1​ | ​Page

PaapapapaaancnbdlbmnlcfP Pre
 A

PROJECT REPORT
ON

ANALYSIS OF FINANCIAL
STATMENT
OF

RELIANCE INDUSTRIES

PROJECT GUIDE:TEJAS PAREKH (MBAGJ0042)

PAREPARED BY: JAYA MAHAJAN

MBA 4​TH​ SEM (FINANCE)

ROLL NO.1402012461

SIKKIM MANIPAL UNIVERSITY

2015-2016

2​ | ​Page
 CERTIFICATE   
CERTIFICATE

TO WHOM SO EVER IT MAY CONCERN

This is to certify that ​JAYA MAHAJAN (Roll No. ​1402012461) a student of ​M.B.A. (Finance) of
Sikkim Manipal University, Sikkim, has done his project work on the subject name “ANALYSIS
OF FINANCIAL STATMENT”

He has done project during the period ​1-5-2016 to ​28-07-2016 under the guidance of Dr.
Rashmi Nair, in RELIANCE INDUSTRIES LTD, Hazira, Surat (GUJARAT).

During the period of his project work with us we have found his conduct and character are
good.

We wish him good luck for and all the best in his career.

For RELIANECE INDUSTRIES LTD.

3​ | ​Page
(Dr. Rashmi Nair)

Assi. Manager Finance & Admin Dept.

DECLARATION

I hereby declare that the project entitle “A STUDY ON CAPITAL STRUCTURE” Submitted in partial
fulfillment of the requirements for award of the degree of MBA at BARODA Institute of Technology,
affiliated to Sikkim Manupal University, Sikkim, is an authentic work and has not been submitted to
any other University/Institute for award of any degree/diploma.

JAYA MAHAJAN

(1402012461)

MBA, BIMS

Sikkim Manipal University

VADODARA, GUJARAT

4​ | ​Page
 ACKNOWLEDGEMENT

Firstly, I would like to express our immense gratitude towards our institution BARODA

Institute of Management Studies, which created a great platform to attain profound technical and

management skills in the field of MBA, thereby fulfilling our most cherished goal.

I would thank all the finance department of “RELIENCE INDUSTIES LTD, specially Dr. Rashmi

Nair (Asst Manager Finance), and the employees in the finance department for guiding me and

helping me in successful completion of the project.

I am very much thankful to our professor Mr. Tejas Parekh (Internal Guide) for extending his

cooperation in doing this project.

I am also thankful to our project coordinator Mr. Dalvadi for extending his cooperation in

completion of Project.

I convey my thanks to my beloved family and my faculty who helped me directly or

indirectly in bringing this project successfully.

JAYA MAHAJAN

(1402012461)

5​ | ​Page
 INDEX
SR. NO. PARTICULER PAGE NO.
1 DECLARATION 4
2 ACKNOWLEDGEMENT 5
3 INTRODUCTION TO THE TOPIC 7
4 REVIEW OF LITERATURE 13
5 COMPOSITION AND OBSERVATION 28
6 COMPANY PROFILE 30
7 COMPANY’S VISION, MISSION AND VALUE 34
8 DIRECTORS’ REPORT 36
9 MANAGEMENT’S DISCUSSION 39
10 AUDITORS’ REPORT 55
11 EBIT – EPS DATA ANALYSIS 57
12 RATIO ANALYSIS 66
13 FINDINGS 95
14 FINDINGS 96
15 RECOMMENDATIONS 97
16 SUGGESTIONS 98
17 BIBLIOGRAPHY 99
18 FINANCIAL HIGHLIGHTS 100

6​ | ​Page
 INTRODUCTION TO THE TOPIC

7​ | ​Page
C​​APITAL ​S​TRUCTURE ​D​EFINED​​:

The assets of a company can be financed either by increasing the owners claim or the

creditors claim. The owner’s claims increase when the form raises funds by issuing ordinary shares

or by retaining the earnings, the creditors’ claims increase by borrowing .The various means of

financing represents the “financial structure” of an enterprise .The financial structure of an

enterprise is shown by the left hand side. (Liabilities plus equity) of the balance sheet. Traditionally,

short-term borrowings are excluded from the list of methods of financing the firm’s capital

expenditure, and therefore, the long term claims are said to form the capital structure of the

enterprise .The capital structure is used to represent the proportionate relationship between debt

and equity .Equity includes paid-up share capital, share premium and reserves and surplus.

8​ | ​Page
 The financing or capital structure decision is a significant managerial decision .It influences

the shareholders returns and risk consequently; the market value of share may be affected by the

capital structure decision. The company will have to plan its capital structure initially at the time of

its promotion.

NEED AND IMPORTANCE OF CAPITAL STRUCTURE​​:

The value of the firm depends upon its expected earnings stream and the rate used to

discount this stream. The rate used to discount earnings stream it’s the firm’s required rate of

return or the cost of capital. Thus, the capital structure decision can affect the value of the firm

either by changing the expected earnings of the firm, but it can affect the reside earnings of the

shareholders. The effect of leverage on the cost of capital is not very clear. Conflicting opinions

have been expressed on this issue. In fact, this issue is one of the most continuous areas in the

theory of finance, and perhaps more theoretical and empirical work has been done on this subject

than any other.

9​ | ​Page
 If leverage affects the cost of capital and the value of the firm, an optimum capital structure

would be obtained at that combination of debt and equity that maximizes the total value of the firm

or minimizes the weighted average cost of capital. The question of the existence of optimum use of

leverage has been put very succinctly by Ezra Solomon in the following words. Given that a firm has

certain structure of assets, which offers net operating earnings of given size and quality, and given a

certain structure of rates in the capital markets, is there some specific degree of financial leverage

at which the market value of the firm’s securities will be higher than at other degrees of leverage?

The existence of an optimum capital structure is not accepted by all. These exist two

extreme views and middle position. David Durand identified the two extreme views the net income

and net operating approaches.

SCOPE OF THE STUDY:

A study of the capital structure involves an examination of long term as well as short term sources

that a company taps in order to meet its requirements of finance. The scope of the study is confined

to the sources that RELIEANCE INDUSTRIES tapped over the years under study i.e. 2014-2015.

PROBLEM STATEMENT:

Capital structure is the mixture of the debt and equity capital maintained and used by a firm to

finance itself. There is no common ground among the researcher on this subject. This seeming

10​ | ​Page
common ground on the topic is fact that no single theory of capital structure is able to explain the

observed capital structure decision and performance of the firms. The problem is how we can

better utilize the capital structure of the company

OBJECTIVES OF THE STUDY:

1. To study of solvency of the company from the point of view long term, medium term, and short

term and immediate prospect.

2. To Study the capital structure of RELIENACE INDUSTRIES Ltd through EBIT-EPS analysis

3. Study effectiveness of financing decision on EPS and EBIT of the firm.

4. Examining the financing trends in the RELIENACE INDUSTRIES Ltd for the period of 2014- 15.

5. Study debt/equity ratio of RELIENACE INDUSTRIES Ltd for 2014-15.

6. To measure Profitability of the RELIENACE INDUSTRIES Ltd.

7. To ascertain credit standing of the RELIENACE INDUSTRIES Ltd.

8. To measure operational efficiency of the RELIENACE INDUSTRIES Ltd.

9. To check effective utilization of the RELIENACE INDUSTRIES Ltd.

10. Effective investment analysis of the RELIENACE INDUSTRIES Lt

RESEARCH METHODOLOGY AND DATA ANALYSIS

Data relating to RELIANCE Industries. Has been collected through

SECONDARY SOURCES:

• Published annual reports of the company for the year 2014-15.

• Literature review of the company’s documentary.

11​ | ​Page
PRIMARY SOURCES:

• Detailed discussions with Assistant finance manager.

• Discussions with other members of the Finance department.

DATA ANALYSIS

The collected data has been processed using the tools of

• Ratio analysis

• Graphical analysis

• Year-year analysis

These tools access in the interpretation and understanding of the Existing scenario of the Capital

Structure.

LIMITATION OF EPS AS A FINANCING-DECISION CRITERION

EPS is one of the mostly widely used measures of the company’s performance in practice. As

a result of this, in choosing between debt and equity in practice, sometimes too much attention is

paid on EPS, which however, has serious limitations as a financing-decision criterion.

12​ | ​Page
 The major short coming of the EPS as a financing-decision criterion is that it does not

consider risk; it ignores variability about the expected value of EPS. The belief that investors would

be just concerned with the expected EPS is not well founded. Investors in valuing the shares of the

company Consider both expected value and variability.

13​ | ​Page
 REVIEW OF
LITERATURE

REVIEW OF LITERATURE

CAPITAL STRUCTURE DEFINED:

14​ | ​Page
The assets of a company can be financed either by increasing the owners claim or the creditors

claim. The owners claims increase when the form raises funds by issuing ordinary shares or by

retaining the earnings, the creditors claims increase by borrowing .The various means of financing

represents the “financial structure” of an enterprise .The financial structure of an enterprise is

shown by the left hand side (liabilities plus equity) of the balance sheet. Traditionally, short-term

borrowings are excluded from the list of methods of financing the firm’s capital expenditure, and

therefore, the long term claims are said to form the capital structure of the enterprise .The capital

structure is used to represent the proportionate relationship between debt and equity .Equity

includes paid-up share capital, share premium and reserves and surplus.

The financing or capital structure decision is a significant managerial decision .It influences the

shareholders returns and risk consequently; the market value of share may be affected by the

capital structure decision. The company will have to plan its capital structure initially at the time of

its promotion.

FACTORS AFFECTING THE CAPITAL STRUCTURE:

❖ LEVERAGE: The use of fixed charges of funds such as preference shares, debentures and

term-loans along with equity capital structure is described as financial leverage or trading

on. Equity. The term trading on equity is used because for raising debt.

❖ DEBT /EQUITY RATIO-Financial institutions while sanctioning long-term loans insists that

companies should generally have a debt –equity ratio of 2:1 for medium and large scale

industries and 3:1 indicates that for every unit of equity the company has, it can raise 2

15​ | ​Page
 units of debt. The debt-equity ratio indicates the relative proportions of capital contribution

by creditors and shareholders.

❖ EBIT-EPS ANALYSIS-In our research for an appropriate capital structure we need to

understand how sensitive is EPS (earnings per share) to change in EBIT (earnings before

interest and taxes) under different financing alternatives.

The other factors that should be considered whenever a capital structure decision is taken are

● Cost of capital
● Cash flow projections of the company
● Size of the company
● Dilution of control
● Floatation costs

16​ | ​Page
FEATURES OF AN OPTIMAL CAPITAL STRUCTURE:
An optimal capital structure should have the following features,

1. PROFITABILITY: - The Company should make maximum use of leverages at a minimum cost.

2. FLEXIBILITY: - The capital structure should be flexible to be able to meet the changing conditions
.The company should be able to raise funds whenever the need arises and costly to continue with
particular sources.

3. CONTROL: - The capital structure should involve minimum dilution of control of the company.

4. SOLVENCY: - The use of excessive debt threatens the solvency of the company. In a high interest
rate environment, Indian companies are beginning to realize the advantage of low debt.

CAPITAL STRUCTURE AND FIRM VALUE:

Since the objective of financial management is to maximize shareholders wealth, the key

issue is:

What is the relationship between capital structure and firm value? Alternatively, what is the

relationship between capital structure and cost of capital? Remember that valuation and cost of

capital are inversely related. Given a certain level of earnings, the value of the firm is maximized

when the cost of capital is minimized and vice versa.

There are different views on how capital structure influences value. Some argue that there

is no relationship what so ever between capital structure and firm value; other believe that financial

leverage (i.e., the use of debt capital) has a positive effect on firm value up to a point and negative

effect thereafter; still others contend that, other things being equal, greater the leverage, greater

the value of the firm.

17​ | ​Page
18​ | ​Page
19​ | ​Page
C​​APITAL ​S​TRUCTURE ​A​ND ​P​LANNING​​:

Capital structure refers to the mix of long-term sources of funds. Such as debentures, long term
debt, preference share capital including reserves and surplus (i.e., retained earnings) The board of
directors or the chief financial officer (CEO) of a company should develop an appropriate capital
structure, which are most factors to the company. This can be done only when all those factors
which are relevant to the company’s capital structure decision are properly analysed and balanced.
The capital structure should be planned generally keeping in view the interests of the equity
shareholders, being the owners of the company and the providers of risk capital (equity) would be
concerned about the ways of financing a company’s operations. However, the interests of other
groups, such as employees, customers, creditors, society and government, should also be given
reasonable consideration. When the company lays down its objective in terms of the shareholder’s
wealth maximization (SWM), it is generally compatible with the interests of other groups. Thus
while developing an appropriate capital structure for its company, the financial manager should
inter alia aim at maximizing the long-term market price per share. Theoretically, there may be a
precise point or range within an industry there may be a range of an appropriate capital structure
with in which there would not be great differences in the market value per share. One way to get an
idea of this range is to observe the capital structure patterns of companies’ vis-à-vis their market
prices of shares. It may be found empirically that there are not significant differences in the share
values within a given range. The management of a company may fix its capital structure near the
top of this range in order to make maximum use of favorable leverage, subject to other
requirements such as flexibility, solvency, control and norms set by the financial institutions, the
security exchange Board of India (SEBI) and stock exchanges.

F​​EATURES ​O​F ​A​N ​A​PPROPRIATE ​C​APITAL ​S​TRUCTURE​​: -

The board of Director or the chief financial officer (CEO) of a company should develop an
appropriate capital structure, which is most advantageous to the company. This can be done
only when all those factors, which are relevant to the company’s capital structure decision, are
properly analyzed and balanced. The capital structure should be planned generally keeping in
view the interest of the equity shareholders and financial requirements of the company. The
equity shareholders being the shareholders of the company and the providers of the risk capital
(equity) would be concerned about the ways of financing a company’s operation. However, the
interests of the other groups, such as employees, customer, creditors, and government, should
also be given reasonable consideration. When the company lay down its objectives in terms of
the shareholders wealth maximizing (SWM), it is generally compatible with the interest of the
other groups. Thus, while developing an appropriate capital structure for it company, the
financial manager should inter alia aim at maximizing the long-term market price per share.
Theoretically there may be a precise point of range with in which the market value per share is
maximum. In practice for most companies with in an industry there may be a range of
appropriate capital structure with in which there would not be great differences in the market
value per share. One way to get an idea of this range is to observe the capital structure patterns
of companies’ Vis-a Vis their market prices of shares. It may be found empirically that there is
no significance in the differences in the share value with in a given range. The management of
20​ | ​Page
the company may fit its capital structure near the top of its range in order to make of maximum
use of favorable leverage, subject to other requirement (SEBI) and stock exchanges.

A SOUND OR APPROPRIATE CAPITAL STRUCTURE SHOULD HAVE THE FOLLOWING FEATURES

1) R​​ETURN​​: the capital structure of the company should be most advantageous, subject to the
other considerations; it should generate maximum returns to the shareholders without adding
additional cost to them.
2) R​I​ SK​​: the use of excessive debt threatens the solvency of the company. To the point debt
does not add significant risk it should be used other wise it uses should be avoided.
3) F​L​ EXIBILITY​​: ​the capital structure should be flexibility. It should be possible to the company
adopt its capital structure and cost and delay, if warranted by a changed situation. It should
also be possible for a company to provide funds whenever needed to finance its profitable
activities.
4) C​A​ PACITY​​: - ​The capital structure should be determined within the debt capacity of the
company and this capacity should not be exceeded. The debt capacity of the company depends
on its ability to generate future cash flows. It should have enough cash flows to pay creditors,
fixed charges and principal sum.
​ NTROL​​: ​The capital structure should involve minimum risk of loss of control of the company.
5) C​O
The owner of the closely held company’s of particularly concerned about dilution of the control.

A​​PPROACHES ​T​O ​E​STABLISH ​A​PPROPRIATE ​C​APITAL ​S​TRUCTURE​​:

The capital structure will be planned initially when a company is incorporated .The initial capital
structure should be designed very carefully. The management of the company should set a
target capital structure and the subsequent financing decision should be made with the a view
to achieve the target capital structure .The financial manager has also to deal with an existing
capital structure .The company needs funds to finance its activities continuously. Every time
when fund shave to be procured, the financial manager weighs the pros and cons of various
sources of finance and selects the most advantageous sources keeping in the view the target
capital structure. Thus, the capital structure decision is a continues one and has to be taken
whenever a firm needs additional Finances.

21​ | ​Page
The following are the three most important approaches to decide about a firm’s capital structure.

❖ EBIT-EPS approach for analyzing the impact of debt on EPS.

❖ Valuation approach for determining the impact of debt on the shareholder’s value.

❖ Cash flow approached for analyzing the firm’s ability to service debt.

In addition to these approaches governing the capital structure decisions, many other factors such as
control, flexibility, or marketability are also considered in practice.

EBIT-EPS APPROACH:

We shall emphasize some of the main conclusions here .The use of fixed cost sources of finance, such as
debt and preference share capital to finance the assets of the company, is known as financial leverage or
trading on equity. If the assets financed with the use of debt yield a return greater than the cost of debt,
the earnings per share also increases without an increase in the owner’s investment.

The earnings per share also increase when the preference share capital is used to acquire the assets. But
the leverage impact is more pronounced in case of debt because

1. The cost of debt is usually lower than the cost of performance share capital and

2. The interest paired on debt is tax deductible.

Because of its effect on the earnings per share, financial leverage is an

important consideration in planning the capital structure of a company. The companies with high level
of the earnings before interest and taxes (EBIT) can make profitable use of the high degree of leverage
to increase return on the shareholder’s equity. One common method of examining the impact of
leverage is to analyze the relationship between EPS and various possible levels of EBIT under alternative
methods of financing.

The EBIT-EPS analysis is an important tool in the hands of financial manager to get an insight into the
firm’s capital structure management .He can considered the possible fluctuations in EBIT and examine
their impact on EPS under different financial plans of the probability of earning a rate of return on the
firm’s assets less than the cost of debt is insignificant, a large amount of debt can be used by the firm to
increase the earning for share. This may have a favorable effect on the market value per share. On the
other hand, if the probability of earning a rate of return on the firm’s assets less than the cost of debt is

22​ | ​Page
very high, the firm should refrain from employing debt capital .it may, thus, be concluded that the
greater the level of EBIT and lower the probability of down word fluctuation, the more beneficial it is to
employ debt in the capital structure However, it should be realized that the EBIT EPS is a first step in
deciding about a firm’s capital structure .It suffers from certain limitations and doesn’t provide
unambiguous guide in determining the capital structure of a firm in practice.

RATIO ANALYSIS: -

The primary user of financial statements are evaluating part performance and predicting future
performance and both of these are facilitated by comparison. Therefore the focus of financial analysis is
always on the crucial information contained in the financial statements. This depends on the objectives
and purpose of such analysis. The purpose of evaluating such financial statement is different form
person to person depending on its relationship. In other words even though the business unit itself and
shareholders, debenture holders, investors etc. all under take the financial analysis differs. For example,
trade creditors may be interested primarily in the liquidity of a firm because the ability of the business
unit to play their claims is best judged by means of a thorough analysis of its l9iquidity. The shareholders
and the potential investors may be interested in the present and the future earnings per share, the
stability of such earnings and comparison of these earnings with other units in three industry. Similarly
the debenture holders and financial institutions lending long term loans maybe concerned with the cash
flow ability of the business unit to pay back the debts in the long run. The management of business unit,
it contrast, looks to the financial statements from various angles. These statements are required not
only for the management’s own evaluation and decision making but also for internal control and overall
performance of the firm. Thus the scope extent and means of any financial analysis vary as per the
specific needs of the analyst. Financial statement analysis is a part of the larger information processing
system, which forms the very basis of any “decision making” process. The financial analyst always needs
certain yardsticks to evaluate the efficiency and performance of business unit. The one of the most
frequently used yardsticks is ratio analysis. Ratio analysis involves the use of various methods for
calculating and interpreting financial ratios to assess the performance and status of the business unit. It
is a tool of financial analysis, which studies the numerical or quantitative relationship between with
other variable and such ratio value is compared with standard or norms in order to highlight the
deviations made from those standards/norms. In other words, ratios are relative figures reflecting the
relationship between variables and enable the analysts to draw conclusions regarding the financial
operations. However, it must be noted that ratio analysis merely highlights the potential areas of
concern or areas needing immediate attention but it does not come out with the conclusion as regards
causes of such deviations from the norms. For instance, ABC Ltd. Introduced the concept of ratio
analysis by calculating the variety of ratios and comparing the same with norms based on industry
averages. While comparing the inventory ratio was 22.6 as compared to industry average turnover ratio
of 11.2. However on closer sell tiny due to large variation from the norms, it was found that the business
unit’s inventory level during the year was kept at extremely low level. This resulted in numerous

23​ | ​Page
production held sales and lower profits. In other words, what was initially looking like an extremely
efficient inventory management, turned out to be a problem area with the help of ratio analysis? As a
matter of caution, it must however be added that a single ration or two cannot generally provide that
necessary details so as to analyze the overall performance of the business unit.

In order to arrive at the reasonable conclusion regarding overall performance of the business unit, an
analysis of the entire group of ratio is required. However, ration analysis should not be considered as
ultimate objective test but it may be carried further based on the out come and revelations about the
causes of variations. Sometimes large variations are due to unreliability of financial data or inaccuracies
contained therein therefore before taking any decision the basis of ration analysis, their reliability must
be ensured. Similarly, while doing the inter-firm comparison, the variations may be due to different
technologies or degree of risk in those units or items to be examined are in fact the comparable only. It
must be mentioned here that if ratios are used to evaluate operating performance, these should exclude
extra ordinary items because there are regarded as nonrecurring items that do not reflect normal
performance.

Ratio analysis is the systematic process of determining and interpreting the numerical relationship
various pairs of items derived from the financial statements of a business. Absolute figures do not
convey much tangible meaning and is not meaningful while comparing the performance of one business
with the other.

It is very important that the base (or denominator) selected for each ratio is relevant with the
numerator. The two must be such that one is closely connected and is influenced by the other

CAPITAL STRUCTURE RATIOS

Capital structure or leverage ratios are used to analyse the long-term solvency or stability of a particular
business unit. The short-term creditors are interested in current financial position and use liquidity
ratios. The long-term creditors world judge the soundness of a business 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
installment on due dates. This long-term solvency can be judged by using leverage or structural ratios.

There are two aspects of the long-term solvency of a firm:-

1. Ability to repay the principal when due, and

2. Regular payment of interest, there are thus two different but mutually dependent and interrelated
types of leverage ratio such as:

3. Ratios based on the relationship between borrowed funds and owner’s capital, computed form
balance sheet eg: debt-equity ratio, dividend coverage ratio, debt service coverage ratio etc.,

24​ | ​Page
THE CAPITAL STRUCTURE CONTROVERSY:

The value of the firm depends upon its expected earnings stream and the rate used to discount this
stream. The rate used to discount earnings stream it’s the firm’s required rate of return or the cost of
capital. Thus, the capital structure decision can affect the value of the firm either by changing the
expected earnings of the firm, but it can affect the reside earnings of the shareholders. The effect of
leverage on the cost of capital is not very clear. Conflicting opinions have been expressed on this issue.
In fact, this issue is one of the most continuous areas in the theory of finance, and perhaps more
theoretical and empirical work has been done on this subject than any other.

If leverage affects the cost of capital and the value of the firm, an optimum capital structure would be
obtained at that combination of debt and equity that maximizes the total value of the firm or minimizes
the weighted average cost of capital. The question of the existence of optimum use of leverage has been
put very succinctly by Ezra Solomon in the following words.

Given that a firm has certain structure of assets, which offers net operating earnings of given size and
quality, and given a certain structure of rates in the capital markets, is there some specific degree of
financial leverage at which the market value of the firm’s securities will be higher than at other degrees
of leverage?

The existence of an optimum capital structure is not accepted by all. These exist two extreme views and
middle position. David Durand identified the two extreme views the net income and net operating
approaches.

1. Net Income Approach:

Under the net income approach (NI), the cost of debt and cost of equity are assumed to be independent
to the capital structure. The weighted average cost of capital declines and the total value of the firm rise
with increased use of leverage.

2. Net Operating Income Approach:

Under the net operating income (NOI) approach, the cost of equity is assumed to increase linearly with
average. As a result, the weighted average cost of capital remains constant and the total value of the
firm also remains constant as leverage is changed.

3. Traditional Approach:

According to this approach, the cost of capital declines and the value of the firm increases with leverage
up to a prudent debt level and after reaching the optimum point, coverage cause the cost of capital to
increase and the value of the firm to decline. Thus, if NI approach is valid, leverage is significant variable
and financing decisions have an important effect on the value of the firm. On the other hand, if the NOI

25​ | ​Page
approach is correct then the financing decisions should not be a great concern to the financing manager,
as it does not matter in the valuation of the firm.

Modigliani and Miller (MM) support the NOI approach by providing logically consistent behavioral
justifications in its favor. They deny the existence of an optimum capital structure between the two
extreme views; we have the middle position or intermediate version advocated by the traditional
writers.

Thus these exists an optimum capital structure at which the cost of capital is minimum. The logic of this
view is not very sound. The MM position changes when corporate taxes are assumed. The interest tax
shield resulting from the use of debt adds to the value of the firm.

This advantage reduces the when personal income taxes are considered.

Capital Structure Matters: The Net Income Approach:

The essence of the net income (NI) approach is that the firm can increase its value or lower the overall
cost of capital by increasing the proportion of debt in the capital structure.

The crucial assumptions of this approach are:

1.The use of debt does not change the risk perception of investors; as a result, the equity capitalization
rate, kc and the debt capitalization rate, kd, remain constant with changes in leverage.

2.The debt capitalization rate is less than the equity capitalization rate (i.e. kd<ke)

3.The corporate income taxes do not exist. The first assumption implies that, if ke and kd are constant
increased use by debt by magnifying the shareholders earnings will result in higher value of the firm via
higher value of equity consequently the overall or the weighted average cost of capital ko, will decrease.

The overall cost of capital is measured by equation: (1)

It is obvious from equation 1 that, with constant annual net operating income (NOI), the overall cost of
capital would decrease as the value of the firm v increases. The overall cost of capital ko can also be
measured by

KO = Ke - (Ke - Kd) D/V

As per the assumptions of the NI approach Ke and Kd are constant and Kd is less than Ke. Therefore, Ko
will decrease as D/V increases. Equation 2 also implies that the overall cost of capital Ko will be equal to
Ke if the form does not employ any debt (i.e. D/V =0), and that Ko will approach Kd as D/V approaches
one.

NET OPERATING INCOME APPROACH

26​ | ​Page
According to the met operating income approach the overall capitalization rate and the cost of

debt remain constant for all degree of leverage.

r​A​ and ​r​D​ are constant for all degree of leverage. Given this, the cost of equity can be
expressed as.

The critical premise of this approach is that the market capitalizes the firm as a whole at discount rate,
which is independent of the firm’s debt-equity ratio. As a consequence, the decision between debt and
equity is irrelevant. An increase in the use of debt funds which are ‘apparently cheaper’ or offset by an
increase in the equity capitalization rate. This happens because equity investors seek higher
compensation as they are exposed to greater risk arising from increase in the degree of leverages. They
raise the capitalization rate rE (lower the price earnings ratio, as the degree of leverage increases.

The net operating income position has been \advocated eloquently by David Durand. He argued that the
market value of a firm depends on its net operating income and business risk. The change in the
financial leverage employed by a firm cannot change these underlying factors. It merely changes the
distribution of income and risk between debt and equity, without affecting the total income and risk
which influence the market value (or equivalently the average cost of capital) of the firm. Arguing in a

27​ | ​Page
similar vein, Modigliani and Miller, in a seminal contribution made in 1958, forcefully advanced the
proposition that the cost of capital of a firm is independent of its capital structure.

COST OF CAPITAL AND VALUATION APPROACH

The cost of a source of finance is the minimum return expected by its suppliers. The expected return
depends on the degree of risk assumed by investors. A high degree of risk is assumed by shareholders
than debt-holders. In the case of debt-holders, the rate of interest is fixed and the company is legally
bound to pay dividends even if the profits are made by the company. The loan of debt-holders is
returned within a prescribed period, while shareholders will have to share the residue only when the
company is wound up. This leads one to conclude that debt is cheaper source of funds than equity. This
is generally

The case even when taxes are not considered. The tax deductibility of interest charges further reduces
the cost of debt. The preference share capital is also cheaper than equity capital, but not as cheap as
debt. Thus, using the component, or specific, cost of capital as criterion for financing decisions and
ignoring risk, a firm would always like to employ debt since it is the cheapest source of funds.

CASH FLOW APPROACH:

One of the features of a sound capital structure is conservatism does not mean employing no debt or
small amount of debt. Conservatism is related to the fixed charges created by the use of debt or
preference capital in the capital structure and the firm’s ability to Generate cash to meet these fixed
charges. In practice, the question of the optimum (Appropriate) debt –equity mix boils down to the
firm’s ability to service debt without any threat of insolvency and operating inflexibility. A firm is
considered prudently financed if it is able to service its fixed charges under any reasonably predictable
adverse conditions. The fixed charges of a company include payment of interest, preference dividend
and principal, and they depend on both the amount of loan securities and the terms of payment. The
amount of fixed charges will be high if the company employs a large amount of debt or preference
capital with short-term maturity. Whenever a company thinks of raising additional debt, it should
analyse its expected future cash flows to meet the fixed charges. It is mandatory to pay interest and
return the principal amount of debt of a company not able to generate enough cash to meet its fixed
obligation, it may have to face financial insolvency. The companies expecting larger and stable cash
inflows in to employ fixed charge sources of finance by those companies whose cash inflows are
unstable and unpredictable. It is possible for high growth, profitable company to suffer from cash
shortage if the liquidity (working capital) management is poor. We have examples of companies like
BHEL, NTPC, etc., whose debtors are very sticky and they continuously face liquidity problem in spite of
being profitability servicing debt is very burdensome for them. One important ratio which should be
examined at the time of planning the capital structure is the ration of net cash inflows to fixed changes

28​ | ​Page
(debt saving ratio). It indicates the number of times the fixed financial obligation are covered by the net
cash inflows generated by the company.

LIMITATION OF EPS AS A FINANCING-DECISION CRITERION

EPS is one of the mostly widely used measures of the company’s performance in practice. As a result of
this, in choosing between debt and equity in practice, sometimes too much attention is paid on EPS,
which however, has serious limitations as a financing-decision criterion.

The major short coming of the EPS as a financing-decision criterion is that it does not consider risk; it
ignores variability about the expected value of EPS. The belief that investors would be just concerned
with the expected EPS is not well founded. Investors in valuing the shares of the company consider both
expected value and variability.

EPS VARIABILITY AND FINANCIAL RISK​​: -

The EPS variability resulting form the use of leverage is called financial risk.

Financial risk is added with the use of debt because of

(a) The increased variability in the shareholders earnings and

(b) The threat of insolvency. A firm can avid financial risk altogether if it does not

employ any debt in its capital structure. But then the shareholders will be deprived of the benefit of the
financial risk perceived by the shareholders, which does not exceed the benefit of increase EPS. As we
have seen, if a company increase its debt beyond a point the expected EPS will continue to increase but
the value of the company increases its debt beyond a point, the expected EPS will continue to increase,
but the value of the company will fall because of the greater exposure of shareholders to financial risk in
the form of financial distress. The EPS criterion does not consider the long-term perspectives of
financing decisions. It fails to deal with the risk return trade-off. A long term view of the effects of the
financing decisions, will lead one to a criterion of the wealth maximization rather that EPS maximization.
The EPS criterion is an important performance measure but not a decision criterion. Given limitations,
should the EPS criterion be ignored in making financing decision? Remember that it is an important
index of the firm’s performance and that investors rely heavily on it for their investment decisions.
Investors do not have information in the projected earnings and cash flows and base their evaluation
and historical data. In choosing between alternative financial plans, management should start with the
evaluation of the impact of each alternative on near-term EPS. But management’s ultimate decision
making should be guided by the best interests of shareholders.

Therefore, a long-term view of the effect of the alternative financial plans on the value of the shares
should be taken, o management opts for a financial plan which will maximize value in the long run but
has an adverse impact in near-term EPS, and the reasons must be communicated to investors. A careful

29​ | ​Page
communication to market will be helpful in reducing the misunderstanding between management and
Investors.

COMPOSITION AND OBSERVATION

The sources tapped by RELIENCE Industries Ltd. Can be classified into:

• Shareholders’ funds resources

• Loan fund resources

SHAREHOLDER FUND RESOURCES:

Shareholder’s fund consists of equity capital and retained earnings.

EQUITY CAPITAL BUILD-UP

1.From 1995, the Authorized capital is Rs.5000 Crore of equity shares at Rs.10 each. The issued

30​ | ​Page
equity capital is RS. 3232 Crore at Rs.10 each for the period 2014-2015 and subscribed and

paid-up capital is RS. 3232 Crore at Rs.10 each for the period 2014-2015.

3.There is no increase of in the equity from 2013-2014 to 2014-2015.

RETAINED EARNINGS COMPOSITION

This includes…

• Capital Reserve

• Share Premium Account

• General Reserve

• Contingency Reserve

• Debentures Redemption Reserve

• Investment Allowance Reserve

• Profit & Loss Account

1. The profit levels, company dividend policy and growth plans determined. The amounts transferred
from P&L A/c to General Reserve. Contingency Reserve and Investment Allowance Reserve.

2. The Investment Allowance Reserve is created for replacement of long term leased assets and this
reserve was removed from books because assets pertaining to such reserves ceased to exist. The
account was transferred to investment allowance utilized.

Capital structure describes how a corporation has organized its capital—how it obtains the financial
resources with which it operates its business. Businesses adopt various capital structures to meet both
internal needs for capital and external requirements for returns on shareholders investments. As shown
on its balance sheet, a company's capitalization is constructed from three basic blocks:

1. ​Long-term debt. B​ y standard accounting definition, long-term debt includes obligations that are not
due to be repaid within the next 12 months. Such debt consists mostly of bonds or similar obligations,
including a great variety of notes, capital lease obligations, and mortgage issues.

2. ​Preferred stock. T​ his represents an equity (ownership) interest in the corporation, but one with claims
ahead of the common stock, and normally with no rights to share in the increased worth of a company if
it grows.

31​ | ​Page
3. ​Common stockholders' equity. T​ his represents the underlying ownership. On the corporation's books,
it is made up of: (I) the nominal par or stated value assigned to the shares of outstanding stock; (2) the
capital surplus or the amount above par value paid the company whenever it issues stock; and (3) the
earned surplus (also called retained earnings), which consists of the portion of earnings a company
retains after paying out dividends and similar distributions. Put another way, common stock equity is the
net worth after all the liabilities (including long-term debt), as well as any preferred stock, are deducted
from the total assets shown on the balance sheet. For investment analysis purposes, security analysts
may use the company's market capitalization—the current market price times the number of common
shares outstanding—as a measure of common stock equity. They consider this market-based figure a
more realistic valuation.

32​ | ​Page
 COMPANY
PROFILE

COMPANY PROFILE

33​ | ​Page
Reliance
At a Glance
Reliance Industries Limited (RIL) is India’s largest private sector company with businesses across the
energy and materials value chain and a strong presence in the rapidly expanding retail and
telecommunication sectors.

RIL is the first private sector company from India to feature in Fortune Global 500 list of ‘World’s Largest
Corporations’ for the last ten consecutive years. RIL ranked 107th in terms of revenues and 128th in
terms of profits in 2013. RIL's international debt is rated by Moody’s at investment grade Baa2, with
‘positive’ outlook and by S&P at BBB+ with a ‘negative’ outlook, which are one notch and two notches
above India’s sovereign rating, respectively.

Reliance is the only Asian company in the oil & gas sector to be rated two notches above the sovereign
by S&P. Reliance is now rated higher than some of its global emerging market peers demonstrating its
strength and competitive position in the refining and petrochemicals sectors. The rating also underpins
Reliance’s position as a leading large-scale, integrated and efficient oil refining and petrochemicals
company.

Exploration and Production

In our domestic upstream business, production from the KG-D6 block continued to decline during the
year. The fall in production is mainly attributed to the geological complexity and natural decline in the
fields and higher than envisaged water ingress. Several activities were therefore undertaken to sustain
production and enhance recovery from the existing producing fields. During the year, two significant
discoveries were made in the KG basin and Cauvery basin. Development activities in the two CBM blocks
is gathering momentum. The new discoveries and the efforts to enhance recovery will strengthen India’s
energy security.

Reliance continued to balance its international portfolio by evaluating new blocks and assigning existing
blocks. Reliance’s Shale Gas business continued on its growth path and has now achieved materiality in
many respects. Our investments in the US Shale Gas ventures have started creating value for our
shareholders. This business achieved record revenues and EBITDA for the year with significant growth.
Reliance's share of net sales was at 131 BCFe in CY 2013, a growth of 54% y-o-y on account of about 1.6
fold increase in number of wells put on production from end of CY 2012.

Consumer Businesses

We are delighted that our retail business continues to sustain its leadership position across several
formats. It has become India’s largest retailer by revenues. It achieved the milestone of over 10 million

34​ | ​Page
square feet of retail space during the year. It also achieved break-even on a net profit basis during the
year. Our retail offerings continue to delight our customers reflected in a record number of repeat
customers and a healthy

Refining and Marketing

RIL is among the top ten private players in the refining business globally. RIL's Jamnagar Complex has
become the petroleum hub of the world and represents about 2% of global crude processing capacity.
This asset has placed both RIL, as well as India, high on the world energy map.

Core Strengths & Key Advantages

Large scale and highly complex refinery

128 different grades of crude processed which is over 40% of world-traded crude

More than 50% of total refinery crude diet is "advantaged"

World-class logistics infrastructure

Strategic location, port-based, fully-integrated manufacturing facility

Efficient crude sourcing

Global reach with product storages at key destinations

Refinery utilisation rates consistently surpassing global averages

Energy efficient refiner - operating cost per barrel among the lowest in the world

Flexibility to alter the product slate/adapt to the changing market dynamics

Petrochemicals
RIL is one of the leading petrochemicals producers, globally, with state-of-the-art, world-scale
petrochemical plants. RIL has carved a niche for itself in terms of product quality and customer
service. Its product portfolio includes Polymers, Polyester & Fibre intermediates and Chemicals
& Elastomer.

Core Strengths & Key Advantages

Fully-integrated operations

Balanced portfolio of naphtha and gas-based crackers along with matching downstream capacities

35​ | ​Page
Leading market share in various products

Manufacturing operations across 11 locations in India

Among the lowest operating costs in the industry

Focus on high growth markets

Capital expenditure plans to enhance production capacity by more than 60% to service the large growing domestic
market

Likely to be among the top five petrochemical producers by capacity, globally, post completion of petrochemical
and fibre expansion plans

Exploration and Production

RIL is India’s largest private sector E&P operator with robust domestic as well as international asset
portfolio. Its assets include KG-D6, Panna-Mukta, Tapti and two CBM blocks in addition to several
domestic and international blocks. Additionally, RIL has three joint ventures in North America in shale
gas with Pioneer Natural Resources, Chevron and Carrizo.

Core Strengths & Key Advantages

Strong off-shore capabilities in India

Strategic partnership with BP for domestic upstream business

Leveraging the existing infrastructure, knowledge and experience

Outstanding growth pace in unconventional shale gas business

Balanced portfolio consisting of conventional and unconventional, deepwater and shallow water, onshore and
off-shore, hydrocarbon resource play

Retail
RIL is fulfilling the vision of creating an inclusive growth framework by forging enduring bonds between
millions of farmers, consumers and small retailers, supported by a world-class supply chain. In-store
initiatives, wide product choices and value merchandising are key enablers for robust growth.

Core Strengths & Key Advantages

Pan India store network – 20 states

Leveraging world-class supply chain in creating partnerships with kiranas and small shopkeepers

36​ | ​Page
Association with leading international renowned brands

Committed to deliver quality products and services

Market leaders in digital, lifestyle and value formats

Continuous focus on own label products

Company’s Vision, Mission and Value

Our Vision,
“Through sustainable measures, create value for the nation, enhance quality of life across the entire
socio-economic spectrum and help spearhead India as a global leader in the domains where we
operate.”

Our Mission,
❖ Create value for all stakeholders .

❖ Grow through innovation.

❖ Lead in good governance practices.

❖ Use sustainability to drive product development and enhance operational efficiencies.

❖ Ensure energy security of the nation

❖ Foster rural prosperity

37​ | ​Page
Our Value
Our growth and success are based on the ten core values of Care, Citizenship, Fairness, Honesty,
Integrity, Purposefulness, Respect, Responsibility, Safety and Trust

Major achievement for the year by the company

❖ RIL's Chairman and Managing Director, Shri Mukesh D. Ambani, received the 'NDTV 25 Greatest
Living Legends of India' Award from the Honourable President of India, Shri Pranab Mukherjee

❖ CSR
Oliver Kinross Asia Oil & Gas Award 2013 for Corporate Social Responsibility - Company of the Year (RIL
KG-D6)
“Best ART (Anti-Retroviral Therapy) Centre Award 2013” by Gujarat State AIDS Control Society (GSACS) on
World AIDS Day (Hazira Manufacturing Division)

❖ Quality

CII Six-Sigma National Award for 2013 in the ‘Continuous and Bulk Organizations’ category
(Vadodara Manufacturing Division)

❖ Health, Safety and Environment

Golden Peacock National Award for Occupational Health & Safety 2012-13 in the petrochemical
sector (Nagothane Manufacturing Division)

“International Safety Award 2014” with distinction for Health and Safety Management System
performance for 2013 (Jamnagar SEZ Refinery)

❖ Technology & Innovation

38​ | ​Page
 l 3rd National Award, 2013, for Technology Innovation in Petrochemical & Downstream Plastic
Processing Innovation award from Ministry of Chemicals & Fertilizers, Government of India
(Reliance Technology Group)

❖ Retail

Asian Human Capital Award 2013 - Special Commendation Prize for Work Smart - A Business
Excellence and Workforce Enablement Programme (Reliance Retail Academy)

Star Retailer Award 'Consumer Durables Retailer of the Year 2013' (Reliance Digital)

❖ Sustainability

CII-ITC Sustainability Awards 2013 - India’s Most Sustainable Companies (Hazira Manufacturing
Division)

Golden Peacock Award for Sustainability 2013 (Nagothane Manufacturing Division)

Directors’ Report
39​ | ​Page
 Directors’ Report
Dear Members, 
Your  Directors  are  pleased  to  present  the  40th  Annual  Report  and  the  Company’s  audited 
accounts for the financial year ended March 31, 2015. 
Financial Results
The Company’s financial performance, for the year ended March 31, 2015 is summarised 
below:

 
Results of Operations 
Operating  in  a  volatile  and  uncertain  environment,  the  Company  demonstrated  the 
resilience  of  its  business  model.  The  Company’s  best-in-class  refining  configuration  and 
integrated  petrochemical  business  enabled  it  to  deliver  robust  profits  in the financial year 
2014-15. The highlights of the Company’s performance are as under:

❖ Revenue from operations increased by 8.1% to Rs. 401,302 crore ($ 67.0 billion)

❖ Exports increased by 15.3% to Rs.275,825 crore ($ 46.0 billion)

40​ | ​Page
❖ PBDIT increased by 2.7% at Rs. 39,813 crore ($ 6.6 billion)

❖ Profit Before Tax increased by 5.8% at Rs.27,818 crore ($ 4.6 billion)

❖ Cash Profit increased by 1.0% to Rs.30,795 crore ($ 5.1 billion)

❖ Net Profit increased by 4.7% to Rs.21,984 crore ($ 3.7 billion)

❖ Gross Refining Margin was $ 8.1 / bbl for the year ended March 31, 2014

The consolidated revenue from operations of the Company for the year ended March 31, 2014 was Rs.
446,339 crore ($ 74.5 billion), an increase of 9.3% on a year-on-year basis.
The Company is one of India’s largest contributors to the national exchequer primarily by way of
payment of taxes and duties to various government agencies. During the year, a total of Rs. 31,374 crore
($ 5.2 billion) was paid in the form of various taxes and duties.
The Company featured in the Fortune Global 500 list of the world’s largest corporations for the tenth
consecutive year and was ranked 107th in terms of revenues and 128th in terms of profits.

Dividend
Your Directors have recommended a dividend of ` 9.50 per equity share (last year ` 9.00 per equity
share) for the financial year ended March 31, 2014, amounting to ` 3,268 crore (inclusive of tax of ` 475
crore), one of the highest payout by any private sector domestic company. The dividend payout is
subject to approval of members at the ensuing Annual General Meeting.
The dividend will be paid to members whose names appear in the Register of Members as on May 19,
2014; in respect of shares held in dematerialised form, it will be paid to members whose names are
furnished by National Securities Depository Limited and Central Depository Services (India) Limited, as
beneficial owners as on that date.
The dividend payout for the year under review has been formulated in accordance with shareholders’
aspirations and the Company’s policy to pay sustainable dividend linked to long term growth objectives
of the Company to be met by internal cash accruals.
Credit Rating
The Company continues to have the highest domestic credit ratings of AAA from CRISIL (S&P subsidiary)
and India Ratings & Research (a Fitch Group Company). Moody’s has reaffirmed investment grade rating
for international debt, as Baa2 ‘positive outlook’ (local currency issuer rating), which is one notch higher
than the country’s sovereign rating. During the year, S&P upgraded the Company’s international debt
rating to BBB+ ‘negative outlook’, which is now two notches above India’s sovereign rating. Strong credit
ratings by leading international agencies reflect the Company’s financial discipline and prudence.

Employees’ Stock Option Scheme

The Human Resources, Nomination and Remuneration Committee of the Board of Directors of the
Company, inter alia, administers and monitors the Employees’ Stock Option Scheme of the Company in

41​ | ​Page
accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and
Employee Stock Purchase Scheme) Guidelines, 1999 (‘the SEBI Guidelines’).

The applicable disclosures as stipulated under the SEBI Guidelines as on March 31, 2014 (cumulative
position) with regard to the Employees’ Stock Option Scheme are provided in Annexure I to this Report.
The issuance of equity shares pursuant to exercise of options does not affect the Statement of Profit and
Loss of the Company, as the exercise is made at the market price prevailing as on the date of the grant
plus taxes as applicable.
The Company has received a certificate from the Auditors of the Company that the Scheme has been
implemented in accordance with the SEBI Guidelines and the resolution passed by the shareholders. The
certificate would be placed at the Annual General Meeting for inspection by members.

42​ | ​Page
 Management’s Discussion
and Analysis

Management’s Discussion and Analysis

FORWARD-LOOKING STATEMENT

The report contains forward-looking statements, identified by words like ‘plans’, ‘expects’, ‘will’,
‘anticipates’, ‘believes’, ‘intends’, ‘projects’, ‘estimates’ and so on. All statements that address
expectations or projections about the future, but not limited to the Company’s strategy for growth,
product development, market position, expenditures and financial results, are forward-looking
statements. Since these are based on certain assumptions and expectations of future events, the
Company cannot guarantee that these are accurate or will be realised. The Company’s actual results,
performance or achievements could thus differ from those projected in any forward-looking statements.

43​ | ​Page
The Company assumes no responsibility to publicly amend, modify or revise any such statements on the
basis of subsequent developments, information or events.

OVERVIEW

The global economy began its modest recovery in FY 2014-15 with improved demand from OECD
economies in the second half of 2013. While the trend is expected to accelerate in the current year, the
positive outlook is subdued by the potential consequences of ‘tapering’ of some of the US Federal
Reserve’s Quantitative Easing (QE) policies which were undertaken in the aftermath of global financial
crises. Emerging markets like India faced multiple challenges: capital outflows, intense exchange rate
pressures and volatile current account movement. A combination of persistent inflation, fiscal
imbalances, external sector vulnerabilities and low investments resulted in sluggish domestic demand
growth. Fiscal and monetary initiatives taken by the Indian government and the Reserve Bank of India
(RBI) helped stabilize financial market conditions, but the domestic macro-economic environment still
remains challenging.

Economic recovery in the US and Europe had a positive impact on oil demand, which increased by 1.3
million barrels per day (MMBPD) in 2013. Crude oil prices fluctuated extensively, driven by supply
concerns in Libya, South Sudan, West Africa and Iraq. Higher US shale oil production helped offset the
impact of these disruptions with Brent crude oil prices averaging marginally lower at $ 108.7 per barrel
in 2013.

Operating in a volatile and uncertain environment, Reliance Industries Limited (RIL) demonstrated the
resilience of its business model. RIL’s best-in-class refining configuration and integrated petrochemical
business enabled it to deliver robust profits in FY 2014-15. The Company achieved:

Highest ever Revenue of Rs.4,01,302 crore ($ 67.0 billion) and Net profit of Rs.21,984 crore (3.7 billion)

Record Exports of Rs.2,75,825 crore ($ 46.0 billion)

Record Refining business EBIT Rs.13,220 crore ($ 2.2 billion)

Highest ever consolidated Revenue and Net profit of Rs.4,46,339 crore ($ 74.5 billion) and Rs. 22,493
crore ($ 3.8 billion) respectively

Dividend of 95%, highest ever payout of Rs.3,268 crore ($ 545 million)

Operationally, downstream segments continued to deliver superior performance with operating rates of
over 100%. RIL processed 68.0 million tonnes (MMT) of crude oil at its Jamnagar refinery complex. The
KG-D6 (JV) facility produced 2.31 million barrels (MMBL) of crude and condensate and 178.3 billion cubic

44​ | ​Page
feet (BCF) of natural gas. RIL’s share of gross JV production in US Shale was 154 BCFe in 2013 reflecting a
growth of 52% over previous year.

The Company featured in the Fortune Global 500 list of the world’s largest corporations for the tenth
consecutive year and was ranked 107th in terms of revenues and 128th in terms of profits.

HIGHLIGHTS AND KEY EVENTS

RIL delivered strong results across its refining, petrochemicals and international E&P businesses whilst
continuing to grow and invest in its energy value chain. In addition, substantial progress was made in
consumer-facing businesses - retail and telecom.

Refining – Record earnings

The refining business had a record performance during the year delivering the highest ever annual
contribution to the Company’s EBIT. RIL’s refining margins at $ 8.1/bbl significantly outperformed
regional benchmarks as the superior configuration of its refineries enabled it to benefit from stable
middle distillate margins and widening light-heavy crude oil differentials.

Petrochemicals – New PFY plant commissioned

Petrochemical business EBIT margins improved to 8.9% from 8.3% in the previous year driving a 17.5%
growth in EBIT to Rs.8,612 crore, with an improvement in polymer chain margins.

Polyester Filament Yarn (PFY) plant at Silvassa was commissioned successfully during FY 2014-15. Three
products Partially Oriented Yarn (POY), Fully Drawn Yarn (FDY) and Polyester Textured Yarn (PTY) are
being produced at the site and all units are now fully operational. The new PFY plant at Silvassa is one of
the most automated and environment friendly plants globally. It is co-located with RIL’s existing
texturizing facility at Silvassa eliminating the packaging and logistics costs. The entire production from
this facility has been successfully placed in the domestic and international markets. With the
commissioning of this ultra-modern PFY facility, RIL’s total PFY capacity, including the facilities at Recron
(wholly owned subsidiary in Malaysia) is now in excess of 1.5 MMTPA. The polyester

facility is the first amongst a series of projects which will add significantly to RIL’s petrochemical volumes
and enhance cost-competitiveness.

Oil & Gas – New discoveries and growth in Shale

The US shale gas business is now a material contributor to RIL’s consolidated profits. The shale business
delivered revenues of $ 819 million and EBITDA of $ 616 million in 2013 on the back of a 52% growth in
volumes to 154 BCFe. Proved reserves of shale gas increased 43% to 2.66 TCFe.

45​ | ​Page
In May 2013, RIL and its partners made a significant gas and condensate discovery (MJ-1) in the KG-D6
block of Krishna Godavari basin, off the eastern coast of India. This discovery is expected to add to the
hydrocarbon resources in the KG-D6 block.

In August 2013, RIL and BP also announced a new gas condensate discovery off India’s east coast in the
Cauvery basin. The discovery, in the deepwater block CY-D5, is situated 62 kilometres from the coast in
the Cauvery Basin and is the second gas discovery in the block.

Retail business – India’s largest retail chain

Reliance Retail has become India’s largest retailer by revenues. FY 2014-15 revenues grew 34% to
Rs.14,496 crore, while EBITDA was at Rs.363 crore. The retail business also achieved two major
milestones in FY 2014-15. It crossed 10 million square feet of retail space and broke even on a net profit
basis during the year. The Company enhanced its presence across various format sectors. Reliance Retail
now operates 1,691 stores across 146 cities.

Reliance Jio – accelerated efforts to roll-out 4G services

Reliance Jio Infocomm Ltd. (RJIL) successfully acquired the right to use spectrum in 14 key circles across
India in the 1,800 MHz band in the spectrum auction conducted by Department of Telecommunications
(DoT), Government of India (GoI). RJIL will use this spectrum in conjunction with its pan India 2,300 MHz
spectrum acquired earlier to provide seamless 4G services using FDD-LTE on 1,800 MHz and TDD-LTE on
2,300 MHz through an integrated ecosystem. Following the acquisition, RJIL holds the largest quantum
of liberalised spectrum, with the longest residual spectrum life.

Earlier in the year, RJIL received Unified License for all 22 Service Areas across India and became the first
telecom operator in the country to get a pan India license. The license allows RJIL to offer all telecom
services including voice telephony under a single license. The Company has migrated from its existing ISP
license, along with Broadband Wireless Access (BWA) spectrum, to the Unified License.

RIL delivered superior financial performance with improvements across key parameters.

Revenue from operations ​of Rs.4,01,302 crore ($ 67.0 billion), increased 8.1% on a y-o-y basis. Higher
prices accounted for 7.7% growth in revenue and increase in volumes accounted for 0.4% growth in
revenue. Revenues were positively impacted by a sharp movement in exchange rate, with a 10.4%
depreciation of the Indian ruspee vis-à-vis the US dollar. Exports were higher by 15.3% at Rs.2,75,825
crore ($ 46.0 billion) as against Rs.2,39,266 crore in FY 2012-13.

46​ | ​Page
Refining business contributes 78% of revenues (including inter-divisional transfer) and grew by 8.4% as
compared to previous year. The growth in revenue was driven by 8.1% increase in prices and
0.3% higher volumes

Petrochemicals business accounted for 21% of revenues and grew by 9.5% as compared to previous
year. The During the year, Reliance Jio announced telecom infrastructure sharing arrangements
with Reliance Communications, Bharti Airtel, Bharti Infratel and Viom Networks. These
agreements are aimed at avoiding duplication of infrastructure, whilst also helping to preserve capital
and the environment. The infrastructure tie-ups will enable the accelerated roll- out of RJIL’s
state-of-the-art 4G services.

Credit rating upgrade

S&P upgraded RIL’s international debt rating to BBB+ with a ‘negative’ outlook, which is now two
notches above India’s sovereign rating. The upgrade confirms RIL’s strong financial metrics and
liquidity position in the sector.

growth in revenue was contributed by 8.6% increase in price and 0.9% higher volumes
Oil & gas business revenue declined by 26.7% as compared to previous year largely on account of
39.7% decline in production
Operating profit before other income and depreciation increased marginally from Rs.30,787crore
to Rs.30,877 crore ($ 5.2 billion) in FY 2014-15 with higher contribution from refining and
petrochemical business, partly offset by lower contribution from the upstream business. Higher cost of
crude oil and other raw materials in rupee terms resulted in a 7.6% increase in cost of raw
materials to Rs.3,29,313 crore ($ 55.0 billion). Net operating margin was lower at 7.9% compared to
8.5% in the previous year due to reduced contribution from oil & gas business.
Other income was higher at Rs.8,936 crore ($ 1.5 billion) as against Rs.7,998 crore in the previous year,
largely on account growth in revenue was contributed by 8.6% increase in price and 0.9% higher
volumes
Oil & gas business revenue declined by 26.7% as compared to previous year largely on account of 39.7%
decline in production Operating profit before other income and depreciation increased marginally from
Rs.30,787crore to Rs.30,877 crore ($ 5.2 billion) in FY 2014-15 with higher contribution from refining and
petrochemical business, partly offset by lower contribution from the upstream business. Higher cost of
crude oil and other raw materials in rupee terms resulted in a 7.6% increase in cost of raw materials to
Rs.3,29,313 crore ($ 55.0 billion). Net operating margin was lower at 7.9% compared to 8.5% in the
previous year due to reduced contribution from oil & gas business.
Other income was higher at Rs.8,936 crore ($ 1.5 billion) as against Rs.7,998 crore in the previous year,
largely on account.

47​ | ​Page
RIL’s ​consolidated fixed assets ​stood at Rs. 2,32,911 crore ($ 38.9 billion) as of 31st March, 2015. This
includes fixed assets of Rs. 81,789 crore of its subsidiaries mainly in Reliance Jio Infocomm, Reliance
Holding USA and Reliance Retail.

RIL’s ​gross debt on a consolidated basis ​was at Rs. 1,38,761 crore ($ 23.2 billion). This includes
standalone gross debt of Rs. 89,968 crore and subsidiary debt mainly raised by Reliance Holding USA (Rs.
32,122 crore), Reliance Jio Infocomm (Rs. 14,763 crore) and Recron Malaysia (Rs. 1,592 crore).

Consolidated cash and marketable securities ​were at Rs. 90,637 crore ($ 15.1 billion), resulting in
consolidated net debt of Rs. 48,124 crore ($ 8.0 billion).

LIQUIDITY AND CAPITAL RESOURCE

RIL’s cash and marketable securities as at 31st March, 2015 amounted to Rs. 88,190 crore ($ 14.7
billion), as compared to Rs. 82,975 crore at the beginning of the year. RIL’s total debt stood at Rs. 89,968
crore ($ 15.0 billion) up from Rs. 72,427 crore last year. RIL’s gross debt to equity ratio including
long-term and short-term debt as on 31st March, 2015 stood at 0.45, net debt to equity ratio was 0.01,
and net gearing was 0.8%.

RIL moved from a net cash position at the beginning of the year, to a marginal net debt level during the
course of the year as it drew down on funding to part finance the expansion of its petrochemical
capacities and setting up the new gasification plant and refinery off-gas cracker over the next two to
three years.

The Company continued to efficiently manage its short-term resources by placing them in liquid
instruments and highly rated securities, such as bank fixed deposits, CDs, Government securities and
corporate bonds. RIL raises capital resources in line with its strategy of extending the average maturity

48​ | ​Page
of its long term debt, at a competitive cost and tying up financing at early stages of project execution.
RIL continuously undertakes liability management to reduce cost of debt and to diversify its liability mix.

RIL’s financial discipline and prudence is reflected in the strong credit ratings ascribed by rating agencies.

In May 2013, S&P upgraded RIL’s international debt rating to BBB+ with a ‘negative’ outlook which is
two notches above India’s sovereign rating. S&P’s rating upgrade took cognizance of RIL’s plans to invest
significantly in growing its businesses over the next 3 years. S&P believes that the expansion program
would further strengthen RIL’s competitive position and profitability. The upgrade confirms RIL’s strong
financial metrics and liquidity position in the sector.

Moody’s has rated RIL’s international debt at investment grade Baa2, with ‘positive’ outlook which is
one notch above India’s sovereign rating.

RIL’s long-term debt is rated AAA by CRISIL and ‘Ind AAA’ by Fitch, the highest rating awarded by both
these agencies. Similarly, RIL’s short-term debt is rated P1+ by CRISIL, the highest credit rating assigned
in this category.

RIL’s superior credit profile is reflected in its lending relationships, with over 100 banks and financial
institutions having commitments to RIL.

In continuation of the fund raising programme initiated in FY 2012-13, RIL tied up facilities of around $
3.15 billion equivalent to part finance the petrochemical expansions and petcoke gasification projects
through landmark transactions.

During FY 2015-15, RIL signed $ 500 million equivalent facilities backed by two Export Credit Agencies
(ECAs) which included $ 300 million facility from Export Credits Guarantee Department (ECGD), the UK
ECA, and $ 200 million equivalent facility from The Compagnie Française d’Assurance pour le Commerce
Extérieur (COFACE), the French ECA. These facilities will be drawn over the next two to three years as
the projects progress and will have a door-to-door tenor of over 10 to 13 years. These deals were
accorded ‘Better than Sovereign’ rating by both the ECAs. This is the first time these agencies accorded
such a rating to any corporate in their history, re-emphasising RIL’s creditworthiness in international
debt markets.

For the ECA deals, RIL has received the ‘TFR Deals of the Year’ award for 2013 from Trade and Forfaiting
Review, ‘Deals of the Year 2013’ award from Trade Finance Magazine and ‘GTR Best Deal of 2013’ award
from Global Trade Review and ‘TFX Perfect 10 Deals of the Year’ award for 2013 from Trade and Export
Finance.

The syndicated loan deal of $ 1.75 billion equivalent completed during the year represented the largest
bank group in Asia in the last two years. The deal enjoyed a strong participation of 30 international

49​ | ​Page
banks, despite turbulent market conditions. This unsecured syndicated loan has a tenor in excess of five
years and has one of the longest tenors for a senior unsecured corporate loan in Asia this year.

Additionally, loans aggregating $ 900 million were raised through a mix of club and bilateral loans during
a period of extreme volatility in INR/USD currency with the INR witnessing sharp depreciation. One of
the loans (8.75 years tenor) probably has the longest tenor for a senior unsecured corporate loan in Asia
in 2013.

During FY 2015-15, Reliance Holding USA Inc. (RHUSA) through its wholly owned subsidiary tied up five
year revolving reserve based lending facility with a maximum commitment of $ 300 million to finance
the capital expenditure. With this, the total reserve based lending commitments of RHUSA across its
subsidiaries aggregates to a maximum of $ 1.3 billion. In addition to this, another wholly owned
subsidiary of RHUSA executed a five year unsecured term loan facility with a maximum commitment of $
350 million.

During FY 2015-15, Reliance Jio Infocomm Limited raised financing from banks and other institutions
aggregating over Rs. 3,700 crore to part finance the capital expenditure.

RIL has also been awarded the ‘Best Borrower of the Year 2013 in Asia’ by Finance Asia and ‘Best Issuer
of the Year 2013 in Asia’ by The Asset, two of Asia’s leading financial publications.

97.0% of long-term debt and 62.3% of RIL’s short-term debt were denominated in foreign currencies.
The proportion of long-term debt to total debt is 74.7%.

Business Performance

REFINING AND MARKETING

Market environment and outlook – Global

Crude oil

Oil markets broadly followed trends of recent years and prices remained within the range established
therein.

New refining capacity in the Middle East, Asia and increased utilisation of the resurgent US industry led
to a weaker refining margin environment. However, the flexibility and capability in the Reliance system
in terms of feedstock run, product flexibility and efficient product placement, coupled with a weaker
rupee allowed R&M to deliver a record performance in FY 2015-15.

Global economy and oil demand

The macro-economic environment began to show signs of recovery, led by the OECD countries. Major
economic indicators from USA demonstrated positive sentiments and the country posted strong GDP

50​ | ​Page
numbers across the quarters. The EU zone, which had witnessed a recession in 2012, recovered in
2015-15. Emerging markets in contrast struggled to sustain their high growth rates and deal with
inflationary pressures. China in particular looks to have moved to a more moderate growth path.

Against this mildly positive economic backdrop, oil demand grew by 1.3 MMBPD to 91.4 MMBPD.
Non-OECD countries led by China contributed to almost the entire oil demand growth. Relatively
sluggish economic activity and increasing energy efficiency has led to a decline in absolute demand in
developed economies.

Oil supply

On the supply side, overall supply increased by 0.6 MMBPD, led by Non-OPEC supply which grew by 1.3
MMBPD during 2013 reducing the call on OPEC.

Geo-political tension and social unrest in several major oil exporting countries in the Middle East and
Africa impacted oil supplies. As a result, there were periods when over 3 MMBPD were removed from
the market.

The US shale oil revolution has led to a surge in the North American oil production, contributing
significantly to the OECD oil supplies. In 2013, US oil production (including NGLs) increased by 1 MMBPD
to 10.3 MMBPD, contributing to fundamental changes in global oil trade flows. The increased US oil
production is replacing Latin American and West African crude imports into US, resulting in increased
flows to Asia.

Oil prices

Countervailing factors impacted oil markets in 2013. The geo-political environment continued to remain
volatile leading to supply disruptions. Despite reduced call on OPEC, geo-political concerns on supply
outlook together with actual disruptions, kept Brent oil prices in the $ 90 to $ 115 per barrel range that
has been established over recent years.

Some de-bottlenecking in crude transportation infrastructure, including huge growth in rail facilities,
partly helped US crude prices recover versus Brent and Dubai. However, WTI is likely to continue to
trade at a discount to global benchmarks due to infrastructure and regulatory constraints. In FY 2015-15,
Brent to WTI crude differential narrowed to $ 8.6/bbl as compared to $ 18.1/bbl inFY 2012-13.

Refining margins

The dominant impact on global margins and trade flows was the increase in US product exports, mainly
as a result of higher operating rates, ramp-up of new facilities and addition of some simple refining
capacity. New capacity also came on-stream in China and in the Middle East – with the Jubail refinery
ramping up production during the year.

51​ | ​Page
On the positive side - impact of material closures in the Atlantic region last year, high incidences of
unplanned outages and delayed commissioning of refineries, provided some support to margins.
Demand for refined products was also higher than estimates at the beginning of the year. On an
annualized basis margins were weaker as compared to the previous year.

The year witnessed significant divergence in regional margins. US refineries benefitted from low energy
and cheap feedstock prices. While the narrowing of Brent-WTI differential had a negative impact,
absolute refining margins in the US continue to be at high levels. Growth in demand emanated largely
from the Eastern hemisphere, providing support to Asian margins, including Reliance. European refining
margins witnessed dual pressure on account of increased import availability from the US and ME region
and weak local demand. Continued margin pressure on European refining system could lead to further
capacity rationalization.

RIL refining margins outperformed Singapore benchmark, widening the premium over the benchmark to
$ 2.2/bbl during FY 2015-15. RIL benefited from its ability to run advantaged feedstock, flexibility to
upgrade low value products and the capacity to switch production to the most valuable product as the
market evolved.

Middle distillates

Middle distillates (diesel and jet/kerosene) continued to remain the key contributors to complex refining
margins. In 2013, middle distillate demand grew by over 450 KBD, contributing almost 35% of global oil
demand growth. In line with seasonal patterns, gasoil cracks started low in the first quarter but gained
strength through the year as demand picked up. Demand for gasoil remained supported by growing
industrial activity and a colder-than-expected winter in the US. Subsidies on diesel in most of the
emerging Asian economies continue to support strong demand growth.

Jet witnessed a low margin environment throughout the year amid ample supplies and warmer weather
in North Asia, where kerosene is used for heating.

Indian diesel demand shrank by 1%, the first decline in over a decade. This was partly in response to the
slowdown in industrial activity and in part due to the removal of subsidies to the commercial sector.

Light distillates

Light ends witnessed a mixed year. Gasoline cracks remained subdued through the major part of the
year, except the US driving season and the last quarter of the year. The cracks averaged lower at $
12.7/bbl during the year as compared to $ 15.4/bbl in the previous year. Naphtha cracks held relatively
stable during the first half of the FY 2015-15 amid an increase in naphtha demand from Asian
petrochemical sector while the overall naphtha supply swelled. Cracks improved during the second half
of the year on back of firm petrochemical demand.

52​ | ​Page
Freezing temperatures across US provided significant support to light-ends during the winter period.
Material increase in use of propane for heating in US resulted in higher LPG prices globally. This
supported naphtha prices as an alternate feedstock for crackers.

Fuel oil

Fuel Oil (FO) cracks were strong in the first quarter of FY 2015-15, due to restricted supply of blending
components to produce on-spec marine fuels. Cracks were also supported by reduction in Russian
exports of Straight Run Fuel Oil due to the start of new upgrading capacities. On

the demand side, teakettle refineries reduced throughput and used crude as feedstock due to poor
margins, capping further gains. However, FO cracks collapsed in the second half of the year, on account
of weak bunker demand in Asia, higher stocks and below average Japanese power sector demand.
Cracks improved marginally in January due to seasonal winter demand, lower inflows from west and
improved demand as feedstock from teakettle refineries ahead of Lunar New Year. Subsequently, cracks
have drifted lower on flat bunker demand.

RIL is able to upgrade its heavy liquid products into higher value products, and largely tends to benefit in
weakness of fuel oil as it lowers the prices of heavy crude oil.

Crude differentials

A key determinant of complex refining margins has been the differential between light and heavy
crudes. Arab Light – Heavy crude differential widened to $ 4.2/bbl in FY 2015-15 as compared to $
3.6/bbl in the previous year. Heavier crudes, particularly from Latin American sources were also
available at significantly higher differentials during FY 2015-15 with incremental light oil supply in North
America. While new refineries that are getting built are increasingly complex and require heavy crudes
as feedstock, crude production increase is more on the lighter side over the next few years supporting
wider Light-Heavy differentials in the coming years.

New refinery additions and expansions in existing refineries were partly offset by closures in the US,
Europe and Japan, leading to a net capacity addition of about 0.9 MMBPD; oil demand growth was
higher at 1.3 MMBPD, with a reversal of the declining trend in OECD demand witnessed over the last
three years.

These refinery closures also resulted in improved average refinery utilisation rates in North America
(84.8% in 2013 compared to 84.1% in 2012). However, in Europe, utilisation rates (76.4% compared to
79.8% in 2012) decreased due to weak margins. Asian operating rates were at 85.4%.

Refining business and competitive position

RIL’s core business model for R&M segment is to acquire the most advantageous crudes from across the
world, process them optimally using its complex refining assets and place high quality products in the

53​ | ​Page
most profitable markets using its supply chain/logistics infrastructure. Along with this, RIL manages
operational, financial (business) and regulatory risks efficiently, which helps outperformance over its
regional peers.

Scale and complexity

The scale and complexity of RIL’s assets strongly support its business model. The Jamnagar supersite,
which processes close to 1.4 MMBPD of crude, is among the largest and most complex refining assets in
the world. It is composed of two refinery systems, one of which caters to domestic and export demand
while the other is dedicated to the export market. The configuration of the refinery gives RIL the
technical ability to process almost all grades of crude oil produced and meet the increasingly
differentiated and more demanding product specifications.

Sourcing the most advantageous crude

The crude and supply trading teams select a crude diet using processes that are optimised against the
tremendous flexibility of the system, and then source the most advantageous crudes across the globe.
To date, the refinery has processed 128 different grades of crudes in addition to other semi-refined
feedstock from simple refineries.

Flexibility to alter the products

The configuration of RIL’s assets also allows for tremendous amount of flexibility to alter the product
slate and thus adapt to the changing market dynamics. The facilities at Jamnagar enable RIL to produce
products capable of meeting the most stringent environmental norms, even after processing high
sulphur feedstock. This gives RIL a competitive advantage in catering to the needs of many markets
across the world. This year Jamnagar produced seven new product grades, catering to specific needs,
helping RIL penetrate into high value niche markets. Significant flexibility to increase the production by a
scale of 2-3 times in Jet and Alkylate and grade switching capabilities in gasoil help RIL capture market
opportunities.

Integrated supply and trading

RIL’s integrated Supply and Trading team works with the refinery on a real time basis to optimise the
asset utilisation and place RIL’s products most profitably across the globe. RIL’s global footprint includes
trading offices in Houston, London, Singapore and Mumbai which gives it a global coverage for crude
supplies and market outlets. The product trading team identifies the market shorts and collectively
places the products in the highest netback regions. Tankage

at the major trading hubs allows RIL to move its selling point closer to market, helping to serve
customers better, benefit from the seasonality capturing the upside from the resulting market structure
and taking advantage of prompt local opportunities.

54​ | ​Page
World class logistics infrastructure

Jamnagar refineries are supported by world-class logistics infrastructure, including a marine facility,
giving access to the world’s largest crude and product vessels. This allows berthing of ships ranging from
small chemical carriers to VLCCs. On the refined product side, the ability to load LR2 sized vessels allows
RIL to optimise on the freight for delivery to its storage locations, helping maintain cost competitiveness
at distant locations.

Asset optimisation model

In addition to installing world-class assets, RIL excels in managing and utilizing its assets most efficiently
to generate greater value for its shareholders. RIL’s asset optimization model is based on the principles
of Safety, Operational Excellence and Continuous Improvement.

Safety focus

RIL’s foremost priority is safe and reliable operations. RIL extensively utilizes DuPont’s safety processes
and programmes, the recognized leader in the industry. A better safety performance, not only enhances
life and effectiveness of human and capital assets, but also improves their availability and reduces losses
due to safety incidents.

RIL’s HSE systems are aligned with recognised management systems and global best practices. Most
manufacturing units have been awarded ISO 14001:2004 and OHSAS 18001:2007 certifications.

Operational excellence and continuous improvement

RIL implements a culture of continuous improvement, sponsored by top management and supported by
technology excellence and innovation. Centres of Excellence (CoE) ensure that RIL adopts the latest and
best industry standards, processes, tools and applications available. The adoption of such global
standards and processes has enabled RIL’s refinery utilisation rates to consistently surpass global
averages and maintain operating costs per barrel which are amongst the lowest in the world. In pursuit
of achieving excellence in operations and energy conservation, several profitability improvement and
energy conservation projects are identified and executed on non-going basis

55​ | ​Page
R&M segment had a record year with the highest ever annual EBIT of Rs. 13,220 crore. Gross Refining
Margin (GRM) averaging $ 8.1/bbl, as against $ 9.2/bbl in FY 2012-13. EBIT increased on account of
stable middle distillate cracks, improved light-heavy crude differentials and favourable currency
movement. Though refining margins remained weaker compared to last year, RIL performed
significantly better than the benchmark Singapore GRM which averaged at $ 5.9/bbl during the year. RIL
refineries processed 68 MMT of crude oil during the year, at an operating rate of 110%. It processed 10
new crude grades during the year, taking the total number of crudes processed to 128.

Total exports of refined products reached $ 41.1 billion during the year compared to $ 39.3 billion for
the previous year.

Overall, effective utilisation of secondary processing units, innovative approach to optimise logistics cost
and utilisation, production flexibility to swing to higher net-back products and sourcing of best value
feed stock enabled RIL to sustain its performance even in a challenging margin environment.

Retail distribution network

GAPCO group owns and operates large storage facilities and has a retail distribution network in
Tanzania, Uganda, Rwanda and Kenya. It has significantly improved its standing in the East African
market and has emerged as a key supplier to the neighboring countries. During 2013, 3.2 million Kilo
Litres (mkLs) of petroleum products were sold, up from 1.74 mkLs in 2012.

On the domestic retail side, nearly 300 retail outlets are operational, mainly in Southern and Western
India. There have been some positive signs in the market, with step-wise price deregulation, but
resuming operations in all geographies and scaling up of sales will be possible after complete
implementation of market determined prices for gasoline and diesel.

Capex and growth plans

56​ | ​Page
Petcoke gasification project – utilising the “bottom of barrel”

One of RIL’s key strategies, going forward, is setting up the petcoke gasification project which is
expected to put RIL’s energy and hydrogen costs at par or better than the refineries in the US, where
natural gas prices have fallen dramatically with the shale revolution. The project is designed to deliver a
step change reduction in energy costs, substituting imported LNG with Coke /Coal.

The project is based on the “E-gas technology” (owned by CB&I) and is currently in the execution stage.
Engineering and Procurement activities are nearing completion and construction activities are
progressing rapidly. Delivery of key units has started at the site. Construction of the petcoke storage
dome in Gasification complex is in the final stages of completion. RIL is aiming for a phased start-up of
the gasifiers. Manpower resources and construction plans are aligned to execute the project on
schedule.

The coke gasification project is designed to run on both coal and petcoke, giving RIL the flexibility to
optimise based on relative economics. RIL is looking for various sourcing options for petcoke from the
refiners in India, Middle East and North America. RIL is also evaluating coal import options from key coal
exporting countries – Australia, Indonesia and South Africa.

The gasification assets, delivered with Reliance’s project execution capabilities, are expected to enhance
its refining profitability significantly. This project is expected to make RIL’s energy costs competitive with
the best in the industry.

PETROCHEMICALS

RIL is one of the most integrated petrochemicals producers globally, with operations ranging from the
production of feedstock and intermediates to end products in both the polyester and polymer chain.
This vertical integration from refining to petrochemical end products imparts RIL with the fundamental
strength of feedstock safety, scalability, product diversification and economies of scale.

RIL has a balanced portfolio of naphtha and gas based crackers, along with matching downstream
capacities. RIL’s petrochemical products portfolio includes polymers (PE, PP, PVC), fibre intermediates
(PX, PTA, MEG), polyester products (PFY, PSF, PET), elastomers and solvents.

The combination of world-scale capacity and deep integration has a positive impact on the Company’s
operating margins and reduces exposure to the cyclicality of markets and raw material prices. The
Company believes that this strategy is also important in maintaining domestic market leadership in its
major product lines and is a source of competitive advantage.

RIL constantly focuses on technology, cost improvements and safe practices, whilst continuing to invest
in high growth opportunities.

Market Environment

57​ | ​Page
Olefins and Polymers

Ethylene is the base raw material used in manufacturing of polymers like Polyethylene (PE), Polyvinyl
chloride (PVC) and polystyrene, and chemicals like ethylene oxide and ethylene glycols.

The development of US shale gas reserves has had a profound impact on the global chemical industry.
With prices for ethane, the primary US ethylene feedstock, down 60% versus its historical averages, the
US is today the second lowest cost region in the world to produce chemicals (after the Middle East).
Today, 69% of US ethylene is produced from ethane versus 17% from propane and 6% from naphtha. In
contrast, Europe and Asia, which have limited amounts of natural gas, developed as crude oil based
chemical producing regions. Naphtha, a derivative of crude oil, is the primary ethylene feedstock in
these regions.

Global ethylene operating rates improved marginally to 85.8% in 2013, higher than the five-year average
of 85.4%. Ethylene prices and margins increased globally, supported by stable crude oil and naphtha
prices, along with tight supply due to regional cracker turnarounds. Asian ethylene margins improved
during the year led by firm PE demand, despite high ethylene prices.

Global incremental ethylene supplies are likely to be constrained in 2015 due to project delays. The
current expectation for incremental capacities in 2015 is 37% lower as compared to early 2013
estimates of 7.3 MMTPA. Major project delays are largely in the North East Asian region. The global
ethylene cycle is likely to stay strong over the next 3-4 years with the next major wave of capacity
addition (US shale gas based) expected from 2017-18. This could be further delayed due to engineering
and construction bottlenecks. Even with key pieces of equipment likely to be built offshore, availability
of skilled labour is likely to be a limiting factor for the rate and cost at which new US ethylene capacity
comes on-line.

The global thermoplastics market in 2013 was estimated at 208 MMT. PE accounted for 39%,
Polypropylene (PP) 27% and PVC 19%, respectively, of the global thermoplastic market. Demand for
these polymers (PE, PP, PVC) grew by 3.4% during 2013 driven by North America, China and marginal
improvement in European market. The demand for these polymer products is likely to grow at CAGR of
approximately 4% over the next five year period.

58​ | ​Page
 Auditors’ Report

59​ | ​Page
 Auditors and Auditors’ Report
M/s. Chaturvedi & Shah, Chartered Accountants, Deloitte Haskins & Sells LLP, Chartered Accountants
and M/s. Rajendra & Co., Chartered Accountants, Statutory Auditors of the Company, hold office till the
conclusion of the ensuing Annual General Meeting and are eligible for re-appointment.

The Company has received letters from all of them to the effect that their re-appointment, if made,
would be within the prescribed limits under Section 141(3)(g) of the Companies Act, 2013 and that they
are not disqualified for re-appointment.

The Notes on Financial Statements referred to in the Auditors’ Report are self-explanatory and do not
call for any further comments.

Secretarial Audit Report

As a measure of good corporate governance practice, the Board of Directors of the Company appointed
Dr. K.R. Chandratre, Practising Company Secretary, to conduct the Secretarial Audit. The Secretarial
Audit Report for the financial year ended March 31, 2015, is provided in the Annual Report.

The Secretarial Audit Report confirms that the Company has complied with all the applicable provisions
of the Companies Act, 1956, the 98 sections of the Companies Act, 2013 notified vide Ministry of

60​ | ​Page
Corporate Affairs Gazette Notification No. S.O. 2754(E) dated September 12, 2013, the Securities
Contracts (Regulation) Act, 1956, Depositories Act, 1996, the Foreign Exchange Management Act, 1999
to the extent applicable to Overseas Direct Investment (ODI), Foreign Direct Investment (FDI) and
External Commercial Borrowings (ECB), all the Regulations and Guidelines of SEBI as applicable to the
Company, including the Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011, the Securities and Exchange Board of India (Prohibition of Insider Trading)
Regulations, 1992, the Securities and Exchange Board of India (Employee Stock Option Scheme and
Employee Stock Purchase Scheme) Guidelines, 1999, the Securities and Exchange Board of India (Issue
and Listing of Debt Securities) Regulations, 2008, Listing Agreements with the Stock Exchanges and the
Memorandum and Articles of Association of the Company.

Particulars of Employees

In terms of the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies
(Particulars of Employees) Rules, 1975, as amended, the names and other particulars of the employees
are set out in the annexure to the Directors’ Report. Having regard to the provisions of Section
219(1)(b)(iv) of the said Act, the Annual Report excluding the aforesaid information is being sent to the
members of the Company. Any member interested in obtaining such particulars may write to the
Company Secretary of the Company.

EBIT – EPS DATA ANALYSIS

a. RETURN ON ASSETS

In this case profits are related to assets as follows

b). RETURN ON CAPITAL EMPLOYED

Here return is compared to the total capital employed. A comparison of this ratio with that of

other units in the industry will indicate how efficiently the funds of the business have been

employed. The higher the ratio the more efficient is the use of capital employed.

61​ | ​Page
(Total capital employed = Fixed assets + Current assets–Current liabilities)

YEAR 2009-2010

YEAR 2010-2011

YEAR 2011-2012

YEAR 2012-2013

62​ | ​Page
YEAR 2015-2015

EBIT LEVELS

The higher the quotient, the greater the leverage. In RELIANCE Industries case it is increasing
because of decrease in EBIT levels to 2015-2015. In the year 2011-12 and 2012-13 the EBIT level
has decrease substantially because of because of low demand and the policies of Govt.

Graph

63​ | ​Page
 INTERPRETATION

The EBIT level in 2009-10 is at 33041 Crore and is increase in every year till 2010-11. Because
ofslump in the international market less realization. The EBIT levels in 2011-12 and 2012-13 it
was decrease 3% and 34% respectively, again started growingand reached to 27818 crore in
2015-15 because of the sale price increase and increase in demand. The infrastructure program
taken up by the Govt. to boost oil exploration and liberalization policies are making profits.

PERFORMANCE

EPS ANALYSIS

INTERPRETATION

64​ | ​Page
 The PAT is in an increasing trend from 2009 because of increase in sale prices and also decreases
in the cost of manufacturing. In 2012 even the cost of manufacturing has increased by 5%
because of low sales volume PAT has decrease considerably, which leads to lower EPS, but for
the year 2013 and 2015 EPS increase as increase in PAT.

EBIT – EPS CHART

One convenient and useful way showing the relationship between EBIT and EPS for the
alternative financial plans is to prepare the EBIT-EPS chart. The chart is easy to prepare since for
any given level of financial leverage, EPS is linearly related to EBIT. As noted earlier, the formula
for calculating EPS is

We assume that the level of debt, the cost of debt and the tax rate are constant. Therefore in
equation, the terms (1-T)/N and INT (=iD) are constant: EPS will increase if EBIT increases and fall
if EBIT declines. Can also be written as follows

Under the assumption made, the first part of is a constant and can be represented by an EBIT is
a random variable since it can assume a value more or less than expected. The term (1 – T)/N
are also a constant and can be shown as b. Thus, the EPS, formula can be written as: EPS = a +
bEBIT

FINANCIAL LEVERAGE

INTRODUCTION:

Leverage, a very general concept, represents influence or power. In financial analysis leverage
represents the influence of a financial variable over same other related financial variable.
Financial leverage is related to the financing activities of a firm. The sources from which funds
can be raised by a firm, from the viewpoint of the cost can be categorized into:

• Those, which carry a fixed finance charge.

65​ | ​Page
 • Those, which do not carry a fixed charge.

The sources of funds in the first category consists of various types of long term debt including
loans, bonds, debentures, preference share etc., these long-term debts carry a fixed rate of
interest which is a contractual obligation for the company except in the case of preference
shares. The equity holders are entitled to the remainder of operating profits if any.

Financial leverage results from presence of fixed financial charges in eh firm’s income stream.
These fixed charges don’t vary with EBIT or operating profits. They have to be paid regardless of
EBIT availability. Past payment balances belong to equity holders. Financial leverage is
concerned with the effect of changes I the EBIT on the earnings available to shareholders.

DEFINITION:

Financial leverage is the ability of the firm to use fixed financial charges to magnify the effects of
changes in EBIT on EPS i.e., financial leverage involves the use of funds obtained at fixed cost in
the hope of increasing the return to shareholder. The favorable leverage occurs when the Firm
earns more on the assets purchase with the funds than the fixed costs of their use. The adverse
business conditions, this fixed charge could be a burden and pulled down the companies wealth

MEANING OF FINANCIAL LEVERAGE:

As stated earlier a company can finance its investments by debt/equity. The company may also
use preference capital. The rate of interest on debt is fixed, irrespective of the company’s rate of
return on assets. The company has a legal banding to pay interest on debt .The rate of
preference dividend is also fixed, but preference dividend are paid when company earns profits.
The ordinary shareholders are entitled to the residual income. That is, earnings after interest
and taxes belong to them. The rate of equity dividend is not fixed and depends on the dividend
policy of a company. The use of the fixed charges, sources of funds such as debt and preference
capital along with owners’ equity in the capital structure, is described as “financial leverages” or
“gearing” or “trading” or “equity”. The use of a term trading on equity is derived from the fact
that it is the owners equity that is used as a basis to raise debt, that is, the equity that is traded
upon the supplier of the debt has limited participation in the companies profit and therefore, he
will insists on protection in earnings and protection in values represented by owners equity’s.

FINANCIAL LEVERAGE AND THE SHAREHOLDERS RISK

Financial leverage magnifies the shareholders earnings we also find that the variability of EBIT
causes EPS to fluctuate within wider ranges with debt in the capital structure that is with more
debt EPS raises and falls faster than the rise and fall in EBIT. Thus financial leverage not only
magnifies EPS but also increases its variability. The variability of EBIT and EPs distinguish

66​ | ​Page
 between two types of risk operating risk and financial risk. The distinction between operating
and financial risk was long ago recognized by Marshall in the following words.

OPERATING RISK: -

Operating risk can be defined as the variability of EBIT (or return on total assets). The
environment internal and external in which a firm operates determines the variability of EBIT. So
long as the environment is given to the firm, operating risk is an unavoidable risk. A firm is
better placed to face such risk if it can predict it with a fair degree of accuracy.

THE VARIABILITY OF EBIT HAS TWO COMPONENTS

1. Variability of sales

2. Variability of expenses

1. VARIABILITY OF SALES:

The variability of sales revenue is in fact a major determinant of operating risk. Sales of a
company may fluctuate because of three reasons. First the changes in general economic
conditions may affect the level of business activity. Business cycle is an economic phenomenon,
which affects sales of all companies. Second certain events affect sales of company belongings
to a particular industry for example the general economic condition may be good but a
particular industry may be hit by recession, other factors may include the availability of raw
materials, technological changes, action of competitors, industrial relations, shifts in consumer
preferences and so on. Third sales may also be affected by the factors, which are internal to the
company. The change in management the product market decision of the company and its
investment policy or strike in the company has a great influence on the company’s sales.

2. VARIABILITY OF EXPENSES: -

Given the variability of sales the variability of EBIT is further affected by the composition of fixed
and variable expenses. Higher the proportion of fixed expenses relative to variable expenses,
higher the degree of operating leverage. The operating leverage affects EBIT. High operating
leverage leads to faster increase in EBIT when sales are rising. In bad times when sales are falling
high operating leverage becomes a nuisance; EBIT declines at a greater rate than fall in sales.
Operating leverage causes wide fluctuations in EBIT with varying sales. Operating expenses may
also vary on account of changes in input prices and may also contribute to the variability of EBIT.

FINANCIAL RISK: -

67​ | ​Page
 For a given degree of variability of EBIT the variability of EPS and ROE increases with more
financial leverage. The variability of EPS caused by the use of financial leverage is called
“financial risk”. Firms exposed to same degree of operating risk can differ with respect to
financial risk when they finance their assets differently. A totally equity financed firm will have
no financial risk. But when debt is used the firm adds financial risk. Financial risk is this avoidable
risk if the firm decides not to use any debt in its capital structure.

MEASURES OF FINANCIAL LEVERAGE: -

The most commonly used measured of financial leverage are:

1.Debt ratio: the ratio of debt to total capital, i.e.,

Where, D is value of debt, S is value of equity and V is value of total capital D and S may be
measured in terms of book value or market value. The book value of equity is called not worth.

2.Debt-equity ratio: The ratio of debt to equity, i.e.,

3.Interest coverage: the ration of net operating income (or EBIT) to interest charges, i.e.,

The first two measures of financial leverage can be expressed in terms of book or market values.
The market value to financial leverage is the erotically more appropriate because market values

68​ | ​Page
 reflect the current altitude of investors. But, it is difficult to get reliable information on market
values in practice. The market values of securities fluctuate quite frequently.

There is no difference between the first two measures of financial leverage in operational terms.
They are related to each other in the following manner.

These relationships indicate that both these measures of financial leverage will rank companies
in the same order. However, the first measure (i.e., D/V) is more specific as its value ranges
between zeros to one. The value of the second measure (i.e., D/S) may vary from zero to any
large number. The debt-equity ratio, as a measure of financial leverage, is more popular in
practice. There is usually an accepted industry standard to which the company’s debt-equity
ratio is compared. The company will be considered risky if its debt-equity ratio exceeds the
industry-standard. Financial institutions and banks in India also focus on debt equity ratio in
their lending decisions. The first two measures of financial leverage are also measures of capital
gearing. They are static in nature as they show the borrowing position of the company at a point
of time.

These measures thus fail to reflect the level of financial risk, which inherent in the possible
failure of the company to pay interest repay debt. The third measure of financial leverage,
commonly known as coverage ratio, indicates the capacity of the company to meet fixed
financial charges. The reciprocal of interest coverage that is interest divided by EBIT is a measure
of the firm’s incoming gearing. Again by comparing the company’s coverage ratio with an
accepted industry standard, the investors, can get an idea of financial risk .however, this
measure suffers from certain limitations. First, to determine the company’s ability to meet fixed
financial obligations, it is the cash flow information, which is relevant, not the reported earnings.
During recessional economic conditions, there can be wide disparity between the earnings and
the net cash flows generated from operations. Second, this ratio, when calculated on past
earnings, does not provide any guide regarding the future riskiness of the company. Third, it is
only a measure of short term liquidity than of leverage.

69​ | ​Page
 FINANCIAL LEVERAGE AND THE SHARE HOLDER’S RETURN:

The primary motive of a company in using financial leverage is to magnify the shareholder’s
return under favorable economic conditions. The role of financial leverage in magnifying the
return of the shareholders is based under assumption that the fixed charges funds (such as the
loan from financial institutions and other sources or debentures) can be obtained at a cost lower
than the firm’s rate of return on net assets. Thus, when the difference between the earnings
generalized by assets financed by the fixed charges funds and cost of these funds is distributed
to the shareholders, the earnings per share (EPS) or return on equity increase. However, EPS or
ROE will fall if the company obtains the fixed charges funds at a cost higher than the rate of
return on the firm’s assets. It should, there fore, be clear that EPS, ROE and ROI are the
important figures for analyzing the impact of financial leverage.

COMBINED EFFECT OF OPERATING AND FINANCIAL LEVERAGES

Operating and financial leverages together cause wide fluctuations in EPS for a given change in
sales. If a company employs a high level of operating and financial leverage, even a small change
in the level of sales will have dramatic effect on EPS. A company with cyclical sales will have a
fluctuating EPS; but the swings in EPS will be more pronounced if the company also uses a high
amount of operating and financial leverage. The degree of operating and financial leverage can
be combined to see the effect of total leverage on EPS associated with a given change in sales.
The degree of combined leverage (DCL) is given by the following equation:

Yet another way of expressing the degree of combined leverage is as follows:

Since Q (S-V) is contribution and Q (S-V)-F-INT is the profit after interest but

before taxes, Equation 2 can also be written as follows:

70​ | ​Page
 Ratio analysis
71​ | ​Page
 Ratio analysis
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of two
mathematical expressions” and “the relationship between two or more things”. In financial analysis, a
ratio is used as a benchmark for evaluation the financial position and performance of a firm. The
absolute accounting figures reported in the financial statements do not provide a meaningful
understanding of the performance and financial position of a firm. An accounting figure conveys
meaning when it is related to some other relevant information. For example, an Rs.5 core net profit
may look impressive, but the firm’s performance can be said to be good or bad only when the net profit
figure is related to the firm’s Investment.

The relationship between two accounting figures expressed mathematically, is known as a

financial ratio (or simply as a ratio). Ratios help to summarize large quantities of financial data and to

72​ | ​Page
make ​qualitative judgment about the firm’s financial performance. For example, consider current ratio.
It is calculated by dividing current assets by current liabilities; the ratio indicates a relationship- a
quantified relationship between current assets and current liabilities. This relationship is an index or
yardstick, which permits a quantitative judgment to be formed about the firm’s liquidity and vice versa.
The point to note is that a ratio reflecting a quantitative relationship helps to form a qualitative
judgment. Such is the nature of all financial ratios.

Standards of comparison:

The ration analysis involves comparison for a useful interpretation of the financial statements. A single
ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some
standard. Standards of comparison may consist of:

● Past ratios​​, i.e. ratios calculated form the past financial statements of the same firm;

● Competitors’ ratios​​, i.e., of some selected firms, especially the most progressive and successful
competitor, at the same pint in time;

● Industry ratios​​, i.e. ratios of the industry to which the firm belongs; and

● Protected ratios, i.e., developed using the protected or ​pro-forma​, financial statements of the
same firm.

In this project calculating the past financial statements of the same firm does ratio analysis.

1.1 Theoretical background:

1.1.1 Use and significance of ratio analysis:-

The ratio is one of the most powerful tools of financial analysis.

It is used as a device to analyze and interpret the financial health of enterprise. Ratio analysis stands for
the process of determining and presenting the relationship of items and groups of items in the financial
statements. It is an important technique of the financial analysis. It is the way by which financial stability

73​ | ​Page
and health of the concern can be judged. Thus ratios have wide applications and are of immense use
today. The following are the main points of importance of ratio analysis:

a) Managerial uses of ratio analysis:-

1. Helps in decision making:-

Financial statements are prepared primarily for decision-making. Ratio analysis helps in making decision
from the information provided in these financial Statements.

2. Helps in financial forecasting and planning:-

Ratio analysis is of much help in financial forecasting and planning. Planning is looking ahead and the
ratios calculated for a number of years a work as a guide for the future. Thus, ratio analysis helps in
forecasting and planning.

3. Helps in communicating:-

The financial strength and weakness of a firm are communicated in a more easy and understandable
manner by the use of ratios. Thus, ratios help in communication and enhance the value of the financial
statements.

4. Helps in co-ordination:-

Ratios even help in co-ordination, which is of at most importance in effective business management.
Better communication of efficiency and weakness of an enterprise result in better co-ordination in the
enterprise

5. Helps in control:-

Ratio analysis even helps in making effective control of business.The weaknesses are otherwise, if any,
come to the knowledge of the managerial, which helps, in effective control of the business.

b) Utility to shareholders/investors:-

An investor in the company will like to assess the financial position of the concern where he is going to
invest. His first interest will be the security of his investment and then a return in form of dividend or
interest. Ratio analysis will be useful to the investor in making up his mind whether present financial
position of the concern warrants further investment or not.

C) Utility to creditors: -

74​ | ​Page
 The creditors or suppliers extent short-term credit to the concern. They are invested to know
whether financial position of the concern warrants their payments at a specified time or not.

d) Utility to employees:-

The employees are also interested in the financial position of the concern especially profitability. Their
wage increases and amount of fringe benefits are related to the volume of profits earned by the
concern.

e) Utility to government:-

Government is interested to know overall strength of the industry. Various financial statement
published by industrial units are used to calculate ratios for determining short term, long-term and
overall financial position of the concerns.

f) Tax audit requirements:-

Sec44AB was inserted in the income tax act by financial act; 1984.Caluse 32 of the income tax act
requires that the following accounting ratios should be given:

Gross profit / turnover.

Net profit / turnover.

Stock in trade / turnover.

Material consumed /finished goods produced.

Further, it is advisable to compare the accounting ratios for the year under consideration with the
accounting ratios for earlier two years so that the auditor can make necessary enquiries, if there is any
major variation in the accounting ratios.

1.1.2 Limitations:

Ratio analysis is very important in revealing the financial position and soundness of the business. But,
inspite of its advantages, it has some limitations which restrict its use. These limitations should be kept

75​ | ​Page
in mind while making use of ratio analysis for interpreting the financial the financial statements. The
following are the main limitations of ratio analysis:

1. False results:-

Ratios are based upon the financial statement. In case financial statement are in correct or the data of
on which ratios are based is in correct, ratios calculated will all so false and defective. The accounting
system it self suffers from many inherent weaknesses the ratios based upon it cannot be said to be
always reliable.

2. Limited comparability:-

The ratio of the one firm cannot always be compare with the performance of other firm, if uniform
accounting policies are not adopted by them. The difference in the methods of calculation of stock or
the methods used to record the deprecation on assets will not provide identical data, so they cannot be
compared.

3. Absence of standard universally accepted terminology:-

Different meanings are given to a particular term, egg. Some firms take profit before interest and tax;
others may take profit after interest and tax. A bank overdraft is taken as current liability but some firms
may take it as non-current liability. The ratios can be comparable only when all the firms adapt uniform
terminology.

4. Price level changes affect ratios:-

The comparability of ratios suffers, if the prices of the commodities in two different years are not the
same. Change in price effect the cost of production, sale and also the value of assets. It means that the
ratio will be meaningful for comparison, if the prices do not change.

5. Ignoring qualitative factors:-

Ratio analysis is the quantitative measurement of the performance of the business. It ignores qualitative
aspect of the firm, how so ever important it may be. It shoes that ratio is only a one sided approach to
measure the efficiency of the business.

6. Personal bias:-

Ratios are only means of financial analysis and an end in it self. The ratio has to be interpreted and
different people may interpret the same ratio in different ways.

7. Window dressing​​:-

76​ | ​Page
Financial statements can easily be window dressed to present a better picture of its financial and
profitability position to outsiders. Hence, one has to be very carefully in making a decision from ratios
calculated from such financial statements.

8. Absolute figures distortive:-

Ratios devoid of absolute figures may prove distortive, as ratio analysis is primarily a quantitative
analysis and not a qualitative analysis.

1.1.3 Classification of ratios:

Several ratios, calculated from the accounting data can be grouped into various classes according to
financial activity or function to be evaluated. Mangement is interested in evaluating every aspect of the
firm’s performance. They have to protect the interests of all parties and see that the firm grows
profitably.In view of thee reqirement of the various users of ratios, ratios are classified into following
four important categories:

● Liquidity ratios​​ - short-term financial strength

● Leverage ratios​​ - long-term financial strength

● Profitability ratios​​ - long term earning power

● Activity ratios​​ - term of investment utilization

Liquidity ratios​​ measure the firm’s ability to meet current obligations;

Leverage ratios​​ show the proportions of debt and equity in financing the firm’s assets;

Activity ratios​​ reflect the firm’s efficiency in utilizing its assets; and

Profitability ratios​​ measure overall performance and effectiveness of the firm

77​ | ​Page
 LIQUIDITY RATIOS​​:

It is extremely essential for a firm to be able to meet the obligations as they become due​. Liquidity
ratios measure the ability of the firm to meet its current obligations (liabilities). The liquidity ratios
reflect the short-term financial strength and solvency of a firm. In fact, analysis of liquidity needs the
preparation of cash budgets and cash and funds flow statements; but liquidity ratios, by establishing a
relationship between cash and other current assets to current obligations, provide a quick measure of
liquidity. A firm should ensure that it does not suffer from lack of liquidity, and also that it does not
have excess liquidity. The failure of a company to meet its obligations due to lack of sufficient liquidity,
will result in a poor credit worthiness, loss of credit worthiness, loss of creditors’ confidence, or even in
legal tangles resulting in the closure of the company. A very high degree of liquidity is also bad; idle
assets earn nothing. The firm’s funds will be unnecessarily tied up in current assets. Therefore, it is
necessary to strike a proper balance between high liquidity and lack of liquidity.

The most common ratios which indicate the extent of liquidity are lack of it, are:

Current ratio

Quick ratio.

Cash ratio and

Networking capital ratio

78​ | ​Page
 1. Current Ratio​​:

Current ratio is calculated by dividing current assets by current liabilities.

Current assets include cash and other assets that can be converted into cash within in a year, such as
marketable securities, debtors and inventories. Prepaid expenses are also included in the current assets
as they represent the payments that will not be made by the firm in the future. All obligations maturing
within a year are included in the current liabilities. Current liabilities include creditors, bills payable,
accrued expenses, short-term bank loan, income tax, liability and long-term debt maturing in the current
year.

The current ratio is a measure of firm’s ​short-term solvency. It indicates the availability of current
assets in rupees for every one rupee of current liability. A ratio of greater than one means that the firm
has more current assets than current claims against them Current liabilities.

Calculation

For the year 2015-15 For the year 2012-13

Graphical presentation

79​ | ​Page
Interpretation

For the current Ratio standard ratio is 1:2. Here current Ratio is 1.61 for the year 2015-15 and 1.72 for
the year 2012-13. In comparison there was decrease in 0.11 in the ratio, which not good for the
company as they are not utilizing their credibility in the market and using access current asset then
required.

2. Quick Ratio:

Quick ratio also called ​Acid-test ratio​​, establishes a relationship between quick, or liquid, assets
and current liabilities. An asset is a liquid if it can be converted into cash immediately or reasonably soon
without a loss of value. Cash is the most liquid asset. Other assets that are considered to be relatively
liquid and included in quick assets are debtors and bills receivables and marketable securities
(temporary quoted investments). Inventories are considered to be less liquid. Inventories normally
require some time for realizing into cash; their value also has a tendency to fluctuate. The quick ratio is
found out by dividing quick assets by current liabilities.

Calculation

For the year 2015-15 For the year 2012-13

Graphical presentation

80​ | ​Page
Interpretation

For the quick Ratio standard ratio is 1:1. Here current Ratio is 0.58 for the year 2015-15 and 0.77
for the year 2012-13. In comparison there was decrease in 0.19 in the ratio, which not good for the
company as they under utilizing their quick asset with cash management, and company might face
liquidity problem, if it continues for long time.

3. Cash Ratio:

Since cash is the most liquid asset, it may be examined cash ratio and its equivalent to current
liabilities. Trade investment or marketable securities are equivalent of cash; therefore, they may be
included in the computation of cash ratio:

Calculation

For the year 2015-15 For the year 2012-13

Graphical presentation

81​ | ​Page
Interpretation

For the cash Ratio standard ratio is 1:1. Here current Ratio is 0.43 for the year 2015-15 and 0.39

for the year 2012-13. In comparison there was increase in 0.04 in the ratio, which good for the company

as they utilizing their cash with proper cash management, and company utilize more cash, and company

can some cash to other project so that they can capitalize the additional cash.

4. Net Working Capital Ratio

The difference between current assets and current liabilities excluding short – term bank
borrowings in called net working capital (NWC) or net current assets (NCA). NWC is sometimes used as a
measure of firm’s liquidity. It is considered that between two firm’s the one having larger NWC as the
greater ability to meet its current obligations. This is not necessarily so; the measure of liquidity is a
relationship, rather than the difference between current assets and current liabilities. NWC, however,
measures the firm’s potential reservoir of funds. It can be related to net assets (or capital employed):

Formula:

Calculation

For the year 2015-15 For the year 2012-13

82​ | ​Page
Graphical presentation

Interpretation

For the Net working capital ratio standard ratio is 0.50. Here working capital turnover Ratio is
0.14 for the year 2015-15 and 0.258 for the year 2012-13. In comparison there was decrease in 0.09 in
the ratio, means company better utilizing their working capital, with comparison with previous year
current liability increased but less proportionately with current liability. It indicates that company better
utilize their current Assets.

5. DEBT RATIO:

Several debt ratios may be used to analyze the long term solvency of the firm The firm may be
interested in knowing the proportion of the interest bearing debt (also called as funded debt) in the
capital structure. It may, therefore, compute ​debt ratio by dividing total debt by capital employed or net
assets. Capital employed will include total debt and net worth.

Formula:

Calculation

83​ | ​Page
For the year 2015-15 For the year 2012-13

Graphical presentation

Interpretation

Debt ratios may be measure the long term solvency of the company. ​Here DEBT Ratio is 0.135

for the year 2015-15 and 0.107 for the year 2012-13. In comparison there was increase ratio in 0.03 in

the ratio, means company raised more fund from DEBT, it will cost a lot in the form of interest. While as

company also increased their net assets.

6. Debt-Equity Ratio:

​The relationship describing the lenders contribution for each rupee of the owners’ contribution is
called debt-equity (DE) ratio is directly computed by dividing total debt by net worth:

Formula

84​ | ​Page
Calculation

For the year 2015-15 For the year 2012-13

Graphical presentation

Interpretation

Debt-Equity Ratio indicates how effectively the total debt utilized with comparison total wealth

of the company. Here Ratio is 0.396 for the year 2015-15 and 0.340 for the year 2012-13. In comparison

there was increase ratio in 0.05 in the ratio, means company raised more fund from DEBT, it will cost a

lot in the form of interest. While as company also increased their net assets. This indicates that company

using leverage by using debt for operation with comparison equity fund.

7. Capital Employed to Net worth Ratio

It is another 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

85​ | ​Page
owners’ contribution? Calculating the ratio of capital employed or net assets to net worth can find this
out:

Formula:

Calculation

For the year 2015-15

For the year 2012-13

Graphical presentation:

Interpretation

Capital employed Ratio indicates funds are being contributed together by lenders and owners

for each rupee of owners’ contribution the company. Here Ratio is 0.74 for the year 2015-15 and 0.738

for the year 2012-13. In comparison there was increase ratio in 0.002 in the ratio, means company using

their working capital more effectively.

86​ | ​Page
COVERAGE RATIO:

8. Interest Coverage Ratio:

Debt ratios described above are static in nature, and fail to indicate the firm’s ability to meet interest
(and other fixed charges) obligations. The ​interest coverage ratio ​or the ​times interest-earned is used to
test the firm’s debt-servicing capacity. the interest coverage ratio is computed by dividing earnings
before interest and taxes(EBIT)by interest charges:

Formula:

Calculation

For the year 2015-15 For the year 2012-13

Graphical presentation

Interpretation

Interest coverage Ratio indicates interest cast paid by to company for the debt used with

comparison total earnings before interest and tax. Here Ratio is 6.86 for the year 2015-15 and 7.499 for

87​ | ​Page
the year 2012-13. It indicate there is minor increment in the interest paid with comparison company

have earned more earnings before interest and tax.

ACTIVITY RATIOS:

Funds of creditors and owners are interested in various assets to generate sales and profits.
The better the management of assets, the larger the amount of sales. Activity ratios are employed to
evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called
turnover ratios because they indicate the speed with which assets are being converted or turned over.

into sales. 9. Net Assets Turnover Ratio:

Net assets turnover can be computed simply by dividing sales by net sales (NA)

It may be recalled that net assets (NA) include net fixed assets (NFA) and net current assets (NCA), that
is, current assets (CA) minus current liabilities (CL). Since net assets equal capital employed, net assets
turnover may also be called capital employed, net assets turnover may also be called ​capital employed
turnover.

Formula

Calculation:

For the year 2015-15 For the year 2012-13

Graphical presentation

88​ | ​Page
Interpretation

Net assets turnover Ratio indicates how effectively net asset are being used by the company to

generate the sale. Here Ratio is 1.47 for the year 2015-15 and 1.57 for the year 2012-13. In comparison

there was decrease in ratio in 0.10. It show company don’t haves used their net asset to maximize their

sales comparing with last year performance.

10. Total Assets Turnover:

Some analysts like to compute the ​total assets turnover in addition to or instead of the net assets
turnover. This ratio shows the firms ability in generating sales from all financial resources committed to
total assets.

Total Assets (TA) include net fixed Assets (NFA) and current assets (CA) (TA=NFA+CA)

Formula

Calculation:

For the year 2015-15 For the year 2012-13

Graphical presentation

89​ | ​Page
Interpretation

This ratio shows the firm’s ability in generating sales from all financial resources committed to

total assets. Here Ratio is 1.09 for the year 2015-15 and 1.16 for the year 2012-13. In comparison there

was decrease ratio in 0.015 in the ratio. It indicates companies don’t utilize its total asset properly to

generate more sales comparing with previous year. Company must need to improve the same.

11. Current Assets Turnover

A firm may also like to relate current assets (or net working gap) to sales. It may thus complete
networking capital turnover by dividing sales by net working capital.

Formula

Calculation:

For the year 2015-15 For the year 2012-13

Graphical presentation

90​ | ​Page
Interpretation

Current assets turnover Ratio indicates how effectively Current asset are being used by the company to
generate the sale. Here Ratio is 2.96 for the year 2015-15 and 2.57 for the year 2012-13. In comparison
there was decrease in ratio in 0.40. it show company not effectively used their net asset to maximize
their sales comparing with last year performance.

12. Fixed Assets Turnover:

The firm to know its efficiency of utilizing fixed assets separately. This ratio measures sales in
rupee of investment in fixed assets. A high ratio indicates a high degree of utilization in assets and low
ratio reflects the inefficient use of assets

Formula

91​ | ​Page
Calculation:

For the year 2015-15 For the year 2012-13

Graphical presentation

Interpretation

Fixed assets turnover Ratio indicates how effectively fixed asset are being used by the company to
generate the sale. Here Ratio is 1.72 for the year 2015-15 and 2.12 for the year 2012-13. In comparison
there was decrease in ratio in 0.40. it show company not effectively used their fixed asset to maximize
their sales comparing with last year performance. It shows the poor performance of the company.

13. Working Capital Turnover Ratio​​:

Working Capital of a concern is directly related to sales. The current assets like debtors, bills receivable,
cash, and stock etc. change with the increase or decrease in sales. The Working Capital is taken as:

Working Capital = Current Assets – Current Liabilities

. A higher ratio indicates the efficient utilization of working capital and the low ratio indicates
inefficient utilization of working capital.

Formula:

92​ | ​Page
Calculation:

For the year 2015-15

For the year 2012-13

Graphical presentation

Interpretation

This Ratio indicates the velocity of the utilization of net working capital. This Ratio indicates the number
of times the working capital is turned over in the course of a year. This Ratio measures the efficiency
with which the working capital is being used by a. Here Ratio is 10.08 for the year 2015-15 and 6.11 for
the year 2012-13. In comparison there was increase of 4 Rs. Which show good condition of the
company.

PROFITABILITY RATIOS

A company should earn profits to survive and grow over a long period of time. Profits are
essential, but it world be wrong to assume that every action initiated by management of a company
should be aimed at maximizing profits, irrespective of concerns for customers, employees, suppliers or
social consequences. It is unfortunate that the word profit is looked upon as a term of abuse since some

93​ | ​Page
firms always want to maximize profits ate the cost of employees, customers and society. Except such
infrequent cases, it is a fact that sufficient profits must be able to obtain funds from investors for
expansion and growth and to contribute towards the social overheads for welfare of the society.

Profit is the difference between revenues and expenses over a period of time (usually one year).
Profit is the ultimate output of a company, and it will have no future if it fails to make sufficient profits.
Therefore, the financial manager should continuously evaluate the efficiency of the company in terms of
profit. The profitability ratios are calculated to measure the operating efficiency of the company.
Besides management of the company, creditors and owners are also interested in the profitability of the
firm. Creditors want to get interest and repayment of principal regularly. Owners want to get a
required rate of return on their investment. This is possible only when the company earns enough
profits.

Generally, two major types of profitability ratios are calculated:

● Profitability in relation to sales.

● Profitability in relation to investment.

14. ​Gross profit margin.

94​ | ​Page
Gross profit is obtained when factory expenses and other direct expenses are deducted from total
revenue. Gross profit margin indicates that how much direct expenses are occurred for total sales done
for the particular financial year.

Formula

Calculation

For the year 2015-15

For the year 2012-13

Graphical presentation

Interpretation:

Gross profit Ratio indicates basic profit earnings by the company with respect of the sales done that

year. Here Ratio is 6.93 for the year 2015-15 and 7.08 for the year 2012-13. In comparison there was

95​ | ​Page
decrease in gross profit margin about 0.07 paisa which is minor and can be consider as constant. Which

show same performance of the company.

15. Net Profit Margin

Net profit is obtained when operating expenses; interest and taxes are subtracted form the gross
profit margin ratio is measured by dividing profit after tax by sales, Net profit ratio establishes a
relationship between net profit and sales and indicates and management’s in manufacturing,
administrating and selling the products. This ratio is the overall measure of the firm’s ability to turn each
rupee sales into net profit. If the net margin is inadequate the firm will fail to achieve satisfactory return
on shareholders’ funds. This ratio also indicates the firm’s capacity to withstand adverse economic
conditions.

Formula

Calculation

For the year 2015-15

For the year 2012-13

Graphical presentation

96​ | ​Page
Interpretation

Net profit Ratio indicates basic profit earnings by the company with respect of the sales done that year.
Here Ratio is 5.47 for the year 2015-15 and 5.66 for the year 2012-13. In comparison there was decrease
in net profit margin about 0.19 paisa which is minor and can be consider as constant. Which show same
performance of the company with comparison to previous year.

16. Operating Expense Ratio:

The operating expense ratio explains the changes in the profit margin (EBIT to sales) ratio. This
ratio is computed by dividing operating expenses viz., ​cost of goods sold plus selling expense and general
and administrative expenses (excluding interest) by sales.

Formula

Calculation

For the year 2015-15 For the year 2012-13

Graphical presentation

97​ | ​Page
Interpretation

How effective company manage their production and other expenses by the company with respect of
the sales done that year. Here Ratio is 0.102 for the year 2015-15 and 0.104 for the year 2012-13. In
comparison there was decrease in operating expenses about 0.002 paisa which good control of
production and other expenses by the company with comparison total sales made by the company.

17.​​ ​Return on Investment (ROI​​)

The term investment may refer to total assets or net assets. The funds employed in net assets
in known as capital employed. Net assets equal net fixed assets plus current assets minus current
liabilities excluding bank loans. Alternatively, capital employed is equal to net worth plus total debt.

The conventional approach of calculating return of investment (ROI) is to divide PAT by

investments. Investment represents pool of funds supplied by shareholders and lenders, while PAT
represent residue income of shareholders; therefore, it is conceptually unsound to use PAT in the
calculation of ROI. Also, as discussed earlier, PAT is affected by capital structure. It is, therefore, more
appropriate to use one of the following measures of ROI for comparing the operating efficiency of firms:

Formula

98​ | ​Page
Calculation

For the year 2015-15 For the year 2012-13

Graphical presentation

Interpretation

Return on Asset Ratio indicates assets are being used very effectively with comparison total earning.
Here Ratio is 0.07 for the year 2015-15 and 0.08 for the year 2012-13. In comparison there was decrease
in ratio in 0.01 in the ratio. Which not actually good indication.

Since taxes are not controllable by management, and since firm’s opportunities for availing tax
incentives differ, it may be more prudent to use before tax to measure ROI. Many companies use
EBITDA (Earnings before Depreciation, Interest, Tax and Amortization) instead of EBIT to calculate ROI.

18. Return on Equity (ROE)

Common or ordinary shareholders are entitled to the residual profits. The rate of dividend is
not fixed; the earnings may be distributed to shareholders or retained in the business. Nevertheless, the
net profits after taxes represent their return. The shareholders equity or net worth will include paid-up
share capital, share premium, and reserves and surplus less accumulated losses. Net worth also be
found by subtracting total liabilities from total assets. The return on equity is net profit after taxes
divided by shareholders equity, which is given by net worth:

99​ | ​Page
Formula

Calculation

For the year 2015-15 For the year 2012-13

Graphical presentation

Interpretation

ROE indicates how well the firm has used the resources of owners. In fact, this ratio is one of
the most important relationships in financial analysis. The earning of a satisfactory return is the most
desirable objective of business. The ratio of net profit to owners’ equity reflects the extent to which this
objective has been accomplished. This ratio is, thus, of great interest to the present as well as the
prospective Shareholders and also of great concern to management, which has the responsibility of
maximizing the owners’ welfare. Ratio indicates funds are being contributed together by lenders and
owners for each rupee of owners’ contribution the company. Here Ratio is 0.11 for the year 2015-15 and
0.09 for the year 2012-13. In comparison there was increase ratio in 0.02 in the ratio. Which show good
condition.

19. Earnings per Share (EPS)

The profitability of the shareholders investments can also be measured in many other ways.
One such measure is to calculate the earnings per share. The earnings per share (EPS) are calculated by
dividing the profit after taxes by the total number of ordinary shares outstanding.

100​ | ​Page
Formula

Calculation

For the year 2015-15

For the year 2012-13

Graphical presentation

Interpretation

Earnings per share Ratio indicates how much company earns after tax in the proportion with number of
equity share. Here Ratio is 68.02 for the year 2015-15 and 65.05 for the year 2012-13. In comparison
there was increase ratio in 3 Rupees, it show company have earn more EPS then previous period. It
indicates company has shown good performance for this compared with previous year.

20. Dividends per Share (DPS or DIV)

101​ | ​Page
 The net profits after taxes belong to shareholders. But the income, which they will
receive, is the amount of earnings distributed as cash dividends. Therefore, a large number of present
and potential investors may be interested in DPS, rather than EPS. DPS is the earnings distributed to
ordinary shareholders dividend by the number of ordinary shares outstanding.

Formula

Calculation

For the year 2015-15

For the year 2012-13

Graphical presentation

Interpretation

Dividend per share Ratio indicates how much of share have been distributed for the profit to the
share owners’ contribution the company. Here Ratio is 8.64 for the year 2015-15 and 8.13 for the year
2012-13. In comparison there was increase 0.51 paisa. Which is like constant dividend payout This will

102​ | ​Page
sustain the trust of the share holder. And attract new share holders to invest to company and also
maximize the wealth of the company.

21. Dividend – Payout Ratio

The Dividend – payout Ratio or simply payout ratio is DPS ( or total equity dividends) divided by
the EPS ( or profit after tax):

Formula

Calculation

For the year 2015-15

For the year 2015-15

Graphical presentation

Interpretation

103​ | ​Page
 Dividend Payout Ratio indicates how much of share have been distributed for the profit to the
share owners’ contribution the company to earning per share( net earning). Here Ratio is 7.87 for the
year 2015-15 and 8.00 for the year 2012-13. In comparison there was decrease 0.13 paisa. This is like
constant dividend payout. This will sustain the trust of the share holder.

FINDINGS

1. There has been a remarkable increase Gross Sales and with the performance of All the department
and has narrowed and contributing to the EBIT. The Gross Profit Has considerably increased 1600 Crore
from in Last year. The interest payment has increased by 170 Cr in the Current year and the Profit before
Tax at 27,818 Crore when compared to 26,284 Crore in Last year.

2. The profit After Tax has came 21,984 Crore to 21,003 Crore in Current year because of demand in
international market.

3. The PAT is in an increasing trend from 2008-2009 because of increase in sale prices and also decreases
in the cost of manufacturing. In 2010 and 2011even the cost of manufacturing has increased by 5%
because of higher sales volume PAT has increased considerably, which leads to higher EPS, which is at
83.80 in 2010.

4. The EBIT level in 2009 is at 33041 Crore and is increasing every year till 2010-11. Because of
government policy and low demand in market The EBIT levels in 2012 and 2013 decreased significantly
but again started growing and reached to 27818 Crore.

5. The EPS of the company also increased considerably which investors in coming period. The company
has taken up a plant expansion program during the year to increase the production activity and to meet
the increase in the demand.

104​ | ​Page
6. Because of decrease in Non-Operating expenses to the time of the Net profit has increased. It stood at
in current year increase because of redemption of debenture and cost reduction. A dividend of Rs.3093
Crore as declared during the year at 9 % on equity.

CONCLUSIONS
1) Sales in 2015-2015 is at 4, 01,200 Crore and in 2012-2013 3, 71,021 Crore those in a increase trend to

the extent of 10% every year. On the other hand manufacturing expenses are at 3, 29,313 from

2015-2015. There has been significant increase in cost of production during 2012-2013 because of

increase in Royalty.

2) The interest charges were 4053 Crore in 2015 and 3505 Crore in 2013 respectively shows that the

company redeemed fixed interest bearing funds from time to time out of profit from

2012-2013.Debantures were partly redeemed with the help of debenture redemption reserve and other

references.

105​ | ​Page
3) The PAT (Profit After Tax) in 2015-2015 is at 21984 Crore. The PAT has increased in prices in during

the above period. The profit has increased almost 15% during the period 2015-2015.

4) Debentures were redeemed by transfers to D.R.R. in 2012-2013.

5) A steady transfer for dividend during 2008-2009 from P&L appropriation but in 2008 there is no

adequate dividend equity Shareholders.

6) The share capital of the company remained in unchanged during the three-year period because of no

public issues made by the company.

7) The secured loans have decreased consistently from 2012-2013 and slight increase in 2015-15.

RECOMMENDATIONS ON RELIANCE INDUSTRIES LTD

❖ The Board recognizes the importance of two-way communication with shareholders and giving a
balanced report of results and progress and responding to questions and issues raised in a
timely and consistent manner.

❖ The Company Secretary plays a key role in ensuring that the Board procedures are followed and
regularly reviewed. The Company Secretary ensures that all relevant information, details and
documents are made available to the Directors and senior management for effective
decision-making at the meetings.
❖ Significant changes in accounting policies and internal controls
❖ Takeover of a company or acquisition of a controlling or substantial stake in another company
❖ Statement of significant transactions, related party transactions and arrangements entered by
unlisted subsidiary companies
❖ Issue of securities including debentures

106​ | ​Page
 ❖ Appointment of and fixing of remuneration of the Auditors as recommended by the Audit
Committee
❖ Internal Audit findings and External Audit Reports (through the Audit Committee)
❖ Proposals for major investments, mergers, amalgamations and reconstructions
❖ Status of business risk exposures, its management and related action plans
❖ Making of loans and investment of surplus funds
❖ Borrowing of monies, giving guarantees or providing security in respect of loans
❖ Buyback of securities by the Company
❖ Diversify the business of the Company
 

SUGGESTIONS:

1. The company has to maintain the optimal capital structure and leverage so that in coming years it can

contribute to the wealth of the shareholders.

2. The mining loyalty contracts should be revised so that it will decrease the direct in the production

107​ | ​Page
3. The company has to exercise control over its outside purchases and overheads which have effect on

the profitability of the company.

4. As the interest rates in pubic Financial institutions are in a decreasing trend after globalization the

company going on searching for loan funds at a less rate of interest as in the case of international fund.

5. Efficiency and competency in managing the affairs of the company should be maintained.

BIBLIOGRAPHY

1) Financial Management: Khan & Jain

108​ | ​Page
2) Financial Management: I.M. Pandey

3) Financial Management: Prasanna Chandra

4) News Papers: Financial Express &Economic Times

5) Websites:

www.RIL.com

www.capiatalindia.com

www.moneycontrol.com

109​ | ​Page
110​ | ​Page