FINANCIAL PERFORMANCE ANALYSIS OF CHENNAI PETROLEUM CORPORATION LIMITED, CHENNAI A summer internship report submitted in partial fulfillment of the Degree of Master of Business Administration of Thiagarajar School of Management, Madurai By K. SRIRAM Reg No – 1011082 Under the guidance of Prof. ARUNACHALAM . M Faculty TSM, Madurai [pic] Thiagarajar School of Management (Affiliated to Madurai Kamaraj University) Madurai – 625 005 May – July 2011 BONAFIDE CERTIFICATE
This is to certify that the project work titled, “FINANCIAL PERFORMANCE ANALYSIS CHENNAI PETROLEUM CORPORATION LIMITED, CHENNAI” was undertaken at CHENNAI PETROLEUM CORPORATION LIMITED, CHENNAI, submitted to Thiagarajar School of Management, Madurai in partial fulfillment of Master of Business Administration Degree is a record of original work done by me and no part of this internship report has been submitted for the award of any other Degree, Diploma, Fellowship or other similar studies.
SIGNATURE SIGNATURE (INTERNAL GUIDE) (EXTERNAL GUIDE) DATE : ACKNOWLEDGEMENT I put forth my heart and soul to thank The Almighty for being with me all through my achievements, success and failures. I express my sincere and whole hearted gratitude to the management of CHENNAI PETROLEUM CORPORATION LIMITED, MANALI for giving me a golden opportunity to pursue a valuable project. I deem it a privilege to thank Mr. JAGADEESAN .
B, SENIOR OFFICER (FINANCE-CORPORATE ACCOUNT & TAXATION) CPCL, MANALI, CHENNAI-68 for his valuable ideas and guidance throughout the project. I extend my deep sense of gratitude to Prof. M. ARUNACHALAM, Faculty, Thiagarajar School of Management for providing support guidance and valuable ideas which helped me to complete this project successfully. I deem it a privilege to thank Mr. Venkiteswaran. N, Director, Thiagarajar School of Management for facilitating my value addition at the institution. I sincerely thank Dr. M. Nagaraju, Principal, Thiagarajar School of Management, for his encouragement.
Finally, I extend my thanks to my friends and family members who have been a source of inspiration and support throughout the project. CONTENTS Page no. List of tables8 List of charts 9 Executive summary10 Chapter 1 Introduction11 1. Objectives 13 2. About the project33 Chapter 2 About the company and industry35 Chapter 3 Review of literature35 Chapter 3 Research Methodology40 . 1 Statement of the problem41 3. 2 Scope of study41 3. 3 Objectives41 3. 4 Research design41 3. 5 Data collection42 3. 6 Questionnaire construction43 3. 7 Sampling Method44 3. 8 Tools for analysis44 3. 9 Limitations45 Chapter 4 Analysis and Interpretation46 Chapter 5 Findings63
Chapter 6 Conclusions65 Chapter 7 Suggestions67 Chapter 8 Bibliography69 Chapter 9 Annexure71 EXECUTIVE SUMMARY The project is intended to analyze the financial performance of CHENNAI PETROLEUM CORPORATION LIMITED, MANALI, CHENNAI. A comprehensive study has been carried out on the financial status of the company for the past six years and analysis has been done using various financial analysis tools such as ratio analysis, z-score analysis, commom size analysis, comparative balance sheet analysis, etc. he sales figures, working capital and the profitability of the company has been predicted using regression analysis and trend analysis and they are tabulated and these values are interpreted to analyze the company’s performance in the next four years to come CHAPTER : 1 INTRODUCTION OBJECTIVES PRIMARY • To study about the oil industries. • To analyze the overall performance and position of the company CPCL in the deregulated scenario. SECONDARY • To study the present financial position of CPCL. • To study the financial performance of CPCL by analyzing the profitability, solvency and liquidity position of the company. To evaluate the operating efficiency of CPCL using funds flow statement analysis and to suggest measures for improving the operating efficiency of the company. • To study the efficiency of working capital in operations. • To study the sources and application of funds and cash flow for the past 5 years. • To project the future Sales, Profit & working Capital of CPCL and to ascertain the strengths and weaknesses of the company. ABOUT THE PROJECT What is Financial Analysis? The computation of analytical ratios from financial statements and interpretation of these ratios to determine their trends as a basis for management decisions.
Finance is the backbone of any enterprise. It may be manufacturing, trading or servicing. Efficient management of every enterprise is the outcome of efficient management of its finance. Finance is one of the basic foundations of all kinds of economic activities. Corporate financial analysis is largely a study of the relationship among the various finance factors in a business, as disclosed by a single set of statements and a study on the trends of these factors shown in the series of statements of the company with future projections.
It is a process of identifying the financial strength and weakness of the firm by properly establishing relationships between the items of the balance sheet and the profit and loss account. My primary aim is to provide a comprehensive analysis on the company’s performance on the financial front with the data provided by the company. Staying in the esteemed and disciplined organization has given immense knowledge on the working of the industry and how CPCL has set up its organization structure. It has a well organized corporate office in Teynampet and inbuilt offices in the premises of Manali refinery.
The main objective is to present a detailed financial performance analysis comparing the past six years of the company’s annual report. This report will contain following tools which are commonly used for analyzing any industry. • Ratio Analysis • Comparative Balance Sheet Analysis • Common size Balance Sheet Analysis • Statement of changes in the working capital • Z-Score Analysis • Y-score analysis • Trend Analysis • Regression Analysis CHAPTER : 2 INDUSTRY AND THE COMPANY PROFILE INDUSTRY PROFILE OIL AND NATURAL GAS
Oil industry primarily comprises the following activities: crude oil exploration, crude oil refining, distribution and marketing of petroleum products. The various products obtained from the distillation of crude oil include petrol, diesel, kerosene, natural gas, naphtha, fuel oil, aviation turbine fuel, bitumen and paraffin. A host of other less valuable hydrocarbon products are also obtained in the crude oil distillation process as by-products. The Indian oil and gas sector is one of the six core industries in India and has very significant forward linkages with the entire economy.
India has been growing at a decent rate annually and is committed to accelerate the growth momentum in the years to come. This would translate into India’s energy needs growing many times in the years to come. Hence, there is an emphasized need for wider and more intensive exploration for new finds, more efficient and effective recovery, a more rational and optimally balanced global price regime – as against the rather wide upward fluctuations of recent times, and a spirit of equitable common benefit in global energy cooperation.
The Indian oil and gas sector is of strategic importance and plays a predominantly pivotal role in influencing decisions in all other spheres of the economy. The annual growth has been commendable and will accelerate in future consequently encouraging all round growth and development. This has necessitated the need for a wider intensified search for new fields, evolving better methods of extraction, refining and distribution, the constitution of a national price mechanism – keeping in mind the alarming price fluctuation in the recent past and evolving a spirit of equitable global corporation.
Exploration and Production (E) The growing demand for crude oil and gas in the country and policy initiative of Government of India towards increased E activity, have given a great impetus to the Indian E industry raising hopes of increased exploration. Oil and Natural Gas Corporation Limited (ONGC) and Oil India Ltd. (OIL), the two National Oil Companies (NOCs) and private and joint-venture companies are engaged in the exploration and production (E) of oil and natural gas in the country. During the year 2008-09, crude oil production has been 33. 51 million metric tonnes (MMT) with natural gas at 32. 5 billion cubic metre (BCM). Natural gas production in 2009-10 is targeted to be about 52. 116 BCM. HIGHLIGHTS IN THE PETROLEUM & NATURAL GAS SECTOR DURING 2009-10 India has total reserves (proved & indicated) of 1201 million metric tonnes of crude oil and1437 billion cubic metres of natural gas as on 1. 4. 2010. The total number of exploratory and development wells and metreage drilled in onshore and offshore areas during 2009-10 was 428 and 1019 thousand metres respectively. Crude oil production during 2009-10 at 33. 69 million metric tonnes is 0. 55% higher than 33. 1 million metric tonnes produced during 2008-09. Gross Production of Natural Gas in the country at 47. 51 billion cubic metres during 2009-10 is 44. 63% higher than the production of 32. 85 billion cubic metres during 2008-09. The production of Natural Gas at 44. 94% and 0. 08% of the total were highest and lowest in JVC/Private and West Bengal respectively during 2009-10. The flaring of Natural Gas in 2009-10 at 2. 09% of gross production is lower than at 3. 29% in 2008-09. The refining capacity in the country increased to 184. 386 million tonnes per annum (MTPA) as on 1. . 2010 from 177. 968 MTPA as on 1. 4. 2009. The total refinery crude throughput during 2009-10 at 160. 03 million metric tonnes is 0. 46% lower than 160. 77 million metric tonnes crude processed in 2008-09 and the prorate capacity utilisation in 2009-10 was 89. 92% as compared to 107. 43% in 2008- 09. The production of petroleum products during 2009-10 was 151. 898 million metric tones (including 2. 244 million metric tonnes of LPG production from natural gas) registering a decrease of 0. 51% over last year’s production at 152. 678 million metric tonnes (including 2. 62 million metric tonnes of LPG production from natural gas). The country exported 50. 974 million metric tonnes of petroleum products against the imports of 23. 49 million metric tonnes (including 8. 828 million metric tonnes of LNG) during 2009-10. The consumption of petroleum products during 2009-10 were 138. 196 million metric tonnes (including sales through private imports) which is 3. 60% higher than the sales of 133. 400 million metric tonnes during 2008-09. The total number of retail outlets of Public Sector Oil Marketing Companies as on 1. 4. 2010 has gone upto 36462 from 34948 on 1. . 2009. The total number of LPG consumers of Public Sector Oil Marketing Companies as on 1. 4. 2010 were 114. 952 million against 105. 632 million as on 1. 4. 2009. The number of persons employed (including contract employees) in petroleum industry as on 1. 04. 2010 and 1. 04. 2009 are 129988 & 138973 respectively. Imports and Exports of crude oil and petroleum products During the financial year 2008-09, imports of crude oil has been 128. 16 MMT valued at US$ 73. 97 billion. Imports of crude oil during 2007-08 was 121. 67 MMT valued at US$ 58. 98 billion. This marked an increase of 5. 3 per cent during 2008-09 in quantity terms and increased by 25. 37 per cent in value terms. During the financial year 2008-09, exports of petroleum products in quantity terms is 36. 93 MMT valued at US$ 25. 41 billion marking an increase of 6. 02 per cent in value terms compared to 2007-08. Natural Gas Natural Gas has emerged as one of the most preferred fuel due to its environmentally benign nature, greater efficiency and cost effectiveness. At present, the main producers of natural gas are Oil and Natural Gas Corporation Limited (ONGC), Oil India Limited (OIL) and the Joint Ventures of Panna Mukta & Tapti, and Ravva.
Out of the total production of around 96 MMSCMD, after internal consumption, LPG extraction and unavoidable flaring, around 73 MMSCMD is available for sale to various consumers. In addition, around 7 MMTPA of re-gasified LNG (about 23 MMSCMD) is also being supplied to domestic consumers. Gas produced by ONGC and OIL from the existing nominated blocks is sold at administered prices fixed by the Government. As against a total allocation of 150 MMSCMD of gas, actual supply under APM is presently around 53 MMSCMD. REFINERIES IN INDIA
To meet the growing demand of petroleum products, the refining capacity in the country has gradually increased over the years by setting up of new refineries in the country as well as by expanding the refining capacity of the existing refineries. As of April, 2009 there are a total of 20 refineries in the country comprising 17 (seventeen) in the Public Sector and 3 (three) in the Private Sector. The country is not only self sufficient in refining capacity for its domestic consumption but also exports petroleum products substantially. Public Setor Undertakings
Oil & Natural Gas Corporation Limited (ONGC) ONGC Videsh Limited (OVL) Oil India Liimted (OIL) GAIL (India) Limited Chennai Petroleum Corporation Limited (CPCL) Bongaigaon Refinery & Petrochemicals Limited (BRPL) Numaligarh Refinery Limited (NRL) Mangaore Refinery & Petrochemicals Limited (MRPL) Other Undertakings/organisations Directorate General of Hydrocarbons (DGH) Engineers India Limited (EIL) Balmer Lawrie & Co. Ltd. (BL) Biecco Lawrie Limited (BLL) Oil Industry Development Board (OIDB) Oil Industry Safety Directorate (OISD) Centre for High Technlogy (CHT) Petroleum India International (PII)
Petroleum Planning & Analysis Cell (PPAC) KEY PLAYERS • Indian oil corporation. • ONGC. • Bharat Petroleum. • Reliance Petroleum Limied. • Essar Oil Limited. • Gas Authority of India. • Hindustan Petroleum Corporation. • Aban. • Oil India Limited. • Tata Petrodrive. COMPANY PROFILE |[pic]Chennai Petroleum Corporation Limited (CPCL) is a world class Refining Company with dominant presence in South India. CPCL, formerly | |known as Madras Refineries Limited (MRL), was formed in 1965 as a joint venture between the Government of India (GOI), AMOCO and National | |Iranian Oil Company (NIOC).
Subsequent to AMOCO’s and GOI’s disinvestment in 1985 and 2001 respectively, CPCL became a group company of | |Indian Oil corporation limited (IOCL). | |In 1969, CPCL set up its first Refinery in Manali, Chennai with an installed capacity of 2. 5 MMTPA in a record time of 27 months. CPCL | |now has two refineries with a combined refining capacity of 10. 5 MMTPA. The Manali Refinery has progressively increased its refining | |capacity to the current level of 9. 5 MMTPA and is one of the most complex refineries in India and produces Fuels, Lubes, Wax and | |Petrochemical feed stocks.
CPCL’s second Refinery is located at Cauvery Basin in Nagapattinam. This unit was initially set up with a | |capacity of 0. 5 MMTPA in 1993 and later enhanced to 1. 0 MMTPA with its own captive Jetty. The turnover of CPCL for the year 2008-09 was Rs. | |36,490 crore. CPCL plays the role of a Mother Industry supplying feed stocks to the neighbouring industries in Manali. CPCL’s products are | |marketed through IOCL. CPCL’s products are mostly consumed domestically except Naphtha, fuel oil and lubes which are partly exported. |CPCL has also made pioneering efforts in the field of Energy and Water Conservation by setting up a Wind Farm and Sewage Reclamation and | |Sea Water Desalination Plants. | | | |Chennai Petroleum Corporation Limited (CPCL), formerly known as Madras Refineries Limited (MRL) was formed as a joint venture in 1965 | |between the Government of India (GOI), AMOCO and National Iranian Oil Company (NIOC) having a share holding in the ratio 74%: 13%: 13% | |respectively.
Originally ,CPCL Refinery was set up with an installed capacity of 2. 5 Million Tonnes Per Annum (MMTPA) in a record time of | |27 months at a cost of Rs. 43 crore without any time or cost over run. | |In 1985, AMOCO disinvested in favour of GOI and the shareholding percentage of GOI and NIOC stood revised at 84. 62% and 15. 38% | |respectively. Later GOI disinvested 16. 92% of the paid up capital in favor of Unit Trust of India, Mutual Funds, Insurance Companies and | |Banks on 19 th May 1992, thereby reducing its holding to 67. 7 %. The public issue of CPCL shares at a premium of Rs. 0 (Rs. 90 to FIIs) in| |1994 was over subscribed to an extent of 38 times and added a large shareholder base. | |As a part of the restructuring steps taken up by the Government of India, IndianOil acquired equity from GOI in 2000-01. In July 2003, NIOC| |transferred their entire shareholding to Naftiran Intertrade Company Limited, an affiliate, in line with the Formation Agreement, as part | |of their organizational restructuring. Currently IOC holds 51. 89% while NICO holds 15. 40%. | |CPCL has two refineries with a combined refining capacity of 10. 5 Million Tonnes Per Annum (MMTPA).
The Manali Refinery has a capacity of | |9. 5 MMTPA and is one of the most complex refineries in India with Fuel, Lube, Wax and Petrochemical feedstocks production facilities. | |CPCL’s second refinery is located at Cauvery Basin at Nagapattinam. This unit was set up in Nagapattinam with a capacity of 0. 5 MMTPA in | |1993 and later enhanced to 1. 0 MMTPA. | |The main products of the company are LPG, Motor Spirit, Superior Kerosene, Aviation Turbine Fuel, High Speed Diesel, Naphtha, Bitumen, Lube| |Base Stocks, Paraffin Wax, Fuel Oil, Hexane and Petrochemical feed stocks.
The Wax Plant at CPCL has an installed capacity of 30,000 tonnes| |per annum, which is designed to produce paraffin wax for manufacture of candle wax, waterproof formulations and match wax. A Propylene | |Plant with a capacity of 17,000 tonnes per annum was commissioned in 1988 to supply petrochemical feedstock to neighbouring downstream | |industries. The unit was revamped to enhance the propylene production capacity to 30,000 tonnes per annum in 2004. CPCL also supplies LABFS| |to a downstream unit for manufacture of Liner Alkyl Benzene. | | | | | | | | | | CPCL – VISION STATEMENT Chennai Petroleum Corporation Limited will be a world class energy company, well respected and consistently profitable with a dominant presence in South India CPCL – MISSION STATEMENT To maximize profits through: The manufacturing and supply of petroleum products and • Other related business in a reliable, ethical and socially responsible manner MAJOR PROJECTS COMPLETED Refinery-III capacity Expansion by 1. 0 MMTPA • In order to produce additional value added products like LPG, Naphtha, SK, HSD, etc. meeting latest fuel norms, existing Refinery-III capacity at Manali Refinery was expanded from 3. 0 MMTPA to 4. 0 MMTPA. M/s. Engineers India Ltd. carried out detailed engineering, procurement and construction management of this project. This project has been completed by April 2010 nd the plant is in operation. The total cost of the project was 200. 41 Crores. Revamp of existing Naphtha Hydro-treating / Catalytic Reforming Unit • To produce high quality Motor Spirit (with higher Octane number) meeting Euro-IV specifications, the existing Naphtha Hydro-treating / Catalytic Reforming unit with semi regenerative cycle was revamped to higher capacity with continuous regenerative cycle at an estimated cost of Rs. 272. 77 crore. The plant was commissioned in May 2010. MAJOR PROJECTS UNDER IMPLEMENTATION 1) Euro-IV Preparedness on Auto Fuels
As per the Auto Fuel Policy of the Government of India, Auto Fuel Quality Upgradation Project (to produce MS/HSD meeting Euro-IV specifications for Chennai and Bangalore and Euro-III equivalent specifications for the rest of the locations from April 2010 onwards) has been undertaken at an estimated cost of Rs. 2615. 69 crore in Manali Refinery. M/s Engineers India Ltd. (EIL) were engaged for Design, Engineering, Procurement and Execution of this project on ‘Open Book Estimate Contract’ Methodology. The details of the Auto Fuel Projects are as given below: The Naphtha Hydro-treater / Isomerisation (NHDT/ISOM) unit for MS production has been mechanically completed and commissioning jobs are in progress. • The Diesel Hydro-treater (DHDT) unit for Diesel quality Upgradation has been mechanically completed and pre-commissioning jobs are in progress. • Other Utilities and Offsite packages are in various stages of progress and expected to be completed by May 2011 • A new Hydrogen Generation Unit to augment the existing Hydrogen Generation capacity is under construction and expected to be completed by Dec. 2011. ) Revamp of existing CDU/VDU-II from 3. 7 to 4. 3 MMTPA: As per Euro-IV Diesel specification under the Diesel Quality Improvement projects (the production of Diesel confirming to ASTM D 86 to have 95% (vol) recovery at a temperature of 360 oC (max)) and also to enhancement unit capacity from existing 3. 7 MMTPA to 4. 3 MMTPA is being implemented. EIL has been awarded as PMC for Design, Engineering, Procurement and Execution of this project. The cost of this project 333. 99 Crores is approved. The project is expected to be completed by March 2012. FUTURE Projects 1) Resid up-gradation Project To improve the distillate yield of Manali refinery, Resid Upgradation Project has been conceived. The project has been awarded to M/s Jacobs for Design, Engineering, Procurement and Execution of this project. The Process Packages for all the Process units have been completed. • The scope of work has been divided into 2 phases: o Phase-I: Covers preparation of Utilities& offsite package, Finalizing orders on Long lead items, Preparation of DFR and Tender for enabling jobs o Phase-II: Covers execution of the project including OHCU Revamp and additional packages for Utilities & Offsite. Final DFR expected by Feb 2011 after which Investment approval would be made. Anticipated completion of the project would be 33 months from the date of investment approval. 2) New Crude Oil Pipeline To overcome the risk associated with transportation of Crude Oil through the aging existing 30” Crude Oil Pipeline, laying of a new 42” Crude Oil Pipeline as replacement, from Chennai Port to Manali Refinery along the route of the proposed Port Connectivity Road was conceived. The entire implementation of 42” Crude Oil Pipeline awarded to M/s.
IOCL at a cost of Rs. 120 Crore (under Reimbursable cost plus basis), for Design, Detailed Engineering, Procurement, Tendering, Project Management, Construction Management and supervision during installation, testing and pre-commissioning, commissioning and handing over the project to CPCL. The entire work is planned for completion in all respects within 18 months reckoned from the date of signing of the Agreement or 12 months from the date of handing over of clear RoW by CPCL whichever is later. Ongoing Projects Plan Projects • 5. 8 MGD Desalination Project
With a mission to achieve self-sufficiency in the water front, a project for installation of a 5. 8 MGD Desalination unit at an estimated cost of Rs. 231. 34 crore is under implementation. This project is expected to go on stream by March 08. With the commissioning of this unit, CPCL would be able to meet its total water requirements through in-house sources/facilities. • Crude Oil Pipeline Project: A new 42” Crude Oil Pipeline as a replacement of the existing 30”ageing Crude Oil Pipeline is proposed to be laid from Chennai Port to Manali Refinery along the route of the proposed Port Connectivity Road.
The estimated project cost is about Rs. 65 crore. This new line will also facilitate faster unloading of crude oil from tankers. The project is expected to be completed in 12months time from the completion of Road works and Rehabilitation activities. • Revamp of CDU-VDU of Refinery-III The Crude and Vacuum Distillation unit (CDU/VDU) of Refinery III with a design capacity of 3. 0 MMTPA was commissioned in February 2004. This unit was designed by M/s Engineers India Limited (EIL).
CPCL explored the possibility of increasing the capacity of CDU/VDU in Refinery III and proposed to carry out low cost revamp of CDU/VDU III. Accordingly, approval was obtained from CPCL’s management in July 2005 for awarding the job to M/s EIL for preparation of Process Package. EIL has completed the preparation of Process Package and cost estimate for the revamp. As part of the design basis of the project, the major equipments in the unit viz. the Atmospheric Heater, Atmospheric Column, Vacuum Heater and Vacuum Column are to be retained.
Based on the above criteria, the maximum capacity after revamp has been fixed at 4. 0 MMTPA as limited by the diameter of the vacuum column. Hence, based on the diameter limitation of the vacuum column, the maximum achievable capacity of the unit after revamp is fixed at 4. 0 MMTPA. Major modifications/changes in the equipment that would take place are addition of pre-flash drum, a second stage desalter, replacement of high capacity trays in Atmospheric column, use of high capacity packing (s), replacement of burners besides installation of new Pumps and Exchangers.
The present Refinery III has a merox unit (licensed by M/s UOP, U. S. A. ) with capacity of 5250 kg/hr for removal of mercaptans from LPG. The required capacity after revamp is about 12000 kg/hr for the controlling crude case (Upper Zakkum). Alternate technology developed by EIL and IOC-R&D viz. CFC for removal of mercaptans, has been adopted for the additional LPG from the revamp. There will be incremental production of fuel products on account of revamp.
LPG: 24000 TPA, Naphtha: 115000 TPA, SK/ATF: 285,000 TPA, Diesel 170,000 TPA and Fuel Oil: 330,000 TPA The total capital cost of the proposed project revamp was worked out as Rs. 134. 34 crore, including the financing charges of Rs. 3. 12 crore. The financing charges were estimated based on debt: equity of 1:1. The above capital cost includes a foreign exchange component of Rs. 8. 63 crore. CPCL board issued the investment approval in August, 2006. M/s EIL has been lined up as Engineering, Procurement and Construction (EPC) consultant. The project is scheduled to be commissioned by May’2009. Revamp of existing Naphtha Hydrotreating/ Catalytic Reforming Unit (Semi Regenerative type) to Continuous Catalytic Reformer (CCR) The existing Naphtha Hydro treating and Catalytic Reforming unit(NHT/CRU) located in Refinery III with an installed capacity of 225,000TPA ( reforming section) was designed by M/s. Axens, France. The unit was commissioned in February 2004, and since then the unit has been operating smoothly. With the commissioning of 3 MMTPA expansion cum modernization project and FCC revamp project, CPCL presently produces EURO III equivalent / BS II quality MS as per auto fuel policy.
In pursuant to strategy of meeting EURO IV equivalent specification for the rest of the regions CPCL explored the possibility of converting the existing Semi-Regenerative Catalytic Reformer (SCR) to a Continuous Catalytic Reformer (CCR) to increase the octane number from 98 to 102, besides maximizing its capacity. Hence the conversion of Semi Regenerative Reformer to CCR with reformate of RON 102 will be become necessary to enable CPCL to meet the higher –octane requirement. Also this revamp in combination of proposed Isomerisation unit of about 140,000 MT per nnum will also facilitate CPCL to maximize the MS production to the level of about 1. 0 MMTPA to meet the increased demand. M/s Axens, France (Process Technology licensor) confirmed the Technical feasibility of conversion from SCR to CCR and also the capacity increase by about 35% i. e. from 225,000 TPA to 303,000 TPA. M/s Axens completed the process package in May 2006 and cost estimation was done by M/s Engineers India Limited. As part of the revamp, the following major modifications /Additions in the different sections of the unit are expected to be under taken.
No major modifications are foreseen in the Naphtha splitter, the following modifications to the Reforming unit have been envisaged: It is proposed to add a small new reactor (first position) and a new furnace. Operating pressure will be slightly increased to avoid bottleneck on recycle compressor (for compensation of increased pressure drop in the loop by higher capacity and new reactor and furnace). As part of the conversion of existing SEMI regeneration type to CCR type, a catalyst regeneration section is also to be added as new facility within in the unit limits.
The additional utilities required is quite low for the proposed project, it will be met from the existing facilities. The additional products from the expansion are confirmed to be evacuated by Oil Marketing/ Pipe line divisions of Indian Oil Corporation Limited The cost of the project was estimated to be Rs. 234. 09 crore including a foreign exchange component of Rs. 58. 55 crore and financing charges of Rs. 6. 43 crore. The project is scheduled to be completed by October’ 2009. • Euro-IV Project for quality up-gradation of Auto Fuels (MS and Diesel) As per the Auto Fuel policy of Government of India, fuels viz.
MS and HSD are to be produced to meet Euro IV equivalent specifications for 11 cities and Euro III Equivalent specification for the rest of the country from April 2010 onwards. As part of CPCL’s endeavor to meet the future auto fuel specifications, CPCL carried out a Preliminary Feasibility Study through M/s Engineers India Limited and identified the facilities needed for this requirement. The following units are proposed to be added for Euro-IV project besides creation of required utilities and offsite facilities: • Diesel Hydrotreating Unit – 1. 8 MMTPA capacity • Naphtha Hydrotreating Unit – 0. MMTPA capacity • Isomerisation Unit – 0. 14 MMTPA capacity • Hydrogen Generation Unit of 21000 TPA • Revamps of Sour Water Stripper Unit and Sulphur Recovery Units • Frame VI GT – 30 MW The major utilities and offsite facilities envisaged for the project include one Cooling Tower Cell (3800 m3/hr), one DM water Chain (150 m3/hr), one Compressed Air System, an Air Separation unit (360 Nm3/hr of gaseous N 2 and 36 Nm3/hr of liquid N 2) and a Flare System in addition to the required feed and product tanks. The cost of the project as per the PFR was estimated to be Rs. 665 crore including a foreign exchange component of about Rs. 325 crore and financing charges of about Rs. 61 crore. After the execution of the Euro IV project CPCL will be able to produce MS and HSD of Euro III / Euro IV specifications and also 100% Euro IV specifications. CPCL’s Board in its meeting held on 25 th August 2006 accorded its approval to carry out pre-project activities for Euro-IV Project at an estimated cost of Rs. 48 crore. The commissioning of NHT/ISOM segment is slated to be completed by January 2010 and DHDT by July 2010. Non-Plan Projects • Installation of 20 MW Gas Turbine:
This project would further strengthen the Company’s infrastructure at the cost of Rs. 157. 88 crores. This project will enhance the reliability and quality of captive power generation of Manali Refinery. The project is expected to be completed by February 2008.. • Additional Crude Tanks: Two more Crude tanks are being added to the present strength to augment the crude storage capacity at Manali, at an estimated cost of Rs. 80. 57 crore. These additional tanks are expected to be in place by June 2009. • Installation of Higher capacity MS tank: Construction of Single deck floating roof tank for MS services is underway at the cost of Rs. . 40 crores AWARDS AND RECOGNITIONS IN THE PAST FIVE YEARS |YEAR |AGENCY |DETAILS OF THE AWARD | | | |CPCL CBR was awarded “Award for TPM Excellence, category A” indicating | |2010 |JAPAN Institute of Plant Maintenance(JIPM) |that TPM is implemented for all the 8 pillars excellently in entire CBR | | | |by JAPAN Institute of Plant Maintenance(JIPM) during January 28, 2010. | | |Rural Development and Panchayat Raj Department, Government of Tamil Nadu| | | |has selected Chennai Petroleum Corporation Limited (CPCL) as one of the | |2009 |Government of TamilNadu |recipients of the prestigious Corporate Social Responsibility (CSR) | | | |Award for the year 2008-09 for having undertaken various social and | | | |economic upliftment programs within the State of Tamil Nadu. | | | |CPCL has been selected for the Presentation of the prestigious 10th | |2009 |Greentech Foundation, New Delhi |Annual “Greentech Environment Excellence Award-2009”. | | |CPCL received Golden Peacock Award for its Pioneering efforts in the | |2009 |Institute of Directors, New Delhi |field of occupational Health in the Oil sector and for the Most | | | |significant improvements & innovative activities practiced in the field | | | |of Occupational Health & Safety. | | | |CPCL CBR was awarded 3rd level Safety Award namely (Suraksha Puraskar- | |2008 |National Safety Council of India, Mumbai |Bronze Trophy and Certificate) for the Year 2007 by NSCI,Mumbai. This | | | |award was presented on 10. 01. 2009. | | |CPCL CBR won the Star Award from National Safety Council of India, Tamil| |2008 |National Safety Council of India |Nadu Chapter, Chennai for the Year-2007 under the NSCI Safety Awards | | | |Scheme of NSC, TN Chapter, Chennai. | | | |CPCL received Exim Achievements Award from Tamil Chamber of Commerce at | |2008 |Tamil Chamber of Commerce |a Function Presided by His Excellency the Governor of Tamil Nadu. | | |CPCL received the prestigious Mother Teresa Award for Corporate Citizen | |2008 |Loyola Institute of Business |2008, instituted by Loyola Institute of Business | | |Administration(LIBA) |Administration(LIBA),Chennai. | | | |CPCL was one of the Top 25 companies adopting good Corporate Governance | |2008 |Institute of Company Secretaries of |practices in the year 2008. CPCL achieved this excellence for the third | | |India(ICSI) |time in a row. | | |CBR won the Star award from National Safety Council of India, Tamil Nadu| |2007 |National Safety Council of India |Chapter, Chennai for the year 2007 under the NSCI Safety awards Scheme | | | |of NSC, TN Chapter, chennai. | | | | | |2007 |Institute of Company Secretaries of India |Adoption of good Corporate Governance Practices | |2007 |Government of TamilNadu |State Safety Award for 2005 | |2007 |Prime Minister’s Office |Shram Bhushan Awards |2006 |Ministry of Petroleum and Natural Gas-GOI |Jawaharlal Nehru Centenary Award for Energy Performance | CHAPTER : 3 REVIEW OF LITERATURE FINANCIAL ANALYSIS Financial analysis (also referred to as financial statement analysis or accounting analysis) refers to an assessment of the viability, stability and profitability of a business, sub-business or project. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making business decisions. Continue or discontinue its main operation or part of its business; • Make or purchase certain materials in the manufacture of its product; • Acquire or rent/lease certain machineries and equipment in the production of its goods; • Issue stocks or negotiate for a bank loan to increase its working capital; • Make decisions regarding investing or lending capital; • Other decisions that allow management to make an informed selection on various alternatives in the conduct of its business. GOALS Financial analysts often assess the firm’s: 1. Profitability -its ability to earn income and sustain growth in both short-term and long-term. A company’s degree of profitability is usually based on theincome statement, which reports on the company’s results of operations; 2.
Solvency – its ability to pay its obligation to creditors and other third parties in the long-term; 3. Liquidity – its ability to maintain positive cash flow, while satisfying immediate obligations; Both 2 and 3 are based on the company’s balance sheet, which indicates the financial condition of a business as of a given point in time. 4. Stability- the firm’s ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company’s stability requires the use of both the income statement and the balance sheet, as well as other financial and non-financial indicators. METHODS OF ANALYSIS
Financial analysts often compare financial ratios (of solvency, profitability, growth, etc. ): • Past Performance – Across historical time periods for the same firm (the last 5 years for example), • Future Performance – Using historical figures and certain mathematical and statistical techniques, including present and future values, This extrapolation method is the main source of errors in financial analysis as past statistics can be poor predictors of future prospects. • Comparative Performance – Comparison between similar firms. FINANCIAL ANALYSIS REQUIREMENT • How to manage the finances to achieve the strategic goals of the institution • How to increase profitability • How to reach self-sufficiency/breakeven point How to increase efficiency especially reducing the cost per client • What is the optimum level of each different operational expense including the cost of funds • How to manage the costs of human resources as part of overall human resource management • How to deal with the effect of inflation • What is the loan loss reserve policy • What is the write-off and rescheduling policy • What interest rate should the MFI charge on products? • How to manage liquidity—i. e. , how to keep solvent at the same time as disbursing the maximum number of loans, setting a target level of liquidity • What is the best financing structure, i. e. , how much debt including from commercial sources and how much capital do you need? • What should the asset structure be? • How to manage the fixed assets, i. e. , the depreciation policy, how to finance them, are they insured, are they safe? • What are currency risks and can they be minimized? How to undertake trend analysis and to compare actual performance against planned performance FINANCIAL ANALYSIS TOOLS In business usage the term financial statement analysis and interpretation are applied to almost any kind of detailed inquiry into financial data. It is a technical tool in the hands of financial executives to measures the financial progress. It is an attempt to determine the significance and meaning of the financial statement data so that a forecast can be made on the prospects of future earning ability to pay interest and debt maturity both current as well as long term and to study the probability of a sound dividend policy.
The techniques are used to ascertain or measure the performance of the company as a whole. Review of literature consists of theoretical study of the following sub topics :- • Ratio Analysis • Comparative Balance Sheet Analysis • Common size Balance Sheet Analysis • Statement of Working Capital Changes • Trend Analysis • Regression Analysis • Z-Score Analysis RATIO ANALYSIS Financial statement analysis is a judgmental process. One of the primary objectives is identification of major changes in trends, and relationships and the investigation of the reasons underlying those changes. The judgment process can be improved by experience and the use of analytical tools.
Probably the most widely used financial analysis technique is ratio analysis, the analysis of relationships between two or more line items on the financial statement. Financial ratios are usually expressed in percentage or times. Generally, financial ratios are calculated for the purpose of evaluating aspects of a company’s operations and fall into the following categories: • liquidity ratios measure a firm’s ability to meet its current obligations. • profitability ratios measure management’s ability to control expenses and to earn a return on the resources committed to the business. • leverage ratios measure the degree of protection of suppliers of long-term funds and can also aid in judging a firm’s ability to raise additional debt and its capacity to pay its liabilities on time. activity or turnover ratios provide information about management’s ability to control expenses and to earn a return on the resources committed to the business. A ratio can be computed from any pair of numbers. Given the large quantity of variables included in financial statements, a very long list of meaningful ratios can be derived. A standard list of ratios or standard computation of them does not exist. The following ratio presentation includes ratios that are most often used when evaluating the credit worthiness of a customer. Ratio analysis becomes a very personal or company driven procedure. Analysts are drawn to and use the ones they are comfortable with and understand. Ratio analysis is a financial management tool that enables managers to assess their progress in achieving sustainability.
They can help answer two primary questions that every institution involved in microfinance needs to ask: • Is this institution either achieving or progressing towards profitability? • How efficient is it in achieving its given objectives? Taken together, the ratios in the framework provide a perspective on the financial health of the lending/savings, and other operations of the institution. No one ratio tells it all. There are no values for any specific ratio that is necessarily correct. It is the trend in these ratios which is critically important. Ratios must be analyzed together, and ratios tell you more when consistently tracked over a period of time.
Frequent measurement can help identify problems which need to be solved before they fundamentally threaten the MFI, thus enabling correction. Trend analysis also helps moderate the influence of seasonality or exceptional factors. Different levels of users will require a set of different indicators and analysis. They might be summarized as follows: • Operations staff need portfolio quality, efficiency ratios, outreach, and branch level profitability. • Senior management needs institution-level portfolio quality, efficiency profitability, liquidity, and leverage. • Regulators need capital adequacy and liquidity. • Donors/investors need institution-level portfolio quality, leverage and profitability. In addition to analyzing past trends, ratios, in conjunction with policy decisions, are helpful when preparing financial projections. PROFITABILITY RATIOS The purpose of study and analysis of profitability ratios are to help assessing the adequacy of profits earned by the company and also to discover whether profitability is increasing or declining. NET PROFIT MARGIN The ratio measures the net profit margin on the total net sales made by the company. The gross profit represents the excess of sales proceeds during the period under observation over their cost, before taking into account administration selling and distribution and financing charges.
The ratio measures the efficiency of the company’s operations and this can also be compared with the previous years results to ascertain the efficiency partners with respect to the previous years. Net sales Gross Profit Margin = X 100 Sales RETURN ON ASSETS The profitability of the firm is measured by establishing relation of net profit with the total assets of the organization. This ratio indicates the efficiency of utilization of assets in generating revenue PAT Return on assets = X 100 (beginning + ending total assets)/2 OPERATING PROFIT MARGIN A measure of the operating income generated by each rupee of sales and is given by the formula Operating profit Return on assets = X 100 Net sales RETURN ON INVESTMENT
This ratio shows the relationship between the return after interest and taxes expressed as a percentage of the Capital employed, where Capital employed is the summation of Net fixed Assets after depreciation and amortization and the working capital. PAT Return on investment = X 100 (long term liabilities + equities) RETURN ON EQUITY Measures the income earned on the shareholder’s investment in the business. It is given by the formula PAT Return on equity = X 100 equity RETURN ON CAPITAL EMPLOYED This ratio expresses the net profit in terms of the equity shareholders funds. This ratio is useful in measuring the rate of return as a percentage of the book value of shareholders equity. EBIT Return on capital employed = X 100 Capital employed
BASIC EARNINGS POWER RATIO The basic earning power ratio (or BEP ratio) compares earnings apart from the influence of taxes or financial leverage, to the assets of the company. EBIT Basic earnings power ratio = X 100 Total assets EFFICIENCY RATIO Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios can calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of equity and the general use of inventory and machinery. Non-interest expense Basic earnings power ratio = X 100 Revenue LIQUIDITY RATIOS
The short-term solvency ratios, which measure the liquidity of the firm and its ability to meet its maturing short-term obligations. Liquidity is defined as the ability to realize value in money, the most liquid of assets. It refers to the ability to pay in cash, the obligations that are due. CURRENT RATIO The ratio is mainly used to give an idea of the company’s ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point.
While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt – as there are many ways to access financing – but it is definitely not a good sign for the company or the industry. Current assets Current ratio = X 100 Current liabilities QUICK RATIO In finance, the Acid-test or quick ratio or liquid ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. A company with a Quick Ratio of less than 1 can not currently pay back its current liabilities. Quick Current assets
Quick ratio = X 100 Current liabilities ABSOLUTE LIQUIDITY RATIO A subsequent innovation in ratio analysis, the Absolute Liquidity Ratio eliminates any unknowns surrounding receivables. The Absolute Liquidity Ratio only tests short-term liquidity in terms of cash and marketable securities. It is the ratio of absolute liquid assets to quick liabilities. However, for calculation purposes, it is taken as ratio of absolute liquid assets to current liabilities. Absolute liquid assets include cash in hand, cash at bank and short term or temporary investments. Liquid assets Absolute liquidity ratio = X 100 Current assets CAPITAL STRUCTURE RATIOS DEBT EQUITY RATIO
Indicates how well creditors are protected in case of the company’s insolvency and the formula is given by Debt Debt equity ratio = X 100 Equity PROPRIETARY RATIO A high proprietary ratio is indicative of strong financial position of the business. Proprietors funds Propreitary ratio = X 100 Total asets INTEREST COVERAGE RATIOS The interest coverage ratio shows how many times interest charges are covered by funds that are available for payment of interest. An interest cover of 2:1 is considered reasonable by financial institutions. A very high ratio indicates that the firm is conservative in using debt and a very low ratio indicates excessive use of debt. Net PBIT
Interest coverage ratioratio = X 100 Interest DEBT SERVICE COVERAGE RATIO The debt service coverage ratio is a ratio of PAT to its interest and is given by PAT + interest + depreciation Debt service coverage ratio = X 100 Interest CAPITAL GEARING RATIO Capital gearing ratio indicates the degree of vulnerability of earnings available for equity shareholders. This ratio signals the firm, which is operating on trading on equity. Net sales Capital gearing ratio = X 100 Debtors ACTIVITY RATIOS CAPITAL TURNOVER RATIO A company’s annual sales divided by its average stockholders’ equity.
Capital turnover is used to calculate the rate of return on common equity, and is a measure of how well a company uses its stockholders’ equity to generate revenue. The higher the ratio is, the more efficiently a company is using its capital. It is also called as equity turnover. Net sales Capital turnover ratio = X 100 Capital employed FIXED ASSETS TURNOVER RATIO A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company’s ability to generate net sales from fixed-asset investments – specifically property, plant and equipment (PP&E) – net of depreciation. A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues Net sales
Fixed asset turnover ratio = X 100 Fixed assets WORKING CAPITAL TURNOVER RATIO A company uses working capital (current assets – current liabilities) to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales. Net sales
Working capital turnover ratio = X 100 Net working capital INVETORY TURNOVER RATIO A ratio showing how many times a company’s inventory is sold and replaced over a period. A low turnover is usually a bad sign because products tend to deteriorate as they sit in a warehouse. Companies selling perishable items have very high turnover. Average inventory Inventory turnover ratio = X 100 COGS CURRENT ASSETS TURNOVER RATIO Ratio that indicates how efficiently a firm is using its current assets to generate revenue. The formula is given by, Net sales current assets turnover ratio = X 100 Current assets STOCK TURNOVER RATIO
This ratio establishes relationship between the cost of goods sold during a given period and the average amount of inventory carried during that period. It indicates whether the stock has been efficiently used or not,the purpose being to check up whether only the required minimum has been locked up in stocks. COGS Stock turnover ratio = X 100 Average inventory CREDITOR TURNOVER RATIO This ratio is similar to the debtors turnover ratio. It compares creditors with the total credit purchases. It signifies the credit period enjoyed by the firm in paying creditors. Accounts payable include both sundry creditors and bills payable.
Same as debtors turnover ratio, creditors turnover ratio can be calculated in two forms, creditors turnover ratio and average payment period. Net purchases Creditor turnover ratio = X 100 Creditor DEBTOR TURNOVER RATIO A concern may sell goods on cash as well as on credit. Credit is one of the important elements of sales promotion. The volume of sales can be increased by following a liberal credit policy. The effect of a liberal credit policy may result in tying up substantial funds of a firm in the form of trade debtors (or receivables). Trade debtors are expected to be converted into cash within a short period of time and are included in current assets.
Hence, the liquidity position of concern to pay its short term obligations in time depends upon the quality of its trade debtors. Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity ofdebt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year. Net sales Debtor turnover ratio = X 100 Debtors COMPARATIVE BALANCE SHEET ANALYSIS The comparative balance sheet analysis is the study of the trend of the same items, group of items and computed items in two or more balance sheets of the same business enterprise on different dates. The changes in periodic balance sheet items reflect the conduct of a business.
The changes can be observed by comparison of the balance sheet at the beginning and at the end of a period and these changes can help in forming an opinion about the progress of an enterprise. Balance sheets as on two or more different dates are used for comparing the assets, liabilities and the net worth of the company. Comparative balance sheet analysis is useful for studying the trends of an undertaking. Advantages • Comparative statements help the analyst to evaluate the performance of the company. • Comparative statements can also be used to compare the performance of the firm with the average performance of the industry between different years. • It helps in identification of the weaknesses of the firm and remedial measures can be • taken accordingly.
COMMON SIZE BALANCE SHEET ANALYSIS A statement in which balance sheet items are expressed as the ratio of each asset to total assets and the ratio of each liability is expressed as a ratio of total liabilities is called common size balance sheet. The figures are shown as percentages of total assets, total assets and total liabilities. The total assets are taken as 100 and different assets are expressed as a percentage of the total. Similarly, various liabilities are taken as a percentage of total liabilities. These statements are useful in analysis of the performance of the company by analyzing each individual element to the total figure of the statement.
These statements will also assist in analyzing the performance over years and also with the figures of the competitive firm in the industry for making analysis of relative efficiency. STATEMENT OF CHANGES IN WORKING CAPITAL This statement follows the Statement of Sources and Application of Funds. The primary purpose of the statement is to explain the net change in Working Capital, as arrived in the Funds Flow Statement. In this statement, all Current Assets and Current Liabilities are individually listed. Against each account, the figure pertaining to that account at the beginning and at the end of the accounting period is shown. The net change in its position is also shows.
The changes taking place with respect to each account should add up to equal the net change in working capital, as shown by the Funds Flow Statement. Z SCORE ANALYSIS The dozens of financial ratios seem to provide different answers to the same simple question of “How will a company do”. So, everyone is on the lookout for financial models that summaries one general aspect of overall company performance. An example is the Z score, which reveals the efficiency of working capital management. The original Z score was created by Edward I Altman at New York University in the mid 1960’s and it has stood as the test of time. Out of a selection of 22 financial ratios.
Altmann found 5 that could be combined to discriminate between the bankrupt and non-bankrupt companies in this study. The interesting thing about the Z score is that is good analytical tool no matter what shape the company is in. Even if the company is very healthy, if the Z score to fall sharply, warning bells should ring. The Z score model, relevant for manufacturing entities can be expressed as follows Z = 0. 012X1 + 0. 014 X2 + 0. 033 X3+ 0. 006 X4 + 0. 010 X5 Z = Financial Health score X1 = Working capital /Total assets*100 X2 = Retained earnings/Total assets*100 X3 = Earning before interest and tax/Total assets*100 X4 = Net worth /Total liability*100 X5 = Sales/Total assets*100
In the above formulae, X1 is a measured of liquidity which compares net liquid assets to total assets. Generally, when the company experiences financial difficulties, working capital will fall more quickly than total assets, causing this ratio to fall. Score less than 1. 8=Bankruptcy Score 1. 8 to 3=Indication of approaching trouble Above 3 points=Strong (safe zone) MULTI DISCRIMINANT WORKING CAPITAL ANALYSIS To check the overall efficiency of working capital management, the technique of Multi discriminant analysis has been developed, which may also be termed as Y Score analysis. Y Score = 14. 5166 V2 + 0. 0015 V25 + 0. 8715 V31 + 0. 7914 V35 Where, V2 = Cash flow/ Total tangible assets V25 = Current asset / Current Liabilities
V31 = Net Sales / Total tangible assets V35 = Defensive assets / Total operating expenses If Y score is above or equal to 1. 7069 it is said that management of working capital is effective, otherwise it is ineffective. TREND ANALYSIS Trend analysis is a form of comparative analysis that is often employed to identify current and future movements of an investment or group of investments. The process may involve comparing past and current financial ratios as they related to various institutions in order to project how long the current trend will continue. This type of information is extremely helpful to investors who wish to make the most from their investments.
The process of a trend analysis begins with identifying the category of the investments that are under consideration. For example, if the investor wishes to get an idea on the potential for making a profit with pork bellies, the focus will be on the performance of pork bellies in a commodities market. The trend analysis will include more than one supplier for the commodity, in order to get a more accurate picture of the current status of pork bellies on the market. Once the focus is established, the investor takes a long at the general performance for the category over the last couple of years. This helps to identify key factors that led to the current trend of performance for the investment under consideration.
By understanding how a given investment reached the current level of performance, it is then possible to determine if all or most of those factors are still exerting an influence. CHAPTER 4 ANALYSIS AND INTERPRETATION PROFITABILITY RATIOS NET PROFIT MARGIN FORMULA = PAT / NET SALES |YEAR |NET SALES |PAT |NET PROFIT MARGIN | |2006 |2112742. 57 |48096. 43 |2. 28 | |2007 |2469481. 77 |56527. 33 |2. 29 | |2008 |2801860. 17 |112295. 4 |4. 01 | |2009 |3196390. 63 |39728. 3 |1. 24 | |2010 |2497262. 84 |60321. 95 |2. 42 | |2011 |3310781. 82 |51152. 22 |1. 55 | TABLE 1. 1 [pic] FIG 1. 1 INTERPRETATION With the successful commission of CDU-III from 3 MMTPA to 4 MMTPA, the installed capacity increased from 10. 5 to 11. 5 MMTPA and thereby increasing more opportunities for sales which is evident from the drastic increase in sales for a percentage of 32. 49 yielding a higher profit margin in the past two years.
It is clear and evident that with expansion in the business owing to the requirement to the exceeding refining capacity in the country, has lead to a higher profit margin. RETURN ON ASSETS FORMULA = PAT / (BEGINNING + ENDING TOTAL ASSETS)/2 |YEAR |PAT |TOTAL ASSETS |ROA | |2006 |48096. 43 |787912. 51 |0. 12 | |2007 |56527. 33 |758736. 99 |0. 15 | |2008 |112295. 4 |927752. 18 |0. 4 | |2