145584287 five year financial statement analysis of shell and pso doc

Financial Management Final Project Report

Financial Ratio Analysis

Financial Ratio Analysis of SHELL and PSO on the basis of financial record of 2005 to 2009

2010

Acknowledgement

First of all we would like to thank our teacher for giving our group the opportunity to do this project as part of our Financial Management course. With this project, we have experienced the practical side of doing the financial ratio analysis. It appear as if by doing this analysis report we would definitely be having some idea of what is ahead for us ahead and that Finance is more than just accounting.

As students of Financial Management, we have found it rewarding in terms of understanding the requirements, and the process of compiling a term report, which was motivating as well as helpful task for us as a group.

We also like to thank you for not making the class boring and for imparting us knowledge and wisdom in the light of your experience.

Executive Summary

This report is showing relationship between two Petroleum Companies internal and external Financial Analysis. This project is an effort to practically exploit the analytical techniques ratio analysis, horizontal analysis, vertical analysis, Profitability Ratios, Long Term Solvency Ratios and Du Pont. This project will help to understand the reader of the project about the financial aspects of the companies regarding Profitability of the companies, market worth, investment trend, dividend payment policies, assets and liabilities utilization, depreciation methodology, assets and liabilities management, product sale & cost plan, management policies and other accounting procedures of the said companies.

The main purpose of this project is to compare the financial statements of the said companies and to reach conclusions about their financial strength and relative stability. Due to ratio analysis every company can make future planning. We have selected project on these companies, because these companies are supporting of Cement Industry to manufacture cement.

After study of this project every investor and shareholder can judge financial position of the company. All financial ratios present correct financial position of the company.

INTRODUCTION

Financial statement analysis is a process in which interested parties such as investor creditor and

the management to calculate the past present and future situation and performance of the firm There are

various methods or techniques that are used in analyzing financial statements, such as comparative

statements, schedule of changes in working capital, common size percentages and ratios analysis.

Financial statements are prepared to meet external reporting obligations and also for decision making

purposes. They play a dominant role in setting the framework of managerial decisions. But the

information provided in the financial statements is not an end in itself as no meaningful conclusions can

be drawn from these statements alone. However, the information provided in the financial statements is of

vast use in making decisions through analysis and interpretation of financial statements.

The main purpose of this project is to compare the financial statements of the said companies and

to reach conclusions about their financial strength and relative stability. Here we selected two companies

which are from Cement industry.

Our Vision

To be the Top Performing and Most Admired Refinery in Asia

Our Mission

To continuously deliver shareholder value by:

• Manufacturing and supplying oil products and services that satisfy the needs of our

customers

• Constantly achieving operational excellence

• Conducting our business in a safe, environmentally sustainable and economically

optimum manner

• Employing a diverse, innovative and results-oriented team motivated to deliver

excellence

Our Objectives

We are committed to deliver sustainable excellence in business performance by focusing on the

following:

• Benefit our shareholders

• Realise the potential of our people

• Meet our customer requirements

• Maximise refinery margins

• Safeguard asset integrity

• Deliver structural cost reductions

Lahore Business School Page 1

• Sustain a robust management system

• Deliver continuous sustainable Health, Safety, Security and Environmental excellence

Shell World Wide

Shell has been exploring for and producing oil and gas for more than a century. We employ

around 101,000 people in more than 90 countries and territories. Our headquarters are in The

Hague, the Netherlands, and our Chief Executive Officer is Peter Voser. The parent company of

the Shell group is Royal Dutch Shell plc, which is incorporated in England and Wales.

Shell worldwide by numbers

a. 2%: amount of world’s oil we produce

b. 3%: amount of world’s gas we produce

c. 3.1 million: barrels of gas and oil we produce every day

d. 44,000: Shell service stations worldwide

e. 10 million customers: buy our transport fuel

f. +35: refineries and chemical plants we run (figures for 2008)

g. 1: ranking by Fortune 500 in 2009


Shell Pakistan

Shell in Pakistan has played a leading role in abridging the growing energy demand gap in the country and has a stake in Pakistan Refinery, LPG distribution and a shareholding in the white oil pipeline. The primary goal of the company is to position itself as the preferred oil and Gas Company in Pakistan, leading the field in its commitment to customer service, quality of products, safety and environmental protection. Over the last decade, Shell Pakistan has developed a robust program of social investment, which supports organizations and initiatives in areas of health, education, welfare, community development, heritage and environment. Our Shell Tameer Program, introduced in 2003, today exists as one of the foremost efforts to facilitate youth entrepreneurship in the country and has engaged more than 45,000 young people through workshops, seminars, and community engagements. We continue to strive toward operational excellence and remain committed to growing our business in Pakistan.

Shell Pakistan Limited (Shell Pakistan) is engaged in marketing of compressed natural gas and petroleum. The company provides different types of lubricating oil. Shell Pakistan caters to businesses and motorists. The company for businesses provides Shell cards, aviation customer service, exploration and production, transport, liquefied petroleum gas and industrial operations for power, automotive and sugar. Shell Pakistan for motorists provides customer service, car care tips, shell Helix motor oil and Shell advance motorcycle oil. The company also participates in motor sports like formula one and Moto GP by tying up with Audi, Ferrari and Ducati. Shell Pakistan is headquartered at Karachi, Pakistan.

Shell’s range of innovative products is constantly expanding, supported by extensive research and development. With an eye on the future, Shell has evolved with a new identity in Pakistan. The overall brand positioning today has also evolved in line with the global theme of Made to Move, which is symbolic of Shell’s endeavor for our customers, who are forever on the move.

Our efforts to promote business excellence are not just limited to our products and services, but are also included in the way we do business. Over the past year, Shell Pakistan has made commendable strides in introducing global technical standards into the industry. In 2007, Shell


Pakistan had inducted eight such vehicles, with the fleet expected to double in number by the end of 2008. In order to further strengthen and streamline our internal processes and to increase efficiencies, Shell Pakistan has embarked on Shell Group’s Global ‘Downstream-One’ journey. The ultimate goal of Downstream-One is to reduce business complexity and increase operational efficiency in order to reduce costs and increase competitiveness, while simultaneously enhancing customer satisfaction. Shell Pakistan commenced its challenging Downstream-One journey with an introductory mobilization session in January 2008. With just over 21 months left for our momentous Go-Live on 1st April 2010, Shell Pakistan is engaging and preparing its stakeholders and businesses for the ensuing changes and benefits that will come from moving to a truly global system. Shell Pakistan’s IT department contributed to strengthening efficiencies within the organization in 2007-08 by providing a robust infrastructure for supporting our growing business. The capacity of our international circuit was upgraded successfully to ensure a more reliable communication network to support consolidated Shell systems. Shell Aviation also rolled out its global Apron system at Karachi airport, which will allow real-time communication from the apron to back-office IT systems. This is the first implementation of its kind for the aviation industry in Pakistan.


Pakistan State Oil


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

We are committed to leadership in energy market through competitive advantage in providing the highest quality petroleum products and services to our customers

PSO is the market leader in Pakistan’s energy sector. The company has the largest network of retail outlets to serve the automotive sector and is the major fuel supplier to aviation, railways, power projects, armed forces and agriculture sector. PSO takes pride in continuing the tradition of excellence and is fully committed to meet the energy needs of today and rising challenges of tomorrow.

Pakistan State Oil, the largest oil marketing company in the country, is currently engaged in storage, distribution and marketing of various POL products. The company’s current value of Rs. 75 billion, its 82.1% share in the black oil market and 61.2% share in the white oil market, alone speak volumes about its success.

The company’s astounding growth in terms of sales and turnover, combined with its status of being the first Pakistani Public Sector Company to become a member of the World Economic Forum (WEF), and winning the “Karachi Stock Exchange Top Companies Award” has made PSO a notable company world over.

PSO has the widest strategic oil distribution network. This network comprises of 29 storage depots and 9 installations, 860,000 MTs of capacity i.e. almost 81% of total national storage, numerous pipe lines network and equity partnership in White Oil Pipeline Project (WOPP) from Karachi to Mehmood Kot.

A most efficient product movement system for its POL products facilitates the operations at PSO. This system includes a fleet of 6000 tank Lorries, tank wagons and pipelines. With the inception of white oil pipeline (WOPP) the pattern of supplies from Karachi has changed drastically as the entire white oil movement from Karachi has been switched over from tank lorries to pipelines. Moreover, to make this system more efficient and effective, new pilfer-proof tank Lorries equipped with satellite tracking system have been introduced.

With its 3612 distribution outlets, PSO has the largest network in the country. Out of these, 1,610 outlets have been upgraded as per the New Vision Retail Program, with most modern facilities like electronic dispensing units, convenience stores, business centers, Easy Payment Centers and customer friendly staff to provide unmatched and diverse services to its customers, all of which are comparable to international practices.

The fact that PSO serves 2.8 million retail customers on daily basis, along with 2000 industrial units and business houses, is indicative of its vast customer base. The company has also been meeting the fuel needs of various government entities, armed forces, railways, agriculture sector, IPPs and industrial units. PSO also provides Jet Fuel to Refueling Facilities at 9 airports in Pakistan and ship fuel at 3 ports.


Objectives

The main objective of financial statement analysis to determine which company is performing better, to determine where the company stands relative to the industry average, to determine strengths and weaknesses of the companies, to give future direction by providing accurate data for analysis

This project aims to present the reader true information and records about the said company’s performance. The major purpose here is to analyze the financial statements from the position of a financial analyst. This would mean ignoring a lot of inappropriate information and only taking the most important figures into account. Only then, can a true ratio analysis be carried out. The key objectives of this project are as follows:

WHICH COMPANY IS BETTER FOR THE INVESTMENT? WHICH COMPANY IS BETTER FOR THE DEBTOR? WHICH ONE COMPANY HAS PROSPECTS OF GROWTH?

FINANCIAL STATEMENT ANALYSIS will be USEFUL and important for

COMPETITORS

STAKEHOLDERS:

BANK LENDING OFFICERS

GOVERNMENTAL AGENCIES

MANAGERS

SECURITY ANALYSTS

CREDITORS

DEBTORS


DATA PROCESSING, ANALYSIS AND INTERPRETATION

Data Collection Sources:

The data collection sources for this project are secondary sources These include internet and the stock exchange for gathering data as these companies are listed in Lahore stock exchange to collect their annual reports from there and then examine them.

Data Collection Tools/Instruments:This project is concerned with performing the financial statement analysis of the two listed companies. The major data collection tool will be the observational tool which will be employed to analyze and collect relevant data from the statements

Data Processing, Analysis and Interpretation:

According to our project we use Microsoft Word and Microsoft Excel work sheets to calculate the various ratios and analysis. The data will be presented in the form of summary tables and graphs/ charts because graphs and charts show the clear position of the firm.


Ratio Analysis

A statistic has little value in isolation. Hence, a profit figure of Rs.100 million is meaningless unless it is related to either the firm’s turnover (sales revenue) or the value of its assets. Accounting ratios attempt to highlight the relationships between significant items in the accounts of a firm. Financial ratios are the analyst’s microscope; they allow them to get a better view of the firm’s financial health than just looking at the raw financial statements.

Ratios are used by both internal and external analysts

• Internal uses

Planning

Evaluation of management

• External uses

Credit granting

Performance monitoring

Investment decisions

Making of policies


LIQUIDITY RATIOS

A. CURRENT RATIO

Shows a company’s ability to pay off its current liabilities from its current assets.

Formula=

ShellYEAR Description Amount Description Amount Analysis

2005 Current Assets 12983152 Current Liabilities 12209080 1.0634


2007 Current Assets 20041859 Current Liabilities 19612115 1.00522008 Current Assets 30220209 Current Liabilities 23307811 1.2966


0.0000

0.5000

1.0000

1.5000

2005 2006 2007 2008 2009


SHEEL COMPARISON

Shell’s Current ratio increased significantly as compared to previous years although the volume of current liabilities increased as a whole due to increase in trade payables and Short term Loans but current assets grew at a rapid rate. The reason behind this was the significant change in the value of stock in trade, Trade Debts. This is due to higher prices of petroleum products during that time and the company is using FIFO method for its inventory. As current financial cries in the world as well as in Pakistan almost every company has a liquidity problem..

PSOYEAR Description Amount Description Amount Analysis

2005 Current Assets 40,734,366 Current Liabilities

32764205 1.2433


47056578 1.233

2007 Current Assets 6251327 Current Liabilities

513857271.2165

2008 Current Assets 115878692 Current Liabilities

937362201.2362


130023120 1.0667

0.9000

1.0000

1.1000

1.2000

1.3000

2005 2006 2007 2008 2009

PSO COMPARISON

PSO has positive trend in current ratio. FY06 and FY08 current ratios are same as

FY07 current ratio is comparatively low. But high negative in FY09


In 2008 current ratio 1.236, as compare to 2006 and 2007 it is increased .current

ratio is increased due to huge increase 110%, 100% in inventory level and cash and

bank balance consecutively as compare to 2007. Trade and other payable and short

term borrowing are increased by 100% and 12% comparatively. But decreases in

FY09. As current financial cries in the world as well as in Pakistan almost every

company has a liquidity problem.

SHELL & PSO COMPARISON

Shell current ratio increased more rapidly as compared to PSO because PSO current liabilities grew but current ration not grow as liabilities grow but shell increase there liabilities and assets.

0.0000

0.2000

0.4000

0.6000

0.8000

1.0000

1.2000

1.4000

1.6000

1.8000

2005 2006 2007 2008 2009

PSO

Shell

B. QUICK RATIO

Shows a firm’s ability to meet its current liabilities with its most liquid assets.

Formula=

SHELL

2005 Current Assets

12983152 Current Liabilities

12209080 Inventory 6608167 0.5222

2006 Current Assets


17902377 Inventory 9979886 0.5774

2007 Current Assets

20041859Current

Liabilities19612115

Inventory 8244054 0.5848

2008 Current Assets

30220209Current

Liabilities23307811

Inventory 18095523 0.5202

2009 Current Assets


25169302 Inventory 13076718 0.3292


0.0000

0.10000.2000

0.30000.4000

0.50000.6000

0.7000

2005 2006 2007 2008 2009

SHELL COMPARISON

Shell’s Quick ratio decreased due to higher prices of petroleum products, as the volume allocated for inventories was higher. Quick ratio increase in 2006, 2007, 2008 but after 2008 it decrease.

Quick ratio is .3292, .5202, .5848, .5774 and .5222 respectively in 2009, 2008, 2007, 2006 and 2005. In 2009 quick ratio is comparatively low. It is decreased 20% in 2009 as compare to 2005, while 18% increased in 2007. In 2006 Quick ratio is 0.5774, as compare to 2005 it was 0.5222. As it is improved while current ratio is decreasing.

PSO2005 Current

Assets40,734,366 Current

Liabilities32764205 Inventory 20,583,30

10.6151

2006 Current Assets

58,034,675 Current Liabilities

47056578 Inventory 28,168,633

0.6347

2007 Current Assets


51385727 Inventory 29562055 0.6413

2008 Current Assets


93736220 Inventory 62360067 0.5709

2009 Current Assets

138,689,524 Current Liabilities

130023120 Inventory 40,698,209

0.7536


0.00000.10000.20000.30000.40000.50000.60000.70000.8000

2005 2006 2007 2008 2009

PSO COMPARISON

Quick ratio is .571, .641, and .636 respectively in 2008, 2007 and 2006. In 2008 quick ratio is comparatively low. It is decreased 10% in 2008 as compare to 2006, while 1% increased in 2007. In 2006 Quick ratio is 0.636, as compare to 2005 it was 0.615. As it is improved while current ratio is decreasing. As stock in trade is the major portion of current assets, when if is reduced as 40% of total assets. Cash ratio in 2006 is .040 as compare to 2005 which was .059. Cash ratio are .032, .030, .040 in 2008, 2007and 2006 respectively. While keeping 2006 as base year cash ratio is decreased 25% and 20% in 2007 and 2008 respectively. But downfall in FY09

Quick assets are not enough for the payment of current liabilities. Because the major inventory level of the company is 40%, 39% and 49% of total assets in 2006, 2007, and 2009 respectively. The company is improving its inventory level because it is a public company and it has a lot of branches and stations all over the county.


THE PSS HAS BETTER POSITION TO PAY HIS CURRENT LIBILITIES AS COMPARE TO SHELL PAKISTAN ONLY BECOUSE PSO INVEST LESS AMONT IN INVENTARY AS COMAPRE TO SHELL

0.0000

0.1000

0.2000

0.3000

0.4000

0.5000

0.6000

0.7000

0.8000

2005 2006 2007 2008 2009

PSO

Shell


C. CASH RATIO

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

Formula=Cash & bank / Current Liabilities

SHELL


12209080 Cash & Bank 752112 0.0580


17902377 Cash & Bank 981197 0.0520

2007 Current Liabilities 19612115

Cash & Bank 814530 0.0399


23307811Cash & Bank 872414 0.0361


25169302 Cash & Bank 869623 0.0334

0.0000

0.0200

0.0400

0.0600

0.0800

2005 2006 2007 2008 2009

Series1

SHELL COMPARISON


Cash ratio in 2006 is .0520 as compare to 2005 which was .0580. Cash ratio are .0399, .0361, .0334 in 2007, 2005and 2009 respectively. While keeping 2005 as base year cash ratio is decreased 12% and 25% in 2007 and 2008 respectively and 30% decrease in 2009

Shell cash Ratio decries every year only because lees reserves of cash in bank thats reason graph downward

PSO


32764205 Cash & Bank 1,921,936 0.0587


47056578 Cash & Bank 1898894 0.0404


51385727 Cash & Bank 1522276 0.0296


93736220 Cash & Bank 3018640 0.0322


130023120 Cash & Bank 2883118 0.0222

0.0000

0.0200

0.0400

0.0600

0.0800

2005 2006 2007 2008 2009

Series1

PSO COMPARISON


Cash ratio in 2006 is .040 as compare to 2005 which was .059. Cash ratio are .032, .030, .040 in 2008, 2007and 2006 respectively. While keeping 2006 as base year cash ratio is decreased 25% and 20% in 2007 and 2008 respectively and 10% decrease in 2009

The Cash position of PSO is not good because Current Liabilities increase more rapidly compare to Cash increase that’s reason graph downward


The cash position of Shell is better as compare to PSO. But not satisfied because its current liabilities increase more rapidly as compare Cash

0.0000

0.0100

0.0200

0.0300

0.0400

0.0500

0.0600

0.0700

2005 2006 2007 2008 2009

PSO

Shell

Over All Liquidity Ratios Analysis of Shell


Liquidity position of Shell is not commendable, as other players of the industry. However, with the introduction of higher margin products, Shell has been able to enhance its performance since FY05 owing to inauguration of White Oil Pipeline enabling it to better supply/transportation of oil across the country. As a result, the company's oil stock increased significantly.FY07 however, disturbed the increasing trend of Shell's liquidity position and it was the most challenging period for the whole industry. Short-term loans and accrued liabilities increased significantly, depressing the current liabilities and the current ratio of the company. On the other hand FY08 improved Shell's liquidity position. This is mainly due to sharp decline witnessed in the short-term loans taken by the company. but

ASSETS TURNOVER RATIO

a. Fixed Assets Turnover Ratio

Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit earning capacity of the concern.

Formula= Sale / Fixed Assets

Shell2005 Sales 11495036 Fixed Assets 7597964 14.6743

2006 Sales 132840460 Fixed Assets 7855161 16.9112





0.0000

5.0000

10.0000

15.0000

20.0000

2005 2006 2007 2008 2009

SHELL COMPARISON

Fixed asset turnover are improving year by year. The reason is that company sale is improving year to year and the fixed asset like property; plant and equipment are also increase as sale increases.

The FY 07 is not good because the sales was decries this year and the FY 09 is also not good because these year the economy and the political position in Pakistan is not well and the Fy09 the price of oil in international market change

PSO2005 Sales 253776920 Fixed Assets 11341468 22.3760


2007 Sales 411057592 Fixed Assets 12224042 33.62702008 Sales 583213959 Fixed Assets 11231328 51.92742009 Sales 719282176 Fixed Assets 14732119 49.8241


0.000010.000020.000030.000040.000050.000060.0000

2005 2006 2007 2008 2009

PSO COMPARISON

Fixed asset turnover are improving year by year. The reason is that company sale is improving year to year but the fixed asset like property, plant and equipment is decreased 7% in 2008 as compare to 2007. Fixed asset is not increasing in FY08 but increase 15 %in FY09 as compare FY08

The Sale of PSO increase every year with high rate but the Fixed Assets not incases as Sale.The major change in fixed Assets the Long Term Loan decries in every year but the sale Inca rise and company utilize his assets with efficiently. That is good sign for company


The PSO utilize his assets more efficiently and effectively compare to Shell because Shell incase the fixed assets in Long Term Debts and Investment outside the company that’s reason the company focus on there sale is not positively as compare to PSO


0.0000

10.0000

20.0000

30.0000

40.0000

50.0000

60.0000

2005 2006 2007 2008 2009

PSO

Shell

b. Total Assets Turnover Ratio

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue..

Formula= Sale / Total Assets

Shell2005 Sales 11495036 Total Assets 20581116 5.4173

2006 Sales 132840460 Total Assets 28171882 4.7154




0.0000

2.0000

4.0000

6.0000

2005 2006 2007 2008 2009

SHELL COMPARISON

The Shell Total Assets Turnover Ratio show us the Company performance to used there assets for garneting the sale or Profit the graph show Total asset turnover increased in FY09 as compare Fy08 but the company pervious position is good as FY09


PSO2005 Sales 253776920 Total Assets 52078476 4.8730


2007 Sales 411057592 Total Assets 74737315 5.50002008 Sales 583213959 Total Assets 127110020 4.58832009 Sales 719282176 Total Assets 153421643 4.6883

4.0000

4.5000

5.0000

5.5000

6.0000

2005 2006 2007 2008 2009

PSO COMPARISON

The use of Assets was well in FY2007 but overall sale and assets increase same ratio. The trade debts increase in high ratio that effect show in FY09


The both companies use their assets almost equal ratio


0.0000

1.0000

2.0000

3.0000

4.0000

5.0000

6.0000

2005 2006 2007 2008 2009

PSO

Shell


PROFITABILITY RATIOS

A. GROSS PROFIT MARGIN

Indicates the efficiency of the operations and the firm’s pricing policies.

Formula=

Shell2005 Gross Profit 8738106 Net Sales 111495036 0.0784

2006 Gross Profit 9961448 Net Sales 132840460 0.0750

2007 Gross Profit 6380502 Net Sales 130129844 0.04902008 Gross Profit 15150218 Net Sales 157626491 0.09612009 Gross Profit 12902182 Net Sales 177110208 0.0728

0.0000

0.0200

0.0400

0.0600

0.0800

0.1000

0.1200

2005 2006 2007 2008 2009

SHELL COMPARISON

In 2005 the net Gross margin was increased by 9% but In 2006 the net Gross margin was decreased by 8% .The year 2007 was a year of decrease in profitability ratios in this GP decreased with high rate The year 2008 was a good for the Shell there was an increase in the profitability as there was GP margin was increases as compare all pervious years and decreases in FY09 that might because of increasing oil prices but decries in FY09

PSO




2007 Gross Profit 12259430 Net Sales 411057592 2.98242008 Gross Profit 30023626 Net Sales 583213959 5.14872009 Gross Profit 3010111 Net Sales 719282176 0.4185

.

PSO COMPARISON

In 2006 the net Gross margin was increased by 5% whereas net profit margin was increased by 2%. The year 2007 was a year of decrease in profitability ratios in this GP was 3% The year 2008 was a good for the PSO there was an increase in the profitability as there was GP margin was 5.15% but badly down in FY09 because in FY09 oil Prices changes in international market


GPM of PSO and Shell doubled in FY 08 because of increasing oil in International market and local market but decrease in FY09 as Normal Position

B. OPERATING PROFIT MARGIN


0.0000

1.0000

2.00003.0000

4.0000

5.0000

6.0000

2005 2006 2007 2008 2009

Indicates the firm’s profitability after taking account of Opreating expenses.

Formula=Operating Profit /Sale

Shell2005 Operating Profit 3973925 Net Sales 111495036 0.0356

2006 Operating Profit 4997503 Net Sales 132840460 0.0376

2007 Operating Profit 11334584

Net Sales 130129844 0.0087

2008 Operating Profit 8481359 Net Sales 157626491 0.05382009 Operating Profit 4886635 Net Sales 177110208 0.0276

0.0000

0.0100

0.0200

0.0300

0.0400

0.0500

0.0600

2005 2006 2007 2008 2009

SHELL COMPARISON

Shell’s NPM has improved a lot from FY07 to FY08 . This must be the same effect as seen in the company’s GPM. But in FY 09 graph move downward the administrative expenses increase in FY 09 and GCS increases as compare FY08


PSO2005 Operating Profit 8554289 Net Sales 253776920 0.0321

2006 Operating Profit 10820734 Net Sales 352514873 0.0307

2007 Operating Profit 7525548 Net Sales 411057592 0.01832008 Operating Profit 2213713

2Net Sales 583213959 0.0380

2009 Operating Profit -6353344 Net Sales 719282176 -0.0088

-0.0200

-0.0100

0.0000

0.0100

0.0200

0.0300

0.0400

0.0500

2005 2006 2007 2008 2009

PSO COMPARISON

OPM of PSO has doubled from the FY 07 to FY 08 which is a good sign for company’s operations. That might because of increasing oil prices but decrease in FY09 because of increase the CGS and Other operating Expenses and Distribution and Market Cost as compare FY08


OPM of PSO and Shell doubled in FY 08 because of increasing oil but decrease in FY09 Shell Normal Position and PSO increase there CGS and Other Operating expense that’s reason for loss

. -0.0200

-0.0100

0.0000

0.0100

0.0200

0.0300

0.0400

0.0500

0.0600

2005 2006 2007 2008 2009

PSO

Shell


C. NET PROFIT MARGIN

Indicates the firm’s profitability after taking account of all expenses and income taxes.

Formula=

Shell2005 Net Profit After Tax 2451070 Net Sales 111495036 0.0220

2006 Net Profit After Tax 3108469 Net Sales 132840460 0.0234

2007 Net Profit After Tax 706659 Net Sales 130129844 0.00542008 Net Profit After Tax 5137094 Net Sales 157626491 0.03262009 Net Profit After Tax 2562948 Net Sales 177110208 0.0145

0.0000

0.0100

0.0200

0.0300

0.0400

0.0500

0.0600

2005 2006 2007 2008 2009

SHELL COMPARISON

Shell’s NPM has improved a lot from FY07 to FY08 . This must be the same effect as seen in the company’s GPM. But in FY 09 graph move downward the CGS, administrative expenses and sale tax increase so the profit goes down


PSO2005 Net Profit After Tax 5655873 Net Sales 253776920 0.0223

2006 Net Profit After Tax 7524341 Net Sales 352514873 0.0213

2007 Net Profit After Tax 4689798 Net Sales 411057592 0.04412008 Net Profit After Tax 1405379

5Net Sales 583213959 0.0241

2009 Net Profit After Tax -6698535 Net Sales 719282176 -0.0093

-0.0200

-0.0100

0.0000

0.0100

0.0200

0.0300

2005 2006 2007 2008 2009

PSO COMPARISON

OPM of PSO has doubled from the FY 07 to FY 08 which is a good sign for company’s operations. That might because of increasing oil prices but decrease in FY09 because of increase the CGS and Other operating Expenses and Distribution Market Cost and Financial Cost.


SHELL AND PSO COMPARISON

NPM of PSO and Shell doubled in FY 08 because of increasing oil but decrease in FY09 Shell Normal Position and PSO increase there CGS Other Operating expense and financial cost that’s reason for loss.

-0.0150

-0.0100

-0.0050

0.0000

0.0050

0.0100

0.0150

0.0200

0.0250

0.0300

0.0350

2005 2006 2007 2008 2009

PSO

Shell

.


ASSETS PROPORTIONAL RATIO

a. Current Operating Assets Ratio

Show the company Current Operating Assets from his Current Assets

Formula= Avg OCA / Current Assets

Shell2005 Avg OCA 7521096 Current Assets 20581116 0.3654

2006 Avg OCA 9339181 Current Assets 20316721 0.4597




0.0000

0.2000

0.4000

0.6000

0.8000

1.0000

2005 2006 2007 2008 2009

SHELL COMPARISON

In FY05 the current operating assets ratio is 0.3654 which will be increases in FY06 and FY07 20% and 10% due to incases the AOCA in FY06 and FY07 but FY2008 the Total Current assets Incases RS 23 billion due to increase Stock In Trade . During the FY09, the company's current assets decreased from Rs 12.725 billion in Dec'08 to Rs 12.290 billion in Dec'09 and come in normal position.


PSO2005 Avg OCA 23,361,953 Current Assets 40737008 0.5735

2006 Avg OCA 27,421,202 Current Assets 58034675 0.4725




0.0000

0.2000

0.4000

0.6000

0.8000

1.0000

1.2000

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PSO COMPARISON

In FY05 the current operating assets ratio is 0.5735 which will be decreases in FY06 and FY07 10% and 7% as compare to FY05 In FY2008 the Total Current assets increases RS 49 billion due to increase Stock In Trade . During the FY09, the company's current assets Increased from Rs 23 billion but the AOCA also incases



The Shell current operating assets position is better then PSO and increase in every year.

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2005 2006 2007 2008 2009

PSO

Shell

b. Non Current Operating Assets Ratio

Show the company Non Current Operating Assets from his Current Assets

Formula= Avg non COA / Current Assets

Shell2005 Avg non

COA5587840 Current Assets 20581116 0.2715

2006 Avg non COA

7310756 Current Assets 20316721 0.3598

2007 Avg non COA

9821990 Current Assets 19713632 0.4982

2008 Avg non COA

10757802 Current Assets 32000209 0.3560

2009 Avg non COA

9091110 Current Assets 21363251 0.4255

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2005 2006 2007 2008 2009


SHELL COMPARISON

The Shell Non Current operating Assets Ratio show us the Company performance to used there non current assets for garneting the sale or Profit. The avg Non OCA of shell also increase every year to show the good sign and show long term planning of company the main A/c of Trade Debt increases in FY08 as compare FY 05, FY 06, and FY07. In FY09 A/c of Trade debts decrease but the last year good effect shown in FY09.

PSO2005 Avg non

COA17,375,055 Current Assets 40737008 0.4265

2006 Avg non COA

21964640 Current Assets 58034675 0.3785

2007 Avg non COA

28135682 Current Assets 62513273 0.4501

2008 Avg non COA

39849938 Current Assets 49982738 0.7973

2009 Avg non COA

72213494.5 Current Assets 138689524 0.5207

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PSO COMPARISON

The PSO Non Current operating Assets Ratio show us the Company performance to used there non current assets for garneting the sale or Profit. The avg Non OCA of PSO increase every year to show the good sign and show long term planning of company the main A/c of Trade Debt increases in FY08 as compare FY 05, FY 06, and FY07. In FY09 A/c of Trade debts decrease but the last year good effect shown in FY09.



The PSO non current assets are incases in high ratio compare to Shell which was only for Trade debt a/c. PSO supply petroleum items on credit basis the only reason is that the PSO is govt control company and supply petroleum items on credit basis to govt institution which is not good sgin for PSO as compare Shell.

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Shell

c. Fixed Operating Assets Ratio

Show the company Fixed Operating Assets from his Fixed Assets

Formula= Avg Non OCA / Fixed Assets

Shell2005 Avg Non

COA5587840 Fixed Assets 7597965 0.7354

2006 Avg Non COA

5657958 Fixed Assets 7855161 0.7203

2007 Avg Non COA

6154034 Fixed Assets 9894295 0.6220

2008 Avg Non COA

6703421 Fixed Assets 9444650 0.7098

2009 Avg Non COA

7070604 Fixed Assets 12290483 0.5753


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SHELL COMPARISON

The Shell Fixed operating Assets Ratio show us the Company AOCOA in Fixed Assets The avg Non OCA of shell increase every year but Fixed assets not increases as AOCOA to show the not good sign the main A/c of only Trade Debt increases in FY08 as compare FY 05, FY 06, and FY07.

PSO2005 Avg Non

COA8256129 Fixed Assets 11341468 0.7280

2006 Avg Non COA

7964952 Fixed Assets 12133849 0.6564

2007 Avg Non COA

7906152 Fixed Assets 12224042 0.6468

2008 Avg Non COA

7852290 Fixed Assets 11231328 0.6991

2009 Avg Non COA

7310974 Fixed Assets 14732119 0.4963


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2005 2006 2007 2008

PSO COMPARISON

The Shell Fixed operating Assets Ratio show us the Company AOCOA in Fixed Assets The avg Non OCA of PSO decrease every year and also Fixed assets decreases to show the not good sign for Company


The Shell have improve more OCOA and Fixed assets compare to PSO. PSO decline his OCOA and Increase his fixed assets


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Shell

d. Fixed Non Operating Assets Ratio

Show the company Fixed Non Operating Assets from his Fixed Assets

Formula= Avg FNOA / Fixed Assets

Shell2005 Avg FNOA 2010124 Fixed Assets 7597965 0.2646

2006 Avg FNOA 2068605 Fixed Assets 7855161 0.2633





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SHELL COMPARISON

The Shell Fixed Non operating Assets Ratio show us the Company AOCNOA in Fixed Assets The avg Non OCNOA of shell increase every year to show the good sign the main A/c of CWIP to show that company long term planning is Good

PSO2005 Avg F NOA 3085339 Fixed Assets 11341468 0.2720

2006 Avg F NOA 3772707 Fixed Assets 12133849 0.3109

2007 Avg F NOA 4272794 Fixed Assets 12224042 0.34952008 Avg F NOA 3875395 Fixed Assets 11231328 0.34512009 Avg F NOA 5670750 Fixed Assets 14732119 0.3849

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PSO COMPARISON

The PSO Fixed Non operating Assets Ratio show us the Company AOCNOA in Fixed Assets The avg Non OCNOA of PSO increase every year due to Deferred Taxation and Prepayment that is not good sign for company


The long term planning of shell is more better then PSO

e. Operating Assets Ratio

Show the company Operating Assets from his Total Assets

Formula= Avg OA / Total Assets

Shell2005 Avg OA 13108936 Total Assets 20581116 0.6369

2006 Avg OA 14997138 Total Assets 28171882 0.5323





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SHELL COMPARISON

The Shell Operating Assets ration show consistent graph in FY 06,FY07 and FY08 and increases in FY09 due to Increases in Fixed assets that is good sign for company its show the company Operating assets like fixed assets increases so it is good sign for company

PSO2005 Avg OA 31618082 Total Assets 52078476 0.6071






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PSO COMPARISON

The PSO Operating Assets ration show decline graph in FY 06,FY07, FY09 and FY09 due to Increases in Total assets that is not good sign for company the operating assets incares every year but Non Operating assets also increases.


The shell have better position of Operating assets from his Total Assets but PSO gone decline

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PSO

Shell


F. Non Operating Assets Ratio

Show the company Non Operating Assets from his Total Assets

Formula= Avg NOA / Total Assets

Shell2005 Avg NOA 7472180 Total Assets 20581116 0.3631

2006 Avg NOA 9379361 Total Assets 28171882 0.3329




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SHELL COMPARISON

The Shell Non Operating Assets ration show increases graph in FY 06, FY08 and FY09 at avg ratio but high incases in FY07 due to long term debts

.

PSO







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PSO COMPARISON

The Shell Non Operating Assets ration show increases graph in every year due to Increases Other receivable, and loan and Advances



The both companies use their assets almost equal ratio

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Shell

g. Current Operating Assets Ratio

Show the company Current Operating Assets from his Total Assets

Formula= Avg COA / Total Assets

Shell2005 Avg COA 7521096 Total Assets 20581116 0.3654

2006 Avg COA 9339181 Total Assets 28171882 0.3315





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2005 2006 2007 2008 2009

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SHELL COMPARISON

The Shell Current Operating Assets ration shows increases graph in every year that is good sign for company and smoothness of operation.

PSO2005 Avg COA 23361953 Total Assets 52078476 0.4486






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PSO COMPARISON

The PSO Current Operating Assets ration shows decline graph in every year that is not good sign for company and show focus of company in long term advantage.


The current assets ration shows shell have good position compare to PSO

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PSO

Shell


h. Current Non Operating Assets Ratio

Show the company Current Non Operating Assets from his Total Assets

Formula= Avg CNOA / Total Assets

Shell2005 Avg CNOA 5462056 Total Assets 20581116 0.2654

2006 Avg CNOA 7310756 Total Assets 28171882 0.2595




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2005 2006 2007 2008 2009

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SHELL COMPARISON

The Shell Current Non Operating Assets ration shows Consistent graph in every year that is good sign for company and smoothness of operation.


PSO2005 Avg CNOA 17375055 Total Assets 52078476 0.3336





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PSO COMPARISON

The PSO Current Non Operating Assets ration shows increases graph in every year that is not good sign for company



The Shell have more Current Operating assets Compare to PSO

0

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2005 2006 2007 2008 2009

PSO

Shell

i. Non Current Operating Assets Ratio

Show the company Current Operating Assets from his Total Assets

Formula= Avg FOA / Total Assets

Shell2005 Avg FOA 5587840 Total Assets 20581116 0.2715

2006 Avg FOA 5657958 Total Assets 28171882 0.2008





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Series2

SHELL COMPARISON

The Shell Non Current Operating Assets ration shows decline graph in every year because Fixed assets not increase as Current assets increases

PSO2005 Avg FOA 8256129 Total Assets 52078476 0.1585






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2005 2006 2007 2008 2009

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PSO COMPARISON

The PSO Non Current Operating Assets ration shows decline graph in every year because Fixed assets decline every year


The PSO have week position compare to Shell

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2005 2006 2007 2008 2009

PSO

Shell


j. Non Current Non Operating Assets Ratio

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue..

Formula= Avg FNOA / Total Assets

Shell2005 Avg FNOA 2010124 Total Assets 20581116 0.0977

2006 Avg FNOA 2068605 Total Assets 28171882 0.0734




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2005 2006 2007 2008 2009

Series2

SHELL COMPARISON

The Shell Non Current Non Operating Assets incases in FY09 in high rate due to deferred Taxation and long term investment that is not good sign for company


PSO2005 Avg FNOA 3085339 Total Assets 52078476 0.0592





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2005 2006 2007 2008 2009

Series2

PSO COMPARISON

The PSO Non Current Operating Assets ration shows decline graph in every year that is good sign for company



The PSO Non Current Operating Assets ration shows decline graph in every year but Shell graph not down as PSO due to Long term investment


Solvency Ratio

a. Total debt to Capital Ratio

A measurement of a company's financial leverage, calculated as the company's debt divided by its total capital. Debt includes all short-term and long-term obligations. Total capital includes the company's debt and shareholders' equity, which includes common stock, preferred stock, minority interest and net debt

Formula= Total Debts / Capital

Shell2005 Total Debts 3732950 Capital 12036023 0.3101

2006 Total Debts 5063359 Capital 15177466 0.3336




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2005 2006 2007 2008 2009

Series2

SHELL COMPARISON


The weight of debts increase every year that’s is not good sign for company the main reason for increase debts is short term loan and creditor which increase high rate in FY07 and FY08

PSO2005 Total Debts 5486775 Capital 7201965 0.7618





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PSO COMPARISON

The PSO have more debts from his capital compare to shell

b. Debts to Equity Ratio


The Debt to Equity Ratio is used for Measuring Solvency and researching the Capital Structure of a company. It indicates how much the company is leveraged (in debt) by comparing what is owed to what is owned. In other words it measures a company's ability to borrow and repay money.

Formula= Total Debts / Equity

Shell2005 Total Debts 3732950 Equity 8303073 0.4496

2006 Total Debts 5063359 Equity 10114107 0.5006




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SHELL COMPARISON


Shell's debt to equity ratio increased from 1.47 percent in FY06-07 to 20 percent in FY07-08. In the FY09, the debt to equity ratio fell from 5 times in the FY08 to 3 times by the end of the FY09. The Ratio increased from -8 times in the FY08 to 3 times in the FY09, which shows that the company showed a marked improvement in its debt management capabilities.

PSO2005 Total Debts 5486775 Equity 17312771 0.3169





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PSO COMPARISON

The liabilities was increased by 41% to 70% from 60% and the time interest expense also decreased to 14.18 times from 25.79 where the owner equity increased from 1.98 to 2.37 .In the


next year debt ratio increased while time interest decreased because this was a year of overall a slight decrease in the profitability. In 2008 debt ratio increases to 76% from 71% and time interest expense almost doubled and the owner 3.1 from 2.57 that was a good sign for the company


THE SHEEL COMPANY HAVE BETTER POSITION TO PAY HIS DEBT FROM HIS EQUITY COMPARE TO PSO

c. Equity to Capital Ratio

Invested money that, in contrast to debt capital, is not repaid to the investors in the normal course of business. It represents the risk capital staked by the owners through purchase of the firm's common stock (ordinary shares).

Its value is computed by estimating the current market value of everything owned by the firm from which the total of all liabilitiesis subtracted. On the balance sheet of the firm, equity capital is listed as stockholders' equity or owners' equity.

Also called equity financing or share capital.

OR

Capital raised from owners.

Formula= Equity / Capital

Shell


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2005 Equity 8303073 Capital 12036023 0.6899

2006 Equity 10114107 Capital 15177466 0.6664

2007 Equity 9460771 Capital 17029357 0.5556

2008 Equity 13611638 Capital 22008935 0.6185

2009 Equity 8270603 Capital 16764202 0.4933

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2005 2006 2007 2008 2009

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SHELL COMPARISON

Shell's equity to capital ratio decreased in FY06-07 FY07-08. and FY09, the equity to ratio fell down because Capital increases in FY06 , FY07 and FY08 in the A/c of Short term loan, Long term Loan and Creditor but in Equity decreases in A/c of reserves and unappreciated profit.

PSO


2005 Equity 17312771 Capital 7201965 2.4039

2006 Equity 20813059 Capital 10108103 2.0590

2007 Equity 20939217 Capital 11548279 1.8132

2008 Equity 30965054 Capital 13547696 2.2856

2009 Equity 20870785 Capital 21224434 0.9833

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PSO COMPARISON

PSO equity to capital ratio decreased in FY06-07 FY07-08. and FY09, the equity to ratio fell down because Capital increases in FY06 , FY07 and FY08 in the A/c of Short term loan, Long term Loan and Creditor, and in Equity increases in A/c of reserves.


PSO have better position to pay his capital form his equity because PSO increase equity every year but Shell was fell down his reserves and inappropriate Profit


Vertical Analysis

A method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities and equities) in a balance sheet is represented as a proportion of the total account. The main advantages of vertical analysis are that the balance sheets of businesses of all sizes can easily be compared. It also makes it easy to see relative annual changes within one business.

VERTICAL ANALYSIS OF BALANCE SHEET & INCOME STATEMENT

SHELL PAKISTAN


Net sales have shown an increase of 24.3% to Rs 90 billion, while the cost of sales have shown an increase of 26.6%. Due to this there has been a slight decline in the gross profit margins to 6.3% from previous 7.2%. Distribution, administrative and marketing expenses have increased marginally and were rather subdued especially so in times of inflationary pressures. Financial costs have reduced by 37%, adding impetus towards better results.

Company has achieved significant growth in its pre-tax earnings, achieving Rs 1.762 billion in comparison to Rs 962 million earned in the same period last year. This improvement in profitability is mainly on the back of continued volume growth in key business segments, better product mix towards high margin products as well favorable movements in the international oil prices. However, after tax earnings declined to Rs 720 million as against a Rs 1.014 billion in the same period last year due to an exceptional increase in Income Tax following the re-introduction of turnover tax, and increase in tax from 0.5% to 1%.

The company has been able to post high earnings per share than other industry players. However, it recorded a sharp decline of 81.8% in FY06-07 mainly attributable to escalating oil prices and lower demand for POL products, arising from a shift towards cheap substitutes. However, FY07-08 was very positive for the company. Higher sales volume combined with very high international oil prices resulted in very high growth in EPS. In FY09, EPS increased from -Rs 75 in FY08 to Rs 37 in FY09.


By the end of FY09, the dividend per share stood at Rs 33. This increase in DPS has been due to impressive growth witnessed in company's bottom line

VERTICAL ANALYSIS OF BALANCE SHEET & INCOME STATEMENT

PSO


Vertical analysis shows that current asset is increasing FY06 83%, FY07 84% and FY08 94% as compare to total assets 100% for consecutive three years. While current liabilities for FY06, FY07, FY08 are 67%, 68%, 74% consecutively. This shows that company is encouraging the level of current assets as well as current liabilities


Horizontal Analysis

A procedure in fundamental analysis in which an analyst compares ratios or line items in a company's financial statements over a certain period of time. The analyst will use his or her discretion when choosing a particular timeline; however, the decision is often based on the investing time horizon under consideration.

HORIZONTAL ANALYSIS OF BALANCE SHEET AND INCOME STATEMENT SHELL PAKISTAN


HORIZONTAL ANALYSIS OF BALANCE SHEET

Horizontal analysis shows that Non current assets of Fixed assets FY05 are decreases 97 % long term loan and advances 60% and Prepayments 43% while keeping FY06 100% as base year. While Non current liabilities of differed liabilities decreases 43% in FY05 , FY06 100% as base year. This shows that both Non current assets and Non current liabilities decreases in FY05


Horizontal analysis shows that Non current assets of Fixed assets FY07, FY08 and FY09 are Increases 114 % , 119% and 127% ,long term loan and advances are Increases 107%, 113% and 123% and Prepayments are Increases 182% and 187% but no change in FY07 while keeping FY06 100% as base year. While Non current liabilities of differed liabilities Increases 103% in FY08 , FY06 100% as base year. Long term loans increases in FY08 as 25 billion. This shows that both Non current assets and Non current liabilities in FY07, FY08, and FY09 for consecutive three years are increasing

Horizontal analysis shows that current assets of FY05 are decreases 73 % and Increases inFY07, Fy08 and FY09 Increases as 103%, 140% and 119% while keeping FY06 100% as base year. While current liabilities of decreases 68% in FY05 , and Increases in FY07, FY08 and FY09 as 109%, 130% and 140% while keeping FY06 100% as base year. This shows that both current assets and current liabilities in FY07, FY08, and FY09 for consecutive three years are increasing

HORIZONTAL ANALYSIS OF INCOME STATEMENT SHELL PAKISTAN

Horizontal analysis shows that sale of FY05 and FY07 are decreases 83 % and 97% and Increases inFY08, FY09 118% and 133% while keeping FY06 100% as base year. While Gross Profit FY05 and FY07 are decreases 87 % and 64% and Increases in FY08, FY09 152% and 129% while keeping FY06 100% as base year. While Operating Profit FY05 FY 07and FY09 are decreases 79 % and 22%and 97% and Increases in FY08, 169% while keeping FY06 100% as base year While Net Profit FY05 FY 07and FY09 are decreases 78 % and 22%and 82% and Increases in FY08, 162% while keeping FY06 100% as base year This shows that in FY05, FY07, and FY09 for consecutive three years are decreasing and FY08 was Increases.


HORIZONTAL ANALYSIS OF BALANCE SHEET AND INCOME STATEMENT PSO


Horizontal analysis shows that current assets of FY08 are 200% and FY07 108 % while keeping FY06 100% as base year. While current liabilities of FY08 199% and FY07 109%, FY06 100% as base year. This shows that both current assets and current liabilities for consecutive three years are increasing.


DUPONT Analysis

A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are measured at their gross book value rather than at net book value in order to produce a higher return on equity (ROE). It is also known as "DuPont identity".

DuPont analysis tells us that ROE is affected by three things:

Operating efficiency, which is measured by profit margin

Asset use efficiency, which is measured by total asset turnover

Financial leverage, which is measured by the equity multiplier

Formula =

ROE = Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier (Assets/Equity)

OR

ROE = Net Income / Equity


DUPONT Analysis of Shell Pakistan


Shell ROE increased in Y08 and decreased in Fy09. Company’s ROE goes down due to decrease in operating efficiency that is not good sign and decline in ROE in FY09 as compare FY08 was due to decrease in profit margin by Comparison with industry average ROE FY09 is 45% more.

Operating efficiency (profit Margin)

Operating efficiency is almost same except in FY05 and FY06 but Decline in FY07 and FY09 the reason behind Operating profit decline in FY07 and FY09, increased 222% in FY07 and 352 % in FY09 financial cost increased as compare to FY06. The factor is high price of oil in international market. But in FY08 profitability is increased due to Sale is increased and due to increased in demand of furnace oil but decline in FY09 due to high price of oil, financial charges and taxation and decline in other sale

Asset Use Efficiency (Total asset control)

Compare to FY05, FY07 and FY09 asset turnover in increased from FY06 to FY08 BY 21% and 30% as compare to FY06. The main reason is that the total assets increased by 103% in FY 09 and 140% in FY08 as compare to FY06 (current asset increased 148% in FY08) and decline in FY09 by 43% compare FY08.

Financial Leverage (Equity multiplier)

Total asset is increased 140%% and 119% increased in FY08 and FY09 respectively as compare FY05. But total equity is increased by 134% in FY08 compare FY05 and decline 81% in FY09 as compare FY 05 respectively. This shows that is FY09 increase in Assets is less than increase in equity

DUPONT Analysis of PSO


ROE = Profit Margin * Asset Turnover * Equity Multiplier


PSO ROE in decline in 2007 by 38% and increased 102% Y08. Company’s ROE goes up due to increase in operating efficiency that is a good sign. Decline in ROE in FY07 was due to decrease in profit margin by 67%. Comparison with industry average ROE FY08 is 54% more.

Operating efficiency (profit Margin)

Operating efficiency is almost same except in FY07. Operating profit decline inFY07 by 62% and increased 187% in FY08 as 2006 as base year 100%.the reason was that inFY07 financial cost increased 131% as compare to FY06. The factor is high price of oil in international market. But in FY08 profitability is increased due to sale is increased 41% due to increased in demand of furnace oil. Asset Use Efficiency (Total asset control)

Compare to FY06, FY07 and FY08 asset turnover in increased from FY06 to FY07 BY 10% but it is decreased by 17% in FY08. The main reason is that the total assets increased by 70% (current asset increased 85%) I n FY08 where as sale is increased by only 42%.

Financial Leverage (Equity multiplier)

Total asset is increased 7% and 70% increased in FY07 and FY08 respectively. But total equity is increased by 1% and 47% in FY07 and FY08 respectively. This shows that is FY08 increase in equity is less than increase in total assets


Comparison with Sector

Current Ratio

Compare to industry average current ratio of Shell is low. In 2009 PSO current ratio is 0.8488 while industry average is 1.6. Shell has liquidity problem as compare to industry average. The company has less capacity to pay its short term finance / debt.

Compare to industry average current ratio of PSO is low. In 2009 PSO current ratio is 1.066 while industry average is 1.6. PSO has liquidity problem as compare to industry average. The company has less capacity to pay its short term finance / debt.

Quick Ratio

Compare to industry average quick ratio of Shell is low. In 2009 PSO current ratio is 0.5292 while industry average is 1.3944. Shell has liquidity problem as compare to industry average. The company has less capacity to pay its short term finance / debt. Because of high inventory stock

Compare to industry average quick ratio of PSO is low. In 2009 PSO current ratio is 0.7536 while industry average is 1.3944. Shell has liquidity problem as compare to industry average. The company has less capacity to pay its short term finance / debt. Because of high inventory stock

Cash Ratio

PSO has cash ratio of .0222 in 2009 as compare to industry average which is very low.

Shell has cash ratio of .0334 in 2009 as compare to industry average which is very low. while industry average is 0.2223

Gross Profit Margin Ratio

In 2009 the gross margin ration is 0.0042 that is very low

In 2009 the gross margin ration is 0.0728 that is low while industry average is 0.1652

Operating Profit Margin Ratio

In 2009 the operating margin ration is -0.0088 that is very low its loss

In 2009 the operating margin ration is 0.0276 that is low while industry average is 0.1576

Net Profit Margin Ratio

In 2009 the Net margin ration is -0.0093 that is very low its loss

In 2009 the Net margin ration is 0.0145 that is low while industry average is 0.1019


Fixed Assets Turnover Ratio

Industry average is 24.84% in 2009 while PSO Company has 48%. Fixed asset turnover are increasing year to year but it is better than its industry average.

Industry average is 24.84% in 2009 while Shell Company has 14.14%. Fixed asset turnover is not better than its industry average.

Fixed Assets Turnover Ratio

Industry average is 3.2014% in 2009 while PSO Company has 4.688%. Total asset turnover are increasing year to year but it is better than its industry average.

Industry average is 3.2014% in 2009 while Shell Company has 5.26%. Total asset turnover are increasing year to year but it is better than its industry average.

3. Conclusion and Possible Recommendations Lahore Business School Page 78

Compared to 2007, Oil Marketing Companies enjoyed massive increase in earnings due to FIFO inventory system but this affect could be reversed in the future.

Receivables from GOP and IPP are contributed to cash flow constraints which have led to financing. Although this effect is not very obvious due to higher earnings but this financing cost could be significant in times of normal oil prices.

Share prices of both companies remained at standstill. This trend of investors suggests that they expect that these higher earnings and dividend announcements as temporary and they don’t want to lose their money in the future.

Specifically to Shell as an MNC, the reduction in margin from the government and the higher working capital requirements might affect the future performance of the company.

To tackle with the fluctuation in the oil prices, the OMC has to invest in R&D for alternative energy resources as these fossil fuel resources are finite and limited and could led these firms to failure.

As the operations of the two companies are almost similar except for the market share, the operational efficiencies would lead a company cut its costs and be the winner in the game.

Ever increasing demand for the POL products due to the higher number of vehicles in the country provides an opportunity as well as a challenge to the companies that how they better manage the optimum fixed asset requirements and convert their capital into increasing revenues.

Overall the Shell Pakistan has better managed the effect of increasing oil prices as an opportunity to the company. Its profitability ratios as well as efficiency ones has improved more as compared to the PSO’s.


Five year balance Sheets and Income Statement of Shell and PSO

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