This document provides an overview of a study analyzing the impact of working capital management on corporate performance at Indian Oil Corporation Limited (IOCL) from 2011-2015. The study uses ratio analysis, regression analysis, and comparisons to peers to examine IOCL's liquidity, working capital efficiency, relationship between liquidity and profitability, and how working capital management impacts return on capital employed. Key findings include a significant relationship between profitability and working capital management, inventory constituting the highest amount of working capital, and various liquidity ratios influencing profitability. Suggestions are made to reconsider working capital policy and increase current ratio and working capital turnover ratio.

1. Impact of Working Capital on Corporate Performance:
Indian Oil Corporation Limited
Prepared By:
Ashish Kumar Singh (118/2015)
PGDM General 2015-17
Under Guidance of:
Dr. Pankaj Varshney

2. Flow of Presentation
• About Indian Oil Corporation (IndianOil)
• Project Introduction
• Methodology
• Findings & Analysis
– Liquidity Ranking Analysis (using Motaals test)
– Working Capital Performance Analysis (using Ratio analysis)
– Liquidity and Profitability Analysis (using Simple & Multiple Regression)
– Working Capital Management and ROCE Analysis (using Peer comparison)
– Working Capital Leverage Analysis
• Conclusion
• Suggestions
• Limitations of the Study
• References

3. About IndianOil
• Indian Oil Corporation (IndianOil) is India's largest commercial
enterprise.
• IndianOil is ranked 119th among the world's largest corporates
(and first among Indian enterprises) in the Fortune ‘Global 500’
listing for the year 2015.
• It accounts for
– nearly half of India's petroleum products market share.
– 35% national refining capacity (together with its subsidiary Chennai
Petroleum Corporation Ltd., or CPCL)
– 71% downstream sector pipelines through capacity.
– network of over 43,000 customer touch-points.

4. Operating Structure
DownstreamandPetrochemicalOperations
Refining
Pipeline Transportation
Fuel Marketing
Research and Development
Petrochemicals
Also diversified into E&P, Gas, Wind, Solar, Nuclear Power and Biofuels.

5. Physical Performance
68.51
75.55 75.16
73.07
75.68
FY 11 FY 12 FY 13 FY 14 FY 15
Pipeline Throughput
(in MMT)
52.96
55.62
54.65
53.13
53.59
FY 11 FY 12 FY 13 FY 14 FY 15
Refinery Throughput
(in MMT)
71.370 72.490
Source: IOCL Annual Report 2014-15
65.314 68.103 68.617 67.136 68.467
0.071
0.071
0.08 0.085 0.1
1.638
1.723
1.83 1.935 1.805
0.909 1.473 1.963 1.991 2.39
FY 11 FY 12 FY 13 FY 14 FY 15
Total Domestic Sales
(in MMT)
Petroleum Products Explosives Gas Petrochemicals
67.932 71.147 72.762

6. Financial Performance
7,445
3,955
5,005
7,019
5,273
FY 11 FY 12 FY 13 FY 14 FY 15
Profit After Tax
(₹ in crore)
303,695
373,926
414,909
457,571 450,756
FY 11 FY 12 FY 13 FY 14 FY 15
Turnover
(inclusive of Excise Duty & Sales of Services)
(₹ in crore)
30.67
16.29
20.61
28.91
21.72
FY 11 FY 12 FY 13 FY 14 FY 15
Earning Per Share
(in ₹)
55,332 57,877 61,124 65,992 67,970
FY 11 FY 12 FY 13 FY 14 FY 15
Net Worth
(₹ in crore)
Source: IOCL Annual Report 2014-15

7. Oil & Gas Industry in India – An Overview
Upstream
(Exploration &
Production)
Indian Oil Corporation Ltd. (IOCL)
Oil & Natural Gas Corporation Ltd. (ONGC)
Oil India Ltd. (OIL)
Reliance, Cairn India, HOEC, Premier Oil etc.
Downstream
(Refining,
Marketing and
Pipelines)
Indian Oil Corporation Ltd. (IOCL)
Hindustan Petroleum Corporation Ltd. (HPCL)
Bharat Petroleum Corporation Ltd. (BPCL)
Mangalore Refinery & Petrochemicals Ltd. (MRPL)
Reliance Industries Ltd. (RIL), Essar Oil Ltd., Shell
Gas
(Transportation
and Distribution)
Indian Oil Corporation Ltd. (IOCL)
GAIL (India) Ltd.
Gujarat State Petroleum Corporation (GSPC)
Reliance Industries Ltd. (RIL)
Indraprastha Gas Ltd. (IGL)

8. Growing Oil Demand
134 138 141
147
157 158
165
FY 9 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15
Consumption
(in MMT)
Consumption of Petroleum products grew at CAGR of 3.44% in the last five years
Source: Petroleum Planning and Analysis Cell, Ministry of Petroleum & Natural Gas, Govt. of India

9. Project Introduction
• Primary Objective: Assess efficiency of WCM & its impact on
firms’ performance.
• The following specific objectives were sought to be achieved:
1. Determining the liquidity position of the company.
2. Evaluating the efficiency of liquidity management.
3. Determining relationship between liquidity and profitability.
4. Finding the degree of association between ratios relating to WCM
and profitability for IOCL and comparing the same with the peers.
5. Determining the Working Capital Leverage (WCL) position.

10. Methodology
1. Composition of WC: Analysis of INV/CA, DB/CA, C&B/CA,
L&A/CA.
2. Liquidity Position: Motaals liquidity ranking test.
3. Efficiency of WCM: Using Ratio analysis.
4. Liquidity & Profitability Relationship: Using simple as well as
multiple regression.
5. Peer Comparison: Using Correlation to determine degrees of
associations between ratios relating to Working Capital
management and Profitability.
6. Working Cap. Leverage: to determine sensitivity of ROCE with
change in level of Current Assets.

11. Working Capital Composition

12. Motaals Liquidity Ranking Test

13. Liquidity Ratio analysis

14. Simple Rank Correlation

15. Simple Rank Correlation
• The rank correlation between CATA and ROCE is computed
by applying the formula;
here, d = difference in rank and n = number of pairs of observation
• Putting the respective values of d and n in rank correlation
formula above we obtain rRank= 0.78 which indicates that
there is a high positive correlation between liquidity and
profitability of the company.

16. Multicollinearity Test

17. Multicollinearity Test
• Multicollinearity conditions:
– If the VIF value lies between 1-10, then there is no
multicollinearity.
– If the VIF <1 or >10, then there is multicollinearity.
• Multicollinearity Result:
As the VIF(Variation Inflation Factor) value for all variables are in
between 1-10, hence it can be concluded that there is no
multicollinearity system between the independent variables.

18. Linear Multiple Regression

19. Linear Multiple Regression
• The multiple correlation coefficient of ROCE on CR, QR, CATA,
WBTR, ITR and DTR is 0.953 which reveals that the
profitability of the firm was highly influenced by those
explanatory variables.
• The value of R2 indicates that the explanatory variables taken
together contributed about 90.9% of the variations in the
profitability of the company.
• It indicates that the investment in current assets is such that
increase in liquidity leads to an increase in profitability and vice-
versa.

20. Degree of Association: WCM & Profitability

21. Degree of Association: WCM & Profitability
• The study of associations between the profitability and the
selected key ratios relating to the working capital management of
the selected companies reveals that out of the eight ratios
– CR and CATAR for IOCL,
– WCTR and CTR for HPCL,
– CATAR and CASR for BPCL and
– CR, QR, WCTR, CASR and CTR for RIL
have the significant influences on the overall profitability of the
concerned companies under study.

22. Working Capital Leverage Analysis

23. Working Capital Leverage Analysis

24. Working Capital Leverage Analysis
• The sensitivity of ROCE due to change in the level of investment
in current assets
– For IOCL
• Maximum (i.e. 0.6671) in 2006-07
• Minimum (i.e. 0.458) in 2010-11
– For BPCL
• Maximum (i.e. 0.6621) in 2006-07
• Minimum (i.e. 0.5017) in 2014-15
– For HPCL
• Maximum (i.e. 0.5622) in 2006-07
• Minimum (i.e. 0.4273) in 2010-11
– For RIL
• Maximum (i.e. 0.4361) in 2012-13
• Minimum (i.e. 0.2744) in 2008-09

25. Conclusion
• There is a significant relationship between profitability and
working capital management.
• Inventory constituted highest amount of gross working capital
• Loans & advances has shown consistent growth to become the
2nd highest contributor to working capital.
• Liquidity position of the company has improved considerably
over the last 10 years.

26. Conclusion
• Company has been able to keep a stable liquidity position over
the period of 10 years with focus on its credit collection policy.
• Profitability of the various firms is highly influenced by different
liquidity ratios.
• Increase in the ROCE is less than the proportion to increase in
the level of investment in current assets during the study period.

27. Suggestions
• Company needs to reconsider its working capital policy to
increase CR.
• Company has to work on its absolute liquid assets.
• The management needs to follow the current credit collection
policy.
• Company needs to take necessary actions to improve the WCTR
which has shown a negative trend for the past few years.
• Increase its WCL in order to improve ROCE with investment in
CA.

28. Limitations of the Study
• The study has been conducted over a very limited period of
time.
• The study is based on secondary data.
• The study is based on standalone financial statements of the
selected company, which may leave some grounds of error.
• The recent financial data was not been shared.

29. References
1. Sarkar, Chitta Ranjan and Sarkar, Aniruddha (2013): Impact of Working Capital Management on
Corporate Performance: An Empirical Analysis of Selected Public Sector Oil & Gas Companies
in India. International Journal of Financial Management, April, 2, Volume 3.
2. Thappa, Sankar (2014): Working Capital Management in Indian Oil & Gas industry – A case
study of Reliance Industries Ltd. Academica Science Journal Economica Series, No. 2(5).
3. Joshi, Lalit Kumar and Ghosh, Sudipta (2012): Working Capital Management of Cipla Limited:
An Empirical Study. International Journal of Marketing, Financial Services & Management
Research (IRJC), August, Vol. 1, Issue 8.
4. Annual Reports: IOCL, BPCL, HPCL and RIL.
5. Berk, DeMarzo and Harford: Fundamentals of Corporate Finance 2nd edition.
6. Brealey, Myers and Allen: Principles of Corporate Finance 10th edition.
7. Websites: i) www.iocl.com
ii) www.hindustanpetroleum.com
iii) www.ril.com
iv) www.moneycontrol.com
v) www.investopedia.com

30. Thank You