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Research & Analysis Report On Pakistan State Oil

By: S.M. Talha Pasha ACCA Registration: 1056730 March 2008 Mentor: Mr. Burhan Uddin Ahmed

Contents
Research & Analysis Report On Pakistan State Oil ............................................................................ 1

Introduction
The topic selected for the purpose of this Report is PAKISTAN STATE OIL. There have also been several other reasons, which have encouraged me to choose this particular topic, which vary from a professional outlook to personal interests. This topic relates to acquiring, analysing and interpreting data pertaining to an actual organization, which is gathered from multiple sources primarily comprising of an organizations financial statements through the calculation of financial ratios. On the personal front it has always been my hobby to get the basic knowledge and structure of working of various companies

THE COMPANY:
The organisation selected for the project is Pakistan State Oil; formerly State Oil Company Limited (SOCL) PSO is the largest oil marketing company in Pakistan having a market share of 59% of white oil products and 80% in black oil products. It has ISO 9000:2000 certification. It is engaged in the import, storage, distribution and marketing of various POL (petroleum, oil and lubricants) products including Mogas, HSD, fuel oil, jet fuel, kerosene, LPG, CNG and petrochemicals. Pakistan State Oil has been meeting the countrys fuel needs by merging sound business sense with national obligation. Pakistan State Oil is the first Pakistani Public sector Company to become a member of World Economic Forum (WEF). PSO is the winner of Karachi Stock Exchange top companies award for several years. (www.psopk.com ) The company has market capitalization approximately of Pak. Rs.67 billion. It is the winner of Most Preferred Local Company Award at the PSHRM graduate employer awards 2007. In order to maintain quality standards PSO has introduced a total quality management system in its all operational activities. Consistent conformance to prescribed standards and specifications across the whole range of activities from receipt, storage, transportation and delivery of products is the cornerstone of PSO's quality management system. PSO has extensive storage capacity, almost 81% of the total national storage has been kept by the company that is around 860,000 metric tones per financial year. (Oil Companies Advisory Committee 2008; PSO Annual Report 2005-2008).

The Oil Industry:


The global economy showed signs of moderate growth in FY 2007 after the upswing that was witnesses in FY 2006. The increase in oil demand was mainly due to heavy requirement from China and India. India has maintained GDP growth rate of around 9% per year. Like wise China has maintained growth figures around 10%. Higher economic activity is the main factor behind

the forecasted robust oil demand in both regions. The total global oil consumption grew around 4.5% in line with GDP growth of 4.9%. (PSO annual report 2007)

The Oil Industry in Pakistan:


Pakistan is a country, which is highly dependent on oil and consumes over 400,000 barrels of oil per day.29.9% of the countrys primary commercial energy is dependent on it. The industry consumption of Black Oil registered and increase of 45.2% over the prior year in a turnaround from the trend observed in the recent past whereby gas was being encouraged by the Government of Pakistan as the fuel of first choice for power generation. However, the white oil registered a decline 2.4% primarily due to slow down in large-scale manufacturing and everincreasing substitution by compressed natural gas (CNG) / liquefied petroleum gas (LPG) in the automotive sector. (PSO annual report 2007) In the Oil-marketing sector, nine OMCs namely, Pakistan State Oil Company (PSO), Shell Pakistan Limited (SPL), Caltex Oil (Pakistan) Limited (COPL), Attock Petroleum Limited (APL), Total-PARCO Pakistan Limited (TPPL), Parco-Pearl, Admore Gas Private Limited, Hascombe Storage Private Limited and Askar Oil Services Private Limited are operating in Pakistan with an overall market share of 63.1 %, 17.2%, 6.3%, 3.9%, 7.5% 0.8%, 1.0% 0.1 % and 0.06% respectively. Three new oil-marketing companies like Bosicor Pakistan Limited, Overseas Oil Trading Company Limited and Bakri Trading Company Pakistan have also entered in the marketing of petroleum products. Pakistan offers good opportunity for establishment of new OMCs in view of its fast growing petroleum products market (Ministry of petroleum 2008). The following chart presents a picture of the past, current and future demand of POL products in Pakistan (Ministry of Petroleum 2008) [pic] The long-term petroleum products demand/supply scenario is indicated in the following table: (Data source Ministry of Petroleum 2008) | In million tones 2003-2004 14.3

Demand of Petroleum Products Production from Local Refineries Surplus Naphtha / Motor gasoline available for

2004-05 15.0

2010-11 17.0

2017-18 19.0

10.3

12.0

11.3

11.8

1.3

1.3

0.8

0.8

exports Deficit of HSD and FO

5.0

5.0

6.5

8.2

Government of Pakistan welcomes the establishment of new oil marketing companies in order to bridge the demand, expand oil infrastructure and create healthy market competition in the downstream petroleum sector. (Ministry of Petroleum, 2008)

Aims and Objectives:


This report will focus on the performance of PSO based mainly on a financial perspective. This will be achieved primarily by means of ratio analysis. The main aims of the research project will be: 1. To analyse the financial performance of PSO by comparison with historical data using absolute data and ratios; 2. To analyse and compare the performance of the company with a major competitor.

Information Gathering
For the purpose of the project, data from multiple sources was gathered and utilised. A lot of data was available about the company and the oil sector itself through secondary sources resulting in no need to collect primary information. However the process of information gathering had to be structured and focused so as to avoid the dangers of information overload. The following are the sources used:

Reports:
The most important data source for the project was the Annual Reports of PSO. As a result three latest Annual Reports that is for the year ended 2005, 2006 and 2007 were taken from a broker at the Karachi Stock Exchange (KSE). Similarly the competitors annual report (2007) was taken from a friend who works there. It was used to achieve one of the objectives of the research- to compare the organizations performance with that of a competitor.

Internet:
The Internet was a very useful tool for this project. It provided me with unlimited information relating to my research. The Google search engine was used to get site addresses for the sites such as those of The Ministry of Petroleum & Natural Resources, The Oil Companies Advisory Committee, Pakistan State Oil, Oil & Gas Regulatory Authority and many others in my pursuit of knowledge. Some sites were invaluable source of information while others

could not offer any relevant information.

Analysis
Financial analysis is basically used to compare one piece of information with another that is based on interrelationship of financial data. Ratios used stand-alone confer little meaning but by comparison with the industry standards gives in-depth knowledge on the companys standing with in the industry. Although ratio analysis helps comparison of different sized entities, it has some important limitations that must be considered. Due to the differences in accounting practices, ratios can be misleading. Two otherwise similar companies using different accounting methods can look quite different. Also care must be taken in comparing data from different industries, as their operating risk, financial risk or cost structures might be different, distorting the results. That is why financial analysis is used to compare organisation within the same industry. Furthermore, management can use certain short-term actions to influence their ratios. Care must also be taken to ensure that the definition of a ratio is consistent. Some very common ratios and terms have different definitions for e.g. gearing ratio. Financial ratios fall into five general categories. (The relevant categories with the formulae for each ratio are given in appendix 3).

Vertical or trend Analysis:


A companys performance may be compared to prior period performance. However before any such comparison takes place past results must be rearranged possibly due to change in accounting policies during the course of the current period. Past results may also be adjusted for price changes. This is referred to as trend or vertical analysis. Just because a companys results in one year are better than its results in the previous year, it does not mean that this years results are good. It may be that the previous years results were particularly poor.

Analysis using absolute data:


We begin our analysis using trends of simple figures. However it should be noted that single figure on its own has little significance in an analysis, nevertheless it can be used to make a general opinion about the performance of an entity over the years. The charts and trend lines have been calculated using data entered in to Microsoft Excel.

Sales Revenue:
It can be seen from the chart above that the Sales Revenue has been increasing constantly with the trend line. However in 2004 sales revenue had declined. This was not in line with the trend. The management explained that the reason for this change was due to the decrease in demand for Black oil. The performance in 2005 is in line with the trend. Moreover, in 2006 the sales revenue shot up by 39% from Rs 253,777 million in 2005 to Rs 352,515 million in 2006. The top management defines the rise due to the high increase in oil prices in the world.

Profit Before Tax:


It can be seen from the picture that the profit before tax has increased continuously until the year 2006. In 2005 PBT improved by 46.7% to Rs 9191 million from Rs 6,263 million in 2004. This was mainly due to higher selling prices. The performance in 2006 was in line with this trend. However, the PBT in the year 2007 decreases heavily even though the sales revenue increased by 16.6%. This is mainly due to the major increase in the oil prices in the international market and the government policy to retain the price which adversely affected the cost of production and thus minimized the percentage of profit margin of the company.

Working Capital:
Working Capital represents the short-term liquidity of the company. PSOs working capital seems to be very volatile. It drives from Rs 7,970 million in 2005 to Rs 10.978 million in 2006 an increase of 37.7%, then to Rs 11,127 million in 2007 a minor increase of 1.36%. It indicates a better ability to meet outgoing and unexpected bills therefore taking the pressure off from cash flow. The improvement shows that the company has adequate resources to meet its working capital requirements as well as to meet its daily expenses. However, the management should take care not to invest too much of its resources into current assets. In order to get a better understanding we will undertake ratio analysis.

Ratio Analysis:
Please note that Appendix 3 provides a definition of all the ratios used in the analysis while Appendix 4 gives the relevant ratios.

Profitability Ratios: Gross Profit Margin:


The gross profit margin helps analysing the gross earnings over sales volume. The gross profit margin of PSO has fallen continuously over the period. It has fallen from 6.47% in 2005 to 5.77% in 2006 a decrease of 10.81%, then to 3.51% in 2007, a decrease of 39.24%. This is due to increase in oil prices in international market which increased the cost of production of the company and hence decreased the profitability margin. Net Profit Margin This ratio is particularly important as it indicates the degree of control the company has in controlling costs. It has followed a similar trend to that of the gross profit margin. It has fallen by 14.08% from 4.40% in 2005 to 3.78% in 2006 and then by 39.81% to 2.27% in 2007. In 2005 this fall is because of the increase in the distribution and marketing expenses of the company by Rs 134,524 million an increase of 6% while the margin in 2006 has fallen due to heavy increase in provision for doubtful debts expense by Rs 7 million, an increase of 70% from previous year which shows

that the management has failed to recover its debts from its receivables. The net profit margin in the financial year 2007 decreased because of the increased depreciation charged for the period due to some new fixed assets purchased during the period. There is also an increase in distribution and marketing expenses which ultimately decrease the net profit margin in 2007.

Return On Capital Employed:


This ratio is the key ratio for shareholders because it tells them that how much profits the company has generated on their capital and how much return they can expect on their investments from the company. The ratio is measured by comparing the profit earned by an organisation with the funds made available to them by the shareholders. As capital employed consists of equity investment and long-term debt, the profit figure should consist of Profit before Interest and Tax. The ROCE of PSO rose by 1.97 % to 48.73% in 2006 from 47.79% in 2005. It then fell by 30.14% in 2007 to 34.04%. This is due to the decrease in earnings per share from Rs 43.87 in 2006 to Rs 27.34 in 2007. There is one major drawback of ROCE that can completely distort this ratio, i.e. the value of the capital employed is the historical depreciated cost of the assets at which they are maintained in the books. This is most likely to be undervalued and so the capital employed figure might be unrealistically low giving an inflated ROCE. This may also have contributed to the huge increase in 2005.

Return on Shareholders Equity:


Return on Shareholders equity measures the profit on shareholders equity after taking the effects of interest and tax. The ROE of PSO has followed in line with the ROCE. It rose to 36.15% in 2006 from 32.24% in 2005; an increase by 12.15%, then it decreased by 38.05% to 22.40% in 2007. In 2006 the company made a net profit of Rs 7,524 million which resulted in high return given by the company to its shareholders, while in 2007 the company made a profit of Rs 4,689 a decrease of 37.67% which resulted in low return given to shareholders by the company.

Liquidity Ratios:
Current Ratio: The current ratio measures the adequacy of current assets over current liabilities. It shows whether the company has enough resources to meet its short term liabilities. Normally the rule of thumb is of a current ratio of 2:1; however it varies from business to business. The ratio for PSO shows a small decline in its trend. It fell in 2006 by 0.80% to 1.23 from 1.24 in 2005 and then in 2007 by 1.36% to 1.22. This shows that the management have sufficient control over the companys working capital management. The current liabilities had risen by 43.62% due to significant increase in trade creditors of Rs 11,024 million, while the current assets increased by 42.47% mainly due to increase in stock-in trade and trade debtors by Rs 7,585 and 4,924 million respectively in 2006.

Quick Ratio:
It is also known as the acid test ratio. It is a variant of current ratio, the only difference being that stock is excluded in quick ratio. The rule of thumb is 1:1. The ratio shows a small ascent in its trend, in 2006 it raised by 3.20% to 0.63 from 0.62 in 2005 and then by 1.03% to 0.64 in 2007. The ratio shows that the companys funds are heavily blocked in stock which adversely affects the cash flows of the company. The reason for low ratio is that current assets included nearly 50% of stock. The management should try to reduce stock holding in order to improve cash flows.

Efficiency ratios: Inventory Turnover:


The inventory turnover measures the number of times the stock is sold in a year. Generally higher the figure better will be the turnover. However too much of an increase can lead to overtrading. The figure fell by 3.22% to 36.58 in 2006 from 37.80 in 2005, followed by another decline of 12.60% to 31.98 in 2007. The fall is mainly due to increase in number of times the stock is sold and increase in sales volume by 38.90% in 2006, then a further increase in sales volume by 16.60% in 2007. Average Collection Period (in days): The average collection period measures the efficiency of the company to recover its debts. If the company is able to recover or pay off its debts within a reasonable time, this will be a sign of effective control over its debts. However, if the company is not able to recover its debts within a reasonable time, this could be result in cash flow problems. The collection period rose by 22.92% from 11.66 in 2005 to 14.34 in 2006, then a minor decline by 1% to 14.195 2007. This is due to much more generous credit terms being offered to customers in order to secure a higher market in the oil industry. Although the collection period has risen it is still within reasonable levels. Creditors Turnover (in days): The average payment period shows a mixed trend. It initially increased by 0.95% from 47.36 in 2005 to 47.81 in 2006, then it fell by 6.27% to 44.81 in 2007. The average creditors turn over is not as good as the average collection period. This is due to initially small short fall in cash and bank balance by 1.20% in 2006 which further increased by 19.83% in 2007.

Asset Utilisation:
Total Asset Turnover Ratio: The ratio measures the efficiency of the company to utilize the assets to generate sales.

This ratio shows incline in its trend. It rose by 4.63% to 4.25 in 2006 from 4.06 in 2005, and then followed a further increase of 10.08% to 4.68 in 2007. The increase is mainly due to effective utilization of assets by the companys management.

Investment Ratios:
Earning Per Share (EPS): The earning per share calculates the net earnings of the company over total number of shares issued. It helps in measuring the performance of the company. A company must be able to sustain its earnings in order to pay dividends and re-invest in the business to achieve future growth. Thus EPS is a measure of growth. The EPS of PSO rose from 32.98 in 2005 to 43.87 in 2006 but it then descended to 27.34, an initial increase of 33.04% and finally a decrease of 37.67% respectively. This was basically due to first increase in profit after tax of 34.04% in 2006 while PAT was decrease in 2007 by 37.67%. However, share capital remained the same in both years. Leverage Ratio: Interest Coverage: The interest coverage measures the number of times the interest can be paid against PBIT. The rule of thumb is 3:1. The interest cover for PSO fell from 2005 to 2006 by 25.20 to 12.74, a decrease of almost 50%. After that it further falls by 46.12% to 6.86 in 2007. This is mainly due to increase in PBIT by 20.59% but the interest payable was increased by 138.50% which resulted in a major decline in interest cover for the year 2006. In 2007 interest cover follows the similar trend. The PBIT decreased by 29.42% but again the interest payable increased by 30.98%. The company has taken the short term borrowings during the period which were increased by 18.5%.

Debt / Equity Ratio:


It is also known as the gearing ratio. Rule of thumb is that if the gearing ratio is more than 50% it is highly geared. The higher the gearing, the greater there is risk that little will be left for the shareholders in terms of dividends and capital at winding up. The ratio shows incline in its trend. It initially increased by 20.06% to 2.14% in 2006 from 1.785 in 2005, and then further increased by 7.88% to 2.30% in 2007.

Horizontal Analysis:
In order to set up an independent yardstick of the companys performance it is compared with the performance of another equivalent company for the same period. The comparator selected here for the purpose of horizontal analysis is SPL, which is the second most leading company in oil sector of Pakistan, but there is a near monopoly of PSO with over all market share of 63.1% as compared to SPLs of 17.2%.

Gross Profit Margin (%) Net Profit Margin (%) Return on Capital Employed Return on Shareholders Equity Current Ratio Quick Ratio Inventory Turnover Average Collection Period (Days) Asset Utilisation Earning Per Share Interest Coverage Debt / Equity

PSO 3.51 2.27 34.04 22.40 1.22 0.64 31.98 14.19 4.68 27.34 6.86 2.30

SHELL 4.67 1.01 12.14 9.47 1.02 0.60 27.69 14.53 3.93 12.90 1.28 2.04

Difference 33.24% 55.33% 64.3% 57.7% 16.23% 6.25% 27.69% 0.73% 15.85% 52.81% 81.34% 11.17%

From the data it can be seen that PSOs performance is better then Shell. 1) The greater GP margin and NP margin shows that PSO has better control over its costs of production and other operating costs. 2) The low ROCE and ROE implies that Shell Pakistan Limited has low profit and therefore they give a low return to their shareholders. One more reason could be that financial charges are proportionally greater part of the companys expenses, than long-term debt from part of capital. Also PSO has more effectively used their assets to produce sales. However it must be kept in mind that PSO due to its huge size has possible advantages of Economies of Scale as well as better bargaining power and near monopoly control over the market.

Conclusion
The research and analysis project on Pakistan State Oil draws at an end. It has been compiled in relation with the stated aims and objectives and the data has been gathered from multiple sources and presented in accordance with International Financial Reporting Standards where possible and ratios have been calculated on the data to analyse the financial position of Pakistan State Oil. These ratios comprise of profitability, liquidity, efficiency, investor and gearing ratios. These also consist of absolute data. From the sales revenue and profit before tax data it can be seen that sales revenue has been

constantly increasing but the profit before tax in the last year decreased. This is basically due to the rise in international oil prices and Pakistans Government policy to retain the oil prices in Pakistan. The high ROCE and ROE implies that PSO has good future in Pakistan and promises to give future returns to its members. Strengths: Creating a Positive Image In Pakistan The world is approaching towards CSR and Corporate Environmental reporting. PSO has also adopted the Corporate Social Responsibility (CSR) approach, which requires corporations to think also for the social welfare of your surroundings. PSO in all its outlets across the country dispense environmental efficient fuel which plays a vital role in reduction of exhaust emissions that result in less pollution. Recently, PSO has adopted a water tool developed by World business Council for social development. PSO by fulfilling the requirements of these approaches creating the positive image in Pakistan for all other companies and gaining peoples trusts. (PSO annual report 2007) Market presence. PSO is a brand name in Pakistan and is currently the market leader with over 63% market capitalization. Information Technology PSO in its pursuit to achieve par excellence performance, PSO has implemented SAP in 2005 to operate at higher operating efficiencies through real-time and online system. The implementation of SAP module COPA offering capability for profitability analysis is also being implemented. This COPA offers the opportunity of multi-dimensional analysis of cost and revenues leading to informed and timely decision making. In communication, GPRS technology is being used to connect retail outlets with PSO head office. Communication facilities were improved by installing video conferencing facility between five remote location and PSO head office. (PSO annual report 2007) Effective Management PSO has number of qualified key personnel. The management of PSO have the ability to control all its expenditures and utilize all its resources in most efficient and cost effective manner, giving the PSO a lead in market. (www.psopk.com, PSO annual report 2007) Quality Products and Control In order to satisfy customers needs PSO ensures the highest quality of products and services. For this purpose PSO has introduced total quality management system in its operational activities. PSO drives to improve its quality control system. In FY 2007, the company has introduced Kerosene Detection Test for quality testing of Mogas and HSD at its retail outlets.

This test helps monitor adulteration of dyed Kerosene and has improved the companys image among its customers with on-spot checking of fuel at retail outlets, industrial consumer sites and other PSO facilities. (www.psopk.com , PSO annual report 2007) Weaknesses: Low Interest Cover PSO is currently bearing high ratio of interest on its short term borrowings. The companys interest cover has drastically decreased in last two years. This is because PSO has increased its short term borrowings during the last year and fulfilling its all working capital requirements through short term debts. Greater Creditors Payment Period PSOs past record shows the average creditors payment period of around 46 days. Although PSO is treating as short term borrowing free of interest, but is however loosing out early payment discounts. Opportunities: Increase In Demand For Petroleum / Diesel PSO is currently facing high demand of petroleum, diesel and its other lubricants. This is due to increase in popularity of car financing schemes resulting in more cars on the road thereby boosting demand for fuel. Also the energy crises in Pakistan has resulted in businesses from corporations to retail outlets, and high income families installing fuel consuming power generators on their premises for uninterrupted supply of electricity which has again driven up the demand for fuel. Other Forms Of Fuel Compresses natural gas (CNG) is a cheaper substitute to petroleum gaining popularity all over Pakistan. PSO has capitalized on this opportunity by installing CNG pumps in its petrol stations. Threats: Increase In Oil Prices PSO and other OMCs are currently facing heavy increase in oil prices in international markets. Although the Government of Pakistan has retain its policy for oil prices but it is a big threat to PSO and all other OMCs (Ministry of petroleum) Fuel Alternatives

Billions of dollars are pumped into researching cheaper and cleaner alternatives to gasoline, diesel and fuels. With some working prototypes already in the experimental stage, example the solar powered vehicles. From the above financial analysis it can be concluded that PSO does have a promising future in Pakistan ahead of it. Appendices Appendix 1: Balance Sheets [pic] Appendix 2: Profit and Loss Account [pic] Appendix 3: Ratio Definitions Profitability Ratios (a) Gross Profit Margin = (b) Operating Profit Margin = (c) Return on Capital Employed = (d) Return on Equity = Gross profit Net sales x 100 Operating Profit Net sales x 100 PBIT Capital Employed x 100 PAT Shareholder's Equity x 100

Liquidity Ratios (a) Current Ratio = (b) Quick Ratio = Current assets Current liabilities Current assets - stock in trade) Current Liabilities

Efficiency ( Turnover Ratios ) (a) Inventory turnover (in days) = (b) Debtor Collection Period (in

Stock in Trade Cost of Goods Sold x 365 Trade receivable Net sales x

days) = (c) Creditors payment period (in days) =

365 Trade creditors Cost of Goods Sold x 365

Asset utilisation (a) Total Asset Turnover Ratio = Net Sales Total Assets

Shareholders Investment Ratios (a) Earning per Share (of Rs.10) =

Profit After Tax ( Issued Share Capital 10 )

Long-Term Solvency Ratios (a) Interest Cover = (b) Debt / equity ratio = | Appendix 4: Ratios 2007 2006

PBIT Interest Payable Total Debts (Total equity + Long Term Liabilities)

2005

% change in 2007

% change in 2006

Profitability Ratios (a) Gross Profit Margin = (b) Operating Profit Margin = (c) Return on Capital Employed = (d) Return on Equity =

3.51

5.77

6.47

39.24% 39.81% 30.14% 38.05%

10.81% 14.08% 1.97%

2.27

3.78

4.40

34.04

48.73

47.79

22.40

36.15

32.24

12.15%

Liquidity Ratios (a) Current Ratio = (b) Quick Ratio = Efficiency ( Turnover Ratios ) (a) Inventory turnover (in days) = (b) Debtor Collection Period (in days) = (c) Creditors payment period (in days) = 1.22 1.23 1.24 1.36% 1.03% 0.80% 3.20%

0.64

0.63

0.62

31.98

36.58

37.80

12.60% 1.00% 6.27%

3.22% 22.92%

14.195

14.34

11.66

44.81

47.81

47.36

0.95%

Asset Utilisation (a) Total Asset Turnover Ratio = Shareholders Investment Ratios (a) Earning per Share (of Rs.10) = 4.68 4.25 4.06 10.08% 4.63%

27.34

43.87

32.98

37.67%

33.04%

Long-Term Solvency Ratios (a) Interest Cover = (b) Debt / equity ratio =

6.86

12.74

25.20

46.12% 7.88%

49.44% 20.06%

2.30

2.14

1.78

Appendix 5: Ratio Calculation using Excel formulas |The Key Skills Statement 1450 Word Preparing for Meetings In accordance with the guidelines, three meetings were held with my mentor, Mr. Burhan Uddin Ahmed who is also Assistant Manager at Anjum Asim Shahid Rahman Chartered Accountants, a member firm of Grant Thornton International. Mr Burhan is a qualified Chartered Certified Accountant. Planning of all three meetings before hand had ensured their smooth running, and enable maximum to be achieved in the shortest time. The first meeting was scheduled at the office on 04th January 2008 at 6 p.m. I had already short listed two topics, no.8 and no.17 for the purpose of the project. I decided to consult with Mr. Burhan before taking the final decision. After making enquiries and consulting the internet, I came to the conclusion that ample secondary information was available for topic no. 8, however primary information would be required for topics no. 17. I also jotted down the reasons for choosing the selected topics and company, in case if he enquired them. I proposed a completion date of mid March. Learning from the experience from the first meeting, which was subject to interruptions I decided to schedule the subsequent meeting at my mentors residence on a Sunday. The second meeting was held on 10th February at 2 p.m. with Mr. Burhans permission. I had already emailed him a rough draft of my report, including the information gathered and the ratios, which had been calculated the previous evening, so he would have time to review it. I later telephoned him to confirm the meeting for the next day. It was decided to hold the last meeting in a group so as to see how effective the presentation is and also to check the thoroughness of my report in form of question answers from my peers. It was scheduled to be held on a Saturday 22nd March at 2 p.m. at the office. A projector had been arranged beforehand and was set up by the office assistant. I had numerously rehearsed my presentation and had recorded it in order to review it later to address my problems. Questioning Questioning is a crucial constituent of effective communication based on any medium. It enhances comprehension, seeks clarification and pools opinions. There are two basic types of questions: Open question such as; What? Who? Where? They invite a broad response and can be broken in to 1. Probing questions, which require explanations. 2. Leading questions, which aim to suggest or get a specific reply.

Closed question which limit the response to certain choices like Yes or No. Questioning formed a significant part of the communication, which took place at all the meetings. It was a tool used by my mentor to develop my ideas, structure my thought and to help me decide upon the topic for the report. His open and closed question related to the information collection required for Effect of Corporate governance within an organisation enabled me to form a clear idea of the low probability of obtaining relevant information due to reasons such as high reliability on primary source of information and thus highlighted the difficulties attached with topic no. 17. The question answer section, which took place at the final meeting, thoroughly tested my knowledge and helped me face up to my communication problems. However questioning was not a one-way process. Open questions at my part enabled me to gain a better understanding of the scope of work to be carried out. Listening As communication is a two way process it requires a transmitter as well as a receiver. Listening is about decoding and receiving information and forms a fundamental part of effective communication. Each communication process is open to noise and distortion. Distortion relates to the coding and decoding of data and occurs when the meaning of a communication is lost. Noise relates to: Physical noise, e.g. ringing mobile; Technical noise, failure of the communication medium; Social noise, related to perception of the parties involved; Psychological noise, relating to peoples emotion. During paper F1 Accountant in Business I had learned 4 vitals of effective listening. Listen Critically; Show interest; Avoid distractions and interruptions, and Maintain silence. The first meeting held was open to frequent physical noise in form of interruption form various

staff and students as well as frequent ringing of Mr. Burhans mobile. Another problem during the first meeting was on my behalf of being an impatient listener, interrupting anytime I did not agree with Mr. Burhans views. Lessons were learnt from this meeting and other meeting were timed so as to avoid interruptions. I also became more patient and listened carefully to what my mentor had to say. This led to more effective communication and it was a point well learnt for my presentation in which I did not allow any question until the end of the presentation. The importance of listening could be concluded from the fact that some of the question asked had already been explained via the presentation given but had not listened effectively. People do have a natural attentive curve, which is high at the beginning and the end but sloping off in the middle. Assessment of the Presentation The presentation took place in front of my mentor and fellow peers. I had rehearsed my presentation numerous times and had even made a recording of my rehearsal so that I could review it for any mistake. Before the final meeting I rehearsed the presentation in front of my uncle, who being Masters in Mass Communications was able to help me over my communication problems. Before starting the meeting, I distributed handouts consisting of the ratios I had calculated. This proved to be very useful as the listeners could refer to the figures as I discussed about them. The meeting progressed as scheduled and I started giving my presentation. During the introduction process it became quite obvious that most of my peers did not have prior knowledge about PSO and so they took a keen interest in the topic, which helped me to proceed with my presentation smoothly. I delivered my presentation confidently and did not allow anyone to interrupt me. This led to clarity in the flow of information and minimised the effects of distortion. The question and answer section followed went quite well except for the question laid by a few members of the audience who were more interested in PSOs history and asset base rather then its performance. Also some of them continuously asked question whose answers I had already given, or had explained the facts in the presentation but those people were not paying attention. This aggravated me, however in future I would try to keep my composure. The following two pages are an outline of my presentation. Outline of Presentation Delivered on March 22, 2008 At Anjum Asim Shahid Rahman Chartered Accountants

INTRODUCTION CHART 1: Title of project, reasons I chose the topic, and an outline of the project Title: An analysis of the financial situation of Pakistan State Oil Reasons for Choice of Title: The Reason for choosing this topic can be attributed to my status as an ACCA Finalist, enabling me to test my financial analysis skills and provide sound reasoning. Therefore I decided to base my project on this topic. Project Proposed: Pakistan State Oil, the largest Oil Marketing Company in Pakistan and distributor of all kinds of oil lubricants, enjoying a market share of 59% of white oil products and 80% in black oil products. The company is listed on all the stock exchanges in Pakistan. Its main competitor being Shell Pakistan Limited also the distributor of oil lubricants in Pakistan and all over the world. RESEARCH CARRIED OUT CHART 2: Research methods used and their use. Research Methods: All possible variants for Research have been considered. The primary source of information for any company is its Annual report. Secondary sources of information have also been referred too. My friends working in PSO were also the source for me to get useful information. Internet has been used to find information about the sector. Newspaper is also a viable source for getting any new information relating to the company. Methods Applied: Research was largely confined to Annual Report and Internet. Annual Report of PSO was referred extensively due to the nature of the topic. In addition, SPLs accounts, available on its website, were referred to compute the required ratios. ANALYSIS CHART 3: Vertical Analysis Vertical Analysis: Five categories of ratios have been computed for this purpose. The ratios have been

categorised as follows: |Profitability Utilization | |Gross Profit Margin (%) 33.24% | |Net Profit Margin (%) |2.27 |Return on Capital Employed |34.04 |Return on Shareholders Equity |22.40 |Current Ratio |Quick Ratio |Inventory Turnover 27.69% | |Average Collection Period (Days) |14.19 |Asset Utilisation |Earnings Per Share |27.34 |Interest Coverage |Debt / Equity CONCLUSIONS REACHED CHART 5: Main Conclusion Conclusion: I would like to conclude this presentation with the corporate appraisal of the company using SWOT analysis shown below. |Strengths |Brand Image |Information Technology Days | |Quality Products and Control |Opportunities |Increase In Demand Oil Lubricants Prices | |Other Forms Of Fuel |Weaknesses |Low Interest Cover |Greater Creditor Payment | |Threats |Increase In Oil |Fuel Alternatives | | | |Liquidity |3.51 |Efficiency |4.67 |Asset |-

|1.01 |12.14 |9.47 |1.22 |0.64 |31.98

|55.33% |64.3% |57.7% |1.02 |0.60 |27.69

| | | |16.23% |6.25% |-

| |

|14.53 |4.68 |12.90 |6.86 |2.30

|0.73% |3.93 |52.81% |1.28 |2.04

| |15.85% | |81.34% |11.17%

| |

| |

Self-Assessment of Interaction The communication process consists of sender relaying a message to a receiver via a communication channels and receives confirmation of it through feedback i.e. recipients reaction. The message may consist of information, ideas, attitudes and desired actions. The

channel may take the form of conversation, letter, computers etc. and depends on factors such as urgency, permanency, complexity, sensitivity and cost. A communication process may be vulnerable to distortion at the sender and recipients end and noise in the environment. The interaction with my mentor during the meeting was quite effective. We were both able to decode each others message properly thus we were able communicate our views to each other and I was able to draw up my project accordingly. Perhaps one of the reasons for effective communication was the informality, which was present thus enabling us to communicate freely without the manager-staff status quo. Another reason for success might have been using the appropriate medium of communication be it face to face talks or the presentation. However it is important to mention that an element of noise was present in our first meeting, in form of interruptions by the staff and the persistent ringing of Mr. Burhans phone. In order to make the interaction more effective for next meetings steps were taken such as agreeing for meeting during the weekends as well as to switch of our mobile phones during the meeting. The interaction with the peer group was not quite effective. Perhaps one of the reasons was that I was unable to generate the interest of some of them on the topic in hand as they seemed to be more interesting in PSOs asset base. As a result of this I had to repeat things several times. Also I refused to answer questions when I though it was diverting away from the topic. However I later realised that I was wrong and later politely turned down the questions. Bibliography Annual Report (2005), Pakistan State Oil. Annual Report (2006), Pakistan State Oil Co. Ltd. Annual Report (2007), Pakistan State Oil. Ministry of Petroleum Government of Pakistan. http://www.mpnr.gov.pk Oil Companies Advisory Committee, PSO. http://www.ocac.org.pk/pso.html http://www.google.com http://www.wikipedia.org http://www.yahoo.com