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INTRODUCTION:
Pakistan State Oil (PSO) is the market leader in oil. He is enjoying more than 79% share of Black Oil
Market and 58% share of White Oil Market. They are dealing in Import, Storage, distribution, and marketing
of various POL products, Including Mogas, HSD, Fuel Oil, Jet Fuel Kerosene,LPG, CNG and petro
chemicals. This company also wins “Karachi Stock Exchange Top Companies Award” and also a member of
world Economic Forum.

HISTORY OF PSO:

Chronology Of Events Leading To The Formation Of:

Date Events
01-01-1974 According to the marketing of Petroleum Products (Federal Control)
Act, 1974, the Federal Government renamed as POCL (Premier Oil Company
Limited) after taking over the management of PNO (Pakistan National Oil) and
DPL (Dawood Petroleum Limited).
03-06-1974 The Government incorporates “Petroleum Storage Development
Corporation” PSDC.
23-08-1976 PSDC was changed into SOCL (State Oil Company Limited.
15-09-1976 Government purchases ESSO and transfers its control to SOCL

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30-12-1976 Government merges two another companies PNO and POCL into SOCL
(State Oil Company Limited) and renames it as Pakistan State Oil Company
Limited (PSO)

Vision Statement
“To excel in delivering value to customers as an innovative and dynamic energy
company that gets to the future first”

Mission Statement :
We are committed to leadership in energy market through competitive advantage in providing the
highest quality petroleum products and services o our customers based on:

o Professionally trained, high quality, motivated workforce, working as a team in an

environment, which recognizes and rewards performance, innovation and creativity, and
provides for personal growth and development.

o Lowest cost operations and assured access to long-term and cost effective supply sources.

o Sustained growth in earnings in real terms.

o Highly ethical, safe environment friendly and socially responsible business practices.

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 Pakistan State Oil
Balance Sheet
As at June 30, 2007
ASSETS 2007 2006
Non-Current Assets
Property, plant and equipment 8,012,317 7,518,956
Intangibles 126,212 154,819
Long term investments 2,990,591 3,278,970
Long term loans, advances and receivables 627,972 698,146
Long term deposits and prepayments 65,913 74,662
Deferred tax 401,037 408,296
12,224,0142 12,133,849
Current Assets
Stores, spares and loose tools 127,891 125,030
Stock-in-trade 29,562,055 28,168,633
Trade debts 13,599,966 11,715,868
Loans and advances 365,974 275,729
Deposits and short tem prepayments 1,583,913 1,287,893
Other receivables 15,751,198 14,562,628
Cash and bank balances 4,522,276 1,898,894
62,513,273 58,034,675
Net Assets in Bangladesh - -
74,737,315 70,168,524
EQUITY AND LIABILITIES
Share Capital 1,715,190 1,715,190
Reserves 19,224,027 19,097,869
20,939,217 20,813,059
Non-Current Liabilities
Long tem deposits 768,308 743,994
Retirement and other service benefits 1,644,063 1,554,893
Current Liabilities
Trade and other payables 41,431,075 36,814,402
Provisions 688,512 777,276
Accrued interest / mark-up 131,961 120,731
Short term borrowings 9,064,781 7,648,919
Taxes payable 69,398 1,695,250
Contingencies and Commitments - -
Total 74,737,315 70,168,524
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 Pakistan State Oil
Profit & Loss Account
For the year ended June 30, 2007
Description 2007 2006
Sales-net of trade discounts and allowances amounting to 411,057,592 352,514,873
Rs. 932,387 thousand (2006: Rs. 1,318,472 thousand)
Less
-sales tax (52,418,310) 9,725,202)
-inland fright equalization margin (8,932,956) (9,725,202)

Net Sales 349,706,326 298,250,039

Cost of products sold (337,446,896) (281,042,813)

Gross Profit 12,259,430 17,042,813

Other Operating Income 1,278,932 950,850
Operating Costs

Transportation Costs (369,328) (365,795)

Distribution and Marketing Expenses (2,766,064) (2,492,633)
Administrative Expensive (981,937) (935,589)
Depreciation and Amortization (1,140,065) (1,082,394)
Other Operating Expenses (755,420) (2,460,931)
Other Income 424,238 442,791

Profit from Operations 7,949,786 11,263,525

Finance Costs (1,158,112) (884,153)
6,791,674 10,379,372
Share of profit of associates 330,306 1,038,939

Profit before taxation 7,121,980 11,418,311

Taxation (2,432,182) (3,893,610)

Profit for the Year 4,689,798 7,524,701

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________________________________________________________________________________________
________________________________________________________________________________________

________________________________________________________________________________________
________________________________________________________________________________________

 Vertical Analysis
Vertical analysis compares each amount with a base amount selected from the same year.
= Particular Item__
Selected base year
Note: selected base from the same year.
Description 2007 2006
Sales 100% 100%

Less - Sales Tax 12.7521% 12.6348%

- Inland freight equalization margin 2.1732% 2.7588%

Net Sales 14.9252% 15.3936%

Cost of Product Sold 82.0924% 79.7251%

Gross Profit 2.9824% 4.8813%

Other Operating Income 0.3111% 0.2697%

Operating Cost
- Transportation costs 0.0898% 0.1038%

- Distribution and Marketing exp. 0.6729% 0.7071%

- Administrative exp. 0.2389% 0.2654%

- Depreciation and amortization 0.2773% 0.3070%

- Other operating exp. 0.1838% 0.6981%

Other Income 0.1032% 0.1256%

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Profit from Operations 1.9340% 3.1952%

Finance Costs 0.2817% 0.2508%

Share of profit of Associates 0.0804% 0.2947%

Profit before Taxation 1.7326% 3.2391%

Taxation 0.5917% 1.1045%

Profit of the Year 1.1409% 2.1346%

Vertical analyses express comparisons in percentages. In the above vertical analysis we see that the
percentage cost of good sold increases as compare to the previous year. Its means the resources are not
efficiently used and it is not a good sign for the company. Also the operating expanses of this year increases
and gross profit, profit from operations and also the net profit decreases. It is not a positive sign for the
company.

 Horizontal Analysis
Horizontal Analysis also shows the comparison in percentages. Horizontal analysis compares each
amount with a base amount for a selected base year.
= __Particular Item__
Selected base year

Description 2007 2006

Sales 116.6072% 100%

Less - Sales Tax 117.6891% 100%

- Inland freight equalization margin 91.8537% 100%

Net Sales 117.2527% 100%

Cost of Product Sold 120.0696% 100%

Gross Profit 71.2458% 100%

Other Operating Income 134.5041% 100%

Operating Cost
- Transportation costs 100.9658% 100%

- Distribution and Marketing exp. 110.9696% 100%

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 - Administrative exp. 104.9539% 100%

- Depreciation and amortization 105.3281% 100%

- Other operating exp. 30.6965% 100%

Other Income 95.8100% 100%

Profit from Operations 70.5799% 100%

Finance Costs 130.9855% 100%

Share of profit of Associates 31.7926% 100%

Profit before Taxation 62.3733% 100%

Taxation 62.4660% 100%

Profit of the Year 62.3254% 100%

In Horizontal comparison the 2006 use as a base year. Sale of this year increases with respect to the
previous years and at same time cost of goods sold increases with respect to the previous year. Interest cost is
increased and the operating expenses are also increases, which is not a good sign for the organization. Gross
profit, profit from operations and the net profit of the company decreases. It is not a good sign for the
organization, so they must improve their deficiency in order to improve the performance of the organization
as well as the cost decreases.

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 Profitability:
These ratios are used to measure the firm’s return on its investment.

Rupees are in “000”

 Net Profit Margin

= Net Income before Minority Share of Earnings and Nonrecurring Items * 100
Net Sale
Year 2007
= 4,689,798__* 100
411,057,592
= 1.14 %
Year 2006
= 7,524,701__* 100
352,514,873 = 2.13 %

This ratio shows a general relationship between net profit and the sales of the year. If this ratio is
high it shows that the firm is earning more profit and this is beneficial for the organization. This ratio is
mainly concern with the income statement of the business. When we compare this ratio with the previous year
ratio we have found that the net profit margin is declining so this is not a good news for the organization. This
cause due to high operating expenses so firm will have to control the operating expenditures so that they can
earn more profit.

 Gross Profit Ratio

= Gross Profit * 100
Net Sale
Year 2007
= 12,259,430 * 100
411,057,592
= 2.98 %
Year 2006
= 17,207,226 * 100
352,514,873 = 4.88 %

8
 This ratio shows a relation ship between the gross profit and the net sales of the organization. Gross
profit is concern with the income statement while the net sales are also concern with the income statement. In
general higher this ratio is higher is the benefit for the organization. When we compare it with the previous
year margin we have found that there is very slight difference between this ratio is. So we can say that the
gross profit of the company is stable as there is a slight difference in it. But one thing is here that this profit
margin is very low so company is inefficient in generating profit so it is recommended that the company
should have to increase this margin to earn high profit.

 Operating Income Margin

= Operating Income * 100
Net Sale
Year 2007
= 7,949,786__ * 100
411,057,592
= 1.93 %
Year 2006
= 11,263,525__ * 100
352,514,873
= 3.19 %
This ratio shows the relationship between operating profit and net sales. Both are concerned with
income statement. If operating profit increases this ratio also increases. In general higher this ratio is
beneficial for the organization. As compared with previous year our operating profit is decreases and the ratio
is also decreasing. This is not a good indication.

 Operating Expense Ratio

= Operating Expenses *100
Net Sales

Year 2007
= 6,012,814__* 100
411,057,592
= 1.46%

Year 2006
= _ 7,337,342_ * 100
352,514,873
= 2.08%

This ratio shows the relationship between operating expenses and net sales. Both are concerned with
income statement. If operating expenses increases the ratio will decreases. Our operating expense ratio is 1.46
% for 2007.

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 Total Assets Turnover
= Net Sales_______
Average Total Assets
Year 2007
= 411,057,592 _
72,452,920
= 5.6734 time
Average Total Assets
= 74,737,315 + 70,168,524
2
= 72,452,920
Year 2006
= 352,514,873
70,168,524
= 5.0238 time
This ratio shows the relation ship between the net sales and the average total assets. This shows that
how much the company is generating sales by the utilizing the assets of the firm. One item like sale is related
to the income statement of the company while the average total assets are related to the balance sheet of the
firm. When we compare this ratio with the previous year ratio we have found that this ratio is going to
increase which is a positive sign for the organization. This is due to the efficient use of the assets. So when
sales increases then this ratio are also increases. It is necessary to increase sale the nominator for the high
taken results.

 Return on Assets
= Net Income before Minority Share of Earnings and Nonrecurring Items * 100
Average Total Assets
Year 2007
= 4,689,798__* 100
72,452,920
= 6. 4729 %
Year 2006
= 7,524,701__* 100
70,168,524
= 10.7238 %
This ratio gives a general relationship between net income and the average total assets of the company.
Net income is relates to the income statement of the firm while the average total assets are relates to the
balance sheet of the firm. As this ratio increase this is a positive indicator for the firm. When we compare this
ratio with the previous year ratio we found that the company is going to decline because this ratio is less. This
cause due to net income because we have found that the operating expenses are high for this reasons the net
income decline and this ratio is also decreases.

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  DuPont Return on assets
Return on Assets = Net profit margin * Total assets Turnover
Year 2007
6. 4729 % = 1.140910201 % * 5.6734
6. 4729 % = 6. 4729 %

Year 2006
10.7238 % = 2.134576886 % * 5.0238
10.7238 % = 10.7238 %

 Sales to Fixed Assets

= Sales_______
Average Fixed Assets
Year 2007
= 411,057,592
12,224,042
= 33.6269 time
Year 2006
= 352,514,873
12,133,849
= 29.0522 time
This ratio shows a general relationship between the sales and the average fixed assets. Sales are related
to the income statement and the fixed assets are related to the balance sheet of the firm. As this ratio goes up it
is a positive thing for the organization. When we compare it with the previous years ratio we have found that
it is goes upward that is a good sign for the organization. There is the reason that is fixed assets are used
efficiently that’s why this ratio is high as compare to previous year.

 Return on Investment
= Net Income before Minority Share of Earning and Nonrecurring Items + {(Interest
Expense) * (1-Tax Rate)}_______________________________________________
Average (Long-term Liabilities + Equity)
Year 2007
= 6,791,674 + { (1,158,112) (1-0.35) }* 100
23,351,588
= 6,791,674 + { (1,158,112) (0.65) }* 100
23,351,588
= 6,791,674 + 752,772.8* 100
23,351,588
= 7,544,446.8__ * 100
23,351,588
= 32.31 %
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 Year 2006
= 10,379,372 + {(884,153) ( 1- .035 ) * 100
23,111,946
= 10,379,372 + {(884,153) (0.65) * 100
23,111,946
= 10,379,372 + 574,699.45 * 100
23,111,946
= 10,954,071.45 * 100
23,111,946

= 47.40 %
This ratio shows relation ship between the net income and the liabilities + owner equities. Net income
is concern with the income statement while the liabilities and the owner equities are related to the balance
sheet. Higher this value is the higher benefit is to the organization. When we compare it with the previous
year ratio we have found that this is less as compared to the previous year figure. To get higher this figure we
will have to increase the figure of net income. Because the net income is less so this ratio is also less. So this
is not a positive indication for the organization

 Return on Total Equity

= Net income before Nonrecurring Items – Dividends on Redeemable Preferred Stock
Average Total Equity
Year 2007
= 4,689,798__* 100
20,939,217
= 22.40 %
Year 2006
= 7,524,701 * 100
20,813,059
= 36.15 %
This ratio shows the relationship between net income and total equity. It shows the percentage earned
on equity. If this ratio increases it is good signal for organization. Our return on total equity is 22.40 %. It is
almost satisfactory but it is decline as compare to previous year.

 Return on Common Equity

= Net income before Nonrecurring Items – Preferred Dividends
Average Common Equity
Year 2007
= 4,689,798__* 100
20,939,217
= 22.40 %
Year 2006
= 7,524,701 * 100
20,813,059
= 36.15 %

12
 This ratio shows the relationship between net income and common equity. It shows the percentage
earned on common equity. If this ratio increases it is good signal for Shareholders. Our return on common
equity is 22.40 %. It is almost satisfactory but it is decline as compare to previous year.

 Return on Net Working Capital

= Net Income before Minority Share of Earnings and Nonrecurring Items
Average Working Capital
Year 2007
= 7,949,786__
11,052,822
= 71.93 %
Year 2006
= 11,263,525
10,978,097
= 102.59 %
This ratio gives an indication on the return on the working capital per year. Income is related to the
income statement and working capital is related to the balance sheet. A high ratio is a good sign for the
organization. If we compare this ratio with the previous ratio, we see that it is declaim, which is not a positive
sign for the company.

 Efficiency Ratio:
Efficiency ratios measure how productively the firm is using its assets.

 Inventory Turnover

= Cost of Goods Sold

Average Inventory
Year 2007
= 337,446,896
28,865,344
= 11.41 time per year
Year 2006
= 281,042,813
29,562,055
= 9.98 time per year

This ratio shows a general relation ship between the cost of good sold and the average inventory of the
organization. Cost of good sold is concern with the income statement of the organization while the inventory
is obtained from the balance sheet of the firm. It tells us that how many time inventories is replaced in one
year. As more this ratio it is good thing because more inventory requirement means that more production is

13
made. So when we compare it with the previous year we have found that this year ratio is high. It means that
the company is taken less days to replace this inventory this year.
 Days Sales in Inventory

= Ending Inventory
Cost of Goods Sold / 365
Year 2007
= 29,562,055
337,446,896 / 365
= 31.98 time per year
Year 2006
= 28,168,633
281,042,813 / 365
= 36.58 Time per year
This ratio shows a relation ship between the inventory and the cost of good sold. Inventory is taken
from the balance sheet of the firm while the cost of good sold is obtained from the income statement of the
organization. It tells us that how often the company places an order for the inventory. When we compare it
with the previous year we have found that this year company is placing fewer orders than the previous year. It
is a negative sign for the organization.

 Days Sales in Receivables

= Gross Receivables
Net Sale / 365
Year 2007
= 13,599,966____
349,706,326 / 365
= 12 days

Year 2006
= 11,715,868____
298,250,039 / 365
= 12 days

This is the general relation ship between the gross receivables and the net sales of the year. This ratio
states that how efficiently the company is managing its receivables. As this ratio is less it is a positive
indicator for the firm is. When we compare it with the previous years value we found that both years same
12days. It means that firm is working efficiently.

 Accounts Receivable Turnover

= Net Sales________
Average Gross Receivables
Year 2007
= 349,706,326
13,599,966
14
 = 30.2249 times
Year 2006
= 298,250,039
11,715,868
= 30 Time per year
This ratio shows a relation ship between the net sales and the average gross receivables. Net sales are
concern with the income statement while the average gross receivables are concern with the balance sheet of
the company. This ratio shows that how much time taken by the debtors to pay their obligations. When we
compare this ratio with the previous year ratio we have found that it is better than the previous year. So the
firm is keeping a strict eye upon it. So it is better for the organization.

 Accounts Receivable Turnover in Days

= Average Gross Receivables

Net Sale / 365

Year 2007
= 13,599,966____
411,057,592/365
= __ 13,599,966__
1126185.184
= 12 time
Year 2006
= __11,715,868___
352,514,873/365
= 11,715,868
965,794
= 12 times

This ratio shows a relation ship between the average gross receivables and net sales. Net sales are
concern with the income statement while the average gross receivables are concern with the balance sheet of
the company. This ratio shows that in how many days taken by the debtors to pay their obligations. When we
compare this ratio with the previous year ratio we have found that it is same that was in the previous year. So
the firm is keeping a strict eye upon it. So it is better for the organization.

 Operating Cycle
= Account Receivable + Inventory Turnover
Turnover in Days in Days
Year 2007
= 12 + 31.98
= 43.98 times
Year 2006
= 12 + 36.58

= 48.58 times
15
 It shows how many days are required to sale the inventory and receive cash from customers. If this is
low then it is good signal. Our operating cycle is of 43.98 days. When we compare with the previous year we
found that is less as compare to the previous year that is a good indication for the organization.

 Sales to Working Capital

= Sales__________
Average Working Capital
Year 2007
= 411,057,592
11,127,546
= 37 times

Year 2006
= 352,514,873
10,978,097
= 32 times
Working Capital:
Current Assets – Current Liabilities
Sales to working capital give an indication of the turnover in working capital per year. A low working
capital turnover ration tentatively indicates an unprofitable use of working capital. If we compare this year
turnover with the previous year we see that this year turnover is increases as compare to the previous year.
This is a good sign for the organization.

 Solvency Ratios
These ratios show how heavily the company is in debt.

INCOME STATEMENT VIEW POINT:

 Time Interest Earned

= Recurring Earnings, Excluding Interest Expense, Tax Expense, Equity
Earnings, and Minority Earning_______________________________
Interest Expense, Including Capitalized Interest
Year 2007
= 7,949,786
1,158,112
= 6.86 times
Year 2006
= 11,263,525
884,153
= 12.73 times

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 This ratio shows how many times we are able to pay the amount of interest of loan which we
borrowed. If it is increases then it is satisfactory for business. The investors show more confidence. Our ratio
is 6.86 times which is good.

 Current Liabilities to Inventory

= Current Liabilities
Inventory
Year 2007
= 51,385,727
29,562,055
= 1.7382
Year 2006
= 47,056,578
28,168,633
= 1.6705

It is a relationship between the current obligations and the inventory of the organization. It tells us the
how much portion of the current liabilities holded by the inventory. Both is belong to the balance sheet.

 Leverage Ratios:
Borrowing capacity (leverage) ratios that measure the degree of protection of suppliers of long term
funds.

 Degree of financial Leverage

= Earning before Interest and Tax
Earnings before Tax
Year 2007
= 7,949,786
7,121,980
= 1.116232565
Year 2006
= 11,263,525
11,418,311
= 0.986444055

It is a comparison between the net income changes with the EBIT. The degree of financial leverage
represents by a particular base level of the income.

 All-Inclusive Degree of Financial Leverage

= Earning before Interest, Tax, Minority Share of Earnings, Equity Income, and Non-
recurring Items_________________________________________________________
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 Earnings before Tax, Minority share of Earnings, Equity Income, and Nonrecurring
Items

Year 2007
= 7,949,786
6,791,674
= 1.1705
Year 2006
= 11,263,525
10,379,372
= 1.0852
 Basic Earnings per Common Share
= Net Earnings – Preferred Dividends___________
Weighted Average Number of Common Shares Outstanding
Year 2007
= 4,689,798
171,519
= 27.3427 per share

Year 2006
= 7,524,701
171,519
= 43.8709 per share
This ratio shows a relationship between the net income less preferred dividends to weighted average
number of common shares outstanding. It shows that how much shareholders earn on their investments. If it is
increases it is a better for shareholders and they consider the organization as a healthy company.
 Price/Earnings Ratio
= Market Price per Share___
Diluted Earnings per Share
Year 2007
= 391.45
27.3
= 14.34 per share
Year 2006 = 309
43.9
= 7.04 per common share

The price over earnings ratio expresses the relationship between the market price of a share of
common stock and that stock current earnings per share. This gives an indication of what is being paid for a
dollar of recurring earnings. The price / earning ratio is twice in 2007 which is very good sign for the
organization.

 Percentage of Earnings Retained

= Net income – All Dividends
Net Income
18
 Year 2007
= 4,689,798-46824687
4,689,798

Year 2006 = 7,524,701-

7,524,701

 Dividend Payout
= Dividends per Common Share
Diluted Earnings per Share

Year 2007
= 27.98
27.34
= 1.0234 per share
Year 2006
= 25.59
43.87
= 0.5833 per share
The dividend payout ratio measures the portion of current earnings paid to per common share as
dividend. A increase in this ratio is a good sign for the organization. If we compare our company ratio with
the previous year we find that it is increase which is a better for the organization.

 Dividend Yield
= Dividends per Common Share__
Market Price per Common Share
Year 2007
= _27.3_
391.45
= 0.0697
Year 2006 = 43.9
309
= 0.1421
Dividend per common share is decrease with respect to the previous year which is not a good sign for
the company but at the same time the market price per share increases which is a good for the company.

 Book Value per Share

= Total Stockholder’s Equity – Preferred Stock Equity
Number of Common Share Outstanding
Year 2007
= 20,939,217
171,519
= 122.08103 per share
19
Year 2006
= 20,813,059
171 519
= 121.35 per share

 Operating Cash Flow / Current

Maturities of Long- term Debt
& Current Notes Payable
= _____Operating Cash Flow__________
Current Maturities of long-term debt and
Current Notes Payable
Year 2007
= 3,691,454
41,431,075
= 0.0891 times

Year 2006
= 1,633,774
36,814,402
= 0.0444 times
This ratio indicates a firm’s ability to meets in current maturities of debt. The higher this ratio, the
better the firm’s ability to meet its current maturities of debt. The higher this ratio, the better firm’s liquidity.

 Operating Cash Flow / Total Debt

= Operating Cash Flow
Total Debt
Year 2007
= _3,691,454__
53,798,098
= 0.0686 times
Year 2006
= _1,633,774__
49,355,465
= 0.0331 times
The operating cash flow to total dent ratio indicates a firm’s ability to cover total debt with the yearly
cash flow. The higher the ratio, the better the firm’s ability to carry its total debt.

 Operating Cash Flow per Share

= Operating Cash Flow – Preferred Dividends
Common Shares outstanding
Year 2007
= 3,691,454 – 0
171,519

20
 = 22 per share
Year 2006
= 1,633,774 – 0
171,519
= 10 per share

It is a relationship between the operating cash flow less preferred dividends and common shares
outstanding. Operating cash flow per share is a better indication of a firm’s ability to make capital expenditure
decisions and pay dividends.

basis.

Conclusion
In the above analysis of Pakistan State Oil ( PSO ) for the year 2007, we found that the earning per
share is decreases. It is not a good signal for Pakistan State Oil Company Limited ( PSO ). The net sales are
increases but cost of goods sold with a higher rate that’s why the Gross profit, profit from operation decreases.
The company also declares fewer dividends as compare to the pervious year. This year finance cost is very
much increased. Its mean company borrows more loans. The overall performance of the Pakistan State Oil (
PSO ) is very good. The market value per share increases from Rs. 309 to Rs. 391.45 which is a good signal
for the investor.

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