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Financial Statements Analysis of Attock Petroleum Company Limited

Financial Statements Analysis of Attock Petroleum Company Limited

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01/01/2016

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

FINANCIAL STATEMENT ANALYSIS OF ATTOCK PETROLEUM COMPANY LIMITED

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

ACKNOWLEDGMENT

Finally by the grace of Al-mighty Allah I did manage to finish our final project. I have studied ´The Analysis of Financial Statementsµ. It was a healthy learning experience and we·re very thankful to my project supervisor Mr. M. Arif Malik for his sincere gratitude and technical guidance throughout the project. I am also very thankful to my friends specially who supported me throughout the project and gave me the moral encouragement.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

This project is dedicated to my parents

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

ATTOCK PETROLEUM COMPANY LIMITED
About APL
Attock Petroleum Limited (APL) is an associate company of the Attock Oil Group of Companies, which is the only fully vertically integrated Group in the Oil & Gas sector of Pakistan involved in Exploration & Production, Refining & Marketing. APL's corporate head office is registered in Islamabad. Attock Petroleum Limited (APL) is the 4th Oil Marketing Company in Pakistan to be granted a marketing license in February 1998. Though a new entrant in the field of oil marketing, APL has managed to establish its presence and reputation as a progressive and dynamic organization focusing on providing quality and environment friendly petroleum products and services in Pakistan and abroad. Its steady and substantially growing market share and customer confidence, which it enjoys, are manifestations of APL's successful policies. APL is part of the first fully integrated Oil Company of the subcontinent; APL·s sponsors include Pharaon Commercial Investment Group Limited (PCIGL) and Attock Group of Companies. Pharaon Group is engaged internationally in diversified entrepreneurial activities, including Hotels, Oil Exploration, Production and Refining, Manufacturing of Petroleum Products, Chemicals, Manufacturing and Trading of Cement, Real Estate etc. The Attock Group of companies consist of The Attock Oil Company Limited (AOC), Pakistan Oilfields Limited (POL), Attock Refinery Limited (ARL), Attock Petroleum Limited (APL), Attock Information Technology Services (Pvt) Limited (AITSL), Attock Cement Pakistan Limited (ACPL) etc. AOC was incorporated with limited liability in England on December 01, 1913. The company is principally engaged in exploration, drilling and production of petroleum and related activities in Pakistan. AOC is the pioneer in the oil sector in Pakistan. Its first oil discovery in Pakistan was made in Khaur district Attock in 1915. The refining operations were started in 1922 at Morgah near Rawalpindi.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

Vision
To become a world class, professionally managed, fully integrated, customer focused, Oil Marketing Company, offering value added quality and environment friendly products and services to its customers in Pakistan and beyond.

Mission
To continuously provide quality and environment friendly petroleum products and related services to industrial, commercial and retail consumers, and exceeding their expectations through reliability, economy and quality of products and services. We are committed to benefiting the community and ensuring the creation of a safe, responsible and innovative environment geared to client satisfaction, end user gratification, employees' motivation and shareholders· value.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

1- Liquidity Ratios
We will calculate following ratios to determine the liquidity of company i) Day s Sales in Receivables ii) Account Receivables Turnover iii) Account Receivables Turnover in Days iv) Inventory Turnover v) Inventory Turnover in Days vi) Operating Cycle vii) Working Capital viii) Current Ratio ix) Acid-Test / Quick Ratio x) Cash Ratio xi) Sales to Working Capital Ratio xii) Day s Sales in Inventory Ratio xiii) Day s Sales in Inventory

1- Day s Sales in Receivables Ratio
Day·s sales in receivables provide an estimate of the number of days, on average, that it takes for customers to pay their account. The value of receivables at year end referred to in the ratio is equal to the net balance after deducting any provision for bad or doubtful debts; average daily sales is equal to total net sales divided by 365.

Day·s sales in receivables = 

  

  

Calculated Ratios Year Ratio 2005 9.4
45 40 35 30 25 20 15 10 5 0 2005 2006 2007 2008 2009

2006 2007 12.42 20.70 Trend of ratios in Graph

2008 28.55

2009 40.33

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

Comments: The Company·s days· sales in receivables ratio has increased constantly over the period of time. This indicates the poor management of company for its receivables collection. Company should take some measures to bring this ratio down because as much longer it takes to receive the sales account it will bring more ambiguity in collection and may result in bad debts.

2- Account Receivables Turnover Ratio
An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.

Year Ratio

2005 38.84
50 40 30 20 10 0

2006 29.39

2007 17.63 Trend in Graphs

2008 12.79

2009 9.06

2005

2006

2007

2008

2009

Comments: The Company·s accounts receivables turnover ratio has declined which means that company is not taking effective measures to collect its receivables. The A/R Turnover ratio was 38.84 times in year 2005 and it has reached to 9.06 times in year 2009 which may be very harmful for company. This decrease also shows the in effectiveness of policies of company towards its receivables collection.

3- Account Receivables Turnover in Days Ratio
This ratio shows the number of days for which receivables are transformed into cash. i.e.; they are converted into cash through collection.

Year Ratio

2005 9.4

2006 12.42

2007 20.70 Trend in Graph

2008 28.55

2009 40.30

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

50 40 30 20 10 0 2005 2006 2007 2008 2009

Comments: Account receivables turnover ratio in days has increased which means that the company·s receivables are being collected in higher period of time which shows the ineffectiveness of company·s management towards it·s receivables collection. The ratio was 9.4 in year 2005 and it increased to 40.30 in year 2009 which is 5 times greater than in year 2005. So company doesn·t look desperate to collect it·s receivables in shorter period of time. The reason may be the relaxed policies of company towards its collection department. But company should have to take measures to bring this time period down to make it sure that receivables are collected in time.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

4- Inventory Turnover Ratio
A ratio showing how many times a company's inventory is sold and replaced over a period INVENTORY TURNOVER RATIO =  

 

Year 2005 Ratio 144.13 Trend in Graph
500 400 300 200 100 0

2006 423.53

2007 202.37

2008 157.60

2009 268.87

2005

2006

2007

2008

2009

Comments: The Company·s inventory turnover ratio has increased in year 2006 as compared to year 2005 which is a good sign for company but it started to decrease in year 2007 and it further decreased in year 2008. Company has managed to re boost its sales in year 2009 and increased the turnover ratio of inventory in year 2009. So company has a mixture of trend in the turnover of its inventory. This indicates that company has the ability to sale its inventory at larger scale if management takes proper actions.

5- Inventory Turnover Ratio in Days
This shows that after how many days the inventory of the company is sold.

Year Ratio

2005 2.53
3 2.5 2 1.5 1 0.5 0

2006 0.86

2007 1.80 Trend in Graph

2008 2.32

2009 1.37

2005

2006

2007

2008

2009

Comments: The inventory turnover ratio in days was highest in year 2005 and in year 2008. It means that company has sold effectively its inventory in year 2006, 2007 and 2009 where its inventory was sold out in just 2 days. But in year 2005 and year 2008 the company was not able to sale its inventory regularly as compared to other years. Yet company has improved over last year and its inventory is

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

now being sold out in one and half day which is a good sign for company. As much inventory is sold the company will earn more profit and it will show the higher profitability of company.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

6- Operating Cycle
The average time between purchasing or acquiring inventory and receiving cash proceeds from its sale.

Year Ratio

2005 23.78
80 60 40 20 0

2006 10.68

2007 37.26 Trend in Graph

2008 66.23

2009 55.21

2005

2006

2007

2008

2009

Comments: The operating cycle in year 2005 was 23.78 days and it reduced to 10.68 days in year 2006 which was a good performance by company which means that company is receiving cash proceeds from its sales and selling it·s inventory in shorter period of time. The time difference between purchasing and then collecting cash to complete cycle has been increased after year 2007 from 37.26 to 55.21 days. Which means that in 2006 it takes only 10 days to complete operating cycle but now in 2009 it takes 55 days to complete a cycle? Although this period has decreased from last year from 66 days to 55 days but it is still very much higher than it was in history of company.

7- Working Capital
A measure of both a company's efficiency and its short-term financial health. The working capital ratio is calculated as:

Working Capital = Current Assets ² Current Liabilities Year Ratio 2005 685178
6000000 5000000 4000000 3000000 2000000 1000000 0 2005 2006 2007 2008 2009

2006 2007 1301124 2592546 Trend in Graph

2008 4039284

2009 5469534

Comments: Working capital of company has a constant trend of increase from year 2005 to year 2009. This is a good sign for the company. This increase shows the financial health of company, the

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

assets of company are increasing day by day over its liabilities. The company has acquired many assets and its value is much more than its liabilities.

8- Current Ratio
A liquidity ratio that measures a company's ability to pay short-term obligations

Current Ratio = Year Ratio 2005 1.51
2 1.5 1 0.5 0 2005 2006 

  

2008 1.41 2009 1.50

2006 1.21

2007 1.48 Trend in Graph

2007

2008

2009

Comments: Current ratio of company shows the ability to pay its short term liabilities. This ratio has decreased a bit in year 2006 as compared to year 2005. But company has managed to take it up in year 2007. In year 2008 this ratio has also decreased with a very marginal affect. And again in year 2009 company·s current ratio has increased and gained the level as it was in year 2005. So this shows that company is in a good position to pay its short term liabilities and it is maintaining adequate current assets and reserve to meet its current liabilities. There are marginal changes in ratio but they have not any big impact on the profitability and short term debt paying ability of company.

9- Quick Ratio / Acid-Test Ratio
An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company

Quick Ratio = Year Ratio 2005 1.43 2006 1.28 


2007 1.42 Trend in Graph 


2008 1.38 2009 1.49

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

1.6 1.5 1.4 1.3 1.2 1.1 2005 2006 2007 2008 2009

Comments: The quick ratio of company has decreased in year 2006 as compared to year 2005. But company took measures and it again increased in year 2007 from its previous level. Company has a marginal decrease in year 2008 and a good increase in year 2009. This trend of company in its quick ratio shows that the company has a sense of maintaining good and adequate funds for the payment of short term obligations with its most liquid assets. Company is managing the assets quiet effectively and efficiently. There is no need to worry about company·s debt paying ability in short terms.

10-

Cash Ratio

The ratio of a company's total cash and cash equivalents to its current liabilities. The cash ratio is most commonly used as a measure of company liquidity. It can therefore determine if, and how quickly, the company can repay its short-term debt. A strong cash ratio is useful to creditors when deciding how much debt, if any, they would be willing to extend to the asking party.

Cash Ratio Year Ratio 2005 0.947
1 0.5 0

=  

 

2008 0.62 2009 0.67

2006 0.90

2007 0.752 Trend in Graph

2005

2006

2007

2008

2009

Comments: Company·s cash ratio remained constant for year 2005 and 2006 but it decreased a bit in year 2007 and 2008. This shows that company decreased maintaining the cash and cash equivalents to its current liabilities. But in year 2009, as it is a good year for the company, the level of cash and equivalents has also increased which is a good sign for company. This ratio Is showing that company has a some extent to meet its liquidity situation. And it can quickly pay its current obligations. But there is a point that this ratio has decreased from year 2005, 0.947 to 0.67, to year 2009.

11-

Sales to Working Capital Ratio

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

This ratio shows the amount of cash required to maintain a certain level of sales. It is most effective when tracked on a trend line, so that management can see if there is a long-term change in the amount of cash required by the business in order to generate the same amount of sales.

Sales to WC Ratio = 


Year Ratio 2005 14.46
35 30 25 20 15 10 5 0 2005 2006 2007 


2008 13.18 2009 11.31

2006 31.39

2007 17.02 Trend in Graph

2008

2009

Comments: Sales to working capital ratio has a decreasing trend from year 2007 to year 2009. It increased in year 2006 only. This means that company requires fewer amounts to finance and maintain the level of sales for the particular year. The amount required to generate the level of sales is lower so it means that company doesn·t need much money for its sales process.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

SUMMARY OF LIQUIDITY RATIOS Ratio
Day·s Sales in Receivables A/R Turnover A/R Turnover in Days Inventory Turnover Inventory Turnover in Days Operating Cycle Working Capital Current Ratio Acid Test Ratio Cash Ratio Sales to WC Ratio

2005
9.4 38.84 9.4 144.13 2.53 23.78 685178 1.51 1.43 0.947 14.46

2006
12.42 29.39 12.42 423.53 0.86 10.68 1301124 1.21 1.28 0.90 31.39

2007
20.70 17.63 20.70 202.37 1.80 37.26 2592546 1.48 1.42 0.752 17.02

2008
28.55 12.79 28.55 157.60 2.32 66.23 4039284 1.41 1.38 0.62 13.18

2009
40.33 9.06 40.30 268.87 1.37 55.21 5469534 1.50 1.49 0.67 11.31

COMMENTS ON OVERALL LIQUIDITY
If we compare day·s receivables for several years the length of the time that receivables have been outstanding (gives and indication of their collectability) increase which shows inefficient management to collect amount from receivables. Account receivables indicate the liquidity of the receivables which shows continuously negative trend from 2005 to 2009. The account receivables turnover in days also shows negative trend because it increase year by year. Inventory turnover fluctuate which shows not a positive trend. In year 2009 and 2006 the inventory turnover in days decreases which shows a favorable trend. Operating cycle in years 2006 and 2009 decreased, which is positive trend. Working capital increases continuously which shows that company is stable because its current assets are higher than its liabilities due this company short-term solvency chances are minimum. Except in year 2006 and 2008 the company current ratios increase which shows company can easily pay its short-term debt. Acid test ratio also increase except in year 2006 and 2009 which shows company has enough liquid assets to pay its liabilities. In 2009 company cash ratio is high which indicates that the firm is not using its cash to its best advantage, cash should be but to work in the operations of the company. Sales to working capital ratio is low, indicates an unprofitable use of working capital so the company management should take steps to maximize the usage of its working capital.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

2- Profitability Ratios
A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well. Following ratios will be calculated for determining the overall profitability of Attock Petroleum Company Limited. i) ii) iii) iv) v) vi) vii) viii) ix) x) xi) Net profit Margin Total Assets Turnover Return on Assets Operating Income Margin Operating Assets Turnover Return on Operating Assets DuPont Ratio Return on Investment (ROI) Return on Equity (ROE) Return on Common Equity (ROC) Gross Profit Margin

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

1- Net Profit Margin Ratio
A commonly used profit measure is return on sales, often termed as net profit margin. If a company reports that it earned 6% last year, this statistic usually means that its profit was 6% of sales. This ratio gives a measure of net income dollars generated by each dollar of sales. While it is desirable for this ratio to be high, competitive forces within an industry, economic conditions, use of debt financing, and operating characteristics such as high fixed cost will cause the net profit margin to vary between and within industries. 

NET PROFIT MARGIN = Year Ratio 2005 4.65 2006 3.41 

   


2008 4.96 

  

2007 3.92 Trend in Graph

2009 4.98

NP Margin
6 4 2 0 2005 2006 2007 2008 2009

Comments: The net profit margin has decreased in year 2006 when it is compared to year 2005. But company has managed to boost its net profit from year 2007 to year 2009. This is a good indication for company because the profit earnings ratio is increasing year by year. The only year in which NP margin ratio was decreased is 2006 but after that company has recovered and maintained a good level of earnings.

2- Total Assets Turnover Ratio
Total assets turnover ratio means the activity of the assets and the ability of the firm to generate the sales through the use of the assets. The total assets turnover ratio may be calculated as follows

TOTAL ASSETS TURNOVER = Year Ratio 2005 5.24 2006 9.04 2007 5.66 Trend in Graph 


2008 4.35 

2009 3.66

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

10 5 0 2005 2006 2007 2008 2009

Comments: The total assets turnover ratio was increased in 2006 with a great affect but after that it decreased constantly. This means that company is not using its assets to generate the sales level as it should. So company management should take measures to increase the level of total asset turnover ratio so that its assets are fully utilized. Currently company is not working good to use its assets and measures are required to be taken.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

3- Return on Assets Ratio
Return on assets measures the firm·s ability to utilize its assets to create profits by comparing profits with the assets that generate the profits. This ratio can be calculated as follows 

RETURN ON ASSETS = Year Ratio 2005 24.35
40 20 0 2005 2006 2007 

   


2008 21.57 


2009 18.25 

2006 30.84

2007 22.18 Trend in Graph

2008

2009

Comments: Company has a marginal increased in year 2006 of return on its assets but after that year
company failed to utilize its assets and generate adequate return on its assets. It means that company is not using its assets well and measures and actions are needed to be taken. The ratio has declined from 24.35 times to 18.25 times from year 2005 to year 2009. So there may be a problem in management of these assets because they are not being fully utilized to earn and generate money.

4- Operating Income Margin Ratio
This ratio includes only operating income in the numerator. This can be computed as follows

OPERATING INCOME MARGIN RATIO = Year Ratio 2005 5.65%
8 6 4 2 0 2005 2006 2007 2008 2009 


2008 6.15% 2009 5.87%

2006 4.64%

2007 4.91% Trend in Graph

Comments: Operating income margin ratio decreased in year 2006 but after that company has
managed to increase its operating margin ratio. There may be a lot of reasons that company has managed its cost of goods sold and other operating expenses. This is a good sign for the company. In year 2009, although, the operating margin ratio has decreased but it is not much significant and it will have not any material effect on the profitability of the company.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

5- Operating Assets Turnover Ratio
This ratio measures the ability of the operating assets to generate sales dollars/rupees. This ratio can be calculated through following formula

OPERATING ASSET TURNOVER = Year Ratio 2005 4.20
10 5 0 2005 2006 2007 


2008 4.50 

2009 3.82

2006 9.5

2007 5.95 Trend in Graph

2008

2009

Comments: Operating assets turnover ratio was higher in year 2006 when it is compared to last 5 years
but it started to decrease over a period of time and reached at its lower value 3.82 in year 2009 which is not a good sign for the company. The company is not using its operating assets affectively to generate proper and adequate money. So company management needs to take some corrective actions to enhance the operating asset turnover ratio.

6- Return on Operating Assets
Return on operating assets can be measured as

RETURN ON OPERATING ASSETS = Year Ratio 2005 24.35
40 20 0 2005 2006 2007 2008 


2008 21.57 

2009 18.25

2006 30.84

2007 22.18 Trend in Graph

2009

Comments: The return on operating assets has also decreased over period of time after year 2006. So company needs to take some corrective actions because currently company is not earning much on its operating assets as they are not being utilized effectively and efficiently.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

7- Return on Investment Ratio
The return on investment applies to ratios measuring the income earned on the invested capital. These types of measures are widely used to evaluate enterprise performance. This ratio evaluates the earnings performance of the firm without regard to the way the investment is financed. It measures the earnings on investment and indicates how well the firm utilizes its asset base.

RETURN ON INVESTMENT (ROI) =  

    

 

  

2007 74.83 Trend in Graph 2008 70.72 2009 55.63

Year Ratio

2005 67.62
150 100 50 0

2006 109.71

2005

2006

2007

2008

2009

Comments: The return on investment was increased in year 2006 which was a good sign for company
but after that year the ratio has declined over the period of time. The company tried to recover in year 2008 but was not able to gain the previous level of ROI and now the company is earning return on investment at its lower value as compared to its last 5 years. So company has to take some corrective actions, if it wants to generate adequate return on its investments.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

8- Return on Equity
The return on total equity measures the return to both common and preferred shareholders. This is calculated through following formula

RETURN ON EQUITY = 

Year Ratio 2005 45.45  

2006 68.08
100 50 0 2005 

 
2008 47.72 2007 50.04 Trend in Graph 

2009 43.52

2006

2007

2008

2009

Comments: Return on equity was higher in year 2006 but after year 2006 it started to decline. The
company was not able to pay the equity shareholders an adequate fund and it is now decreasing year by year. There may be a lot of reasons of decrease in return on equity that company is trying to keep some earning in its reserves to invest in some future opportunities or some other purposes. So this decision depends upon the management of company that how they handle the total earnings and how much they return on its equity.

9- Return on Common Equity
This ratio measures the return to the common shareholder, the residual owners. We can compute this ratio as follows

RETURN ON COMMON EQUITY =  

 

  

Year Ratio

2005 45.45
80 60 40 20 0

2006 68.08

2007 50.04 Trend in Graph

2008 47.72

2009 43.52

2005

2006

2007

2008

2009

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

Comments: This ratio shows that how much shareholders are getting for their share in company. The
ratio is decreasing constantly after year 2006 so there is a management decision involved in it as whether they want to pay more or less to its shareholders.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

10-

Gross Profit Margin

Gross profit equals the difference between net sales revenue and the cost of goods sold. The cost of goods sold is the beginning inventory plus purchases minus the ending inventory. Comparing gross profit to the net sales is termed as gross profit margin ratio. And this ratio can be calculated as follows

GROSS PROFIT MARGIN = Year Ratio 2005 4.35
6 4 2 0 2005 2006 2007 2008 


2008 5.16 2009 5.32

2006 4.44

2007 4.63 Trend in Graph

2009

Comments: The gross profit margin ratio is increasing year by year and it shows a good sign that company is earning much than last year. The company·s GP margin was 4.35 in year 2005 and now it is 5.32 in year 2009 which is a good sign.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

SUMMARY OF PROFITABILITY RATIOS Ratio
Net profit margin Total assets turnover Return on Assets Operating Income Margin Operating Assets Turnover Return on Operating Assets Return on Investment Return on Equity Return on common Equity GP Margin

2005
4.65 5.24 24.35 5.65% 4.20 24.35 67.62 45.45 45.45 4.35

2006
3.41 9.04 30.84 4.64% 9.5 30.84 109.71 68.08 68.08 4.44

2007
3.92 5.66 22.18 4.91% 5.95 22.18 74.83 50.04 50.04 4.63

2008
4.96 4.35 21.57 6.15% 4.50 21.57 70.72 47.72 47.72 5.16

2009
4.98 3.66 18.25 5.87% 3.82 18.25 55.63 43.52 43.52 5.32

COMMENTS ON OVERALL PROFITABILITY
Net profit margin has increased over the years except in 2006 and 2007 while total asset turnover shows the decreasing trend over the years. Operating income margin has increased over the years due to efficient management of admin and selling expenses as well as Gross profit remains constant except in 2006. When we review the ratios of return on investment and return on equity which shows a decreasing trend due to inefficient management of equity.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

3- Debt paying ability Ratios
Analysis of only the liquidity or profitability ratios doesn·t give us true picture of firm·s performance. We have to calculate ratios to check whether company is using its debt efficiently and taking measures to pay-off its debt as it should. This analysis indicates the amount of funds provided by outsiders in relation to those provided by owners of the firm. If a higher proportion of the resource has been provided by the outsiders, the firm is higher in risk and risk substantially shifted to the outsiders. A large proportion of debt in the capital structure increases the risk of not meeting the principal or interest obligation because the company may not genera adequate funds to meet these obligations. We will calculate following ratios to analyze debt paying ability of firm i) ii) iii) iv) Times interest Earned Ratio Fixed Charge Coverage Ratio Debt Ratio Debt to Equity Ratio

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

1- Times Interest Earned Ratio
The times interest earned ratio indicates a firm·s longer term debt-paying ability from the income statement view. If the times interest earned are adequate, little danger exists that the firm will not be able to meet its interest obligations. 
       

TIMES INTEREST EARNED = TIMES INTEREST EARNED = Year Ratio 2005 “ 2006 “ 


2007 “ 

 

2008 “ 

 

2009 “

GRAPH CAN·T BE PRESENTED FOR THIS RATIO

Comments on Ratio:
As company is using no debt so there is no times interest earned for this company.

2- Fixed Charge Coverage Ratio
The fixed charge coverage ratio indicates a firm·s ability to cover fixed charge. It is computed as follows 
             

FIXED CHARGE COVERAGE RATIO = 



FIXED CHARGE COVERAGE RATIO = Year Ratio 

    

2009 “

2005 2006 2007 2008 “ “ “ “ GRAPH CAN·T BE PRESENTED FOR THIS RATIO

Comments on Ratio:
The company is using no debt so fixed charge coverage ratio cannot be calculated

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

3- Debt Ratio
The debt ratio indicates the firm·s long term debt paying ability. It is computed as follows

DEBT RATIO = Year Ratio 2005 0.58
0.7 0.65 0.6 0.55 0.5 2005 2006 2007 


2008 0.64 2009 0.61

2006 0.69

2007 0.61 Trend in Graph

2008

2009

Comments: The firm·s debt ratio has increased in year 2006 as compared to 2005 following
year 2008 but it has decreased in year 2007 and 2009 so there is a mixture of trend in debt ratio of company. The company·s total liabilities has increased in year 2006 and 2008 but company has managed to bring it down near to year 2005 ratio as it is 0.61 in 2009 and 0.58 in 2005. So there is no material effect of this ratio on company·s debt paying ability.

4- Debt to Equity Ratio
The Debt/Equity ratio is another computation that determines the entity·s long term debt paying ability and is computed as follows

DEBT TO EQUITY RATIO = Year Ratio 2005 0:100 2006 0:100 2007 0:100 Trend in Graph 

2008 0:100 2009 0:100

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

150 100 50 0 Debt Equity

Comments: The Company is using no debt so the debt to equity ratio always remains 0:100.
And there is no change throughout the period of 5 years.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

SUMMARY OF DEBT PAYING RATIOS Ratio
Times interest earned Fixed charge coverage Debt Ratio Debt to Equity Ratio

2005
“ “ 0.58 0:100

2006
“ “ 0.69 0:100

2007
“ “ 0.61 0:100

2008
“ “ 0.64 0:100

2009
“ “ 0.61 0:100

COMMENTS ON OVERALL RATIOS
The company, as shown in above calculations, is using no debt. So there is no times interest earned ratio and fixed charge coverage ratio. The company·s debt ratio has varied from year 2005 to year 2009 from 0.58 to 0.61 but it will have no material effect on the ability of company. Company, if wants, can use debt to change its capital structure as any investor will be ready to provide loans to this company. The company·s debt ratio to equity ratio has also remained constant as 0:100 because company is running on 100% equity and no debt are used. Finally if company is considering taking loan for its capital expenditure purposes it can do so because this company has good ability to pay its debt and bond rating of company is also good.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

4- Ratios from Investor s View
Following are the ratios we will calculate i. ii. iii. iv. v. vi. vii. Degree of operating Leverage Earnings per share Price Earnings Ratio Dividend Payout Ratio Dividend Yield Book Value Per Share Cash Dividends

1- Degree of Operating Leverage
This determines the ratio extent to which company is using leverage for its operations. T is calculated as follows

DEGREE OF OPERATING LEVERAGE = 

  



Year Ratio

2005 0

2006 0

2007 0

2008 0

2009 0

Degree of operating leverage is zero so its graph can,t be shown Comments: The use of debt in financing the asset is called financial leverage. Attock petroleum limited is 100% equity financed company so it does not use any debt that is why its degree of financial leverage will remain zero throughout the whole five years.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

2- Earnings Per Share
This ratio shows that how much shareholders are getting for their one share. It is calculated as follows 

EARNINGS PER SHARE = 


2007 30.01   

2008 45.86 2009 53.51

Year Ratio Trend in graph

2005 7.99

2006 24.18

60 40 20 0 2005 2006 2007 2008 2009

Comments: Earning per share is the amount of net income on the share of common stock. The higher this ratio the more the attraction for the investor. In the above calculated ratios of Attock petroleum limited earning per share goes on increasing from year 2005 to 2009 which is a good sign for the company and also for the investor.

3- Price Earnings Ratio
This ratio can be calculated as follows 

PRICE EARNING RATIO = 

 


2008 9.43 


2009 5.94 

2007 13.92

Year Ratio
Trend in graph

2005 13.73

2006 9.28

15 10 5 0 2005 2006 2007 2008 2009

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

Comments: Price earning shows how much amount an investor is ready to pay to earn one dollar .Here price earnings ratio is 13.73 in 2005 while it is 5.94 in 2009 that it keep on decreasing that shows a good sign for the investor.

4- Dividend Payout Ratio
This ratio shows that how much the company is paying out of its income and this is computed in %age. The formula for calculating this ratio is as under 

DIVIDEND PAYOUT RATIO = 

 
2008 36.34 2009 46.92 

2007 32.46

Year Ratio
Trend in graph

2005 43.44

2006 34.47

60 40 20 0 2005 2006 2007 2008 2009

Comments: Dividend payout ratio shows how much ratio that company given as dividend from earning per share here shows an increasing trend from year 2006 to 2009.that is a good sign for the investor. This ratio is beneficial especially for the short term investor who generally looks over the payout ratio.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

5- Dividend Yield
This is computed by following formula 

DIVIDEND YIELD = 

 


2008 3.85 2009 9.16 

2007 3.57

Year Ratio
Trend in graph

2005 3.11

2006 4.07

5

0 2005 2006 2007 2008 2009

Comments: Indicate the relation between the dividend and market price per share. Investor point of view. Low dividend indicates that company has higher retained earnings from which company share price automatically increase because through retained earning shareholder equity increase. But the investor who wants current income mainly the short term investor prefer high dividend yield in the above ratio company also keep on attracting the short term investors by increasing the dividend yield.

6- Book Value per Share:
This ratio can be calculate as per following formula

Total stock holder equity ² Preferred Dividend Book value per share = -----------------------------------------Number of Common Share Outstanding

Year Ratio

2005 25

2006 50.20

2007 86.4

2008 115.3

2009 122.96

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

MUHAMMAD HUMAYUN MAQBOOL Trend in graph

3850-FMS/MBA/F08

ATTOCK PETROLEUM COMPANY

150 100 50 0 2009 2008 2007 2006 2005

Comments: The book value per share has increased over the last 5 year by Rs.97/share. This shows the company·s stability and presence in market.

SUMMARY OF INVESTOR RATIOS Ratio
Degree of Operating leverage Earning per share Price Earning Ratio Dividend payout Ratio Dividend Yeild Book Value Per Share

2005
7.99 13.73 43.44% 3.11

2006
24.18 9.28 34.47% 4.07

2007
30.01 13.92 32.46% 3.51

2008
45.86 9.43 36.34% 3.85

2009
53.51 5.94 46.92% 9.16

Comments: If we consider the all ratios mentioned above it is clear that there is a great chance for the investor to invest specially for the short term investor as the earning per share is keep on increasing as well as company maintaining its payout ratio to attract more short term investor. Company is also maintaining is dividend yield very well that shows how well company keeps its retained earnings after its dividend. According to my opinion as the company is not using any debt so if we consider the other ratios The company can use debt to generate more profits as it is quite sure that more the debt the more the risk and more its return. This company is more suitable for the short term investor as short term investor looks over the current income and company is paying the current income a lot better than many of the other companies.

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

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