Department of Business Administration

Final Project Report on

FINANCIAL STATEMENT ANALYSIS

Submitted By: Anoosha Alam

Areej Khan
Alishba Sohail
Abiha Ilyas
Zareen Sohail
Class: BBA (Fall)

Submitted On: 25- Nov- 2022

Submitted To: Miss Ayesha Iqbal

Department of Business Administration
 ACKNOWLEDGMENT

I would like to express my sincere gratitude towards our course teacher, Miss Ayesha Iqbal who
gave us this great opportunity to work on this thoughtful assignment, which was quite impactful
for the whole class. In performing our assignment, we had to take the help and guideline of some
respected persons, who deserve our greatest gratitude. The completion of this assignment gives
us much Pleasure. We would like to show, Thanks to Allah (SWT) for unlimited blessings.
 PARTICIPANTS BY EACH MEMBER

ANOOSHA INTRODUCTION, INTRODUCTION OF THE PETROLEUM

INDUSTRY NATIONAL REFINERY, RATIOS OF NATIONAL
REFINERY, PSO VERTICAL ANALYSIS OF INCOME STATEMENT,
COMMENT OF VERTICAL ANALYSIS, COMMENT ON RATIOS OF
NATIONAL REFINERY
ALISHBA ATTOCK REFINERY, RATIOS OF ATTOCK REFINERY, LEARNING
OUTCOME, PSO VERTICAL ANALYSIS OF INCOME STATEMENT,
COMMENT OF VERTICAL ANALYSIS

AREEJ PPL, RATIO OF PPL, HORIZONTAL ANALYSIS OF 4-YEAR

BALANCE SHEET, AIMS & OBJECTIVE
 TABLE OF CONTENTS

INTRODUCTION.............................................................................................................................
AIMS & OBJECTIVES, LEARNING OUTCOMES.......................................................................
INTRODUCTION TO INDUSTRY..................................................................................................
HORIZONTAL & VERTICAL ANALYSIS....................................................................................
COMMENTS ON HORIZONTAL & VERTICAL ANALYSIS.......................................
RATIO ANALYSIS...........................................................................................................................
COMMENT ON RATIO ANALYSIS………………………………………………………….
CONCLUSION..................................................................................................................................
REFERENCES..................................................................................................................................
 INTRODUCTION

Financial analysis involves using financial data to assess a company’s performance and make
recommendations about how it can improve going forward. Financial Analysts primarily carry out their
work in Excel, using a spreadsheet to analyze historical data and make projections of how they think the
company will perform in the future. A company’s financial statements record important financial data on
every aspect of a business’s activities. As such, they can be evaluated based on past, current, and projected
performance.

The financial analysis aims to analyze whether an entity is stable, solvent, liquid, or profitable enough to
warrant a monetary investment. It is used to evaluate economic trends, set financial policies, build long-
term plans for business activity, and identify projects or companies for investment. A financial analyst will
thoroughly examine a company's financial statements, income statements, balance sheets, and cash flow
statements. One of the most common ways to analyze financial data is to calculate ratios from the data in
the financial statements to compare against those of other companies or the company's historical
performance. A key area of corporate financial analysis involves extrapolating a company's past
performance, such as net earnings or profit margin, into an estimate of the company's future performance.

AIMS AND OBJECTIVES OF THE REPORT

The aims and objectives of this report are stated below:

 To gather data from five selected companies from the industry through their financial statements.
 Using data from the balance sheets, income statements and cash flows to identify their ratios
to the industry averages.
 Calculate liquidity, asset management, debt management, profitability, and market value
ratios of the selected companies from the year 2020.
 Analysis of the company’s performance through ratios about the industry average.
 Common size analysis of the selected star company.
 Conclude and recommend the possible outcomes and steps for the companies to progress in
terms of their performance.

LEARNING OUTCOMES

The Learning outcomes of this report are stated below:

 How to read and gather the data through financial statements.

 How to use financial statements to evaluate a company’s profitability, required capital
investments, business risks, and debt and equity.
 Comparison of a firm’s performance with other firms in the same industry.
 Evaluating a firm’s potential, creditworthiness, and financial analysis to help predict its
performance.
 Calculation and interpretation of Ratio analysis and recommendations.
 Ability to utilize quantitative and qualitative information.
 INTRODUCTION TO THE PETROLEUM INDUSTRY

According to Oil and Gas Journal (OGJ), Pakistan had proven oil reserves of 300 million barrels as of
January 2006. The majority of produced oil comes from proven reserves located in the southern half of the
country, with the three largest oil-producing fields located in the Southern Indus Basin. Additional
producing fields are located in the Middle and Upper Indus Basins Pakistan mainly depends upon oil and
gas resources to fulfill energy requirements. Indigenous resources of Oil are not enough to quench the
energy thirst of the growing economy. As a result, Pakistan has to import large quantities of oil and oil-
based products from Middle East countries. The petroleum companies of Pakistan selected for financial
statement analysis in this report are as follows:
o Pakistan State Oil (PSO)*
o Pakistan Petroleum Ltd (PPL)
o Attock Refinery Ltd
o Pakistan Refinery Ltd
o National Refinery Ltd
 NATIONAL REFINERY LTD

INTRODUCTION

National Refinery Limited (NRL) was incorporated as a public limited company on August 19,
1963. The government of Pakistan took over the management of NRL under the Economic
Reforms Order, 1972 under the Ministry of Production, which was exercising control through its
shareholding in the State Petroleum Refining and Petrochemical Corporation (PERAC).

PERFORMANCE

Refinery Upgradation Projects

Future Projects

Refinery projects are capital intensive and under the prevailing circumstances, a very careful
approach is needed to start with a new project. However, NRL is continuing to study the
possibility of installing the following:

 Hydrocracker

The project of installing a hydrocracker to convert Furnace Oil into valuable products is under
review. A basic engineering design package was prepared by M/s UoP of the USA in the year
2012. However, further work was not undertaken due to the insistence of the Government of
Pakistan for installing DHDS and Isomerization units to produce Euro-II standard products. The
Company is reviewing all aspects of the project and will decide the best course according to the
changing economic situation of the country.
  Turnaround of Lube – I Refinery

The company would be undertaking the turnaround of its Lube-I Refinery by the end of the year
2019 as a mandatory activity to keep the refinery operating. This will result in continuous
production at an optimum level without frequent maintenance requirements. The turnaround is
tied with the revamp of a two-stage unit of Lube -I Refinery

Ongoing Projects:

The following projects are currently being executed by the company:

 Two-stage unit at Lube-I refinery

The project has been planned to enhance the installed crude oil processing capacity of Lube - I
Refinery from 12,050 Barrel per stream day (bpsd) to 17,000 bpsd and vacuum fractionation
capacity from 5,200 bpsd to 6,600 bpsd. The contract has been awarded to M/s. HUALU and
M/s. China National Chemical Engineering No. 6 Construction Company of China is expected to
be completed by January 2020.

ACHIEVEMENTS

S.NO. Certification / Award Period

1. Certification of BS-OHSAS 18001: 2007 The 17th Consecutive year

Occupational Health and Safety Management 2003 – 2019
System

2. Certification of ISO 14001: The 17th Consecutive year

2015Environmental Management System 2003 – 2019

3. Certification of ISO 9001: 2015 Quality Management The 13th Consecutive year
Systems 2007 – 2019

4.
 Annual Environment Excellence Award The 16th Consecutive year
National Forum for Environment & Health 2004 – 2019
(NFEH)

5. ACCA-WWF Pakistan Environmental Reporting 2003, 2009 and 2010

Award

PROBLEMS

Impact of significant events affecting refinery operations

The company has incurred losses during the year as the refinery industry on the whole has been
facing a significant decline in refinery margins due to asymmetrical changes in international
prices of crude and finished products. Also, in the third quarter, the world faced the worst
economic crises due to the COVID-19 pandemic which forced authorities in Pakistan to
implement numerous measures to contain the spreading virus, such as nationwide lockdown of
businesses, suspension of flight operations, travel bans, and cancellation of major events. The
measures adopted resulted in a steep decline in demand for petroleum products and resultant cash
in oil prices. As a result, revenue declined significantly for the period as the company had to sell
its products at lower prices which were produced from the earlier stock of crude oil
purchased at higher rates. All the refineries are under discussion with the Government
whereby some immediate changes are being proposed to be made in the petroleum product
pricing structure to protect refineries from the vulnerabilities of fluctuations in oil prices and
cover their losses.

Payment less Provision

The company has received orders from the Appellate Tribunal Inland Revenue (ATIR) in respect
of the various appeals filed for the tax years 2003, 2004, and 2006 to 2013. The issue involved in
these appeals was the apportionment of expenditures between local income and exports based on
gross sales as compared to net sales.
 Attock Refinery Ltd

INTRODUCTION

ARL is a member of the Attock Group of Companies, a fully integrated group covering all
segments of the oil and gas industry from exploration to production, and refining to the
marketing of a wide range of petroleum products in Pakistan.

PROBLEMS

The problem statement refers to the concise description of the issues that need to be addressed. It
identifies the issues or gaps between the current and desired type of organization and thus
requires to be stated for the management to look for change. The main idea of the problem
statement is to answer the 5 w’s that include answering who, what, where, and why, to allow the
organization to resolve the problem, by stating it clearly in 2 to 3 lines.

In the recent period, the problems statement is widely used by firms to allow the management to
execute the improvement process or identify the loopholes that are affecting the overall
performance or profitability of the company. Moreover, the problem statement allows the
management to trim down the symptoms of the problem an organization is facing and look on to
the real problem that is causing the damage to any specific aspect of the company.

ACHIEVEMENTS
  17th Annual Environment Excellence Awards 2020 by National Forum for Environment &
Health
 Asia’s Best Stakeholder Reporting Award by Asia Sustainability Reporting Awards 2019
 16th Annual Environment Excellence Awards 2019 by National Forum for Environment &
Health
 Best Exporter Awards
 People as Key Resource Award by Employers’ Federation of Pakistan (EFP)
 Most Gender Friendly Company Award

PERFORMANCE

Committees have been formulated to ensure the smooth implementation of the Transformation
Program at ARL Reward & Recognition, Committee Succession Planning & Career
Management Committee, Values & Ethics Committee, etc.

 Development of Strategy a. Interpersonal Framework b. Policy Framework c. Monetary

Framework d. Logistics / Working Conditions
 Formation of Working Teams
 Focus Groups
 Enhanced form of a team
 HR Optimization Team
 Performance Improvement Team
 Values Embedding Team
 Limits of Authority Rationalization Team
 Quality Circles
 Transformation & communication of HR policies
 Strengthening Performance Management System
 Revamp the Induction process
 Training of appraisers
 Effective target setting
 Revamp Appraisal procedures
 Succession planning
 Career planning and T&D synchronized
 Organizational Restructuring
 Optimization of Manpower

PAKISTAN PETROLEUM LIMITED

Introduction and background:

Pakistan Petroleum Limited (PPL) is a supplier of natural gas. The Company is principally
engaged in conducting exploration, prospecting, development, and production of oil and natural
gas resources.

Performance:

PPL’s quest for excellence has propelled it toward setting higher and higher benchmarks for
success. Against the backdrop of maturing basins in low-cost and low-risk areas, PPL’s search
for hydrocarbons has gained momentum in high-reward frontier basins, including off-shore
areas. Even though the road ahead is bristling with risks, the company stands committed to
delivering for the future generation. Venturing abroad and becoming the first local transnational
operator in the country by drilling the first exploration well in Block 8, Iraq, PPL aims to
increase its operational footprint through international exploration. This will potentially bring in
much-needed revenue for the country as well as create value for shareholders. This is a tall order.
But the company is braced for the ride. The fiscal year 2018-2020 has brought in a record
number of discoveries as well as the highest-ever profit-after-tax in the company’s history.

Achievements:

 Karachi Stock Exchange Top 25 Companies — 2006, 2007, 2008, 2009, 2010, 2011, 2012 and
2013.

 Management Association of Pakistan Award — 2006, 2007, 2008, and 2009.

 Best Corporate Report Award — 2005, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014,
2015 and 2019.

 Large Tax Payers Unit Excellence Award — 2006 and 2008.

 Environment Excellence Award — 2006, 2007, 2009, and 2010.

 Corporate Philanthropy Award — 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012,
2013, 2014, 2015, 2016, 2017 and 2018

 South Asian Federation of Accountants Award — 2009, 2010, 2015, and 2019 (merit
certificate)

 Occupational Safety, Health and Environment Best Practices Awards — 2012 and 2014

 Living the United Nations Global Compact Business Excellence Award —2014, 2015, 2017,
2018 and 2019

 Employer of the Year Award — 2013, 2015 and 2018

 Project Management Institute - Karachi Pakistan Chapter Corporate Excellence —2014,

2015, 2016, 2017 and 2018

 Global Diversity and Inclusion Benchmarks Award: 2020

Problems:

Amid the COVID-19 pandemic, when most businesses in Pakistan suffered due to a halt in
operations, Pakistan Petroleum Limited (PPL), achieved a milestone with nearly zero decline in
production from operating assets to provide much-needed energy supplies for the nation. This
was highly appreciated by industry partners and stakeholders. As such, the support from the
Board of Directors and Ministry for measures adopted by PPL enabled the company to perform
optimally during this difficult time
Vertical Analysis of Income Statement:
Comment On Vertical Analysis of Income Statement:
Net Sales:
Net sales have increased in FY21 vs. FY20 on account of an increase in sales volumes of both white and black oil
products. Also, Net sales were the highest in FY21 due to high volumes and were lowest in FY17 due to a dip in
international oil prices during that period.  

Gross Profit:
Gross profit for FY21 is higher than FY20 and highest in the last five years as per vertical and horizontal analysis
due to higher volumes, margins, and a favorable price regime. 

Other Income:
 Other income has increased vs SPLY primarily due to significant recovery of interest income on delayed payments
during the year. Further, as per horizontal analysis, other income is highest in FY21 in all five years.

Total Operating Cost: 

The total operating cost has increased in FY21 as compared to FY20 in line with the increase in sales and year-on-
year inflation. 

Finance Cost: 
Finance cost in FY21 has decreased vs last year due to lower borrowing levels and lower average markup rates in
FY 21 vs. FY 20. Finance cost is highest in FY20 as per horizontal and vertical analysis mainly due to higher
policy rates by SBP. 

Profit / (Loss) after tax: 

The Company's profitability in FY21 is the highest ever in its history mainly due to higher gross margins, a
favorable price regime, an increase in other income, and a reduction in finance costs. Further, the company also had
great results in FY17 as per horizontal and vertical analysis mainly due to strong gross profits and low finance
costs. 
 COMMENTS ON RATIO ANALYSIS OF NATIONAL REFINERY:

LIQUIDITY RATIOS

CURRENT RATIO

Interpretation

For every one rupee of current liability, the national refinery has 0.64 rupees in the current asset.

Comparison

The current ratio of the national refinery is less than the industry average, which means that the
company has not a steady growth and they are not managing funds efficiently. Their current asset
is less than their current liability, so either they have to increase the current asset or they can
decrease their liability.

Recommendation

The Company should analyze whether its fixed asset is performing well or not, if they are not
performing it should sell them off and add that amount to the current asset. They also have to
consider the current liability as well, which means they should that whom to pay first and don’t
generate further liability.

QUICK RATIO

Interpretation

For every one rupee of current liability, the national refinery has 0.28 rupees in the current asset.

Comparison

The Company has 21,345,597 assets and 11,820,278 liquid items; it means that they own 50% of
inventory only which is difficult to sell and they are left out with a small amount of cash. They
are not utilizing their inventory properly as compared to the industry average.
Recommendation

The easiest solution is that they can follow just in time inventory strategy because they are not
able to manage their inventory in this way their money is stuck on it and this situation is creating
problems in the organization. They should also focus on their forecasting so they will not end up
producing extra inventory.

ASSET MANAGEMENT RATIOS

TOTAL ASSET TURNOVER

Interpretation

Every one rupee of total assets is making 1.98 rupees of sales.

Comparison

Company sale is 125,612,646 and their asset is 63,312,790, which indicates that they are
generating enough business as compared to the industry average. But the national refinery is not
generating enough business as compared to the star company (PSO) as they are utilizing their
assets properly.

Recommendation

As they are performing well compared to the industry average but they should work on their
credit policies and inventory management system, in this way they will generate more current
assets.

FIXED ASSET TURNOVER:

Interpretation

Every rupee of asset is making 3.67 rupees of sale.

Comparison

The company is in the worst position as its fixed asset is not contributing to the sale and the
industry average is 30.78. Star company is utilizing its fixed asset properly as its fixed asset is
contributing 142.18 rupees in sales.
Recommendation

The company’s fixed asset is not performing well they should sell that fixed asset that is not
contributing to selling and add that amount to the current asset.

DSO

Interpretation

The company takes 11.68 days to collect its receivables.

Comparison

The company is performing way better in collecting its receivables as compared to the industry
average; it means the credit policy of the national refinery is marvelous. Even though the star
company is collecting its receivable in 64.78 days, only the Pakistan refinery credit policy is
good as they are collecting in 14.78 days.

Recommendation

As their credit policy is too strong so they should try to maintain it, they can also offer their
customers credit discounts and in this way, their customers will pay them in less than 11 days.

INVENTORY TURNOVER

Interpretation

The company is restocking it’s their inventory 10.62 times a year.

Comparison

The company is not in the worst position but they are not even in a good position as the industry
average is 14.14 times in a year. If we compare the company with Attock they are restocking
their inventory
17.44 times in a year means their inventory control strategy is good and they work on their
forecasting.
Recommendation

The company should focus on its marketing and should properly manage its poor inventory
control method. Forecasting also plays a big role so they should also work on their forecasting
and start to apply a just-in-time inventory strategy or zero inventory.

DEBT MANAGEMENT RATIOS

DEBT TO ASSET

Interpretation

The company’s asset is financed by % of its total debt. It means some form of debt has supplied
78% of every dollar of your company’s assets.

Comparison

The company is in a bad position as compared to the industry average because use industry’s
average shows that its total asset is financed by 42% of its debt while the national refinery’s total
asset is only 78% financed. But if we compare the national refinery with PPL they are doing
great as their asset is only
12.37 financed by their debt.

Recommendation

As they are in a bad position, they should invest their loans, and bonds in a way that they can
repay the loan as well as the interest on them, and their earnings should meet the debt-serving
requirement.

DEBT TO EQUITY:

Interpretation

It shows 0.61 Rs of debt for every dollar of equity.

Comparison

The company is in a good situation as its debt-to-equity ratio is not greater than 1, 0.61 indicates
that the company drives 0.61 of its capital financing from its debt and one-third from its
shareholder equity, so it borrows only half the amount of funding as it owns (0.61 equity unit for
every 1 equity unit). If we compare the national refinery with the industry average, the company
is performing way better, PPL is in the worst position as their portion of debt in equity is
246.38%.

Recommendation

They should try to aim more for a debt load that is compatible with a favorable D/E ratio to
function without worrying about defaulting on bonds or loans.

LIABILITY TO ASSET

Interpretation

Company asset is not financed by their equity because total liabilities are financed by 53% asset
of the company. It is a bad position.

Comparison

The company’s 55% of total assets are financed by liability it is a bad position but if we compare
it with the industry average it is way better because the industry average is 783% which means
that the shareholder equity is low and they have potential solvency issues. If we compare the
National Refinery with PPL, the PPL ratio shows financial distress as it is 3640%.

Recommendation

The company’s financial health is in a bad situation, they have a huge amount of liability, so they
should pay their liability first as much as they can and try not to borrow further liability.

TIE

Interpretation
The company’s ability to pay interest is very low. They are in their worst position.
Comparison

Negative sign shows that the company is facing some serious problems and they can’t fulfill
their debt obligations and they are not even generating any income. The industry average is very
high as they can pay their interest expense 11.118 times. PPL is generating enough income
which is why they can fulfill their debt obligations and can pay their interest expense 64.88
times.

Recommendation

The company should try to generate consistent annual earnings because this will impact the
investors and the company can bear credit risk. It is most important for the National refinery that
they focus on their decision-making in capitalization because the choices they make for rising
capitalization impact the TIE ratio.

PROFITABILITY RATIO

NET PROFIT MARGIN

Interpretation

At the sale of one rupee company is bearing a -3% loss. It is the worst condition.

Comparison

The company is in a bad position because their sale is 125612646 and they are not generating
any profit it means that they are paying a huge amount of interest expense and they are not even
capable of covering the cost of the product but if we compare it with the industry average
company is doing better and an alarming situation is for PSO as their company health in its
worst. Only PPL is doing great as they are handling operations efficiently.

Recommendation

The company should balance its revenue and expenses so it can cover the cost of the product.
They can balance it through their product pricing they should set the price of the product in a
manner so they can generate enough profit for the handling of the expenses.
OPERATING PROFIT MARGIN

Interpretation

At the sale of one rupee company is bearing -10% of the loss after paying the interest and taxes.
It is the worst condition.

Comparison

The company is in the worst position as its operating income is at a loss. Their interest expense is
high this is the reason they are not receiving any income or generating any profit from their sale
as compared to the industry average, overall industry performance is in a good position but the
PPL is showing that they are in the best health.

Recommendation

They can improve their operating profit margin through better management control, and they
should use their resources more efficiently because this will play a great part to boost their
operating income. They can also improve their pricing of the product and try to do more effective
marketing.

GROSS PROFIT MARGIN

Interpretation

The company is in the worst position as at the sale of one rupee company is not generating any
profit after deducting the number of COGS.

Comparison

The company is not doing great as they are not receiving enough income after deducting the
COGS. The company is not even close to the industry average which means that the company
has not enough inability to control its costs and its cost of production exceeds its total sale. PPL
knows how to control its cost as its gross profit margin is very high.
Recommendation

Try to focus on the adjustment of product pricing because it plays a vital role in generating a
good gross profit. But don’t set an overly high price because if the company sell the product at an
overly high price just to generate a high gross margin, then only a fewer customer will buy the
product, and the company may consequently hemorrhage market share.

BEP

Interpretation

It indicates that their asset is not performing well as they only incur a loss. The company is in the
worst position.

Comparison

The company is not generating any income from their asset as they are not performing well, their
asset’s influence on the income is bad. The industry average is also bad but when we compare the
national refinery with the overall average, the company is in the worst position. Only PPL is
doing great as they are utilizing their assets properly.

Recommendation

They can sell that fixed assets that are not performing well, or their contribution to generating
income is very low after sell add that amount to the current asset. They should also focus on the
current asset; they can work on their credit policy and try to receive their receivables as early as
they can.

ROA

Interpretation

Assets are not performing well and the return they are producing on the asset is -6% which is the
worst.
Comparison

The company is not earning money on their investment, the main reason is high-interest costs
and low basic earnings. Even the industry average is not in a good position, only PPL is
receiving a return on assets as they are generating high basic earnings and paying minimum
interest expense.

Recommendation

Their BEP is very low so they should work on it, they can sell that asset that is not contributing
any profit to income and work on the current asset also and follow a strict credit policy. In this
way, they can have enough money so they can invest and generate a return on their asset.

ROE:

Interpretation

At one rupee of common equity, the company is facing a -5% loss. It is the worst condition.

Comparison

-5% of ROE indicates that the shareholder is losing the money rather than gaining it. This is
usually a very bad sign for the investors but if we compare it with the industry average, the
industry is at its worst. The industry is facing a -62% of loss in ROE. Only PPL is generating a
return of 185% which is great condition and it indicates that they have efficient management.

Recommendation

To implement better performance company should focus on an efficient management system and
generate a business model which is effective enough that return the shareholder with a good
amount of cash.
 MARKET VALUE RATIO

PRICE/EARNINGS:

Interpretation

It indicates that their earnings are very low and their share can’t produce earnings. It is the worst
condition.

Comparison

A lower value indicates that the company shares are undervalued, which means that the company
is experiencing negative earnings or they are losing money. The industry average is also the
worst as the national refinery ratio is very close to the industry average. PPL is earning from its
share, which means that its shares are overvalued and it is good condition.

Recommendation

The company should offer its share to employees, in this way the employee will be loyal to the
company and take the steps or decisions that help the company to grow.

MARKET/BOOK:

Interpretation

At one rupee of the book value of a share, the market is willing to pay 0.28 RS for the share. It is
a bad position because its market share value is less than the book value.

Comparison

The market value of the company is very low as they are not using their asset efficiency. The
industry average is way high and if we compare it with the PPL ratio the market price of the ratio
is very high which is 174.5.
Recommendation
They can sell that fixed asset that is not performing well, or their contribution to generating
income is very low after selling adds that amount to the current asset. They should also focus on
the current asset, they can work on their credit policy and try to receive their receivables as early
as they can. In this way, their market value the share will increase.