Pso & Shell

Section I
Chapter 1:
1.1 INTRODUCTION:
According to ACPA (American Institute of Certified Public Accountants), Financia
l statements are prepared for the purpose of presenting a periodical review or r
eport on progress by the management and clear with the status of the investment
in the business and results achieved during the period under review.
Financial Statements are a major source of information about a firm the statemen
ts are accounting derived compilations of the firm activities as of a point in t
ime or for a particular period of time these accounting transactions are based o
n the accrual concept, reflect primarily historical costs and are prepared accor
ding to generally accepted accounting principles.
With out financial statements no ways of evaluating the effectiveness of your bu
siness in reaching its goals, and you have little or no control over the future.
As firm financial statements typically are the part of the annual reports that t
he firm sends its stakeholders the financial statements are presented along with
any footnotes needed to explain or elaborate upon items in the statement themse
lves. The footnotes contain considerable detail and often cover several pages. B
y analyzing the firms financial Statements and the foot notes as, necessary, one
can obtain a useful assessment of the firm form an accounting standpoint, inclu
ding its recent performance, its current financial position and its general fina
ncial health.
As capital extensive project become the part of universe and through these mega
structure projects, economies of scale is achieved, the concept of companies/ le
gal entities took place. For solving this dilemma (need of extensive capital) or
ganizations involved public at large.
So, all stakeholders like Government, equity holders, investors etc. interested
in the financial position and health of a concern companies who are listed at st
ock exchanges as well as overall economy conditions. Government tries to secure
and guard the rights of all stakeholders. Establish Securities and Stock Exchang
es Commission Act 1997 for that purpose. SECP formally become operational in Jan
uary, 1999.
Stock exchanges (Karachi Stock exchange, Lahore Stock Exchange etc.) provide a p
latform for the trade of stocks, Bonds and other securities. Investors and finan
cial institution like commercial Banks, financing agencies interested in the int
rinsic value of stocks and bonds, issued by an organization, which now traded in
secondary market. For that issue all listed companies legally bound to publish
financial statements and submit with registrar as well as at SECP. These financi
al statements analyzed by the financial managers and they produce an opinion for
the investor or any else regarding investment in a particular company or not, w
hich request said information.
Stock exchanges also appoint specialist for that purposes and try to maintain a
fair market for investors and borrowers. However, being a student of MBA (financ
e) from Virtual University, which provide quality education to become a professi
onal. Pakistan State Oil company and Shell Pakistan publish their financial stat
ements for their stakeholder i.e. Govt., Shareholders, SECP etc. From these fina
ncial statements meaningful information production is the aim of this project. T
hese two companies are listed companies. My focus on year to year performance a
nd ascertain strengths and weakness of the energy sector as well as concern comp
anies. Pakistan state oil established dated: (1974) and providing quality produc
ts to the nation. Shell Pakistan a multinational company start working from (199
3) and a leading service providing organization now-a-day.
1.2. TYPES OF FINANCIAL STATEMENTS
Four major types of financial statements:
1. Balance Sheet
2. Income Statement
3. Cash Flow Statement
4. Statement of Changes In Equity
1. Balance Sheet.
If we follow T account format, it has two sides one is called debt side which sh
ows assets and other side is called credit side showing liabilities and owners e
quity at the date.
In statement format, it is discretion of the user list assets first or liabiliti
es and owner’s equity.
2. Income Statement.
Income Statement is also known as profit and loss account. This Statement shows
the operating results during the year organization carried out in the normal cou
rse of business. If revenue exceeds all expenses, bottom line figure consider pr
ofit otherwise organization sustained loss.
3. Cash Flow Statement.

Cash flow statement provides a picture of cash inflow and outflow during the con
cern year. It also exhibits the organization ability to how much cash generated
for daily need and for stakeholders.
4. Statement of Changes in Equity.
Statement of Changes in Equity represents movements in equity portion.
Introduction of the organization’s business sector
Pakistan’s economy is a growing economy near about an average 7.6 % per annum. For
this growing economy energy resources have the backbone. Government of Pakistan
takes much initiative for meeting these requirements. Due to these positive and
open opportunities of investment Foreign Direct Investment in energy sector inc
luding oil, gas and power received (14.1 %) from all Foreign Direct Investment.
Energy sector especially oil fuel sector play a vital role in any economy of any
country. As statistics of Ministry of Petroleum & Natural Resources showed cons
umption of oil / petroleum 16,847,131 tonnes in 2006-07. However, production of
crude oil with all sources (import & local fields) near about 85309 (000 barrel
s) in 2006-07. For meeting the National requirements of oil from local resources
government introduces an investor friendly environment. This friendly environme
nt attracts the investors to invest in the Petroleum Refining and Oil & Gas Expl
oration. Investment data revealed 114.6 (000 US$), 449.4 (000 US $) invested as
compared to (2005-06) 24.4 million Dollars, 243.3 million Dollars in the field
of Petroleum Refining and Oil & Gas Exploration respectively.
On average, the transport sector consumes 50.7 percent of the petroleum products
, followed by power sector 32.1%, industry 11.4%, household 2.2 %, other governm
ent 2.3 % and agriculture 1.3 % during last 10 years i.e. 1996 to 2005-06.
Here a great opportunity for investor to invest in the field of oil marketing an
d oil exploration. However, our intention mainly focus on oil marketing business
financial statements and reports analysis
All these improvements and friendly investment environment not demonstrate witho
ut financial statements and Reports analysis.
Introduction of Companies
1.4.1 Pakistan State Oil
Pakistan State Oil history launch from 1974, when government nationalizes the pr
ivate organizations. At first step Pakistan National Oil and Dawood Petroleum Li
mited merged and become Premiere Oil Company Limited. However, the new corporate
culture adopted PSO has a rich history of mergers and different logs. This newl
y fully corporate culture adopted in 2004.
PSO effectively implemented the corporate culture reform and consistent applicat
ion of these business development strategies that has been able to maintain its
market leadership in a highly competitive business environment.
The company takes pride in continuing the tradition of excellence and is fully c
ommitted to meet the energy requirements of today and rising tomorrow. Pakistan
State Oil is currently engaged in storage, distribution and marketing of various
POL products. The company populate 82.3% share of black oil and 59.4% of white
oil market.
1.4.2 Shell Pakistan Ltd.
Shell already working in subcontinent, as Pakistan emerged at the map of world i
n 1947, the name was changed to the Burmah Shell Oil distribution Company of Pak
istan. BSODCP changed its name in the consequences of transfer of 51% shares to
Pakistani investors, the name become Pakistan Burmah Shell Limited. In Feb. 1993
, as Pakistan government open the opportunity for foreign investment at attracti
ve pace, Shell Petroleum Company purchased the shares of Burmah and increases it
s share equity from 49% to 76 % within 9 years. This is an expression of confide
nce of Shell Pakistan Ltd in stake in Pakistan.
These two companies are the leading organizations in energy sector. As describe
in industry introduction energy demand increases day by day because Pakistan eco
nomy is a growing economy. Growing demand provide opportunity to invest in energ
y sector and appreciate investment. For investors, Creditors, Management and all
other stakeholders, who interested in energy sector performance and returns, I
pick these leading organizations for my project.
1.5. List of Competitors
Company Symbol
Attok Petroleum APL
P.S.O PSO
Shell Pakistan SHEL
Total Parco Pakistan Total
1.6. Objectives:
This project has following objectives: -
• To measure both risk and return relating to investment choices.
• To measure both risk and return for credit decision.
• To measure liquidity position.
• To look position of investing activities.
• Descriptive and footnote information visualized.
1.7. Significance:
Many stakeholders like Investors, Creditors, Management, environmentalists and o
ther Government Agencies interested in the organizations safe and corporate comp
liance operations and their existence. This project addresses all these stakehol
ders’ interests.
Financially both companies are viable and stable position. Profitability of both
companies is good and maximizes shareholder’s wealth over the period under study.
Prospective future growth of the business is likely however PSO management need
to manage account receivable. Account receivable is consists of institutional d
ebtors, it may not be any danger of default.
Firms’ solvency position is that both firms are highly leveraged and run an increa
sed risk of defaulting; however PSO debt and foreign creditors are fully assured
by the Govt of Pakistan while SHELL is also able to pay its all current obligat
ions on the bases of historical data.
Operational efficiency in term of accounts receivable SHELL is better performing
from PSO. The reason of low operational efficiency in account receivable of PSO
is institutional debtors in public sector. In horizontal analyses in 2008 sales
increased 60%, 19% and operating expenses increased 31%, 36%, in 2007 sales inc
reased 17%, (02%) and operating expenses decreased 15%, 06% taking 2006 as base
year for both companies PSO & SHELL respectively.
For these above mentioned and other all stakeholders, we have done:
1. Comparative study.
2. Screening tool for investment.
3. Provide information’s about sources and uses of the funds.
4. Competitiveness
Through this project, try to reveal all information to all stakeholders. This in
formation has a significant influence over all these stakeholders.
Chapter No. 2
Processing and Analysis (Methodology)
2.1 Data Collection Sources:
Secondary source of data used for analysis. Data collected from following intern
et sources: -
• http://www.shell.com/home/content/pk-en/about_shell/our_performance/financial_pe
rformance.html
• 14-en.pdf (application/pdf Object)
• 01-Growth.pdf (application/pdf Object)
• overview_06_07.pdf (application/pdf Object)
• Welcome to Pakistan State Oil
2.2 Data Collection Tools:
All these downloaded data rearrange and organize for study purpose.
2.3 Data Processing and Analysis
Analytical tools are used to ascertain or measure the relationship among the fin
ancial statement of a single set of statements and the changes that have taken p
lace in these items as reflected by successive financial statements. The objecti
ve of any analytical method is to simplify or reduces the data under review to m
ore understandable terms. The analyst first computes and organizes his data, and
then analyzed and interprets them to make them more meaningful.
Analytical methods are techniques used in analyzing financial statements include
the following: -
1. Comparative Balance Sheet, Income Statement and Statement of retained ea
rnings, showing:
a). Absolute data (Amount in Rupees)
b). Increase and decrease in rupee amounts.
c). Increase and decrease in percentage.
d). Comparative expressed in ratios.
e). Percentages of totals.
2. Statement of changes in financial condition.
3. Trend ratios of selected (related) financial and operating data.
4. Common size percentages balance sheets, income statements, and individua
l sections of these statements.
5. Ratios expressing the relationships of items selected from the balance s
heet, the income statement and both statements.
6. Composite industry ratios.
7. Statement of variation in net income and/or gross margin.
2.3. 1 Ratio analysis
Near about forty ratios should be applied.
a) Liquidity Ratios
These ratios measure a firm’s ability to meet its current obligations: -
• Acid Test Ratio
Acid Test Ratio provides information relating to current assets excluding invent
ory and prepaid expenses and current liabilities. This ratio tell company abilit
y to meet its current obligations at the time when it payable.
Acid Test Ratio formula is:
Acid Test Ratio = Current Assets – (inventory + prepaid expenses)/ Current liabili
ties
• Working Capital:
Current assets are the resources of organizations in shape of cash or will soon
converted into cash in the ordinary course of business. Current liabilities are
the short commitments which will soon require in cash statement in the ordinary
course of business.
We mathematically express:
Working Capital = Current Assets – Current Liabilities
• Current Ratio
Current ratio or working capital ratio gives a feel about ability of the organiz
ation to meet its current obligation at given point of time. Current ratio is us
e to measure current liquidity position. It is computed by following formula.
Current Ratio = Current Assets / Current Liabilities
• Sales to Working Capital
Through this ratio we measure what extent working capital utilization i.e. what
sales generated through conversion of current assets into sales. It is computed
by this formula.
Sales to Working Capital Ratio = Net Sales / Current Assets
PSO Shell
LIQUIDITY RATIO Jun 08 Jun 07 Jun 06 Jun 08
Jun 07 Jun 06
Current Ratio 1.24 1.22 1.24 1.30 1.02 1.13
Quick Ratio 0.57 0.63 0.63 0.51 0.58 0.56
Sales to Working Capital 22.37 31.43 26.96 20.23 267.71 48.57
Net working Capital 22,142,472 11,127,546 11,062,310 6,912,39
8 429,744 2,414,344.00
It is clear from above figure that the PSO and Shell has been able to meet its s
hort term obligations from the year 2006 to 2008. In year 2007 it is relatively
poor if compared to other years. However, quick ratio shows adverse position for
both organizations.
Current Ratio of PSO in period under study remained stable. Current Ratio of She
ll decreased in 2007 due to the excessive short term borrowing in 2006 and impro
ved in 2008 with return back of short term borrowings. In 2008 stock in trade ha
s grown excessively and this excessive stocks financed by short term running fin
ance and trade payables.
Quick Ratio of PSO remained unchanged in 2007 with respect to 2006. In 2008 quic
k ratio decreased due to increase of trade and other payables, short term borrow
ings and interest & taxation. Quick Ratio of Shell in 2007 has insignificant cha
nge in respect of 2006. In 2008 quick ratio decreased due to increase of trade a
nd other payables, short term running finance and taxation.
Sales to Working Capital ratio of PSO in 2007 working capital changed slightly i
n respect of 2006 however sales improved considerably. This increased sales resu
lted in better sales to working capital ratio. In 2008 this ratio goes down dram
atically due to considerably increase of net working capital. Sales to Working C
apital ratio of Shell in 2007 working capital dramatically decreased and also sa
les decreased slightly in respect of 2006. Remarkable increase of sales to worki
ng capital ratio occurred with huge decrease of net working capital. In 2008 thi
s ratio goes down dramatically due to considerably increase of net working capit
al.
Net working Capital of PSO in 2007 and 2006 insignificantly varied. However in 2
008 dramatic increase in stock-in-trade and trade debts cause the very high netw
orking capital. Net working Capital of Shell in 2007 current asset decreased spe
cially stock-in-trade and trade debt and current liabilities increased especiall
y in short term borrowings cause the very low networking capital in this year. I
n 2008 current assets increased significantly especially with stock-in-trade tha
t resulted in very high networking capital.
b) Activity Ratios
Under this we took a look about ability to convert current assets (inventory, ac
counts receivable) into cash or sales: -
• Fixed Asset Turnover
This ratio gives a feel to how management is effectively used Fixed Assets to ge
nerate sales. This ratio calculates by following formula: Fixed Asset Turnover R
atio = Sales / Fixed Assets
• Accounts Payable Turnover
From this ratio we observe the organization ability to meet its payable obligati
ons, as they payable at given time of point i.e. how many times paid its account
s payables.
Accounts Payable Turnover Ratio = Cost of Goods Sold / Trade Creditors
• Average Payment Period
Average Payment Period returns the days in which organization fulfills its oblig
ations i.e. payment paid or not with credit terms. If organization credit term 3
0 days and organization average payment Period above or below this figure, gives
meaning full result. Calculation done through following formula:
Average Payment Period = Average Creditors / Cost of Goods Sold * 365
Alternatively = 365/ Account Payable Turnover
• Average Age of Inventory or Inventory Turnover Rate
Inventory Turnover Rate tells how many times during the year organization is abl
e to sell of goods equal to its average inventory. How many days require during
the year to sell this inventory, we dividing 365 with inventory Turnover Rate.
Inventory Turnover Rate = Cost of Goods Sold/ Average Inventory
Days to sell the Inventory = 365 / Inventory Turnover Rate
Average Inventory = (Beginning Inventories + Ending Inventories) / 2
• Accounts Receivable Turnover
This rate gives a feel how quickly a company converts its accounts receivable in
to cash. Accounts Receivable Turnover calculated by following formula.
Accounts Receivable Turnover Ratio = Sales / Average Accounts Receivable
The number of days required to collect accounts receivable determined by dividin
g 365 days of a year by the Accounts Receivable Turnover.
Inventory Turnover (Days) = 365 / Accounts Receivable Turnover
Average Accounts Receivable = (Beginning Accounts Receivable + Ending Account Re
ceivable) / 2
• Accounts Collection Period or Inventory Turnover (Days)
Discussed in the heading Accounts Receivable Turnover.
Accounts Collection Period = 365 / Accounts Receivable Turnover
• Operating Cycle
The period of time required to an organization to convert its inventory into cas
h called Operating Cycle. Inventory is an asset of an organization for normal co
urse of business. Organization try to convert inventory into cash but it first c
onvert into accounts receivable then cash. Operating Cycle is equal:
Operating Cycle = Accounts Receivable Turnover (Days) + Inventory Turnover (Days
)
• Total Asset Turnover Ratio:
This ratio gives a feel of effective utilization of Total Assets. This ratio det
ermined as:
Total Assets Turnover Ratio = Sales / Average Total Assets *100
Average Total Assets = (Beginning total Assets + Ending Total Assets) / 2
ACTIVITY RATIO PSO Shell
Jun 08 Jun 07 Jun 06 Jun 08 Jun 07
Jun 06
Account Receivable Turnover 10.78 12.12 10.59 29.49 23.44 22.40
A/R Turnover (Days) 33.87 30.13 34.47 12.38 15.57 16.30
Inventory Turnover 10.12 11.69 9.98 9.47 11.93 10.75
Inventory Turnover (Days) 36.06 31.22 36.58 38.55 30.61 33.95
Operating Cycle (Days) 69.93 61.35 71.06 50.93 46.18 50.25
Total Asset turnover 3.90 4.68 4.25 3.53 3.94 4.16
Fixed Assets Turnover 65.46 42.97 39.04 20.48 17.48 20.47
Account Payable Turnover 7.60 8.65 7.68 8.78 9.11 8.99
Average Payment Period (Days) 48.05 42.19 47.51 41.56 40.06 40.61
Other things being equal, the higher the turnover figure the more favorable it i
s. It shows each Rs. Invested in A/R supported Rs.10.78 of PSO and Rs.29.49 of S
hell in sales. The above chart shows that this figure has been stable for PSO an
d increasing gradually in Shell over the time. It shows a positive sign of Shell
in managing A/R. It is well utilizing its A/R but PSO not efficient in managing
account receivable.
Accounts Receivable turnover of PSO improved in 2007 due to increase of sales pr
oportionally increased in trade debts. In 2008 Sales improved significantly but
proportionally trade debts increased excessively. Very this reason accounts rece
ivable turnover dropped. Accounts Receivable turnover of Shell improved in 2007
insignificantly in respect to 2006. In 2008 Accounts receivable improved well wi
th enhanced sales and very low increase in trade debts proportionally.
Inventory Turnover of year June 2007 shows Good for both organizations. The abov
e figure shows the variations in managing Inventory over the Three year period.
Generally the higher the turnover figure, the less time an item spends in invent
ory and thus, the better the return the company is able to earn from funds tied
up in inventory. Here again PSO and Shell are not well in managing its Inventory
.
Inventory turnover of PSO improved in 2007 due to decrease in average inventory
and worse in 2008 due to increase in average inventory holding. Inventory turnov
er of Shell improved in 2007 due to low average inventory and decrease in 2008 d
ue to excessive increase in average inventory holding.
The above figure also shows the variations in managing Total Assets over the thr
ee year period. But there is a significant increase in year 2007 in PSO and a gr
adually decrease in Shell over the period three year. So PSO and Shell are looki
ng less efficient in over the period of study i.e.2006 to 2007. Shell and PSO is
generating Rs.3.53 and Rs.3.90 respectively in Revenues from every rupee invest
ed in assets.
There is no significant difference in Asset Turnover ratio of PSO in 2006 & 2007
. However decrease in 2008 due to significant increase in total assets proportio
n to the increase in sales. Continuously increase in fixed assets of Shell to pr
oportionate the increase in sales throughout the period under study that decreas
es the asset turnover ratio.
c) Leverage Ratios
These ratios measure the degree of protection of investors of funds suppliers: -
• Long term assets Vs long term Debt
This ratio provides extent how much long term assets backed at long term loans.
As much as this ratio is high creditors feel satisfaction. Following formula des
cribe relationship.
= (Liabilities against Assets Subject to Finance Lease + Long Terms Loans) / (Lo
ng Term Investment + Long Term Loans & Advances)
• Total capitalization ratio
Total Capitalization presents all long term debt and equity of the organization.
This ratio reveals the importance of long term debt to the capital structure. F
ormula is:
= (Liabilities against Assets Subject to Finance Lease + Long Terms Loans) / (Sh
are Capital + Liabilities against Assets Subject to Finance Lease + Long Terms L
oans)
• Time interest earned
The times interest earned ratio measures the firm’s ability to make contractual pa
yments to avoid bankruptcy. In general, the higher its value, the firm is able t
o fulfill its obligations. The Time Interest earned ratio is calculated as follo
ws:
Time interest earned = EBIT / Total Interest
• Debt ratio
The debt ratio measures the proportion of total assets financed by the firm’s cred
itors. Higher this ratio means the higher risk. Creditors like lower this ratio
means more stockholders equity back its credit amount.
Debt Ratio = Total Liabilities / Total Assets
• Equity ratio
This ratio shows proportion of stockholders share in capital structure. This is
opposite the debt ratio. If this ratio is low means very high leverage firm. Fo
rmula is:
Equity Ratio = Total Equity / Total Assets
• Debt-to-equity ratio
This ratio gives the measure to the proportion of firms assets financed by debt
relative proportion finance by equity. This ratio is calculated by the following
formula
Debt-to-equity ratio = Total Liabilities / Total Equity
• Current Worth / net worth Ratio
This ratio shows relationship between net profit and net worth of the capital. F
ormula is given below.
= Net Profit / Net worth
PSO Shell
LEVERAGE MEASURES Jun 08 Jun 07 Jun 06 Jun 08
Jun 07 Jun 06
Long term debt VS Long term Assets 0.26 0.21 0.19 0.96 0.00
0.00
Total Capitalization Ratio 0.33 0.31 0.30 0.82 0.00 0.02
Times Interest Earned (Times) 16.41 6.86 13.01 8.74
1.28 12.56
Debt Ratio 0.76 0.72 0.70 0.66 0.68 0.64
Equity Ratio 0.24 0.28 0.30 0.34 0.32 0.36
Debt-to-Equity Ratio 3.10 2.57 2.37 1.91 2.09 1.79
Current worth / net worth Ratio 0.54 0.22 0.36 44.53 7.22 30.73
Since highly leveraged Firms (those using large amount of debt) run an increased
risk of defaulting. In 2008 there is 76% and 66% of debt in capital structure o
f PSO and Shell respectively for every Rs. of equity. So PSO and Shell are highl
y leveraged. So there is a high risk of defaulting.
Debt Ratio of PSO increased every year throughout the period under study due to
the increase in liabilities especially in trade and other payable, short term bo
rrowings, interest payments. Debt Ratio of Shell increased in 2007 due to increa
se in short term borrowings, interest expense. In 2008 considerably increase in
total assets decrease the debt ratio in some extent.
Time Interest Earned Ratio measures the ability of PSO and Shell to meet its fix
ed interest payments. In 2008 this ratio was very good but in year 2007 Shell sh
ows worse position and PSO stand at acceptable position. In 2007 Shell has only
RS.1.28 to cover every Rupee of interest expenses. As a rule a coverage ratio of
6 to 7 times is considered pretty strong. However the current ratio of the comp
any is not too low to be considered as a negative point. The reason for this dec
line is that EBIT is low in 2007 due to oil price crises, high cost of product a
nd low sales and furthermore the interest has also increased to the maximum duri
ng this year.
Time Interest Earned Ratio of PSO decreased in 2007 due to increase in interest
payments and decrease in EBIT. In 2008 this ratio reached at high level due to i
ncrease in EBIT. Time Interest Earned Ratio of Shell considerably decreased in 2
007 due to increase in interest payments and low EBIT. However in 2008 this rati
o increased due to the better sales and increased EBIT from 2007.
d) Marketing Ratios
Investors commonly used marketing ratios for assessing the business performance
and cost of issuing stock: -
• Dividend payout
This ratio indicates the percentage of the companies earning that is paid out to
the share holders in cash. Its formula is given below: = (dividend per share /
earning per share) * 100
• Dividend per share
Company distributes its profit to the stockholders. Amount paid per share holder
called dividend per share. Formula is given below.
= amount paid to share holders / Number of common shares outstanding.
• Dividend yield
Income investors interested how much they yield investment in the common stocks.
This ratio gives current yield to the income investors. Formula is
= dividend per share /marker price per share *100
• Percentage of earnings retained
This ratio help to ascertain how much income retained from net income. Formula i
s
= retained earning / net profit
• Book value per share
Book value defined total equity – preferred stock – preferred stock dividend error d
ivided by number of common shares outstanding
= total equity – (preferred stock capital + preferred stock dividend error) / numb
er of common share outstanding
• P/ E Ratio
Price earning ratio measures amount that investors are willing to pay for each d
ollar of a firm’s earnings. The level of price earning ratio indicates the degree
of confidence that investors have in the firm’s future performance. P/E Ratio is t
he best choice indicator from the investors. The price earning ratio is calculat
ed as follows.
= Market price per share of common stock / earning per share
• Earning per share
Earning per share represent the number of dollars earned during the period on be
half of each outstanding share of common stock. EPS commonly use indicator at ma
rket place. EPS is calculated as follows.
= earnings available for common stock holders / number of shares of common stock
outstanding.
PSO Shell
Marketing Ratios Jun 08 Jun 07 Jun 06 Jun 08
Jun 07 Jun 06
Earning per share (EPS) 81.94
27.34 43.87 93.76 12.90 70.92
Dividend per share (DPS) As formula
26 28 26 18.00
25.32 29.33
Dividend per share (DPS) As per Notes and equity statement
23.5 21 34
50.00 16.00 30.00
Dividend Payout Ratio 0.167 0.448
0.452 0.97 2.26 0.97
Price earning ratio 1.67 14.45
6.76 3.05 22.17 4.03
Book value 180.53
122.08 121.35 248.43 172.67 230.75
Dividend Yield 7.93 5.32 11.47 17.49 5.60 10.49
Percentage of earning retained (Net Income/ retained earning)
35.60 67.54 33.26 47.43 10.58
41.77
Market Price 137 395 296.51 286 286 286
# of Shares Outstanding 171,518,901 171,518,901 1
71,518,901 54,790,313 54,790,313 43,832,250
In 2007, dividends from Shell accounted for about 2.6%. This is relatively high
if compared with other years. Paying out is much more than that is often a sign
of trouble.
Dividend payout ratio of PSO declined over the period under study. Earning per s
hare decreased in 2007 and significantly increased in 2008 with respect to 2006.
Dividend per share decreased in 2007 and 2008 with respect to 2006. Decrease in
dividend per share and increase earnings/net income cause the low dividend payo
ut ratio of PSO during the period under study. Dividend payout ratio of Shell re
mained same in 2006 and 2008 however this ratio significantly increased in 2007
due to the decrease in earning per share.
A stock should sell for more than its book value. If not it could be an indicati
on that something is going seriously wrong. However, PSO stock price fall down e
ven from its book value in year 2008 and previous two years i.e.2007 and 2006 sh
ows positive position. Shell year wise stock price not available, took current m
arket price for all years. This shows solid position over the years.
Book value of PSO shares remained stable in 2006 and 2007 and increased in 2008
due to increase of retains earnings. However, there is no change in share capita
l throughout the period under study. Book value of Shell shares decreased in 200
7 due to the decrease in unappropriated profit and dividend per share awarded ab
ove the net earning of that year. Book value share increased in 2008 with increa
se of unappropriated profit and low dividend payout ratio with respect of earnin
gs of that year.
In 2007 earning per share fall down seriously and market price of stock not move
down in the same way. This variation shows good P/E ratio in the year 2007. In
2008 EPS share rose considerably and stock market price also fall for PSO and as
sume stable for Shell. These two factor effect low P/E ratio for PSO and Shell.
This ratio for year 2008 fall below expected ratio as considered 10 to 15 is goo
d for any organization.
Price earning ratio of PSO increased in 2007 due to increase of market price of
PSO share and low earning per share decreased in 2008 due to decrease in market
price & significant increase in earning per share. Price earning ratio of Shell
increased in 2007 due to decrease in earning per share and assume market price o
f share remained stable. In 2008 price earning ratio down because earning per sh
are increased significantly and assume market price remain stable.
e) Profitability Ratios
Earning ability of a firm measure through profitability ratios: -
• Return on Assets
Return on total assets measures the overall effectiveness of the management in g
enerating profits with its available assets the higher the firm’s returns on total
assets, the better. Calculated as
• ROTA = EBIT / Total Assets
Some times we take average assets for calculations. Some analyst use net profit
available for common stock holders. However, we use EBIT because Tax and interes
t beyond the control of management.
• Operating Assets Turnover
This ratio reveal the information how management effectively used its operating
assets for generating sales. Formula is as,
= net sales / operating assets
• Net Profit Margin
The net profit margin measures the percentage of each sales dollar remaining aft
er all cost and expenses, including interest, taxes and preferred stock dividend
have been deducted. Net Profit Margin calculated as
= earnings available for common stock holder / net sales.
The higher the net profit margin, the better.
• Operating income Margin

The operating profit margin measures the percentage of each sales dollar remaini
ng after all costs and expenses other than interests, taxes and preferred stock
dividends are deducted. It represents the pure profit earned on each sales dolla
r. The profit margin is calculated as follows: = EBIT / Net Sales
• Return on operating Assets
Return on operating assets defined how much earned on each dollar of operating a
ssets. Calculated as = EBIT / Operating assets
• Gross Profit Margin
Gross profit margin measures the percentage of each sales dollar remaining after
the firm has paid for its goods. The gross profit margin is calculated as
= Gross profits / net sales
• Return on Total Equity
The return on the common equity measures the returns earned on the common stock
holder’s investment in the firms. Calculated as
ROE= Earnings available for common stock holders / common stock equity
PSO Shell
PROFITABILITY MEASURES Jun 08 Jun 07
Jun 06 Jun 08 Jun 07 Jun 06
Gross Profit Margin 6.06 3.51 5.77 10.83
5.55 8.49
Operating Profit Margin 4.53 2.27 3.86 6.06 1.01 4.26
Net Profit Margin 2.84 1.34 2.52 3.67
0.61 2.65
Return on Total Assets 17.66 10.64 16.39
21.38 3.99 17.74
Operating Assets Turnover 74.57 52.88 45.80 20.48 17.48 20.47
Return on Common Equity 45.39 22.40 36.15 44.53 7.22
30.73
Return on Operating Assets 338.02 120.22 176.58 124.24 17.73 87.25
Net Profit Margin of PSO and Shell was decline in 2007. However, in year 2008 Ne
t Profit Margin regain its positive position 2.84% and 3.67% respectively for PS
O and Shell.
Net profit margin of PSO declined in 2007 due to the increase in cost of goods s
old and other expenses which results lower net income with respect of sales. Net
profit margin increased in 2008 due to decrease in cost of goods sold, transpor
tation cost and significant increase in sales. Net profit margin of Shell declin
ed due to the decrease in sales and increase in cost of goods sold, increase in
selling & distribution expenses which cause the lower net income. In 2008 sales
increased, selling & distribution expenses decreased, resultantly net profit mar
gin increased.
Return on Equity increases due to leverage and increase of current liabilities i
n year 2008. Both organizations utilize more account payable, short term and lon
g term borrowing. Total Equity also decreases gradually.
Return of equity of PSO decreased in 2007 due to the decrease in net income avai
lable for common stock holder and increased in 2008 due to significantly increas
e in net income available for common stock holders. Return of equity of Shell de
creased dramatically in 2007 due to the decrease in net income available for com
mon stock holders and increased in 2008 due to significantly increase in net inc
ome available for common stock holders.
f) Statements of Cash Flow
Following ratios relate to cash flow statement interpretation: -
• Operating cash flow / cash dividend
This ratio measures the extent of available cash flow for cash dividend payment.
Formula is as:
= Net operating cash flow / Cash dividend Paid
• Operating cash flow / total debt
We measure the extent of operating cash flow available for meeting the debt requ
irement.
Formula is as follows: = Net Operating cash flow / Total Debt
• Operating cash flow per share
This returns how much each share generate cash flow by operating activities.
Calculation Method:
= Net Cash flow from operating Activities / Number of Common Shares outs
tanding
PSO Shell
Statement of Cash Flow 2008 2007 2006 2008 2007 2006
Operating Cash Flow / Cash Dividend 0.92 0.77 0.99 1.01 0.10
0.70
Operating Cash Flow / Total Debt 4.21 6.86 8.83 0.04 0.007
0.05
Operating Cash Flow Per Share 23.61 21.52 25.40 18.121 0.001 3.124
These Ratios relating Cash flow present stable picture over the years under stud
y of PSO compare to Shell. However, a gradual decline in ratios, in PSO from yea
r 2006 and very high variations in Shell Ratio. So, it is depict some inefficien
cy to managing its Cash flows.
In PSO operating cash flows are near to equal of cash dividend payment in 2006 h
owever in 2007 cash dividend payment amount increased with respect of operating
cash flows. In 2008 operating cash flows improved with respect of cash dividend
payments and this ratio became healthy. In Shell operating cash flows are less t
han cash dividend payment in 2006. This phenomenon continued in 2007 operating c
ash flows very significantly dropped with respect of cash dividend payments and
ratio became very low. In 2008 the operating cash flows are approximately equal
to the cash dividend payments.
For PSO operating cash flows/total debt ratio decreased continuously due to the
increase in short term borrowings and trade & other payables every year. For She
ll operating cash flows/total debt ratio decreased in 2007 due to the increase o
f short term borrowings and lower operating cash flow. In 2008 this ratio improv
ed in some extent due to the increase of operating cash flows.
2.3.2. Vertical Analysis
In Vertical Analysis, a significant item on a financial statement is used as a b
ase value; all other items on the financial statement are compared to it. In per
forming vertical Analysis for Balance Sheet, Total Assets are assigned 100%. Eac
h asset account is expressed as %age of total assets. Total Liabilities & Stockh
older’s Equity is also assigned 100%.
In the Income Statement, Net Sales is given a 100% and all other accounts are ev
aluated in comparison to net sales.
Here is the Vertical Analysis of the financial statements of PSO and Shell from
the year of 2006 to 2008.
Balance Sheet Pakistan State Oil Shell Pakistan Ltd.
For the year ended 30 Jun, 08, 07, 06 %age 08 %age 07 %age 06 %age 08 %age 07
%age 06
ASSETS
Non Current Assets:
Property, Plant and equipment 5.87 10.72 10.67 17.21 22.53 20.333
Intangible Assets 0.08 0.17 0.22 -- -- --
Long Term Investment 2.13 4.00 4.67 5.38 6.90 6.663
Long term loan & advances 0.38 0.84 0.90 0.37 0.63 0.496
Long term deposits & prepayment 0.06 0.09 0.13 0.51 0.38 0.392
Long term debtors -- -- -- 0.34 0.00 --
Deferred Tax 0.32 0.54 0.58 -- 0.96 --
Total Non Current Assets 8.84 16.36 17.17 23.81 31.39 27.883
Current Assets:
Stores & Spares and loose tools 0.09 0.17 0.18 0.03 0.10 0.102
Stock in Trade 49.06 39.55 40.14 45.62 28.22 35.425
Trade debts 26.67 18.20 16.87 12.37 15.68 18.585
Loan and advances 0.31 0.49 0.39 0.12 0.15 0.148
Deposits and short term prepayments 0.32 2.12 1.99 0.52 0.48
0.594
Others receivables 12.34 21.08 20.55 15.33 20.44 13.779
Taxation -- -- -- -- 0.75 0.000
Cash & Bank Balances 2.37 2.04 2.71 2.20 2.79 3.483
Total Current Assets 91.16 83.64 82.83 76.19 68.61 72.117
TOTAL ASSETS 100.00 100.00 100.00 100.00 100.00 100.00
LIABILITIES & EQUITY
Share Capital & Reserves:
Share Capital 1.35 2.29 2.44 1.38 1.88 1.556
Reserves 23.01 25.72 27.22 5.63 7.64 7.926
Un-appropriated profit -- -- -- 27.31 22.87 26.419
TOTAL EQUITY 24.36 28.02 29.66 34.32 32.39 35.901
Non Current Liabilities:
Deferred Taxation-net -- -- -- 0.13 -- 0.178
Liabilities against assets subject to finance lease -- -- --
0.01 0.002 0.025
Long term Loans 0.66 1.03 1.06 6.30 -- 0.000
Retirement and other service benefits 1.24 2.20 2.22 0.48 0.47
0.349
Total Non Current Liabilities: 1.90 3.23 3.28 6.92 0.48 0.552
Current Liabilities:
Trade & other payables 63.78 55.44 52.13 41.56 40.78 42.377
Provision/Current maturity of liabilities subject to finance lease 0.57
0.92 1.11 0.14 0.11 0.094
Short term running finances holding mark-up -- -- -- 10.94
2.48 6.318
Accrued mark-up/ interest 0.17 0.18 0.17 0.40 0.45 0.273
Short term borrowings 8.65 12.13 10.90 3.78 23.31 11.536
Tax payable 0.57 0.09 2.75 1.95 2.948
Total Current Liabilities 73.74 68.76 67.06 58.76 67.14 63.547
Total Liabilities 75.64 71.98 70.34 65.68 67.61 64.099
TOTAL LIABILITIES & EQUITY 100 100 100 100.00 100.00 100.00
Interpretation of Common Size Percentages:

Current Assets:
The current assets showing the following ratio to the total assets during the pe
riod under review:
PSO Shell
Years 2008 2007 2006 2008 2007 2006
% age 91.16 83.64 82.83 76.19 68.61 72.117
From the above mention statement it can be seen that very large proportion of fu
nds invested in current assets and minor portion of the funds has invested in fi
xed assets by the PSO and Shell. However, Shell depends on more non current asse
ts than PSO.
PSO current assets increased year to year due to the increase in stock-in-trade,
trade debts and loans & advances with respect of total assets. Shell current as
sets decreased in 2007 due to decrease in stock-in-trade, trade debts, deposits
and cash & bank balances with respect of total assets. Shell current assets incr
eased in 2008 due to increase in stock-in-trade, trade debts, deposits & other r
eceivables and cash & bank balances.
Fixed Assets:
The common size statement of PSO & Shell reflects the following position of fixe
d assets during three years under review: -
PSO Shell
Years 2008 2007 2006 2008 2007 2006
% age 8.84 16.36 17.17 23.81 31.39 27.883
Above percentage deposit that the investment in fixed assets decreased from year
2006 to year 2008 by PSO and increased in year 2007 & decreased in year 2008 by
Shell.
PSO fixed assets decreased in 2007 due to decrease in long term investments, int
angible assets. In 2008 fixed assets dropped significantly with respect of total
assets due to decrease in long term investments, long term loans & advances and
property & plant. Shell fixed assets increased in 2007 with respect of total as
sets due to increase in property plant & equipments, long term investments, long
term loan & advances. In 2008 fixed assets decreased significantly in respect o
f total assets because current assets increased excessively.
The percentage of current liabilities of PSO & Shell to total liabilities and ow
ner equity for the following years as under: -
PSO Shell
Years 2008 2007 2006 2008 2007 2006
% age 73.74 68.76 67.06 58.76 67.14 63.547
The above percentage depict that the proportion of the current liabilities incre
ased year by year under study in PSO. Since the current assets are greater than
the current liabilities. It means that the PSO is not depending upon financing t
hrough long term loans. While the proportion of the current liabilities increase
d in year 2007 and decreased in year 2008 in Shell. Since the current assets are
also increased and decreased the same way.
PSO current liabilities increased throughout the period under study due to incre
ase in trade & other payables. Shell current liabilities increased in 2007 and d
ecreased in 2008. Current liabilities increasing factor in 2007 are increases sh
ort borrowings and decreasing factor in 2008 are decrease in short term borrowin
gs.
Long Term Liabilities: -
Following are the percentage of the long term liabilities of PSO & Shell to tota
l liabilities and owner equity: -
PSO Shell
Years 2008 2007 2006 2008 2007 2006
% age 1.90 3.23 3.28 6.92 0.48 0.552
In the year 2006 the percentage is 3.28% and in 2008 it is 1.90% of PSO with res
pect total liabilities and Equity. In this period the percentage of Long term li
abilities has been decreased gradually. And the percentage of long-term liabilit
ies in year 2006 is 0.552 % decreased in year 2007 and increased in year 2008 of
Shell. It shows that Shell become leverage.
Long term liabilities of PSO decreased over the period under study. Long term li
abilities decreases with respect of total liabilities without significant change
in each component of long term debt. Shell long term liabilities in 2006 & 2007
shows stable picture with respect of total liabilities however long term liabil
ities increased in 2008. This increase contributing factor is long term loan obt
ained in this year.
Total Owner Equity: -
The percentage of total owner equity of PSO & Shell for the following years as u
nder:
PSO Shell
Years 2008 2007 2006 2008 2007 2006
% age 24.36 28.02 29.66 34.32 32.39 35.901
In the year 2006 the percentage is 29.66% and in 2008 it is 24.36% of PSO with r
espect total liabilities and Equity. In this period the percentage of Equity has
been decreased gradually. And the percentage of Equity in year 2006 is 35.901 %
decreased in year 2007 and increased in year 2008 of Shell.
Owner’s equity in PSO decreased over the period under study with respect of total
liabilities. Shell owner’s equity decreased in 2007 due to the decrease in equity
portion unappropriated profit and increase in 2008 and increase in unappropriate
d profit portion of equity.
Income Statement Pakistan State Oil Shell Pakistan Ltd.
For the year ended 30 Jun, 08, 07, 06 %age 08 %age 07 %age 06 %age 08 %age 07
%age 06
Sales -- -- --
Non-fuel retail -- -- --
-Sales -- -- --
-Others -- -- --
Other Income -- -- --
-- -- --
Less: Sales Tax -- -- --
Net revenue/Sales 100.00 100.00 100.00 100.00 100.00 100.00
Less: Cost of Goods Sold 93.94 96.49 94.23 89.166 94.454 91.505
Gross Profit 6.06 3.51 5.77 10.834 5.546 8.495
Other Operating Income 0.28 0.37 0.47 0.219 0.187 0.138
Operating Expenses:
Transportation Costs 0.07 0.11 0.12 -- -- --
Selling and Distribution Expenses 0.66 0.79 0.84 2.110 2.926
0.844
Administrative Expenses 0.23 0.28 0.31 1.508 1.770 3.247
Depreciation 0.23 0.31 0.35 -- -- --
Amortization 0.01 0.01 0.01 -- -- --
Other Operating Expenses 0.68 0.22 0.75 1.370 0.023 0.280
Total Operating Expenses: 1.87 1.72 2.38 4.988 4.719 4.371
Other Income 0.06 0.12 0.00 -- -- --
Operating Profit (EBIT) 4.53 2.27 3.86 6.065 1.014 4.262
Finance Cost 0.28 0.33 0.30 0.694 0.791 0.339
Subtotal 4.26 1.94 3.56 5.371 0.223 3.922
Share of profit of associates- net of tax 0.06 0.09 0.35 0.152
0.106 0.000
Profit Before Tax 4.32 2.04 3.91 5.523 0.329 3.922
Taxation 1.48 0.70 1.38 1.849 -0.285 1.272
PROFIT after Tax 2.84 1.34 2.52 3.673 0.614 2.651
Operating Expenses: -
The operating expenses of PSO & Shell for three years are as under: -
PSO Shell
Years 2008 2007 2006 2008 2007 2006
% age 1.87 1.72 2.38 4.988 4.719 4.371
As the increasing trend of operating expenses common size %age is showing gradua
lly increased trend in year 2008 of Shell which shows that is unfavorable situat
ion because the percentage is greater in the preceding periods. While the decrea
sing trend of operating expenses in common size %age is showing gradually decrea
sed from year 2006 to year 2008 of PSO that is favorable situation.
In PSO operating expenses decreased in 2007 with respect of total sales due to d
ecrease in other operating expenses and increased in 2008 with respect of total
sales especially increase in selling & distribution expenses, administrative exp
enses, depreciation and other expenses. Shell operating expenses increased over
the period under study. Operating expense increasing factors are selling & distr
ibution expenses in 2007 and other operating expenses in 2008.
Gross Profit: -
The gross profit common size percentage for three years is as under: -
PSO Shell
Years 2008 2007 2006 2008 2007 2006
% age 6.06 3.51 5.77 10.834 5.546 8.495
The gross profit of PSO decreased in year 2007 oil market crises and increased i
n year 2008 due to low operating expenses and low Cost of Goods Sold. And this t
rend is shown in Shell that gross profit in year 2007 decreased oil market crise
s and increased in year 2008 due to low Cost of Goods Sold.
In PSO gross profit with respect of sales decreased in 2007 due to the increase
of cost of goods sold and increased in 2008 due to the decrease in cost of goods
sold with respect of sales. In Shell gross profit margin look above the PSO gro
ss profit margin over the period under study. This good look base on the inclusi
on of other income in sales and some direct expenses excluded from cost of goods
sold. However gross profit margin decreased in 2007 due to increase in cost of
goods of goods sold with respect of sales and increased in 2008 due to decrease
in cost of goods sols with respect of that year’s sales.
Net Income: -
The net income of PSO & Shell for three years is as under: -
PSO Shell
Years 2008 2007 2006 2008 2007 2006
% age 2.84 1.34 2.52 3.673 0.614 2.651
The net income common size percentage is decreased in year 2007 and increased in
year 2008 of PSO. This shows that net income is satisfactory in relation to net
sales. And the net income common size percentage of Shell decreased in year 200
7 that shows worse position. And in year 2008 the position is increased net inco
me.
Net income of PSO decreased in 2007 due to lower gross profit margin and increas
e in finance cost. In 2008 company net income increased due to decrease in trans
portation cost, selling & distribution cost, administrative expenses, depreciati
on and finance cost. Net income of Shell dramatically decreased in 2007 due to d
ecrease in gross profit margin, increase in selling & distribution expenses and
finance cost. In 2008 gross profit margin regained it position due to increased
gross profit margin and decrease in selling & distribution expenses.
2.3.3. Horizontal Analysis

PSO & Shell Pakistan
Comparative Balance Sheet
For the Period Ended June 30, 2008-07-06
Increase / Decrease in % ages
PSO Shell
% of Increase or Decrease
2008 over 2007 2007 over 2006 2008 over 2007 2007 over 2006
ASSETS
Non Current Assets:
Property, Plant and equipment (6.886) 7.053 3.752 14.873
Long Term Investment (9.680) (8.795) 5.916 7.381
Long term loan & advances (23.923) (0.385) (19.826) 30.750
Long term deposits & prepayment 20.004 (28.913) 81.738 0.497
Deferred Tax 1.571 (1.778)
Intangible Assets (16.409) (18.478)
Total Non Current Assets (8.121) 1.447 2.994 16.739
Current Assets:
Stores & Spares and loose tools (9.443) 2.288 (55.993) 4.923
Stock in Trade 110.946 4.947 119.498 (17.393)
Trade debts 149.300 14.869 7.105 (12.535)
Loan and advances 8.265 34.207 10.087 2.150
Deposits and short term prepayments (74.656) 13.621 48.221 (16.184)
Others receivables (0.441) 9.231 1.815 53.814
Taxation 0.000 0.000
Cash & Bank Balances 98.298 (19.834) 7.106 (16.986)
Total Current Assets 85.367 7.561 50.785 (1.353)
TOTAL ASSETS 70.076 6.511 35.783 3.692
Share Capital 0.000 0.000 0.000 25.000
Reserves 52.153 0.661 0.000 0.000
Un-appropriated profit 62.140 (10.250)
Equity 47.881 0.606 43.875 (6.460)
Liabilities against assets subject to finance lease 305.119
(92.207)
Long term Loans 8.628 3.268
Retirement and other service benefits (4.253) 5.735 38.360 40.860
Total Non Current Liabilities: (0.150) 4.936 1874.533 (10.526)
Trade & other payables 95.669 13.266 38.367 (0.217)
Provision/Current maturity of liabilities subject to finance lease 5.462
(11.420) 76.201 21.613
Short term running finances holding mark-up 497.702
(59.219)
Accrued mark-up/ interest 65.146 9.302 19.523 70.805
Short term borrowings 21.326 18.511 (77.974) 109.538
Tax payable 947.153 (96.406)
Total Current Liabilities 82.417 9.200 18.844 9.550
Total Liabilities 78.714 9.001 31.907 9.378
TOTAL LIABILITIES & EQUITY 70.076 6.511 35.783 3.692

Absolute Rupees Change
Rupees in (000)
PSO Shell
2008 over2007 2007 over 2006 2008 over2007 2007 over 2006
ASSETS
Non Current Assets:
Property, Plant and equipment (551,768.000) 527,888.000 246,855.000
851,918.000
Intangible Assets (20,710.000) (28,607.000)
Long Term Investment (289,494.000) (288,379.000) 119,248.000 138,534.
000
Long term loan & advances (150,227.000) (2,429.000) (36,198.000)
42,939.000
Long term deposits & prepayment 13,185.000 (26,808.000) 90,724.000
549.000
Long term debtors
Deferred Tax 6,300.000 (7,259.000)
Total Non Current Assets (992,714.000) 174,406.000 274,582.000
1,314,907.000
Current Assets:
Stores & Spares and loose tools (12,077.000) 2,861.000 (16,958.000)
1,421.000
Stock in Trade 32,798,012.000 1,393,422.000 9,851,469.000 (1,735,832.000)
Trade debts 20,304,762.000 1,760,448.000 325,388.000 (656,288.000)
Loan and advances 30,246.000 93,281.000 4,309.000 899.000
Deposits and short term prepayments (1,182,480.000) 189,882.000 67,625.0
00 (27,078.000)
Others receivables (69,408.000) 1,331,109.000 108,348.000 2,088,96
8.000
Taxation 219,715.000
Cash & Bank Balances 1,496,364.000 (376,618.000) 57,884.000 (166,667
.000)
Total Current Assets 53,365,419.000 4,394,385.000 10,178,350.000 (274,862
.000)
TOTAL ASSETS 52,372,705.000 4,568,791.000 10,452,932.000 1,040,045.000
Share Capital 0.000 0.000 0.000 109,581.000
Reserves 10,025,837.000 126,158.000 0.000 0.000
Un-appropriated profit 4,150,867.000 (762,917.000)
Equity 10,025,837.000 126,158.000 4,150,867.000 (653,336.000)
Deferred Taxation-net 51,574.000 (50,059.000)
Liabilities against assets subject to finance lease 1,669.00
0 (6,472.000)
Long term Loans 66,290.000 24,314.000 2,500,000.000
Retirement and other service benefits (69,915.000) 89,170.000 53,126.0
00 40,174.000
Total Non Current Liabilities: (3,625.000) 113,484.000 2,606,369.000
(16,357.000)
Trade & other payables 39,636,490.000 4,852,463.000 4,570,512.000 (25,874.
000)
Provision/Current maturity of liabilities subject to finance lease 37,604.0
00 (88,764.000) 24,539.000 5,723.000
Short term running finances holding mark-up 3,612,503.000
(1,054,024.000)
Accrued mark-up/ interest 85,967.000 11,230.000 25,688.000
54,545.000
Short term borrowings 1,933,127.000 1,415,862.000 (5,310,000.000) 3,560,00
0.000
Tax payable 657,305.000 (1,861,642.000) 772,454.000
Total Current Liabilities 42,350,493.000 4,329,149.000 3,695,696.000
1,709,738.000
Total Liabilities 42,346,868.000 4,442,633.000 6,302,065.000 1,693,38
1.000
TOTAL LIABILITIES & EQUITY 52,372,705.000 4,568,791.000 10,452,932.000

1,040,045.000
Comparative Balance Sheet Interpretation

% age Increase / (Decrease) and Absolute Increase / (Decrease):
Current Assets and Current Liabilities: -
%age change PSO Shell
Years 2008 over 2007 2007 over
2006 2008 over 2007 2007 over
2006
Net W. Capital 98.99 0.59 1508.49 (82.20)
Absolute Rs. change PSO Shell
2006 2008 over 2007 2007 over
2006
Total Current Assets 53,365,419 4,394,385 10,178,350 (274,862
Total Current Liabilities 42,350,493 4,329,149 3,695,696
1,709,738
The under line situation represents comparative Balance Sheet for the financial
years 2006 to 2008 and increase (decrease) in each item as well as its correspon
ding %age values. Through comparing current assets year by year in percentage te
rm 2008 increased near about 85% and 50.79% and in 2007 increased 7.56% and decr
ease (1.35%) from 2006 in PSO and Shell respectively.
PSO current assets increased in 2008 from 2007 due to the excessive increase in
stock-in-trade, trade debts and cash & bank balances. In 2007 current stock incr
eased from 2006 due to increase in stock-in-trade, trade debts, loans & advances
and deposits & short term prepayments. Shell current assets decreased in 2007 e
venly in negative amount compare to 2006 very huge decrease in stock-in-trade, t
rade debts, deposits & short term prepayments and cash & bank balances. In 2008
current stock increased compare to 2007 very significant increase in stock-in-tr
ade and deposits & short term prepayments.
PSO and Shell Current liabilities increased 82.42% and 18.844% in year 2008 and
9.20% and 9.550% increased in year 2007 respectively.
PSO current liabilities increased in 2007 compare to 2006 due to increase in tra
de and other payables accrued markup and short term borrowings. However current
liabilities increased significantly in 2008 with respect to 2007. In increase co
ntributing factors are trade & other payables, accrued markup/interest and tax p
ayable. Shell current liabilities increased in 2007 and 2008 with respect of eac
h proceeding years. In increase contributing factors are accrued markup and shor
t term borrowings. In 2008 increasing factors are increases in trade and other p
ayables, finance lease, short term running finance.
Through comparing current assets year by year in absolute rupees term 2008 incre
ased near about 53,365,419 and 10,178,350 and in 2007 increased 4,394,385 and de
crease (274,862) from 2006 in PSO and Shell respectively.
PSO current assets increased in 2007 compare to 2006 due to increase in stock-in
-trade, trade debts, deposits & short term prepayments and other receivables. In
2008 current assets increased significantly, increase in stock-in-trade, trade
debts and cash & bank balances. Shell current assets decreased in 2007 with resp
ect to 2006 due to decrease in stock-in-trade, trade debts, deposits & short ter
m prepayments and cash & bank balances. In 2008 current assets increased signifi
cantly with respect to 2007 due to increase in stock-in-trade, trade debts, depo
sits & short term prepayments, other receivables and cash & bank balances.
PSO and Shell Current liabilities increased 42,350,493 and 3,695,696 in year 200
8 and 4,329,149 and 1,709,738 increased in year 2007 respectively.
Current liabilities of PSO increased in 2007, increase in trade & other payables
, accrued markup and short term borrowings. Significant increased in 2008 compar
e to 2007, significant increase in trade & other payables and short term borrowi
ngs. Current liabilities of SHELL increased in 2007 compare to 2006, increase in
short term borrowings. In 2008 compare to 2007 current liabilities increased du
e to increase in trade & other payables and t term running finance.
Current financial position of the PSO is satisfactory as reflected by the relati
onship between the current assets and current liabilities. And this position of
SHELL is also satisfactory. The relation reflects that both of the items have be
en increased during the last three years period. Such position represents effici
ency of the management because the current assets are more than the current liab
ilities at the end of the year 2008.
Through comparing net working capital year by year in percentage term 2008 incre
ased near about 98.99% and 1508.49% and in 2007 increased 0.59% and decrease (82
.2%) from 2006 in PSO and SHELL respectively.
PSO net working capital increasing factors are increase in stock-in-trade, trade
debts and other receivables in 2008. In 2007 insignificant increased in net wor
king capital compare to 2006. SHELL net working capital goes down in 2007 evenly
negatively compare to 2006 and base year 2007 is very small compare to 2008 and
this show misleading result of %age change for that year.

Trend % ages (taking 2006 as base year)
PSO Shell
Jun 08 Jun 07 Jun 08 Jun 07
ASSETS
Non Current Assets:
Property, Plant and equipment (0.319) 7.05 19.182 14.873
Intangible Assets (31.86) (18.48)
Long Term Investment (17.62) (8.80) 13.734 7.381
Long term loans & advances (24.22) (0.39) 4.827 30.750
Long term deposits & prepayment (14.69) (28.92) 82.641 0.497
Long term debtors
Deferred Tax (0.24) (1.78)
Total Non Current Assets (6.79) 1.45 20.235 16.739
Current Assets:
Stores & Spares and loose tools (7.37) 2.29 (53.826) 4.923
Stock in Trade 121.38 4.95 81.320 (17.393)
Trade debts 186.37 14.87 (6.320) (12.535)
Loan and advances 45.30 34.21 12.453 2.150
Deposits and short term prepayments (71.20) 13.62 24.234 (16.184)
Others receivables 8.75 9.23 56.606 53.814
Taxation
Cash & Bank Balances 58.97 (19.83) (11.087) (16.986)
TOTAL ASSETS 81.15 6.51 40.796 3.692
Share Capital 0.000 0.000 25.000 25.000
Reserves 53.16 0.66 0.000 0.000
Un-appropriated profit 45.520 (10.250)
Equity 48.78 0.61 34.581 (6.460)
Deferred Taxation-net 3.026
Liabilities against assets subject to finance lease 21.18 3.27 (68.429)
(92.207)
Long term Loans
Retirement and other service benefits 1.24 5.74 94.894 40.860
Total Non Current Liabilities: 4.78 4.94 1,666.696 (10.526)
Trade & other payables 121.63 13.27 38.067 (0.217)
Provision/Current maturity of liabilities subject to finance lease (6.58)
(11.42) 114.282 21.613
Short term running finances holding mark-up 143.746
(59.219)
Accrued mark-up/ interest 80.51 9.30 104.151 70.805
Short term borrowings 43.78 18.51 (53.846) 109.538
Tax payable (62.37) (96.41) (7.004)
Total Liabilities 94.80 9.00 44.277 9.378
TOTAL LIABILITIES & EQUITY 81.15 6.51 40.796 3.692
Interpretation of Trend Percentages in Balance Sheet:
Current Assets:
The examination and review of comparative balance sheet in respect of current as
sets display an upward trend. The current assets increased as compared to the ba
se year 2006, during the period under analysis, which shows the expansion of the
business of PSO. SHELL current assets depict downward trend for FYR 2007 and up
ward trend for FYR 2008 respect base FYR 2006.
PSO current Assets increased, increase in all current assets excluding cash and
cash equivalents for the FYR 2007. In 2008 Current Assets increased significantl
y, significant increase in all current assets excluding Store & Spares and Depos
its & Short Term prepayments. SHELL current assets shows downward trend for FYR
2007, decrease in stock-in-trade, trade debts, deposits & short term prepayments
and cash and cash equivalents. In FYR 2008 current asset reveal upward trend, t
his upward trend due to the increase in stock-in-trade, deposits & short term pr
epayments and other receivable compare the base FYR 2006.
Non Current Assets:
The trend percentage of fixed assets is insignificant upward trend in 2007 as co
mpared to the base year 2006. However, downward trend have occurred in year 2008
of PSO. And this trend percentage of fixed asset depict significant upward tren
d from base year 2006 to 2008 of Shell.
This upward trend, cause increase in property, equipment and plant assets for FY
R 2007 and downward trend cause decrease in all fixed assets in the FYR 2008 wit
h respect FYR 2006 base year in PSO. SHELL fixed assets upward trend due to the
increase in all fixed assets through out the period under study compare to the b
ase FYR 2006.
The careful study of the current liabilities indicates that it has upward trend
as compared to the base year 2006 in 2007 but significant upward trend in year 2
008 of PSO. And this upward trend as compared to the base year 2006 in years 200
7 but significant increase in year 2008 of Shell. The trend percentage is as und
er: -
PSO Shell
Years 2008 2007 2008 2007
% age 99.20 9.20 30.194 9.550
This upward trend is due to the increase in trade & other payable, Accrued mark-
up/ interest and short term borrowings in FYR 2007 and 2008 for PSO. This upwar
d trend is due to the increase in current portion of lease liability, Accrued ma
rk-up/ interest and short term borrowings in FYR 2007 and 2008 for SHELL.
The careful study of the non current liabilities indicates that upward trend occ
urred as compared to the base year 2006 in 2007-08 of PSO. And downward trend as
compared to the base year 2006 in years 2007 but significant upward trend due t
o the availing long-term loans in year 2008 and small base amount in base FYR200
6 of Shell. The trend percentage is as under: -
PSO Shell
Years 2008 2007 2008 2007
% age 4.78
4.94 1,666.696 (10.526)
This upward trend due to the increase in all non-current liabilities in FYR 2007
-08 from the base year 2006 for the PSO. SHELL non current liabilities downward
trend in FYR 2007 due to the decrease in lease liability compare to the base FYR
2006. In 2008 upward trend, increase in long term loan and Retirement and other
service benefits with compare the base FYR 2006.
Owner’s Equity:
The owner’s equity indicates upward trend occurred as compared to the base year 20
06 in 2007-08 of PSO. And this trend decreased as compared to the base year 2006
in years 2007 but significant increased in year 2008 of Shell. The trend percen
tage is as under: -
PSO Shell
Years 2008 2007 2008 2007
% age 48.78 0.61 34.581 (6.460)
Reserve portion of equity is responsible of this upward trend for PSO in both FY
R 2007-08 with respect to base FYR 2006. Un-appropriated profit portion of equit
y decline in FYR 2007, declining the trend; increase in capital stock and un-app
ropriated profit portions of equity responsible of the upward trend in FYR 2008
for SHELL.
Comparative Income Statement (Rs 000)
Increase / Decrease in % ages
PSO Shell
% of Increase or Decrease
Sales 21.130 (2.041)
Non-fuel retail
-Sales (15.323) 13.351
-Others 12.820 (8.356)
Other Income (23.724) 8.222
20.936 (1.995)
Less: Sales Tax 16.390 (2.755)
Net revenue/Sales 41.627 17.253 21.556 (1.891)
Less: Cost of Goods Sold 37.875 20.070 14.751 1.271
Gross Profit 144.902 (28.754) 137.446 (35.948)
Other Operating Income 9.195 (8.231) 42.323 33.274
Operating Expenses:
Transportation Costs (8.513) 0.966
Selling and Distribution Expenses 18.023 10.970 (12.361) 240.309
Administrative Expenses 18.209 4.954 3.570 (46.518)
Other Operating Expenses 343.855 (66.051) 7,186.424
(91.992)
Depreciation 1.910 4.902
Amortization 13.795 17.868
Total Operating Expenses: 54.387 (15.331) 28.473 5.929
Other Income (26.018)
Operating Profit (EBIT) 182.410 (30.867) 627.137 (76.660)
Finance Cost 18.114 30.985 6.632 128.618
210.426 (36.019) 2,828.461 (94.424)
Share of profit of associates- net of tax (10.895) (68.207)
73.618
Profit Before Tax 200.161 (38.889) 1,939.241 (91.766)
Taxation 201.113 (41.101) (121.993)
PROFIT after Tax 199.667 (37.675) 626.955 (77.267)
Absolute Rupees Change
Rupees in (000)
PSO Shell
Sales 27,496,647.000 (2,710,616.000)
Non-fuel retail
-Sales (21,700.000) 16,680.000
-Others 2,296.000 (1,633.000)
Other Income (106,168.000) 34,000.000
27,371,075.000 (2,661,569.000)
Less: Sales Tax 2,571,820.000 (444,484.000)
Net revenue 145,572,207.000 51,456,287.000 24,799,255.000 (2,217,0
85.000)
Less: Cost of Goods Sold 127,808,011.000 56,404,083.000 16,029,5
39.000 1,363,861.000
Gross Profit 17,764,196.000 (4,947,796.000) 8,769,716.000 (3,580,946.000)
Other Operating Income 117,595.000 (114,709.000) 91,131.000 53,758.0
00
Operating Expenses:
Transportation Costs (31,442.000) 3,533.000
Selling and Distribution Expenses 498,535.000 273,431.000 (416,133
.000) 2,377,292.000
Administrative Expenses 178,804.000 46,348.000 72,715.000 (1,771,3
58.000)
Other Operating Expenses 2,597,549.000 (1,469,721.000) 1,889,311.000
(302,024.000)
Depreciation 20,980.000 51,318.000
Amortization 5,781.000 6,353.000
Total Operating Expenses: 3,270,207.000 (1,088,738.000) 1,545,893.000
303,910.000
Other Income (110,378.000) 424,238.000
Operating Profit (EBIT) 14,501,206.000 (3,549,529.000) 7,314,954.000 (3,831,0
98.000)
Finance Cost 209,786.000 273,959.000 60,348.000 511,910.000
14,291,420.000 (3,823,488.000) 7,254,606.000 (4,343,008.000)
Share of profit of associates- net of tax (35,988.000) (708,633.000)
89,998.000
Profit Before Tax 14,255,432.000 (4,532,121.000) 7,344,604.000 (4,220,7
58.000)
Taxation 4,891,435.000 (1,697,218.000) 2,914,169.000 (1,818,948.000)
PROFIT after Tax 9,363,997.000 (2,834,903.000) 4,430,435.000 (2,401,8
10.000)
Comparative Income Statement Interpretation
Absolute Increase / (Decrease) and %age Increase / (Decrease):
%age change PSO Shell
2006 2008 over 2007 2007 over
2006
Total Operating Expenses 54.387 (15.331) 28.473 5.929
Finance Cost 18.114 30.985 6.632 128.618
Absolute Rs. change PSO Shell
2006 2008 over 2007 2007 over
2006
Net revenue 145,572,207 51,456,287 24,799,255 (2,217,085)
Total Operating Expenses 3,270,207 (1,088,738) 1,545,893
303,910
Finance Cost 209,786 273,959 60,348 511,910
The under line situation represents comparative Income Statement for the financi
al years 2006 to 2008 and increase (decrease) in each item as well as its corres
ponding %age values.
Net Revenue position of the PSO is satisfactory. And Net Revenue position of She
ll is satisfactory in year 2008 but show adverse picture in year 2007 compare to
year 2006. The information concerning the operating expenses for the period con
cerned disclosed an unfavorable state of information for the year 2008 for both
the organizations. However, in year 2007 Operating Expenses reveal favorable sta
te of information.
The financial charges decreased throughout the period expect in year 2007, conse
quently the net income before and after taxes disclosed negative figure of negat
ive value of year 2007 which highlights the unfavorable performance by the top m
anagement of PSO & Shell. But in year 2008 the performance is favorable in both
the companies.
Trend % ages
Taking 2006 as Base Year
PSO Shell
2008 2007 2008 2007
Sales 18.658 (2.041)
Non-fuel retail
-Sales (4.018) 13.351
-Others 3.393 (8.356)
Other Income (17.452) 8.222
18.523 (1.995)
Less: Sales Tax 13.184 (2.755)
Less: Cost of Goods Sold 65.546 20.070 16.210 1.271
Gross Profit 74.483 (28.754) 52.089 (35.948)
Other Operating Income 0.207 (8.231) 89.679 33.274
Operating Expenses:
Transportation Costs (7.630) 0.966
Selling and Distribution Expenses 30.970 10.970 198.244 240.309
Administrative Expenses 24.065 4.954 (44.608) (46.518)
Depreciation 6.906 4.902
Amortization 34.127 17.868
Other Operating Expenses 50.686 (66.051) 483.466 (91.992)
Total Operating Expenses: 30.718 (15.331) 36.090 5.929
Operating Profit (EBIT) 95.238 (30.867) 69.712 (76.660)
Finance Cost 54.713 30.985 143.780 128.618
98.613 (36.019) 63.303 (94.424)
Share of profit of associates- net of tax (71.671) (68.207)
Profit Before Tax 83.433 (38.889) 67.917 (91.766)
Taxation 77.353 (41.101) 73.454 (121.993)
PROFIT after Tax 86.769 (37.675) 65.261 (77.267)
Interpretation of Trend Percentages:

On the bases of trend percentage computed for PSO & Shell for the comparative ye
ar 2006-08 in relation to 2006. The trend percentage of PSO & Shell for year 200
6-08 indicates in-efficient operating performance for year 2007 and efficient pe
rformance for year 2008.
Gross profit downward trend in year 2007 and upward trend in year 2008 of the bo
th organizations.
Gross profit downward trend in FYR 2007 due to the increase in Cost of Goods Sol
d and upward trend in FYR 2008 due to the increase in sales from base FYR 2006 f
or PSO. Shell gross profit margin show declining trend even negative trend for t
he FYR 2007 due to decrease in sales and increase in Cost of Goods Sold with res
pect of base FYR 2006. In FYR 2008 upward trend, increase in sales with respect
of base FYR 2006.
The operating expenses are also representing downward trend in year 2007 and upw
ard trend in year 2008 of PSO. However, upward trend exists in Shell for both ye
ars.
Downward trend for PSO in FYR 2007 due to the decrease in other operating expens
es and upward trend in FYR 2008 due to the increase in all expenses except the s
elling expenses with respect of base FYR 2006. Upward trend for SHELL in both ye
ars, increase in selling and distribution expenses compare to the base year 2006
.
Operating income trend is downward in year 2007 and upward in year 2008 of the e
ach company. Operating income downward trend for PSO in 2007, decreased gross pr
ofit margin and increased operating expenses and upward trend in FYR 2008, incre
ased Gross profit margin, increase other operating income and decrease in transp
ortation cost with respect of base FYR 2006. Operating income downward trend for
SHELL in 2007, decreased gross profit margin and increased operating expenses a
nd upward trend in FYR 2008, increased Gross profit margin, increase other opera
ting income and decrease in administrative expenses with respect of base FYR 200
6.
2.4. Summary:
PSO & SHELL have positive trend in current ratio. FYR06 and FYR08 current ratios
are same as FYR07 current ratio is comparatively low for PSO. SHELL current rat
io improved in 2008 and comparatively low in 2007 & 2006. As horizontal analysis
shows that current assets of FYR08 are 99%, 49% and FYR07 08%, (1.35%) while FY
R06 100% keeping as base year for PSO & SHELL respectively. While current liabil
ities of FYR08 99%, 30%, FYR07 09%, 10% with FYR06 100% as base year for PSO & S
HELL respectively. Companies invest their huge funds in current assets and maxim
um use of current liabilities for operation. This shows that current assets and
current liabilities for consecutive three years are increasing for both companie
s.
Vertical analysis shows that current asset is increasing FYR08 91%, 76%, FYR07 8
4%, 69% and FYR06 83%, 72% for PSO & SHELL respectively as compare to total asse
ts 100% for consecutive three years. While current liabilities for FYR08 74%, 59
%, FYR07 69%, 67% FYR06 67%, 64% for PSO & SHELL respectively. This shows that c
ompanies are encouraging the level of current assets as well as current liabilit
ies. As compare to industry average current ratio of PSO is low. In 2008 PSO & S
HELL current ratio is 1.24, 1.30 while industry average is 1.4. PSO has liquidit
y problem as compare to industry average. The companies have less capacity to pa
y their short term debts. In 2008 current ratio for PSO & SHELL 1.24, 1.30 respe
ctively as compare to 2007 it is increased. Trade & other payable and short term
borrowing are increased. Now in 2008 both companies are improving their liquidi
ty. As current financial cries in the world as well as in Pakistan almost every
company has a liquidity problem. So that PSO & SHELL are improving their liquidi
ty position.
Quick ratios of PSO & SHELL are in 2008 0.57, 0.51 in 2007 0.63, 0.58 and in 200
6 0.63, 0.56 respectively. In 2008 quick ratios are comparatively low. With the
comparison of current ratios in 2008, 2007 and 2006 both companies can pay off t
heir short term liabilities. Here the quick ratios those are less than current l
iabilities. Quick assets are not enough for the payment of current liabilities.
Because the major inventory level is for 2008 49%, 46%, for 2007 40%, 28% and fo
r 2006 40%, 35% of total assets for both companies PSO & SHELL respectively. The
companies are improving their inventory level.
Inventory turn over ratio is in FYR08 10.12, 9.47, in FYR07 11.69, 11.93 and in
FYR06 10.00, 10.75 for both companies PSO & SHELL respectively. The ratio is dec
reasing. As compare to 2007 and 2008 inventory turnover ratio is not better for
both companies. It takes 36, 39 days in 2008 to convert inventory into sale whil
e 31, 31 in 2007 for both companies PSO & SHELL respectively. The horizontal ana
lysis shows that stock-in-trade increased 121%, 81% in 2008 as compare to 2006 1
00% as base year for both companies PSO & SHELL respectively. But sale is increa
sed only 66%, 19% for both companies PSO & SHELL respectively as compare to the
sale of 2006 100% as base year. This is the reason that stock is turning slow as
compare to previous year. Due to shortage and fluctuation of oil price in FYR 2
007 and FYR 2008 the companies stock more and more but ultimate decrease oil pri
ce in world market. Their sales were not as much as their stocks as compare to i
ndustry average 20.56 inventory turnovers in days in FYR 2008, PSO & SHELL have
low turnover ratio. PSO has 71% market share while SHELL has 22% market share so
they have to maintain their high inventory. This takes more time to convert the
ir inventories into cash. PSO & SHELL have to improve their inventory management
.
Account receivable turnover is in FYR 2008 10.78, 39.49, in FYR 2007 12.12, 23.4
4 and in FYR 2006 10.59, 22.40 for both companies PSO & SHELL respectively. In 2
008 it took 34 days for PSO & 12 days for SHELL for the receive cash against cre
dit sales.
Account payable turnover ratio is decreasing year by year for both PSO & SHELL.
It was FYR 2008 7.60, 8.78, in FYR 2007 8.65, 9.11 and in FYR 2006 7.68, 8.99 ti
mes for both companies PSO & SHELL respectively. Companies are taking more time
to pay their account payables. In comparison with industry average that is 10.61
times. In creditors point of view companies have to improve their account payab
le turnover. So that creditor may satisfy against their credit.
Fixed asset turnover are improving year by year for both companies however signi
ficant improvement for PSO. The reason is that companies’ sales are improving year
to year but the fixed asset like property, plant and equipment is decreased 7%
for PSO while increased 3.75% for SHELL in 2008 as compare to 2007. Fixed asset
is not increasing for PSO while increasing for SHELL. SHELL activity ratios depi
ct better-quality position compare to the PSO.
The profitability overall measures the effectiveness of the management. It is a
necessity over the longer run for a company. FYR08 has seen a marginal increase
in the profit margins for both companies PSO & SHELL. The Net profit of the comp
anies showed a negative trend from 2006 to 2007 however in the year 2008, PSO &
SHELL went into the upward trend. Overall profitability ratio is comparatively h
igh than the industry average.
The year 2008 was a good for the PSO & SHELL there was an increase in the profit
ability as there was GP margin was 06%, 10.83% and net profit margin was 2.84%,
3.67% that was increased 87%, 65% from base year 2006 and ROA 17.66%, 21.38% & R
OE 45.39%, 44.53% respectively. The year 2007 was a year of decrease in profitab
ility ratios in this GP was 3.51%, 5.55% and net profit margin was just 1.34%, 0
.61% and ROA 10.64%, 3.99% & ROE 22.40%, 7.22% for the PSO & SHELL respectively,
these were less than from the previous year. In 2006 the net gross margin is 6%
, 7% whereas net profit margin is 2.52%, 2.33% for PSO & SHELL respectively. ROA
is 16%, 18% due to 31%, 77% decrease in the EBIT and ROE was 36%, 31% in 2006 w
as increase in the trend for PSO & SHELL respectively. SHELL profitability ratio
s outperform PSO in 2006 and 2008 and stable indicators for PSO. 2007 is the PSO
year compare to the SHELL. Net income of both organizations is present favorabl
e picture for all periods except 2007.
In 2008 debt ratio increased to 76%, 66% from 2006 70%, 64% and time interest ex
pense almost doubled for PSO & SHELL respectively. In 2008 PSO & SHELL show more
leverage. The PSO & SHELL have more capacity to pay interest expenses from EBIT
that is more than industry average. In 2007 debt ratio increased to 72%, 68% fr
om 2006 70%, 64% and time interest expense almost doubled for PSO & SHELL respec
tively. In 2007 also PSO & SHELL are more leverage. The PSO & SHELL have more ca
pacity to pay interest expenses from EBIT.
Marketing ratios present variation from year to year. This variation is signific
ant for SHELL and less variation for PSO. Book value of SHELL shows low variatio
n in 2006 and 2008 and significant variation in 2007 for SHELL. PSO book value s
hows variance for 2008 and insignificant variance in 2006 and 2007. However mark
eting ratios show better confidence of investors.
PSO operating cash flow with respect per share depict stable picture for the per
iod under study and very significant variations for SHELL over the period under
study. Owner’s equity of PSO decreased over the period under study and same trend
presents SHELL position with respect of owner’s equity. PSO became more efficient
in operating expenses however SHELL operating expenses increased over the period
under study with respect of sales.
Taking base year 2006 PSO fixed assets show upward trend in 2007 and downward tr
end for 2008, current assets, share holder’s equity, non-current liabilities and c
urrent liabilities show upward trend for both years. Taking base year 2006 SHELL
fixed assets and current liabilities show upward trend. Current assets, owner’s e
quity and non-current liabilities show downward trend for 2007 and upward trend
for 2008.
Chapter 3
Conclusion, Recommendations & Limitations:
3.1. Findings/Conclusion:
# Area Findings (PSO)
2008 2007 2006
A Balance Sheet • Fixed Assets decreased
• Current assets increased
• Equity increased
• Non-current liabilities decreased
• Current liabilities increased • Fixed Assets increased
• Non-current liabilities increased
• Current liabilities increased
1 Fixed Assets • Operating Assets increased RS.1,174,195
• Gain on sale of assets Rs.31,244
• Capital work-in-process account significantly decreased.
• Long term loans and advances decrease, current portion shown in current liabilit
ies section
• Long term deposits increased
• Operating Assets increased Rs.1,203,437
• Capital work-in-process account increased
• Long term investment decreased, decrease in current profits of associates and co
nsiderable amount received on the account of dividend.
• Long term deposits decreased • Operating Assets increased Rs.1,405,878
• Long term investment increased, increase in current profits of associates.
• Long term deposits decreased
2 Current Assets • Considerable mount of stock-in-trade in transit and with
other companies system
• Trade debts increased excessively especially unsecured trade debts are matter
• Deposits especially duty and development surcharge dropped significantly
• Other receivables decreased and carry considerable doubtful amounts. However, su
fficient provisions for these also created.
• Cash and bank balances increased. • Stock-in-trade considerable portion
ist of stock-in-transit and other companies system.
• Trade debts increased especially unsecured trade debts are matter.
• Deposits and prepayments increased.
• Other receivables increased and carry considerable doubtful amounts. However, su
• Cash and bank balances decreased. • Stock-in-trade considerable portion
ist of stock-in-transit and other companies system.
• Trade debts increased especially unsecured trade debts are matter.
• Deposits and prepayments increased.
• Other receivables increased and carry considerable doubtful amounts. However, su
• Cash and bank balances decreased.
3 Owner’s Equity • Paid-up-Capital constant
• General and un-appropriated portion of reserve increased.
• Paid-up-Capital constant
• General and un-realized gain on the account of revaluation portion of reserve in
creased. • Paid-up-Capital constant
• General, un-appropriated profit and un-realized gain on the account of revaluati
on portion of reserve increased.
4 Non-current liabilities
• Long-Term Deposits increased.
• Retirements and other benefits decreased. • Retirements and other benef
ncreased. • Long-Term Deposits increased.
• Retirements and other benefits increased.
5 Current Liabilities • Foreign trade payable increased excessively.
• Advances from customer decreased.
• Finances under mark-up arrangements increased.
• Mark-up rates also increased. • Foreign trade payable decreased.
• Advances from customer increased.
• Short term finances increased.
• Mark-up rates increased. • Foreign trade payable increased.
• Advances from customer increased.
• Finances under mark-up arrangements increased.
• Mark-up rates increased.
6 Liquidity Ratios • Current ratios look satisfactory however huge am
ount of current liabilities due to foreign parties, this may not good
• Quick ratio show worse position
• Company rely on finances under markup arrangements
• Company can repay its current obligations • Current ratios look satisfa
• Quick ratios show worse position however spontaneous liabilities a favorable ind
icator for company
• Company rely on short term finances for its operations
• Company is able to repay its obligations • Current ratios look satisfa
• Quick ratios show worse position however spontaneous liabilities a favorable ind
icator for company
• Company rely on finances under markup arrangements
• Here is no significant indicator present for default
B Profit & Loss Account • Bottom line figure is positive
• Sales increased
• COGS as %age of sales decreased
• Cost of transportation as %age of sales increased
• Administrative expenses %age of sales decreased
• Selling & distribution expenses as %age of sales decreased
• Finance cost as %age of sales decreased • Bottom line figure is posit
• Sales increased
• COGS as %age of sales increased
• Cost of transportation as %age of sales decreased
• Administrative expenses %age of sales increased
• Selling & distribution expenses as %age of sales increased
• Finance cost as %age of sales increased • Bottom line figure is positive
• Sales increased
• Cost of transportation as %age of sales increased
• Finance cost as %age of sales increased
1 Financial Expenses • Rs.1,367,898 • Rs.1,158,112 • Rs.
2 Sales • Rs.495,278,533 • Rs.34,970,6326 • Rs.298,250,039
3 Financial Expenses as %age of sales • 0.28 • 0.33 • 0.3
C Summary of Findings
1 Profitability • Profitability indicators are good • Profitabili
dicator is remain relatively low • Profitability indicators are good
2 Administration • Administrative expenses increased however decreased as %
age of sales • Administrative expenses decreased • Administrative expe
increased as %age of sales
3 Finance • Debt burden: Rs.11,832,506
• Finance cost: Rs.1,367,898
• Liquidity is better
• Reserve: Rs.29,249,864 • Debt burden: Rs.9,833,089
• Finance cost: Rs.1,158,112
• Reserve: Rs.19,224,027 • Debt burden: Rs.8,392,913
• Finance cost: Rs.884,153
• Reserve: Rs.19,097,869
4 Debtors • Govt. agencies and autonomous bodies increased significantly
• Over aging debtors
• Unsecured debts increased
• Management may concern
• Provision for doubtful sufficient • Govt. agencies and autonomous bodie
ecured trade debt decreased
• Due from other customers (secured increased, unsecured excessively increased)
• Provision for doubtful is sufficient • Govt. agencies and autonomous bodie
cured excessively increased, unsecured decreased)
• Due from other customer both secured & unsecured increased
• Provision for doubtful is sufficient
5 Creditors • Local trade & other payable increased
• Foreign trade payable increased explosively
• Aging detail
• Oil marketing companies & refineries payable increased • Local trade payable
eased
• Foreign trade payable decreased
• Oil marketing companies & refineries payable increased
• Considerable amount payable as cash dividend • Local trade payable increas
• Foreign trade payable increased
• Refineries payable increased
• Considerable amount is due as dividend
# Area Findings (Shell)
2008 2007 2006
A Balance Sheet • Fixed Assets decreased
• Current assets decreased
• Equity decreased
• Non-current liabilities decreased
• Current liabilities increased
1 Fixed Assets • Operating Assets added Rs.1,253,444
• Long term investment increased, increase in current profits of associates.
• Long term deposits increased • Operating Assets added Rs.1,102,961
• Capital work-in-process account significantly increased.
• Long term investment increased, increase in current profits of associates. •
Operating Assets added Rs.779,718
• Capital work-in-process increased.
• Long term deposits & prepayments increased.
2 Current Assets • Considerable mount of stock-in-trade in transit and with
other companies system
• Trade Debts increased and unsecured debts are matter
• Deposits & short term prepayments increased
• Bank & cash balances increased, however an amount of Rs.35,065 included donation
s • Stock-in-trade decreased
• Trade debts decreased however significant portion of debt fallen in unsecured ca
tegory
• Other receivables increased
• Cash & bank balances decreased this amount also carry Rs.44,260 on account of do
nation • Stock-in-trade increased however significant portion with other companie
s system
• Trade debts significant portion is built-in unsecured and increased
• Other receivables increased significantly
• Cash & bank balances increased
3 Owner’s Equity • Paid-up capital remained constant
• Unappropriated profit increased • Paid-up capital increased
• Unappropriated profit decreased • Share capital increased
• Unappropriated profit increased
4 Non-current liabilities • Long term loan increased • ------- •
5 Current Liabilities • Short term running finances increased
• Mark-up rates also increased
• Short term loan decreased
• Creditors increased significant amount is due to related parties
• Advance from customers increased
• Finance cost increased • Short term running finance decreased
• Short term loan increased
• Interest/markup increased
• Bills payables increased
• In aggregate trade & other payables decreased, significant amount is due to rela
ted parties
• Finance cost increased • Short term running finance decreased
• Short term loan increased
• Markup rate increased
• Bills payables significantly increased
• Significant amounts due to related parties
• Finance cost increased
6 Liquidity Ratios • Current ratios look satisfactory
• Quick ratio satisfactory
• The long term loan payable in 2010
• Spontaneous financing support company liquidity
• Company is able to repay its obligations • Current ratios look satisfa
• Quick ratios good
• Short term loans payable by July 2007 on various dates
• Bills payable increased
• Company rely on short term loan
• Company is able to repay its obligations sufficiently • Current ratios suff
t
• Quick ratios satisfactory
• Short term loans payable on various dates by July 2006
• Spontaneous financing support company liquidity
• Company rely on short term loans
• Company is able to repay its obligations
B Profit & Loss Account • Bottom line figure is positive
• Sales increased
• Administrative expenses %age of sales decreased
• Selling & distribution expenses as %age of sales decreased
• Finance cost as %age of sales decreased • Bottom line figure is posit
• Sales decreased
• Selling & distribution expenses as %age of sales increased excessively
• Finance cost as %age of sales increased • Bottom line figure is positive
• Sales increased
• Finance cost as %age of sales decreased
1 Financial Expenses • Rs.970,267 • Rs.909,919 • Rs.
2 Sales • Rs.158,107,960 • Rs.130,736,885 • Rs.133,398,454
3 Financial Expenses as %age of sales • 0.61 • 0.70 • 0.3
C Summary of Findings
1 Profitability • Profitability indicators are impressive • Pro
ility indicator is remain relatively low • Profitability indicators are imp
ressive
2 Administration • Administrative expenses decreased and also decreased as
%age of sales • Administrative expenses decreased and also decreased as %age of
sales • Administrative expenses increased as %age of sales
3 Finance • Debt burden: Rs.8,338,339
• Liquidity is good
• Unappropriated profit: Rs. 10,830,708 • Authorized Capital increased from R
000,000 to Rs.100,000,000
• Issued fully paid bonus sharesRs.10,958,063
• Debt burden: Rs.7,535,836
• Unappropriated profit: Rs.6,679,841 • Authorized Capital increased Rs.50,
00
• Issued fully paid bonus sharesRs.8,766,450
• Debt burden: Rs.5,029,860
• Unappropriated profit: Rs.7,442,758
4 Debtors • Secured increased excessively and unsecured debts decreased shar
ply
• Provision for doubtful sufficient • Unsecured debts decreased however c
erable amount is due to unsecured debtors
• Provision for doubtful is sufficient • Trade debts both secured & unsecure
reased
• Provision for doubtful is sufficient
5 Creditors • Trade Payable increased
• Oil marketing companies payable increased
• Bills payables decreased • Local trade payable decreased
• Oil marketing companies payable decreased • Local trade payable increas
• Oil marketing companies payable increased
We have analyzed the balance sheet and income statement of the PSO and SHELL and
noticed that gross profit margin of the recent years for both is increased and
this increase was more significant in SHELL as compared to PSO but in some cases
it was reverse we took the data for 2008 for the comparison of these two compan
ies.
• As for as the operating profit margin is concerned the SHELL has a significant i
ncrease as compared to the PSO.
• The net profit margin for SHELL was more than the PSO in the most recent year.
• The return on total assets had a significant growth in SHELL as compared to the
PSO in the most recent years.
• The operating assets turnover shows that how much assets are utilized in the ope
rations, in this case the PSO has a more significant improvement as compared to
the SHELL in the most recent year.
• The return on common equity has an increasing trend in the case of SHELL as comp
ared to the PSO.
• The return on operating assets has an increasing trend in the case of PSO as com
pared to SHELL.
• The earning per share of the PSO in the most recent year was less than that of S
HELL.
• The dividend paid by PSO to its shareholder is more than that of SHELL.
• Both organizations continue and improve environmental friendly operation.
3.2. Recommendations:
Management:
PSO management is mostly dependent on Govt. So the management of PSO should take
business decision according to their-own business environment instead of Govt d
ependent. PSO mostly is fulfilling demand of public sector requirements so the m
anagement should supply its products to those firms whose fulfill its obligation
timely fashion instead of decisions imposed by Govt. PSO mostly responsible for
import oil & oil products for meeting nations’ requirements. Payment of imported
stock is being made in foreign exchange; this expose the company to exchange rat
e risk, company management should take reasonable measurements like futures, opt
ions etc. against exchange rate risk. Proper peruse should be taken for claims r
elated losses & other impairments for better operation. Operating cycle of PSO a
lso need management attention. SHELL management may give attention to average pa
yment period. SHELL management should expand its distribution network to cope wi
th increasing oil & energy demand. SHELL management should take decision to dive
rsify its business e.g. CNG etc. Forward integration is a challenging phenomenon
in energy sector; PSO & SHELL management should take proper decision against th
e increasing bargaining power of suppliers.
Owners:
It consists of promoters, common stock holders and preferred stock holders. Thei
r basic aim is to increase their wealth, which they have invested in the busines
s enterprise. On the basis of this project, owners are safe and sound.
Creditors:
Financial stability of both the companies is highly strong in the industry and n
ot feeling any kind of threat from their creditors. Highly leveraged companies b
ut strong financial position can’t threaten to pay their creditors like bank loan,
stockholder, and trade creditors.
Investors:
On the basis of such information they determine extend of their investment in th
e business enterprise. However, stable returns may favor the investor to invest
in this type of organizations.
3.3. Limitations
The financial statements by the business concern are subject to certain limitati
ons, which are as under:
1. They reflect only those factors, which can be measured in monitory terms
. They do not indicate non-monitory factors, which definitely affect the financi
al conditions, operations and operating results. Such factors include
a. General reputation of directors and managers.
b. Effects of favorable location.
c. Cooperation between management and workers.
d. Efficiency, loyalty and integrity of management and employees.
2. They are essentially interim reports and therefore cannot be final becau
se the actual gain or loss of a business can be determined only when it is used
or liquidated.
3. Most of the faces reflected by financial statements are mere estimation
e.g. inventory valuation.
4. The financial statements report historical data and therefore they don’t g
ive an accurate indication of the present “worth” of a business. The fixed assets ar
e shown at original cost less depreciation. However, the market price of these a
ssets keeps changing. The channel is more that if these assets were sold, the pr
ices realized would be substantially different from their valuation on balance s
heet.
5. Different methods for the valuation of stocks or raw material and deprec
iation are used by different business concerns. All these methods give varying r
esults, which affect value of current assets in balance sheet and profit figure
in the income statement. The profit results of one firm cannot therefore be accu
rately compared with the other.
6. The sixth limitation is notified at the time when classifying capital an
d revenue expenditure. There are a number of borderline cases where it may be di
fferent to give a clear verdict, whether expenditure should be changed to capita
l or revenue account due to which profit may be understated or overstated.

Pso & Shell

Transféré par

Informations du document

Description originale:

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Pso & Shell

Transféré par

Droits d'auteur :

Formats disponibles

Section I

3. Cash Flow Statement.

• Operating income Margin

Interpretation of Common Size Percentages:

2.3.3. Horizontal Analysis

PSO & Shell Pakistan

TOTAL LIABILITIES & EQUITY 52,372,705.000 4,568,791.000 10,452,932.000

Comparative Balance Sheet Interpretation

PSO & Shell Pakistan

Interpretation of Trend Percentages:

Vous aimerez peut-être aussi