nice project report

1. Year
2012
INTRODUCTION TO
OIL AND GAS CORPORATION
1 LIMITED (ONGC)
1.1
• HISTORY OF ONGC
1.2
• BASIC INFORMATION
• ONGC VISION AND MISSION
1.3 STATEMENT
• ASSETS/BASINS/PLANTS/INSTITUTE
1.4
1.5 • SWOT ANALYSIS OF ONGC
• SUBSIDIARIES AND JOINT
1.6 VENTURE
1.7
• BOARD OF DIRECTORS
1.8
• ONGC STRUCTURE
• ABOUT MEHSANA ASSET
1.9
1
OIL AND NATURAL GAS CORPORATION
LTD

2. INTRODUCTION
1.1 HISTORY OF ONGC
1947-1960
During the pre-independence period, the Assam Oil Company in the north-eastern and
Attack Oil company in north-western part of the undivided India were the only oil
companies producing oil in the country, with minimal exploration input. The major
part of Indian sedimentary basins was deemed to be unfit for development of oil and
gas resources.
After independence, the national Government realized the importance oil
and gas for rapid industrial development and its strategic role in defence.
Consequently, while framing the Industrial Policy Statement of 1948, the
development of petroleum industry in the country was considered to be of
utmost necessity.
Until 1955, private oil companies mainly carried out exploration of hydrocarbon
resources of India. In Assam, the Assam Oil Company was producing oil at Digboi
(discovered in 1889) and the Oil India Ltd. (a 50% joint venture between
Government of India and Burmah Oil Company) was engaged in developing
two newly discovered large fields Naharkatiya and Moran in Assam. In West
Bengal, the Indo-Stan vac Petroleum project (a joint venture between Government of
India and Standard Vacuum Oil Company of USA) was engaged in exploration
work. The vast sedimentary tract in other parts of India and adjoining
offshore remained largely unexplored.
In 1955, Government of India decided to develop the oil and natural gas resources in
the various regions of the country as part of the Public Sector development. With this
objective, an Oil and Natural Gas Directorate was set up towards the end of 1955, as a
subordinate office under the then Ministry of Natural Resources and Scientific
Research. The department was constituted with a nucleus of geoscientists from the
Geological survey of India.
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3. A delegation under the leadership of Mr. K D Malviya, the then Minister of Natural
Resources, visited several European countries to study the status of oil industry in
those countries and to facilitate the training of Indian professionals for exploring
potential oil and gas reserves. Foreign experts from USA, West Germany, Romania
and erstwhile U.S.S.R visited India and helped the government with their expertise.
Finally, the visiting Soviet experts drew up a detailed plan for geological and
geophysical surveys and drilling operations to be carried out in the 2nd Five Year
Plan (1956-57 to 1960-61).
In October 1959, the Commission was converted into a statutory body by an act of the
Indian Parliament, which enhanced powers of the commission further. The main
functions of the Oland Natural Gas Commission subject to the provisions of the Act
were "to plan, promote, organize and implement programs for development of
Petroleum Resources and the production and sale of petroleum and petroleum
products produced by it, and to perform such other functions as the Central
Government may, from time to time, assign to it ". The act further outlined the
activities and steps to be taken by ONGC in fulfilling its mandate.
1961-1990
Since its inception, ONGC has been instrumental in transforming the country's limited
upstream sector into a large viable playing field, with its activities spread throughout
India and significantly in overseas territories. In the inland areas, ONGC not only
found new resources in Assam but also established new oil province in Cambay basin
(Gujarat), while adding new petroliferous areas in the Assam-Arakan Fold Belt and
East coast basins (both inland and offshore).
ONGC went offshore in early 70's and discovered a giant oil field in the form of
Bombay High, now known as Mumbai High. This discovery, along with subsequent
discoveries of huge oil and gas fields in Western offshore changed the oil scenario of
the country. Subsequently, over 5 billion tonnes of hydrocarbons, which were present
in the country, were discovered. The most important contribution of ONGC, however,
is its self-reliance and development of core competence in E&P activities at a globally
competitive level.
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4. After 1990
The liberalized economic policy, adopted by the Government of India in July 1991,
sought toderegulate and de-licenses the core sectors (including petroleum sector) with
partial disinvestments of government equity in Public Sector Undertakings and other
measures. As consequence thereof, ONGC was re-organized as a limited Company
under the Company‟s Act, 1956 in February 1994.
After the conversion of business of the erstwhile Oil & Natural Gas Commission to
that of Oil & Natural Gas Corporation Limited in 1993, the Government disinvested 2
per cent of itsshares through competitive bidding. Subsequently, ONGC expanded its
equity by another 2 per cent by offering shares to its employees.
During March 1999, ONGC, Indian Oil Corporation (IOC) - a downstream giant and
Gas Authority of India Limited (GAIL) - the only gas marketing company, agreed to
have crossholding in each other's stock. This paved the way for long-term strategic
alliances both for the domestic and overseas business opportunities in the energy
value chain, amongst themselves. Consequent to this the Government sold off 10 per
cent of its share holding in ONGC to IOC and 2.5 per cent to GAIL. With this, the
Government holding in ONGC come down to 84.11 per cent.
In the year 2002-03, after taking over MRPL from the A V Birla Group, ONGC
diversified into the downstream sector. ONGC will soon be entering into the retailing
business. ONGC has also entered the global field through its subsidiary, ONGC
Videsh Ltd. (OVL). ONGC has made major investment in Vietnam, Sakhalin Sudan
and earned its first hydrocarbon revenue from its investment in Vietnam.
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5. 1.2 BASIC INFORMATION
 Company name: Oil & Natural Gas Corporation Limited.
 Incorporation year: 1959
 Ownership: Central Govt. – Commercial Enterprises.
 Main Activity: Exploration & Production of Oil and Gas
 Registered office: jeevan bharti tower-2,124-indian chowk, Connaught
place, new delhi-110001
 Address: ONGC limited KDMbhavan palavasana near palavasna chokdi
mehsana
 Bankers: state bank of India
1.3 ONGC VISION AND MISSION STATEMENT
1.3.1 COMPANY’S VISION
“To be a world class Oil & Gas Company Integrated in energy business with
dominant Indian leadership and global presence.”
Motto
“Provide quality services with efficiency and transparency.”
1.3.2 MISSION
World Class
 Dedication towards leveraging competitive advantages in R&D and
technology with involved people.
 Imbibing high standards of business ethics and organizational values.
 Abiding commitment to health, safety and environment to enrich quality of
community life.
 Fostering a culture of trust, openness and mutual concern to make working
stimulating & challenging experience for our people.
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6.  Striving for customer delight through quality products and services
1.3.3 INTEGRATED IN ENERGY BUSINESS
 Provide value linkages in other sectors of energy business.
 Create growth opportunities and maximize shareholder value.
 Dominant Indian Leadership
 Retain dominant position in Indian Petroleum sector and enhance India's
energy availability
1.3.4 STRATEGIC VISION: 2001-2020
To focus on core business of E&P, ONGC has set strategic objectives of:
 Doubling reserves (i.e. accreting 6 billion tones of O+OEG).
 Improving average recovery from 28 per cent to 40 per cent.
 Tie-up 20 MMTPA of equity Hydrocarbon from abroad.
 The focus of management will be to monetize the money.
1.3.5 GLOBAL RANKING
 It is Asia‟s best Oil & Gas Company, as per a recent survey conducted by US-
based magazine „Global Finance‟.
 It is placed at the top of all indian corporte listed in forbes 400 global
corporate (rank 133 rd) and financial times global 500(rank 326th),by market
capitalization.
 It is recognized as the Most Valuable Indian Corporate, by Market
Capitalization, Net Worth and Net Profits, in current listings of Economic
Times 500 (4th time in a row), Business Today 500, Business Baron 500 and
Business Week.
 It is targeting to have all its installations (offshore and onshore) accredited
(certified) by March 2005. This will make ONGC the only company in the
world in this regard.
 It owns and operates more than 11000 kilo meters of pipelines in India,
including nearly 3200kilometers of sub-sea pipelines. No other company in
India operates even 50 per cent of this route length.
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7.  Crossed the landmark of earning Net Profit exceeding Rs.10, 000 Core, and
the first to do so among all Indian Corporate, and a remarkable Net Profit to
Revenue ratio of 29.8 per cent. The growth in ONGC's profits is not solely due
to deregulation in crude prices in India, as deregulation has affected all the oil
companies, upstream as well as downstream, but it is only ONGC which has
exhibited such a performance (of doubling turnover and profits). Has paid the
highest-ever dividend in the Indian corporate history.
 Its 10 per cent equity sale (India's highest-ever equity offer) received
unprecedented Global Investor recognition. This was a landmark in Indian
equity market, establishing beyond doubt, the respect ONGC's professional
management commands among the global investor community. According to a
report published in 'The Asian Wall Street Journal (Hong Kong)',ONGC's
Public Issue brought in 20 Foreign Institutional Investors (FII‟s) to India, as (it
was reported), 'they could not ignore the company representing India's energy
security'.
1.3.6 Ongc’s pioneering efforts
Ongc is the only fully integrated petroleum company in india, operating along the
entire hydrocarbon value chain:
 Holds largest share (57.2%) of hydrocarbon acreages in India.
 Contributes over 84% of India‟s oil &gas production.
 Every sixth LPG cylinder comes from ONGC.
 About one-tenth of Indian refining capacity.
 Created a record of sorts by turning Mangalore Refinery in petrochemicals
limited around from being a stretcher case for referral to BIFR to among the
BSE top 30, within year.
 Owns 23% OF Mangalore-Hasan-Bangalore product pipeline (MHBPL),
connecting MRPL to the Karnataka hinterland
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8. 1.4 ASSETS/BASINS/PLANTS/INSTITUTES
 Assets/Plants
 Mumbai High Asset, Mumbai
 Neelam & Heera Asset Mumbai
 Bassein & Satellite Asset, Mumbai
 Uran Plant, Uran
 Hazira Plant, Hazira
 Ahmedabad Asset, Ahmedabad
 Ankleshwar Asset, Ankleshwar
 Mehsana Asset, Mehsana
 Rajamundry Asset, Rajamundry
 Karaikal Asset, Karaikal
 Assam Asset, Assam
 Tripura Asset, Agartala
 Basins
 Western Offshore Basin, Mumbai
 Western Onshore Basin, Baroda
 K. G. Basin, Rajahmundry
 Cauvery Basin, Chennai
 Assam & Assam-Ark an Basin, Jorhat
 CBM- BPM Basin, Kolkata
 Frontier Basin, Dehradun
 Plants
 Uran Plant, Uran
 Hazira Plant, Hazira
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9.  Region
 Mumbai Region, Mumbai
 W est ern R egi on, Ba roda
 Eastern Region, Nazira
 Southern Region, Chennai
 Central Region, Kolkata
 Institutes
 Keshava Deva Malaviya Insti. of Petroleum Exploration (KDMIPE),Dehradun
 Institute of Drilling Tech., (IDT), Dehradun
 Institute of Reservoir Studies, Ahmedabad
 Institute of Oil & Gas Production Tech., Navi Mumbai
 Institute of Engineering & Ocean Tech.,, Navi Mumbai
 Geo-data Processing & Interpretation Center (GEOPIC), Dehradun
 ONGC Academy, Dehradun
 Institute of Petroleum Safety, Health & Envi. Management, Goa
 Institute of Biotechnology & Geotectonic Studies, Jorha
 School of Maintenance Practices, Baroda
 Regional Training Insti., Navi Mumbai, Chennai, Sivasagar & Baroda
 Services
 Chief Drilling Services, Mumbai
 Chief Well Services , New Delhi
 Chief Geo-Physical Services, Dehradun
 Chief Logging Services, Mumbai
 Chief Engineering Services, Mumbai
 Chief Offshore Logistics, Mumbai
 Chief Technical Services, Dehradun
 Chief Info-com Services, New Delhi
 Chief Corporate Planning, New Delhi
 Chief Human Resource Development, Dehradun
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10.  Chief Employee Relations, Dehradun
 Chief Security, New Delhi
 Company Secretary, New Delhi
 Chief Marketing, New Delhi
 Head Corporate Affairs & Co-ordination, New Delhi
 Head Corporate Communication, New Delhi
 Chief Material Management, Dehradun
 Chief Health, Safety & Environment, Mumbai
 Head Legal, New Delhi
 Chief Medical, Dehradun
 Chief Internal audit, New Delhi
 Head Commercial, New Delhi
 Chief Exploration & Development, Dehradun
1.5 SWOT ANALYSIS OF ONGC
1) STRENGTHS
 O.N.G.C LTD is perceived to be the leader in oil production industry.
 It has a very efficient and professional management team.
 Being an international company has sufficient resources and capital to invest.
 O.N.G.C has ISO-9001 & ISO 14001 registration.
2) WEAKNESS
 O.N.G.C is facing difficulties to produce oil from aging reservoirs.
3) OPPURTUNITY
 Energy utilization of buried coal resource (700 -1700M), estimated 63BT –
Equivalent to15000 BCM.
4) THREATS
 Security of personnel & property especially crude oil continues to be a cause
of concern in certain area.
 Some exploration Campaign Company involves high technology, high
technology, high investment and high risks.
10

11. ONGC OFFICE ALL OVER INDIA
(DRAW NO.1 ONDC OFFICE ALL OVER INDIA)
11

12. The Road Ahead
ONGC is entering LNG (re-gasification), Petrochemicals, power generation, as well
as crude and gas shipping, to have presence along the entire hydrocarbon value chain.
While remaining focused on the core business of Oil & Gas E&P, it is also looking at
the future promoting and applied R&D in alternate fuels (which can be commercially
brought to marked).these efforts in integration are basically to exploit the core
competency of the organization knowledge of hydrocarbon, gained over the five
decades.
New Business
ONGC has also ventured in Coal Bed Methane (CBM) and Underground Coal
Gasification (UCG); CBM production would commence in 2006-07 and UCG in
2008-09.
ONGC is also looking at Gas Hydrates, as it is one possible source that could make
India self sufficient in energy, on a sustained basis.
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13. 1.6 SUBSIDIARIES AND JOINT VENTURE
1.6.1 SUBSIDIARIES
1.6.1.1 ONGC Videsh Ltd.(OVL)
ONGC Videsh ltd is the wholly subsidiary of ONGC
”OVL is the first Indian company to produce oil & gas overseas.”
OVL today is the “Second largest E&P Company in India”, second only to ONGC
inters of Oil & Gas reserves. It has 12 overseas assets and is actively seeking more
opportunities. OVL‟s efforts have been supported wholeheartedly by the Govt. of
India, which has allowed OVL single window clearance for overseas upstream
projects irrespective of investments involved.
OVL has been designated as the Indian Nodal Agency for overseas petroleum
business and is maintained as a permanent participant in all concerned bilateral
interaction and joint working groups of Govt. of India. The strategic objective of
parent company ONGC and the Govt of India provide the basis for the strategic
direction of OVL. Taking into account the industry environment and other influencing
factors, both internal and external, strategic direction has been formulated, which is
re-evaluated on a continuous basis given the rapidly changing nature of the global
petroleum industry to better adapt to the scenario.
The functional directors of ONGC serve as the directors on the OVL board as well,
thus inducing cohesion of the corporate objectives and goal congruence in both
organizations.
OVL follows meritocracy and draws its human resource from the parent company,
were the functional directors are consulted for selection. The finance for the operation
is provided by ONGC in form of Loans, interest free advances and equity.
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14. 1.6.1.2 Mangalore Refinery and Petrochemicals Ltd (MRPL)
MRPL, a subsidiary of ONGC has turned back to a profit making company just inthe
3rd after ONGC management control. ONGC‟s shareholding has increased from51%
to 71.62% in June –July 2003 through the buy-back of lenders equity at par, under the
mutually agreed Debt Restructuring Package.
MRPL has showed excellent performance in the very first year of its operation as
subsidiary of ONGC. The performance in 2003-04 under all parameters was better
than the projection made at the time of the acquisition. It earned net profit of Rs,
4594.15 million as against a net loss of Rs.4118.06 million in previous year. MRPL is
no longer a potentially sick company as its accumulated losses have gone down below
50% of the net worth on 31st March 2004. MRPL was awarded highest „Five Star‟
rating the British Safety Council. It is the third refinery in India to get this prestigious
certification.
Equity shares of MRPL are now traded under‟ A‟ category of Mumbai Stock
Exchange (BSE) from 1st March 2004. The Market capitalization of MRPL on the
BSEtouched Rs.100 billion mark on 7Th January, 2004.
MRPL exported products (Motor Spirit, Naphtha, Reformate, HSD, ATF, FO, LSHS)
worth Rs.44720 million during the year (up 133.77% from Rs.19130 million) and has
emerged as the second largest export of petroleum products.
MRPL has entered in MOU with ONGC for purchase of Mumbai High Crude at arm‟s
length price.
1.6.2 JOINT VENTURESP
1.6.2.1 Petro net LNG Ltd.(PIL)
Petro net LNG Ltd, a joint venture co-promoted by ONGC completed t he
construction of India first LNG terminal at Dahej on time, and the facility was
dedicated to the nation on 9th February, 2004. Commercial sale of re-gasified LNG
from Dahej terminal has already commenced. PLL also achieved financial closure.
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15. 1.6.2.1 Petro net MHB Limited
ONGC has acquired 23% equity in Petro net MHB Ltd, which is successfully
operating the 362.3km product pipeline from Mangalore (MRPL) to Bangalore via
Hassan.
1.6.2.3 ONGC International Private Limited (ONGIO)
This 50-50 JV with Indian Oil Corporation Ltd (IOCL),in corporate on 8th June 2001
has incurred cumulative loss of Rs. 30.1 million till 31 st March, 2004. Given
lukewarm co- promoter support, it was decided by the ONGC Board of
Director to withdraw from the JV which is to be dissolved. However, the
Department of Company Affair has not accepted application to wind up the
ONGIO under section 560 of the Companies Act 1956, on the ground that it
had carried on business during the year 2003-04. Hence, it will continue to exit
without any activities till it is finally wound up.
1.6.2.4 Pawan Hans Helicopters Ltd. (PHHL)
ONGC invested in 21.5% of equity capital of PHHL which provides Helicopter
services primarily to ONGC.
15

16. 1.6.1 ONGC GROUP OF COMPANIES
(DRAW NO: 2ONGC GROUP OF COMPANIES)
16

17. 1.7 BOARD OF DIRECTORS
 Mr. R.S.Sharma
 Chairman & Managing Director
 Mr.D.K.Sharaf Director (Finance)
 Dr.A.K.Balyan Director (HR)
 Mr.A.K.Hazarika Director (Onshore)
 Mr.N.K.Mitra Director (Offshore)
 Mr.P.K.Deb Director
 Mr. Sunjoy Joshi Director
 Mr.M.M.ChitaleDirector
 Mr.Rajesh V. Shah Director
 Mr. U. Sundararajan Director
 Mr.N.K.Nayyar Director
 Mr.P.K.Sinha Director
17

18. 1.8 ONGC Organogram
(Crc structure)
(DRAW NO:3 ONGC STRUCTURE)
18

19. 1.9 ABOUT MEHSANA ASSET:
Mehsana asset is the largest oil production onshore asset. mehsana tectonic block is
fairly well exploration productive block of north combat with nearly four decades
exploration history. The exploration, development & exploration activities are being
undertaken in asset intended. The earliest success was achieved in 1967 with
discovery of north kadi field, largest oil block of mehasana block. Oil in mehsana
block is heavy as well as light.
The oil field with low gravity API gravity & high viscosity are santhal, balol, and
becharaji & lanva. Oil field with moderate API gravity is north kadi, shobhasan,
jotana,nandasan, linch & langnaj.
Mehsana block encompasses 6000square kilometres. Exploration success for large &
small fields came about simultaneously in the first decades. So far 28 filed have been
discovered. The peak production was achieved in the 22nd year of it existence. The
decline has been arrested & now production has been increasing from 1999. The
revival has achieved through better reservoir management, implementation of
different IOR & EOR.
Exploration today‟s focused on subtle traps of & small amplitude entrapment
situation. Current effort is best with problem related to shield of middle scone market
especially thick coals, which tends to mask seismic reflection from deeper section.
The major oil field of mehsana asset have been operating for last 25 year.80% of well
operate of artificial lift. About 400 works over operation are carried ot every year.
Despite problems related to aging, asset has between able to pag down the sick well
inventory well under control.
As a mehsana of build up to date for future coal bed methane exploration, a number of
coal cores have taken from shobhasan filed as a part of R & D efforts, this however
will go a long way in chalking out strategy for CBM exploration. Two wells drilled
for underground coal gasification in mehsana city were evaluated for utility
exploration of UCG. it is estimated that the asset has 63 billons tones of local reserves
at the depth of 700 to 1700 masters with expected producible energy of 15000 BCM.
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20. The mehsana project came into 7th nov 1967 when it has bifurcated from Ahmadabad
to facilitate administrative & operational convenience.
 First well drilled mehsana structure-1 spudded on 20-04-1964.
 First oil well drilled-mehsana 2. Deepest well drilled south warasan-I depth
5000M>
 Oldest formation encountered granite basement well serau east-I.
 Deepest oil zone drilled -2198-2208m well mehsana –II.
 Shallowest oil zone drilled 1790-1794m well langhanaj-II
 First hydrocarbon bearing filed mnsa-II
 First EOR scheme balol instu combustion pilot project 15.03.1990
 First coal bed methane exploration well shobhasan 17.02.1991.
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21. Year
2012
a
BRIEF OVERVIEW OF FINANCE
DEPARTMENT
2
•MEHSANA FINANCE
DEPARTMENT STRUCTURE
2.1
•INTRODUCTION OF VARIOUS
FINANCE SECTIONS
2.2
•FINANCIAL INFORMATION OF
THE COMPANY
2.3
21
OIL AND NATURAL GAS CORPORATION
LTD

22. 2.1) MEHSANA FINANCE DEPARTMENT
STRUCTURE
GENERALMANAGER(
F&A))
CHIEFMANAGER(F&A)
INCHARG INCHARG INCHARG INCHARG
INCHARG INCHARG ECOSTIN INCHARG
ECENTR E ECASH/B EPREAUD EBUDGE
G/WELLS IT T E PCS
ALA/C ASSETA/C ANK
/IUT
(DRAW NO:4 MEHSANA FINANCE DEPARTMENT STRUCTURE)
22

23. 2.2) INTRODUCTION OF VARIOUS FINANCE
SECTIONS
2.2.1 BUDGET SECTION:
Introduction
Under the guidance of Mr. Vishal sir. I came to realize the importance of budgeting.
In ONGC, the budget section plays a very important and crucial role. The reason is
that whenever there is requirement of any kind of material or service, proper
arrangement of fund is required and for that purpose budgeting is done. Due to
restriction on number of pages for project report, every detail of budget is not
covered.
Budgetary controls – definition
Budgetary control is a technique whereby actual utilization is compared
with budgets to make the budget an effective financial control tool. Any
differences/ variances are the responsibility of k e y individuals who can either
exercise control action or revise the original budgets after providing necessary
justifications to the top management. Budgetary control is defined by the Institute of
Cost and Management Accountants (CIMA) as: The establishment of budgets relating
the responsibilities of executives to the requirements of a policy, and the continuous
comparison of actual results with budgeted results, either to secure by individual
action the objective of that policy, or to provide a basis for its revision
Budgeting Process in ONGC
General Functioning or System or working of F&A department (especially in respect
of Budgeting)
Before moving forward it is important to know about the Budget Software known as
Budget Manual which is used for the budget data entry prior uploading of final data
into SAP
The method use by ONGC is ACTIVITY BASE BUDGET. This budget done by the
various departments like drilling department, surface department, MM department,
23

24. logging department etc. according their future needs and at last the club it in to the
actual budget.
2.2.2 CASH AND BANK SECTION
This section is responsible for the receipts and payments either in cash or cheque or
by any other form. This section is also responsible for the custody of cash, documents
in respect of investments of corporation money and other important documents. Major
activities perform by cash & bank section
 Cash withdrawal from bank.
 Cash payments and receipts.
 Payments and receipts(other than cash)
 Cheque management
 Regular payments on behalf of employees.
 Remittance of tax deducted at source.
 Dispatch of released payments.
 Liquidity for cast and fund management.
 MIS activities.
 In ONGC the vendors payments are done by the Mumbai headquarter
 And employees salaries are done by the Dehradun headquarter.
 Various fees for issuing tender forms to our suppliers are collected by cash
and bank section.
 Earnest money deposit(EMD)
 Security deposit (SD)
2.2.3 PRE AUDIT SECTION
This section is also known as accounts payable section. The section is divided into
two parts – one is pre-audit supply cell and other is pre-audit service contract cell.
Pre-audit is also known as voucher-audit or administrative audit and denotes scrutiny
&examination, before releasing the payments. Types of Bills:
 Supplier‟s Bills
 Contractor‟s Bills
24

25. Miscellaneous payments the scope of Pre-audit also includes scrutiny of receipts of
the corporation. Activities normally regarded as pre-audit receipt-accounting for
incoming cash, such as:
 Initial public offering (IPO)
 Bank drafts/banker‟s cheque
 Bank guarantees.
 Receipts of FDR kept as security deposits with GEB, irrigation department.
Logistics invoice verification (LIV) with the integrated network of SAP being
used during verification find out any error in the documents before payments
are made and deal with it.
2.2.4 PERSONAL CLAIM SECTION
This section deals with policies, procedures, controls, roles and responsibilities related
to accounting for employee related payments, recoveries, corresponding statutory
payments &compliances. The process explained in this section covers payments
to/recoveries from:
 Regular employees of ONGC;
 Graduate Engineering Trainees (GET)/Management Trainees (MT)
 Retired employees; and
Term based employees, (for example employees on deputation)Payments to regular
employees include monthly salary payments, off-cycle payments (for example holiday
home, briefcase payments etc.), loans & advances. GET/MT are paid as per their
terms of employment. Retired employees are paid medical expense reimbursements as
per HR policy. Recoveries from regular employees include House Rent Recovery
(HRR), Association of Scientific and Technical Officers (ASTO) union recoveries,
recoveries of loans &advances etc.
Main Role of PCS Section
 Updating employee payroll data at the time of joining.
 Accounting of various employee related payments.
 Accounting for full & final settlement on separation of employees.
 Payment to retired employees.
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26.  Inter unit transfers and deputations to/from the Company.
 Tax Deducted at Source deductions and deposits
 Accounting for retirement benefits and related employee benefits.
2.3) FINANCIAL INFORMATION OF THE COMPANY
2.3.1 Accounting policies
The company follows the accrual method of accounting. The company has followed
the entire applicable accounting standards mad mandatory by institute of chartered
accountants of India.
2.3.2 Equity capital
The fully paid up equity capital of the company was as. During the year under review
there was no change in the equity capital structure of there is no issued preference
capital in sterling ceramic ltd. There is no warrant waiting to be covered into equity.
Nearly percent of company equity is comprised of bonus shares. The company last
made a bonus issue in issuing two bonus shares for one share held in the company.
2.3.3 Loans
Oil and natural gas corporation ltd loan fund decreased form in the previous year to
during the year. During the current year the ratio of secured long term funds to
tangible net worth increased to in the previous year.
2.3.4 Fixed assets
The gross and net block of the company as on were and respectively. Plant and
machinery constituted of the gross block and net block respectively.
2.3.5 Depreciation
Depreciation accounted for in the current year compared to in the previous year
compared to in the previous year. There is no change in the accounting policy for
depreciation over the last year.
26

27. 2.3.6 Corporate tax
In view of loss during the year under review, the company has not provided for any
tax liability this year also.
2.3.7 Debtors
During the year under the review the sundry debtors were compared to in the previous
year representing of sales compared to of sales In the previous year. The sundry
debtors are net of provision for doubtful debts of the increase in sundry debtors are
due to market conditions.
2.3.8 Inventories
Inventories decreased from in the previous year to during the current year to during
the current year. Of this finished goods, raw material and spares inventory of stock in
process however increased.
2.3.9 Working capital
The working capital gap during the current year was lower at which is lower than in
tha previous year. The working capital of is founded by bank borrowing to the extent
of and the balance is founded out of company‟s own resource. Each rupee of working
capital generated of gross turnover in the current year compared to in the previous
year. Oil and natural gas corporation ltd shall continue to make to further improve
working capital management by stricter control over inventories and book debts.
2.3.10 Reserves
Oil and natural gas corporation ltd reserves stood at as on nearly per cent of the
company‟s reserves were earned. Per cent comprised capital reserves. There were no
revaluation reserves as on. During the year under review a Sam of representing items.
27

28. Year
2012
BALANCESHEET
ANALYSIS
3
•INTRODUCTION TO
BALANCESHEET
3.1
•BALANCE SHEET
3.2
28
OIL AND NATURAL GAS CORPORATION
LTD

29. 3.1 INTRODUCTION TO BALANCESHEET
A balance sheet is a list of assets and liabilities and claims of a business at some
specific point of time and is prepared from an adjusted Trial Balance. It shows the
financial position of a business by detailing the source of funds and utilization of
these funds. Balance Sheet shows the assets and liabilities grouped, properly
classified and arranged in a specific manner.
USES OF BALANCE SHEET
 It enables us to ascertain the proprietary interest of a person or business
organization.
 It enables us to calculate the actual capital employed in the business.
 The lender can ascertain the financial position of the business.
 It may serve as the basis for determining purchase consideration of the
business.
 Different ratio can be calculated from the Balance Sheet and these ratios can
be utilized for better management of the business.
LIMITATION OF BALANCE SHEET
 Fixed assets are shown in the Balance Sheet as historical costless
depreciation up-to-date. A conventional Balance Sheet can not reflect
the true value of these assets. Again intangible assets are shown in the
Balance Sheet at book values which may bear no relationship to the
market values.
 Sometimes, balance sheet contains some assets which c o m m a n d n o
market value such as expense, debenture discount etc. the inclusion of
these assets unduly inflate the total value of assets.
 The balance sheet can not reflect the value of certain factors such as skill and
loyalty of staff.
29

30. 3.2 BALANCE SHEET
BALANCE SHEET OF ONGCAS ON 31ST MARCH
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share 4,277.76 2,138.89 2,138.89 2,138.89 2,138.89
Capital
Equity Share 4,277.76 2,138.89 2,138.89 2,138.89 2,138.89
Capital
Share 0.00 0.00 0.00 0.00 0.00
Application
Money
Preference 0.00 0.00 0.00 0.00 0.00
Share Capital
Reserves 93,226.67 85,143.72 76,596.53 68,478.51 59,785.04
Revaluation 0.00 0.00 0.00 0.00 0.00
Reserves
Networth 97,504.43 87,282.61 78,735.42 70,617.40 61,923.93
Secured Loans 0.00 0.00 0.00 0.00 0.00
Unsecured 17,564.26 16,405.64 16,035.70 12,482.71 15,109.07
Loans
Total Debt 17,564.26 16,405.64 16,035.70 12,482.71 15,109.07
Total Liabilities 115,068.69 103,688.25 94,771.12 83,100.11 77,033.00
Application Of Funds
Gross Block 80,938.60 71,553.78 61,355.61 57,463.78 52,038.07
Less: Accum. 62,299.05 55,905.28 50,941.23 46,945.77 43,198.95
Depreciation
Net Block 18,639.55 15,648.50 10,414.38 10,518.01 8,839.12
30

31. Capital Work in 65,354.44 56,073.25 52,923.19 41,154.63 37,794.16
Progress
Investments 5,332.84 5,772.03 5,090.32 5,899.50 5,702.05
Inventories 4,118.98 4,678.57 4,060.67 3,480.64 3,033.76
Sundry Debtors 3,845.90 3,058.64 4,083.80 4,360.37 2,759.44
Cash and Bank 356.55 282.85 161.48 269.22 27.42
Balance
Total Current 8,321.43 8,020.06 8,305.95 8,110.23 5,820.62
Assets
Loans and 64,693.91 63,721.90 55,964.02 38,906.53 58,710.79
Advances
Fixed Deposits 22,090.00 17,948.18 18,934.74 22,148.43 19,253.37
Total CA, Loans 95,105.34 89,690.14 83,204.71 69,165.19 83,784.78
& Advances
Deffered Credit 0.00 0.00 0.00 0.00 0.00
Current 35,384.31 27,244.53 26,854.11 22,482.94 19,835.99
Liabilities
Provisions 34,775.19 37,092.46 30,657.98 21,828.17 39,765.20
Total CL & 70,159.50 64,336.99 57,512.09 44,311.11 59,601.19
Provisions
Net Current 24,945.84 25,353.15 25,692.62 24,854.08 24,183.59
Assets
Miscellaneous 796.03 841.32 650.61 673.90 514.06
Expenses
Total Assets 115,068.70 103,688.25 94,771.12 83,100.12 77,032.98
Contingent 38,979.63 39,178.54 36,024.57 26,006.73 34,157.17
Liabilities
Book Value (Rs) 113.97 408.08 368.12 330.16 289.52
Table no:1
31

32. INTERPRETATION:-
 The balance sheet is the statement showing the increase or decrease in the
assets and liabilities. This indicates the change in capital structure as well as
increase or decrease in assets.
 Owner‟s fund increases by 2138.87 Crore in 2011 as compared to base year
2007. The reserves & surplus is also get increase in last four years very
rapidly. It increases by 33441.63 Crore in 2011 as compared to base year
2007.
 Proportion of the debt in capital structure is decrease that is in2007borrowing
debt is 15,109.07 Crore and in 2008 debt is 12,482.71 Crore. So, it is decrease
by 96.43.after next three year continues increase.
 The balance sheet also shows the balance of assets and other investment made
by the company. The gross fixed assets are increased in 2008 by 1678.90
Crore as compared to previous year 2007.
 The investment is also increase in 2008 by 197.45 Crore as compared to
previous year. After the investment is also decreases in 2009 by 800.18 crore
as compared to previous year. And in 2010 it is increase than 2009 after than it
is a decrease in 2011 by439.19 crore. The overall inventory turnover ratio
shows the good position of the company is good.
 We also conclude that the liquid position of the company is good because
Current Assets are increase year by year.
32

33. INVESTMENT CHART:-
Investments
6,000.00 5,899.50
5,772.03
5,800.00 5,702.05
5,600.00
5,400.00 5,332.84
5,200.00 Investments
5,090.32
5,000.00
4,800.00
4,600.00
2007 2008 2009 2010 2011
Chart no:1
INTERPRETATION:-
 The investment is also increase in 2008 by 197.45 Crore as compared to
previous year. After the investment is also decreases in 2009 by 800.18 crore
as compared to previous year. And in 2010 it is increase than 2009 after than it
is a decrease in 2011 by439.19 crore as compare to previous year. The overall
inventory turnover ratio shows the good position of the company is good.
33

34. Year
2012
PROFIT AND LOSS ACCOUNT
ANALYSIS
4
•INTRODUCTION TO PROFIT AND
LOSSACCOUNT
4.1
•PROFIT & LOSS ACCOUNT
4.2
34
OIL AND NATURAL GAS CORPORATION
LTD

35. 4.1) INTRODUCTION TO PROFIT AND LOSSACCOUNT
The Profit & Loss account is also known as the income statement. It can be defined as
a report that summaries the revenues and expenses of an accounting period to reflect
the changes in various critical areas of firm‟s operation. It is of greatest interest and
import and importance to end-users of accounting statements because it enables them
to ascertain whether the business operations have been profitable or not during that
particular period.
The important destination between the balance sheet and income statement is for a
period of one year. The two broad categories of item shown in the income statement
are revenue and expenses. Revenues derived from a company‟s operation say
manufacturing and selling products. During transaction business has also incurred
revenues other than main business operation. Expenses are occurred in day-to-day
transactions.
Here, expenses regarding manufacturing activities, office and administrative expenses
are considered. By deducting total expenses from total revenue we get profit
and by deducting total revenue from total expenses we get total loss. Income tax
amount is also decided by profit that incurred in business with help of this statement.
35

36. 4.2 )PROFIT & LOSS ACCOUNT
Profit & Loss account ------------------- in Rs. Cr. -------------------
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
12 mths 12 mths 12 mths 12 mths 12 mths
Income
Sales Turnover 66,487.19 60,470.18 64,342.28 60,466.48 57,190.17
Excise Duty 322.85 218.41 338.29 401.38 276.73
Net Sales 66,164.34 60,251.77 64,003.99 60,065.10 56,913.44
Other Income 5,028.07 3,615.96 4,085.59 4,228.63 3,107.05
Stock Adjustments 12.91 118.04 81.10 114.11 -19.73
Total Income 71,205.32 63,985.77 68,170.68 64,407.84 60,000.76
Expenditure
Raw Materials 2,790.68 2,431.88 10,905.51 8,424.32 8,177.22
Power & Fuel Cost 285.60 260.38 270.79 317.15 320.28
Employee Cost 6,445.18 5,618.16 4,536.80 5,843.27 3,974.79
Other 32,098.77 26,652.82 19,578.49 17,184.51 15,616.76
Manufacturing
Expenses
Selling and Admin -16,565.10 - -4,470.78 -2,328.21 -560.70
Expenses 13,243.69
Miscellaneous 492.78 947.65 1,011.04 983.74 1,079.27
Expenses
Preoperative Exp 0.00 0.00 0.00 0.00 0.00
Capitalised
Total Expenses 25,547.91 22,667.20 31,831.85 30,424.78 28,607.62
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
12 mths 12 mths 12 mths 12 mths 12 mths
Operating Profit 40,629.34 37,702.61 32,253.24 29,754.43 28,286.09
PBDIT 45,657.41 41,318.57 36,338.83 33,983.06 31,393.14
Interest 11,133.34 11,276.89 8,485.40 5,016.88 3,724.81
PBDT 34,524.07 30,041.68 27,853.43 28,966.18 27,668.33
Depreciation 6,835.01 5,242.66 4,355.62 3,915.77 3,292.80
Other Written Off 0.00 0.00 0.00 0.00 0.00
Profit Before Tax 27,689.06 24,799.02 23,497.81 25,050.41 24,375.53
Extra-ordinary items 547.70 183.99 790.68 607.25 -564.27
PBT (Post Extra-ord 28,236.76 24,983.01 24,288.49 25,657.66 23,811.26
Items)
Tax 9,177.53 8,258.73 8,437.78 8,941.85 8,041.02
Reported Net 18,924.00 16,767.56 16,126.32 16,701.65 15,642.92
Profit(PAT)
Total Value Addition 22,757.23 20,235.33 20,926.34 22,000.46 20,430.40
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 7,486.05 7,058.28 6,844.39 6,844.39 6,630.51
Corporate Dividend 1,215.65 1,161.56 1,163.20 1,163.20 1,012.51
Tax
36

37. Per share data (annualised)
Shares in issue (lakhs) 85,554.90 21,388.73 21,388.73 21,388.73 21,388.73
Earning Per Share 22.12 78.39 75.40 78.09 73.14
(Rs)
Equity Dividend (%) 335.00 330.00 320.00 320.00 310.00
Book Value (Rs) 113.97 408.08 368.12 330.16 289.52
Table no:2
PAT CHART :-
Rs. cr
PAT
18,924.00
20,000.00 16,701.65 16,767.56
15,642.92 16,126.32
15,000.00
10,000.00
pat
5,000.00
0.00
2007 2008 2009 2010 2011
Chart no:2
37

38. INTERPRETATION:-
The profit and loss account of the company shows the overall income and
expenditure, made by the company in a particular time period. The difference between
the debit and credit side of the P&L account, shows the net profit or net loss.
Here, the profit and loss account of the company shows the satisfactory level but as
compared to previous year the expenses of the company is increases. Here the
sales turnover is increase year by year. The operating income in 2010 is 60,470.18
and now it is increase by 6017.01 Crore Rs. in 2011. So, by this way the net
profit of the company is increase by 2156.44 in 2011 as compared to previous year.
While on the other side the expenditure shows the expenses meet by the company in a
particular period. The expenditure met by the company is highest in 2009, while in
other year the expenditure of the company are increases. T h e overall analysis of
the expenditure side of the company shows the average increase in expenses of the
company.
After analyzing the income and expenditure side of the company, there is difference
between both sides which is known as the net profit / loss. The net profit of the
company shows an overall increase year by year. In 2007 it is 15,642.92Crore Rs. and
now itis increasing and in 2011 it is 18,924.00 Cr.
38

39. Year
2012
THEORETICAL BACKGROUND
OF WORKING CAPITAL
MANAGEMENT
5
•MEANING OF WORKING CAPITAL
5.1
•CONCEPT OF WORKING CAPITAL
5.2
•TYPES OF WORKING CAPITAL
5.3
•NEED FOR WORKING CAPITAL
5.4
•DETERMINENTS OF WORKING CAPITAL
5.5
•MEANING AND NATURE OF WORKING
5.6 CAPITAL MANAGEMENT
•WORKING CAPITAL ANALYSIS
5.7
39
OIL AND NATURAL GAS CORPORATION
LTD

40. 5 .1 MEANING OF WORKING CAPITAL:-
In simple words working capital means that which is issued to carry out the day to day
operations of a business. Capital required for a business can be classified under two
main categories
 Fixed capital
 Working capital
Every business needs funds for two purposes, for its establishment and to carry on its
day to day operations. Long term funds are required to create production facilities
through purchase of fixed assets such as plant and machinery, land, building, furniture
etc. Investment in these assets represents that part of firm capital, which is blocked on
a permanent or fixed basis called fixed capital. Funds are also needed for short term
purposes i.e. for the purchase of raw material, payment of wages and other day to day
operations of business. These funds are known as working capital. In other words,
working capital refers to that firm‟s Capital, which is required for short – term assets
or current assets. Funds thus invested in current assets keep revolving last and being
constantly converted into cash and this cash flow is again converted into other current
assts. Hence it is known as circulating or short – term capital.
40

41. 5.2 CONCEPT OF WORKING CAPITAL
5.2.1 Gross Working Capital
It is simply called working capital refers to the firm‟s investment in current assets so
the total current assets of the firm are known as gross working capital.
5.2.1 Net Working Capital
It represents the difference between current assets and current liabilities. Net working
capital may be positive or negative. Positive net working capital is that when current
assets are more than current liabilities. But when current liabilities become more than
current assets than it is negative working capital.
In brief we can say that working capital is too much necessary for the smooth
functioning and proper utilization of fixed assets.
5.3 TYPES OF WORKING CAPITAL
5.3.1 Permanent Working Capital:
As the operating cycle is a continuous process so the need for working capital also
arises continuously. But the magnitude of current assets needed is not always same; it
increases and decreases over time. However there is always a minimum level of
current assets. This level is known as permanent or fixed working capital.
In ONGC maintain the Permanent working capital of the raw material as a 1/3 of total
raw material and 10% work in process and finished goods of the total production.
20% cash balance maintain as permanent in the profit.
5.3.2 Temporary Working Capital:
The extra working capital needed to support the changing production and sales
activities, is called variable or functioning or temporary working capital.
41

42. For hear ONGC purchase raw material as a plastic for manufacturing pipes in
particular season and have to employ additional labour to process it. They must meet
this requirement for providing additional funds. Another aspect of temporary working
capital. Last year suddenly increase the demand of final product so at that time require
extra fund it‟s called the special working capital.
Temporary working capital differs from permanent working capital in the sense that is
required for short periods and cannot be permanently employed gainfully in the
business. This can
Be shown in the following diagram:-
Amount Of Working Capital Temporary capital
Permanent Capital
Time
(DRAW NO: 5 TEMPORARY WORKING CAPITAL)
5.4 NEED FOR WORKING CAPITAL
The need for working capital cannot be overemphasized. The need of working capital
arises due to the time gap between production and realization of cash from sales. So
the working capital or investment in current assets becomes necessary need for
working capital. It arises due to following reasons:-
42

43. 5.4.1 OPERATING CYCLE
“Operating cycle is the time duration requires for converting sales into
cash after the conversion of resources into inventories.”
First of all a firm purchase Raw Material, then after some processing it is converted
into work–in–progress and after this further processing is done to convert work–in–
progress in finished goods. After the raw material is converted into finished goods,
sales are made. Sales are no always full cash sales; there are credit sales also. These
credit sales after some period are converted into cash. So the whole process takes the
time. This time taken is known as the length of operating cycle. So operating cycles
includes:-
1. Raw Material conversion period (RMCP)
2. Work–in – progress conversion period (WIPCP)
3. Finished goods conversion period (FCP)
4. Debtors Conversion period (DCP)
So operating cycle can be known as following:-
Raw Material
Work in Progress
Cash Collection
from Debtors Sales
Finished Goods
Credit Sales Cash Sales
(DRAW NO:6 OPERATING CYCLE)
43

44. If the length of the operating cycle has short length period then less working capital is
required. So working capital requirement is directly related with operating cycle.
Operating cycle may be of two types
1. Gross Operating cycle
2. Net operating cycle
1. Gross Operating cycle
Gross Operating cycle is the total time period from the conversion of Raw Material
into finished goods and finished goods into sales and then sales into cash.
GOC =RMCP + WIPCP + FCP + DCP
2. Net Operating Cycle
As we provide period to debtors for the payments, our creditors also provide period to
us for payment to them. So this reduces our requirement of working capital. This also
affects the operating cycle. Operating cycle‟s length reduces with so many days as
provided by the creditors to us. The difference between gross operating cycle and
period allowed by the creditors for payment is known as net operating cycle
NOC = GOC – CPP
5.4.2 WORKING CAPITAL REQUIREMENT FOR THE ANTICIPATED
NEEDS FOR FUTURE
These needs may be of Raw Material or Finished Goods. Sometimes because of non-
availability of Raw Material or due to seasonal availability of Raw Material some
advances stock of Raw Material becomes necessary for company. In the similar way
due to sudden arise of demand of finished goods in future more finished goods are
kept in stock. For both reasons more working capital is required because funds will be
involve in these safeties stocks.
44

45. 5.5. DETERMINENTS OF WORKING CAPITAL
Followings are the main determinants of working capital.
5.5.1 Nature and Size of Business :
The working capital of a firm basically depends upon nature of its business for e.g.
Public utility undertakings like electricity; water supply needs very less working
capital because offer only cash sales whereas trading & financial firms have a very
less investment in fixed assets but require a large sum of money invested in working
capital.
The size of business also determines working capital requirement and it may be
measured in terms of scale of operations. Greater the size of operation, larger will be
requirement of working capital. Hear ONGC company for manufacturing products not
to the service so require to working capital high in compare to public ltd. Company.
5.5.2 Manufacturing Cycle:
The manufacturing cycle also creates the need of working capital. Manufacturing
cycle starts with the purchase and use of Raw Material and completes with the
production of finished goods. If the manufacturing cycle will be longer more working
capital will be required or vice versa.
In oil and gas corporation ltd. Production Cycle works better and manufacturing
process works fast, so no other costs are incurred in the time of production.
5.5.3 Seasonal variation:
In certain industries like ONGC raw material is not available throughout the year.
They have to buy raw material in bulk during the season to ensure an uninterrupted
flow and process them during the year. Generally, during the busy season, a firm
requires large working capital than in the slack season.
45

46. 5.5.4 Production Policy:
Production policy also determines the working capital level of a firm. If the firm has
steady production policy, it may require need of continuous working capital. But if
the firms adopt a fluctuating production policy means to produce more during the lead
demand season then the more working capital may require at that time but not in other
period during a financial year. So the different productions policy arise different type
of need of working capital.
If the policy is to keep production steady by accumulate inventories it will require
higher working capital.
Oil and gas corporation ltd‟s Production policy is not steady so Requirement of
working capital is less.
5.5.5 Firm’s Credit Policy:
The firm‟s credit policy directly affects the working capital requirement. If the firm
has liberal credit policy, hence the more credit period will be provided to the debtors
so this will lead to more working capital requirement. With the liberal credit policy
operating cycle length increases and vice versa.
Oil and gas corporation ltd Credit Policy for collection toward the debtor for giving 2
or 3 weeks for credit sales in the limit of 2 lakh. Above the 2 lakh give credit for 1
month.
5.5.6 Sales Growth:
Working capital requirement is directly related with sales growth. If the sales are
growing, more working capital will be needed due to arises need of more Raw
Material, finished goods and credit sales. Hear, ONGC Sales growth is increase in
year by year so require more working capital.
5.5.7 Business Cycle:
Business cycle refers to alternate expansion and contraction in general business. In a
period of boom, larger amount of working capital is required where as in a period of
depression lesser amount of working capital is required. ONGC Position is growth
stage. So require working capital is high.
46

47. 5.5.8 Price Level Changes:
Changes in the price level also effects the working capital requirements. Generally,
the rising prices will require the firm to maintain larger amount of working capital as
more funds will be required to maintain the same current assets.
5.5.9 Other Factors:
Certain other factors such as operating efficiency, management ability, irregularities
of supply, import policy, asset structure, importance of labour, banking facilities, time
lag. Etc. also influence the requirement of working capital.
So these are the main determinants of working capital. The importance of influence of
these determinants on working capital may differ from firm to firm
5.6 MEANING AND NATURE OF WORKING CAPITAL
MANAGEMENT
The management of working capital is concerned with two problems that arise in
attempting to manage the current assets, current liabilities and the inter relationship
that asserts between them.
The basic goal is working capital management is to manage current assets and current
liabilities of a firm in such a way that a satisfactory of optimum level of working
capital is maintained i.e. it is neither inadequate nor excessive. This is so because both
inadequate as well as excessive working capital position is bad for business.
5.7 MAJOR DECISIONS IN WORKING CAPITAL
MANAGEMENT
There are two major decisions management relating to working capital management:-
1. What should be ratio of current assets to sales?
2. What should be the appropriate mix of short term financing and long term
financing for financing these current assets?
5.7.1 Current assets in relation to sales
If the firm can forecast accurately the factors, which effect the working capital, the
investment in current assets, can be designed uniquely? When uncertainty
characteristics the above factors, as it usually does the investment in current assets
47

48. cannot be specified uniquely. In case of uncertainty, the outlay on current assets
should consist of base component meant to meet normal requirement and a safety
component meant to cope with unusual requirement. The safety component depends
upon low conservative or aggressive in the current assets policy of a firm. If the firm
purchases a very conservative current asset policy it would carry a high level of
current assets in relation to sales. If a firm adopts a moderate current assets policy it
would carry moderate level of current assets in relation to sales, finally is a firm
follows a highly aggressive current assets policy, it would carry a low level of current
assets in relation to sales.
5.7.2 Determining a Short Term and Long Term Financing Mix for Financing of
current assets
There are three approaches in this regard, which are discussed below:
5.7.2.1 HEDGING APPROACH
This approach is also called matching approach. In this approach there is a proper
matching of expected life of asset with the duration of fund. Usually, according to this
approach long-term sources are used for financing permanent current assets and fixed
assets & short-term sources are used for financing temporary current assets:
Temporary current assets
Short term financing
Assets
Permanent current assets
Long term financing
Fixed Assets
Term financing
Time
DRAW NO:7 HEDGING APPROACH
48

49. 5.7.2.2 CONSERVATIVE APPROACH
In this approach there is more reliance on long-term financing in comparison to short-
term financing. Even some part of the temporary current comparison to finance from
long-term sources because long-term sources are less risky in comparison to short-
term source
Temporary Current Assets
Short-term financing
Assets
Permanent Current Assets Long-term financing
Fixed Assets
Time
(DRAW NO:8 CONSERVATIVE APPROACH)
5.7.2.3 AGGRESSIVE APPROACH
In this approach there is more reliance on short term financing and even a part of
permanent current assets is financed from short-term finance.
Temporary current assets Short term financing
Assets
Permanent current assets Long term financing
Fixed Assets
Time
(DRAW NO:9 AGGRESSIVE APPROACH)
In Oil and gas corporation ltd, the current assets are financed from short term sources
as well as long term sources, so they follow conservative approach.
49

50. 5.8 WORKING CAPITAL ANALYSIS
5.8.1. ANALYSIS ON THE BASIS OF SCHEDULE OF CHANGES IN
WORKING CAPITAL
SCHEDULE OF CHANGES IN WORKING CAPITAL
(RS.cr)
PARTICULARS 2011 2010 INCREASE DECREASE
CURRENT
ASSETS:
Inventories 4,118.98 4,678.57 5559.59
S. debtors 3,845.90 3,058.64 787.26
Cash & Bank 356.55 73.7
282.85
Balances
Loans & 64,693.91 63,721.90 972.01
Advances
Total current 73,015.34 71741.96
assets (A)
CURRENT
LIABILITIES:
Liabilities& 70,159.50 64,336.99 5822.51
provision
Total current 70,159.50 64,336.99
liabilities (B)
Working capital 2855.84 7404.97
(A-B)
Net increase in 7655.48
working capital
FOR YEARS 2011 AND 2010
As we have a look on the schedule of changes in working capital for the company
over the years 2010 and 2011, we find that, among in current assets, Loan &
Advances, sundry debtors and Cash &Bank Balance have shown increment from year
2010 to year 2011. The inventories have got decreased in the same years. Among the
current liabilities, liabilities& Provision have increase. So the overall net working
capital has decreased.
50

51. (RS. Cr)
PARTICULARS 2009 2008 INCREASE DECREASE
CURRENT ASSETS:
Inventories 4,060.67 3,480.64 580.03
S. debtors 4,083.80 4,360.37 276.57
Cash & Bank 107.74
161.48 269.22
Balances
Loans & Advances 55,964.02 38,906.53 17057.49
Total current 64269.97 47016.76
assets (A)
CURRENT
LIABILITIES:
Liabilities& 13200.98
57,512.09 44,311.11
provision
Total current
57,512.09 44,311.11
liabilities (B)
Working capital 6757.88 2705.65
(A-B)
Net increase in 30838.5
working capital
FOR YEARS 2009 AND 2008
As we have a look on the schedule of changes in working capital for the company
over the years 2008 and 2009, we find that, among in current assets, Loan &
Advances, and Cash &Bank Balance, inventories have shown increment from year
2008 to year 2009. The sundry debtors have got decreased in the same years. Among
the current liabilities, liabilities& Provision have increase. So the overall net working
capital has increase.
51

52. (Rs.cr)
PARTICULARS 2008 2007 INCREASE DECREASE
CURRENT
ASSETS:
Inventories 3,480.64 3,033.76 446.88
S. debtors 4,360.37 2,759.44 1600.93
Cash & Bank 241.8
269.22 27.42
Balances
Loans & 38,906.53 58,710.79 19804.26
Advances
Total current 47016.76 64531.41
assets (A)
CURRENT
LIABILITIES:
Liabilities& 59,601.19 15290.08
44,311.11
provision
Total current 59,601.19
44,311.11
liabilities (B)
Working capital 2705.65 4930.22
(A-B)
Net increase in 2047.81
working capital
FOR YEARS 2007 AND 2008
As we have a look on the schedule of changes in working capital for the company
over the years 2007 and 2008, we find that, among in current assets, sundry debtors,
Cash &Bank Balance, inventories have shown increment from year 2007 to year
2008. The Loan & Advances and have got decreased in the same years. Among the
current liabilities, liabilities& Provision have decrease. So the overall net working
capital has decrease.
52

53. Year
2012
MANAGEMENT OF
INVENTORY
6
•NATURE OF INVENTORIES
6.1
•OBJECTIVES OF INVENTORY
6.2 MANAGEMAENT
•ANALYSIS OF EFFICIENCY OF
6.3 INVENTORY MANAGEMENT IN ONGC
53
OIL AND NATURAL GAS CORPORATION
LTD

54. 6 MANAGEMENT OF INVENTORY
Inventory is very important part of current assets. Approximately 60% part of current
assets is inventories. So the proper management of inventory is required for
successful working capital management. As the larger amount of funds is involved in
the inventories, so it must be carried with care for proper utilization of funds.
6.1) Nature of Inventories
In inventories we include:
(a) Raw Material: There are those basic inputs which are converted into work-in-
progress after the manufacturing process. ONGC purchased Raw materials as
a Rough Plastic for production and storage purpose.
(b) Work-in-Progress: These inventories are semi-manufactured products. These
products are those which are ready for sale. Product as a pipes, pumps,etc.
(c) Finished Goods: These are completely manufactured products. These
products are those which are ready for sale. In ongc finished product of pipe,
pumps and etc.
Here is one another type of inventory also which is not directly related with
production but facilitate in production process. These inventories are known
as supplies. Cleaning material, oil, fuel, electric tube etc are the supplies.
6.2) OBJECTIVES OF INVENTORY MANAGEMENT
There are so many objectives of inventory management. These objectives may differ
from firm to firm. The main objectives of inventory management are:
 To make adequate investment in inventories so that funds can be best utilized.
 Smooth production in present and future.
 Time availability of inventories.
 Smooth and uninterrupted sale processes.
 Minimize the cost related with inventories.
 To meet the future price change.
 To get adequate return on investment.
54

55. 6.3) ANALYSIS OF EFFICIENCY OF INVENTORY
MANAGEMENT IN ONGC
INVENTORY TURNOVER RATIO
It indicates the number of times the stock has been turned over during the period and
evaluates the efficiency with which the firm is to manage inventory. A high inventory
turnover indicates efficient management of inventory because more frequently the
stocks are sold; the lesser amount of money is required to finance the inventory.
Formula: Cost of Goods sold/ Average inventory
Cost of Goods Sold (COGS)
------------------- in Rs. Cr. -------------------
Particular 2010-11 2009-10 2008-09 2007-08 2006-07
Sales 66164.34 60251.77 64003.99 60065.10 56913.44
Gross Profit 45657.41 41318.57 36338.83 33983.06 31393.14
COGS 20506.93 18933.20 27665.16 26082.04 25520.30
Average Inventory:
(Rs.cr)
Particular 2010-11 2009-10 2008-09 2007-08 2006-07
Opening Stock 4678.57 4060.67 3480.64 3033.76 2512.34
Closing Stock 4118.98 4678.57 4060.67 3480.64 3033.76
Average Inventory 4398.78 4369.62 3770.66 3257.2 2923.05
55

56. Inventory Turnover Ratio:
(Rs.cr)
Particular 2010-11 2009-10 2008-09 2007-08 2006-07
COGS 20506.93 18933.20 27665.16 26082.04 25520.30
Avg. Inventory 4398.05 4369.62 3770.66 3257.2 2923.05
Inventory Turnover 4.66 4.33 7.34 8.00 8.73
Ratio
Table no:3
Inventory Turnover Ratio
8.73
9 7.34 8
8
7
6 4.66
4.33
5
4
3 Inventory
2 Turnover
1 Ratio
0
2010-11 2009-10 2008-09 2007-08 2006-07
Chart no:3
Analysis:
 The inventory turnover ratio is increasing in the year 2007 after next year in
2008 and 2009 and 2010 it is consistently decreasing. Which indicates that its
performance in terms of generating cash flow is decreasing in this year
because the companies‟ cash flow has blocked in inventories? However, in
2011 the ratio increased by 0.33 than previous year, which is a positive sign.
56

57. Year
2012
RATIO ANALYSIS
7
•UTILITY OF RATIO ANALYSIS
7.1
•CLASSIFICATION OF RATIO
7.2
57
OIL AND NATURAL GAS CORPORATION
LTD

58. 7. RATIO ANALYSIS
Ratio analysis is a widely used tool for financial analysis. It is defined as the
systematic use of ratio to interpret the financial statement, so that the strength and
weakness of a firm as well as its historical performance and current financial
condition can be determined. The term ration refers to the numerical and quantitative
relationship between two items/variables. The relationship can be expressed as:-
1. Percentage
2. Fraction
3. P roport i on of num bers
The rational of ratio analysis lies in the fact that it makes related information
comparable. A single figure by itself has no meaning but when expressed in
terms of a related figure, it yields significant inferences.
Ratio analysis thus, a quantitative tool enables analysis todraw quantitative answers
such as:-
 Is the net profit adequate?
 Are the assets being used efficiently?
 Is the firm solvent?
 Can the firm meet its current obligations and so on?
7.1) UTILITY OF RATIO ANALYSIS
The use of ratio was started by banks for ascertaining the liquidity and profitability of
the company‟s business for the purpose of advancing loan to them. It gradually
become popular and other creditors began tousl e them profitably. Now even the
investor calculates ratio from t he published account of the company before investing
their savings. The ratio analysis provides useful information to management, which
would help them in taking important policy decision. Diverse group of people make
use of ratios, to determine the particular aspect of the financial position of the
company, in which they are interested.
58

59. 7.1.1) Profitability
Useful information about the trend of profitability is available from the profitability
ratios. The gross profit ratio, net profit ratio and ratio of return on investment give a
good idea of profitability of business.
7.1.2) Liquidity
In fact, the use of this ratio is to ascertain the liquidity of the busi ness. T he current
ratio and liquid ratio will tell whether the business will be able to meet its current
liabilities as and when they mature.
7.1.3) Efficiency
The turnover ratio are excellent guides to measures the efficiency of managers. For
e.g. the stock turnover will indicate how efficiency the sales are being made, the
debtors turnover shows the efficiency of collection department and assets are used in
business.
7.1.4) Inter- firm comparison
The absolute ratio of the firm are not of much use, unless they are compared with
similar ratio of other firm belongs to the same industries.
7.1.5) Indicate Trend
The ratio of the last three to five years will indicate the trend in the respective fields.
7.1.6) Useful for budgetary Control
Regular budgetary reports are prepared in business where the system of budgetary
control in use. If various ratios are prepared in these reports, it will give a fairly good
idea about various aspect of financial position.
7.1.7) Useful for decision making
Ratios guide the management in making some of the important decision.
59

60. 7.2) CLASSIFICATION OF RATIO
Ratios can be classified into four broad groups:-
7.2.1. Liquidity Ratio
7.2.2. Leverage / Capital structure Ratio
7.2.3. Profitability Ratio
7.2.4. Activity / Efficiency Ratio
7.2.1) LIQUIDITY RATIOS
Liquidity is the most important factor in successful financial management. A
firm should have enough money to meets its short-term liabilities, as and when they
become due for payment. If affirm fails to meet its short term liabilities frequently, its
prestige and creditworthiness would be adversely affected. A very high degree of
liquidity is also bad; idle assets earn nothing. Therefore it is necessary to strike a
proper balance between high liquidity and lack of Liquidity.
7.2.1.1) Current Ratio:
This most widely used ratio shows the proportion of current assets to current
liabilities. It is also known as „Working Capital Ratio‟. It is a measure of short term
financial strength of business a n d shows whether the business will able to meet its
current liabilities. Generally, it is believed that ratio of 2:1 is good and shows a
comfortable working capital position. But this ratio i s differing company by
company. The formula for calculating these ratios as under:-
Current Ratio = Current Assets
Current Liabilities
60

61. Current assets:
(Rs. in cr)
Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
Inventories 4118.98 4678.57 4060.67 3480.64 3033.76
Debtors 3845.90 3058.64 4083.80 4360.37 2759.44
Cash / bank balance 356.55 282.85 161.48 269.22 27.22
Loans / Adv. 64693.91 63721.90 55964.02 38906.53 58710.79
Fixed Deposites 22090 17948.18 18934074 22148.43 19253.37
Total Current Assets 95105.34 89690.14 83204.71 69165.19 83784.78
Current liabilities:
(Rs.cr)
Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
Liabilities 35384.31 27244.53 26854.71 22482.94 19835.99
Provisions 34775.19 37092.46 30657.98 21828.17 39765.20
Total Current 70159.50 64336.99 57512.09 44311.11 59601.19
Liabilities
Current Ratio:
(RS .cr)
Particular 2010-11 2009-10 2008-09 2007-08 2006-07
Current Assets 95105.34 89690.14 83204.71 69165.19 83784.78
Current Liabilities 70159.50 64336.99 57512.09 44311.11 59601.19
Current Ratio 1.36 1.39 1.45 1.56 1.41
Table no:4
61

62. Current Ratio
1.6 1.56
1.55
1.5 1.45
1.41
1.45
1.39
1.36 Current
1.4
Ratio
1.35
1.3
1.25
2010-11 2009-10 2008-09 2007-08 2006-07
Chart no:4
INTERPRETATION:-
 This calculation implies that the fluctuation in the current ratio. As compared
to previous year the current year‟s ratio shows the better liquidity position.
In 2007 this ratio is 1.41:1 and in 2008 the ratio is 1.56:1 which shows
increase in liquidity. The reason behind that cash balance and receivable is
increasing. But after next three year the ratio is contently decrease.
62

63. 7.2.1.2) Acid Test / Quick Ratio
The Acid test ratio is the ratio between quick current assets and current liabilities and
is calculated by dividing the quick assets by the liquid liabilities. Most people believe
that liquid ratio is acid test ratio, but sometimes business is able to repay its liquid
quick assets. The reason behind that is emergency requirement cash and business
cannot get it from debtors, so quick assets include cash balance +investment
certificate that can be immediately transferable into cash. The satisfactory ratio is 1:1
but lower limit is 0.5:1. Here quick assets do not include stock.
Quick Ratio = Quick Assets (Current assets–Inventories)
Current Liabilities
Quick Assets:
(Rs.cr)
Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
Total Current 95105.34 89690.14 83204.71 69165.19 83784.78
Assets
Inventories 4118.98 4678.57 4060.67 3480.64 3033.76
Quick Assets 90986.36 85011.57 79144.04 65684.55 80751.02
Quick liabilities:
(Rs.cr)
Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
Total Quick Liabilities 70159.50 64336.99 57512.09 44311.11 59601.19
63

64. Quick Ratio:
(Rs.cr)
Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
Quick assets 90986.36 85011.57 79144.04 65684.55 80751.02
Quick liabilities 70159.50 64336.99 57512.09 44311.11 59601.19
Quick Ratio 1.30 1.32 1.38 1.48 1.35
Table no:5
Quick ratio
1.48
1.5
1.45
1.38
1.4 1.35
1.35 1.32
1.3 Quick ratio
1.3
1.25
1.2
2010-11 2009-10 2008-09 2007-08 2006-07
Chart no:5
INTERPRETATION:-
 So, as per the current year ratio of the company is up to some extent
satisfactory. This ratio shows the repay ability of the company which is
satisfactory as per lower level all over the year. As compared to previous year
in current year it is not good. In 2009-10 it is 1.32:1 and in current year it is
1.30:1.
64

65. 7.2.2) CAPITAL STRUCTURE/LEVERAGE RATIO
The second category of financial ratios is leverage or capital structure ratios.
The long term creditors would judge the soundness of a firm on the basis of the long
term financial strength measured in terms of its ability to pay the interest
regularly as well as repay the instalment of the principal of due dates or in
one lump sum at the time of maturity.
7.2.2.1) Debt Ratio:
Debt Ratio may be used to analyze the long-term solvency of a firm. The firm may be
interested in knowing the proportion of the interest-bearing debt (also called funded
debt) in the capital structure.
Debt ratio= Total debt
Capital Employed
Capital employed = Share Holders’ Funds + Total Debt
Total Debts:
(Rs.cr)
Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
Secured Loans - - - - -
Unsecured Loans 17564.26 16405.64 16035.70 12482.71 15109.07
Total Debts 17564.26 16405.64 16035.70 12482.71 15109.07
Capital Employed:
(Rs.cr)
Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
Share Holders’ 97504.43 87282.61 78735.42 70617.40 61923.93
funds
Total Debts 17564.26 16405.64 16035.70 12482.71 15109.07
Capital 115068.69 103688.25 94771.12 83100.11 77033.00
Employed
65

66. Debt Ratio:
(Rs.cr)
Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
TD 17564.26 16405.64 16035.70 12482.71 15109.07
CE 115068.69 103688.25 94771.12 83100.11 77033.00
Debt Ratio: 0.15 0.16 0.17 0.15 0.20
Table no: 6
Debt Ratio
0.2
0.2 0.17
0.16
0.15 0.15
0.15
0.1
Debt
0.05 Ratio:
0
2010-11 2009-10 2008-09 2007-08 2006-07
Chart no:6
INTERPRETATION:-
 The debt ratio is continuously decreasing from 2009 to 2011. Because increase
in CE more than total debt. In ONGC Company Capital Employed is more
than the Total debts. So the ratio is decreasing from 0.16 to 0.15.
66

67. 7.2.2.2) Debt-Equity Ratio
The ratio establishes a relationship between long term debts and shareholders‟ funds.
It reflects the relative claims of creditors and shareholders against the assets of the
firm and in other terms it indicates the relative proportion of debt and equity in
financing the assets of the firm.
Debt equity ratio= Long term Debt
Shareholders’ funds
Long-Term Debt
(Rs.cr)
Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
Secured Loans - - - - -
Unsecured Loans 17564.26 16405.64 16035.70 12482.71 15109.07
Total 17564.26 16405.64 16035.70 12482.71 15109.07
Shareholders Fund:
(Rs.cr)
Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
Share Capital 4277.76 2138.89 2138.89 2138.89 2138.89
Reserves and 93226.67 85143.72 76596.42 68478.51 59785.04
Surplus
Total 97504.43 87282.61 78735.42 70617.40 61923.93
67

68. Debt-Equity Ratio:
(Rs.cr)
Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
Total Long- 17564.26 16405.64 16035.70 12482.71 15109.07
term Debt
Total Share 97504.43 87282.61 78735.42 70617.40 61923.93
holders Fund
Debt-Equity 0.18 0.19 0.20 0.18 0.24
Ratio
Table no:7
Debt-Equity Ratio
0.24
0.25
0.2
0.18 0.19 0.18
0.2
0.15
Debt-Equity
0.1
Ratio
0.05
0
2010-11 2009-10 2008-09 2007-08 2006-07
Chart no:7
INTERPRETATION:-
 The ONGC has debt equity ratio indicate, numerator is an equity part while
denominator is a debt part. So we can easily say that equity part is more than
debt part.
68

69. 7.2.2.3) Capital Employed to Net worth Ratio:
There is yet another alternative way of expressing the basic relationship between debt
and equity. One may want to know: How much funds are being contributed together
by lenders and owners for each rupee of the owners‟ contribution?
Formula: Capital Employed (C.E.)
Net worth (N.W.)
Capital Employed:
(Rs.cr)
Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
Share Holders’ 97504.43 87282.61 78735.42 70617.40 61923.93
funds
Total Debts 17564.26 16405.64 16035.70 12482.71 15109.07
C.E. 115068.69 103688.25 94771.12 83100.11 77033.00
Net Worth:
(Rs.cr)
Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
Share Capital 4277.76 2138.89 2138.89 2138.89 2138.89
Reserves and 93226.67 85143.72 76596.42 68478.51 59785.04
Surplus
Total 97504.43 87282.61 78735.42 70617.40 61923.93
69

70. Capital Employed to Net worth Ratio:
(Rs.cr)
2010-11 2009-10 2008-09 2007-08 2006-07
Particulars
C.E. 115068.69 103688.25 94771.12 83100.11 77033.00
NW 97504.43 87282.61 78735.42 70617.40 61923.93
Capital 1.18 1.19 1.20 1.18 1.24
Employed to
Net worth Ratio
Table no: 8
Capital Employed to Net worth
Ratio
1.24
1.24
1.22
1.2
1.2 1.19
1.18 Capital
1.18 Emplo
1.18
yed to
1.16 Net
worth
1.14 Ratio
2010-11 2009-10 2008-09 2007-08 2006-07
Chart no: 8
INTERPRETATION:-
 From the above graph, we can say that in the company, total external
contribution is increasing year by year. The ratio increases after the year by
year from 1.18 to 1.20 due to increase in C.E. The Reason of increment is
Capital Employed is more than the Net Worth. But unfortunately in 2010 and
2011 the capital employed to net worth ratio is decrease.
70

71. 7.2.2.4) Total Liabilities to Total Assets Ratio:
Current liabilities are generally excluded from the computation of leverage ratios. One
may like to include them on the ground that they are important determinants of the
firm‟s financial risk since they represent obligations and expert pressure on the firm
and restrict its activities.
Formula: Total liabilities (TL)
Total Assets (TA)
Total Liabilities:
(Rs.cr)
Particular 2010-11 2009-10 2008-09 2007-08 2006-07
Current 70159.50 64336.99 57512.09 44311.11 59601.19
Liabilities
Secured - - - - -
Loans
Unsecured 17564.26 16405.64 16035.70 12482.71 15109.07
Loans
Total 87723.76 80742.63 73547.79 56793.82 74710.26
Total Assets:
(Rs.cr)
Particular 2010-11 2009-10 2008-09 2007-08 2006-07
Fixed Assets 18639.55 15648.50 10414.38 10518.01 8839.12
Current Assets 95105.34 89690.14 83204.71 69165.19 83784.78
Total 113744.89 105338.64 93619.09 79683.2 92623.9
71