Pso Ratios & Industry Analysis

Ratio analysis of Pakistan state oil and SHELL Pakistan

Short term salvage ratios:

1- Current ratio = current assets / current liabilities

Year 2010 2011 2012PSO 1.14 1.6 1.5Shell Pakistan 0.84 0.90 0.88

If we compare PSO and Shell Pakistan it is clear that PSO is in better position to pay its liabilities because PSO has 1.4 rupees on average to pay its 1 rupee liability.

2- Quick ratio = current assets- inventories / liabilitiesYear 2010 2011 2012PSO 0.8 .73 0.85Shell Pakistan 0.43 0.46 0.43

Both companies have excess of inventory that disable them to pay 1 rupee of liability on average PSO have 0.8 rupee to fulfil its one rupee liability and shell have 0.45 rupee for one rupee of liability.

3- Internal measures = current assets / average daily operation cost Average daily operation cost= total cost – deprecation – interest / 365year 2010 2011 2012PSO 99 118 123Shell Pakistan 50 63 58

From the upper calculated ratios it is clear that PSO has liquidity for more days as compare to shell, for PSO 115 days liquidity is available and shell has 56 days liquidity on average.

Long term salvage ratios:

1- Total debt ratio = total debt / total assets

Year 2010 2011 2012PSO 6.5% 9.3% 13%Shell Pakistan 22% 16% 27%

Shell Pakistan has average 22% debt financing and PSO has 8 % on average which shows goodness of Pakistan state oil.

2- Debt to equity ratio = total debt / total equity Year 2010 2011 2012PSO 44% 60% 90%Shell Pakistan 106% 95% 197%

Financial manager think that a good company is that in which debt to equity ratio should be 60 % equity and 40 % debt but in upper both cases PSO has maximum 90 % debt means PSO has 1.9 rupee from debt if company has 1 rupee from equity. But in case of Shell it is quite surprising to see shell has minimum debt to equity ratio is 95% and maximum it has 197 % in the year 2012.

3- Equity multiplier = 1+ total debt/ total equity


Equity multiplier of both companies is helping to understand the debt to equity ratio.

4- Long term debt ratio:

Both concerned companies have 0 long term debt so we cannot calculate the long term debt ratio.

5- Time interest earned ratio = EBIT/interest


Times interest earned ratio is very important from the creditors view point. PSO high ratio ensures a periodical interest income for lenders. Shell is with weak ratio may have to face difficulties in raising funds for their operations.

6- Cash coverage ratio = EBIT – depreciation/ interest


The cash coverage ratio is useful for determining the amount of cash available to pay for interest, and is expressed as a ratio of the cash available to the amount of interest to be paid. The ratio should be substantially greater than 1:1both PSO and Shell have good ratio except Shell in 2012 it is very low percentage.

Asset management ratio:

1- Inventory turnover = CGS/ inventoryYear 2010 2011 2012PSO 12.17 8.243 11.18Shell Pakistan 15.01 11.58 11.71

Days in inventory turnover = 365/ inventory turnoverYear 2010 2011 2012PSO 29.99 44.28 32.65Shell Pakistan 24.317 31.52 31.17

In this case Shell is doing well then PSO because inventory turnover reflects the efficiency of firm to convert its inventory to sale, PSO has an average 10 inventory turnovers less then shell which is 12.

2- Receivable turnover = sales/ account receivable


PSO is good in his collection of receivable rather than shell on average PSO collects its receivables 45 times in a year and shell is behind PSO which collects its receivables 20 times in a year.

3- Payable turnover = CGS/ account payableYear 2010 2011 2012PSO 4.57 4.098 4.0122

Shell Pakistan 9.29 8.437 7.88Days in payable turnover = 365/ payable turnoverYear 2010 2011 2012PSO 79.86 89.07 90.97Shell Pakistan 39.29 43.26 46.32

PSO has low inventory turnover which is favourable for organization.

4- Net working capital turnover = sales/ NWC

Year 2010 2011 2012PSO 31.88 23.24 23.27Shell Pakistan (43.82) (62.644) (52.93)

PSO is efficiently utilize its NWC to generate sales on other hand Shell has negative NWC.

5- Fixed assets turnover = sales/ net fixed asset


A financial ratio of net sales to fixed assets. The fixed-asset turnover Ratio measures a company's ability to generate net sales from Fixed-asset investments And PSO’S utilisation is good then shell which is Very low as compare to PSO.

6- Total asset turnover = sales/ total asset


The total asset turnover ratio measures the ability of a company to use Its assets to efficiently generate sales in this case Shell is doing well comparatively because it has an average of 5 times.

Profitability ratio:

1- Profit margin = net income/ sales


PSO is generating sales greater than Shell which is showing efficiency.

2- Return on asset = net income/ total asset


How much net income is generating from sales and in this case both Companies are doing approximately equal effort to generate net Income from sales.

3- Return on equity = net income/ total equity


It also reflects the generation of net income from equity and both companies are similar here also.

4- Earnings per share = net income/ no of share outstanding

Year 2010 2011 2012PSO 52.76 86.17 52.80Shell Pakistan 23.59 13.23 (24.33)

Upper calculation shoes that PSO earning per share is far better than shell Pakistan.

KARACHI: Despite an energy shortfall, Pakistan’s oil consumption declined by three percent in FY12 to 19.1 million tonnes as against 19.7 million tonnes recorded in FY11, according to the data of Oil Companies Advisory Committee (OCAC).

This is the second consecutive year that oil consumption has posted a decline. The reduction primarily came from seven percent decline in Furnace oil (FO) sales, which account for approximately 45 percent of total oil consumption in Pakistan.

“Despite electricity shortage, cash problems amid circular debt prompted power units to consume lower furnace oil for electricity generation which declined by seven percent to 8.4 million tonnes,” said Nauman Khan, an analyst at Topline Securities.

According to estimates, power sector consumed five percent lower FO as the government increased gas supplies by four percent, which is cheaper source of generation for power units as power sector has been given priority over other sectors in terms of gas allocation.

Moreover, liquidity constraints with oil marketing companies (OMCs) also led to restricted FO supplies.Diesel sales declined by one percent to 6.8 million tonnes primarily due to infiltration of smuggled diesel from Iran, whose share in local market has increased in the past few months.

Sales of petrol depicted a robust growth of 21 percent on the back of growing auto market and rising gas curtailment to compressed natural gas (CNG) sector prompting consumers to switch towards gasoline. Its share of total oil consumption rose to 14 percent in FY12 as against 12 percent last year.

Amongst the individual companies, Pakistan State Oil continued to remain the major victim of circular debt with an approximately 80 percent market share in FO segment. The company’s sales decline by three percent in FY12 to 12.4 million tonnes but was able to maintain its market share.

Attock Petroleum Limited, on the other hand, benefited from higher petrol sales with the company’s sales increasing by 13 percent in the year. Further, company expanded its market share by 1pps to eight percent in FY12.

A major dent came to Shell’s sales in FY12, down 29 percent, as the company lost its ground in HSD sales that contribute over 55 percent to Shell’s volume. The company’s market share declined by 3pps to 10 percent as against 13 percent in FY12.

LONG TERM CREDIT RATING AA+

SHORT TERM CREDIT RATING A1+

RATING BY : THE PAKISTAN CREDIT RATING AGENCY LIMITED (PACRA)

RATING LAST UPDATED : MARCH 2012 Financial Year 2010 - 2011

OPERATIONAL HIGHLIGHTS13% decline in Black Oil segment vs 2% industry decline mainly due to floods. (shut down of KAPCO, AES LALPIR & TPS Muzaffargarh)3% decline in White oil segment vs 1% industry decline mainly due to reduction in sales volumes of HSD.10% decline in HSD volumes vs 7% industry decline.

Positive volumetric growth of 27% and 2% in Mogas and JP1 (Local) respectively.

Market share declined to 65.6% from 71.1% in FY10.

FINANCIAL HIGHLIGHTSHighest ever profit after tax of Rs. 14.78 billion vs. Rs. 9.05 billion in FY10 (EPS: Rs.86.17 , 2009-10: Rs.52.76)Circular debt continues to put pressure on liquidity of the Company.

Financial charges of Rs. 11.9 billion booked during the year.GoP injected Rs. 120 billion in May2011 to reduce circular debt. PSO received Rs. 89 billion out of which Rs. 71 billion were paid to refineries/ taxes authorities.Received PDC on Mogas amounting to Rs. 1.8 billion in FY2011 and subsequent recovery of Rs.5 billion in Jul & Aug 2011.

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Pso Ratios & Industry Analysis