analysis of shell pakistan
TRANSCRIPT
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1. Introduction
Shell isasuperiorbrandnamewithovera100-yearhistoryinthesubcontinent.ShellinPakistan
hasplayedaleadingroleinabridgingthegrowingenergydemandgapinthecountryandhasa
stakeinPakistanRefinery,LPGdistributionandashareholdinginthewhiteoilpipeline.The
primarygoalofthecompanyistoposition itselfasthepreferredoilandGasCompanyin
Pakistan,leadingthefieldinitscommitmenttocustomerservice,qualityofproducts,safetyand
environmentalprotection.Overthelastdecade,ShellPakistanhasdevelopedarobustprogra
m
ofsocialinvestment,whichsupportsorganizationsandinitiativesinareasofhealth,education,
welfare, communitydevelopment, heritageandenvironment.
ShellPakistanLimited(ShellPakistan)isengagedinmarketingofcompressednaturalgasand
petroleum.The companyprovidesdifferenttypesoflubricatingoil.ShellPakistancatersto
businessesandmotorists.ThecompanyforbusinessesprovidesShellcards,aviationcustome
r
service,explorationandproduction,transport,liquefiedpetroleumgasandindustrialoperation
s forpower,automotiveand sugar.ShellPakistanfor
motoristsprovidescustomerservice,carcare
tips,shellHelixmotoroilandShelladvancemotorcycleoil.Thecompanyalsoparticipatesin
motorsportslikeformulaoneandMotoGPbytyingupwithAudi,FerrariandDucati.Shell
Pakistanisheadquarteredat Karachi,Pakistan.
Shell’srangeofinnovativeproductsisconstantlyexpanding,supportedbyextensiveresearch
anddevelopment.Withaneyeonthefuture,ShellhasevolvedwithanewidentityinPakistan.
TheoverallbrandpositioningtodayhasalsoevolvedinlinewiththeglobalthemeofMadeto
Move, which is symbolicof Shell’sendeavor for our customers,who are foreveron the
move.
Oureffortstopromotebusinessexcellencearenotjustlimitedtoourproductsandservices,but
arealsoincluded inthewaywedobusiness.Overthepastyear,ShellPakistanhasmade
commendablestridesinintroducingglobaltechnicalstandardsintotheindustry.In2009,Shell
Pakistanhad inductedeight such vehicles,withthe fleetexpectedto doublein number by
theend of2010.Inordertofurtherstrengthenandstreamlineourinternal
processesandtoincrease
efficiencies,ShellPakistanhasembarkedonShellGroup’sGlobal‘Downstream-
One’journey.TheultimategoalofDownstream-
Oneistoreducebusinesscomplexityandincreaseoperational efficiency in order to reduce
costs and increase competitiveness, while simultaneously enhancing customer
satisfaction. Shell Pakistan commenced its challenging Downstream-One journey with
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an introductory mobilization session in January 2010. With just over 21 months left for
our momentous Go-Live on 1st April 2012, 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 2009-2010 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.
a) Vision As Shell Pakistan Limited, we strive to deliver result, perform to the highest standards,
develop our people, provide quality customer service and actively pursue consistent
safety improvements.
A firm foundation based performance enables us to deliver strong returns and values
growth for our shareholders, greater and better choice for our customers and
opportunities and improvements in the quality of life of our communities.
In an unsettled world, our commitment to performance at every level continues to be
both the challenges and aspiration.
b) Mission Shell Pakistan Ltd. employees share a set of core values – honesty, integrity and
respect for people.
We also firmly believe in the fundamental importance of trust, openness, teamwork and
professionalism, and pride in what we do.
c) Objectives The objectives of Shell Pakistan Ltd. are to engage efficiently, responsibly and profitably
in oil, gas, chemicals and other selected businesses and to participate in the search for
and development of other sources of energy to meet evolving customer needs and the
world’s growing demand for energy.
Their role is to ensure that they extract and deliver them profitably and in
environmentally and socially responsible ways.
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A. Financial Leverage Ratio
i. Debt-to-Equity Ratio
Shows the extent to which firm is financed by debt
Formula= Total Debt/Total Equity
Debt-to-Equity Ratio SHELL 2011= 213,828+25,169,302/8,270,603=3.069
Year SHELL PSO PRL INDUSTRY
2011 3.069 6.351 13.943 7.788
2010 1.914 3.105 2.493 2.504
2009 2.088 2.569 2.056 2.238
2008 1.786 2.371 1.637 1.931
Internal comparison
Shell’s debt to equity ratio is rising and falling after every year it means they have
financed the debt according to the company needs.Shell Pakistan is using the mostly
equity financingrather than debt financing but in 2011 they use debt financing that’s why
ratio is increased.
External comparison
The debt to equity ratio shows the ratio of debt against equity in company’s capital
structure. The less the ratio of debt to equity is better to pay its debt by equity. The shell
has low debt to equity ratio than its competitor so it is better for shell. But it is still below
than industry average.
ii. Debt-to-Total-Assets Ratio
Shows the percentage of the firm’s assets that are supported by debit financing
Formula= Total Debt/Total Assets
Debt-to-Total-Assets Ratio SHELL, 2011= 213,828+25,169,302/33,653,733=0.754
Year SHELL PSO PRL INDUSTRY
2011 0.745 0.864 0.933 0.847
2010 0.657 0.756 0.714 0.709
2009 0.676 0.720 0.673 0.690
2008 0.641 0.703 0.621 0.655
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Internal comparison
The higher the debt ratio, the higher the degree of financial leverage that company has.
Shell’s debt to total assets ratio increased in absolute amount because of changing in
total assets which are financed by debt that’s why in 2011 a minor increase in debt ratio
is seen.
External comparison
The debt to total asset ratio shows that how the company finance their assets by equity
or debt. The Shell has the less debt to total asset ratio than its competitors and industry
average while the competitors finance their major portion of assets by debt.
iii. Total Capitalization Ratio
Shows the relative importance of long-term debt to long-term financing of the firm
Formula= Total Debt/LT-Debt + Equity
Total CapitalizationRatio SHELL, 2011= 213,828+25,169,302/33,653,733=0.754
Year SHELL PSO PRL INDUSTRY
2011 3.069 6.101 13.943 7.704
2010 1.617 3.023 2.493 2.378
2009 2.088 2.478 2.056 2.207
2008 1.786 2.290 1.637 1.904
Internal comparison
Shell’s total capitalization ratio is rising and falling after every year which means they
used long term debt when they needed. In 2011, 2009 and 2008 Shell’s capitalization
ratio is same as debt to equity ratio but in 2010 it fall down which tell us relative
importance of long term debt of firm. In 2010 they use long term financing.
External comparison
The Shell has the less total capitalization ratio than its competitors and industry average
due to less long term debtwhile the competitors finance their major portion by long term
debt.
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2. Problems Of Shell Pakistan
a) The Shell Pakistan has weaker the quick ratios due to the following
There is inventory management problem with Shell Pakistan
May be the inventory of Shell Pakistan is too high as compared with the
industry ratios.
b) Shell Pakistan has less EBIT to cover interest charges.
c) There are some other problems with the profitability ratios which are mentioned
below:
The cost of goods sold may be the too high of Shell Pakistan or they have
huge investment in the assets. So the gross profit margin is decreased as
that of previous years.
The cost of goods sold may be the too high of Shell Pakistan or they have
huge operating cost i.e. taxes etc. because Shell is low leveraged firm as
compared to the industry. So the net profit margin is decreased.
The net profit after taxes of Shell Pakistan are not satisfactorily and they
have huge investment in equity financing as compared to the industry.
3. Actions by the Company to Overcome Problems
a) Shell Pakistan is improving the weaker quick ratios
It is improving the inventory management problem with Shell Pakistan.
It is improving the too high inventory of Shell Pakistan.
b) Shell Pakistan is improving the EBIT to cover interest charges if any that is why
Shell Pakistan is using very minute long term debt as compared to industry
ratios.
c) There are some other problems with the profitability ratios of Shell Pakistan and
is trying to improve
It is improving the cost of goods sold which is too high and also improves
their sales.
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It is improving the too high cost of goods sold or they have huge operating
cost i.e. taxes etc. as compared to the industry. So it is improving its net
profit margin.
The net profit after taxes of Shell Pakistan is going satisfactorily with less
risk factor and they have huge investment in equity financing as compared
to the industry.
4. Our Suggestions that the Company Should Imitate
a) The Shell Pakistan should improve the weaker quick ratios
By improving inventory management problem with Shell Pakistan.
By improving too high inventory system
b) Shell Pakistan should improve EBIT by decreasing COGS to cover interest
charges and use very minute or no long term debt.
c) There are some other problems with the profitability ratios which Shell Pakistan
should improve
The cost of goods sold may be too high or they have huge investment in
the assets. They can improve their profitability ratio by two ways either
they can reduce COGS or improve pricing policy
The cost of goods sold may be the too high of Shell Pakistan or they have
huge operating cost i.e. taxes etc. they can improve profitability by using
debts.
Shell is low leverage firm that’s why paying high taxes and low net profit
after tax shell should use debt to avoid high taxes
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5. Upcoming Global Challenges For Shell Pakistan
Balancing short and long term interests
Over staffing problem
Global financial crisis
Shortage of raw material
Globally growing fuel requirements
Shortage of sources
Energy crisis
Demand and supply issues
Globally competition
Taxes rate
Trade policies of different countries
Unemployment issues
Foreign exchange issues.
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6. Summary of the Analysis
FINANCIAL LIVERAGE RATIOS
Debt-to-Equity 3.069 1.914 6.351 3.105 13.943 2.49
Debt-to-total-assets 0.754 0.657 0.864 0.756 0.933 0.71
Total capitalization ratio 3.069 1.617 6.101 3.023 13.943 2.49
FINANCIAL LIVERAGE RATIOS
Debt-to-Equity 2.088 1.786 2.57 2.37 2.06 1.6
Debt-to-total-assets 0.676 0.641 0.72 0.7 0.67 0.6
Total capitalization ratio
2.088 1.786 2.48 2.29 2.06 1.6
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7. APPENDIX
A. Shell balance sheet and income statement
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B. PSO balance sheet and income statement
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C. PRL balance sheet and income statement
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8. REFERENCES
WWW.GOOGLE.COM
WWW.KSE.COM.PK (PERSONEL VISIT)
WWW.PSOPK.COM(EMPLOY)
WWW.SHELL.COM(PERSONEL VISIT)
WWW.WIKIPEDIA.COM