FM Report Shell & PSO

2009
Financial Management
Term Project Report
Financial Ratio Analysis
Financial Ratio Analysis of SHELL and PSO on
the basis of financial record of 2007 and 2008
Submitted To:
Amyn Wahid
Submitted By:
Khurram Rao(Group Leader)

(2008-1-25-9433)
Muhammad Usman Saleem

(2008-1-25-9029)
Farhan Ahmed
(2008-1-25-8953)
Israr UlHaque
(2008-1-25-8649)
Institute of Business Management

8/8/2009
Acknowledgement
First of all we would like to thank our teacher Mr. Amyn Wahid for giving our group the
opportunity to do this project as part of our Financial Management course. With this project, we
have experienced the practical side of doing the financial ratio analysis. It appear as if by doing
this analysis report we would definitely be having some idea of what is ahead for us ahead and
that Finance is more than just accounting.
As students of Financial Management, we have found it rewarding in terms of understanding the

requirements, and the process of compiling a term report, which was motivating as well as
helpful task for us as a group.
We also like to thank you for not making the class boring and for imparting us knowledge and
wisdom in the light of your experience.
Table of Content
Contents
1. INTRODUCTION OF THE SHELL AND PSO .........................................................................1
A. SHELL PAKISTAN (OUR COMPANY) ............................................................................................1

B. PAKISTAN STATE OIL (COMPETITORS COMPANY) ......................................................................3
2. RATIO ANALYSIS....................................................................................................................4
1. LIQUIDITY RATIOS ......................................................................................................................4

A. CURRENT RATIO .................................................................................................................................. 4
B. QUICK RATIO........................................................................................................................................ 5
2. LEVERAGE RATIO .......................................................................................................................6
A. TOTAL DEBT RATIO .............................................................................................................................. 6
B. DEBT TO EQUITY RATIO ....................................................................................................................... 7
3. COVERAGE RATIO ......................................................................................................................8
A. TIMES INTEREST EARNED .................................................................................................................... 8
4. EFFICIENCY RATIOS .............................................................................................................9
A. RECEIVABLE TURNOVER ...................................................................................................................... 9
B. AVERAGE COLLECTION PERIOD IN DAYS .......................................................................................... 11
C. INVENTORY TURNOVER RATIO ......................................................................................................... 12
D. INVENTORY TURNOVER PERIOD IN DAYS ......................................................................................... 13
E. TOTAL ASSET TURNOVER RATIO ....................................................................................................... 14
5. PROFITABILITY RATIOS ............................................................................................................ 15
A. GROSS PROFIT MARGIN...................................................................................................................... 15
B. NET PROFIT MARGIN ........................................................................................................................... 16
C. RETURN ON INVESTMENT .................................................................................................................. 18
D. RETURN ON EQUITY ........................................................................................................................... 19
6. EQUITY RATIOS......................................................................................................................... 20
A. EARNINGS PER SHARE ....................................................................................................................... 20
B. PRICE PER EARNING RATIO .............................................................................................................. 21
3. SHELL & PSO BALANCE SHEET AND INCOME STATEMENT ........................................ 23
A. SHELL BALANCE SHEET ........................................................................................................... 23

B. SHELL INCOME STATEMENT ..................................................................................................... 25
C. PSO BALANCE SHEET ............................................................................................................... 26
D. PSO INCOME STATEMENT ........................................................................................................ 28
4. COMMON SIZE & INDEX ANALYSIS .................................................................................. 29
A. COMMON SIZE BALANCE SHEET OF SHELL ............................................................................. 29

B. COMMON SIZE BALANCE SHEET OF PSO .................................................................................. 31
C. COMMON SIZE INCOME STATEMENT OF SHELL ...................................................................... 33
D. COMMON SIZE INCOME STATEMENT OF PSO ........................................................................... 34
E. INDEXED BALANCE SHEET OF SHELL ........................................................................................ 35
F. INDEXED BALANCE SHEET OF PSO ........................................................................................... 37
G. INDEXED INCOME STATEMENT OF SHELL ............................................................................... 39
H. INDEXED INCOME STATEMENT OF PSO .................................................................................... 40
5. SUMMARY OF THE ANALYSIS ........................................................................................... 41
6. CONCLUSION AND POSSIBLE RECOMMENDATIONS .................................................... 42
7. APPENDIX ............................................................................................................................... A
A. SHELL BALANCE SHEET ‘08 ....................................................................................................... A

B) SHELL INCOME STATEMENT ‘08 ................................................................................................ B
C) SHELL BALANCE SHEET ‘07 ...................................................................................................... C
D) SHELL INCOME STATEMENT ‘07 ......................................................................................................... D
E) PSO BALANCE SHEET ‘08 ..................................................................................................................E
F) PSO INCOME STATEMENT 08...................................................................................................... F
G) PSO BALANCE SHEET ‘07.......................................................................................................... G
H) PSO INCOME STATEMENT ‘07 ................................................................................................... H
1. Introduction of the Shell and PSO
a. Shell Pakistan (Our Company)
Shell is a superior brand name with over a 100-year history in the subcontinent. Shell in Pakistan
has played a leading role in abridging the growing energy demand gap in the country and has a
stake in Pakistan Refinery, LPG distribution and a shareholding in the white oil pipeline. The
primary goal of the company is to position itself as the preferred oil and Gas Company in
Pakistan, leading the field in its commitment to customer service, quality of products, safety and
environmental protection. Over the last decade, Shell Pakistan has developed a robust program
of social investment, which supports organizations and initiatives in areas of health, education,
welfare, community development, heritage and environment. Our Shell Tameer Program,
introduced in 2003, today exists as one of the foremost efforts to facilitate youth
entrepreneurship in the country and has engaged more than 45,000 young people through
workshops, seminars, and community engagements. We continue to strive toward operational
excellence and remain committed to growing our business in Pakistan.
Shell Pakistan Limited (Shell Pakistan) is engaged in marketing of compressed natural gas and
petroleum. The company provides different types of lubricating oil. Shell Pakistan caters to
businesses and motorists. The company for businesses provides Shell cards, aviation customer
service, exploration and production, transport, liquefied petroleum gas and industrial operations
for power, automotive and sugar. Shell Pakistan for motorists provides customer service, car care
tips, shell Helix motor oil and Shell advance motorcycle oil. The company also participates in
motor sports like formula one and Moto GP by tying up with Audi, Ferrari and Ducati. Shell
Pakistan is headquartered at Karachi, Pakistan.
Shell’s range of innovative products is constantly expanding, supported by extensive research

and development. With an eye on the future, Shell has evolved with a new identity in Pakistan.
The overall brand positioning today has also evolved in line with the global theme of Made to
Move, which is symbolic of Shell’s endeavor for our customers, who are forever on the move.
Our efforts to promote business excellence are not just limited to our products and services, but
are also included in the way we do business. Over the past year, Shell Pakistan has made
commendable strides in introducing global technical standards into the industry. In 2007, Shell
Pakistan had inducted eight such vehicles, with the fleet expected to double in number by the end
of 2008. In order to further strengthen and streamline our internal processes and to increase
efficiencies, Shell Pakistan has embarked on Shell 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
Institute of Business Management Page 1

customer satisfaction. Shell Pakistan commenced its challenging Downstream-One journey with
an introductory mobilization session in January 2008. With just over 21 months left for our
momentous Go-Live on 1st April 2010, Shell Pakistan is engaging and preparing its stakeholders
and businesses for the ensuing changes and benefits that will come from moving to a truly global
system. Shell Pakistan’s IT department contributed to strengthening efficiencies within the
organization in 2007-08 by providing a robust infrastructure for supporting our growing business.
The capacity of our international circuit was upgraded successfully to ensure a more reliable
communication network to support consolidated Shell systems. Shell Aviation also rolled out its
global Apron system at Karachi airport, which will allow real-time communication from the
apron to back-office IT systems. This is the first implementation of its kind for the aviation
industry in Pakistan.

b. Pakistan State Oil (Competitors Company)
PSO is the market leader in Pakistan’s energy sector. The company has the largest network of
retail outlets to serve the automotive sector and is the major fuel supplier to aviation, railways,
power projects, armed forces and agriculture sector. PSO takes pride in continuing the tradition
of excellence and is fully committed to meet the energy needs of today and rising challenges of
tomorrow.
Pakistan State Oil, the largest oil marketing company in the country, is currently engaged in
storage, distribution and marketing of various POL products. The company’s current value of Rs.
75 billion, its 82.1% share in the black oil market and 61.2% share in the white oil market, alone
speak volumes about its success.
The company’s astounding growth in terms of sales and turnover, combined with its status of
being the first Pakistani Public Sector Company to become a member of the World Economic
Forum (WEF), and winning the “Karachi Stock Exchange Top Companies Award” has made
PSO a notable company world over.
PSO has the widest strategic oil distribution network. This network comprises of 29 storage
depots and 9 installations, 860,000 MTs of capacity i.e. almost 81% of total national storage,
numerous pipe lines network and equity partnership in White Oil Pipeline Project (WOPP) from
Karachi to Mehmood Kot.
A most efficient product movement system for its POL products facilitates the operations at
PSO. This system includes a fleet of 6000 tank Lorries, tank wagons and pipelines. With the
inception of white oil pipeline (WOPP) the pattern of supplies from Karachi has changed
drastically as the entire white oil movement from Karachi has been switched over from tank
lorries to pipelines. Moreover, to make this system more efficient and effective, new pilfer-proof
tank Lorries equipped with satellite tracking system have been introduced.
With its 3612 distribution outlets, PSO has the largest network in the country. Out of these, 1,610
outlets have been upgraded as per the New Vision Retail Program, with most modern facilities
like electronic dispensing units, convenience stores, business centers, Easy Payment Centers and
customer friendly staff to provide unmatched and diverse services to its customers, all of which
are comparable to international practices.
The fact that PSO serves 2.8 million retail customers on daily basis, along with 2000 industrial
units and business houses, is indicative of its vast customer base. The company has also been
meeting the fuel needs of various government entities, armed forces, railways, agriculture sector,
IPPs and industrial units. PSO also provides Jet Fuel to Refueling Facilities at 9 airports in
Pakistan and ship fuel at 3 ports.

2. Ratio Analysis
1. LIQUIDITY RATIOS
a. CURRENT RATIO
Shows a company’s ability to pay off its current liabilities from its current assets.
Formula= ⁄

Shell
2007 Current Assets 20041859 Current 19612115
Liabilities
Liabilities
PSO
Liabilities
Liabilities
Trend Analysis of Current Asset Ratio

1.60
Value
1.40 1.30
1.22
1.20
1.24
Ratio
1.00
1.02
0.80
2007 2008
Shell 1.02 1.30
Pso 1.22 1.24

INTERNAL COMPARISON
Shell’s Current ratio increased significantly as compared to previous year although the volume
of current liabilities increased as a whole due to increase in trade payables but current assets
grew at a rapid rate. The reason behind this was the significant change in the value of stock in
trade. This is due to higher prices of petroleum products during that time and the company is
using FIFO method for its inventory. Also, the working capital requirements from the GOP was
increased for MNC’s.
EXTERNAL COMPARISON
Shell current ratio increased more rapidly as compared to PSO because PSO current liabilities
grew at the same level as their current assets. PSO benefited from not being an MNC.
b. QUICK RATIO
Shows a firm’s ability to meet its current liabilities with its most liquid assets.
Formula= − ⁄

SHELL
2007 Current 20041859 Current 19612115 Inventory 8244054
Assets Liabilities
Assets Liabilities
PSO
Assets Liabilities
Assets Liabilities

Trend Analysis of Quick Ratio
0.80
Value 0.70 0.64
0.60 0.57
Ratio
0.60
0.50 0.52
0.40
2007 2008
Shell 0.60 0.52
Pso 0.64 0.57
INTERNAL COMPARISON
Shell’s Quick ratio decreased due to higher prices of petroleum products, as the volume allocated
for inventories was higher.
EXTERNAL COMPARISON
There is no significant difference between the decreases of the ratio of both the companies as
compared to their previous benchmarks.
2. LEVERAGE RATIO
a. TOTAL DEBT RATIO
Shows the percentage of the firm’s assets that are supported by debt financing.
Formula= ⁄
Shell
2007 Total Debts 19751156 Total Assets 29211927
PSO

Trend Analysis of Total Debt Ratio
1.00
Value 0.90
0.80 0.76
0.72
Ratio
0.70
0.68 0.66
0.60
0.50
2007 2008
Shell 0.68 0.66
Pso 0.72 0.76
INTERNAL COMPARISON
Shell’s total debt increased in absolute amount but not at a pace of changing total assets that’s
why a minor fall in debt ratio is seen.
EXTERNAL COMPARISON
Pso’s total debt increased at a higher pace than its total assets mainly due to the change in current
liabilities. Overall PSO has become more leveraged than shell. The main reason behind this was
the higher amount of GOP’s receivables were not paid to PSO and to tackle with cashflow
problems the company had to finance more than previous.
b. DEBT TO EQUITY RATIO
Shows the extent to which the firm is financed by debt.
Formula= ⁄

Shell
2007 Total Debts 19751156 Total Equity 9460771
PSO

Trend Analysis of Debt to Equity Ratio
3.50
3.10
Value
3.00
2.57
2.50
Ratio
2.00 1.91
2.09
1.50
2007 2008
Shell 2.09 1.91
Pso 2.57 3.10
INTERNAL COMPARISON
Shell’s debt to equity ratio decreased due to increase in its retained earnings.
EXTERNAL COMPARISON
Shell has maintained its debt to equity ratio better than PSO whose ratio has fluctuated
apparently than the previous year. This effect can be seen in the previous total debt’s ratio. The
main reason behind that was to finance the excessive receivables not yet paid by GOP.
3. COVERAGE RATIO
a. TIMES INTEREST EARNED
Shows a firm’s ability to cover its interest charges.
Formula= ⁄
Shell
2007 EBIT 1166405 Interest 909919
Expense
2008 EBIT 8481359 Interest 970267
Expense
PSO

2007 EBIT 7949786 Interest 1158112
Expense
2008 EBIT 22450992 Interest 1367898
Expense
Trend Analysis of Times Interest Earned

20.00
16.41
Value
15.00
10.00
6.86 8.74
Ratio
5.00
1.28
0.00
2007 2008
Shell 1.28 8.74
Pso 6.86 16.41
INTERNAL COMPARISON
Shell has significantly improved its time interest earned ratio due to the massive increase in its
operating income.
EXTERNAL COMPARISON
Although shell interest earned ratio increased significantly but it is still 50 percent as compared
to Pso who is at good position.
4. EFFICIENCY RATIOS
a. RECEIVABLE TURNOVER
Indicates how successful the firm is in collection of receivable
Formula=
⁄/

Shell
2007 Credit Sales 130129844 Avg A/R 4905639.5
2008 Credit Sales 157626491 Avg A/R 4578132.5
PSO
2007 Credit Sales 411057592 Avg A/R 12657917
2008 Credit Sales 583213959 Avg A/R 23752347
Trend Analysis of Receivable Turnover

40.00
34.43
Value
35.00 32.47
30.00
Ratio
25.00 26.53
24.55
20.00
2007 2008
Shell 26.53 34.43
Pso 32.47 24.55
INTERNAL COMPARISON
Shell has managed to control its receivable volume with the growing sales level. That’s why a
increase in the ratio has been seen which shows its efficiency in collecting receivables while at
the same time increasing its sales volume.
EXTERNAL COMPARISON
Pso’ s ratio has been deteriorated as compared to previous year which shows its relative
inefficiency in collecting receivables as compared to Shell. The main amount of receivables
which had affected the figures is from Government of Pakistan and IPP’s.

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

Shell
2007 Days 365 Receivable 26.53
Turnover
Turnover
PSO
Turnover
Turnover
Trend Analysis of Average Collection Period

(Days)
16.00
13.76 14.87
Value
14.00
12.00
Ratio
10.00 11.24
10.60
8.00
2007 2008
Shell 13.76 10.60
Pso 11.24 14.87
INTERNAL COMPARISON
Shell has managed to control its receivable volume with the growing sales level. That’s why a
increase in the ratio has been seen which shows its efficiency in collecting receivables while at
the same time increasing its sales volume.

EXTERNAL COMPARISON
Pso’ s ratio has been deteriorated as compared to previous year which shows its relative
inefficiency in collecting receivables as compared to Shell.
c. INVENTORY TURNOVER RATIO
Indicates the effectiveness of the inventory management practices of the firm.
Formula= !"⁄
Shell
2007 COGS 108664932 Avg Inventory 9111970
2008 COGS 124694471 Avg Inventory 13169788.5
PSO
Trend Analysis of Inventory Turnover (Days)

14.00
Value
12.50 11.93
11.00 11.69
Ratio
10.12
9.50
9.47
8.00
2007 2008
Shell 11.93 9.47
Pso 11.69 10.12

INTERNAL COMPARISON
Shell’s situation in that particular section has deteriorated significantly because of the large
accumulation of inventory, may be not in physical quantities but in rupee amount due to higher
oil prices. This can adversely affects the company earnings in the future.
EXTERNAL COMPARISON
In comparison with Shell Pso has maintained its inventory turnover ratio more efficiently
although a decrease in ratio can be seen there also.
d. INVENTORY TURNOVER PERIOD IN DAYS
Average number of days before inventory is turned into accounts receivable through
sales.
Formula= ⁄
Shell
2007 Days 365 Inventory 11.93
Turnover
Turnover
PSO
Turnover
Turnover

Trend Analysis of Inventory Turnover (Days)
40.00
38.55
Value 38.00
36.00
36.06
34.00
Ratio
32.00 31.22
30.00 30.61
28.00
2007 2008
Shell 30.61 38.55
Pso 31.22 36.06
INTERNAL COMPARISON
Shell’s situation in that particular section has deteriorated significantly because of the large
accumulation of inventory, may be not in physical quantities but in rupee amount due to higher
oil prices. This can adversely affects the company earnings in the future.
EXTERNAL COMPARISON
In comparison with Shell Pso has maintained its inventory turnover ratio more efficiently
although a decrease in ratio can be seen there also.
e. TOTAL ASSET TURNOVER RATIO
Indicates the overall effectiveness of the firm in utilizing its assets to generate sales.
Formula=$ ⁄
Shell
2007 Net Sales 130129844 Avg Total 28752163
Assets
2008 Net Sales 157626491 Avg Total 34438393
Assets

PSO
2007 Net Sales 411057592 Avg Total 72452919.5
Assets
2008 Net Sales 583213959 Avg Total 100923667.5
Assets
Trend Analysis of Total Asset Turnover

7.00
Value
6.00
5.78
5.67
5.00
4.58
Ratio
4.53
4.00
3.00
2007 2008
Shell 4.53 4.58
Pso 5.67 5.78
INTERNAL COMPARISON
Shell Total asset turnover remained at the same level as the previous year.
EXTERNAL COMPARISON
Pso’s ratio also maintained at its previous level but Pso is more efficient in utilizing its assets
overall.
5. PROFITABILITY RATIOS
a. GROSS PROFIT MARGIN
Indicates the efficiency of the operations and the firm’s pricing policies.
Formula= " %&

⁄$

Shell
2007 Gross Profit 6380502 Net Sales 130129844
PSO
Trend Analysis of Gross Profit Margin

20.00%
Value
9.61%
10.00%
Ratio
4.90%
5.15%
2.98%
0.00%
2007 2008
Shell 4.90% 9.61%
Pso 2.98% 5.15%
INTERNAL COMPARISON
GPM of Shell has doubled from the previous year which is a good sign for company’s
operations. That might because of increasing oil prices.
EXTERNAL COMPARISON
GPM of Pso also doubled because of the same effect but the overall level of Shell is far higher
than Pso.
b. NET PROFIT MARGIN
Indicates the firm’s profitability after taking account of all expenses and income taxes.
Formula= '() *+,-.) /-)(+ 0/1(2⁄$

Shell
2007 Net Profit 706659 Net Sales 130129844
PSO
Trend Analysis of Net Profit Margin

3.50% 3.26%
3.00%
Value
2.50% 2.41%
2.00%
1.50%
Ratio
1.00% 1.14%
0.50% 0.54%
0.00%
2007 2008
Shell 0.54% 3.26%
Pso 1.14% 2.41%
INTERNAL COMPARISON
Shell’s NPM has improved a lot from the previous year level. This must be the same effect as
seen in the company’s GPM.
EXTERNAL COMPARISON
Pso’s NPM has also improved but not as significant as Shell’s. In fact the company was in better
position as compared to shell previous year.

c. RETURN ON INVESTMENT
Indicates the profitability on the assets of the firm (after all expenses and taxes).
Formula= $ 3⁄
Shell
2007 Net Income 706659 Avg Total 28752163
Assets
2008 Net Income 5137094 Avg Total 34438393
Assets
PSO
2007 Net Income 4689798 Net Sales 72452919.5
2008 Net Income 14053795 Net Sales 100923667.5
Trend Analysis of RETURN ON INVESTMENT
24%
Value
14.92%
16%
Ratio
13.93%
8% 6.47%
2.46%
0%
2007 2008
Shell 2.46% 14.92%
Pso 6.47% 13.93%
INTERNAL COMPARISON
The company’s ROI has also improved as seen in the previous ratios.
EXTERNAL COMPARISON
Shell ROI has increased more massively as compared to Pso.

d. RETURN ON EQUITY
Indicates the profitability to the shareholders of the firm (after all expenses and taxes).
Formula= $ 3⁄

Shell
2007 Net Income 706659 Avg Equity 9808758.5
PSO
2007 Net Income 4689798 Avg Equity 20876138
Trend Analysis of Return on Equity

60%
54.15%
50%
44.53%
Value
40%
30%
22.46%
Ratio
20%
10%
7.20%
0%
2007 2008
Shell 7.20% 44.53%
Pso 22.46% 54.15%
INTERNAL COMPARISON
A massive increase is seen on the Shell’s side with respect to ROE.
EXTERNAL COMPARISON
Despite Shell’s massive increase in ROE, Pso is still ahead in this respect.

6. EQUITY RATIOS
a. EARNINGS PER SHARE
The portion of a company's profit allocated to each outstanding share of common

stock.
Formula= %&
&
⁄$. & 33 5 !

Shell
2007 Profit After 706659000 No. of Common 54790313
Taxation shares
Outstanding
Taxation shares
Outstanding
PSO
Taxation shares
Outstanding
Taxation shares
Outstanding
Trend Analysis of EARNINGS PER SHARE

100.00 93.76
80.00 81.94
Value
60.00
Ratio
40.00
27.34
20.00
12.90
0.00
2007 2008
Shell 12.90 93.76
Pso 27.34 81.94

INTERNAL COMPARISON
There is a huge improvement is EPS of Shell as compared to previous year’s performance.
EXTERNAL COMPARISON
EPS of both companies has almost no significant difference but improvement is seen in Shell’s
performance which was far below from Pso’s level previous year.
b. PRICE PER EARNING RATIO
A valuation ratio of a company's current share price compared to its per-share

earnings.
Formula= 67 %
% 5⁄
% 5
Shell
2007 Market Price 410.05 Earnings Per 12.90
Per Share Share
2008 Market Price 417 Earnings Per 93.76
Per Share Share
PSO
Per Share Share
Per Share Share

Trend Analysis of PRICE PER EARNING RATIO
40.00
Value 31.79
30.00
20.00
Ratio
14.32
10.00 4.45
5.09
0.00
2007 2008
Shell 31.79 4.45
Pso 14.32 5.09
INTERNAL COMPARISON
Price per earnings ratio has deteriorated but when compared to previous year’s EPS, it is evident
that is not because of decrease in price share but because of significant increase in earnings of
company. In summary shareholders did not lose confidence but enjoyed increased earnings.
EXTERNAL COMPARISON
Likewise Pso’s P/E ratio has also decreased almost to the same level as of Shell’s.

3. Shell & PSO Balance Sheet and Income Statement
a. Shell Balance Sheet

ASSETS 2008 2007
Non-current assets
Fixed assets 6826848 6579993
Long-term investments 2134783 2015535
Long-term loans and advances 146381 182579
Long-term deposits and prepayments 201718 110994
Long-term debtors 134920 328727
Deferred taxation - net 280967
Total Non-current assets 9444650 9498795
Current assets
Stores and spares 13328 30286
Stock-in-trade 18095523 8244054
Trade debts 4904940 4251325
Loans and advances 47029 42720
Trade deposits and short-term 207864 140239
prepayments
Other receivables 6079111 5970763
Taxation 219715
Cash and bank balances 872414 814530
Total Current assets 30220209 19713632
Total Assets 39664859 29212427

EQUITY AND LIABILITIES 2008 2007
Equity
Share capital 547904 547904
Reserves 2233026 2233026
Unappropriated profit 10830708 6679841
Total Equity 13611638 9460771
LIABILITIES
Non-current liabilities
Deferred taxation - net 51574
Liabilities against assets subject to finance lease 2216 547
Long-term loan 2500000
Asset retirement obligation 191620 138494
Total Non-current liabilities 2745410 139041
Current liabilities
Current maturity of liabilities against assets subject to finance 56742 32203
lease
Short-term running finances utilized under mark-up 4338339 725836
arrangements
Short-term loans 1500000 6810000
Trade and other payables 16483008 11912496
Mark-up accrued 157268 131580
Taxation 772454
Total Current liabilities 23307811 19612115
Total Liabilities 26053221 19751156
Total Equity and Liabilities 39664859 29211927

b. Shell Income Statement
SHELL Income Statement Regular
2008 2007
Sales 157,626,491 130,129,844

Non-fuel retail
sales 119,915 141,615
others 20,205 17,909
other revenue 341,349 447,517
Net Sales 158,107,960 130,736,885

Sales tax 18,263,271 15,691,451
Net revenue 139,844,689 115,045,434
Cost of products sold 124,694,471 108,664,932
Gross Profit 15,150,218 6,380,502
Distribution expenses 2,950,422 3,366,555

Administrative and marketing 2,109,289 1,716,707
expenses
10,090,507 1,297,240
Other operating income 306,453 215,322
10,396,960 1,512,562
Other operating expenses 1,915,601 377,978
Operating profit 8,481,359 1,134,584

Finance cost 970,267 878,098
7,511,092 256,486
Share of profit of associate - net of tax 212,248 122,250
Profit before taxation 7,723,340 378,736
Taxation 2,586,246 327,923
Profit after taxation 5,137,094 706,659
Rupees Rupees
Earnings per share 93.76 12.9

c. PSO Balance Sheet
Assets 2008 2007
Non-Current Assets
Property, plant and 7,460,549 8,012,317
equipment
Intangibles 105,502 126,212
Long term investments 2,701,097 2,990,591
Long term loans, 477,745 627,972
advances and
receivables
Long term deposits and 79,098 65,913
Prepayments
Deferred Taxes 407,337 401,037
Total Non-Current 11,231,328 12,224,042
Assets
Current Assets
Stores, spare parts and 115,814 127,891
loose tools
Stock-in-trade 62,360,067 29,562,055
Trade debts 33,904,728 13,599,966
Loans and advances 396,220 365,974
Deposits and short term 401,433 1,583,913
prepayments
Other receivables 15,681,790 15,751,198
Cash and bank balances 3,018,640 1,522,276
Total Current Assets 115,878,692 62,513,273
Total Assets 127,110,020 74,737,315

EQUITY AND LIABILITIES 2008 2007
EQUITY
Share Capital 1,715,190 1,715,190
Reserves 29,249,864 19,224,027
Total Equity 30,965,054 20,939,217
Liabilities
Non-Current Liabilities
Long term deposits 834,598 768,308
Retirement and other service 1,574,148 1,644,063
benefits
Total Non-Current Liabilities 2,408,746 2,412,371
Current Liabilities
Trade and other payables 81,067,565 41,431,075
Provisions 726,116 688,512
Accrued interest / mark-up 217,928 131,961
Short term borrowings 10,997,908 9,064,781
Taxes payable 726,703 69,398
Total Current Liabilities 93,736,220 51,385,727
Total Equity and Liabilities 127,110,020 74,737,315

d. PSO Income Statement
2008 2007
Sales 583,213,959 411,057,592
Sales Tax 74,249,472 52,418,310
Inland freight equalization margin 13,685,954 8,932,956
Net sales 495,278,533 349,706,326

Cost of products sold 465,254,907 337,446,896
Gross profit 30,023,626 12,259,430
Other operating income 1,396,527 1,278,932
Operating costs
Transportation costs 337,886 369,328
Distribution and marketing expenses 3,264,599 2,745,289
Administrative expenses 1,160,741 1,002,712
Depreciation 1,119,137 1,098,157
Amortization 47,689 41,908
Other operating expenses 3,352,969 755,420
Total Operating Cost 9,283,021 6,012,814
Other income 313,860 424,238

Profit from operations 22,450,992 7,949,786
Finance costs 1,367,898 1,158,112
21,083,094 6,791,674
Share of profit of associates 294,318 330,306
Profit before taxation 21,377,412 7,121,980
Taxation 7,323,617 2,432,182
Profit for the year 14,053,795 4,689,798
Rupees Rupees
Earnings per share 81.94 27.34

4. Common Size & Index Analysis
a. Common Size Balance Sheet of SHELL

SHELL Balance Sheet Regular Common Size(%)
ASSETS 2008 2007 2008 2007
Non-current assets
Fixed assets 6826848 6579993 17.21 22.52
Long-term investments 2134783 2015535 5.38 6.90
Long-term loans and advances 146381 182579 0.37 0.63
Long-term deposits and prepayments 201718 110994 0.51 0.38
Long-term debtors 134920 328727 0.34 1.13
Deferred taxation - net 280967 0.96
Total Non-current assets 9444650 9498795 23.81 32.52
Current assets
Stores and spares 13328 30286 0.03 0.10
Stock-in-trade 18095523 8244054 45.62 28.22
Trade debts 4904940 4251325 12.37 14.55
Loans and advances 47029 42720 0.12 0.15
Trade deposits and short-term 207864 140239 0.52 0.48
prepayments
Other receivables 6079111 5970763 15.33 20.44
Taxation 219715 0.75
Cash and bank balances 872414 814530 2.20 2.79
Total Current assets 30220209 19713632 76.19 67.48
Total Assets 39664859 29212427 100.00 100.00

SHELL Balance Sheet Regular Common Size
(%)
EQUITY AND LIABILITIES 2008 2007 2008 2007
Equity
Share capital 547904 547904 1.38 1.88
Reserves 2233026 2233026 5.63 7.64
Unappropriated profit 10830708 6679841 27.31 22.87
Total Equity 13611638 9460771 34.32 32.39
LIABILITIES
Deferred taxation - net 51574 0.13 0.00
Liabilities against assets subject to finance lease 2216 547 0.01 0.00
Long-term loan 2500000 6.30 0.00
Asset retirement obligation 191620 138494 0.48 0.47
Total Non-current liabilities 2745410 139041 6.92 0.48
Current liabilities
Current maturity of liabilities against assets subject to finance 56742 32203 0.14 0.11
lease
Short-term running finances utilized under mark-up 4338339 725836 10.94 2.48
arrangements
Short-term loans 1500000 6810000 3.78 23.31
Trade and other payables 16483008 11912496 41.56 40.78
Mark-up accrued 157268 131580 0.40 0.45
Taxation 772454 1.95
Total Current liabilities 23307811 19612115 58.76 67.14
Total Liabilities 26053221 19751156 65.68 67.61
Total Equity and Liabilities 39664859 29211927 100.00 100.00

b. Common Size Balance Sheet of PSO
PSO Balance Sheet Regular Common Size
(%)
2008 2007 2008 2007
Assets
Non-Current Assets
Property, plant and equipment 7,460,549 8,012,317 5.87 10.72
Intangibles 105,502 126,212 0.08 0.17
Long term investments 2,701,097 2,990,591 2.13 4.00
Long term loans, advances and 477,745 627,972 0.38 0.84
receivables
Long term deposits and Prepayments 79,098 65,913 0.06 0.09
Deferred Taxes 407,337 401,037 0.32 0.54
Total Non-Current Assets 11,231,328 12,224,042 8.84 16.36
Current Assets
Stores, spare parts and loose tools 115,814 127,891 0.09 0.17
Stock-in-trade 62,360,067 29,562,055 49.06 39.55
Trade debts 33,904,728 13,599,966 26.67 18.20
Loans and advances 396,220 365,974 0.31 0.49
Deposits and short term prepayments 401,433 1,583,913 0.32 2.12
Other receivables 15,681,790 15,751,198 12.34 21.08
Cash and bank balances 3,018,640 1,522,276 2.37 2.04
Total Current Assets 115,878,692 62,513,273 91.16 83.64
Total Assets 127,110,020 74,737,315 100.00 100.00

PSO Balance Sheet Regular Common Size
(%)
EQUITY
Share Capital 1,715,190 1,715,190 1.35 2.29
Reserves 29,249,864 19,224,027 23.01 25.72
Total Equity 30,965,054 20,939,217 24.36 28.02
Liabilities
Long term deposits 834,598 768,308 0.66 1.03
Retirement and other service 1,574,148 1,644,063 1.24 2.20
benefits
Total Non-Current Liabilities 2,408,746 2,412,371 1.90 3.23
Current Liabilities
Trade and other payables 81,067,565 41,431,075 63.78 55.44
Provisions 726,116 688,512 0.57 0.92
Accrued interest / mark-up 217,928 131,961 0.17 0.18
Short term borrowings 10,997,908 9,064,781 8.65 12.13
Taxes payable 726,703 69,398 0.57 0.09
Total Current Liabilities 93,736,220 51,385,727 73.74 68.76
Total Equity and Liabilities 127,110,020 74,737,315 100.00 100.00

c. Common Size Income Statement of SHELL
SHELL Income Statement Regular Common Size
(%)
2008 2007 2008 2007
Sales 157,626,491 130,129,844 99.70 99.54

Non-fuel retail
sales 119,915 141,615 0.08 0.11
others 20,205 17,909 0.01 0.01
other revenue 341,349 447,517 0.22 0.34
Net Sales 158,107,960 130,736,885 100.00 100.00

Sales tax 18,263,271 15,691,451 11.55 12.00
Net revenue 139,844,689 115,045,434 88.45 88.00
Cost of products sold 124,694,471 108,664,932 78.87 83.12
Gross Profit 15,150,218 6,380,502 9.58 4.88
Distribution expenses 2,950,422 3,366,555 1.87 2.58

Administrative and marketing 2,109,289 1,716,707 1.33 1.31
expenses
10,090,507 1,297,240 6.38 0.99

Other operating income 306,453 215,322 0.19 0.16
10,396,960 1,512,562 6.58 1.16
Other operating expenses 1,915,601 377,978 1.21 0.29
Operating profit 8,481,359 1,134,584 5.36 0.87

Finance cost 970,267 878,098 0.61 0.67
7,511,092 256,486 4.75 0.20

Share of profit of associate - net of tax 212,248 122,250 0.13 0.09
Profit before taxation 7,723,340 378,736 4.88 0.29
Taxation 2,586,246 327,923 1.64 0.25
Profit after taxation 5,137,094 706,659 3.25 0.54

d. Common Size Income Statement of PSO
PSO Income Statement Regular Common Size (%)
2008 2007 2008 2007
Sales 583,213,959 411,057,592 117.75 117.54
Sales Tax 74,249,472 52,418,310 14.99 14.99
Inland freight equalization margin 13,685,954 8,932,956 2.76 2.55
Net sales 495,278,533 349,706,326 100.00 100.00

Cost of products sold 465,254,907 337,446,896 93.94 96.49
Gross profit 30,023,626 12,259,430 6.06 3.51
Other operating income 1,396,527 1,278,932 0.28 0.37
Operating costs
Transportation costs 337,886 369,328 0.07 0.11
Distribution and marketing expenses 3,264,599 2,745,289 0.66 0.79
Administrative expenses 1,160,741 1,002,712 0.23 0.29
Depreciation 1,119,137 1,098,157 0.23 0.31
Amortization 47,689 41,908 0.01 0.01
Other operating expenses 3,352,969 755,420 0.68 0.22
Total Operating Cost 9,283,021 6,012,814 1.87 1.72
Other income 313,860 424,238 0.06 0.12

Profit from operations 22,450,992 7,949,786 4.53 2.27
Finance costs 1,367,898 1,158,112 0.28 0.33
21,083,094 6,791,674 4.26 1.94

Share of profit of associates 294,318 330,306 0.06 0.09
Profit before taxation 21,377,412 7,121,980 4.32 2.04
Taxation 7,323,617 2,432,182 1.48 0.70
Profit for the year 14,053,795 4,689,798 2.84 1.34

e. Indexed Balance Sheet of Shell
SHELL Balance Sheet Regular Indexed (%)
ASSETS 2008 2007 2008 2007
Non-current assets
Fixed assets 6826848 6579993 103.75 100
Long-term investments 2134783 2015535 105.92 100
Long-term loans and advances 146381 182579 80.17 100
Long-term deposits and prepayments 201718 110994 181.74 100
Long-term debtors 134920 328727 41.04 100
Deferred taxation - net - 280967 100
Total Non-current assets 9444650 9498795 99.43 100
Current assets
Stores and spares 13328 30286 44.01 100
Stock-in-trade 18095523 8244054 219.50 100
Trade debts 4904940 4251325 115.37 100
Loans and advances 47029 42720 110.09 100
Trade deposits and short-term 207864 140239 148.22 100
prepayments
Other receivables 6079111 5970763 101.81 100
Taxation 219715 100
Cash and bank balances 872414 814530 107.11 100
Total Current assets 30220209 19713632 153.30 100
Total Assets 39664859 29212427 135.78 100

SHELL Balance Sheet Regular Indexed (%)
Equity
Share capital 547904 547904 100.00 100
Reserves 2233026 2233026 100.00 100
Unappropriated profit 10830708 6679841 162.14 100
Total Equity 13611638 9460771 143.87 100
LIABILITIES
Deferred taxation - net 51574 inf 100
Liabilities against assets subject to finance lease 2216 547 405.12 100
Long-term loan 2500000 inf 100
Asset retirement obligation 191620 138494 138.36 100
Total Non-current liabilities 2745410 139041 1974.53 100
Current liabilities
Current maturity of liabilities against assets subject to finance 56742 32203 176.20 100
lease
Short-term running finances utilized under mark-up 4338339 725836 597.70 100
arrangements
Short-term loans 1500000 6810000 22.03 100
Trade and other payables 16483008 11912496 138.37 100
Mark-up accrued 157268 131580 119.52 100
Taxation 772454 inf 100
Total Current liabilities 23307811 19612115 118.84 100
Total Liabilities 26053221 19751156 131.91 100
Total Equity and Liabilities 39664859 29211927 135.78 100

f. Indexed Balance Sheet of PSO
PSO Balance Sheet Regular Indexed (%)
2008 2007 2008 2007
Assets
Non-Current Assets
Property, plant and equipment 7,460,549 8,012,317 93.11 100
Intangibles 105,502 126,212 83.59 100
Long term investments 2,701,097 2,990,591 90.32 100
Long term loans, advances and 477,745 627,972 76.08 100
receivables
Long term deposits and Prepayments 79,098 65,913 120.00 100
Deferred Taxes 407,337 401,037 101.57 100
Total Non-Current Assets 11,231,328 12,224,042 91.88 100
Current Assets
Stores, spare parts and loose tools 115,814 127,891 90.56 100
Stock-in-trade 62,360,067 29,562,055 210.95 100
Trade debts 33,904,728 13,599,966 249.30 100
Loans and advances 396,220 365,974 108.26 100
Deposits and short term prepayments 401,433 1,583,913 25.34 100
Other receivables 15,681,790 15,751,198 99.56 100
Cash and bank balances 3,018,640 1,522,276 198.30 100
Total Current Assets 115,878,692 62,513,273 185.37 100
Total Assets 127,110,020 74,737,315 170.08 100

PSO Balance Sheet Regular Indexed (%)
EQUITY
Share Capital 1,715,190 1,715,190 100.00 100
Reserves 29,249,864 19,224,027 152.15 100
Total Equity 30,965,054 20,939,217 147.88 100
Liabilities
Long term deposits 834,598 768,308 108.63 100
Retirement and other service 1,574,148 1,644,063 95.75 100
benefits
Total Non-Current Liabilities 2,408,746 2,412,371 99.85 100
Current Liabilities
Trade and other payables 81,067,565 41,431,075 195.67 100
Provisions 726,116 688,512 105.46 100
Accrued interest / mark-up 217,928 131,961 165.15 100
Short term borrowings 10,997,908 9,064,781 121.33 100
Taxes payable 726,703 69,398 1047.15 100
Total Current Liabilities 93,736,220 51,385,727 182.42 100
Total Equity and Liabilities 127,110,020 74,737,315 170.08 100

g. Indexed Income Statement of SHELL
SHELL Income Statement Regular Indexed (%)
2008 2007 2008 2007
Sales 157,626,491 130,129,844 121.13 100

Non-fuel retail
sales 119,915 141,615 84.68 100
others 20,205 17,909 112.82 100
other revenue 341,349 447,517 76.28 100
Net Sales 158,107,960 130,736,885 120.94 100

Sales tax 18,263,271 15,691,451 116.39 100
Net revenue 139,844,689 115,045,434 121.56 100
Cost of products sold 124,694,471 108,664,932 114.75 100
Gross Profit 15,150,218 6,380,502 237.45 100
Distribution expenses 2,950,422 3,366,555 87.64 100

Administrative and marketing 2,109,289 1,716,707 122.87 100
expenses
10,090,507 1,297,240 777.84 100

Other operating income 306,453 215,322 142.32 100
10,396,960 1,512,562 687.37 100
Other operating expenses 1,915,601 377,978 506.80 100
Operating profit 8,481,359 1,134,584 747.53 100

Finance cost 970,267 878,098 110.50 100
7,511,092 256,486 2928.46 100

Share of profit of associate - net of tax 212,248 122,250 173.62 100
Profit before taxation 7,723,340 378,736 2039.24 100
Taxation 2,586,246 327,923 788.67 100
Profit after taxation 5,137,094 706,659 726.96 100

h. Indexed Income Statement of PSO
PSO Income Statement Regular Indexed (%)
2008 2007 2008 2007
Sales 583,213,959 411,057,592 141.88 100
Sales Tax 74,249,472 52,418,310 141.65 100
Inland freight equalization margin 13,685,954 8,932,956 153.21 100
Net sales 495,278,533 349,706,326 141.63 100

Cost of products sold 465,254,907 337,446,896 137.87 100
Gross profit 30,023,626 12,259,430 244.90 100
Other operating income 1,396,527 1,278,932 109.19 100
Operating costs
Transportation costs 337,886 369,328 91.49 100
Distribution and marketing expenses 3,264,599 2,745,289 118.92 100
Administrative expenses 1,160,741 1,002,712 115.76 100
Depreciation 1,119,137 1,098,157 101.91 100
Amortization 47,689 41,908 113.79 100
Other operating expenses 3,352,969 755,420 443.85 100
Total Operating Cost 9,283,021 6,012,814 154.39 100
Other income 313,860 424,238 73.98 100

Profit from operations 22,450,992 7,949,786 282.41 100
Finance costs 1,367,898 1,158,112 118.11 100
21,083,094 6,791,674 310.43 100

Share of profit of associates 294,318 330,306 89.10 100
Profit before taxation 21,377,412 7,121,980 300.16 100
Taxation 7,323,617 2,432,182 301.11 100
Profit for the year 14,053,795 4,689,798 299.67 100

5. Summary of the Analysis
Ratios SHELL PSO
2007 2008 2007 2008
Liquidity Ratios
Current 1.02 1.30 1.22 1.24
Quick 0.60 0.52 0.64 0.57
Leverage Ratios
Total Debt Ratio 0.68 0.66 0.72 0.76
Debt to Equity 2.09 1.91 2.57 3.10
Coverage Ratios
Times Interest Earned 1.28 8.74 6.86 16.41
Activity Ratios
Receivable Turnover 26.53 34.43 32.47 24.55
Average Collection
Period 13.76 10.60 11.24 14.87
Inventory Turnover 11.93 9.47 11.69 10.12
ITD 30.61 38.55 31.22 36.06
Total Asset Turnover 4.53 4.58 5.67 5.78
Profitability Ratios
Gross Profit Margin 4.90% 9.61% 2.98% 5.15%
Net Profit Margin 0.54% 3.26% 1.14% 2.41%
Return on Assets 2.46% 14.92% 6.47% 13.93%
Return on Equity 7.20% 44.53% 22.46% 54.15%
Market Value Measures
Earnings Per Share 12.90 93.76 27.34 81.94
P/E Ratio 31.79 4.45 14.32 5.09
Note:-
Company A:- Our Company SHELL
Company B:- Competitors Company PSO

6. Conclusion and Possible Recommendations
Compared to 2007, Oil Marketing Companies enjoyed massive increase in earnings due to FIFO
inventory system but this affect could be reversed in the future.
Receivables from GOP and IPP are contributed to cash flow constraints which have led to
financing. Although this effect is not very obvious due to higher earnings but this financing cost
could be significant in times of normal oil prices.
Share prices of both companies remained at standstill. This trend of investors suggests that they
expect that these higher earnings and dividend announcements as temporary and they don’t want
to lose their money in the future.
Specifically to Shell as an MNC, the reduction in margin from the government and the higher
working capital requirements might affect the future performance of the company.
To tackle with the fluctuation in the oil prices, the OMC has to invest in R&D for alternative
energy resources as these fossil fuel resources are finite and limited and could led these firms to
failure.
As the operations of the two companies are almost similar except for the market share, the
operational efficiencies would led a company cut its costs and be the winner in the game.
Ever increasing demand for the POL products due to the higher number of vehicles in the
country provides an opportunity as well as a challenge to the companies that how they better
manage the optimum fixed asset requirements and convert their capital into increasing revenues.
Overall the Shell Pakistan has better managed the effect of increasing oil prices as an opportunity
to the company. Its profitability ratios as well as efficiency ones has improved more as compared
to the PSO’s.

7. Appendix
a. Shell Balance Sheet ‘08
Institute of Business Management Page A

b) Shell Income Statement ‘08
Institute of Business Management Page B

c) Shell Balance Sheet ‘07
Institute of Business Management Page C

d) Shell Income Statement ‘07
Institute of Business Management Page D

e) PSO Balance Sheet ‘08
Institute of Business Management Page E

f) PSO Income Statement 08
Institute of Business Management Page F

g) PSO Balance Sheet ‘07
Institute of Business Management Page G

h) PSO Income Statement ‘07
Institute of Business Management Page H

FM Report Shell & PSO

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FM Report Shell & PSO

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2009

Khurram Rao(Group Leader)

Muhammad Usman Saleem

Institute of Business Management

As students of Financial Management, we have found it rewarding in terms of understanding the

1. INTRODUCTION OF THE SHELL AND PSO .........................................................................1

A. SHELL PAKISTAN (OUR COMPANY) ............................................................................................1

1. LIQUIDITY RATIOS ......................................................................................................................4

3. SHELL & PSO BALANCE SHEET AND INCOME STATEMENT ........................................ 23

A. SHELL BALANCE SHEET ........................................................................................................... 23

4. COMMON SIZE & INDEX ANALYSIS .................................................................................. 29

A. COMMON SIZE BALANCE SHEET OF SHELL ............................................................................. 29

5. SUMMARY OF THE ANALYSIS ........................................................................................... 41

6. CONCLUSION AND POSSIBLE RECOMMENDATIONS .................................................... 42

A. SHELL BALANCE SHEET ‘08 ....................................................................................................... A

a. Shell Pakistan (Our Company)

Shell’s range of innovative products is constantly expanding, supported by extensive research

Institute of Business Management Page 1

Institute of Business Management Page 2

Institute of Business Management Page 3

Trend Analysis of Current Asset Ratio

Institute of Business Management Page 4

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Institute of Business Management Page 5

Value 0.70 0.64

a. TOTAL DEBT RATIO

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Institute of Business Management Page 6

b. DEBT TO EQUITY RATIO

Shows the extent to which the firm is financed by debt.

Formula=   ⁄ 

Institute of Business Management Page 7

a. TIMES INTEREST EARNED

Shows a firm’s ability to cover its interest charges.

Institute of Business Management Page 8

Trend Analysis of Times Interest Earned

Indicates how successful the firm is in collection of receivable

Institute of Business Management Page 9

Trend Analysis of Receivable Turnover

Institute of Business Management Page 10

Average number of days the receivables is outstanding.

Trend Analysis of Average Collection Period

Institute of Business Management Page 11

c. INVENTORY TURNOVER RATIO

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

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Trend Analysis of Inventory Turnover (Days)

Institute of Business Management Page 12

d. INVENTORY TURNOVER PERIOD IN DAYS

Formula=  ⁄ 

Institute of Business Management Page 13

e. TOTAL ASSET TURNOVER RATIO

Formula=$   ⁄  

Institute of Business Management Page 14

Trend Analysis of Total Asset Turnover

a. GROSS PROFIT MARGIN

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Institute of Business Management Page 15

Trend Analysis of Gross Profit Margin

b. NET PROFIT MARGIN

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Institute of Business Management Page 16

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