report

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FINAL RESEARCH REPORT
ON
“ ANALYSIS of WORKING CAPITAL MANAGEMENT
ONGC
SUMITTED IN PARTIAL FULFILLMENT OF THE
RQUIREMENT OF THE DEGREE OF BACHELOR OF
BUSINESS ADMINISTRATION
SUBMITTED BY: SUBMITTED TO :
VIPIN SHARMA MR. AMJAD AL (ASSISTANT PROF.)
BBA 6TH
SEM (FINANCE) GEU (DEHRADUN)
ROLL NO : 2401294

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DECLARATION
I hereby declare that this Project Report entitled “Analysis of working capital management on
ONGC” is a bonafied work done by me for the award of degree of Bachelor of Business
Administration submitted to Graphic Era University. The results embodied in this study have
not been submitted to any other University or Institution for the award of any Degree Certificate
or Published any time before.
Place:Dehradun
Date:09/05/2016
Vipin sharma

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CERTIFICATE BY GUIDE
This is to certify that the Dissertation completed on “Analysis of working capital management
on ONGC ” Submitted to School of Management Studies, Uttrakhand, Graphic Era University,
Dehradun byVIPIN SHARMA in partial fulfilment of the requirement for the award of
Bachelors in Business Administration, is a bonafide work carried out by his under my
supervision and guidance. This work has not been submitted anywhere else for any other
degree/diploma. The original work was carried during Jan2016 to May 2016.
Date: MR. AMJAD ALI
(Name of the guide )

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ACKNOWLEDGEMENT
I wish to express my sincere gratitude to Mr. Amjad ALI (ASST. PROF) for providing me
an opportunity to do my final research report on analysis of working capital management
“ONGC”’ and support in completing the project, who devoted their valuable time by helping me
to complete my project
I would like to thank DR. SMRITI TANDON for granting me permission to undertake the
training in this esteemed organization
I also wish to express my gratitude to the officials and other staff members of ONGC who
rendered their help during the period

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TABLE OF CONTENTS
INTRODUCTION 6-26
REVIEW OF LITRATURE 27-28
RESEARCH METHODOLOGY 29-32
OBJECTIVE OF THE STUDY 33
INTERPRETATION & ANALYSES 34-54
FINDINGS 55
SUGGESTIONS 56
CONCLUSION 57
ANNEXURE 58-59
BIBLIOGRAPHY 60

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EXECUTIVE SUMMARY
Working capital is the lifeblood and controlling nerve of an organization. ONGC being a large
organization , dealing in exploration and exploitation and hydrocarbons requires a large amount
of funds. The complexity and risks involved in exploration business like whole procedure of
search of oil, geographical and physical conditions, day to day reduction in oil reserves and
many other things tend to maintain a substantial amount of working capital. Hence there is a
need for proper management of working capital, so that day by day operations do not hamper; at
the same time there would not be any idle investment in working capital.
In this project, a modest attempt has been made to analyze the trend in working capital of ongc
during last five years i.e. from 2010 T0 2014

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CHAPTER-1
INTRODUCTION

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ABOUT ONGC
1.1 HISTORY OF ONGC
1947-1960
During the pre-independence period, the Assam Oil Company in the north-eastern an Attack Oil
company in north-western part of the undivided India were the only oil companies producing oil
in the country, with minimal exploration input. The major part of Indian sedimentary basins was
deemed to be unfit for development of oil and gas resources. After independence, the national
Government realized the importance oil and gas for rapid industrial development and its strategic
role in defence. Consequently, while framing the Industrial Policy Statement of 1948, the
development of petroleum industry in the country was considered to be of utmost necessity.
Until 1955, private oil companies mainly carried out exploration of hydrocarbon resources of
India. In Assam, the Assam Oil Company was producing oil at Digboi (discovered in 1889) and
the Oil India Ltd. (a 50% joint venture between Government of India and Burmah Oil Company)
was engaged in developing two newly discovered large fields Naharkatiya and Moran in Assam.
In West Bengal, the Indo-Stan vac Petroleum project (a joint venture between Government of
India and Standard Vacuum Oil Company of USA) was engaged in exploration work. The vast
sedimentary tract in other parts of India and adjoining offshore remained largely unexplored.
In 1955, Government of India decided to develop the oil and natural gas resources in the various
regions of the country as part of the Public Sector development. With this objective, an Oil and
Natural Gas Directorate was set up towards the end of 1955, as a subordinate office under the
then Ministry of Natural Resources and Scientific Research. The department was constituted
with a nucleus of geoscientists from the Geological survey of India.
A delegation under the leadership of Mr. K D Malviya, the then Minister of Natural Resources,
visited several European countries to study the status of oil industry in those countries and to

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facilitate the training of Indian professionals for exploring potential oil and gas reserves. Foreign
experts from USA, West Germany, Romania and erstwhile U.S.S.R visited India and helped the
government with their expertise.
Finally, the visiting Soviet experts drew up a detailed plan for geological and geophysical
surveys and drilling operations to be carried out in the 2nd Five Year Plan (1956-57 to 1960-61).
In October 1959, the Commission was converted into a statutory body by an act of the Indian
Parliament, which enhanced powers of the commission further. The main functions of the Oland
Natural Gas Commission subject to the provisions of the Act were "to plan, promote, organize
and implement programs for development of Petroleum Resources and the production and sale of
petroleum and petroleum products produced by it, and to perform such other functions as the
Central Government may, from time to time, assign to it ". The act further outlined the activities
and steps to be taken by ONGC in fulfilling its mandate.
1961-1990
Since its inception, ONGC has been instrumental in transforming the country's limited upstream
sector into a large viable playing field, with its activities spread throughout India and
significantly in overseas territories. In the inland areas, ONGC not only found new resources in
Assam but also established new oil province in Cambay basin (Gujarat), while adding new
petroliferous areas in the Assam-Arakan Fold Belt and East coast basins (both inland and
offshore).
ONGC went offshore in early 70's and discovered a giant oil field in the form of Bombay High,
now known as Mumbai High. This discovery, along with subsequent discoveries of huge oil and
gas fields in Western offshore changed the oil scenario of the country. Subsequently, over 5
billion tonnes of hydrocarbons, which were present in the country, were discovered. The most
important contribution of ONGC, however, is its self-reliance and development of core

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competence in E&P activities at a globally competitive level.
After 1990
The liberalized economic policy, adopted by the Government of India in July 1991, sought to
deregulate and de-licenses the core sectors (including petroleum sector) with partial
disinvestments of government equity in Public Sector Undertakings and other measures. As
consequence thereof, ONGC was re-organized as a limited Company under the Company’s Act,
1956 in February 1994. After the conversion of business of the erstwhile Oil & Natural Gas
Commission to that of Oil & Natural Gas Corporation Limited in 1993, the Government
disinvested 2 per cent of its shares through competitive bidding. Subsequently, ONGC expanded
its equity by another 2 per cent by offering shares to its employees.
During March 1999, ONGC, Indian Oil Corporation (IOC) - a downstream giant and Gas
Authority of India Limited (GAIL) - the only gas marketing company, agreed to have
crossholding in each other's stock. This paved the way for long-term strategic alliances both for
the domestic and overseas business opportunities in the energy value chain, amongst themselves.
Consequent to this the Government sold off 10 per cent of its share holding in ONGC to IOC and
2.5 per cent to GAIL. With this, the Government holding in ONGC come down to 84.11 per
cent.
In the year 2002-03, after taking over MRPL from the A V Birla Group, ONGC diversified into
the downstream sector. ONGC will soon be entering into the retailing business. ONGC has also
entered the global field through its subsidiary, ONGC Videsh Ltd. (OVL). ONGC has made
major investment in Vietnam, Sakhalin Sudan and earned its first hydrocarbon revenue from its
investment in Vietnam.

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1.2 BASIC INFORMATION
❖Company name: Oil & Natural Gas Corporation Limited.
❖Incorporationyear: 1959
❖Ownership: Central Govt. – Commercial Enterprises.
❖Main Activity: Exploration & Production of Oil and Gas
❖Registered office: jeevan bharti tower-2,124-indian chowk, Connaught
place, new delhi-110001
❖Address: ONGC limited KDMbhavan palavasana near palavasna chokdi
mehsana
❖Bankers: state bank of India
1.3 ONGC VISION AND MISSION STATEMENT
1.3.1 COMPANY’S VISION
“To be a world class Oil & Gas Company Integrated in energy business with
dominant Indian leadership and global presence.”
Motto
“Provide quality services with efficiency and transparency.”
1.3.2 MISSION
World Class
• Dedication towards leveraging competitive advantages in R&D and technology with involved
people.
• Imbibing high standards of business ethics and organizational values.
• Abiding commitment to health, safety and environment to enrich quality of community life.
• Fostering a culture of trust, openness and mutual concern to make working stimulating &
challenging experience for our people.

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• Striving for customer delight through quality products and services
1.3.3 INTEGRATED IN ENERGY BUSINESS
• Provide value linkages in other sectors of energy business.
• Create growth opportunities and maximize shareholder value.
• Dominant Indian Leadership
• Retain dominant position in Indian Petroleum sector and enhance India's energy availability
1.3.4 STRATEGIC VISION: 2001-2020
To focus on core business of E&P, ONGC has set strategic objectives of:
• Doubling reserves (i.e. accreting 6 billion tones of O+OEG).
• Improving average recovery from 28 per cent to 40 per cent.
• Tie-up 20 MMTPA of equity Hydrocarbon from abroad.
• The focus of management will be to monetize the money.
1.3.5 GLOBAL RANKING
• It is Asia‟s best Oil & Gas Company, as per a recent survey conducted by US- based magazine
„Global Finance‟.
• It is placed at the top of all indian corporte listed in forbes 400 global corporate (rank 133 rd)
and financial times global 500(rank 326th),by market capitalization.
• It is recognized as the Most Valuable Indian Corporate, by Market Capitalization, Net Worth
and Net Profits, in current listings of Economic Times 500 (4th time in a row), Business Today
500, Business Baron 500 and
Business Week.
• It is targeting to have all its installations (offshore and onshore) accredited
(certified) by March 2005. This will make ONGC the only company in the
world in this regard.
• It owns and operates more than 11000 kilo meters of pipelines in India,including nearly
3200kilometers of sub-sea pipelines. No other company in India operates even 50 per cent of this
route length.

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• Crossed the landmark of earning Net Profit exceeding Rs.10, 000 Core, and the first to do so
among all Indian Corporate, and a remarkable Net Profit to Revenue ratio of 29.8 per cent. The
growth in ONGC's profits is not solely due to deregulation in crude prices in India, as
deregulation has affected all the oil companies, upstream as well as downstream, but it is only
ONGC which has exhibited such a performance (of doubling turnover and profits). Has paid the
highest-ever dividend in the Indian corporate history.
• Its 10 per cent equity sale (India's highest-ever equity offer) received unprecedented Global
Investor recognition. This was a landmark in Indian equity market, establishing beyond doubt,
the respect ONGC's professional management commands among the global investor community.
According to a report published in 'The Asian Wall Street Journal (Hong Kong)',ONGC's Public
Issue brought in 20 Foreign Institutional Investors (FII‟s) to India, as (it was reported), 'they
could not ignore the company representing India's energy security'.
1.3.6 ONGC’S PIONEERING EFFORTS
Ongc is the only fully integrated petroleum company in india, operating along the entire
hydrocarbon value chain:
• Holds largest share (57.2%) of hydrocarbon acreages in India.
• Contributes over 84% of India‟s oil &gas production.
• Every sixth LPG cylinder comes from ONGC.
• About one-tenth of Indian refining capacity.
• Created a record of sorts by turning Mangalore Refinery in petrochemicals limited around from
being a stretcher case for referral to BIFR to among the BSE top 30, within year.
• Owns 23% OF Mangalore-Hasan-Bangalore product pipeline (MHBPL),
connecting MRPL to the Karnataka hinterland

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

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

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Types of Bills:
Supplier‟s Bills
Contractor‟s Bills
Miscellaneous payments the scope of Pre-audit also includes scrutiny of receipts of the
corporation. Activities normally regarded as pre-audit receipt-accounting for incoming cash,
such as:
Initial public offering (IPO)
Bank drafts/banker‟s cheque
Bank guarantees.
Receipts of FDR kept as security deposits with GEB, irrigation department. Logistics invoice
verification (LIV) with the integrated network of SAP being used during verification find out any
error in the documents before payments are made and deal with it.
4 PERSONAL CLAIM SECTION
This section deals with policies, procedures, controls, roles and responsibilities related to
accounting for employee related payments, recoveries, corresponding statutory payments
&compliances. The process explained in this section covers payments to/recoveries from:
Regular employees of ONGC;
Graduate Engineering Trainees (GET)/Management Trainees (MT)
Retired employees; and
Term based employees, (for example employees on deputation)Payments to regular employees
include monthly salary payments, off-cycle payments (for example holiday home, briefcase
payments etc.), loans & advances. GET/MT are paid as per their terms of employment. Retired

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employees are paid medical expense reimbursements as per HR policy. Recoveries from regular
employees include House Rent Recovery (HRR), Association of Scientific and Technical
Officers (ASTO) union recoveries, recoveries of loans &advances etc.
Main Role ofPCS Section :
 Updating employee payroll data at the time of joining.
 Accounting of various employee related payments.
 Accounting for full & final settlement on separation of employees.
 Payment to retired employees.
 Inter unit transfers and deputations to/from the Company.
 Tax Deducted at Source deductions and deposits
 Accounting for retirement benefits and related employee benefits

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

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COMPARITIVE BALANCE SHEET 2014-15
PARTICULAR 2014 PERCENTAFE 2015 PERCENTAGE

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WORKING CAPITAL MANAGEMENT
2 .1 MEANING OF WORKING CAPITAL:-
In simple words working capital means that which is issued to carry out the day to day
operations of a business. Capital required for a business can be classified under two main
categories
• Fixed capital
• Working capital
Every business needs funds for two purposes, for its establishment and to carry on its day to day
operations. Long term funds are required to create production facilities through purchase of fixed
assets such as plant and machinery, land, building, furniture etc. Investment in these assets
represents that part of firm capital, which is blocked on a permanent or fixed basis called fixed
capital. Funds are also needed for short term purposes i.e. for the purchase of raw material,
payment of wages and other day to day operations of business. These funds are known as
working capital. In other words, working capital refers to that firm‟s Capital, which is required
for short – term assets or current assets. Funds thus invested in current assets keep revolving last
and being constantly converted into cash and this cash flow is again converted into other current
assts. Hence it is known as circulating or short – term capital.

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

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2.3.2 Temporary Working Capital:
The extra working capital needed to support the changing production and sales activities, is
called variable or functioning or temporary working capital. For hear ONGC purchase raw
material as a plastic for manufacturing pipes in particular season and have to employ additional
labour to process it. They must meet this requirement for providing additional funds. Another
aspect of temporary working capital. Last year suddenly increase the demand of final product so
at that time require extra fund it‟s called the special working capital.
Temporary working capital differs from permanent working capital in the sense that is
required for short periods and cannot be permanently employed gainfully in the
business.
2.4 NEED FOR WORKING CAPITAL
The need for working capital cannot be overemphasized. The need of working capital arises due
to the time gap between production and realization of cash from sales. So the working capital or
investment in current assets becomes necessary need for working capital. It arises due to
following reasons:-

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

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

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

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

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

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financing for financing these current assets?
2.7.1 Current assets in relation to sales
If the firm can forecast accurately the factors, which effect the working capital, the investment in
current assets, can be designed uniquely? When uncertainty characteristics the above factors, as
it usually does the investment in current assets cannot be specified uniquely. In case of
uncertainty, the outlay on current assets should consist of base component meant to meet normal
requirement and a safety component meant to cope with unusual requirement. The safety
component depends upon low conservative or aggressive in the current assets policy of a firm. If
the firm purchases a very conservative current asset policy it would carry a high level of current
assets in relation to sales. If a firm adopts a moderate current assets policy it would carry
moderate level of current assets in relation to sales, finally is a firm follows a highly aggressive
current assets policy, it would carry a low level of current assets in relation to sales.

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CHAPTER-2
REVIEW OF LITERATURE

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An enterprise requires fixed as well as working capital. Firms cannot avoid investment in current
assets. A firm can exist and survive without making profit but cannot survive without working
capital. Thus, working capital management is vital because of its impact on the organization’s
profitability and risk and hence its value (Smith, 1980).
The literature of finance traditionally focused on long term financial decisions. There has been a
concerted effort by theoretical economists to analyze financial decisions of business firms within
the context of the equilibrium models of financial markets. While these models have been
employed to analyze the long term corporate investment and financial decisions, virtually no
research has been conducted in an attempt to apply them to working capital decisions (Cohn and
Pringle, 1975).
The literature of finance has neglected the short term financial decisions, which is working
capital management. Shortage of funds for working capital as well as the over- expansion of
working capital has resulted in many businesses to fail and in many cases have reduced their
growth (Grass, 1972).
Especially, in small scale organizations, working capital management might be the factor that
decides success or failure; in larger firms, efficient working capital management can
significantly affect the firm risk, return and share (Gitman, 1982).
Researchers have analyzed investments, capital structure, dividends and company valuation.
However, the investment that firm’s make in current assets and the resources used for short term
investment represent the main share of assets on a firm’s balance sheet which seems to have been
relatively neglected in research field. Working capital management is the related with decision
regarding the management of current assets and current liabilities. Maintaining inventory at high
level reduces the possible cost of interruption in the production process or loss in business due to
the scarcity of inventory, reduces supply costs and protects against price fluctuations among
other advantages (Blinder and Manccini, 1991).

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Granting trade credit favors the firm’s sales in various ways. Trade credit can act as an effective
price cut (Brennan et al., 1988; and Petersen and Rajan, 1997) and an incentive to customers to
acquire merchandise at times of low demand (Emery, 1987).
However, firms that invest heavily in inventory and account receivable can suffer low profit due
to an inverse relation of liquidity and profitability. Thus, greater the investment in current assets,
lower is the risk, and profitability obtained. Similarly, trade credit is an important source of
financing that result in reduction in the amount required to finance the sums tied up in the
inventory and account receivables. (Ng et al., 1999; and Wilner, 2000).
Profitability and liquidity comprise the salient and all too often conflicting goals of working
capital management. The conflict arises because the maximization of the firm’s returns could
seriously threaten liquidity, and on the other hand, the pursuit of liquidity has a tendency to
dilute returns. Over the years, analysts have employed traditional ratio analysis as a primary
instrument in the measurement of corporate liquidity in the firm, of well-established ratios such
as the current and quick ratios (Smith, 1997).
Teruel and Solano (2007) conducted a study to identify the effect of WCM on profitability of
small and medium sized Spanish firms. From the study it was concluded that there is a
significant negative relationship between an SME’s profitability and number of days of accounts
receivable and days of inventory. From the studies conducted to identify the trends in WCM and
its impact on Mauritian small manufacturing firms
(Pandachi 2006) identified that the requirement of working capital of an organization change
over time as does its internal cash generation rate.
The analysis done by Kerstien and Rai (2007) tried to examine the market reaction to positive

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and negative earnings changes influenced by large unexpected working capital accruals
(LWCAs) and predicts the circumstances where LWCAs lead to varying market expectations of
earnings quality. This literature argues that the market is more likely to suspect earnings
management and view earnings as being of lower quality when firm’s reports small increases in
earnings with the help of positive or negative large working capital accruals.
Raheman and Nasr (2007) conducted a study to analyze the relationship between WCM and
Profitability in case of Pakistani Firms and made a conclusion that there is a strong negative
relationship between variables of WCM and profitability of the firm. He further added that there
is a significant negative relationship between liquidity and profitability.
Research work by Appuhami (2008) analysed that the firm’s capital expenditure in Thailand has
a significant impact on WCM. It revealed that the firm’s operating cash flow has a significant
relationship with WCM. Many researchers have tried to understand the factors that determine the
WCM of an organization.
Deloof (2003) investigated the relation between WCM and corporate profitability. He suggested
that managers can create value for their shareholders by reducing the number of days of accounts
receivable and inventories. An inverse relationship between accounts payable and profitability
shows that less profitable organizations wait longer to pay bills i.e., creditors’ turnover period is
high.
Weinraub and Visscher (1998) observed a tendency of firms with low levels of current ratios to
have low levels of current liabilities. There are studies relating to working capital management in
Indian context for different industry sectors as well as individual firms. Yadav et al. (2009)
conducted a study on Maharashtra’s bulk drugs listed

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CHAPTER-3
RESEARCH
METHODOLOGY

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Methodology of the study refers to the methods used to collect the required data for research work. The
data required has been collected from the following sources :
PRIMARY SOURCES:
Discussions with the management. Briefings with the concerned officers.
Secondary sources :
 The secondary data of the organization helped me a lot. I have collected all the figures from the
annual reports and financial statements of ONGC.
 Records of the company : This helped me to get details regarding the history of the organization.
 Library research: A number of books on finance were referred to collect theoretical background
related to finance.
 ONGC LTD website : www.ongcindia.com
1 Research Design
The descriptive form of research is adopted for study. The major purpose of descriptive
research is description of state of affairs of the institutions as it exits at present. The nature and
characteristics of the financial statements of OIL AND NATURAL GAS CORPORATION have
been described in this study.
2 . Nature of Data
The data required for the study has been collected from secondary sources. The relevant figures
were taken from annual reports, journals and contents gathered from internet.

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3. Methods of Data Collection
This study was based on the annual report of OIL AND NATURAL GAS CORPORATION.
Hence the information related to, profitability, short term and long term solvency and turnover
are required for attaining the objectives of the percent study.
4 Period of Study:
This study covers a period of years from 2010-11 to 2014-15. Data relate to 5 years were
collected from the website of ONGC.

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SWOT ANALYSIS OF ONGC
1) STRENGTHS
• O.N.G.C LTD is perceived to be the leader in oil production industry.
• It has a very efficient and professional management team.
• Being an international company has sufficient resources and capital to invest.
• O.N.G.C has ISO-9001 & ISO 14001 registration.
2) WEAKNESS
• O.N.G.C is facing difficulties to produce oil from aging reservoirs.
3) OPPURTUNITY
• Energy utilization of buried coal resource (700 -1700M), estimated 63BT –
Equivalent to15000 BCM.
4) THREATS
• Security of personnel & property especially crude oil continues to be a cause
of concern in certain area.
• Some exploration Campaign Company involves high technology, high
technology, high investment and high risks.

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FINANCIAL INFORMATION OF THE COMPANY
Accounting policies
The company follows the accrual method of accounting. The company has followed
the entire applicable accounting standards mad mandatory by institute of chartered
accountants of India.
Equity capital
The fully paid up equity capital of the company was as. During the year under review
there was no change in the equity capital structure of there is no issued preference
capital in sterling ceramic ltd. There is no warrant waiting to be covered into equity.
Nearly percent of company equity is comprised of bonus shares. The company last
made a bonus issue in issuing two bonus shares for one share held in the company.
Loans
Oil and natural gas corporation ltd loan fund decreased form in the previous year to
during the year. During the current year the ratio of secured long term funds to
tangible net worth increased to in the previous year.
2.3.4 Fixed assets
The gross and net block of the company as on were and respectively. Plant and
machinery constituted of the gross block and net block respectively.
2.3.5 Depreciation
Depreciation accounted for in the current year compared to in the previous year
compared to in the previous year. There is no change in the accounting policy for
depreciation over the last year.

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Objectives of the Study:
The main objectives of this research work are:
❖ To analyze whether there is a relationship between Working Capital Management and
Profitability
❖ To find out the effects of different components of working capital management on
profitability.
❖To Study a relationship between the objectives of liquidity and profitability of the ONGC Ltd.
❖To interpret the financial position of company of is appropriate or not
❖To know the overall operational efficiently and performance of ONGC

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CHAPTER-4
DATA ANALYSIS AND
INTERPRETATION

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

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

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

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INTERPRETATION:-
This calculation implies that the fluctuation in the current ratio. As compared to previous year
the current year‟s ratio shows the better liquidity position. In 2011 to 2012 this ratio isin 2011
2.62 and in 2012 3.08which shows increase in liquidity. The reason behind that cash balance
and receivable is increasing. But after next two year the ratio is contently decrease.
QUICK RATIO
The Acid test ratio is the ratio between quick current assets and current liabilities and is
calculated by dividing the quick assets by the liquid liabilities. Most people believe that liquid
ratio is acid test ratio, but sometimes business is able to repay its liquid quick assets. The reason
behind that is emergency requirement cash and business cannot get it from debtors, so quick
assets include cash balance +investment certificate that can be immediately transferable into
cash. The satisfactory ratio is 1:1 but lower limit is 0.5:1. Here quick assets do not include stock.
Quick Ratio = Quick Assets (Current assets–Inventories)/current liability

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INTERPRETATION :
As the inventory does not play a major part in current assets
therefore, the difference between quick and current ratio is not high.
This can be explained by the fact that ongc being into an exploration
sector , requir e s less amount of raw mater i a l.
CASH RATIO :
The cash ratio measures the extent to which a corporation or other entity can quickly liquidate
asset and cover short term liabilities , and therefore is of interest to short term creditors
Cash ratio = cash + marketable securities/current liabilities

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INTERPRETATION :
A perusal of above data shows that the concerned ratio is quite satisfactory in all the previous
years because it is much higher than the rule of thumb i.e. 5. Moreover a high ratio in all the
years shows that the company has improved its needed short term financial position.

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PROFIT ABILITY RATIOS :
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. Thus is possible only when company earns enough
profit
GROSS PROFIT MARGIN :
The gross profit margin reflects the efficiency with which management produces each unit of
product . A high gross profit margin relative to the industry average implies that the firm is able
to produce at relatively lower cost . It is a sigh of good management. A gross marginratio may
increase due to
i) higher sales prices
ii) lower cost of goods sold
iii) A combination of variations in sales prices and costs
iv) An increase in the proportionate volume of higher margin items
A low gross profit margin may reflect higher costs of goods sold due to the firm’s inability to
purchase raw material at favorable terms, inefficient utilization of plant and machinery , or over
investment in plant and machinery resulting in higher cost of production .

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Gross profit margin = sales – cost of goods sold /sales=gross profit/sales
INTERPRETATION :
Gross profit ratio is a reliable guide to the adequacy of selling prices and efficiency of trading
activities. As the figure states that the ratio on 31st march 2006 is highest which shows its higher
adequacy to cover the administrative and marketing expenses and to provide for fixed charges,
dividends and building up of reserves . Of course , higher the gross profit ratio, the better it is. As
on 31st march 14 , the ratio is 51.1 % , which is quite similar to the ratio of previous year.
Thus , we can say that ONGC is maintaining the gross profit ratio.

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NET PROFIT MARGIN :
Net profit is obtained when operating expenses interest and taxes are subtracted from the gross
profit
Net profit margin =PAT /SALES
Net profit margin ratio establishes a relationship between net profit and sales and indicates
management’s efficiency in manufacturing , administering and selling the products. The ratio
indicates the firm’s capacity to withstand adverse economic condition. A firm with a high net
margin ratio would be in an advantageous position to survive in the face of falling selling prices ,
rising costs of production or declining demand for the product. It would really be difficult for a
low net margin firm to withstand these adversities

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INTERPRETATION :
On comparison of gross profit margin and net profit margin for the last two years , it is observed
that the net profit margin for year 14-15 is greater than for year 13-14 irrespective of having
higher gross profit margin in 13-14. This can be explained by the reason that deferred tax
liability is higher for the year 14-15 than for the year 13-14

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OPERATING EXPENSE RATIO :
OPERATING EXPENSE RATIO = OPERATING EXPENSES /SALES
A higher operating expense ratio is unfavorable since it will leave a small amount operating
income to meet interest, dividends etc. The variations in the ratio, temporary or long period can
occur due to several factors such as :
a) Change in the sales prices
b) Change in the demand for the product
c) Change in proportionate shares of sales of different products with varying gross margins.

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RETURN ON CAPITALEMPLOYED :
The term investment may refer to total assets or net assets. The conventional approach of
calculating return on investment (ROCE)is to divide (PBDIT) or PBIT by capital employed.
Capital employed and represents pools of funds supplied by shareholders and lenders , while
PAT represent residue income of shareholders.
ROCE= PBDIT/CAPITAL EMPLOYED

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INTERPRETATION :
Return on capital employed judges the overall performance of the enterprise .
ROCE shows a good trend of average 54% in the past 5 years. It shows the strong profitability
and good performance efficiency.
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. A return on

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shareholders equity is calculated to see the profitability of owners investment. The shareholders
equity or net worth will include paid up share capital , share premium and reserves and surplus
less accumulated losses .
INTERPRETATION :
ONGC is capable of earning return of average 25% on the equity employed in the last 5 years . it
shows that equity shareholder’s funds are being used efficiently. A constant trend also helps in
increased trust worthiness of organization among its shareholders.

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LEVERAGE RATIO :
DEBT RATIO :
Several data ratios may be used to analyze the long term solvency of a firm. The firm may be
interested to proportion of the interest bearing debt in the capital structure. Total debt will
include short and long term borrowings from financial institutions ,debentures/bonds ,deferred
payment arrangements for buying capital equipments , bank borrowings , public deposits and
may other interest bearing loan.
Debt ratio = total debt /total debt+net worth =total debt/capital employed

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INTERPRETATION :
It is seem that debt ratio is decreasing since 2010 and now its been very less. This is just because
financing through outside has decreased in ONGC

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CAPITAL EMPLOYED RATIO :
This is yet another alternative way of expressing the basic relationship between debt and equity
CE RATIO = CAPITAL EMPLOYED/NET WORTH
ACTIVITY RATIOS :
Activity ratios are measures of how well assets are used . activity ratios-which are,for the most
part, turnover ratios-can be used to evaluvate the benefits produced by specific assets ,such as
inventory or accounts receivable. Or they can be used to evluvate the benefits produced by all of
company’s assets collectively.
These measures help us gauge how effectively the company is at putting its investment to work.
A company will invest in assets –eg. ,inventory or plant and equipment-and then these assets to
generate revenues. The greater the turnover ,the more effectively the company is at producing a
benifut from its investment in assets.

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INVENTORY TURNOVER RATIOS :
Inventory turnover is the ratio of cost of goods sold to inventory. This ratio indicates how many
times inventory is created and sold during the period
INVENTORY TURNOVER =COST OF GOODS SOLD/AVERAGE STOCK

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INTERPRETATION :
ONGC is turning its inventory of finished goods into nsales 8.80 times in2015
In other words it bolds average inventory for 41 days in2014-15the average inventory figure is
more appropriate to use than the year end inventory figure because the levels of inventories
fluctuate over the year . the average inventory figure smoothes out the fluctuations.
DEBTOR TURNOVER RATIO :

59. 59

60. 60
CHAPTER: 5
CONCLUSION , FINDINGS
AND
RECOMMENDATIONS

61. 61
FINDINGS
1. There has been a decrease in inventory –as the capital stores in hand has decreased
because the insurance and stand by equipment has been taken to fixed assets &
capitalized and the capital stores in transit has decreased there was a backlog of items
which were cleared within the year
2. The other assets have increased as loans & advances have increased because of the
advances to subsidiaries and also because of increase in advances. The increase in loans
and advances is due to :
A) House building advance
B) New computer advance
3. The interest accrued on investment has decreased due to maturity of most of the
investment whereas on others it has increased as short term investments have increased.
4. The cash credit advance from state bank of india has an unfavorable balance to ONGC
LTD. Hence shown a current liability to ONGC LTD.
5. The PSU are the only buyers of the extracted products of ONGC LTD. The oil refining
companies buy crude oil from other countries also and sell it domestically after refining ,
to meet the demand of the country.

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SUGGESTIONS
The control over the working capital and its various components like inventories ,cash ,debtors
and loans and advances ,is efficient and effective to control the various component. But still the
following areas need some attention.
1. The cash management should be sharply focused and viewed. Effective techniques of
cash budgeting and forecasting should be used , so that the deficits could be well
determined and easily financed and surpluses could be invested in a healthy earning
security.
2. Loans and advances given by the corporation should be increased, so as to increase the
level of current assets. This will earn interest for the corporation which will be helpful for
the corporation.
3. Though the positions of the debtors are good enough but the average collection period
should be brought a little.
4. The portion of inventory needs greater attention. The corporation sometimes face
problem of stock of one type of inventory and deficit if other type of inventory. The
problem is due to the temporary code numbers. The coding system should be overhauled
and implemented in real earnest to overcome the problem.

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Conclusions
 LPG 1 being the oldest unit is showing some drop in the efficiency.
 Heat exchanger tends to get fouling frequently due to constant usage and heavy duty.
Hence it shows drop in efficiency over the period of time.
 The gas turbine used in LPG 1 unit for compression purpose shows a serious drop in the
efficiency in summers while the electrical motors in LPG unit is showing a very constant
performance.

64. 64

65. 65

66. 66
BIBLIOGRAPHY
 Khan M.Y and jain P.K, financial management
 Prasanna Chandra, financial management
 1) Annual Report of the company of 20010-2014.
 2) Websites:-
 www.ongcindia.com
 www.google.com
 www.kotaksecurities.com
 www.moneycontrol.com
 3) Book:-
 Financial Accounting, 3rd Edition, PHI Learning Pvt. Ltd.,
 Author- R. Narayanswamy, Part III, Chapter11, Financial Statement Analysis