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FM-Assignment -1
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Ashish kumar verma
FM-Assignment -1
INDEX
1. Executive Summary 3
2. Capital expenditure 7
4. Capital structure 10
5. Beta measure 14
6. WACC 15
8. Du Pont 21
9. Comments 24
10. References 32
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QUESTION-1
ANSWER-
FM-Assignment -1
The Company's major products and brands, from oil and gas to textiles
are tightly integrated and benefit from synergies across the Company.
Central to the Company's operations is its vertical backward
integration strategy; raw materials such as PTA, MEG, ethylene,
propylene and normal paraffin that were previously imported at a
higher cost and subject to import duties are now sourced from within
the Company. This has had a positive effect on the Company's
operating margins and interest costs and decreased the Company's
exposure to the cyclicality of markets and raw material prices. The
Company believes that this strategy is also important in maintaining a
domestic market leadership position in its major product lines and in
providing a competitive advantage.
The Company has the largest refining capacity at any single location.
FM-Assignment -1
An Overview
The Indian oil and gas sector is one of the six core industries in India
and has very significant forward linkages with the entire economy.
India has been growing at a decent rate annually and is committed to
accelerate the growth momentum in the years to come. This would
translate into India's energy needs growing many times in the years to
come. Hence, there is an emphasized need for wider and more
intensive exploration for new finds, more efficient and effective
recovery, a more rational and optimally balanced global price regime -
as against the rather wide upward fluctuations of recent times, and a
spirit of equitable common benefit in global energy cooperation.
The Indian oil and gas sector is of strategic importance and plays a
predominantly pivotal role in influencing decisions in all other spheres
of the economy. The annual growth has been commendable and will
accelerate in future consequently encouraging all round growth and
development. This has necessitated the need for a wider intensified
search for new fields, evolving better methods of extraction, refining
and distribution, the constitution of a national price mechanism -
keeping in mind the alarming price fluctuation in the recent past and
evolving a spirit of equitable global cooperation. .
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Private Sector
Essar Oil
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QUESTION-2
ANSWER-
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QUESTION-3
ANSWER-
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QUESTION-4
ANSWER-
(In Rupees Crores)
Debt Equity
YEAR Debt Equity Total % %
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Debt Equity
YEAR Debt Equity Total % %
Debt Equity
YEAR Debt Equity Total % %
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Debt Equity
YEAR Debt Equity Total % %
Debt Equity
YEAR Debt Equity Total % %
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FM-Assignment -1
case, the Essar Oil has highly leveraged capital structure and
Mangalore refinery and petrochemicals (MRPL) has a low leveraged
capital structure.
Source: www.moneycontrol.com
QUESTION-5
What is the beta measure of the company?
ANSWER-
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QUESTION-6
ANSWER-
Where,
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= {1-(1908.47/126372.97)} = 0.985
= {13(1+11.93)}/(r-11.93) = 1782.37
= 12.02 %
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= 13.8612 %
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QUESTION-7
What are the five year high and five years low for the
company’s debt ratio? Compare the debt equity ratio of the
selected company with that of five other companies in the
same industry.
ANSWER-
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Whereas a low ratio indicates that the utilization of the leverages is not
done properly by the company. In case of Reliance, it’s debt-equity
ratio is very normal. It shows the riskiness of the business in this
years. But good returns has never made debt a worry for Reliance.
Source: www.moneycontrol.com
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QUESTION-8
ANSWER-
RETURN ON EQUITY
12.14 %
= 1.94
FM-Assignment -1
Preference
Dividend 0.00 0.00 0.00 0.00 0.00
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Return on Total
Assets(ROA)
6.26 12.98 10.16 9.72 9.40
(Net profit margin*Total
Asset Turnover)
Financial Leverage
Multiplier(FLM)
1.94 1.84 1.83 1.87 1.99
(Total Assets/Common
Stock Equity)
Return on Equity(ROE)
12.14 23.88 18.59 18.18 18.71
(ROA*FLM)
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QUESTION-9
FM-Assignment -1
Objective and Significance: This ratio indicates the number of times the
utilisation of working capital in the process of doing business. The
higher is the ratio, the lower is the investment in working capital and
the greater are the profits. However, a very high turnover indicates a
sign of over-trading and puts the firm in financial difficulties. A low
working capital turnover ratio indicates that the working capital has
not been used efficiently. The ratio for Reliance has been varying
between 5 and 10 and it is currently 7.
2) Cash position
YEAR Cash
2005-06 3610.72
2006-07 2616.41
2007-08 1937.04
2008-09 4474.16
2009-10 22742.10
The cash position of the firm can be found out from the amount of
cash and cash equivalents the firm has at the end of the period.
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As the above table shows, the cash and bank balance have been
varying a lot. It was as low as 1937 Rupees crores and it was as high
as 22742 Rupees crores.
Also, in the year 2009-10, the company had an idle cash of 22742
Rupees crores which is too high compared to the earlier years. It is
advised that the company invests this idle cash in some marketable
securities to earn some money.
3) Short-term financing
2005-06 2542.56
2006-07 5039.35
2007-08 4240.46
2008-09 6531.70
2009-10 8367.46
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Short Term Financing refers to the financing that the company has got
and it will utilize it in next one year. It is a crucial part of the financing
requirements of the company so any company cannot afford to ignore
it.
In the case of Reliance Industries Limited, the short term financing has
increased over the period of 5 years . It was 2542 rupees crores in the
year 2004-05 which was the minimum and it was 8367 rupees crores
in the year 2008-09 which was the maximum.
So, the Short Term Financing as per the above table is increasing over
the years.
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4) Credit policy
(In Rupees Crores)
Collection
Opening Closing
YEAR Sales DTR Period
Debtors Debtors
(Days)
2005-
3046.38 3927.81 66,051.30 18.94 19.27
06
2006-
3927.81 4163.62 81,211.33 20.07 18.18
07
2007-
4163.62 3732.42 28.29 12.90
08 111,692.72
2008-
3732.42 6227.58 133,443.00 26.80 13.62
09
2009-
6227.58 4571.38 141,847.47 26.27 13.89
10
Here to find the credit policy of the firm, we have divided the sales
with debtors. The final result shows us that the credit policy, which is
understood as the amount of credit the company is allowing and the
amount of sales. Thus, we can calculate Debtors Turnover Ratio to find
the credit policy of Reliance Industries Ltd.
This gives the idea about the policy of the firm and It affects the
liquidity position of the company. The value of was 18 times in the
beginning and now the company has increased this ratio to 26 which is
excellent.
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Thus, we can say that the credit policy of Reliance Industries is very
tight as the Debtors Turnover Ratio (DTR) is very high and it has
reduced its collection period .
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Inventory
Opening Closing Period
YEAR Stock Stock Net Sales ITR (Days)
2005-
40.46
06 7231.22 7412.88 66,051.30 9.02
2006-
39.40
07 7412.88 10119.82 81,211.33 9.26
2007-
36.37
08 10119.82 12136.51 111,692.72 10.04
2008-
36.08
09 12136.51 14247.54 133,443.00 10.12
2009-
37.42
10 14247.54 14,836.72 141,847.47 9.75
To get the idea about the company policy for the inventories, we have
found out the ratio of sales and the inventory, also known as the
Inventory Turnover Ratio. This has been calculated by Dividing Net
Sales by Average Stock Inventory. A low turnover implies poor sales
and, therefore, excess inventory. A high ratio implies either strong
sales or ineffective buying. Here, the value of this ratio has been
around 7-9. It is satisfactory. Thus, it can be safely said that the firm
is doing very well.
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Thus, by seeing the Inventory Turnover Ratio (ITR) and the Inventory
Period in Days , we can say that Inventory Management Policy of
Reliance Industries is highly satisfactory.
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REFERENCES:
1. www.ril.com
2. www.bseindia.com
3. http://www.ril.com
4. http://en.wikipedia.org
6. http://business.mapsofindia.com
7. http://www.wisegeek.com
8. www.moneycontrol.com
9. RBI Report
11. www.myiris.com
12. www.in.reuters.com
13. www.economictimes.com
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