Afm Final Report on Pso

7/31/2019 Afm Final Report on Pso

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INSTITUTE OF BUSINESS MANAGEMENT

REPORT ON FINANCING STRATEGY OF PSO

SUBJECT

Advanced Financial Management

SUBMITTED TO:

Sir Muhammad Ali Sheikh

SUBMITTED BY:

Muhammad Danish Mujtaba

(2009-1-03-10115)


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BRIEF INTRODUCTION TO PSO

PSO came into being in the mid-1970s when the Government of Pakistan amalgamated three

Oil Marketing Companies: Esso Eastern, Pakistan National Oil (PNO) and Dawood Petroleum

as part of its Nationalization Plan.

From 1999 to 2004, PSO had undergone radical changes, both internal and external and has

emerged with a new look and as a market leader with a long term vision. The company is the

only public sector entity in Pakistan that has been competing effectively with three foreign

multinationals, Shell, Caltex and Total.

PSO is currently enjoying over 73% share of Black Oil market and 59% share of White Oil

market. It is engaged in import, storage, distribution and marketing of various POL products

including mages, high speed diesel (HSD), fuel oil, jet fuel, kerosene, liquefied petroleum gas(LPG), compressed natural gas (CNG) and petrochemicals. PSO also enjoys around 35% market

participation in lubricants and is blending/marketing Castrol brands, in addition to a wide array

of its own.

It is considered as one of the most successful mergers in the history of Pakistan. The company

has retail coverage of over 3,800 outlets, representing 80% participation in total industry

network. The company has been the winner ofKarachi Stock Exchange Top Companies Award

for many years and is a member of World Economic Forum.

PSO serves a wide range of customers throughout Pakistan including retail, industrial, aviation,and marine and government/defense sectors. PSO has been meeting the countrys fuel needs

by merging sound business sense with national obligation.

Pakistan state oil has come to this stage after 25 years of development and continuous

improvement. The companys development started from 1974 when the federal government

took over the management of PNO (Pakistan National Oil) and DPO (Dawood Petroleum

Limited) and renamed into POCL (Pakistan Oil Company Limited) under the marketing of

petroleum Products (Federal Control) Act 1974

The government then incorporated Petroleum Storage Development Corporation PSDC.

Name of PSDC changed to State Oil Company Limited (1976). The government then merged

PNO and POCL into SOCL and named it as Pakistan State Oil Company Limited.


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FINANCIAL STATEMENTS OF PSO


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PSO VERTICAL ANALYSIS

In 2007, 82.09% is cost of products sold of the sales and net sales are 85.07%of the sales which

results in 2.98% gross profit. All the operating expenses accounts 1.46% of the sales and finance

cost is 0.28% of sales with net profit of 1.14%.

While in 2008 sales dropped along with cost of products sold with 79.77% and net profit

increased because decrease in finance cost and decrease in cost of products sold. The decrease

in finance cost shows that the company has paid its short term borrowings.

Now in 2009 net profit is negative which shows loss by -0.93% it is probably because significant

increase in cost of products sold also in increase in finance cost and operating cost because

company has incurred short term borrowings.

In 2010 cost of products sold and operating cost both decreased which resulted in an increase

of net profit by 1.03%.


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In 2007, 16.36 % are fixed assets with major portion of 10.89% of property and plant. While

83.60% are current assets which include 39.55%of inventory and 18.20% of trade debts.

While shareholders equity consists of 28.02% and long term liability consists of 3.28% which

shows that company has no long term debts and is mostly financed by shareholders and

current liabilities are 84.75% which are more than current assets.

In 2008 companys fixed assets are decreasing with increase in current assets due to more

inventories in stock and increase in trade debts. This year sales are made on credit.

Shareholders equity has decreased with increase in trade payables.

In 2009, fixed assets increased and current assets decreased. The decrease in current assets is

due to decrease in inventories in stock but the company has extended its credit policy instead

of tightening it.


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PSO HORIZONTAL ANALYSIS

While analyzing horizontally the company has decreased non current assets and as increase in

current assets significantly because the company has loosed its credit policy and inventories

stock has increased. While there is increase in current liabilities due to increase in short term

borrowings and trade payables. And shareholders equity is decreasing and it shows that

company is mostly financed with short term borrowings.

If we move from 2007 to 2009 the sales are increasing with increase in cost of products sold.

But in 2008 the companys net profit is high due to decrease in cost of products sold and

decrease in operating costs.


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FINANCIAL ANALYSIS (BALANCE SHEET)

2008% 2009% 2010%

ASSETS

Non-current assets

Property, plant and equipment 100 (93.65) (85.45)

Intangibles 100 (68.28) (34.36)

Long-term Investment 100 (79.73) (74.76)

Long-term loans, advancement and

receivables

100 (84.94) (66.54)

Long-term deposits and prepayments 100 5.76 59.23

Deferred tax 100 1135 -

100 31.17 (79.07)

Current Assets

Stores, Spare parts and loose tools 100 (96.83) (98.32)

Stock-in-trade 100 (62.26) (93.97)

Trade debts 100 137.46 246.56

Loans and Advances 100 5.50 3.47

Deposits and short-trm prepayments 100 37.46 (91.52)

Other recievables 100 (81.67) (92.83)

Taxation-net 100 - -

Cash and Bank balances 100 (95.51) (58.90)

100 19.69 66.88

Net Assets in Bangladesh 100 - -

Total Assets 100 20.70 59.11

EQUITY AND LIABILITIES

Equity

Share capital 100 0 0

Reserves 100 (65.49) (94.43)

100 (67.40) (94.74)

Non-current Liabilities

Long-term deposits 100 2.41 13.64

Retirement and other service benefits 100 6.28 19.92

100 4.94 17.75

Current Liabilities

Trade and other Payables 100 35.84 92.48Provisions 100 (94.82) (94.82)

Accured interest/ mark-up 100 155.30 51.52

Short-term borrowing 100 69.62 18.40

Total equity and Liabilties 100 20.70 59.11


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0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

2008 2009 2010

Return On Asset

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

2008 2009 2010

Return On Equity

PSO RATIO CALCULATION AND GRAPHS FOR THE YEAR

2008,2009,2010

1. PROFITABILITY RATIOS

ROA2008 = 15421663 = 0.1213

127110000

ROA2009= (466479) = -0.0030

153421643

ROA2010= 18931606 =0.0936

202247741

PSOs ROA was high due to high total assets but it

decreased in 2009 due to negative income but

increased slightly in 2010

ROE2008= 14053795 = 0.4538

30965054

ROE2009= 6698535= -0.3209

20870785

ROE2010= 9049596 = 0.3084

29336058

PSO return on equity which measures the income

available to shareholders increases but in 2009 due

to negative net income it decreased significantly and

kept on decreasing in 2010.


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0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2008 2009 2010

Return On Capital

0

2

4

6

8

10

12

14

16

18

2008 2009 2010

Invetory Turnover

ROC2008 =15421663 = 0.4849

31799652

ROC2009= (466479) = -0.0214

21725503

ROC2010 = 18931606 = 0.6251

30284534

PSOs ROC increased due to increase in

shareholders equity and long term debts kept on

increasing even in 2010.

2. EFFICIENCY RATIOS

INVENTORY TURNOVER2008 = 465254907 = 15.73

29562055


62360067


40698209

PSOs inventory turnover has decreased in 2009 it

increased 17 times up again in 2010.


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0

5

10

15

20

25

30

35

40

2008 2009 2010

Receivable

Turnover

0

1

2

3

4

5

6

7

2008 2009 2010

Assets Turnover

RECEIVABLE TURNOVER2008= 495278533 = 36.41

13599966

RECEIVABLE TURNOVER2009= 612695589 = 18.07

33904728

RECEIVABLE TURNOVER2010= 742757951 =9.22

80509830

PSOs receivable turnover was very high in 2008

but gradually it decreases due to poor credit policy.

ASSETS TURNOVER2008= 495278533 =6.62

74737315

ASSETS TURNOVER2009 = 612695589 =4.82

127110020

ASSETS TURNOVER2010= 742757951 = 4.84

153421643

PSOs assets turnover ratio was good in 2008 but it

decreased and kept on decreasing in 2009 and 2010 due to increase in assets and decrease in

sales.


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0

2

4

6

8

10

12

14

16

18

2008 2009 2010

Times Interest

Earned Ratio

0

5

10

15

20

2008 2009 2010

Cash Coverage

Ratio

TIME INTEREST EARNED RATIO2008= 22450992=16.41

1367898

TIME INTEREST EARNED RATIO2009 = -5576658 = -0.894

6232056

TIME INTEREST EARNED RATIO2010=21233413 = 2.14

9882010

PSO up to 2008 was able to cover its interest

payments more than 15 times but in 2009 due to

negative profit it was unable to cover it. In 2010 it

was able to cover a small amount of interest

obligation by earning.

CASH COVERAGE RATIO2008= 23570129 =17.23

1367898

CASH COVERAGE RATIO2009 = (4434960) = -0.711

6232056

CASH COVERAGE RATIO2010= 22371050 =2.263

9882010

At fist in 2008 PSOs cash coverage ratio was high,

however in 2009 and 2010 due to addition of

depreciation the ratio decreased drastically.


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0

0.05

0.1

0.15

0.2

2008 2009 2010

NET WORKING

CAPITAL TO TOTALASSETS RATIO

0

0.5

1

1.5

2

2.5

3

3.5

4

2008 2009 2010

Current Ratio

Current

Ratio

4. LIQUIDITY

NCTA* RATIO2008= 22142472 =0.1741%

127110020

NCTA*RATIO2009= 8666404 =0.0564%

153421643

NCTA* RATIO2010= 23297692 =0.1151%

202247741

(*Net Working Capital To Total Assets)

It shows that they arent sufficiently used.

CURRENT RATIO2008 = 115878692 = 1.236

93736220

CURRENT RATIO2009= 138689524 = 1.066

130023120

CURRENT RATIO2010= 193373148 = 1.136

170075456

The ratio is good and PSO can successfully pay its

current liabilities against its current assets if

liquidated


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0

0.5

1

1.5

2

2.5

3

3.5

4

2008 2009 2010

Quick Ratio

0

0.5

1

1.5

2

2.5

3

3.5

4

2008 2009 2010

Cash Ratio

QUICK RATIO2008 = 36923368 =0.393

93736220

QUICK RATIO2009= 83392948 =0.641

130023120

QUICK RATIO2010 = 119279130 = 0.701

170075456

The quick ratio is fluctuating and is low because it

holds its stock in the form of petrol.

CASH RATIO2008 = 3018640 =0.03

93736220

CASH RATIO2009 = 2883118 =0.221

130023120

CASH RATIO2010 = 1778056 = 0.0104

170075456

PSOs cash ratio is high as borrowing on current and

long term liability.

Afm Final Report on Pso

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