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8/2/2019 Finance Project by Ali Dayyan, Virtual Univeristy of Pakistan
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Project proposal Virtual University of Pakistan
Final Project
Activity Ratio Analysis of Pakistan State Oil, Shell Pakistan andAttock Refinery Ltd for FY 2008, 2009 and 2010
A REPORT SUBMITTED TO THE DEPARTMENT OF MANAGEMENT SCIENCES
VIRTUAL UNIVERSITY OF PAKISTAN IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE DEGREE OF MASTERS IN BUSINESS
ADMINISTRATION AT VIRTUAL UNIVERSITY OF PAKISTAN
Submitted By
MC070401068
Ali Dayyan
Date of submission during spring 2011 was 25.10.2011
Current date of submission: 16-12-2011
Department of Management Sciences,
Virtual University of Pakistan
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LETTER OF UNDERTAKING
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DEDICATION
I dedicate this work to my parents and teachers, whose untiring support and encouragement
helped me to reach this milestone in my academic life.
Also to my friends who helped in academics during my period of illness.
And last but not certainly least I am most thankful to Almighty ALLAH who has been
very kind and generous to me, for all the love and happiness HE has bestowed upon
me.
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ACKNOWLEDGEMENT
Well there are many people who I owe acknowledgement. But I feel indebt to the
management of Virtual University of Pakistan campus located in my city. Had they not
supported the students during baffling energy crisis, getting online degree in business
administration would have been a far cry. I must also acknowledge the efforts of Mr. Mian
Muhammad Maqbool who guided me and persuaded me to continue professional study
along with my job.
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EXECUTIVE SUMMARY
Energy sector is very dynamic. It has so many dimensions, from political stability of oil
producing countries to international trade conditions. Nevertheless, oil runs economies of
the countries the world over. Pakistani economy is no exception. I have chosen to compareand analyze efficiency of major oil marketing companies in Pakistan. For this purpose I
have chosen leading oil marketing companies in Pakistan. Before proceeding further, I
must narrate the reason that why this efficiency measurement through ratio analysis is so
important. Well, all three oil marketing companies are engaged in same business, and there
is no product differentiation. It means that one oil company can not perform better from
other merely because its product is superior than competing companys product. So, it is
organizational efficacy in managing inventories and other factors which makes that
company more successful than other. Furthermore, Pakistan State Oil is national oil
supplier to the country. It is main supplier to all large state enterprises like WAPDA,
Pakistan Railway, PIA and IPPs. This further makes this comparison interesting. The tree
companies whose activity ratio analysis has been conducted in this report are Pakistan State
Oil, Shell Pakistan, and Attock Refinery Ltd.
I have obtained all financial information from the audited annual financial reports of these
companies as published at there respected websites. Web links to these financial reports has
been given in report. I have also mentioned the proper note to account as reference in my
calculation of ratios so that any one who wishes to verify the figures may consult notes to
accounts for further clearance. After calculating the ratios I found that almost all companies
have there short comings. Pakistan State Oil, the largest oil marketing company in
Pakistan, faced severe difficulties in collecting receivables from large public sector
enterprises. Furthermore, inventory management of Shell Pakistan needs to pay attention.
Where as Attock petroleum, has proved it self be relatively better performing, partly
because of better inventory management but also tight credit policies as well. Further
details are discussed at length at Conclusions/ Recommendations portion of the report.
TABLE OF CONTENT Page No.
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Title 1
Letter of undertaking 2
Dedication 3Acknowledgement 4
Executive Summary 5
Chapter no. 1 INTRODUCTION AND BACKGROUND Page No.
1.1 Introduction of project 71.2 Background 8
1.3 Financial period under consideration 9
1.4 Objectives 91.5 Significance 10
Chapter no. 2 DATA PROCESSING AND CALCULATIONS2.1 Data source 11
2.2 Ratios calculation, Graphical representation of outcome, 12-52trend analysis
Chapter No. 3 ANALYSIS AND RECOMMENDATIONS3.1 Conclusion & Recommendations 53
Chapter No. 4 INTRODUCTION OF STUDENT 55
Chapter No. 5 BIBLIOGRAPHY 56
Chapter no. 1
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INTRODUCTION AND BACKGROUND
1.1 Introduction of Project:
Financial world is ever dynamic and constantly stimulated by real world
phenomenons. Business and macro economic conditions of countries are main factors
responsible for different trends in financial management. In view of above, it is absolutely
imperative for business school graduates to have apt knowledge and experience regarding
different techniques being utilized in industry for making comparison between two
business entities engaged in same industry. What makes this comparison so important? If
we simple compare profits of two companies, would not it be suffice? Well answer is not
that simple. Because Items contained in financial statement have their own importance.
Each items represents significant financial importance. Therefore every item must be
carefully analyzed and compared with other entity.
The project, I have proposed to take is, activity ratio analysis of three
leading entities of oil refining sector in Pakistan. i.e. Pakistan State Oil, Shell Pakistan and
Attock Refinery Ltd. All these oil refining entities have huge customer base. Shell Pakistan
and Pakistan State Oil also distribute oil directly to its filling stations throughout country.
Where as Attock Refinery is selling its refined oil through other distribution companies.
Also, Government of Pakistan is principal share holder in Pakistan State Oil and has large
share in Attock Refinery Ltd as well.
In current project, the basic aim is to analyze all three business entities from
operational point of view. For this matter, a very detailed activity ratios analysis is going to
be carried out, so that operational efficacy of these companies may be evaluated.
1.2 Background:
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Three, major Oil distribution companies in Pakistan are, Shell Pakistan,
Pakistan State Oil, and Attock Refinery Ltd. Before, going into the detail of project, it is
imperative that history and functional capacity of these companies may be understood.
Sell Pakistan is 2nd largest oil marketing company in Pakistan, having 30%
market share. Shell oil, started its business as a small oil distribution store, some 200 years
ago in London. Since then it has expanded many folds. Now, its a global group of energy
and petrochemicals companies with around 93,000 employees in more than 90 countries
and territories.
Pakistan state oil is largest oil marketing company in Pakistan. PSO came
into being in the mid-1970s when the Government of Pakistan amalgamated three oil
marketing companies: Esso Eastern, Pakistan National Oil (PNO) and Dawood Petroleumas part of its nationalization plan. Pakistan State Oil current holds share of 59% of white oil
market in Pakistan. Government of Pakistan holds 54% shares in Pakistan State Oil.
Pakistan State Oils major products include mogas, high speed diesel (HSD), fuel oil, jet
fuel, and kerosene, liquid petroleum gas (LPG), compressed natural gas (CNG) and
petrochemicals. Pakistan State Oil produced 13.2 million tons of refined oil in 2010, which
generated sales revenue of Rs. 8,771,74 (in million).
Attock Refinery Limited (ARL) was incorporated as a Private Limited
Company in November, 1978 to take over the business of the Attock Oil Company Limited
(AOC) relating to refining of crude oil and supplying of refined petroleum products. It was
subsequently converted into a Public Limited Company in June, 1979 and is listed on the
three Stock Exchanges of the country. Attock Refinery Limited (ARL) is the pioneer in
crude oil refining in the country with its operations dating back to the early nineteen
hundreds. Backed by a rich experience of more than 80 years of successful operations.
ARLs capacity stands at 42,000 barrels of oil per day during 2009 and its revenue for
same financial year was Rs. 94,898 (in million).
1.3 Financial Period under Consideration
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In oil sector, a financial year comprises of 12 months, which starts in
January and ends in December. Furthermore the financial period is divided into four
smaller periods also known as financial quarters. I have decided to conduct activity ratio
analysis of Pakistan State Oil, Shell Pakistan and Attock Refinery Ltd, for three
consecutive years starting from 2008 to 2010. By analyzing the activity ratios of these oil
marketing companies for three consecutive years will help me in understanding the trend
prevailing in industry during this period.
1.4 Objectives:
The core objective for conducting activity analysis of Shell Pakistan,
Pakistan State Oil and Attock Refinery Ltd is to asses the operational efficacy of these
companies furthermore it will help me gaining vital practical experience which is of utmost
importance for any business graduate, in order to acquire practical knowledge. The basic
aim behind initiating this project is that petroleum industry is often under stated in financial
circles, when it comes in terms of their performance. Economists, finance managers and
business executives treat each and every oil extraction and refining company as same. This
monolithic approach towards this sector easily makes it unattended. Furthermore, since the
basic operational differentiation is minimal, the case study in this project makes it
interesting as one has to investigate that why one oil refinery is making more profit than the
other.
It if further stated that current project will cover three consecutive financial
years starting from 2008 to 2010. Last financial year i.e. 2011 is left for analytical process
because final consolidated financial reports are not available for all three companies.
Furthermore time duration for completion of project will be approximately 5 weeks. Since
necessary data has already been gathered and project is at the verge of completion now.
While conducting activity ratio analysis it is observed that both Shell
Pakistan and Pakistan State Oil enjoy a operational scale as both not only engage in
business of refining oil but also in its distribution and marketing by their own brand names.
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This factor gives them edge over Attock Refinery Ltd, which is basically engaged in
refinery industry.
1.4 Significance of project:
Outcome of any project is crucial for its logical development. Without clear
outcome no project can meet its objectives. In view of this, I have kept each and every
aspect of this project in such a manner that outcome of this project will help reader to
understand not only financial gimmicks involved but also it will help to understand
industry and its dynamics. Furthermore it will help in understanding the operational
efficiency of these companies as well.
This research project will help in understanding the organizational structure
of the oil refinery company. Also, the operational efficacy of these firms will be discussed
in detail which will lead to through investigative report making definitive conclusion about
the low and high performance companies in the sector.
Furthermore, this research will also help investors, who primarily rely on
fundamental analysis of entity before investing into its shares. But current research will not
only serve general public but will help investors to understand the different factors behind
the good performance of one company and bad performance of other company in oil
refining and distribution sector.
Since this project is being conducted as a private individual, it is not
plausible that any official recognition vis a vis its results and recommendation is ever going
to be implemented by the companies. However, this will not hamper the quality of project
and if clear guide line will be given while making ration analysis regarding different
operational aspects of business entity.
Chapter no. 2
DATA PROCESSING AND CALCULATIONS
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2.1 DATA SOURCE:
The primary source of information available for conducting research on the companies has
been their websites. These websites not only provide information regarding financial data,
but also provided information regarding organizational structure, goals and future plans.
Primary source for financial data of Shell Pakistan is following web link.
http://www.shell.com.pk/home/content/pak/aboutshell/media_centre/financi
al_reports/
Similarly, following link is Source for financial data of information for
Pakistan State Oil.
http://www.psopk.com/investors/financial_reports.php
And for Attock Refinery Ltd, following link provided Source for financial
data.
http://www.arl.com.pk/financials.php
Furthermore, I have visited PSO regional office located on Mouj Darya
Road Lahore. This has helped me to understand the organization structure of organization.
As, for other two companies, their head offices are located in Karachi personal visit could
not accomplished. Nevertheless, secondary information has been gathered from various
sources.
2.2 ACTIVITYRATIOS ANALYSIS:
http://www.shell.com.pk/home/content/pak/aboutshell/media_centre/financial_reports/http://www.shell.com.pk/home/content/pak/aboutshell/media_centre/financial_reports/http://www.psopk.com/investors/financial_reports.phphttp://www.arl.com.pk/financials.phphttp://www.shell.com.pk/home/content/pak/aboutshell/media_centre/financial_reports/http://www.shell.com.pk/home/content/pak/aboutshell/media_centre/financial_reports/http://www.psopk.com/investors/financial_reports.phphttp://www.arl.com.pk/financials.php8/2/2019 Finance Project by Ali Dayyan, Virtual Univeristy of Pakistan
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Activity ratio is measure of companys efficiency in using its resources and assets.
It is gives the operating efficiency of business entity. Following is activity ratio analysis of
Pakistan State Oil, Shell Pakistan and Attock Refinery Ltd.
1. ACCOUNTS RECEIVABLE TURNOVER:
Accounts receivable turnover ratio is measure of firms effectiveness in extending
credit as well as collecting debts. It is measure of firms ability to collect from
debtors or accounts receivables. Higher accounts receivable ratio means company is
maintaining its affairs very effectively or sells goods on cash basis.
Net credit sales
Accounts receivable turn over ratio = ______________________
Average accounts receivable
TABULAR FORM
Year 2008 Year 2009 Year 2010
PSO
495,278,533,000
/ 1,832,138,000
= 270.33
612,695,589,000
/ 57,207,279,000
= 10.71
742,757,951,000
/ 99,005,452,000
= 7.5022
Shell
Pakistan
139,844,689,000/ 4,809,706,000
= 29.07
156,000,098,000/ 2,129,737,000
= 73.25
197,530,911,000/ 1,642,466,000
= 120.27
Attock
Refinery
Ltd
91,910,703,000 /
217,975,000
= 421.65
76,546,448,000 /
315,739,500
= 242.435
88,184,026,000/
22,969,513,000
= 3.83
WORKING:
PAKISTAN STATE OIL
FINANCIAL YEAR 2008
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(All values in Pak rupees)
Net credit Sales = 495,278,533,000 (Net sales is used instead of credit sales due to nonavailability of figure)
Opening Accounts Receivable =1,752,798,000 (Under note to accounts no 11)
Closing Accounts Receivable = 1,911,478,000
Average Accounts Receivable = (1,752,798,000 + 1,911,478,000) / 2
= 1,832,138,000
Net credit sales
Accounts receivable turn over ratio = ______________________
Average accounts receivable
= 495,278,533,000 / 1,832,138,000
= 270.33
FINANCIAL YEAR 2009
(All values in Pak rupees)
Net credit Sales = 612,695,589,000 (Net sales is used instead of credit sales due to non
availability of figure)
Opening Accounts Receivable =33,904,728,000 (Under note to accounts no 11)
Closing Accounts Receivable = 80,509,830,000
Average Accounts Receivable = (33,904,728,000 + 80,509,830,000) / 2
Net credit sales
Accounts receivable turn over ratio = ______________________
Average accounts receivable
=612,695,589,000 / 57,207,279,000
= 10.71
FINANCIAL YEAR 2010
(All values in Pak rupees)
Net credit Sales = 742,757,951,000 (Net sales is used instead of credit sales due to nonavailability of figure)
Opening Accounts Receivable =80,509,830,000 (Under note to accounts no 11)
Closing Accounts Receivable = 117,501,074,000
Average Accounts Receivable = (80,509,830,000 + 117,501,074,000) / 2
= 99,005,452,000
Net credit sales
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Accounts receivable turn over ratio = ______________________
Average accounts receivable
=742,757,951,000 / 99,005,452,000
= 7.5022
SHELL PAKISTAN
FINANCIAL YEAR 2008
(All values in Pak rupees)
Net credit Sales = 139,844,689,000 (Net sales is used instead of credit sales due to nonavailability of figure)
Opening Accounts Receivable = 4,579,552,000 (Under note to accounts no 11)
Closing Accounts Receivable = 5,039,860,000
Average Accounts Receivable = (4,579,552,000 + 5,039,860,000) / 2
= 4,809,706,000
Net credit sales
Accounts receivable turn over ratio = ______________________
Average accounts receivable
=139,844,689,000 / 4,809,706,000
= 29.07
FINANCIAL YEAR 2009
(All values in Pak rupees)
Net credit Sales = 156,000,098,000 (Net sales is used instead of credit sales due to nonavailability of figure)
Opening Accounts Receivable =2,999,342,000 (Under note to accounts no 11)
Closing Accounts Receivable = 1,260,132,000
Average Accounts Receivable = (2,999,342,000 + 1,260,132,000) / 2
= 2,129,737,000
Net credit sales
Accounts receivable turn over ratio = ______________________Average accounts receivable
= 156,000,098,000 / 2,129,737,000
= 73.25
FINANCIAL YEAR 2010
(All values in Pak rupees)
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Net credit Sales = 197,530,911,000 (Net sales is used instead of credit sales due to nonavailability of figure)
Opening Accounts Receivable = 1,260,132,000 (Under note to accounts no 13)
Closing Accounts Receivable = 2,024,800,000
Average Accounts Receivable = (1,260,132,000 + 2,024,800,000) / 2
= 1,642,466,000
Net credit sales
Accounts receivable turn over ratio = ______________________
Average accounts receivable
= 197,530,911,000 / 1,642,466,000
= 120.27
ATTOCK REFINERY LTD
FINANCIAL YEAR 2008
(All values in Pak rupees)
Net credit Sales = 91,910,703,000 (Net sales is used instead of credit sales due to nonavailability of figure)
Opening Accounts Receivable = 191,255,000 (Under note to accounts no 19)
Closing Accounts Receivable = 244,695,000
Average Accounts Receivable = (191,255,000+244,695,000) / 2
= 217,975,000
Net credit sales
Accounts receivable turn over ratio = ______________________
Average accounts receivable
= 91,910,703,000 / 217,975,000
= 421.65
FINANCIAL YEAR 2009
(All values in Pak rupees)
Net credit Sales = 76,546,448,000 (Net sales is used instead of credit sales due to non
availability of figure)
Opening Accounts Receivable = 248,307,000 (Under note to accounts no 20)
Closing Accounts Receivable = 383,172,000
Average Accounts Receivable = (248,307,000 +383,172,000) / 2
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= 315,739,500
Net credit sales
Accounts receivable turn over ratio = ______________________
Average accounts receivable
= 76,546,448,000 / 315,739,500
= 242.435
FINANCIAL YEAR 2010
(All values in Pak rupees)
Net credit Sales = 88,184,026,000
Opening Accounts Receivable = 15,508,763,000 (Under note to accounts no 19)
Closing Accounts Receivable = 30,430,263,000
Average Accounts Receivable = (15,508,763,000 + 30,430,263,000) / 2
= 22,969,513,000
Net credit sales
Accounts receivable turn over ratio = ______________________
Average accounts receivable
= 88,184,026,000/ 22,969,513,000
= 3.83
GRAPHICAL REPRESENTATION OF RATIO:
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0
50
100
150
200
250
300
350
400
450
Year 2008 Year 2009 Year 2010
PSO
Shell Pakistan
Attock Refinery Ltd
INTERPRETATION:
Accounts receivable turn over ratio indicates how quickly a business entity
is recovering from its trade debtors. This means higher the accounts receivable
turnover ratio, better it is for business. Now if we analyze the above graphically
represented data, we come to following conclusion.
1. Pakistan Sate Oil:
Pakistan State Oil, a public sector, oil marketing entity, shows highest
accounts receivable turn over ratio during financial year 2008, ratio being 270.33
times. In following year, 2009 its debtors collection performance declined and ratio
falls to 10.71 times. Next year i.e. 2010, debtors collection performance further
deteriorated. And ratio falls to lowest among all three financial years, to 7.5022
times. The decrease in accounts receivable ratio shows that business entity is facing
difficulty in recovering its receivable from its debtors timely. However, when I
investigated, I found that during these financial years, Pakistan State Oil, faced
tremendous pressure from public sector enterprises like WAPDA, Pakistan Railways,
and PIA. Being major public sector oil marketing company, Pakistan State Oil has to
supply oil to meet the energy needs of large public sector enterprises, mentioned
above, at extended credit period. Now, during the financial year, 2008 till 2010,
Government of Pakistan was in great jeopardy since, it faced largest circular debt in
history of this country. Pakistan State Oil being Public Sector Company could not
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recover its receivables timely from large public sector enterprises. This unique
quagmire is faced by PSO, while other private oil marketing companies remained free
from such woes.
2.SHELL PAKISTAN:
Shell Pakistan is subsidiary of Royal Dutch Shell International, and major
oil marketing company in Pakistan. During 2008, accounts receivable turnover ratio
of Shell Pakistan remained at 29.07 times. In next financial year i.e. 2009, accounts
receivable ratio increased to 73.25 times. Similarly in next financial year the
performance further improved and account receivable ratio reached 120.27 times.
When analyzing the activities of Shell Pakistan, we find that firm is showed steady
improvement in collecting receivables from debtors. This further implies that shell
Pakistan is following tight credit policy and recovering its receivables efficiently.
3. ATTOCK REFINERY LTD:
Attock Refinery Ltd is the most successful business venture of Attock group
of companies. During, the financial year 2008 the company shows, accounts
receivable ratio of 421.65 times. In next financial year, i.e. 2009, its receivable
performance decreased and falls to the level of 242.43 times. And in financial year
2010, the Attock Refinery Ltd showed lowest performance by giving its accounts
receivable ratio of3.83 times. When we look at the trend of accounts receivables for
three years, we find that Attock Refinery Ltd showed healthy accounts receivable
ratio in 2008 but did not performed as well in financial year 2009. In 2010, however
remained lowest performing year than the preceding two years and showed lowest
receivable collection ratio of3.83 times.
2. INVENTORY TURNOVER RATIO:
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Inventory turn over ratio also known as stock turn over ratio. It is measure of firms
efficiency that how efficiently it is using its inventory. This ratio describes relationship
between the cost of goods sold during a particular period of time and the cost of average
inventory during a particular period. It is expressed in number of times.
Cost of Goods Sold
Inventory turn over ratio =____________________________
Average inventory at cost
Year 2008 Year 2009 Year 2010
PSO
465,254,907,000 /
44,931,840,500
=10.3546
609,685,478,000 /
50,067,289,000
=12.1773
713,591,707,000 /
45,426,946,000
=15.7085
Shell
Pakistan
124,694,471,000 /
808,860,500
=154.160
143,097,916,000 /
850,405,000
=168.2703
185,403,153,000 /
909,947,000
= 203.7515
Attock
Refinery
Ltd
89,646,373,000
/ 374,212,500
=239.56
75,342,096,000/
407,270,500
=184.99
88,693,686,000/
2,231,907,000
=39.73
WORKING:
PAKISTAN STATE OIL
FINANCIAL YEAR 2008
(All values in Pak rupees)
Cost of Goods Sold = 465,254,907,000
Opening Stock =28,564,895,000 (Under note to accounts no 25)
Closing Stock = 61,298,786,000
Average Inventory = (28,564,895,000 + 61,298,786,000) / 2
= 44,931,840,500
Cost of Goods Sold
Inventory turn over ratio =____________________________Average inventory at cost
= 465,254,907,000 / 44,931,840,500
= 10.3546
FINANCIAL YEAR 2009
(All values in Pak rupees)
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Cost of Goods Sold = 609,685,478,000
Opening Stock =61,298,786,000 (Under note to accounts no 25)
Closing Stock = 38,835,792,000
Average Inventory = (61,298,786,000 + 38,835,792,000) / 2
= 50,067,289,000
Cost of Goods Sold
Inventory turn over ratio =____________________________
Average inventory at cost
= 609,685,478,000 / 50,067,289,000
= 12.1773
FINANCIAL YEAR 2010
(All values in Pak rupees)
Cost of Goods Sold = 713,591,707,000
Opening Stock =38,835,792,000 (Under note to accounts no 26)
Closing Stock = 52,018,100,000
Average Inventory = (38,835,792,000 + 52,018,100,000) / 2
= 45,426,946,000
Cost of Goods Sold
Inventory turn over ratio =____________________________
Average inventory at cost
= 713,591,707,000 / 45,426,946,000
= 15.7085
SHELL PAKISTAN
FINANCIAL YEAR 2008
(All values in Pak rupees)
Cost of Goods Sold = 124,694,471,000
Opening Stock =581,580,000 (Under note to accounts no 27)
Closing Stock = 1,036,141,000
Average Inventory = ( 581,580,000 + 1,036,141,000) / 2
= 808,860,500
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Cost of Goods Sold
Inventory turn over ratio =____________________________
Average inventory at cost
=124,694,471,000 / 808,860,500
= 154.160
FINANCIAL YEAR 2009
(All values in Pak rupees)
Cost of Goods Sold = 143,097,916,000
Opening Stock =881,871,000 (Under note to accounts no 26)
Closing Stock = 818,939,000
Average Inventory = (881,871,000 + 818,939,000) / 2
= 850,405,000
Cost of Goods Sold
Inventory turn over ratio =____________________________
Average inventory at cost
= 143,097,916,000 / 850,405,000
= 168.2703
FINANCIAL YEAR 2010
(All values in Pak rupees)
Cost of Goods Sold = 185,403,153,000
Opening Stock =818,939,000 (Under note to accounts no 26)
Closing Stock =
Average Inventory = (818,939,000 +1,000,955,000 ) / 2
= 909,947,000
Inventory turn over ratio =185,403,153,000 / 909,947,000 = 203.7515
ATTOCK REFINERY LTD
FINANCIAL YEAR 2008
(All values in Pak rupees)
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Cost of Goods Sold = 89,646,373,000
Opening Stock =311,633,000 (Under note to accounts no 24)
Closing Stock = 436,792,000
Average Inventory = (311,633,000+ 436,792,000) / 2
= 374,212,500
Cost of Goods Sold
Inventory turn over ratio =____________________________
Average inventory at cost
= 89,646,373,000/ 374,212,500
= 239.56
FINANCIAL YEAR 2009
(All values in Pak rupees)
Cost of Goods Sold = 75,342,096,000
Opening Stock =436,792,000 (Under note to accounts no 24)
Closing Stock = 377,749,000
Average Inventory = (436,792,000+377,749,000) / 2
= 407,270,500
Cost of Goods Sold
Inventory turn over ratio =____________________________
Average inventory at cost
= 75,342,096,000/ 407,270,500
= 184.99
FINANCIAL YEAR 2010
(All values in Pak rupees)
Cost of Goods Sold = 88,693,686,000
Opening Stock =1,441,793,000 (Under note to accounts no 24.1)
Closing Stock = 3,022,021,000
Average Inventory = (1,441,793,000 + 3,022,021,000) / 2
= 2,231,907,000
Cost of Goods Sold
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Inventory turn over ratio =____________________________
Average inventory at cost
= 88,693,686,000/ 2,231,907,000
=39.73
GRAPHICAL REPRESENTATION OF INVENTORY
TURNOVER RATIO:
0
50
100
150
200
250
Year
2008
Year
2009
Year
2010
PSO
Shell Pakistan
Attock Refinery
Ltd
INTERPRETATION
Inventory turnover ratio describe that how well a company is managing its
inventories. Low inventory turnover ratio means that company is either storing the
inventories or facing difficulties in selling goods. In either case, this translates into
very high cost of storing the inventories. Therefore high inventory turn over shows
healthy business activities. Following is analysis of inventory turnover ratios as
calculated above.
1.Pakistan Sate Oil:
Pakistan State Oil is state owned oil marketing company. It has largest
number of petrol pump stations in Pakistan. Also it has large scale storage capacity as
well. During financial year 2008, Pakistan State Oil showed inventory turnover ratio
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of10.3546 times. This is rather low inventory turnover ratio. In following year; 2008,
the inventory turnover ratio remained at 12.1773 times. This is slightly better than
financial year 2008. In financial year 2010, inventory turn over ratio improved further
and remained at 15.7085 times. This is highest inventory turnover ratio for all three
consecutive financial years starting from 2008-2010. Low inventory turn over ratio
indicates that either Pakistan State Oil has very large storage capacity or its debtors
did not paid their dues on time which created negative cash flow in business as we
have analyzed in Accounts receivable turnover ratio.
2.SHELL PAKISTAN:
Shell Pakistan is subsidiary of Royal Dutch Shell International, and major
oil marketing company in Pakistan. During 2008, inventory turnover ratio of Shell
Pakistan remained at 154.16 times. In next financial year, inventory turnover ratio
increased slightly to 168.2703 times.Similarly in next financial year the performance
improved rapidly and inventory ratio reached 203.75 times.
When analyzing the activities of Shell Pakistan, we find that firm is showed sharp
improvement in inventory management activities. This further implies that shell
Pakistan like Pakistan State Oil did not faced problems regarding circular debt of
Government and thereby did not faced problems in ordering new inventories rapidly.
239.56 184.99 39.73
3. ATTOCK REFINERY LTD:
Attock Refinery Ltd is most successful business venture of Attock group of
companies. During, the financial year 2008 the company shows, a health inventory
turnover ratio of239.56 times. In next financial year i.e. 2009 its inventory turnover
ratio decreased rapidly to the level of184.99 times. But in financial year 2010, the
Attock Petroleum faced serious problem in recovering debtors, and showed massive
decrease in inventory management ratio and showed lowest inventory turnover ratio
of all three years of39.73 times. When we look at the trend of accounts receivables
for three years, we find that Attock Petroleum showed healthy inventory turnover
ratio in 2008 but did not performed as well in financial year 2010. In 2008, however
remained best performing year than the preceding two years and showed highest
inventory turnover ratio of239.56 times.
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3. AVERAGE COLLECTION PERIOD:
The average collection period ratio describes the average number of days for which a
business entity has to wait before its debtors are converted into cash. It is expressed in
days.Lower the collection period better it is for business.
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(Trade debtors x 360)
Average collection period = _______________________
Net Credit Sales
Year 2008 Year 2009 Year 2010
PSO
(33,904,728,000
x 360) /
495,278,533,000
=24.64
(80,509,830,000
x 360) /
612,695,589,000
=47.30
(117,501,074,000
x 360) /
742,757,951,000
=56.95
Shell Pakistan
(2,925,753,000
x 360) /
163,150,920,000
=6.4558
(1,239,213,000 x
360) / 156,000,098,000
=2.8597
(2,013,358,000 x
360) /
197,530,911,000
=3.6693
Attock
Refinery Ltd
(9,207,238,000x
360) /
91,910,703,000
=36.063
(15,510,180,000
* 360) /
76,546,448,000
=72.94
=
(30,430,263,000
* 360) /
88,184,026,000
=124.227
WORKING:
PAKISTAN STATE OIL
FINANCIAL YEAR 2008
(All values in Pak rupees)
Trade debtors = 33,904,728,000 (Under note to accounts no 11)
Net credit sales = 495,278,533,000 (Net sales is used instead of credit salesdue to non availability of figure)
(Trade debtors x 360)
Average collection period = _______________________
Net Credit Sales
= (33,904,728,000 x 360) / 495,278,533,000
= 24.64
FINANCIAL YEAR 2009
(All values in Pak rupees)
Trade debtors =80,509,830,000 (Under note to accounts no 11)
Net credit sales = 612,695,589,000 (Net sales is used instead of credit salesdue to non availability of figure)
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(Trade debtors x 360)
Average collection period = _______________________
Net Credit Sales
= (80,509,830,000 x 360) / 612,695,589,000
= 47.30
FINANCIAL YEAR 2010
(All values in Pak rupees)
Trade debtors = 117,501,074,000 (Under note to accounts no 11)
Net credit sales = 742,757,951,000 (Net sales is used instead of credit salesdue to non availability of figure)
(Trade debtors x 360)
Average collection period = _______________________
Net Credit Sales
= (117,501,074,000 x 360) / 742,757,951,000
= 56.95
SHELL PAKISTAN
FINANCIAL YEAR 2008
(All values in Pak rupees)
Trade debtors =2,925,753,000 (Under note to accounts no 10)
Net credit sales =163,150,920,000 (Net sales is used instead of credit salesdue to non availability of figure)
(Trade debtors x 360)
Average collection period = _______________________
Net Credit Sales
= (2,925,753,000 x 360) / 163,150,920,000
= 6.4558
FINANCIAL YEAR 2009(All values in Pak rupees)
Trade debtors = 1,239,213,000 (Under note to accounts no 11)
Net credit sales = 156,000,098,000 (Net sales is used instead of credit salesdue to non availability of figure)
(Trade debtors x 360)
Average collection period = _______________________
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Net Credit Sales
= (1,239,213,000 x 360) / 156,000,098,000
= 2.8597
FINANCIAL YEAR 2010
(All values in Pak rupees)
Trade debtors = 2,013,358,000 (Under note to accounts no 13)
Net credit sales = 197,530,911,000 (Net sales is used instead of credit salesdue to non availability of figure)
(Trade debtors x 360)
Average collection period = _______________________
Net Credit Sales
= (2,013,358,000 x 360) / 197,530,911,000
= 3.6693
ATTOCK REFINERY LTD
FINANCIAL YEAR 2008
(All values in Pak rupees)
Trade debtors = 9,207,238,000 (Under note to accounts no 19)
Net credit sales = 91,910,703,000 (Net sales is used instead of credit salesdue to non availability of figure)
(Trade debtors x 360)
Average collection period = _______________________
Net Credit Sales
= (9,207,238,000x 360) / 91,910,703,000
=36.063
FINANCIAL YEAR 2009
(All values in Pak rupees)
Trade debtors = 15,510,180,000 (Under note to accounts no 19)
Net credit sales = 76,546,448,000 (Net sales is used instead of credit salesdue to non availability of figure)
(Trade debtors x 360)
Average collection period = _______________________
Net Credit Sales
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= (15,510,180,000 * 360) / 76,546,448,000
= 72.94
FINANCIAL YEAR 2010
(All values in Pak rupees)
Trade debtors =30,430,263,000 (Under note to accounts no 19)
Net credit sales = 88,184,026,000 (Net sales is used instead of credit salesdue to non availability of figure)
(Trade debtors x 360)
Average collection period = _______________________
Net Credit Sales
= (30,430,263,000 * 360) / 88,184,026,000
= 124.227
GRAPHICAL REPRESENTATION OF RATIO
0
20
40
60
80
100
120
140
Year 2008 Year 2009 Year 2010
PSO
Shell Pakistan
Attock Refinery Ltd
INTERPRETATION
The average collection period ratio describes the average number of days for which
a business entity has to wait before its debtors are converted into cash. It is expressed in
days.Lower the collection period better it is for business.
24.64 47.3 56.95
1.Pakistan Sate Oil:
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Pakistan State Oil is state owned oil marketing company. It has largest no of
petrol pump stations in Pakistan. Also it has large scale storage capacity as well.
During financial year 2008, Pakistan State Oil showed average collection period of
24.64 days. This is rather good average collection period when compared with
following two years. In following year; 2009, the average collection period remained
at 47.3 days. This shows benign credit policy of the company. Which means
company is facing hard time in recovering it trade debts. When we look at the
national energy crises and large circular debt of Government of Pakistan, it easily
maintained that due to non payment of dues by large scale state enterprises like
WAPDA, Railways, etc, PSO faced immense problem in recovering debts. But in
next financial year 2010, situation got further worst as the collection period reached
56.95 days.
2.SHELL PAKISTAN:
Shell Pakistan is subsidiary of Royal Dutch Shell International, and major
oil marketing company in Pakistan. During 2008, average collection period of Shell
Pakistan remained at 6.4558 days. In next financial year i.e. 2009 , average collection
period decreased which shows better credit management of company, 2.8597 days.
Similarly in next financial year the performance remained almost same and average
collection period just 3.669 days.When analyzing the activities of Shell Pakistan, we find that firm is showed sharp
improvement in average collection period. This further implies that shell Pakistan like
Pakistan State Oil did not faced problems regarding circular debt of Government and
thereby did not faced problems in ordering new inventories rapidly.
3. ATTOCK REFINERY LTD:
Attock Refinery Ltd is most successful business venture of Attock group of
companies. During, the financial year 2008 the company shows, a health average
collection period of 36.063 days. In next financial year i.e. 2009, its average
collection period increased sharply to the level of 72.94 days. But in financial year
2010, the Attock Petroleum average collection period deteriorated and reached
124.227 days. When we look at the trend of accounts receivables for three years, we
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find that Attock Refinery Ltd showed very poor average collection period. But 2008
however remained best performing year than the following two years and showed
lowed average collection period of36.063 days.
4. ACCOUNTS PAYABLE TURNOVER:
It is the measure of firms ability to payoff its debts. It means the credit
period enjoyed by the firm in paying creditors. Accounts payable include
both sundry creditors and bills payable. Higher the accounts payable
turnover ratio, better it is for the firm. As such a firm can payoff its debts
timely.
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Net Credit Purchases
Accounts payable Turnover Ratio = __________________________
Average Accounts payable
Year 2008 Year 2009 Year 2010
PSO494,132,216,000 /61,249,320,000
= 8.067
526,558,634,000/ 95,595,633,500
= 5.5081
731,492,166,000 /133,079,709,000
= 5.4966
Shell
Pakistan
5,105,250,000 /
14,197,752,000
= 0.3595
4,819,071,000 /
15,784,045,500
=0.3053
6,117,414,000 /
17,953,773,000
= 0.3407
Attock
Refinery
Ltd
87,729,294,000 /
31,041,221,000 =
2.826
72,606,265,000 /
33,504,052,500= 2.167
88,057,722,000/
37,257,053,000
=2.363
WORKING:
PAKISTAN STATE OIL
FINANCIAL YEAR 2008
(All values in Pak rupees)
Net Credit Purchases = 494,132,216,000 (Under note to accounts no 25)
Opening Accounts payables =41,431,075,000 (Under note to accounts no 21)
Closing Accounts payables = 81,067,565,000
Average Accounts payables = (41,431,075,000 + 81,067,565,000) / 2
= 61,249,320,000
Net Credit Purchases
Accounts payable Turnover Ratio = __________________________
Average Accounts payable
= 494,132,216,000 / 61,249,320,000
= 8.067
FINANCIAL YEAR 2009(All values in Pak rupees)
Net Credit Purchases = 526,558,634,000 (Under note to accounts no 25)
Opening Accounts payables =81,067,565,000 (Under note to accounts no 21)
Closing Accounts payables =110,123,702,000
Average Accounts payables = (81,067,565,000+ 110,123,702,000) / 2
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= 95,595,633,500
Net Credit Purchases
Accounts payable Turnover Ratio = __________________________
Average Accounts payable
= 526,558,634,000 / 95,595,633,500
= 5.5081
FINANCIAL YEAR 2010
(All values in Pak rupees)
Net Credit Purchases = 731,492,166,000 (Under note to accounts no 26)
Opening Accounts payables = 110,123,702,000 (Under note to accounts no 22)
Closing Accounts payables =156,035,716,000
Average Accounts payables = (110,123,702,000 + 156,035,716,000)/2
= 133,079,709,000
Net Credit Purchases
Accounts payable Turnover Ratio = __________________________
Average Accounts payable
= 731,492,166,000 / 133,079,709,000
= 5.4966
SHELL PAKISTAN
FINANCIAL YEAR 2008
(All values in Pak rupees)
Net Credit Purchases = 5,105,250,000 (Under note to accounts no 27)
Opening Accounts payables =11,912,496,000 (Under note to accounts no 22)
Closing Accounts payables = 16,483,008,000
Average Accounts payables = (11,912,496,000 + 16,483,008,000) /2
= 14,197,752,000
Net Credit Purchases
Accounts payable Turnover Ratio = __________________________
Average Accounts payable
= 5,105,250,000 / 14,197,752,000
= 0.3595
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FINANCIAL YEAR 2009
(All values in Pak rupees)
Net Credit Purchases = 4,819,071,000 (Under note to accounts no26)
Opening Accounts payables =15,597,095,000 (Under note 21)
Closing Accounts payables = 15,970,996,000
Average Accounts payables = (15,597,095,000+ 15,970,996,000) / 2
=15,784,045,500
Net Credit Purchases
Accounts payable Turnover Ratio = __________________________
Average Accounts payable
= 4,819,071,000 / 15,784,045,500
= 0.3053
FINANCIAL YEAR 2010
(All values in Pak rupees)
Net Credit Purchases = 6,117,414,000 (Under note to accounts no 28)
Opening Accounts payables =15,970,996,000 (note 21)
Closing Accounts payables =19,936,550,000
Average Accounts payables= (15,970,996,000+19,936,550,000)/2
= 17,953,773,000
Net Credit Purchases
Accounts payable Turnover Ratio = __________________________
Average Accounts payable
= 6,117,414,000 / 17,953,773,000
= 0.3407
ATTOCK REFINERY LTD
FINANCIAL YEAR 2008
(All values in Pak rupees)
Net Credit Purchases = 87,729,294,000 (Under note to accounts no 24.1)
Opening Accounts payables = 25,393,520,000 (Under note to accounts no 10)
Closing Accounts payables =36,688,922,000
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Average Accounts payables = (25,393,520,000+36,688,922,000)/2
= 31,041,221,000
Net Credit Purchases
Accounts payable Turnover Ratio = __________________________
Average Accounts payable
= 87,729,294,000 / 31,041,221,000
= 2.826
FINANCIAL YEAR 2009
(All values in Pak rupees)
Net Credit Purchases = 72,606,265,000 (Under note to accounts no 24.1)
Opening Accounts payables = 36,691,014,000 (Note 10)
Closing Accounts payables = 30,317,091,000Average Accounts payables = (36,691,014,000+30,317,091,000)/2
=33,504,052,500
Net Credit Purchases
Accounts payable Turnover Ratio = __________________________
Average Accounts payable
= 72,606,265,000 / 33,504,052,500
= 2.167
FINANCIAL YEAR 2010
(All values in Pak rupees)
Net Credit Purchases = 88,057,722,000 (Under note to accounts no 24.1)
Opening Accounts payables =30,311,409,000 (under note 10)
Closing Accounts payables =44,202,697,000
Average Accounts payables = (30,311,409,000 +44,202,697,000)/2
= 37,257,053,000
Net Credit Purchases
Accounts payable Turnover Ratio = __________________________
Average Accounts payable
= 88,057,722,000/ 37,257,053,000
= 2.363
GRAPHICAL REPRESENTATION OF RATIO
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0
1
2
3
45
6
7
8
9
Year
2008
Year
2009
Year
2010
PSO
Shell Pakistan
Attock Refinery Ltd
I
INTERPRETATION
It is the measure of firms ability to payoff its debts. It means
the credit period enjoyed by the firm in paying creditors. Accounts
payable include both sundry creditors and bills payable. Higher the
accounts payable turnover ratio, better it is for the firm. As such a firm
can payoff its debts timely.
1. Pakistan Sate Oil:
Pakistan State Oil is state owned oil marketing company. It has largest no of
petrol pump stations in Pakistan. Also it has large scale storage capacity as well.
During financial year 2008, Pakistan State Oil showed accounts payable turnover
ratio of8.067 times. In following year; 2009, the accounts payable turnover ratio
decreased just a little bit at 5.508 times. This is even lower than financial year 2008.
In financial year 2010, accounts payable turn over ratio fall further to 5.49 times.
When I analyzed the trend, it is found that during 2008-2010, company faced huge
problems in collecting receivables from debtors. This has affected its ability to payoff
creditors timely.
2.SHELL PAKISTAN:
Shell Pakistan is subsidiary of Royal Dutch Shell International, and major
oil marketing company in Pakistan. During 2008, accounts payable turnover ratio of
Shell Pakistan remained at 0.3595times, is very poor. In next financial year i.e.
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2009, accounts payable turnover ratio increased just a little to 0.3053 times.
Similarly in next financial year, 2010, the performance deteriorated slightly and
accounts payable ratio reached 0.3407 times.
When analyzing the activities of Shell Pakistan, we find that firm has showeddecrease in credit management activities. This further implies that shell Pakistan like
Pakistan State Oil faced problems regarding circular debt of Government and thereby
faced problems in paying debts timely.
2.826 2.167 2.363
3. ATTOCK REFINERY LTD:
Attock Refinery Ltd is most successful business venture of Attock group of
companies. During, the financial year 2008 the company shows, accounts payable
turnover ratio of 2.826 times. In next financial year, 2009, its accounts payable
turnover ratio fell to the level of2.167 times. But in financial year 2010, the Attock
Petroleum faced problems in paying its creditors and showed slight improvement
accounts payable turnover ratio of 2.363 times. When we look at the trend of
accounts receivables for three years, we find that Attock Refinery showed slight
decrease in performance of accounts payable turnover ratio in 2009.
5. AVERAGE AGE OF INVENTORY:
It is the average number of days a company holds its inventory before selling it to
customer. Lower the average age of inventory, better it is for business, as it shows that
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business is flourishing and it also indicate low storage cost of inventory. Average age of
inventory is derived by dividing inventory turn over ratio by no of days in a year.
Average Inventory
Average age of inventory = ______________________ x 360
Cost of goods sold
Year 2008 Year 2009 Year 2010
PSO
(45,982,517,000 x
360) /
465,254,907,000
= 35.579
(51,550,594,000 x
360) /
609,685,478,000
= 30.48
(377,155,686,000 x
360) /
713,591,707,000
= 190.270
Shell
Pakistan
(808,860,500 x 360)
/ 124,694,471,000
= 2.33
(850,405,000 x
360) /
143,097,916,000
=2.139
(909,947,000 x
360) /
185,403,153,000
= 1.766
Attock
Petroleum
(374,212,500*
360) /
50,493,929,000
= 2.284
(1,360,143,000*
360) /
75,342,096,000
= 6.499
(2,231,907,000 *
360) /
88,693,686,000
= 9.059
WORKING:
PAKISTAN STATE OIL
FINANCIAL YEAR 2008(All values in Pak rupees)
Cost of goods sold = 465,254,907,000 (Under note to accounts no 25)
Opening inventory = 29,583,511,000 (Under note to accounts no 25)
Closing inventory = 62,381,523,000
Average inventory = (29,583,511,000 + 62,381,523,000) / 2= 45,982,517,000
Average Inventory
Average age of inventory = ______________________ x 360
Cost of goods sold
= (45,982,517,000 x 360) / 465,254,907,000
= 35.579
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FINANCIAL YEAR 2009
(All values in Pak rupees)
Cost of goods sold = 609,685,478,000 (Under note to accounts no 25)
Opening inventory = 62,381,523,000 (Under note to accounts no 25)
Closing inventory = 40,719,665,000
Average inventory = (62,381,523,000 + 40,719,665,000) / 2
= 51,550,594,000
Average Inventory
Average age of inventory = ______________________ x 360
Cost of goods sold
= (51,550,594,000 x 360) / 609,685,478,000
= 30.48FINANCIAL YEAR 2010
(All values in Pak rupees)
Cost of goods sold = 713,591,707,000 (Under note to accounts no 26)
Opening inventory = 40,719,665,000 (Under note to accounts no 26)
Closing inventory = 713,591,707,000
Average inventory = (40,719,665,000 + 713,591,707,000) / 2
= 377,155,686,000
Average Inventory
Average age of inventory = ______________________ x 360
Cost of goods sold
= (377,155,686,000 x 360) / 713,591,707,000
= 190.270
SHELL PAKISTAN
FINANCIAL YEAR 2008
(All values in Pak rupees)
Cost of goods sold = 124,694,471,000 (Under note to accounts no 27)
Opening inventory = 581,580,000 (Under note to accounts no 27)
Closing inventory = 1,036,141,000
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Average inventory = (581,580,000 + 1,036,141,000) / 2
= 808,860,500
Average Inventory
Average age of inventory = ______________________ x 360
Cost of goods sold
= (808,860,500 x 360) / 124,694,471,000
= 2.33
FINANCIAL YEAR 2009
(All values in Pak rupees)
Cost of goods sold = 143,097,916,000 (Under note to accounts no 26)
Opening inventory = 881,871,000 (Under note to accounts no 26)
Closing inventory = 818,939,000
Average inventory = (881,871,000 + 818,939,000) / 2
= 850,405,000
Average Inventory
Average age of inventory = ______________________ x 360
Cost of goods sold
= (850,405,000 x 360) / 143,097,916,000
= 2.139FINANCIAL YEAR 2010
(All values in Pak rupees)
Cost of goods sold = 185,403,153,000 (Under note to accounts no 28)
Opening inventory = 818,939,000 (Under note to accounts no 28)
Closing inventory = 1,000,955,000
Average inventory = (818,939,000 + 1,000,955,000) / 2
= 909,947,000Average Inventory
Average age of inventory = ______________________ x 360
Cost of goods sold
= (909,947,000 x 360) / 185,403,153,000
= 1.766
ATTOCK PETROLEUM
FINANCIAL YEAR 2008
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(All values in Pak rupees)
Cost of goods sold = 89,646,373,000 (Under note to accounts no 24)
Opening inventory =311,633,000 (Under note to accounts no 20)
Closing inventory = 436,792,000
Average inventory = (311,633,000 + 436,792,000) / 2
= 374,212,500
Average Inventory
Average age of inventory = ______________________ x 360
Cost of goods sold
= (374,212,500* 360) / 50,493,929,000
= 2.284
FINANCIAL YEAR 2009(All values in Pak rupees)
Cost of goods sold = 75,342,096,000 (Under note to accounts no 24)
Opening inventory = 1,278,493,000 (Under note to accounts no 24.1)
Closing inventory =1,441,793,000
Average inventory = (1,278,493,000 +1,441,793,000) / 2
=1,360,143,000
Average Inventory
Average age of inventory = ______________________ x 360
Cost of goods sold
= (1,360,143,000* 360) / 75,342,096,000
= 6.499
88 FINANCIAL YEAR 2010
(All values in Pak rupees)
Cost of goods sold =88,693,686,000 (Under note to accounts no 24)
Opening inventory =1,441,793,000 (Under note to accounts no 24.1)
Closing inventory = 3,022,021,000
Average inventory = (1,441,793,000 + 3,022,021,000) / 2
= 2,231,907,000
Average Inventory
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Average age of inventory = ______________________ x 360
Cost of goods sold
= (2,231,907,000 * 360) / 88,693,686,000
= 9.059
GRAPHICAL REPRESENTATION OF RATIO
0
20
40
60
80
100
120
140
160
180
200
Year
2008
Year
2009
Year
2010
PSO
Shell Pakistan
Attock Refinery Ltd
INTERPRETATION:
It is the average number of days a company holds its inventory
before selling it to customer.Lower the average age of inventory, better it is for business,
as it shows that business is flourishing and it also indicate low storage cost of inventory.
Average age of inventory is derived by dividing inventory turn over ratio by no of days in a
year.
1.Pakistan Sate Oil:
Pakistan State Oil is state owned oil marketing company. It has largest no of
petrol pump stations in Pakistan. Also it has large scale storage capacity as well. During
financial year 2008, Pakistan State Oil showed a very high age of inventory of about
35.579 days. This shows that company is facing huge difficulty in selling inventories or
there is some problem in bring these inventories to market. In following year; 2009, the
average of inventory decreased rapidly to 30 days. This is huge improvement over
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financial year 2008. In financial year 2010, average age of inventory increased sharply and
reached to 190.27 days. This is the lowest average age of inventory for all three
consecutive financial years starting from 2008-2010. Low average age of inventory
indicates that either Pakistan State Oil has very large storage capacity or it is facing
problem in selling its inventory.
2. SHELL PAKISTAN:
Shell Pakistan is subsidiary of Royal Dutch Shell International, and major
oil marketing company in Pakistan. During 2008, average age of inventory was 2.33
days. This is very healthy ratio. It means that company is selling its inventories very
effectively. In next financial year, ratio increased a little and reached 2.139 days.
This still looks good. Similarly in 2010, company maintained similar performance
and showed average collection period of2.139 days. This performance is better
than Pakistan State Oil. This shows marketing efficiency of Shell Pakistan is far
better than PSO.
3. ATTOCK REFINERY LTD:
Attock Refinery Ltd is most successful business venture of Attock group of
companies. During, the financial year 2008 the company shows, average age of
inventory of2.284 days. In next financial year i.e. 2009, its average age of inventory
showed low performance and increased to the level of6.499 days. But in financial
year 2010, the Attock Refinery showed decrease in performance in its average age of
inventory and showed 9.059days. When we look at the trend of inventories for three
years, we find that Attock Refinery showed healthy average age of inventory in 2008
but did not perform as well in financial year 2010. In 2008, however remained best
performing year than the following two years and showed lowed average of inventory
ratio of2.284 days.
6. Operating Cycle:
Operating cycle means the net days a business entity takes to convert cash in to inventory
and inventory in to accounts receivable and then into cash. Simple it can be described in
following manner.
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Cash InventoryAccounts Receivable Cash
Operating Cycle= Ave. age of inventory + operating period
GRAPHICAL REPRESENTATION OF RATIO
Year 2008 Year 2009 Year 2010
PSO35.579+24.64
= 60.219
30.48+47.30
= 77.78
190.270+56.95
=247.22
Shell Pakistan2.33+6.4558
=8.7858
2.139+2.8597
=4.9987
1.766+3.6693
=5.4353
Attock Refinery
Ltd
2.284+36.063=
38.347
6.499+72.94
=79.439
9.059+124.227
=133.286
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0
50
100
150
200
250
Year 2008 Year 2009 Year 2010
PSO
Shell Pakistan
Attock Refinery
Ltd
INTERPRETATION:
Operating cycle of business is also known as cash to cash cycle. As it the time
period during which any raw material purchases is converted into cash by sales. Thus it is
the length of time between the cash outflow on purchased material and cash inflow from
the sale of goods. Lower the time period better it is for the business. In current comparing
variable i.e. Attock Petroleum and Shell Pakistan have demonstrated negative values in
their operating cycle calculations. This means that these companies are receiving cashinflows from sales in advance. Where as Pakistan State Oil, the national oil company, is
showing operating cycle of 4-7 days during last three years. Which is overall satisfactory
but under performing form a compared to Shell and Attock Petroleum.
1.Pakistan Sate Oil:
Pakistan State Oil is state owned oil marketing company. It has largest no of
petrol pump stations in Pakistan. Also it has large scale storage capacity as well. During
financial year 2008, Pakistan State Oil showed operating cycle of about 60.219 days. This
shows that company is facing huge difficulty in selling inventories or there is some
problem in bring these inventories to market. In following year; 2009, the average of
inventory decreased rapidly to 77.78 days. This is huge improvement over financial year
2008. In financial year 2010, average age of inventory increased sharply and reached to
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247.22 days. This is the lowest average age of inventory for all three consecutive financial
years starting from 2008-2010. Low average age of inventory indicates that either Pakistan
State Oil has very large storage capacity or it is facing problem in selling its inventory.
2. SHELL PAKISTAN:
Shell Pakistan is subsidiary of Royal Dutch Shell International, and major
oil marketing company in Pakistan. During 2008, average age of inventory was
8.7858 days. This is very healthy ratio. It means that company is selling its
inventories very effectively. In next financial year, ratio increased a little and reached
4.9987days. This still looks good. Similarly in 2010, company maintained similar
performance and showed average collection period of5.4353days. This performance
is better than Pakistan State Oil. This shows marketing efficiency of Shell Pakistan is
far better than PSO.
3. ATTOCK PETROLEUM LTD:
Attock Petroleum is most successful business venture of Attock group of
companies. During, the financial year 2008 the company shows, a health average age
of inventory of38.347days. In next financial year i.e. 2009, its average age of
inventory improved and dropped to the level of79.439 days. But in financial year
2010, the Attock Petroleum showed decrease in performance in its average age of
inventory and showed 133.86days. When we look at the trend of inventories for threeyears, we find that Attock Petroleum showed healthy average of inventory in 2009
but did not perform as well in financial year 2010. In 2009, however remained best
performing year than the preceding two years and showed lowed average of inventory
ratio of1.354 days.
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7. FIXED ASSET TURNOVER RATIO:
Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures
the efficiency and profit earning capacity of the concern. Higher the ratio, greater is the
intensive utilization of fixed assets. Lower ratio means under-utilization of fixed assets.
Net Sales
Fixed Assets Turnover Ratio = __________________________
Net Fixed Assets
Year 2008 Year 2009 Year 2010
PSO495,278,533,000 /
11,231,328,000
=44.097
612,695,589,000 /14,732,119,000
= 41.589
742,757,951,000 /8,874,593,000
= 83.69
Shell
Pakistan
139,844,689,000 /
9,444,650,000
= 14.80
156,000,098,000 /
12,290,482,000
= 12.692
197,530,911,000 /
13,007,751,000
= 15.185
Attock
Refinery
Ltd
91,910,703,000/
2,929,652,000
= 31.37
76,546,448,000/
2,919,127,000
= 26.22
88,184,026,000/
2,868,001,000
=30.74
WORKING:
PAKISTAN STATE OIL
FINANCIAL YEAR 2008
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(All values in Pak rupees)
Net Sales = 495,278,533,000 (Note 25)
Net Fixed Assets = 11,231,328,000
Net Sales
Fixed Assets Turnover Ratio = __________________________
Net Fixed Assets
= 495,278,533,000 / 11,231,328,000
= 44.097
FINANCIAL YEAR 2009
(All values in Pak rupees)
Net Sales = 612,695,589,000
Net Fixed Assets =14,732,119,000
Net Sales
Fixed Assets Turnover Ratio = __________________________
Net Fixed Assets
= 612,695,589,000 / 14,732,119,000
= 41.589
FINANCIAL YEAR 2010
(All values in Pak rupees)
Net Sales = 742,757,951,000
Net Fixed Assets = 8,874,593,000
Net Sales
Fixed Assets Turnover Ratio = __________________________
Net Fixed Assets
= 742,757,951,000 / 8,874,593,000
= 83.69
SHELL PAKISTAN
FINANCIAL YEAR 2008
(All values in Pak rupees)
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Net Sales = 139,844,689,000
Net Fixed Assets = 9,444,650,000
Net Sales
Fixed Assets Turnover Ratio = __________________________
Net Fixed Assets
= 139,844,689,000 / 9,444,650,000
= 14.80
FINANCIAL YEAR 2009
(All values in Pak rupees)
Net Sales = 156,000,098,000
Net Fixed Assets = 12,290,482,000
Net Sales
Fixed Assets Turnover Ratio = __________________________
Net Fixed Assets
= 156,000,098,000 / 12,290,482,000
= 12.692
FINANCIAL YEAR 2010
(All values in Pak rupees)
Net Sales = 197,530,911,000
Net Fixed Assets = 13,007,751,000
Net Sales
Fixed Assets Turnover Ratio = __________________________
Net Fixed Assets
= 197,530,911,000 / 13,007,751,000
= 15.185
ATTOCK REFINERY LTD
FINANCIAL YEAR 2008
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(All values in Pak rupees)
Net Sales = 91,910,703,000
Net Fixed Assets = 2,929,652,000
Net Sales
Fixed Assets Turnover Ratio = __________________________
Net Fixed Assets
= 91,910,703,000/ 2,929,652,000
= 31.37
FINANCIAL YEAR 2009
(All values in Pak rupees)
Net Sales = 76,546,448,000
Net Fixed Assets = 2,919,127,000
Net Sales
Fixed Assets Turnover Ratio = __________________________
Net Fixed Assets
= 76,546,448,000/ 2,919,127,000
= 26.22
FINANCIAL YEAR 2010
(All values in Pak rupees)
Net Sales = 88,184,026,000
Net Fixed Assets = 2,868,001,000
Net Sales
Fixed Assets Turnover Ratio = __________________________
Net Fixed Assets
= 88,184,026,000/ 2,868,001,000
= 30.74
GRAPHICAL REPRESENTATION OF RATIO
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0
10
20
30
4050
60
70
80
90
Year 2008 Year 2009 Year 2010
PSOShell Pakistan
Attock Refinery Ltd
INTERPRETATIONFixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio
measures the efficiency and profit earning capacity of the concern. Higher the ratio, greater
is the intensive utilization of fixed assets. Lower ratio means under-utilization of fixed
assets.
1.Pakistan Sate Oil:
Pakistan State Oil is Pakistans national oil refinery and oil distribution
company. In 2010, the company utilized its fixed assets resources to the full extent
and showed highest fixed asset to sales ration that is 83.69. While 2009 remained
lowest performance year, but still it is health ration for fixed asset utilization point of
view, nevertheless it remained 41.58. The company showed almost similar
performance in 2008, and it showed ration of 44.097. So from, assessing the
performance from managerial point of view, company utilization of resources has
improved from three consecutive year, i.e. 2008-2010 and shows up word trend on
the graph.
2.SHELL PAKISTAN:
Shell Pakistan is second largest oil refinery and distribution company in
Pakistan, with large scale storage facilities and fuel station network in whole country.
It is a public limited company though. In 2008, the company shows steady fixed
assets to net sales ratio of about; 14.8. In next financial year, i.e. 2009 its
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performance decreased a little and it showed reduced performance of about; 12.69.
In next year, i.e. 2010 the company showed highest fixed asset to net sales ratio of
15.185. When one, analyze the graph of fixed asset to net sales of Shell , it is found
that it shows very consistent performance of this company through out 3 years.
3. ATTOCK REFINERY LTD:
Attock Refinery Ltd is most successful business venture of Attock group of
companies. During, the financial year 2008 the company shows, highest utilization of
fixed assets and ratio of 31.37. Where as 2009 it decreased little to the level of
26.22. But in 2010 showed improvement and fixed asset turnover ratio improved to
the level of 30.74.
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Chapter No. 3
CONCLUSIONS AND RECOMMENDATIONS
Following are some suggestions and recommendations which can help management
improve it operational efficiency.
1. PAKISTAN STATE OIL:
a) Pakistan State Oil needs to improve accounts receivable turnover ratio by following
tighter credit policy and collecting receivables from debtors efficiently.
b) Improve inventory turnover by enhancing sales and thereby reducing the cost ofstoring inventories.
c) Should tight credit policy so that average collection period may improve. Last
financial year 2009 was worst for company.
d) Should improve cash inflow, so that company may pay accounts payable timely.
e) Should take drastic measure in selling inventories other wise company will face
huge financial loss if its average age of inventory is not reduced.
2. SHELL PAKISTAN:
a) Maintain tight credit policy and thereby enhance accounts receivable ratio further.
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b) Like PSO, Shell Pakistan also suffered from national crisis of circular debt which
resulted in slow placement of placing new inventory orders. Should reduce storing
time.
c) Maintain tight credit policy and thus maintain excellent average collection period.
d) Improve cash flow by enhancing sales so that company may pay accounts payable
timely.
e) Maintain healthy average age of inventories. This will further ensure high turnover
and better cash flows from operating activities.
3. ATTOCK REFINERY LTD:
a) Maintain tight credit policy for avoiding any fall in accounts receivable turnover
ratio.
b) Improve inventory management so that less stock is stored and cost of storage is
reduced. Although Attock Petroleum inventory management is remains highest as
compared to other oil marketing companies.
c) Very large collection period shows very poor performance of company, company
should bring its average collection period to 15 days.
d) Improve cash inflow by speeding up receivables and hence improve its accounts
payable ratio by paying creditors timely.
e) Maintain healthy average age of inventories. This will further ensure high turnover
and better cash flows from operating activities
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Chapter No. 4
INTRODUCTION OF STUDENT
PERSONAL INFORMATION:
Name Ali Dayyan
Address Professor Colony, Govt. Degree College for boys,
Civil Lines, Sheikhupura.Date of Birth 28.03.1984
ACADEMIC INFORMATION:
1. L.L.B Punjab University Law College Lahore.
2. B.COM Hailey College of Commerce, PU, Lahore.
3. F.sc Govt. Degree College for boys, Sheikhupura.
EXPERIENCE:
1. Worked as Officer Grade III in MCB.
2. Worked as Assistant Section Officer in S& GAD, Govt. of the Punjab.
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3. Attorney at law since Nov, 2009
BIBLIOGRAPHY
1. Clyde P. Stickney, Roman L. Weil, (2007), Financial Accounting: An
Introduction to Concepts, Methods, and Uses, New York: South-Western College
2. Richard Loth, (2010), Financial Ratio Tutorial.
http://www.investopedia.com/university/ratios/
3. Wikipedia Online encyclopedia. (n.d). Retrieved fromhttp://en.wikipedia.org/wiki/Financial_ratio
4. Lawrence J. Gitman, (2005), Principles of Managerial Finance (11thEdition), New York: Addison Wesley
http://www.investopedia.com/university/ratios/http://www.investopedia.com/university/ratios/