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PROJECT REPORT                ATINDIAN OIL CORPORATION LIMITED      SUBMITTED BY: ______________________                  ...
INDEXChapterContentsPage No.  1.      Acknowledgement               1  2.      Introduction to the Project  3.      VISION...
ACKNOWLEDGEMENTI owe a great many thanks to a great many people who helped and supported meduring the writing of this proj...
INTRODUCTIONIn order to ensure greater efficiency and smooth working in the petroleum sector,Government of India decided t...
50 Golden Years in the Service of the Nation:India‟s flagship national oil company and downstream petroleum major, Indian ...
after excluding EOU refineries. Projects under execution will take the capacity further to80 MMTPA by the year 2011-12. Be...
Indian Oil is currently metamorphosing from a pure sectoral company with dominance indownstream in India to a vertically i...
VISION, MISSION AND VALUES:-VisionA major diversified, trans-national, integrated energy company, with national leadership...
To provide technology and services through sustained research and development.To cultivate high standards of business ethi...
Objectives of Indian Oil Corporation Ltd:    To serve the national interest in the oil and related sector in accordance a...
To manage and operate the facilities in an efficient manner so as to generate        adequate internal resources to meet r...
SWOT Analysis:Indian Oil Corporation is the No. 1 Oil Company in India by sales turnover and is alsothe 21st largest petro...
(ONGC) and IOC in Indian Oil market. Reliance Industries limited (RIL) has alsoemerged as an important player competing in...
PRODUCTSThe Retail Brand template of XtraCare (Urban), Swagat(Highway) and KisanSevaKendra‟s(Rural) are widely recognized ...
3. PETROL/ GASOLINE :Automotive gasoline and gasoline-oxygenate blends are used in internal combustionspark-ignition engin...
fleets that operate a large number of trucks crisscrossing the country are usingXTRAMILE to benefit from higher mileage an...
combustion features. In the year 2008, it constituted only around 9% of Indias energybasket compared with 24% globally. Th...
11. DIESEL/GAS OIL:Petroleum derived diesel (called as petro diesel) is a mixture of straight run product (150°C and 350 °...
OPERATING CYCLE OF IOCL Operating Cycle:- The firm has to invest in a fund in current assets for generating sales. Current...
4) As production progresses, labor costs and overheads need have to be met.          5) Of course at some stage trade cred...
Debtors                  =                     Debtors Conversion period                           Credit sales/360Credito...
The Operating cycle definition, also known as cash operating cycle or cash conversioncycle or asset conversion cycle, esta...
CONCLUSION The short term solvency of IOC is fine but that of BPCL is quite low. But no  company is touching the general ...
BIBLIOGRAPHYThe Major documents required for this project was obtained from the following sources.1. Annual reports of IOC...
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Indian oil

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Indian oil

  1. 1. PROJECT REPORT ATINDIAN OIL CORPORATION LIMITED SUBMITTED BY: ______________________ 1
  2. 2. INDEXChapterContentsPage No. 1. Acknowledgement 1 2. Introduction to the Project 3. VISION, MISSION AND VALUES 4. Objectives 5. Swot Analysis 6. Products 7. Operating Cycle 8. Conclusion 9. Bibliography 2
  3. 3. ACKNOWLEDGEMENTI owe a great many thanks to a great many people who helped and supported meduring the writing of this project.My deepest thanks to Mr. S.D. Sir, the Guide of the project, for guiding and correctingvarious documents of mine with attention and care. He has taken pain togo through the project and make necessary correction as and when needed. I alsoexpress my thanks to the honourable Principal for extending her support.I would also thank my Institution and my faculty members without whom thisproject would have been a distant reality. I also extend my heartfelt thanks to myfamily, friends especially Rahul Agarwal and well wisher. 3
  4. 4. INTRODUCTIONIn order to ensure greater efficiency and smooth working in the petroleum sector,Government of India decided to merge the refineries and the distribution activities.The Indian Refineries and Indian Oil Company were combined to form the giant IndianOil Corporation (IOCL) on 1st September 1964, with its registered office at Bombay. In1967, the pipeline division of the corporation was merged with the refineries division.Research & Development of Indian Oil Came into Existence in 1972. In October 1981Assam Oil Company was nationalized and has been amalgamated with IOCL as AssamOil Division (AOD). 4
  5. 5. 50 Golden Years in the Service of the Nation:India‟s flagship national oil company and downstream petroleum major, Indian OilCorporation Ltd. (Indian Oil) is celebrating its Golden Jubilee during 30th June - 1stSeptember 2009. Established as an oil marketing entity on 30th June 1959, Indian OilCompany Ltd. was renamed Indian Oil Corporation Ltd. on 1st September 1964following the merger of Indian Refineries Ltd. (established in August 1958) with it? Theintegrated refining & marketing entity has since grown into the country‟s largestcommercial enterprise and India‟s No.1 Company in the prestigious Fortune ¶Global 500·listing of the world‟s largest corporate, currently at the 116th position. It is also the 18thlargest petroleum company in the worldIndian Oil Today:From a fledgling company with a net worth of just Rs. 45.18 crore and sales of 1.38million tons valued at Rs. 78 crore in the year 1965, Indian Oil has since grown over3000 times with a sales turnover of Rs. 285,337 crore, the highest²ever for an Indiancompany, and a net profit of Rs. 2,950 crore for 2008-09. And in 2010-11 salesturnover,328,744crore and net profit is 7445 crore($ 1,633 million) for the year 2010-11.Set up with the mandate of achieving self-sufficiency in refining and marketingoperations for a nascent nation set on the path of economic growth and prosperity, IndianOil today accounts for nearly half of India‟s petroleum consumption, reaching preciouspetroleum products to millions of people every day through a countrywide network ofaround 35,000 sales points. They are backed for supplies by 167 bulk storage terminalsand depots, 101 aviation fuel stations and 89 Indane LPG bottling plants. For the year2008-09, Indian Oil sold 62.6 million tons of petroleum products, including 1.7 milliontons of natural gas.The Indian Oil Group of companies owns and operates 10 of India‟s 20 refineries with acombined capacity of over 60 MMTPA, accounting for 34% of national refining capacity, 5
  6. 6. after excluding EOU refineries. Projects under execution will take the capacity further to80 MMTPA by the year 2011-12. Besides setting up state-of-the-art facilities to raiseproduct quality to global standards, Indian Oil has undertaken chartering of ships forcrude oil imports on its own and is expanding its basket of crudes and upgrading itsrefineries to handle a wider array of crudes, including high- sulphur types.As a pioneer in lying of cross-country crude oil and product pipelines, the Corporationcrossed 10,000 km in pipeline length and about 70 MMTPA in throughput capacity withthe commissioning of the 330-km Para dip-Haldia crude oil pipeline recently. Plans areunder execution to add about 4,000 km more by the year 2012. In-house capabilities haveenabled the Corporationundertake all pipeline projects on its own and even offer turnkeyexpertise in techno-economic feasibility studies, design and detailed engineering, projectexecution, operations, maintenance and consultancy services.Synergy through Subsidiaries and Joint Ventures:Indian Oil Corporation believes in creating synergies through acquiring subsidiaries bothhorizontally and vertically. It has also entered in a number of Joint Ventures, which haveturned to be highly profitable.A wholly-owned subsidiary, Indian Oil Technologies Ltd., is commercializing theinnovations and technologies developed by Indian Oil‟s R&D Centre, across the globe.The merger of the wholly owned subsidiary, Indian Oil Blending Ltd., is complete.Merger of IBP Co. Ltd., the marketing subsidiary, with the parent company havecompleted recently. 6
  7. 7. Indian Oil is currently metamorphosing from a pure sectoral company with dominance indownstream in India to a vertically integrated, transnational energy behemoth. TheCorporation is implementing a master plan to emerge as a major player in petrochemicalsby integrating its core refining business with petrochemical activities, besides makinglarge investments in E&P and import/marketing ventures for oil and gas in India andabroad. With a view to this Indian Oil is strengthening its existing overseas marketingventures and simultaneously scouting new opportunities for marketing and export ofpetroleum products to new energy markets in Asia and Africa. 7
  8. 8. VISION, MISSION AND VALUES:-VisionA major diversified, trans-national, integrated energy company, with national leadershipand a strongEnvironment conscience, playing a national role in oil security & public distribution.INDIAN OIL CORPORATION LIMITED PURSUES THE VISION OF BECOMING A „MAJOR,DIVERSIFIED, TRANSNATIONAL, INTEGRATED ENERGY COMPANY, WITH NATIONALLEADERSHIP AND A STRONG ENVIRONMENT CONSCIENCE, PLAYING A NATIONAL ROLEIN OIL SECURITY AND PUBLIC DISTRIBUTION.Mission of Indian Oil Corporation Limited: To achieve international standards of excellence in all aspects of energy and diversified business with focus on customer delight through value of products and services and cost reduction. To maximize creation of wealth, value and satisfaction for the shareholders. To attain leadership in developing, adopting and assimilating state of the art technology for competitive advantage. 8
  9. 9. To provide technology and services through sustained research and development.To cultivate high standards of business ethics and total quality management for astrong corporate identity and brand equity.To help enrich the quality of life of the community and preserve ecology andheritage through a strong environment conscience. 9
  10. 10. Objectives of Indian Oil Corporation Ltd:  To serve the national interest in the oil and related sector in accordance and consistent with government policies.  To earn a reasonable rate of interest on investment.  To work towards the achievement of self–sufficiency in the field of oil refining by setting up adequate capacity and to build up expertise in laying of crude oil and petroleum product pipelines.  To create a strong research and development base in the field of oil refining and stimulate the development of new product formulations with a view to minimize/ eliminate their imports and to have next generation products.  To maximize utilization of existing facilities in order to improve efficiency and increase productivity.  To optimize utilization of its refining capacity and to maximize distillate yield from refining of crude oil to minimize foreign exchange outgo.  To minimize fuel consumption in refineries and stock losses in operations to affect energy conservation.  To further enhance distribution network for providing assured service to customers throughout the country through expansion of reseller network as per marketing plan/ government approval.  To avail of all viable opportunities, both national and global, arising out of liberalization policies being pursued by the Government of India.Financial Objective:To ensure adequate return on capital employed and maintain a reasonable annualdividend on its equity capital. To ensure maximum economy in expenditure. 10
  11. 11. To manage and operate the facilities in an efficient manner so as to generate adequate internal resources to meet revenue cost and requirements for project investment, without budgetary support. To generate sufficient internal resources for partly/ wholly expenditure on new projects. To develop long term corporate plans to provide adequate growth of the activities of the corporations. To continue to make an effort in bringing a reduction in cost of production of petroleum product manufactured by means of systematic cost control measures. To endeavor to complete all planned projects within the stipulated time and within the stipulated cost estimates.Achievements of Indian Oil:  Indian Oil Corporation has completed 50 years in the business of Refining and Marketing of Petroleum Products in India in 2009.  Indian Oil Corporation Ltd. is the largest commercial enterprise in India and the only Indian name in the Fortune magazine„s Global 500 listing of the world‟s largest corporations with a ranking of 105 based on fiscal 2008 performance.  Indian Oil received coveted World Petroleum Congress Excellence Award 2008 at Madrid, Spain, in the technical development category for its path breaking R&D work in hydro-processing technology for Green Fuels. 11
  12. 12. SWOT Analysis:Indian Oil Corporation is the No. 1 Oil Company in India by sales turnover and is alsothe 21st largest petroleum company in the world. It was the only Indian company to belisted in the fortune 500 in 2003 and was also ranked second among 15 national oilcompanies in the Asia pacific region. It was ranked 325 in the prestigious Forbes Global500 listing among the largest public companies. Indian Oil and its subsidiaries accountfor 47% petroleum products market share among public sector oil companies, 43.5%national refining capacity and 74% petroleum products pipeline capacity. IOC has madeseveral strategic initiatives to expand its international operations and therefore become atransnational company. For instance, IOC entered the Srilanka oil market by forming awholly owned subsidiary Lanka Indian Oil Corporation following a MoU signed with theCeylon Petroleum Corporation (CPC) in June 2002. Currently the Srilanka Petroleummarket demand is 3.5 million metric tons per annum (MMTPA) while the refiningcapacity available is only 2.2 MMTPA. LIOC plans to fill up the 1.5 millions tones ofsupply shortage. Such move will strengthen its presence in the international market andcontribute to IOC‟s profit.Strengths:Premier integrated Oil Company in India. Indian Oil Corporation is the No. 1 oilcompany in India by sales turnover and is also the 175h largest petroleum company in theworld. It was the only Indian company to be listed in the fortune 500 in 2003 and has alsobeen ranked second among 15 national oil companies in the Asia Pacific region. It wasranked 325 in the prestigious Forbes.Threats:Deregulation of Indian Petroleum sector in India during 2002 abolished monopoly statusof IOC. The company now faces stiff competition from several players striving to gainmarket share. There exist a close competition between Oil and Natural Gas Corp. 12
  13. 13. (ONGC) and IOC in Indian Oil market. Reliance Industries limited (RIL) has alsoemerged as an important player competing in the upstream sector subsequent to thederegulation of the petroleum sector. From April 2004 onwards, the oil retailing – marketfor transport fuel will be deregulated and various companies such as RIL, ESSAR Oil andRoyal Dutch/Shell have been allowed to operate private petrol station.Hence the deregulation policy is bound to squeeze IOC‟s volumes and profit margins infuture.Weakness:Declining crude oil sales.Although the revenue from the crude oil sales accounts for ameager share of total revenue, revenues from this division dropped sharply by 66.7% infiscal 2003 as against the previous fiscal. The crude oil operations contributed aboutINR49.44 billion in fiscal 2003 as against INR148.68 billion in fiscal 2002. Consequentlyoperating profit fell by a large 88% to reach INR19.4 million in 2003. If not for the goodperformance of petroleum products the company‟s profitability would have been severelyaffected by the drastic decline in crude oil sales.OpportunityForay into the Gas business. With emerging as an alternative fuel due to the twin benefitsof low pollution and better economics, IOC has plans to quickly establish itselfIn the gas market also. The LNG and hydrogen business offers an attractive environmentfor its future business. Gas is steadily growing into the most preferred fuel among utilityprovider such as power, fertilizers and transportation. IOC plans to setup a nationwidegas distribution network for serving major Indian cities, to market compressed natural gas(CNG) for automobiles and to import LNG. IOC signed a MoU with National Iranian OilCompany (NIOC) for importing 2.5 MMTPA LNG and also for taking part in the LNGmidstream project in Iran. The initial efforts turned successful with IOC alreadybecoming the lead supplier of degasified LNG to ESSAR Steel and Gujarat Statepetroleum Corp. 13
  14. 14. PRODUCTSThe Retail Brand template of XtraCare (Urban), Swagat(Highway) and KisanSevaKendra‟s(Rural) are widely recognized as pioneering brands in the petroleum retailsegment. Indian Oil‟s leadership extends to its energy brands - Indane LPG, SERVOLubricants, Auto gas LPG, XtraPremium Branded Petrol, XtraMile Branded Diesel,XtraPower Fleet Card, Indian Oil Aviation and XtraRewards cash customer loyaltyprogramme.SOME SPECIFIC PRODUCTS AND THEIR SPECIFICATION ARE AS FOLLOWS :1. INDANE GAS :Indane is today one of the largest packed-LPG brands in the world and has beenconferred the coveted „Consumer Super brand‟ status by the Super brands Council ofIndia. Having launched LPG marketing in the mid-60s, Indian Oil has been credited withbringing about a „kitchen revolution, spreading warmth and cheer in millions ofhouseholds with the introduction of the clean and efficient cooking fuel. It has led to asubstantial improvement in the health of women, especially in rural areas by replacingsmoky and unhealthy chulha. Indaneis today an ideal fuel for modern kitchens,synonymous with safety, reliability and convenience.2. AUTOGAS :AutoGas (LPG) is a clean, high octane, abundant and eco-friendlyfuel. It is obtained from natural gas through fractionation and fromcrude oil through refining. It is a mixture of petroleum gases likepropane and butane. The higher energy content in this fuel results in a 10% reduction ofCO2 emission as compared to MS. Auto Gas is a gas at atmospheric pressure and normaltemperatures, but it can be liquefied when moderate pressure is applied or when thetemperature is sufficiently reduced. This property makes the fuel an ideal energy sourcefor a wide range of applications. 14
  15. 15. 3. PETROL/ GASOLINE :Automotive gasoline and gasoline-oxygenate blends are used in internal combustionspark-ignition engines. These spark ignition engine fuels are primarily used for passengercars. They are also used in off-highway utility vans, farm machinery and in other sparkignition engines employed in a variety of service applications. Gasoline is a complex mixture of relatively volatile hydrocarbons that vary widelyin chemical & physical properties and are derived from fractional distillation of crudepetroleum with a further treatment mainly in terms of improvement of its octane rating.The hundreds of individual hydrocarbons in gasoline range from c4 to c11.4. XTRAPREMIUM :Indian Oil‟s XTRAPREMIUM is India‟s leading brandedpetrol boosted with new-generation multifunctionaladditives known as friction busters that prevent depositionin the combustion chamber. XTRAPREMIUM is custom-designed to deliver highermileage, more power, better pick-up, faster acceleration, enhanced engine cleanliness andlower missions.5 XTRAMILE:Indian Oil‟s XTRAMILE Super Diesel, the leader in thebranded diesel segment, is blended with world class multi-functional fuel additives. Commercial vehicle ownerschoose XTRAMILE because they see a clear value benefit in terms of superior mileage,lower maintenance costs and improved engine protection. A growing section ofcustomers who own diesel automobiles, both in the „lifestyle‟ and „passenger‟ category,prefer XTRAMILE as a fuel for its added and enhanced performance. XTRAMILE hasbrought in a huge savings in the high mileage commercial vehicles segment. Transport 15
  16. 16. fleets that operate a large number of trucks crisscrossing the country are usingXTRAMILE to benefit from higher mileage and reduced maintenance costs.6. ATF/Jet Fuel :Indian Oil Aviation Service is a leading aviation fuel solutionprovider in India and the most-preferred supplier of jet fuel tomajor international and domestic airlines. Between one sunriseand the next, Indian Oil Aviation Service refuels over 1500 flights– from the bustling metros to the remote airports linking the vast Indian landscape, fromthe icy heights of Leh (the highest airport in the world at 10,682 ft) to the distant islandsof Andaman & Nicobar. Jet fuel is a colorless, combustible, straight-run petroleum distillate liquid. Itsprincipal uses are as jet engine fuel. The most common jet fuel worldwide is a kerosene-based fuel classified as JET A-1.The governing specifications in India are IS 1571:2001(7thRev).7. KEROSENE :Kerosene is used as a domestic fuel for heating / lighting and alsofor manufacture of insecticides/ herbicides/fungicides to controlpest, weeds and fungi. Since kerosene is less volatile than gasoline,increase in its evaporation rate in domestic burners is achieved byincreasing surface area of the oil to be burned and by increasing its temperature. The twotypes of burners which achieve this fall into two categories namely vaporizers &atomizers.8. NATURAL GAS:Over the years, Natural Gas has emerged as the fuel of choice across the world. It isslowly but steadily replacing traditional fossil fuels due to its environmentally friendlycharacteristics which help greatly in meeting the stipulated automobile emission norms.When compared with coal and oil, natural gas has a low carbon footprint due to its clean 16
  17. 17. combustion features. In the year 2008, it constituted only around 9% of Indias energybasket compared with 24% globally. This is expected to rise to around 13% in the year2010. Indias hydrocarbon vision statement envisages the share of natural gas in thecountry‟s energy basket to be 20% by the year 2025.9. SERVO LUBRICANTS AND GREASE :Indian Oils SERVO is the brand leader among lubricants and greasesin India and has been conferred the “Consumer Super brand” statusby the Super brands Council of India. With over 500 commercialgrades and 1,500 formulations encompassing literally every conceivable application,SERVO serves as a one-stop shop for complete lubrication solutions in the automotive,industrial and marine segments. Recognized for cutting-edge technology and high-qualityproducts, SERVO is backed by Indian Oils world-class R&D and an extensive blendingand distribution network.10. BITUMEN:Bitumen is a common binder used in road construction. It is principally obtained as aresidual product in petroleum refineries after higher fractions like gas, petrol, keroseneand diesel, etc., are removed. Indian Standard Institution defines Bitumen as a black ordark brown non-crystalline soil or viscous material having adhesive properties derivedfrom petroleum crude either by natural or by refinery processes.Indian Oil produces bitumen from its refineries at Panipat, Mathura, Koyali, Haldia andChennai and markets it in bulk as well as packed in steel drums. Indian Oil also marketsmodified Bitumen CRMB and Emulsion. CRMB is produced at Panipat, Mathura,Koyali, Haldia and CPCL refineries. Indian Oil markets Bitumen Emulsion by the brandname Indemul and it is produced from emulsion plants located in Haldia and Panipatrefineries. CRMB and Emulsion are available both in bulk as well as in packed drums. 17
  18. 18. 11. DIESEL/GAS OIL:Petroleum derived diesel (called as petro diesel) is a mixture of straight run product (150°C and 350 °C) with varying amount of selected cracked distillates and is composed ofsaturated hydrocarbons (primarily paraffin‟s including n , iso , and cycloparaffins), andaromatic hydrocarbons (including naphthalene‟s and alkyl benzenes).Diesel is used in diesel engines, a type of internal combustion engine. Rudolf Dieseloriginally designed the diesel engine to use coal dust as a fuel, but oil proved moreeffective. Diesel engines are used in cars, motorcycles, boats and locomotives.Automotive diesel fuel serves to power trains, buses, trucks, and automobiles, to runconstruction, petroleum drilling and other off-road equipment and to be the prime moverin a wide range of power generation & pumping applications. The diesel engine is highcompression, self-ignition engine. Fuel is ignited by the heat of high compression and nospark plug is used. 18
  19. 19. OPERATING CYCLE OF IOCL Operating Cycle:- The firm has to invest in a fund in current assets for generating sales. Current assets are needed because sales do not convert into cash instantaneously. There is allows an operating cycle involve in the conversion of sale into cash. There is a difference between current and fixed assets in terms of their liquidity.Purchase Payment Credit Sale Collection RMCP+WIPCP+FGCP Inventory conversion Period Receivable conversion Period Gross Operating Cycle Payable Net Operating Cycle The firm‟s Gross operating cycle (GOC) can be determined as inventory conversion period (ICP) plus debtor‟s conversion period (DCP). GOC=ICP+DCP The diagram above shows in a simplified form the chain of events in a manufacturing firm. 1) The chain starts with the firm buying raw materials on credit. 2) In due course this stock will be used in production, work will be carried out on the stock, and it will become part of the firm‟s work-in-progress. 3) Work will continue on the WIP until it eventually emerges as the finishedproduct. 19
  20. 20. 4) As production progresses, labor costs and overheads need have to be met. 5) Of course at some stage trade creditors will need to be paid. 6) When the finished goods are sold on credit, debtors are increased. 7) They will eventually pay, so that cash will be injected into the firmInventory conversion period: ICP is the sum of raw material conversion period(RMCP), work-in-process conversion period (WIPCP) and finished goods conversionperiod (FGCP)Raw material conversion period (RMCP): RMCP is the average time taken to convertthe raw material into work-in-progress. RMCP depends on:a) Raw material conversion per dayb) Raw material inventory.Raw material Raw material inventoryconversion period = [Raw material consumption]/360Work-in-process conversion period (WIPCP): WIPCP is the average time taken tocomplete the semi finished or work-in-progress.Work-in-process Work-in-process inventoryConversion period = [cost of production]/360 Finished goods conversion period(FGCP): FGCP is the average time taken to sell thefinish goods.Finished goods = Finished goods inventory Conversion period [cost of goods sold]/360Debtor’s conversion period (DCP): DCP is the average time taken to convert debtorsinto cash.DCP represents the average collection period. 20
  21. 21. Debtors = Debtors Conversion period Credit sales/360Creditors (payables) deferral period (CDP): CDP is the average time taken by the firmin paying its suppliers (creditors).Credit deferral = CreditorsPeriod Credit purchases/360Cash Conversion or Net operation cycle (NOC): NOC is the difference between grossoperation cycle and payables deferral periodNOC=GOC CDP March-11 March-10 March-09 March-10GROSS OPERATING CYCLE1.Inventory Conversion Period 42.12 41 30.61 41.13 i) Finished Goods 7.38 5.74 4.26 5.80 ii) Work-in-progress 46.85 36.10 29.43 41.23 iii) Raw Material 96.35 82.84 64.3 88.162.Debtors Conversion Period 8.71 8.74 10.87 8.483.Gross Operating Cycle(1+2) 105.06 73.04 99.03 91.324.Payment Deferral Period 31.88 26.25 30.77 28.88 NET OERATING CYCLE (3-4) 73.18 62.44 46.84 68.26 Net Operating Cycle 80 60 40 Net 20 Operating… 0 Year 2011 Year 2010 Year 2009 Year 2008 21
  22. 22. The Operating cycle definition, also known as cash operating cycle or cash conversioncycle or asset conversion cycle, establishes how many days it takes for a company to turnpurchases of inventory into cash receipts from its eventual sale.This means that on average it takes 73.18 days for a company to turn purchasinginventories into cash sales. In regards to accounting, operating cycles are essential tomaintaining levels of cash necessary to survive. Maintaining a beneficial net operatingcycle ratio is a life or death matter.The operating cycle concept indicates a company‟s true liquidity. By tracking thehistorical record of the operating cycle of a company and comparing it to its peer groupsin the same industry, it gives investors investment quality of a company. A shortcompany operating cycle is preferable since a company realizes its profits quickly andallows a company to quickly acquire cash that can be used for reinvestment. A longbusiness operating cycle means it takes longer time for a company to turn purchases intocash through sales. In general, the shorter the cycle, the better a company is since lesstime capital is tied up in the business process.A short cash cycle reflects sound management of working capital. On the other hand, along cash cycle denotes that capital is occupied when the commercial entity is expectingits clients to make payments.There is always a probability that a commercial enterprise can face negative cashconversion cycle, in which case they are getting payments from the clients before anypayment is made to the suppliers.The more the manufacturing procedure is extended, the higher the amount of cash shouldbe kept engaged in inventories by the company. Likewise, the more time is taken for theclients for the purpose of bill payment, the more is the accounts receivable amount. Fromanother viewpoint, if a company is able to detain the payment for its internal inputs, it candecrease the amount of money required. Put differently, the net working capital isdiminished by accounts payable. Thus, Operating cycle and cash cycle determine theefficiency of a firm regarding working capital management. 22
  23. 23. CONCLUSION The short term solvency of IOC is fine but that of BPCL is quite low. But no company is touching the general standard of 2:1 of current ratio. The quick ratio of firms are not good enough far away from the normal standard of 1:1. So all the Liquidity Ratios indicate not well enough short term solvency/liquidity position of the firm. All the Leverage Ratio depict that none of the company has a sound Financial position. These are more in debt. But IOC position is better than that of the two in of leverage. The shareholders funds are satisfactory. The firms are paying high interest on the outstanding debts which makes unfavorable trading on equity due to high debt, which increases risk for shareholders. As far as the Activity and Turnover ratios are concerned, nothing concrete can be said as the results of three companies are very fluctuating every year in term of sales. In the year 2008 all three companies are showing good results and the turnover is satisfactory. But it decrease in 2009 due to decrease in working capital, the fixed assets of the companies which affected their sales. And IOC is very strong in acquisition of the fixed assets as well as current assets. On the basis of various profitability ratios the sales of the firms is found to be increasing in the last year. IOCL has managed well to maintain its net profit. The share value of HPCL is better. This analysis shows that the companies were in strong position in year 2008, but the recession in 2009 has highly affected the companies‟ growth and their profit came down and they are more in debts. 23
  24. 24. BIBLIOGRAPHYThe Major documents required for this project was obtained from the following sources.1. Annual reports of IOCL2. www.researchassistance.com3. www.iocl.com4. www.indiainbusiness.nic.in5. www.corporateinformation.com6. www.business-standard.com7. www.ccsenet.org/journal.html8. Journals of IOCL9. www.investopedia.com10. www.wikipedia.org.in 24

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