Final Pso Report

8/19/2019 Final Pso Report

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Pakistan State il

2015

ANALYSIS REPORT

INTRODUCTION TO BUSINESS FINANCE | INSTITUTE OF BUSINESS ADMINISTRATION

HAFSA UMAIR, SYEDA KHUSHBAKHT

FARRUKH, MUHAMMAD SAUD SHAKEEL


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PAKITSAN STATE OIL HAFSA UMAIR, SYEDA KHUSHBAKHT FARRUKH,

MUHAMMAD SAUD SHAKEEL

Table of Contents

Introduction ............................................................................................................................... 2

Profitability Ratios .................................................................................................................. 2

Debt Management Ratios ...................................................................................................... 3

Liquidity Ratios: .......................................................................................................................... 4

Market Ratios ............................................................................................................................. 5

Activity Turnover Ratios ............................................................................................................. 6

COMMON SIZE STATEMENT ANALYSIS ...................................................................................... 8

INCOME STATEMENT ............................................................................................................. 8

BALANCE SHEET .................................................................................................................... 10

INDUSTRIAL ANALYSIS.............................................................................................................. 13

BALANCE SHEET COMPARISON: ........................................................................................... 13

INCOME STATEMENT COMPARISON: .................................................................................. 13

RATIO COMPARISON ............................................................................................................ 13

Competitor Analysis ................................................................................................................. 13

CONCLUSION ............................................................................................................................ 15

REFERENCES ............................................................................................................................. 15

APPENDIX ................................................................................................................................. 16

.................................................................................................................................................. 16

.................................................................................................................................................. 16

.................................................................................................................................................. 16


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Pakistan State Oil Analysis Report

Introduction

Pakistan State Oil is a public company that was formed in the year 1976 with a series of mergers. The

government of Pakistan merged Pakistan Nation Oil (PNO) Company and Dawood Petroleum Limited

(DPL) and formed the Premier Oil Company Limited (POCL) in 1974. Sometime later, the Petroleum

Storage Development Corporation (PSDC) was formed which was then renamed as State Oil

Company Limited (SOCL). Finally in 1976, the merger of PSDC and SOCL brought about the creation

of Pakistan State Oil.

PSO is listed on the Karachi Stock Exchange as well as on all stock exchanges in Pakistan. It was listed

on the 23rd of October’1997 on the KSE, PSO belongs to the Oil and Gas sector. The core activities of

PSO are procurement (obtaining), storage and the marketing of petroleum and its other products. Its

product portfolio includes Motor Gasoline (MOGAS), high speed diesel oil, LPG, Kerosene Oil, Jet

Fuel, CNG, Petrochemicals and Lubricants.

The total market share of PSO, in the year 2014-15 stands at 56.8%, however, in 2013-2014 PSO had

a market share of 62% in the Oil Marketing Companies Sector. During the years 2013-2015, PSO lost

about 8% of its market share to other OMCs.

The total shares outstanding as of 30th June 2014 were 271,685,938. The number of free float shares

as of 30th June 2014 were 126,187,096.

RATIO ANALYSIS

Profitability Ratios

Pakistan State Oil witnessed its greatest ever annual

sales in FY-2014. A whopping revenue of 1.4 trillion

was recorded. In the same year, the Company also

recognized significant cost efficiencies, with

distribution and marketing expenses increasing by

merely a 3% in contrast to the 14% average increase

witnessed over the last three years and against an

inflation of 8.5%.

The Gross Profit margin has remained stable

throughout the course of the five years. While, the

net profit margin has observed a substantial increase

in FY 2014 due to a 208% increase in interest income

received from IPP’s. However, an abnormal decrease

was observed in FY-2012 owing to increase in

operating expenses as a result of exchange losses on account of the value of the rupee hitting a

historic low. This one time decline was offset in the following years with the return on shareholder’sequity and return on total assets has improving considerably in FY-2013 and FY-2014 owing to an

0

10

20

30

40

2014 2013 2012 2011 2010

PROFITABILITY RATIOS

Gross Profit ratio

Net Profit ratio%

Raw Return on Assets

Return on Shareholders' Equity

Return on total assets %


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increase in the bottom line, a decrease in equity due to actuarial losses, and a decrease in total

assets due to partial settlement of circular debt by Government of Pakistan.

Raw Return on Asset saw an increase in the initial two years due to lower tax rates, followed by a

decline in FY-2012 due to a spike in tax rates and consequently the tax expense. FY-2013 observed a

considerable improvement due to settlement of debt by the GoP. However the ratio worsened againin FY-2014 on account of increase in assets due to rise in deferred taxes.

Debt Management Ratios

In light of the circular debt crisis, and outstanding receivables from the Government of Pakistan

(GoP) and the Power sector readily increasing, PSO for the last five years has been covering its

finances through short term borrowings

(bank borrowings of 106 billion as per

end of FY-2014) and supplier credit. The

amount of short term borrowings has

further been significantly increasing to

cover the trade payables which are

unable to be met due to unpaid

receivables. Although debt management

ratios have remained relatively stable

throughout the course of FY-2010 to FY-

2012, a step towards improvement is

seen in FY-2013. Through the first three

years the Debt Ratio and Debt-to-Equity

ratio show that a major portion of PSO’s assets is financed through debt. Both ratios remain

relatively stable through the first three years, and have improved in FY-2013 as shareholder’s equity

increased due to addition in retained earnings. The Times Interest Earned ratio has also improved in

the last two years FY-2013 and FY-2014. This

PROFITABILITY RATIOS

YEARS

ITEMS 2014 2013 2012 2011 2010 TREND

Gross Profit ratio % 2.61 2.64 2.86 3.52 3.32 Decreasing

Net Profit ratio% % 1.55 0.98 0.75 1.52 1.03 Cyclical

Raw Return on Assets % 4.24 5.03 4.62 4.73 3.05 Cyclical

Return on Shareholders'

Equity

% 27.75 20.84 18.74 35.27 30.85 Cyclical

Return on total assets % % 5.86 4.48 2.6 5.63 4.47 Cyclical

0

2

4

6

8

2014 2013 2012 2011 2010

DEBT MANAGEMENT

RATIO

Times Interest Earned (x) Debt Ratio

Debt/ Equity Ratio


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improvement has occurred owing to a reduction of financing expenses (despite there being on the

offside, increases in operating expenses due to depreciation of rupee) due to repayment of loans

due to partial settlement of debt by GoP in FY-2013, resulting in a reduction of liabilities, and due to

a major increase in Earnings before Interest

Liquidity Ratios:

Liquidity Ratios gauge the ability of a company to

convert its assets into cash. The receivables from

the power sector affect the liquidity of PSO. These

receivables stood at Rs 139 billion as of June 30,

2014 versus Rs 43 billion as of Jun 30, 2013. The

Quick Ratio of PSO is below one indicating that PSOrelies too much on its inventory to pay off current

liabilities, which is seen in its inability to pay

creditors due to lack of payment by the power

sector on sale of inventories. The quick ratio has

remained relatively stable throughout the years,

witnessing a decline in FY-2013 due to an increase

in stock balances and an excess of inventory . The

current ratio has also remained relatively stable though with a slight decrease towards the last two

years due to excessive increase in short term-current liabilities to finance the circular debt crisis,

caused by lack of payment of Receivables by the Government of Pakistan (GoP). These short term

borrowing take place to pay off suppliers whose payments are due, and these payments in result in a

decrease in the Current Ratio.

DEBT MANAGEMENT RATIO

YEARS

ITEMS 2014 2013 2012 2011 2010 TREND

Times Interest Earned (x) 4.45 3.53 2.17 2.51 2.77 Cyclical

Debt Ratio (x) 0.78 0.85 0.83 0.85 0.86 Cyclical

Debt/ Equity Ratio (x) 3.59 5.92 5.24 5.89 6.11 Cyclical

LIQUIDITY RATIOS

YEARS

ITEMS 2014 2013 2012 2011 2010 TREND

Current Ratio (x) 1.09 1.03 1.15 1.16 1.14 Cyclical

Quick Ratio (x) 0.79 0.54 0.85 0.72 0.79 Cyclical

0

0.5

1

1.5

2014 2013 2012 2011 2010

LIQUIDITY RATIOS

Current Ratio Quick Ratio


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Market Ratios

PSO’s earnings have been improving remarkably each year, owing to the rising demand by the power

sector and the ongoing CNG shortage in the country. PSO’s bottom line saw a remarkable

improvement in FY-2014 due to rising revenues, declining costs and a doubling of interest income

from IPP’s. The only inhibition for PSO’s earnings is the money tied up in unpaid receivables by theGovernment of Pakistan (GoP), and rising financing costs due to short term borrowings to pay off

outstanding trade payables. The company’s profitability is also reflected in the Rs. 4/ share interim

dividend declared in addition to the Rs. 4 per share cash dividend. A 10% interim bonus was also

paid to common shareholders.

Due to abnormal rise in income in FY-2014, the price to

earnings ratio has declined in this year as market value of

stock has not risen enough to reflect the rise in income. In

the previous year FY-2013 a rise in price to earnings ratio

was seen due to improvement in investors’ confidence in the

company on account of improved profitability andsettlement of debt by the Government of Pakistan (GoP). In

the years prior to this the P/E ratio has remained relatively

stable along the lines of the value of the P/E ratio in FY-

2014.

The Earnings per Share rose in FY-2011 in comparison to FY-

2010. In the following year, FY-2011 the earning per share

declined due to a fall in net income due to heavy exchange

losses on account of sharp rupee devaluation by 10%. Net

income improved in FY-2012 due to devaluation of rupee

only by 5%.

The Market value of PSO shares has been increasing annually due to investor confidence in the hope

that the new government will pay off the circular debt. The Book Value of Shares has been

increasing annually due to reinvestment of major part of net earnings and thus an increase in

shareholder’s equity while number of shares outstanding remains constant.

Market Value/Book Value has been periodically increasing and decreasing each year. This has been

due to market value increasing in a greater proportion than the stockholder’s equity which

influences the book value or vice versa in years of decrease.

MARKET RATIO

UNIT YEARS

ITEMS 2014 2013 2012 2011 2010 TREND

Earnings per share (Basic) Rs. 80.31 50.84 52.8 86.17 52.76 Cyclical

Market value per share

(YearEnd)

Rs. 388.8

5

320.38 235.84 264.58 260.2 Cyclical

Price earnings ratio (P/E) (x) 4.84 6.3 4.47 3.07 4.93 Cyclical

0

100

200

300

400

500

2014 2013 2012 2011 2010

MARKET RATIOS

Earning per share (Basic)

Market value per share (YearEnd)

Price earning ratio (P/E)

Book Value

Market value / book value


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Activity Turnover Ratios

The inventory turnover ratio witnessed a dip

in FY-2011 and FY-2013, but has been steadily

rising since, indicating effective handling of

inventory. Hence, the days sales in inventory

has been reducing. Receivable’s turnover

ratio was initially declining due to mounting

receivables by the power sector. The

turnover has seen been improving in FY-2013and FY-2014 highlighting partial settlement of

debt by the Government of Pakistan. As a

result the number of days sales outstanding

have shortened in the past two years. The payable’s

turnover ratio was improving in the initial two years

then declined in FY-2012 due to increased

borrowings. It improved again FY-2013 owing to

partial settlement of circular debt. Finally in FY-2014

the ratio declined again on account of due to severe

increase in bank borrowings to cover circular debt.

The days payable outstanding have hence doubled

in the last year. Total fixed asset turnover ratios

have been increasing due to increase in sales in FY-

2014 and as a result of increase in turnover and

decline in property plant and equipment balance

due to low capital expenditure and depreciation

charges for the year. This ratio has been seen to be increasing in prior years as well. Asset Turnover

Ratio was declining till FY-2012, however, an increase has been seen in FY-2013 and FY-2014 due torising turnover and decline in total assets.

Operating Cycle has been increasing through the initial three years and has declined in FY-2013 due

to settlement of debt by GoP then increased again in FY-2014 due to increase in stock balances and

increasing receivables from the power sector.

Cash Conversion Cycle has increased in the initial three years than witnessed a significant decline in

FY-2013 due to partial settlement of Government receivables having resulted in a considerable

decrease in no of days in receivables. Another spike is seen in FY-2014 cause of increase in debt in

the power industry.

Book Value Rs. 289.3

8

223.21 183.89 154.23 107.98 Increasing

Market value / book value (x) 1.34 1.44 1.28 1.72 2.41 Cyclical

0

5

10

15

20

2014 2013 2012 2011 2010

TURNOVER RATIOS

Inventory turn over ratio * (x)

Debtor turn over ratio *(x)

Creditor turn over ratio *(x)

0 20 40 60 80 100 120

1

2

3

4

5

6

OPERATING CYCLE VS CASH

CONVERSION CYCLE

Cash Conversion Cycle Operating Cycle (days) No.


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ACTIVITY / TURNOVER RATIOS

YEARS

ITEMS 2014 2013 2012 2011 2010 TREND

Inventory

turnover

ratio * (x)

(x) 16.33 12.2 13.55 10.22 14.97 Cyclical

No. of days in

Inventory No.

22 30 27 36 24 Cyclical

Debtor

turnover

ratio *(x)

(x) 8.04 16.9 5.5 7.82 7.47 Cyclical

No. of days in

Receivables

No.

45 22 66 47 49 Cyclical

Creditor

turnover

ratio *(x)

(x) 8.65 7.77 5.08 5.17 5.46 Cyclical

No. of days in

Creditors No.

42 47 72 71 67 Cyclical

Total as set

turnover

ratio (x)

(x) 4.31 4.11 3.93 4.19 4.93 Cyclical

Fixed as set

turnover

ratio (x)

(x) 246.04 226.77 200.39 155.68 130.27 Increasing

Cash

Conversion

Cycle (days)

25 5 21 12 6 Increasing

except in

2013

Operating

Cycle (days)

No.

67 52 93 83 73 Cyclical


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COMMON SIZE STATEMENT ANALYSIS

INCOME STATEMENT

Vertical and Horizontal:

The amount of Net Sales is taken as 100% for the vertical analysis, considering all other

items are expressed as a percentage of Net Sales. Here the Sales figure is taken as the Net

Sales figure. The base year for the vertical analysis is 2010.

Total Sales increased by 61% in 2014 as compared to the base year. This was higher than

the percentage increase in previous years. Sales tax on the other hand increased by 72%

and that was a greater increase than that of total Sales. As a result, the Net Sales increased

only by 60%. The Sales tax as a percentage of sales increased by 7.24% between the years

2010-2014. The Sales tax percentage during these years was progressing.

The Net Sales (after tax Sales figure) as a percentage of Sales decreased by 0.5% which was

an insignificant decrease. While its percentage stayed between the range of 81% to 86%.

The cost of goods sold had a similar increase as Total Sales, of 61%, subsequently, the Gross

profit had an increase of 26% from the base year. The increase in gross profit was due to

favorable sales volume and margin variances, greater than expected amount. CoGS as a

percentage of sales had a cyclical trend in the years 2010-2013. In 2014, it further decreased

to 81.64%. Gross profit, had a perfectly cyclical trend over the 5 years ranging between 2%-

4% of the Net Sales. The increase in Gross profit of 2.7 billion (due to better sales volume

and margin variances) was offset by a greater increase in the amount of taxation.

Other incomes had the same trend as well ranging from 0.4% to 2%.

The operating expenses rose by 53% in 2014 which was more than the gross profit

percentage increase from the base year. This same ratio when compared with net sales of

each year increased in years 2010-12, then decreased till 2014 to 1.02%. Due to the

increase of 158% in other Income, the Profit from operations ended up being 54% more

than that of the base year despite the augmenting expenses. This high increase in other

income was mainly due to the receipt of interest on the delayed payments by Independent

Power Producers (IPPs). The operating profit on the other hand kept reducing in proportion

to Net sales till 2013, but rose to 2.98% in 2014.

The finance cost, that includes Interest expense decreased each year till 2013 and then

became 97% of the base year cost in 2014. However, this was a higher percentage as

compared to 77% in 2013. This Finance costs as a proportion of net sales had an up and

down trend over the 5 years that reached a percentage of 0.68% in 2014. The increase in

finance costs were due to greater short term borrowings to deal with an increasing amount

of circular debt.

Taxation, as opposed to the finance cost, rose and was 25% more than the base year

taxation amount. It rose by Rs. 4.6 billion, mostly due to the higher profits for the year and


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not due to any significant changes in tax rates. Taxation, moreover, formed a greater

proportion of Net Sales each year except 2011.

The final profit after interest and tax experienced an increase of 141% of the base year

amount and increase by Rs. 9.2 billion. As a proportion of net sales, it had an up and down

trend, that ranged from 0.5% to 2%.

VERTICAL ANALYSIS (INCOME STATEMENT)

ITEMS 2014 2013 2012 2011 2010

Sales 100.00% 100.00% 100.00% 100.00% 100.00%

Sales Tax 14.50% 13.79% 13.66% 14.15% 13.52%

IFEM/Levies 1.25% 1.23% 0.97% 1.68% 1.81%

Net sales 84.26% 84.98% 85.37% 84.16% 84.68%

Cost of products sold 81.64% 82.34% 82.51% 80.65% 81.35%

Gross Profit 2.61% 2.64% 2.86% 3.52% 3.33%

Other Income 1.38% 0.46% 0.81% 0.61% 0.86%

Administrative & Marketing Expense 0.74%

0.79%

0.82%

0.89%

0.80%

Other operating expenses 0.28% 0.28% 0.77% 0.23% 0.28%

Total Operating Costs 1.02% 1.07% 1.60% 1.12% 1.07%

Profit from Operations 2.98% 2.04% 2.07% 3.01% 3.12%

Finance cost 0.68% 0.59% 0.97% 1.22% 1.13%

Share of Profit of Associates 0.04% 0.04% 0.04% 0.05% 0.06%

Profit before taxation 2.34% 1.49% 1.14% 1.84% 2.05%

Taxation 0.79% 0.51% 0.38% 0.33% 1.02%

Profit after taxation 1.55% 0.98% 0.75% 1.52% 1.03%

HORIZONTAL ANAYLYSIS (INCOME STATEMENT)

YEARS

ITEMS 2014 2013 2012 2011 2010

Sales 161.00% 148.00% 137.00% 111.00% 100.00%

Sales Tax 172.00% 151.00% 138.00% 116.00% 100.00%

IFEM / Levies 111.00% 100.00% 73.00% 104.00% 100.00%

Net sales 160.00% 148.00% 138.00% 110.00% 100.00%

Cost of products sold 161.00% 149.00% 139.00% 110.00% 100.00%

Gross Profit 126.00% 117.00% 118.00% 118.00% 100.00%

Other Income 258% 78% 128% 79% 100%

Operating Costs

Administrative & Marketing Expense 150.00% 146.00% 141.00% 124.00% 100.00%

Other operating expenses 161.00% 152.00% 384.00% 93.00% 100.00%

Total Operating Costs 153.00% 147.00% 203.00% 116.00% 100.00%

Profit from operations 154.00% 96.00% 91.00% 107.00% 100.00%

Finance cost 97.00% 77.00% 118.00% 120.00% 100.00%

Share of Profit of Associates 105.00% 111.00% 91.00% 100.00% 100.00%

Profit before taxation 184.00% 107.00% 76.00% 100.00% 100.00%

Taxation 125.00% 74.00% 52.00% 36.00% 100.00%

Profit after taxation 241% 140% 100% 163% 100%


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BALANCE SHEET

Horizontal: The base year was taken as 2010 for the horizontal analysis, and all items are

expressed as a percentage of Total Assets in the vertical analysis.

Noncurrent assets increased throughout the 5 years, starting off with 11%, 18% and then

moving on to as much as 561% till 2014, as compared to the base yearThe composition of

noncurrent assets as a portion of assets was cyclical over the 5 years, and in the year 2014,

non-current assets formed 15.76% of the total assets. This significant change between 2012

and 14 was due to an increase in deferred tax assets and a decrease in long term

investments.

The Property plant and equipment, a part of noncurrent assets formed quite a low part of

the total assets, decreasing annually. However, an exception to this was the year 2014

where PPE amounted to 12.3% of the Total Assets as opposed to the steady range of 1-4% in

previous years. The long term investments decreased over 2010-12, increased to 17.11% of

the total assets in 2013 but in the year 2014, there were no long term investments. The

inventory too formed irregular percentages of total assets over the years. It increased till

2011, decreased to 25.42% till 2012, increased by 48% till 2013 and again decreased to

23.19% in 2014 due to fluctuating oil prices. . Inventory as a whole had a cyclical trend, and

in 2014 was 47% more than the amount in 2010.

Account Receivables followed the same cyclical trend, starting from a decrease in 2010 to

an increase in 2011 then back to a decrease in 2012 and finally an increase in 2013 till 2014.

As a percentage of the base year amount they increased till the year 2012 to 186%.

However, there was a drastic change in 2013 where they dropped to only 65% after which

they rose again to 149%.

Cash and Bank balances had huge increases over the years, 30%, 194%, 1059% in 2011,

2013 and 2014 except in the year 2012 where it had a decrease of 9% from the base year

amounts. As a percentage of assets, cash had a steady portion of 0.88% in 2010 and 2011

but decreased to 0.47% in 2012. From then to 2014, the cash and bank percentage of total

assets increased to 5.54% of the total assets which was a 199% increase from 2013.

The total current assets had cyclical trend starting from 95.61% in 2010 and ending at 84.2%

in 2014 in respect to the base year. During 2013-14 they increased by Rs. 89 billion primarily

due to an increase in account receivables by Rs. 99 billion. The full increase however wasoffset by the decrease in inventory stock by Rs. 20 billion.

Total assets had an increasing trend with the exception of the year 2013.

Share Capital remained the same over 2011 and 2012 but increase by 44% and 58% in 2013

and 14 respectively wrt base year. Reserves had an increasing trend from 45% to 175%

between years 2011 to 14. Shareholder’s equity followed the same nature as reserves.

On a whole, Share capital composed a decreasing percentage of the total assets over the

years 2010-2012. It increased in 2013 but then decreased again to 0.73% of the total

financing. The reserves had an up and down and then steady trend. Consequently, the total


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shareholder’s equity followed the Reserves (additional paid in capital and Retained

earnings) trend and increased then decreased till 2013 after which it stayed at a steady

range of 21%. The significant increase in Shareholder’s equity as a percentage of total

financing from 13% to 21% in 2012-13 was due to the large amount of retained earnings for

the year.

The long term liabilities had huge percentage increases of 18%-175%. Trade payable

increased till year 2012 but then decreased. As a portion of financing as a whole, the total

noncurrent liabilities had a cyclical trend, increasing and decreasing repeatedly over the five

years arriving at 1.39%.

Current liabilities rose each year except in 2013 for reasons as mentioned above, the ever

continuing debt crisis. The account payables had a decreasing trend over the five years. It

began from being 77.62% of the total financing in 2010 to being 52.13% in 2014. There was

also an increase in short term borrowings percentage over the years. As a result, the total

Current liabilities followed a cyclical trend, similar to accounts payable.

The total liabilities composed the total financing within a range of 78% to 87% over the five

years. There was a decline in the percentage total liability composition of total financing

from 2012-13 due to a reduction of obligations to refineries by 83% by the funds from Govt.

of Pakistan under the circular debt settlement plan at that time. There was a small increase

in total liability percentage from 2013 to 14 due to the existing circular debt problem.

BALANCE SHEET

VERTICAL ANALYSIS

YEARS

ITEMS 2014 2013 2012 2011 2010

Property , plant and equipment 12.30% 1.97% 1.68% 2.33% 3.17%

Long term investments - 17.11% 0.57% 0.88% 1.00%

Long term loans , advances and receivables 0.09% 0.13% 0.11% 0.12% 0.16%

Long term deposits and pre payments 0.04% 0.04% 0.04% 0.06% 0.06%

Deferred tax 1.74% 1.17% 0.61% 0.36% 0.00%

Total Non - Current Assets 15.76% 20.43% 3.01% 3.75% 4.39%

Stores , spares and loose tools 0.05% 0.05% 0.04% 0.04% 0.06%

Inventory 23.19% 37.63% 25.42% 36.31% 28.97%

Account Receivable 47.13% 27.17% 62.60% 47.48% 58.10%

Loans and advances 0.15% 0.17% 0.15% 0.16% 0.20%

Deposits and short term pre payments 0.66% 0.85% 0.73% 0.39% 0.18%

Accrued Interest 0.60% 0.80% 0.00% 0.00% 0.00%

Other receivables 5.67% 9.42% 6.06% 8.57% 7.20%

Taxation-net 1.26% 1.63% 1.53% 2.40% 0.02%

Cash and bank balances 5.54% 1.85% 0.47% 0.88% 0.88%

Total Current Assets 84.24% 79.57% 96.99% 96.25% 95.61%

Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%Share Capital 0.73% 0.88% 0.49% 0.65% 0.85%


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Reserves 20.40% 20.63% 13.39% 15.30% 13.66%

Total Shareholders Equity 21.13% 21.51% 13.88% 15.95% 14.51%

Retirement and other service benefits 1.39% 1.51% 1.43% 0.85% 0.93%

Total Non-Current Liabilities 1.39% 1.51% 1.43% 0.85% 0.93%

Account Payables 52.13% 70.45% 71.19% 73.43% 77.62%

Provisions 0.19% 0.24% 0.20% 0.26% 0.34%Accrued interest/ mark-up 0.36% 0.15% 0.16% 0.16% 0.16%

Short term borrowings 24.81% 6.13% 13.14% 9.34% 6.44%

Total Current Liabilities 77.48% 76.98% 84.69% 83.20% 84.56%

Total Liabilities 78.87% 78.49% 86.12% 84.05% 85.49%

Total Liabilities and Equity 100.00% 100.00% 100.00% 100.00% 100.00%

HORIZONTAL ANALYSIS (BALANCE SHEET)

YEARS

ITEMS 2014 2013 2012 2011 2010Property plant and equipment 92% 87% 91% 95% 100%

Total Non - Current Assets 661% 649% 118% 111% 100%

Inventory 147% 181% 151% 163% 100%

Account Receivables 149% 65% 186% 106% 100%

Other receivables 145% 183% 145% 155% 100%

Cash and bank balances 1159% 294% 91% 130% 100%

Total Current Assets 162% 116% 175% 131% 100%

Total Assets 184% 139% 172% 130% 100%

Share Capital 158% 144% 100% 100% 100%

Reserves 275% 211% 169% 145% 100%Total Shareholder’s Equity 268% 207% 165% 143% 100%

Total Long term Liabilities 275% 226% 264% 118% 100%

Trade and other payables 124% 127% 158% 123% 100%

Provisions 100% 100% 100% 100% 100%

Total Current Liabilities 169% 127% 172% 128% 100%

Total Equity & Liabilities 184% 139% 172% 130% 100%


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INDUSTRIAL ANALYSIS

BALANCE SHEET COMPARISON:

PSO lies under the category of the fuel and energy sector. Hence after comparing balance sheet of

both, it gives the following proportions. Comparison is done based on taking proportionate figures of

assets, liabilities and shareholder’s equity, and determined what share of PSO’s assets, liabilities and

equity have in fuel and energy sector. Assets formed 22.384%, total liabilities were 27.522%, and

shareholder’s equity was 11.30%.

INCOME STATEMENT COMPARISON:

Major part of the sales of the aggregate fuel and energy sector is contributed by PSO. Sales shows a

significant figure of 93.34%. Gross profit contributed is 22.86% and when further refined to net

profit before tax it comes down to 16.42%. It is clear from these figures that expenses are very high

that reduces net income significantly. 37.10% is the cash divided contributed by PSO.

Hence, in the industrial sector PSO is playing a vital role towards revenue generation.

RATIO COMPARISON

Ratios have been compared based on the differences in the ratio values of industrial sector and PSO.

Under profitability ratio, difference in return on asset turned out to be 4.96% and -4.16 in case of

return on equity. Under activity/ turnover ratios, difference in inventory turnover is 64.85 which is

significant. Under liquidity ratios, difference in current ratio is -0.27 and 0.48 is that of quick ratio.

Both the differences are insignificant. Another significant difference is observed in market ratios.

Earning per share has a difference of -81.88. Under debt management ratio, difference in debt to

equity ratio is 3.73. Hence, from comparison it can be inferred that PSO is consistent in ratios with

the exception of inventory turnover and earning per share ratio.

Competitor Analysis

Both Shell and Pakistan State Oil operate in the Oil and Gas Sector. PSO dominates the entire market

with a 72% market share, while the remainder

of the players like Shell and Caltex share the

remaining percent. For quite a few years now,

the entire sector has been suffering from the

Circular debit crisis, because of which all

companies have to borrow an enormous

amount of short term loans to pay off their

creditors, due to the power sector and GoP

not paying off its debts. Due to this excessive

borrowing, the financial standing of both

companies has been affected in the recent

years.

However, Pakistan State Oil has dealt with the

crisis much more efficiently than Shell, which

is reflected in both their financial ratios.

Comparing the profitability ratios, minus the

gross profit margin, the ratios of PSO indicate

RATIOS

COMPANY

PSO Shell

Profitability Ratio

Gross Profit ratio % 2.61 3Net Profit ratio% 1.55 0

Raw Return on Assets 4.24

Return on Shareholders' Equity% 27.75 -0.17

Return on total assets% 5.86 5

Activity/TurnoverRatios

Inventory turn over ratio *(x) 16.33 15.73

No. of days in Inventory No. 22 23.2

Debtor turn over ratio *(x) 8.04 95.5

No.of days in Receivables No. 45 3.82

Creditor turn over ratio *(x) 8.65 9.01

No.of days in Creditors No. 42 40


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14



a sounder financial position of the company in

comparison with Shell. While PSO has given a

27.75% return to its shareholders, the

shareholders had to suffice with a negative

0.17% return. The net profit ratio of Shell is 0

in comparison to PSO’s 1.55%. The minimum

tax regime has been increasing the tax

liability, and is responsible for further

decreasing Shell’s net income.

In regards to debt ratios, the values show that

PSO is in a better place to pay off its interest

with a 4.45 debt to interest ratio. However,

the debt ratio shows that Shell is financed

almost entirely through equity, and has very

little long term liabilities, which put it in a

better position in that dimension. The

liquidity ratios of PSO are better off than

those off shell indicating that PSO’s ability to

pay off its short term liabilities is greater than that of shell, a characteristic which is important due to

the excessive need for short term borrowings.

The Market ratios further show that PSO’s finances are thriving, while Shell has been hitting a

negative in the recent years. The Earnings per Share and P/E ratio of Shell are negative, showing its

run-down earnings in recent years. The book values is also almost negative. Shells 258 market value

for the year although less than PSO is still better than its other figures.

The Asset Management ratios of both companies are more or less similar. Except due to the fact

that Shell rarely relies on debtors for its transactions, it has a much higher debtor turnover ratio of

95.5. One other significant difference is in the fixed asset turnover ratio which for PSO is more than

ten times greater than Shell indicating that it is generating sales with a small amount of fixed assets,

despite the net income of PSO being exponentially higher than that of shell.

The above comparison clearly indicates that PSO is in a better financial position than Shell, as well as

its other competitors, and continues to thrive and improve its market share, and expand its

operations with each passing year.

Total as set turnover ratio (x) 4.31 6.33

Fixed as set turn over ratio (x) 246.04 23.13

Cash Conversion Cycle 25 -13

Operating Cycle 67 27

LiquidityRatios

Current Ratio (x) 1.09 0.85Quick Ratio (x) 0.79 0.45

MarketRatios

Earning per share (Basic) 80.31 -0.009

Market value per share (YearEnd) 388.85 258

Price earning ratio (P/E) 4.84 -28124

Book Value 289.38 0.0551

Market value / book value 1.34 4699

Debt Management Ratio

Times Interest Earned4.45 1.22

Debt Ratio 0.78 0.1

Debt/ Equity Ratio 3.59 5.56


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CONCLUSION

From the above analysis we can gauge that the circular debt crisis is the main challenge faced by all

companies in the oil and gas sector. The declining exchange rates is another issue. PSO is handling

this crisis much more proficiently than Shell. Shell has negative profitability, while PSO is hitting the

highest sales, revenues and net profits in years, and has ended up on the Forbes 2000 list. PACRAalso improved PSO’s Outlook from Stable to Positive while maintaining AA+ and A1+ credit rating for

long-term and short-term respectively.

The financial figures and ratings of PSO indicate that its position is sound despite the challenges

faced by the industry, and it has actually managed to improve its standing by cutting down on fixed

assets and increasing its income from other sources such as PIBs and IPPs.

We can see that once the power sector receivables are settled, PSO will be able to thrive even more

when all of its tied up cash is freed. Deregulation would also help PSO further increase its market

share. As a whole, the future for PSO seems quite promising in terms of further financial success.

REFERENCES

http://www.investopedia.com/terms/c/capitalreduction.asp

http://reports.shell.com/annual-report/2014/servicepages/downloads/files/entire_shell_ar14.pdf

http://www.brecorder.com/brief-recordings/0:/1241681:pakistan-state-oil/

http://www.brecorder.com/brief-recordings/0:/1246046:shell-pakistan-limited/

http://www.brecorder.com/company-news/235/1235758/?date=2012-09-

11&tmpl=component&print=1&layout=default

http://www.thenews.com.pk/Todays-News-3-177825-Pakistan-State-Oil

http://www.psopk.com/investors/pdf/FREE_FLOAT_SHARES_ON_30.06.2014.pdf

http://www.kse.com.pk/

http://www.psopk.com/about_us/history.php

http://www.brecorder.com/top-stories/0/1241680/?tmpl=component&print=1&layout=default&page=

http://www.investopedia.com/terms/c/capitalreduction.asphttp://reports.shell.com/annual-report/2014/servicepages/downloads/files/entire_shell_ar14.pdfhttp://www.brecorder.com/brief-recordings/0:/1241681:pakistan-state-oil/http://www.brecorder.com/brief-recordings/0:/1246046:shell-pakistan-limited/http://www.brecorder.com/company-news/235/1235758/?date=2012-09-11&tmpl=component&print=1&layout=defaulthttp://www.brecorder.com/company-news/235/1235758/?date=2012-09-11&tmpl=component&print=1&layout=defaulthttp://www.thenews.com.pk/Todays-News-3-177825-Pakistan-State-Oilhttp://www.psopk.com/investors/pdf/FREE_FLOAT_SHARES_ON_30.06.2014.pdfhttp://www.kse.com.pk/http://www.psopk.com/about_us/history.phphttp://www.brecorder.com/top-stories/0/1241680/?tmpl=component&print=1&layout=default&pagehttp://www.brecorder.com/top-stories/0/1241680/?tmpl=component&print=1&layout=default&pagehttp://www.psopk.com/about_us/history.phphttp://www.kse.com.pk/http://www.psopk.com/investors/pdf/FREE_FLOAT_SHARES_ON_30.06.2014.pdfhttp://www.thenews.com.pk/Todays-News-3-177825-Pakistan-State-Oilhttp://www.brecorder.com/company-news/235/1235758/?date=2012-09-11&tmpl=component&print=1&layout=defaulthttp://www.brecorder.com/company-news/235/1235758/?date=2012-09-11&tmpl=component&print=1&layout=defaulthttp://www.brecorder.com/brief-recordings/0:/1246046:shell-pakistan-limited/http://www.brecorder.com/brief-recordings/0:/1241681:pakistan-state-oil/http://reports.shell.com/annual-report/2014/servicepages/downloads/files/entire_shell_ar14.pdfhttp://www.investopedia.com/terms/c/capitalreduction.asp


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APPENDIX

-20

0

20

40

PSO Shell

RETURN ON

SHAREHOLDERS' EQUITY

0 0.2 0.4 0.6 0.8 1 1.2

Current Ratio (x)

Quick Ratio (x)

QUICK AND CURRENT RATIO

Shell PSO

25

67

-13

27

-20 0 20 40 60 80

CASH

CONVERSION

CYCLE

OPERATINGCYCLE

OPERATING AND CASH CONVERSION

CYCLE

Series3 Series2

0

20

40

60

80

100

Inventory

turn over

ratio *(x)

Debtor turn

over ratio

*(x)

Creditor turn

over ratio

*(x)

TURNOVER RATIOS

PSO Shell

No. of days in Inventory No.No.of days in Receivables…

No.of days in Creditors No.

0

50

PSO Shell

CHART TITLE

No. of days in Inventory No. No.of days in Receivables No.

No.of days in Creditors No.

0

1

2

3

4

5

TIMES INTEREST

EARNED

DEBT RATIO DEBT/ EQUITY

RATIO

FINANCIAL RATIOS

PSO Shell

0

1

2

3

4

5

6

7

Gross Profit

ratio %

Net Profit

ratio%

Raw Return

on Assets

Return on

total assets%

Profitablity Ratios

PSO Shell

-30000

-20000

-10000

0

10000

Earning per

share

(Basic)

Price

earning

ratio (P/E)

Market

value /

book value

MARKET RATIOS

PSO Shell

Documents

Final Pso Report