2015

Pakistan State Oil

ANALYSIS REPORT
HAFSA UMAIR, SYEDA KHUSHBAKHT
FARRUKH, MUHAMMAD SAUD SHAKEEL

INTRODUCTION TO BUSINESS FINANCE | INSTITUTE OF BUSINESS ADMINISTRATION

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Table of Contents
Introduction ............................................................................................................................... 2

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

PAKITSAN STATE OIL HAFSA UMAIR, SYEDA KHUSHBAKHT FARRUKH,

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Pakistan State Oil

Analysis Report

Introduction
Pakistan State Oil is a public company that was formed in the year 1976 with a series of mergers. The
government of Pakistan merged Pakistan Nation Oil (PNO) Company and Dawood Petroleum Limited
(DPL) and formed the Premier Oil Company Limited (POCL) in 1974. Sometime later, the Petroleum
Storage Development Corporation (PSDC) was formed which was then renamed as State Oil
Company Limited (SOCL). Finally in 1976, the merger of PSDC and SOCL brought about the creation
of Pakistan State Oil.

PSO is listed on the Karachi Stock Exchange as well as on all stock exchanges in Pakistan. It was listed
on the 23rd of October’1997 on the KSE, PSO belongs to the Oil and Gas sector. The core activities of
PSO are procurement (obtaining), storage and the marketing of petroleum and its other products. Its
product portfolio includes Motor Gasoline (MOGAS), high speed diesel oil, LPG, Kerosene Oil, Jet
Fuel, CNG, Petrochemicals and Lubricants.

The total market share of PSO, in the year 2014-15 stands at 56.8%, however, in 2013-2014 PSO had
a market share of 62% in the Oil Marketing Companies Sector. During the years 2013-2015, PSO lost
about 8% of its market share to other OMCs.

The total shares outstanding as of 30th June 2014 were 271,685,938. The number of free float shares
as of 30th June 2014 were 126,187,096.

RATIO ANALYSIS
Profitability Ratios
Pakistan State Oil witnessed its greatest ever annual PROFITABILITY RATIOS
sales in FY-2014. A whopping revenue of 1.4 trillion
40
was recorded. In the same year, the Company also
30
recognized significant cost efficiencies, with
20
distribution and marketing expenses increasing by
10
merely a 3% in contrast to the 14% average increase
witnessed over the last three years and against an 0
2014 2013 2012 2011 2010
inflation of 8.5%.
Gross Profit ratio
The Gross Profit margin has remained stable
Net Profit ratio%
throughout the course of the five years. While, the
Raw Return on Assets
net profit margin has observed a substantial increase
in FY 2014 due to a 208% increase in interest income Return on Shareholders' Equity
received from IPP’s. However, an abnormal decrease Return on total assets %
was observed in FY-2012 owing to increase in
operating expenses as a result of exchange losses on account of the value of the rupee hitting a
historic low. This one time decline was offset in the following years with the return on shareholder’s
equity and return on total assets has improving considerably in FY-2013 and FY-2014 owing to an
PAKITSAN STATE OIL HAFSA UMAIR, SYEDA KHUSHBAKHT FARRUKH,
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increase in the bottom line, a decrease in equity due to actuarial losses, and a decrease in total
assets due to partial settlement of circular debt by Government of Pakistan.

Raw Return on Asset saw an increase in the initial two years due to lower tax rates, followed by a
decline in FY-2012 due to a spike in tax rates and consequently the tax expense. FY-2013 observed a
considerable improvement due to settlement of debt by the GoP. However the ratio worsened again
in FY-2014 on account of increase in assets due to rise in deferred taxes.

PROFITABILITY RATIOS
YEARS
ITEMS 2014 2013 2012 2011 2010 TREND

Gross Profit ratio % 2.61 2.64 2.86 3.52 3.32 Decreasing

Net Profit ratio% % 1.55 0.98 0.75 1.52 1.03 Cyclical

Raw Return on Assets % 4.24 5.03 4.62 4.73 3.05 Cyclical

Return on Shareholders' % 27.75 20.84 18.74 35.27 30.85 Cyclical

Equity

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

Debt Management Ratios

In light of the circular debt crisis, and outstanding receivables from the Government of Pakistan
(GoP) and the Power sector readily increasing, PSO for the last five years has been covering its
finances through short term borrowings
(bank borrowings of 106 billion as per DEBT MANAGEMENT
end of FY-2014) and supplier credit. The
RATIO
amount of short term borrowings has
further been significantly increasing to 8
cover the trade payables which are 6
unable to be met due to unpaid 4
receivables. Although debt management 2
ratios have remained relatively stable 0
2014 2013 2012 2011 2010
throughout the course of FY-2010 to FY-
2012, a step towards improvement is Times Interest Earned (x) Debt Ratio
seen in FY-2013. Through the first three Debt/ Equity Ratio
years the Debt Ratio and Debt-to-Equity
ratio show that a major portion of PSO’s assets is financed through debt. Both ratios remain
relatively stable through the first three years, and have improved in FY-2013 as shareholder’s equity
increased due to addition in retained earnings. The Times Interest Earned ratio has also improved in
the last two years FY-2013 and FY-2014. This

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improvement has occurred owing to a reduction of financing expenses (despite there being on the
offside, increases in operating expenses due to depreciation of rupee) due to repayment of loans
due to partial settlement of debt by GoP in FY-2013, resulting in a reduction of liabilities, and due to
a major increase in Earnings before Interest

DEBT MANAGEMENT RATIO

YEARS
ITEMS 2014 2013 2012 2011 2010 TREND

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

Debt Ratio (x) 0.78 0.85 0.83 0.85 0.86 Cyclical

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

Liquidity Ratios:
Liquidity Ratios gauge the ability of a company to
convert its assets into cash. The receivables from
the power sector affect the liquidity of PSO. These LIQUIDITY RATIOS
receivables stood at Rs 139 billion as of June 30, 1.5
2014 versus Rs 43 billion as of Jun 30, 2013. The
Quick Ratio of PSO is below one indicating that PSO 1
relies too much on its inventory to pay off current
liabilities, which is seen in its inability to pay 0.5
creditors due to lack of payment by the power
0
sector on sale of inventories. The quick ratio has
2014 2013 2012 2011 2010
remained relatively stable throughout the years,
witnessing a decline in FY-2013 due to an increase Current Ratio Quick Ratio
in stock balances and an excess of inventory. The
current ratio has also remained relatively stable though with a slight decrease towards the last two
years due to excessive increase in short term-current liabilities to finance the circular debt crisis,
caused by lack of payment of Receivables by the Government of Pakistan (GoP). These short term
borrowing take place to pay off suppliers whose payments are due, and these payments in result in a
decrease in the Current Ratio.
LIQUIDITY RATIOS
YEARS
ITEMS 2014 2013 2012 2011 2010 TREND
Current Ratio (x) 1.09 1.03 1.15 1.16 1.14 Cyclical
Quick Ratio (x) 0.79 0.54 0.85 0.72 0.79 Cyclical

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Market Ratios
PSO’s earnings have been improving remarkably each year, owing to the rising demand by the power
sector and the ongoing CNG shortage in the country. PSO’s bottom line saw a remarkable
improvement in FY-2014 due to rising revenues, declining costs and a doubling of interest income
from IPP’s. The only inhibition for PSO’s earnings is the money tied up in unpaid receivables by the
Government of Pakistan (GoP), and rising financing costs due to short term borrowings to pay off
outstanding trade payables. The company’s profitability is also reflected in the Rs. 4/ share interim
dividend declared in addition to the Rs. 4 per share cash dividend. A 10% interim bonus was also
paid to common shareholders.

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

MARKET RATIOS earnings ratio has declined in this year as market value of
500 stock has not risen enough to reflect the rise in income. In
400 the previous year FY-2013 a rise in price to earnings ratio
300 was seen due to improvement in investors’ confidence in the
200
company on account of improved profitability and
100
settlement of debt by the Government of Pakistan (GoP). In
0
2014 2013 2012 2011 2010 the years prior to this the P/E ratio has remained relatively
stable along the lines of the value of the P/E ratio in FY-
Earning per share (Basic)
2014.
Market value per share (YearEnd)
The Earnings per Share rose in FY-2011 in comparison to FY-
Price earning ratio (P/E)
2010. In the following year, FY-2011 the earning per share
Book Value
declined due to a fall in net income due to heavy exchange
Market value / book value losses on account of sharp rupee devaluation by 10%. Net
income improved in FY-2012 due to devaluation of rupee
only by 5%.

The Market value of PSO shares has been increasing annually due to investor confidence in the hope
that the new government will pay off the circular debt. The Book Value of Shares has been
increasing annually due to reinvestment of major part of net earnings and thus an increase in
shareholder’s equity while number of shares outstanding remains constant.

Market Value/Book Value has been periodically increasing and decreasing each year. This has been
due to market value increasing in a greater proportion than the stockholder’s equity which
influences the book value or vice versa in years of decrease.

MARKET RATIO
UNIT YEARS
ITEMS 2014 2013 2012 2011 2010 TREND

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

Market value per share Rs. 388.8 320.38 235.84 264.58 260.2 Cyclical
(YearEnd) 5

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

PAKITSAN STATE OIL HAFSA UMAIR, SYEDA KHUSHBAKHT FARRUKH,

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Book Value Rs. 289.3 223.21 183.89 154.23 107.98 Increasing

8

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

Activity Turnover Ratios

The inventory turnover ratio witnessed a dip
in FY-2011 and FY-2013, but has been steadily TURNOVER RATIOS
rising since, indicating effective handling of 20
inventory. Hence, the days sales in inventory
15
has been reducing. Receivable’s turnover
ratio was initially declining due to mounting 10

receivables by the power sector. The 5

turnover has seen been improving in FY-2013
0
and FY-2014 highlighting partial settlement of 2014 2013 2012 2011 2010
debt by the Government of Pakistan. As a
Inventory turn over ratio * (x)
result the number of days sales outstanding
Debtor turn over ratio *(x)
Creditor turn over ratio *(x)
OPERATING CYCLE VS CASH
CONVERSION CYCLE have shortened in the past two years. The payable’s
turnover ratio was improving in the initial two years
6 then declined in FY-2012 due to increased
5 borrowings. It improved again FY-2013 owing to
4 partial settlement of circular debt. Finally in FY-2014
the ratio declined again on account of due to severe
3
increase in bank borrowings to cover circular debt.
2 The days payable outstanding have hence doubled
1 in the last year. Total fixed asset turnover ratios
have been increasing due to increase in sales in FY-
0 20 40 60 80 100 120
2014 and as a result of increase in turnover and
Cash Conversion Cycle Operating Cycle (days) No. decline in property plant and equipment balance
due to low capital expenditure and depreciation
charges for the year. This ratio has been seen to be increasing in prior years as well. Asset Turnover
Ratio was declining till FY-2012, however, an increase has been seen in FY-2013 and FY-2014 due to
rising turnover and decline in total assets.

Operating Cycle has been increasing through the initial three years and has declined in FY-2013 due
to settlement of debt by GoP then increased again in FY-2014 due to increase in stock balances and
increasing receivables from the power sector.

Cash Conversion Cycle has increased in the initial three years than witnessed a significant decline in
FY-2013 due to partial settlement of Government receivables having resulted in a considerable
decrease in no of days in receivables. Another spike is seen in FY-2014 cause of increase in debt in
the power industry.

PAKITSAN STATE OIL HAFSA UMAIR, SYEDA KHUSHBAKHT FARRUKH,

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ACTIVITY / TURNOVER RATIOS

YEARS
ITEMS 2014 2013 2012 2011 2010 TREND
Inventory (x) 16.33 12.2 13.55 10.22 14.97 Cyclical
turnover
ratio * (x)

No. of days in 22 30 27 36 24 Cyclical

Inventory No.

Debtor (x) 8.04 16.9 5.5 7.82 7.47 Cyclical

turnover
ratio *(x)

No. of days in 45 22 66 47 49 Cyclical

Receivables
No.

Creditor (x) 8.65 7.77 5.08 5.17 5.46 Cyclical

turnover
ratio *(x)

No. of days in 42 47 72 71 67 Cyclical

Creditors No.

Total as set (x) 4.31 4.11 3.93 4.19 4.93 Cyclical

turnover
ratio (x)

Fixed as set (x) 246.04 226.77 200.39 155.68 130.27 Increasing

turnover
ratio (x)

Cash 25 5 21 12 6 Increasing
Conversion except in
Cycle (days) 2013
Operating 67 52 93 83 73 Cyclical
Cycle (days)
No.

PAKITSAN STATE OIL HAFSA UMAIR, SYEDA KHUSHBAKHT FARRUKH,

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COMMON SIZE STATEMENT ANALYSIS

INCOME STATEMENT
Vertical and Horizontal:
The amount of Net Sales is taken as 100% for the vertical analysis, considering all other
items are expressed as a percentage of Net Sales. Here the Sales figure is taken as the Net
Sales figure. The base year for the vertical analysis is 2010.
Total Sales increased by 61% in 2014 as compared to the base year. This was higher than
the percentage increase in previous years. Sales tax on the other hand increased by 72%
and that was a greater increase than that of total Sales. As a result, the Net Sales increased
only by 60%. The Sales tax as a percentage of sales increased by 7.24% between the years
2010-2014. The Sales tax percentage during these years was progressing.
The Net Sales (after tax Sales figure) as a percentage of Sales decreased by 0.5% which was
an insignificant decrease. While its percentage stayed between the range of 81% to 86%.
The cost of goods sold had a similar increase as Total Sales, of 61%, subsequently, the Gross
profit had an increase of 26% from the base year. The increase in gross profit was due to
favorable sales volume and margin variances, greater than expected amount. CoGS as a
percentage of sales had a cyclical trend in the years 2010-2013. In 2014, it further decreased
to 81.64%. Gross profit, had a perfectly cyclical trend over the 5 years ranging between 2%-
4% of the Net Sales. The increase in Gross profit of 2.7 billion (due to better sales volume
and margin variances) was offset by a greater increase in the amount of taxation.
Other incomes had the same trend as well ranging from 0.4% to 2%.
The operating expenses rose by 53% in 2014 which was more than the gross profit
percentage increase from the base year. This same ratio when compared with net sales of
each year increased in years 2010-12, then decreased till 2014 to 1.02%. Due to the
increase of 158% in other Income, the Profit from operations ended up being 54% more
than that of the base year despite the augmenting expenses. This high increase in other
income was mainly due to the receipt of interest on the delayed payments by Independent
Power Producers (IPPs). The operating profit on the other hand kept reducing in proportion
to Net sales till 2013, but rose to 2.98% in 2014.
The finance cost, that includes Interest expense decreased each year till 2013 and then
became 97% of the base year cost in 2014. However, this was a higher percentage as
compared to 77% in 2013. This Finance costs as a proportion of net sales had an up and
down trend over the 5 years that reached a percentage of 0.68% in 2014. The increase in
finance costs were due to greater short term borrowings to deal with an increasing amount
of circular debt.
Taxation, as opposed to the finance cost, rose and was 25% more than the base year
taxation amount. It rose by Rs. 4.6 billion, mostly due to the higher profits for the year and

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not due to any significant changes in tax rates. Taxation, moreover, formed a greater
proportion of Net Sales each year except 2011.
The final profit after interest and tax experienced an increase of 141% of the base year
amount and increase by Rs. 9.2 billion. As a proportion of net sales, it had an up and down
trend, that ranged from 0.5% to 2%.

VERTICAL ANALYSIS (INCOME STATEMENT)

ITEMS 2014 2013 2012 2011 2010
Sales 100.00% 100.00% 100.00% 100.00% 100.00%
Sales Tax 14.50% 13.79% 13.66% 14.15% 13.52%
IFEM/Levies 1.25% 1.23% 0.97% 1.68% 1.81%
Net sales 84.26% 84.98% 85.37% 84.16% 84.68%
Cost of products sold 81.64% 82.34% 82.51% 80.65% 81.35%
Gross Profit 2.61% 2.64% 2.86% 3.52% 3.33%
Other Income 1.38% 0.46% 0.81% 0.61% 0.86%
Administrative & Marketing Expense 0.74% 0.79% 0.82% 0.89% 0.80%
Other operating expenses 0.28% 0.28% 0.77% 0.23% 0.28%
Total Operating Costs 1.02% 1.07% 1.60% 1.12% 1.07%
Profit from Operations 2.98% 2.04% 2.07% 3.01% 3.12%
Finance cost 0.68% 0.59% 0.97% 1.22% 1.13%
Share of Profit of Associates 0.04% 0.04% 0.04% 0.05% 0.06%
Profit before taxation 2.34% 1.49% 1.14% 1.84% 2.05%
Taxation 0.79% 0.51% 0.38% 0.33% 1.02%
Profit after taxation 1.55% 0.98% 0.75% 1.52% 1.03%

HORIZONTAL ANAYLYSIS (INCOME STATEMENT)

YEARS
ITEMS 2014 2013 2012 2011 2010
Sales 161.00% 148.00% 137.00% 111.00% 100.00%
Sales Tax 172.00% 151.00% 138.00% 116.00% 100.00%
IFEM / Levies 111.00% 100.00% 73.00% 104.00% 100.00%
Net sales 160.00% 148.00% 138.00% 110.00% 100.00%
Cost of products sold 161.00% 149.00% 139.00% 110.00% 100.00%
Gross Profit 126.00% 117.00% 118.00% 118.00% 100.00%
Other Income 258% 78% 128% 79% 100%
Operating Costs
Administrative & Marketing Expense 150.00% 146.00% 141.00% 124.00% 100.00%
Other operating expenses 161.00% 152.00% 384.00% 93.00% 100.00%
Total Operating Costs 153.00% 147.00% 203.00% 116.00% 100.00%
Profit from operations 154.00% 96.00% 91.00% 107.00% 100.00%
Finance cost 97.00% 77.00% 118.00% 120.00% 100.00%
Share of Profit of Associates 105.00% 111.00% 91.00% 100.00% 100.00%
Profit before taxation 184.00% 107.00% 76.00% 100.00% 100.00%
Taxation 125.00% 74.00% 52.00% 36.00% 100.00%
Profit after taxation 241% 140% 100% 163% 100%

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BALANCE SHEET
Horizontal: The base year was taken as 2010 for the horizontal analysis, and all items are
expressed as a percentage of Total Assets in the vertical analysis.
Noncurrent assets increased throughout the 5 years, starting off with 11%, 18% and then
moving on to as much as 561% till 2014, as compared to the base yearThe composition of
noncurrent assets as a portion of assets was cyclical over the 5 years, and in the year 2014,
non-current assets formed 15.76% of the total assets. This significant change between 2012
and 14 was due to an increase in deferred tax assets and a decrease in long term
investments.
The Property plant and equipment, a part of noncurrent assets formed quite a low part of
the total assets, decreasing annually. However, an exception to this was the year 2014
where PPE amounted to 12.3% of the Total Assets as opposed to the steady range of 1-4% in
previous years. The long term investments decreased over 2010-12, increased to 17.11% of
the total assets in 2013 but in the year 2014, there were no long term investments. The
inventory too formed irregular percentages of total assets over the years. It increased till
2011, decreased to 25.42% till 2012, increased by 48% till 2013 and again decreased to
23.19% in 2014 due to fluctuating oil prices. . Inventory as a whole had a cyclical trend, and
in 2014 was 47% more than the amount in 2010.
Account Receivables followed the same cyclical trend, starting from a decrease in 2010 to
an increase in 2011 then back to a decrease in 2012 and finally an increase in 2013 till 2014.
As a percentage of the base year amount they increased till the year 2012 to 186%.
However, there was a drastic change in 2013 where they dropped to only 65% after which
they rose again to 149%.
Cash and Bank balances had huge increases over the years, 30%, 194%, 1059% in 2011,
2013 and 2014 except in the year 2012 where it had a decrease of 9% from the base year
amounts. As a percentage of assets, cash had a steady portion of 0.88% in 2010 and 2011
but decreased to 0.47% in 2012. From then to 2014, the cash and bank percentage of total
assets increased to 5.54% of the total assets which was a 199% increase from 2013.
The total current assets had cyclical trend starting from 95.61% in 2010 and ending at 84.2%
in 2014 in respect to the base year. During 2013-14 they increased by Rs. 89 billion primarily
due to an increase in account receivables by Rs. 99 billion. The full increase however was
offset by the decrease in inventory stock by Rs. 20 billion.
Total assets had an increasing trend with the exception of the year 2013.
Share Capital remained the same over 2011 and 2012 but increase by 44% and 58% in 2013
and 14 respectively wrt base year. Reserves had an increasing trend from 45% to 175%
between years 2011 to 14. Shareholder’s equity followed the same nature as reserves.
On a whole, Share capital composed a decreasing percentage of the total assets over the
years 2010-2012. It increased in 2013 but then decreased again to 0.73% of the total
financing. The reserves had an up and down and then steady trend. Consequently, the total

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shareholder’s equity followed the Reserves (additional paid in capital and Retained
earnings) trend and increased then decreased till 2013 after which it stayed at a steady
range of 21%. The significant increase in Shareholder’s equity as a percentage of total
financing from 13% to 21% in 2012-13 was due to the large amount of retained earnings for
the year.
The long term liabilities had huge percentage increases of 18%-175%. Trade payable
increased till year 2012 but then decreased. As a portion of financing as a whole, the total
noncurrent liabilities had a cyclical trend, increasing and decreasing repeatedly over the five
years arriving at 1.39%.
Current liabilities rose each year except in 2013 for reasons as mentioned above, the ever
continuing debt crisis. The account payables had a decreasing trend over the five years. It
began from being 77.62% of the total financing in 2010 to being 52.13% in 2014. There was
also an increase in short term borrowings percentage over the years. As a result, the total
Current liabilities followed a cyclical trend, similar to accounts payable.
The total liabilities composed the total financing within a range of 78% to 87% over the five
years. There was a decline in the percentage total liability composition of total financing
from 2012-13 due to a reduction of obligations to refineries by 83% by the funds from Govt.
of Pakistan under the circular debt settlement plan at that time. There was a small increase
in total liability percentage from 2013 to 14 due to the existing circular debt problem.

BALANCE SHEET
VERTICAL ANALYSIS
YEARS
ITEMS 2014 2013 2012 2011 2010
Property , plant and equipment 12.30% 1.97% 1.68% 2.33% 3.17%
Long term investments - 17.11% 0.57% 0.88% 1.00%
Long term loans , advances and receivables 0.09% 0.13% 0.11% 0.12% 0.16%
Long term deposits and pre payments 0.04% 0.04% 0.04% 0.06% 0.06%
Deferred tax 1.74% 1.17% 0.61% 0.36% 0.00%
Total Non - Current Assets 15.76% 20.43% 3.01% 3.75% 4.39%
Stores , spares and loose tools 0.05% 0.05% 0.04% 0.04% 0.06%
Inventory 23.19% 37.63% 25.42% 36.31% 28.97%
Account Receivable 47.13% 27.17% 62.60% 47.48% 58.10%
Loans and advances 0.15% 0.17% 0.15% 0.16% 0.20%
Deposits and short term pre payments 0.66% 0.85% 0.73% 0.39% 0.18%
Accrued Interest 0.60% 0.80% 0.00% 0.00% 0.00%
Other receivables 5.67% 9.42% 6.06% 8.57% 7.20%
Taxation-net 1.26% 1.63% 1.53% 2.40% 0.02%
Cash and bank balances 5.54% 1.85% 0.47% 0.88% 0.88%
Total Current Assets 84.24% 79.57% 96.99% 96.25% 95.61%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%
Share Capital 0.73% 0.88% 0.49% 0.65% 0.85%
PAKITSAN STATE OIL HAFSA UMAIR, SYEDA KHUSHBAKHT FARRUKH,
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Reserves 20.40% 20.63% 13.39% 15.30% 13.66%

Total Shareholders Equity 21.13% 21.51% 13.88% 15.95% 14.51%
Retirement and other service benefits 1.39% 1.51% 1.43% 0.85% 0.93%
Total Non-Current Liabilities 1.39% 1.51% 1.43% 0.85% 0.93%
Account Payables 52.13% 70.45% 71.19% 73.43% 77.62%
Provisions 0.19% 0.24% 0.20% 0.26% 0.34%
Accrued interest/ mark-up 0.36% 0.15% 0.16% 0.16% 0.16%
Short term borrowings 24.81% 6.13% 13.14% 9.34% 6.44%
Total Current Liabilities 77.48% 76.98% 84.69% 83.20% 84.56%
Total Liabilities 78.87% 78.49% 86.12% 84.05% 85.49%
Total Liabilities and Equity 100.00% 100.00% 100.00% 100.00% 100.00%

HORIZONTAL ANALYSIS (BALANCE SHEET)

YEARS
ITEMS 2014 2013 2012 2011 2010
Property plant and equipment 92% 87% 91% 95% 100%
Total Non - Current Assets 661% 649% 118% 111% 100%
Inventory 147% 181% 151% 163% 100%
Account Receivables 149% 65% 186% 106% 100%
Other receivables 145% 183% 145% 155% 100%
Cash and bank balances 1159% 294% 91% 130% 100%
Total Current Assets 162% 116% 175% 131% 100%
Total Assets 184% 139% 172% 130% 100%
Share Capital 158% 144% 100% 100% 100%
Reserves 275% 211% 169% 145% 100%
Total Shareholder’s Equity 268% 207% 165% 143% 100%
Total Long term Liabilities 275% 226% 264% 118% 100%
Trade and other payables 124% 127% 158% 123% 100%
Provisions 100% 100% 100% 100% 100%
Total Current Liabilities 169% 127% 172% 128% 100%
Total Equity & Liabilities 184% 139% 172% 130% 100%

PAKITSAN STATE OIL HAFSA UMAIR, SYEDA KHUSHBAKHT FARRUKH,

MUHAMMAD SAUD SHAKEEL
 13

INDUSTRIAL ANALYSIS

BALANCE SHEET COMPARISON:

PSO lies under the category of the fuel and energy sector. Hence after comparing balance sheet of
both, it gives the following proportions. Comparison is done based on taking proportionate figures of
assets, liabilities and shareholder’s equity, and determined what share of PSO’s assets, liabilities and
equity have in fuel and energy sector. Assets formed 22.384%, total liabilities were 27.522%, and
shareholder’s equity was 11.30%.

INCOME STATEMENT COMPARISON:

Major part of the sales of the aggregate fuel and energy sector is contributed by PSO. Sales shows a
significant figure of 93.34%. Gross profit contributed is 22.86% and when further refined to net
profit before tax it comes down to 16.42%. It is clear from these figures that expenses are very high
that reduces net income significantly. 37.10% is the cash divided contributed by PSO.

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

RATIO COMPARISON
Ratios have been compared based on the differences in the ratio values of industrial sector and PSO.
Under profitability ratio, difference in return on asset turned out to be 4.96% and -4.16 in case of
return on equity. Under activity/ turnover ratios, difference in inventory turnover is 64.85 which is
significant. Under liquidity ratios, difference in current ratio is -0.27 and 0.48 is that of quick ratio.
Both the differences are insignificant. Another significant difference is observed in market ratios.
Earning per share has a difference of -81.88. Under debt management ratio, difference in debt to
equity ratio is 3.73. Hence, from comparison it can be inferred that PSO is consistent in ratios with
the exception of inventory turnover and earning per share ratio.

Competitor Analysis
Both Shell and Pakistan State Oil operate in the Oil and Gas Sector. PSO dominates the entire market
with a 72% market share, while the remainder
RATIOS
of the players like Shell and Caltex share the
remaining percent. For quite a few years now, COMPANY
the entire sector has been suffering from the PSO Shell
Circular debit crisis, because of which all
Profitability Ratio
companies have to borrow an enormous
amount of short term loans to pay off their Gross Profit ratio % 2.61 3
Net Profit ratio% 1.55 0
creditors, due to the power sector and GoP
Raw Return on Assets 4.24
not paying off its debts. Due to this excessive
Return on Shareholders' Equity% 27.75 -0.17
borrowing, the financial standing of both
Return on total assets% 5.86 5
companies has been affected in the recent
Activity/TurnoverRatios
years.
Inventory turn over ratio *(x) 16.33 15.73
However, Pakistan State Oil has dealt with the No. of days in Inventory No. 22 23.2
crisis much more efficiently than Shell, which Debtor turn over ratio *(x) 8.04 95.5
is reflected in both their financial ratios. No.of days in Receivables No. 45 3.82
Comparing the profitability ratios, minus the Creditor turn over ratio *(x) 8.65 9.01
gross profit margin, the ratios of PSO indicate No.of days in Creditors No. 42 40

PAKITSAN STATE OIL HAFSA UMAIR, SYEDA KHUSHBAKHT FARRUKH,

MUHAMMAD SAUD SHAKEEL
 14

a sounder financial position of the company in Total as set turnover ratio (x) 4.31 6.33
comparison with Shell. While PSO has given a Fixed as set turn over ratio (x) 246.04 23.13
27.75% return to its shareholders, the Cash Conversion Cycle 25 -13
shareholders had to suffice with a negative Operating Cycle 67 27
0.17% return. The net profit ratio of Shell is 0 LiquidityRatios
in comparison to PSO’s 1.55%. The minimum Current Ratio (x) 1.09 0.85
tax regime has been increasing the tax Quick Ratio (x) 0.79 0.45
liability, and is responsible for further MarketRatios
decreasing Shell’s net income. Earning per share (Basic) 80.31 -0.009
Market value per share (YearEnd) 388.85 258
In regards to debt ratios, the values show that
PSO is in a better place to pay off its interest Price earning ratio (P/E) 4.84 -28124
with a 4.45 debt to interest ratio. However, Book Value 289.38 0.0551
the debt ratio shows that Shell is financed Market value / book value 1.34 4699
almost entirely through equity, and has very Debt Management Ratio
little long term liabilities, which put it in a Times Interest Earned 4.45 1.22
better position in that dimension. The Debt Ratio 0.78 0.1
liquidity ratios of PSO are better off than
Debt/ Equity Ratio 3.59 5.56
those off shell indicating that PSO’s ability to
pay off its short term liabilities is greater than that of shell, a characteristic which is important due to
the excessive need for short term borrowings.

The Market ratios further show that PSO’s finances are thriving, while Shell has been hitting a
negative in the recent years. The Earnings per Share and P/E ratio of Shell are negative, showing its
run-down earnings in recent years. The book values is also almost negative. Shells 258 market value
for the year although less than PSO is still better than its other figures.

The Asset Management ratios of both companies are more or less similar. Except due to the fact
that Shell rarely relies on debtors for its transactions, it has a much higher debtor turnover ratio of
95.5. One other significant difference is in the fixed asset turnover ratio which for PSO is more than
ten times greater than Shell indicating that it is generating sales with a small amount of fixed assets,
despite the net income of PSO being exponentially higher than that of shell.

The above comparison clearly indicates that PSO is in a better financial position than Shell, as well as
its other competitors, and continues to thrive and improve its market share, and expand its
operations with each passing year.

PAKITSAN STATE OIL HAFSA UMAIR, SYEDA KHUSHBAKHT FARRUKH,

MUHAMMAD SAUD SHAKEEL
 15

CONCLUSION
From the above analysis we can gauge that the circular debt crisis is the main challenge faced by all
companies in the oil and gas sector. The declining exchange rates is another issue. PSO is handling
this crisis much more proficiently than Shell. Shell has negative profitability, while PSO is hitting the
highest sales, revenues and net profits in years, and has ended up on the Forbes 2000 list. PACRA
also improved PSO’s Outlook from Stable to Positive while maintaining AA+ and A1+ credit rating for
long-term and short-term respectively.

The financial figures and ratings of PSO indicate that its position is sound despite the challenges
faced by the industry, and it has actually managed to improve its standing by cutting down on fixed
assets and increasing its income from other sources such as PIBs and IPPs.

We can see that once the power sector receivables are settled, PSO will be able to thrive even more
when all of its tied up cash is freed. Deregulation would also help PSO further increase its market
share. As a whole, the future for PSO seems quite promising in terms of further financial success.

REFERENCES

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

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

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

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

http://www.brecorder.com/company-news/235/1235758/?date=2012-09-
11&tmpl=component&print=1&layout=default

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

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

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

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

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

PAKITSAN STATE OIL HAFSA UMAIR, SYEDA KHUSHBAKHT FARRUKH,

MUHAMMAD SAUD SHAKEEL
 16

APPENDIX
OPERATING AND CASH CONVERSION RETURN ON
CYCLE SHAREHOLDERS' EQUITY%
OPERATING 27
CYCLE
67
40
CASH -13 20
CONVERSION
CYCLE 25 0
PSO Shell
-20
-20 0 20 40 60 80
Series3 Series2
Profitablity Ratios
7
FINANCIAL RATIOS 6
5
5 4
4 3
2
3
1
2 0
1 Gross Profit Net Profit Raw Return Return on
0 ratio % ratio% on Assets total assets%
TIMES INTEREST DEBT RATIO DEBT/ EQUITY
PSO Shell
EARNED RATIO

PSO Shell
TURNOVER RATIOS
100
QUICK AND CURRENT RATIO
80
60
Quick Ratio (x) 40
20
Current Ratio (x) 0
Inventory Debtor turn Creditor turn
turn over over ratio over ratio
0 0.2 0.4 0.6 0.8 1 1.2 ratio *(x) PSO *(x)Shell *(x)

Shell PSO

MARKET RATIOS
CHART TITLE
10000

50 0
Earning per Price Market
-10000 share earning value /
No.of days in Creditors No. (Basic) ratio (P/E) book value
No.of days in Receivables… -20000
0 No. of days in Inventory No.
-30000
PSO
No. of daysShell
in Inventory No. No.of days in Receivables No.
No.of days in Creditors No. PSO Shell

PAKITSAN STATE OIL HAFSA UMAIR, SYEDA KHUSHBAKHT FARRUKH,

MUHAMMAD SAUD SHAKEEL