fm report shell & pso

Financial Management

Term Project Report Financial Ratio Analysis

Financial Ratio Analysis of SHELL and PSO on

the basis of financial record of 2007 and 2008

Submitted To:

Amyn Wahid

Submitted By:

Khurram Rao(Group Leader)

(2008-1-25-9433)

Muhammad Usman Saleem

(2008-1-25-9029)

Farhan Ahmed

(2008-1-25-8953)

Israr UlHaque

(2008-1-25-8649)

2009

Institute of Business Management

8/8/2009

Acknowledgement

First of all we would like to thank our teacher Mr. Amyn Wahid 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.

Table of Content

Contents

1. INTRODUCTION OF THE SHELL AND PSO .........................................................................1

A. SHELL PAKISTAN (OUR COMPANY) ............................................................................................1

B. PAKISTAN STATE OIL (COMPETITORS COMPANY) ......................................................................3

2. RATIO ANALYSIS ....................................................................................................................4

1. LIQUIDITY RATIOS ......................................................................................................................4

A. CURRENT RATIO .................................................................................................................................. 4

B. QUICK RATIO ........................................................................................................................................ 5

2. LEVERAGE RATIO .......................................................................................................................6

A. TOTAL DEBT RATIO .............................................................................................................................. 6

B. DEBT TO EQUITY RATIO ....................................................................................................................... 7

3. COVERAGE RATIO ......................................................................................................................8

A. TIMES INTEREST EARNED .................................................................................................................... 8

4. EFFICIENCY RATIOS .............................................................................................................9

A. RECEIVABLE TURNOVER ...................................................................................................................... 9

B. AVERAGE COLLECTION PERIOD IN DAYS .......................................................................................... 11

C. INVENTORY TURNOVER RATIO ......................................................................................................... 12

D. INVENTORY TURNOVER PERIOD IN DAYS ......................................................................................... 13

E. TOTAL ASSET TURNOVER RATIO ....................................................................................................... 14

5. PROFITABILITY RATIOS ............................................................................................................ 15

A. GROSS PROFIT MARGIN ...................................................................................................................... 15

B. NET PROFIT MARGIN ........................................................................................................................... 16

C. RETURN ON INVESTMENT .................................................................................................................. 18

D. RETURN ON EQUITY ........................................................................................................................... 19

6. EQUITY RATIOS ......................................................................................................................... 20

A. EARNINGS PER SHARE ....................................................................................................................... 20

B. PRICE PER EARNING RATIO .............................................................................................................. 21

3. SHELL & PSO BALANCE SHEET AND INCOME STATEMENT ........................................ 23

A. SHELL BALANCE SHEET ........................................................................................................... 23

B. SHELL INCOME STATEMENT ..................................................................................................... 25

C. PSO BALANCE SHEET ............................................................................................................... 26

D. PSO INCOME STATEMENT ........................................................................................................ 28

4. COMMON SIZE & INDEX ANALYSIS .................................................................................. 29

A. COMMON SIZE BALANCE SHEET OF SHELL ............................................................................. 29

B. COMMON SIZE BALANCE SHEET OF PSO .................................................................................. 31

C. COMMON SIZE INCOME STATEMENT OF SHELL ...................................................................... 33

D. COMMON SIZE INCOME STATEMENT OF PSO ........................................................................... 34

E. INDEXED BALANCE SHEET OF SHELL ........................................................................................ 35

F. INDEXED BALANCE SHEET OF PSO ........................................................................................... 37

G. INDEXED INCOME STATEMENT OF SHELL ............................................................................... 39

H. INDEXED INCOME STATEMENT OF PSO .................................................................................... 40

5. SUMMARY OF THE ANALYSIS ........................................................................................... 41

6. CONCLUSION AND POSSIBLE RECOMMENDATIONS .................................................... 42

7. APPENDIX ............................................................................................................................... A

A. SHELL BALANCE SHEET ‘08 ....................................................................................................... A

B) SHELL INCOME STATEMENT ‘08 ................................................................................................ B

C) SHELL BALANCE SHEET ‘07 ...................................................................................................... C

D) SHELL INCOME STATEMENT ‘07 ......................................................................................................... D

E) PSO BALANCE SHEET ‘08 .................................................................................................................. E

F) PSO INCOME STATEMENT 08 ...................................................................................................... F

G) PSO BALANCE SHEET ‘07 .......................................................................................................... G

H) PSO INCOME STATEMENT ‘07 ................................................................................................... H

Institute of Business Management Page 1

1. Introduction of the Shell and PSO

a. Shell Pakistan (Our Company)

Shell is a superior brand name with over a 100-year history in the subcontinent. 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.


b. Pakistan State Oil (Competitors Company)

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.


2. Ratio Analysis

1. LIQUIDITY RATIOS

a. CURRENT RATIO

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

Formula= �� ⁄

Shell

2007 Current Assets 20041859 Current

Liabilities

19612115


Liabilities

23307811

PSO


Liabilities

51385727


Liabilities

93736220

2007 2008

Shell 1.02 1.30

Pso 1.22 1.24

1.02

1.301.22

1.24

0.80

1.00

1.20

1.40

1.60

Rati

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Trend Analysis of Current Asset Ratio


INTERNAL COMPARISON

Shell’s Current ratio increased significantly as compared to previous year although the volume

of current liabilities increased as a whole due to increase in trade payables but current assets

grew at a rapid rate. The reason behind this was the significant change in the value of stock in

trade. This is due to higher prices of petroleum products during that time and the company is

using FIFO method for its inventory. Also, the working capital requirements from the GOP was

increased for MNC’s.

EXTERNAL COMPARISON

Shell current ratio increased more rapidly as compared to PSO because PSO current liabilities

grew at the same level as their current assets. PSO benefited from not being an MNC.

b. QUICK RATIO

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

Formula= �� − �� ⁄

SHELL

2007 Current

Assets

20041859 Current

Liabilities

19612115 Inventory

8244054

2008 Current

Assets

30220209 Current

Liabilities

23307811 Inventory

18095523

PSO

2007 Current

Assets

62513273

Current

Liabilities

51385727

Inventory

29562055

2008 Current

Assets

115878692 Current

Liabilities

93736220 Inventory

62360067


INTERNAL COMPARISON

Shell’s Quick ratio decreased due to higher prices of petroleum products, as the volume allocated

for inventories was higher.

EXTERNAL COMPARISON

There is no significant difference between the decreases of the ratio of both the companies as

compared to their previous benchmarks.

2. LEVERAGE RATIO

a. TOTAL DEBT RATIO

Shows the percentage of the firm’s assets that are supported by debt financing.

Formula= �� ⁄

Shell

2007 Total Debts 19751156 Total Assets 29211927


PSO



2007 2008

Shell 0.60 0.52

Pso 0.64 0.57

0.60

0.52

0.64

0.57

0.40

0.50

0.60

0.70

0.80

Rati

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Trend Analysis of Quick Ratio


INTERNAL COMPARISON

Shell’s total debt increased in absolute amount but not at a pace of changing total assets that’s

why a minor fall in debt ratio is seen.

EXTERNAL COMPARISON

Pso’s total debt increased at a higher pace than its total assets mainly due to the change in current

liabilities. Overall PSO has become more leveraged than shell. The main reason behind this was

the higher amount of GOP’s receivables were not paid to PSO and to tackle with cashflow

problems the company had to finance more than previous.

b. DEBT TO EQUITY RATIO

Shows the extent to which the firm is financed by debt.

Formula= �� ⁄

Shell

2007 Total Debts 19751156 Total Equity 9460771


PSO



2007 2008

Shell 0.68 0.66

Pso 0.72 0.76

0.68 0.66

0.72 0.76

0.50

0.60

0.70

0.80

0.90

1.00

Rati

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Trend Analysis of Total Debt Ratio


INTERNAL COMPARISON

Shell’s debt to equity ratio decreased due to increase in its retained earnings.

EXTERNAL COMPARISON

Shell has maintained its debt to equity ratio better than PSO whose ratio has fluctuated

apparently than the previous year. This effect can be seen in the previous total debt’s ratio. The

main reason behind that was to finance the excessive receivables not yet paid by GOP.

3. COVERAGE RATIO

a. TIMES INTEREST EARNED

Shows a firm’s ability to cover its interest charges.

Formula= �� ⁄

Shell

2007 EBIT 1166405 Interest

Expense

909919


Expense

970267

PSO

2007 2008

Shell 2.09 1.91

Pso 2.57 3.10

2.09 1.91

2.57

3.10

1.50

2.00

2.50

3.00

3.50R

ati

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Trend Analysis of Debt to Equity Ratio



Expense

1158112


Expense

1367898

INTERNAL COMPARISON

Shell has significantly improved its time interest earned ratio due to the massive increase in its

operating income.

EXTERNAL COMPARISON

Although shell interest earned ratio increased significantly but it is still 50 percent as compared

to Pso who is at good position.

4. EFFICIENCY RATIOS

a. RECEIVABLE TURNOVER

Indicates how successful the firm is in collection of receivable

Formula= �� /�⁄

2007 2008

Shell 1.28 8.74

Pso 6.86 16.41

1.28

8.746.86

16.41

0.00

5.00

10.00

15.00

20.00

Rati

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Trend Analysis of Times Interest Earned


Shell

2007 Credit Sales 130129844 Avg A/R 4905639.5

2008 Credit Sales 157626491 Avg A/R 4578132.5

PSO

2007 Credit Sales 411057592 Avg A/R 12657917

2008 Credit Sales 583213959 Avg A/R 23752347

INTERNAL COMPARISON

Shell has managed to control its receivable volume with the growing sales level. That’s why a

increase in the ratio has been seen which shows its efficiency in collecting receivables while at

the same time increasing its sales volume.

EXTERNAL COMPARISON

Pso’ s ratio has been deteriorated as compared to previous year which shows its relative

inefficiency in collecting receivables as compared to Shell. The main amount of receivables

which had affected the figures is from Government of Pakistan and IPP’s.

2007 2008

Shell 26.53 34.43

Pso 32.47 24.55

26.53

34.4332.47

24.55

20.00

25.00

30.00

35.00

40.00

Rati

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Trend Analysis of Receivable Turnover


b. AVERAGE COLLECTION PERIOD IN DAYS

Average number of days the receivables is outstanding.

Formula= �� ⁄

Shell

2007 Days 365 Receivable

Turnover

26.53


Turnover

34.43

PSO


Turnover

32.47


Turnover

24.55

INTERNAL COMPARISON

Shell has managed to control its receivable volume with the growing sales level. That’s why a

increase in the ratio has been seen which shows its efficiency in collecting receivables while at

the same time increasing its sales volume.

2007 2008

Shell 13.76 10.60

Pso 11.24 14.87

13.76

10.6011.24

14.87

8.00

10.00

12.00

14.00

16.00

Ra

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Trend Analysis of Average Collection Period

(Days)


EXTERNAL COMPARISON

Pso’ s ratio has been deteriorated as compared to previous year which shows its relative

inefficiency in collecting receivables as compared to Shell.

c. INVENTORY TURNOVER RATIO

Indicates the effectiveness of the inventory management practices of the firm.

Formula= �!"� �� ⁄

Shell

2007 COGS 108664932 Avg Inventory 9111970

2008 COGS 124694471 Avg Inventory 13169788.5

PSO



2007 2008

Shell 11.93 9.47

Pso 11.69 10.12

11.93

9.47

11.69

10.12

8.00

9.50

11.00

12.50

14.00

Rati

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Trend Analysis of Inventory Turnover (Days)


INTERNAL COMPARISON

Shell’s situation in that particular section has deteriorated significantly because of the large

accumulation of inventory, may be not in physical quantities but in rupee amount due to higher

oil prices. This can adversely affects the company earnings in the future.

EXTERNAL COMPARISON

In comparison with Shell Pso has maintained its inventory turnover ratio more efficiently

although a decrease in ratio can be seen there also.

d. INVENTORY TURNOVER PERIOD IN DAYS

Average number of days before inventory is turned into accounts receivable through

sales.

Formula= �� ⁄

Shell

2007 Days 365 Inventory

Turnover

11.93


Turnover

9.47

PSO


Turnover

11.69


Turnover

10.12


INTERNAL COMPARISON

Shell’s situation in that particular section has deteriorated significantly because of the large

accumulation of inventory, may be not in physical quantities but in rupee amount due to higher

oil prices. This can adversely affects the company earnings in the future.

EXTERNAL COMPARISON

In comparison with Shell Pso has maintained its inventory turnover ratio more efficiently

although a decrease in ratio can be seen there also.

e. TOTAL ASSET TURNOVER RATIO

Indicates the overall effectiveness of the firm in utilizing its assets to generate sales.

Formula=$�� ⁄

Shell

2007 Net Sales 130129844 Avg Total

Assets

28752163


Assets

34438393

2007 2008

Shell 30.61 38.55

Pso 31.22 36.06

30.61

38.55

31.22

36.06

28.00

30.00

32.00

34.00

36.00

38.00

40.00

Rati

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Trend Analysis of Inventory Turnover (Days)


PSO


Assets

72452919.5


Assets

100923667.5

INTERNAL COMPARISON

Shell Total asset turnover remained at the same level as the previous year.

EXTERNAL COMPARISON

Pso’s ratio also maintained at its previous level but Pso is more efficient in utilizing its assets

overall.

5. PROFITABILITY RATIOS

a. GROSS PROFIT MARGIN

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

Formula= "�� %��&� $�� ⁄

2007 2008

Shell 4.53 4.58

Pso 5.67 5.78

4.534.58

5.675.78

3.00

4.00

5.00

6.00

7.00

Rati

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Trend Analysis of Total Asset Turnover


Shell

2007 Gross Profit 6380502 Net Sales 130129844


PSO



INTERNAL COMPARISON

GPM of Shell has doubled from the previous year which is a good sign for company’s

operations. That might because of increasing oil prices.

EXTERNAL COMPARISON

GPM of Pso also doubled because of the same effect but the overall level of Shell is far higher

than Pso.

b. NET PROFIT MARGIN

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

Formula= '() *+,-.) /-)(+ 0/1(2 $�� ⁄

2007 2008

Shell 4.90% 9.61%

Pso 2.98% 5.15%

4.90%

9.61%

2.98%

5.15%

0.00%

10.00%

20.00%

Rati

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Trend Analysis of Gross Profit Margin


Shell

2007 Net Profit 706659 Net Sales 130129844


PSO



INTERNAL COMPARISON

Shell’s NPM has improved a lot from the previous year level. This must be the same effect as

seen in the company’s GPM.

EXTERNAL COMPARISON

Pso’s NPM has also improved but not as significant as Shell’s. In fact the company was in better

position as compared to shell previous year.

2007 2008

Shell 0.54% 3.26%

Pso 1.14% 2.41%

0.54%

3.26%

1.14%

2.41%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

Rati

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Trend Analysis of Net Profit Margin


c. RETURN ON INVESTMENT

Indicates the profitability on the assets of the firm (after all expenses and taxes).

Formula= $�� 3� �� ⁄

Shell

2007 Net Income 706659 Avg Total

Assets

28752163

2008 Net Income 5137094 Avg Total

Assets

34438393

PSO

2007 Net Income 4689798 Net Sales 72452919.5

2008 Net Income 14053795 Net Sales 100923667.5

INTERNAL COMPARISON

The company’s ROI has also improved as seen in the previous ratios.

EXTERNAL COMPARISON

Shell ROI has increased more massively as compared to Pso.

2007 2008

Shell 2.46% 14.92%

Pso 6.47% 13.93%

2.46%

14.92%

6.47%13.93%

0%

8%

16%

24%

Rati

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Trend Analysis of RETURN ON INVESTMENT


d. RETURN ON EQUITY

Indicates the profitability to the shareholders of the firm (after all expenses and taxes).

Formula= $�� 3� �� ⁄

Shell

2007 Net Income 706659 Avg Equity 9808758.5


PSO

2007 Net Income 4689798 Avg Equity 20876138


INTERNAL COMPARISON

A massive increase is seen on the Shell’s side with respect to ROE.

EXTERNAL COMPARISON

Despite Shell’s massive increase in ROE, Pso is still ahead in this respect.

2007 2008

Shell 7.20% 44.53%

Pso 22.46% 54.15%

7.20%

44.53%

22.46%

54.15%

0%

10%

20%

30%

40%

50%

60%

Ra

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Trend Analysis of Return on Equity


6. EQUITY RATIOS

a. EARNINGS PER SHARE

The portion of a company's profit allocated to each outstanding share of common

stock.

Formula= %��&� �&�� $�. �& ��33�� 5�� !��⁄

Shell

2007 Profit After

Taxation

706659000 No. of Common

shares

Outstanding

54790313

2008 Profit After

Taxation


shares

Outstanding

54790313

PSO

2007 Profit After

Taxation


shares

Outstanding

171518901

2008 Profit After

Taxation


shares

Outstanding

171518901

2007 2008

Shell 12.90 93.76

Pso 27.34 81.94

12.90

93.76

27.34

81.94

0.00

20.00

40.00

60.00

80.00

100.00

Ra

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Valu

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Trend Analysis of EARNINGS PER SHARE


INTERNAL COMPARISON

There is a huge improvement is EPS of Shell as compared to previous year’s performance.

EXTERNAL COMPARISON

EPS of both companies has almost no significant difference but improvement is seen in Shell’s

performance which was far below from Pso’s level previous year.

b. PRICE PER EARNING RATIO

A valuation ratio of a company's current share price compared to its per-share

earnings.

Formula= 6��7�� %� � %�� 5�� %�� 5��⁄

Shell

2007 Market Price

Per Share

410.05

Earnings Per

Share

12.90

2008 Market Price

Per Share

417

Earnings Per

Share

93.76

PSO

2007 Market Price

Per Share

391.45

Earnings Per

Share

27.34

2008 Market Price

Per Share

417.24

Earnings Per

Share

81.94


INTERNAL COMPARISON

Price per earnings ratio has deteriorated but when compared to previous year’s EPS, it is evident

that is not because of decrease in price share but because of significant increase in earnings of

company. In summary shareholders did not lose confidence but enjoyed increased earnings.

EXTERNAL COMPARISON

Likewise Pso’s P/E ratio has also decreased almost to the same level as of Shell’s.

2007 2008

Shell 31.79 4.45

Pso 14.32 5.09

31.79

4.4514.32

5.090.00

10.00

20.00

30.00

40.00

Rati

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Trend Analysis of PRICE PER EARNING RATIO


3. Shell & PSO Balance Sheet and Income Statement

a. Shell Balance Sheet

ASSETS 2008 2007

Non-current assets

Fixed assets 6826848 6579993

Long-term investments 2134783 2015535

Long-term loans and advances 146381 182579

Long-term deposits and prepayments 201718 110994

Long-term debtors 134920 328727

Deferred taxation - net

280967

Total Non-current assets 9444650 9498795

Current assets

Stores and spares 13328 30286

Stock-in-trade 18095523 8244054

Trade debts 4904940 4251325

Loans and advances 47029 42720

Trade deposits and short-term

prepayments

207864 140239

Other receivables 6079111 5970763

Taxation

219715

Cash and bank balances 872414 814530

Total Current assets 30220209 19713632

Total Assets 39664859 29212427


EQUITY AND LIABILITIES 2008 2007

Equity

Share capital 547904 547904

Reserves 2233026 2233026

Unappropriated profit 10830708 6679841

Total Equity 13611638 9460771

LIABILITIES

Non-current liabilities

Deferred taxation - net 51574

Liabilities against assets subject to finance lease 2216 547

Long-term loan 2500000

Asset retirement obligation 191620 138494

Total Non-current liabilities 2745410 139041

Current liabilities

Current maturity of liabilities against assets subject to finance

lease

56742 32203

Short-term running finances utilized under mark-up

arrangements

4338339 725836

Short-term loans 1500000 6810000

Trade and other payables 16483008 11912496

Mark-up accrued 157268 131580

Taxation 772454

Total Current liabilities 23307811 19612115

Total Liabilities 26053221 19751156

Total Equity and Liabilities 39664859 29211927


b. Shell Income Statement

SHELL Income Statement Regular

2008 2007

Sales 157,626,491 130,129,844

Non-fuel retail

sales 119,915 141,615

others 20,205 17,909

other revenue 341,349 447,517

Net Sales 158,107,960 130,736,885

Sales tax 18,263,271 15,691,451

Net revenue 139,844,689 115,045,434

Cost of products sold 124,694,471 108,664,932

Gross Profit 15,150,218 6,380,502

Distribution expenses 2,950,422 3,366,555

Administrative and marketing

expenses

2,109,289 1,716,707

10,090,507 1,297,240

Other operating income 306,453 215,322

10,396,960 1,512,562

Other operating expenses 1,915,601 377,978

Operating profit 8,481,359 1,134,584

Finance cost 970,267 878,098

7,511,092 256,486

Share of profit of associate - net of tax 212,248 122,250

Profit before taxation 7,723,340 378,736

Taxation 2,586,246 327,923

Profit after taxation 5,137,094 706,659

Rupees Rupees

Earnings per share 93.76 12.9


c. PSO Balance Sheet

Assets 2008 2007

Non-Current Assets

Property, plant and

equipment

7,460,549 8,012,317

Intangibles 105,502 126,212

Long term investments 2,701,097 2,990,591

Long term loans,

advances and

receivables

477,745 627,972

Long term deposits and

Prepayments

79,098 65,913

Deferred Taxes 407,337 401,037

Total Non-Current

Assets

11,231,328 12,224,042

Current Assets

Stores, spare parts and

loose tools

115,814 127,891

Stock-in-trade 62,360,067 29,562,055

Trade debts 33,904,728 13,599,966

Loans and advances 396,220 365,974

Deposits and short term

prepayments

401,433 1,583,913

Other receivables 15,681,790 15,751,198

Cash and bank balances 3,018,640 1,522,276

Total Current Assets 115,878,692 62,513,273

Total Assets 127,110,020 74,737,315


EQUITY AND LIABILITIES 2008 2007

EQUITY

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

Reserves 29,249,864 19,224,027

Total Equity 30,965,054 20,939,217

Liabilities

Non-Current Liabilities

Long term deposits 834,598 768,308

Retirement and other service

benefits

1,574,148 1,644,063

Total Non-Current Liabilities 2,408,746 2,412,371

Current Liabilities

Trade and other payables 81,067,565 41,431,075

Provisions 726,116 688,512

Accrued interest / mark-up 217,928 131,961

Short term borrowings 10,997,908 9,064,781

Taxes payable 726,703 69,398

Total Current Liabilities 93,736,220 51,385,727

Total Equity and Liabilities 127,110,020 74,737,315


d. PSO Income Statement

2008 2007

Sales 583,213,959 411,057,592

Sales Tax 74,249,472 52,418,310

Inland freight equalization margin 13,685,954 8,932,956

Net sales 495,278,533 349,706,326

Cost of products sold 465,254,907 337,446,896

Gross profit 30,023,626 12,259,430

Other operating income 1,396,527 1,278,932

Operating costs

Transportation costs 337,886 369,328

Distribution and marketing expenses 3,264,599 2,745,289

Administrative expenses 1,160,741 1,002,712

Depreciation 1,119,137 1,098,157

Amortization 47,689 41,908

Other operating expenses 3,352,969 755,420

Total Operating Cost 9,283,021 6,012,814

Other income 313,860 424,238

Profit from operations 22,450,992 7,949,786

Finance costs 1,367,898 1,158,112

21,083,094 6,791,674

Share of profit of associates 294,318 330,306

Profit before taxation 21,377,412 7,121,980

Taxation 7,323,617 2,432,182

Profit for the year 14,053,795 4,689,798

Rupees Rupees

Earnings per share 81.94 27.34


4. Common Size & Index Analysis

a. Common Size Balance Sheet of SHELL

SHELL Balance Sheet Regular Common Size(%)

ASSETS 2008 2007 2008 2007

Non-current assets

Fixed assets 6826848 6579993 17.21 22.52

Long-term investments 2134783 2015535 5.38 6.90

Long-term loans and advances 146381 182579 0.37 0.63

Long-term deposits and prepayments 201718 110994 0.51 0.38

Long-term debtors 134920 328727 0.34 1.13

Deferred taxation - net 280967 0.96

Total Non-current assets 9444650 9498795 23.81 32.52

Current assets

Stores and spares 13328 30286 0.03 0.10

Stock-in-trade 18095523 8244054 45.62 28.22

Trade debts 4904940 4251325 12.37 14.55

Loans and advances 47029 42720 0.12 0.15


prepayments

207864 140239 0.52 0.48

Other receivables 6079111 5970763 15.33 20.44

Taxation 219715 0.75

Cash and bank balances 872414 814530 2.20 2.79

Total Current assets 30220209 19713632 76.19 67.48

Total Assets 39664859 29212427 100.00 100.00


SHELL Balance Sheet Regular Common Size

(%)

EQUITY AND LIABILITIES 2008 2007 2008 2007

Equity

Share capital 547904 547904 1.38 1.88

Reserves 2233026 2233026 5.63 7.64

Unappropriated profit 10830708 6679841 27.31 22.87

Total Equity 13611638 9460771 34.32 32.39

LIABILITIES



0.13 0.00

Liabilities against assets subject to finance lease 2216 547 0.01 0.00


6.30 0.00

Asset retirement obligation 191620 138494 0.48 0.47

Total Non-current liabilities 2745410 139041 6.92 0.48

Current liabilities


lease

56742 32203 0.14 0.11


arrangements

4338339 725836 10.94 2.48

Short-term loans 1500000 6810000 3.78 23.31

Trade and other payables 16483008 11912496 41.56 40.78

Mark-up accrued 157268 131580 0.40 0.45

Taxation 772454 1.95

Total Current liabilities 23307811 19612115 58.76 67.14

Total Liabilities 26053221 19751156 65.68 67.61

Total Equity and Liabilities 39664859 29211927 100.00 100.00


b. Common Size Balance Sheet of PSO

PSO Balance Sheet Regular Common Size

(%)

2008 2007 2008 2007

Assets

Non-Current Assets

Property, plant and equipment 7,460,549 8,012,317 5.87 10.72

Intangibles 105,502 126,212 0.08 0.17

Long term investments 2,701,097 2,990,591 2.13 4.00

Long term loans, advances and

receivables

477,745 627,972 0.38 0.84

Long term deposits and Prepayments 79,098 65,913 0.06 0.09

Deferred Taxes 407,337 401,037 0.32 0.54

Total Non-Current Assets 11,231,328 12,224,042 8.84 16.36

Current Assets

Stores, spare parts and loose tools 115,814 127,891 0.09 0.17

Stock-in-trade 62,360,067 29,562,055 49.06 39.55

Trade debts 33,904,728 13,599,966 26.67 18.20

Loans and advances 396,220 365,974 0.31 0.49

Deposits and short term prepayments 401,433 1,583,913 0.32 2.12

Other receivables 15,681,790 15,751,198 12.34 21.08

Cash and bank balances 3,018,640 1,522,276 2.37 2.04

Total Current Assets 115,878,692 62,513,273 91.16 83.64

Total Assets 127,110,020 74,737,315 100.00 100.00


PSO Balance Sheet Regular Common Size

(%)


EQUITY

Share Capital 1,715,190 1,715,190 1.35 2.29

Reserves 29,249,864 19,224,027 23.01 25.72

Total Equity 30,965,054 20,939,217 24.36 28.02

Liabilities


Long term deposits 834,598 768,308 0.66 1.03


benefits

1,574,148 1,644,063 1.24 2.20

Total Non-Current Liabilities 2,408,746 2,412,371 1.90 3.23

Current Liabilities

Trade and other payables 81,067,565 41,431,075 63.78 55.44

Provisions 726,116 688,512 0.57 0.92

Accrued interest / mark-up 217,928 131,961 0.17 0.18

Short term borrowings 10,997,908 9,064,781 8.65 12.13

Taxes payable 726,703 69,398 0.57 0.09

Total Current Liabilities 93,736,220 51,385,727 73.74 68.76

Total Equity and Liabilities 127,110,020 74,737,315 100.00 100.00


c. Common Size Income Statement of SHELL

SHELL Income Statement Regular Common Size

(%)

2008 2007 2008 2007

Sales 157,626,491 130,129,844 99.70 99.54

Non-fuel retail

sales 119,915 141,615 0.08 0.11

others 20,205 17,909 0.01 0.01

other revenue 341,349 447,517 0.22 0.34

Net Sales 158,107,960 130,736,885 100.00 100.00

Sales tax 18,263,271 15,691,451 11.55 12.00

Net revenue 139,844,689 115,045,434 88.45 88.00

Cost of products sold 124,694,471 108,664,932 78.87 83.12

Gross Profit 15,150,218 6,380,502 9.58 4.88

Distribution expenses 2,950,422 3,366,555 1.87 2.58


expenses

2,109,289 1,716,707 1.33 1.31

10,090,507 1,297,240 6.38 0.99

Other operating income 306,453 215,322 0.19 0.16

10,396,960 1,512,562 6.58 1.16

Other operating expenses 1,915,601 377,978 1.21 0.29

Operating profit 8,481,359 1,134,584 5.36 0.87

Finance cost 970,267 878,098 0.61 0.67

7,511,092 256,486 4.75 0.20

Share of profit of associate - net of tax 212,248 122,250 0.13 0.09

Profit before taxation 7,723,340 378,736 4.88 0.29

Taxation 2,586,246 327,923 1.64 0.25

Profit after taxation 5,137,094 706,659 3.25 0.54


d. Common Size Income Statement of PSO

PSO Income Statement Regular Common Size (%)

2008 2007 2008 2007

Sales 583,213,959 411,057,592 117.75 117.54

Sales Tax 74,249,472 52,418,310 14.99 14.99

Inland freight equalization margin 13,685,954 8,932,956 2.76 2.55

Net sales 495,278,533 349,706,326 100.00 100.00

Cost of products sold 465,254,907 337,446,896 93.94 96.49

Gross profit 30,023,626 12,259,430 6.06 3.51

Other operating income 1,396,527 1,278,932 0.28 0.37

Operating costs

Transportation costs 337,886 369,328 0.07 0.11

Distribution and marketing expenses 3,264,599 2,745,289 0.66 0.79

Administrative expenses 1,160,741 1,002,712 0.23 0.29

Depreciation 1,119,137 1,098,157 0.23 0.31

Amortization 47,689 41,908 0.01 0.01

Other operating expenses 3,352,969 755,420 0.68 0.22

Total Operating Cost 9,283,021 6,012,814 1.87 1.72

Other income 313,860 424,238 0.06 0.12

Profit from operations 22,450,992 7,949,786 4.53 2.27

Finance costs 1,367,898 1,158,112 0.28 0.33

21,083,094 6,791,674 4.26 1.94

Share of profit of associates 294,318 330,306 0.06 0.09

Profit before taxation 21,377,412 7,121,980 4.32 2.04

Taxation 7,323,617 2,432,182 1.48 0.70

Profit for the year 14,053,795 4,689,798 2.84 1.34


e. Indexed Balance Sheet of Shell

SHELL Balance Sheet Regular Indexed (%)

ASSETS 2008 2007 2008 2007

Non-current assets

Fixed assets 6826848 6579993 103.75 100

Long-term investments 2134783 2015535 105.92 100

Long-term loans and advances 146381 182579 80.17 100

Long-term deposits and prepayments 201718 110994 181.74 100

Long-term debtors 134920 328727 41.04 100

Deferred taxation - net - 280967 100

Total Non-current assets 9444650 9498795 99.43 100

Current assets

Stores and spares 13328 30286 44.01 100

Stock-in-trade 18095523 8244054 219.50 100

Trade debts 4904940 4251325 115.37 100

Loans and advances 47029 42720 110.09 100


prepayments

207864 140239 148.22 100

Other receivables 6079111 5970763 101.81 100

Taxation 219715 100

Cash and bank balances 872414 814530 107.11 100

Total Current assets 30220209 19713632 153.30 100

Total Assets 39664859 29212427 135.78 100


SHELL Balance Sheet Regular Indexed (%)


Equity

Share capital 547904 547904 100.00 100

Reserves 2233026 2233026 100.00 100

Unappropriated profit 10830708 6679841 162.14 100

Total Equity 13611638 9460771 143.87 100

LIABILITIES



inf 100

Liabilities against assets subject to finance lease 2216 547 405.12 100


inf 100

Asset retirement obligation 191620 138494 138.36 100

Total Non-current liabilities 2745410 139041 1974.53 100

Current liabilities


lease

56742 32203 176.20 100


arrangements

4338339 725836 597.70 100

Short-term loans 1500000 6810000 22.03 100

Trade and other payables 16483008 11912496 138.37 100

Mark-up accrued 157268 131580 119.52 100

Taxation 772454

inf 100

Total Current liabilities 23307811 19612115 118.84 100

Total Liabilities 26053221 19751156 131.91 100

Total Equity and Liabilities 39664859 29211927 135.78 100


f. Indexed Balance Sheet of PSO

PSO Balance Sheet Regular Indexed (%)

2008 2007 2008 2007

Assets

Non-Current Assets

Property, plant and equipment 7,460,549 8,012,317 93.11 100

Intangibles 105,502 126,212 83.59 100

Long term investments 2,701,097 2,990,591 90.32 100

Long term loans, advances and

receivables

477,745 627,972 76.08 100

Long term deposits and Prepayments 79,098 65,913 120.00 100

Deferred Taxes 407,337 401,037 101.57 100

Total Non-Current Assets 11,231,328 12,224,042 91.88 100

Current Assets

Stores, spare parts and loose tools 115,814 127,891 90.56 100

Stock-in-trade 62,360,067 29,562,055 210.95 100

Trade debts 33,904,728 13,599,966 249.30 100

Loans and advances 396,220 365,974 108.26 100

Deposits and short term prepayments 401,433 1,583,913 25.34 100

Other receivables 15,681,790 15,751,198 99.56 100

Cash and bank balances 3,018,640 1,522,276 198.30 100

Total Current Assets 115,878,692 62,513,273 185.37 100

Total Assets 127,110,020 74,737,315 170.08 100


PSO Balance Sheet Regular Indexed (%)


EQUITY

Share Capital 1,715,190 1,715,190 100.00 100

Reserves 29,249,864 19,224,027 152.15 100

Total Equity 30,965,054 20,939,217 147.88 100

Liabilities


Long term deposits 834,598 768,308 108.63 100


benefits

1,574,148 1,644,063 95.75 100

Total Non-Current Liabilities 2,408,746 2,412,371 99.85 100

Current Liabilities

Trade and other payables 81,067,565 41,431,075 195.67 100

Provisions 726,116 688,512 105.46 100

Accrued interest / mark-up 217,928 131,961 165.15 100

Short term borrowings 10,997,908 9,064,781 121.33 100

Taxes payable 726,703 69,398 1047.15 100

Total Current Liabilities 93,736,220 51,385,727 182.42 100

Total Equity and Liabilities 127,110,020 74,737,315 170.08 100


g. Indexed Income Statement of SHELL

SHELL Income Statement Regular Indexed (%)

2008 2007 2008 2007

Sales 157,626,491 130,129,844 121.13 100

Non-fuel retail

sales 119,915 141,615 84.68 100

others 20,205 17,909 112.82 100

other revenue 341,349 447,517 76.28 100

Net Sales 158,107,960 130,736,885 120.94 100

Sales tax 18,263,271 15,691,451 116.39 100

Net revenue 139,844,689 115,045,434 121.56 100

Cost of products sold 124,694,471 108,664,932 114.75 100

Gross Profit 15,150,218 6,380,502 237.45 100

Distribution expenses 2,950,422 3,366,555 87.64 100


expenses

2,109,289 1,716,707 122.87 100

10,090,507 1,297,240 777.84 100

Other operating income 306,453 215,322 142.32 100

10,396,960 1,512,562 687.37 100

Other operating expenses 1,915,601 377,978 506.80 100

Operating profit 8,481,359 1,134,584 747.53 100

Finance cost 970,267 878,098 110.50 100

7,511,092 256,486 2928.46 100

Share of profit of associate - net of tax 212,248 122,250 173.62 100

Profit before taxation 7,723,340 378,736 2039.24 100

Taxation 2,586,246 327,923 788.67 100

Profit after taxation 5,137,094 706,659 726.96 100


h. Indexed Income Statement of PSO

PSO Income Statement Regular Indexed (%)

2008 2007 2008 2007

Sales 583,213,959 411,057,592 141.88 100

Sales Tax 74,249,472 52,418,310 141.65 100

Inland freight equalization margin 13,685,954 8,932,956 153.21 100

Net sales 495,278,533 349,706,326 141.63 100

Cost of products sold 465,254,907 337,446,896 137.87 100

Gross profit 30,023,626 12,259,430 244.90 100

Other operating income 1,396,527 1,278,932 109.19 100

Operating costs

Transportation costs 337,886 369,328 91.49 100

Distribution and marketing expenses 3,264,599 2,745,289 118.92 100

Administrative expenses 1,160,741 1,002,712 115.76 100

Depreciation 1,119,137 1,098,157 101.91 100

Amortization 47,689 41,908 113.79 100

Other operating expenses 3,352,969 755,420 443.85 100

Total Operating Cost 9,283,021 6,012,814 154.39 100

Other income 313,860 424,238 73.98 100

Profit from operations 22,450,992 7,949,786 282.41 100

Finance costs 1,367,898 1,158,112 118.11 100

21,083,094 6,791,674 310.43 100

Share of profit of associates 294,318 330,306 89.10 100

Profit before taxation 21,377,412 7,121,980 300.16 100

Taxation 7,323,617 2,432,182 301.11 100

Profit for the year 14,053,795 4,689,798 299.67 100


5. Summary of the Analysis

Ratios SHELL PSO

2007 2008 2007 2008

Liquidity Ratios

Current 1.02 1.30 1.22 1.24

Quick 0.60 0.52 0.64 0.57

Leverage Ratios

Total Debt Ratio 0.68 0.66 0.72 0.76

Debt to Equity 2.09 1.91 2.57 3.10

Coverage Ratios

Times Interest Earned 1.28 8.74 6.86 16.41

Activity Ratios

Receivable Turnover 26.53 34.43 32.47 24.55

Average Collection

Period 13.76 10.60 11.24 14.87

Inventory Turnover 11.93 9.47 11.69 10.12

ITD 30.61 38.55 31.22 36.06

Total Asset Turnover 4.53 4.58 5.67 5.78

Profitability Ratios

Gross Profit Margin 4.90% 9.61% 2.98% 5.15%

Net Profit Margin 0.54% 3.26% 1.14% 2.41%

Return on Assets 2.46% 14.92% 6.47% 13.93%

Return on Equity 7.20% 44.53% 22.46% 54.15%

Market Value Measures

Earnings Per Share 12.90 93.76 27.34 81.94

P/E Ratio 31.79 4.45 14.32 5.09

Note:-

Company A:- Our Company SHELL

Company B:- Competitors Company PSO


6. Conclusion and Possible Recommendations

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 led 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.

Institute of Business Management Page A

7. Appendix a. Shell Balance Sheet ‘08

Institute of Business Management Page B

b) Shell Income Statement ‘08

Institute of Business Management Page C

c) Shell Balance Sheet ‘07

Institute of Business Management Page D

d) Shell Income Statement ‘07

Institute of Business Management Page E

e) PSO Balance Sheet ‘08

Institute of Business Management Page F

f) PSO Income Statement 08

Institute of Business Management Page G

g) PSO Balance Sheet ‘07

Institute of Business Management Page H

h) PSO Income Statement ‘07

fm report shell & pso

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