A PROJECT REPORT ON

Financial analysis of
Reliance Industries
Limited
Submitted by :

FINANCIAL ANALYSIS OF
RELIANCE INDUSTRY
LIMITED

Executive Summary

The project assigned to me was to study the financial health of any

organization in the country. I decided to choose one of Indias largest
companies in a sector that has rapidly grown over the last few years and a
company where leaders like Mr. Dhirubhai Ambani, or rather, a company that
has been made Mr. Dhirubhai Ambani.
Through this report, I try and analyze the financial environment in which
Reliance Industry Limited is operating.
Through a thorough financial analysis, my aim to understand the financial
factors is influencing the company and its decision making. Later, I try and
evaluate the various ratios to appreciate their impact on companys
performance over the last four years
The financial statements of last four years are identified, studied and
interpreted

in light

of companys

performance. Critical decisions

of

distributing dividends, Issue of bonus Debentures and other current news are
analyzed and their impact on the bottom line of the company is assessed.
Finally, I study ratio analysis, fund flow analysis and cash flow analysis of the
company to analyzing the financial position of the company in last four
years.

Introduction
The study of financial statement is prepared for the
purpose of presenting a periodical review or report by the
management of and deal with the state of investment in business
and result achieved during the period under review. They reflect
the financial position and operating strengths or weaknesses of
the concern by properly establishing relationship between the
items of the balance sheet and remove statements.

Financial statement analysis can be under taken either by

the management of the firm or by the outside parties. The nature
of analysis defers depending upon the purpose of the analysis.
The analyst is able to say how well the firm could utilize the
resource of the society in generating goods and services. Turnover
ratios are the best tools in deciding these aspects.

Hence it is overall responsibility of the management to see

that the resource of the firm is used most efficiently and
effectively and that the firms financial position is good. Financial
statement analysis does indicate what can be expected in future
from the firm.

Meaning of Financial Statement

Financial statements refer to such statements which contains financial information about an
enterprise. They report profitability and the financial position of the business at the end of
accounting period. The team financial statement includes at least two statements which the
accountant prepares at the end of an accounting period. The two statements are:

The Balance Sheet

Profit And Loss Account

They provide some extremely useful information to the extent that balance Sheet mirrors the
financial position on a particular date in terms of the structure of assets, liabilities and owners
equity, and so on and the Profit and Loss account shows the results of operations during a certain
period of time in terms of the revenues obtained and the cost incurred during the year. Thus the
financial statement provides a summarized view of financial position and operations of a firm

Meaning of Financial Analysis

The first task of financial analysis is to select the information relevant to the decision under
consideration to the total information contained in the financial statement. The second step is to
arrange the information in a way to highlight significant relationship. The final step is
interpretation and drawing of inference and conclusions. Financial statement is the process of
selection, relation and evaluation.

Features of Financial Analysis

To present a complex data contained in the financial statement in simple and

understandable form.
To classify the items contained in the financial statement inconvenient and rational
groups.

To

make

comparison

between

various

groups

to

conclusions.

Purpose of Analysis of financial statements

To know the earning capacity or profitability.

To know the solvency.
To know the financial strengths.
To know the capability of payment of interest & dividends.
To make comparative study with other firms.
To know the trend of business.
To know the efficiency of mgt.
To provide useful information to mgt

draw

various

Procedure of Financial Statement Analysis

The following procedure is adopted for the analysis and interpretation of financial

statements:The analyst should acquaint himself with principles and postulated of accounting. He
should know the plans and policies of the managements that he may be able to find out

whether these plans are properly executed or not.

The extent of analysis should be determined so that the sphere of work may be decided.
If the aim is find out. Earning capacity of the enterprise then analysis of income statement
will be undertaken. On the other hand, if financial position is to be studied then balance

sheet analysis will be necessary.

The financial data be given in statement should be recognized and rearranged. It will
involve the grouping similar data under same heads. Breaking down of individual
components of statement according to nature. The data is reduced to a standard form. A
relationship is established among financial statements with the help of tools & techniques

of analysis such as ratios, trends, common size, fund flow etc.

The information is interpreted in a simple and understandable way. The significance and

utility of financial data is explained for help indecision making.

The conclusions drawn from interpretation are presented to the management in the form
of reports.

10

Analyzing financial statements involves evaluating three characteristics of a company: its

liquidity, its profitability, and its insolvency. A short-term creditor, such as a bank, is primarily
interested in the ability of the borrower to pay obligations when they come due. The liquidity of
the borrower is extremely important in evaluating the safety of a loan. A long-term creditor, such
as a bondholder, however, looks to profitability and solvency measures that indicate the
companys ability to survive over a long period of time. Long-term creditors consider such
measures as the amount of debt in the companys capital structure and its ability to meet interest
payments. Similarly, stockholders are interested in the profitability and solvency of the company.
They want to assess the likelihood of dividends and the growth potential of the stock.
Comparison can be made on a number of different bases.
Following are the three illustrations:

1.

Intra-company basis.
This basis compares an item or financial relationship within a company in the current year with
the same item or relationship in one or more prior years. For example, Sears, Roebuck and Co.
can compare its cash balance at the end of the current year with last years balance to find the
amount of the increase or decrease. Likewise, Sears can compare the percentage of cash to
current assets at the end of the current year with the percentage in one or more prior years. Intracompany comparisons are useful in detecting changes in financial relationships and significant
trends.

11

2. Industry averages.
This basis compares an item or financial relationship of a company with industry averages (or
norms) published by financial ratings organizations such as Dun & Bradstreet, Moodys and
Standard & Poors. For example, Searss net income can be compared with the average net
income of all companies in the retail chain-store industry. Comparisons with industry averages
provide information as to a companys relative performance within the industry.

3. Intercompany basis.
This basis compares an item or financial relationship of one company with the same item or
relationship in one or more competing companies. The comparisons are made on the basis of the
published financial statements of the individual companies. For example, Searss total sales for
the year can be compared with the total sales of its major competitors such as Kmart and WalMart. Intercompany comparisons are useful in determining a companys competitive position.

Tools of Financial Statement Analysis

Various tools are used to evaluate the significance of financial statement data. Three commonly
used tools are these:

Ratio Analysis

Funds Flow Analysis

Cash Flow Analysis

12

 Ratio Analysis:

Fundamental Analysis has a very broad scope. One aspect looks at the general
(qualitative) factors of a company. The other side considers tangible and measurable
factors (quantitative). This means crunching and analyzing numbers from the financial
statements. If used in conjunction with other methods, quantitative analysis can produce
excellent results.

Ratio analysis isn't just comparing different numbers from the balance sheet, income
statement, and cash flow statement. It's comparing the number against previous years,
other companies, the industry, or even the economy in general. Ratios look at the
relationships between individual values and relate them to how a company has performed
in the past, and might perform in the future.

Meaning of Ratio:

A ratio is one figure express in terms of another figure. It is a mathematical yardstick that
measures the relationship two figures, which are related to each other and mutually
interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is
an expression relating one number to another. It is simply the quotient of two numbers. It can be
expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as so many
times. As accounting ratio is an expression relating two figures or accounts or two sets of
account heads or group contain in the financial statements.
13

Meaning of Ratio Analysis:

Ratio analysis is the method or process by which the relationship of items or group of items in
the financial statement are computed, determined and presented.
Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial
health and profitability of business enterprises. Ratio analysis can be used both in trend and static
analysis. There are several ratios at the disposal of an analyst but their group of ratio he would
prefer depends on the purpose and the objective of analysis.
While a detailed explanation of ratio analysis is beyond the scope of this section, we will focus
on a technique, which is easy to use. It can provide you with a valuable investment analysis tool.
This technique is called cross-sectional analysis. Cross-sectional analysis compares financial
ratios of several companies from the same industry. Ratio analysis can provide valuable
information about a company's financial health. A financial ratio measures a company's
performance in a specific area. For example, you could use a ratio of a company's debt to its
equity to measure a company's leverage. By comparing the leverage ratios of two companies,
you can determine which company uses greater debt in the conduct of its business. A company
whose leverage ratio is higher than a competitor's has more debt per equity. You can use this
information to make a judgment as to which company is a better investment risk.
However, you must be careful not to place too much importance on one ratio. You obtain a better
indication of the direction in which a company is moving when several ratios are taken as a
group.

14

Objective of Ratios:
Ratios are worked out to analyze the following aspects of business organizationA Solvency1

Long term

Short term

Immediate

B Stability
C Profitability
D Operational efficiency
E Credit standing
F Structural analysis
G Effective utilization of resources
H Leverage or external financing

STEPS IN RATIO ANALYSIS:

The first task of the financial analysis is to select the information relevant to the decision
under consideration from the statements and calculates appropriate ratios.

To compare the calculated ratios with the ratios of the same firm relating to the pas6t or
with the industry ratios. It facilitates in assessing success or failure of the firm.

Third step is to interpretation, drawing of inferences and report writing conclusions are
drawn after comparison in the shape of report or recommended courses of action.

Third step is to interpretation, drawing of inferences and report writing conclusions are
drawn after comparison in the shape of report or recommended courses of action.

15

Pre-Requisites to Ratio Analysis:

In order to use the ratio analysis as device to make purposeful conclusions, there are certain prerequisites, which must be taken care of. It may be noted that these prerequisites are not
conditions for calculations for meaningful conclusions. The accounting figures are inactive in
them & can be used for any ratio but meaningful & correct interpretation & conclusion can be
arrived at only if the following points are well considered.
1

The dates of different financial statements from where data is taken must be same.

If possible, only audited financial statements should be considered, otherwise there must be
sufficient evidence that the data is correct.

Accounting policies followed by different firms must be same in case of cross section analysis
otherwise the results of the ratio analysis would be distorted.

One ratio may not throw light on any performance of the firm. Therefore, a group of ratios must
be preferred. This will be conductive to counter checks.

Last but not least, the analyst must find out that the two figures being used to calculate a ratio
must be related to each other, otherwise there is no purpose of calculating a ratio.

GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS:

The calculation of ratios may not be a difficult task but their use is not easy.
Following guidelines or factors may be kept in mind while interpreting various ratios are

Accuracy of financial statements

Objective or purpose of analysis

Selection of ratios
16

Use of standards

Caliber of the analysis

Importance of Ratio Analysis:

As a tool of financial management, ratios are of crucial significance. The importance of ratio
analysis lies in the fact that it presents facts on a comparative basis & enables the drawing of
interference regarding the performance of a firm. Ratio analysis is relevant in assessing the
performance of a firm in respect of the following aspects:
1] Liquidity position
2] Long-term solvency
3] Operating efficiency
4] Overall profitability
5] Inter firm comparison
6] Trend analysis.

1]

Liquidity position: -

With the help of Ratio analysis conclusion can be drawn regarding the liquidity position of a
firm. The liquidity position of a firm would be satisfactory if it is able to meet its current
obligation when they become due. A firm can be said to have the ability to meet its short-term
liabilities if it has sufficient liquid funds to pay the interest on its short maturing debt usually
within a year as well as to repay the principal. This ability is reflected in the liquidity ratio of a

17

firm. The liquidity ratio is particularly useful in credit analysis by bank & other suppliers of short
term loans.

18

2]

Long-term solvency: -

Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This
respect of the financial position of a borrower is of concern to the long-term creditors, security
analyst & the present & potential owners of a business. The long-term solvency is measured by
the leverage/ capital structure & profitability ratio Ratio analysis s that focus on earning power &
operating efficiency.
Ratio analysis reveals the strength & weaknesses of a firm in this respect. The leverage ratios, for
instance, will indicate whether a firm has a reasonable proportion of various sources of finance
or if it is heavily loaded with debt in which case its solvency is exposed to serious strain.
Similarly the various profitability ratios would reveal whether or not the firm is able to offer
adequate return to its owners consistent with the risk involved.
3] Operating efficiency:

Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint of
management, is that it throws light on the degree of efficiency in management & utilization of its
assets. The various activity ratios measure this kind of operational efficiency. In fact, the
solvency of a firm is, in the ultimate analysis, dependent upon the sales revenues generated by
the use of its assets- total as well as its components.
4] Overall profitability:

Unlike the outsides parties, which are interested in one aspect of the financial position of a firm,
the management is constantly concerned about overall profitability of the enterprise. That is, they
are concerned about the ability of the firm to meets its short term as well as long term obligations
to its creditors, to ensure a reasonable return to its owners & secure optimum utilization of the
assets of the firm. This is possible if an integrated view is taken & all the ratios are considered
together.
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5] Inter firm comparison:

Ratio analysis not only throws light on the financial position of firm but also serves as a
stepping-stone to remedial measures. This is made possible due to inter firm comparison &
comparison with the industry averages. A single figure of a particular ratio is meaningless unless
it is related to some standard or norm. One of the popular techniques is to compare the ratios of a
firm with the industry average. It should be reasonably expected that the performance of a firm
should be in broad conformity with that of the industry to which it belongs. An inter firm
comparison would demonstrate the firms position vice-versa its competitors. If the results are at
variance either with the industry average or with those of the competitors, the firm can seek to
identify the probable reasons & in light, take remedial measures.

6]

Trend analysis:

Finally, ratio analysis enables a firm to take the time dimension into account. In other words,
whether the financial position of a firm is improving or deteriorating over the years. This is
made possible by the use of trend analysis. The significance of the trend analysis of ratio lies in
the fact that the analysts can know the direction of movement, that is, whether the movement is
favorable or unfavorable. For example, the ratio may be low as compared to the norm but the
trend may be upward. On the other hand, though the present level may be satisfactory but the
trend may be a declining one.

20

Advantages of Ratio Analysis:

Financial ratios are essentially concerned with the identification of significant accounting data
relationships, which give the decision-maker insights into the financial performance of a
company. The advantages of ratio analysis can be summarized as follows:
Ratios facilitate conducting trend analysis, which is important for decision making

and forecasting.
Ratio analysis helps in the assessment of the liquidity, operating efficiency,

profitability and solvency of a firm.

Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons.

The comparison of actual ratios with base year ratios or standard ratios helps the
management analyze the financial performance of the firm.

21

Limitations of Ratio Analysis:

Ratio analysis has its limitations. These limitations are described below:

1] Information problems

Ratios require quantitative information for analysis but it is not decisive about analytical
output.

The figures in a set of accounts are likely to be at least several months out of date, and so
might not give a proper indication of the companys current financial position.

Where historical cost convention is used, asset valuations in the balance sheet could be
misleading. Ratios based on this information will not be very useful for decision-making.

2]

Comparison of performance over time

When comparing performance over time, there is need to consider the changes in price.
The movement in performance should be in line with the changes in price.

When comparing performance over time, there is need to consider the changes in
technology. The movement in performance should be in line with the changes in technology.

Changes in accounting policy may affect the comparison of results between different
accounting years as misleading.

22

3]

Inter-firm comparison

Companies may have different capital structures and to make comparison of performance
when one is all equity financed and another is a geared company it may not be a good
analysis.
Selective application of government incentives to various companies may also distort

intercompany comparison. Comparing the performance of two enterprises may be misleading.

Inter-firm comparison may not be useful unless the firms compared are of the same size

and age, and employ similar production methods and accounting practices.

Even within a company, comparisons can be distorted by changes in the price level.

Ratios provide only quantitative information, not qualitative information.

Ratios are calculated on the basis of past financial statements. They do not indicate future
trends and they do not consider economic conditions.Evaluation of efficiency

Effective tool

23

CLASSIFICATIONS OF RATIOS:
The use of ratio analysis is not confined to financial manager only. There are
different parties interested in the ratio analysis for knowing the financial position of a firm for
different purposes. Various accounting ratios can be classified as follows:
1. Traditional Classification
2. Functional Classification

3. Significance ratios

1. Traditional Classification
It includes the following.

Balance sheet (or) position statement ratio: They deal with the relationship between two
balance sheet items, e.g. the ratio of current assets to current liabilities etc., both the items
must, however, pertain to the same balance sheet.

Profit & loss account (or) revenue statement ratios: These ratios deal with the relationship
between two profit & loss account items, e.g. the ratio of gross profit to sales etc.,

Composite (or) inter statement ratios: These ratios exhibit the relation between a profit &
loss account or income statement item and a balance sheet items, e.g. stock turnover ratio,
or the ratio of total assets to sales.

2. Functional Classification
These include liquidity ratios, long term solvency and leverage ratios, activity
ratios and profitability ratios.

24

3. Significance ratios
Some ratios are important than others and the firm may classify them as primary
and secondary ratios. The primary ratio is one, which is of the prime importance to a concern.
The other ratios that support the primary ratio are called secondary ratios.

IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS

ARE
1. Liquidity ratio
2. Leverage ratio
3. Activity ratio
4. Profitability ratio

1. LIQUIDITY RATIOS
Liquidity refers to the ability of a concern to meet its current obligations as &
when there becomes due. The short term obligations of a firm can be met only when there are
sufficient liquid assets. The short term obligations are met by realizing amounts from current,
floating (or) circulating assets The current assets should either be calculated liquid (or) near
liquidity. They should be convertible into cash for paying obligations of short term nature. The
sufficiency (or) insufficiency of current assets should be assessed by comparing them with shortterm current liabilities. If current assets can pay off current liabilities, then liquidity position will
be satisfactory.
To measure the liquidity of a firm the following ratios can be calculated

Current ratio

Quick (or) Acid-test (or) Liquid ratio

Absolute liquid ratio (or) Cash position ratio

25

26

(a) CURRENT RATIO:

Current ratio may be defined as the relationship between current assets
and current liabilities. This ratio also known as Working capital ratio is a measure of general
liquidity and is most widely used to make the analysis of a short-term financial position (or)
liquidity of a firm.

Current assets
Current ratio =

Current Liabilities

Components of current ratio

CURRENT ASSETS

CURRENT LIABILITIES

Cash in hand

Out standing
expenses

Cash at bank

Bank over draft

Bills receivable

Bills payable

Inventories

Short-term advances

Work-in-progress

Sundry creditors

Marketable securities

Dividend payable

Short-term investments

Income-tax payable

Sundry debtors
Prepaid expenses

(b) QUICK RATIO:

27

or accrued

Quick ratio is a test of liquidity than the current ratio. The term liquidity refers to
the ability of a firm to pay its short-term obligations as & when they become due. Quick ratio
may be defined as the relationship between quick or liquid assets and current liabilities. An asset
is said to be liquid if it is converted into cash with in a short period without loss of value.

Quick or liquid assets

Quick ratio = Current Liabilities

Components of quick or liquid ratio

QUICK ASSETS

CURRENT LIABILITIES

Cash in hand

Out standing
expenses

or

Cash at bank

Bank over draft

Bills receivable

Bills payable

Sundry debtors

Short-term advances

Marketable securities

Sundry creditors

Temporary investments

Dividend payable
Income tax payable

(c) ABSOLUTE LIQUID RATIO

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accrued

Although receivable, debtors and bills receivable are generally more liquid than
inventories, yet there may be doubts regarding their realization into cash immediately or in time.
Hence, absolute liquid ratio should also be calculated together with current ratio and quick ratio
so as to exclude even receivables from the current assets and find out the absolute liquid assets.

Absolute liquid assets

Absolute liquid ratio =

Current liabilities

Absolute liquid assets include cash in hand etc. The acceptable forms for this ratio
is 50% (or) 0.5:1 (or) 1:2 i.e., Rs.1 worth absolute liquid assets are considered to pay Rs.2 worth
current liabilities in time as all the creditors are nor accepted to demand cash at the same time
and then cash may also be realized from debtors and inventories.

Components of Absolute Liquid Ratio

ABSOLUTE LIQUID ASSETS

CURRENT LIABILITIES

Cash in hand

Out standing
expenses

Cash at bank

Bank over draft

Interest on Fixed Deposit

Bills payable

or

Short-term advances
Sundry creditors
Dividend payable
Income tax payable

29

accrued

2. LEVERAGE RATIOS
The leverage or solvency ratio refers to the ability of a concern to meet its long
term obligations. Accordingly, long term solvency ratios indicate firms ability to meet the fixed
interest and costs and repayment schedules associated with its long term borrowings.
The following ratio serves the purpose of determining the solvency of the concern.

PROPRIETORY RATIO

A variant to the debt-equity ratio is the proprietory ratio which is also known as
equity ratio. This ratio establishes relationship between share holders funds to total assets of the
firm.

Shareholders funds
Proprietory ratio =

SHARE HOLDERS FUND

Total assets

TOTAL ASSETS

Share Capital

Fixed Assets

Reserves & Surplus

Current Assets
Cash in hand & at bank
Bills receivable
Inventories
Marketable securities
Short-term investments
Sundry debtors
Prepaid Expenses

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3. ACTIVITY RATIOS
Funds are invested in various assets in business to make sales and earn profits.
The efficiency with which assets are managed directly effect the volume of sales. Activity ratios
measure the efficiency (or) effectiveness with which a firm manages its resources (or) assets.
These ratios are also called Turn over ratios because they indicate the speed with which assets
are converted or turned over into sales.

Working capital turnover ratio

Fixed assets turnover ratio

Capital turnover ratio

Current assets to fixed assets ratio

(a) WORKING CAPITAL TURNOVER RATIO

Working capital of a concern is directly related to sales.

Working capital = Current assets - Current liabilities

It indicates the velocity of the utilization of net working capital. This indicates the
no. of times the working capital is turned over in the course of a year. A higher ratio indicates
efficient utilization of working capital and a lower ratio indicates inefficient utilization.
Working capital turnover ratio=cost of goods sold/working capital.

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Components of Working Capital

CURRENT ASSETS

CURRENT LIABILITIES

Cash in hand

Out standing
expenses

or accrued

Cash at bank

Bank over draft

Bills receivable

Bills payable

Inventories

Short-term advances

Work-in-progress

Sundry creditors

Marketable securities

Dividend payable

Short-term investments

Income-tax payable

Sundry debtors
Prepaid expenses

(b) FIXED ASSETS TURNOVER RATIO

It is also known as sales to fixed assets ratio. This ratio measures the efficiency
and profit earning capacity of the firm. Higher the ratio, greater is the intensive utilization of
fixed assets. Lower ratio means under-utilization of fixed assets.

Cost of Sales
Fixed assets turnover ratio =

Net fixed assets

Cost of Sales = Income from Services

Net Fixed Assets = Fixed Assets - Depreciation

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(c) CAPITAL TURNOVER RATIOS

Sometimes the efficiency and effectiveness of the operations are judged by
comparing the cost of sales or sales with amount of capital invested in the business and not with
assets held in the business, though in both cases the same result is expected. Capital invested in
the business may be classified as long-term and short-term capital or as fixed capital and
working capital or Owned Capital and Loaned Capital. All Capital Turnovers are calculated to
study the uses of various types of capital.

Cost of goods sold

Capital turnover ratio =

Capital employed

Cost of Goods Sold = Income from Services

Capital Employed = Capital + Reserves & Surplus

(d) CURRENT ASSETS TO FIXED ASSETS RATIO

This ratio differs from industry to industry. The increase in the ratio means that
trading is slack or mechanization has been used. A decline in the ratio means that debtors and
stocks are increased too much or fixed assets are more intensively used. If current assets increase
with the corresponding increase in profit, it will show that the business is expanding.

Current Assets
Current Assets to Fixed Assets Ratio =

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Fixed Assets

Component of Current Assets to Fixed Assets Ratio

CURRENT ASSETS

FIXED ASSETS

Cash in hand

Machinery

Cash at bank

Buildings

Bills receivable

Plant

Inventories

Vehicles

Work-in-progress
Marketable securities
Short-term investments
Sundry debtors
Prepaid expenses

4. PROFITABILITY RATIOS
The primary objectives of business undertaking are to earn profits. Because profit
is the engine, that drives the business enterprise.

Net profit ratio

Return on total assets

Reserves and surplus to capital ratio

Earnings per share

Operating profit ratio

Price earning ratio

Return on investments

(a) NET PROFIT RATIO

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Net profit ratio establishes a relationship between net profit (after tax) and sales
and indicates the efficiency of the management in manufacturing, selling administrative and
other activities of the firm.

Net profit after tax

Net profit ratio=

Net sales

Net Profit after Tax = Net Profit () Depreciation () Interest ()

Income Tax

Net Sales = Income from Services

It also indicates the firms capacity to face adverse economic conditions such as
price competitors, low demand etc. Obviously higher the ratio, the better is the profitability.

(b) RETURN ON TOTAL ASSETS

Profitability can be measured in terms of relationship between net profit and
assets. This ratio is also known as profit-to-assets ratio. It measures the profitability of
investments. The overall profitability can be known.

Net profit
Return on assets =

Total assets

Net Profit = Earnings before Interest and Tax

Total Assets = Fixed Assets + Current Assets

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(c) RESERVES AND SURPLUS TO CAPITAL RATIO

It reveals the policy pursued by the company with regard to growth shares. A very
high ratio indicates a conservative dividend policy and increased ploughing back to profit.
Higher the ratio better will be the position.

Reserves& surplus
Reserves & surplus to capital =

Capital

(d) EARNINGS PER SHARE

Earnings per share is a small verification of return of equity and is calculated by
dividing the net profits earned by the company and those profits after taxes and preference
dividend by total no. of equity shares.

Net profit after tax

Earnings per share =

Number of Equity shares

The Earnings per share is a good measure of profitability when compared with
EPS of similar other components (or) companies, it gives a view of the comparative earnings of a
firm.

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(e) OPERATING PROFIT RATIO

Operating ratio establishes the relationship between cost of goods sold and other
operating expenses on the one hand and the sales on the other.

Operating cost
Operation ratio =

Net sales

However 75 to 85% may be considered to be a good ratio in case of a

manufacturing under taking.
Operating profit ratio is calculated by dividing operating profit by sales.

Operating profit = Net sales - Operating cost

Operating profit
Operating profit ratio =

Sales

(f) PRICE - EARNING RATIO

Price earning ratio is the ratio between market price per equity share and earnings
per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a
company and is widely used by investors to decide whether (or) not to buy shares in a particular
company.
Generally, higher the price-earning ratio, the better it is. If the price earning ratio
falls, the management should look into the causes that have resulted into the fall of the ratio.
37

Market Price per Share

Price Earning Ratio =

aEarnings per Share

Capital + Reserves & Surplus

Market Price per Share =

Number of Equity Shares

Earnings before Interest and Tax

Earnings per Share =

Number of Equity Shares

(g) RETURN ON INVESTMENTS

Return on share holders investment, popularly known as Return on investments
(or) return on share holders or proprietors funds is the relationship between net profit (after
interest and tax) and the proprietors funds.

Net profit (after

interest and tax)
Return on shareholders investment =
Shareholders funds

The ratio is generally calculated as percentages by multiplying the above with 100.

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Purpose of Ratio Analysis:

1] To identify aspects of a businesss performance to aid decision making
2] Quantitative process may need to be supplemented by qualitative factors to get a complete
picture.
3] 5 main areas Liquidity the ability of the firm to pay its way
Investment/shareholders information to enable decisions to be made on the extent of the
risk and the earning potential of a business investment
Gearing information on the relationship between the exposure of the business to loans as
opposed to share capital
Profitability how effective the firm is at generating profits given sales and or its capital
assets
Financial the rate at which the company sells its stock and the efficiency with which it
uses its assets

39

Role of Ratio Analysis:

It is true that the technique of ratio analysis is not a creative technique in the sense that it uses the
same figure & information, which is already appearing in the financial statement. At the same
time, it is true that what can be achieved by the technique of ratio analysis cannot be achieved by
the mere preparation of financial statement.
Ratio analysis helps to appraise the firm in terms of their profitability & efficiency of
performance, either individually or in relation to those of other firms in the same industry. The
process of this appraisal is not complete until the ratio so computed can be compared with
something, as the ratio all by them do not mean anything. This comparison may be in the form of
intra firm comparison, inter firm comparison or comparison with standard ratios. Thus proper
comparison of ratios may reveal where a firm is placed as compared with earlier period or in
comparison with the other firms in the same industry.
Ratio analysis is one of the best possible techniques available to the management to impart the
basic functions like planning & control. As the future is closely related to the immediate past,
ratio calculated on the basis of historical financial statements may be of good assistance to
predict the future. Ratio analysis also helps to locate & point out the various areas, which need
the management attention in order to improve the situation.
As the ratio analysis is concerned with all the aspect of a firms financial analysis i.e. liquidity,
solvency, activity, profitability & overall performance, it enables the interested persons to know
the financial & operational characteristics of an organisation & take the suitable decision.

40

Fund Flow Analysis:

Fund may be interpreted in various ways as
(a) Cash,
(b) Total current assets,
(c) Net working capital,
(d) Net current assets.
For the purpose of fund flow statement the term means net working capital. The flow of fund
will occur in a business, when a transaction results in a change i.e., increase or decrease in the
amount of fund.
According to Robert Anthony the funds flow statement describes the sources from which
additional funds were derived and the uses to which these funds were put.
In short, it is a technical device designed to highlight the changes in the financial condition of a
business enterprise between two balance sheets.

Different names of Fund-Flow Statement

A Funds Statement
A statement of sources and uses of fund
A statement of sources and application of fund
Where got and where gone statement
Inflow and outflow of fund statement

Objectives of Fund Flow Statement

The main purposes of FFS are:

41

To help to understand the changes in assets and asset sources which are not readily evident in
the income statement or financial statement.

To inform as to how the loans to the business have been used.

To point out the financial strengths and weaknesses of the business.

Format of Fund Flow Statement

Sources
Fund from operation

Applications
Fund lost in operations

Non-trading incomes

Non-operating expenses

Issue of shares

Redemption of redeemable preference

share

Issue of debentures

Redemption of debentures

Borrowing of loans

Repayment of loans

Acceptance of deposits

Repayment of deposits

Sale of fixed assets

Purchase of fixed assets

Sale of investments (Long

Term)

Purchase of long term investments

Decrease in working capital

Increase in working capital

Steps in Preparation of Fund Flow Statement.

1.

Preparation of schedule changes in working capital (taking current items only).

2.

Preparation of adjusted profit and loss account (to know fund from or fund lost in
operations).

3.

Preparation of accounts for non-current items (Ascertain the hidden information).

Preparation of the fund flow statement.

Cash Flow Statement:

42

Cash is a life blood of business. It is an important tool of cash planning and control. A firm
receives cash from various sources like sales, debtors, sale of assets investments etc. Likewise,
the firm needs cash to make payment to salaries, rent dividend, interest etc.
Cash flow statement reveals that inflow and outflow of cash during a particular period. It is
prepared on the basis of historical data showing the inflow and outflow of cash.

Objectives of Cash Flow Statement

1.

To show the causes of changes in cash balance between the balance sheet dates.

2.

To show the actors contributing to the reduction of cash balance inspire of increasing of
profit or decreasing profit.

Uses of Cash Flow Statement

1.

It explaining the reasons for low cash balance.

2.

It shows the major sources and uses of cash.

3.

It helps in short term financial decisions relating to liquidity.

4.

From the past year statements projections can be made for the future.

5.

It helps the management in planning the repayment of loans, credit arrangements etc.

Steps in Preparing Cash Flow Statement

1.

Opening of accounts for non-current items (to find out the hidden information).

2.

Preparation of adjusted P&L account (to find out cash from operation or profit, and cash
lot in operation or loss).

3.

Comparison of current items (to find out inflow or outflow of cash).

4.

Preparation of Cash Flow Statement.

To preparing Account for all non-current items is easier for preparing Cash Flow Statement.
43

Cash from operation can be prepared by this formula also.

Net Profit + Decrease in Current Assets

Increase in Current Assets

OR
Increase in Current Liabilities

OR
Decrease in Current Liabilities.

Usefulness of the Statement of Cash Flows

The information in a statement of cash flows should help investors, creditors, and others assess
the following aspects of the firms financial position.

The entitys ability to generate future cash flows.

By examining relationships between items in the statement of cash flows, investors and
others can make predictions of the amounts, timing, and uncertainty of future cash flows
better than they can from accrual basis data.

44

The entitys ability to pay dividends and meet obligations.

If a company does not have adequate cash, employees cannot be paid, debts settled, or
dividends paid. Employees, creditors, and stockholders should be particularly interested
in this statement, because it alone shows the flows of cash in a business.

The cash investing and financing transactions during the period.

By examining a companys investing and financing transactions, a financial statement
reader can better understand why assets and liabilities changed during the period.

1.

The reasons for the difference between net income and net cash
Net income provides information on the success or failure of a business enterprise. However,
some are critical of accrual basis net income because it requires many estimates. As a result, the
reliability of the number is often challenged. Such is not the case with cash. Many readers of the
statement of cash flows want to know the reasons for the difference between net income and net
cash provided by operating activities. Then they can assess for themselves the reliability of the
income number.
In summary, the information in the statement of cash flows is useful in answering the following
questions.
How did cash increase when there was a net loss for the period?
How were the proceeds of the bond issue used?
How were the expansions in the plant and equipment financed?
Why were dividends not increased?
How was the retirement of debt accomplished?
How much money was borrowed during the year?
Is cash flow greater or less than net income?

Cash Flow Statement

45

Inflow of Cash

Amount

Outflow of cash

Amount

Opening cash balance

***

Redemption of
preference shares

***

Cash from operation

***

Redemption of
debentures

***

Sales of assets

***

Repayment of loans

***

Issue of debentures

***

Payment of dividends

***

Raising of loans

***

Pay of tax

***

Collection from
debentures

***

Cash lost in debentures

***

Refund of tax

***

Closing cash balance

***

Cash from operation can be calculated in two ways:

Cash Sales Method

Cash Sales (Cash Purchase + Cash Operation Expenses)

Net Profit Method

It can be prepared in statement form or by Adjusted Profit and Loss Account.

46

Objective of Study

To understand the information contained in financial statements with a view to know the strength
or weaknesses of the firm and to make forecast about the future prospects of the firm and thereby
enabling the financial analyst to take different decisions regarding the operations of the firm.

1.

To study the present financial system at Reliance Industry.

2.

To determine the Profitability, Liquidity Ratios, Cash flow and

Fund flow statement.

3.

To analyze the capital structure of the company with the help of

Leverage ratio.

4.

To offer appropriate suggestions for the better performance of the

organization

47

Research Methodology
Research is defined as a systematic, gathering recording and analysis of data about
problem relating to any particular field.
It determines strength reliability and accuracy of the project.

1. Research Design: Research Design pertains to the great research approach or strategy
adopted for a particular project. A research project has to be the conducted scientifically
making sure that the data is collected adequately and economically.
The study used a descriptive research design for the purpose of getting an insight over the
issue. It is to provide an accurate picture of some aspects of market environment. Descriptive
research is used when the objective is to provide a systematic description that is as factual and
accurate as possible.
2. Method of Data Collection:
Secondary Data: Through the internet and published data

48

Company Profile
The Reliance group, founded by Dhirubhai H Ambani (1932-2002), is Indias largest private
sector enterprise, with businesses in the energy and material value chain. The flagship company,
Reliance Industries Limited, is a Fortune Global 500 company and is the largest private sector
company in India. The chairman of the company is Mukesh Ambani.
The company is Indias largest petrochemical firm and among the countrys largest companies
(along with the likes of Indian Oil and Tata Group). Oil refining and the manufacture of
polyfines account for nearly all of Reliances sales. It also makes textiles and explores for oil and
gas, though those businesses are relatively small. In 2009 the company merged with its oil and
gas refining subsidiary (Reliance Petroleum) in order to boost the operational and financial
synergies of Reliance as a major refining company.

Reliance Industries Limited (NSE: RELIANCE) is India's largest private sector conglomerate
(by market value) , with an annual turnover of US $ 35.9 billion and profit of US$ 4.85 billion
for the fiscal year ending in March 2008 making it one of India's private sector Fortune Global
500 companies, being ranked at 206th position (2008). It was founded by the Indian industrialist
Dhirubhai Ambani in 1966. Ambani has been a pioneer in introducing financial instruments like
fully convertible debentures to the Indian stock markets. Ambani was one of the first
entrepreneurs to draw retail investors to the stock markets. Critics allege that the rise of Reliance
49

Industries to the top slot in terms of market capitalization is largely due to Dhirubhai's ability to
manipulate the levers of a controlled economy to his advantage. Though the company's oilrelated operations form the core of its business, it has diversified its operations in recent years.
After severe differences between the founder's two sons, Mukesh Ambani and Anil Ambani, the
group was divided between them in 2006. In September 2008, Reliance Industries was the only
Indian firm featured in the Forbes's list of "world's 100 most respected companies
Stock
According to the company website "1 out of every 4 investors in India is a Reliance
shareholder.. Reliance has more than 3 million shareholders, making it one of the world's most
widely held stocks. Reliance Industries Ltd, subsequent to its split in January 2006 has continued
to grow. Reliance companies have been among the best performing in the Indian stock market.
Products
Reliance Industries Limited has a wide range of products from petroleum products,
petrochemicals, to garments (under the brand name of Vimal), Reliance Retail has entered into
the fresh foods market as Reliance Fresh and launched a new chain called Delight Reliance
Retail and NOVA Chemicals have signed a letter of intent to make energy-efficient structures.
The primary business of the company is petroleum refining and petrochemicals. It operates a 33
million tone refinery at Jamnagar in the Indian state of Gujarat. Reliance has also completed a
second refinery of 29 million tons at the same site which started operations in December 2008.
The company is also involved in oil & gas exploration and production. In 2002, it struck a major
find on India's eastern coast in the Krishna Godavari basin. Gas production from this find was

50

started on April 2, 2009. As of the end of 3rd quarter of 2009-2010, gas production from the KG
D6 ramped up to 60 MMSCMD.
Subsidiaries
Major Subsidiaries & Associates

Reliance Petroleum Limited (RPL) was a subsidiary of Reliance Industries Limited

(RIL) and was created to exploit the emerging opportunities, creating value in the
refining sector worldwide. Currently, RPL stands amalgamated with RIL.

Reliance Life Sciences is a research-driven, biotechnology-led, life sciences organization

that participates in medical, plant and industrial biotechnology opportunities. Specifically,
these relate to Biopharmaceuticals, Pharmaceuticals, Clinical Research Services,
Regenerative Medicine, Molecular Medicine, Novel Therapeutics, Bio-fuels, Plant
Biotechnology and Industrial Biotechnology.

Reliance Industrial Infrastructure Limited (RIIL) is engaged in the business of setting

up / operating Industrial Infrastructure that also involves leasing and providing services
connected with computer software and data processing.

Reliance Institute of Life Sciences (Rils) established by Dhirubhai Ambani Foundation, is

an institution of higher education in various fields of life sciences and related
technologies.

51

Reliance Logistics (P) Limited is a single window solutions provider for transportation,
distribution, warehousing, logistics, and supply chain needs, supported by in house state
of art telemetric and telemetry solutions.

Reliance Clinical Research Services (RCRS), a contract research organization (CRO) and
wholly owned subsidiary of Reliance Life Sciences, has been set up to provide clinical
research services to pharmaceutical, biotechnology and medical device companies.

Reliance Solar, The solar energy initiative of Reliance aims to bring solar energy systems
and solutions primarily to remote and rural areas and bring about a transformation in the
quality of life.

Relicord is the first and one of the most dependable stem-cell banking services of South
East Asia offered by Mukesh Ambani controlled Reliance Industries.

Reliance's Oil & Gas find

Andhra Pradesh near Vishakhapatnam. It was the largest discovery of natural gas in world in
financial year 2002-2003. On 2 April 2009, Reliance Industries (RIL) commenced natural gas
production from its D-6 block in the Krishna-Godavari (KG)
The gas reserve is 7 trillion cubic feet in size. Equivalent to 1.2 billion barrels (165 mil in 2002,
Reliance found natural gas in the Krishna Godavari basin off the coast of lion tonnes) of crude
oil, but only 5 trillion cubic feet are extractable.

52

On 2008 Oct 8, Anil Ambani's Reliance Natural Resources took Reliance Industries to the
Bombay High Court to uphold a memorandum of understanding that said RIL will supply the
natural gas at $2.34 per million British thermal units to Anil Ambani.
Reliance Retail
Reliance Retail is the retail business wing of the Reliance business. Many brands like Reliance
Fresh, Reliance Footprint, Reliance Time Out, Reliance Digital, Reliance Wellness, Reliance
Trends, Reliance AutoZone, Reliance Super, Reliance Mart, Reliance iStore, Reliance Home
Kitchens, and Reliance Jewel come under the Reliance Retail brand. Reliance saw opportunity in
retailing chicken, mutton and other meat products (halal and non-halal) through one of its retail
arms called "Delight Non Veg." One of the Delight outlets has been shut down due to protest by
anti-animal cruelty activists at Gandhi Nagar, Delhi who want Reliance to close its non-veg food
marketing.
Environmental record
Reliance Industry is the worlds largest polyester producer and as a result one of the largest
producers of polyester waste in the world. In order to deal with this large amount of waste they
had to create a way to recycle the waste. They operate the largest polyester recycling center that
uses the polyester waste as a filling and stuffing. They use this process to develop a strong
recycling process which won them a reward in the Team Excellence competition.
Reliance Industries backed a conference on environmental awareness in New Delhi in 2006. The
conference was run by the Asia Pacific Jurist Association in partnership with the Ministry of
Environment & Forests, Govt. of India and the Maharashtra Pollution Control Board. The
conference was to help bring about new ideas and articles on various aspects of environmental
53

protection in the region. Maharashtra Pollution Control Board invited various industries
complied with the pollution control norms to take active part in the conference and to support as
a sponsor. The conference proved effective as a way to promote environmental concern in the
area.
Awards & Recognition

International Refiner of the Year in 2005 at the 23rd Annual Hart's World Refining and
Fuels Conference.

Awards for managers

Mukesh D. Ambani received the United States of America-India Business Council

(USIBC) leadership award for "Global Vision" 2007 in Washington in July 2007.

Mukesh D. Ambani was conferred the Asia Society Leadership Award by the Asia
Society, Washington, USA, May 2004.

Mukesh D. Ambani ranked 13th in Asia's Power 25 list of The Most Powerful People in
Business published by Fortune magazine, August 2004.

Mukesh D. Ambani is Economic Times Business Leader of the Year.

54

Current composition of the Board and

Category of Directors are as Follows:

"Between my past, the present and the future, there is one common Factor:
Relationship and Trust. This is the foundation of our growth."

Shri Dhirubhai H. Ambani

Chairman Reliance Group
December 28, 1932 - July 6, 2002

Board of Directors of Reliance Industries Limited

55

Shri Mukesh D Ambani

Chairman & Managing
Director

Shri Nikhil R. Meswani

Executive Director

Shri Hital R. Meswani

Executive Director

Shri PMS Prasad

Shri R. Ravimohan

Executive Director

Executive Director

Shri Mansingh L.
Bhakta

56

Shri Yogendra P. Trivedi

Shri .S.Kohli
Executive Director

Shri Ramniklal H.
Ambani

Dr. D. V. Kapur

Shri M. P. Modi

Prof. Ashok Misra

Prof. Dipak C Jain

MISSION & VISION

Continuously innovate to remain Partners in human progress by Harnessing science &

technology in the petrochemicals domain

OUR MISSION

Be a globally preferred Business associate with responsible Concern for ecology, society, and
stakeholders value.

VALUES & QUALITY POLICY YOUR VALUES

Integrity, Respect for People, Unity of Purpose, Outside-in Focus, Agility and Innovation.

QUALITY POLICY

Bare committed to meet customers requirements through continual improvement of our quality
management systems. We shall sustain organizational excellence through visionary leadership
and innovative efforts.

Reliance Industries Balance Sheets from 2009 to 2012

57

in Rs. Cr.

Mar '09
Mar '10
Mar '11
Mar '12
12 months 12 months
12 months
12 months
Sources Of Funds
Total Share Capital
1,393.17
1,393.21
1,453.39
1,573.53
Equity Share Capital
1,393.17
1,393.21
1,453.39
1,573.53
Share Application Money
0.00
60.14
1,682.40
69.25
Preference Share Capital
0.00
0.00
0.00
0.00
Reserves
43,760.90
59,861.81
77,441.55
112,945.44
Revaluation Reserves
4,650.19
2,651.97
871.26
11,784.75
Net worth
49,804.26
63,967.13
81,448.60
126,372.97
Secured Loans
7,664.90
9,569.12
6,600.17
10,697.92
Reliance Industries Profit & Loss Accounts from 2009 to 2012
Unsecured Loans
14,200.71
18,256.61
29,879.51
63,206.56
Total Debt
21,865.61 in Rs.
27,825.73
36,479.68
73,904.48
Cr.
Total Liabilities
71,669.87
91,792.86
117,928.28
200,277.45
Mar '09
Mar '10
Mar '11
Mar '12
Application
Of Funds
12 months
12 months
12 months
12 months
Gross Block
84,970.13 Income
99,532.77 104,229.10 149,628.70
Less: Accum.
Depreciation
29,253.38
Sales
Turnover
89,124.46 35,872.31
118,353.71 42,345.47
139,269.46 49,285.64
146,328.07
Net Excise
Block Duty
55,716.75
8,246.67 63,660.46
6,654.68 61,883.63
5,463.68 100,343.06
4,369.07
Capital WorkNet
in Progress
6,957.79
Sales
80,877.79 7,528.13
111,699.03 23,005.84
133,805.78 69,043.83
141,959.00
Investments
5,846.18
16,251.34
Other Income
546.96
236.89 20,516.11
6,595.66 20,268.18
1,264.03
Inventories
10,119.82
Stock Adjustments
2,131.19 12,136.51
654.60 14,247.54
-1,867.16 14,836.72
427.56
Sundry
Debtors
4,163.62
3,732.42
6,227.58
4,571.38
Total Income
83,555.94
112,590.52
138,534.28
143,650.59
Cash and Bank Balance
239.31 Expenditure
308.35
217.79
500.13
Total Current
Assets
14,522.75
Raw Materials
59,739.29 16,177.28
80,791.65 20,692.91
98,832.14 19,908.23
109,284.34
LoansPower
and Advances
8,266.55
& Fuel Cost
1,146.26 12,506.71
2,261.69 18,441.20
2,052.84 13,375.15
3,355.98
FixedEmployee
Deposits Cost
1,906.85
1,527.00
978.45
2,094.09 5,609.75
2,119.33 23,014.71
2,397.50
Total Current
Assets,
Loans
&
24,696.15
30,210.99
44,743.86
56,298.09
Other Manufacturing Exp.
668.31
1,112.17
715.19
1,162.98
Selling and Admin Exp.
5,872.33
5,478.10
5,549.40
4,736.60
Advances
Miscellaneous Expenses
300.74
321.23
412.66
562.42
Differed Credit
0.00
0.00
0.00
0.00
Preoperative Exp.
Current Liabilities
17,656.02
24,145.19
29,228.54
42,664.81
-155.14
-111.21
-175.46
-3,265.65
Provisions
3,890.98
1,712.87
2,992.62
3,010.90
Capitalised
Total Current
21,547.00
TotalLiabilities
Expenses&
68,550.24 25,858.06
91,947.72 32,221.16
109,506.10 45,675.71
118,234.17
Provisions
Operating Profit
Net Current Assets
PBDIT
Miscellaneous Expenses
Interest
Total Assets
PBDT
Contingent Liabilities
Depreciation
Book Value (Rs)
Other Written Off
Profit Before Tax
Extra-ordinary items
Tax
Reported Net Profit
Total Value Addition
Preference Dividend
Equity Dividend
Corporate Dividend Tax

58

Shares in issue (lakh)

Earning Per Share (Rs)
Equity Dividend (%)
Book Value (Rs)

3,400.91
4,815.15
4,847.14
5,195.29
3,149.15
4,352.93
12,522.70
10,622.38
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
10,711.18
14,528.75
23,018.14
18,446.66
71,669.87
91,792.86
117,928.28 200,277.45
0.88
0.51
48.10
0.00
24,897.66
46,767.18
37,157.61
36,432.69
10,712.06
14,529.26
23,066.24
18,446.66
324.03
439.57
542.74
727.66
1,642.72
2,585.35
3,559.85
3,137.34
9,069.34
11,943.40
19,458.29
15,309.32
3,400.91
4,815.15
4,847.14
5,195.29
10,711.18
14,528.75
23,018.14
18,446.66
0.88
0.51
48.10
0.00
8,810.95
11,156.07
10,673.96
8,949.83
0.00
0.00
0.00
0.00
1,393.51
1,440.44
1,631.24
1,897.05
195.44
202.02
277.23
322.40
Per share data (annualized)
13,935.08
13,935.08
14,536.49
15,737.98
65.08
85.71
133.86
97.28
100.00
110.00
130.00
130.00
324.03
439.57
542.74
727.66

59

Financial Position of Reliance Industries Ltd.

After going through the various ratios, fund flow and cash flow analysis would like to state that:

The long-term solvency of the company is very satisfactory.

Immediate solvency position of the company is also quite satisfactory. The company can
meet its urgent obligations immediately.

Credit policies are effective.

Overall profitability position of the company is quite satisfactory.

Dividend payout ratio is satisfactory. Dividend paid in all years to its shareholders.

The company is paying promptly to the suppliers.

The return on capital employed is satisfactory.

The profitability position of the company is very satisfactory.

60

Data analysis and Interpretation

Calculation and Interpretation of Ratios
1] Current Ratio:

Formula:

Current assets
Current ratio =

YEAR

Current liabilities

2008-2009

2009-2010

2010-2011

2011 -2012

24,696.15

30,210.99

44,743.86

56,298.09

Current liabilities

21,547.00

25,858.06

32,221.16

45,675.71

Current ratio

1.14

1.16

1.38

1.23

Current
assets

61

2008-2009 2009-2010 2010 -2011

Comments:

2008-2009

2009-2010

2010-2011
56,298.09

60,000.00

50,000.00

44,743.86

45,675.71

40,000.00
30,210.99
30,000.00

32,221.16
Current assets

24,696.15
21,547.00

25,858.06

1.14

1.16

1.38

1.23

2005-2006

2006-2007

2007-2008

2008 -2009

Current liabilities
Current ratio

20,000.00

10,000.00

0.00

62

In Reliance Industries Ltd. the current ratio is 1.23:1 in 2011-2012. It means that for one rupee of
current liabilities, the current assets are 1.23 rupee is available to the them. In other words the
current assets are 1.23 times the current liabilities.
Almost 4 years current ratio is same but current ratio in 2010-2011 is bit higher, which makes
company sounder. The consistency increase in the value of current assets will increase the ability
of the company to meets its obligations & therefore from the point of view of creditors the
company is less risky.
Thus, the current ratio throws light on the companys ability to pay its current liabilities out of its
current assets. The Reliance Industries Ltd. has a goody current ratio.

2] Quick Ratio:

Formula:
Quick assets
Quick ratio =

63

Quick liabilities

YEAR

2008-2009

2009-2010

2010-2011

2011 -2012

Quick assets

14,576.33

18,674.48

24,227.75

36029.91

Quick liabilities

21,547.00

25,858.06

32,221.16

45,675.71

Liquid ratio

0.67

0.69

0.75

0.78

64

Comments:

50,000.00

45,675.71

45,000.00
40,000.00

36,029.91
32,221.16

35,000.00
30,000.00
25,000.00
20,000.00

25,858.06

24,227.75

Quick assets

21,547.00

Quick liabilities

18,674.48

Liquid ratio

14,576.33

15,000.00
10,000.00
5,000.00

0.67

0.69

2005-2006

2006-2007

0.75

0.78

0.00

65

2007-2008 2008 -2009

The liquid or quick ratio indicates the liquid financial position of an enterprise. Almost in
all 4 years the liquid ratio is same, which is better for the company to meet the urgency.
The liquid ratio of the Reliance Industries Ltd. has increased from 0.67 to 0.78 in 20112012 which shows that company follow low liquidity position to achieve high
profitability.
This indicates that the dependence on the long-term liabilities & creditors are more & the
company is following an aggressive working capital policy.
Liquid ratio of Company is not favorable because the quick assets of the company are
less than the quick liabilities. The liquid ratio shows the companys ability to meet its
immediate obligations promptly.

3] Proprietary Ratio:

Formula:
Proprietors fund
Proprietary ratio

Total assets
OR

Shareholders fund
Proprietary ratio =

66

Fixed assets + current assets

YEAR

2008-2009

2009-2010

2010-2011

2011-2012

Proprietary fund

49,804.26

63,967.13

81,448.60

126,372.97

Total Assets

68,520.72

87,439.93

105,405.58

189,655.07

Proprietary ratio

0.72

0.73

0.77

0.66

189,655.07

200,000.00
180,000.00
160,000.00
140,000.00

126,372.97

120,000.00

105,405.58

100,000.00
80,000.00
60,000.00

87,439.93
68,520.72

81,448.60

Proprietary fund
Total fund

63,967.13

Proprietary ratio

49,804.26

40,000.00
20,000.00
0.72

0.73

0.77

0.66

0.00
2005-2006

Comments:

67

2006-2007

2007-2008

2008 -2009

The Proprietary ratio of the company is 0.66 in the year 2011-2012. It means that the for every
one rupee of total assets contribution of 66 paisa has come from owners fund & remaining
balance 34 paisa is contributed by the outside creditors. This shows that the contribution by
owners to total assets is more than the contribution by outside creditors. As the Proprietary ratio
is very favorable of the company. The Companys long-term solvency position is very sound.

4] Stock Working Capital Ratio:

Formula:

Stock
Stock working capital ratio = Working Capital

YEAR

2008-2009

2009-2010

2010-2011

2011 -2012

Stock

10,119.82

12,136.51

14,247.54

14,836.72

3149.15

4352.93

12,522.70

10,622.38

3.21

2.78

1.13

1.39

Working Capital
Stock

working

capital ratio

68

16,000.00

14,247.54

14,000.00
12,000.00

12,136.51

14,836.72

12522.7
10622.38

10,119.82

10,000.00
8,000.00

Stock

6,000.00
4,000.00
2,000.00

Working Capital

4352.93

Stock working capital ratio

3149.15

3.21

2.78

1.13

1.39

0.00

Comments:
This ratio shows that extend of funds blocked in stock. The amount of stock is decreasing from
the year 2008-2009 to 2011-2012. However in the year 2011-2012 it has increased a little to. In
the year 2010-2011 the sale is increased which affects decrease in stock that effected in increase
in working capital in 2010-2011.
It shows that the solvency position of the company is sound.

69

5] Capital Gearing Ratio:

Formula:

Preference capital+ secured loan

Capital gearing ratio =

YEAR

Equity capital & reserve & surplus

2008-2009

2009-2010

2010-2011

2011 -2012

7,664.90

9,569.12

6,600.17

10,697.92

Equity capital &

reserves & surplus

49,804.26

63,967.13

81,448.60

126,372.97

Capital gearing
ratio

16%

15%

8.2%

8.5%

Secured
loan

70

140,000.00

126,372.97

120,000.00
100,000.00
81,448.60
80,000.00

63,967.13
Secured loan
Equity capital & reserves & surplus
60,000.00
49,804.26

Capital gearing ratio

40,000.00
20,000.00

9,569.12

7,664.90
16%

10,697.92

6,600.17
15%

8%

9%

0.00
2005-2006

2006-2007

2007-2008

2008 -2009

Comments:
Gearing means the process of increasing the equity shareholders return through the use of debt.
Capital gearing ratio is a leverage ratio, which indicates the proportion of debt & equity in the
financing of assets of a company.
For the last 2 years [i.e.2010-2011 TO 2011-2012] Capital gearing ratio is all most same which
indicates, near about 8.5% of the fund covering the secured loan position. But in the year 20082009 the Capital-gearing ratio is 16%. It means that during the year 2008-2009 company has
borrowed more secured loans for the companys expansion.

71

6] Debt Equity Ratio:

Formula:
Total long term debt
Debt equity ratio =

Total shareholders fund

YEAR

2008-2009

2009-2010

2010-2011

2011-2012

Long term debt

21,865.61

27,825.73

36,479.68

73,904.48

81,448.60

126,372.97

0.45

0.59

63,967.13
Shareholders fund

49,804.26

Debt Equity Ratio

0.44

72

0.44

140,000.00

126,372.97

120,000.00
100,000.00
81,448.60
73,904.48

80,000.00
63,967.13

Long term debt

Shareholders fund

60,000.00 49,804.26

Debt Equity Ratio

36,479.68

40,000.00
21,865.61

27,825.73

20,000.00
0.44

0.44

0.45

0.59

0.00
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:
The debt equity ratio is important tool of financial analysis to appraise the financial structure of
the company. It expresses the relation between the external equities & internal equities. This ratio
is very important from the point of view of creditors & owners.
The rate of debt equity ratio is increased from 0.44 to 0.59 during the year 2008-2009 to 20112012. This shows that with the increase in debt, the shareholders fund also increased. This
shows long-term capital structure of the company is sound. The lower ratio viewed as favorable
from long term creditors point of view.

73

7] Gross Profit Ratio:

Formula:

Gross profit
Gross profit ratio =

Net sales

* 100

YEAR

2008-2009

2009-2010

2010-2011

2011 -2012

Gross profit

18345.48

25,439.43

30,086.28

25,758.2

Net sales

80,877.79

111,699.03

133,805.78

141,959

Gross profit Ratio

22.7

22.7

22.4

18.14

74

160000
133,805.78

140000

141,959.00

111,699.03

120000
100000

80,877.79

Gross profit

80000

Net sales
Gross profit Ratio

60000
40000

18,345.48

20000

25,439.43

22.7

22.7

30,086.28

22.4

25,758.20
18.14

0
2005-2006

2006-2007

2007-2008

2008 -2009

Comments:
The gross profit is the profit made on sale of goods. It is the profit on turnover. In the year 20082009 the gross profit ratio is 22.7%. It has decreased to 18.14% in the year 2011-2012 due to
increase in sales with corresponding more increase in cost of goods sold.
It is continuously declined from 2008-2009 t0 2011-2012 due to high cost of purchases &
overheads. Although the gross profit ratio is declined during the years 2008-2009 to 2011-2012.
The net sales and gross profit is continuously increasing from the year 2008-2009 to 2011-2012.

8] Operating Ratio:
75

Formula:

Operating Profit
Operating ratio =

Net sales

*100

Operating profit = COGS+ operating expenses

YEAR

2008-2009

2009-2010

2010-2011

2011-2012

68,550.24

91,947.72

109,506.10

118,234.17

Net sales

80,877.79

111,699.03

133,805.78

141,959

Operating ratio

84.75%

82.31%

81.80%

83.28%

COGS +
Operating
expenses

76

160,000.00
141,959.00
133,805.78

140,000.00

111,699.03
109,506.10

120,000.00

118,234.17

91,947.72

100,000.00

80,877.79

COGS + Operating
expenses

80,000.00 68,550.24

Net sales
Operating ratio

60,000.00
40,000.00
20,000.00
84.75%

82.31%

81.80%

83.28%

0.00
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:
The operating ratio shows the relationship between costs of activities & net sales. Operating ratio
over a period of 4 years when compared that indicate the change in the operational efficiency of
the company.
The operating ratio of the company has decreased in 3 year and increase a little in last year. This
is due to increase in the cost of goods sold, which in 2008-2009 was 84.75%, in 2009-2010 was
82.31%, in 2010-2011 was 81.80% & in 2011-2012 it is 83.28%. Though the cost has increased
in 2009-2010 as compared to 2008-2009, it is reducing continuously over the next two years,
indicate downward trend in cost but upward / positive trend in operational performance.

77

9) Net Profit Ratio:

Formula:

Net Profit After Tax

Net profit ratio =

Net sales

* 100

YEAR

2008-2009

2009-2010

2010-2011

2011-2012

NPAT

9,069.34

11,943.40

19,458.29

15,309.32

Net sales

80,877.79

111,699.03

133,805.78

141,959.00

Net profit 999ratio

11.21%

10.69%

14.54%

10.78%

78

160,000.00
133,805.78

140,000.00
111,699.03

120,000.00
100,000.00

141,959.00

80,877.79

NPAT

80,000.00

Net sales
Net profit ratio

60,000.00
40,000.00
11,943.40

20,000.00 9,069.34
11.21%

19,458.29

10.69%

15,309.32

14.54%

10.78%

0.00
2005-2006

2006-2007

2007-2008 2008 -2009

Comments:
The net profit ratio of the company is high in all year but the net profit is increasing order from
this ratio of 4 year it has been observe that the from 2008-2009 to 2010-2011 the net profit is
increased and it decreased in the year 2011-2012.
Profitability ratio of company shows considerable increase in 3 years and decreased in the last
year. Companys sales have increased in 3 years and decreased in the last year. At the same time
company has been successful in controlling the expenses i.e. manufacturing & other expenses.
It is a clear index of cost control, managerial efficiency & sales promotion.

79

10] Stock Turnover Ratio:

Formula:
Cost Of Goods Sold
Stock Turnover Ratio =

Average stock

YEAR

2008-2009

2009-2010

2010-2011

2011 -2012

COGS

18,90,98

21,96,32

28,33,02

25,72,26

Average stock

5,49,90

5,97,58

6,73,11

6,89,30

3.4

3.6

4.20

3.73

Stock Turnover
Ratio

Comments:
Stock turnover ratio shows the relationship between the sales & stock it means how stock is
being turned over into sales.
The stock turnover ratio is 2008-2009 was 3.4 times which indicate that the stock is being turned
into sales 3.4 times during the year. The inventory cycle makes 3.4 rounds during the year. It
helps to work out the stock holding period, it means the stock turnover ratio is 3.4 times then the

80

11] Return on Capital Employed:

Formula:

Net Profit After Tax

Return on capital employed =

YEAR

Capital employed

*100

2008-2009

2009-2010

2010-2011

2011 -2012

9,069.34

11,943.40

19,458.21

15,308.32

71,669.87

145,415.73

117,928.28

200,277.45

12.65%

8.21%

16.50%

7.64%

NPAT
Capital employed
Return on capital
employed

81

250,000.00
200,277.45
200,000.00
145,415.73
150,000.00

117,928.28
NPAT

100,000.00

71,669.87

Capital employed
Return on capital employed

50,000.00

19,458.21 15,308.32
9,069.34 11,943.40
12.65%
8.21%
16.50%
7.64%

0.00

Comments:
The return on capital employed shows the relationship between profit & investment. Its purpose
is to measure the overall profitability from the total funds made available by the owner &
lenders.
The return on capital employed of Rs.7.64 indicate that net return of Rs. 7.64 is earned on a
capital employed of Rs.100. this amount of Rs. 7.64 is available to take care of interest, tax,&
appropriation.
The return on capital employed is show-mixed trend, i.e. it decrease in 2009-2010, then increase
in 2010-2011 and finally decrease in 2011-2012.In 2010-2011 It is highest that is 16.50%. This
indicates a very high profitability on each rupee of investment & has a great scope to attract large
amount of fresh fund.
82

12] Earning Per Share:

Formula:
Net Profit After Tax Preference Dividend
Earning per share =

Number of equity share

YEAR

2008-2009

2009-2010

2010-2011

2011 -2012

NPAT

9,06934

11,943,40.00

19,458,29.00

15,309,32.00

No.of equity share

13,935.08

13,935.08

14,536.49

15,737.98

Earning per share

65.08

85.71

133.86

97.28

15,737.98
16,000.00
13,935.08

13,935.08

14,536.49

14,000.00
12,000.00
10,000.00

No.ofequity share
Earning per share

8,000.00
6,000.00
4,000.00
2,000.00
0.00

83

65.08

85.71

133.86

97.28

Comments:
Earning per share is calculated to find out overall profitability of the company. Earning per share
represents the earning of the company whether or not dividends are declared.
The Earning per share is 97.28 means shareholder gets Rs. for each share of Rs. 10/-. In other
words the shareholder earned Rs. 97.28 per share.
The net profit after tax of the company is increasing in all years accepts 2011-2012. Therefore
the shareholders earning per share is increased continuously from 2008-2009 to 2010-2011 by
65.08-133.86% and decrease in 2011-2012 to 97.28%. This shows it is continuous capital
appreciation per unit share for consecutive three years and capital depreciation per unit share in
the last year.
The above analysis shows the Earning per share and Dividend per share is increasing rapidly. It
is beneficial to the shareholders and prospective investor to invest the money in this company.

13] Dividend Payout Ratio:

Formula:

Dividend per share

Dividend Payout ratio =

84

Earning per share

* 100

YEAR

2008-2009

2009-2010

2010-2011

2011 -2012

Dividend per share

10.00

10.33

11.22

12.05

65.08

85.71

133.86

97.28

15.36%

12.05%

8.38%

12.38%

Earning per
share
Dividend payout
ratio

133.86

140
120

97.28
100

85.71

80

Dividend per share

65.08

Earning per share

60

Dividend payout ratio

40
20

10

12.05
11.22
10.33
15.36%
12.05%
12.38%
8.38%

0
2005-2006

2006-2007

2007-2008

2008 -2009

Comments:
The company earned profit in all four years. So its declare dividend in all four years. In the year
2008-2009, 2009-2010 and 2011-2012 the Dividend payout ratio is 15.36, 12.05 and 12.38
85

respectively. In the year 2010-2011 the company has declared the dividend 8.38 because the
company has not earned more profit in the year 2001-2002 hence the company has not declared
more dividends in the year 2011-2012. However the company has declared more dividends in
the year 2008-2009 as the company has sufficient profit. From this one can say that the company
is more conservative for expansion.

14] Cost of Goods Sold Ratio:

Formula:
Cost Of Goods Sold
Cost of goods sold Ratio =

Net sales

* 100

YEAR

2008-2009

2009-2010

2010-2011

2011 -2012

COGS

62,532.31

86,259.6

103,719.5

116,200.8

Net sales

80,773.79

111,699.03

133,805.78

141,959.00

77.31

77.22

77.51

81.85

Cost of goods
sold ratio

86

160,000.00

141,959.00
133,805.78

140,000.00

116,200.80
111,699.03
103,719.50

120,000.00
100,000.00

86,259.60
80,773.79

80,000.00
62,532.31

COGS

60,000.00

Net sales
Cost of goods sold ratio

40,000.00
20,000.00

77.31

77.22

77.51

81.85

0.00

Comments:
This ratio shows the rate of consumption of raw material in the process of production. In the year
2008-2009 the cost of goods sold ratio is 77.31% so the gross profit is 22.69%. It indicates that
in 2008-2009, the 77.31% of raw material is consumed in the process of production.
During the 3 years the rate of cost of goods sold ratio is almost same and it increased in last year
however the gross profit & sales is increased during the same period.

87

15] Cash Ratio:

Formula:
Cash + Bank + Marketable securities
Cash ratio

YEAR

Total current liabilities

2008-2009

2009-2010

2010-2011

2011 -2012

239.31

308.31

217.79

500.13

32,221.16

45,675.71

0.006

0.010

Cash + Bank +
Marketable
securities
25,858.06

Total current
21,547.00
liabilities
Cash ratio

88

0.011

0.011

45,675.71

50000
45000
40000

32,221.16

35000
25,858.06

30000
25000

21,547.00

Cash + Bank + Marketable

securities
Total current liabilities

20000
15000

Cash ratio

10000
5000 239.31 0.01308.31 0.01217.79 0.01500.13 0.01
0
2005-2006 2006-2007 2007-2008 2008 -2009

Comments:
This ratio is called as super quick ratio or absolute liquidity ratio. In the year 2008-2009 the cash
ratio is 0.011 & remains same in the year 2009-2010. Then it is decreased to 0.006 in the year
2010-2011 & increased in the year 2011-2012 t0 0.010.
This shows that the company has little cash, bank balance, & marketable securities to meet any
contingency.

89

16] Return on Proprietors Fund Ratio:

Formula:

Net Profit After Tax

Return on proprietors fund =

Proprietors fund

* 100

YEAR

2008-2009

2009-2010

2010-2011

2011 -2012

NPAT

9,069.34

11,943.40

19,458.29

15,309.32

Proprietors fund

49,804.26

63,967.13

81,448.60

126,372.97

18.20

16.67

23.89

12.11

Return on
proprietors fund

90

140,000.00

126,372.97

120,000.00
100,000.00
80,000.00

81,448.60
63,967.13
NPAT

60,000.00 49,804.26

Proprietors fund
Return on proprietors fund

40,000.00
19,458.29

20,000.00 9,069.34 11,943.40

18.2
16.67

15,309.32

23.89

12.11

0.00

Comments:
Return on proprietors fund shows the relationship between profits & investments by proprietors
in the company. In the year 2008-2009 the return on proprietors fund is 18.20% it means the net
return of Rs. 18.20 approximately is earned on the each Rs. 100 of funds contributed by the
owners.
During the last 4 years the rate of return on proprietors fund is in fluctuating order. The return on
proprietors fund during the year 2008-2009 to 2011-2012 is decreased from 18.20% to 12.11%
and it is maximum in the year 2010-2011.
It shows that the company has very large returns available to take care of high dividends, large
transfers to reserve etc. & has a great scope to attract large amount of fresh fund from owners.

91

17] Operating Profit Ratio:

Formula:
Operating profit
Operating profit ratio =

Net sales

*100

YEAR

2008-2009

2009-2010

2010-2011

2011 -2012

NPAT

14,458.74

20,405.91

22,432.52

24,152.39

Proprietors fund

80,877.79

111,699.03

133,805.78

141,959

17.87

18.26

16.76

17.04

Return on
proprietors fund

92

160,000.00

141,959.00
133,805.78

140,000.00

111,699.03

120,000.00
100,000.00

80,877.79

80,000.00

NPAT

60,000.00
40,000.00
20,000.00

Proprietors fund
14,458.74

20,405.91 22,432.52 24,152.39

17.87

18.26

16.76

Return on proprietors fund

17.04

0.00

Comments:
Operating profit ratio shows the relationship between operating profit & the sales. The operating
profit is equal to gross profit minus all operating expenses or sales less cost of goods sold and
operating expenses.
The operating profit ratio of 17.04% indicates that average operating margin of Rs.17 is earned
on sale of Rs. 100. This amount of Rs. 17 is available for meeting non operating expenses. In the
other words operating profit ratio 17.04means that 17.04% of net sales remains as operating
profit after meeting all operating expenses.
During the last 4 years the operating profit ratio is remains almost same. It indicates that the
company has great efficiency in managing all its operations of production, purchase, inventory,
selling and distribution and also has control over the direct and indirect costs. Thus, company has
a large margin is available to meet non-operating expenses and earn net profit.

93

Calculations and Interpretation of Fund Flow Statement

Fund flow statement (in Rs. Cr.)
Mar ' 12
Source of funds
Issue of shares
Long term borrowings
Operating profit

Mar ' 11

Mar ' 10

Mar ' 09

1,393.17

1,393.21

1,453.39

1,573.53

21,865.61

27,825.73

36,479.6
8

14,458.74

20,405.91

2,432.52

73,904.4
8
24,152.3
9

37,717.52

49,624.85

60,365.5
9

99,630.4

20,516.1
1
14,247.5
4

20,268.1
8
14,836.7
2

Application of funds
Investment
Inventories
Payment dividends
Payment of tax

Net increase in working capital

94

5,846.18

16,251.34

10,119.82

12,136.51

1393.51

1,440.44

1,631.24

1,897.05

1,642.72

2,585.35

3,559.85

3,137.34

19,000.23

32,413.64

39,954.7
4

40,139.2
9

18,717.29

17,211.21

20,410.8
5

59,491.1
1

Comments

The fund flow analysis shows that the funds increase continuously from the year 20092012 due to the maximum long term borrowings and more operating profit .The funds are
maximum in the year 2012 because in this year the company borrowed maximum long

term loan.
The application of funds also increases continuously from the tear 2009 to 2012. It was

minimum in the year 2009 and maximum in the year 2012.

The net working capital available to the company was maximum in the year 2012 shows
the high liquidity position of the firm and it was minimum in the year 2010 shows the
low liquidity position of the firm.

95

Calculations and Interpretation of Cash Flow Statement

Profit before tax

Net cash flow-operating activity
Net cash used in investing activity
Net cash used in fin. Activity
Net inc/dec in cash and equivalent

Cash and equivalent begin of year

Cash and equivalent end of year

Mar ' 12

Mar ' 11

Mar ' 10

Mar ' 09

18,433.23

23,010.14

14,520.47

10,704.06

18,245.86

17,426.74

16,870.55

10,301.58

-24,084.20

-23,955.08

-18,567.01

-12,130.88

23,732.58

8,973.04

306.08

366.67

17,894.24

2,444.70

-1,390.38

-1,462.63

4,282.29

1,835.35

3,225.73

3,608.79

22,176.53

4,280.05

1,835.35

2,146.16

Cash flow Statement (in Rs. Cr).

96

Comments:

The cash flow statement shows that the net profit before tax increased continuously in the

year 2009, 2010 and 2011 but decreased in the year 2012 due to the excessive liquidity.
The net cash from the operating activities continuously increased from the 2009 to 2012,

which shows the sound position of the firm.

The statement shows that net cash from investing activities is negative in all four years

that means the firm is not enough contribute in investing activities.

The net cash used in financing activities is maximum in the year 2011 and 2012 in
comparison to 2009 and 2010, when company contributed fewer amounts in financing

activities.
The cash and cash equivalents of the firm decreased in the year 2009 and 2010, which
shows the low liquidity position of the firm in these years. The cash and cash equivalents
of the firm increased in the year 2011and 2012 showing the high liquidity position of the

firm.
The opening cash and cash equivalents are minimum in the year 2011 and maximum in
the year 2012. The Closing cash and cash equivalents maximum in the year 2012 and
minimum in the year 2010 shows the firm maintain the maximum liquidity position in
the year 2012.

97

Findings

1. The current ratio has shown non fluctuating trend as 1.14, 1.16, 1.38 and 1.23 during 2009,
2010, 2011 and 2012.
2. The quick ratio is also in non fluctuating trend throughout the period 2009 2012 resulting as
0.67, 0.69, 0.75, 0.78.The Company believes in high profitability and low liquidity position.
3. The proprietary ratio has shown a non fluctuating trend. The proprietary ratio is decreased
compared with the last year.
4. The stock working capital ratio decreased from 3.21 to 1.39 in the year 2009 2012.
5. The capital gearing ratio is decreased form 2009 2011 (0.16, 0.15 and 0.82) and increased in
2012 to 0.85.
6. The debt-equity ratio increased from 0.44-0.59 in the year 2009-2012.
7. The gross profit ratio is in fluctuation manner. It decreased in the current year compared with
the previous year from 23.1% to 18.97%.
8. The net profit ratio is also decreased in the current year compared with the previous year from
14.54% to 10.78%.
9. The operating ratio is increased in the current year compared with the previous year from
81.8% to 83.28%.
10. The return on capital employed is increased in the year 2009 and 2010 while it decreased in
the year 2011 and 2012.

98

11. The earning per share is maximum in the year 2010-2011 and minimum in the year 20082009.
12. Dividend payout ratio is maximum in the year 2008-2009 and minimum in the 2010-2011.
13. Cost of goods sold shows a non fluctuating pattern in the year 2005-2008 and increased in
the year 2011-2012.
14. The cash ratio shows a non fluctuating pattern in the year 2009, 2011 and 2012 but decreased
in the year 2011.
15. Return on proprietorship fund is maximum in the year 2010-2011 and minimum in the year
2011-2012.
16. The operating profit ratio shows almost similar pattern in all years but it is maximum in the
year 2009-2010 and minimum in the year 2010-2011.
17..The net working capital available to the company was maximum in the year 2012 shows the
high liquidity position of the firm and it was minimum in the year 2010 shows the low
liquidity position of the firm.

99

Suggestion & Recommendation

1. Liquidity refers to the ability of the concern to meet its current obligations as and when these
become due. The company should improve its liquidity position.
2. The company should make the balance between liquidity and solvency position of the
company.
3. The profit ratio is decreased in current year so the company should pay attention to this
because profit making is the prime objective o every business.
4. The cost of goods sold is high in every year so the company should do efforts to control it.
5. The long term financial position of the company is very good but it should pay a little attention
to short term solvency of the company.

100

Conclusion
The companys overall position is at a very good position. The company achieves sufficient
profit in past four years. The long term solvency position of the company is very good. The
company maintains low liquidity to achieve the high profitability. The company distributes
dividends every year to its share holders. The profit of the company decreased in the last year
due to maintaining the comparatively high liquidity. The net working capital of the company is
maximum in the last year shows the maximum liquidity.

101

Bibliography

REFERENCE BOOKS
FINANCIAL MANAGEMENT
Theory, Concepts & problems
R.P.RUSTAGI
FINANCIAL MANAGEMENT By- M.R. Agrawal
ANAUAL REPORTS OF RELIANCE INDUSTRIES LIMITED

2008-2009

2009-2010

2010-2011

2011-2012

WEBSITES

102

www.ril.com
www.moneycontrol.com
www.wikipedia.com

APPENDIX

103

Application Of Funds
Gross Block

55,125.82 84,970.13 99,532.77 104,229.10 149,628.70

Mar '09
Mar '10
Mar '08
Mar '11
Mar '12
Less: Accum. Depreciation 24,872.83 29,253.38 35,872.31 42,345.47 49,285.64
Bala
---nce
Net Block
30,252.99
55,716.75
63,660.46 61,883.63 100,343.06
---12 She 12
12
-12 mths
12 mths 69,043.83
Capital Work in Progress
4,829.29
7,528.13
23,005.84
mths 6,957.79
mths
mths
et of in
Investments
17,051.46
5,846.18
16,251.34 20,516.11 20,268.18
Rs.
Reli
Cr.
ance
Inventories
7,412.88
10,119.82 12,136.51 14,247.54 14,836.72
Sources Of Funds
---Indu
--- 1,393.2
Sundry Debtors
3,927.81
4,163.62
3,732.42 6,227.58
4,571.38
1,393.0 1,393.1
strie
Total Share Capital
1,453.39 1,573.53
9
7
1308.35
Cash and Bank Balance
384.51
217.79
500.13
s 239.31
1,393.0 1,393.1
1,393.2
Total Current
11,725.20
14,522.75
16,177.28
20,692.91
Equity Assets
Share Capital
1,453.39
1,573.53 19,908.23
9
7
1
Loans and Advances
13,869.67 8,266.55 12,506.71 18,441.20 13,375.15
Share Application
0.00 1,906.85
0.00
60.14
1,682.40
69.25 23,014.71
Fixed Deposits
3,224.28
1,527.00
5,609.75
Money
Total CA, Loans
& Advances
Preference
Share28,819.15 24,696.15 30,210.99 44,743.86 56,298.09
0.00
0.00
0.00
0.00
0.00
Capital
Deffered Credit
0.00
0.00
0.00
0.00
0.00
Current Liabilities
Reserves
Provisions
Revaluation
Reserves
Total CL & Provisions

36,280. 43,760. 59,861. 77,441.5 112,945.

17,917.41 17,656.02 24,145.19 29,228.54 42,664.81
35
90
81
5
44
3,847.57 3,890.98 1,712.87 2,992.62
3,010.90
2,729.8 4,650.1 2,651.9
11,784.7
871.26
8
9
7
5
21,764.98
21,547.00
25,858.06
32,221.16
45,675.71

40,403. 49,804.
63,967.
81,448.6
126,372. 10,622.38
7,054.17
3,149.15
4,352.93
12,522.70
32
26
13
0
97
0.00
0.00
0.00
0.00
0.00
7,972.9 7,664.9 9,569.1
10,697.9
Secured Loans 59,187.91 71,669.87 91,792.86
6,600.17
Total Assets
117,928.28 200,277.45
0
0
2
2

Net Current Assets

Networth
Miscellaneous Expenses

10,811. 14,200. 18,256. 29,879.5 63,206.5

Unsecured Loans
69
71
61
1 37,157.61
6
Contingent Liabilities
6,579.47
24,897.66
46,767.18
36,432.69
Book Value
(Rs)Debt
Total
Total Liabilities

18,784. 21,865.
36,479.6
73,904.4 727.66
270.35
324.0327,825.
439.57
542.74
59
61
73
8
8
59,187. 71,669. 91,792. 117,928. 200,277.
91
87
86
28
45
Mar '08 Mar '09 Mar '10 Mar '11 Mar '12

104

Profit & Loss account of Reliance

Industries

------------------- in Rs. Cr.

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

Mar '08 Mar '09 Mar '10

Mar '11

Mar '12

12 mths 12 mths 12 mths 12 mths 12 mths

Income
Sales Turnover

73,164. 89,124. 118,353. 139,269. 146,328.

10
46
71
46
07

Excise Duty

7,245.2 8,246.6
6,654.68 5,463.68 4,369.07
7
7

Net Sales

65,918. 80,877. 111,699. 133,805. 141,959.

83
79
03
78
00

Other Income
Stock Adjustments
Total Income

1,573.7
546.96
0
-524.35

236.89 6,595.66 1,264.03

2,131.1
654.60 -1,867.16 427.56
9

66,968. 83,555. 112,590. 138,534. 143,650.

18
94
52
28
59

Expenditure
Raw Materials
Power & Fuel Cost

907.94

1,146.2
2,261.69 2,052.84 3,355.98
6

Employee Cost

846.40 978.45 2,094.09 2,119.33 2,397.50

Other Manufacturing
Expenses

303.97 668.31 1,112.17 715.19 1,162.98

Selling and Admin

Expenses

3,000.2 5,872.3
5,478.10 5,549.40 4,736.60
7
3

Miscellaneous Expenses

105

47,418. 59,739. 80,791.6 98,832.1 109,284.

04
29
5
4
34

217.30 300.74

321.23

412.66

562.42

Preoperative Exp
Capitalised
Total Expenses

106

-9.60

-155.14 -111.21

-175.46 -3,265.65

52,684. 68,550. 91,947.7 109,506. 118,234.

32
24
2
10
17

Mar '08

Mar '09

Mar '10

Mar '11

Mar '12

12 mths 12 mths 12 mths 12 mths 12 mths

Operating Profit

12,710.1 14,458.7 20,405.9 22,432.5 24,152.3

6
4
1
2
9

PBDIT

14,283.8 15,005.7 20,642.8 29,028.1 25,416.4

6
0
0
8
2

Interest

1,486.54 893.61 1,298.90 1,162.90 1,774.47

PBDT

12,797.3 14,112.0 19,343.9 27,865.2 23,641.9

2
9
0
8
5

Depreciation

3,784.57 3,400.91 4,815.15 4,847.14 5,195.29

Other Written Off

0.00

Profit Before Tax

9,012.75

Extra-ordinary items

-1.31

PBT (Post Extra-ord

Items)

9,011.44

Tax

0.00

0.00

0.00

0.00

10,711.1 14,528.7 23,018.1 18,446.6

8
5
4
6
0.88

0.51

48.10

0.00

10,712.0 14,529.2 23,066.2 18,446.6

6
6
4
6

1,505.00 1,642.72 2,585.35 3,559.85 3,137.34

Reported Net Profit

7,571.68 9,069.34

11,943.4 19,458.2 15,309.3

0
9
2

Total Value Addition

5,266.28 8,810.95

11,156.0 10,673.9
8,949.83
7
6

Preference Dividend
Equity Dividend
Corporate Dividend Tax

0.00

0.00

0.00

0.00

0.00

1,045.13 1,393.51 1,440.44 1,631.24 1,897.05

146.58

195.44

202.02

277.23

322.40

Per share data (annualised)

Shares in issue (lakhs)

107

13,935.0 13,935.0 13,935.0 14,536.4 15,737.9

8
8
8
9
8

108

Earning Per Share (Rs)

54.34

65.08

85.71

133.86

97.28

Equity Dividend (%)

75.00

100.00

110.00

130.00

130.00

Book Value (Rs)

270.35

324.03

439.57

542.74

727.66