Beruflich Dokumente
Kultur Dokumente
Page 2 of 83
Page 3 of 83
Ratio and Sensitivity Analysis
Shell
SUBMITTED TO
Mr. Abrar Hussain
Lecturer Business Administration Department
Punjab University Gujranwala Campus
SUBMITTED BY
Fatima Shahid BB-15139
University of the Punjab Gujranwala Campus
DATE OF SUBMISSION
FEBRUARY 16, 2018
Page 4 of 83
LETTER OF AUTHORIZATION
Fatima Shahid
Punjab University
Gujranwala Campus
Dear Student:
I am pleased and hopeful to assign you this research task on the following topic:
Topic: RATIO AND SENSITIVITY ANALYSIS
Please note that all information and data collected during this procedure is to be used for
academic purposes only. Here are some instructions for you which will help you in the
accomplishment of the respective task.
Carefully analyze and interpret the system by applying course concepts. In the end offer
recommendations for the improvement of the system.
Report should be typed using Times New Roman and 12- point font (Body).
This report is due on February 16, 2018.
Sincerely,
Page 5 of 83
LETTER OF ACCEPTANCE
Fatima Shahid
Punjab University
Gujranwala Campus
December 14, 2017
Respected Sir:
I am extremely pleased that you have presented this opportunity, which will aid in increasing
my knowledge, capabilities and practical command on the subject. I accept this task
wholeheartedly and also I graciously accept all the given terms and conditions to prepare my
Finance report on “Ratio and Sensitivity Analysis”.
I assure you that I will remain unbiased while preparing this report. I will certainly give my
best efforts to prepare this report and to make it according to the given terms and conditions. I
hope it will be according to your desired expectations.
Sincerely,
Page 6 of 83
LETTER OF TRANSMITTAL
Fatima Shahid
Punjab University
Gujranwala Campus
February 16, 2018
Respected Sir:
Here is the report you asked me to prepare on the topic “RATIO and SENSITIVITY
ANALYSIS”. I have covered all the relevant dimensions related to the topic in the form of
introduction, history, mission, vision & core values, SWOT, ratio analysis, horizontal
analysis and vertical analysis. In this report I have put all of my efforts in the selection,
analysis and implementation of appropriate data.
It is my hope that I have covered all the dimensions in an appropriate way and have provided
all the necessary and demanded information, concepts and procedure. If there be any ambiguity
or clarification needed, I would appreciate a call from you.
Sincerely,
Page 7 of 83
Page 8 of 83
In completion of this work I am thankful to
Almighty Allah, as we firmly believe, without his gracious help, this
accomplishment would have not been possible.
Page 9 of 83
TABLE OF CONTENTS
1 Executive Summary 14
2 Introduction 17
3 History 21
5 Objectives 27
6 Organizational Structure 29
7 Departments 32
8 Products 34
10 SWOT Of Shell 41
14 Conclusion 67
15 Appendix 69
16 Glossary 78
17 Index 81
18 References 83
Page 10 of 83
LIST OF ILLUSTRATIONS
1 Fig # 2.1 21
2 Fig #3.1 25
5 Fig #6.1 32
6 Fig #7.1 34
7 Fig #8.1 36
8 Fig #8.2 37
9 Fig # 9.1 41
10 Fig #10.1 44
11 Fig # 11.1 51
12 Fig # 11.2 53
13 Fig # 11.3 55
14 Fig # 11.4 56
17 Fig # 14.5 71
18 Fig # 14.6 72
19 Fig # 14.7 73
Page 11 of 83
20 Fig # 14.8 74
21 Fig # 14.9 75
22 Fig # 14.10 76
Page 12 of 83
Page 13 of 83
EXECUTIVE SUMMARY
Shell is a superior brand name with more than 100 years of history in this region, in fact the
company is in possession of a fuel storage tank from 1899. However, the documented history
of the Royal Dutch/shell group in the Indo-Pak subcontinent dates back to 1903 when a
partnership was struck between the shell transporter and trading company and the Royal Dutch
petroleum company to supply petroleum products in Asia.
With their key indicators of progress already soaring to new heights, Shell is committed to
dedicate all its energies, resources and the time to bring higher value and satisfaction to their
customers, employees and shareholders.
Shell Advanced have been operating in Pakistan since 1947 with the name BURMA SHELL
OIL COMPANY. Shell is providing quality services to the employees and customers. Shell is
operating in more than 110 countries with more than 100,000 employees worldwide. The
current CEO of the subsidiary in Pakistan, Mr. Farooq Mughal is leading the company to its
best. His mission is to lead the company and make it customer’s first choice. Shell is continues
make esteemed and prosperous innovations.
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. 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.
Shell Pakistan has a primary listing on Karachi Stock Exchange. It is also listed on Lahore and
Islamabad Stock Exchange. Shell Pakistan Limited (SPL) has more than 850 retail stations in
more than 330 cities, having 20% market share and is the largest foreign investor in Pakistan’s
oil marketing sector. Shell has been the leader in the lubricants sector since 2002, currently
with more than 40% share of the organized sector. The company is the largest international
marketer of oil products with 17% market share in white oil products, supplied by 7 depots
across the country.
Aviation is the second largest provider of jet fuels and is present at five airfields. From 2008
to 2010, Shell made a significant investment to implement Global SAP in Pakistan to upgrade
its systems and processes for increased customer services those services had been provided by
IBM and Naveed Ali Tahir was the project manager. Shell’s Commercial Fuels business
Page 14 of 83
(including commercial transport) is a significant opportunity for growth. Its aviation business
supplies fuels to six key airports across Pakistan. Shell has 30% interest in the Pakistan
Refinery Limited located in Karachi and a 26% interest in US$480mn 780 km white oil
pipelines. In FY2010-2011 the Company earned a profit after tax of Rs. 906 million and
recorded 11% growth in net revenue and 3% increase in gross profits compared to previous
year.
Its managerial team includes General Manager, manager sales, manager finance etc. All the
personals of company are making their best to attain the company’s goals. Shell Pakistan
limited strives to deliver results, perform to highest standards, provide ostentatious customer
services and actively peruse consistent safety improvements
The culture of shell is customer oriented and their utmost priority is to serve their customers.
Shell has launched various products of which main are shell helix, formula 1, shell advance,
Shell LPG.
This report provides complete information on the Shell Pakistan, it has studied their general
company principles and practices. Moreover a ratio analysis of the Royal Dutch Shell with
comparison to another oil major i.e. PSO has been conducted. The consumption of the oil is
growing and is never going to be quenched as examined from the industry analysis. Moreover
an estimated cost projection has also been done upon instructions from our instructor.
The basic aim of Shell (whether nationally or internationally) is to meet the energy needs of
society, in ways that are economically, socially and environmentally viable, now and in the
future.
Page 15 of 83
Page 16 of 83
CHAPTER NO. 1
INTRODUCTION
Royal Dutch Shell commonly known as Shell, is a British–Dutch multinational oil and gas
company headquartered in the Netherlands and incorporated in the United Kingdom. It is one
of the six oil and gas "super-majors" of the world. It is the sixth-largest company in the world
measured by its revenues of 2016. In 2013’s Fortune Global 500 list of the world's largest
companies of the year, shell sat at the top.
Shell was formed in 1907 through the amalgamation of the Royal Dutch Petroleum Company
of the Netherlands and the "Shell" Transport and Trading Company of the United Kingdom.
Until its unification in 2005 the firm operated as a dual-listed company, whereby the British
and Dutch companies maintained their legal existence but operated as a single-unit partnership
for business purposes. Shell first entered the chemicals industry in 1929. In 1970 Shell acquired
the mining company Billiton, which it subsequently sold in 1994 and now forms part of BHP
Billiton. In recent decades gas exploration and production has become an increasingly
important part of Shell's business. Shell acquired BG Group in 2016, making it the world's
largest producer of liquefied natural gas (LNG).
Shell is a global group of energy and petrochemicals that has franchises all around the world.
According to the manager, “With around 101,000 employees in more than 140 countries and
territories, Shell helps to meet the world's growing demand for energy in economically,
environmentally and socially responsible ways”.
The Shell brand is one of the most familiar commercial symbols in the world. Royal Dutch
Shell is the world's largest private sector oil company by revenue, Europe's largest energy
group and a major player in the petrochemical industry. One of North America's leading
producers of oil, gas, and petrochemicals, Shell Oil Company has distinguished itself through
its commitment to industry innovation. Its marketing expertise has enabled the company to
compensate for its relatively low volume of crude oil production, as compared to its strongest
competitors, by selling an equivalent amount of gasoline nationwide.
Although the company conducts business primarily in the United States, Shell also explores
for and produces crude oil and natural gas outside the country, both independently and through
joint ventures with other subsidiaries of its parent organization, Royal Dutch/Shell Group. Shell
Petroleum Inc. is a holding company that is 60 percent owned by Royal Dutch Petroleum
Company and 40 percent owned by The Shell Transport and Trading Company.
Shell is vertically integrated and is active in every area of the oil and gas industry, including
exploration and production, refining, distribution and marketing, petrochemicals, power
generation and trading. It also has renewable energy activities in the form of bio-fuels and
wind. Shell has operations in over 70 countries, produces around 3.7 million barrels of oil
equivalent per day and has 44,000 service stations worldwide. Shell Oil Company, its principal
subsidiary in the United States, is one of its largest businesses. Shell holds 50% of Raízen, a
joint venture with “Cosan”, it is the third-largest Brazil-based energy company by revenues
and a major producer of ethanol.
Page 17 of 83
Shell has a primary listing on the London Stock Exchange and is a constituent of the FTSE
100 Index, a share index of the 100 companies listed on the London Stock Exchange with the
highest market capitalization. It had a market capitalization of £185 billion at the close of
trading on 30 December 2016, by far the largest of any company listed on the London Stock
Exchange and among the highest of any company in the world. It has secondary listings on
Euronext Amsterdam and the New York Stock Exchange. Shell's logo, known as the "pectin",
is one of the most familiar commercial symbols in the world.
Our primary concern however in this report is a subsidiary of this company i.e. Shell Pakistan.
It has been in South Asia for over 100 years. Shell’s most recognized business in Pakistan is
the downstream retail marketing company, Shell Pakistan Limited, which has interests in
downstream businesses including retail, lubricants and aviation.
Shell Pakistan has a primary listing on Karachi Stock Exchange. It is also listed on Lahore and
Islamabad Stock Exchange. Shell Pakistan Limited (SPL) has more than 850 retail stations in
more than 330 cities, having 20% market share and is the largest foreign investor in
Pakistan’s oil marketing sector. Shell has been the leader in the lubricants sector since 2002,
currently with more than 40% share of the organized sector. The company is the largest
international marketer of oil products with 17% market share in white oil products, supplied
by 7 depots across the country.
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. 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.
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.
Page 18 of 83
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 internal processes and
to increase efficiencies, Shell Pakistan has embarked on Shell Group’s Global ‘Downstream-
One’ journey. The ultimate goal of Downstream-One is to reduce business complexity and
increase operational 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.Shell
Pakistan has long since engaged and prepared its stakeholders and businesses for the ensuing
changes and benefits that will come from moving to a truly global system. Shell Pakistan’s IT
department has contributed to strengthening efficiencies within the organization by providing
a robust infrastructure for supporting the ever-growing business. The capacity of international
circuit has since long been upgraded successfully to ensure a more reliable communication
network to support consolidated Shell systems. Shell Aviation has also rolled out its global
Apron system at Karachi airport, which allows real-time communication from the apron to
back-office IT systems. This was the first implementation of its kind for the aviation industry
in Pakistan.
The basic aim of Shell (whether nationally or internationally) is to meet the energy needs of
society, in ways that are economically, socially and environmentally viable, now and in the
future.
Page 19 of 83
Page 20 of 83
CHAPTER NO. 2
HISTORY
Fig # 2.1
Beginning
Marcus Samuel is founder of the Shell Transport and Trading Company. Almost 200 years
ago, a London antique dealer began importing sea shells from the Far East to supply a fashion
for exotic décor. Marcus Samuel’s enterprise laid the foundations for a thriving import-export
business later run by his sons, Marcus Junior and Sam. At that time oil was largely used in
lighting and lubricants and the industry was based in Baku, Russia, with its large reserves of
high quality oil and strategic natural harbor.
Page 21 of 83
Becoming Royal Dutch Shell
Shell Transport’s activities in the East, combined with a search for new sources of oil to reduce
dependence on Russia, brought it into contact with Royal Dutch Petroleum. The two
companies joined forces in 1903 to protect themselves against the dominance of Standard Oil.
They fully merged into the Royal Dutch Shell Group in 1907. Shell changed its logo to the
scallop shell, or pectin, which is used today. By the end of the 1920s Shell was the world’s
leading oil company, producing 11% of the world’s crude and owning 10% of its tanker
tonnage.
Post-war expansion
After the Second World War, as peace brought a boom in car use, Shell expanded into Africa
and South America. Shipping became larger and better powered. In 1947 Shell drilled the first
commercially viable offshore oil well in the Gulf of Mexico. By 1955 Shell had 300 wells. In
1958 Shell began production in Nigeria
Merger
In 1939 Shell Oil Company of California merged with Shell Petroleum Corporation, whose
name was subsequently changed to Shell Oil Company, Inc. Ten years later, the name was
changed again to Shell Oil Company.
Head offices
Until 1939, the company had offices in: San Francisco, California; St. Louis, Missouri; and
New York City. The St. Louis office was closed in 1939, and San Francisco operations
continued until 1949, when New York became the sole headquarters. Shell increased its oil
exploration activities and expanded production to satisfy the growing fuel needs created by
U.S. drivers' passion for big cars. New chemical plants were built that enabled Shell to become
a leading producer of epoxy resins, ethylene, synthetic rubber, detergent alcohols, and other
chemicals. Shell also pioneered the development of new fuel products during the 1950s,
including jet fuel and high-octane, unleaded gasoline for automobiles. The Shell brand name
enjoys a 100-year history in this part of the world, dating back to 1899 when Asiatic
Petroleum, the far eastern marketing arm of two companies: Shell Transport Company and
Royal Dutch Petroleum Company began importing kerosene oil from Azerbaijan into the
subcontinent. Even today, the legacy of the past is visible in a storage tank carrying the date -
1898.
Page 22 of 83
Shell History in Pakistan
Royal Dutch Petroleum Company spent almost 12 years exploring oil and getting production
under way before being registering as an enterprise in 1890. In February 1892 these efforts
bore fruit as crude oil began flowing from the company’s wells in the north Sumatran jungles.
The remote location of these wells required Royal Dutch Petroleum to emerge as an integrated
oil company from well-head to consumer, exporting its products around Asia. To do this, Royal
Dutch Petroleum reached an agreement with merchant trading company M Samuel & Co to
operate in Asia in regard of their transportation business. The fleet thus formed was an integral
part of Shell’s entrance into Asian oil market by shipping kerosene in bulk from Russia via the
Suez Canal.
In 1897, the venture was incorporated as Shell Transport and Trading Company. In 1907 Royal
Dutch Petroleum Company merged with Shell Transport and Trading Company. Though the
two companies originated from different positions – Royal Dutch as an upstream producer and
refiner, and Shell Transport a midstream transporter and wholesaler of oil – both companies
were interested in Asian markets, they were able to combine their marketing operations in Asia
to form a joint venture called Asiatic Petroleum.
The documented history of Royal Dutch Shell in the Subcontinent dates back to 1903 when
partnership was struck between Shell Transport & Trading Company and the Royal Dutch
Petroleum Company to supply petroleum to Asia.
In 1928, to enhance their distribution capabilities, the marketing interest of Royal Dutch Shell
and the Burmah Oil Company Limited in India were merged and Burmah Shell Oil Storage
& Distribution Company of India saw dawn.
After the independence of Pakistan in 1947, the name was changed to the Burmah Shell Oil
Distribution Company of Pakistan. In 1970, when 51% of the shares was transferred to
Pakistani investors, the name of changed to Pakistan Burmah Shell (PBS) Limited. The Shell
and the Burmah Groups retained the remaining 49% in equal proportions. In 1993 February,
as economic liberalization began to take root and the Burmah divested from PBS, Shell
Petroleum stepped into raise its stake at 51%. The years 2001-2 were integral as the Shell
Petroleum Company successively increased its share, with the Group now having an effective
76% stake in Shell Pakistan Ltd.
Page 23 of 83
Page 24 of 83
CHAPTER NO. 3
MISSION STATEMENT
MISSION:
Manufacturing and supplying oil products and services that satisfy the needs of
customers.
Constantly achieving operational excellence.
Conducting our business in a safe, environmentally sustainable and
economically optimum manner
Employing a diverse, innovative and result oriented team motivated to deliver
excellence.
VALUES:
Honesty
Integrity
Respect
Trust
Teamwork
Professionalism
Customer always comes first
Fig. # 3.1
Page 25 of 83
Page 26 of 83
CHAPTER NO. 4
OBJECTIVES
Fig # 4.1
Fig # 4.2
Page 27 of 83
Page 28 of 83
CHAPTER NO. 5
ORGANIZATIONAL STRUCTURE
An organizational structure is a hierarchical concept of ordination and sub-ordination of entities
that collaborate to serve one common aim. Shell is a multinational corporation, thus to operate
successfully worldwide, it needs to have a tall and effective structure which has further been
divided on the basis of geographical regions, functions, goods and services. A tall structure is
one in which there are many supervisors handling particular tasks, it has most levels of
authority. Shell has a wide network of outlets and its structure is a very complex one. The
employees are grouped on the basis of function and product simultaneously.
Board of directors
Zonal heads
Chairmen (regional/zonal)
Managing Directors
Departmental Heads
Regional Managers
Territory Managers
Page 29 of 83
Franchise Heads
Fig # 5.1
General Manager
Naveed-ul-Hassan
General Manager
CEO
Muhammad Arshad
National HR Manager
Mian Zohaib Tariq
Fig # 5.2
Page 30 of 83
Page 31 of 83
CHAPTER NO. 6
DEPARTMENTS
Fig # 6.1
Exploration and Production: To extract the petroleum and produce the fuel
needed.
Gas and Power: The extraction of gas and power and its provision to service
outlets
.
Refining and Marketing: To refine the extracted material and make it fit
for use and then its promotion etc.
Page 32 of 83
Page 33 of 83
CHAPTER NO. 7
PRODUCTS
Fig # 7.1
Page 34 of 83
Page 35 of 83
CHAPTER NO. 8
GENERAL ANALYSIS OF SHELL FROM DIFFERENT
ASPECTS
In theory it's the same for a product. After a period of development it is introduced or launched
into the market; it gains more and more customers as it grows; eventually the market stabilizes
and the product becomes mature; then after a period of time the product is overtaken by
development and the introduction of superior competitors, it goes into decline and is eventually
withdrawn. However, most products fail in the introduction phase. Others have very cyclical
maturity phases where declines see the product promoted to regain customers.
Fig. # 8.1
Introduction
Shell has first introduced the petrochemicals in start of twentieth century. Shell create
awareness by introduced its new products like shell helix and other shell products. If the
product has no or few competitors, a skimming price strategy is employed. Limited numbers
of product are available in few channels of distribution.
Growth
Competitors are attracted into the market with very similar offerings. Products become more
profitable and companies form alliances, joint ventures and take each other over. Advertising
spend is high and focuses upon building brand. Market share tends to stabilize. Shell products
Page 36 of 83
which are at the growth are LPG and CNG. These two products of shell are its growth because
these are newly launched in the market.
Maturity
Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at
a decreasing rate and then stabilize. Producers attempt to differentiate products and brands are
key to this. Price wars and intense competition occur. At this point the market reaches
saturation. Producers begin to leave the market due to poor margins. Promotion becomes more
widespread and uses a greater variety of media. The products of shell which are at maturity are
shell Helix, Rimula, etc.
Decline
At this point there is a downturn in the market. For example more innovative products are
introduced or consumer tastes have changed. There is intense price-cutting and many more
products are withdrawn from the market. Profits can be improved by reducing marketing spend
and cost cutting. Shell decline products are the Shell Super OIL because by the launching of
new products like LPG and CNG.
Fig. # 8.2
Page 37 of 83
Five Forces Analysis helps the marketer to contrast a competitive environment. It has
similarities with other tools for environmental audit, such as PEST analysis, but tends to focus
on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single
product or range of products. For example, Dell would analyze the market for Business
Computers i.e. one of its SBUs.
Five forces analysis looks at five key areas namely the threat of entry, the power of buyers, the
power of suppliers, the threat of substitutes, and competitive rivalry.
Page 38 of 83
Where there is generic substitution (competing for the currency in your pocket) e.g.
Video suppliers compete with travel companies.
We could always do without e.g. cigarettes.
Page 39 of 83
Page 40 of 83
CHAPTER NO. 9
SWOT
SWOT analysis is a tool for auditing an organization and its environment. It is the first stage
of planning and helps marketers to focus on key issues. SWOT stands for strengths,
weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors.
Opportunities and threats are external factors.
STRENGTHS WEAKNESSES
Page 41 of 83
Page 42 of 83
CHAPTER NO. 10
PAKISTAN STATE OILS (COMPETITOR)
Pakistan State Oil Company (PSO), is the largest Oil Marketing Company (OMC) operating in
Pakistan and engaged in the storage, distribution and marketing of POL products and is among
the country’s largest corporate entities with highest earnings and capitalization. Supported by
well-established infrastructure built at par with international standards, comprising around
877,000 million tons storage facilities representing almost 81% of the total storage capacity in
the country. PSO has an edge over its competitors in terms of economies of scale and cost
effective operations.
PSO has always been considered as a blue chip company with market capitalization of around
Rs. 50 billion (USD 860 million). The company is the winner of “Karachi Stock Exchange Top
Companies Award” and a member of World Economic Forum.
The PSO’s retail coverage of over 3,800 outlets which representing 80% participation in total
industry network. The rapidly expended international standard New Vision outlets are more
than 800. These new outlets accommodate the end user’s needs but also add beauty to the
landscape. These outlets are equipped with convenience stores, business centers, Internet
facility and CNG facility, etc. To ensure the quality of the products being sold to customers,
16 mobile quality-testing units have been deployed in all major cities to carry on-the-spot
checks for quality and quantity.
Alongside its retail business, PSO also caters to the fuel demand of the industrial consumers
that includes power generation, railways, sugar, textile and steel mills, etc. The company has
also been meeting the fuel needs of defense of the nation and maintains on time supplies to
armed forces.
PSO operates at 8 airports and serves 4 domestic and 18 international airlines under its
technical/ commercial license agreement with Air Total International. PSO enjoys over 70%
market participation in aviation fuel. PSO participation in Allama Iqbal Airport, Lahore is
100%.
PSO’s LPG business unit, supported by 4 plants with combined capacity of 750 MT/day, is
delivering cheap fuel to low-income households and rural areas where natural gas is not
available. The trade unit is fully alive of its responsibilities of delivering Kerosene, Light Diesel
Oil and Lubricants to end-user via 580 distributors appointed all over Pakistan.
Page 43 of 83
GENERAL ANALYSIS OF PSO FROM DIFFERENT
ASPECTS
Fig. # 10.1
Competition from New Entrants
The market share of PSO has reduced from 74% to 68% by the introduction of TOTAL
OIL Company in the recent years. In 2005, Ash Dat Oil Company is also commencing its
business and certainly it will cater some market share but PSO is making innovative steps to
meet this challenge, as company has acquired paper less information technology system SAP,
to on time delivery to its customers.
Page 44 of 83
Competition from existing Competitors
Pakistan State Oil Limited is facing its competitors and to meet the challenges its
competitors PSO is taking innovative and value added steps for customer convenience and
value addition. To meet this threat by the competitor, company has acquired paper less
information technology system SAP, to ensure on time delivery to its customers.
Threat of Substitute
Kerosene, as expected, showed a decline of 17% due to availability of cheaper
alternatives, such as natural gas and Liquid Petroleum Gas (LPG). Similarly, Light Diesel Oil
(LDO) also showed a decline of 9% due to usage of HSD-based engines, which are cheaper
than the pumps consuming LDO. To meet the challenges of substitute, PSO launched Green
XL Plus Diesel using ‘Green-burn Combustion Technology’. The new improved diesel not
only helps keep the environment cleaner and greener by notably reducing smoke and carbon
emissions, but also improves engine performance by preventing wear and tear thus resulting in
lesser maintenance costs, fuel economy and more engine power. Despite the ever-declining
Kerosene demand, PSO managed to increase its market participation to 74% by gaining 2%
share over prior year.
Bargaining Power of Buyers
In a competitive environment, the concern is how to increase market share and to retain
its current customer in highly competitive market because customer always tries to optimize
his product. PSO is also facing competition in the industry, so to retain its customers, the
company is taking all the possible steps for customer convenience and benefits, for example
Credit cards, Debit cards, Kissan Card, e-Marketplace, New Vision Station etc.
Page 45 of 83
SWOT Analysis
Strengths
Weaknesses
1) Lost & Dissatisfied customers are major weakness of PSO as they are causing the
perception of inefficient PSO.
2) Old retail outlets are major weakness for PSO as they are not enough capable to
compete the Shell, Caltex or Total outlets.
3) Untrained staff at outlets is causing inefficient services.
4) Quality assurance is not so effective to build the image of “Quality & Quantity”.
Opportunities
Page 46 of 83
Threats
1) Risk of forward integration of Supplier is the key threat for PSO and other OMCs in
Pakistan. As the example, the PARCO who is one of the main POL product suppliers
to OMCs adopt the forward integration strategy by introducing its own OMC with its
new business alliance TOTAL and named its OMC as TOTAL-PARCO.
2) Risk of Diversification in technology is also a key threat for PSO as due to new
technology used in industrial sector are causing decline in particular POL products.
3) Availability of Substitutes in Black Oil Market are causing a solid reason for the
declining trend in Black Oil Products, which is major threat for PSO.
Page 47 of 83
CHAPTER NO. 11
INTERPRETATION OF RATIO ANALYSIS
SHELL:
Ratios 2016 2015 2014 2013 2012
CASH RATIO 0.191 0.066 0.039 0.025 0.087
Page 48 of 83
PSO:
Ratios 2012 2013 2014 2015 2016
CASH RATIO -0.12 -0.16 0.03 0.02 -0.06
CURRENT 1.1216827 1.1000196
RATIO 1 3 1.087283469 1.033730109 1.14526841
QUICK RATIO 0.91 0.87 0.79 0.54 0.85
RECEIVABLE 23.776118 41.908787
TURNOVER 9 8 50.84228032 38.16921913 48.4999315
AVERAGE
COLLECTION 15.351538 8.7093905
PERIOD 3 5 7.179064309 9.562679257 7.52578382
INVENTORY
TURNOVER 17.83 19.05 16.33 12.2 13.55
SALES IN 20.471116
INVENTORY 1 19.160105 22.35150031 29.91803279 26.9372694
PROFIT
MARGIN ON 2.4026554 1.3179084
SALES 3 6 2.77602691 1.746136106 1.33484009
GROSS PROFIT
PERCENTAGE 2.52 2.06 2.61 2.64 2.86
ASSET 0.5049195 0.3737918
TURNOVER 5 5 0.313353578 0.256289236 0.33996196
RETURN ON
TOTAL ASSETS 3 2.03 5.86 4.48 2.6
RETURN ON
SHAREHOLDER
S EQUITY 11.22 8.43 27.75 20.84 18.74
RETURN ON
CAPITAL
EMPLOYED 23.96 25.43 50.73 41.29 47.52
EPS 37.81 25.53 80.31 50.84 52.8
N.P RATIO 1.13 0.62 1.55 0.98 0.75
EBITDA 2.7 2.16 3.09 2.16 2.21
9.960779 13.92792 20.2541272 19.1015411 97.852351
FIXED ASSET
TURNOVER 6 8 6 5 3
Page 49 of 83
INTERPRETATION:
Now we’ll compare the financial ratios of both the companies, called the Interpretation of
Financial Ratios. There are 5 financial ratios which are subdivided into other ratios. Following
are the financial ratios.
Financial ratios;
1) Liquidity ratio:
Current ratio
Quick ratio
Cash ratio
2) Activity ratio:
Inventory turnover
Average age of inventory
Average collection period
Asset turnover
Receivable turnover ratio
3) Profitability ratio:
Gross profit margin
Operating profit margin
Net profit margin
Return on asset
Return on equity
Profit/return on sales
Return on capital employed
Earnings per share
Now I’ll interpret these ratios one by one according to the results given by my respective
companies.
LIQUIDITY RATIO
Liquidity Ratio tells us about the capability of a firm to pay off its short-term obligations.
Page 50 of 83
CURRENT RATIO:
Current ratio measures a company’s ability to convert its assets into cash for paying
off its liabilities, in other words it also tells that how much assets do we have to pay off a
particular amount of liability and as the current ratio of SHELL is 0.87 and the current ratio of
PSO is 1.12 so it is evident that liquidity of PSO according to current ratio is far better than
SHELL.
QUICK RATIO:
The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a
company to pay its current liabilities when they come due with only quick assets. In other
words inventory and prepaid expenses are relatively difficult to liquidate when needed in
emergency so quick ratio presents a better picture of liquidity of the firm. By excluding
inventory and prepaid expenses from current assets we get quick assets. As quick ratio of
SHELL is 0.54 and quick ratio of PSO is 0.91 so according to it is evident that PSO is in a
better position to liquidate its assets to write off its liabilities.
CASH RATIO:
The cash ratio or cash coverage ratio is a liquidity ratio that measures a firm's
ability to pay off its current liabilities with only cash and cash equivalents. In cash ratio assets
comprise of bank, cash and marketable securities. Cash ratio better tells the liquidity of a firm
than current and quick ratio. This ratio is the highest liquid ratio.
1.5
0.5
0
PSO SHELL
-0.5
Fig #11.1
Page 51 of 83
ACTIVITY RATIO
Activity ratio or management efficiency ratio tells us about the efficiency at the end of
management including production and sales department.
INVENTORY TURNOVER:
The inventory turnover ratio is an efficiency ratio that shows how effectively
inventory is managed by comparing cost of goods sold with average inventory for a period.
This measures how many times average inventory is turned or converted into sales during a
period. In other words, it measures how many times a company sold its total average inventory
during the year. As inventory turnover for SHELL is 16.17 times which is approximately 16
times during a year and inventory turnover for PSO is 17.83 times which is approximately 18
times so it is obvious that management or production department of PSO is much more
efficient than that of SHELL. As PSO’s inventory conversion is rapid than SHELL’s.
ASSETS TURNOVER:
The asset turnover ratio is an efficiency ratio that measures a company's ability to
generate sales from its assets by comparing net sales with average total assets. In other words,
this ratio shows how efficiently and effectively a company can use the increase in its assets and
in its result how much net sales are increased. Assets turnover ratio of SHELL is 3.94 whereas
ATR of PSO is 2.65 which shows that management of SHELL is far efficient than the
management of PSO.
Page 52 of 83
RECEIVABLE TURNOVER RATIO:
The receivables turnover ratio is an accounting measure used to quantify a firm's
effectiveness in extending credit and in collecting debts on that credit. The receivables
turnover ratio is an activity ratio measuring how efficiently a firm uses its assets.
60
50
40
30
20
10
0
PSO
2016 2015 2014 SHELL
2013 2012 2 per. Mov. Avg. (2016)
Fig #11.2
PROFITABILITY RATIO
GROSS PROFIT MARGIN:
Gross profit margin is a profitability ratio that calculates the percentage of sales that
exceed the cost of goods sold. In other words, it measures how efficiently a company uses its
materials and labour to produce and sell products profitably. Gross profit margin of SHELL is
8.35% while gross profit margin of PSO is 2.52% which shows that PSO is not effectively
using its labor and material to incur in its production process.
NET PROFIT:
Net profit margin is the percentage of revenue left after all expenses including
taxes and interest have been deducted from sales. The measurement reveals the amount
of profit that a business can extract from its total sales. Net profit margin of SHELL is 4.04%
Page 53 of 83
whereas net profit margin of PSO is 1.13% which shows that at the end SHELL is leading the
industry because it net profit is 3 times more than that of PSO.
RETURN ON ASSET:
The return on assets ratio or ROA measures how efficiently a company can
manage its assets to produce profits during a period. It tells us about the return which we secure
on investment in assets. The more we invest in total assets the more is earnings available for
common shareholders. Return on assets for SHELL is 15.91% while ROA for PSO is 3.00%
which is very low comparative to SHELL.
RETURN ON EQUITY:
The return on equity ratio or ROE is a profitability ratio that measures the ability
of a firm to generate profits from its shareholders investments in the company. In other words,
the return on equity ratio shows how much profit each rupee of common stockholders' equity
generates. Return on equity for SHELL is 60.89% while ROQ for PSO is 11.22% shows that
SHELL is better than its benchmark.
PROFIT/RETURN ON SALES:
Return on sales, is a financial ratio that calculates how efficiently a company is
at generating profits from its revenue. In other words, it measures a company’s performance
by analyzing what percentage of total company revenues are actually converted into company
profits.
Page 54 of 83
Fig #11.3
OPERATING CYCLE:
It makes use of receivables, inventory, and payables and aims to represent
management performance efficiency. It is often compared with the cash conversion cycle
because it makes use of the same component parts. What is different, though, is that an
operating cycle analyzes these components from the perspective of how well the company is
managing operational capital assets, rather than from the impact those components have on
cash. It’s easy to assume that shorter is better when it comes to a company’s cash conversion
cycle or its operating cycle. This is true in the case of the former, but not necessarily the case
in the latter. Of course, there are many variables attached to the management of receivables,
inventory, and payables, and these require many decisions on the part of managers.
Page 55 of 83
Fig #11.4
Page 56 of 83
CHAPTER NO. 12
INTREPRETATION OF SENSITIVITY ANALYSIS
PSO:
Vertical Analysis (balance sheet)
Page 57 of 83
Vertical analysis (income statement)
Page 58 of 83
Horizontal analysis (balance sheet)
Page 59 of 83
Horizontal analysis(income statement)
Page 60 of 83
SHELL:
Vertical analysis (balance sheet)
Page 61 of 83
Vertical analysis (income statement)
Page 62 of 83
Horizontal analysis (balance sheet)
Page 63 of 83
Horizontal analysis (income statement)
Page 64 of 83
Comments on Analysis
Vertical analysis is a method of financial statement analysis in which each entry for each of
the three major categories of accounts, or assets, liabilities and equities, in a balance sheet is
represented as a proportion of the total account. Vertical analysis is also used across other
financial statements as a percentage measure. The main advantage of vertical analysis is the
balance sheets, income statements and other financial reports of businesses of all sizes can
easily be compared. It also makes it easy to see relative annual changes within one business.
Vertical analysis reports each line item of a financial statement as a representation of the
percentage of the statement's main focus. For an income statement, each line item can be
representative of gross sales. On the balance sheet, each line item can be representative of
total assets.
A horizontal analysis, or trend analysis, is a procedure in fundamental analysis in which an
analyst compares ratios or line items in a company's financial statements over a certain period
of time. The analyst uses his discretion when choosing a particular timeline; however, the
decision is often based on the investing time horizon under consideration.
Horizontal analysis allows investors and analysts to determine how a company has grown
over time. Additionally, analysts and investors could use horizontal analysis to compare a
company's growth rates in relation to its competitors and industry. For example, when you
hear someone saying that revenues increased by 10% this past quarter, that person is using
horizontal analysis. Horizontal analysis can be used on any item in a company's financials
from revenues to earnings per share (EPS) and is useful when comparing the performance of
various companies.
The following points have been concluded through sensitivity analysis of both companies;
In comparison to shell PSO has a higher percentage of current assets i.e. it is more
proficient in liquidating its assets.
Both have the same percentage of debt and equity.
Shell has a higher percentage of profit to sales i.e. it is more proficiently earning
profits through its sales. Its sales team is working efficiently.
The overall percentage increase in assets and sales of both companies is in line with
each other.
Page 65 of 83
Page 66 of 83
CHAPTER NO. 13
CONCLUSION
Royal Dutch Shell is an oil company with a multitude of subsidiaries all around the globe. In
this report I have studied and analyzed its operations in Pakistan, from which it is clear that
Shell is advancing with each passing day and still there is room for more growth
The benchmark taken for analysis was PSO, according to the analysis that I have run PSO and
Shell are neck to neck in competition. In some areas PSO is giving Shell a tough time and vice
versa.
I have performed ratio analysis and its results have been stated above. Along with that I have
also done a sensitivity analysis of both companies. The interpretation of each and every task
has been added in the above text.
Finally this report has proved helpful in increasing our theoretical and practical knowledge of
my course concepts.
Page 67 of 83
Page 68 of 83
CHAPTER NO. 14
APPENDIX
APPENDIX A
Global Value Chain of Shell
Fig. # 14.1
Fig. # 14.2
Page 69 of 83
APPENDIX B
Global Oil Industry Value Chain
Fig. #14. 3
Fig. #14. 4
Page 70 of 83
APPENDIX C
BRAND
IMAGE SHELL
TOTAL
PSO
CALTAX
CASTRO
L
ZIC
RIMULA
QUALITY
Fig. #14. 5
Page 71 of 83
APPENDIX D
Perceptual Mapping
1ST MAP
100
SHELL
PSO
TOTAL
CALTEX
ZIC
PRICE
0 100
0
BRAND
Fig. #14. 6
Explanation
In this Map we plot Price along X-axis, Brand plot along Y-axis. In this map we give numbers
of those companies due to its price and its brand efficiency. According to my opinion SHELL
is more efficient as compare to other companies in this way we give this company high
weighted / numbers.
Page 72 of 83
2nd MAP
100
PSO
SHELL
TOTAL
CALTEX
ZIC
THICKNESS
0 100
0
PURITY
Fig. #14. 7
Explanation
In this map we can plot thickness along X-axis, purity can plot along Y-axis. In this map we
can comparison of all those companies related to petroleum industry. According to this PSO
give a high marks because the petrol of PSO is thick as well as pure. Shell comes on number
2nd because this is not much effective as compare to PSO.
Page 73 of 83
3rd MAP
100
SHELL
PSO
TOTAL
CALTEX
ZIC
PRICE
0 100
AVAILABILITY
Fig. #14. 8
Explanation
In this map we plot price along X-axis, availability plot along Y-axis. In this map we can
comparison between all the petroleum companies, due to its availability According to this
comparison the availability of SHELL is high. So in this way we can give this high marks.
Page 74 of 83
4th MAP
100
PSO
SHELL
TOTAL
CALTEX
CLEANLINESS
0 ZIC 100
0
SERVICE
Fig. #14. 9
Explanation
In this map we plot cleanliness along X-axis, service plot along Y-axis. In this map we can
comparison between the services of all the petroleum companies. According to this the best
service provider is PSO. Shell comes on 2nd number in this way PSO gain high marks.
Page 75 of 83
5th MAP
100
SHELL
PSO
CALTEX
TOTAL
AVAILABILITY
0 100
ZIC
0
ADVERTISEMENT
Fig. #14. 10
Explanation
In this map we can plot availability along X-axis, advertisement along Y-axis. In this map we
can comparison between the petroleum companies due to its advertisement. According to this
the advertisement of SHELL is so high in this way we high marks of shell.
Page 76 of 83
Page 77 of 83
CHAPTER NO. 15
GLOSSARY
A
CD Customs Duties
DT Direct Taxes
FY Fiscal Year
Page 78 of 83
P
become due
VP Voluntary Payments
Page 79 of 83
Page 80 of 83
CHAPTER NO. 16
INDEX
1 Ratio Analysis: 47
2 Liquidity ratios 50
3 Activity ratios 51
4 Profitability ratios 52
6 Sensitivity Analysis: 56
7 PSO 56
8 Shell 60
9 Comments on analysis 64
10 Appendix 68
Page 81 of 83
REFERENCES
Page 82 of 83
[1] Building sustainale capability. People Management magazine , p. 18.
[3] Cygnus, Business consulting and Research. Cygnus Industry Monitor, Oil & Gas.
[5] Flexible Work Program. (n.d.). Retrieved from ExxonMobil: Taking the world's
toughest energy challenges:
http://www.exxonmobil.com/Corporate/careers_dev_flex.aspx
[6] Hendrix, P. Sir Henri Deterding and Royal Dutch Shell: Changing Control of World
Oil. Bristol Academic Press.
[7] Jan Luiten van Zanden, J. J. A History of Royal Dutch Shell. Oxford University Press.
[8] McKinsey Global Institute Study. Averting the next energy crisis.
[9] Oil & Gas Retrieved from India Brand Equity Foundation:
http://www.ibef.org/industry/oilandgas.aspx
[10] Oil and Gas Sector Report Card. London: IPIECA and OGP.
[13] Royal Dutch Shell Plc Updates on Strategy to Improve Performance and to Grow.
(n.d.). BERA: Business and Economic Research Advisor .
[14] Standards & Poor's. RatingsDirect, Industry Report Card: Top 50 Global Oil and Gas
Companies Ride Demand Growth Toward $90 oil.
[15] Investopedia.com
Page 83 of 83