Indian Oil & Gas Sector- Financial Ratios

974 WordsNov 20, 20134 Pages
OIL & GAS SECTOR RATIO ANALYSIS CONTENTS PARTICULARS PAGE No. 1. Introduction 3 2. Objective 5 3. Ratio Analysis 6 4. Appendix 8 INTRODUCTION The Oil & Gas industry is the totality of all of the industries involved in the production and sale of fuel, including fuel extraction, manufacturing, refining and distribution. Modern society consumes large amounts of fuel, and the energy industry is a crucial part of the infrastructure and maintenance of society in almost all countries. Oil and gas exploration and production (E&P) companies are unique from a valuation standpoint. Because of this, investors need to focus on a different subset of ratios to analyze the growth and…show more content…
There has been a negative growth in terms of inventory, debtors and credit turnover. The most concerned fact to notice here is that the industry is facing a situation of working capital deficit which has become worst in the current year. We noticed that Cairn India is operating through a lot of credit sales which is a worrying fact, adding to this problem Cairn India’s debtor turnover has drastically declined to 7.86 from 18.62. This means that the company’s efficiency to turn their debtors into cash has declined when the company is mostly dealing in credit sales. Few companies have shown glimmer hope of improvement in their efficiency like Essar whose overall efficiency has improved this year, but the company is still facing the problem of working capital deficit. SOLVENCY RATIO Because of a huge working capital deficit, many companies in the industry were forced to take debt which has increased the debt equity ratio of the industry. While some companies like ONGC, Bharat Petroleum and Essar were paying off their debt, other companies like Cairn, GAIL and HPCL were taking more debt to finance their working capital deficit. This has led to slight increase in debt to total capital ratio and a negligible decline I the equity ratio of the industry. Since the profitability growth of the industry is limited because of volatile markets and increase of debt in total capital of the companies, the interest coverage capability of the industry
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