Pakistan State oil Introduction of the Organization

Pakistan State Oil (PSO), the largest oil marketing company in Pakistan (with a market share of 80%), was formed in 1976 through the merger of Pakistan National Oil, Premiere Oil, and Esso. PSO operates 3,600 retail outlets, including more than 1,600 New Vision Retail Outlets that offer, besides the usual gas-station services, an Internet kiosk, car wash, and other amenities. The company additionally sells a full range of petroleum and related products, including fuel oil, industrial oils, and petrochemicals. The Government of Pakistan controls a majority stake in the publicly traded PSO.

History of Pakistan State Oil

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, mogas, 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 of Karachi 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
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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.

Vision Statement
To excel in delivering value to customer as an innovative and dynamic energy company that get to the future first.

Mission Statement
We are committed to leaderships in energy market through competitive advantages in providing the highest quality petroleum products and services to our customers based on. Professionally trained high quality motivated work force working as a team in an environment which recognizes and rewards performance innovation and creativity and provide for personal growth and development. Lowest cost operation and assured access to long term and cost effective supply sources. Sustain growth in earning in real terms. High ethical and safety environment and socially responsible business practices.

Petroleum Industry Overview

During FY10, oil prices remained relatively stable maintaining an average of $ 73.44/ bbl as compared to a sharp fluctuation in international prices in FY09 which helped maintain the POL prices in the country. In the period under review, POL consumption in the country was recorded to be 20.8 million tons, as compared to 19.2 million tons last year. The primary reason for this 8% growth has been the increased consumption of Mogas and Fuel Oil. Consumption of Black Oil grew to 9.3 million tons - an increase of 14% over the preceding year. Black Oil demand picked up owing to supply constraints for natural gas. Reduced hydro2

electric potential also contributed to rise in Fuel Oil consumption. This trend in Fuel Oil consumption is expected to continue in subsequent years. White Oil reported a slight increase from 10. Million tones to 10.2 million tones. During FY10 consumption of HSD decreased by 3%. During the period under review, demand for motor gasoline increased by over 27% over the preceding year mainly due to 50% increase in cars sales and 44% increase in motor cycles sales, gas shortage in winters, one day holiday of CNG per week and extraordinary increase in use of generators due to frequent power outages. Demand of Jet A-1 (local) registered an increase of around 9% due to increase in domestic carriers and technical landings. During FY10, local refineries produced 7.9 million tons while the deficit requirement of around 11.3 million tons was imported. The major chunk of demand was in FO and HSD for which 6.7 million and 3.75 million tons were imported respectively by PSO. A significant reduction in the refining capacity of different refineries was witnessed mainly due to the mounting circular debt and lower refining margins.

Pakistan State Oil Performance year 2010

During FY10, PSO sold 14.2 million tons of POL products as compared to 13.2 million tons during the preceding year, the details of their products are as follows:

Black Oil
In Black Oil, PSO enhanced its market share appreciably from 85.8% in FY09 to 88.3%. PSO registered a ever highest sales volumes of 8.2 million MTs for Furnace Oil (FO). The surge was mainly due to increase in demand in power generation sector. PSO despite the mounting circular debt responsibly met the demands of the power sector of the country. In the period under review, the company remained committed to keep the homeland lit up.

White Oil
In White Oil, PSO reduced its market share from 59.4% in FY09 to 55.4% in FY10. Decrease in PSOs market participation in White Oil by 4% was mainly due to the overall economic downturn and circular debt.
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Mogas
PSO lost 2.1% share in Mogas as compared to previous year bringing its market share in this product to around 45.9%. PSOs Mogas volumes increased by 22% whereas the industry volumes grew by 27%. This increase in volumes was reported due to increase usage of generators and more vehicles on the road. PSO registered a ever highest sales volume of 0.89 million MTs for Mogas as compared to previous Years 0.73 million MTS.

HSD
HSD sales by PSO during the year also witnessed a downward trend along with the industrys depreciating trend. The industry showed a negative growth of 3% whereas PSO showed a negative volume growth of 10%. The reason behind this negative growth was the slow down of economic activity. As a result, the companys market participation decreased to around 56.8% from 61.1% during the preceding year. Comparison with FY09 figures shows that during FY10, the company achieved a sales volume of 4.2 million MTs against previous years figures of 4.7 million MTS.

Financial Performance of Pakistan State Oil

During my analysis of the PSO i observed for the year ended June 30, 2010, the Company achieved an impressive performance with turnover Touching the Rs. 877 billion marks compared to Rs. 719 billion in FY09, an increase of 22% mainly due to heavy reliance of the power sector on PSO for the supply of Furnace Oil. During FY10, profit before tax was recorded at Rs. 17.96 billion versus a loss of Rs. 11.35 billion last year and profit after tax at Rs. 9.05 billion against a loss Rs. 6.69 billion registered in previous financial year. The earning per share was Rs. 52.76 versus loss per share of Rs. 39.05 last year. Dividends and Other Appropriations Based on these results, the board announced a dividend of Rs. 5 per share. Combined with the
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Earlier interim dividends aggregating Rs. 3 per share, the total dividend for the year stood at Rs. 8 per share translating into a total payout of Rs. 1.37 billion to the shareholders. Circular Debt Despite being profitable, the Company continued to face liquidity problems due to everincreasing Receivables throughout FY2010. As of June 30, 2010, various major power generation companies including WAPDA, KAPCO, HUBCO and KESC and the PIA (Pakistan International Airlines) owe our Company an aggregate amount of Rs. 111 billion. On account of PDC Gop owes Rs. 11.86 billion. This has created such an acute financial crunch that we have to struggle to meet our import payments. Consequently, the Company owed Rs. 81 billion to local refineries and hence had to rely on short-term borrowings for its needs. Financial Charges The heavy bank barrowings resulted in high financial costs borne by the Company in terms of interest payments, which dented your Company is profit margins. The Company ended up incurring Rs 9.88 billion as financial charges during FY10 as compared To Rs. 6.2 billion as financial charges in FY09. Pak Rupee Devaluation In addition to heavy financial charges borne by your Company, Pakistan Rupee devaluation of 4.9% against the US$ also adversely affected the profitability of the Company as more than 90% of oil product imports in the country are carried out by PSO.

Associated companies of Pakistan State Oil

Asia Petroleum Limited (APL) APL was incorporated in Pakistan as an unlisted public limited company on July 17, 1994. The Company has been principally established to transport Residual Fuel Oil (RFO) to the Hub
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Power Company Limited (HUBCO) at Hub, Baluchistan. For this purpose, the Company laid an underground oil pipeline starting from Pakistan State Oil Company Limited (PSO) Zulfiqarabad ,Terminal at Pipri to HUBCO at Hub. PSO holds a 49% equity stake in APL. Pak Grease Manufacturing Company (Private) Limited (PGMCL) PGMCL was incorporated in Pakistan on March 10, 1965 as a private company. The principal activity of the Company is to manufacture and sell petroleum grease products. PSO holds a 22% equity stake in PGMCL.

Auditors Opinion
In the past five years the company changes two auditors. The reason which i observed during my analysis of the PSO is that the auditor completes their audit tenor. In year 2006, 2007, 2008 the company auditors are same I three years A.F. Fergusson & co, Ford Rhodes Sadat Hyder & co audited the financial statements I these three years, after year 2008 the next year 2009 the Ford Rhodes Sadat Hyder & co are replace with KPMG Tasser Hadi & co. In, year 2010 the Company changes its another auditors A.F. Fergusson & co replace with M. Yusuf Adil Saleem & Chartered Accountant Mushtaq Ali Hirani. All auditors show unqualified option. They further described that all company accounts and financial statements are prepared according with the general accepted accounting principles, ad the accounts shows true and fairs financial positions.

Pakistan State Oil Limited

Horizontal Analysis (Balance Sheet)
Current Assets: 2005 2006 95.77 136.85 174.34 127.88 191.97 139.22 0.00 98.80 142.68 92.27 107.03 141.47 81.90 88.17 327.32 104.11 134.15 2007 97.95648 143.6215 200.2623 171.619 218.1227 152.0679 0 79.20534 153.4657 98.77747 87.25518 129.0266 81.58935 62.67699 321.4983 105.6208 142.8796 2008 88.70626 302.9644 499.254 185.8024 55.28185 151.3978 0 157.0625 284.474 91.97517 72.93757 116.5366 62.07108 75.21467 326.5488 97.04335 243.0036 2009 85.8945 197.7244 1185.524 196.0229 75.98949 123.6414 0 150.0111 340.473 86.13747 47.61385 92.91158 52.72102 79.54794 4035.011 127.2916 293.305 2 010 86.1425 305.1415 707.1537 197.5242 73.1725 171.1425 0 163.1452 345.1725 89.1423 71.2543 103.2457 64.1542 78.2542 508.0215 109.1243 257.1245

Stores, spares and loose tools Stock-in-trade Trade debts Loans and advances Trade deposits and short term prepayments Other receivables Short term investments Cash and bank balances
Total Current Assets Fixed Assets Property, plant and equip: Intangibles Long term investments Long term loans, advances and receivables Long term deposits and prepayments Deferred tax Total Fixed Assets Total Assets Liabilities & Stockholders Equity Current Liabilities

100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

Trade and other payables Provisions Accrued interest / mark-up Short term borrowings Taxation-net
Total Current Liabilities Long Term Liabilities

141.83 103.06 188.87 158.97 143.65 143.62 110.19 117.47 115.01 100.00 120.65 118.63 134.15

160.6467 91.28711 206.4342 188.3941 5.162512 156.835 113.7947 124.2032 120.6875 100 121.4433 119.347 142.8796

314.335 96.27287 340.9173 228.5705 54.05938 286.0934 123.613 118.9214 120.5061 100 184.7792 176.4912 243.0036

426.9986 91.28711 870.3773 387.6986 0 396.845 126.593 126.3908 126.4591 100 121.011 118.957 293.305

457.1247 99.1246 647.1245 395.1243 0 314.1422 127.2147 123.1425 127.1243 100 165.1217 145.1122 308.1257

Long-term deposits Retirement & other Benefits Total Long Term Liabilities Stockholders' Equity SHARE CAPITAL RESERVES Total Stockholders' Equity Total liabilities & Shareholder's equity

Interpretation of Horizontal Analysis of Balance Sheet:

In horizontal analysis we take any one year as base year and compare all items balance sheet or income statement with it. During my analysis the year which I take as a base is 2005 and compares all balance sheet items with it. The current assets of the Pakistan state oil shows a increasing trend, and the fixed assets shows are also shown a increasing trend in the horizontal analysis of balance sheet. On the other side of the balance sheet the current liabilities of the company increased every year when we take 2005 as base this shows the company borrows more loans to fulfill its deficit. The stockholders equity section of balance sheet also shows increasing trend with respect to year 2005 as a base.

Pakistan State Oil Limited Horizontal Analysis PROFIT AND LOSS ACCOUNT
INCOME STATEMENT Net sales /revenue Less: Cost of Goods Sold Gross Profits other operating income Less: Operating Expenses: Transportation costs Distribution and marketing expenses Administrative expenses Depreciation Amortization Other operating expenses Total Operating Expenses 100 100 100 100 100 100 100
116.7671 106.6963 105.9929 107.5517 332.8808 265.3561 134.789 117.8948 118.4004 111.2437 112.824 392.3603 81.45507 110.457 107.8581 163.9719 140.3224 169.5473 129.9592 130.4867 114.9795 117.2974 446.4844 492.6037 361.5423 430.7051 170.5316 198.6767 9 111.2514 147.5124 129.9224 115.2518 472.1542 392.1241 185.1297 2005 2006 140.3505 141.4 125.1769 73.46221 2007 164.5649 169.7783 89.18329 98.80966 2008 2009 2010 334.1524 335.8527 221.2425 113.7412

100 100 100 100

233.0682 288.3224 234.0819 306.7487 218.4119 21.89756 107.895 112.155

Add: Other income profit/Loss from operation Less: Interest Expense Share of profit of associates Net Profits Before Taxes Less: Taxes Net Profit/Loss After Taxes 100 100 100
123.757 110.0722 132.2659 77.19137 68.7577 82.43522 231.6985 (123.091) 207.0384 129.1465 247.0315 (119.326) 241.1432 215.1427 265.1425

100 100 100

117.3639 23.8517 112.4965

82.83535 312.413 73.61136

233.9353 (58.1078) 369.005 1681.163 228.5085 (127.988)

277.1524 374.225 275.1234

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Interpretation of Horizontal Analysis of Income Statement:

In income statement we take 2005 as a base and compare all other income statement items with that base year. The net income of the company increased every year which is a favorable sign for the Pakistan state oil, on the other side of the coin cost of goods sold also increases which are not a good signal for the company. The reason which I observed is the increase in the petroleum prices in the international market thats leads to high cost of goods sold. The net profit of the Pakistan state oil shows a mixed trend, but in year 2009 they is in negative which are not a good sign for the profitability, and long term growth of company. In year 2010 the net profit shows its highest value than all previous five years. This is very good signal for Pakistan state oil growth and development.

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Pakistan State Oil Limited Vertical analysis Balance Sheet

Current Assets:
Stores, spares and loose tools Stock-in-trade Trade debts Loans and advances Trade deposits and short term prepayments Other receivables Short term investments Taxation Cash and bank balances Total Current Assets Fixed Assets Property, plant and equip: Long term investments Long term loans, advances and receivables Long term deposits and prepayments Deferred tax Total Fixed Assets Total Assets Liabilities & Stockholders Equity Current Liabilities Trade and other payables Provisions Accrued interest / mark-up Short term borrowings taxation-net Total Current Liabilities Long Term Liabilities Long-term deposits Retirement & other Benefits Total Long Term Liabilities Stockholders' Equity SHARE CAPITAL RESERVES Total Stockholders' Equity

2006
0.178185 40.14426 16.87298 0.388626 1.9866899 20.55065 0 0 2.706191 82.82758 10.66636 4.672993 0.8984099 0.13214 0.581879 17.17242

2007
0.171121 39.55461 18.19702 0.48968 2.1193068 21.07541 0 0 2.036835 83.64399 10.72064 4.00147 0.8402389 0.088193 0.536595 16.35601

2008 2009
0.091113 49.05991 26.67353 0.311714 0.3158154 12.33718 0 0 2.374825 91.16409 0.073095 26.52703 52.47619 0.272462 0.3596644 8.34744 0 0.462534 1.879212 90.39763

20 10
0.062530 28.972414 58.10142 0.204471 0.181225 7.201223 0 0.02021 0.88151 95.6101 3.17224 1.000000 0.160223 0.064142 0.00000 4.39122

5.869363 4.554133 2.125007 1.403657 0.3758516 0.062228 0.32046 8.835911 0.2644868 0.054526 3.28068 9.602373

100
52.12966 1.107727 0.172059 10.90078 2.752003 67.06223 1.060296 2.215941 3.276237 2.444387 27.21715 29.6615

100
55.43559 0.921243 0.176566 12.12886 0.092856 68.75512 1.028011 2.199789 3.2278 2.294958 25.72213 28.0171

100 100
63.77748 0.57125 0.171448 8.652275 0.571712 73.74416 71.77847 0.448771 0.362648 12.15899 0.00 84.74888

100
77.1512 0.34211 0.16111 6.444455 0.000000 84.0978 0.4714 0.93233 1.40121 0.8512 13.66 1 14.510

0.656595 0.557104 1.238414 1.090472 1.895009 1.647576 1.349374 1.117958 23.01145 12.48559 24.3608 13.6035

Total liabilities & Shareholder's equity 100 100 100 100

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100

Interpretation of Vertical Analysis of Balance Sheet:

In the vertical analysis of balance sheet of Pakistan state oil we take total assets as a base and compare all other assets current or fixed with those total assets every year. The current assets of the Pakistan state oil shows a increasing trend but the fixed assets shows a negative trend. In the other side of the balance sheet we taker total liabilities and shareholders equity as a base and compare all liabilities current or non-current with the total liabilities every year. The current liabilities of the Pakistan state oil shows increasing trend this means that the company borrow more and more loans. The stockholders equity section of the balance sheet shows mixed trend, when we compare stockholders equity with total stockholders equity.

Pakistan State Oil Limited Vertical Analysis Income Statement

INCOME STATEMENT

2006

2007

2008

2009

2010

Net sales /revenue Less: Cost of Goods Sold

100
79.73

100
82.09

100 100
79.77 84.76

100
81.35 13

Gross Profits other operating income Less: Operating Expenses: Transportation costs Distribution and marketing expenses Depreciation Other operating expenses Total Operating Expenses profit/Loss from operation Less: Interest Expense Share of profit of associates Net Profits Before Taxes Less: Taxes Net Profit/Loss After Taxes

4.88 0.40

2.98 1.93

5.15 0.42 0.29 0.31

3.33 0.86

0.10 0.97 0.31 0.70 2.08 3.20 0.25 0.29 3.24 1.10 2.13

0.09 0.91 0.28 0.18 1.46 1.93 0.28 0.08 1.73 0.59 1.14

0.06 0.07 0.76 0.71 0.20 0.17 0.57 0.56 1.59 1.50 3.85 -0.78 0.23 0.87 0.05 0.06 3.67 -1.58 1.26 0.65 2.41 -0.93

0.07 0.59 0.13 0.28 1.07 3.12 1.13 0.06 2.05 - 1.02 1.03

Interpretation of Vertical Analysis of Income Statement:

In the vertical analysis of income statement of Pakistan state oil we take net sale as a base and compare all other income statement items with the net sale. The gross profit of the Pakistan state oil shows a mixed trend, but in year 2009 gross profit shows a less value then all other previous five years. The reason which i observed is the cost of goods sold raises because of the increase in the petroleum prices in the international market thats why gross profit shows less value. The net profit of the company shows a negative trend this shows how profitable are Pakistan state oil. This is not a good sign for Pakistan state oil future growth and development.

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Ratios of Pakistan State Oil

15

Ratios Liquidity Ratio Current Ratio Quick Ratio

2006

2007

2008

2009

2010

1.24 0.64 34.47 36.58 71.06 1.23 38.1 11.5 1097809 7 27.17 12.5

1.22 0.64 30.85 31.98 62.83 1.22 32.5 11.7 1112754 6 31.43 10.81

1.24 0.57 45.96 48.92 94.88 1.24 24.6 10.1 2214247 2 22.37 9.60

1.07 0.75 24.25 24.36 48.61 1.20 12.57 11.83 866640 1 70.69 6.32

1.14 0.79 29.29 29.97 32.64 1.22 8.9 14.37 23297632 31.89 6.1

Average collection period

Average age of Inventory Operating cycle Cash ratio A/R turnover Inventory turnover Working capital Sales to working capital A/P Turnover

Leverage Ratio
Time Interest Earned Debt Ratio Debt-to-Equity Debt to tangible net worth 12.74 0.70 2.37 2.54 6.86 0.72 2.57 2.58 16.41 0.76 3.10 3.12 (0.89) 0.86 6.35 6.37 2.80 0.85 5.87 5.90

Profitability Ratios
Net profit Margin Total Asset Turnover Return on Assets Operating Income Margin Return on Total Equity 0.03 4.25 0.10 0.038 0.361 0.01 4.68 0.06 0.022 0.224 0.03 3.89 0.11 0.045 0.454 (0.01) 3.99 (0.04) (0.009) (0.325) 16 0.01 4.93 0.05 0.031 0.308

Gross Profit Margin Sales to fixed assets Return on common equity

0.058 44.3 54.1

0.035 52.0 35.4

0.060 74.3 68.1

0.004 98.38 15.47

0.033 130.3 31.10

Market Value ratios

EPS Dividend payout Dividend yield Dividend per share Book value per share Percentage of earnings retained Price/earning ratio 43.90 77.5 0.11 34 121 0.51 4.9 27.30 76.8 0.054 21 121.7 0.46 (5.47) 0.056 23.5 180 0.69 81.90 28.7 (39.05) -----0.023 5 121.34 0.56 52.76 15.16 0.0307 8 171 0.43

INTERPRETATIONS OF RATIOS

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Liquidity Ratios
CURRENT RATIO = Current Assets Current Liabilities year
Current ratio 2006 1.24 2007 1.22 2008 2009 1.24 1.07 2010 1.24

Current Ratio shows a firms ability to cover its current liabilities with its current assets. They is mixed trend in current ratio. In year 2009 they is more decrease in current ratio, the reason which i observed during my analysis of the financial statement is because of the increase in the current liabilities, the item which increase current liabilities in year 2009 is the shot term borrowing of the firm. In year 2010 they is increase in the current ratio because of the increase in inventory, and account receivables. The shot term borrowing of the company is lower than the year 2009. In spite of the mixed trend that the current ratio follows the company has in position to its current liabilities from its current assets.

QUICK RATIO = current assets-Inventory Current Liabilities

Year
Quick ratio 2006 0.64 2007 0.64 2008 0.57 2009 0.75 2010 0.79

Quick ratio of the Pakistan state oil follows a mixed trend. The quick ratio of the Pakistan State Oil in the year 2008 is decreasing because the inventory cost was increased up to the 49% result of that Quick Ratio was decreased. In the year 2010 the quick ratio is on top which is 0.79 because in this year the value of the inventory is increased, but on the other side the value of the trade payables are also increased, and they is decreased in the shot term borrowing of the firm.
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Average collection period = Average Gross Receivable Net Sale / 365

year
Average collection period

2006 34.47

2007 30.85

2008 45.96

2009 24.25

2010 29.29

The average collection period of the Pakistan state oil is following the mixed trend. Average collection period states that how efficiently the company is managing its receivables. The lower the ratio the better for the firm. When we compare average collection period from the last five years in 2008 this ratio were increases from 30 days to 45 days which are not a good sign for the firm, but again decrease to 24 days in 2009 and then increase to 29 days in 2010. It means that firm is working efficiently monitoring its credit sale properly due to which this ratio is constantly decreases and there is less chance of bad debt.

Average age of inventory =

Average Inventory Cost of Goods Sold / 365

Year
Average age of inventory

2006 36.58

2007 31.98

2008

2009

2010 29.97

48.92 24.36

Average age of the inventory shows a relationship between the inventory and the cost of goods sold. The value of the Inventory is taken from the balance sheet of the firm while the cost of goods sold is obtained from the income statement of the organization. This ratio states us that how often the company places an order for the inventory. When we compare it with the previous years we have found that this year company is placing more orders than the previous years. It means there is mixed trends is shown from 2006 to 2010. This ratio was decreased for

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the 2008 because in this year the value inventor was increased more than double but in the recent year 2009 this ratio is again decreased dramatically and then increase in the year 2010.

OPERATING CYCLE= Account Receivable in Days + Inventory Turnover in days Year

Operating cycle 2006 71.06 2007 62.83 2008 94.88 2009 48.61 2010 32.64

Operating cycle of the Pakistan state oil shows a mixed trend. It shows how many are required to receive cash from customers and to convert inventory into cash. If this ratio is low it is good signal for the firm. When we compare operating cycle with the previous years we found that there is decreasing trend was shown in the operating cycle from 2006 to 2010 except for year 2008 in which operating cycle ratio was increased from 73% to 98% because in this year the Days in inventory turnover ratio and days sales account receivable was increased dramatically and ultimately increase in the operating cycle ratio. Again this ratio was decreased in the year 2010 which is positive sign for the Pakistan state oil.

Cash Ratio

Cash equivalents + marketable Securities Current liabilities

Year
Cash ratio

2006 1.23

2007 1.22

2008 1.24

2009 1.20

2010 1.22

Cash ratio of the Pakistan state oil shows the mixed trend. In the year 2007 and year 2010 cash ratio is constant, and in year 2009 they is more decrease in cash ratio. The reason which i observed during my analysis of the balance sheet in year 2009 current liabilities of the firm is increased, the shot term borrowings is increased which leads to low cash ratio. Overall Pakistan state oil in position to pay its obligations from its cash.

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Account Receivables Turnover =

Net sales Average Gross Receivables

Year
A/R Turnover

2006 38.1

2007 32.5

2008 24.6

2009 12.57

2010 8.9

Account receivables turnover gives the number of times account receivables is collected during the year. The account receivables turnover shows a decreased trend. In the year 2010 the account receivables turnover is lower then all previous five years. This shows very negative signal for the firm, and the chances of the bad debts is increased.

Inventory turnover = Cost of goods Sold Average Inventory

Year
Inventory turnover 2006 11.5 2007 11.7 2008 11.75 2009 11.83 2010 14.37

The inventory turnover ratio of the Pakistan state oil shows a increasing trend .Inventory turnover means that the number of times the inventory is purchased during the year. In year 2010 the ratio of the inventory turnover is the highest which means that inventory is purchased more than all previous five years. The value of the stock is the highest in all other previous five years.

Net Working Capital = Current Assets current liabilities

Year
Net working capital 2006 10978097 2007 11127546 2008 2009 2010 23297632 22142472 8666401

Working capital of the Pakistan state oil is shows a increasing trend, except for the year 2009 inn which working capital is lower then all previous five years. The only reason which I observed that in year 2009 the current liabilities is more then all previous five years. So that

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the firm working capital is decreased in that year, but in year 2010 the working capital of Pakistan state oil is increased, which is a very positive sign for the Pakistan state oil.

Sales to working Capital

Year
Sales to working capital

=
2006 27.17

Sales Average working Capital

2007 31.43 2008 2009 2010 31.89 22.37 70.69

Sales to working capital ratio of the Pakistan state oil shows a mixed trend. In year 2009 the ratio of sales to working capital is highest, which means that the firm is undercapitalized. Any change in the business economy creates major problem for the Pakistan state oil. In year 2010 sales to working capital is reduced.

Account Payables Turnover Ratio =

Year
Account payable turnover 2006 12.5 2007

Net Purchases
2008 2009 2010 6.1

Average Gross Payables

10.81 9.60 6.32

The account payables turnover ratio indicates a decreasing trend. The account payables ratio of Pakistan state oil is continuously decreasing from year2006 to 2010, which are not a good sign for the Pakistan state oil. The current liabilities of the firm are continuously increasing. In year 2010 ratio is lowest in all previous five years which are not a good sign for Pakistan state oil.

Leverage Ratios

Recurring Earnings, Excluding Interest Expense, Tax Expense, Equity Earnings, and Minority Earning TIME INTEREST EARNED= Interest Expense, Including Capitalized Interest

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Year
Time interest earned

2006 12.74

2007 6.86

2008 16.41

2009 (0.89)

2010 2.80

The times interest earned ratio reflects the number of times before- tax earnings cover interest expense. This ratio shows how many times we are able to pay the amount of interest of loan which we borrowed for the annual earning. If it is increases then it is good sign for business. The investors show more confidence. When we look at the time interest earned ratio of the Pakistan state oil from 2006 to 2010, there is mixed trends were shown because the cost of goods sold was increased due to increased in price of petroleum price in international market result of that the EBIT was decreased an ultimate effect this ratio in the year 2009 this ratio was negative which is not good sign for the company from investor point of view. In the year 2010 times interest ratio is also decrease which is not a not sign for the firm, this mean that less earnings are available to meet interest charges. Debt ratio = Total Liabilities / Total Assets Year
Debt ratio 2006 0.70 2007 0.72 2008 0.76 2009 0.86 2010 0.85

This ratio indicates the firm long term debt paying ability. Debt ratio of Pakistan state oil follows increasing trend except fir the year 2010 when the ratio is lower then the previous year. Creditor would rather see a low debt ratio because there is a greater cushion for creditor losses if the firm goes bankrupt. Lower debt ratio shows better company positions .if we look at the trends of this ratio from 2006 to2009 there is increasing trend it means company has acquired more and more debt especially the item which i observed during my analysis the shot term borrowing of the Pakistan state oil is increased every year and more assets are financed by debt result in this ratio was increased and in year 2010 the ratio is lower the only reason of the reduction in the shot term borrowing the Pakistan state oil made during that year.

Debt to equity ratio = Debt / Equity

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Year
Debt to equity

2006 2.37

2007 2.57

2008 3.10

2009 6.35

2010 5.87

This ratio is a significant measure of solvency since a high degree of debt in the capital structure may make it difficult for the company to meet interest charges and principal payments at maturity, from long term debt paying ability point of view the lower this ratio is better, the company debt position. When we look at the Debt to Equity ratio of Pakistan state oil there is increasing trend was shown from 2006 to 2009 it means the long term debt paying ability of PSO is decreasing from 2005 to2009 and creditors are less protected in case of solvency, but in year 2010 debt ratio of the Pakistan state oil is decreasing which is a positive sign for the Pakistan state and also for the creditors.

Debt to Tangible Net Worth =

Total liabilities Shareholders equity Intangible Assets

year
Debt ratio

2006 2.54

2007 2.58

2008 3.12

2009 6.37

2010 5.90

Debt to tangible net worth ratio of the Pakistan state oil shows a mixed trend. The Debt to tangible net worth ratio is more conservative ratio than other debts ratio like debt ratio or debt to equity ratio. The only reason is that they exclude intangibles assets in its computation, because they provide not provide resources to pay creditors debts. In the year 2008 and 2009 the ratio of the debt to tangible net worth goes extremely high the reason of increasing such ratio is the increase in the shot term borrowing of the Pakistan state oil, but in year 2010 the ratio is lower then previous year. The only reason is the reduction of the shot term borrowing and on the other side increase in the value of the reserve.

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Profitability Ratios
Net Profit Margin = Net Income Net Sales

year
Net profit Margin

2006 0.03

2007 0.01

2008 0.03

2009 (0.01)

2010 0.01

The ratio of net income to net sales is called the net profit margin. It indicates the profitability generated from revenue and hence is an important measure of operating performance. It also provide clues to a company s' pricing, cost structure, and production efficiency. The net profit margin of Pakistan state oil shows a mixed trend. If this ratio is high, it shows that the firm is earning more profit and this is beneficial for the organization. This ratio is mainly concern with the income statement of the business. When we compare this ratio with the previous years 2006 to 2010 ratios. We have found that the net profit margin is declining so this is not a good sign for the organization. In year 2009 the net profit margin of the Pakistan state oil is goes in negative, because of the loss the organization incurred in that particular year. The reason, which I observed during my analysis, is that in all previous five years and in year 2009, the cost of goods sold and operating expenses is extremely high, and increased in prices of crude oil in the international market from last few years so it is very difficult to control the cost of goods sold. However, in year 2010 the Pakistan state oil comes from a great danger and shows a positive figure of net profit margin.

Total Asset Turnover =

Net Sales Average Total Assets

year
Net profit Margin

2006 4.25

2007 4.68

2008 3.89

2009 3.99

2010 4.93

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The total asset turnover ratio is helpful in evaluating a company s' ability to use its asset base efficiently to generate revenue. This shows that how much the company is generating sales by the utilizing the assets of the firm. The total asset turnover ratio of the Pakistan state oil shows a mixed trend. One item like sale is related to the income statement of the company while the average total assets are related to the balance sheet of the firm. When we compare this ratio with the previous years from 2006 to 2010. We have found that this ratio is going to increase from 2006 to 2007 but in 2008, it is decreases and again in 2009 however in year 2010 they again increase. The reason, which I observed in the decline of ratio from 2008 and 2009, is that sale is not increase with respect to increase in total assets that is why ratio is decreasing. However in year 2010 the ratio is increasing which is a positive sign for the Pakistan state oil. Return on Assets = Net Income Total Assets year
Average collection period 2006 0.10 2007 0.06 2008 2009 2010 0.05

0.11 (0.04)

Return on assets indicates the efficiency with which management has used its available resources to generate income. This ratio gives a general relationship between net income and the average total assets of the company. This ratio shows a mixed trend. However, in year 2009 this ratio goes into negative because the organization is in loss in that particular year. The reason, which I observed during my analysis, is that in all previous five years and in year 2009, the cost of goods sold and operating expenses is extremely high, and increased in prices of crude oil in the international market from last few years so it is very difficult to control the cost of goods sold. As this ratio decreases from this is a negative indicator for the firm. When we compare this ratio with the previous year ratio, we found that the company is going to decline because this ratio is less. This cause due to net income because we have found that the operating expenses are high for this reasons the net income decline and this ratio is also decreases. Operating Income Margin= Operating Profit Net Sale
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Year
Average collection period

2006 0.038

2007 0.022

2008 0.045

2009 (0.009)

2010 0.031

The operating income margin of the Pakistan state oil shows a mixed trend. This ratio shows the relationship between operating profit and net sales. Both items are concerned with income statement. If operating profit increases it is good sign for the organization. In general, higher, this ratio is beneficial for the organization. As compared this ratio from 2006 to 2010 this ratio is decreases and in year 2009 goes into negative except for the 2008 in which this ratio is increased. Overall decreased in this ratio is not because in these years the operating cost was increase or because of the increase in petroleum prices in the international market. As the negative trend was shown in the past few years this decreasing trend is not good sign for Pakistan state oil. Return on Total Equity

Net income

Total Equity year

Average collection period 2006 0.361 2007 0.224 2008 0.454 2009 (0.325) 2010 0.308

It shows the percentage earned on equity, it include both common and preferred shareholders. The return on total equity of the Pakistan state oil show a mixed and negative trend as well. This ratio shows the relationship between net income and total equity. The net income is concerned with the income statement while the equity is equity is concerned with balance sheet. If this ratio increases, it is good signal for organization. When we see this there is decreasing tend were shown from 2006, 2007, and 2009.In year 2009 the ratio goes into negative because the loss faced by the Pakistan state oil. This is not good sign for the growth of Pakistan state oil. This ratio was decreased because net income was also decreases in these years. In year 2010, the ratio shows some growth, which is slightly a good sign for the Pakistan state oil. Gross Profit Margin = Gross Profit Net Sale
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year
Average collection period

2006 0.058

2007 0.035

2008 0.060

2009 0.004

2010 0.033

The gross profit margin of the Pakistan state oil shows a mixed trend. This ratio shows a relationship between the gross profit and the net sales of the organization. Gross profit is concern with the income statement while the net sales are also concern with the income statement. In general higher this ratio is higher is the benefit for the organization. When we compare it with the previous five years gross profit margin, we have found that there is negative and positive trend are shown. However, in year 2009 ratio is more decreasing the reason, which i observed is that the cost of goods sold of the organization is increased too much thats why they earn low gross profit. In year 2010 they is a great move shown in the gross profit margin of the Pakistan state oil. So it is recommended that the company should have to reduce their costs and increase this margin to earn high profit. Sales to Fixed Assets = Net Sales Average Net Fixed Assets (Excluding Construction in Progress) year
Average collection period 2006 44.3 2007 52.0 2008 74.3 2009 98.38 2010 130.3

This ratio shows the firm ability to use its fixed assets effectively in generating the revenue. The sales to fixed assets of the Pakistan state oil shows a increasing trend. Construction in progress is not included in the computation of the sales to fixed assert ratio. As shown from the above-mentioned table the ratio is continuously increasing. In year 2010 the ratio in its peak the reason which I during my analysis is that the value of net sales is increased with great pace as compared with the value of net fixed assets. Return on Common Equity dividends Average Common Equity = Net income Before Nonrecurring Items- preferred

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year
Average collection period

2006 54.1

2007 35.4

2008 68.1

2009 15.47

2010 31.10

The return on common equity measures the rate of return earned on the common equity. The return on common equity of the Pakistan state oil shows a mixed trend. In year 2009 the ratio is decreasing with a great pace the reason, which I observed, is that in 2009 the organization is in loss because of the increase in the cost of goods sold and high operating expenses the organization faced in that particular year. However, in year 2010 the ratio is moved up again which is favorable sign for the growth of the Pakistan state oil.

Market Value ratios

Earnings per Share = Net income- preferred dividends No of common share outstanding year
Average collection period 2006 43.90 2007 27.30 2008 81.90 2009 (39.05) 2010 52.76

Earnings per share indicate the amount of earnings for each common share held. Earning per share is s a useful indicator of the operating performance of the company as well as of the dividends that may be expected. Higher earning per share is better for shareholders and they consider the organization as a healthy company. As we analyze this ratio from 2006 to 2010 we find that there is big ups and down. This ratio in its peak forms in year 2008 because the company shows more net income in that particular year than no of share outstanding. The one important thing, which I observed during my analysis in the earning per share, is that the company common share outstanding remains same in last previous five years. The company issues no common shares outstanding. When we look at the 2009 figure this figure is negative because in this year Pakistan state oil was in the loss so this figure is negative which is not healthy sign for the company.In year 2010 the ratio shows better position which is a favorable sign for the growth of the Pakistan state oil. Dividend payout = Dividend per common share Diluted earnings per share
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year
Average collection period

2006 77.5

2007 76.8

2008 28.7

2009 ------

2010 15.16

The dividend payout ratio of the Pakistan state oil shows a negative trend. This is not a good sign for the growth of the Pakistan state oil. Dividend payout ratio means the portion of the earning per common share are being paid in dividends to the shareholders. As shown from the above mentioned table they is continuously decline in the dividend payout ratio, which are not good for investor point of view. In year 2009 the the company dividend payout ratio is zero, because in that year the earning per share is negative and then we compute the dividend payout ratio the value goes into negative which means they paid no dividend in the portion of earning per common share. In year 2010 the ratio goes up which are good sign for the Pakistan state oil in that difficult financial crisis .

Divided yield year

Dividend per common share Market price per share

2006 0.11 2007 0.054 2008 0.056 2009 0.023 2010 0.0307

Average collection period

The dividend yield of the Pakistan state oil shows a mixed trend. In year 2009 the ratio shows more decreasing value then all previous five years the reason which I observed is that in that year the company paid less dividend from its retained earnings because of the loss they face d in that particular year. In year 2010, the dividend yield ratio increases, which are a good for the organization. Divided per share = Total dividend No of Common Share Outstanding year
2006 2007 2008 2009 2010 30

Average collection period

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23.5

The dividend per sha2re of the Pakistan state oil shows a mixed trend. In year, 2009 dividend per share goes into more decreasing value than all previous five years, which are not a good signal for the Pakistan state oil. The main of decreasing dividend per share is that observed is that in that year the company paid less dividend from its retained earnings because of the loss they faced in that particular year. In 2010 the dividend per share of the Pakistan state oil is moved up slightly as compared to the previous five years, which are slightly better sign for the Pakistan state oil. Book value per share = Total stockholders Equity- Preferred stock Equity Number of Common Shares Outstanding year
Average collection period 2006 121 2007 121.7 2008 180 2009 121.34 2010 171

The book value per share of the Pakistan state oil shows a increasing trend, except for the year in 2009 when book value per share goes down as compared to all previous five years. The no of common shares outstanding are remains same for the last five years. The company issues no other common shares outstanding. In year 2010 the book valu2e of the company goes again increasing which is very good sign for the future growth of the Pakistan state oil.

Percentage of earnings retained = Net income All Dividends Net Income year
Average collection period 2006 0.51 2007 0.46 2008 0.69 2009 0.56 2010 0.43

The percentage of earnings retained of the Pakistan state oil shows a decreasing trend except for the year in 2008 when the ratio of the retained earnings is hightest. Percentage of retrained earning means proportion of retained earnings for internal growth of the company. In year, 2009 and 2010 the ratio of percentage of earnings retained decreased respectively.

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Price/Earning ratio =

Market price per share Diluted Earning per share

year
Average collection period

2006 14.3

2007 7.0

2008 5.1

2009 (5.47)

2010 4.9

Price/Earning ratio is equal to the market price per share of stock divided by the earnings per share. A high price /earning ratio are good because it indicates that the investor considers the company in a favorable light. The Price/Earning ratio of the Pakistan state oil shows a negative trend, which are not a positive sign for the Pakistan state oil and the investors. In year 2009, the ratio is in negative and in next year 2010 the ratio is improving but less than the all previous five years.

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Recommendations:
In the above analysis of Pakistan State Oil (PSO) for the year 2006 to 2010, we found that the earning per share of the Pakistan state is decreases and even in the year 2009 it is negative. It is not a good sign for Pakistan State Oil Company Limited (PSO). The net sales are increases but cost of goods sold with a higher rate are also increases because of the increase in petroleum prices in the international market thats why the Gross profit, profit from operation and net profit decreases. In year 2010 the finance cost of Pakistan state oil is very much increase from all previous five years. This shows company borrows more loans. The shot term borrowings of the Pakistan state oil increased every year. During my analysis of the Pakistan state oil i observed that the market share of the company is continuously increasing, also when they face difficult financial crisis in previous years. The company used that opportunity as a competitive edge and attracts more investors. The company paid dividends to their shareholders and attract more investors to invest in the Pakistan state oil. In year 2009 the company is in loss, but they paid dividends to the share holders. This shows the strength of Pakistan state oil thats why their market share is continuously increasing. After brief and comprehensive discussion we may safely conclude that the overall performance of Pakistan is not good, but market Share increased which is positive sign for the future long term growth.

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Reference
www.pso.com www.business.recorder Analysis of Financial statement by Charles H Gibson www.wickypedia.com www.kse.com.pk Financial Management by Vein Hon www.google.com

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