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INTRODUCTION:
Pakistan State Oil (PSO) is the market leader in oil. He is enjoying more than 79% share of Black Oil
Market and 58% share of White Oil Market. They are dealing in Import, Storage, distribution, and marketing
of various POL products, Including Mogas, HSD, Fuel Oil, Jet Fuel Kerosene,LPG, CNG and petro
chemicals. This company also wins Karachi Stock Exchange Top Companies Award and also a member of
world Economic Forum.
HISTORY OF PSO:
Chronology Of Events Leading To The Formation Of:
Date
01-01-1974
Events
According to the marketing of Petroleum Products (Federal Control)
Act, 1974, the Federal Government renamed as POCL (Premier Oil Company
Limited) after taking over the management of PNO (Pakistan National Oil) and
DPL (Dawood Petroleum Limited).
03-06-1974
23-08-1976
15-09-1976
30-12-1976
Government merges two another companies PNO and POCL into SOCL
(State Oil Company Limited) and renames it as Pakistan State Oil Company
Limited (PSO)
Vision Statement
To excel in delivering value to customers as an innovative and dynamic energy
company that gets to the future first
Mission Statement :
We are committed to leadership in energy market through competitive advantage in providing the
highest quality petroleum products and services o our customers based on:
o Professionally trained, high quality, motivated workforce, working as a team in an
environment, which recognizes and rewards performance, innovation and creativity, and
provides for personal growth and development.
o Lowest cost operations and assured access to long-term and cost effective supply sources.
o Sustained growth in earnings in real terms.
o Highly ethical, safe environment friendly and socially responsible business practices.
2007
2006
8,012,317
126,212
2,990,591
627,972
65,913
401,037
12,224,0142
7,518,956
154,819
3,278,970
698,146
74,662
408,296
12,133,849
127,891
29,562,055
13,599,966
365,974
1,583,913
15,751,198
4,522,276
62,513,273
125,030
28,168,633
11,715,868
275,729
1,287,893
14,562,628
1,898,894
58,034,675
74,737,315
70,168,524
1,715,190
19,224,027
20,939,217
1,715,190
19,097,869
20,813,059
768,308
1,644,063
743,994
1,554,893
41,431,075
688,512
131,961
9,064,781
69,398
-
36,814,402
777,276
120,731
7,648,919
1,695,250
-
74,737,315
70,168,524
2007
2006
411,057,592
352,514,873
-sales tax
(52,418,310)
9,725,202)
(8,932,956)
(9,725,202)
349,706,326
298,250,039
(337,446,896)
(281,042,813)
Gross Profit
12,259,430
17,042,813
1,278,932
950,850
(369,328)
(365,795)
(2,766,064)
(2,492,633)
(981,937)
(935,589)
(1,140,065)
(1,082,394)
(755,420)
(2,460,931)
424,238
442,791
7,949,786
11,263,525
(1,158,112)
(884,153)
6,791,674
10,379,372
330,306
1,038,939
7,121,980
11,418,311
(2,432,182)
(3,893,610)
4,689,798
7,524,701
Net Sales
Cost of products sold
Operating Costs
Transportation Costs
Distribution and Marketing Expenses
Administrative Expensive
Depreciation and Amortization
Other Operating Expenses
Other Income
Profit from Operations
Finance Costs
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Vertical Analysis
Vertical analysis compares each amount with a base amount selected from the same year.
=
Particular Item__
Selected base year
Description
2007
2006
Sales
100%
100%
12.7521%
12.6348%
2.1732%
2.7588%
Net Sales
14.9252%
15.3936%
82.0924%
79.7251%
Gross Profit
2.9824%
4.8813%
0.3111%
0.2697%
Operating Cost
- Transportation costs
0.0898%
0.1038%
0.6729%
0.7071%
- Administrative exp.
0.2389%
0.2654%
0.2773%
0.3070%
0.1838%
0.6981%
0.1032%
0.1256%
Other Income
5
1.9340%
3.1952%
Finance Costs
0.2817%
0.2508%
0.0804%
0.2947%
1.7326%
3.2391%
Taxation
0.5917%
1.1045%
1.1409%
2.1346%
Vertical analyses express comparisons in percentages. In the above vertical analysis we see that the
percentage cost of good sold increases as compare to the previous year. Its means the resources are not
efficiently used and it is not a good sign for the company. Also the operating expanses of this year increases
and gross profit, profit from operations and also the net profit decreases. It is not a positive sign for the
company.
Horizontal Analysis
Horizontal Analysis also shows the comparison in percentages. Horizontal analysis compares each
amount with a base amount for a selected base year.
= __Particular Item__
Selected base year
Description
2007
2006
Sales
116.6072%
100%
117.6891%
100%
91.8537%
100%
Net Sales
117.2527%
100%
120.0696%
100%
Gross Profit
71.2458%
100%
134.5041%
100%
Operating Cost
- Transportation costs
100.9658%
100%
110.9696%
100%
- Administrative exp.
104.9539%
100%
105.3281%
100%
30.6965%
100%
Other Income
95.8100%
100%
70.5799%
100%
Finance Costs
130.9855%
100%
31.7926%
100%
62.3733%
100%
Taxation
62.4660%
100%
62.3254%
100%
In Horizontal comparison the 2006 use as a base year. Sale of this year increases with respect to the
previous years and at same time cost of goods sold increases with respect to the previous year. Interest cost is
increased and the operating expenses are also increases, which is not a good sign for the organization. Gross
profit, profit from operations and the net profit of the company decreases. It is not a good sign for the
organization, so they must improve their deficiency in order to improve the performance of the organization
as well as the cost decreases.
Profitability:
These ratios are used to measure the firms return on its investment.
4,689,798__* 100
411,057,592
= 1.14 %
Year 2006
=
7,524,701__* 100
352,514,873
= 2.13 %
This ratio shows a general relationship between net profit and the sales of the year. If this ratio is
high it shows that the firm is earning more profit and this is beneficial for the organization. This ratio is
mainly concern with the income statement of the business. When we compare this ratio with the previous year
ratio we have found that the net profit margin is declining so this is not a good news for the organization. This
cause due to high operating expenses so firm will have to control the operating expenditures so that they can
earn more profit.
= 4.88 %
This ratio shows a relation ship between the gross profit and the net sales of the organization. Gross
profit is concern with the income statement while the net sales are also concern with the income statement. In
general higher this ratio is higher is the benefit for the organization. When we compare it with the previous
year margin we have found that there is very slight difference between this ratio is. So we can say that the
gross profit of the company is stable as there is a slight difference in it. But one thing is here that this profit
margin is very low so company is inefficient in generating profit so it is recommended that the company
should have to increase this margin to earn high profit.
7,949,786__ * 100
411,057,592
= 1.93 %
Year 2006
= 11,263,525__ * 100
352,514,873
= 3.19 %
This ratio shows the relationship between operating profit and net sales. Both are concerned with
income statement. If operating profit increases this ratio also increases. In general higher this ratio is
beneficial for the organization. As compared with previous year our operating profit is decreases and the ratio
is also decreasing. This is not a good indication.
*100
Year 2007
=
6,012,814__* 100
411,057,592
= 1.46%
Year 2006
= _ 7,337,342_ * 100
352,514,873
= 2.08%
This ratio shows the relationship between operating expenses and net sales. Both are concerned with
income statement. If operating expenses increases the ratio will decreases. Our operating expense ratio is 1.46
% for 2007.
Net Sales_______
Average Total Assets
411,057,592 _
72,452,920
Year 2007
= 5.6734 time
Average Total Assets
= 74,737,315 + 70,168,524
2
= 72,452,920
Year 2006
= 352,514,873
70,168,524
= 5.0238 time
This ratio shows the relation ship between the net sales and the average total assets. This shows that
how much the company is generating sales by the utilizing the assets of the firm. One item like sale is related
to the income statement of the company while the average total assets are related to the balance sheet of the
firm. When we compare this ratio with the previous year ratio we have found that this ratio is going to
increase which is a positive sign for the organization. This is due to the efficient use of the assets. So when
sales increases then this ratio are also increases. It is necessary to increase sale the nominator for the high
taken results.
Return on Assets
= Net Income before Minority Share of Earnings and Nonrecurring Items * 100
Average Total Assets
Year 2007
= 4,689,798__* 100
72,452,920
= 6. 4729 %
Year 2006
=
7,524,701__* 100
70,168,524
= 10.7238 %
This ratio gives a general relationship between net income and the average total assets of the company.
Net income is relates to the income statement of the firm while the average total assets are relates to the
balance sheet of the firm. As this ratio increase this is a positive indicator for the firm. When we compare this
ratio with the previous year ratio we found that the company is going to decline because this ratio is less. This
cause due to net income because we have found that the operating expenses are high for this reasons the net
income decline and this ratio is also decreases.
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Year 2006
10.7238 % = 2.134576886 % * 5.0238
10.7238 % = 10.7238 %
Sales_______
Average Fixed Assets
Year 2007
= 411,057,592
12,224,042
= 33.6269 time
Year 2006
= 352,514,873
12,133,849
= 29.0522 time
This ratio shows a general relationship between the sales and the average fixed assets. Sales are related
to the income statement and the fixed assets are related to the balance sheet of the firm. As this ratio goes up it
is a positive thing for the organization. When we compare it with the previous years ratio we have found that
it is goes upward that is a good sign for the organization. There is the reason that is fixed assets are used
efficiently thats why this ratio is high as compare to previous year.
Return on Investment
= Net Income before Minority Share of Earning and Nonrecurring Items + {(Interest
Expense) * (1-Tax Rate)}_______________________________________________
Average (Long-term Liabilities + Equity)
Year 2007
= 6,791,674 + { (1,158,112) (1-0.35) }* 100
23,351,588
=
23,351,588
= 6,791,674 + 752,772.8* 100
23,351,588
= 7,544,446.8__ * 100
23,351,588
= 32.31 %
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Year 2006
= 10,379,372 + {(884,153) ( 1- .035 ) * 100
23,111,946
= 10,379,372 + {(884,153) (0.65) * 100
23,111,946
= 10,379,372 + 574,699.45 * 100
23,111,946
= 10,954,071.45 * 100
23,111,946
= 47.40 %
This ratio shows relation ship between the net income and the liabilities + owner equities. Net income
is concern with the income statement while the liabilities and the owner equities are related to the balance
sheet. Higher this value is the higher benefit is to the organization. When we compare it with the previous
year ratio we have found that this is less as compared to the previous year figure. To get higher this figure we
will have to increase the figure of net income. Because the net income is less so this ratio is also less. So this
is not a positive indication for the organization
4,689,798__* 100
20,939,217
= 22.40 %
Year 2006
= 7,524,701 * 100
20,813,059
= 36.15 %
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This ratio shows the relationship between net income and common equity. It shows the percentage
earned on common equity. If this ratio increases it is good signal for Shareholders. Our return on common
equity is 22.40 %. It is almost satisfactory but it is decline as compare to previous year.
Efficiency Ratio:
Efficiency ratios measure how productively the firm is using its assets.
Inventory Turnover
= Cost of Goods Sold
Average Inventory
Year 2007
= 337,446,896
28,865,344
= 11.41 time per year
Year 2006
=
281,042,813
29,562,055
= 9.98 time per year
This ratio shows a general relation ship between the cost of good sold and the average inventory of the
organization. Cost of good sold is concern with the income statement of the organization while the inventory
is obtained from the balance sheet of the firm. It tells us that how many time inventories is replaced in one
year. As more this ratio it is good thing because more inventory requirement means that more production is
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made. So when we compare it with the previous year we have found that this year ratio is high. It means that
the company is taken less days to replace this inventory this year.
Ending Inventory
Cost of Goods Sold / 365
Year 2007
=
29,562,055
337,446,896 / 365
28,168,633
281,042,813 / 365
13,599,966____
349,706,326 / 365
= 12 days
Year 2006
=
11,715,868____
298,250,039 / 365
= 12 days
This is the general relation ship between the gross receivables and the net sales of the year. This ratio
states that how efficiently the company is managing its receivables. As this ratio is less it is a positive
indicator for the firm is. When we compare it with the previous years value we found that both years same
12days. It means that firm is working efficiently.
= 30.2249 times
Year 2006
= 298,250,039
11,715,868
= 30 Time per year
This ratio shows a relation ship between the net sales and the average gross receivables. Net sales are
concern with the income statement while the average gross receivables are concern with the balance sheet of
the company. This ratio shows that how much time taken by the debtors to pay their obligations. When we
compare this ratio with the previous year ratio we have found that it is better than the previous year. So the
firm is keeping a strict eye upon it. So it is better for the organization.
Year 2007
=
13,599,966____
411,057,592/365
= __ 13,599,966__
1126185.184
= 12 time
Year 2006
= __11,715,868___
352,514,873/365
= 11,715,868
965,794
= 12 times
This ratio shows a relation ship between the average gross receivables and net sales. Net sales are
concern with the income statement while the average gross receivables are concern with the balance sheet of
the company. This ratio shows that in how many days taken by the debtors to pay their obligations. When we
compare this ratio with the previous year ratio we have found that it is same that was in the previous year. So
the firm is keeping a strict eye upon it. So it is better for the organization.
Operating Cycle
= Account Receivable + Inventory Turnover
Turnover in Days
in Days
Year 2007
= 12 + 31.98
= 43.98 times
Year 2006
= 12 + 36.58
= 48.58 times
15
It shows how many days are required to sale the inventory and receive cash from customers. If this is
low then it is good signal. Our operating cycle is of 43.98 days. When we compare with the previous year we
found that is less as compare to the previous year that is a good indication for the organization.
Sales__________
Average Working Capital
Year 2007
= 411,057,592
11,127,546
= 37 times
Year 2006
= 352,514,873
10,978,097
= 32 times
Working Capital:
Solvency Ratios
These ratios show how heavily the company is in debt.
7,949,786
1,158,112
= 6.86 times
Year 2006
=
11,263,525
884,153
= 12.73 times
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This ratio shows how many times we are able to pay the amount of interest of loan which we
borrowed. If it is increases then it is satisfactory for business. The investors show more confidence. Our ratio
is 6.86 times which is good.
Current Liabilities
Inventory
Year 2007
= 51,385,727
29,562,055
= 1.7382
Year 2006
= 47,056,578
28,168,633
= 1.6705
It is a relationship between the current obligations and the inventory of the organization. It tells us the
how much portion of the current liabilities holded by the inventory. Both is belong to the balance sheet.
Leverage Ratios:
Borrowing capacity (leverage) ratios that measure the degree of protection of suppliers of long term
funds.
Earnings before Tax, Minority share of Earnings, Equity Income, and Nonrecurring
Items
Year 2007
= 7,949,786
6,791,674
= 1.1705
Year 2006
= 11,263,525
10,379,372
= 1.0852
Price/Earnings Ratio
=
Year 2007
= 391.45
27.3
= 14.34 per share
Year 2006
= 309
43.9
= 7.04 per common share
The price over earnings ratio expresses the relationship between the market price of a share of
common stock and that stock current earnings per share. This gives an indication of what is being paid for a
dollar of recurring earnings. The price / earning ratio is twice in 2007 which is very good sign for the
organization.
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Year 2007
= 4,689,798-46824687
4,689,798
Year 2006
= 7,524,7017,524,701
Dividend Payout
= Dividends per Common Share
Diluted Earnings per Share
Year 2007
= 27.98
27.34
= 1.0234 per share
Year 2006
= 25.59
43.87
= 0.5833 per share
The dividend payout ratio measures the portion of current earnings paid to per common share as
dividend. A increase in this ratio is a good sign for the organization. If we compare our company ratio with
the previous year we find that it is increase which is a better for the organization.
Dividend Yield
=
Year 2007
= _27.3_
391.45
= 0.0697
Year 2006
= 43.9
309
= 0.1421
Dividend per common share is decrease with respect to the previous year which is not a good sign for
the company but at the same time the market price per share increases which is a good for the company.
Year 2006
= 20,813,059
171 519
= 121.35 per share
= 22 per share
Year 2006
= 1,633,774 0
171,519
= 10 per share
It is a relationship between the operating cash flow less preferred dividends and common shares
outstanding. Operating cash flow per share is a better indication of a firms ability to make capital expenditure
decisions and pay dividends.
basis.
Conclusion
In the above analysis of Pakistan State Oil ( PSO ) for the year 2007, we found that the earning per
share is decreases. It is not a good signal for Pakistan State Oil Company Limited ( PSO ). The net sales are
increases but cost of goods sold with a higher rate thats why the Gross profit, profit from operation decreases.
The company also declares fewer dividends as compare to the pervious year. This year finance cost is very
much increased. Its mean company borrows more loans. The overall performance of the Pakistan State Oil (
PSO ) is very good. The market value per share increases from Rs. 309 to Rs. 391.45 which is a good signal
for the investor.
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