5 Year Financial Analysis: Pakistan State Oil (PSO)

FIN
Pa
From
NAN
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m 2007 t
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to 2012
esearch & Co
NOMAN
MBA
Sem
PAF
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KHAN
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on Mgt.)
Fall 2014
Std. ID
A (Aviatio
mester: F
KARACHI
I INSTITU
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Submitte
Mr. Zi
Course
Busines
Class ID
Billions
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ia‐ur‐Re
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D: 67832
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IS
26
ehman
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40
30
20
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29.17
ECHNOLO
34.28 34
4.32
OGY NUR
RSERY

Pakistan State Oil Financial Analysis
(INTENTIONALLY LEFT BLANK)
Pakistan State Oil Financial Analysis (ii)

FIN
Pa
From
NAN
kist
m 2007 t
Re
N
NCIA
tan S
to 2012
esearch & Co
NOMAN
MBA
Sem
PAF
AL A
Stat
omplied by
KHAN
D: 57154
on Mgt.)
Fall 2014
Std. ID
A (Aviatio
mester: F
KARACHI
Pakistan S
I INSTITU
tate Oil Financ
NAL
te Oi
Submitte
Mr. Zi
Course
Busines
Class ID
Billions
d to:
ia‐ur‐Re
e: Introdu
ss Financ
D: 67832
UTE OF EC
cial Analysis
akistan State
IS
26
ehman
uction to
ce
CONOMIC
NCH KAR
BRAN
Pa
LYSI
il
40
30
20
10
0
12.2
CS AND T
RACHI
e Oil Financ
Gross pro
3.01
30.02
ofit
29.17
ECHNOLO
ial Analysis
34.28 34
OGY NUR
RSERY
(iii)
4.32

(INTENTIONALLY LEFT BLANK)
Pakistan State Oil Financial Analysis (iv)

PROJECT OBJECT:
“This analysis is the part of project assignment that is given to
the class by the Instructor Mr. Zia‐ur‐Rehman, on individual
basis to conduct the analysis of a KSE listed company whose
five years financial statements (at least) are available
publically”. The analysis may cover the analysis that are given
in the Chapter 6 & 7 in the text Book
PROJECT OUTCOMES:
A good and research full completion of this project will be
helpful us to appraise the financial performance of the firm;
understand the principles of discounted cash flows; understand
the valuation of financial securities and long‐term projects, and
identify the techniques used to manage the firm’s calculate the
measures of risk and return; current accounts so that an
acceptable level of net working capital is maintained.
Pakistan State Oil Financial Analysis (v)

This Project assignment is thankfully dedicated to
my beloved wife and children for providing me
peace of mind and conducive environment
for research & compilation of work
&
specially Karachi Electric Supply Company (KESC).
for their excessive interruptions if was not there,
this report could have been more precise, and
Completed one week earlier...
Thank You!!
Noman Khan
Stud. ID: 57154
PAF KIET
Nursery Br. Karachi
Pakistan State Oil Financial Analysis (vi)

ACKNOWLEDGEMENT
I, first of all, would like to express my gratitude to the Almighty Allah
who gave my resources, expertise and many more to initiate and complete
the project assignment happily on time, also would like to bless all those
people who provided support, specially my family, who offered me peace
of mind to concentrate and focus on the subject assignment.
I also would like to thanks my Institute (PAF KIET) and the instructor
Mr. Zia ur Rehman who thought me the course of Introduction to Business
Finance which is new for me and i was studying this dismal science subject
very first time, and it’s proved to be an understandable without any extra
efforts. Instructor kind support took this long & difficult journey converted
into a destination.
It would not better, to cover up the unconditional support of related
websites, books, and articles, to the concerned area of study.
Noman Khan
Pakistan State Oil Financial Analysis (vii)

TABLE OF CONTENT
A. Company profile
A1. Business at a glance
A2. History
B. Financial reports
C. Financial statement analysis
C1. Balance sheet analysis:
C2. Balance sheet analysis:
C3. Profit and loss account analysis
C4. Financial crisis 2009
D. Financial ratio analysis of PSO:
D1. General description
D2. Short‐term solvency ratio:
D2.1. General Description:
D2.2. Current & quick ratio
D2.3. General description
D3. Asset utilization ratios:
D3.1. General description
D3.2. Inventory turnover
D3.3. Fixed assets turnover
D3.4. Total assets turnover
D3.5. Turnover ratios at a glance
D4. Profitability ratios
D4.1. Profit margins
D4.2. Net profit Margin
E. Inter‐ Market Analysis – Competitors
E1. Key Highlights – FY2012‐13
E2. Operational Highlights:
E3. Summary of findings ‐ suggestions for improvement:
E4. Future outlook:
F. Reference
G. Appendices (Attachments)
Pakistan State Oil Financial Analysis (viii)

Pakistan State Oil (PSO)
A. COMPANY PROFILE:
Pakistan State Oil (PSO), is a multi‐million, global competitive state‐owned mega corporation, and the leading
oil market presiding entity in Pakistan. Headquartered in Karachi, Sindh Province of Pakistan, it has several
state divisions in the different cities in Pakistan, with administrative management business network
infrastructure well expanded, built at par with international standards, represents 82% of country’s national
energy sources. The PSO is horizontally integrated and is the largest state‐owned energy mega corporation
active in the oil and gas industry especially distribution. The PSO conducts major renewable energy activities,
including in bio‐fuels, hydrogen, solar, nuclear and wind power as well as defense management The Mega
Corporation is the largest entity in the country, with well‐expanded business presence in abroad. The PSO has
a primary listing at the Karachi Stock Exchange (KSE), and is a constituent of theKSE‐30 Index. The PSO is the
third largest entity to be placed in the KSE, ranking behind the Shell— a subsidiary of Royal Dutch Shell.
A1. HISTORY:
A1.1. The formation of PSO began in 1974. The Mega Corporation started when the
government took over and merged Pakistan National Oil (PNO) and Dawood Petroleum
Limited (DPL) as Premiere Oil Company Limited (POCL) on 1 January 1974. On 3 June
1974, the government owned Petroleum Storage Development Corporation (PSDC) was
established as the umbrella corporation; it was renamed as State Oil Company (SOC Ltd)
on 23 August 1976. A vested integration was carried out with the forceful purchasing
of Esso Eastern and the control was taken over by the State Oil Company; the
government amalgamated all integrated corporations to one single category, called the
"Oil Marketing Companies" (OMCo.)
A1.2. On 30 December 1976, the Premier Oil Company and State Oil Company was horizontally
integrated into one single incorporation, giving way to Pakistan State Oil (PSO). The
strategic integration of all private oil enterprises into one single mega corporation was
considered the pivotal success of the Nationalization Program of Pakistan People’s Party.
A1.3. Since then, the PSO has been under the directives of government‐ownership and
proposals have been rebuffed to privatization process have been rebuffed. From 1999 to
2004, the PSO had undergone radical changes, both internal and external and has
emerged with a new look and as a market presiding entity with a long‐term vision. The
PSO is the only public sector entity in Pakistan that has been competing effectively with
three foreign multinational, Shell, Caltex & Total.
A1.4. The 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.
A1.5. It is considered as one of the most successful mergers in the history of Pakistan. The
Mega Corporation has retail coverage of over 3,800 outlets, representing 80%
participation in total industry network. The company has been the winner of Karachi
Course: Introduction of bus. Finance ‐ Project Assignment, Submitted by Noman Khan. Std. ID: 57154 Page 1 of 19
01

Stock Exchange top companies award for many years and is a member of World
Economic Forum. The PSO serves a wide range of customers throughout Pakistan
including retail, industrial, aviation, marine and government/defense sectors. The PSO
has been meeting the country’s fuel needs by merging sound business sense with
national obligation.
A2. BUSINESS AT A GLANCE:
Pakistan State Oil (PSO), is the nation’s largest energy company, and is currently engaged in the
marketing and distribution of various POL products including Motor Gasoline (Mogas), High
Speed Diesel (HSD), Furnace Oil (FO), Jet Fuel (JP‐1), Kerosene, CNG, LPG, Petrochemicals and
Lubricants. In addition to these products, we also import other products based on their demand
patterns. A brief overview of each of PSO’s business facets is presented below:
A2.1. MARKETING & DISTRIBUTION:
A2.1.1. PSO possesses the largest distribution network in the country comprising of 3,689
outlets out of which 3,500 outlets serve the Retail sector and 189 outlets serve
our bulk customers. Out of the total of 3,689 outlets, 1,691 Retail and 167
Consumer Business outlets have been upgraded with the most up‐to‐date
facilities as per the visualization of the New Vision Retail Program.
A2.1.2. PSO also operates 31 company‐owned and company‐operated (Co‐Co) sites
serving the retail sector. Co‐Co sites are flagship stations which combine high
levels of supervision and top quality products to maintain the highest level of
efficiency, service and customer care. These sites act as benchmark for all other
retail outlets.
A2.1.3. In addition to retail customers more than 2,000 industrial units, business houses,
power plants and airlines are being fueled by PSO.
A2.2. ACQUISITION OF PRODUCTS:
A2.2.1. The automotive sector is the main consumer of Motor Gasoline (Mogas) and High
Speed Diesel (HSD) whereas Furnace Oil (FO) is marked for power plant usage.
A2.2.2. To meet the supply deficit of the country, PSO imports Mogas, HSD, JP 1 and FO
as and when required. The total import of black and white oil in Pakistan last year
was 12.4 million metric tons and PSO had the lion’s share of this import with 11.2
million metric tons which came to over 90% of the total fuel imports of the
country. Other than product imports, PSO acquired 1.75 million metric tons from
various refineries based in Pakistan in order to cater to our market needs.
A2.3. STORAGE:
A2.3.1. PSO possesses the largest storage capacity in the country. The company’s
infrastructure stretches from Karachi to Gilgit. With 9 installations and 23 depots
located across the country PSO’s storage capacity of approximately a million
metric tons represents 74% of the total storage capacity owned by all the oil
marketing companies.
02

A2.4. PRODUCT MOVEMENT:
A2.4.1. PSO uses three mechanisms for the movement of POL products namely, tank
lorries (road), tank wagons (railways) and pipelines. We currently have a total
fleet of 8,595 tank lorries out of which 2202 tank lorries are New Vision tank
lorries which are complying with the latest ADR standards and are equipped with
pilferage proof tracker systems. With the commencement of operations of the
White Oil Pipeline Project (WOPP) from Karachi to Mehmood Kot via Shikarpur
and the MFM (Mehmood Kot/Faisalabad/Machikey) pipeline, the supply pattern
for white oil from Karachi has switched from tank lorries to pipelines. PSO is
present as a partner in this project and holds a 12% equity share in this venture.
A2.5. LUBES MANUFACTURING & SALES:
A2.5.1. PSO is steadily progressing in the field of lubricants. With state‐of‐the‐art
Lubricants Manufacturing Terminal (LMT) located in Korangi Industrial Area,
Karachi we are catering to a number of sectors including automotive, Hi‐street
and industrial consumers through the provision of sectors including automotive,
Hi‐street and industrial consumers through the provision of products.
03

Financial Statement
WHAT IS FINANCIAL STATEMENT?
A financial statement (or financial report) is a formal record of the financial activities of a
business, person, or other entity. Usually relevant financial information is presented in a
structured manner and in a form easy to understand. They typically include basic financial
statements, accompanied by a management discussion and analysis:
¾ Balance Sheet: A balance sheet, also referred to as a statement of financial position,
reports on a company's assets, liabilities, and ownership equity at a given point in time.
¾ Profit or Loss Account/income statement: it is also known as a statement of
comprehensive income, statement of revenue & expense, P&L or profit and loss report,
reports on a company's income, expenses, and profits over a period of time. A profit and
loss statement provides information on the operation of the enterprise. These include
sales and the various expenses incurred during the stated period.
¾ Statement of cash flows: a company's cash flow activities, particularly its
operating, investing and financing activities are reported through this report.
B. FINANCIAL REPORTS:
B1. PSO also record formally it all financial activities of its business and relevant financial
information are presented in a structured manner and published through various available
communication means of Pakistan such as newspaper and company annual Financial report
that is readily available in official website of PSO. These statements are being presented to
comply with the Code of Corporate Governance contained in the listing regulations of Karachi,
Lahore and Islamabad Stock Exchanges for establishing a framework of good governance,
whereby a listed company is managed in compliance with the best practices of corporate
governance.
B2. Being large and Complex Corporation, PSO also includes an extensive set of notes and
management discussion and analysis that is an integral part of PSO’s annual financial
statement. The notes in the PSO report typically describe each item on the balance sheet,
income statement and cash flow statement in further detail.
B3. There are usually following financial information are described in annual Financial reports of
PSO
¾ Balance Sheet
¾ Profit & Loss Account (Income statement)
¾ Cash flow Statement
¾ Statement of Changes in Equity
¾ Statements of Compliance (with code of corporate governance)
04

¾ Auditors report o the members
C. FINANCIAL STATEMENT ANALYSIS:
C1. Financial analysis (also referred to as financial statement analysis or accounting analysis or Analysis of
finance) refers to an assessment of the viability, stability and profitability of a business, sub‐business
or project.
C2. Professionals who prepare reports using ratios that make use of information taken from financial
statements and other reports perform it. These reports are usually presented to top management as
one of their bases in making business decisions.
¾ Continue or discontinue its main operation or part of its business;
¾ Make or purchase certain materials in the manufacture of its product;
¾ Acquire or rent/lease certain machineries and equipment in the production of its goods;
¾ Issue stocks or negotiate for a bank loan to increase its working capital;
¾ Make decisions regarding investing or lending capital;
¾ Other decisions that allow management to make an informed selection on various alternatives in
the conduct of its business.
C3. BALANCE SHEET ANALYSIS:
C3.1. There are 6 year balance sheet from 2007 to 2012 from the PSO’s associated annual financial
reports of have been shown for observing correspondence and trend of financial position,
PSO's assets, liabilities, and ownership equity at the given financial years.
05

BALANCE SHEET (2007‐2012)
As per associated annual financial report (attached) ‐ Rupees in '000
2012 2011 2010 2009 2008 2007
ASSETS
Non‐ Current Assets
Property, plant and equipment 5831993 6084731 637523 6987025 7460549 8012317
Intangibles 299991 28822 36250 68872 105502 126212
Long term investments 1968073 2314168 2019270 2153514 2701097 2990591
Long‐term loans, advances and
receivables 385497 324554 317889 405780 477745 627972
Long term deposits and prepayments 123740 148748 125951 83655 79098 65913
Deferred tax 1202316 957487 5737710 5033273 407337 401037
9811610 9858510 8874593 14732119 11231328 12224042
Current Assets
Stores, spare parts and loose tools 134431 115339 113863 112143 115814 127891
Stock‐in‐trade 88523794 95378393 58598668 40698209 62360067 29562055
Trade debts 218022292 124721832 117501074 80509830 33904728 13599966
Loans and advances 526118 430716 409987 418015 396220 365974
Deposits and short term prepayments 2528406 1027381 367378 551803 401433 1583913
Other receivables 2122166 2252028 14557542 12806779 15681790 15751198
Taxation –net 5314752 6311951 46580 709627
Cash and bank balances 1624025 2309006 1778056 2883118 3018640 1522276
318795984 232546646 193373148 138689524 115878692 62513273
Net Assets in Bangladesh 28631610 30126760 88774593 14732119 11231328 12224042
Total Assets 347427594 262673406 282147741 153421643 127110020 74737315
EQUITY AND LIABILITIES
Share Capital 1715190 1715190 1715190 1715190 1715190 1715190
Reserves 48244718 40187795 27620868 19155595 29249864 19224027
49959908 41902985 29336058 20870785 30965054 20939217
Non‐Current Liabilities
Long term deposits 1176078 1023531 948476 854718 834598 768308
Retirement and other service benefits 2518502 2233717 1887751 1673020 1574148 1644063
3694580 3257248 2836227 2527738 2408746 2412371
Current liabilities
Trade and other payables 246767460 191851017 156035716 110123702 81067565 41431075
Provisions 688512 688512 688312 688512 726116 688512
Accrued interest / mark‐up 544485 432133 3330213 5556380 217928 131961
Short term borrowings 45772649 24541511 13021015 18654526 10997908 9064781
Taxes payable ‐ ‐ ‐ ‐ 726703 79398
293773106 217513173 173075256 135023120 93736220 51395727
Total Equity & Liabilities 347427594 262973406 202247741 153421643 127110020 74737315

C4. BALA
ANCE SHEE
The PSO’s
resource is
that is 32
billions) as
(Rs. 262.67
2011 that s
owned or c
and represe
can be conc
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prices in
cause of th
the concern
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because of
related rece
C4.1.
C4.2.
ET ANALYS
total Assets
being increa
2% of FY20
compared t
7 billions) a
shows the c
controlled t
ent values o
cerned into
mergency of
internationa
his increase
ned FY repo
ation in tra
ever‐increa
eivables.
Similarly
shareholde
approximat
(shareholde
as of 30 Ju
Billions (ap
same accou
equity & li
the positive
of PSO.
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s is an eco
asing in each
012 (Rs. 3
to the total a
as on end
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e as describ
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rising va
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nomic
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assets
of FY
being
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of oil
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ly due
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r debt
lues of
ty that
ed by
o Rs. 49.96 B
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ahead form
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ends also su
dition in the
us. Finance ‐ Pr
is
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Billion
Rs. 8
m the
e total
uggest
assets
roject Assignm
total
5
4
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3
2
1
0.0
0.0
0.0
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0.0
0.0
40
00
30
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00
20
00
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ment, Submitte
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kistan State
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hareholders
3
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1
20.94
74.74
400
300
200
100
0
's Liabilities
2
20.87
Total Asse
127.11
Tota
ets
al Equity & L
1
74.74
127.11
ed by Noman K
2
153.42
Liabilities
2
153.42
Khan. Std. ID: 5
57154
49.96
3
82.15 262.67
47.43
34
262.97
202.25
4
41.90
29.34
al Analysis
47.43
07
Page 1 of 19

C5. PROFIT AND LOSS ACCOUNT ANALYSIS:
As per associated annual financial report (attached) ‐ Rupees in '000
2012 2011 2010 2009 2008 2007
Sales Revenue 1199927902 974917064 877173254 71982176 583213959 411057592
Less:
‐ Sales tax ‐163861410 ‐137969158 ‐118563577 ‐97386723 ‐742494721 ‐52418310
‐ Inland freight equalization margin ‐11642892 ‐16417542 ‐15851726 ‐9199864 ‐136859541 ‐8932956
‐175504302 ‐154386700 ‐134415303 ‐106586587 ‐879354262 ‐61351266
Net sales / Revenue 1024423605 820530364 742757951 612695589 495278533 349706326
Cost of products sold ‐990101083 ‐786250059 ‐713591707 ‐609685478 ‐465254907 ‐337446896
Gross profit 34322522 34280305 29166244 3010111 30023626 12259430
Other operating income 2133994 1815951 1479054 1451666 1396527 1278932
Operating costs
Transportation costs ‐1205394 ‐810423 ‐631849 ‐513673 ‐337886 ‐369328
Distr. & marketing expenses ‐5863170 ‐5178233 ‐4055238 ‐3960953 ‐3264599 ‐2745289
Administrative expenses ‐1659530 ‐1511532 ‐1125891 ‐1151793 ‐116074 ‐1002712
Depreciation ‐1127587 ‐1120999 ‐1137637 ‐1141698 ‐1119137 ‐1098157
Amortization ‐15491 ‐18210 ‐44752 ‐52615 ‐47689 ‐41908
Other operating expenses ‐9272048 ‐2239725 ‐2416518 ‐3994389 ‐3352969 ‐755420
‐19143220 ‐10879122 ‐9411885 ‐10815121 ‐9283021 ‐6012814
Profit From Operations 17313296 25217134 21233413 ‐6353344 313860 424238
Other Income 7550581 4143710 6095348 776686 22450992 7949786
Finance costs ‐11658928 ‐11903162 ‐9882010 ‐6232056 ‐1367898 ‐1158112
13204949 17457682 17446751 ‐11808714 21083694 6791674
Share of profit of associates 469468 516752 516401 451850 294318 330306
Profit before taxation 13674417 17974434 17963152 ‐11356864 21377412 7121980
Taxation ‐4618362 3195120 ‐8913556 4658329 ‐7323617 ‐2432182
Profit for the year 9056055 14779314 9049596 ‐6698535 14053795 4689798
Earnings per share ‐ basic and
diluted (In Rupees)
52.8 86.17 52.76 ‐39.05 81.94 27.34
08

C5.1. FIN
SIS 2009:
ct in the in
g an inverse
ned. This un
ny is mainly
tional oil pr
the highest
ber 2008. The
Y09 as compa
ther aspect o
in Financial y
er financial se
NANCIAL CRI
1.1. As depi
C5.
C5.
1.2. The ano
15
5
10
0
5
0
‐5
Billions
‐10
0
C5.
the data an
e behavior a
expected de
y endorsed
ices. FY09 w
level of US$1
e Company re
ared to inven
of loss that P
ear 2009 aga
ervicing cost a
Profit P
for the
14
4.69
4.05
2007 20
e year
9.05
008 2009 2
1.3. Downin
9
‐6.70
nalysis chart
as far as am
ecline in the
to heavy in
itnessed shar
141/bbl in Jul
egistered Rs.
ntory gains of
akistan State
ainst profit af
and the inven
9.06
2010 2011 2
ng of bar gr
bility has dec
of this decli
that was o
ation of Paki
.3 billion on
NCIAL RAT
ERAL:
. Financial a
D. FINA
D1. GEN
D1.1.
Course: Intro
showing
concern
compan
internat
touched
Decemb
during F
tax loss
to highe
of FY09.
profitab
cause o
billions
devalua
of Rs. 2
9
14.78
2012
raph in FY 2
clined by 39
ne was due
nly Rs. 0.7 b
istani Rupee
n account of
TIO ANALY
kistan State
t that the fin
mounting in
e profitabilit
nventory los
rp fluctuation
ly 2008 again
18.9 billion
Rs. 11 billion
e Oil Company
fter tax of Rs.
ntory losses w
Billions
2012 shows
% in financi
e to the hea
billions in F
es against US
reinstateme
YSIS OF PSO
analysts often
ity as describ
pter 6 and 7 r
and stabil
Rao, Chap
oduction of bu
O:
n use the var
bed in our tex
ecommended
us. Finance ‐ Pr
40.0
30.0
20.0
10.0
0.0
e Oil Financia
nancial year
the accoun
ty of this lea
sses suffer
ns in internat
nst the lowest
on account o
n during FY 08
y had reporte
14 billion du
which incurre
12.2
26
some decli
al year 2012
avy exchang
y 2011 so t
S Dollar tha
ent of turnov
ious element
xtbook “Funda
d by the instr
roject Assignm
r 2009 (red
t of gross p
ading marke
because of
tional oil pric
t level of US$
of net invento
8.
ed Rs. 6.7 bil
uring FY 08, m
ed during the
Gross pr
rofit
3.01
30.02
ne that is b
2 as compare
ge losses am
he company
t is by 10%
ver tax form
ts of a firm su
amentals of F
ructor.
ment, Submitte
Pa
bar) was
profit are
et shared
a fall in
ces, which
$33/bbl in
ory losses
llion after
mainly due
e first half
34.32
because of
ed to 2011 T
mounting to
y had to dea
Approx. tax
m 1% to 0.5 %
ch as Solvenc
Financial Man
ed by Noman K
after tax
The main
o Rs. 8.6
al with a
x reversal
by FBR.
cy, profitabilit
nagement” by
Khan. Std. ID: 5
57154
34.28
29.17
al Analysis
ty, , Liquidity
y Ramesh
Page 1 of 19
09

D1.1.1. Solvency ‐ its ability to pay its obligation to creditors and other third parties in
the long‐term;
D1.1.2. Liquidity ‐ its ability to maintain positive cash flow, while satisfying immediate
obligations;
D1.1.3. Stability ‐ the firm's ability to remain in business in the long run, without having
to sustain significant losses in the conduct of its business. Assessing a company's
stability requires the use of the income statement and the balance sheet, as well
as other financial and non‐financial indicators. etc.
D1.1.4. Profitability ‐ its ability to earn income and sustain growth in both the short‐ and
long‐term. A company's degree of profitability is usually based on the income
statement, which reports on the company's results of operations;
D1.1.5. Both D1.1.1 and D1.1.2 are based on the company's balance sheet, which
indicates the financial condition of a business as of a given point in time. We will
examine this type of ratio analysis for PSO with the help of previously mentioned
data & report.
D2. SHORT‐TERM SOLVENCY RATIO:
D2.1. GENERAL DESCRIPTION:
D2.1.1. Often take a close look at liquidity ratios when performing fundamental analysis on
a firm. Since a company that is consistently having trouble meeting its short‐term
debt is at a higher risk of bankruptcy, liquidity ratios are a good measure of
whether a company will be able to comfortably continue as a going concern.
D2.1.2. Liquidity or sort term solvency ratio analyses ratios are taken here to determine
PSO’s ability to meet its short‐term debt obligations for fining that has the PSO
have enough cash or assets readily convertible into cash to pay its current liabilities.
D2.1.3. Here we will calculate two types of ratios to measure liquidity; the current ratio and
the Quick ratio
D2.2. CURRENT & QUICK RATIO:
D2.2.1. The formula for the current ratio & quick ratios are as follows:
CURRENT RATIO = Current Assets ÷ Current Liabilities
Similarly,
QUICK RATIO = (current assets – inventories – prepaid expenses) ÷ Current
Liabilities
2012 2011 2010 2009 2008 2007
Solvency Ratios
Cash to Current Liabilities (x) ‐0.06 ‐0.09 ‐0.05 0.09 ‐0.08 ‐0.03
Cash Flow from Operations to
Sales (x) ‐0.02 ‐0.01 0.01 ‐0.01 0.01 0.01
Current Ratio (x) 1.15 1.16 1.14 1.07 1.24 1.22
Quick Ratio (x) 0.85 0.72 0.79 0.75 0.57 0.64
Course: Introduction of bus. Finance ‐ Project Assignment, Submitted by Noman Khan. Std. ID: 57154 Page 10
1 of 19

1.25
5
1.2
2
1.15
1.
5
1
1.05
5
1
0.95
5
D3. ASSE
Cur
rrent Ratio (x
1.
1.22
.24
2007 2
x)
1.
1.07
.14
2008 2009 2
.15
2010 2011 20
s shown in t
18795984, a
tio of 1.15.
as a higher
hould easily b
quidated and
eluctant to lo
e supplier sh
1.16 1
012
the above t
and it’s the
The higher
amount of
be able to p
d PSO neve
oan money
hould not be
SO’s quick ra
85 of liquid
e quick ratio
ss than one
epay all its d
uick ratio is a
ATION RAT
DESCRIPTIO
sset utilizati
etermines t
to revenue b
ctivity ratios
orm of cash
xamples of
eceivable tur
ndamentals
enerates rev
anaged. The
ET UTILIZA
. GENERAL
D3.1.1. As
D3.1.
Course: Intro
D2.2.2. As
31
ra
ha
sh
liq
re
th
D2.2.3. PS
0.
th
les
re
qu
de
int
D3.1.2. Ac
fo
Ex
re
fu
ge
m
oduction of bu
1
0.8
0.6
0.4
0.2
table & the
current liab
numbers (m
current ass
ay off its sho
r have any
to PSO simi
e worried fo
atio of 0.85
assets avail
o, the bette
indicates th
debts by usin
advancing to
TIOS:
ON:
ion Ratio th
the ability
by relating o
s assess how
h and sales
f such ra
rnover ratio
s because,
venue, activ
ere are three
us. Finance ‐ Pr
0
0.64
2007
kistan State
2008 2009
graph, the
ilities are R
more than “1
sets when c
ort‐term deb
problem pay
larly the hig
or giving bulk
in FY 2012
lable to cove
er the compa
hat a PSO ha
ng its most
owards Rs. 1
e Oil Financia
Quick Rat
0.75
0.57
tio (x)
PSO’s 2012
Rs 29377310
1” are better
ompared to
bt using its a
ying its bills
gher current
k supplies on
means that
er each Rs.1
any's liquidi
as a potenti
liquid asset
that is good
hat is also
of a comp
or comparing
w effectively
based on
atios includ
o. Activity r
al Analysis
2012
current ass
06. That sho
r, implying th
o current lia
assets that c
s on time ba
ratio also s
n credit to PS
this oil & lu
of current
ty position,
al risk that
ts. The abov
d/positive si
known as
pany to co
g sales to dif
a company
its asset, lia
de the in
ratios are c
on to exp
lso indicate
o analysis sh
in additio
ity ratios a
e major ratio
roject Assignm
ment, Submitte
Pa
0.85
sets are Rs;
ows current
hat the PSO
abilities and
an be easily
ank will not
suggest that
SO.
ubrication co
liabilities. If
here the qu
it would not
ve 05 year t
gn.
turnover ra
nvert its ba
fferent types
is able to g
ability and c
nventory rat
critical in ev
pressing ho
how well
all be condu
ed by Noman K
ompany Rs.
f the higher
uick ratio of
t be able to
rend shows
atio is a me
alance shee
s of assets.
generate rev
capital share
io and th
valuating a
ow well a
the compa
ucted for PSO
Khan. Std. ID: 5
57154
0.72
0.79
2010 2011 2
etric, which
et accounts
venue in the
accounts.
he accounts
company's
company
ny is being
O:
11
Page 1 of 19

D3.2.
. INVENTOR
D3.2.1. Th
D3.3.
RY TURNOVE
his ratio me
urned over d
ventory Tur
ER.
asures the
during a giv
nover as des
Inventory T
number of t
ven year. Th
scribed in ch
urnover =
he turnove
ttached bar
dequacy of P
he volume
andled. The
ventory tur
bove the in
mply mea
aintaining t
etween inve
oods sold so
o be a safe s
op‐heavy inv
oil/lubricatio
mply implie
usiness asse
urnover requ
vel of sales
ventory at a
uch invento
ventories.
. FIXED ASS
D3.3.1. Th
Course: Intro
tu
In
D3.2.2. Th
at
ad
th
ha
inv
ab
sim
m
be
go
to
to
(o
sim
bu
tu
lev
inv
m
inv
er ratio
graph indica
PSO’s inven
of busines
e company
rnover rate
dustry aver
n that P
the better
entory and
the busines
side and the
ventory in
ns) or finish
es that the
ets producin
uires a smal
with a low t
level that
ory should n
ETS TURNOV
he fixed (o
urnover rati
tensively a
uch as lan
quipment ar
ales. A lo
urnover impl
oo much in
ssets relativ
asically a
roductivity.
hows how
ssets turnove
tu
int
su
eq
sa
tu
to
as
ba
pr
sh
as
oduction of bu
kistan State
times a com
he following
hapter 07 of
e Oil Financia
mpany's inve
g method is
our text boo
ods sold =
ories
in the
ates the
tory for
s being
has an
that is
rage, its
PSO is
balance
cost of
ss is said
ere will be l
the event
hed produc
PSO is mor
ng an extra
ler investme
turnover rat
is just right
ot be the ca
VER.
or capital)
io measure
firm's fixed
d, building
e used to ge
ow fixed
lies that a fi
vestment in
ve to sales
assets
es how
assets
s, and
enerate
assets
irm has
n fixed
s; it is
e of
llowing
measure
The fo
Eastman's
er ratio is ca
us. Finance ‐ Pr
alculated.
roject Assignm
Cost of goo
Invento
fixed
20
15
10
5
0
In
11.7
al Analysis
estment in i
s used to ca
ok:
nventory tur
2007
____times
ess risk for
of a declin
t. PSO’s tur
re productiv
a inventory/
ent in inven
e. PSO’s ma
t in order no
ase where c
250
200
150
100
ment, Submitte
Pa
50
0
inventory is
alculate the
rnover ratio
13.96
12.69
2008 2009
the busines
ne in the p
rn over rati
ve since ev
/asset. Sinc
tory than on
anagement
ot to miss s
capital has b
Fixed
52
(x)
6 13.05
2010 2011
1 2012
ss of being c
price of raw
os in the p
ery Rupee
ce a PSO w
ne producin
has to be su
sales, availab
bound for un
d asset turno
2007
ed by Noman K
caught with
w materials
positive site
invested in
with a high
ng the same
ure, to keep
bility of too
nproductive
over ratio (x
98.38
74.27
2008 2009
Khan. Std. ID: 5
57154
12.66
17.67
x)
200.39
8
155.68
130.27
2010 2011
2012
Page 1 of 19
12

Fixed Assets
Turnover =
net Sales .
= _____times
Net Fixed assets
D3.3.2. Overall trend of fixed asset turnover (asset utilization) ratios have not as flat as
compared to the inventory ratio, the fixed asset turnover ratio has increased
because of increasing in turnover and less capitalization of property plant and
equipment as compared to last year, so higher the turnover ratio, suggests that the
PSO is being using more assets efficiently to generate sales.
D3.4. TOTAL ASSETS TURNOVER.
D3.4.1. This ratio takes into account both net fixed asset; and current assets. It also gives
an indication of the efficiency with which assets are used; a low ratio means that
excessive assets are employed to generate sales and/or that some assets (fixed or
current assets) should be liquidated or reduced. Eastman's total assets turnover is
as follows:
Total Assets Turnover =
Sales ,
= ____times
Total assets
D3.4.2. In the case of FY 2012, the company produces Rs. 3.93 worth of sales for every
Rupee invested in total assets. It is recommended/suggested that If PSO is able to
reduce its investment in accounts receivable and inventory and/or sell a division or
fixed assets that are a burden on the company's operating performance, it would
increase the total assets turnover ratio and thus would be more productive.
2012 2011 2010 2009 2008 2007
Asset Utilization /
Turnover Ratios
Inventory turnover ratio (x) 13.05 12.66 17.67 13.96 12.69 11.7
Total asset turnover ratio (x) 3.93 4.19 4.93 5.13 5.78 5.7
Fixed asset turnover ratio (x) 200.39 155.68 130.27 98.38 74.27 52
D3.5. TURNOVER RATIOS AT A GLANCE:
D3.5.1. At a glance we can say on the basis of above graphical representation, The various
turnover rations indicate the adequacy of PSO’s inventory for the volume of
business being handled. The company has an inventory turnover rate that is above
the industry average, it’s simply mean that PSO is maintaining the better balance
between inventory and cost of goods sold so the business is said to be a safe side
and there will be less risk for the business of being caught with top‐heavy inventory
in the event of a decline in the price of raw materials (oil/lubrications) or finished
product. PSO’s turn over ratios in the positive site simply implies that the PSO is
more productive since every Rupee invested in business assets producing an extra
inventory/asset.
1 of 19

D4. PRO
OFITABILITY
. Profitabilit
D4.1.
200
150
100
50
0
52
5.7
2
Y RATIOS:
ty ratios me
nancial metr
to its expe
hese ratios, h
evious period
following c
tatement) fo
class of fin
compared
most of th
from a pre
. There are
(income st
D4.2.
Course: Intro
PSO
Profitabilit
Gross Profi
Net Profit M
EBITDA ma
Return on S
Return on t
11.7
Invento
Total a
Fixed a
74.27
ory turnover ra
sset turnover
asset turnover
5.78
12.69
easure the o
rics that are
enses and ot
having a high
d is indicativ
components
or finding pro
y Ratios
t Margin
Margin
rgin
Shareholders
total assets
oduction of bu
atio (x)
ratio (x)
ratio (x)
13.96
98.38
5.13
overall recor
used to ass
ther relevan
her value re
ve that the c
are evaluat
ofit margins
' Equity %
us. Finance ‐ Pr
%
%
%
%
roject Assignm
2012
2.86
0.75
2.21
18.13
2.61
17.67
130.27
4.93
kistan State
15
55.68
rd of manag
ess a busine
nt costs incu
elative to a c
ompany is d
ted that is e
:
ment, Submitte
Pa
2011
12.66
4.19
e Oil Financia
200.3
9
3.93
gement in p
ess's ability t
urred during
ompetitor's
doing well.
extract from
13.05
producing p
to generate
g a specific
ratio or the
rofit, it is a
earnings as
period. For
e same ratio
m Profit & lo
2010 20
3.52
1.52
3.18
35.27 3
5.63
oss account
009 2008
3.32 0
1.03 ‐0
3.31 ‐0
30.85 ‐3
4.47 ‐4
ed by Noman K
8 2007
0.42 5.15
0.93 2.41
0.55 4.1
32.1 45.39
4.37 11.06
Khan. Std. ID: 5
57154
al Analysis
5 3
1 1.14
1 2.29
9 22.4
6 6.3
Page 14
1 of 19

6
5
4
3
2
1
0
D4.3.
Gro
ss Profit ratio
5.
3
15
. The last 6‐
that how
manufactu
is a favora
. PSO’s char
thereof, h
exercise co
retailers a
expense i
services",
the same w
. The Retur
because it
assets and
Net Incom
D4.4.
D4.5.
D4.6.
o /margin %
3.32 3
3.52
0.42
‐year (2007‐
the compa
uring‐related
ble profit ind
racteristics of
ave a major
omplete con
nd service b
s recorded
respectively
weight as a p
rn on total
t measures t
d using them
me/Total As
. The higher
in the abo
its assets t
benefit rec
. The profit
compared
D4.7.
Course: Intro
2
2.86
2012) gross
any is effici
d fixed asset
dicator.
f raw materi
r effect on a
ntrol over s
businesses)
as a "cos
y. With this
producer‐typ
Assets ratio
the efficienc
to generate
ssets = _____
r the percen
ove table th
to generate
ceived by sh
tability ratio
to FY 2011 &
oduction of bu
6
5
4
3
2
1
0
‐
profit marg
ently & eff
ts to genera
1
kistan State
e Oil Financia
Profit ratio /
2
Net
1.14
2007
2.41
Margin %
2008 2009 2
in & net pro
fectively us
te profits. A
ial costs, par
company's
uch costs. C
don't have a
t of merch
type of com
pe company
o in the ab
cy with whic
e profit. The
_%.
ntage (2.63%
he better, be
sales. The o
areholders
os also show
us. Finance ‐ Pr
2010.
1
‐0.93
ocess margin
ing its raw
higher mar
rticularly as
gross marg
Companies w
cost of sa
handise/mat
mpany, the g
y.
bove table
ch the comp
calculation
% in FY 2012
ecause that
overall it sho
al Analysis
0.75
2012
n analysis of
w materials,
rgin percent
these relate
in. Generall
without a p
les exactly.
terials/opera
gross profit
PSO reflect
labor and
age in 2008
e to the stab
y, managem
roduction p
In these ins
ation" and
margin doe
is an impor
pany is man
for the retu
& higher sig
means the c
ows survivab
wed a little
roject Assignm
bility or lack
ment cannot
process (ex.,
stances, the
a "cost of
es not carry
rtant profita
aging its inv
rn on assets
ght 5.63% in
company is
bility of PSO
e decline in
ment, Submitte
Pa
ed by Noman K
ability ratio
vestment in
s ratio is:
n FY2011) , a
doing a goo
in future as
FY 2012 e
as described
od job using
s well as the
0th June, as
nding in 30
Khan. Std. ID: 5
57154
0
1.52
1.03
2010 2011 2
Page 15
1 of 19

D5. INVE
ESTMENT R
. This last s
attractiven
study of h
Investmen
comfortab
financial a
. An analysi
investmen
factors sh
decision at
. The follow
depicted in
D5.1.
D5.2.
D5.3.
Inv
Ear
Ear
Ma
D5.4.
RATIOS AN
section of t
ness of a po
ow an inves
nt analysis i
ble doing th
dvisor.
s of past inv
nt decisions
ould includ
t the time.
wing are the
n the table:
estment/Ma
rning per shar
rning per shar
rket value pe
. As of June
earning tre
few loss o
reinvestme
requireme
Course: Intro
NALYSIS:
the ratio a
otential or e
stment is lik
is key to an
heir own in
nalysis that
existing inve
kely to perfo
ny sound p
vestment a
vestment de
and the th
e entry pric
kistan State
t can be us
estment and
orm and how
portfolio‐ma
nalysis can
e Oil Financia
sed by inve
d get an ide
w suitable it
nagement s
seek profe
investment
cess of mak
d time hori
ecisions. An
hought proc
ce, expecte
e trend ext
rket Ratios
re
re (Diluted)
er share (Year
2012, inves
end as comp
of Earnings
ent of majo
ents due to p
oduction of bu
400
350
300
250
200
150
100
50
0
‐50
racted from
r End) Rs.
stment or M
pared to pre
per Share
or portion of
prevailing cir
391.45
18 18.99
99
2007
us. Finance ‐ Pr
Rs.
Rs.
estors to es
ea of its val
is for a give
strategy. Inv
essional adv
analysis is a
king the inv
izon, and re
m various st
stimate the
uation. The
en investor.
vestors not
vice from a
look back
vestment de
easons for
tatement fo
at previous
ecision. Key
making the
or the given
2010 20
86.17 5
59.83 3
264.58 2
on the graph
and now sta
s compared
ngs in order
situation.
Market ratio o
evious year a
in 2012 a
f net earnin
rcular debt s
8
417.24
27.34
56.9
2008
213.65
81.94
roject Assignm
2012
52.8
36.67
235.84
Ear
Ear
Ma
n years and
009 2008
52.76 ‐39
36.64 ‐27
260.2 213
h showing a
able after fin
d to FY 201
to meet th
ning per share
ning per share
rket value per
8 2007
.05 81.94
.12 56.9
.65 417.24
little bit con
nancial crise
11 mainly d
he tight wor
e Rs.
e (Diluted) Rs.
r share (Year E
260.2 264
‐39.0
‐27.12
2009
05
ment, Submitte
Pa
2011 2
52.76
36.64
2010
4.58
ed by Noman K
nd) Rs.
235.84
86.17
59.83
2011
4
36.67
2012
Khan. Std. ID: 5
52.8
57154
al Analysis
4 27.34
9 18.99
4 391.45
nsistency of
s 2009. The
due to the
king capital
16
Page 1 of 19

E. INTER‐MARKET ANALYSIS – COMPETITORS:
E1. KEY HIGHLIGHTS – FY2012‐13:
E1.1. Highest ever turnover of Rs. 1.3 trillion achieved vs. Rs 1.2 trillion Last year.
E1.2. Profit a Vertax of Rs. 12.6 billion vs. Rs. 9.1 billion in FY12 (EPS: Rs. 50.84, FY12:
Rs.36.67)
E1.3. GoP injected Rs. 82 billion (PSO’s share Rs. 70.5 billion) and Rs. 342 billion (PSO’s
share Rs. 99 billion) in Sept 2012 and June 2013 respectively to resolve circular debt.
E1.4. PSO’s receivable From Power Sector dropped Significantly from Rs. 205 billion To Rs.
59 billion
E1.5. Finance cost Dropped from Rs. 11.7 Billion To Rs. 7.6 billion Mainly due to saving Of
refinery Interest on implement on Of TFC Transaction proposed by PSO in Sept 2012.
E1.6. Interest received from HUBCO, KAPCO & PIA Rs. 2.7 Billion vs Rs. 6.7 billion in the
same period Last year.
E1.7. Exchange Loss of Rs.3.3 Billion vs. Rs. 8.7 Billion in FY12 Due to rupee devaluation of
5% Approx vs. 10% In FY12.
E1.8. PSO secured 3rd position in Best Corporate Report Awards Ceremony held on August
22, 2013
E2. OPERATIONAL HIGHLIGHTS:
E2.1. 2% fall in Black Oil segment vs 1% industry increase. (Decline due to reduction in supply on
account of circular debt)
E2.2. 6% growth in White oil segment vs 5% industry growth.
E2.3. Positive volumetric growth of 24% in Mogas vs 21% industry growth due to CNG shortage.
E2.4. Growth in HSD volumes of 2% vs industry stability.
E2.5. Market share decreased slightly from 65.4% to 64.3% in FY 2013.
17

E3. SUMMARY OF FINDINGS ‐ SUGGESTIONS FOR IMPROVEMENT:
E3.1. The company successfully tested and launched E‐10 Gasoline at more than 70 outlets in
Sindh and Punjab provinces during FY10. E‐10 is a blend of ethanol and gasoline, which
consists of 10 percent ethanol dissolved in normal gasoline. This initiative is in line with the
government s strategy to promote alternate energy resources.
E3.2. MOU with KPT was signed and Terms of Reference were finalized during the period under
review for conducting feasibility study to connect Keamari Port with Port Qasim through a
pipeline. In FY10, the company completed study for optimization of current infrastructure
at Port Qasim. This would enable enhancement of imported petroleum products handling
capacities of FOTCO Jetty and PSO pipeline infrastructure.
E4. FUTURE OUTLOOK:
E4.1. It is expected that future energy demand in the country will continue to grow owing to expected
natural gas constraints specifically for power generation sector. PSO plans to acquire a refinery as
part of its backward integration strategy to develop a confirmed supply source and reduce reliance
on imports.
E4.2. In the current fiscal year, PSO shall focus on improving service at its retail outlets and promoting
the environment‐friendly ethanol based gasoline ie E‐10. By the end of 2010, PSO plans to have E‐
10 available at 100 outlets across the country.
E4.3. The circular debt crisis held PSO back in FY10 and it had to shelve its plans for enhancement of the
storage network. PSO plans to augment its storage infrastructure to meet the future oil demand. A
development/upgradation plan for key storages in line with future Furnace Oil demand for IPPs has
been chalked out. PSO is also working on a scoping study to connect Keamari with Port Qasim
through a white oil pipeline. It is expected that efficiency and flexibility shall be increased manifold
if these two ports are connected to each other through an integrated pipeline system.
E4.4. IFEM deregulation awaits implementation, and if implemented would certainly change market
dynamics. PSO is expected to benefit from this deregulation with the largest distribution network
in the country. This would result in setting competitive market prices and increase its market share
in the southern region. However, Punjab would continue to remain a competitive region.
F. REFERENCE:
F1. PSO annual Reports (2007 to 2013)
F2. Fundamentals of Financial Management by Ramesh K.S. Roa (Chapter 6 & 7)
F3. PSO Official Website (www.psopk.com)
F4. Financial Ratio Tutorial Investopedia ( http://www.investopedia.com)
F5. Economics and Finance Department, Institute of Business Administration, Karachi, prepared this
analytical report for Business Recorder.
18

G. APPENDICES (Attachments):
G1. Appendix “A”
a) Appendix A1 – Balance sheet 2007
b) Appendix A2 – Profit & Loss Account Statement 2007
c) Appendix A3 – Cash flow statement 2007
G2. Appendix “B”
a) Appendix B1 – Balance sheet 2008
b) Appendix B2 – Profit & Loss Account Statement 2008
c) Appendix B3 – Cash flow statement 2008
G3. Appendix “C”
a) Appendix C1 – Balance sheet 2009
b) Appendix C2 – Profit & Loss Account Statement 2009
c) Appendix C3 – Cash flow statement 2009
G4. Appendix “D”
a) Appendix D1 – Balance sheet 2010
b) Appendix D2 – Profit & Loss Account Statement 2010
c) Appendix D3 – Cash flow statement 2010
G5. Appendix “E”
a) Appendix E1 – Balance sheet 2012
b) Appendix E2 – Profit & Loss Account Statement 2012
c) Appendix E3 – Cash flow statement 2012
Note: Financial statement for FY2011 in not printable mode that may be viewed in official
website of PSO
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5 Year Financial Analysis: Pakistan State Oil (PSO)

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