TERM PROJECT OVERVIEW

• Subject: Corporate Finance

• Topic:
Trend Analysis of Attock Refinery Limited
(ARL)

• Submitted by:
Ammad Shahid Khan
Kashaf Nasir
Saad Fayyaz
Sehar Navid Malik

• Submitted to: Sir Tanveer Ellahi

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 INTRODUCTION TO ATTOCK
REFINERY LIMITED (ARL)
• ARL is a prominent petroleum company in
Pakistan, established in 1922.
• Modern state-of-the-art refinery with a
capacity of 53,400 barrels per day.
• Subsidiary of the UK-domiciled Attock Oil
Company, listed on the Pakistan Stock
Exchange.
• Major products: LPG, motor gasoline,
kerosene oil, high-speed diesel, jet
petroleum, and other solvents.
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 CAPITAL AND FINANCIAL
STRUCTURE

• Authorized share capital: 1,500 million

• Issued, Subscribed, and Paid-up capital:
1,066.163 million
• Reserve and surplus: 109,772.779
million
• Initial paid-up capital: 500 million
rupees, with State Government
maintaining a minimum of 51% equity.

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 NETWORK AND OBJECTIVES

• ARL adapts to global and local

dynamics, including oil demand
fluctuations and government
policies.
• Objectives: Proactively face
challenges and leverage
opportunities for growth, including
upgrading facilities.
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 VISION AND MISSION

• Vision: To be a world-class organization

providing high-quality, diversified,
environment-friendly energy resources
and petrochemicals.
• Mission: Utilize state-of-the-art
technologies, high-performing people,
and excellent business processes to
exceed stakeholder expectations.

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 CORE VALUES

• Safety
• Integrity
• Innovation
• Customer Satisfaction
• Environmental Responsibility

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 DEGREE OF OPERATING
LEVERAGE (DOL)
• DOL measures the sensitivity of
operating income to sales revenue.
• Indicates how a percentage change in
sales affects earnings before interest
and taxes (EBIT).
• High DOL: Small changes in sales
significantly impact EPS, leading to
high volatility in earnings.

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 FINANCIAL LEVERAGE

• Refers to the extent a company uses

borrowed money to finance
operations and assets.
• Key aspects: Capital Structure
Decision, Cost of Capital, Returns on
Equity, Risk and Bankruptcy, Earnings
Volatility.

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 COMBINED LEVERAGE

• Combines effects of operating

leverage (DOL) and financial leverage
(DFL).
• Shows sensitivity of EPS to changes in
sales.
• High DTL: High risk but potential for
higher returns. Low DTL: More stable
earnings and less risk.

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 FINANCIAL METRICS FOR ARL
2022
• Degree of Operating Leverage (DOL):
1.01
• Financial Leverage: 2.74
• Degree of Total Leverage (DTL): 2.77

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 FINANCIAL METRICS FOR ARL
2023
• Degree of Operating Leverage (DOL):
1.00
• Financial Leverage: 1.61
• Degree of Total Leverage (DTL): 1.61

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 DEGREE OF OPERATING
LEVERAGE (DOL)
• A lower DOL in 2023 indicates that the
company's earnings before interest and taxes
(EBIT) were less sensitive to changes in sales
compared to 2022.
• This could suggest either a reduction in fixed
costs, an increase in variable costs, or more
stable sales.
• The close-to-unity DOL in both years suggests
that the company has a balanced mix of fixed
and variable costs, making its operating income
relatively stable against sales fluctuations.

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 FINANCIAL LEVERAGE

• A significant decrease in financial leverage

from 2022 to 2023 indicates that the
company reduced its reliance on debt
financing in favor of equity financing or that
it increased its assets more than its
liabilities.
• This reduction in leverage signifies a lower
financial risk and a potentially more
conservative financial strategy.

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 COMBINED LEVERAGE

• The decrease in DTL suggests that the

company's earnings per share (EPS)
became less sensitive to changes in sales.
• This is a result of the combined effect of
lower operating and financial leverage.
• A lower DTL implies reduced overall
business risk and suggests that the
company may have been focusing on
stabilizing earnings and reducing the
volatility associated with leveraging effects.

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 OVERALL ANALYSIS:
• Between 2022 and 2023, Attock Refinery Limited
appears to have adopted a more conservative
financial strategy, characterized by reduced
dependence on debt and a more stable operating
income relative to sales.
• This shift may reflect a strategic decision to mitigate
risk in an uncertain economic environment or a
response to changing market conditions.
• The reduced financial leverage in 2023 indicates a
stronger balance sheet and lower financial risk, which
can be favorable in terms of credit ratings and
investor confidence. However, the use of less
leverage also potentially limits the ability to amplify
returns on equity through debt financing.

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 ANY QUESTIONS?

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