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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 t

Acknowledgement
First of all we would like to thank our teacher for giving our group the opportunity to do this project as part of our Financial Management course. With this project, we have experienced the practical side of doing the financial ratio analysis. It appear as if by doing this analysis report we would definitely be having some idea of what is ahead for us ahead and that Finance is more than just accounting. As students of Financial Management, we have found it rewarding in terms of understanding the requirements, and the process of compiling a term report, which was motivating as well as helpful task for us as a group. We also like to thank you for not making the class boring and for imparting us knowledge and wisdom in the light of your experience.

Table of Content

Contents
CONTENTS.............................................................................................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. Shells 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 Shells 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 Groups Global Downstream-One journey. The ultimate goal of Downstream-One is to reduce business complexity and increase operational
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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 Pakistans 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.

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b.

Pakistan State Oil (Competitors Company)

PSO is the market leader in Pakistans 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 companys 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 companys 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.

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2. Ratio Analysis
1. LIQUIDITY RATIOS

A.

CURRENT RATIO Shows a companys ability to pay off its current liabilities from its current assets. Formula=

2007 2008

Current Assets Current Assets

Shell 20041859 30220209

Current Liabilities Current Liabilities

19612115 23307811

PSO

2007 2008

Current Assets Current Assets

6251327 115878692

Current Liabilities Current Liabilities

51385727 93736220

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INTERNAL COMPARISON Shells 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 MNCs.

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 firms ability to meet its current liabilities with its most liquid assets.

Formula= 2007 2008 Current Assets Current Assets 20041859 30220209 SHELL Current Liabilities Current Liabilities PSO Current Liabilities Current Liabilities 19612115 23307811 Inventory Inventory 8244054 18095523

2007 2008

Current Assets Current Assets

62513273 115878692

51385727 93736220

Inventory Inventory

29562055 62360067

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INTERNAL COMPARISON Shells 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 firms assets that are supported by debt financing. Formula=

2007 2008

Total Debts Total Debts

Shell 19751156 26053221 PSO 53798098 96144966

Total Assets Total Assets

29211927 39664859

2007 2008

Total Debts Total Debts

Total Assets Total Assets

74737315 127110020
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INTERNAL COMPARISON Shells total debt increased in absolute amount but not at a pace of changing total assets thats why a minor fall in debt ratio is seen. EXTERNAL COMPARISON Psos 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 GOPs 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=

2007 2008

Total Debts Total Debts

Shell 19751156 26053221 PSO

Total Equity Total Equity

9460771 13611638

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2007 2008

Total Debts Total Debts

53798098 96144966

Total Equity Total Equity

20929217 30965054

INTERNAL COMPARISON Shells 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 debts 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 firms ability to cover its interest charges. Formula=

2007

EBIT

Shell 1166405

Interest

909919
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2008

EBIT

8481359 PSO

Expense Interest Expense Interest Expense Interest Expense

970267

2007 2008

EBIT EBIT

7949786 22450992

1158112 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

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Indicates how successful the firm is in collection of receivable Formula= 2007 2008 Credit Sales Credit Sales Shell 130129844 157626491 PSO 411057592 583213959 Avg A/R Avg A/R 4905639.5 4578132.5

2007 2008

Credit Sales Credit Sales

Avg A/R Avg A/R

12657917 23752347

INTERNAL COMPARISON Shell has managed to control its receivable volume with the growing sales level. Thats 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 IPPs.

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B.

AVERAGE COLLECTION PERIOD IN DAYS Average number of days the receivables is outstanding. Formula=

2007 2008

Days Days

Shell 365 365

Receivable Turnover Receivable Turnover

26.53 34.43

2007 2008

Days Days

PSO 365 365

Receivable Turnover Receivable Turnover

32.47 24.55

INTERNAL COMPARISON

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Shell has managed to control its receivable volume with the growing sales level. Thats 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.

C.

INVENTORY TURNOVER RATIO

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

Formula=

2007 2008

COGS COGS

Shell 108664932 124694471 PSO 337446896 465254907

Avg Inventory Avg Inventory

9111970 13169788.5

2007 2008

COGS COGS

Avg Inventory Avg Inventory

28865344 45961061

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INTERNAL COMPARISON Shells 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
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2007 2008

Days Days

365 365

Inventory Turnover Inventory Turnover

11.93 9.47

2007 2008

Days Days

PSO 365 365

Inventory Turnover Inventory Turnover

11.69 10.12

INTERNAL COMPARISON Shells 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

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

Formula=

2007 2008

Net Sales Net Sales

Shell 130129844 157626491

Avg Total Assets Avg Total Assets

28752163 34438393

2007 2008

Net Sales Net Sales

PSO 411057592 583213959

Avg Total Assets Avg Total Assets

72452919.5 100923667.5

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

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Psos 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 firms pricing policies.

Formula=

2007 2008

Gross Profit Gross Profit

Shell 6380502 15150218 PSO 12259430 30023626

Net Sales Net Sales

130129844 157626491

2007 2008

Gross Profit Gross Profit

Net Sales Net Sales

411057592 583213959

INTERNAL COMPARISON

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GPM of Shell has doubled from the previous year which is a good sign for companys 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 firms profitability after taking account of all expenses and income taxes.

Formula= 2007 2008 Net Profit Net Profit Shell 706659 5137094 PSO 4689798 14053795 Net Sales Net Sales 130129844 157626491

2007 2008

Net Profit Net Profit

Net Sales Net Sales

411057592 583213959

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INTERNAL COMPARISON Shells NPM has improved a lot from the previous year level. This must be the same effect as seen in the companys GPM. EXTERNAL COMPARISON Psos NPM has also improved but not as significant as Shells. In fact the company was in better position as compared to shell previous year.

C.

RETURN ON INVESTMENT

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

Formula= 2007 2008 Net Income Net Income Shell 706659 5137094 Avg Total Assets Avg Total Assets 28752163 34438393

2007 2008

Net Income Net Income

PSO 4689798 14053795

Net Sales Net Sales

72452919.5 100923667.5

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INTERNAL COMPARISON The companys ROI has also improved as seen in the previous ratios. EXTERNAL COMPARISON Shell ROI has increased more massively as compared to Pso.

D.

RETURN ON EQUITY

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

Formula=

2007 2008

Net Income Net Income

Shell 706659 5137094 PSO 4689798

Avg Equity Avg Equity

9808758.5 11536204.5

2007

Net Income

Avg Equity

20876138
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2008

Net Income

14053795

Avg Equity

25952135.5

INTERNAL COMPARISON A massive increase is seen on the Shells side with respect to ROE. EXTERNAL COMPARISON Despite Shells massive increase in ROE, Pso is still ahead in this respect.

6. EQUITY RATIOS

a. EARNINGS PER SHARE

The portion of a company's profit allocated to each outstanding share of common stock. Formula=

2007

Profit After

Shell 706659000

No. of Common

54790313
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Taxation 2008 Profit After Taxation 5137094000

shares Outstanding No. of Common shares Outstanding

54790313

2007 2008

Profit After Taxation Profit After Taxation

PSO 4689798000 14053795000

No. of Common shares Outstanding No. of Common shares Outstanding

171518901 171518901

INTERNAL COMPARISON There is a huge improvement is EPS of Shell as compared to previous years performance. EXTERNAL COMPARISON EPS of both companies has almost no significant difference but improvement is seen in Shells performance which was far below from Psos level previous year.

B.

PRICE PER EARNING RATIO

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A valuation ratio of a company's current share price compared to its per-share earnings. Formula= 2007 2008 Market Price Per Share Market Price Per Share Shell 410.05 417 Earnings Per Share Earnings Per Share 12.90 93.76

2007 2008

Market Price Per Share Market Price Per Share

PSO 391.45 417.24

Earnings Per Share Earnings Per Share

27.34 81.94

INTERNAL COMPARISON Price per earnings ratio has deteriorated but when compared to previous years 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 Psos P/E ratio has also decreased almost to the same level as of Shells.

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3. Shell & PSO Balance Sheet and Income Statement

a. Shell Balance Sheet


ASSETS Non-current assets Fixed assets Long-term investments Long-term loans and advances Long-term deposits and prepayments Long-term debtors Deferred taxation - net Total Non-current assets Current assets Stores and spares Stock-in-trade Trade debts Loans and advances Trade deposits and short-term prepayments
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2008

2007

6826848 2134783 146381 201718 134920 9444650

6579993 2015535 182579 110994 328727 280967 9498795

13328 1809552 3 4904940 47029 207864

30286 8244054 4251325 42720 140239


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Other receivables Taxation Cash and bank balances Total Current assets

6079111 872414 3022020 9 3966485 9

5970763 219715 814530 19713632

Total Assets

29212427

EQUITY AND LIABILITIES Equity Share capital Reserves Unappropriated profit Total Equity

2008

2007

547904 2233026 1083070 8 1361163 8

547904 2233026 6679841 9460771

LIABILITIES Non-current liabilities Deferred taxation - net Liabilities against assets subject to finance lease Long-term loan Asset retirement obligation Total Non-current liabilities Current liabilities Current maturity of liabilities against assets subject to finance lease
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51574 2216 2500000 191620 2745410

547 138494 139041

56742

32203
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Short-term running finances utilized under mark-up arrangements Short-term loans Trade and other payables Mark-up accrued Taxation Total Current liabilities

4338339 1500000 1648300 8 157268 772454 2330781 1 2605322 1 3966485 9

725836 6810000 11912496 131580 19612115

Total Liabilities

19751156

Total Equity and Liabilities

29211927

b. Shell Income Statement


SHELL Income Statement Regular 2008 157,626,49 1 119,915 20,205 341,349 158,107,96 0 18,263,271 139,844,68 9 124,694,47 1 2007 130,129,844

Sales Non-fuel retail sales others other revenue Net Sales Sales tax Net revenue Cost of products sold

141,615 17,909 447,517 130,736,885 15,691,451 115,045,434 108,664,932

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Gross Profit Distribution expenses Administrative and marketing expenses

15,150,218 2,950,422 2,109,289

6,380,502 3,366,555 1,716,707

Other operating income Other operating expenses Operating profit Finance cost

10,090,507 306,453 10,396,960 1,915,601 8,481,359 970,267 7,511,092 212,248 7,723,340 2,586,246 5,137,094 Rupees 93.76

1,297,240 215,322 1,512,562 377,978 1,134,584 878,098 256,486 122,250 378,736 327,923 706,659 Rupees 12.9

Share of profit of associate - net of tax Profit before taxation Taxation Profit after taxation

Earnings per share

c. PSO Balance Sheet

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Assets Non-Current Assets Property, plant and equipment Intangibles Long term investments Long term loans, advances and receivables Long term deposits and Prepayments Deferred Taxes Total Non-Current Assets Current Assets Stores, spare parts and loose tools Stock-in-trade Trade debts Loans and advances Deposits and short term prepayments Other receivables Cash and bank balances Total Current Assets Total Assets

2008

2007

7,460,549 105,502 2,701,097 477,745 79,098 407,337 11,231,328

8,012,317 126,212 2,990,591 627,972 65,913 401,037 12,224,042

115,814 62,360,067 33,904,728 396,220 401,433 15,681,790 3,018,640 115,878,692 127,110,020

127,891 29,562,055 13,599,966 365,974 1,583,913 15,751,198 1,522,276 62,513,273 74,737,315

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EQUITY AND LIABILITIES EQUITY Share Capital Reserves Total Equity Liabilities Non-Current Liabilities Long term deposits Retirement and other service benefits Total Non-Current Liabilities Current Liabilities Trade and other payables Provisions Accrued interest / mark-up Short term borrowings Taxes payable Total Current Liabilities Total Equity and Liabilities

2008

2007

1,715,190 29,249,864 30,965,054

1,715,190 19,224,027 20,939,217

834,598 1,574,148 2,408,746

768,308 1,644,063 2,412,371

81,067,565 726,116 217,928 10,997,908 726,703 93,736,220 127,110,02 0

41,431,075 688,512 131,961 9,064,781 69,398 51,385,727 74,737,315

d. PSO Income Statement


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Sales Sales Tax Inland freight equalization margin Net sales Cost of products sold Gross profit Other operating income Operating costs Transportation costs Distribution and marketing expenses Administrative expenses Depreciation Amortization Other operating expenses Total Operating Cost Other income Profit from operations Finance costs

2008 2007 583,213,95 411,057,592 9 74,249,472 52,418,310 13,685,954 8,932,956 495,278,53 349,706,326 3 465,254,90 337,446,896 7 30,023,626 12,259,430 1,396,527 1,278,932

337,886 3,264,599 1,160,741 1,119,137 47,689 3,352,969 9,283,021 313,860 22,450,992 1,367,898 21,083,094 294,318 21,377,412 7,323,617 14,053,795 Rupees 81.94

369,328 2,745,289 1,002,712 1,098,157 41,908 755,420 6,012,814 424,238 7,949,786 1,158,112 6,791,674 330,306 7,121,980 2,432,182 4,689,798 Rupees 27.34

Share of profit of associates Profit before taxation Taxation Profit for the year

Earnings per share

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4. Common Size & Index Analysis

a.

Common Size Balance Sheet of SHELL


Regular 2008 2007 Common Size(%) 2008 2007

SHELL Balance Sheet ASSETS Non-current assets Fixed assets Long-term investments Long-term loans and advances Long-term deposits and prepayments Long-term debtors Deferred taxation - net Total Non-current assets Current assets Stores and spares Stock-in-trade Trade debts Loans and advances Trade deposits and short-term prepayments Other receivables Taxation Cash and bank balances Total Current assets

6826848 2134783 146381 201718 134920 9444650

6579993 2015535 182579 110994 328727 280967 9498795

17.21 5.38 0.37 0.51 0.34 23.81

22.52 6.90 0.63 0.38 1.13 0.96 32.52

13328 1809552 3 4904940 47029 207864 6079111 872414 3022020 9 3966485 9

30286 8244054 4251325 42720 140239 5970763 219715 814530 1971363 2 2921242 7

0.03 45.62 12.37 0.12 0.52 15.33 2.20 76.19

0.10 28.22 14.55 0.15 0.48 20.44 0.75 2.79 67.48

Total Assets

100.00

100.00

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SHELL Balance Sheet EQUITY AND LIABILITIES Equity Share capital Reserves Unappropriated profit Total Equity

Regular 2008 2007

Common Size (%) 2008 2007

547904 2233026 1083070 8 1361163 8

547904 2233026 6679841 9460771

1.38 5.63 27.31 34.32

1.88 7.64 22.87 32.39

LIABILITIES Non-current liabilities Deferred taxation - net Liabilities against assets subject to finance lease Long-term loan Asset retirement obligation Total Non-current liabilities Current liabilities Current maturity of liabilities against assets subject to finance lease Short-term running finances utilized under mark-up arrangements Short-term loans Trade and other payables Mark-up accrued Taxation Total Current liabilities

51574 2216 2500000 191620 2745410

547 138494 139041

0.13 0.01 6.30 0.48 6.92

0.00 0.00 0.00 0.47 0.48

56742 4338339 1500000 1648300 8 157268 772454 2330781 1 2605322 1 3966485 9

32203 725836 6810000 1191249 6 131580 1961211 5 1975115 6 2921192 7

0.14 10.94 3.78 41.56 0.40 1.95 58.76

0.11 2.48 23.31 40.78 0.45 67.14

Total Liabilities

65.68

67.61

Total Equity and Liabilities


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100.00
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100.00

b. Common Size Balance Sheet of PSO


PSO Balance Sheet Regular 2008 Assets Non-Current Assets Property, plant and equipment Intangibles Long term investments Long term loans, advances and receivables Long term deposits and Prepayments Deferred Taxes Total Non-Current Assets 2007 Common Size (%) 2008 2007

7,460,549 105,502 2,701,097 477,745 79,098 407,337 11,231,328

8,012,317 126,212 2,990,591 627,972 65,913 401,037 12,224,04 2

5.87 0.08 2.13 0.38 0.06 0.32 8.84

10.72 0.17 4.00 0.84 0.09 0.54 16.36

Current Assets Stores, spare parts and loose tools Stock-in-trade Trade debts Loans and advances Deposits and short term prepayments Other receivables Cash and bank balances Total Current Assets

115,814 62,360,067 33,904,728 396,220 401,433 15,681,790 3,018,640 115,878,69 2 127,110,02 0

127,891 29,562,05 5 13,599,96 6 365,974 1,583,913 15,751,19 8 1,522,276 62,513,27 3 74,737,31 5

0.09 49.06 26.67 0.31 0.32 12.34 2.37 91.16

0.17 39.55 18.20 0.49 2.12 21.08 2.04 83.64

Total Assets

100.00

100.00

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PSO Balance Sheet EQUITY AND LIABILITIES EQUITY Share Capital Reserves Total Equity

Regular 2008 2007

Common Size (%) 2008 2007

1,715,190 29,249,864 30,965,054

1,715,190 19,224,02 7 20,939,21 7

1.35 23.01 24.36

2.29 25.72 28.02

Liabilities Non-Current Liabilities Long term deposits Retirement and other service benefits Total Non-Current Liabilities Current Liabilities Trade and other payables Provisions Accrued interest / mark-up Short term borrowings Taxes payable Total Current Liabilities

834,598 1,574,148 2,408,746

768,308 1,644,063 2,412,371

0.66 1.24 1.90

1.03 2.20 3.23

81,067,565 726,116 217,928 10,997,908 726,703 93,736,220

41,431,07 5 688,512 131,961 9,064,781 69,398 51,385,72 7 74,737,31 5

63.78 0.57 0.17 8.65 0.57 73.74

55.44 0.92 0.18 12.13 0.09 68.76

Total Equity and Liabilities

127,110,02 0

100.00

100.00

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c. Common Size Income Statement of SHELL


SHELL Income Statement Regular 2008 Sales Non-fuel retail sales others other revenue Net Sales Sales tax Net revenue Cost of products sold 157,626,49 1 119,915 20,205 341,349 158,107,96 0 18,263,271 139,844,68 9 124,694,47 1 15,150,218 2,950,422 2,109,289 2007 130,129,84 4 141,615 17,909 447,517 130,736,88 5 15,691,451 115,045,43 4 108,664,93 2 6,380,502 3,366,555 1,716,707 Common Size (%) 2008 2007 99.70 99.54

0.08 0.01 0.22 100.00 11.55 88.45 78.87

0.11 0.01 0.34 100.00 12.00 88.00 83.12

Gross Profit Distribution expenses Administrative and marketing expenses

9.58 1.87 1.33

4.88 2.58 1.31

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Other operating income Other operating expenses Operating profit Finance cost

10,090,507 306,453 10,396,960 1,915,601 8,481,359 970,267 7,511,092 212,248 7,723,340 2,586,246 5,137,094

1,297,240 215,322 1,512,562 377,978 1,134,584 878,098 256,486 122,250 378,736 327,923 706,659

6.38 0.19 6.58 1.21 5.36 0.61 4.75 0.13 4.88 1.64 3.25

0.99 0.16 1.16 0.29 0.87 0.67 0.20 0.09 0.29 0.25 0.54

Share of profit of associate - net of tax Profit before taxation Taxation Profit after taxation

d. Common Size Income Statement of PSO


PSO Income Statement Sales Sales Tax Inland freight equalization margin Net sales Cost of products sold Gross profit Other operating income Operating costs Transportation costs Distribution and marketing expenses Administrative expenses Depreciation Amortization Other operating expenses Total Operating Cost Other income
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Regular Common Size (%) 2008 2007 2008 2007 583,213,95 411,057,59 117.75 117.54 9 2 74,249,472 52,418,310 14.99 14.99 13,685,954 8,932,956 2.76 2.55 495,278,53 3 465,254,90 7 30,023,626 1,396,527 349,706,32 6 337,446,89 6 12,259,430 1,278,932 100.00 93.94 6.06 0.28 100.00 96.49 3.51 0.37

337,886 3,264,599 1,160,741 1,119,137 47,689 3,352,969 9,283,021 313,860

369,328 2,745,289 1,002,712 1,098,157 41,908 755,420 6,012,814 424,238

0.07 0.66 0.23 0.23 0.01 0.68 1.87 0.06

0.11 0.79 0.29 0.31 0.01 0.22 1.72 0.12


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Profit from operations Finance costs

22,450,992 1,367,898 21,083,094 294,318 21,377,412 7,323,617 14,053,795

7,949,786 1,158,112 6,791,674 330,306 7,121,980 2,432,182 4,689,798

4.53 0.28 4.26 0.06 4.32 1.48 2.84

2.27 0.33 1.94 0.09 2.04 0.70 1.34

Share of profit of associates Profit before taxation Taxation Profit for the year

e. Indexed Balance Sheet of Shell


SHELL Balance Sheet ASSETS Non-current assets Fixed assets Long-term investments Long-term loans and advances Long-term deposits and prepayments Long-term debtors Deferred taxation - net Total Non-current assets Current assets Stores and spares Stock-in-trade Trade debts Loans and advances Trade deposits and short-term prepayments Other receivables Taxation Cash and bank balances
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Regular 2008 2007

Indexed (%) 2008 2007

6826848 2134783 146381 201718 134920 9444650

6579993 2015535 182579 110994 328727 280967 9498795

103.75 105.92 80.17 181.74 41.04 99.43

100 100 100 100 100 100 100

13328 1809552 3 4904940 47029 207864 6079111 872414

30286 8244054 4251325 42720 140239 5970763 219715 814530

44.01 219.50 115.37 110.09 148.22 101.81 107.11

100 100 100 100 100 100 100 100


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Total Current assets

3022020 9 3966485 9

1971363 2 2921242 7

153.30

100

Total Assets

135.78

100

SHELL Balance Sheet EQUITY AND LIABILITIES Equity Share capital Reserves Unappropriated profit Total Equity

Regular 2008 2007

Indexed (%) 2008 2007

547904 2233026 1083070 8 1361163 8

547904 2233026 6679841 9460771

100.00 100.00 162.14 143.87

100 100 100 100

LIABILITIES Non-current liabilities Deferred taxation - net Liabilities against assets subject to finance lease Long-term loan Asset retirement obligation Total Non-current liabilities Current liabilities Current maturity of liabilities against assets subject to finance lease Short-term running finances utilized under mark-up
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51574 2216 2500000 191620 2745410

547 138494 139041

inf 405.12 inf 138.36 1974.53

100 100 100 100 100

56742 4338339

32203 725836

176.20 597.70
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100 100

arrangements Short-term loans Trade and other payables Mark-up accrued Taxation Total Current liabilities

1500000 1648300 8 157268 772454 2330781 1 2605322 1 3966485 9

6810000 1191249 6 131580 1961211 5 1975115 6 2921192 7

22.03 138.37 119.52 inf 118.84

100 100 100 100 100

Total Liabilities

131.91

100

Total Equity and Liabilities

135.78

100

f. Indexed Balance Sheet of PSO


PSO Balance Sheet Assets Non-Current Assets Property, plant and equipment Intangibles Long term investments Long term loans, advances and receivables Long term deposits and Prepayments Deferred Taxes Total Non-Current Assets Regular 2008 2007 Indexed (%) 2008 2007

7,460,549 105,502 2,701,097 477,745 79,098 407,337 11,231,328

8,012,317 126,212 2,990,591 627,972 65,913 401,037 12,224,04 2

93.11 83.59 90.32 76.08 120.00 101.57 91.88

100 100 100 100 100 100 100

Current Assets Stores, spare parts and loose tools Stock-in-trade


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115,814 62,360,067

127,891 29,562,05 5

90.56 210.95

100 100
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Trade debts Loans and advances Deposits and short term prepayments Other receivables Cash and bank balances Total Current Assets

33,904,728 396,220 401,433 15,681,790 3,018,640 115,878,69 2 127,110,02 0

13,599,96 6 365,974 1,583,913 15,751,19 8 1,522,276 62,513,27 3 74,737,31 5

249.30 108.26 25.34 99.56 198.30 185.37

100 100 100 100 100 100

Total Assets

170.08

100

PSO Balance Sheet EQUITY AND LIABILITIES EQUITY Share Capital Reserves Total Equity

Regular 2008

2007

Indexed (%) 2008 2007

1,715,190 29,249,864 30,965,054

1,715,190 19,224,02 7 20,939,21 7

100.00 152.15 147.88

100 100 100

Liabilities Non-Current Liabilities Long term deposits Retirement and other service benefits Total Non-Current Liabilities
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834,598 1,574,148 2,408,746

768,308 1,644,063 2,412,371

108.63 95.75 99.85

100 100 100


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Current Liabilities Trade and other payables Provisions Accrued interest / mark-up Short term borrowings Taxes payable Total Current Liabilities

81,067,565 726,116 217,928 10,997,908 726,703 93,736,220

41,431,07 5 688,512 131,961 9,064,781 69,398 51,385,72 7 74,737,31 5

195.67 105.46 165.15 121.33 1047.15 182.42

100 100 100 100 100 100

Total Equity and Liabilities

127,110,02 0

170.08

100

g. Indexed Income Statement of SHELL


SHELL Income Statement Regular 2008 157,626,49 1 119,915 20,205 341,349 158,107,96 0 2007 Indexed (%) 2008 2007 121.13 100

Sales Non-fuel retail sales others other revenue Net Sales

130,129,84 4 141,615 17,909 447,517 130,736,88 5

84.68 112.82 76.28 120.94

100 100 100 100

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Sales tax Net revenue Cost of products sold

18,263,271 139,844,68 9 124,694,47 1 15,150,218 2,950,422 2,109,289

15,691,451 115,045,43 4 108,664,93 2 6,380,502 3,366,555 1,716,707

116.39 121.56 114.75

100 100 100

Gross Profit Distribution expenses Administrative and marketing expenses

237.45 87.64 122.87

100 100 100

Other operating income Other operating expenses Operating profit Finance cost

10,090,507 306,453 10,396,960 1,915,601 8,481,359 970,267 7,511,092 212,248 7,723,340 2,586,246 5,137,094

1,297,240 215,322 1,512,562 377,978 1,134,584 878,098 256,486 122,250 378,736 327,923 706,659

777.84 142.32 687.37 506.80 747.53 110.50 2928.46 173.62 2039.24 788.67 726.96

100 100 100 100 100 100 100 100 100 100 100

Share of profit of associate - net of tax Profit before taxation Taxation Profit after taxation

h. Indexed Income Statement of PSO


PSO Income Statement Sales Sales Tax Inland freight equalization margin Regular 2008 2007 583,213,95 411,057,59 9 2 74,249,472 52,418,310 13,685,954 8,932,956 Indexed (%) 2008 2007 141.8 100 8 141.6 100 5 153.2 100 1 141.6 100
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Net sales
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495,278,53

349,706,32

Cost of products sold Gross profit Other operating income

3 465,254,90 7 30,023,626 1,396,527

6 337,446,89 6 12,259,430 1,278,932

3 137.8 7 244.9 0 109.1 9

100 100 100

Operating costs Transportation costs Distribution and marketing expenses Administrative expenses Depreciation Amortization Other operating expenses Total Operating Cost

337,886 3,264,599 1,160,741 1,119,137 47,689 3,352,969 9,283,021

369,328 2,745,289 1,002,712 1,098,157 41,908 755,420 6,012,814

91.49 118.9 2 115.7 6 101.9 1 113.7 9 443.8 5 154.3 9 73.98 282.4 1 118.1 1 310.4 3 89.10 300.1 6 301.1 1 299.6 7

100 100 100 100 100 100 100

Other income Profit from operations Finance costs

313,860 22,450,992 1,367,898

424,238 7,949,786 1,158,112

100 100 100

21,083,094 Share of profit of associates Profit before taxation Taxation 294,318 21,377,412 7,323,617

6,791,674 330,306 7,121,980 2,432,182

100 100 100 100

Profit for the year

14,053,795

4,689,798

100

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5. Summary of the Analysis


Ratios SHELL 2007 2008 Liquidity Ratios 1.02 1.30 0.60 0.52 Leverage Ratios 0.68 0.66 2.09 1.91 Coverage Ratios
1.28 8.74

PSO 2007 1.22 0.64 0.72 2.57 6.86 32.47 11.24 11.69 31.22 5.67 2.98% 1.14% 6.47% 22.46 % 27.34 14.32 2008 1.24 0.57 0.76 3.10 16.41 24.55 14.87 10.12 36.06 5.78 5.15% 2.41% 13.93% 54.15% 81.94 5.09

Current Quick Total Debt Ratio Debt to Equity Times Interest Earned Receivable Turnover Average Collection Period Inventory Turnover ITD Total Asset Turnover Gross Profit Margin Net Profit Margin Return on Assets Return on Equity Earnings Per Share P/E Ratio

Activity Ratios 26.53 34.43 13.76 10.60 11.93 9.47 30.61 38.55 4.53 4.58 Profitability Ratios 4.90% 9.61% 0.54% 3.26% 2.46% 14.92% 7.20% 44.53% Market Value Measures 12.90 93.76 31.79 4.45

Note:Company A:- Our Company Company B:- Competitors Company

SHELL PSO

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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 dont 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 PSOs.

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7. Appendix
a. Shell Balance Sheet 08

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Page A

b) Shell Income Statement 08

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Page B

c) Shell Balance Sheet 07

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Page C

d) Shell Income Statement 07

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Page D

e) PSO Balance Sheet 08

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Page E

f) PSO Income Statement 08

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Page F

g) PSO Balance Sheet 07

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Page G

h) PSO Income Statement 07

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Page H