Ratio Analysis of Oil and Natural Gas Corporation Ltd

Performance Evaluation of ONGC

Performance Evaluations and Ratio Analysis of Natural Gas Industry in India: A Case Study on Oil and Natural Gas Corporation Ltd

 

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Introduction, Importance and Significance of the Study

Oil and gas industry is the most important sector in any economy since it caters to a wide range of industries including petrochemicals, fertilizers, automobiles etc., Thanks to its importance and limited availability; it is one of the highly regulated sectors in India. This report gives a comprehensive picture of the oil and gas industry. Government policies in India have changed considerably in the post-liberalization era, with private and foreign players getting the nod to indulge in oil exploration and production through schemes like New Exploration and Licensing Policy (Nelp) I, II and III. Hence, there is a good scope for domestic private players and foreign players to enter this sector. Domestic demand for natural gas is expected to grow at a Compound Annual Growth Rate (CNGR) of 10.3 per cent, driven by demand from City Gas Distribution (CGD) and captive power. The power and fertiliser sectors will continue to remain the main consumers of natural gas, although their share in overall demand is expected to shrink.  Higher demand will lead to an increase in the share of Liquefied Natural Gas  (LNG) in total domestic supply, despite incremental supply of 71 mmscmd from domestic fields. The share of spot LNG is expected to grow at a CAGR of 21.3 per cent, surpassing supply from contracted LNG.  The weighted average price of natural gas in India is expected to increase from $4.9 per mmbtu in 2010-11 to $6.6 per mmbtu by 2014-15, due to increasing contribution of LNG (which is more expensive) in the overall gas supply mix in India.

 Rationale for the Study

The report provides an overview on the global scenario covering aspects like reserves in natural gas, production and the consumption of the same, contribution of Organization of Petroleum Exporting Countries (Opec), effect of UN sanctions particularly over capacity situation in Asian region etc., The current scenario prevailing in the domestic industry has been comprehensively covered with specific emphasis on government regulations, demand supply aspects, pricing in the industry etc., On the demand-supply front, the report features extensive coverage on the extent of natural gas reserves, production/consumption of crude oil and natural gas and crude refining capacity/ capacity utilization. The report also elaborates on the major projects that have been implemented recently and projects that are currently under implementation. Since the industry is highly regulated, the report discusses elaborately on crucial government policies.

 The significance of Ratio Analysis lies in the fact that it presents facts on a comparative basis and enables the drawing of inferences regarding the performance of a firm. The use is not confined the finance managers alone. They are different parties interested in the ratio analysis for knowing the financial position of a firm for different purpose. The suppliers of goods on credit, banks, financial institutions, investors, shareholders and the management all make use of ratio analysis as a tool of evaluating the financial position and the performance of a firm.

 Objectives of the Study

This study has the following broad objectives:

• To evaluate the performance of the company by using ratios as a yardstick to measure the efficiency of the company.
• To understand the liquidity, profitability and efficiency positions of the company during the study period.
• To evaluate and analyze various facts of the financial performance of the company.
• To make comparisons between the ratios during different periods.

Hypothesis for the Study

The following hypotheses will be formulated and tested in the present study:

H0: Significantly there is more importance to long-term solvency as compared to short-term solvency and profitability.

H1: Significantly there is no more importance to long-term solvency as compared to short-term solvency and profitability.

Research Methodology

Sample size:  The current study will be carried out by taking a Case study of Oil and Natural Gas Corporation Ltd is selected for financial statement analysis wherein capital structure, various ratios, cost of capital and the stock performance of the company are analysed.

Sources of Data

Literature bordering on different areas of Liquidity a working capital management is reviewed. Thus, this research will employ qualitative analysis, and semi- structured questions will be drafted based on the issues raised from the review of various literatures. In addition, materials from journal articles, textbooks and working papers will be also used. The use of internet and e-mails to send out questions will be explored where appropriate. Analysis on the company’s financial statement will be carried out in order to verify my findings.

Primary Data: Our primary data is mainly composed of information gained through the annual report of the ONGC. Some data Will be collected through interviews to get general information about the subject and also to get knowledge about the newest reports.  Other data we applied are from some unpublished documents provided by related departments.

 

Secondary data used are journals (journal of risk, journal of Oil and Gas documents) and reports/conferences issued and held by ONGC. The website www.ongc.com is our literature resource centre.  Since our research topic is limited to a fragmented field, we found it difficult to search for relevant information directly through books.

Tools of Data Analysis

• The present study will apply qualitative tools like interview.
• The technique of ratio analysis will also use to examine the different aspects of liquidity of both the companies.
• Correlation test  will be employed to find the significant correlations between the general profile variables

Expected Contribution from the Study

The project work is done for analyzing the financial position of the Oil and Natural Gas Corporation Limited. The analysis of the financial position gives a better picture of the financial position of the organization in order to take better decisions.  Ratio analysis guides the board and management to pursue objectives that are in the interests of the company and shareholders and facilitates effective monitoring thereby promoting optimal use of financial reserves more efficiently. The study is also beneficial to employees and offers motivation by sharing how they are contributing for the company growth.  The investors who are interest in the investing the company’s share will also get benefited by going through the study and can easily take a decision whether to invest or not in the company shares. This study is also beneficial to top management of the company by providing relevant information regarding important aspects like liquidity, leverage, activity and profitability.

Chapterisation

·         Introduction

·         Literature Review

·         Research Methodology

·         Data Analysis and Findings

·         Recommendations & Conclusion

·         Bibliography

·         Appendix

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