Print Email Download Reference This Send to Kindle Reddit This
submit to reddit

The Creation Of Pakistan State Oil And Its Importance Finance Essay

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)

PSO is the market leader in Pakistan’s energy sector. PSO has largest retail outlets to provide fuel to railways, power projects, armed forces, and agriculture sector. PSO also provide fuel to jets at 9 airports and to ships at 3 ports. The current market share of the company is 82.3% in the black oil market and 59.4% in the oil market.

Pakistan State Oil

Statement Of Comprehensive Income

For the Year Ended 30th June

 

2010

 

Rs m

Net sales

742,757,951.00

Cost of sales

(713,591,707.00)

Gross Profit

29,166,244.00

Other operating incomes

1,479,054.00

Oprerating costs

 

Transportation costs

(631,849.00)

Distribution and marketing expenses

(4,055,238.00)

Administrative expenses

(1,125,891.00)

Depreciation

(1,137,637.00)

Amortisation

(44,752.00)

Other operating expenses

(2,416,518.00)

Profit or (loss) from operations

21,233,413.00

Other income

6,095,348.00

Finance costs

(9,882,010.00)

Share of profit of associates

516,401.00

Profit or (loss) before taxation

17,963,152.00

Taxation

(8,913,556.00)

Profit or (loss) for the year

9,049,596.00

Pakistan State Oil

Statement Of Financial Position

As At 30th June

 

2010

 

Rs m

ASSETS

 

Non-current assets

Property, plant and equipment

6,375,233

Intangibles

36,250

Long term investment

2,019,270

Long term loans, advances and receivables

317,889

Long term deposits and prepayment

125,951

Deferred tax

-

Total non-current assets

8,874,593

Current assets

 

Stores, spare parts and loose tools

113,863

Stock in trade

58,598,668

Trade debts

117,501,074

Loans and advances

409,987

Deposits and short term prepayments

367,378

Other receivables

14,557,542

Taxations net

46,580

Cash and bank balances

1,778,056

Total current assets

193,373,148

Total assets

202,247,741

EQUITY AND LIABILITIES

 

 

Equity & Reserves

 

 

Share capital

1,715,190

1,715,190

Reserves

27,620,868

19,155,595

Total equity

29,336,058

20,870,785

Non-current liabilities

 

 

Long-term deposits

948,476

854,718

Retirement and other service benefits

1,887,751

1,673,020

Total non-current liabilities

2,836,227

2,527,738

Current liabilities

 

 

Trade and other payables

156,035,716

110,123,702

Provisions

688,512

688,512

Accrued interest or mark up

330,213

556,380

Short term borrowings

13,021,015

18,654,526

Total current liabilities

170,075,456

130,023,120

Total shareholders’ equity and liabilities

202,247,741

153,421,643

Ratio Calculations:

Liquidity Ratios:

Ratios

Formula

2010

2009

Current Ratio

Current Assets/Current Liabilities

1.14:1

1.07:1

Quick Ratio

(Current assets-Inventory-Prepaid)/Current Liabilities

0.79:1

0.75:1

Profitability Ratios:

Ratios

Formula

2010

2009

Gross Profit Ratio

(Gross Profit/Sales)*100

3.93%

0.49%

Operating Profit Ratio

(Operating Profit/Sales)*100

2.86%

(1.04)%

Net Profit Ratio

(Net Profit/Sales)*100

1.22%

(1.09)%

Return On Equity

(Profit Before Tax/Total Equity)*100

61.23%

(54.42)%

Return On Assets

(Profit Before Tax/Total Assets)*100

8.88%

(7.40)%

Return On Capital Employed

(Operating Profit/Capital Employed)*100

6%

26%

Efficiency Ratios:

Ratios

Formula

2010

2009

Account Receivable Turnover

Total Net Sales/Account Receivables

6 Times

8 Times

Receivable Collection Period

365/Account Receivable Turnover

61 Days

46 Days

Account Payable Turnover

Cost Of Goods Sold/Account Payables

5 Times

6 Times

Payable Payment Period

365/Account Payable Turnover

73 Days

60 Days

Inventory Turnover

Cost Of Goods Sold/Inventory

6 Times

8 Times

Inventory Turnover In Days

365/Inventory Turnover

61 Days

46 Days

Gearing Ratios:

Ratios

Formula

2010

2009

Debt To Equity

Total Debt/Total Equity

39%

16%

Interest Cover Ratio

Profit Before Interest & Tax/Interest

2 Times

(1.019) Times

Ratio Analysis

Liquidity Ratio

Current Ratio

Current ratio reflects the company’s working capital position, shows the ability to pay its short-term liabilities by using its current assets.

Current ratio of the company is increased in 2010 from 1.07:1 to 1.14:1. It’s good for the company.

Quick Ratio

Quick ratio reflects the ability of a company to pay its debt as they fall due. It is consider to be a more accurate measurement of company’s financial health than the current.

Quick ratio of the company is increased in 2010 from 0.75:1 to 0.79:1. It’s not a significant change but good for the company.

Profitability Ratios

Gross Profit Ratio

Gross profit ratio indicates how much profit is earned on your products without consideration of selling and administration cost.

Gross profit ratio is increased in 2010 from 0.49% to 3.93%. It means company controls its cost of sales in 2010.

Operating Profit Ratio

Operating profit ratio is used to select pricing strategy and operating efficiency. It shows what proportion of a company’s revenue is left over after paying for variable costs of production (i.e. wages, raw materials etc).

Operating profit ratio is also increased in 2010 from loss to profit. It means that the company controls its operating expenses.

Net Profit Ratio

Net profit ratio shows how much profit is earned from sale of every pound.

Net profit ratio of the company is also increased in 2010. In 2009 company gives a loss but in 2010 company gives a profit.

Return On Equity

Return on equity shows the rate on your investment in the business. This ratio is very important for shareholders and owners because this ratio shows the true picture about the business.

Return on equity is also increased in 2010 from loss of 54.42% to profit of 61.23%. It’s good for the company.

Return On Assets

Return on assets shows utilisation of assets, weather the company utilise its assets properly or not.

Return on assets is also increased in 2010. It means the company is utilizing its assets in more efficient way.

Return On Capital Employed

Return on capital employed measure return a company generates by using it capital employed. Return on capital employed should be greater than the rate on which company borrow money from outside. This ratio is used to compare the performance of different companies.

Return on capital employed is decreased in 2010 from 26% to 6%.

Efficiency Ratios:

Account Receivable Turnover

Account receivables turnover shows how many times a company collect money from its receivables in a year.

Account receivable turnover is decreased in 2010 from 8 times to 6 times. It means company allow more credit period to its receivables.

Receivable Collection Period

This ratio shows the number of days the company takes to collect its account receivables.

Receivable collection period of the company is increased from 46 days to 61 days. It means company collect its cash from its receivables slowly.

Account Payable Turnover

This ratio shows how many times a company pay money to its payables in a year. Higher the payable period is better for the company. It means company uses payable’s money to run its operations rather than its own.

Account payable turnover of the company is decreased in 2010. In 2009 company pay to its payables 6 times in a year but now company is paying to its payables 5 times in a year.

Payable Payment Period

This ratio shows the number of day the company takes to pay its account payables.

Payable payment period of the company is increased from 60 days to 73 days. It means the company uses its payable’s money to run its operations.

Inventory Turnover

Inventory turnover shows how many times a company turn its inventory in to sales. If inventory turnover is lower it means company bears more cost (i.e. storage cost).

Inventory turnover of the company is decreased in 2010. It’s not good for the company. Because of this the company bear more storage cost.

Inventory Turnover In Days

This ratio shows the number of days the company takes to convert its inventory in to sales.

Inventory turnover days of the company are increased in 2010. It’s not good for the company.

Gearing Ratio:

Debt To Equity

Debt to equity ratio shows the ratio between money invested by the owners and money provided by the lenders.

Debt to equity ratio of the company I increased in 2010 from 16%to 39%.

Interest Cover Ratio

This ratio is used to find out how easily a company pay interest on its outstanding debts.

Interest cover ratio of the company is increased in 2010. In 2009 the company is not in the position to pay interest on its borrowings because of loss but in 2010 the company made profit and now company is in the position to pay interest on its borrowings.

Conclusion

According to above calculations the liquidity position of the company is strong. Company is currently in position to pay off its current liabilities. Profitability position of the company is also good. PSO need to take action to control on its efficiency.

Balance Scorecard

Balance scorecard is a planning and management system used to align business activities to the vision statement of an organisation.

Balance second complements financial measures of past performance with measure of the driversof future performance. The objectives and measures of the scorecard are derived from an organization’s vision and strategy. The objectives and measures view organizational performance from four perspective.

Financial perspective

Customer persepective

Internal business process perspective

Learning and growth perspective

Net Present Value

Particulars

Year 0

Year 1

Year 2

Year 3

£(000)

£(000)

£(000)

£(000)

Sales

-

525.000

600.000

750.000

Variable Cost

-

(311.500)

(356.000)

(445.000)

Fixed Cost

-

(30.000)

(30.000)

(30.000)

Profit

-

183.500

214.000

275.000

Tax 30%

-

(55.050)

(64.200)

(82.500)

Initial Investment

(260.000)

-

-

-

Residual Value

-

-

-

-

Tax Savings

-

19.500

14.625

10.969

Cash Flows

(260.000)

147.950

164.425

203.469

Discount Factor 7%

1.000

0.935

0.873

0.816

Net Cash Flows

(260.000)

138.333

143.543

166.031

Net Present Value = £265.715

Workings:

Tax savings

(Year 1) 260000*25%= 65000*30% = 19500

(Year 2) (260000-65000)*25% = 48750*30% = 14625

(Year 3) (260000-65000-48750)*25% = 36562*30% = 10969

(Year 4) (260000-65000-48750-36562)*25% = 27422*30% = 8227

Pay Back Period

Years

Cash Flows

Cumulative Cash Flows

£

£

0

(260,000.00)

(260,000.00)

1

147,950.00

(112,050.00)

2

164,425.00

52375.00

Pay Back Period = 1+(112050/164425) = 1.68 Years

Internal Rate Of Return

Particulars

Year 0

Year 1

Year 2

Year 3

Year 4

£(000)

£(000)

£(000)

£(000)

£(000)

 

 

 

 

 

 

Cash Flows

(260.000)

147.950

164.425

203.469

101.977

Discount Factor 20%

1.000

0.833

0.694

0.579

0.482

Net Cash Flows

(260.000)

123.242

114.111

117.809

49.153

NPV at 20% = £144.315

NPV at 7% = £265.715

IRR = 7%+[{(20%-7%)*(265.715)}/(265.715-144.315)] = 35.45%

Post Completion Audit

Post completion audit is a process to compare the projected investment with the forecasted cash flows. By using post completion audit a company can recognize bad investments made in past and encourage managers to use more practical forecasts for future investments.

Importance

By using post completion audit decision making power of the company increased

Performance of the company is also increased

Company can overcome the problems face in previous projects

Quality of decision making is improved

Sources Of Finance

Main sources of finance are listed below.

Share capital

Debentures

Loan notes

Leasing

Borrowings

Overdraft

Share Capital

A company can raise finance by issuing shares to public. It is a main source of raising the finance for the company and its very easy and cheap way of raising finance but it’s a time consuming process.

Debentures

A company can also raise finance by issuing debentures to public. Nature of debenture is like loan. Company can pay interest on debentures.

Loan Notes

A company can also raise finance by issuing loan notes to public. Company can pay interest on loan notes. Issue of loan notes is quicker way to raise finance as compare to above.

Leasing

A company can also raise finance by leasing. Company can bought non-current assets by using leasing option.

Borrowings

A company can also raise finance by borrowing money from banks or financial institutions. Company can pay interest on these borrowings to bank or financial institution.

Overdraft

A company can raise finance by taking overdraft from bank. The interest rate on overdraft is very high that’s why this is very costly way of raising finance.

Sale Of Non-Current Assets

If a company has idle non-current assets then company can raise finance by selling these idle non-current assets. It is a very time taking process

High Low Method

Period

Production cost

 

£

1

230,485.00

2

254,554.00

3

248,755.00

4

?

Variable cost per unit = (254554-230485)/(14870-12610) = £10.65/unit

Total cost = Fixed cost + Variable cost

Fixed cost = Total cost – Variable cost

Fixed cost = 230485-(10.65*12610)

Fixed cost = £96188.5

Total cost = Fixed cost + Variable cost

Total cost = 96188.5 + (10.65*15100)

Total cost = £257003.5

Scatter Diagram

Scatter diagram is a tool for analyzing relationship between two variables. One variable is plotted on the X-axis and the other is plotted on the Y-axis.it can be used to estimate fixed and variable component of cost. A line of best fit is drawn and it should be drawn though the middle of the plotted points.

Advantages

It shows the trend.

It retains exact sample size and data value.

It shows maximum, minimum and outliers.

Disadvantages

It is very hard to find result in large data.

Flat trend line gives inconclusive result.

Print Email Download Reference This Send to Kindle Reddit This

Share This Essay

To share this essay on Reddit, Facebook, Twitter, or Google+ just click on the buttons below:

Request Removal

If you are the original writer of this essay and no longer wish to have the essay published on the UK Essays website then please click on the link below to request removal:

Request the removal of this essay.


More from UK Essays