Sm Finanicial Analysis 05 to 09

8/8/2019 Sm Finanicial Analysis 05 to 09

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PSOs Financial Analysis

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PSOS FINANICIAL ANALYSIS (2005 - 2009)

PSO is following the GAAPs for the preparation of its financial statements:

y Principle of regularity: conformity to enforced rules and laws.

y Principle of consistency: when a business has once fixed a method for the

accounting treatment of an item, it will enter all similar items that follow in

exactly the same way.

y Principle of sincerity: the accounting unit is reflecting in good faith the

reality of the company's financial status.

y Principle of the permanence of methods: This principle aims at allowing

the coherence and comparison of the financial information published by the

company.

y Principle of non-compensation: Management is showing the full details of

the financial information and not seeks to compensate a debt with an asset,

revenue with an expense, etc.

y Principle of prudence: This principle aims at showing the reality "as is" and

it is also being followed. Etc.




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Pakistan State Oil Limited:

Horizontal analysis(taking 2005 as a base year)Current Assets: 2005 2006 2007 2008 2009

Stores, spares and loose tools100 95.77 97.95648 88.70626 85.8945Stock-in-trade 100 136.85 143.6215 302.9644 197.7244

Trade debts 100 174.34 200.2623 499.254 1185.524

Loans and advances 100 127.88 171.619 185.8024 196.0229

Trade deposits and short term prepayments100 191.97 218.1227 55.28185 75.98949

Other receivables 100 139.22 152.0679 151.3978 123.6414

Short term investments 100 0.00 0 0 0

Taxation

Cash and bank balances 100 98.80 79.20534 157.0625 150.0111

Total Current Assets 100 142.68 153.4657 284.474 340.473

Fixed AssetsProperty, plant and equip: 100 92.27 98.77747 91.97517 86.13747

Intangibles 100 107.03 87.25518 72.93757 47.61385

Long term investments 100 141.47 129.0266 116.5366 92.91158

Long term loans, advances and receivables 100 81.90 81.58935 62.07108 52.72102

Long term deposits and prepayments 100 88.17 62.67699 75.21467 79.54794

Deferred tax 100 327.32 321.4983 326.5488 4035.011

Total Fixed Assets 100 104.11 105.6208 97.04335 127.2916

Total Assets 100 134.15 142.8796 243.0036 293.305

Liabilities & Stockholders¶ Equity

Current Liabilities

Trade and other payables 100 141.83 160.6467 314.335 426.9986

Provisions 100 103.06 91.28711 96.27287 91.28711

Accrued interest / mark-up 100 188.87 206.4342 340.9173 870.3773

Short term borrowings 100 158.97 188.3941 228.5705 387.6986

Taxation-net 100 143.65 5.162512 54.05938 0

Total Current Liabilities 100 143.62 156.835 286.0934 396.845

Longe Term Liabilities

Long-term deposits 100 110.19 113.7947 123.613 126.593

Retirement & other Benefits 100 117.47 124.2032 118.9214 126.3908

Total Longe Term Liabilities 100 115.01 120.6875 120.5061 126.4591

Stockholders' EquitySHARE CAPITAL 100 100.00 100 100 100

RESERVES 100 120.65 121.4433 184.7792 121.011

Total Stockholders' Equity 100 118.63 119.347 176.4912 118.957

Total liabilities & Shareholder's equity 100 134.15 142.8796 243.0036 293.305




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Pakistan State Oil Limited

PROFIT AND LOSS ACCOUNTs(taking 2005 as a base year)

INCOME STATEMENT 2005 2006 2007 2008 2009

Net sales /revenue 100 140.3505 164.5649 233.0682 288.3224

Less: Cost of Goods Sold 100 141.4 169.7783 234.0819 306.7487

Gross Profits 100 125.1769 89.18329 218.4119 21.89756

other operating income 100 73.46221 98.80966 107.895 112.155

Less: Operating Expenses:

Transportation costs 100 116.7671 117.8948 107.8581 163.9719

Distribution and marketing expenses 100 106.6963 118.4004 140.3224 169.5473

Administrative expenses 100 105.9929 111.2437 129.9592 130.4867

Depreciation 100 107.5517 112.824 114.9795 117.2974

Amortisation 100 332.8808 392.3603 446.4844 492.6037

Other operating expenses 100 265.3561 81.45507 361.5423 430.7051

Total Operating Expenses 100 134.789 110.457 170.5316 198.6767

Add: Other income

profit/Loss from operation 100 117.3639 82.83535 233.9353 (58.1078)

Less: Interest Expense 100 238.5097 312.413 369.005 1681.163

100 112.4965 73.61136 228.5085 (127.988)

Share of profit of associates

Net Profits Before Taxes 100 123.757 77.19137 231.6985 (123.091)

Less: Taxes 100 110.0722 68.7577 207.0384 129.1465

Net Profit/Loss After Taxes 100 132.2659 82.43522 247.0315 (119.326)




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Vertical ANALYSISCurrent Assets: 2005 2006 2007 2008 2009

Stores, spares and loose tools 0.249597 0.178185 0.171121 0.091113 0.073095

Stock-in-trade 39.35029 40.14426 39.55461 49.05991 26.52703

Trade debts 12.9829 16.87298 18.19702 26.67353 52.47619

Loans and advances 0.407679 0.388626 0.48968 0.311714 0.272462

Trade deposits and short term prepayments 1.3882363 1.9866899 2.1193068 0.3158154 0.3596644

Other receivables 19.802 20.55065 21.07541 12.33718 8.34744

Short term investments 0.019272 0 0 0 0

Taxation 0 0 0 0 0.462534

Cash and bank balances 3.674276 2.706191 2.036835 2.374825 1.879212

Total Current Assets 77.87424 82.82758 83.64399 91.16409 90.39763

Fixed Assets

Property, plant and equip: 15.50719 10.66636 10.72064 5.869363 4.554133

Intangibles 0.27653 0.220639 0.168874 0.083001 0.044891

Long term investments 4.431091 4.672993 4.00147 2.125007 1.403657

Long term loans, advances andreceivables 1.4714303 0.8984099 0.8402389 0.3758516 0.2644868

Long term deposits and prepayments 0.201046 0.13214 0.088193 0.062228 0.054526

Deferred tax 0.238473 0.581879 0.536595 0.32046 3.28068

Total Fixed Assets 22.12576 17.17242 16.35601 8.835911 9.602373

Total Assets 100 100 100 100 100

Liabilities & Stockholder¶s Equity

Current Liabilities

Trade and other payables 49.30458 52.12966 55.43559 63.77748 71.77847

Provisions 1.441899 1.107727 0.921243 0.57125 0.448771

Accrued interest / mark-up 0.122207 0.172059 0.176566 0.171448 0.362648

Short term borrowings 9.198623 10.90078 12.12886 8.652275 12.15899

Taxation-net 2.569915 2.752003 0.092856 0.571712 0

Total Current Liabilities 62.63722 67.06223 68.75512 73.74416 84.74888

Long Term Liabilities

Long-term deposits 1.290761 1.060296 1.028011 0.656595 0.557104

Retirement & other Benefits 2.530571 2.215941 2.199789 1.238414 1.090472

Total Long Term Liabilities 3.821332 3.276237 3.2278 1.895009 1.647576

Stockholders' Equity

SHARE CAPITAL 3.279028 2.444387 2.294958 1.349374 1.117958

RESERVES 30.26242 27.21715 25.72213 23.01145 12.48559




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Total Stockholders' Equity 33.5414 29.6615 28.0171 24.3608 13.6035

Total liabilities & Shareholder's

equity 100 100 100 100 100


Vertical Analysis

PROFIT AND LOSS ACCOUNT

INCOME STATEMENT 2005 2006 2007 2008 2009

Net sales /revenue 100 100 100 100 100

Less: Cost of Goods Sold 93.53125 94.2306 96.49436 93.93803 99.50871

Gross Profits 6.468751 5.769396 3.505636 6.061968 0.49129

other operating income 0.60909 0.31881 0.365716 0.281968 0.236931

Less: Operating Expenses:

Transportation costs 0.147418 0.122647 0.105611 0.068221 0.083838

Distribution and marketing expenses 1.099367 0.835753 0.790968 0.661891 0.64648

Administrative expenses 0.415376 0.313693 0.280789 0.231615 0.187988

Depreciation 0.458033 0.350994 0.314023 0.225961 0.18634

Amortization 0.005026 0.011921 0.011984 0.009629 0.008587

Other operating expenses 0.436419 0.825123 0.216016 0.676987 0.651937

Total Operating Expenses 2.561639 2.460131 1.71939 1.874303 1.76517

Add: Other income 0 0.148463 0.121313 0.06337 0.126765

profit/Loss from operation 4.516201 3.776538 2.273275 4.533003 (0.91018)

Less: Interest Expense 0.174444 0.296447 0.331167 0.276188 1.017154

4.341758 3.480091 1.942108 4.256816 (1.92734)

Share of profit of associates 0 0.003483 0.000945 0.000594 0.000737




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Net Profits Before Taxes 4.341758 3.828436 2.03656 4.31624 (1.85359)

Less: Taxes 1.664594 1.305485 0.695493 1.478687 0.745612

Net Profit/Loss After Taxes 2.677164 2.522951 1.341068 2.837554 (1.10798)


Overview of Ratio Analysis

Ratios 2005 2006 2007 2008 2009

Liquidity Ratio

Current Ratio 1.243258 1.235085 1.216549 1.236221 1.066653

Quick Ratio 0.615033 0.636473 0.641252 0.570949 0.753645

Day's sales in receivable ratio 35.35424 34.47292 30.85489 45.95682 24.24507

Day's sales in inventory ratio 37.79939 36.58358 31.97585 48.92248 24.36477

Operating cycle 73.15363 71.0565 62.83074 94.8793 48.60984

Leverage Ratio

Time Interest Earned 25.88918 12.73934 6.864436 16.41277 (0.89483)

Debt Ratio 0.664586 0.703385 0.719829 0.756392 0.863965

Debt-to-Equity 1.981386 2.37137 2.569251 3.104951 6.351024

Profitability Ratio

Net profit Margin 0.026772 0.02523 0.013411 0.028376(0.01108)

Total Asset Turnover 4.062555 4.250482 4.67914 3.896455 3.993541

Return on Assets 0.108761 0.107238 0.06275 0.110564 (0.04425)




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Operating Incom Margin 0.045162 0.037765 0.022733 0.04533 (0.0091)

Return on Total Equity 0.324259 0.361537 0.223972 0.45386 (0.32526)

Gross Profit Margin 0.064688 0.057694 0.035056 0.06062 0.004913

INTERPRETATIONS OF RATIO¶S

CURRENT RATIO:

CURRENT RATIO= Current Assets

Current Liabilities

Current Ratio shows a firm¶s ability to cover its current liabilities with its current

assets. Current ratio is more than one in the following year 2005,2006,2007,2008 &2009 which

is good sign for the company but it started to decreasing from the year 2008 which is actually not

a good sign. The main reason of this large Decrease in the current ratio is because of large

amount of increase in current liabilities from year 2005 to 2009. Although there is an increase in

the current assets but less than the current liabilities. Only the figure of short term borrowing has

increased to 442% greater as compared to the previous years, in spite of that the current ratio has

decreased from year 2005 to 2009. The company has the potential to pay its current liabilities

because current ratio is greater than one and company can easily pay its current liabilities from

its current assets.




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QUICK RATIO:

QUICK RATIO = current assets-Inventory

Current Liabilities

Quick ratio of Pakistan State Oil company has been continuously increasing as the inventory cost

is continuously decreasing from year 2005 to 2009 except for the year 2008 because in the year

2008 the inventory cost was increased up to the 49% result of that Quick Ratio was decreased .

In the year 2009 the quick ratio is on top which is 0.75 because in this year the inventory was

decreased up to 26%. Over the entire firm Quick ratio is good which positive sign is to pay its

current obligation.




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DAY'S SALES IN RECEIVABLE RATIO:

DAY'S SALES IN RECEIVABLE RATIO = Gross Receivable

Net Sale / 365

This is the general relationship between the gross receivables and the net sales of the year. This

ratio states that how efficiently the company is managing its receivables. When this ratio is low

it is a positive indicator for the firm. When we compare Days Account Receivable Ratio from

years 2005 to 2009 the average days sales account receivable decreases which is a good sign

but when we look at the figure of 2008 this ratio increases from 30days to 45 days but again

decrease to 24 days in 2009. It means that firm is working efficiently and monitoring its credit

sale properly due to which this ratio is constantly decreasing. Therefore, there is less chance of

bad debt.




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DAY'S SALES IN INVENTORY RATIO:

DAY'S SALES IN INVENTORY RATIO = Ending Inventory

Cost of Goods Sold / 365

This ratio shows a relationship between the inventory and the cost of goods sold. Inventory is

taken from the balance sheet of the firm while the cost of goods sold is obtained from the

income statement of the organization. It shows us that how often the company places an order

for the inventory. When we compare it with the previous years we found that this year

company is placing fewer orders than the previous years. It means there is a decreasing trend

from 2005 to 2009 this ratio had decreased except for the year 2008 because in this year the

inventory had increased more than double but in the recent year 2009 this ratio had again

decreased dramatically and this is a positive sign.




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OPERATING CYCLE:

OPERATING CYCLE= Account Receivable in Days + Inventory Turnover in days

It shows how many days are required to sale the inventory and receive cash from customers. If this is low then it is positive sign. When we compare operating cycle with the previous years we

found that there is a decreasing trend, shown in the operating cycle from 2005 to 2009 except

for year 2008 in which operating cycle ratio had increased from 73% to 98% as in this year the

Days in inventory turnover ratio and days sales account receivable had increased dramatically

and there was also an increase in the operating cycle ratio . Again this ratio had decreased in

the year 2009 which is a negative sign.




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TIME INTEREST EAR NED:

Recurring Earnings, Excluding Interest Expense, Tax

Expense, Equity Earnings, and Minority Earning

TIME INTEREST EAR NED= Interest Expense, Including Capitalized Interest

This ratio shows how many times we are able to pay the amount of interest of loan which we

borrowed for the annual earning. If it is increasing then it is satisfactory for a business. The

investors show more confidence. When we look at the Time Interest Earned Ratio of PSO

from 2005 to 2009 there is a decreasing trend as the cost of goods sold had increased due to

increase in prices of petroleum in the international market. Moreover, the EBIT had decreased

in the year 2009 this ratio was negative which is not a good sign for the company from investor

point of view.




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DEBT RATIO:

DEBT RATIO = Total Liabilities / Total Assets

This ratio indicates the firm long term debt paying ability and it also indicates how many assets

are financed by creditors; it shows how much creditors are protected in case of solvency. The

creditors are not well protected the company is not position to issue new long term debt from the

perspective of long term debt paying ability. If this ratio is at a lower side then it means that it¶s a

positive sign for the firm. If we look at the trends of this ratio from 2005 to 2009 there is an

increasing trend, it means that the company has acquired more debt and more assets are financed

through debt.




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DEBT-TO-EQUITY:

DEBT-TO-EQUITY = Debt / Equity

This ratio determines the long term debt paying ability of firm this compare total debt with

share holder¶s equity. It also shows how well creditors are protected in case of solvency, fromlong term debt paying ability point of view the lower this ratio is better, the company debt

position. When we look at the Debt to Equity ratio of PSO there is an increasing trend from

2005 to 2009 it means that the long term debt paying ability of PSO is decreasing from 2005 to

2009 and creditors are less protected in case of solvency.




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NET PROFIT MARGIN:

NET PROFIT MARGIN = Net Income

Net Sales

This ratio shows a general relationship between net profit and sales of the year. If this ratio is

high it shows that the firm is earning more profit and this is beneficial for the organization. This

ratio¶s main concern is the income statement of a business. When we compare this ratio with the

previous year¶s 2005 to 2009 ratios, we found that the net profit margin has declined, it¶s a

positive sign. Due to high cost of goods sold and increased prices of crude oil in the international

market from last few years, it had become very difficult to control the cost of goods sold.




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Total Asset Turnover:

Total Asset Turnover = Net Sales

Average Total Assets

This ratio shows the relationship between the net sales and the average total assets. This shows

that how much the company is generating sales by utilizing the assets of a firm. One item like

sale is related to the income statement of the company while the average total assets are

related to the balance sheet of the firm. When we compare this ratio with the previous years

from 2005 to 2009 we found that this ratio is increasing from 2005 to 2007 but in 2008 it is

decreasing but again in 2009 it is increasing which is a positive sign for PSO. This is due to the

efficient use of assets. Therefore, when sales increase then this ratio increases. It is necessary

to increase the sales nominator for the high taken results.




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RETUR N ON ASSETS:

Return on Assets = Net Income

Total Assets

This ratio gives a general relationship between net income and the average total assets of thecompany. Net income relates to the income statement of the firm while the average total

assets relates to the balance sheet of the firm. As this ratio decreases from 2005 to 2009 except

for 2008, this is a negative sign for a firm. When we compare this ratio with the previous year

ratio we found that the company is going to decline because this ratio is at a lower side. This

caused net income to fall as we have found that the operating expenses are high, for this

reason the net income has declined.




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OPERATING INCOM MARGIN:

Operating Income Margin= Operating Profit

Net Sale

This ratio shows the relationship between operating profit and net sales. Both are concerned

with income statement. If operating profit increases this ratio also increases. In general higher

the ratio, it is beneficial for the organization. As we compared this ratio from 2005 to 2009 this

ratio has been on declining trend except for the year 2008 in which this ratio increased. Overall

decrease in this ratio is not only because the operating cost was increasing but due to increase

in petroleum prices in the international market. As the negative trend was shown in the past

few years this decreasing trend is not a good sign for the company.




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RETUR N ON TOTAL EQUITY:

Return on Total Equity= Net income

Total Equity

This ratio shows the relationship between net income and total equity. The net income is

concerned with the income statement while the equity is equity is concerned with balance

sheet. It shows the percentage earned on equity. If this ratio increases it is a good sign for an

organization. When we see that there is a decreasing tend from 2005 to 2009 which is not a

good sign for the growth of PSO. This ratio had decreased due to decline in net income during

these years.




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EAR NINGS PER SHARE:

Earnings per Share= Net income

No of shares

This ratio shows a relationship between the net incomes less preferred dividends to weighted

average number of common shares outstanding. It shows that how many shareholders earn on

their investments. If this ratio increases it is a good sign for the shareholders and they might

consider the organization as a healthy company. As we analyze this ratio from 2005 to 2009 we

find that EPS is a bit stable but has increased drastically in 2008 as we look at the 2009 figure

this figure is negative because in this year PSO was in loss.

CURRENT ASSETS:

The current assets of PSO comprises of cash and cash equivalent, account receivable, spare

parts, inventory and short term investment in the money market securities . When we analyze

the current assets of PSO we see there is a increasing trend it means there is growth in the PSO




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in the balance sheet point of view as its current assets are increasing each year which is a

positive sign for the company and its short term debt paying ability has also increased.




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TOTAL ASSETS:

The total assets of the PSO comprises of both current assets and fixed assets which are financed

by both debt and owners equity. We analyze the total assets of PSO from 2005 to 2009 there is

an increasing trend which is a positive sign; it means that the company¶s total wealth is

increasing.

NET SALES:

The net sale is the total sales generated by the company through its core business activities.

When we analyzed the net sales from 2005 to 2009 there is an increasing trend as the

consumption is increasing day by day.




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NET INCOME:

The net income is sales minus all expenses including cost of goods sold, selling and

administrative expenses and interest expense and income tax. When we analyze the net income

trend from 2005 to 2009 there are ups and downs which means there is no stability in the profit

in the last five years.




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Reference

www.pso.com

www.wickypedia.com

www.kse.com.pk

www.business.recorder

Analysis of Financial statement by Charles H Gibson

Financial Management by Vein Hon

Sm Finanicial Analysis 05 to 09

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