Beruflich Dokumente
Kultur Dokumente
A REPORT
SUBMITTED TO THE DEPARTMENT OF MANAGEMENT SCIENCES,
VIRTUAL UNIVERSITY OF PAKISTAN
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF
MASTER IN BUSINESS ADMINISTRATION
Submitted by
ADEEL AHMED
ID:
Acknowledgment
Executive Summary
Three Companies (OGDCL, PPL and MPCL) of the petroleum industry has been
selected for project on the topic Profitability ratios. The objective to took
research on the proposed project is to carry out financial and business analysis of
OGDCL, PPL and MPCL over three years period starting from June 30, 2012 to June
30, 2014, using profitability ratios techniques.
The outcome of this project has derived the quantitative measure or guide regarding
financial position and profitability of selected companies. This project has benefited me
and will be advanced the user/reader of project an understanding about upstream oil
industry and its profit trends and contribution in overall performance of oil sector.
The topic has been analyzed in detailed with calculating profitability ratios
the results of all these ratios along with interpretations and graphical
presentation for each individual ratio.
TABLE OF CONTENTS
SECTION 1......................................................................................................... 2
CHAPTER 1) INTRODUCTION................................................................................................2
Companies Introduction:.......................................................................................................... 2
i. Oil and Gas Development Company Limited:..............................................................2
ii. Pakistan Petroleum Limited (PPL)...............................................................................3
iii. Mari Petroleum Company Limited (MPCL):.................................................................4
DESCRIPTION OF PROJECT:.................................................................................................. 4
1.1 Financial Period under consideration:......................................................................................4
1.2 OBJECTIVES OF PROJECT:............................................................................................ 5
1.3 SIGNIFICANCE:............................................................................................................ 5
CHAPTER 2) METHODOLOGIES............................................................................................. 7
2.1 Data Collection source:....................................................................................................... 7
2.2 Data Processing and analysis:.....................................................................................7
Chapter 3) Data / Ratio Analysis..........................................................................................8
Profitability Ratios:-........................................................................................................... 8
1. Gross Profit Margin..................................................................................................... 8
2. Operating Income Margin........................................................................................ 10
3. Net Profit Margin...................................................................................................... 11
4. Return on Assets...................................................................................................... 13
5. DuPont Return on Assets.......................................................................................... 14
6. Operating Assets Turnover.......................................................................................15
7. Return on Operating Assets.....................................................................................17
8. Return on Total Equity..............................................................................................18
9. Sales to Fixed Assets................................................................................................20
Over All Working of all above calculated Ratios...........................................................22
Chapter 4) Conclusion and Recommendations:.................................................................25
4.1 Conclusion................................................................................................................ 25
4.2 Recommendations.................................................................................................... 25
SECTION II....................................................................................................... 27
5.1 INTRODUCTION OF THE STUDENT.............................................................................27
5.2 BIBLIOGRAPHY.......................................................................................................... 27
SECTION 1
CHAPTER 1) INTRODUCTION
Companies Introduction:
Three Companies of the same industry selected for project are as follows:
These Companies are listed in all three stock exchanges of Pakistan. OGDCL in addition to local
markets, listed in London stock exchange as well.
i. Oil and Gas Development Company Limited:
Oil and Gas Development Company Limited (OGDCL) is Pakistans largest listed Company
having exploration and production activities in Pakistan. OGDCL was established in 1961 as
statutory organization which later on incorporated as Public Limited Company with 100 percent
shareholding by Government of Pakistan (GoP) w.e.f. 23 October 1997. GoP offered 2.5% of its
shareholding to general public in Initial Public Offering (IPO) in local stock market and
subsequently in 2006 divested further 10% of its holding via 2 nd Public offering in global market
at London Stock Exchange. Currently Government holds 74.97 percent of shares in the
Company.
The average daily net production of major products, crude oil and gas during the year 2013-14 is
as under: (Annual report 2014, page # 36)
Crude Oil
Gas
Rs 257 billion
Rs 124 billion
OGDCL has 45 operated production fields for oil and gas production and holds 100 development
and production leases. Moreover Company also has 68 exploration licenses for exploration
activities in all over the Country.
OGDCL holds 20% shareholding in Mari Petroleum Company Limited (MPCL).
Ministry of Petroleum and Natural Resources (MPNR) is the main regulator for oil and gas
sector on behalf of Government of Pakistan. MPNR awards license for geophysical activities,
exploration and development of oil and gas in Pakistan.
ii. Pakistan Petroleum Limited (PPL)
Pakistan Petroleum Limited was incorporated in Pakistan in 1950 with the main objectives of
conducting exploration, prospecting, development and production of oil and natural gas
resources. The Company is listed on all the three Stock Exchanges of Pakistan with effect from
September 16, 2004. The registered office of the Company is located at PIDC House, Dr. Zia
Uddin Ahmed Road, Karachi. (Annual Report 2014, Page # 105)
The pioneer of the natural gas industry in the country, PPL has been a frontline player in the
energy sector since the mid-1950s. As a major supplier of natural gas, PPL today
contributes over 20 percent of the countrys total natural gas supplies besides producing crude
oil, Natural Gas Liquid and Liquefied Petroleum Gas.
Companys results for the year 2013-14 has showed net sales revenue of Rs 119.8 billion and net
profit after tax 51.4 billion. The average daily net production of major products, crude oil and gas
during the year 2013-14 is as under:- (Annual report, Page # 41)
Gas
854
Crude oil
10,749
PPL has acquired 100 percent shareholding of MND E&P Limited, a company incorporated in
England and Wales. The name of the subsidiary has been changed to PPL Europe E&P Limited.
Following are the associated Companies of PPL:
595
Crude oil
480
DESCRIPTION OF PROJECT:
The purpose of project is to analyze the whole industry, current perspective; future prospects
while being specific on the topic of project i.e. profitability ratios analysis, comparative analysis
of companies financials with comparative periods and counter analysis with each other.
1.1 Financial Period under consideration:
Financial period of the industry is (July to June). The financial years of most recent available
audited financial reports has been used as follows:
FY 2014
FY 2013
FY 2012
FY 2014 would be the most recent available financial period. FY 2015 has not been selected as
project is required to be finalized before the release/issuance of financial statements to the
markets. However some material subsequent information can be used in order to provide the
accurate information to readers/users of proposed project.
1.2 OBJECTIVES OF PROJECT:
The objective to took research on the proposed project is to carry out financial and business
analysis of OGDCL, PPL and MPCL over three years period starting from June 30, 2012 to
June 30, 2014, using profitability ratios techniques. A brief of objective to be achieved with this
analysis is summarized as follows:The purpose of proposed project is to assess the performance of selected Organizations by
applying profitability ratios. The profitability ratios may also help in indicating the past patterns,
variations and reasons for variances in different title of accounts.
To analyze the ability of selected companies to earn profit over a period of time
To analyze the selected companies efficiency in managing their resource for
generating profit
To find out the reasons for generating profit over the years for selected companies
To find out that how effectively selected companies are maximizing their profits
by controlling their costs/expenses
1.3 SIGNIFICANCE:
The project will be used to analyze the financial performance of these three oil exploration and
production companies (upstream oil sector) and will provide detail of their financial results in
terms of profits. I will use three years financial data to calculate different profitability ratios in
this project. This will benefit me and user/reader of project an understanding about upstream oil
industry and its profit trends and contribution in overall performance of oil sector.
The results of this project will derive the quantitative measure or guide regarding financial
position and profitability of selected companies. Result of this project will help to compare the
results of financial ratios year to years and in business planning/forecasting. This research will
assist the management to make necessary decisions about future business planning and to make
proactive action to overcome major difference in the financial results.
The comparative
profitability analysis of selected companies will be fruitful for the investors as they will be able
to identify that which company is performing better in terms of profitability, thus, helping them
in making investment decisions.
5
CHAPTER 2) METHODOLOGIES
2.1 Data Collection source:
The data / information for the analysis has been collected by the instruction, data available at
MPNR, Policies issued, articles, research reports published in magazines, journals, and websites
for searching definition and purpose of different ratios to be calculated. Especially data has been
collected from the websites i.e. published financial reports of the all three listed companies.
2.2 Data Processing and analysis:
Data extracted from different source as mentioned above has been complied in, MS Excel, MS
World: Data has been compiled and formed in organized manner while keeping in mind the
following areas:
To assess the authenticity of information, source and its weight on overall project
Finally reporting the required data with focusing on the topic of project
Assumptions used in calculating formula and deriving results will also be explained
PPL
MPCL
FY 2012
138,306,253 /
FY 2013
158,432,480 / 223,365,490
FY 2014
176,072,804 /
x 100 =71%
257,014,254 x 100
57,769,003 / 96,221,728 x
59,461,402 / 102,356,656 x
=69%
72,693,716 /
100 = 60%
100 =58%
119,811,358 x 100
1,369,433 / 7,555,915 x
2,903,419 / 11,777,767 x
=61%
3,876,254 /
100 = 18%
100 =25%
14,877,969 x 100
=26%
40%
PPL
MPCL
30%
20%
10%
0%
FY 2012
FY 2013
FY 2014
FY 2012
123,422,371 /
197,838,726 x 100 = 62%
FY 2013
131,114,046 / 223,365,490
x 100 = 59 %
PPL
52,935,469 / 96,221,728 x
100 = 55%
55,734,295 / 102,356,656 x
100 = 54%
MPCL
599,201 / 7,555,915 x
100= 8%
2,933,729 / 11,777,767 x
100 = 25%
FY 2014
153,223,652 /
257,014,254 x 100 =
60%
68,165,439 /
119,811,358 x 100 =
57%
2,887,568 /
14,877,969 x 100 =
9
19%
OGDCL
PPL
30%
MPCL
20%
10%
0%
FY 2012
FY 2013
FY 2014
11%. This increase was relatively less as compare to FY 2013 and FY 2012, resulting ratio to
19% of sales revenue.
Overall comparison shows very high proportion of operating income for OGDCL and MPCL
shows on average 60% and 55% respectively. MPCL shows 17% operating income which is
relatively lower than other two companies of the same industry. Main reason again is the same
i.e. relatively high production to meet operating and overhead cost.
3. Net Profit Margin
Formula: Net Profit / Net Sales x 100
(Rupees in Thousand 000)
Company
OGDCL
FY 2012
96,905,575 / 197,838,726
x 100 = 49 %
FY 2013
91,272,619 / 223,365,490
= 41%
PPL
40,925,516 / 96,221,728 x
100 = 43 %
41,951,196 / 102,356,656 x
100 = 41%
MPCL
1,115,166 / 7,555,915
= 15 %
2,421,076 / 11,777,767 x
100 = 21%
FY 2014
123,914,550 /
257,014,254 x 100=
48%
51,417,378 /
119,811,358 x 100=
43%
3,943,303 /
14,877,969 x 100 =
27%
11
60%
50%
40%
OGDCL
30%
PPL
MPCL
20%
10%
0%
FY 2012
FY 2013
FY 2014
4. Return on Assets
Formula: PBIT / Total Assets
(Rupees in Thousand 000)
Company
OGDCL
PPL
MPCL
FY 2012
133,082,814 /338,291,118
=39%
64,554,950 / 170,153,040
=38%
1,402,495 / 33,287,590
=4%
FY 2013
146,808,506 / 413,928,864
=35%
62,627,743 / 212,901,221
=29%
3,488,491 / 34,192,438
=10%
FY 2014
17,349,905 /
496,232,680 =35%
74,546,759 /
236,343,043 =32%
4,377,637 /
59,463,027=7%
13
45%
40%
35%
30%
25%
OGDCL
20%
PPL
MPCL
15%
10%
5%
0%
FY 2012
FY 2013
FY 2014
14
FY 2012
49% x 0.58 x 1.28 x100
=37%
43% x 0.57 x 1.36 x 100
=33%
15% x 0.23 x 2.90 x 100
=10%
FY 2013
41% x 0.54 x 1.33 x 100
=29%
41% x 0.48 x 1.43 x 100
=28%
21% x 0.34 x 2.52 x 100
=18%
FY 2014
48% x 0.52 x 1.25 x
100 =31%
43% x 0.51 x 1.30 x
100=28%
27% x 0.25 x 3.53 x
100 =23%
40%
35%
30%
25%
OGDCL
20%
PPL
MPCL
15%
10%
5%
0%
FY 2012
FY 2013
FY 2014
Company
OGDCL
FY 2012
FY 2013
197,838,726 /
330,890,438 =0.60 times
223,365,490 / 268,779,371
= 0.83 times
96,221,728 / 149,000,939
=0.65 times
102,356,656 / 154,639,937
= 0.66 times
7,555,915 / 32,780,421
=0.23 times
11,777,767 / 32,590,262
=0.36 times
PPL
MPCL
FY 2014
257,014,254 /
349,931,382 = 0.73
times
119,811,358 /
165,662,998 =
0.72 times
14,877,969 /
57,506,682 =0.26
times
OGDCL
0.40
PPL
MPCL
0.30
0.20
0.10
FY 2012
FY 2013
FY 2014
all three periods in term of rupees. While comparing this increase in proportion to increase in
Operating assets, the sales revenue is slightly increased in FY 2013. In FY 2014, operating assets
turnover significantly improved to 0.72 times in FY 2014. Overall improvement is witnessed in
PPL assets turnover over the period under analysis.
MPCLs operating assets are generating revenue at the rate of 0.23 times in FY 2012 and
increased to 0.36 times in FY 2013, which shows positive trend and efficiency of operating
assets in terms of generating revenues as compare to corresponding period. In FY 2014,
operating assets turnover declined to 0.26 times which shows relatively less efficiency in
generating revenues as compare to financial year 2013. However overall performance since FY
2012 is on improving trend.
Overall comparison of these Companies shows that OGDCL and PPL are generating more
revenues with deploying operating assets into business. MPCL revenues are relatively low while
comparing with other two major Companies of the industry. MPCLs operating assets needs
some additional measures by the management to improve sales revenues in order to maintain the
turnover with industry.
7. Return on Operating Assets
Formula: Operating Income / Operating Assets
(Rupees in Thousand 000)
Company
OGDCL
FY 2012
FY 2013
123,422,371 /
330,890,438 x 100=37%
131,114,046 / 268,779,371
x 100 =49%
52,935,469 / 149,000,939
x 100 =36%
599,201/ 32,780,421 x
100=2%
55,734,295 / 154,639,937 x
100=36%
2,933,729 / 32,590,262 x
100 =9%
PPL
MPCL
FY 2014
153,223,652 /
349,931,382 x
100=44%
68,165,439 /
165,662,998 x
100=41%
2,887,568 /
57,506,682 x 100=5%
17
60%
50%
40%
OGDCL
30%
PPL
MPCL
20%
10%
0%
FY 2012
FY 2013
FY 2014
operating assets base. Management of MPCL is required to manage its operating assets to get
maximum return on operating assets with generating more revenues and increased production.
8. Return on Total Equity
Formula: Net Profit / Total Equity
(Rupees in Thousand 000)
Company
OGDCL
PPL
MPCL
FY 2012
96,905,575 /
263,383,074=37%
40,925,516 / 124,960,496
=33%
1,115,166 / 11,476,146
=10%
FY 2013
91,272,619 / 312,266,021
=29%
41,951,196 / 149,354,340
=28%
2,421,076 / 13,556,733
=18%
FY 2014
123,914,550 /
395,671,205 =31%
51,417,378 /
181,917,358 =28%
3,943,303 /
16,822,231 =23%
20%
PPL
MPCL
15%
10%
5%
0%
FY 2012
FY 2013
FY 2014
equity due to high retention of profits impacted marginal increase in return on equity ratio in the
FY 2014.
PPLs financials shows return on equity at the rate of 33% in the FY 2012 which subsequently
decline due to marginal increase in profit and high retention in accumulated profits of the
Company impacted return at 28%. The same return of 28% is maintained in FY 2014, even after
increase of Rs 10 billion in profits, mainly due to high retention in accumulated profits by the
company or less payments of dividends.
MPCL shows relatively good growth in return on equity ratio as profits are on increasing trend
over the period. In the FY 2013, ratio improved to 18% of equity as compared to 10% of equity
in the FY 2012, mainly due to increase in profits along with relative growth in
retentions/accumulated profits. The same trend goes on for the year 2014, and return stood at
23% mainly due to 62% increase in profits in that year.
Overall comparison shows high return on equity in case of OGDCL and PPL. However, in case
of MPCL return is relatively low but growth in that return shows positive trend as return goes on
consistently at the rate of 7% to 8% over the period under analysis.
FY 2012
FY 2013
197,838,726 /
338,291,118 =0.58 times
223,365,490 / 413,928,864
=0.54 times
96,221,728 / 170,153,040
=0.57 times
102,356,656 / 212,901,221
=0.48 times
7,555,915 / 33,287,590
=0.23 times
11,777,767 / 34,192,438
=0.34 times
PPL
MPCL
FY 2014
257,014,254 /
496,232,680 =0.52
times
119,811,358 /
236,343,043 =0.51
times
14,877,969 /
59,463,027 =0.25
times
20
0.70
0.60
0.50
0.40
OGDCL
PPL
0.30
MPCL
0.20
0.10
FY 2012
FY 2013
FY 2014
21
Overall comparison shows a high assets turnover in case of OGDCL and PPL, relatively
maintaining trend over the period under analysis. However, MPCL has showed a decreased
turnover as compare to other Companies, but still its growth in profits and total assets is a
positive sign for future revenue generation.
22
FY 2013
FY 2014
96,905,57
5
138,306,25
3
197,838,72
6
338,291,11
8
91,272,61
9
158,432,48
0
223,365,49
0
413,928,86
4
123,914,55
0
176,072,80
4
257,014,25
4
496,232,68
0
116,044,10
2
214,846,33
6
330,890,43
8
134,532,01
5
134,247,35
6
268,779,37
1
155,771,25
5
194,160,12
7
349,931,38
2
43,009,28
4
4,906,00
0
215,467,79
0
263,383,07
4
43,009,28
4
5,756,00
0
263,500,73
7
312,266,02
1
43,009,28
4
6,606,00
0
346,055,92
1
395,671,20
5
133,082,81
4
(9,660,44
3)
123,422,37
1
146,808,50
6
(15,694,46
0)
131,114,04
6
172,349,90
5
(19,126,25
3)
153,223,65
2
OGDCL
NP
GP
Sales
Total assets
Operating assets:
Fixed assets
Current assets
Net Operating Assets (Fixed Assets +
Current Assets)
Total Equity
Share capital
Reserves
Un appropriated
Net Total Equity (Share Capital +
Reserves + Un-appropriated Profit)
Operating Income
Profit Before Income Tax
Other income
Net Operating Income (PBIT - Other
Income)
Equity multiplier (Total Asset / Net
Total Equity)
1.2
8
1.3
3
1.2
5
23
PPL
NP
GP
Sales
Total assets
40,925,51
6
57,769,00
3
96,221,72
8
170,153,04
0
41,951,19
6
59,461,40
2
102,356,65
6
212,901,22
1
51,417,37
8
72,693,71
6
119,811,35
8
236,343,04
3
56,326,93
2
433,56
9
56,760,50
1
70,078,91
2
402,15
2
70,481,06
4
82,636,34
7
277,97
3
82,914,32
0
13,144,90
9
111,815,58
7
124,960,49
6
16,431,10
2
132,923,23
8
149,354,34
0
19,717,29
5
162,200,06
3
181,917,35
8
64,554,95
0
(11,619,48
1)
52,935,46
9
62,627,74
3
(6,893,44
8)
55,734,29
5
74,546,75
9
(6,381,32
0)
68,165,43
9
Operating assets
PPE
Intangibles
Net Operating Assets (Fixed Assets +
Current Assets)
Total equity
Share capital
Reserves
Net Total Equity (Share Capital +
Reserves + Un-appropriated Profit)
Operating Income
PBT
Other income
Net Operating Income (PBIT - Other
Income)
Equity multiplier (Total Asset / Net
Total Equity)
1.36
1.43
1.30
MPCL
NP
GP
Sales
1,115,16
6
1,369,43
3
7,555,91
5
2,421,07
6
2,903,41
9
11,777,76
7
3,943,30
3
3,876,25
4
14,877,96
9
24
33,287,59
0
34,192,43
8
59,463,02
7
12,047,21
1
20,733,21
0
32,780,42
1
12,117,97
7
20,472,28
5
32,590,26
2
16,877,75
0
40,628,93
2
57,506,68
2
11,476,14
6
13,556,73
3
16,822,23
1
1,402,49
5
(356,36
3)
(446,93
1)
599,20
1
3,488,49
1
(295,27
8)
(259,48
4)
2,933,72
9
4,377,63
7
(835,30
8)
(654,76
1)
2,887,56
8
2.90
2.52
3.53
Total assets
Operating Assets
Fixed assets
Current assets
Operating Income
PBT
Other income
Finance income
Net Operating Income (PBIT - Other
Income-Finance Income)
Equity multiplier (Total Asset / Net
Total Equity)
25
Profitability ratios of all three Companies under analysis shows their comparative
analysis of profitability while comparing with different factors of the financial position.
Overall impact was positive in case of all these companies as all three Companies are
profitable for all three periods under analysis. However, MPCL shows relatively less
profitability but assets turnover and other operating assets turnover ratio shows positive
trend as growth is expected and future prospects due to investment and capitalization in
assets of the Company.
Increase in production is one of the most common factor to improve probability for all
three Companies, particularly in case of MPCL, MPCL can enhance production with
extensive exploration activities.
The result of assets turnover ratio is observed very low for all three Companies even
below than 1 times. Which is because of industry nature as capital intensive and needs
strong assets base. However, strong assets base can be used to generate more revenues
with optimal utilization of Companies resources.
In case of OGDCL and PPL, a significant amount under long term investment was stuck
which can be used as exploration and other petroleum extraction activities to increase the
production of oil and gas in order to increase profitability and to meet energy crises
prevailing due to shortfall of petroleum products in the Country.
4.2 Recommendations
All three Companies are generating sufficient revenues to offset the operating expenses
but still there is shortfall of profits in case of MPCL, which can be improved by adopting a
strategy to improve the production in order to increase sales revenues.
26
MPCL shows very low return or profits due to heavy exploration expenditures for all
three financial periods and caused profits to reduce. Strategy to improve production and
sales revenue is very important in order to survive in the industry.
Exploiting offshore hydro carbon reserves for further growth of operations and
capitalizing on a very fruitful venture.
Realization of long term investments in case of OGDCL and PPL to invest fund into
operations in order to get operational growth.
27
SECTION II
5.1 INTRODUCTION OF THE STUDENT
5.1.3 Designation
5.2 BIBLIOGRAPHY
MPCL. (n.d.). Retrieved June 11, 2015, from Mari Petroleum Company Limited:
http://mpcl.com.pk/InvestorRelations.html
MPCL - Financial Reports. (n.d.). Retrieved June 11, 2015, from Mari Petroleum Company
Limited: http://mpcl.com.pk/Financial_Reports/AR-2014.pdf
OGDCL - Financial Reports. (n.d.). Retrieved June 11, 2015, from Oil & Gas Development
Company Limited: http://www.ogdcl.com/DocumentDownload
OGDCL - OverView. (n.d.). Retrieved June 11, 2015, from Oil & Gas Development Company
Limited: http://www.ogdcl.com/ContentPage?id=%2b5PqYGaI9%2fgsbYnBjwBWAQ
%3d%3d
PPL - Associations. (n.d.). Retrieved June 11, 2015, from Pakistan Petroleum Limited:
http://www.ppl.com.pk/content/associated-company
PPL - Financial Reports. (n.d.). Retrieved June 11, 2015, from Pakistan Petroleum Limited:
http://www.ppl.com.pk/content/reports-and-accounts
PPL - Overview. (n.d.). Retrieved June 11, 2015, from Pakistan Petroleum Limited:
http://www.ppl.com.pk/content/corporate-profile-overview
28