1. SUMMER TRAINING REPORT ON
CAPITAL STRUCTURE ANALYSIS OF INDIAN OIL
CORPORATION LIMITED (IOCL)
NAME OF SIP COMPANY: INDIAN OIL
CORPORATION LIMITED
SIP LOCATION: KANPUR
Submitted in partial fulfillment of the
requirements of Post Graduate Diploma
in Management
By
ZEESHAN ALI KHAN
(2014-2016)
1809
Dr. Gaur Hari Singhania Institute of Management
Research
1

2. Kamla Nagar, Kanpur-208005
STUDENT DECLARATION
I hereby declare that this project report titled “CAPITAL STRUCTURE
ANALYSIS OF INDIAN OIL CORPORATION LIMITED” is my own
work to the best of my knowledge and belief. Neither it contains any material
previously written by any other person nor material which, to a substantial
extent, has been accepted for the award of any other degree or diploma of any
other institute, except where due acknowledgement has been made in text.
Date: Signature of Student
Zeeshan Ali Khan
Roll No.: 1809
2

3. CERTIFICATE BY FACULTY MENTOR
This is to certify that Zeeshan Ali Khan, student of full time PGDM course
(2014-16) at Dr. Gaur Hari Singhania Institute of Management &
Research, Kanpur has satisfactorily submitted the summer internship report
titled
Capital Structure Analysis of Indian Oil Corporation Limited under the
guidance of the undersigned in partial fulfillment of PGDM- FULL TIME
course.
Date: Signature of Faculty
Mentor
Name:
Designation:
3

4. PROJECT COMPLETION CERTIFICATE FROM
COMPANY MENTOR
The project work entitled “Capital Structure Analysis Of Indian Oil
Corporation Limited the original work done by Zeeshan Ali Khan during his
summer project training period.
Date: Signature of Company
Guide
Name: Mr. Sanjay
Tripathi
Designation: Senior Plant
Manager
Company Seal:
4

5. ACKNOWLEDGEMENTS
This project, though an individual project, wouldn’t have been possible without the constant
help and guidance of a few individuals whose support has been vital to the completion of
project.
At the outset, I would like to thank Mr. Basudev Sai (Chief Bottling Plant Manager) for
providing me the opportunity to do a project at INDIAN OIL CORPORATION LIMITED.
This research project would not have been possible without the support of many people. I
wish to express my gratitude to my supervisor Mr. Sanjay Tripathi, who was abundantly
helpful and offered invaluable assistance, support & guidance. Deepest gratitude are also
due to the members of finance department, Ms. Nalini Goel without whose knowledge and
assistance this study would not have been successful.
5

6. I would also like to convey my thanks to my college faculty, Prof. Devendra Jaiswal.
And finally I wish to express my love and gratitude to my beloved family; for their
understanding and endless love through the duration of my internship.
Place: Kanpur Zeeshan Ali Khan
PGDM 3rd
Trimester
GHS-IMR
TABLE OF CONTENT
CHAPTER1: INTRODUCTION TO THE PROJECT
1.1: Introduction to the topic.
1.2: Objectives to the study.
CHAPTER2: PROFILE OF THE COMPANY AND THE MARKET SCENARIO
2.1: Origin of oil industry in India.
2.2: About IOCL and Kanpur Bottling Plant.
2.3: Vision, Mission & Values.
6

7. CHAPTER3: RESEARCH METHODOLOGY
3.1: Research design.
3.2: Data source & allocation.
3.3: Capital structure analysis.
CHAPTER4: DATA INTERPRETATION AND ANALYSIS
4.1: Share capital.
4.2: Total debt.
4.3: Secured & Unsecured loans.
4.4: EBIT
4.5: EPS
CHAPTER5: CONCLUSION
5.1: Findings.
5.2: Suggestions.
5.3: limitations.
5.4: Conclusions.
CHAPTER6: BIBLOGRAPHY
7

8. CHAPTER1: INTRODUCTION TO THE
PROJECT
8

9. INTRODUCTION TO THE TOPIC
Capital Structure of a Company refers to the composition or make up of its Capitalization
and it includes all long term Capital resources i.e. loans, reserves, shares and bonds. It
shows the mix of a company’s long-term debt, specific short-term debt, common equity and
preferred equity.
The capital structure is how a firm’s finances it overall operations and growth by using
different sources of funds. In finance, capital structure refers to the way a corporation
finance its assets through some combination of equity, debt or hybrid securities. A firm’s
capital structure is then the composition or ‘structure’ of its liabilities. For example, a firm’s
9

10. that sells $20 billion in equity and $80 billion in debt is said to be 20% equity financed and
80% debt financed. The firm’s ratio of debt to total financing, 80% in this example is
referred to as the firm’s leverage. In reality, capital structure may be highly complex and
include tens of sources. Gearing ratio is the proportion of the capital employed of the firm
which come from outside of the business finance, e.g. by taking a short term loan etc. Debt
comes in the form of bond issues or long-term notes payable while equity is classified as
common stock, preferred stock or retained earnings. Short-term debt such as working
capital requirements is also considered to be part of the capital structure. A company’s
proportion of short and long-term debts is considered when analyzing capital structure.
When people refer to capital structure they are most likely referring to a firm’s Debt-to-
equity ratio, which provide insight into how risky a company is. Usually a company more
heavily financed by debt poses greater risk, as the firm relatively highly livered. The long-
term creditors would judge the soundness of the firm on the basis of the long term financial
strength measured in terms of ability to pay the interest regularly as well as repay the
installment of the principal on due dates or in one lump sum at the time of maturity.
Accordingly, there are
two different, but mutually dependent and interrelated, types of leverage ratio First ratio
which are based on the relationship between borrowed funds and owner’s capital. In this
paper researcher explain the different leverage ratio as also how they can be used to draw
inferences regarding the financial soundness of the firm.
OBJECTIVES OF THE STUDY
i. To examine the capital structure policy and pattern of IOCL.
ii. To understand the capital structure of Indian Oil Corporation Limited.
10

11. iii. To identify the share capital and debt of the company.
iv. To find out the earning per share (EPS).
v. To find out leverage.
vi. To give suggestion for improvement of the capital structure composition of Indian
Oil Corporation Ltd.
vii. Evaluate the content of Indian Oil Corporation Ltd. (IOCL) debt and equity.
11

12. CHAPTER 2: PROFILE OF THE COMPANY
AND
THE MARKET SCENARIO
COMPANY OVERVIEW
INDIAN OIL CORPORATION LIMITED
12

13. IOCL (Indian Oil Corporation Limited) was formed in 1946 as the result of merger of
Indian Oil
Company Ltd. (Estd. 1959) and Indian Refineries Ltd. (Estd. 1958).
Indian Oil Corporation is India’s flagship national oil company with business interests
straddling the entire hydrocarbon value-chain – from refining, pipeline transportation and
marketing of
petroleum products to exploration and production of crude oil and gas, marketing of natural
gas and petrochemicals, besides forays into alternative energy and globalization of
downstream operation. It is the leading Indian corporate in Fortune prestigious ‘Global
500’ listing of the world’s largest corporates, ranked at the 96th
position in the year 2014.
Having set up subsidiaries in Sri Lanka, Mauritius and the UAE, Indian Oil is
simultaneously scouting for the business opportunities in the energy markets of Asia and
Africa.
With a 34,000-strong work-force, Indian Oil has been helping meet India’s energy demands
for over half a century. With a corporate vision to be ‘The Energy of India’, the corporation
closed the year 2013-14 with a sales turnover of US$ 75.6 Billion and profits of US$1.18
Billion.
IOCL GROUP
i. IOCL Group consists of Indian Oil Corporation Ltd. & the following subsidiaries:
ii. Lanka IOC Limited.
iii. Indian Oil (Mauritius) Ltd.
iv. IOCL Middle East FZE.
v. Indian Oil Technologies Ltd.
vi. Chennai Petroleum Corporation Ltd. (CPCL)
vii. Bongaigaon Refinery & Petrochemicals Ltd. (BRPL)
13

14. viii.
14

15. Indian Oil and its subsidiary CPCL accounts for over 49% of India’s petroleum products
market shares, 31% national refining capacity, and 71% downstream sector pipeline
through capacity.
The Indian Oil Group owns and operate 10 of India’s 22 refineries with a combined refining
capacity of 65.7MMTPA (million metric tonnes per annum), i.e. approx. 1.31 million
barrels per day.
The corporation’s cross country pipeline network, for transportation of crude oil and
finished products, spans 11,214 km, with a throughout capacity of 77.26 MMTPA for crude
oil and petroleum products and 10 MMSCMD for gas. This network is largest in the
country and meets a vital energy needs of the consumer in an efficient, economical and eco-
friendly manner.
The company is mainly controlled by the government of India which owns approx. 80% of
the shares in the company. It is one of the Maharatnas status companies of India among the
NTPC,
BHEL, Natural Gas Corporation, SAIL, Coal India Ltd.
INDIAN OIL CORPORATION PRODUCTS
 Indane Gas
 Auto Gas
 Natural Gas
 Petrol
 Diesel
 ATF / Jet Fuel
15

16.  Servo Lubricants & Greases
 Marine Fuel
 Kerosene Oil
 Crude Oil
CUSTOMER SERVICE
Indian Oil’s network of 42,000 customer touch-point spread across urban and rural India
reach petroleum products to every nook and corner of the country. These include over
24,500 petrol & diesel stations, including over 6,300 Kisan Seva Kendra outlets (KSKs) in
the rural market. They are backed by supplies by 135 bulk storage terminals and depots, 98
aviation fuel stations and 90
LPG bottling plants.
16

17. Indane LPG cooking gas reaches the doorstep of 8.95 crore households in about 3,264
market through a network of 7,988 distributors. Over 6,300 dedicated pumps are also in
operation for the convenience of large-volume consumers like the defense services,
railways and state transport undertakings, ensuring products and inventory at their doorstep.
VISION OF INDIAN OIL CORPORATION LIMITED
17

18. 18

19. MISSION OF INDIAN OIL CORPORATION LIMITED
IOCL has the following mission:
To achieve International standards of excellence in all aspect
of energy and diversified business with focus on customer delight through value of product
and
Services and cost reduction.
 To maximize creation of wealth, value and satisfaction for the stakeholder.
 To attain leadership in developing, adopting and assimilating state-of-the-art
technology for competitive advantage.
 To provide technology and services through sustained Research & Development.
 To foster a culture of participation and innovation for employee growth and
contribution.
 To cultivate high standard of business ethics and TQM (Total Quality Management)
for a strong corporate identity and brand equity.
 To help enrich the quality of life of the community and preserve ecological balance
and heritage through a strong environment conscience.
19

20. VALUES OF INDIAN OIL CORPORATION
Values exist in all organization and are an integral part of any it. Indian Oil nurtures
a set
of core values.
I. CARE
II. INNOVATION
III. PASSION
IV. TRUST
OBJECTIVES OF INDIAN OIL
CORPORATION
IOCL has defined its objectives for succeeding in its mission. The objectives of the
company are:
 To serve the national interest in oil and related sectors in accordance and consistence
of
Government policies.
 To ensure maintenance of continuous and smooth supply of petroleum products by
way
of crude oil refining, transportation and marketing activities and to provide
appropriate
assistance to consumers to conserve and use petroleum products efficiently.
 To enhance the country’s self-sufficiency in crude oil refining and build expertise in
laying of crude oil and petroleum pipelines.
20

21.  To further enhance marketing infrastructure and reseller network for proving
assured
service to customers through the country.
 To develop a strong research and development base in refinery processes, product
formulation , pipeline transportation and alternative fuels with a view to
minimizing/eliminating imports and to have next generation products.
 To optimize utilization of refining capacity and maximize distillate yield and gross
refining margin.
 To maximize utilization of existing facilities for improving efficiency and increasing
productivity.
 To minimize fuel consumption and hydrocarbon loss in refinery and stock loss in
marketing operations to effect energy conservation.
 To earn reasonable rate of return on investments.
 To avail of all viable opportunities, both national and global, arising out of the
Government of India’s policy of liberalization and reforms.
 To achieve higher growth through mergers, acquisitions, integrations, and
diversification
and harnessing a new business opportunities in oil exploration and productions,
petrochemicals, natural gas and downstream opportunities overseas.
 To inculcate strong ‘core values’ among the employees and continuously update
skill sets
for full exploitation of the new business opportunities.
 To develop operational synergies with subsidiaries and joint venture and
continuously
engage across the hydrocarbon value chain for the benefit of society at large.
21

22. MAJOR DIVISIONS OF IOCL
REFINERIES:
22

23. PIPELINES:
MARKETING:
23

24. RESEARCH & DEVELOPMENT:
ASSAM OIL:
24

25. Indian Oil Corporation Limited (IOCL) owns and operate a network of crude oil and
petroleum
product pipeline in India. It has two divisions: Refineries division & Marketing division is
focused on distribution not only the entire production of public sector refineries but also the
deficit product imported.
It is organized in two segments: Sale of petroleum products and other businesses, which
comprises sale of import crude oil, sale of gas, petrochemicals, explosives and cryogenics,
wind
mill power generator and oil and gas exploration activities jointly undertaken in the form of
unincorporated joint ventures. The Digboi Refinery of Assam Oil Division processed 0.753
million metric tons (MMT) of crude oil during the year. The division sold about 2.067
MMT of
products. IBP Division comprises the explosives and cryogenics business.
25

26. CHAPTER 3: RESEARCH METHODOLOGY
26

27. RESEARCH DESIGN
A research design is the specification of method and procedure for accruing the information
needs. It is overall operational pattern of frame work of project that stipulates what
information
is to be collected for sources by the procedure.
Descriptive Research Design is appropriate for this study.
Descriptive study is used to study the situation. This study helps to describe the situation. A
detail description about present and past situation can be found out by the descriptive study.
DATA SOURCE AND COLLECTION
This research is based on secondary data. This means that the data are already available, i.e.
the
data which have been already collected and analyzed by someone else.
Secondary data are used for the study of ratio analysis of this company and also its
competitor.
To collect the data, company annual report, internet website has been used.
Analyzing and interpreting the information available in the financial statement and drawing
meaningful conclusion from them.
27

28. CAPITAL STRUCTURE
A mix of company’s long-term debt, specific short-term debt, common equity and preferred
equity. The capital structure is how a firm finances its overall operations and growth by
using
different sources of funds.
Debt comes in the form of bond issues or long-term notes payable, while equity is classified
as
common stock, preferred stock and retained earnings. Short-term debt such as working
capital
requirements is also considered to be part of the capital structure. But the IOCL (INDIAN
OIL
CORPORATION LIMITED) does not issues the preference shares and debentures to the
public
of the company.
COMPONENTS OF CAPITAL STRUCTURE
28

29. CHAPTER 4: DATA ANALYSIS
29

30. SHARE CAPITAL
30

31. 0
1000
2000
3000
4000
5000
6000
7000
Authorized capital
Issued capital
Authorized capital 6286 6000 6000 6000 6000 2500
Issued capital 2428 2428 2428 2428 2428 2428
2015 2014 2013 2012 2011 2010
AUTHORISED CAPITAL: The maximum equity capital a company can raise,
which is
mentioned in the Memorandum Of Association and Articles of Association of the
Company.
However, share premium is excluded from the definition of authorized capital.
ISSUED CAPITAL: Issued Capital is the amount of nominal value of share held by
the
shareholders. It is the face value of the shares that have been issued to the shareholders.
Issued
share capital and share premium represent the amount invested by the shareholders in the
company. It is also known as the subscribed capital or subscribed share capital.
ANALYSIS: But here, IOCL issued very less share capital in previous year if I
compared to
Authorized capital. IOCL is only issued the limited share to the shareholders.
31

32. PAID UP CAPITAL
YEAR INSTRUMENT SHARES (nos) FACE VALUE CAPITAL (in
crore Rs)
2014-2015 EQUITY
SHARES
762986920 10 2427.95
2013-2014 EQUITY
SHARES
2427952482 10 2427.95
2012-2013 EQUITY
SHARES
2427952482 10 2427.95
2011-2012 EQUITY
SHARES
2427952482 10 2427.95
2010-2011 EQUITY
SHARES
1192374306 10 1192.37
2009-2010 EQUITY
SHARES
1192374306 10 1192.37
2008-2009 EQUITY
SHARES
778674809 10 778.67
The amount of a company’s capital that has been funded by shareholders, paid up capital
can be
less than a company’s total capital because a company may not issue all the shares that it
has
been authorized to sell. Paid up capital can also reflect how a company depends on equity
financing.
Here, from the year 2011-2014 the company’s paid up capital remain same. Its means the
IOCL
collected average funded by shareholders and they have to issue more share capital to
32

33. shareholders in future periods.
TOTAL DEBT
The IOCL has only two debts:
 Secured Loan
 Unsecured Loan
Total debts means here include Debenture, Bonds, Long term loan, Short term loan etc. But
Indian Oil Corporation Limited (IOCL) did not issued debenture, bonds etc.
Secured Loan: Secured loans are those loans that are protected by an assets or collateral
of
some sort. The item purchased, such as a home or a car, can be used as collateral, and a lien
is
placed on such item. The finance company or bank will hold the deed or title until the loan
has
been paid in full, including interest and all applicable fees. Other item such as stock, bonds
or
personal property can be put up to secure a loan as well.
Secured loans are usually the best (and only) way to obtain large amount of money. A
lender is
not likely to loan a large amount with assurance that the money will be repaid. Putting your
home or other property on the line is a fairly safe guarantee that you will do everything in
your
33

34. power to repay the loan.
Secured loans usually offer lower rates, higher borrowing limits and longer repayment
terms than
unsecured loans. As the term implies, a secured loans means you are providing “security”
that
your loan will be repaid according to the agreed terms and conditions. It’s important to
remember, if you are unable to repay a secured loan, the lender has resource to the collateral
you
have pledge and may be able to sell it to pay off the loan.
UNSECURED LOAN: On the other hand, unsecured loans are the opposite of secured
loans and include things like credit card purchases, education loans, or personal loans.
Lenders
take more of a risk by making such a loan, with no property or assets to recover in case of
default, which is why the interest rates are considerably higher. If you have been turned
down for
unsecured credit, you may still be able to obtain secure loans, as long as you have
something of
value or if the purchase you wish to make can be used as collateral.
When you apply for a loan that is unsecured, the lender believes that you can repay the loan
on
the basis of your financial resources. You will be judged based on the five (5) C’s of credit
–
Character, Capacity, Capital, Collateral and Conditions. These are all criteria used to assess
a
borrower’s creditworthiness character, capacity and collateral refers to borrower’s
willingness
and ability to repay the debt. Conditions include the borrower’s situation as well as general
economic factors.
34

35. SECURED LOAN
0
5000
10000
15000
20000
25000
(CR)
(CR) 19390 17866 14457 13046 20380 18292
2015 2014 2013 2012 2011 2010
35

36. ANALYSIS:
In 2015 the secured loan proportion is high than 2014. The Indian Oil
Corporation Limited (IOCL) has try to reduce the secured loan because secured loan effect
the
assets of the company and it will be effect on future periods so the IOCL increasingly firms
are
moving from secured debt to unsecured debt in order to free their assets.
Secured loan have the largest positive impact on company’s credit when they are repaid. If
company have never taken a secured loan, company’s credit may be low despite your good
record of repayment.
UNSECURED LOAN
36

37. 0
10000
20000
30000
40000
50000
60000
70000
(CR)
(CR) 64800 62733 63869 57278 32355 26274
2015 2014 2013 2012 2011 2010
ANALYSIS:
Here unsecured loan is constantly high from 2011-2015. Indian Oil Corporation Limited
(IOCL).
Unsecured loan is better than secured loan, because secured loan will be affect the assets of
the company in future period of time so the IOCL has increasing the unsecured loan for
reducing
the risk of the company. Most of the company preferred the unsecured debt which will not
affect
any assets of the company.
In some cases, IOCL may be able to reduce IOCL unsecured debts by negotiating with
creditors
for a lower balance. Either IOCL can talk to creditors on IOCL own, or IOCL can solicit the
help
of a credit counseling organization. In some cases, credit counselor can negotiate with
creditors
better than debtors can. However, if IOCL choose to work with a credit counselor make
sure the
37

38. organization is reputable.
EARNINGS BEFORE INTEREST AND TAX
Earnings before interest and tax (EBIT) a measure of an Indian Oil Corporation Limited
(IOCL)
earning power from ongoing operations, equal to earning before deduction of interest
payments
and income tax. EBIT exclude income and expenditure from unusual, non-recurring or
discontinued activities. EBIT is watched closely by creditors, since it represents the amount
of
cash that such a company will be able to use to pay off creditors, also called operating
profit.
As you can re-arrange the formula to be calculated as follows:
EBIT = REVENUE – COGS – OPERATING EXPENSES
Also known as Profit before interest and tax (PBIT), EBIT equals Net Income with interest
and
taxes added back to it.
EBIT was the precursor to the EBITDA calculation, which include depreciation and
amortization
expenses.
Financial mergers spend a considerable amount of time analyzing and understanding their
EBIT.
38

39. EBIT is short for earnings before interest and taxes and is synonymous with net operating
income.
EBIT is calculated by taking revenue and subtracting cost of goods sold and all operating
expenses. The calculation is useful because it provides a look at how profitable a business is
before loan decisions and tax considerations are included to arrive at net income. If you
plan on
improving EBIT while holding sales constant, your only option will be to reduce costs.
EARNINGS BEFORE INTEREST AND TAX
0
5000
10000
15000
20000
Cr
Cr 15620.33 13359.43 12050.65 16773.88 11157.05 15057.96
2015 2014 2013 2012 2011 2010
Analysis:
In 2015, the operating profit of Indian Oil Corporation Limited (IOCL) is Rs. 15620.33(Cr).
But
39

40. at present generally they are earning average operating profits. So IOCL has try to reduce
the
long term borrowed funds and issue the more share capital to the shareholders in different
areas.
Analyze Indian Oil Corporation Limited IOCL internal structure and look for areas where
operations can be centralized or more productive. For instance, labor is sometime redundant
or
inefficiently organized. Writing out your processes in a flow diagram can help your identify
and
eliminate and recognize them. Consider introducing new long term cost saving technologies
for
inventory, production and sales. These system can greatly increase efficiency, creating cost
savings.
Earning Per Shares (EPS)
Earning per shares represent a portion of a company’s profit that is allocated to one share of
stock. Therefore if you were to multiply the EPS by the total no. of shares a company has,
you’d
calculate the company’s net income. EPS is a calculation that many people who watch the
stock
market pay attention to.
Net Income – Dividend on Preferred Stock
40

41. Average Outstanding Shares
When calculating, it is more accurate to use a weighted average number of shares
outstanding
Over the reporting term, because the number shares outstanding can change over time.
However
data sources sometimes simplify the calculation by using the number of shares outstanding
at the
end of the period.
Diluted EPS expands on basis EPS by including the shares of convertibles or warrants
outstanding in the outstanding shares number.
EPS OF IOCL SHAREHOLDERS FROM 2010-2015
41

42. 0
10
20
30
40
50
Rs
Rs 38.67 28.91 20.61 16.29 30.67 42.01
2015 2014 2013 2012 2011 2010
Analysis;
In 2015, IOCL shareholders earned per share of Rs 38.67. But in 2010, EPS was Rs 42.1.
At that
time shareholders of IOCL was earned more than last year. So constantly decreasing the
earning
capacity of shareholders of the IOCL, but still there EPS is good if I compared to other
companies.
IOCL is to increase earning or decrease the number of shares. In order to increase earnings,
a
business has to increase revenues, reduce expenses or both. In order to decrease the number
of
shares, do a share buyback from shareholders.
42

43. LEVERAGE
The degree to which an investors or business is utilizing borrowed money. Company that
are
highly leveraged may be at risk of bankruptcy if they are unable to make payments on their
debts, they may also be unable to find new lenders in the future. Leverage is not always
bad,
however it can increase the shareholders, return on investment (ROI) and often there are tax
advantage associated with borrowing. Components of Leverage are ;-
 Financial Leverage
 Operating Leverage
Financial Leverage :
Financial Leverage is a leverage created with the help of debt
component in the capital structure of a company. Higher the debt, higher would be the
financial
leverage because with higher debts comes the higher amount of interest that needs to be
paid.
Leverage can be both good or bad for a business depending on the situation. If a firm is able
to
generate a higher return on investment (ROI) than the interest rate it is paying, leverage will
have
43

44. its positive affect shareholder’s return. The darker side is that if the situation is opposite,
higher
leverage can take a business to a worst situation like bankruptcy. The degree of financial
leverage (DFL) can be calculated with the following formula ;
DFL = % Change in EPS / % Change in EBIT
Where EPS is the Earning Per Share and EBIT is the Earning Before Interest And Taxes.
Operating Leverage :
Operating Leverage, just like the financial leverage, is the result
of
operating fixed expenses. Higher the fixed expense, higher the operating leverage. Like the
financial leverage had an impact on the shareholder’s return or say earning per share,
operating
leverage directly impacts the operating profits (Profit before interest and taxes (PBIT)).
Under
good economic conditions, due to operating leverage, an increase of 1% in sales will have
more
than 1% change in operating profits.
The formula used for determining the Degree Of Operating Leverage or DOL is as follows :
DOL = % Change in EBIT / % Change in Sales
So, Indian Oil Corporation Limited IOCL need to be very careful in adding any of the
leverages
44

45. to your business viz. financial leverage or operating leverage as it can also work as a double
edged sword.
DEGREE FINANCIAL LEVERAGE OF IOCL
0
0.5
1
1.5
2
2.5
(Ratio)
(Ratio) 2.19 1.61 1.91 1.49 1.31 1.11
2015 2014 2013 2012 2011 2010
Analysis:
45

46. In 2015 degree of financial leverage of Indian Oil Corporation Limited IOCL
ratio is
2.19 and it has constantly higher than previous years.
By borrowing funds, IOCL incurs a debt that must be paid. But this debt is paid in small
installments over a relatively long period of time. This frees funds for more immediate use.
Indian Oil Corporation Limited that successfully uses leverage demonstrate by its success
that it
can handle the risks associated with carrying debt. This can become an important factors
when
additional financing is needed. Not only will loans more likely be available, but they will be
available at more attractive interest’s rates. Like individuals, companies with solid
financials.
DEGREE OF OPERATING LEVERAGE OF IOCL
46

47. 0
0.5
1
1.5
(Ratio)
(Ratio) 1.46 1.12 1.14 1.09 1.13 1.01
2015 2014 2013 2012 2011 2010
Analysis:
In 2015 Indian Oil Corporation Limited has degree of operating ratio is 1.46.
According to this chart IOCL having a good position in future period of time. The more
operating leverage a company has, the more it has to sell before it can make a profit. Indian
Oil
Corporation Limited IOCL with a high operating leverage must generate a high number of
sales
to cover high fixed costs, and as this sales increase, so does the profitability of the
company.
Conversely, a company with a lower operating leverage will not see a dramatic
improvement in
profitability with higher volume, because variable costs, or costs that are based on the
number of
unit sold, increase with volume.
47

48. TOTAL LEVERAGE OF INDIAN OIL
CORPORATION LIMITED (IOCL)
0
0.5
1
1.5
2
2.5
(Ratio)
(Ratio) 1.75 1.82 2.43 1.64 1.49 1.21
2015 2014 2013 2012 2011 2010
Analysis:
Combined or total leverage measures total risk of the Indian Oil Corporation
Limited
IOCL. In this year Indian Oil Corporation has minimum risk than last two years which ratio
was
1.82 & 2.43. In this diagram is measured by percentage change in earning per share EPS
due to
percentage change in sales.
IOCL asks their existing shareholders to issuing common stock rights. Stocks right allow
existing shareholders to purchase additional shares at below market prices, in order to raise
equity. While this practice does improve a company’s financial strength, it also dilutes the
current shareholder’s percentage of ownership.
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49. CHAPTER5: CONCLUSION
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50. FINDINGS
 IOCL has issued less shares capital to the shareholders, constantly from 2010-2015.
IOCL does not fulfill the authorized share capital which is mention in memorandum
of
association (MOA).
 IOCL, preferences share and debenture do not exist.
 The return on investment ratio of IOCL is the lowest among its competitors which
imply
that the degree of efficiency of IOCL is utilizing the funds entrusted by shareholders
and
long term creditors is lower than its competitors.
 IOCL has maximum numbers of total debts in 2015, if I compared with previous
years.
 In 2015, IOCL has maintained the secured loan amount. Which is mostly remain
same
with previous year.
 In 2015, earning per share EPS value is Rs. 38.61 which is higher than 2014, but
overall
five years, IOCL shareholders has earned minimum EPS in 2014.
 IOCL has Degree of operating leverage (DOL) almost same with last five years.
IOCL
heaving a good position in future period of time.
 In 2015, Degree of financial leverage is very high than previous years, IOCL incurs
a
50

51. debt that must be paid. But this debt is paid in small installment over a relatively
long
period of time.
 The overall efficiency of IOCL is higher than those of its competitors in previous
years of
comparison.
SUGGESTIONS
 The company should utilize the debt fund more efficiently to maximize
shareholder’s
return.
 IOCL is spite being a cash rich company having loads of unsecured loans so it
should be paid of to make it an agile company.
 Increasingly firms are moving from secured debt to unsecured debt in order to free
their
assets.
 For IOCL, to issue maximum number of shares to the public and they have to reduce
the
share price is minimum. And IOCL try to fulfill the limit of authorized share capital.
 IOCL have to reduce total debts of the company against of issuing, more share to the
public.
 IOCL, need to minimize the degree of financial leverage. Otherwise which will be
affect
in future period of time.
51

52.  The company should try to increase the profit before interest and tax so that the
investments in the firms are attractive as the investors would like to invest only
where the
return is higher.
 The company can invest in marketable securities to improve its cash positions.
 IOCL can try to reduce the secured loans can be affected the assets of the company
in
future.
LIMITATIONS OF THE STUDY
 The scope of the study is limited.
 Time taken to complete the study is very limited.
 The analysis of the company’s and suggestion totally depends upon the information
shared.
 Non-monetary aspects are not considered making the results somehow less reliable.
CONCLUSION
From the above discussion it can be concluded that IOCL (Indian Oil Corporation
Limited) running with low debt fund. Therefore they may increase it to get benefits
of
low cost capital. It has found that Indian Oil Corporation Limited IOCL largely
employing shareholders’ funds in their assets it has crossed even 100% in the first
two
years. Moreover EOL is on high degree financial risk. Therefore, they may reduce
the
52

53. debt capital and employ more equity fund. The study undertaken has brought in to
the
light of the following conclusions. According to this project I came to know that
from the
analysis of capital structure it is clear that Indian Oil Corporation Limited have been
doing a satisfactory job. But the firms has certain area to ponder upon like capital
employment. So the firm should focus on getting of profits in the coming years by
taking
care internal as well as external factors. And with regard to resources, the firm is
take
utilization of the borrowed funds in a right place.
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54. CHAPTER 6: BIBLIOGRAPHY
WEBSITES REFRENCES:
 www.moneycontrol.com
 www.iocl.com
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55.  www.economicstimes.indiatimes.com
 www.profit.ndtv.com
BOOK REFRENCES:
 K.R. Das, Priti Chandna, B.B Dam & Anju Kakoty 2nd
Edition (2014) : Financial
Statement Analysis.
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56. THANK YOU
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