Shell Gas Pakistan Limited: Omer Farooq

Shell Gas Pakistan Limited
Omer Farooq Page 1
Shell Gas Pakistan Limited Acknowledgement
This report is on Shell Gas LPG (Pakistan) limited which has been the part of our course Introduction to business & finance. I am thankful to
Almighty Allah for bestowing me the essential attributes that are

required to prepare this report and I am also thankful to my course teacher Sir Asif Naji for polishing my skills. I pay my highest gratitude to all those who have supported me directly & indirectly to prepare this report.
Table of Contents
Omer Farooq Page 2
S.no Contents 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Calcutaion of Ratios 2009 Calculation of Ratios 2010 Cross-Sectional Analysis Interpretation of Rations & Graphs (Year 2010) Calculation of I.G.R & S.G.R Proforma Income Statement Proforma Balance Sheet Common Size Income Statement 2009 & 2010 Common Size Balance Sheet 2009 & 2010 Recommendations
Pg# 6
19 20-36 37-38 39 40 41 42-43 44
Calculation of Ratios (2009):

Omer Farooq Page 3

SHORT TERM SOLVENCY RATIOS (2009)
1)
Current ratio= Current asset Current liabilities
= 266,930/134,738
=2.466:1
2)
Quick ratio= Cash+ Trade Debts Current liabilities =193,499+2,696/134,738 =1.81:1
3)
Cash ratio=
____Cash______ Current liabilities = 193,499/108,159
=0.9420:1
Omer Farooq Page 4

4)
Working capital= Current assets - Current liabilities
=266,930-108,159 = 158,771 LONG TERM SOLVENCY RATIO(2009)

5)
Debt ratio= Total debts or Total liabilities Total assets Total Liabilities= Current liabilities+ Long-term liabilities = 108,159+475470 =583629 =583,629/882,604 = 0.709:1
6)
Debt to equity ratio=
Total debts or Total liabilities Total Shareholder Equity
*Total Shareholder Equity= Share Capital+ Reserves+ Profit = 226,400+90,000-(17,965) = 298,435 = 583,629/298,435 = 1.955:1
Omer Farooq Page 5

7)
Time interest earned= Operating profit or EBIT Interest expense
= 81,259 / 12,684 =>6.04 times
ASSESTS UTILIZATION RATIO(2009)
8) Accounts Receivable Turnover:
Accounts Receivable Turnover = Net Credit Sales Average Receivables
= 1,239,600/2696 = 460 times
9) Average Collection Period:
Average Collection Period = 365/ Accounts Receivable T/O = 365/460
Omer Farooq Page 6

= 0.79 Days 10) Inventory Turnover: Inventory turnover = Cost of goods sold Average Inventory
= 992,825/25,763 = 38.53 times
11)
Fixed assets turnover =
Net sales Fixed assets
= 1,239,600/ 615,134 = 2.01times.

12)
Total assets turnover = Net sales Total assets Total Assets = Current Assets + Fixed Assets = 266,930 = 882,064 = 1,239,600/882,064 + 615,134
Omer Farooq Page 7

= 1.40times PROFITABILITY RATIOS (2009)
13)
Gross profit margin = Gross profit Net sales
= 246,775 /1,239,600
= 0.199 or 19.9%
14)
0perating profit margin = Operating profit Net sales = 81,259/1,239,600 = 0.065 or 6.5%
15)
Net profit margin = Net profit Net sales
= 72,159 / 1,239,600
= 0.058 or 5.8%
Omer Farooq Page 8
16)
Return on assets = Net profit Total assets
= 72,159/ 882,064
= 0.081 or 8.1%
17)
Return on equity =
Net profit Total shareholders equity
= 72,159 / 298,435
= 0.241 or 24.1 %
Omer Farooq Page 9
Calculation of Ratios (2010):

1.
Current ratio= Current asset Current liabilities
= 202590/134738
=1.50:1
2.
Quick ratio= Cash+ Trade Debts Current liabilities
=126,929+5,525/134,738
=0.98:1
3.
Cash ratio=
Cash
Current liabilities
Omer Farooq Page 10
= 126,929/134,738 => 0.9420:1
4.
Working capital= Current assets - Current liabilities
=202,590-134,738 = 67,852
LONG TERM SOLVENCY RATIO(2010)
5.
Debt ratio= Total debts or Total liabilities Total assets
Total Liabilities= Current liabilities+ Long-term liabilities = 134,738+252,139 =386,877 =386,877/735,642 = 0.5259:1
Omer Farooq Page 11
6.
Debt to equity ratio=
Total debts or Total liabilities Total Shareholder Equity
*Total Shareholder Equity= Share Capital+ Reserves+ Profit = 226,400+90,000+32,365 = 348,765 = 368,777/348,765 = 1.057:1
7.
Time interest earned= Operating profit or EBIT Interest expense
= 94863 / 11786
= 8.03times.
Omer Farooq Page 12
8. Accounts Receivable Turnover:
Accounts Receivable Turnover = Net Credit Sales Average Receivables
Average Receivables = Opening A/R+ Closing A/R 2 = 5525+2696/2 = 4110.5 Now, put in formula: = 1225694/4110.5 = 298 times
9. Average Collection Period:

Omer Farooq Page 13
Average Collection Period = 365/ Accounts Receivable T/O = 365/298 = 1.22 Days
Inventory Turnover:
Inventory turnover = Cost of goods sold Average Inventory
Average Inventory = Opening Stock+ Closing Stock/2 = 25,736+25,645/2
= 25,704 Now, put in formula: = 1,148,089/25,704 = 44 times
Omer Farooq Page 14
10. Fixed
assets turnover =
Net sales Fixed assets
= 1,225,694/ 533, = 2.23times.

11.
Total assets turnover = Net sales Total assets
Total Assets = Current Assets + Fixed Assets = 202,590 = 735,642 = 1,225,694/735,642 = 1.66 times + 533,052
PROFITABILITY RATIOS 2010
12. Gross
profit margin = Gross profit Net sales
= 77,605 /1,225,694
Omer Farooq Page 15

= 0.063 or 6.3%
13. 0perating
profit margin = Operating profit Net sales = 94,683/1,225,694
= 0.077 or 7.7%
14. Net
profit margin = Net profit Net sales
= 50,330 / 1,225,694
= 0.041 or 4.1%
15. Return
on assets = Net profit Total assets
= 50,330/ 735,642
= 0.068 or (6.8%)
Omer Farooq Page 16

16. Return
on equity =
Net profit
Total shareholders equity
= 50,330 / 348,765
= 0.144 or 14.4 %
Shell Gas LPG Pakistan Limited Cross Sectional Analysis
Omer Farooq Page 17
Serial no:
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Ratios
Current ratio Quick ratio Cash ratio Working capital Debt ratio Debt to equity ratio Time interest earned Account receivable turn over Average collection period Inventory turnover Fixed assets turnover Total assets turnover Gross profit margin Operating profit margin Net profit margin Return on assets Return on equity
Companys Industry Result Result (2010) (2010)

1.50 0.98 0.94 67,852,000 0.52 1.057 8.03 times 298 times 1.22 days 44 times 2.23 times 1.66 times 6.3% 7.7% 4.1% 6.8% 14.4% 1.9 1.2 1.1 4500000 0.45 0.55 10 times 20 times 20 days 15 times 10 times 8 times 30% 25% 15% 12% 14%
Decision
Worst Worst Worst Better Worst Worst Worst Better Better Better Worst Worst Worst Worst Worst Worst Better

Omer Farooq Page 18

Current ratio Current Ratio Company : 1.50 Industry : 1.9
INTERPRETATION:
Current ratio measure a firm ability to meet its short term obligation and commitments. It shows the relationship between current assets and current liabilities. In this companys current ratios is 1.50 times. It means that company current assets are 1.50 times more than that of its current liabilities. If we compare the result of the company with the result of an industry, the Companys results are showing worst position because the companys current ratio is less than the current ratio of an industry.
Omer Farooq Page 19

Quick Ratio
Quick Ratio Company : 0.98 Industry: 1.2
INTERPRETATION:
Quick ratio measure a firms ability to meet its short term obligation and commitments. It shows the relationship between quick assets and current liabilities. In this companys quick ratios is 0.98times. It means that company quick assets are 0.98 times less than that of its current liabilities. If we compare the result of the company with result of an industry, the Companys results are showing worst position because the companys quick ratio is less than that of industry current ratios.
Omer Farooq Page 20

Cash Ratio
Cash Ratio Company : 0.94 Industry : 1.1
INTERPRETATION:
Cash ratio measure a firm ability to meet its short term obligation and commitments. It shows the relationship between cash and current liabilities. In this companys cash ratios is 0.98times. It means that company cash are 0.98 times less than that of its current liabilities. If we compare the result of the company with result of an industry, Companys results are showing worst position because a company cash ratio is less than that of industry current ratios.
Omer Farooq Page 21

Working Capital
Working Capital Company : 67,852 45,000 Result
INTERPRETATION:
Working capital shows the excess of current assets over the current liabilities. It shows the firms ability to pay off its current liabilities with its current assets. In this company working capital is 67,852,000. It means that company has excess of current assets worth Rs 67,852 over its current liabilities.
If we compare the results of the company with the results of an industry, Companys results are showing better position because the working capital is more than that of an industrys working capital.
Omer Farooq Page 22

LONG TERM SOLVENCY RATIO(2010) Debt Ratio
Debt Ratio Company : 0.52 Industry : 0.45 Result Worse
INTERPRETATION:
Debt ratio measure a firm ability to meet its long term obligation and commitments. It shows the relationship between total liabilities and total assets. In this companys debt ratios is 0.69times. It means that company total liabilities are 0.69 times that of its total assets. If we compared the result of the company with result of an industry, Companys results are showing worst position because a company debt ratio is less than that of industry debt ratios.
Omer Farooq Page 23

Debt to Equity Ratio
Debt to equity Ratio
Company 1.05
Industry 0.55
Result Worse
INTERPRETATION:
Debt to equity ratio measure a firm ability to meet its long term obligation and commitments. It shows the relationship between total liabilities and total equity. In this companys debt equity ratios is 1.057. It means that companys total liabilities are 1.057 times that of its total share holders equity. If we compare the result of the company with result of an industry, the companys results are showing worst position because a company debt to equity ratio is more than that of industry debt to equity ratio.
Time Interest Earned

Omer Farooq Page 24
Time Interest Earned
Company 8.03
Industry 10 times
Result Worse
INTERPRETATION:
Time interest earned indicates that how many times a company can pay its interest expense during a particular period of time. It shows the relationship between operating profit and interest expense. In this companys time interest earned 8.03times. It means the company can pay interest expense 8.03times from its operating profit. If we compare the result of the company with result of an industry, the companys results are showing worst position because a company time interest earned is less than that of its industry time interest earned.

Omer Farooq Page 25

Account receivable turnover
Accounts Receivable Company Turn Over 298 time INTERPRETATION: Account receivable turnover indicates how many times a company convert its receivables into sales/cash during a particular period of time. In this company account receivable turnover is 298 times. It means that a company converts its receivables 298 times into cash. If we compare the results of the company with the result of an industry, the companys results are showing better results because the companys account receivable turnover is more than that of industrys account receivable turnover. Industry 20 times Result Better
Omer Farooq Page 26

Average collection period
Avg. Collection Period Industry 1.22 days Company 20 days Result Better
INTERPRETATION:
Average collection period indicates after how many days a company converts its receivables into cash during a particular time period. In this company average collection period is 1.22days. It means that a company converts its receivables into cash after every 1.22 days. If we compare the results of the company with the result of industry, companys results are showing better results because a company average collection period is less than that of its industry Average collection period.
Omer Farooq Page 27
Inventory turnover
44 times
15 times
Better
INTERPRETATION: Inventory turnover indicates how many times a company converts its inventory into cash or sales. In this company inventory turnover is 44 times. It means that a company converts its inventory into cash or sales 44times in a given period of time or in a year. If we compare the results of the company with the result of industry, companys results are showing better position because company inventory turnover is more than that of its industry turnover.
Omer Farooq Page 28

Fixed assets turnover Fixed assets turnover INTERPRETATION:
Fixed assets turnover indicates how many times a company generates its revenue from fixed assets of its own worth. In this company fixed assets turnover is 2.23times. It means that a company generates its revenue from its fixed assets 2.23 times in a given period of time or in a year. If we compare the results of the company with the result of industry, companys results are showing worst position because company fixed asset turn over is less than that of its industry fixed asset turnover.
2.23 times
10 times
Worst
Omer Farooq Page 29

Total assets turnover Total assets turnover INTERPRETATION:
Total assets turnover indicates how many times revenue generated by its company from total assets of its own worth. In this company total assets turnover is 1.66times. It means that a company total assets generate revenue 1.66 times of its own worth. If we compare the results of the company with the result of industry, companys results are showing worst position because company total asset turn over is less than that of its industry total asset turnover.
1.66 times
8 times
Worst
Omer Farooq Page 30

PROFITABILITY RATIOS(2010) Gross Profit Margin Gross profit margin 6.3% 30% Worst
INTERPRETATION:
It shows the relationship between gross profit and net sales it is the percentage of gross profit based on the value of net sales. In this company gross profit margin is 6.3%. It means that company generates 6.3% gross profit based on the value of net sales. If we compare the result of the company, with the result of an industry, Companys results are showing worst position because a gross profit margin is less than that of an industry gross profit margin.
Omer Farooq Page 31

0perating profit margin
Operating profit margin 7.7% 25% Worst
INTERPRETATION:
It shows the relationship between operating profit and net sales. It is the percentage of operating profit based on the value of net sales. In this company operating profit margin is 7.7%. It means that company generates 7.7% operating profit based on the value of net sales. If we compare the results of the company with the results of an industry, Companys results are showing worst position because a company operating profit margin is less than that of an industry operating profit margin.
Omer Farooq Page 32

Net profit margin Net profit margin (4.1%) 15% Worst
INTERPRETATION:
It shows the relationship between net profit and net sales. It is the percentage of net profit based on the value of net sales. In this company net profit margin is 4.1%. It means that company generates 4.1% net profit based on the value of net sales. If we compare the results of the company with the results of an industry, Companys results are showing worst position because its net profit margin is less than that of an industry net profit margin.
Omer Farooq Page 33
Return on assets Return on assets
6.8%
12%
Worst
INTERPRETATION:
It shows the relationship between net profit and total assets. It is the percentage of net profit based on the value of total assets. In this company return on assets is 6.8%. It means that company generates 6.8% net based on the value of total assets. If we compare the results of the company with the results of an industry, Companys results are showing worst position because a company return on assets is less than that of an industry.
Omer Farooq Page 34
Return on equity Return on Equity:
14.4%
14%
Better
INTERPRETATION: It shows the relationship between net profit and total share holders equity. It is the percentage of net profit based on the value of total share holders equity. In this company return on equity is 14.4%.It means that company generate 14.4% net profit based on the value of total shareholders equity. If we compare the results of the company with the results of an industry, Companys results are showing better position because a companys return on equity is more than that of an industry.
Omer Farooq Page 35
Calculation of I.G.R & S.G.R:

Internal Growth Rate (I.G.R) 2010: I.G.R = _____R.O.A*b______ 1-(R.O.A*b) Where, R.O.A is Return on Assets b is Retention Ratio *100
R.O.A = Net Profit/ Total Assets = 50,330/735,642

Omer Farooq Page 36

= 0.068 Retention Ratio = 1-Dividend Payout Ratio = 1-0 => 1
I.G.R = [0.068*1/1-(0.068)]*100 = [0.068/0.932]*100 = 0.072 or 7.2%
Sustainable Growth Rate (S.G.R) 2010:
S.G.R = ____R.O.E*b____ *100 1-(R.O.E*b)
Where, R.O.E is Return on Equity b is Retention Ratio Return on Equity = Net Profit/ Total Shareholder Equity = 50,330/348,765 = 0.144
Omer Farooq Page 37

Since retention rate is one, therefore
S.G.R = [0.144*1/1-(0.144*1)]*100 = [0.144/0.855]*100 = 0.0169 or 1.69%

*We will take the rate of S.G.R to make our Proforma Statements
Shell Gas LPG (Pakistan) Limited

Proforma Income Statement
Omer Farooq Page 38
Sales (1,422,209*1.169)
Less: Sales tax (196,515*1.169) Net Sales Less: Cost of Goods Sold (1,148,089*1.169) Gross Profit Less: Admin expense (82704*1.169) Less: Distribution expense (58,271*1.169) Add: Other operating income (185,252*1.169) Less: Other operating expense (27,199*1.169) Operating Profit Less: Finance Cost (11,786*1.169) Profit before tax Less: Taxation (32,567*1.169) Net Income/Profit
1,662,562
(229,726) 1,432,836 (1,342,116) 90,720 (96,681) (68,119) 216,559 (31,796) 110,683 (13,778) 96,905 (38,071) 58,836
Shell Gas (LPG) Pakistan Limited Parforma Balance Sheet Assets

Omer Farooq Page 39
Equities

Non-current Assets:
Property, plant & equipment (387,181*1.169) Intangible assets (24,361*1.169) Long-term Investment (2*1.169) Long-term loans (9,328*1.169) Long-term deposits (76,420*1.169) Deferred Taxation (35,760*1.169) Total fixed assets 452,614 28,478 2.33 8 10,904 89,335 41,803 623,136
Non-current Liabilities:
Cylinder & regular deposits (252,139*1.169) 294,750
Current Assets:
Stores & Spares (3,400*1.169) Stock in trade (25,645*1.169) Trade debts (5,525*1.169) 3,975 29,979 6,459
Current Liabilities:
Trade & other payables (134,738*1.169) 157,509
Loans, advances, deposits, prepayments & other receivables (27,932*1.169) 32,652 Taxation receivables (13,159*1.169) Cash & bank balances (126,929*1.169)
Total Current Assets
Equity: Share capital (226,400*1.169) 264,661 General reserves (90,000*1.169) 105,210 Inappropriate profit (32,365*1.169) 37,835 (Equity at Start+ Add. to R.E) 407,760
15,383 148,380
236,838
Total Assets
859,965 Total Equities
______ 859,965
Shell Gas (LPG) Pakistan Limited

Common Size Income Statement
Omer Farooq Page 40

2010 Gross Sales Sales Tax Net Sales Cost of Goods Sold Gross Profit Administrative expenses Distribution expenses Other operating income Other operating expenses Operating Profit Finance Cost Profit before tax Tax Profit for the year 1,422,209 (196,515) 1,225,694 (1,148,089) 77,605 (82,704) (58,271) 185,252 (27,199) 94,605 (11,786) 82,897 (32,567) 50,330 % 100% (13.8%) 86.2% (80.7%) (5.5%) (5.8%) (4.09%) 13.02% 1.9% 6.6% 0.82% 5.82% 2.28% 3.2% 2009 1,438,242 (198,642) 1,239,600 (992,825) 246,775 (87,688) (93,457) 29,287 (13,658) 81,259 (12,684) 68,575 (3,584) 72,159 % 100% 13.8% 86.2% 69% 17.1% 6.09% 6.5% 2.03% 0.94% 5.6% 0.88% 4.7% 0.24% 5%
Shell Gas (LPG) Pakistan Limited Common Size Balance Sheet

Omer Farooq Page 41

ASSETS
Non-Current Assets Property, Plant & Equipment Intangible assets Long-term investment Long term loans Long-term deposits Deferred taxation Total non-current assets Current Assets Stores & spares Stock-in-trade Trade debts Loans, advances, deposits & other receivables Taxation recoverable Cash & bank balances Total Current Assets
2010
387,181 24,361 2 9,328 76,420 35,760 533052 3,400 25,645 5,525 27,932 13,159 126,929 202,590
%
52.6% 3.31% 0.00027% 1.26% 10.38% 4.86% 72.45% 0.46% 3.48% 0.75% 3.8% 1.78% 17.2% 27.5%
2009
456,620
%
51.7%
29,094 3.2% 2 0.00027% 6,874 50,909 71,635 615,134 4,176 25,763 2,696 31,311 9,485 193,499 266,930 0.77% 5.77% 8.12% 69.73% 0.47% 0.029% 0.30% 0.035% 1.07% 21.9% 30.26%
Total Assets
735,642
100%
882,064
100%
Omer Farooq Page 42
EQUITIES & LIABILITIES

Equity
Share capital General reserves Inappropriate profit/ (Accumulated loss) Total Equities Non-Current Liabilities Long-term finance Cylinder & regular deposits Total Non-Current liabilities Current Liabilities Trade & other payables Mark-up on long term finance Total Current liabilities
2010
226,400 90,000 32,365 348,765 252,139 252,139 134,738 134,738 386,877
%
30.77% 12.23% 4.4% 47.4% 34.2% 34.2% 18.3% 18.3% 52.5%
2009
226,400 90,000 (17,965) 298,435 75,000 400,470 475,470 108,102 57 108,159 583,629
%
30.77% 12.23% 2.03% 33.4% 8.5% 45.40% 53.9% 12.2% 0.0064% 12.26% 66%
Total Liabilities
Total Equities & Liabilities
735,642
100% 882,064
100%
Omer Farooq Page 43
Recommendations
The Liquidity ratios of the company are showing worst position in order to improve that the compnay should collect outstanding accounts receivable,increase current assets through more equity financing & it should also negotiate longer payment terms with its vendors
The long term solvency ratios are showing worst position, therefore the compnay should sell some of its assets and can also issue more shares in order to pay the debts
The company should increase its sale in order to improve some of its asset utilization ratios
Review the profitability on your various products and services. Assess where prices can be increased on a regular basis to maintain or increase profitability. As your costs increase and markets change, prices may need to be adjusted as well.
Omer Farooq Page 44
The company should also be cost effective in order to increase its profit
Omer Farooq Page 45

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Shell Gas Pakistan Limited

Omer Farooq Page 1

Shell Gas Pakistan Limited Acknowledgement

Almighty Allah for bestowing me the essential attributes that are

Omer Farooq Page 2