Capital Structure Analysis of Indian Oil

Corporation Limited (IOCL)

A PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
DEGREE OF MASTER OF BUSINESS ADMINISTRATION
DEPARTMENT OF MANAGEMENT STUDIES, PONDICHERRY UNIVERSITY

UNDER THE GUIDANCE OF

Institutional guide:

Organisational guide:

Dr. M.Basheer Ahmed Khan

Mr. Himangshu Bardoloi

Department of Management
Studies

Accounts Officer
Guwahati Refinery (IOCL)

Pondicherry University
Submitted By:
Kankan Deka
Regn. No.-13397039
MBA 2rd Year.

DECLARATION
I hereby declare that the project report titled CAPITAL STRUCTURE
ANALYSIS OF INDIA OIL CORPORATION LIMITED submitted in partial
fulfillment of the requirement for the award of the degree of MASTER OF
BUSINESS ADMINISTRATION at Department of Management Studies,
Pondicherry University is an original piece of work and not submitted for
award of any other degree, diploma, fellowship, or any other similar title or
prizes.
As per my knowledge and belief, the substance in the report does not form
the part of any other business or research work. Also, this report has never
been submitter earlier or used for any academic purpose.

Date-29.08.14

Kangkan deka

Place- Guwahati

Regn no. 13397039

MBA, 3rd semester
Pondicherry University

GUIDES CERTIFICATE
Certified that this report entitled CAPITAL STRUCTURE ANALYSIS OF INDIAN
OIL CORPORATION LIMITED is submitted in partial fulfillment for the award
of MBA is record of independent research work carried out by KANGKAN
DEKA under my guidance and no part of this corporate Exposure Training has
been previously submitted earlier for the award of any degree/diploma.

Professor & Head

Faculty Guide:

Dr. T .Nambirajan

Dr.M.Basheer Ahmed Khan

Department Of Management

Department Of Management

Studies

Studies

Pondicherry University

Pondicherry university

ACKNOWLEDGEMENTS
This project, though an individual project, wouldnt have been possible
without the constant help and guidance of a few individuals whose support
has been vital to the completion of the project.
At the outset, I would like to thank Mr. Hitesh Barman (Manager Vigilance
department) for providing me the opportunity to do a project at Indian Oil
Corporation limited.
This research project would not have been possible without the support of
many people. I wish to express my gratitude to my supervisor, Mr. Vishal
Maheshwari, who was abundantly helpful and offered invaluable assistance,
support and guidance. Deepest gratitude are also due to the members of the
finance department, Ms. Rina Choudhary, Mr. Munin Baradakai without
whose knowledge and assistance this study would not have been successful.

I would also like to convey my thanks to my college faculty, Prof. M. Basheer

Ahmed Khan.
And finally I wish to express my love and gratitude to my beloved family; for
their understanding & endless love through the duration of my internship.

Place: Guwahati

Kangkan deka
MBA 2nd year
Pondicherry University
4

TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION TO THE PROJECT
1.1: Introduction to the topic
1.2: Objective of the study
CHAPTER 2: PROFILE OF THE COMPANY AND THE MARKET SCENARIO
2.1: Origin of oil industry in India.
2.2: About IOCL and Guwahati refinery.
2.3: Vision, Mission and values.
CHAPTER 3: RESEARCH METHODOLOGY
3.1: Research design.
3.2: Data source and collection.
3.3: Capital structure analysis.
CHAPTER 4: DATA INTERPRETATION AND ANALYSIS
CHAPTER 5: CONCLUSION
5.1: FINDINGS
5.2: SUGGESTIONS
5.3: LIMITATIONS
5.4: CONCLUSION
CHAPTER 6: BIBLIOGRAPHY
5

CHAPTER 1: INTRODUCTION TO THE PROJECT

Introduction to the topic:

Capital Structure of a Company refers to the composition or make up of its

Capitalization and it includes all long term Capital resources i.e. loans,
reserves, shares and bond. It shows the mix of a company's long-term debt,
specific short-term debt, common equity and preferred equity. The capital
structure is how a firm finances its overall operations and growth by using
different sources of funds. In finance, capital structure refers to the way a
corporation finances its assets through some combination of equity, debt, or
hybrid securities. A firm's capital structure is then the composition or
'structure' of its liabilities. For example, a firm that sells $20 billion in equity
and $80 billion in debt is said to be 20% equity-financed and 80% debtfinanced. The firm's ratio of debt to total financing, 80% in this example is
referred to as the firm's leverage. In reality, capital structure may be highly
complex and include tens of sources. Gearing Ratio is the proportion of the
capital employed of the firm which come from outside of the business
finance, e.g. by taking a short term loan etc.Debt comes in the form of bond
issues or long-term notes payable, while equity is classified as common
stock, preferred stock or retained earnings. Short-term debt such as working
capital requirements is also considered to be part of the capital structure
structure. A company's proportion of short and long-term debt is considered
when analyzing capital Structure. When people refer to capital structure they
are most likely referring to a firm's debt-to-equity ratio, which provides
insight into how risky a company is. Usually a company more heavily
7

financed by debt poses greater risk, as this firm is relatively highly levered.
The long term creditors would judge the soundness of the firm on the basis
of the long term financial strength measured in terms of ability to pay the
interest regularly as well as repay the installment of the principal on due
dates or in one lump sum at the time of maturity. Accordingly, there are two
different, but mutually dependent and interrelated, types of leverage ratio
First Ratio which are based on the relationship between borrowed funds and
owners capital. In this Paper, researcher explain the different leverage ratio
as also how they can be used to draw inferences regarding the financial
soundness of the firm.

OBJECTIVES OF THE STUDY

To examine the Capital Structure policy and pattern of IOCL.

To understand the capital structure of Indian Oil Corporation
To identify the share capital and debt of the company.
To Find out the earnings per share
To Find out the leverage
To give suggestions for improvement of the Capital Structure
composition of Indian Oil corporation Ltd
Evaluate the contents of IOCL Debts and Equity.

CHAPTER 2: PROFILE OF THE COMPANY AND THE

MARKET SCENARIO

10

COMPANY OVERVIEW
INDIAN OIL CORPORATION LTD
IOCL (Indian Oil Corporation) was formed in 1964 as the result of merger of
Indian Oil Company Ltd. (Estd. 1959) and Indian Refineries Ltd. (Estd. 1958).
Indian Oil Corporation Ltd. is currently India's largest company by sales with
a turnover of Rs. 2 441 329 600, and profit of Rs. 25 994 000 for fiscal 2009.
Indian Oil Corporation Ltd. is the highest ranked Indian company in the
prestigious Fortune Global 500. It is ranked at 109th position in 2010. It is
also the 20th largest petroleum company in the world.
Indian Oil and its subsidiaries today accounts for 49% petroleum products
market share in India.
Indian Oil group has sold 59.29mn tonnes of Petroleum including 1.74mn
tonnes of natural gas in the domestic market and exported 3.33mn tonnes in
the yr 2008-09.
IOCL GROUP
IOCL Group consists of Indian Oil Corporation Ltd. and the following
subsidiaries:
Lanka IOC Ltd
Indian Oil (Mauritius) Ltd.
IOCL Middle East FZE
Indian Oil Technologies Ltd.
Chennai Petroleum Corporation Ltd. (CPCL)
Bongaigaon Refinery & Petrochemicals Ltd (BRPL)
11

Location of IOCL in India

12

The current Refining capacity stands at 55.01 million ton per annum.
Yet another refinery is being set up on the East Coast at Paradip (Orissa). The
outlay includes provision for Expansion of Barauni Refinery, Quality improvement
for HSD at Haldia, Gujarat, Mathura, Grass Root Refinery in Eastern Sector,
Residue Up gradation at Gujarat, and Implementation of Lube Quality
improvement at Haldia etc.
The company is mainly controlled by the Government of India which owns
approx.. 79% shares in the company. It is one of the Maharatna status companies
of India apart from Coal India Limited, NTPC Limited, Oil and Natural Gas
Corporation, Steel Authority of Indian Limited, Bharat Heavy Electricals Limited
and Gas Authority of India Limited.
Indian Oil Corporation Limited operates a network of 11,214 km long crude oil,
petroleum product and gas pipelines with a capacity of 77.258 million metric
tonnes per annum of oil and 10 million metric standard cubic meter per day of
gas. Cross-country pipelines are globally recognized as the safest, cost-effective,
energy-efficient and environment friendly mode for transportation of crude oil
and petroleum products. Indian Oil has one of the largest petroleum marketing
and distribution networks in Asia with over 35,000 marketing points.

13

VISION OF IOCL
A major diversified, transnational, integrated energy company, with national
leadership and a strong environment conscience, playing a national role in oil
security & public distribution.
MISSION OF IOCL
IOCL has the following mission:
To achieve international standards of excellence in all aspects of energy and
diversified business with focus on customer delight through value of
products and services and cost reduction.
To maximize creation of wealth, value and satisfaction for the
stakeholders.
To attain leadership in developing, adopting and assimilating stateof- the-art technology for competitive advantage.
To provide technology and services through sustained Research and
Development.
To foster a culture of participation and innovation for employee
growth and

contribution.

To cultivate high standards of business ethics and Total Quality

Management for a strong corporate identity and brand equity.
To help enrich the quality of life of the community and preserve
ecological balance and heritage through a strong environment
conscience.

14

VALUES OF IOCL
Values exist in all organizations and are an integral part of any it. Indian Oil
nurtures a set of core values:
1. CARE
2. INNOVATION
3. PASSION
4. TRUST

OBJECTIVES OF INDIAN OIL

IOCL has defined its objectives for succeeding in its mission. These objectives
are:
To serve the national interests in oil and related sectors in accordance
and consistent with Government policies.
To ensure maintenance of continuous and smooth supplies of
petroleum products by way of crude oil refining, transportation and
marketing activities and to provide appropriate assistance to
consumers to conserve and use petroleum products efficiently.
To enhance the country's self-sufficiency in crude oil refining and build
expertise in laying of crude oil and petroleum product pipelines.
To further enhance marketing infrastructure and reseller network for
providing assured service to customers throughout the country.
To create a strong research & development base in refinery processes,
product formulations, pipeline transportation and alternative fuels

15

with a view to minimizing/eliminating imports and to have next

generation products.
To optimize utilization of refining capacity and maximize distillate yield
and gross refining margin.
To maximize utilization of the existing facilities for improving efficiency
and increasing productivity.
To minimize fuel consumption and hydrocarbon loss in refineries and
stock loss in marketing operations to effect energy conservation.
To earn a reasonable rate of return on investment.
To avail of all viable opportunities, both national and global, arising
out of the Government of Indias policy of liberalization and reforms.
To achieve higher growth through mergers, acquisitions, integration
and diversification by harnessing new business opportunities in oil
exploration

&

production,

petrochemicals,

natural

gas

and

downstream opportunities overseas.

To inculcate strong core values among the employees and
continuously update skill sets for full exploitation of the new business
opportunities.
To develop operational synergies with subsidiaries and joint ventures
and continuously engage across the hydrocarbon value chain for the
benefit of society at large.

16

Major Divisions of IOCL:

IOCL

Indian Oil Corporation Limited (Indian Oil) owns and operates a network of crude
oil and petroleum product pipeline in India. It has two divisions: Refineries
Division and Marketing Division. The Refineries Division is focused on managing
the public sector refineries and the Marketing Division is focused on distribution
not only the entire production of public sector refineries but also the deficit
products imported. It is organized in two segments: sale of petroleum products,
and other businesses, which comprises sale of imported crude oil, sale of gas,
petrochemicals, explosives and cryogenics, wind mill power generation and oil
and gas exploration activities jointly undertaken in the form of unincorporated
17

joint ventures. The Digboi Refinery of Assam Oil Division processed 0.623 million
metric tons (MMT) of crude oil during the year. The Division sold about 1.067
MMT of products. IBP Division comprises the explosives and cryogenics business.

18

CHAPTER 3: RESEARCH METHODOLOGY

19

RESEARCH DESIGN
A research design is the specification of method and procedure for accruing the
information needs. It is overall operational pattern of frame work of project that
stipulates what information is to be collected for source by the procedures.
Descriptive Research design is appropriate for this study.
Descriptive study is used to study the situation. This study helps to describe the
situation. A detail description about present and past situation can be found out
by the descriptive study.
DATA SOURCE AND COLLECTION
This research is based on secondary data. This means the data are already
available, i.e. the data which have been already collected and analyzed by
someone else.
Secondary data are used for the study of ratio analysis of this company and also
its competitors. To collect the data, company annual report, internet websites has
been used.
Analyzing and interpreting the information available in the financial statements
and drawing meaningful conclusions from them.

20

CAPITAL STRUCTURE
A mix of a company's long-term debt, specific short-term debt, common
equity and preferred equity . The capital structure is how a firm finances its
overall operations and growth by using different sources of funds.

Debt comes in the form of bond issues or long-term notes payable, while
equity is classified as common stock, preferred stock or retained earnings.
Short-term debt such as working capital requirements is also considered to
be part of the capital structure. But the IOCL does not issue the preference
shares and debenture to the public of the company

COMPONENTS OF CAPITAL STRUCTURE:

CAPITAL STRUCTURE

Shareholders funds

Borrowed funds

-equity capital

-debenture (Nil)

-preference capital (Nil)

-Term loan

-21

CHAPTER 4: DATA ANALYSIS

22

SHARE CAPITAL
6000
5000
4000

Authorised Capital
(CR)
Issued Capital (CR)

3000
2000
1000
0
2014

2013

AUTHORISED CAPITAL:

2012

2011

2010

The maximum equity capital a company can

raise, which is mentioned in the Memorandum of Association and Articles of

Association of the Company. However, share premium is excluded from the
definition of authorized capital.

SSUED CAPITAL: Issued capital is the amount of nominal value of share

held by the shareholders. It is the face value of the shares that have been
issued to the shareholders. Issued share capital and share premium
represent the amount invested by the shareholders in the company. It is also
known as the subscribed capital or subscribed share capital.

Analysis: But here, IOCL issued very less share capital IN Previous years if I
compared to Authorized capital. IOCL is only issued the limited share to the
shareholders
23

Paid up capital

From -

To

Instrument

Shares(nos)

Face value

Capital

2013

2014

Equity share

2427952482

10

2427.95

2012

2013

Equity share

2427952482

10

2427.95

2011

2012

Equity share

2427952482

10

2427.95

2010

2011

Equity share

1192374306

10

1192.37

2009

2010

Equity share

1192374306

10

1192.37

2008

2009

Equity share

778674809

10

778.67

Paid up capital:
The amount of a company's capital that has been funded by shareholders,
Paid-up capital can be less than a company's total capital because a company
may not issue all of the shares that it has been authorized to sell. Paid-up
capital can also reflect how a company depends on equity financing.
Here, from 2011 to 2013, the companys Paid up capital remain same. Its
means the IOCL collected average funded by shareholders and they have to
issue more share capital to shareholders in future periods.

24

TOTAL DEBT
The IOCL has only two debts

Secured loan
Unsecured loan
Total debt means here included debenture, Bonds, Long term loans, short
term loan etc. But Indian Oil Corporation limited (IOCL) did not issued
debenture, bonds etc.

Secured loan:
Secured loans are those loans that are protected by an asset or collateral of
some sort. The item purchased, such as a home or a car, can be used as
collateral, and a lien is placed on such item. The finance company or bank
will hold the deed or title until the loan has been paid in full, including
interest and all applicable fees. Other items such as stocks, bonds, or
personal property can be put up to secure a loan as well.
Secured loans are usually the best (and only) way to obtain large amounts of
money. A lender is not likely to loan a large amount with assurance that the
money will be repaid. Putting your home or other property on the line is a
fairly safe guarantee that you will do everything in your power to repay the
loan.

25

Secured loans usually offer lower rates, higher borrowing limits and longer
repayment terms than unsecured loans. As the term implies, a secured loan
means you are providing "security" that your loan will be repaid according to
the agreed terms and conditions. It's important to remember, if you are
unable to repay a secured loan, the lender has recourse to the collateral you
have pledged and may be able to sell it to pay off the loan.

Unsecured loan:
On the other hand, unsecured loans are the opposite of secured loans and
include things like credit card purchases, education loans, or personal
(signature) loans. Lenders take more of a risk by making such a loan, with no
property or assets to recover in case of default, which is why
the interest rates are considerably higher. If you have been turned down for
unsecured credit, you may still be able to obtain secured loans, as long as you
have something of value or if the purchase you wish to make can be used as
collateral.
When you apply for a loan that is unsecured, the lender believes that you can
repay the loan on the basis of your financial resources. You will be judged
based on the five (5) C's of credit -- character, capacity, capital, collateral, and
conditions these are all criteria used to assess a borrower's creditworthiness.
Character, capacity, capital, and collateral refer to the borrower's willingness
and ability to repay the debt. Conditions include the borrower's situation as
well as general economic factors.

26

SECURED LOAN
25000
20000
15000
10000

(CR)

5000
0

2014

2013

2012

2011

2010

(CR) 17866 13046 20380 18292 17565

Analysis:
In 2014 the secured loan proportion is high than 2013. The India oil
corporation limited (IOCL) has try to reduce the secured loan because
secured loan effect the assets of the company and it will be effect on future
periods so the IOCL Increasingly firms are moving from secured debt to
unsecured debt in order to free their assets.
Secured loans have the largest positive impact on Companys credit when
they are repaid. If company have never taken a secured loan, companys
credit may be low despite your good record of repayment.

27

UNSECURED LOAN
70000
60000
50000
40000

(CR)

30000
20000
10000
0

2014

2013

2012

2011

2010

(CR) 62733.1 57278 32354.2 26273.8 27406.7

Analysis:
Here unsecured loan is constantly high from 2010 to 2013. Indian oil
corporation limited ( IOCL).Unsecured loan is more better than secured loan
Because secured loan will be affect the assets of the company in future
period of time so the IOCL has increasing the unsecured loan for reducing
the risk of the company . Most of the company has preferred the unsecured
debt which will not affect any assets of the company.
In some cases, IOCL may be able to reduce IOCL unsecured debts by
negotiating with creditors for a lower balance. Either IOCL can talk to
creditors on IOCL own, or IOCL can solicit the help of a credit counseling
28

organization. In some cases, credit counselors can negotiate with creditors

better than debtors can. However, if IOCL choose to work with a credit
counselor make sure the organization is reputable.

EARNING BEFORE INTEREST AND TAX

Earnings before interest and tax A measure of a Indian oil corporation limited
(IOCL) earning power from ongoing operations, equal to earnings before
deduction of interest payments and income tax. EBIT excludes income and
expenditure from unusual, non-recurring or discontinued activities. In the
case of a IOCL with minimal depreciation and amortization activities, EBIT is
watched closely by creditors, since it represents the amount of cash that
such a company will be able to use to pay off creditors. also called operating
profit.
As you can re-arrange the formula to be calculated as follows:

EBIT

Revenue

COGS-

Operating Expenses

Also known as Profit before Interest & Taxes (PBIT), EBIT equals Net
Income with interest and taxes added back to it.
EBIT was the precursor to the EBITDA calculation, which includes
depreciation and amortization expenses.

29

Financial managers spend a considerable amount of time analyzing and

understanding their EBIT. EBIT is short for earnings before interest and taxes
and is synonymous with net operating income. EBIT is calculated by taking
revenue and subtracting cost of goods sold and all operating expenses. The
calculation is useful because it provides a look at how profitable a business is
before loan decisions and tax considerations are included to arrive at net
income. If you plan on improving EBIT while holding sales constant, your only
option will be to reduce costs.

30

Earnings before interest and tax

20000
15000
( CR)

10000
5000
0

2014

( CR) 13359.43

2013

2012

12050.65 16773.88

2011

2010

11157.05 15057.96

Analysis:
In 2014, the operating profit of Indian oil corporation limited (IOCL) is Rs
13359.43 (Cr). But at present generally they are earning average operating
profits. so IOCL has try to reduce the long term borrowed fund and issue the
more share capital to the shareholders in different areas.
Analyze Indian Oil Corporation limited (IOCL) internal structure and look for
areas where operations can be centralized or more productive. For instance,
labor is sometimes redundant or inefficiently organized. Writing out your
processes in a flow diagram can help you identify and eliminate or
reorganize them. Consider introducing new, long-term cost saving
technologies for inventory, production and sales. These systems can greatly
increase efficiency, creating costs savings.
31

EARING PER SHARE (EPS)

Earnings per share represent a portion of a company's profit that is
allocated to one share of stock. Therefore, if you were to multiply the EPS by
the total number of shares a company has, you'd calculate the company's
net income. EPS is a calculation that many people who watch the stock
market pay attention to.

When calculating, it is more accurate to use a weighted average number of

shares outstanding over the reporting term, because the number of shares
outstanding can change over time. However, data sources sometimes
simplify the calculation by using the number of shares outstanding at the end
of-the-period.

Diluted EPS expands on basic EPS by including the shares of convertibles or

warrants outstanding in the outstanding shares number.

32

EPS of IOCL Shareholders from 2010 to 2014:

50
40
30
20

(Rs)

10
0

2014

2013

2012

2011

2010

(Rs) 28.91

20.61

16.29

30.67

42.1

Analysis:
In 2014, IOCL shareholders earned per share of Rs 28.91. But in 2010, EPS
was Rs 42.1. At that time shareholders of IOCL was earned more than last
year. So constantly decreasing the earning capacity of shareholders of the
IOCL, But still there EPS is good if I compared to other companies.
IOCL is to increase earnings or decrease the number of shares. In order to
increase earnings, a business has to increase revenues, reduce expenses or
both. In order to decrease the number of shares, do a share buyback from
shareholders.
33

LEVERAGE
The degree to which an investor or business is utilizing borrowed money.
Companies that are highly leveraged may be at risk of bankruptcy if they are
unable to make payments on their debt; they may also be unable to find new
lenders in the future. Leverage is not always bad, however; it can increase
the shareholders ' return on investment and often there are tax advantages
associated with borrowing. Components of leverage are:

LEVERAGE
Operating leverage

Financial leverage

Financial leverage:
Financial leverage is a leverage created with the help of debt component in
the capital structure of a company. Higher the debt, higher would be the
financial leverage because with higher debt comes the higher amount of
interest that needs to be paid. Leverage can be both good and bad for a
business depending on the situation. If a firm is able to generate a higher
return on investment (ROI) than the interest rate it is paying, leverage will
have its positive effect shareholders return. The darker side is that if the said
34

situation is opposite, higher leverage can take a business to a worst situation

like bankruptcy. the Degree of Financial Leverage (DFL) can be calculated
with the following formula:
DFL = % Change in EPS / % Change in EBIT
Where EPS is the Earnings per Share and EBIT is the Earnings before interest
and Taxes.
Operating leverage:
Operating leverage, just like the financial leverage, is a result of operating
fixed expenses. Higher the fixed expense, higher is the operating leverage.
Like the financial leverage had an impact on the shareholders return or say
earnings per share, operating leverage directly impacts the operating profits
(Profits before Interest and Taxes (PBIT)). Under good economic conditions,
due to operating leverage, an increase of 1% in sales will have more than 1%
change in operating profits.
The formula used for determining the Degree of Operating Leverage or DOL
is as follows:
DOL = % Change in EBIT / % Change in Sales
So, Indian oil corporation limited (IOCL) need to be very careful in adding
any of the leverages to your business viz. financial leverage or operating
leverage as it can also work as a double edged sword.

35

Degree Financial leverage of IOCL:

2
1.5
1
(Ratio)
0.5
0
(Ratio)

2014

2013

2012

2011

2010

1.61

1.91

1.49

1.31

1.11

Analysis:
In 2014 degree of financial leverage of Indian Oil Corporation limited (IOCL)
ratio is 1.61 and it has constantly higher than previous years.
By borrowing funds, the IOCL incurs a debt that must be paid. But, this debt
is paid in small installments over a relatively long period of time. This frees
funds for more immediate use.

Indian Oil Corporation limited that

successfully uses leverage demonstrates by its success that it can handle the
risks associated with carrying debt. This can become an important factor
when additional financing is needed. Not only will loans more likely be
available, but they will be available at more attractive interest rates. Like
individuals, companies with solid financials.
36

Degree of Operating leverage of Indian Oil Corporation

limited (IOCL):
1.15
1.1
1.05
1

(Ratio)

0.95
0.9
(Ratio)

2014

2013

2012

2011

2010

1.12

1.14

1.09

1.13

1.01

Analysis:
In 2014 Indian oil corporation limited has degree of operating ratio is 1.12
.which is constantly almost same from 2011 to 2014. According to this chart
IOCL having a good position in future period of time. The more operating
leverage a company has, the more it has to sell before it can make a profit.
IOCL with a high operating leverage must generate a high number of sales to
cover high fixed costs, and as this sales increase, so does the profitability of
the company. Conversely, a company with a lower operating leverage will
not see a dramatic improvement in profitability with higher volume, because
variable costs, or costs that are based on the number of units sold, increase
with volume.
37

Total leverage of Indian Oil Corporation limited:

3
2.5
2
1.5

(Ratio)

1
0.5
0
(Ratio)

2014

2013

2012

2011

2010

1.82

2.43

1.64

1.49

1.21

Analysis:
Combined or total leverage measures total risk of the Indian oil corporation
limited (IOCL). In this year Indian Oil Corporation has minimum risk than last
year which ratio was 2.43. In this diagram is measured by percentage change
in earning per share (EPS) due to percentage change in sales.
IOCL ask their existing shareholders to issuing common stock rights. Stock
rights allow existing shareholders to purchase additional shares at belowmarket prices, in order to raise equity. While this practice does improve a
companys financial strength, it also dilutes the current shareholders
percentage of ownership.

38

CHAPTER5: CONCLUSION

39

FINDINGS
IOCL has issued less shares capital to the shareholders, constantly from
2010 to 2014. IOCL does not fulfill the of authorized share capital which is
mention in memorandum of association.
IOCL, Preference share and Debenture not existent in the industry.

The return on investment ratio of IOCL is the lowest among its competitors
which imply that the degree of efficiency of IOCL in utilizing the funds
entrusted by shareholders and long term creditors is lower than its
competitors.

IOCL has maximum no of total debts in the period of 2014, if I compared

with previous years.
In 2014, unsecured loan is constantly higher than previous years.
In 2014, IOCL has maintained the secured loan amounts. Which is mostly
remain same with previous years.
EBIT is very less in 2014; it is constantly decreasing from 2010 to 2014.
In 2014, earning per share (EPS) value is Rs 28.91, which is higher than 2013
but overall five years, IOCL shareholders has earned minimum EPS in 2014.
IOCL has Degree of operating leverage almost same with last five years.
IOCL having a good position in future period of time.

40

 In 2014, degree of financial leverage is very high than previous years, IOCL
incurs a debt that must be paid. But, this debt is paid in small installments
over a relatively long period of time.
The overall efficiency of IOCL is higher than those of its competitors in
previous years of comparison.

SUGGESTIONS
The company should utilize the debt funds more efficiently to maximize
shareholders return.
Increasingly firms are moving from secured debt to unsecured debt in order
to free their assets.
For IOCL, to issue maximum number of share to the public and they have to
reduce the share price is minimum. And IOCL try to fulfill the limit of
authorized share capital.
IOCL have to reduce total debts of the company against of issuing more
share to the public.
IOCL, Need to minimize the degree of financial leverage .otherwise which
will be affect in future period of time.
The company should try to increase the profit before interest and tax so
that the Investments in the firm are attractive as the investors would like to
invest only where the return is higher.

41

The company can invest in marketable securities to improve its cash

position.

IOCL can try to reduce the secured loan because secured loan can be affect
the assets of the company in future.

LIMITATIONS OF THE STUDY

The scope of the study is limited to Guwahati Refinery.
Time taken to complete the study is very limited.
The analysis of the analysis of the companies and suggestion totally
depends upon the information shared.
Non-monetary aspects are not considered making the results unreliable.

CONCLUSION
From the above discussion it can be concluded that Indian Oil Corporation limited
running with low debt fund. Therefore, they may increase it to get benefits of low
cost capital. It has found that IOCL largely employing shareholders funds in their
as sets it has crossed even 100% in the first two years. Moreover EOL is on high
degree financial risk. Therefore, they may reduce the debt capital and employ
more equity fund. The study undertaken has brought in to the light of the
following conclusions. According to this project I came to know that from the
analysis of capital structure analysis it is clear that Indian Oil Corporation Ltd have
been doing a satisfactory job. But the firm has certain areas to ponder upon like
capital employment. So the firm should focus on getting of profits in the coming
years by taking care internal as well as external factors. And with regard to
resources, the firm is take utilization of the borrowed fund in a right place.
42

BIBLIOGRAPHY

43

WEBSITE REFERENCES:
www.moneycontrol.com
www.iocl.com

BOOKS REFERENCES:

K.R Das, Priti chandna B.B Dam, & Anju Kakoty 1st Edition
(2013):Financial Statement Analysis.

THANK YOU

44

Financial statements of Indian Oil Corporation Ltd.

45

46

47

48