Shell

Financial Management Term Project Report

Financial Ratio Analysis

Financial Ratio Analysis of SHELL and PSO on the basis of financial record of 2007 and 2008

2009

Acknowledgement

First of all we would like to thank our teacher for giving our group the opportunity to do this project as part of our Financial Management course. With this project, we have experienced the practical side of doing the financial ratio analysis. It appear as if by doing this analysis report we would definitely be having some idea of what is ahead for us ahead and that Finance is more than just accounting.

As students of Financial Management, we have found it rewarding in terms of understanding the requirements, and the process of compiling a term report, which was motivating as well as helpful task for us as a group.

We also like to thank you for not making the class boring and for imparting us knowledge and wisdom in the light of your experience.

Table of Content

Contents

1. INTRODUCTION OF THE SHELL AND PSO .......................................................................... 1

A. SHELL PAKISTAN (OUR COMPANY)..............................................................................................1B. PAKISTAN STATE OIL (COMPETITORS COMPANY)........................................................................3

2. RATIO ANALYSIS ...................................................................................................................... 4

1. LIQUIDITY RATIOS........................................................................................................................4A. CURRENT RATIO.................................................................................................................................4B. QUICK RATIO......................................................................................................................................52. LEVERAGE RATIO.........................................................................................................................6A. TOTAL DEBT RATIO.............................................................................................................................6B. DEBT TO EQUITY RATIO......................................................................................................................73. COVERAGE RATIO.........................................................................................................................8A. TIMES INTEREST EARNED...................................................................................................................84. EFFICIENCY RATIOS...............................................................................................................9A. RECEIVABLE TURNOVER.....................................................................................................................9B. AVERAGE COLLECTION PERIOD IN DAYS..........................................................................................11C. INVENTORY TURNOVER RATIO.........................................................................................................12D. INVENTORY TURNOVER PERIOD IN DAYS.........................................................................................13E. TOTAL ASSET TURNOVER RATIO......................................................................................................145. PROFITABILITY RATIOS...............................................................................................................15A. GROSS PROFIT MARGIN.....................................................................................................................15B. NET PROFIT MARGIN..........................................................................................................................16C. RETURN ON INVESTMENT..................................................................................................................18D. RETURN ON EQUITY..........................................................................................................................196. EQUITY RATIOS...........................................................................................................................20A. EARNINGS PER SHARE......................................................................................................................20B. PRICE PER EARNING RATIO.............................................................................................................21

3. SHELL & PSO BALANCE SHEET AND INCOME STATEMENT ........................................ 23

A. SHELL BALANCE SHEET..............................................................................................................23B. SHELL INCOME STATEMENT.......................................................................................................25

C. PSO BALANCE SHEET.................................................................................................................26D. PSO INCOME STATEMENT..........................................................................................................28

4. COMMON SIZE & INDEX ANALYSIS ................................................................................... 29

A. COMMON SIZE BALANCE SHEET OF SHELL..............................................................................29B. COMMON SIZE BALANCE SHEET OF PSO....................................................................................31C. COMMON SIZE INCOME STATEMENT OF SHELL........................................................................33D. COMMON SIZE INCOME STATEMENT OF PSO.............................................................................34E. INDEXED BALANCE SHEET OF SHELL..........................................................................................35F. INDEXED BALANCE SHEET OF PSO.............................................................................................37G. INDEXED INCOME STATEMENT OF SHELL.................................................................................39H. INDEXED INCOME STATEMENT OF PSO......................................................................................40

5. SUMMARY OF THE ANALYSIS ............................................................................................. 41

6. CONCLUSION AND POSSIBLE RECOMMENDATIONS ..................................................... 42

7. APPENDIX .................................................................................................................................. A

A. SHELL BALANCE SHEET ‘08.........................................................................................................AB) SHELL INCOME STATEMENT ‘08...................................................................................................BC) SHELL BALANCE SHEET ‘07.........................................................................................................CD) SHELL INCOME STATEMENT ‘07............................................................................................................DE) PSO BALANCE SHEET ‘08....................................................................................................................EF) PSO INCOME STATEMENT 08........................................................................................................FG) PSO BALANCE SHEET ‘07............................................................................................................Gh) PSO Income Statement ‘07.................................................................................................................H

1. Introduction of the Shell and PSO

a. Shell Pakistan (Our Company)

Shell is a superior brand name with over a 100-year history in the subcontinent. Shell in Pakistan

has played a leading role in abridging the growing energy demand gap in the country and has a

stake in Pakistan Refinery, LPG distribution and a shareholding in the white oil pipeline. The

primary goal of the company is to position itself as the preferred oil and Gas Company in

Pakistan, leading the field in its commitment to customer service, quality of products, safety and

environmental protection. Over the last decade, Shell Pakistan has developed a robust program

of social investment, which supports organizations and initiatives in areas of health, education,

welfare, community development, heritage and environment. Our Shell Tameer Program,

introduced in 2003, today exists as one of the foremost efforts to facilitate youth

entrepreneurship in the country and has engaged more than 45,000 young people through

workshops, seminars, and community engagements. We continue to strive toward operational

excellence and remain committed to growing our business in Pakistan.

Shell Pakistan Limited (Shell Pakistan) is engaged in marketing of compressed natural gas and petroleum. The company provides different types of lubricating oil. Shell Pakistan caters to businesses and motorists. The company for businesses provides Shell cards, aviation customer service, exploration and production, transport, liquefied petroleum gas and industrial operations for power, automotive and sugar. Shell Pakistan for motorists provides customer service, car care tips, shell Helix motor oil and Shell advance motorcycle oil. The company also participates in motor sports like formula one and Moto GP by tying up with Audi, Ferrari and Ducati. Shell Pakistan is headquartered at Karachi, Pakistan.

Shell’s range of innovative products is constantly expanding, supported by extensive research and development. With an eye on the future, Shell has evolved with a new identity in Pakistan. The overall brand positioning today has also evolved in line with the global theme of Made to Move, which is symbolic of Shell’s endeavor for our customers, who are forever on the move.

Our efforts to promote business excellence are not just limited to our products and services, but are also included in the way we do business. Over the past year, Shell Pakistan has made commendable strides in introducing global technical standards into the industry. In 2007, Shell Pakistan had inducted eight such vehicles, with the fleet expected to double in number by the end of 2008. In order to further strengthen and streamline our internal processes and to increase efficiencies, Shell Pakistan has embarked on Shell Group’s Global ‘Downstream-One’ journey. The ultimate goal of Downstream-One is to reduce business complexity and increase operational efficiency in order to reduce costs and increase competitiveness, while simultaneously enhancing

Institute of Business Management Page 1

customer satisfaction. Shell Pakistan commenced its challenging Downstream-One journey with an introductory mobilization session in January 2008. With just over 21 months left for our momentous Go-Live on 1st April 2010, Shell Pakistan is engaging and preparing its stakeholders and businesses for the ensuing changes and benefits that will come from moving to a truly global system. Shell Pakistan’s IT department contributed to strengthening efficiencies within the organization in 2007-08 by providing a robust infrastructure for supporting our growing business. The capacity of our international circuit was upgraded successfully to ensure a more reliable communication network to support consolidated Shell systems. Shell Aviation also rolled out its global Apron system at Karachi airport, which will allow real-time communication from the apron to back-office IT systems. This is the first implementation of its kind for the aviation industry in Pakistan.


b. Pakistan State Oil (Competitors Company)

PSO is the market leader in Pakistan’s energy sector. The company has the largest network of retail outlets to serve the automotive sector and is the major fuel supplier to aviation, railways, power projects, armed forces and agriculture sector. PSO takes pride in continuing the tradition of excellence and is fully committed to meet the energy needs of today and rising challenges of tomorrow.

Pakistan State Oil, the largest oil marketing company in the country, is currently engaged in storage, distribution and marketing of various POL products. The company’s current value of Rs. 75 billion, its 82.1% share in the black oil market and 61.2% share in the white oil market, alone speak volumes about its success.

The company’s astounding growth in terms of sales and turnover, combined with its status of being the first Pakistani Public Sector Company to become a member of the World Economic Forum (WEF), and winning the “Karachi Stock Exchange Top Companies Award” has made PSO a notable company world over.

PSO has the widest strategic oil distribution network. This network comprises of 29 storage depots and 9 installations, 860,000 MTs of capacity i.e. almost 81% of total national storage, numerous pipe lines network and equity partnership in White Oil Pipeline Project (WOPP) from Karachi to Mehmood Kot.

A most efficient product movement system for its POL products facilitates the operations at PSO. This system includes a fleet of 6000 tank Lorries, tank wagons and pipelines. With the inception of white oil pipeline (WOPP) the pattern of supplies from Karachi has changed drastically as the entire white oil movement from Karachi has been switched over from tank lorries to pipelines. Moreover, to make this system more efficient and effective, new pilfer-proof tank Lorries equipped with satellite tracking system have been introduced.

With its 3612 distribution outlets, PSO has the largest network in the country. Out of these, 1,610 outlets have been upgraded as per the New Vision Retail Program, with most modern facilities like electronic dispensing units, convenience stores, business centers, Easy Payment Centers and customer friendly staff to provide unmatched and diverse services to its customers, all of which are comparable to international practices.

The fact that PSO serves 2.8 million retail customers on daily basis, along with 2000 industrial units and business houses, is indicative of its vast customer base. The company has also been meeting the fuel needs of various government entities, armed forces, railways, agriculture sector, IPPs and industrial units. PSO also provides Jet Fuel to Refueling Facilities at 9 airports in Pakistan and ship fuel at 3 ports.


2. Ratio Analysis

1. LIQUIDITY RATIOS

A. CURRENT RATIO

Shows a company’s ability to pay off its current liabilities from its current assets.

Formula=

Shell2007 Current Assets 20041859 Current

Liabilities19612115

2008 Current Assets 30220209 Current Liabilities

23307811

PSO


51385727


93736220


INTERNAL COMPARISON

Shell’s Current ratio increased significantly as compared to previous year although the volume of current liabilities increased as a whole due to increase in trade payables but current assets grew at a rapid rate. The reason behind this was the significant change in the value of stock in trade. This is due to higher prices of petroleum products during that time and the company is using FIFO method for its inventory. Also, the working capital requirements from the GOP was increased for MNC’s.

EXTERNAL COMPARISON

Shell current ratio increased more rapidly as compared to PSO because PSO current liabilities grew at the same level as their current assets. PSO benefited from not being an MNC.

B. QUICK RATIO

Shows a firm’s ability to meet its current liabilities with its most liquid assets.

FORMULA=

SHELL

2007 Current Assets

20041859 Current Liabilities

19612115 Inventory 8244054

2008 Current Assets


23307811 Inventory 18095523

PSO2007 Current

Assets62513273 Current

Liabilities51385727 Inventory 29562055

2008 Current Assets


93736220 Inventory 62360067


INTERNAL COMPARISON

Shell’s Quick ratio decreased due to higher prices of petroleum products, as the volume allocated for inventories was higher.

EXTERNAL COMPARISON

There is no significant difference between the decreases of the ratio of both the companies as compared to their previous benchmarks.

2. LEVERAGE RATIO

A. TOTAL DEBT RATIO

Shows the percentage of the firm’s assets that are supported by debt financing.

FORMULA=

Shell2007 Total Debts 19751156 Total Assets 292119272008 Total Debts 26053221 Total Assets 39664859

PSO2007 Total Debts 53798098 Total Assets 747373152008 Total Debts 96144966 Total Assets 127110020


INTERNAL COMPARISON

Shell’s total debt increased in absolute amount but not at a pace of changing total assets that’s why a minor fall in debt ratio is seen.

EXTERNAL COMPARISON

Pso’s total debt increased at a higher pace than its total assets mainly due to the change in current liabilities. Overall PSO has become more leveraged than shell. The main reason behind this was the higher amount of GOP’s receivables were not paid to PSO and to tackle with cashflow problems the company had to finance more than previous.

B. DEBT TO EQUITY RATIO

Shows the extent to which the firm is financed by debt.

Formula=

Shell2007 Total Debts 19751156 Total Equity 94607712008 Total Debts 26053221 Total Equity 13611638

PSO2007 Total Debts 53798098 Total Equity 20929217


2008 Total Debts 96144966 Total Equity 30965054

INTERNAL COMPARISON

Shell’s debt to equity ratio decreased due to increase in its retained earnings.

EXTERNAL COMPARISON

Shell has maintained its debt to equity ratio better than PSO whose ratio has fluctuated apparently than the previous year. This effect can be seen in the previous total debt’s ratio. The main reason behind that was to finance the excessive receivables not yet paid by GOP.

3. COVERAGE RATIO

A. TIMES INTEREST EARNED

Shows a firm’s ability to cover its interest charges.

FORMULA=

Shell2007 EBIT 1166405 Interest

Expense909919

2008 EBIT 8481359 Interest 970267


ExpensePSO

2007 EBIT 7949786 Interest Expense

1158112

2008 EBIT 22450992 Interest Expense

1367898

INTERNAL COMPARISON

Shell has significantly improved its time interest earned ratio due to the massive increase in its operating income.

EXTERNAL COMPARISON

Although shell interest earned ratio increased significantly but it is still 50 percent as compared to Pso who is at good position.

4. EFFICIENCY RATIOS

A. RECEIVABLE TURNOVER

Indicates how successful the firm is in collection of receivable


FORMULA=

Shell2007 Credit Sales 130129844 Avg A/R 4905639.52008 Credit Sales 157626491 Avg A/R 4578132.5

PSO2007 Credit Sales 411057592 Avg A/R 126579172008 Credit Sales 583213959 Avg A/R 23752347

INTERNAL COMPARISON

Shell has managed to control its receivable volume with the growing sales level. That’s why a increase in the ratio has been seen which shows its efficiency in collecting receivables while at the same time increasing its sales volume.

EXTERNAL COMPARISON

Pso’ s ratio has been deteriorated as compared to previous year which shows its relative inefficiency in collecting receivables as compared to Shell. The main amount of receivables which had affected the figures is from Government of Pakistan and IPP’s.


B. AVERAGE COLLECTION PERIOD IN DAYS

Average number of days the receivables is outstanding.

FORMULA=

Shell2007 Days 365 Receivable

Turnover26.53

2008 Days 365 Receivable Turnover

34.43

PSO2007 Days 365 Receivable

Turnover32.47

2008 Days 365 Receivable Turnover

24.55

INTERNAL COMPARISON

Shell has managed to control its receivable volume with the growing sales level. That’s why a increase in the ratio has been seen which shows its efficiency in collecting receivables while at the same time increasing its sales volume.


EXTERNAL COMPARISON

Pso’ s ratio has been deteriorated as compared to previous year which shows its relative inefficiency in collecting receivables as compared to Shell.

C. INVENTORY TURNOVER RATIO

Indicates the effectiveness of the inventory management practices of the firm.

Formula=

Shell2007 COGS 108664932 Avg Inventory 91119702008 COGS 124694471 Avg Inventory 13169788.5

PSO2007 COGS 337446896 Avg Inventory 288653442008 COGS 465254907 Avg Inventory 45961061


INTERNAL COMPARISON

Shell’s situation in that particular section has deteriorated significantly because of the large accumulation of inventory, may be not in physical quantities but in rupee amount due to higher oil prices. This can adversely affects the company earnings in the future.

EXTERNAL COMPARISON

In comparison with Shell Pso has maintained its inventory turnover ratio more efficiently although a decrease in ratio can be seen there also.

D. INVENTORY TURNOVER PERIOD IN DAYS

Average number of days before inventory is turned into accounts receivable through sales.

Formula=

Shell2007 Days 365 Inventory

Turnover11.93

2008 Days 365 Inventory Turnover

9.47

PSO2007 Days 365 Inventory

Turnover11.69

2008 Days 365 Inventory Turnover

10.12


INTERNAL COMPARISON

Shell’s situation in that particular section has deteriorated significantly because of the large accumulation of inventory, may be not in physical quantities but in rupee amount due to higher oil prices. This can adversely affects the company earnings in the future.

EXTERNAL COMPARISON

In comparison with Shell Pso has maintained its inventory turnover ratio more efficiently although a decrease in ratio can be seen there also.

E. TOTAL ASSET TURNOVER RATIO

Indicates the overall effectiveness of the firm in utilizing its assets to generate sales.

Formula=

Shell2007 Net Sales 130129844 Avg Total

Assets28752163

2008 Net Sales 157626491 Avg Total Assets

34438393


PSO2007 Net Sales 411057592 Avg Total

Assets72452919.5

2008 Net Sales 583213959 Avg Total Assets

100923667.5

INTERNAL COMPARISON

Shell Total asset turnover remained at the same level as the previous year.

EXTERNAL COMPARISON

Pso’s ratio also maintained at its previous level but Pso is more efficient in utilizing its assets overall.

5. PROFITABILITY RATIOS

A. GROSS PROFIT MARGIN

Indicates the efficiency of the operations and the firm’s pricing policies.

Formula=


Shell2007 Gross Profit 6380502 Net Sales 1301298442008 Gross Profit 15150218 Net Sales 157626491

PSO2007 Gross Profit 12259430 Net Sales 4110575922008 Gross Profit 30023626 Net Sales 583213959

INTERNAL COMPARISON

GPM of Shell has doubled from the previous year which is a good sign for company’s operations. That might because of increasing oil prices.

EXTERNAL COMPARISON

GPM of Pso also doubled because of the same effect but the overall level of Shell is far higher than Pso.

B. NET PROFIT MARGIN

Indicates the firm’s profitability after taking account of all expenses and income taxes.

FORMULA=


Shell2007 Net Profit 706659 Net Sales 1301298442008 Net Profit 5137094 Net Sales 157626491

PSO2007 Net Profit 4689798 Net Sales 4110575922008 Net Profit 14053795 Net Sales 583213959

INTERNAL COMPARISON

Shell’s NPM has improved a lot from the previous year level. This must be the same effect as seen in the company’s GPM.

EXTERNAL COMPARISON

Pso’s NPM has also improved but not as significant as Shell’s. In fact the company was in better position as compared to shell previous year.


C. RETURN ON INVESTMENT

Indicates the profitability on the assets of the firm (after all expenses and taxes).

FORMULA=

Shell2007 Net Income 706659 Avg Total

Assets28752163

2008 Net Income 5137094 Avg Total Assets

34438393

PSO2007 Net Income 4689798 Net Sales 72452919.52008 Net Income 14053795 Net Sales 100923667.5

INTERNAL COMPARISON

The company’s ROI has also improved as seen in the previous ratios.

EXTERNAL COMPARISON

Shell ROI has increased more massively as compared to Pso.


D. RETURN ON EQUITY

Indicates the profitability to the shareholders of the firm (after all expenses and taxes).

Formula=

Shell2007 Net Income 706659 Avg Equity 9808758.52008 Net Income 5137094 Avg Equity 11536204.5

PSO2007 Net Income 4689798 Avg Equity 208761382008 Net Income 14053795 Avg Equity 25952135.5

INTERNAL COMPARISON

A massive increase is seen on the Shell’s side with respect to ROE.

EXTERNAL COMPARISON

Despite Shell’s massive increase in ROE, Pso is still ahead in this respect.


6. EQUITY RATIOS

A. EARNINGS PER SHARE

The portion of a company's profit allocated to each outstanding share of common stock.

Formula=

Shell2007 Profit After

Taxation706659000 No. of Common

shares Outstanding

54790313

2008 Profit After Taxation

5137094000 No. of Common shares

Outstanding

54790313

PSO2007 Profit After

Taxation4689798000 No. of Common

shares Outstanding

171518901

2008 Profit After Taxation

14053795000 No. of Common shares

Outstanding

171518901


INTERNAL COMPARISON

There is a huge improvement is EPS of Shell as compared to previous year’s performance.

EXTERNAL COMPARISON

EPS of both companies has almost no significant difference but improvement is seen in Shell’s performance which was far below from Pso’s level previous year.

B. PRICE PER EARNING RATIO

A valuation ratio of a company's current share price compared to its per-share earnings.

FORMULA=

Shell2007 Market Price

Per Share410.05 Earnings Per

Share12.90

2008 Market Price Per Share

417 Earnings Per Share

93.76

PSO2007 Market Price

Per Share391.45 Earnings Per

Share27.34

2008 Market Price 417.24 Earnings Per 81.94


Per Share Share

INTERNAL COMPARISON

Price per earnings ratio has deteriorated but when compared to previous year’s EPS, it is evident that is not because of decrease in price share but because of significant increase in earnings of company. In summary shareholders did not lose confidence but enjoyed increased earnings.

EXTERNAL COMPARISON

Likewise Pso’s P/E ratio has also decreased almost to the same level as of Shell’s.


3. Shell & PSO Balance Sheet and Income Statement

a. Shell Balance Sheet

ASSETS 2008 2007

Non-current assetsFixed assets 6826848 6579993Long-term investments 2134783 2015535Long-term loans and advances 146381 182579Long-term deposits and prepayments 201718 110994Long-term debtors 134920 328727Deferred taxation - net 280967Total Non-current assets 9444650 9498795

Current assetsStores and spares 13328 30286Stock-in-trade 18095523 8244054Trade debts 4904940 4251325Loans and advances 47029 42720Trade deposits and short-term prepayments

207864 140239

Other receivables 6079111 5970763Taxation 219715Cash and bank balances 872414 814530Total Current assets 30220209 19713632

Total Assets 39664859 29212427


EQUITY AND LIABILITIES 2008 2007

EquityShare capital 547904 547904Reserves 2233026 2233026Unappropriated profit 10830708 6679841Total Equity 13611638 9460771

LIABILITIES

Non-current liabilitiesDeferred taxation - net 51574Liabilities against assets subject to finance lease 2216 547Long-term loan 2500000Asset retirement obligation 191620 138494Total Non-current liabilities 2745410 139041

Current liabilitiesCurrent maturity of liabilities against assets subject to finance lease

56742 32203

Short-term running finances utilized under mark-up arrangements

4338339 725836

Short-term loans 1500000 6810000Trade and other payables 16483008 11912496Mark-up accrued 157268 131580Taxation 772454Total Current liabilities 23307811 19612115

Total Liabilities 26053221 19751156

Total Equity and Liabilities 39664859 29211927


b. Shell Income Statement

SHELL Income Statement Regular2008 2007

Sales 157,626,491 130,129,844Non-fuel retailsales 119,915 141,615others 20,205 17,909other revenue 341,349 447,517

Net Sales 158,107,960 130,736,885Sales tax 18,263,271 15,691,451Net revenue 139,844,689 115,045,434Cost of products sold 124,694,471 108,664,932

Gross Profit 15,150,218 6,380,502

Distribution expenses 2,950,422 3,366,555Administrative and marketing expenses

2,109,289 1,716,707

10,090,507 1,297,240Other operating income 306,453 215,322

10,396,960 1,512,562Other operating expenses 1,915,601 377,978

Operating profit 8,481,359 1,134,584Finance cost 970,267 878,098

7,511,092 256,486Share of profit of associate - net of tax 212,248 122,250Profit before taxation 7,723,340 378,736Taxation 2,586,246 327,923

Profit after taxation 5,137,094 706,659

Rupees RupeesEarnings per share 93.76 12.9

c. PSO Balance Sheet


Assets

2008 2007

Non-Current AssetsProperty, plant and equipment

7,460,549 8,012,317

Intangibles 105,502 126,212Long term investments 2,701,097 2,990,591Long term loans, advances and receivables

477,745 627,972

Long term deposits and Prepayments

79,098 65,913

Deferred Taxes 407,337 401,037Total Non-Current Assets

11,231,328 12,224,042

Current AssetsStores, spare parts and loose tools

115,814 127,891

Stock-in-trade 62,360,067 29,562,055Trade debts 33,904,728 13,599,966Loans and advances 396,220 365,974Deposits and short term prepayments

401,433 1,583,913

Other receivables 15,681,790 15,751,198Cash and bank balances 3,018,640 1,522,276Total Current Assets 115,878,692 62,513,273

Total Assets 127,110,020 74,737,315

EQUITY AND LIABILITIES 2008 2007


EQUITYShare Capital 1,715,190 1,715,190Reserves 29,249,864 19,224,027Total Equity 30,965,054 20,939,217

Liabilities

Non-Current LiabilitiesLong term deposits 834,598 768,308Retirement and other service benefits

1,574,148 1,644,063

Total Non-Current Liabilities 2,408,746 2,412,371

Current LiabilitiesTrade and other payables 81,067,565 41,431,075Provisions 726,116 688,512Accrued interest / mark-up 217,928 131,961Short term borrowings 10,997,908 9,064,781Taxes payable 726,703 69,398Total Current Liabilities 93,736,220 51,385,727

Total Equity and Liabilities 127,110,020 74,737,315

d. PSO Income Statement


2008 2007Sales 583,213,959 411,057,592Sales Tax 74,249,472 52,418,310Inland freight equalization margin 13,685,954 8,932,956

Net sales 495,278,533 349,706,326Cost of products sold 465,254,907 337,446,896Gross profit 30,023,626 12,259,430Other operating income 1,396,527 1,278,932

Operating costsTransportation costs 337,886 369,328Distribution and marketing expenses 3,264,599 2,745,289Administrative expenses 1,160,741 1,002,712Depreciation 1,119,137 1,098,157Amortization 47,689 41,908Other operating expenses 3,352,969 755,420Total Operating Cost 9,283,021 6,012,814

Other income 313,860 424,238Profit from operations 22,450,992 7,949,786Finance costs 1,367,898 1,158,112

21,083,094 6,791,674Share of profit of associates 294,318 330,306Profit before taxation 21,377,412 7,121,980Taxation 7,323,617 2,432,182

Profit for the year 14,053,795 4,689,798

Rupees RupeesEarnings per share 81.94 27.34

4. Common Size & Index Analysis

a. Common Size Balance Sheet of SHELL

SHELL Balance Sheet Regular Common Size(%)


ASSETS 2008 2007 2008 2007

Non-current assetsFixed assets 6826848 6579993 17.21 22.52Long-term investments 2134783 2015535 5.38 6.90Long-term loans and advances 146381 182579 0.37 0.63Long-term deposits and prepayments 201718 110994 0.51 0.38Long-term debtors 134920 328727 0.34 1.13Deferred taxation - net 280967 0.96Total Non-current assets 9444650 9498795 23.81 32.52

Current assetsStores and spares 13328 30286 0.03 0.10Stock-in-trade 18095523 8244054 45.62 28.22Trade debts 4904940 4251325 12.37 14.55Loans and advances 47029 42720 0.12 0.15Trade deposits and short-term prepayments

207864 140239 0.52 0.48

Other receivables 6079111 5970763 15.33 20.44Taxation 219715 0.75Cash and bank balances 872414 814530 2.20 2.79Total Current assets 30220209 19713632 76.19 67.48

Total Assets 39664859 29212427 100.00 100.00

SHELL Balance Sheet Regular Common Size (%)

EQUITY AND LIABILITIES 2008 2007 2008 2007

EquityShare capital 547904 547904 1.38 1.88


Reserves 2233026 2233026 5.63 7.64Unappropriated profit 10830708 6679841 27.31 22.87Total Equity 13611638 9460771 34.32 32.39

LIABILITIES

Non-current liabilitiesDeferred taxation - net 51574 0.13 0.00Liabilities against assets subject to finance lease 2216 547 0.01 0.00Long-term loan 2500000 6.30 0.00Asset retirement obligation 191620 138494 0.48 0.47Total Non-current liabilities 2745410 139041 6.92 0.48


56742 32203 0.14 0.11


4338339 725836 10.94 2.48

Short-term loans 1500000 6810000 3.78 23.31Trade and other payables 16483008 11912496 41.56 40.78Mark-up accrued 157268 131580 0.40 0.45Taxation 772454 1.95Total Current liabilities 23307811 19612115 58.76 67.14

Total Liabilities 26053221 19751156 65.68 67.61

Total Equity and Liabilities 39664859 29211927 100.00 100.00

b. Common Size Balance Sheet of PSO

PSO Balance Sheet Regular Common Size (%)

2008 2007 2008 2007Assets


Non-Current AssetsProperty, plant and equipment 7,460,549 8,012,317 5.87 10.72Intangibles 105,502 126,212 0.08 0.17Long term investments 2,701,097 2,990,591 2.13 4.00Long term loans, advances and receivables

477,745 627,972 0.38 0.84

Long term deposits and Prepayments 79,098 65,913 0.06 0.09Deferred Taxes 407,337 401,037 0.32 0.54Total Non-Current Assets 11,231,328 12,224,042 8.84 16.36

Current AssetsStores, spare parts and loose tools 115,814 127,891 0.09 0.17Stock-in-trade 62,360,067 29,562,055 49.06 39.55Trade debts 33,904,728 13,599,966 26.67 18.20Loans and advances 396,220 365,974 0.31 0.49Deposits and short term prepayments 401,433 1,583,913 0.32 2.12Other receivables 15,681,790 15,751,198 12.34 21.08Cash and bank balances 3,018,640 1,522,276 2.37 2.04Total Current Assets 115,878,692 62,513,273 91.16 83.64

Total Assets 127,110,020 74,737,315 100.00 100.00

PSO Balance Sheet Regular Common Size (%)

EQUITY AND LIABILITIES 2008 2007 2008 2007

EQUITYShare Capital 1,715,190 1,715,190 1.35 2.29Reserves 29,249,864 19,224,027 23.01 25.72


Total Equity 30,965,054 20,939,217 24.36 28.02

Liabilities

Non-Current LiabilitiesLong term deposits 834,598 768,308 0.66 1.03Retirement and other service benefits

1,574,148 1,644,063 1.24 2.20

Total Non-Current Liabilities 2,408,746 2,412,371 1.90 3.23

Current LiabilitiesTrade and other payables 81,067,565 41,431,075 63.78 55.44Provisions 726,116 688,512 0.57 0.92Accrued interest / mark-up 217,928 131,961 0.17 0.18Short term borrowings 10,997,908 9,064,781 8.65 12.13Taxes payable 726,703 69,398 0.57 0.09Total Current Liabilities 93,736,220 51,385,727 73.74 68.76

Total Equity and Liabilities 127,110,020 74,737,315 100.00 100.00

c. Common Size Income Statement of SHELL

SHELL Income Statement Regular Common Size (%)

2008 2007 2008 2007

Sales 157,626,491 130,129,844 99.70 99.54Non-fuel retail


sales 119,915 141,615 0.08 0.11others 20,205 17,909 0.01 0.01other revenue 341,349 447,517 0.22 0.34

Net Sales 158,107,960 130,736,885 100.00 100.00Sales tax 18,263,271 15,691,451 11.55 12.00Net revenue 139,844,689 115,045,434 88.45 88.00Cost of products sold 124,694,471 108,664,932 78.87 83.12

Gross Profit 15,150,218 6,380,502 9.58 4.88

Distribution expenses 2,950,422 3,366,555 1.87 2.58Administrative and marketing expenses

2,109,289 1,716,707 1.33 1.31

10,090,507 1,297,240 6.38 0.99Other operating income 306,453 215,322 0.19 0.16

10,396,960 1,512,562 6.58 1.16Other operating expenses 1,915,601 377,978 1.21 0.29

Operating profit 8,481,359 1,134,584 5.36 0.87Finance cost 970,267 878,098 0.61 0.67

7,511,092 256,486 4.75 0.20Share of profit of associate - net of tax 212,248 122,250 0.13 0.09Profit before taxation 7,723,340 378,736 4.88 0.29Taxation 2,586,246 327,923 1.64 0.25

Profit after taxation 5,137,094 706,659 3.25 0.54

d. Common Size Income Statement of PSO

PSO Income Statement Regular Common Size (%)2008 2007 2008 2007

Sales 583,213,959 411,057,592 117.75 117.54Sales Tax 74,249,472 52,418,310 14.99 14.99Inland freight equalization margin 13,685,954 8,932,956 2.76 2.55

Net sales 495,278,533 349,706,326 100.00 100.00Cost of products sold 465,254,907 337,446,896 93.94 96.49


Gross profit 30,023,626 12,259,430 6.06 3.51Other operating income 1,396,527 1,278,932 0.28 0.37

Operating costsTransportation costs 337,886 369,328 0.07 0.11Distribution and marketing expenses 3,264,599 2,745,289 0.66 0.79Administrative expenses 1,160,741 1,002,712 0.23 0.29Depreciation 1,119,137 1,098,157 0.23 0.31Amortization 47,689 41,908 0.01 0.01Other operating expenses 3,352,969 755,420 0.68 0.22Total Operating Cost 9,283,021 6,012,814 1.87 1.72

Other income 313,860 424,238 0.06 0.12Profit from operations 22,450,992 7,949,786 4.53 2.27Finance costs 1,367,898 1,158,112 0.28 0.33

21,083,094 6,791,674 4.26 1.94Share of profit of associates 294,318 330,306 0.06 0.09Profit before taxation 21,377,412 7,121,980 4.32 2.04Taxation 7,323,617 2,432,182 1.48 0.70

Profit for the year 14,053,795 4,689,798 2.84 1.34

e. Indexed Balance Sheet of Shell

SHELL Balance Sheet Regular Indexed (%)ASSETS 2008 2007 2008 2007

Non-current assetsFixed assets 6826848 6579993 103.75 100Long-term investments 2134783 2015535 105.92 100Long-term loans and advances 146381 182579 80.17 100Long-term deposits and prepayments 201718 110994 181.74 100Long-term debtors 134920 328727 41.04 100


Deferred taxation - net - 280967 100Total Non-current assets 9444650 9498795 99.43 100

Current assetsStores and spares 13328 30286 44.01 100Stock-in-trade 18095523 8244054 219.50 100Trade debts 4904940 4251325 115.37 100Loans and advances 47029 42720 110.09 100Trade deposits and short-term prepayments

207864 140239 148.22 100

Other receivables 6079111 5970763 101.81 100Taxation 219715 100Cash and bank balances 872414 814530 107.11 100Total Current assets 30220209 19713632 153.30 100

Total Assets 39664859 29212427 135.78 100

SHELL Balance Sheet Regular Indexed (%)EQUITY AND LIABILITIES 2008 2007 2008 2007

EquityShare capital 547904 547904 100.00 100Reserves 2233026 2233026 100.00 100Unappropriated profit 10830708 6679841 162.14 100Total Equity 13611638 9460771 143.87 100

LIABILITIES

Non-current liabilities


Deferred taxation - net 51574 inf 100Liabilities against assets subject to finance lease 2216 547 405.12 100Long-term loan 2500000 inf 100Asset retirement obligation 191620 138494 138.36 100Total Non-current liabilities 2745410 139041 1974.53 100


56742 32203 176.20 100


4338339 725836 597.70 100

Short-term loans 1500000 6810000 22.03 100Trade and other payables 16483008 11912496 138.37 100Mark-up accrued 157268 131580 119.52 100Taxation 772454 inf 100Total Current liabilities 23307811 19612115 118.84 100

Total Liabilities 26053221 19751156 131.91 100

Total Equity and Liabilities 39664859 29211927 135.78 100

f. Indexed Balance Sheet of PSO

PSO Balance Sheet Regular Indexed (%)2008 2007 2008 2007

Assets

Non-Current AssetsProperty, plant and equipment 7,460,549 8,012,317 93.11 100Intangibles 105,502 126,212 83.59 100Long term investments 2,701,097 2,990,591 90.32 100Long term loans, advances and receivables

477,745 627,972 76.08 100

Long term deposits and Prepayments 79,098 65,913 120.00 100Deferred Taxes 407,337 401,037 101.57 100


Total Non-Current Assets 11,231,328 12,224,042 91.88 100

Current AssetsStores, spare parts and loose tools 115,814 127,891 90.56 100Stock-in-trade 62,360,067 29,562,055 210.95 100Trade debts 33,904,728 13,599,966 249.30 100Loans and advances 396,220 365,974 108.26 100Deposits and short term prepayments 401,433 1,583,913 25.34 100Other receivables 15,681,790 15,751,198 99.56 100Cash and bank balances 3,018,640 1,522,276 198.30 100Total Current Assets 115,878,692 62,513,273 185.37 100

Total Assets 127,110,020 74,737,315 170.08 100

PSO Balance Sheet Regular Indexed (%)EQUITY AND LIABILITIES 2008 2007 2008 2007

EQUITYShare Capital 1,715,190 1,715,190 100.00 100Reserves 29,249,864 19,224,027 152.15 100Total Equity 30,965,054 20,939,217 147.88 100

Liabilities

Non-Current LiabilitiesLong term deposits 834,598 768,308 108.63 100Retirement and other service benefits

1,574,148 1,644,063 95.75 100

Total Non-Current Liabilities 2,408,746 2,412,371 99.85 100


Current LiabilitiesTrade and other payables 81,067,565 41,431,075 195.67 100Provisions 726,116 688,512 105.46 100Accrued interest / mark-up 217,928 131,961 165.15 100Short term borrowings 10,997,908 9,064,781 121.33 100Taxes payable 726,703 69,398 1047.15 100Total Current Liabilities 93,736,220 51,385,727 182.42 100

Total Equity and Liabilities 127,110,020 74,737,315 170.08 100

g. Indexed Income Statement of SHELL

SHELL Income Statement Regular Indexed (%)2008 2007 2008 2007

Sales 157,626,491 130,129,844 121.13 100Non-fuel retailsales 119,915 141,615 84.68 100others 20,205 17,909 112.82 100other revenue 341,349 447,517 76.28 100

Net Sales 158,107,960 130,736,885 120.94 100Sales tax 18,263,271 15,691,451 116.39 100Net revenue 139,844,689 115,045,434 121.56 100Cost of products sold 124,694,471 108,664,932 114.75 100


Gross Profit 15,150,218 6,380,502 237.45 100

Distribution expenses 2,950,422 3,366,555 87.64 100Administrative and marketing expenses

2,109,289 1,716,707 122.87 100

10,090,507 1,297,240 777.84 100Other operating income 306,453 215,322 142.32 100

10,396,960 1,512,562 687.37 100Other operating expenses 1,915,601 377,978 506.80 100

Operating profit 8,481,359 1,134,584 747.53 100Finance cost 970,267 878,098 110.50 100

7,511,092 256,486 2928.46 100Share of profit of associate - net of tax 212,248 122,250 173.62 100Profit before taxation 7,723,340 378,736 2039.24 100Taxation 2,586,246 327,923 788.67 100

Profit after taxation 5,137,094 706,659 726.96 100

h. Indexed Income Statement of PSO

PSO Income Statement Regular Indexed (%)2008 2007 2008 2007

Sales 583,213,959 411,057,592 141.88 100Sales Tax 74,249,472 52,418,310 141.65 100Inland freight equalization margin 13,685,954 8,932,956 153.21 100

Net sales 495,278,533 349,706,326 141.63 100Cost of products sold 465,254,907 337,446,896 137.87 100Gross profit 30,023,626 12,259,430 244.90 100Other operating income 1,396,527 1,278,932 109.19 100

Operating costsTransportation costs 337,886 369,328 91.49 100Distribution and marketing expenses 3,264,599 2,745,289 118.92 100Administrative expenses 1,160,741 1,002,712 115.76 100


Depreciation 1,119,137 1,098,157 101.91 100Amortization 47,689 41,908 113.79 100Other operating expenses 3,352,969 755,420 443.85 100Total Operating Cost 9,283,021 6,012,814 154.39 100

Other income 313,860 424,238 73.98 100Profit from operations 22,450,992 7,949,786 282.41 100Finance costs 1,367,898 1,158,112 118.11 100

21,083,094 6,791,674 310.43 100Share of profit of associates 294,318 330,306 89.10 100Profit before taxation 21,377,412 7,121,980 300.16 100Taxation 7,323,617 2,432,182 301.11 100

Profit for the year 14,053,795 4,689,798 299.67 100

5. Summary of the Analysis

Ratios SHELL PSO

2007 2008 2007 2008Liquidity Ratios

Current 1.02 1.30 1.22 1.24Quick 0.60 0.52 0.64 0.57

Leverage RatiosTotal Debt Ratio 0.68 0.66 0.72 0.76Debt to Equity 2.09 1.91 2.57 3.10

Coverage RatiosTimes Interest Earned 1.28 8.74 6.86 16.41

Activity RatiosReceivable Turnover 26.53 34.43 32.47 24.55Average Collection

Period 13.76 10.60 11.24 14.87Inventory Turnover 11.93 9.47 11.69 10.12

ITD 30.61 38.55 31.22 36.06


Total Asset Turnover 4.53 4.58 5.67 5.78Profitability Ratios

Gross Profit Margin 4.90% 9.61% 2.98% 5.15%Net Profit Margin 0.54% 3.26% 1.14% 2.41%Return on Assets 2.46% 14.92% 6.47% 13.93%Return on Equity 7.20% 44.53% 22.46% 54.15%

Market Value MeasuresEarnings Per Share 12.90 93.76 27.34 81.94

P/E Ratio 31.79 4.45 14.32 5.09

Note:-Company A:- Our Company SHELLCompany B:- Competitors Company PSO

6. Conclusion and Possible Recommendations

Compared to 2007, Oil Marketing Companies enjoyed massive increase in earnings due to FIFO inventory system but this affect could be reversed in the future.

Receivables from GOP and IPP are contributed to cash flow constraints which have led to financing. Although this effect is not very obvious due to higher earnings but this financing cost could be significant in times of normal oil prices.

Share prices of both companies remained at standstill. This trend of investors suggests that they expect that these higher earnings and dividend announcements as temporary and they don’t want to lose their money in the future.

Specifically to Shell as an MNC, the reduction in margin from the government and the higher working capital requirements might affect the future performance of the company.

To tackle with the fluctuation in the oil prices, the OMC has to invest in R&D for alternative energy resources as these fossil fuel resources are finite and limited and could led these firms to failure.


As the operations of the two companies are almost similar except for the market share, the operational efficiencies would led a company cut its costs and be the winner in the game.

Ever increasing demand for the POL products due to the higher number of vehicles in the country provides an opportunity as well as a challenge to the companies that how they better manage the optimum fixed asset requirements and convert their capital into increasing revenues.

Overall the Shell Pakistan has better managed the effect of increasing oil prices as an opportunity to the company. Its profitability ratios as well as efficiency ones has improved more as compared to the PSO’s.


7. Appendix a. Shell Balance Sheet ‘08

Institute of Business Management Page A

b) Shell Income Statement ‘08

Institute of Business Management Page B

c) Shell Balance Sheet ‘07

Institute of Business Management Page C

d) Shell Income Statement ‘07

Institute of Business Management Page D

e) PSO Balance Sheet ‘08

Institute of Business Management Page E

f) PSO Income Statement 08

Institute of Business Management Page F

g) PSO Balance Sheet ‘07

Institute of Business Management Page G

h) PSO Income Statement ‘07

Institute of Business Management Page H

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