1

PAKISTAN STATE OIL

RATIO ANALYSIS
2010 - 2007

GROUP MEMBERS
SAMEERA SAFDAR
SHOAIB AHMED
ALI MUMTAZ
SOHAIB AKRAM
SYED ZUBAIR TARIQ
[DATED: 12th MAY 2011 ]
    2010 2009 2008 2007
Profitability Ratios          
Gross Profit ratio % 3.3 0.42 5.15 2.98
Net Profit ratio % 1 -0.93 2.41 1.14
EBITDA margin % 3.31 -0.55 4.1 2.29
Return on Shareholders' Equity % 30.8 -32.1 45.39 22.4
Return on total assets % 4.5 -4.37 11.06 6.28
Return on capital employed % 31.1 15.5 68.1 35.4

PROFITABILITY RATIOS:

1. Gross Profit Ratio:

2010 2009 2008 2007

3.3 0.42 5.15 2.98

6
5.15
5

4
3.3
2.98
3

1
0.42
0
2010 2009 2008 2007

Gross profit ratio (GP ratio) is the ratio of Gross Profit to Net Sales expressed as a percentage. It
expresses the relationship between Gross Profit and Sales. The basic components for the
calculation of Gross Profit Ratio are Gross Profit and Net Sales. Net Sales means that Sale minus
Sales Returns. Gross Profit would be the difference between Net Sales and Cost of Goods Sold.
Following formula is used to calculate gross profit ratios: Gross Profit Ratio = (Gross profit / Net
sales) × 100

In 2010, fuel utilization in the Pakistan was recorded 20.8 million tons as compared to
19.2 million tons from the previous year. The key reason for this 8% growth has been the
increased consumption of Mogas and Fuel Oil. PSO lost 2. 1% shares in Mogas as compared to
previous year bringing its market share in this product to around 45. 9%. PSO’s 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. During 2010,
demand for motor gasoline increased by over 27% over the previous 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 The Gross Sales increased by 21% due to the greater demand for fuel from the power
generation sector. However, net sales showed a slightly less increase due to 72% increase in
Inland Freight Equalization Margin. 
Gross profit increased a lot, since PSO moved from a net loss of Rs 6.698 billion in 2009 to
profit of Rs 9.050 billion in 2010.

2. Net Profit Ratio:

2010 2009 2008 2007

1 -0.93 2.41 1.14

2.5 2.41

2
1.5
1.14
1
1
0.5
0
-0.5
-1 -0.93
2010 2009 2008 2007

The profit margin tells you how much profit a company makes for every $1 it generates in
revenue or sales. Profit margins vary by industry, but all else being equal, the higher a company's
profit margin compared to its competitors, the better.
Operating costs declined by 13% in 2010, which shows that PSO got better at
organization administrative, distribution and marketing expenses. However, other income
increased manifold, as PSO received its delayed markup and payments in 2010.

3. Return On Capital Employed:

2010 2009 2008 2007

31.1 15.5 68.1 35.4
 70 68.1

60
50
40 35.4
31.1
30
20 15.5
10
0
2010 2009 2008 2007

ROCE compares earnings with capital invested in the company. It is similar to Return on Assets
(ROA), but takes into account sources of financing. ROCE is used to prove the value the
business gains from its assets and liabilities, a business which owns lots of land but has little
profit will have a smaller ROCE to a business which owns little land but makes the same profit.

It basically can be used to show how much a business is gaining for its assets, or how much it is
losing for its liabilities.

The ROCE was highest in 2008 because of the reasons mentioned above.

Asset Utilization Ratio   2010 2009 2008 2007

Inventory turnover ratio  (x) 14.37 13.9 10.1 11.7
Debtor turnover ratio (x) 8.9 12.6 24.6 32.5
Creditor turnover ratio (x) 6.1 6.3 9.6 10.8
Total asset turnover ratio (x) 4.93 5.13 5.78 5.67
Fixed asset turnover ratio (x) 130.3 98.4 74.3 52

Asset Utilization Ratio

1. Accounts Receivable Turnover Ratio

10 2009 2008 2007

Debtor
8.9 12.6 24.6 32.5
turnover ratio
 35 32.5
30
25 24.6

20
15 12.6 Debtor turnover ratio
10 8.9
5
0
2010 2009 2008 2007

Interpretation

Account receivable turnover ratio is decreasing trend from year 2007 to 2010. The decreasing
trend is because of the company sale on credit basis is increasing. To maintain capital structure at
optimum level the company has to lower its receivables.

2. Accounts Payable Turnover Ratio

2010 2009 2008 2007

Creditor
turnover 6.1 6.3 9.6 10.8
ratio

12
10.8
10 9.6

8
6.1 6.3
6
Creditor turnover ratio
4
2
0
2010 2009 2008 2007

Interpretation

A short-term liquidity measure used to quantify the rate at which a company pays off its

suppliers. Accounts payable turnover ratio is calculated by taking the total purchases made from
suppliers and dividing it by the average accounts payable amount during the same period. The
trend in accounts payable turnover ratio is decreasing from 2007 to 2010 which is good for the
company. This decreasing trend is because of the proportion increase in accounts payable is
greater than the proportion increase in cost of sales.

3. Inventory Turnover Ratio

2010 2009 2008 2007

Inventory
turnover ratio  14.37 13.9 10.1 11.7
(x)

16
14.37 13.9
14
12 11.7
10.1
10
8
Inventory turnover ratio  (x)
6
4
2
0
2010 2009 2008 2007

Interpretation

A ratio showing how many times a company's inventory is sold and replaced over a period. The
computed value of Inventory Turnover Ratio shows increasing trend from year 2007 to 2010.
The increase in the value is due the cost of goods sold of the firm is increasing consistently as
compare to the cost of inventory. It is therefore suggested that the company should maintain this
level or it can be improved to gain optimum capital structure.

4. Total Assets Turnover Ratio 

2010 2009 2008 2007

Total asset
4.93 5.13 5.78 5.67
turnover ratio
 5.8 5.78
5.67
5.6
5.4
5.2 5.13
5 4.93 Total asset turnover ratio
4.8
4.6
4.4
2010 2009 2008 2007

Interpretation

Total asset turnover ratios is highlighting mix trend but overall it is showing decreasing and this
is because of the decreasing in sales volume as compared to the total assets of the company,
which have not increased in the same proportion.

5. Gross Fixed Assets Turnover Ratio

2010 2009 2008 2007

Fixed asset
130.3 98.4 74.3 52
turnover ratio

140 130.3
120
100 98.4

80 74.3
60 52 Fixed asset turnover ratio
40
20
0
2010 2009 2008 2007
Interpretation

A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's
ability to generate net sales from fixed-asset investments - specifically property, plant and
equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the
company has been more effective in using the investment in fixed assets to generate revenues.

The computed value of Gross Fixed Assets Turnover Ratio shows increasing trend for the years
2007 to 2010, but a loss in 2009. This increase is due to the low increase in the values of both
tangible and intangible assets of the firm. So it is suggested that the company should increase its
non-current assets turnover is the least in 2008 than compared to 2007 showing ineffective asset
utilization by the company. Comparing with companies in the same industry, it is evident that
PSO’s assets are increasing at a far higher rate than its net sales, decreasing the assets turnover.

Investment Ratio   2010 2009 2008 2007

Earnings per share Rs. 52.76 -39.05 81.94 27.34
Market value per share (Year
Rs. 260.2 213.65 417.24 391.45
End)
Highest Price Rs. 342.95 428.79 539.7 418.3
Lowest Price Rs. 218.33 96 317.5 280.5
Break-up value Rs. 171 121 180 122
Price earnings ratio (P/E) (x) 4.9 -5.5 5.1 14.3
Dividend per share Rs. 8 5 23.5 21
Bonus share % -  -  -  -
Dividend payout % 15.16 -  28.68 76.81
Dividend yield % 3.07 2.34 5.63 5.36
Dividend cover ratio (x) 6.58  -  3.49 1.3

Investment Ratios
1. Earnings Per Share

2010 2009 2008 2007

Earnings per share 52.76 (39.05) 81.94 27.34
 100
81.94
80
60 52.76
40
27.34
20 Earnings per share
0
-20
-40 -39.05
2010 2009 2008 2007

This ratio tells the amount of income earned on share of common stock during an
accounting period. This ratio increase when net income increases. EPS was increasing from 2007
to 2008, i.e. 27.34 in 2007; Rs 81.94 in 2008. In 2009 EPS was decreasing i.e. Rs -39.05. the
main reason we find out was that there was a decrease in net profit from the last year 2008. In
2010, there was profit shown that increases the EPS to Rs. 52.76.

2. Market Value Per Share

2010 2009 2008 2007

Market value per share (Year End) 260.2 213.65 417.24 391.45

500
417.24
400 391.45

300 260.2
213.65 Market value per share (Year
200 End)

100

0
2010 2009 2008 2007
 A company's market value per share is defined as the company's assessed market value
divided by the total number of shares held by stock owners in the company. PSO has a highest
market value per share of Rs. 417.24 in 2008, which shows that in the stock market it was
amongst the best companies. In 2009, the Market value declines to Rs. 213.5 due the showing
losses in the company. In 2010 the company tried to increase the market value to Rs. 260. It
means that PSO has increased its accounting book value.

3. Break-up Value

2010 2009 2008 2007

Break-up value 171 121 180 122
180
180 171
160
140
121 122
120
100
80 Break-up value
60
40
20
0
2010 2009 2008 2007

The market value of all the individual parts of a firm if the firm were to be broken up and
the individual parts operated independently. If the breakup value of a firm exceeds the market
value at which its stock trades, the firm may be managed and operated inefficiently. In the case
of PSO, the breakup value is above the market value therefore this states that the company is
operating efficiently. The Market value for 2007 was 260.2 with break-up value per share is Rs.
122, for 2008 market value was 417.24 with breakup value Rs. 180, for 2009 market value was
213.65 with breakup value of Rs. 121 and for 2010 the market value was 260.0 with breakup
value of Rs. 171. If the breakup value is above the market value, the stockholder holdings would
increase in value if parts of the firm were divested. Many takeovers originate when raiders spot
firms with breakup values that exceed the prices at which those firms' stocks are traded.

4. Price Earnings Ratio

2010 2009 2008 2007

Price earnings ratio (P/E) 4.9 -5.5 5.1 14.3

16 14.3
14
12
10
8
6 4.9 5.1
4 Price earnings ratio (P/E)
2
0
-2
-4
-6 -5.5
2010 2009 2008 2007

The P/E ratio is a vital ratio for investors. Basically, it gives us an indication of the
confidence that investors have in the future prosperity of the business. A P/E ratio of 1 shows
very little confidence in that business whereas a P/E ratio of 20 expresses a great deal of
optimism about the future of a business. This ratio is considered as a gauge of the future earning
power of the firm. It measures how much the investors are willing to pay as price in relation to
earnings. The company’s Price earnings ratio in 2007 was 14.3; 5.1 in 2008; -5.5 in 2009 and
4.9 times in 2010. Price earnings ratio increasing from 2007-2008 and then decrease in 2009.
The reason for such a drastic decrease in 2008 is the fact that earning per share decreased to Rs.
-39.06 in 2009. Which was due to the result of substantial increase in expenses? While the
increase in P/E ratio in 2010 is due to the result of an increase in earnings per share due to
increase in profitability.

5. Dividend per Share

2010 2009 2008 2007

Dividend per share 8 5 23.5 21

25 23.5
21
20

15

Dividend per share

10 8
5
5

0
2010 2009 2008 2007

This ratio is designed to measure the income received by shareholders from each share
owned. It is normally less than earnings per share because a certain amount of profit is usually
retained by a company for reinvestment purposes. In 2010, the shareholders receive Rs. 8; in
2009 the dividend was Rs. 5 which was greater than the earning per share because of the Loss.
PSO does not want to lose their shareholders that are why they pay to them. In 2008 and 2007,
the dividends were 23.5 and 21 respectively.
 6. Bonus Share

2010 2009 2008 2007

Bonus share 0 0 0 0

0.8

0.6

0.4 Bonus share

0.2

0
2010 2009 2008 2007

Bonus shares are defined as Free shares of stock given to current shareholders, based
upon the number of shares that a shareholder owns. PSO poor dividend performance and
omission of bonus shares have disappointed the investors in a big way. Surprisingly the bonus
shares were not given at the last moment and secondly only Rs7.5 per share dividend was quite
discouraging. The PSO lost heavily on the current and future counters. A loss of Rs 6 was
noticed when the price of the share fell by Rs 6 from Rs 263.25. In the future trading the scrip
lost Rs 6.90 per share. Perhaps these were the highest losses on any day. 

7. Dividend payout

2010 2009 2008 2007

Dividend payout 15.16 -  28.68 76.81
 80 76.81
70
60
50
40
28.68 Dividend payout
30
20 15.16
10
0
0
2010 2009 2008 2007

The dividend payout ratio shows what percentage of a company's earnings it is paying
out to investors in the form of dividends. PSO has payout 15.16% to the investors in 2010. Due
to loss the company in 2009, does not payout to the investors. In 2008, the payout was 28.68%
and in 2007 the company has a payout more than 50% that was 76.81 which shows that the
higher the payout ratio, the less confidence the company has that it would've been able to find
better uses for the money it earned. This is not necessarily either good or bad; companies that are
still growing will tend to have lower dividend payout ratios than very large companies, because
they are more likely to have other productive uses for the earnings.

8. Dividend yield

2010 2009 2008 2007

Dividend yield 3.07 2.34 5.63 5.36
 6 5.63
5.36
5

4
3.07
3
2.34 Dividend yield
2

0
2010 2009 2008 2007

The dividend yield ratio allows investors to compare the latest dividend they received
with the current market value of the share as an indicator of the return they are earning on their
shares. Note, though, that the current market share price may bear little resemblance to the price
that an investor paid for their shares. The percentage of dividend yield from year 2007-2010 is
5.36% in 2007; 5.63% in 2008; 2.34% in 2009 and 3.07% in 2010. There is a decrease in
dividend yield from 2008 – 2010 is that the company does not give less dividends.

9. Dividend cover ratio

2010 2009 2008 2007

Dividend cover ratio 6.58  -  3.49 1.3

7 6.58
6
5
4 3.49
3 Dividend cover ratio
2 1.3
1
0
0
2010 2009 2008 2007

The dividend cover ratio tells us how easily a business can pay its dividend from profits.
A high dividend cover means that the company can easily afford to pay the dividend and a low
value means that the business might have difficulty paying a dividend. The dividend cover of
PSO is 1.3 times in 2007; 3.49 in 2008; 0 in 2009 and 6.58 in 2010. The reason for the decrease
in 2009 is because of the reason that profit has decreased and as they take no debt so operations
are financed by cash. So less cash meant less dividend and they have used reserves to pay
dividend. In 2010, there was more cash generated and it was in a position to pay the dividends.

Leverage Ratio   2010 2009 2008 2007

Debt : Equity ratio   - - - - 
Interest Cover ratio (x) 2.8 -  16.4 6.9
Current Ratio   1.14 1.07 1.24 1.22
Quick Ratio (x) 0.79 0.75 0.57 0.64

Leverage Ratios
1. Interest Coverage Ratio:

Year 2010 2009 2008 2007

Interest Cover ratio % 2.8 - 16.4 6.9
 20
16.4
15

10
Interest Cover ratio
6.9
5
2.8
0
0
2010 2009 2008 2007

Reasons:

This ratio is based on total net income because interest is calculated on net income basis that how much
interest is covered by net income. In the ratios above the trend is shown clearly that in year 2010 the net
income of PSO is less than 2008. In 2010 the interest coverage ratio is less then rest of the profitable
years. In 2009 there is a loss shown in financial statements of PSO so there is no net income to calculate
the interest coverage ratio. In investors point of view this ratio is very much useful because in order to get
Loan Company must have to show its capacity to pay interest. If company is going consistently then they
can easily get loan from investors.

2. Current Ratio:
Year 2010 2009 2008 2007
Current Ratio % 1.14 1.07 1.24 1.22

1.25 1.24
1.22
1.2
1.15 1.14

1.1
1.07 Current Ratio
1.05
1

0.95
2010 2009 2008 2007

Reasons:

In current ratio we have to examine that how much current assets company have to pay out its current
liabilities if current ratio is more than 1 then is considered to be good for the market points of view. In
year 2010 PSO has more stock in trade and also has more trade receivable than year 2009 which show
more current assets in 2010. The highest rate of current ratio in 2008 is due to high volume of stores,
spares and loose tools, stock in trade and other receivables. This is not accurate way to value any
company because of bad debts in receivables and lower market value of stock.

3. Quick Ratio:
Current Ratio = Total Current Assets/ Total Current Liabilities
Year 2010 2009 2008 2007
Quick Ratio % 0.79 0.75 0.57 0.64

1.25 1.24
1.22
1.2

1.15 1.14

1.1
1.07 Current Ratio
1.05

0.95
2010 2009 2008 2007

Reasons:

Quick ratio is also known as acid-test ratio because through this ratio investors can identify the liquidity
of the firm in order to pay its current liabilities. There is a minor difference in the quick ratio of 2010 and
2009 just because of inventory in 2010 is more and less in 2009. In year 2008 the quick ratio is lesser in
four year analysis because in 2008 the portions of current liabilities are more than liquid portion of 2008.
In this ratio we have somehow get good financial strength of the organization to pay its current debts.

PEER EVALUATION & DISTRIBUTION OF WORK

Zubair Sameera
Ali Mumtaz Sohaib Akram Tariq Shoaib Ahmed Safdar
Asset
Leverage Utilization Profitability
Investment Ratio Investment Ratio Ratios Ratio Ratio
Earnings per Share-Price Dividend per Share-
Earnings Ratio Dividend Cover Ratio