24581097-pso-financial-statment-analysis.pdf

8/17/2019 24581097-PSO-Financial-Statment-Analysis.pdf

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INTRODUCTION:

Pakistan State Oil (PSO) is the market leader in oil. He is enjoying more than 79% share of Black Oi

Market and 58% share of White Oil Market. They are dealing in Import, Storage, distribution, and marketingof various POL products, Including Mogas, HSD, Fuel Oil, Jet Fuel Kerosene,LPG, CNG and petro

chemicals. This company also wins “Karachi Stock Exchange Top Companies Award” and also a member ofworld Economic Forum.

HISTORY OF PSO:

Chronology Of Events Leading To The Formation Of:

Date Events

01-01-1974 According to the marketing of Petroleum Products (Federal Control)

Act, 1974, the Federal Government renamed as POCL (Premier Oil Company

Limited) after taking over the management of PNO (Pakistan National Oil) and

DPL (Dawood Petroleum Limited).

03-06-1974 The Government incorporates “Petroleum Storage Development

Corporation” PSDC.

23-08-1976 PSDC was changed into SOCL (State Oil Company Limited.

15-09-1976 Government purchases ESSO and transfers its control to SOCL


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30-12-1976 Government merges two another companies PNO and POCL into SOCL

(State Oil Company Limited) and renames it as Pakistan State Oil Company

Limited (PSO)

Vision Statement

“To excel in delivering value to customers as an innovative and dynamic energy

company that gets to the future first”

Mission Statement :

We are committed to leadership in energy market through competitive advantage in providing thehighest quality petroleum products and services o our customers based on:

o 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.

o Lowest cost operations and assured access to long-term and cost effective supply sources.

o Sustained growth in earnings in real terms.

o Highly ethical, safe environment friendly and socially responsible business practices.


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Pakistan State Oil Balance SheetAs at June 30, 2007

ASSETS 2007 2006

Non-Current Assets

Property, plant and equipment 8,012,317 7,518,956

Intangibles 126,212 154,819

Long term investments 2,990,591 3,278,970

Long term loans, advances and receivables 627,972 698,146

Long term deposits and prepayments 65,913 74,662

Deferred tax 401,037 408,296

12,224,0142 12,133,849

Current Assets

Stores, spares and loose tools 127,891 125,030

Stock-in-trade 29,562,055 28,168,633

Trade debts 13,599,966 11,715,868

Loans and advances 365,974 275,729

Deposits and short tem prepayments 1,583,913 1,287,893

Other receivables 15,751,198 14,562,628

Cash and bank balances 4,522,276 1,898,894

62,513,273 58,034,675

Net Assets in Bangladesh - -

74,737,315 70,168,524

EQUITY AND LIABILITIES

Share Capital 1,715,190 1,715,190

Reserves 19,224,027 19,097,869

20,939,217 20,813,059

Non-Current Liabilities

Long tem deposits 768,308 743,994

Retirement and other service benefits 1,644,063 1,554,893

Current Liabilities

Trade and other payables 41,431,075 36,814,402

Provisions 688,512 777,276

Accrued interest / mark-up 131,961 120,731

Short term borrowings 9,064,781 7,648,919

Taxes payable 69,398 1,695,250

Contingencies and Commitments - -

Total 74,737,315 70,168,524


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Pakistan State Oil Profit & Loss Account

For the year ended June 30, 2007Description 2007 2006

Sales-net of trade discounts and allowances amounting toRs. 932,387 thousand (2006: Rs. 1,318,472 thousand)

411,057,592 352,514,873

Less

-sales tax (52,418,310) 9,725,202)

-inland fright equalization margin (8,932,956) (9,725,202)

Net Sales 349,706,326 298,250,039

Cost of products sold (337,446,896) (281,042,813)

Gross Profit 12,259,430 17,042,813

Other Operating Income 1,278,932 950,850

Operating Costs

Transportation Costs (369,328) (365,795)

Distribution and Marketing Expenses (2,766,064) (2,492,633)

Administrative Expensive (981,937) (935,589)

Depreciation and Amortization (1,140,065) (1,082,394)

Other Operating Expenses (755,420) (2,460,931)

Other Income 424,238 442,791

Profit from Operations 7,949,786 11,263,525

Finance Costs (1,158,112) (884,153)

6,791,674 10,379,372

Share of profit of associates 330,306 1,038,939

Profit before taxation 7,121,980 11,418,311

Taxation (2,432,182) (3,893,610)

Profit for the Year 4,689,798 7,524,701


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________________________________________________________________________________________

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________________________________________________________________________________________ ________________________________________________________________________________________

V ertical Analysis

Vertical analysis compares each amount with a base amount selected from the same year.

= Particular Item__

Selected base year

Note: selected base from the same year.

Description 2007 2006

Sales 100% 100%

Less - Sales Tax 12.7521% 12.6348%

- Inland freight equalization margin 2.1732% 2.7588%

Net Sales 14.9252% 15.3936%

Cost of Product Sold 82.0924% 79.7251%

Gross Profit 2.9824% 4.8813%

Other Operating Income 0.3111% 0.2697%

Operating Cost

- Transportation costs 0.0898% 0.1038%

- Distribution and Marketing exp. 0.6729% 0.7071%

- Administrative exp. 0.2389% 0.2654%

- Depreciation and amortization 0.2773% 0.3070%

- Other operating exp. 0.1838% 0.6981%

Other Income 0.1032% 0.1256%


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Profit from Operations 1.9340% 3.1952%

Finance Costs 0.2817% 0.2508%

Share of profit of Associates 0.0804% 0.2947%

Profit before Taxation 1.7326% 3.2391%

Taxation 0.5917% 1.1045%

Profit of the Year 1.1409% 2.1346%

Vertical analyses express comparisons in percentages. In the above vertical analysis we see that the percentage cost of good sold increases as compare to the previous year. Its means the resources are not

efficiently used and it is not a good sign for the company. Also the operating expanses of this year increasesand gross profit, profit from operations and also the net profit decreases. It is not a positive sign for the

company.

H orizontal AnalysisHorizontal Analysis also shows the comparison in percentages. Horizontal analysis compares each

amount with a base amount for a selected base year.

= __Particular Item__

Selected base year

Description 2007 2006Sales 116.6072% 100%

Less - Sales Tax 117.6891% 100%

- Inland freight equalization margin 91.8537% 100%

Net Sales 117.2527% 100%

Cost of Product Sold 120.0696% 100%

Gross Profit 71.2458% 100%

Other Operating Income 134.5041% 100%

Operating Cost

- Transportation costs 100.9658% 100%

- Distribution and Marketing exp. 110.9696% 100%


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- Administrative exp. 104.9539% 100%

- Depreciation and amortization 105.3281% 100%

- Other operating exp. 30.6965% 100%

Other Income 95.8100% 100%

Profit from Operations 70.5799% 100%

Finance Costs 130.9855% 100%

Share of profit of Associates 31.7926% 100%

Profit before Taxation 62.3733% 100%

Taxation 62.4660% 100%

Profit of the Year 62.3254% 100%

In Horizontal comparison the 2006 use as a base year. Sale of this year increases with respect to the

previous years and at same time cost of goods sold increases with respect to the previous year. Interest cost isincreased and the operating expenses are also increases, which is not a good sign for the organization. Gross

profit, profit from operations and the net profit of the company decreases. It is not a good sign for theorganization, so they must improve their deficiency in order to improve the performance of the organization

as well as the cost decreases.


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P rofitability:These ratios are used to measure the firm’s return on its investment.

Rupees are in “000”

Net Profit Margin= Net Income before Minority Share of Earnings and Nonrecurring Items * 100

Net SaleYear 2007

= 4,689,798__* 100411,057,592

= 1.14 %Year 2006

= 7,524,701__* 100352,514,873 = 2.13 %

This ratio shows a general relationship between net profit and the sales of the year. If this ratio is

high it shows that the firm is earning more profit and this is beneficial for the organization. This ratio ismainly concern with the income statement of the business. When we compare this ratio with the previous year

ratio we have found that the net profit margin is declining so this is not a good news for the organization. Thiscause due to high operating expenses so firm will have to control the operating expenditures so that they can

earn more profit.

Gross Profit Ratio

= Gross Profit * 100

Net SaleYear 2007

= 12,259,430 * 100411,057,592

= 2.98 %Year 2006

= 17,207,226 * 100352,514,873 = 4.88 %


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This ratio shows a relation ship between the gross profit and the net sales of the organization. Gross

profit is concern with the income statement while the net sales are also concern with the income statement. Ingeneral higher this ratio is higher is the benefit for the organization. When we compare it with the previous

year margin we have found that there is very slight difference between this ratio is. So we can say that thegross profit of the company is stable as there is a slight difference in it. But one thing is here that this profit

margin is very low so company is inefficient in generating profit so it is recommended that the companyshould have to increase this margin to earn high profit.

Operating Income Margin

= Operating Income * 100

Net Sale Year 2007

= 7,949,786__ * 100

411,057,592= 1.93 %

Year 2006= 11,263,525__ * 100

352,514,873= 3.19 %

This ratio shows the relationship between operating profit and net sales. Both are concerned withincome statement. If operating profit increases this ratio also increases. In general higher this ratio is

beneficial for the organization. As compared with previous year our operating profit is decreases and the ratiois also decreasing. This is not a good indication.

Operating Expense Ratio

= Operating Expenses *100 Net Sales

Year 2007

= 6,012,814__* 100411,057,592

= 1.46%

Year 2006= _ 7,337,342_ * 100

352,514,873

= 2.08%

This ratio shows the relationship between operating expenses and net sales. Both are concerned with

income statement. If operating expenses increases the ratio will decreases. Our operating expense ratio is 1.46% for 2007.


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Total Assets Turnover

= Net Sales_______

Average Total Assets Year 2007

= 411,057,592 _

72,452,920= 5.6734 time

Average Total Assets= 74,737,315 + 70,168,524

2= 72,452,920

Year 2006= 352,514,873

70,168,524= 5.0238 time

This ratio shows the relation ship between the net sales and the average total assets. This shows thathow much the company is generating sales by the utilizing the assets of the firm. One item like sale is related

to the income statement of the company while the average total assets are related to the balance sheet of thefirm. When we compare this ratio with the previous year ratio we have found that this ratio is going to

increase which is a positive sign for the organization. This is due to the efficient use of the assets. So whensales increases then this ratio are also increases. It is necessary to increase sale the nominator for the high

taken results.

Return on Assets

= Net Income before Minority Share of Earnings and Nonrecurring Items * 100

Average Total AssetsYear 2007

= 4,689,798__* 10072,452,920

= 6. 4729 %Year 2006

= 7,524,701__* 10070,168,524

= 10.7238 %

This ratio gives a general relationship between net income and the average total assets of the company

Net income is relates to the income statement of the firm while the average total assets are relates to the balance sheet of the firm. As this ratio increase this is a positive indicator for the firm. When we compare thisratio with the previous year ratio we found that the company is going to decline because this ratio is less. This

cause due to net income because we have found that the operating expenses are high for this reasons the netincome decline and this ratio is also decreases.


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DuPont Return on assets

Return on Assets = Net profit margin * Total assets Turnover

Year 2007

6. 4729 % = 1.140910201 % * 5.6734

6. 4729 % = 6. 4729 %

Year 200610.7238 % = 2.134576886 % * 5.0238

10.7238 % = 10.7238 %

Sales to Fixed Assets

= Sales_______Average Fixed Assets

Year 2007

= 411,057,59212,224,042

= 33.6269 timeYear 2006

= 352,514,87312,133,849

= 29.0522 timeThis ratio shows a general relationship between the sales and the average fixed assets. Sales are related

to the income statement and the fixed assets are related to the balance sheet of the firm. As this ratio goes up itis a positive thing for the organization. When we compare it with the previous years ratio we have found that

it is goes upward that is a good sign for the organization. There is the reason that is fixed assets are usedefficiently that’s why this ratio is high as compare to previous year.

Return on Investment

= Net Income before Minority Share of Earning and Nonrecurring Items + {(Interest

Expense) * (1-Tax Rate)}_______________________________________________

Average (Long-term Liabilities + Equity)

Year 2007

= 6,791,674 + { (1,158,112) (1-0.35) }* 10023,351,588

= 6,791,674 + { (1,158,112) (0.65) }* 100

23,351,588= 6,791,674 + 752,772.8* 100

23,351,588= 7,544,446.8__ * 100

23,351,588= 32.31 %


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Year 2006

= 10,379,372 + {(884,153) ( 1- .035 ) * 10023,111,946

= 10,379,372 + {(884,153) (0.65) * 10023,111,946

= 10,379,372 + 574,699.45 * 10023,111,946

= 10,954,071.45 * 10023,111,946

= 47.40 %

This ratio shows relation ship between the net income and the liabilities + owner equities. Net income

is concern with the income statement while the liabilities and the owner equities are related to the balancesheet. Higher this value is the higher benefit is to the organization. When we compare it with the previous

year ratio we have found that this is less as compared to the previous year figure. To get higher this figure wewill have to increase the figure of net income. Because the net income is less so this ratio is also less. So this

is not a positive indication for the organization

Return on Total Equity

= Net income before Nonrecurring Items – Dividends on Redeemable Preferred Stock

Average Total EquityYear 2007

= 4,689,798__* 10020,939,217

= 22.40 %

Year 2006= 7,524,701 * 100

20,813,059

= 36.15 %This ratio shows the relationship between net income and total equity. It shows the percentage earned

on equity. If this ratio increases it is good signal for organization. Our return on total equity is 22.40 %. It isalmost satisfactory but it is decline as compare to previous year.

Return on Common Equity

= Net income before Nonrecurring Items – Preferred Dividends

Average Common EquityYear 2007

= 4,689,798__* 10020,939,217

= 22.40 %

Year 2006= 7,524,701 * 100

20,813,059= 36.15 %


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This ratio shows the relationship between net income and common equity. It shows the percentage

earned on common equity. If this ratio increases it is good signal for Shareholders. Our return on commonequity is 22.40 %. It is almost satisfactory but it is decline as compare to previous year.

Return on Net Working Capital

= Net Income before Minority Share of Earnings and Nonrecurring Items

Average Working CapitalYear 2007

= 7,949,786__

11,052,822= 71.93 %

Year 2006

= 11,263,525

10,978,097= 102.59 %

This ratio gives an indication on the return on the working capital per year. Income is related to theincome statement and working capital is related to the balance sheet. A high ratio is a good sign for the

organization. If we compare this ratio with the previous ratio, we see that it is declaim, which is not a positivesign for the company.

E fficiency Ratio:Efficiency ratios measure how productively the firm is using its assets.

Inventory Turnover

= Cost of Goods Sold

Average Inventory

Year 2007

= 337,446,89628,865,344

= 11.41 time per year

Year 2006= 281,042,813

29,562,055


This ratio shows a general relation ship between the cost of good sold and the average inventory of the

organization. Cost of good sold is concern with the income statement of the organization while the inventoryis obtained from the balance sheet of the firm. It tells us that how many time inventories is replaced in one

year. As more this ratio it is good thing because more inventory requirement means that more production is


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made. So when we compare it with the previous year we have found that this year ratio is high. It means that

the company is taken less days to replace this inventory this year.

Days Sales in Inventory

= Ending InventoryCost of Goods Sold / 365

Year 2007

= 29,562,055337,446,896 / 365


Year 2006

= 28,168,633281,042,813 / 365

= 36.58 Time per year

This ratio shows a relation ship between the inventory and the cost of good sold. Inventory is takenfrom the balance sheet of the firm while the cost of good sold is obtained from the income statement of theorganization. It tells us that how often the company places an order for the inventory. When we compare it

with the previous year we have found that this year company is placing fewer orders than the previous year. Itis a negative sign for the organization.

Days Sales in Receivables= Gross Receivables

Net Sale / 365

Year 2007= 13,599,966____

349,706,326 / 365= 12 days

Year 2006

= 11,715,868____ 298,250,039 / 365

= 12 days

This is the general relation ship between the gross receivables and the net sales of the year. This ratiostates that how efficiently the company is managing its receivables. As this ratio is less it is a positive

indicator for the firm is. When we compare it with the previous years value we found that both years same

12days. It means that firm is working efficiently.

Accounts Receivable Turnover

= Net Sales ________

Average Gross Receivables

Year 2007

= 349,706,32613,599,966


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= 30.2249 times Year 2006

= 298,250,03911,715,868

= 30 Time per year

This ratio shows a relation ship between the net sales and the average gross receivables. Net sales areconcern with the income statement while the average gross receivables are concern with the balance sheet ofthe company. This ratio shows that how much time taken by the debtors to pay their obligations. When we

compare this ratio with the previous year ratio we have f ound that it is better than the previous year. So thefirm is keeping a strict eye upon it. So it is better for the organization.

Accounts Receivable Turnover in Days

= Average Gross Receivables

Net Sale / 365

Year 2007= 13,599,966____

411,057,592/365= __ 13,599,966__

1126185.184 = 12 time

Year 2006= __11,715,868___

352,514,873/365= 11,715,868

965,794 = 12 times

This ratio shows a relation ship between the average gross receivables and net sales. Net sales are

concern with the income statement while the average gross receivables are concern with the balance sheet ofthe company. This ratio shows that in how many days taken by the debtors to pay their obligations. When we

compare this ratio with the previous year ratio we have found that it is same that was in the previous year. Sothe firm is keeping a strict eye upon it. So it is better for the organization.

Operating Cycle= Account Receivable + Inventory Turnover

Turnover in Days in Days

Year 2007= 12 + 31.98

= 43.98 timesYear 2006

= 12 + 36.58

= 48.58 times


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It shows how many days are required to sale the inventory and receive cash from customers. If this islow then it is good signal. Our operating cycle is of 43.98 days. When we compare with the previous year we

found that is less as compare to the previous year that is a good indication for the organization.

Sales to Working Capital

= Sales__________

Average Working Capital

Year 2007= 411,057,592

11,127,546= 37 times

Year 2006

= 352,514,873

10,978,097= 32 times

Working Capital:

Current Assets – Current LiabilitiesSales to working capital give an indication of the turnover in working capital per year. A low working

capital turnover ration tentatively indicates an unprofitable use of working capital. If we compare this year

turnover with the previous year we see that this year turnover is increases as compare to the previous year.This is a good sign for the organization.

S olvency Ratios

These ratios show how heavily the company is in debt.

INCOME STATEMENT VIEW POINT:

Time Interest Earned

= Recurring Earnings, Excluding Interest Expense, Tax Expense, EquityEarnings, and Minority Earning_______________________________

Interest Expense, Including Capitalized InterestYear 2007

= 7,949,7861,158,112

= 6.86 times Year 2006

= 11,263,525884,153

= 12.73 times


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This ratio shows how many times we are able to pay the amount of interest of loan which we

borrowed. If it is increases then it is satisfactory for business. The investors show more confidence. Our ratiois 6.86 times which is good.

Current Liabilities to Inventory

= Current Liabilities

Inventory

Year 2007

= 51,385,727 29,562,055

= 1.7382 Year 2006

= 47,056,578 28,168,633

= 1.6705

It is a relationship between the current obligations and the inventory of the organization. It tells us thehow much portion of the current liabilities holded by the inventory. Both is belong to the balance sheet.

Leverage Ratios: Borrowing capacity (leverage) ratios that measure the degree of protection of suppliers of long term

funds.

Degree of financial Leverage

= Earning before Interest and Tax

Earnings before TaxYear 2007

= 7,949,7867,121,980

= 1.116232565 Year 2006

= 11,263,52511,418,311

= 0.986444055

It is a comparison between the net income changes with the EBIT. The degree of financial leverage

represents by a particular base level of the income.

All-Inclusive Degree of Financial Leverage

= Earning before Interest, Tax, Minority Share of Earnings, Equity Income, and Non-

recurring Items_________________________________________________________


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Earnings before Tax, Minority share of Earnings, Equity Income, and Nonrecurring

Items

Year 2007= 7,949,786

6,791,674= 1.1705

Year 2006= 11,263,525

10,379,372= 1.0852

Basic Earnings per Common Share

= Net Earnings – Preferred Dividends___________

Weighted Average Number of Common Shares Outstanding Year 2007

= 4,689,798171,519

= 27.3427 per share

Year 2006= 7,524,701

171,519= 43.8709 per share

This ratio shows a relationship between the net income less preferred dividends to weighted averagenumber of common shares outstanding. It shows that how much shareholders earn on their investments. If it is

increases it is a better for shareholders and they consider the organization as a healthy company.

Price/Earnings Ratio

= Market Price per Share___

Diluted Earnings per Share

Year 2007= 391.45

27.3= 14.34 per share

Year 2006 = 30943.9

= 7.04 per common share

The price over earnings ratio expresses the relationship between the market price of a share ofcommon stock and that stock current earnings per share. This gives an indication of what is being paid for a

dollar of recurring earnings. The price / earning ratio is twice in 2007 which is very good sign for theorganization.

Percentage of Earnings Retained= Net income – All Dividends

Net Income


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Year 2007

= 4,689,798-468246874,689,798

Year 2006 = 7,524,701-

7,524,701

Dividend Payout

= Dividends per Common Share

Diluted Earnings per Share

Year 2007= 27.98

27.34

= 1.0234 per shareYear 2006

= 25.59

43.87= 0.5833 per share

The dividend payout ratio measures the portion of current earnings paid to per common share asdividend. A increase in this ratio is a good sign for the organization. If we compare our company ratio with

the previous year we find that it is increase which is a better for the organization.

Dividend Yield

= Dividends per Common Share__Market Price per Common Share

Year 2007

= _27.3_391.45

= 0.0697Year 2006 = 43.9

309= 0.1421

Dividend per common share is decrease with respect to the previous year which is not a good sign forthe company but at the same time the market price per share increases which is a good for the company.

Book Value per Share

= Total Stockholder’s Equity – Preferred Stock Equity

Number of Common Share Outstanding

Year 2007= 20,939,217

171,519= 122.08103 per share


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Year 2006= 20,813,059

171 519= 121.35 per share

Operating Cash Flow / CurrentMaturities of Long- term Debt& Current Notes Payable

= _____Operating Cash Flow__________

Current Maturities of long-term debt and

Current Notes Payable

Year 2007= 3,691,454

41,431,075

= 0.0891 times

Year 2006

= 1,633,77436,814,402

= 0.0444 timesThis ratio indicates a firm’s ability to meets in current maturities of debt. The higher this ratio, the

better the firm’s ability to meet its current maturities of debt. The higher this ratio, the better firm’s liquidity.

Operating Cash Flow / Total Debt

= Operating Cash FlowTotal Debt

Year 2007= _3,691,454__

53,798,098= 0.0686 times

Year 2006= _1,633,774__

49,355,465 = 0.0331 times

The operating cash flow to total dent ratio indicates a firm’s ability to cover total debt with the yearly

cash flow. The higher the ratio, the better the firm’s ability to carry its total debt.

Operating Cash Flow per Share

= Operating Cash Flow – Preferred Dividends

Common Shares outstandingYear 2007

= 3,691,454 – 0171,519


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= 22 per share

Year 2006= 1,633,774 – 0

171,519= 10 per share

It is a relationship between the operating cash flow less preferred dividends and common shares

outstanding. Operating cash flow per share is a better indication of a firm’s ability to make capital expendituredecisions and pay dividends.

basis.

ConclusionIn the above analysis of Pakistan State Oil ( PSO ) for the year 2007, we found that the earning per

share is decreases. It is not a good signal for Pakistan State Oil Company Limited ( PSO ). The net sales areincreases but cost of goods sold with a higher rate that’s why the Gross profit, profit from operation decreases

The company also declares fewer dividends as compare to the pervious year. This year finance cost is verymuch increased. Its mean company borrows more loans. The overall performance of the Pakistan State Oil (

PSO ) is very good. The market value per share increases from Rs. 309 to Rs. 391.45 which is a good signalfor the investor.


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24581097-pso-financial-statment-analysis.pdf

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