FINANCIAL ACCOUNTING 2 FINAL PROJECT

Submitted to:

Miss Meher Afzal

Project Title:

Attock Refinery limited Financial Analysis

Submitted by:

Rai M.Ibtisam Khan

Contents
Introduction .......................................................................................................................................................... 3
Liquidity Ratios..................................................................................................................................................... 4
Current Ratio .................................................................................................................................................. 4
Quick Ratio ..................................................................................................................................................... 4
Accounts Receivable Turnover................................................................................................................... 4
No. of days in sales receivables ................................................................................................................. 4
Inventory turnover......................................................................................................................................... 4
The number of days’ sales in inventory .................................................................................................... 5
Analysis of Liquidity ratios: .................................................................................................................................. 5
Current Ratio:................................................................................................................................................. 5
Quick ratio: ..................................................................................................................................................... 5
Accounts Receivable Turnover: ................................................................................................................. 5
No. of days in sales receivables: ................................................................................................................ 6
Inventory turnover......................................................................................................................................... 6
The number of days’ sales in inventory .................................................................................................... 6
Solvency Ratios ................................................................................................................................................... 7
Ratio of Fixed Assets to Long-Term Liabilities........................................................................................ 7
Ratio of Liabilities to Stockholder’s Equity .............................................................................................. 7
Times interest earned ................................................................................................................................... 7
Analyzing Solvency ratios ................................................................................................................................... 7
Profitability ratios ................................................................................................................................................. 8
Asset Turn Over Ratio .................................................................................................................................. 8
Return on Assets ........................................................................................................................................... 8
Return on Stockholders’ equity .................................................................................................................. 8
Earnings per share on common stock ...................................................................................................... 8
Price to earnings ratio .................................................................................................................................. 8
Dividends per share ...................................................................................................................................... 8
Dividends’ Yield ............................................................................................................................................. 8
Analyzing Profitability ratios: ............................................................................................................................... 9
Financial Reports ............................................................................................................................................... 11
 Introduction

Attock Refinery Limited (ARL) was incorporated as a Private

Limited Company in November, 1978 to take over the business
of the Attock Oil Company Limited (AOC) relating to refining of
crude oil and supplying of refined petroleum products. It was
subsequently converted into a Public Limited Company in June,
1979 and its shares are quoted on the Pakistan Stock
Exchange Limited in Pakistan. The Company is also registered
with Central Depository Company of Pakistan Limited (CDC).

Original paid-up capital of the Company was Rs 80 million which was subscribed by the
holding company i.e. AOC, Government of Pakistan, investment companies and general
public. The present paid-up capital of the Company is Rs. 1,066.163 million.

ARL is the pioneer of crude oil refining in the country with its operations dating back to
1922. Backed by a rich experience of more than 90 years of successful operations,
ARL’s plants have been gradually upgraded / replaced with state-of-the-art hardware to
remain competitive and meet new challenges and requirements.

It all began in February 1922, when two small stills of 2,500 barrel per day (bpd) came
on stream at Morgah following the first discovery of oil at Khaur where drilling started on
January 22, 1915 and at very shallow depth of 223 feet 5,000 barrels of oil flowed. After
discovery of oil in Dhulian in 1937, the Refinery was expanded in late thirties and early
forties. A 5,500 bpd Lummus Two-Stage-Distillation Unit, a Dubbs Thermal Cracker
Lubricating Oil Refinery, Wax Purification facility and the Edeleanu Solvent Extraction
unit for smoke-point correction of Kerosene were added.

.
 Liquidity Ratios
Working Capital
Working Capital 2018 2019
(Rs) 11,346,440 10,419,916

Current Ratio
Current 2018 2019
1.42 1.39

Quick Ratio
Quick/acid test ratio 2018 2019
0.96 0.90

Accounts Receivable Turnover

Accounts receivables turnover 2018 2019

12.99 13.39

No. of days in sales receivables

No. of days’ sales in 2018 2019
receivables 28 27

Inventory turnover
Inventory turnover 2018 2019
7.01 16.97
The number of days’ sales in inventory
No. of days’ sales in inventory 2018 2019

21 22

Analysis of Liquidity ratios:

Current Ratio:
Current Ratio is the ratio between current assets and current liabilities. It expresses the
current assets and current liabilities in ratio form. Therefore, it gives the true picture of
the company’s ability to pay off its short term obligations. In the three years, the current
ratio is decreasing. The above table shows that the current ratio of attock has
decreased from 1.52 times to 1.39 times from 2018 to 2019. This is because of the
decrease in current assets and an increase in current liabilities.

The current ratio also shows that ATTOCK was in a much better position to pay off its
short term liabilities in FY2018 than it was in FY2019.

Quick ratio:
Quick Ratio shows the ratio between the most liquid assets of the company and its
current liabilities. Inventory is considered as a slow asset because if you want to pay off
the short term liabilities you need to sell your inventory, receive accounts receivables,
and then pay the liabilities off, so quick ratio gives us the best representation of how
quickly we can liquefy our assets to receive cash and from this table we can see that
over time, quick ratio is decreasing. The quick ratio was less than 1 in both 2018 and
2019. This is worrisome for the company because attock had less liquid assets to pay
off its short term obligations in both 2018 and 2019 where the quick ratio was 1.18.

Accounts Receivable Turnover:

Accounts Receivable Turnover is the relationship between sales and accounts
receivables. This ratio is used to show how effectively the company can collect its
receivables. At first, this ratio decreased in 2018 but it rose again in 2019. This shows
that attock has improved in collecting its receivables as compared to 2018.

No. of days in sales receivables:

No. of days in sales receivables is computed by dividing average accounts receivable
by the average daily sales. Average daily sales are determined by dividing net sales by
365 days. This value is fluctuating and not showing a clear pattern. However, it can be
stated that attock has become a little less efficient as compared to 2018 at collection
procedures and trends in credit management.

Inventory turnover
Inventory turnover is the relationship between the volume of goods sold and inventory,
the inventory turnover declined majorly in 2018 but rose back up in 2019. This is
because the cost of goods sold increased in 2018 along with the average inventory
which increased by a greater percentage. This means that attock’s inventory in FY2018
was not managed properly or more effectively, as compared to FY2016 but it finally put
effort to show a better result in 2019.

The number of days’ sales in inventory

The number of days’ sales in inventory is computed by dividing the average inventory
by the average daily cost of goods sold. This value slowly increased as the years
passed. This ratio has increased over three years for attock indicating that it takes a
longer time for the company to acquire, sell, and replace the inventory
 Solvency Ratios
Ratio of Fixed Assets to Long-Term Liabilities
Long term debts to 2019 2018
assets ratio 1.71 1.98

Ratio of Liabilities to Stockholder’s Equity

Total debt to equity 2019 2018
4.19 4.95

Times interest earned

Times interest 2019 2018
earned 0 0

Analyzing Solvency ratios

Ratio of Fixed Assets to Long-Term Liabilities
This ratio provides us with a measure of how many fixed assets a company has to
support its long term debt. This measures the company’s ability to repay the face
amount of the debt at maturity, it is showing a fluctuating pattern. Where it was highest,
1.98, in 2018 for attock.

Ratio of Liabilities to Stockholder’s Equity

This ratio measures how much of the company is financed by debt and equity. It is high
and has decreased in 2019, being the highest in 2018.
Times' interest earned ratio
The times' interest earned ratio is a measure of a company's ability to meet its debt
obligations based on its current income. This ratio remains the same at 0 for all 2 years.

Profitability ratios
Asset Turn over Ratio
Asset Turnover 2018 2019
ratio 4.19 4.82

Return on Assets
Return on Assets 2019 2018
8.54 12.26

Return on Stockholders’ equity

Return on Stockholders’ 2018 2019
equity 32.59 21.21

Earnings per share on common stock

Earnings per share on 2018 2019
common stock 56.83 39.79

Price to earnings ratio

Price to earnings ratio 2018 2019
8.65 7.25

Dividends per share

Dividends per share 2018 2019
40 20

Dividends’ Yield
Dividends’ Yield 2018 2019
6.68 4.38
 Analyzing Profitability ratios:
Asset Turnover Ratio:
The asset turnover ratio is an efficiency ratio that measures a company's ability to
generate sales from its assets by comparing net sales with average total assets. It has
increased from 4.03 in 2018 to 4.82 in 2019. The increase indicates that attock is using
its assets more efficiently as more revenue is being generated.

Return on Assets:
Return on assets is a financial ratio that shows the percentage of profit a company
earns to its overall resources. It is commonly defined as net income divided by total
assets. This ratio has decreased from 13.91 in 2018 to 8.54 in 2019. This shows that
attock might have invested in such assets which did not contribute towards revenue
growth, further indicating trouble for the company.

Return on Stockholders’ Equity

This ratio is computed by dividing net income by average total stockholders’ equity. This
measure emphasizes the rate of income earned on the amount invested by
stockholders. For attock, it has decreased from 34.6 in 2018 to 21.21 in 2019. This is
worrisome for the company since investors are not getting enough returns on their
equity as compared to the previous years. The rate earned on common stockholders’
equity focuses only on the rate of profits earned on the amount invested by the common
stockholders. However, the rate earned on common stockholders’ equity for ATTOCK is
the same as the rate earned on stockholders’ equity.

Earnings per Share on Common Stock

Basic and diluted EPS are profitability measures used in the fundamental analysis of
companies. Basic EPS only takes into account a company's common shares, however
diluted EPS shows all convertible securities such as convertible bonds or convertible
preferred stock, which can be changed into equity or common stock. Diluted Earnings
Per Share is a calculation used to gauge the quality of a company's earnings per share
(EPS) if all convertible securities were exercised. Attock Petroleum’s EPS has
decreased over time which can be because of the investors guessing that something is
troubling the company and subsequently leading to a lower stock price.

Price-To-Earnings Ratio (P/E Ratio)

The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures
its current share price relative to its per-share earnings. It shows the amount an investor
can expect to invest in a company to receive one dollar/rupee of that company's
earnings. In the table above, a decrease in the P/E ratio of attock from 2018 (9.81) to
2019 (7.25) shows an expected future as well as current poor performance.

Dividends per share (DPS)

Dividends per share (DPS) means the total dividend a company pays out over 12
months, divided by the total number of outstanding shares. It can tell the investors about
the company's past financial position and its current financial stability. An increase in
DPS of attock from 42.5 in 2018 to 20.0 in 2019 is not a good indicator. This tells that
the company is not much financially stable neither performing well in the current market
condition. However, just by looking at this value, a verdict about the financial stability of
attock would not be fair and other factors need to be considered as well.

Dividend Yield
Dividend Yield is a company's total annual dividend payments divided by its market
capitalization, assuming the number of shares is constant. Previously, attock had a
higher dividend yield of 6.94 in 2018 and it dropped a little to 6.68 the next year and
then suddenly dropped to 4.38 in 2019. Ideally, a yield between 4 to 6 is preferred and
anything below 4 is frowned upon. But the investors would still not be very happy since
their dividend is decreasing over time. Attock should make sure it doesn’t fall any further
or below 4 especially.
 Financial Reports
Comparative Balance Sheet
As of June 30, 2018, 2019

Share Capital and Reserves 2018 2019

RUPEES(‘000)
Authorized Capital 1,500,000 1,500,000
Issued, subscribed and paid up 829,440 995,328
capital
Special Reserves 249,542 219,785
Unappropriated profit 17,3387,188 17,711,622
Fair Value gain on available-for- 492 -
sale investments
18,417,662 18,926,735
Non-Current Liabilities

Long Term deposits 671,044 716,283

Deferred tax liabilities 240,496 76,710
911,540 792,993
Current Liabilities

Trade and other Payables 26,138,159 26,633,386

Unclaimed Dividends 473,512 49,598
Provision for current income tax 190,453 -
26,802,124 26,682,984
Contingencies and commitments

46,131,326 46,402,712
Non-Current Assets

Property, plant and equipment 6,417,787 8,348,942

Long term investments in 1,137,657 903,965
associated companies
Other long term investments 423,396 -
Long term prepayment 3,922 46,860

Current Assets

Stores and spares 75,841 92,287

Stock in trade 12,460,539 12,865,862
Trade debts 16,475,576 16,838,255
 Income Tax Refundable - 23,692
Advancements, deposits, 3,296,963 3,471,893
prepayments and other
receivables
Short term investments 1,641,485 890,788
Cash and bank balances 4,198,160 2,920,168
38,148,564 37,102,945

46,131,326 46,402,712
Comparative Income Statement
For the years ended June 30, 2018, 2019

2018 2019
Sales 216,888,196 256,661,187
Sales tax and other government (39,671,459) (33,606,835)
levies
NET SALES 177,216,737 223,054,352
Cost of products sold (167,473,443) (214,833,185)
GROSS PROFIT 9,743,294 8,221,167
Other income 884,577 1,148,305
Net impairment losses on (1,932) (70,798)
financial assets
Operating expenses (2,540,614) (3,590,296)
OPERATING PROFIT 8,085,325 5,708,378
Finance income 1,241,934 1,399,290
Finance costs (564,333) (848,992)
Net finance income 677,601 550,298
Share of loss of associated (34,139) (222,485)
companies
Other charges (439,475) (313,334)
PROFIT BEFORE TAXATION 8,289,312 5,722,857
Provision for income tax (2,632,963) (1,762,251)
PROFIT FOR THE YEAR 5,656,349 3,960,606
Earnings per share - Basic and 56.83 39.79
diluted (Rupees)
 Statement of Cash Flows
As of June 30 2018,2019

2018 2019
CASH FLOW FROM OPERATING
ACTIVITIES
Cash receipts from customers 172,048,282 223,537,535
Payments for purchase of (170,167,371) (218,259,789)
products and operating
expenses
Other charges paid (410,157) (339,475)
Long term deposits received 43,804 45,239
Income tax paid (2,544,926) (1,985,217)
Cash flow from operating (1,030,368) 2,998,293
activities
CASH FLOW FROM INVESTING
ACTIVITIES
Addition to property, plant and (2,503,439) (2,523,060)
equipment
Proceeds from sale of property, 7,941 5,886
plant and equipment
Encashment / (purchase) of (839,249) 1,134,847
short term and other long term
investments - net
Income received on bank 688,143 525,434
deposits, short term and other
long term investments
Dividend income received 26,585 66,950
Cash flow from investing (2,620,019) (789,943)
activities
CASH FLOW FROM FINANCING
ACTIVITIES
Dividends paid (3,088,661) (3,492,842)
Cash flow from financing (3,088,661) (3,492,842)
activities
Effect of exchange rate changes 3,822 6,500
(DECREASE) IN CASH AND CASH (6,735,226) (1,277,992)
EQUIVALENTS
CASH AND CASH EQUIVALENTS 10,933,386 4,198,160
AT BEGINNING OF THE YEAR
CASH AND CASH EQUIVALENTS 4,198,160 2,920,168
AT END OF THE YEAR