Financial Statement Analysis of PSO

Al HAMD ISLAMIC UNIVERSITY QUETTA
Prepared By
Abdullah Baig 34
Introduction:
The creation of Pakistan State Oil (PSO) can be traced back to the year 1974,
when on January 1st; the government took over and merged Pakistan National
Oil (PNO) and Dawood Petroleum Limited (DPL) as Premiere Oil Company
Limited (POCL).
Soon after that, on 3rd June 1974, Petroleum Storage Development Corporation
(PSDC) came into existence. PSDC was then renamed as State Oil Company
Limited (SOCL) on August 23rd 1976. Following that, the ESSO undertakings
were purchased on 15th September 1976 and control was vested in SOCL. The
end of that year (30th December 1976) saw the merger of the Premier Oil
Company Limited and State Oil Company Limited, giving way to Pakistan state
Oil (PSO).
After PSO’s inception, the corporate culture underwent a comprehensive
renewal program which was fully implemented in 2004. This program over the
years included the revamping of the organizational architecture, rationalization
of staff, employee empowerment and transparency in decision making through
cross functional teams. This new corporate renewal program has divided the
company’s major operations into independent activities supported by legal,
financial, informative and other services. In order to reinforce and monitor this
structural change, related check and balances have been established by
incorporating monitoring and control systems.
Human Resource Development became one of the main priorities on the
company’s agenda under this corporate reform.
It is due to this effective implementation of corporate reform and consistent
application of the best industrial practices and business development strategies,
that PSO has been able to maintain its market leadership in a highly competitive
business environment.

Prepared By
Abdullah Baig 34
PSO (Pakistan State Oil) Short Overview
Organizational Structure: is an idea in the field of organizational studies and
management which describes the psychology, attitudes, experiences, beliefs
and values (personal and cultural values) of an organization. It has been defined
as “the specific collection of values and norms that are shared by people and
groups in an organization and that control the way they interact with each other
and with stakeholders outside the organization.
ORGANIZATIONAL CULTURE IN PSO: (Example)
ORGANIZATION CULTURE: Organization culture is a system of shared meaning
within an organization that determines in large degree how employees act.
IMPORTANCE OF CULTURE IN PSO
According to the opinion of the PSO’s sales officer PSO is a sales oriented
company. Strong culture is a symbol of more profit more earning and sense of
responsibility. It is also a monument of well-disciplined enterprises in which
every organ of that organization is well concerned with the ultimate objective
of the organization. As it’s a fundamental truth that every individual from worker
to Top manager is aware of his rights privileges responsibilities and outcome of
efforts being invested.
SIX DIMENSIONS OF CULTURE
1. Innovation and risk taking: According to our survey what we have found is
that employees are not much encouraged to be innovative and take risks.

Prepared By
Abdullah Baig 34
2. Attention to detail: According to our survey employees have given
importance.
3. Outcome Orientation: The manager’s focuses on both results or outcomes
and the techniques needed to achieve those outcomes.
4. People Orientation: Management decisions do not take into consideration
the effect of outcomes on people within the organization. They have made
their employees a central part of their culture.
5. Team Orientation: They emphasize on team orientation i.e. work activities
are organized around them.
6. Stability: PSO is maintaining the status in contrast to growth.
PLANNING AT PSO
Planning: a process that involves defining the organization objectives or goals
and developing an overall strategy for achieving those goals and developing a
complete hierarchy of plans to integrate and coordinate activities.
CORPORATE PLANNING
PSO is striving to add value to its business by introducing modern efficient and
innovative business practices to boost corporate performance. Benefits of this
value will be given to shareholders and the employees of the company.
Corporate planning is about competitive advantage; at this most challenging
juncture in PSO’s history the focus is on forward thinking of on cutting edge
issues. Staffed with professionals having a diverse background in business
engineering and computer technology and international experience CP is
endeavoring to prepare PSO for the challenges ahead to ensure its sustainable
corporate leadership in future based on the best industrial practices. The
development of a financial model that resulted in the company’s first in depth

Prepared By
Abdullah Baig 34
study on product wise and business wise profitability as well as the
establishment of an effective procedural framework for capital budgeting mark
the first year of the corporate planning activity in PSO. This has led to
classification of authority and criterion for investment decisions efficient project
appraisal based on computer modeling and effective monitoring of the status
results of investments undertaken. These systems have been adopted by the
company for periodic review of corporate performance through management
committee meetings.
CONTINGENCY FACTORS IN PLANNING LEVEL ON ORGANIZATION
Outstanding performance of company was recorded by the board of
management and noted by the secretary petroleum during his recent visit. It
was because employees worked hard delivered efforts and produced results.
During the last six months unnecessary expenses had been curtailed to a great
extent; operations improved depot losses cut down and cartage fleet upgraded.
ORANIZATIONAL STRUCTURE & DESIGN
The organizations formal framework by job tasks is divided in groups but is
coordinated. The basis on which jobs are grouped in order to accomplish
organizational goals is functional departmentalization.
BRAND MANAGEMENT AND COMMUNICATION DEPARTMENT
Branding is the reputation and the image of a company, which is conveyed via
names logos, acts packaging and word of mouth. Corporate branding used to
focus on logo and name but today it has a broader meaning. The need for
branding arises when consumers expect more than a good product at a fair
price. They seek service experiences that compliment their life styles and brands

Prepared By
Abdullah Baig 34
that align with their personal aspirations. And that’s exactly what company tries
to convey to target market.
VM&C department at PSO follows the following two approaches:
1. Expanding the depth and breath of brand awareness by improving brand
recognition of consumers during purchase or consumption settings.
2. Improving the strength favor ability and uniqueness of brand associations
making up the brand image.
The above goals are achieved primarily through:
 Corporate Advertising
 Sales Promotion Campaign
 Sponsorships
CUSTOMER SERVICE DEPARTMENT
PSO has recently set up a dedicated service department that is major step
towards company’s overall objective of becoming a customer-oriented
company. Located at the company’s head office in Karachi the CSD is the first
point of contact for the customers on day to day concerns and provides
centralized customer service across Pakistan Trained and professional staff
attends to and solves the customers concerns and complaints quickly and
effectively.
PUBLIC AFFAIRS/PUBLIC RELATIONS DEPARTMENT (PRD)
The major function of the PRD is to ensure the projection of the company’s
image as the country’s premier public sector organization and conscientious
citizens. This is achieved by highlighting positive stories about the company in
the media. Other functions of the department include event media
management speech writing and keeping Managing Director and the company

Prepared By
Abdullah Baig 34
hierarchy informed. The department also tackles press queries and sets up
interviews of the Managing Director with the media. It also coordinates with the
brand management and other departments in the planning of events press
conferences workshops seminars etc. The department is also involved in giving
banners and tackling adds requests not related to advertisements campaign.
The department personnel are also involved in the preparation of the annual
report and writing of articles.
CHAIN OF COMMAND
It is an unbroken line of authority that extends from the upper levels of the
organization to the lowest levels and defines who reports to whom. As PSO
follows traditional objective setting decision are made totally by the top
management. The authority is given to the managers to give orders and
employees are bound to follow them. It is the responsibility of the employees to
perform those duties assigned to them.
UNITY OF COMMAND
On PSO the unity of command hoes in the following sequence:
 Chairman
 Managing Director
 7 General Managers
 Divisional managers
 1 sale Executive
 8 - 12 Sales officers

Prepared By
Abdullah Baig 34
Managing Director is answerable to the Chairman. MD has 7 general managers
working under him. Every G.M has 8 DMs working under him. Every DM has a
Sales executive and under him there are 8-12 sales officers.
CENTRALIZATION
PSO is a highly centralized company i.e. decision-making is concentrated in the
upper levels of the organization. The Top management makes the company’s
key decisions with little or no input from the lower level employees. PSO is more
centralized because the environment is stable company is large and lower level
managers are not as capable or experienced at making decisions as upper level
managers.
MECHANISTIC ORGANIZATION
PSO is a mechanistic organization with a highly controlled structure. In the
mechanistic structure work specialization creates jobs that are simple routine
and standardized. Extensive departmentalization increases impersonality and
the need for multiple layers of management to coordinate these specialized
departments. There is also a strict adherence to the unity of command principle.
As the distance between the top and the bottom of the organization is wide, top
managers tend to impose rules and regulations to control the employees’
behavior.
DECISION MAKING
Decision-making is an important aspect of the company, which needs to be
thoroughly evaluated before making a final and firm decision. The working of
organization depends upon top management; so good and firm decision in the
organization will have a direct impact on the working environment of such

Prepared By
Abdullah Baig 34
organizations. The manager is responsible for taking the decision of effected
matter keeping in view the after effects. The decisions must be in interests of
the organization
DECISION-MAKING STYLES
ANALYTICAL STYLE: (LONG RUN)
As PSO is sales oriented company and it has many competitors like Shell, Caltex
etc. So they have to consider more alternatives after making a decision. The
managers in this condition have the ability to cope with unique situation.
DIRECTIVE STYLE
In short run, the decision making are more in directive style i.e. managers made
fast and logical decisions. The manager is the focal point in the organization and
he is appropriate authority to a problem arise by his observation or reflected by
someone else from the organization.
TRAINING TYPES AT PSO
In order to main the sustainability of the workforce following many types of
trainings are conducted.
 New Technology and methods
 Personal Skills Development
 Organizational Development
 Emergency Training
 Environment and Safety Trainings

Prepared By
Abdullah Baig 34
 One- and two-day open enrollment workshops Certification Programs
 Project Related Training
 Cross Functional Training
CONCLUSION AND RECOMMENDATIONS
Pakistan state oil (PSO) is the largest company of Pakistan not only in the field
of oil marketing but also otherwise. It has been included in Asia’s top 1000
companies and thus is surely a pride for Pakistan. Although up till now it is
owned by government but it is about to be privatized in a month or so. As
expected after privatization the company would be further more prosperous
and generative in terms of revenues.
 PSO certainly has a competitive advantage over all its competitors because
of the vast network of its outlets all over Pakistan but at the same time a
great deal of responsibility is required by them as they are not only an oil
marketing company but they have some responsibilities towards the people
of Pakistan.
 Take an example of a PSO outlet in Chitral, while deciding to undertake this
project or not the feasibility report rejects the idea of building it but being a
Pakistani socially responsible company if even one public transport bus goes
there then they have to build a petrol station over there.
 PSO has been very innovative and successful since it realized the competition
has actually started after SHELL came and acquired the market share from
PSO. But after coming up with all those “new vision” outlets, PSO has proved
to be never far behind.
 Marketing strategies starting from “Gold card” to “PSOLOYALTY CARD” has
been amazingly good and can be rated as first class strategies. A major
problem faced by PSO is the misconception in people’s mind that the

Prepared By
Abdullah Baig 34
oil used by shell is imported and of better quality, as shell is a foreign
company in Pakistan. Although the sources are same but still shell is also
aware of this fact and is exploiting it. PSO should do something about it like
printing brochures that could explain people about the only sources available
in Pakistan, emphasizing upon the fact that no oil is coming to Pakistan from
any direct abroad sources.
 Caltex basically has some control over the market because of the lubes it sells
and the profit margin on lubes is much higher than on petrol. But as PSO and
CASTROL have come together to make the right combination of “Top two
together” they can overcome this problem as well.
 PSO has done very well in the financial sector, since its new vision period and
will continue with the pace. Innovations and up to dating of the outlets in
accordance with the needs of the changing world is a very important step
towards both marketing and financial prosperity.
 The other problem faced by PSO because of the competition is that the land
acquiring at old or new places the bid gets too high that the land acquired
becomes too expensive.
 PSO is becoming better day-by-day and after privatization the modifications
and changes they are expected to bring.
Income Statement of PSO (Pakistan State Oil)
Fiscal year is January-
December. All values GBP
Millions.
2010 2011 2012 2013 2014
Assets:
Cash & Short Term
Investments
1,754 1,378 1,072 748 570
Cash Only 1,736 1,369 1,062 729 530
Short-Term Investments 18 9 10 19 40
Total Accounts Receivable 1,149 1,189 1,007 1,049 1,310
Accounts Receivables, Net 1,028 1,048 868 863 1,310
Accounts Receivables, Gross 1,111 1,150 923 921 1,310

Prepared By
Abdullah Baig 34
Bad Debt/Doubtful Accounts (83) (102) (55) (58) -
Other Receivables 121 141 139 186 0
Inventories 429 407 261 224 224
Finished Goods 376 363 237 196 -
Work in Progress 19 20 11 13 -
Raw Materials 34 24 13 15 -
Progress Payments & Other 0 0 0 0 -
Other Current Assets 835 847 796 874 820
Prepaid Expenses 111 107 - - -
Miscellaneous Current Assets 724 740 796 874 820
Total Current Assets 4,167 3,821 3,136 2,895 2,924
Net Property, Plant &
Equipment
366 383 327 342 334
Property, Plant & Equipment
- Gross
1,012 1,081 967 975 -
Buildings 336 363 352 375 -
Machinery & Equipment 665 706 597 568 -
Construction in Progress 11 12 18 32 -
Accumulated Depreciation 646 698 640 633 -
Buildings 166 187 195 210 -
Machinery & Equipment 480 511 445 423 -
Total Investments and
Advances
263 235 220 1,297 1,262
LT Investment - Affiliate
Companies
71 32 15 1,092 1,118
Other Long-Term
Investments
192 203 205 205 144
Long-Term Note Receivable 129 151 33 29 82
Intangible Assets 5,467 6,342 6,218 5,801 6,310
Net Goodwill 4,568 5,199 5,077 4,666 5,030
Net Other Intangibles 899 1,143 1,141 1,135 1,280
Other Assets 0 25 1,185 317 190
Deferred Charges 0 25 0 86 190
Tangible Other Assets 0 0 1,185 231 -
Total Assets 10,668 11,244 11,348 10,931 11,397
Liabilities & Shareholders' Equity.
ST Debt & Current Portion LT
Debt
404 87 260 529 342
Short Term Debt 73 78 0 0 0

Prepared By
Abdullah Baig 34
Current Portion of Long Term
Debt
331 9 260 529 342
Accounts Payable 470 483 337 316 1,601
Income Tax Payable 215 213 291 164 190
Other Current Liabilities 1,153 1,307 1,259 1,305 54
Miscellaneous Current
Liabilities
1,153 1,307 1,259 1,305 54
Total Current Liabilities 2,242 2,090 2,147 2,314 2,187
Long-Term Debt 1,908 1,964 2,010 1,693 1,883
Long-Term Debt excl.
Capitalized Leases
1,901 1,955 2,003 1,688 1,883
Non-Convertible Debt 1,901 1,955 2,003 1,688 -
Convertible Debt 0 0 0 0 -
Capitalized Lease Obligations 7 9 7 5 -
Provision for Risks & Charges 190 281 282 219 245
Deferred Taxes 195 333 372 362 419
Deferred Taxes - Credit 471 620 601 612 714
Deferred Taxes - Debit 276 287 229 250 295
Other Liabilities 252 327 598 387 383
Deferred Tax Liability-
Untaxed Reserves
0 0 0 0 -
Other Liabilities (excl.
Deferred Income)
132 180 451 232 383
Deferred Income 120 147 147 155 -
Total Liabilities 5,063 5,282 5,638 5,225 5,412
Non-Equity Reserves 0 0 0 0 -
Preferred Stock (Carrying
Value)
0 0 0 0 -
Redeemable Preferred Stock 0 0 0 0 -
Non-Redeemable Preferred
Stock
0 0 0 0 -
Common Equity (Total) 5,538 5,943 5,686 5,700 5,979
Common Stock Par/Carry
Value
203 204 204 205 205
Additional Paid-In
Capital/Capital Surplus
2,524 2,544 2,555 2,568 2,579
Retained Earnings 2,546 2,980 2,902 3,128 3,200
ESOP Debt Guarantee (137) (149) (103) (98) -

Prepared By
Abdullah Baig 34
Cumulative Translation
Adjustment/Unrealized For.
Exch. Gain
402 364 128 (103) 70
Unrealized Gain/Loss
Marketable Securities
0 0 0 0 -
Revaluation Reserves 0 0 0 0 -
Treasury Stock - - 0 0 -
Total Shareholders' Equity 5,538 5,943 5,686 5,700 5,979
Accumulated Minority
Interest
67 19 24 6 6
Total Equity 5,605 5,962 5,710 5,706 5,985
Liabilities & Shareholders'
Equity
10,668 11,244 11,348 10,931 11,397
INCOME STATEMENT OF PAKISTAN STATE OIL COMPANY:
Fiscal year is January-
December. All values GBP
Millions.
2010 2011 2012 2013 2014
Sales/Revenue 5,663 4,817 4,959 5,069 4,874
Cost of Goods Sold (COGS)
incl. D&A
2,796 2,304 2,433 2,579 2,498
COGS excluding D&A 2,225 2,047 1,871 1,965 1,882
Depreciation & Amortization
Expense
571 257 562 614 616
Depreciation 69 70 72 81 74
Amortization of Intangibles 152 187 490 533 542
Amortization of Deferred
Charges
350 - - - 0
Gross Income 2,867 2,513 2,526 2,490 2,376
SG&A Expense 2,280 1,957 1,982 2,012 1,986
Research & Development 0 0 0 0 -
Other SG&A 2,280 1,957 1,982 2,012 1,986
Other Operating Expense 0 0 0 0 0
Unusual Expense - 12 157 200 161
Non Operating
Income/Expense
115 522 60 122 89

Prepared By
Abdullah Baig 34
Non-Operating Interest
Income
9 13 10 10 18
Interest Expense 82 65 75 82 82
Gross Interest Expense 82 65 75 82 82
Interest Capitalized 0 - - - 0
Pretax Income 629 1,014 382 328 254
Income Tax 146 162 138 87 63
Income Tax - Current
Domestic
69 151 129 136 73
Income Tax - Current Foreign 0 0 0 0 -
Income Tax - Deferred
Domestic
77 11 9 (49) (10)
Income Tax - Deferred
Foreign
0 0 0 0 -
Income Tax Credits 0 0 0 0 0
Equity in Affiliates 41 33 9 54 51
Other After Tax Income
(Expense)
0 0 0 0 -
Consolidated Net Income 524 885 253 295 242
Minority Interest Expense (5) (1) 3 1 (1)
Net Income 529 886 250 294 243
Extraordinaries&
Discontinued Operations
768 71 61 244 228
Extra Items & Gain/Loss Sale
Of Assets
731 0 0 209 227
Cumulative Effect -
Accounting Chg
0 0 0 0 0
Discontinued Operations 37 71 61 35 1
Net Income After
Extraordinaries
(239) 815 189 50 15
Preferred Dividends 0 0 0 0 0
Net Income Available to
Common
529 886 250 294 243
EPS (Basic) 1.62 1.20 0.39 0.67 0.58
Basic Shares Outstanding 801 800 804 808 811
EPS (Diluted) 1.62 1.19 0.39 0.67 0.58
Diluted Shares Outstanding 803 802 806 809 812
EBITDA 1,158 813 1,106 1,092 1,006

Prepared By
Abdullah Baig 34
Financial Statement Analysis of Pakistan State Oil.
Working Capital:
The cash available for day-to-day operations of an organization. Strictly
speaking, one borrows cash to be able to buy assets or to pay for obligations.
Also called current capital.
Working Capital of PSO (Pakistan State Oil)
Formula to find working capital:
Working Capital = Current Assets – Current Liabilities.
Working Capital
2010 2011 2012 2013 2014
Current Assets = A 4167 3821 3136 2895 2924
Current Liability = B 2242 2090 2147 2314 2187
A – B = 1925 1731 989 581 737
Working Capital Ratio:
The working capital ratio is the same as the current ratio. It is the relative
proportion of an entity's current assets to its current liabilities, and is intended
to show the ability of a business to pay for its current liabilities with its current
assets. A working capital ratio of less than 1.0 is a strong indicator that there will
be liquidity problems in the future, while a ratio in the vicinity of 2.0 is
considered to represent good short-term liquidity.
Working Capital Ratio of PSO (Pakistan State Oil)
Formula to find working capital ratio:

Prepared By
Abdullah Baig 34
Working Capital Ratio or Current Ratio = Current Assets / Current Liabilities
Working Capital Ratio OR Current Ratio
2010 2011 2012 2013 2014
Current Assets = A 4167 3821 3136 2895 2924
Current Liabilities = B 2242 2090 2147 2314 2187
A / B = 1.858 1.828 1.460 1.251 1.336
Pakistan State Oil (PSO) company have its working capital ratio greater than “1”
in previous five years, it means there assets are more than there liabilities the
company can pay there all current liabilities with their current assets. If they
have working capital ratio or current ratio “1” then it means companies liabilities
and assets are equal. It is not good condition of the company but in this case the
PSO have more assets then there liability. In 2010 PSO company have current
ratio 1.858 it shows that the company is in good position and in 2011 the
working capital ratio was 1.828 which is approximately similar to 2010 ratio but
in 2011 its fall down a little bit any person can invest their money in this
condition of the company. In 2012 the current ratio was 1.460 means in 2012
their assets becomes low and liability became high compare to the previous two
years 2010 and 2011. In 2013 the current ratio was fall down compare to the
2012 it was 1.251. if we see that in 2013 the current ratio of the Pakistan State
Oil was at the worst position of the record of previous five years but this position
is also shows that investor can invest in the company because in this condition
companies assets are more than their liabilities in 2014 Pakistan State Oil
company bit more improve their current ratio it became 1.336 and in 2014
company first time improved their current ratio in the period of previous five
years.

Prepared By
Abdullah Baig 34
Acid Test Ratio / Quick Ratio:
A stringent indicator that determines whether a firm has enough short-term
assets to cover its immediate liabilities without selling inventory. The acid-test
ratio is far more strenuous than the working capital ratio, primarily because the
working capital ratio allows for the inclusion of inventory assets.
Acid Test Ratio of PSO (Pakistan State Oil)
Formula to find Acid test ratio or Quick ratio.
Acid test ratio or Quick ratio = Current Assets – Inventories / Current Liability.
Acid Test Ratio OR Quick Ratio
2010 2011 2012 2013 2014
Current Assets 4167 3821 3136 2895 2924
Ending Inventory
(Less)
(-) 429 (-) 407 (-) 261 (-) 224 (-) 224
Remaining Current
Assets.
3738 3414 2875 2671 2700
Current Liability 2242 2090 2147 2314 2187
Acid Test Ratio. 1.667 1.663 1.339 1.154 1.234
The Acid test ratio I also known as Quick ratio the acid test ratio shows the
company liquidity position. Pakistan State Oil Company’s acid test ratio in 2010
was 1.667, in 2011 it was 1.633 there is not a big difference in 2010 and in 2011
acid test ratio of PSO but in 2012 it came down it become 1.339, in 2013 it was
at the lowest position of the last five year acid test ratio it was 1.154 but this
condition was also not danger for the company and in 2014 the acid test ratio
became 1.234 it improved from the previous year quick ratio in short we can say
that company is in good position for the last five years.

Prepared By
Abdullah Baig 34
Cash Ratio:
The ratio of a company's total cash and cash equivalents to its current liabilities.
The cash ratio is most commonly used as a measure of company liquidity. It can
therefore determine if, and how quickly, the company can repay its short-term
debt. A strong cash ratio is useful to creditors when deciding how much debt, if
any, they would be willing to extend to the asking party.
Cash Ratio of PSO (Pakistan State Oil)
Formula to find Cash Ratio:
Cash Ratio = Cash + Cash equivalents / Current Liabilities.
Cash Ratio
2010 2011 2012 2013 2014
Cash & Including Short Term Investment 1754 1378 1072 748 570
Current Liabilities 2242 2090 2147 2314 2187
Cash Ratio = 0.781 0.659 0.499 0.323 0.260
Cash ratio or cash coverage ratio it shows the company can pay their liabilities
with the cash and the cash equivalent. In 2010 Pakistan State Oil company had
cash ratio 0.78 it means it is 78% it shows the bad condition of the company
because a company should not have a large amount of cash they should invest
this cash amount anywhere else. The company only should have 50% cash Ratio
that much cash is acceptable in any company. In 2011 the cash ratio was 0.66
means 66% this condition is batter then 2010 but it is also bad condition. In 2012
company have cash ratio o.50 means 50% it is the best condition of the
company. This shows that company can pay there 50% liabilities with cash or
cash equivalent. In 2013 it became 0.323 means 32% this condition of the
company is moderate not very good nor bad but in 2014 it become 0.26 means
26% this is going towards bad condition of the company.

Prepared By
Abdullah Baig 34
Trend Analysis:
2010 2011 2012 2013 2014
Working Capital Ratio 1.858 1.828 1.460 1.251 1.336
Acid Test Ratio 1.667 1.663 1.339 1.154 1.234
Cash Ratio 0.781 0.659 0.499 0.323 0.260
1.858 1.828
1.46
1.251 1.336
1.667 1.663
1.339
1.154
1.234
0.781
0.659
0.499
0.323 0.26
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
2010 2011 2012 2013 2014
Working Capital Ratio Acid Test Ratio Cash Ratio
0
0.5
1
1.5
2
2010 2011 2012 2013 2014
1.858 1.828
1.46
1.251
1.336
1.667 1.663
1.339
1.154
1.234
0.781
0.659
0.499
0.323 0.26
Working Capital Ratio Acid Test Ratio Cash Ratio

Prepared By
Abdullah Baig 34
Financial Leverage Ratio OR Solvency Ratio:
Companies rely on a mixture of owners' equity and debt to finance their
operations. A leverage ratio is any one of several financial measurements that
look at how much capital comes in the form of debt (loans), or assesses the
ability of a company to meet financial obligations.
The most common leverage ratios are:
i. Debt – Equity Ratio.
ii. Debt Ratio / Debt to Total Assets Ratio
Debt Equity Ratio:
A measure of a company's financial leverage calculated by dividing its total
liabilities by stockholders' equity. It indicates what proportion of equity and debt
the company is using to finance its assets.
Debt Equity Ratio of PSO (Pakistan State Oil)
Formula to find Debt Equity Ratio:
Debt Equity Ratio = Total Debt / Total Shareholder’s Equity.
Total debt for 2010 = 5063
Total Shareholder’s equity for 2010 = 5538

Prepared By
Abdullah Baig 34
Debt Equity Ratio for 2010 = 5063 / 5538 = 0.91 (0.91 x 100 = 91%)
Debt Ratio / Debt to Total Assets Ratio
A financial ratio that measures the extent of a company’s or consumer’s
leverage. The debt ratio is defined as the ratio of total debt to total assets,
expressed in percentage, and can be interpreted as the proportion of a
company’s assets that are financed by debt.
Debt Ratio of PSO (Pakistan State Oil)
Formula to find Debt Ratio:
Debt Ratio = Total Debt / Total Assets.

Prepared By
Abdullah Baig 34
Total assets for 2010 = 10668
Debt Ratio for 2010 = 5063 / 10668 = 0.47 (0.47 x 100 = 47%)
Debt Ratio for 2011 = 5282 / 11244 = 0.47 (0.47 x 100 = 47%)
Debt Ratio for 2012 = 5638 / 11348 = 0.50 (0.50 x 100 = 50%)
Debt Ratio for 2013 = 5225 / 10931 = 0.48 (0.48 x 100 = 48%)
Debt Ratio for 2014 = 5412 / 11397 = 0.47 (0.47 x 100 = 47%)
Activity Ratio:
Accounting ratios that measure a firm's ability to convert different accounts
within its balance sheets into cash or sales. Activity ratios are used to measure
the relative efficiency of a firm based on its use of its assets, leverage or other
such balance sheet items. These ratios are important in determining whether a
company's management is doing a good enough job of generating revenues,
cash, etc. from its resources.
This ratio generally include:
i. Accounts Receivable Turnover.
ii. Average Collection Period / Receivable Turnover in Days.

Prepared By
Abdullah Baig 34
iii. Accounts Payable Turnover.
iv. Average Payment Period / Payable Turnover in Days.
v. Inventory Turnover.
Accounts Receivable Turnover:
It's an efficiency ratio or activity ratio that measures how many times a business
can turn its accounts receivable into cash during a period. In other words, the
accounts receivable turnover ratio measures how many times a business can
collect its average accounts receivable during the year.
A turn refers to each time a company collects its average receivables. If a
company had $20,000 of average receivables during the year and collected
$40,000 of receivables during the year, the company would have turned its
accounts receivable twice because it collected twice the amount of average
receivables.
This ratio shows how efficient a company is at collecting its credit sales from
customers. Some companies collect their receivables from customers in 90 days
while other take up to 6 months to collect from customers.
In some ways the receivables turnover ratio can be viewed as a liquidity ratio as
well. Companies are more liquid the faster they can convert their receivables
into cash.
Accounts Receivable Turnover of PSO (Pakistan State Oil)
Formula to find account receivable turnover:
Accounts Receivable Turnover = Annual Credit Sale / Accounts Receivable.
Accounts Receivable Turnover for the year 2010 = 5663 / 1149 = 4.92
The Pakistan State Oil company converting their Accounts Receivable into cash
approximately 5 times in the year of 2010.

Prepared By
Abdullah Baig 34
The company was converting their Accounts Receivable into cash 4 times in the
year of 2011.
In 2012 company is converting their Account Receivable into cash approximately
5 times in the year.
In the year of 2013 the PSO converted their Accounts Receivable into cash
approximately 5 times.
In the year of 2014 PSO converted their Accounts Receivable into cash
approximately 4 times.
Average Collection Period:
The Average Collection Period measures the average number of days it takes for
the company to collect revenue from its credit sales. The company will usually
state its credit policies in its financial statement, so the Average Collection
Period can be easily gauged as to whether or not it is indicating positive or
negative information.
Average collection period of PSO (Pakistan State Oil)
Formula to find average collection period is:
Average Collection Period = Days in the year / Receivable Turnover.
Average Collection Period for the Year 2010 = 365 / 4.92 = 74.18
Approximately 74 days.

Prepared By
Abdullah Baig 34
The company is converting their Accounts Receivable into cash in every 74 days
in the year of 2010.
Average Collection Period for the Year 2011 = 365 /4.05 = 90.12
The company converted their Accounts Receivable into cash in every 90 days in
the year of 2011.
The company was converting their Accounts Receivable into cash in every 74
days in the year of 2012.
In 2013 PSO was converting their Accounts Receivable into cash in every 76 days.
In 2014 the company converted their Accounts Receivable into cash in every 89
days.
Accounts Payable Turnover:
Accounts payable turnover ratio is an accounting liquidity metric that evaluates
how fast a company pays off its creditors (suppliers). The ratio shows how many
times in a given period (typically 1 year) a company pays its average accounts
payable. An accounts payable turnover ratio measures the number of times a
company pays its suppliers during a specific accounting period.

Prepared By
Abdullah Baig 34
Accounts Payable Turnover of PSO (Pakistan State Oil)
Formula to find Accounts Payable Turnover:
Accounts Payable Turnover = Annual Credit Purchases / Accounts Payable.
Accounts Payable Turnover for the year 2010 = 2225 / 470 = 4.734
The company approximately pay their Accounts Payable 5 times in the year of
2010 it is moderate condition of the company because their receivables are also
5 times in the year of 2010.
The company approximately pay their Accounts Payable 4 times in the year of
2011 it is also moderate condition of the company.
The Pakistan State Oil was paying their Accounts Payable approximately 6 times
in the year of 2012 it shows the bad condition of the company. Company was
receiving their receivable 5 times in the year of 2012.
The company was paying Accounts Payable approximately 6 times in the year it
also shows the bad condition of the company.
The company bit improved their condition but this condition is also not good
company is paying their Accounts Payable approximately 6 times in the year of
2014.

Prepared By
Abdullah Baig 34
Average Payment Period:
Average payment period means the average period taken by the company in
making payments to its creditors. It is computed by dividing the number of
working days in a year by creditors’ turnover ratio. Some other formula for its
computation is given below:
Average Payment Period of PSO (Pakistan State Oil)
Formula to find average payment period:
Average Payment Period = Days in the year / Payable Turnover.
Average Payment Period of the Year 2010 = 365 / 4.734 = 77.10
After every 77 days the PSO Company paid their Accounts Payable
Average Payment Period of the Year 2011 = 365 /4.23 = 86.28
After every 86 days the Company paid their Accounts Payable in the year of
2011.
After every 66 days the company paid their Accounts Payable in the year of 2012.
After every 59 days the company paid their Accounts payable in the year of
2013.

Prepared By
Abdullah Baig 34
After every 64 days the company paid their Accounts Payable in the year of 2014.
Inventory Turnover:
A ratio showing how many times a company's inventory is sold and replaced
over a period. The days in the period can then be divided by the inventory
turnover formula to calculate the days it takes to sell the inventory on hand or
"inventory turnover days.”
Inventory Turnover of PSO (Pakistan State Oil)
Formula to find inventory turnover:
Inventory Turnover = Cost of goods sold / Inventory.
Inventory Turnover for the year 2010 = 2796 / 429 = 6.51
= 365 / 6.51 = 56.06
The PSO company can sell their inventory 6 to 7 times or with in every 56 days
in the year of 2010.
= 365 / 5.66 = 64.48
The PSO Company sell their inventory in every 64 days in the year of 2011.
= 365 / 9.32 = 39.16

Prepared By
Abdullah Baig 34
The PSO Company converts their inventory into cash in every 39 days in the year
2012.
= 365 / 11.51 = 31.71
The PSO Company converted their inventory into cash in every 32 days in the
year of 2013.
= 365 / 11.15 = 32.73
The PSO Company converted their inventory into cash in every 33 days in the
year of 2014.
Profitability Ratio:
A class of financial metrics that are used to assess a business's ability to generate
earnings as compared to its expenses and other relevant costs incurred during a
specific period of time. For most of these ratios, having a higher value relative
to a competitor's ratio or the same ratio from a previous period is indicative that
the company is doing well.
Gross Profit Margin:
A financial metric used to assess a firm's financial health by revealing the
proportion of money left over from revenues after accounting for the cost of

Prepared By
Abdullah Baig 34
goods sold. Gross profit margin serves as the source for paying additional
expenses and future savings.
Gross Profit Margin of PSO (Pakistan State Oil)
Formula to find gross profit margin:
Gross Profit Margin = Gross Profit / Net Sales.
Gross Profit Margin of 2010 = 2867 / 5663 = 0.506
= 0.506 x 100 = 50.6%
= 0.521 x 100 = 52.1%
= 0.509 x 100 = 50.9%
= 0.491 x 100 = 49.1%
= 0.487 x 100 = 48.7%
Operating Profit Margin:
Operating margin gives analysts an idea of how much a company makes (before
interest and taxes) on each dollar of sales. When looking at operating margin to
determine the quality of a company, it is best to look at the change in operating
margin over time and to compare the company's yearly or quarterly figures to
those of its competitors. If a company's margin is increasing, it is earning more
per dollar of sales.
Operating Profit Margin of PSO (Pakistan State Oil)

Prepared By
Abdullah Baig 34
Formula to find operating profit margin:
Operating Profit Margin = EBIT / Net Sales.
Operating Profit Margin for 2010 = 1158 / 5663 = 0.204
= 0.204 x 100 = 20.4%
= 0.168 x 100 = 16.8%
= 0.223 x 100 = 22.3%
= 0.215 x 100 = 21.5%
= 0.206 x 100 = 20.6%
Net Profit Margin:
Net profit margin is the percentage of revenue remaining after all operating
expenses, interest, taxesand preferred stock dividends (but not common stock
dividends) have been deducted from a company's total revenue.
Net Profit Margin of PSO (Pakistan State Oil)
Formula to find net profit margin:
Net Profit Margin = Net Profit / Net Sale
Net Profit Margin of 2010 = 529 / 5663 = 0.093

Prepared By
Abdullah Baig 34
= 0.093 x 100 = 9.34%
= 0.183 x 100 = 18.3%
= 0.050 x 100 = 5%
= 0.057 x 100 = 5.7%
= 0.049 x 100 = 4.9%
Return on Investment:
A performance measure used to evaluate the efficiency of an investment or to
compare the efficiency of a number of different investments. To calculate ROI,
the benefit (return) of an investment is divided by the cost of the investment;
the result is expressed as a percentage or a ratio.
Return on Investment of PSO (Pakistan State Oil)
Formula to find return on investment:
Return on investment = Net Profit / Total Assets.
Return on Investment of the year 2010 = 529 / 10668 = 0.049
= 0.049 x 100 = 4.9%
= 0.078 x 100 = 7.8%

Prepared By
Abdullah Baig 34
= 0.022 x 100 = 2.2%
= 0.026 x 100 = 2.6%
Return on investment of the year 2014 = 243 / 11397 = 0.021
= 0.021 x 100 = 2.1%
Return on Equity:
The amount of net income returned as a percentage of shareholders equity.
Return on equity measures a corporation's profitability by revealing how much
profit a company generates with the money shareholders have invested.
Return on Equity of PSO (Pakistan State Oil)
Formula to find return on equity:
Return on Equity = Net Profit / Shareholders’ Equity.
Return on Equity for the Year 2010 = 529 / 5538 = 0.095
= 0.095 x 100 = 9.5%
= 0.149 x 100 = 14.9%
= 0.043 x 100 = 4.3%
Return on Equity for the Year 2013 =294 / 5700 = 0.051

Prepared By
Abdullah Baig 34
= 0.051 x 100 =5.1%
= 0.021 x 100 = 2.1%

Financial Statement Analysis of PSO

More Related Content

What's hot (19)

Similar to Financial Statement Analysis of PSO (20)

Recently uploaded (20)

Financial Statement Analysis of PSO