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Analysis of Financial Statement of Pakistan State Oil



PREACE

This report is submitted in the practical acknowledgement of Analysis of Financial statement Subject. This report is developed from annual reports of Pakistan State oil where we give the horizontal and vertical analysis along with ratios.



ACKNOWLEDGEMENT

We are heartily thankful to our teacher, Mam Maria Faisal, whose encouragement, guidance and support from the initial to the final level enabled us to develop an understanding of the subject and in writing the report about our subject from we have learn a lot because it is a demonstration of our ability in research, analysis, and effectiveness of expression. After writing our report ideally adds to the store of human knowledge and serves as a contribution to future researchers.

Lastly, we offer our regards and blessings to all of those who supported us in any respect during the completion of the report.

Table of Contents
PREFACE.. 2
ACKNOWLEDGEMENT.. 3
Pakistan State Oil 6
Vision.. 6
Mission.. 6
Industry Profile. 7
Financial Highlights. 8
Financial Performance. 8
Operational Highlights. 8
Financial Highlights. 8
Dividend and other Appropriation.. 9
Contribution to National Exchequer. 9
Circular Debt. 9
Financial Charges. 9
Pak Rupee Devaluation.. 9
Strategy to Overcome Liquidity Problem... 10
Company Auditors. 10
PSO Ratings. 10
Financial Statement. 11
Share holding Pattern.. 14
Horizontal analysis. 14
Vertical analysis. 14
Balance Sheet. 15
VERTICAL ANALYSIS. 15
HORIZONTAL ANALYSIS. 16
Profit and Loss Account. 17
VERTICAL ANALYSIS. 17
HORIZONTAL ANALYSIS. 18
Ratio analysis. 19
Current Ratio. 19
Working Capital 20
Quick Ratio. 21
Profit Margin.. 22
Return on Capital employed. 23
Return on Shareholders’ Equity. 24
EBIT margin.. 25
Net profit margin.. 26
Operating profit margin.. 27
Gross profit margin.. 28
Operating income Margin.. 29
Day’s sales in Receivables. 30
Day’s Sales Inventory. 31
Account Receivable Turnover. 32
Creditors Turnover Ratio. 33
Debtor Turnover Ratio. 34
Cash Ratio. 35
Interest Cover Ratio. 36
Fixed Asset Turnover Ratio. 37
Inventory turnover Ratio. 38
Return on total assets. 39
Total asset turnover. 40
Sales to Fixed Asset. 41
Return to Operating Asset. 42
Fixed Asset to Equity. 43
Inventory Turnover in Days. 44
Debt to Equity Ratio. 45
Debt Ratio. 46
Earnings per share. 47
Market value per share. 48
Price earnings ratio. 49
Dividend per share. 50
Conclusion.. 51
References. 52
Attachments

 

Pakistan StateOil

Pakistan State Oil starts from mid-70s when the Government of Pakistan amalgamated three OMCs: Esso Eastern, Pakistan National Oil (PNO) and Dawood Petroleum as part of its reorganization plan. It is considered as one of the most successful mergers in the history of Pakistan. The main objective of the Nationalization of POL Giant was backed by the facilitation of the sensitive national issue of providing fuel to Defense forces. Because, during the war of 1971, the nation suffered from the problem that no fuel company was interested to provide fuel to the Armed forces at that and the sensitivity of the nation was in very crucial condition. The than Federal government decided to nationalize three petroleum companies along with management control.
The company is the only public sector entity in Pakistan that has been competing effectively with three multinationals companies which are supported technically by their parent organization.
Pakistan State Oil Company Ltd; is the largest oil marketing company of Pakistan. It is engaged in the Storage, Import, Distribution and Marketing of Petroleum Products, Petrochemicals, Aviation & Bunker Fuels, LPG and CNG Dominates the Country’s Fuel and Energy Need.

Vision

To excel in delivering value to customers as an innovative and dynamic energy company that gets to the future first.

Mission

We are committed to leadership in energy market through competitive advantage in providing the highest quality petroleum products and services to our customers, based on:
·         Professionally trained, high quality, motivated workforce, working as a team in an environment, which recognizes and rewards performance, innovation and creativity, and provides for personal growth and development
·         Lowest cost operations and assured access to long-term and cost effective supply sources
·         Sustained growth in earnings in real terms
·         Highly ethical, safe environment friendly and socially responsible business practices
·         Extended support to various charitable organizations in the health & education sector including contribution for the rehabilitation of IDPs due to the Swat operation

Industry Profile

There are four main OMCs in Pakistan that includes PSO, Shell, Caltex and Total. PSO is the market leader by holding overall 67% of market share and with 22% share Shell Pakistan hold second position.

Financial Highlights

Financial Performance

For the year ended June 30, 2011, the Company achieved an impressive performance with turnover touching Rs. 975 billion mark compared to Rs. 877 billion in FY10 representing a growth of 11%. Your Company was able to post highest ever after tax earnings of Rs. 14.78 billion as compared to Rs. 9.05 billion in the previous financial year. The earnings per share of Rs. 86.17 was also at record level as compared to Rs. 52.76 last year, representing 63% increase.

Operational Highlights

·         13% 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 Highlights

·      Highest 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.

Dividend and other Appropriation

Based on these results, the board announced a final dividend of Rs. 2 per share. Combined with the earlier interim dividends aggregating Rs. 8 per share, the total dividend for the year stood at Rs.10 per share translating into a total payout of Rs. 1.715 billion to the shareholders.

Contribution to National Exchequer

During FY11, your Company contributed Rs.197 billion to the government exchequer in the form of corporate taxes, excise duty, sales tax, import duty and Petroleum Development Levy (PDL).

Circular Debt

Despite being profitable, PSO Company continued to face severe liquidity problems due to ever-increasing receivables on account of prevailing circular debt crisis. As of June 30, 2011, major power generation companies including WAPDA, KAPCO, HUBCO and KESC owe PSO Company an aggregate amount of Rs.115 billion. Further, GoP owes PSO Company Rs.14.5 billion on account of Price Differential Claim (PDC). This has created such an acute financial crunch that we had to struggle to meet our import and tax related payments. Consequently, the Company owed Rs. 55 billion to local refineries and Rs. 94 billion to international suppliers and hence the Company had to resort to short-term borrowings to meet its working capital requirements.

Financial Charges

The heavy bank borrowings resulted in high financial costs to the Company in terms of interest payments, which continues to depress your Company’s profitability. The Company incurred Rs. 11.9 billion as financial charges during FY11 as compared to Rs. 9.8 billion in the previous financial year.

Pak Rupee Devaluation

In addition to heavy financial charges borne by your Company, Pakistan Rupee devaluation of 0.5% against the US$ resulting in an exchange loss of Rs. 684 million also affected the profitability of the Company as more than 90% of oil product imports in the country are carried out by PSO.

Strategy to Overcome Liquidity Problem

Management continues to make stringent efforts to overcome liquidity problems and has formulated various strategies to overcome it. These include rigorous monitoring of the net working capital position of the Company to ensure that current asset - current liability maturities are adequately matched with temporary mismatches being covered through short-term borrowings. In addition, constant pursuit for recovery of receivables from power sector as well as Government of Pakistan (GoP) was made throughout FY11 to ensure availability of products in the country. As a result of these measures, the Company received Rs. 179 billion from the power sector against supplies of Rs. 295 billion in FY11 and Rs. 3.3 billion on account of delayed payment charges out of Rs. 26 billion recoverable from the power sector. Further, your Company received Rs.1.8 billion on account of price Differential Claim (PDC) from GoP in FY11 and Rs. 5 billion subsequent to year end.

Company Auditors

• KYMG Taseer Hadi & Co.

• M. Yousuf Adil Saleem & Co.

PSO Ratings

LONG TERM CREDIT RATING AA+

SHORT TERM CREDIT RATING A1+

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

RATING LAST UPDATED : JANUARY 2011

Financial Statement

The financial statement of any organization shows the results of its operation and its position in business. It is a process which involves reclassification and summarization of information through the establishment of ratios and trends. The overall objective of financial statement analysis is the examination of a firm’s financial position. Balance sheet and Income statement for year 2011, 2010 and 2009 is given at the end of report.






2011
2010
2009
2008
2007
2006
2005
Sales Volume (Million Tons)
12.9
14.2
13.2
13
11.8
9.8
9.7



2011
2010
2009
2008
2007
2006
2005
Profit & Loss Account
Sales Revenue
974,917
877,173
719,282
583,214
411,058
352,515
253,777
Net Revenue
820,530
742,758
612,696
495,279
349,706
298,250
212,504
Gross Profit
342,80
29,166
3,010
30,024
12,259
17,207
13,746
Operating Profit / (Loss)
25,217
21,233
-5,577
22,451
7,950
11,264
9,340
Marketing & Administrative Expenses
6,690
5,181
5,113
4,425
3,748
3,428
3,219
Profit / (Loss) before Tax
17,974
17,963
-11,357
21,377
7,122
11,418
9,191
Profit / (Loss) after Tax
14,779
9,050
-6,699
14,054
4,690
7,525
5,656
Earning / (Loss) before Interest, taxes, depreciation & Amortization (EBITDA)
31,017
29,028
-3,983
23,912
9,420
9,420
13,385
Capex
859
559
694
620
1,609
717
1,506



2011
2010
2009
2008
2007
2006
2005
Balance Sheet
 Share Capital
 1,715
 1,715
 1,715
 1,715
 1,715
 1,715
 1,715
 Reserves
 40,188
 27,621
 19,156
 29,250
 19,224
 19,098
 15,830
 Shareholders' Equity
 41,903
 29,336
 20,871
 30,965
 20,939
 20,813
 17,545
 Property Plant & Equipment
 6,114
 6,411
 7,056
 7,567
 8,138
 7,674
 8,256
 Net current assets
 35,302
 23,298
 8,666
 22,143
 115,879
 62,513
 58,035
 Long Term Liabilities
 3,257
 2,836
 2,528
 2,409
 2,412
 2,299
 1,999



2011
2010
2009
2008
2007
2006
2005
Profitability Ratios in %
Gross Profit ratio
3.5
3.3
0.4
5.1
3
4.88
5.42
Net Profit ratio
1.5
1
-0.9
2.4
1.14
2.13
2.2 3
EBITDA margin
3.18
3.31
-0.55
4.1
2.29
3.8
41.6
Return on Shareholders' Equity
35.3
30.8
-32.1
45.4
22.4
36.2
32.2
Return on total assets
5.6
4.5
-4.4
11.1
6.3
10.72
10.9
Return on capital employed
66.2
86.6
-21.9
68.1
35.4
54.1
48.9






2011
2010
2009
2008
2007
2006
2005
Asset utilization
Inventory turnover ratio
12.7
17.7
14
12.7
11.7
11.5
11.2
Debtor turnover ratio
8
8.9
12.6
24.6
32.5
37.8
39.9
Creditor turnover ratio
5.7
6.1
6.3
9.6
10.8
12.5
13.5
Total asset turnover ratio
4.19
4.93
5.13
5.78
5.7
5.76
5.37
Fixed asset turnover ratio
155.7
130.3
98.4
74.3
52
44.4
31.7



2011
2010
2009
2008
2007
2006
2005
Leverage
Interest Cover ratio
2.5
2.8
-0.9
16.4
6.86
12.7
25.87
Current Ratio
1.16
1.14
1.07
1.24
1.22
1.24
1.24
Quick Ratio
0.72
0.79
0.75
0.57
0.64
0.63
0.62



2011
2010
2009
2008
2007
2006
2005
Summary of Cash Flow Statement
 Net cash (outflow) / inflow from operating activities
 (8,419,468)
 4,957,702
 (4,828,554)
 4,116,415
 3,715,768
 1,702,598
 5,307,821
 Net cash (outflow) / inflow from investing activities
 (396,649)
 87,504
 (2,889)
 (172,926)
 (707,953)
 (173,687)
 (1,219,568)
 Net cash (outflow) / inflow from financing activities
 (1,944,209)
 (2,305,594)
 511,790
 (9,716,130)
 (1,589,821)
 4,035,619
 (3,087,422)
 Cash & cash equivalents at end of the year
 (19,531,039)
 (8,409,328)
 (11,510,325)
 (7,190,672)
 (1,418,031)
2,836,025
 (191,669)



2011
2010
2009
2008
2007
2006
2005
Investment
Earning per share
Rs. (Bn)
86.17
52.76
-39.05
81.94
27.3
43.9
33
Market value per share (Year End)
Rs. (Bn)
264.58
260.2
213.65
417.24
391.5
309
386
Highest Price
Rs. (Bn)
313.8
342.95
428.79
539.7
418.3
 452.30
 490.10
Lowest Price
Rs. (Bn)
236.68
218.33
96
317.5
280.5
264.65
239
Break-up value
Rs. (Bn)
244
171
121
180
121.7
121
101
Price earning ratio (P/E)
(x)
3.1
4.9
-5.5
5.1
14.3
7
11.6
Dividend per share
Rs. (Bn)
10
8
5
23.5
21
34
26
Dividend Payout
%
11.6
15.16
-12.8
28.68
76.8
77.5
78.8
Dividend yield
%
3.78
3.07
2.34
5.63
5.36
11
6.74
Dividend cover ratio
(x)
8.59
6.58
-7.79
3.48
1.3
1.29
1.26




Share holding Pattern

Shareholding Pattern


No of Shares
Government of Pakistan
38,505,565
22.45
GOP's Indirect Holding:-PSOCL Emp. Empowerment Trust
5,250,759
3.06
NBP (Trustee Dept) & ICP (IDBP)
27,897,047
16.26
CEO, Directors and their Spouse
1
0




Public Sector Companies & Corporations


Banks, DFIs NBFIs, Insurance Companies,


Modarbas, Mutual Funds, Foreign Companies 


and other Organizations
71,507,440
41.69




Individuals
19,292,085
11.25




Others
9,066,004
5.29

TOTALS
171,518,901
100




Free Float Shares as on 31.12.2011


TOTAL OUTSTANDING SHARES


NAME
No. of Shareholders
Shares held
Holding




PROMOTORS/DIRECTORS/ACQUIRERS
1
1
0
PERSONS/BODIES WITH "CONTROLLING INTEREST"
4
40,598,954
23.67
GOVERNMENT HOLDING AS PROMOTOR/ACQUIRER
1
38,505,565
22.45
ASSOCIATED/GROUP COMPANIES (CROSS-HOLDING)
0
0
0
SHARES THAT COULD NOT BE SOLD IN THE OPEN 
0
0
0
MARKET, IN NORMAL


SHARES HELD WITH GENERAL PUBLIC
12765
92,414,381
53.88

12771
171518901
100

Horizontal analysis

Through this analysis we can check that what changes with are in years in the items of balance sheet and profit and loss account. Last year become base for next year. And change can be easily analyzed.

Vertical analysis   

In vertical analysis of balance sheet the percentage of each item of statement is calculated to total and then the change in the percentages is checked with in years.

Balance Sheet

VERTICAL ANALYSIS
2011
2010
2009
2008
2007
2006
2005








Property, plant and equipment
2.33%
3.17%
4.60%
5.95%
10.89%
10.94%
15.78%
Long term investments
0.88%
1.00%
1.40%
2.13%
4.00%
4.67%
4.43%
Long term loans, advances and receivables
0.12%
0.16%
0.26%
0.38%
0.84%
0.99%
1.47%
Long term deposits and prepayments
0.06%
0.06%
0.05%
0.06%
0.09%
0.11%
0.20%
Deferred tax
0.36%
0.00%
3.28%
0.32%
0.54%
0.58%
0.24%
Total Non-Current Assets
3.75%
4.39%
9.60%
8.84%
16.36%
17.29%
22.13%








Current Assets







Stores, spares and loose tools
0.04%
0.06%
0.07%
0.09%
0.17%
0.18%
0.25%
Stock-in-trade
36.31%
28.97%
26.53%
49.06%
39.55%
40.14%
39.35%
Trade debts
47.48%
58.10%
52.48%
26.67%
18.20%
16.70%
12.98%
Loans and advances
0.16%
0.20%
0.27%
0.31%
0.49%
0.39%
0.41%
Deposits and short term prepayments
0.39%
0.18%
0.36%
0.32%
2.12%
1.84%
1.39%
Other receivables
8.57%
7.20%
8.35%
12.34%
21.08%
20.75%
19.80%
Taxation - net
2.40%
0.02%
0.46%
0.00%
0.00%
0.00%
0.00%
Short Term Investments

0.00%
0.00%
0.00%
0.00%
0.00%
0.02%
Cash and bank balances
0.88%
0.88%
1.88%
2.37%
2.04%
2.71%
3.67%
Total Current Assets
96.25%
95.61%
90.40%
91.16%
83.64%
82.71%
77.87%








Net Assets
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%








EQUITY AND LIABILITIES







Share Capital
0.65%
0.85%
1.12%
1.35%
2.29%
2.44%
3.28%
Reserves
15.30%
13.66%
12.49%
23.01%
25.72%
27.22%
30.26%
Total Shareholders’ Equity
15.95%
14.51%
13.60%
24.36%
28.02%
29.66%
33.54%








Long term deposits
0.39%
0.47%
0.56%
0.66%
1.03%
1.06%
1.29%
Retirement and other service benefits
0.85%
0.93%
1.09%
1.24%
2.20%
2.22%
2.53%
Total Long term Liabilities
1.24%
1.40%
1.65%
1.90%
3.23%
3.28%
3.82%
Trade and other payables
73.04%
77.15%
71.78%
63.78%
55.44%
52.47%
49.30%
Provisions
0.26%
0.34%
0.45%
0.57%
0.92%
1.11%
1.44%
Accrued interest / mark-up
0.16%
0.16%
0.36%
0.17%
0.18%
0.17%
0.12%
Short term borrowings
9.34%
6.44%
12.16%
8.65%
12.13%
10.90%
9.20%
Taxes payable
0.00%
0.00%
0.00%
0.57%
0.09%
2.42%
2.57%
Total Current Liabilities
82.81%
84.09%
84.75%
73.74%
68.76%
67.06%
62.64%

100%
100%
100%
100%
100%
100%
100%

Balance Sheet



HORIZONTAL ANALYSIS
2011
2010
2009
2008
2007
2006
2005












Property, plant and equipment
74%
78%
85%
92%
99%
93%
100%


Total Non-Current Assets
85%
77%
127%
97%
106%
105%
100%


Stock-in-trade
463%
285%
198%
303%
144%
137%
100%


Trade debts
1837%
1730%
1186%
499%
200%
173%
100%


Other receivables
217%
141%
124%
151%
152%
141%
100%


Cash and bank balances
120%
93%
150%
157%
79%
99%
100%


Total Current Assets
621%
475%
340%
284%
153%
142%
100%


Total Assets
502%
387%
293%
243%
143%
134%
100%


Share Capital
100%
100%
100%
100%
100%
100%
100%


Reserves
254%
174%
121%
185%
121%
121%
100%


Total Shareholders’ Equity
239%
167%
119%
176%
119%
119%
100%


Total Long term Liabilities
163%
142%
126%
121%
121%
115%
100%


Trade and other payables
744%
605%
427%
314%
161%
143%
100%



















Horizontal Analysis shows that trade debt are increasing every year which is the actual problem of PSO. To make their process smooth line PSO must have to solve the problem of Circular Debt in order to gain more profit in coming years.

Profit and Loss Account

VERTICAL ANALYSIS
2011
2010
2009
2008
2007
2006
2005








Sales
100%
100%
100%
100%
100%
100%
100%








Sales Tax
14.15%
13.52%
13.54%
12.73%
12.75%
12.63%
12.90%
IFEM/Levies
1.68%
1.81%
1.28%
2.35%
2.17%
2.76%
3.39%
Net sales
84.16%
84.67%
85.18%
84.92%
85.07%
84.61%
83.74%
Cost of products sold
80.65%
81.35%
84.76%
79.77%
82.09%
79.73%
78.32%
Gross Profit
3.52%
3.33%
0.42%
5.15%
2.98%
4.88%
5.42%
Operating Costs







Transportation
0.08%
0.07%
0.07%
0.06%
0.09%
0.10%
0.12%
Administrative & Marketing Expenses
0.69%
0.59%
0.71%
0.76%
0.91%
0.97%
1.27%
Depreciation
0.12%
0.13%
0.17%
0.20%
0.28%
0.31%
0.39%
Other operating expenses
0.23%
0.28%
0.56%
0.57%
0.18%
0.70%
0.42%
Total Operating Costs
1.12%
1.07%
1.50%
1.59%
1.46%
2.08%
2.20%

2.40%
2.25%
1.09%
-3.56%
-1.52%
-2.80%
3.21%
Other / Other Operating income
0.61%
0.86%
0.31%
0.29%
1.93%
0.40%
0.55%
Profit / (Loss) from Operations
3.01%
3.12%
-0.78%
3.85%
1.93%
3.20%
3.68%
Finance cost
1.22%
1.13%
0.87%
0.23%
0.28%
0.25%
0.15%
Share of Profit of Associates
0.05%
0.06%
0.06%
0.05%
0.08%
0.29%
0.09%
Profit / (Loss) before taxation
1.84%
2.05%
-1.58%
3.67%
1.73%
3.24%
3.62%
Taxation
0.33%
-1.02%
0.65%
1.26%
0.59%
1.10%
1.39%
Net Profit / (Loss)
1.52%
1.03%
-0.93%
2.41%
1.14%
2.13%
2.23%

Vertical Analysis show that the cost of goods sold in year 2011 in lass then previous year on other hand we have more sale in 2011 which means that 2011 is good financial year for the PSO. Net profit in 2011 is more than 2010 which is good sign for future.



Profit and Loss Account

HORIZONTAL ANALYSIS
2011
2010
2009
2008
2007
2006
2005








Sales
384%
346%
283%
230%
162%
139%
100%








Sales Tax
422%
363%
298%
227%
160%
136%
100%
IFEM/Levies
191%
184%
107%
159%
104%
113%
100%

374%
326%
258%
213%
149%
131%
100%
Net sales
386%
350%
288%
233%
165%
140%
100%
Cost of products sold
396%
359%
307%
234%
170%
141%
100%
Gross Profit
249%
212%
22%
218%
89%
125%
100%
Operating Costs







Transportation
259%
202%
164%
108%
118%
117%
100%
Administrative & Marketing expenses
208%
161%
159%
137%
116%
107%
100%
Depreciation
116%
120%
121%
113%
116%
110%
100%
Other operating expenses
208%
225%
371%
312%
70%
229%
100%
Total Operating Costs
195%
168%
193%
166%
108%
131%
100%

287%
242%
-96%
254%
77%
121%
100%
Other / Other Operating Income
502%
639%
188%
144%
144%
118%
100%
Profit / (Loss) from operations
314%
293%
-60%
240%
85%
121%
100%
Finance cost
3211%
2666%
1681%
369%
312%
239%
100%

195%
195%
-132%
235%
76%
116%
100%
Share of Profit of Associates
233%
233%
204%
133%
149%
468%
100%
Profit / (Loss) before taxation
196%
195%
-124%
233%
77%
124%
100%
Taxation
90%
252%
-132%
207%
69%
110%
100%
Net Profit / (Loss)
261%
160%
-118%
248%
83%
133%
100%

There is a good increase in the year 2011 as compared to previous years so the net profit in 2011 in a lot more than 2010 which so really good growth in the profit of the company. Finance cost is increasing every year which is not a good sign for the company in long term this will decrease the profit of the company so here the company needs to solve their circular debt problem.
Ratio analysis includes method of interpreting financial ratios to access the performance of any organization. The basic input to ratio analysis is profit and loss account and balance sheet. Ration analysis of any organization is in interest of its creditors, employees, shareholders and of its management as well. Both existing and prospective customer are interested in the ratio analysis of organization
Ratio analysis is a valuable aid to management in the discharge of its basic functions such as planning, forecasting, control etc. these ratios describe the relationship with the functioning of the business and helpful for controlling cost of goods manufactured. The great advantage of ratio analysis is that it reduces raw data of widely varying magnitude to a common comparative basis. Thus, ratio analysis is the most meaningful to compare financial information regarding a giving company.

Current Ratio

Formula:        Current ratio=    Current assets
                                                         Current liabilities
2011
2010
2009
Current Ratio
1.16
1.14
1.07
Interpretation
An increase in the current ratio represents improvement in the liquidity position of company while a decrease in the current ratio indicates that there has been deterioration in the liquidity position of the company. Current ratio in following years is increasing which is a positive indication to the company. 

Working Capital

Formula:Current Asset- Current Liabilities
2011
2010
2009
Working Capital
-2,011
-2,010
-2,009
Interpretation
A measure of both a company's efficiency and its short-term financial health. Positive working capital means that the company is able to pay off its short-term liabilities. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable and inventory). As shown the company needs to bring its WC ratio in positive so that meet obligations.

Quick Ratio

Formula:
Quick Ratio = Current asset – inventories / Current Liabilities


2011
2010
2009
Quick Ratio
0.72
0.79
0.75

Interpretation
Quick ratio is the most liquidity form which shows that the company is ability to pay its liabilities. The company is maintaining a low ratio of its quick ratio; the reason could be that the company may get its assets unutilized if it maintains more assets.

Profit Margin

Formula:
Profit Margin = Net income/ Sales revenue
                           


2011
2010
2009
Profit margin
0.02
0.01
-0.01

Interpretation
The profit margin ratio is the percentage of income on every dollar sale, there is seen an increasing trend of the profit margin of the PSO company.

Return on Capital employed

Formula:
Return on capital employed = Net income/ Capital Employed
                                                    

2011
2010
2009
Return on capital employed
66.2
86.6
-21.9

Interpretation
A ratio that indicates the efficiency and profitability of a company's capital investments. ROCE should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce shareholders' earnings. The decrease in the year 2011 is due to the increase in the debt the company borrowed.

Return on Shareholders’ Equity

Formula:
Return on Equity = Net Income/Shareholder's Equity
2011
2010
2009
Return on Shareholders' Equity
35.3
30.8
-32.1

Interpretation
This shows the earning of the shareholders equity, which are the priorities of the companies to give advantage to the shareholders. After a huge decline or a loss the company has jumped to a positive equity ratio.

EBIT margin

Formula:
Revenue - Expense
2011
2010
2009
EBITDA margin
3.18
3.31
-0.55

Interpretation
The EBIT ratio shows the companies strength to pay its stock holder the dividend and debt expenditure. Above three ratios is fair enough to meet these expenditure of the company. The greater the ratio the ability to pay this expenditure will increase.

Net profit margin

Formula: 
Net profit margin= Earnings available for common stock holder/ Sales
                                                                              
2011
2010
2009
Net Profit ratio
1.5
1
-0.9

Interpretation
Though there is a decrease in the operating margin of the company in 2011 but the net profit shows that the company avail a profit in this year after paying all the expenses including the dividend and taxes, which is also a sign of the strength of the company

Operating profit margin

Formula:
Operating profit margin = Operating profit/ Sales
                                                                            
2011
2010
2009
Operating profit margin
0.43
0.69
0.11

Interpretation
Operating profits are pure because they measure only the profits earned on operations and ignore interest, taxes and preferred stock dividend. A higher operating profit margin is preferred. Operating profit margin a little has a decreasing sign in 2011, its is due to the sales promotion of the company which cost more than in 2010.

Gross profit margin

Formula:    
Gross profit margin = Sales-cost of goods sold / Sales                   
                                                                  
                                

2011
2010
2009
Gross Profit ratio
3.5
3.3
0.4

Interpretation
Gross profit margin measures the percentage of each sales rupee remaining after the organization has paid for its goods. The higher the gross profit margin, the better (that is the lower the relative cost of merchandise sold). There is seen a high jump of the gross margin of the company as compared to 2009 and 2011. This is no doubt a huge improvement in the company performance.

Operating income Margin

Formula:
Operating income/Net sales
2011
2010
2009
Operating income Margin
3.07
2.85
-0.88

Interpretation
The operating income margin shows the income after the company had paid the operating expenses, but still taxes and dividend are payable into this margin. The year comparison of this ratio shows that the company has gone toward a positive income margin as it was negative in 2009 comparatively.



Day’s sales in Receivables

Formula:
Gross Sales/ (net receivables/365)
2011
2010
2009
Days’ sales in receivables
46.69
48.89
47.56

Interpretation
This ratio measure that the company’s cash is stuck in receivables, this ratio needs a better consideration so that the company soon has its cash and utilizes it and maintain a good liquidity position.





Day’s Sales Inventory

Formula:
Ending Inventory/ (CGS/365)
2011
2010
2009
Days’ sales in inventory
42
26
35

Interpretation
A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory (including goods that are work in progress, if applicable) into sales. Generally, the lower (shorter) the DSI the better, there is seen an improvement in the company’s sales in inventory ratio, attract the investors.




Account Receivable Turnover

Formula:
Sales/ Average Gross Receivable
2011
2010
2009
Account Receivable turnover
8.55
6.18
5.17

Interpretation
An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.


Creditors Turnover Ratio

Formula:
Inventory Turnover Ratio = Cost of goods sold / Average inventory at cost
2011
2010
2009
Creditor turnover ratio
5.7
6.1
6.3

Interpretation
In 2011 PSO using their resources very well that their credit turnover ratio is less than previous year which means that they are using their asset very well, in future this thing will be more profitable for the company.

Debtor Turnover Ratio

Formula:
Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors
2011
2010
2009
Debtor turnover ratio
8
8.9
12.6

Interpretation
The debt turnover ratio, also called the debtors turnover ratio or the accounts receivable ratio, indicates how effective a company is at selling on credit and collecting debt. The company needs to consider it debtor turnover ratio because its seen a decline in this ratio in the current year.

Cash Ratio

Formula:
Cash or Cash Equivalent /Current Liabilities
2011
2010
2009
Cash Ratio
1.06
1.04
1.01

Interpretation
The ratio of a company's total cash and cash equivalents to its current liabilities. The cash ratio is most commonly used as a measure of company liquidity. It can therefore determine if, and how quickly, the company can repay its short-term debt. A strong cash ratio is useful to creditors when deciding how much debt, if any, they would be willing to extend to the asking party. The calculated ratio shows that the company should increase it cash ratio, which is low comparatively.

Interest Cover Ratio

Formula:
Interest Cover ratio = EBIT / Interest Expense
2011
2010
2009
Interest Cover ratio
2.5
2.8
-0.9

Interpretation
The company is to pay what it financed from external sources; it is also liable to pay the taxes. This ratio is calculated to check that the company is capable enough to pay the taxes and debt cost. The calculated ratio shows that the company is able to pay because the ratio is greater than 1.

Fixed Asset Turnover Ratio

Formula:
Fixed Assets Turnover Ratio = Cost of Sales / Net Fixed Assets
2011
2010
2009
Fixed asset turnover ratio
155.7
130.3
98.4

Interpretation
Fixed assets are costly to the company so the company should not underutilize its fixed assets rather it should maximally utilize it and gain the advantage on these assets.

Inventory turnover Ratio

Formula:
Inventory Turnover Ratio = Cost of goods sold / Average inventory at cost
2011
2010
2009
Inventory turnover ratio
12.7
17.7
14

Interpretation
This ratio shows the how many times the company is converting its inventory into sale. The higher the inventory turnover ratio the more the company gets advantage of its sale. And pay less cost on inventory. The PSO should improve its turnover ratio as seen a decline in the following years.

Return on total assets


Formula:
Return on assets= Earnings available to common stock holder/ Total assets
                                                             
2011
2010
2009
Return on total assets
5.6
4.5
-4.4

Interpretation
Return on assets often called the return on investment. It measures the overall effectiveness of management in generating profit with its available assets. The higher the firm’s return on total assets, the better. The company is utilizing its assets and getting a good return which is 5.6 in the current year.

Total asset turnover

Formula:    
 Total asset turnover =    sales/ Total assets
                                                                 
2011
2010
2009
Total asset turnover ratio
4.19
4.93
5.13

Interpretation
Higher the total asset turnover the more efficiently its assets have been used. This measure is probably of greatest interest to management, because it indicates whether the efficient operations have been financially efficient. However the turnover ratio has a fall in the following years which needs management consideration.



Sales to Fixed Asset

Formula
Net Sales/ Average Net Fixed Asset
2011
2010
2009
Sales to fixes Asset(times per Year)
144.97
129.61
112.8

Interpretation
The sales to fixed assets ratio is often called the asset turnover ratio. A low sales to fixed assets ratio means inefficient utilization or obsolescence of fixed assets, which may be caused by excess capacity or interruptions in the supply of raw materials. However there is not any such situation in the company, PSO is maintaining and utilizing its fixed assets well as calculated ratio show.

Return to Operating Asset

Formula
Operating Income/ Average Operating Asset
2011
2010
2009
Return to operating Asset
4.4
3.7
2.9

Interpretation
The return on operating assets measure only includes in the denominator those assets actively used to create revenue. This focuses management attention on the amount of assets actually required to run the business, so that it has a theoretical targeted asset level to achieve. A typical result of this measurement is an ongoing campaign to eliminate unnecessary assets.

Fixed Asset to Equity

Formula
Fixed Asset/ Stockholder Equity
2011
2010
2009
Fixed Asset to Equity
3.54
3.71
3.12

Interpretation
Computation that indicates the company's ability to satisfy long-term debt. The ratio equals fixed assets divided by equity capital. A ratio greater than 1 means that some of the fixed assets are financed by debt. PSO position to satisfy these need is satisfactory after analyzing these ratios calculated above.

Inventory Turnover in Days

Formula:
Inventory/ (CGS/365)
2011
2010
2009
Inventory turnover in days
33.55
33.16
30.12

Interpretation
A ratio showing how many times a company's inventory is sold and replaced over a period. The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days".




Debt to Equity Ratio

Formula:
Total liabilities/total equity
2011
2010
2009
Debt to Equity Ratio
5.27
5.89
0.00

Interpretation
A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. The company has just jumped toward the debt and has a high leverage currently.



Debt Ratio

Formula: 
 Debt Ratio = Total liabilities/ Total assets
                                              

2011
2010
2009
Debt ratio
0.84
0.85
0.85

Interpretation
The debt ratio measures the proportion of total assets by the creditors. The greater this ratio the greater the amount of other people’s money being used to generate profits. The higher this ratio greater the degree of indebtedness and more financial leverage. PSO is maintaining less than half portion of its financing from the debt, and positively decreased in the ratio.

Earnings per share

Formula:
Earnings per share = net income – Dividend on prefer share /Average outstanding share
2011
2010
2009
Earnings per share
86.17
52.76
-39.05

Interpretation                      
After paying dividend on the preferred stocks, company’s current EPS is 86 and moving toward a positive increasing sign, which attracts the new investors to put on their money the company

Market value per share
2011
2010
2009
Market value per share (Year End)
264.58
260.2
213.65

Interpretation
Market value per share shows the company value overall, though in the year 2009 the company suffered a huge loss but didn’t loss the market value and in the following years the company has an increase in the value as shown above.

Price earnings ratio

Formula:
Price earnings ratio = Market Value per Share/ Earnings per Share (EPS)
                             


2011
2010
2009
Price earnings ratio (P/E)
3.1
4.9
-5.5

Interpretation
A valuation ratio of a company's current share price compared to its per-share earnings. PSO as compared to last year has less price earning share however the company is to improve its share price and its value to attain a positive image for the future.



Dividend per share

Formula:
DPS = dividend/ No of Shares
         


2011
2010
2009
Dividend per share
10
8
5

Interpretation
It’s the regular income of the investor which attain from their investment. The company’s dividend payment is mandatory as shown and also a positive indication as an increase the value of the dividend from 5 to 10.

The adverse liquidity position primarily due to rising circular debt is adversely affecting financial performance of energy related corporate companies including oil marketing companies PSO. In this respect, Pakistan State Oil has deferred announcement of dividend due to prevailing circular debt situation, however PSO’s management continues to constantly pursue the IPPs as well as the Government for recovery of its outstanding receivables touching Rs189 billion marks as of Dec.31, 2011.
The Circular debt crisis continued to play a major role in holding back your Company in FY11 and resulted in a delay in plans for brand repositioning, capacity-building and enhancement of the storage network. Moreover, other investment and expansion projects had to be withheld due to the mounting circular debt.
The continuous non-payment by the power sector has made PSO severely cash strapped. As a result, the company has defaulted on local refineries payments, which has adversely affected local production. Furthermore, the company is constantly struggling to meet its international payment obligations, as any default on the part of PSO to its international suppliers would disrupt supplies with their resumption
Higher financial charges in the wake of increased borrowing continue to mar the bottom-line performance of the company. PSO has to resort to short-term borrowing amounting to Rs. 64 billion. However, this cycle of circular debt led to excessive short-term borrowing and piling of financial charges, which tarnished the profitability of the company.
During this financial year, PSO once again took the lead in providing for the nation’s future energy needs by becoming the first OMC in Pakistan to launch a fully operational LPG Auto gas station under the brand name of “Smart Gas”.
The company further enhanced its product range with the introduction of new lubricant variants for generators, automotive and marine engines during this time period. PSO also received 2nd position in the Fuel and Energy Sector, at the “Best Corporate Report” award ceremony organized by ICAP and ICMAP.


1)      http://www.psopk.com/
2)     PSO Report to Shareholder 2011
3)     Corporate Governance Report 2011
4)     Corporate Objective Report 2011





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