government leaders to ensure informed decision making so the energy needs of tomorrow are met. Exploration and Production

Exploration for and production of oil and natural gas are the production of oil and natural gas are the first steps in delivering gasoline to your car, heat to your home, raw materials to business and industry, fertilizer to farmers' fields, and for many other aspects of daily life. Many people are unaware of the important role that oil and gas exploration and production play in their daily lives. Without successful exploration and
39

continued production, our nations energy security and the economic prosperity that goes along with it will be compromised Fuels For decades, the oil and natural gas industry has been making affordable fuels that have simultaneously improved the standard of living for American families and contributed to a cleaner environment India Petroleum Industry The India Petroleum Industry is a case in point for exhibiting the giant leaps India has taken after its independence towards its march to attain a self-reliant economy. During the Independence era of 1947, the India Petroleum Industry was controlled by foreign companies and India's own expertise in this sector was limited. Now, after 60 years, the India Petroleum Industry has become an important public sector undertaking with numerous skilled personnel and updated technology that is comparable to the best in the world. The vim and the achievement during these years is the growth of productivity in petroleum and petroleum-based products. Even the consumption has multiplied itself nearly 30 times in the post-independence era. An important advancement in the petroleum industry came with the Industrial Policy Resolution, 1956 which signified the promotion of growth of industries. The ONGC, originally set up as a Directorate in 1955, was transformed into a Commission in 1956. In 1958, the Indian Refineries Ltd., a government undertaking, came into existence. The Indian Oil Company (IOC), also a government undertaking, was set up in 1959 with the purpose of marketing petroleum-related products. Indian Oil Corporation Ltd. was formed in 1964 with the merger of the
40

Indian Refineries Ltd. and the Indian Oil Company Ltd. Presently, 17 refineries operate under the India Petroleum Industry.

Growth of the India Petroleum Industry:

In the post-independence era, India grew tremendously in terms of infrastructure in the petroleum industry, which in turn helped increase the production of petroleum and petroleum-related products.
During 1947-57, 3 refineries were set up in Mumbai and

Vishakhapatnam by transnational oil corporations doing business in Indian

During

1957-67, another 3 refineries were established in

Guwahati, Barauni, and Koyali by Indian Refineries Ltd. During 1967-77. 2 more were set up in Chennai by Iranian companies and in Haldia by Indian Oil Ltd.
During 1977-87, 2 more refineries were commissioned. The one

at Bongaigaon was the first to have an amalgamated petroleum refinery-cum-petrochemicals unit. The other was established at Mathura.

41

 During 1987-97, 2 more were set up at Nagapattinam and

Mangalore.

During

1998-2007,

refineries

at

Panipat

and

Numaligarh were set up.

MAJOR COMPANIES OF OIL INDUSTRY IN INDIA COMPANIES OIL Assam, Rajasthan SET-UP

ONGC

Western offshore and in other states

IPCL

Vadodara, Nagothane (near mumbai) ,Dahej (Narmada estuary in bay of Khambhat) Rabale, Navi Mumbai (catalyst manufacturing facility

HPCL

Mumbai Refinery (Maharashtra), Visakhapatnam Refinery

IOC

Guwahati, Barauni, Koyali, Haldia, Mathura, Digboi, Panipat

IOC
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Chennai Petroleum Corporation Limited (CPCL)- Chennai

SUBSIDIARIES

Narimanam BRPL- Bongaigaon

BPCL

Mumbai (Mahul)

BPCL SUBSIDIARIES

Numaligarh (Assam) Refinery Ltd (62.9% of the share) Kochi Refineries Ltd (Kerala)(BPCL holds 66.04% of the share)

MANGALORE Kuthethoor P. O. Via Katipalla, Mangalore 575030, India REFINERIES AND PETROCHEMIC AL LTD. (MRPL) [under ONGC] RELIANCE PETROCHEMIC ALS Jamnagar: Situated on the north-west coast of India, the integrated refinery-cum-petrochemicals complex of Reliance is located in the state of Gujarat at village Motikhavdi, Taluka Lalpur, District - Jamnagar. Hazira: The Reliance Industries Hazira complex near Surat in Gujarat is situated on approximately 1000 acres land near the banks of river Tapi and manufactures a wide range of Polymers, Polyesters, Fibre Intermidiates and Petrochemicals. Patalganga: On the banks of the river Patalganga, 70 kms from Mumbai. COMPANIES MARKETING SETUP COMPANIES ONGC & JV
43

MARKETING THROUGH GAIL

OIL

OIL

ITSELF(EXCEPT

RAJASTHAN

THROUGH GAIL) CAIRN ENERGY LTD GSPCL ITSELF ITSELF

UTILISATION OF NATURAL GAS

1. The gas produced in the western offshore fields is brought to

Uran in Maharashtra and partly in Gujarat. The gas brought to Uran is utilised in and around Mumbai. The gas brought to Hazira is sour gas which has to be sweetened by removing the sulphur present in the gas. After sweetening, the gas is partly utilised at Hazira and the rest is fed into the Hazira-VijaipurJagdhishpur (HVJ) pipeline which passes through Gujarat, Madhya Pradesh, Rajasthan, U.P., Delhi and Haryana. The gas produced in Gujarat, Assam, etc; is utilised within the respective states.
2. Natural Gas is currently the source of half of the LPG

produced in the country. LPG is now being extracted from gas at Duliajan in Assam, Vijaipur in M.P., Hazira and Vaghodia in Gujarat, Uran in Maharashtra,
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 Pata in UP Nagapattinam in Tamil Nadu. Two plants have also been set up at Lakwa in Assam and Ussar in Maharashtra in 1998-99. One more plant is being set up at : Gandhar in Gujarat. Natural gas containing industry, C2/C3, is which is a feedstock used at for Uran the for

Petrochemical

currently

being

Maharashtra Gas Cracker Complex at Nagothane. GAIL has also set up a 3 lakhs TPA of Ethylene gas based petrochemical complex at Auraiya in 1998-99. Natural Gas Allocation & Supply Scenario
1. As against the total allocation of around 118 MMSCMD, the gas

supplies by GAIL is of the order of 63 MMSCMD spread over about 300 major consumers. Around 32% is supplied to the fertiliser sector, 41% to power, 4% to sponge iron and the balance 23% (including shrinkage) goes to other sectors. 2. Around 8.5 MMSCMD of gas is being directly supplied by the JVs/private companies at market prices to various consumers. This gas is outside the purview of the Government allocations.

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OPPORTUNITIES FOR IMPORT OF NATURAL GAS TO INDIA THROUGH TRANSNATIONAL GAS PIPELINES. Iran-Pakistan-India (IPI) Pipeline Project Myanmar-Bangladesh-India Gas Pipeline Project. Turkmenistan-Afghanistan-Pakistan (TAP) pipeline

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Budget Allocation & Expenditure Budgeting is the companys formal short term planning process for the acquisition and investment of capita. In the preparation of the Budgets, the principle of Zero Base Budgeting is followed according to which expenditure is required to be justified after evaluation of various alternatives and ranking them in order of importance by systematic analysis. Two main budgets are prepared annually in GAIL: Revenue Budgets and Capital Budgets. The revenue budget is the operating budget for income and expenditure. The objective of revenue budget is to fix a target in respect of physical parameters viz Gas sales, Production and sale of LPG & other value added products, Petrochemical production, internal consumption of Gas, shrinkage of Gas for production of LPG, Liquid Hydrocarbons and petrochemicals, power, water and also that of operating expenses which then become the basis from monitoring and controlling. Based on the targeted physical parameters/ operating expenses, the likely profit/ internal resource generation are estimated which will form the basis for funds management. The capital budget comprises of capital expenditure on projects. The same is approved by the MoP&NG and Planning Commission. Actual performance vis--vis MOU targets are monitored by

Management Accounting Cell and periodic reports are submitted to top management.

Oil Costs
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Oil costs include expenditure on exploration, extraction, refining and transportation. The oil industry is highly capital intensive. The investment to revenue ratio is about 8% for the entire sector and approximately 17% for oil producing companies. The demand and supply cycle also introduces volatility into the oil trade. Demand grows on average by 2% each year, but will spike with economic growth and political threats, and drop when recession hits. The lifespan of any oil field is about 15-20 years and requires significant upfront capital investment. Hence, in order to meet the escalating demand, oil companies have to continuously search for new fields and take calculated risks in their development based on expected oil prices over the lifetime of the oil field. Oil Costs: Types The major types of oil costs can be categorized as: Exploration costs: The costs associated with exploration vary significantly, depending upon the scope of a particular project and the region. The exploration stage includes the cost of conducting geological surveys and scientific studies (both preliminary and advanced). Even unsuccessful explorations involve the cost of seismic programs and drilling dry wells, which can vary between $5 million and $20 million. Drilling expenses are the most dominant factor, which could be as high as several millions of dollars. Development costs: These include the cost of developing the extraction site, such as surface installations, subsea installations and other production units. This stage is also characterized by
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heavy labor costs. The magnitude of the project defines the structure and equipment for installations. Treatment costs: Crude oil has to be refined for obtaining oil products. The setting up of refineries requires huge installations. Also, the refining process includes heavy machinery, which adds to the cost of oil in the international market. Transportation costs: The oil industry is one of the biggest consumers of steel required for export pipelines and tankers. There are more than 10,000 oil tankers in the world, with some of them having a capacity of 350 million tons. For an offshore site, export pipelines have to be laid down, whereas an onshore oil field uses oil tankers. Transportation costs are less for countries that produce oil by themselves. There it includes only the cost of transporting oil from the shore to the refinery and further to the distribution centers. However, for countries that import oil, transportation also includes shipping of the refined oil. Apart from these visible costs, there are several indirect costs, such as hiring equipment of production, consumables at oil sites and services. Oil Prices A review of historical oil prices shows that oil displays wide price swings when markets suffer from scarcity or oversupply. The price cycle of crude oil ranges from a small duration to several years. Major Events: Historical Oil Prices
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From 1948 to 1970, oil prices remained stable at around $3 per barrel. A major development was the formation of OPEC in 1960; consisting of Iraq, Iran, Saudi Arabia, Kuwait and Venezuela. Oil Crisis (1973-1978) Oil prices quadrupled from $3 in 1972 to $12 in the later half of 1974. This was triggered by the Yom Kippur War, when Israel was attacked by Egypt and Syria. The US and some other Western countries supported Israel. Infuriated Arab nations imposed an embargo on these countries by curtailing oil production by 5 million barrels per day. The control on oil prices shifted from the US to the OPEC nations during the Arab Oil Embargo. Oil Crisis (1979-1980) In 1979, the Iranian revolution sent oil prices soaring. The countrys oil production plummeted drastically to 2.5 million barrels a day. The 1980 Iraqi invasion worsened the situation. The combined production of both the countries reduced to just one million barrels per day (from 6.5 million barrels in 1978). This lowered the global oil production by 10% and oil prices rocketed to $35 per barrel. Oil Glut (1980-1986) The energy crises of the 1970s slowed down the economic activity across the industrial nations. This resulted in oil conservation and overproduction, pulling down consumption and prices of crude oil drastically. The import of oil by the US reduced from 46.5% in 1977 to

50

28% in 1982-1983. Oil prices which had peaked to $35 in 1980 fell to $10 within six years. Oil Spike (2003-2008) Inflation-adjusted oil prices post-Gulf War remained below $25. However, oil prices began escalating in 2003 due to: Dwindling petroleum reserves and peak oil concerns, Tensions in the Middle-East and Oil-price speculation. Oil price crossed $30 in 2003 and reached $60 in August 2005. Oil price reached a historic high of $147.30 in July, 2008 amidst global economic recession. An analysis of historical oil prices exhibits that oil price determination is no longer solely dependent on the OPEC countries Oil Price Forecasts, Petroleum Crude Oil Forecasts Economists analyze historical market situations and current trends to make oil price forecasts. These predictions give an insight into future oil market scenario and helps as a reference to devise appropriate energy policies. Factors Determining Oil Price Forecasts Oil price forecasts are influenced by the following factors:

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 Supply: The supply side in an oil industry is regulated by major oil

producing nations such as Russia, Saudi Arabia, and the US. The OPEC (Organization of Petroleum-Exporting Countries) also plays an important role. The International Energy Agency 2008 report (IEA) anticipates a substantial increase in global oil production in the coming decades. It predicts additional production of 4 million barrels each day, with the discovery and harnessing of new oil fields.
Demand: While the supply side is monopolized by a handful of oil-

producing countries, its demand curve spans the entire world population. In 2008, the worlds daily oil consumption totalled to 89.9 million barrels. The IEW expects this figure to rise by 1.6% each year. An increase in the energy consumption of developing nations in Asia, Latin American and the Middle East further escalates the demand much further. In addition to the international demand and supply chain, other factors also affect oil price forecast and these are: Political scenarios in oil producing nations International economic health Oil trade flow Transportation charges Refining costs Oil Price Forecasts: 2008 - 2030

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The data from the International Energy Outlook 2008 by the US government indicates that crude oil will account for 33 percent of the worlds total energy consumption by 2030. The coming decades will be characterized by oil price hikes due to: Rising cost of exploration and refining, energy demand in non-OECD nations. Weakening of the US dollar. Two different curves are predicted in the report for the oil price hikes. Firstly, it considers references to price patterns in recent years. Based on previous patterns, it is expected that oil prices will reach $113 per barrel (after adjusting to inflation) in 2030. The second case measures the oil price index in extreme situations, such as if the demand soars beyond proportions. In this situation, the oil prices will fall in the vicinity of $186 per barrel (inflation adjusted). Growing global demand for oil is something the 2008 report has considered while predicting that oil production is expected to rise above 110 million barrels per day.

Gas Gas demand in India is dominated by the power and fertilizer sectors which account for 66 per cent of the current consumption. In 2006,
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the total gas demand was around 152 MSCMD. The gas demand is expected to increase to 320 MSCMD, according to a report by Ernst & Young. Significantly, the share of natural gas in the overall fuel mix is expected to increase from 8 per cent in 2006 to 20 per cent by 2025. Reliance Industries plans to invest between US$ 5.45 billion to US$ 6.54 billion over the next three years to lay a 10,000 km-pipeline.

Financial highlights of the company:

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PART-II: EXECUTIVE SUMMARY

I, Chaitali Paul, enrollment no.420920241, am a student of M.S.Ramaiah Management Institute. I was given the opportunity to Pursue my internship in GAIL India Limited for a period of six weeks. My project is titled Analysis of Accounting System & Financial Ratios.. The basic project objectives are as follows: To study financial statement of past few years. To study about various ratios to have a comparative analysis of the company. To know the differences in various profit figures of the company. .

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INTRODUCTION
Accounting System: GAIL Agartala is mainly following merchandile system of accounting. The following vital conclusions were derived: Account name Sundry creditors Sundry debtors Sales Purchase Closing stock 2007-08 71240062.05 61469079.22 937378546.93 934426967.18 119205.23 2008-09 48905914 99687756.14 973026112.98 941148837.16 1510.92 2009-10 50112490 58813220.25 998213539.27 996259297.57 128916.03

GAIL is earning transmission charges for transportation gas to its various consumers through its own pipeline of 60.2 kilometer in Tripura region. Transmission charges are of fixed in nature depending on the investment made

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by GAIL for construction of pipeline from custody transfer of ONGC to consumer premises. Based on the investment for construction of pipeline and the applicable IRR as per guidelines of corporate office, monthly transportation charges have been fixed for every consumer after commissioning of the pipeline. The monthly transportation charges are increasable at the rate of 3% per year. The transportation charges are earned by GAIL (Agartala) for last 3 years are as follows:

Year

Transportation charges

2007-08

132835245.76

2008-09

136704249.59

2009-10

141489980.56

The above transportation charges are the main source of revenue of GAIL Agartala unit which is coming under company code 3000 under accounting head 5210010.
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RATIO MEANS MEANINGFUL COMPARISON OF TWO DATA

Ratio analysis is the widely use tool of financial analysis. The term ratio in it refers to the relationship expressed in the mathematical terms between two individual figures or group of figures connected with each other in some logical manner and are selected from financial statement of the concern. The Ratio analysis is based on the fact that a single accounting figure by itself may not communicate a meaningful but when expressed as a relative to some other figure, it may defiantly provide some significant information. It is an expression of relationship between one figure and the other figures, which are mutually inter-dependent. Absolute figure is valuable but not comparable.

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But these single become important when studied in relation to other figure either in the same statement like the amount of profit and total sales are different statement. But, when compared gives a sensible meaning such relationship of accounting information given in term of money is commonly referred to as financial/accounting ratio and simple ratio.

Classification of Ratios:-

A. According to Source-

Revenue Ratios-When two or more variables are taken from revenue statement the ratio so computed is known as revenue Balance Sheet Ratios- When two or more variables are taken from Balance Sheet ratio so computed is known as Balance Sheet Ratios. Mixed Ratios- When one variable is taken from Revenue Statement and other Variable taken from Balance Sheet the Ratio so computed are known as Mixed Ratios. B. According to usage-

The

following

seven

categories

of

financial

ratios

have

been

advocated by George foster of Stanford university and these seem to cover exhaustively different aspects of the business organization these are listed below:-

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 Cash Position Liquidity Working Capital/Cash Flows Capital Structure Profitability Debt Service Coverage Turnover Broadly Speaking, the operational and financial position of a firm can be described by studying its short term and long term liquidity position, profitability and its operational activities.

Therefore, Few ratios for GAIL (I) Ltd. are calculated as follows: -

(I) LIQUIDITY RATIO:-

The Term liquidity and short term solvency are used synonymously. Liquidity or short term solvency means ability of the business to pay its short term liabilities. Inability to pay-off sort term liabilities affects its credibility as well as its credit rating Continuous defaults on the part of the business leads to commercial bankruptcy, eventually such commercial bankruptcy may lead to its sickness and dissolution. Short Term lenders and creditors of a business are very much interested to know its state of liquidity because of their financial stake.

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Liquidity ratio measures the ability of the firm to meet its current obligation. The most common ratios are current ratio, quick ratio.

A. Current Ratio

The relationship of current assets to current liabilities is known as current ratio. Current assets means the assets are either in the form of cash or cash equivalent or can be converted into cash or cash equivalents in short time (say, within a years time) and current liabilities means liabilities repayable in short time (within a years time). The ratios are calculated as follows:

Current Ratio = Current Assets / Current Liabilities

Current assets includes cash & bank balances, inventories, sundry debtors, Marketable securities, prepaid expenses and loans Investment. Current liabilities include sundry creditors, bills payable and provision, bank overdraft, CC, proposed dividend etc. & advances, disposable

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Year 2007-2008 2008-2009 2009-2010

Current assets 12288.64 7745.51 10410.02

Current liabilities 8713.99 4551.23 6060.41

Ratio 1.41 1.70 1.72

Significance:

Ideal Current ratio is 2:1; logic behind this 2:1 ideal is conservatism. It means your current assets should be equal to double of current liabilities, so that you never fail to fulfill your payment commitment will within time. Current assets are maintained higher side because these are shrinkage in value due to various reasons, such as bad debts, inventory becoming obsolete or non saleable or unexpected decline in the market value of non trade investment. But as Tandon Committee norms ratio is acceptable at 1.33:1. Although there is no hard and fast tool conventionally the current ratio of 2:1 is considered satisfactory.

Interpretation:

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In the year 2008 the current ratio of the company is 1.41 while in the year 2009 it increase & reached 1.70 & it has again slightly increased in 2010 by 1.72.

In 2009 the companys current ratio is 1.72 there was very few increase in its liquidity in comparison of F.Y. 2008. This change is very minute but there is increase of Rs. 1509.18 crore in current liabilities and Rs.2664.51 crore in current assets. The change in current assets is more than the current liabilities.

As a conventional rule, a current ratio of 2to 1 or more is considered satisfactory. The company has a C.R in 2008-2009 is 1.72:1, therefore it may be interpreted that companys liquidity position is lower than to standard due to shortage of stock, less credit sales and shortage of cash.

The higher Current Ratio refers to the greater margin of safety and the lower Current Ratio indicates to lows margin of safety.

B. Quick ratio

Quick ratio also called acid test ratio, establishes a relationship between quick or liquid assets and current liabilities. An assets is liquid it can be converted into cash immediately or reasonably soon
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without a loss of value. Cash is the most liquid assets.

The quick ratio is found out by dividing quick assets by current liability

Quick ratio =

Liquid Assets Current Liabilities

OR

Quick ratio = Quick Assets Quick Liabilities

Liquid assets includes cash, debtors, marketable securities, bills receivable, (excluding bad & doubtful debts) Quick Assets = Current Assets Inventories Quick Liabilities = Current Liabilities Bank Overdraft Cash Credit

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Year 2007-2008 2008-2009 2009-2010

Liquid Assets 11805.45 7193.15 9840.21

Current Liabilities 8713.99 4551.23 6060.41

Ratio 1.35 1.58 1.62

Significance:

Acid test ratio is a stringent measure of short-term solvency of the firm. It is a measurement of the firms ability to convert its current assets quickly into cash in order to meet its current liability. It is based on those current assets which are highly liquid and illiquid portion of current assets are eliminated. It excludes stock & prepaid expenses.

Acid test ratio of 1:1 is considered ideal. Higher the ratio better is the short-term financial position of the firm

Interpretation

In FY 2008 the quick ratio of the company was 1.35, and in 2009 it increases to 1.58 & after that it again increases to 1.62 in FY 10. The quick ratio is high in both consecutive years 2009 & 2010, so it proves that companys financial position is sound and have able to pay its short term liabilities, show idle cash & debtors balance.
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Positive Working Capital is also one of reason of High Quick Ratio.

(II) TURNOVER RATIOS OR ACTIVITY RATIO

The Ratios computed under this group indicates the efficiency of the organization to use the various kinds of assets by converting them in the form of sales. As the assets can be basically categorized as fixed assets and current assets and as the current assets may further be classified according to the individual components of current assets viz. Inventory and receivables (debtors) or as net current assets i.e., current assets less current liabilities viz. working capital, under this group of classification of ratios, following ratios may be computed:-

A. Inventory Turnover Ratio

Inventory turnover indicates the efficiency of the firm in producing and selling its products. It calculates by dividing the cost of goods sold by the average inventory.

Inventory turnover ratio = Cost of goods sold/Sales Average inventory

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Cost of goods sold is calculated as follows:

Cost of goods sold = opening stock + purchase + direct expenses Closing stock

Or

Cost of goods sold = sales- gross profit

Average inventory = (opening inventory+ closing inventory) / 2

Year 2007-2008 2008-2009 2009-2010

Cost of goods Avg. sold 10505.03 12505.13 13499.73 Inventory 482.315 567.95 561.26 (Times) 21.78 22.02 24.05

Ratio

Link with Working Capital Management :

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We can calculate collection period with the help of Ratio:

Storage Period = 360 Or 12 / Inventory Turnover

Year 2007-2008 2008-2009 2009-2010

Days 360 360 360

Ratio 21.78 22.02 24.05

Storage Period 16.53 16.35 14.97

Significance:

The inventory turnover ratio measures how fast the stock is moving through the firm and generating sales It indicates whether stock has been efficiently used or not. The purpose of the ratio is to check up whether only the required minimum amount has been invested in stock.

Higher the ratio, better it is, since it indicates that more sales are been produced by a rupee of investment in stocks. A low stock turnover may reflect dull business and cover investment in stock. Thus only a proper inventory ratio enables a business to earn a reasonable margin of profits. However, a minimum amount of stock must be invested in stock to
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avoid out of stock situation

Interpretation The inventory turnover ratio shows a rising trend of the company under study for the year from 2007-08 to 2009- 10.

In the year 2009-10 the ratio of inventory turnover was 24.05 Times that shows the company have efficient inventory management and optimum utilization of resources.

B. Debtors Turnover Ratio This ratio establishes relationship between net credit sales and average debtors of the year. Debtors turnover indicates the number of times debtors turnover each year. This ratio helps to measures time leg between credit sales and cash collection. This ratio is calculated as follows:

Debtors turnover ratio = Net Credit Sales Average Debtors

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A net sale has been taken in place of net credit sales.

Average debtors are calculated by dividing the sum of debtors in the beginning and at the end by to outside analyst, information about credit sales and opening and closing balance of debtor may not available. Therefore, debtor turnover can be calculated by dividing total sales by the year-end balance of debtor

Opening Debtors + Closing Debtors / 2 Debtors include Bills receivables also.

Year 2007-2008 2008-2009 2009-2010

Credit Sales/ Sales 14459.41 16047.18 18008.20

Average Debtors 788.165 772.09 932.16

Ratio 18.34 20.77 19.32

Significance: The debtors turnover ratio indicates economy and efficiency in the collection of amount due from debtors. The higher the ratio, the better it is, since it would indicate that debts are being collected more quickly. Prompt collection of books debts will increase funds, which may then be put for some other use.

It is not however, very prudent for a firm to have either a very low or a
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high debtors turnover ratio. A very low debtors turnover would imply either poor credit selection or an inadequate collection effort. The delay in the collection of debtors would mean that, apart from the interest cost involved in maintaining a higher level of debtors, the liquidity position o f the firm is adversely affected.

Similarly, too high a turnover ratio is not necessarily good. It may have adverse effect on the volume of the sales of the firm. Sales may be confined to only such customers as make prompt payments.

Thus a firm should have neither a very low nor a high debtors turnover ratio, it should maintain it at a reasonable level.

Interpretation:

The debtors turnover ratio of company since 2006 was 18.34 Times and its collection period was 19.63 days, In 2009 it significantly increased by 20.77 Times & its collection period was 17.33 days whereas in 2010 ratio was 19.32 Times and collection period was 18.63 days.

Sales and debtors had been increased every year. From this we can infer that debtors collection period was below to 20 days which reflects companys goods collection policy, less chance of bad debts
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and creditors are also paid fast.

C. Working Capital Turnover Ratio

This ratio indicates the number of times a unit invested in the working capital produces sales. In others words, the ratio indicates whether the working capital has been effectively utilized or not in making sales.

The ratio express the number of time a rupee invested in working capital is turn around. The ratio is calculated as follows:

Working capital turnover ratio (WC) = Sales/Working Capital

Working capital means the excess of current assets over current liabilities i.e., current assets- current liabilities.

Year 2007-2008 2008-2009 2009-2010

Net sales 14459.41 16047.18 18008.20

NWC 3574.65 3194.28 4349.61 4.04 5.02 4.14

Ratio

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Significance:

The working capital turnover ratio indicates number of times unit invested in working capital produces sales. This ratio indicates whether working capital has been effectively utilized or not in making sales. In other words, it measures the rate of working capital utilization.

The high working capital turnover ratio indicates the capability of the organization to achieve maximum sales with minimum investment in working capital. it indicates that working capital is turned over in the form of sales more number of times.

Interpretation

The Working Capital Turnover ratio of company during in the FY 20082009 is good and shows management efficiency in operating the companys operations. Management of company had well managed the Companys working capitals requirements.

D. Turnover Ratio

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This ratio shows the firms ability in generating sales from all financial resources committed to total assets. Assets Turnover Ratio = Sales/ Total assets

Total assets means total of assets side including intangible assets but excluding fictitious assets, also book value of non trade investment is replaced by their Market Value. (TA) include net fixed assets (NFA) and current assets (CA)

(TA = NFA+CA)

Year 2007-2008 2008-2009 2009-2010

Net sales 14459.41 16047.18 18008.20

Total assets 21650.85 18600.62 21903.55 0.67 0.86 0.82

Ratio

Significance:

Higher Turnover Ratios indicated that there is sufficient utilization of business assets to generate Sales.

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Interpretation There is no major difference between all three years it increases with equal percentage in all three years.

E. Fixed Assets Turnover Ratio

It shows relationship between sales and fixed assets. It can be calculated as follows:-

Fixed assets turnover ratios:- Sales/ Fixed assets

Net sales include sales after return, if any, both cash as well as credit. Fixed assets include net fixed assets i.e. fixed assets after providing for depreciation.

Year 2007-2008 2008-2009 2009-2010 Significance:

Sales 14459.41 16047.18 18008.20

Fixed assets 8171.55 9391.31 9749.95 1.77 1.71 1.84

Ratio

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A high fixed assets turnover ratio indicates efficient utilization of fixed assets in generating Sales. A firm whose plant and machinery are old may shows a higher fixed assets turnover ratio then the firm which has purchased them recently.

Interpretation:-

In all three years there are no major differences between turnover ratios because of all these ratios may not differ in short term like 2 or 3 years. And there is optimum utilization of plant and machinery in generating sales.

F. Current Assets Turnover Ratio

This Turnover Ratios shows sales generating by better utilization of current assets in the organization. It has calculated as follows:-

Current Assets Turnover Ratio = Sales / Current Assets

Net sales include sales after return, if any, both cash as well as credit.

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Current assets include the assets like inventories, sundry debtors, B/R, Cash etc.

Year 2007-2008 2008-2009 2009-2010

Sales 14459.41 16047.18 18008.20

Current assets 12288.64 7745.47 10410.02

Ratio 1.18 2.07 1.73

Significance:

A higher current assets turnover ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in current assets. It indicates that the current assets are turned over in the form of sales more number of times. As such higher the current assets turnover ratio better will be the situation.

Interpretation

As we see in table that in the FY year 2007-08 the current ratios is 1.18 Times that has increased by 2.07 Times in year 2008-09 and in

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next year 2009-10 it decreased by 1.73 Times, it can be said that company has less current assets in 2009 from 2008 and in 2010 company has increases in sales and current assets both, but current assets has increased in more proportion as compared to sales, so I find a decrease in current assets turnover ratio in 2010.

(III) PROFITABILITY RATIOS

A. Net profit ratio

A ratio of net profit to sales is called net profit ratio. Generally, this ratio is taken in percentage. Deducting operating expenses, finance charges and making adjustment for non- operating expenses and income from gross profit derive net profit. The ratio can be calculated by the formula Lower net profit ratio combined with higher operating. Ratio means either the company has big amount of non operating expenses or lower amount of non operating income.

Net profit ratio =NET PROFIT SALES

x 100

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Net Profit = Operating Profit + non-operating profit non Operating Expenses

Year 2007-2008 2008-2009 2009-2010

Net Profit 2310.07 2386.67 2601.46

Net sales 14459.41 16047.18 18008.20

Ratio 15.98 14.87 14.45

Significance:

The net profit margin is indicative of managements ability to operate the business with sufficient success not only to recover from revenue of period the cost of merchandise or service, the expenses of operating the business (including depreciation) and the cost of borrowed funds, but also to eave a margin of reasonable compensation to the owner for providing their capital at risk.

The objective of working capital net profit ratio is to determine the overall efficiency of the business higher the ratio, better it is.

Interpretation

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In the current year 2009-10 net profit ratio was 14.45% that slightly less in comparison to previous years 2008-09 & 2007-08 i.e. 14.87% and 15.98%. In 2008-09 and 2009-10 each year the profit and sales was increased while the net profit in percent has declined. The reason behind this is increases in Administration, Selling & Distribution expenses, and increase in capacity utilization.

B)

Gross Profit Ratio: 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 1 of turnover our business is earning. Gross profit is the profit we earn before we take off any administration costs, selling costs and so on. So we should have a much higher gross profit margin than net profit margin. Gross profit Ratio = Gross Profit Sales X 100

Year 2007-2008 2008-2009 2009-2010

Gross Profit 3954.38 3542.05 4508.47

Net sales 14459.41 16047.18 18008.20

Ratio % 27.35 22.07 25.03

Significance:

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This ratio measures the margin of profit available on sales. The higher the gross profit ratio, the better it is. No ideal standard is fixed for this ratio, but the gross profit ratio should be adequate enough not only to cover the operating expenses but also to provide for depreciation, interest on loans, dividends and creation of reserves.

Interpretation

In the FY 2008-09 the gross profit of company was 22.07% is much less of preceding year 2007-08 due to increase on its manufacturing & transmission costs.

In the FY 2009-10 the gross profit was 25.03% which was quite high from the last year. In this year (09-10) the companys revenue has increased significantly due to completion of some of its pipeline projects.

COMPARATIVE STATEMENT SHOWING RATIO:200910

Ratio

Units

200708

200809

LIQUIDITY RATIOS

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Current ratio Quick /Liquid Ratio Inventory Turnover Ratio Total assets turnover Ratio

Times Times Times

1.21 1.16 21.78

1.32 1.21 22.02

1.40 1.31 24.05

Times

0.67

0.82

0.86

MANAGEMENT EFFICIENCY RATIOS Debtors Turnover Ratio Debtors Collection Period Working Capital Turnover Ratio Total Assets Turnover Times Ratio Fixed assets Turnover Ratio Current assets turnover Ratio PROFITABILITY RATIO Net Profit Ratio % 15.98 14.87 14.45 Times 1.18 2.07 1.73 Times 1.77 1.71 1.84 0.67 0.86 0.82 Times 4.04 5.02 4.14 Times Days 18.34 19.63 20.77 17.33 19.32 18,63

(PAT/TURNOVER) Gross Profit Ratio % 27.35 28.22 30.76

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STATEMENT OF THE PROBLEM

A few numbers in financial statements are significant in themselves, but meaningful inferences can be drawn from their relationship from their relationship to other amounts or their change from one period to another or from one group to another group or from source to use or vice-versa or from one activity to another activity.

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Ratios are simply a means of highlighting in arithmetical term, the relationship between figures drawn from financial statements. A ratio can relate to any magnitude to any other, such as net profit to total assets or current liabilities to current assets, the choices are limited by the analysts imagination. Meaningful ratio serves best to point out changes in financial conditions or operating performance and help illustrate the trends and patterns of such changes. This, in turn, may indicate to the analyst the risks and opportunities for the company under review.

SCOPE OF THE STUDY Ratio analysis is perhaps the first financial tools developed to analyze and interpret the financial statement and still used widely used for this purpose. Financial performance analysis is a well researched area and innumerable studies have proved the utility and usefulness of this analytical technique

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OBJECTIVES OF THE STUDY To study the meaning of Ratio Analysis To study the concept, nature, Ratio Analysis To study the use and need for Ratio Analysis To calculate the various financial ratios. To study the problems which are directly affecting liquidity, solvency, profitability and capital market strength of the organization.

TECHNIQUES USED IN THE STUDY Consultation and personal observation. Collection classification, compilation, tabulation analysis and figure relevant to various financial ratios of the organization. Calculation of various ratios and their analysis for measuring the liquidity position of the company. Discussion with various officers & employees of concern. Drawing conclusion through various ratio analysis & diagrammatic representation of data.

SOURCES OF DATA The analysis was based on following document and related Information.
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 The annual financial statement of the concern i.e. balances sheet, profit & loss account, annual report. The company publication includes booklets, news, bulletins, etc
Reference book & journals related financial data of Gail.

LIMITATION OF THE STUDY

The research work relied on certain data & the Information provided by the company There is general paucity of adequate database.
The study is limited to only three-year (2007-2010) performance

of the company. Ratio has overbearing reflection of past position. The same may or may not subsist (good &bad) in faculty, which is fraught with uncertainty especially in business environment.

Findings and Conclusion: In the light of the developments that have happened in the past year the company has shown that not only it has creating value for its shareholders but also creating value for other stakeholders as well. The initiatives taken by this company focuses on competitiveness both internally and externally

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Internal capabilities building to outperform competitors in the near and long terms is being gradually enhanced through several initiatives such as the e-initiatives for increasing employed competencies. On the external front your company is now poised to strengthen its base in the international markets via its global businessman in the coming years. The challenges in the Oil & Gas industry are many. Increase in crude oil prices threaten competitiveness and pose marketing challenges. Besides, the Indian natural gas market is maturing and is expected to grow rapidly, bringing newer opportunities. New regulations would govern new paradigm of domestic industry. Being the market leader, the company is better prepared financially and intellectually to drive on the growing Indian gas economy. During my training period I have noticed some of the following key areas which has really helped company to bring efficiency in its working style. Being a public sector company it is working like full fledged MNCs. Through well established SAP System the company has: Improve operational efficiency and productivity within and beyond your enterprise. Extend transactions, information, and collaboration functions to a broad business community. Increase profitability, improve financial control, and manage risk. Integrate and optimize business processes. Gail has fulfilled its corporate social responsibilities and followed its business ethics in every stage of its existence. The company has maintained transparency in its business through EBanking, in its contract and bidding process which has helped in gaining the confidence of clients. Considering all the above points I can say that the company has well organized its operational activities which has one hand benefited to company itself and all its stakeholders. Bibliography

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To obtain more information regarding the present study and to substantiate it with theoretical proof, the following references were made: M.R. Agrawal, Management Accounting II, First edition Annual Report of Gail (India) Ltd., (2007-08, 2008-09, 2009-10) Hand Book of Gail (India) Ltd.

SEARCH ENGINE: www.gailonline.com www.business@mapofindia.com. www.Ministryofpetroleun.com www.economywatch.com

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