Ratio

Analysis

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Table of Contents
Historical Analysis ........................................................................................................................................ 1
Financial Ratio Analysis ............................................................................................................................... 2
Liquidity Ratios....................................................................................................................................... 2
Debt Management Ratios ....................................................................................................................... 2
Asset Efficiency Ratios ........................................................................................................................... 3
Profitability Ratios .................................................................................................................................. 5

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Historical Analysis
Byco Petroleum Pakistan Limited is engaged in the manufacturing of a wide range of petroleum products.
It was called Bosicar before 2010. It was incorporated as a public listed company on January 9, 1995. The
certificate of commencement of business was awarded to the company on March 13, 1995. The shares of
the company are listed on the Karachi, Lahore and Islamabad Stock Exchanges. It is listed on the Karachi
Stock Exchange (KSE) under the Refinery Sector. The symbol “BYCO” is used by the stock exchange for
the shares of Byco Petroleum Pakistan Limited. The number of Ordinary Authorized Shares is
1,200,000,000 at Rs.10 each. The number of shares issued and outstanding is 977,858,737.

Byco Petroleum Pak Ltd. has had a negative net profit margin and earnings per share since 2009 till 2014.
The Return on Common Equity has seen a lot of fluctuations with the values mostly being negative. The
company has been in losses for years but slowly it is working towards offsetting them. The company has
a long way to go to clear its accumulated loss of over Rs25 billion. The current ratio for the past years
shows a cyclic trend as it increases for a few years than starts decreasing for another few. The market
price of the share has increased over the years. Though still in negative, the net income has increased
over the years for Byco.

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Financial Ratio Analysis
Liquidity Ratios

A liquidity ratio is a measure of a company’s ability to pay off its short term debts. The liquidity ratios must
have a high value. The higher the value, the better it is as the company has a greater chance of easily paying
of its current liabilities. Byco’s liquidity ratios increased in 2014 and the again went down in 2015.

Current Ratio
Byco’s current ratio went up from 0.70 in 2013 to 1.02 in 2014 and then again went down in 2015 to 0.52.
Mostly the current ratio is below 1 for Byco which means that it has current liabilities greater than current
assets and it cannot meet its short term debt obligations. A ratio less than 1 is not a good indicator but we
need to consider the cash conversion cycle too. From 2013 to 2014 the firm’s current liabilities and current
assets saw a marked increased. The increase in current assets outweighed the increase in current liabilities
and hence an increase in the current ratio was observed. We can see that current liabilities have a larger
difference in the values of 2015 and 2013 than current assets and hence current ratio for 2015 is lower than
that of 2013. One possible reason for this trend of the current ratio over the three years is the large amount
of current asset namely Non-current asset held for sale which constituted a whole lot in the increased current
ratio for 2014, unlike in 2015 and 2013 where the recorded value fir this asset was zero. Another factor can
be the decrease in inventory from 2014 to 2015 to almost half, this reduced the current assets total value
which in turn reduced the current ratio. The management as Byco has planned on a merger with a subsidiary
to increase the asset base and this shall provide greater comfort to existing and potential creditors.

Quick Ratio
The quick ratio for Byco saw similar trend as the current ratio that is increase from 2013 to 2014 and then
a decrease. The quick ratio excludes the inventories from the calculation as they may take time to be
converted to assets. Generally a low quick ratio means that the company is over-leveraged, struggling to
maintain or grow sales, paying bills too quickly or collecting receivables too slowly. For Byco if we
compare the value of current assets and current liabilities of 2015 and 2013, we can see that there is not
much a difference in the value for current assets but the current liabilities have largely increased and hence
the quick ratio at the end of fiscal year 2015 was 0.39 which is lower than 0.50 of FY2013.
Since the quick test ratios of Byco are not much lesser than the current ratio for the three fiscal years this
indicates that the current assets are not highly dependent on inventory.

Debt Management Ratios

Debt Management Ratios attempt to measure the firm's use of Financial Leverage and ability to avoid
financial distress in the long run. These ratios are also known as Long-Term Solvency Ratios.

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Debt Ratio
The debt ratio is basically the ratio of total liabilities to total assets. In 2013 Byco had a debt ratio of around
1.08 meaning that the liabilities or debts were slightly greater than the assets. The value dropped to
approximately 0.91 in 2014 and with a very minute fluctuation remained 0.91 in 2015. A debt ratio of 0.91
means that Byco’s liabilities are around 91% of its assets. A debt ratio closer to 1 is not considered good as
it means that to pay off all its liabilities the company must sell off all its assets and once the assets are sold
off the company cannot operate. The decrease in debt ratio from 2013 to 2014 shows that the company
financed the assets through equity.

Long-term Debt Ratio

The long term debt ratio experiences a decreasing trend. This indicates that Byco Petroleum is less
dependent debts to meet its business needs, this also shows that the company financing through long term
debts is decreasing, which means the company may be financing through equity or short term debts.

Debt to Equity Ratio

The he debt to equity ratio shows the percentage of company financing that comes from creditors and
investors. A decreasing trend can be observed which indicates that the Byco Petroleum’s financing has been
done more by creditors than the shareholders.

Times Interest Earned

The Times Interest Earned shows the proportionate amount of income that can be used to cover interest
expenses in the future. Byco Petroleum’s Times Interest Earned demonstrates an increasing trend which is
a good indicator. The TIE ratio basically represents the number of times the income can be used the interest
expense or finance cost in other terms. The greater the value of TIE ratio the better it is foe the firm. A
reason for Byco’s TIE experiencing an upward trend is because of the increase in the EBIT, which went
from a loss in 2014 to a huge profit in 2015.

Asset Efficiency Ratios

Asset management ratios indicate how successfully a company is utilizing its assets to generate revenues.
Analysis of asset management ratios tells how efficiently and effectively a company is using its assets in
the generation of revenues. High asset turnover ratios are desirable because they mean that the company is
utilizing its assets efficiently to produce sales. Low asset turnover ratios mean inefficient utilization of
assets.

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Inventory, Receivables and Payables Turnover
The inventory turnover and receivables turnover show an increasing trend from 2013 to 2015 whereas the
payables turnover increases from 2013 to 2014 to 3.83 and then in 2015 it drops to 3.02. A high inventory
turnover shows that the company can effectively sell the inventory it buys. The reason for an increase in
inventory turnover from 2014 to 2015 occurred because of a reduction in inventory and an increase in the
sales. The inventory reduced because the company reduced the wastage of inventory and also because of
the reduction in oil prices which caused the inventory value to lessen. The receivables turnover measures
how many times a business can turn its accounts receivable into cash. The receivables turnover increased
from 5.46 to 8.27 to 9.68 over the period of three years. A reason for this is because the company collected
more of its receivables. The payables turnover is based on the cost of goods sold and the payables. The
payables showed an increasing trend from 2013 to 2015 whereas the cost of goods sale increased from 2013
to 2014 and then again decreased in 2015. The decrease of oil prices played a role here.

Turnovers
16.00
13.95
14.00 12.72
11.59
12.00
9.68
10.00 8.27
Ratio

8.00
5.46
6.00
3.83
3.28 3.02
4.00
2.00
0.00
2013 2014 2015
Years
Inventory Turnover Receivables Turnover Payable Turnover

Cash Conversion Cycle

The cash conversion cycle is determined using the number of days inventory, receivables and payables.
The DIO and DSO show decreasing trends the reason for this is that they are calculated using Inventory
Turnover and Receivable Turnover respectively and hence have an opposite trend as compared to them.
DPO also follows an opposite trend as compared to Payable Turnover. A lower value is preferred as it
shows how quickly and efficiently a company can buy, sell, and collect on its inventory. Byco Petroleum
has negative cash conversion cycles for 2013, 2014 and 2015 which is quite impressive because it means
that it can sell and receive cash from its sales even before it actually makes payments against its inventories
and stocks. This means that Byco is using its working capital as efficiently as possible and has available
cash for other things. The reasons accounting for this are same as the inventory, receivables and payables
turnovers, as they are used to determine the DIO, DSO and DPO.

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 Cash Conversion Cycle
120.00
119.15
100.00 109.87
80.00 94.09

60.00
65.94
40.00
43.51
20.00 37.20
31.06 28.29 25.80
0.00

-20.00
(12.87)
-40.00 (22.29)

-60.00
Years (56.14)

No. of Days Receivables (DSO) No. of Days Payable (DPO)

Cash Conversion Cycle No. of Days Inventory (DSI)

Asset Turnover Ratios

The Asset Turnover ratio shows how efficiently a company can use its assets to generate sales. Byco’s
Asset Turnover changes from 1.51 to 1.79 from 2013 to 2014 and the decreases to 1.65 in 2015. The ratio
is greater than 1 in the three years showing that that the sales generated by the assets are greater than their
value. The value for 2014 is the higher than 2015 because it had an average total asset value lesser than
2015’s average value.

Profitability Ratios

Profitability ratios include Gross Profit Margin, Net Profit Margin and Return on Assets and Equity. ROA
measures efficiency of the business in using its assets to generate net income. The profitability ratios for
Byco Petroleum generally show an increasing trend which means that with every year the profits for Byco
are increasing. A basic reason for this is the increase in Sales from 2013 to 2014 and 2015. The net sales
for 2015 were 2% higher than the previous year and in 2014 the net sales were 40% higher as compared to
previous fiscal year. The company made high profits due to factors like increased level of production and
straight inventory management. A negative Return on Commom Equity was seen in 2014, which is a bad
sign. A negative return on common stock holder’s equity means its shareholders are losing, rather than
gaining value. This might happen due mainly to the significant costs of start-ups, including capital
expenditures investments in equipment and other major assets. The new projects started by Byco probably
resulted in the negative ROCE in 2014, though this was fixed in 2015 with a ROCE of 1.41%.

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Market Value Ratios

The three Market Value ratios: Book Value per share, Market Value to Book Value Ratio and Price per
Earnings Ratio, all show an increasing trend. The Book Value per share showed a marked increase in 2014
as it increased from a negative 3.49 to a positive 5.17 and only a slight increase to 5.31 in 2015. Market to
Book Value also went from negative (in 2013) to positive in 2014 and then almost doubled in 2015. P/E
ratio increase from negative 4.52 in 2013 to negative 1.88 in 2014 and then showed an significantly huge
increase in 2015 with the value 313. One reason for all these trends is that in 2015 for the first time a net
profit was recorded instead of a loss. Hence the earnings per share for the first time had a positive value in
2015.