THE FINANCIAL PERFORMANCE OF

PADMA OIL COMPANY LIMITED AND

MEGHNA PETROLEUM LIMITED:

A COMPARATIVE STUDY
 The Financial Performance of Padma Oil Company Limited and

Meghna Petroleum Limited:

A Comparative Study

(Submitted as a partial requirement for MBA program)

Submitted to: Submitted by:

Prof. Sowkatul Meher Mohammed Khairul Bashar

Dean ID 777-G10-15

Business Administration

Southern University

Chittagong

Date of Submission: December 30, 2010

 Letter of transmittal
To
Prof. Sowkatul Meher
Dean
Business Administration
Southern University
Bangladesh.

Subject: Submission of Report

Sir,

With great pleasure & humble submission, I am submitting my report about the comparative
Financial Performance of Padma Oil Company Limited and Meghna Petroleum Limited. While
making this report I came across many obstacles and difficulties but at the same time it was my
great pleasure to experience many interesting and important things about the oil sector.

I take great pleasure in informing you that I have completed my report on the topic “The
Financial Performance of Padma Oil Company Limited and Meghna Petroleum Limited:
A Comparative Study” that was assigned to me as an essential requirement for the completion
of Masters in Business administration degree.

I hope you will accept this report and oblige me thereby.

Sincerely yours.

Mohammed Khairul Bashar

Id: 777-G10-15
 Acknowledgement

First of all I would like to thank Allah, the supreme authority of the universe.

In the process of preparing this report I came across many obstacles. However I was very
fortunate to get the help of some individuals to overcome them. I would like to thank my
colleagues and seniors of Padma Oil Co. Ltd. for their selfless support and help. I would
specially acknowledge the help of Mr. Mohammed Hashem, Deputy Manager of Padma Oil
Company Ltd. Moreover, I would like to thank Mr. Mohammed Sadek, Deputy Manager of
Meghna Petroleum Ltd. for providing me with specific information which was necessary for the
report.

Last but not least, I sincerely offer my gratitude to my supervisor Mr. Prof. Sowkatul Meher,
Dean, Business Administration, Southern University, for his generous supervision and guidance
without which it would not be possible for me to prepare this report.
 Table of Contents
Executive Summary

1.0 Introduction 02

1.1 Origin of the report 03

1.2 Objective of the study 04

1.3 Scope of the study 04

1.4 Methodology 04

1.4.1 Research design 04

1.4.2 Data collection 05

1.4.3 Data analysis and interpretation 05

1.5 Limitation 07

2.0 Company overview 09

2.1 Padma Oil Company Limited 09

2.1.1 Company Profile 09

2.1.2 Company History 10

2.2 Meghna Petroleum Limited 11

2.2.1 Company Profile 11

2.2.2 History 12

3.0 Literature Review 14

4.0 Financial Statement Analysis 16

4.1 Financial statements 16

4.1.1 Balance sheet 17

4.1.1.1 Padma Oil Company Limited 17

4.1.1.2 Meghna Petroleum Limited 18

 4.1.2 Income Statement 19

4.1.2.1 Padma Oil Company Limited 19

4.1.2.2 Meghna Petroleum Limited 20

4.1.3 Cash Flow Statement 21

4.1.3.1 Padma Oil Company Limited 21

4.1.3.2 Meghna Petroleum Limited 22

4.2 Findings and Analysis 23

4.2.1 Comparative Trend and Ratio Analysis 23

4.2.1.1 Liquidity Ratios 23

4.2.1.2 Profitability Ratios 26

4.2.1.3 Market Measures 30

4.2.1.4 Capital Structure & Solvency 33

4.2.2 Cash flow Analysis 34

5.0 Conclusion 38

Bibliography 39
 List of Figures

Figure 01: Current Ratio 24

Figure 02: Quick Ratio 25

Figure 03: Net working Capital 26

Figure 04: Gross Earnings of POCL and MPL (in 000s) 27

Figure 05: Net Profit Margin 27

Figure 06: Return on Assets 28

Figure 07: Net Profit Amount (in 000s) 29

Figure 08: Total assets (in 000s) 29

Figure 09: ROE 30

Figure 10: EPS 31

Figure 11: P/E ratio 32

Figure 12: Dividend Yield 32

Figure 13: Debt to Equity Ratio 33

Figure 14: Closing Balance (in 000s) 34

Figure 15: Net cash Flow (in 000s) 34

Figure 16: Net cash outflow in investing activities 35

Figure 17: Operating expense payment without income tax 36

 Executive Summary

Padma Oil Company Limited (POCL) and Meghna Petroleum Limited (MPL) are two big oil
marketing companies of Bangladesh. This report offers a comparative analysis of the financial
performance between these two companies.

Financial statement analysis was done through ratio and trend analysis which present some fine
scope for comparison. Comparison is done on matters like profitability, liquidity and other
financial aspects.

Profitability condition analysis surely speaks in favor of MPL as it has higher average net profit,
net profit margin, ROA and ROE for last few years. On the other hand POCL, in spite of having
comparatively higher total assets performs lower. So MPL is more profitable.

Current and quick ratios for both the companies are poor. Though MPL has a higher current
ratio, POCL has a higher average quick ratio suggesting its better liquidity condition. However a
more deep analysis on the cash flow statements suggests that MPL has a more stable but lower
liquidity position. POCL on the other hand, is having some cash crisis recently.

Both the companies have no considerable long term debt which makes them less prone to
financial risk and dependant on equity. In terms of market presence, MPL is newbie as it was
listed in 2007, which makes it difficult to compare it with more established listed company
POCL in terms of market measures. However POCL has a healthy and increasing EPS but
declining P\E ratio; whereas MPL shows good performance over its short life on stock market.
Higher debt-to-equity risk suggests POCL has more dependency on debt.

Overall MPL is performing better than POCL financially.

viii
Chapter 01
1.0 Introduction
Bangladesh Petroleum Corporation is a statutory organization under Petroleum and Mineral
Resources Division, Ministry of Power, Energy and Mineral Resources, Government of People's
Republic of Bangladesh. This corporation was established in the year 1977 for the purposes of
import, refining and processing of crude petroleum, blending of lubricants, export and marketing
of petroleum products including by-products and lubricants. At present it has 3 (three) oil
marketing companies, 2 (two) blending plants, 1 (one) LPG bottling company and a refinery as
its subsidiaries. The position of the corporation in relation to these companies is similar to that of
a holding company.

BPC has 7 (Seven) subsidiary companies of which there are 3 (three) Oil Marketing Companies,
1 (one) Refinery, 1 (one) LP Gas Plant and 2 (two) Lube Blending Plants. Company-wise share
of BPC are as under:

Capital (Tk. in crore )

Name of subsidiaries Ownership
Authorized Paid-up

Refinery

1. (a) Eastern Refinery Limited (ERL) 500.00 33.00

100% BPC
erl.gov.bd
Oil Marketing Companies

2. Padma Oil
Company Limited(POCL) 100.00 29.40 50.35% BPC
pocl.gov.bd 49.65% Other

3. Jamuna Oil Company Limited (JOCL) 70% BPC

300.00 45.00
jamunaoil.gov.bd 30% Others

4. Meghna Petroleum Limited (MPL) 100% BPC

400.00 40.00
mpl.gov.bd 30% Others

5. LP Gas Limited (LPG) 50.00 10.00 100% BPC

Page 2
Lube Blending Plants

6. Eastern Lubricants Blenders Limited 1.00 0.99 59.32% BPC

(ELBL) 40.68% Others
7.Standard Asiatic Oil Company Limited
(SAOCL) 0.50 0.50 50% BPC
50% Private
saocl.com

1.1 Origin of the report:

The report is tilted “The Financial Performance of Padma Oil Company Limited and
Meghna Petroleum Limited: A Comparative Study”. The research is done as a part of the
MBA internship program of Southern University, Bangladesh. It has been prepared under the
supervision of honorable teacher Mr. Prof. Sowkatul Meher.

Padma Oil Company Ltd. and Meghna Petroleum Ltd are two oil marketing companies under
Bangladesh Petroleum Corporation.

Padma Oil Company Limited is not only the biggest but also the oldest with its antecedents
stretching well back to the colonial period of British-India. Its ancestral enterprise “ Rangooon
Oil Company “ established petroleum business in this part of the world by the middle of
nineteenth century.

Meghna petroleum Limited has been serving the nation for the last four decades through
marketing of petroleum products. It was set up on December 27, 1977 as a private limited
company with the objectives of taking over all the physical possession of fixed assets of the
erstwhile Meghna Petroleum Marketing Company Limited and Padma Petroleum Limited as on
March 31, 1978.

Oil sector in Bangladesh is a very unique industry. As part of its operation is government
regulated (ex. Selling price) the companies’ operation is a bit different than other companies. A
comparative study of the companies’ financial performance can reveal a lot about this unique
sector.

Page 3
1.2 Objective of the study:
It is mandatory to have few objectives to make a work successful. From the very beginning of
the study, I tried to conduct the research with a view to achieve some specific objectives. The
objectives of the report are given below:

1. To analyze the financial statements of the companies through the

a. Trend analysis

b. Ratio analysis

2. Compare the financial performance of two companies based on the analysis.

1.3 Scope of the study:

The research provided me a clear idea about implication of financial terms. The scope of the
study is limited within the company and its financial data and performance.

1.4 Methodology

The chronological selection of methods for a particular research is called research methodology.
The methods I selected for my research are given below:

1.4.1 Research design

The research done is descriptive research because this research describing the information which
is taken from the last 3 years annual reports from the Padma Oil Company Limited and Meghna
Petroleum Limited.

As the data has been collected from secondary sources like company financial report for that the
research is based on observation of the financial data from the annual report.

The research is quantitative research as the analyzed data are absolute data (net income, debt,
equity, earnings per share, etc.)

Page 4
1.4.2 Data collection

For completing my research, describing the reason behind the problem and fulfilling the
objectives data has been collected from the secondary sources. The secondary sources
information is taken mainly from the last three years’ annual reports of Padma Oil Company
Limited and Meghna Petroleum Limited.

1.4.3 Data analysis and interpretation

Data has been analyzed and interpreted using the financial indicators, financial ratios, references
and personal judgment. I also used some graph to analyze my findings. To complete this research
paper however the selected indicators are given below:

Current ratio: The current ratio is a popular financial ratio used to test a company's liquidity
(also referred to as its current or working capital position) by deriving the proportion of current
assets available to cover current liabilities.

Quick ratio: An indicator of a company's short-term liquidity. The quick ratio measures a
company's ability to meet its short-term obligations with its most liquid assets. The higher the
quick ratio betters the position of the company.

Net working capital ratio: A measure of both a company's efficiency and its short-term
financial health. Positive working capital means that the company is able to pay off its short-term
liabilities. Negative working capital means that a company currently is unable to meet its short-
term liabilities with its current assets (cash, accounts receivable and inventory).

Return on Assets: Return on assets measures a company’s earnings in relation to all of the
resources it had at its disposal (the shareholders’ capital plus short and long-term borrowed
funds). Thus, it is the most stringent and excessive test of return to shareholders. If a company
has no debt, the return on assets and return on equity figures will be the same.

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.

Page 5
Earnings per share: The earnings per share ratio are mainly useful for companies with publicly
traded shares. Most companies will quote the earnings per share in their financial statements
saving you from having to calculate it yourself. By itself, EPS doesn't really tell you a whole lot.
But if you compare it to the EPS from a previous quarter or year it indicates the rate of growth a
company’s earnings are growing (on a per share basis).

P/E ratio: a high P/E suggests that investors are expecting higher earnings growth in the future
compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story
by itself. It's usually more useful to compare the P/E ratios of one company to other companies
in the same industry, to the market in general or against the company's own historical P/E. It
would not be useful for investors using the P/E ratio as a basis for their investment to compare
the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has
much different growth prospects.

Dividend yield: The dividend yield ratio allows investors to compare the latest dividend they
received with the current market value of the share as an indicator of the return they are earning
on their shares.

Net asset per share: An expression for net asset value that represents a fund's (mutual,
exchange-traded, and closed-end) or a company's value per share. It is calculated by dividing the
total net asset value of the fund or company by the number of shares outstanding.

Dividend: A taxable payment declared by a company's board of directors and given to its
shareholders out of the company's current or retained earnings, usually quarterly. Dividends are
usually given as cash (cash dividend), but they can also take the form of stock (stock dividend)
or other property. Dividends provide an incentive to own stock in stable companies even if they
are not experiencing much growth.

Return on shareholders’ fund: The Return on Shareholders’ Funds (ROSF) ratio has
historically been used by industry investors as a measure of the profit for the period which is
available to the owner’s stake in a business. The Return on Shareholders’ Funds ratio is
therefore a measure of profitability.

Page 6
Report Methodology Diagram:

Collecting Financial
Statements

Balance Sheet P&L Statement Cash Flow Statement

Ratio & Trend Cash Flow Analysis

Analysis

Comparing the
financial performance

1.5 Limitation:

I came across certain limitation while preparing this internship report. They are stated below:

 It was impossible for me to collect some data because of the confidential issue.

 I had to depend on the data of the head office.

 As I am a full time working employee, it was not possible for me to prepare the report as
I intended due to time shortness.

 As Meghna Petroleum Ltd. was listed as a public company in 2007, I had only two years’
data on this company on market measures.

 Poor online presence of both the companies.

Page 7
Chapter 02
2.0 Company overview

2.1 Padma Oil Company Limited

2.1.1 Company Profile

The main headquarter of Padma Oil Company Limited is situated at Strand Road in Chittagong
city of Bangladesh. It distributes petroleum products to whole Bangladesh from its main
installation, which situated in Chittagong at Guptahal, Patenga.
Here is the company summary, which will help anyone to introduce about the company in a short
time.

Corporate Headquarter Padma Bhaban, Strand road Chittagong - 4000, Bangladesh.

Resident Office 6 Paribagh Dhaka, Bangladesh
Main Installation Guptahal, Patenga, Chittagong, Bangladesh.
Year of Incorporation 27 April 1965

Business Line Procuring, Storage and marketing of petroleum products,

lubricants and greases, bitumen and LPG. Manufacturing
and Marketing of Agro chemicals.
Dhaka Stock Exchange.
Stock Exchange Listing
Chittagong stock Exchange.
Authorized capital 100 million taka

Paid up capital 49 million taka

Number of shares 4,900,000

Number of shareholders 2,188

Number of employee 949

Page 9
2.1.2 Company History

Like every successful company, this company also has a glorious history to establish itself as a
leading oil company. Here is the history of Padma Oil Company limited.

Padma oil company Limited is not only the biggest but also the oldest company from the colonial
period of British-India.

In 1871, “Rangoon Oil Company” was registered as joint stock Company in Scotland having its
main business activities in Burma.

In 1881, the name was changed to Burma Oil Company. Burma Oil Company established their “
Moheshkhali Oil Installation” at Chittagong in the year 1903. M/S Bullock brothers (A major
distributor of Burma Oil Company) established their trading office at Shadar ghat in Chittagong,
Bangladesh.

In the 1929, Burma Oil Company took over the office of Bullock Brothers at Sadargat,
Chittagong and established it as their head office.

In 1947, Burma Oil Company & Burma Shell oil storage & Distribution Company were
operating Petroleum business in the area what now comprise Bangladesh.
Burma shell established Aviation depot was at Tejgaon Airport in 1948.

In 1965, Burma shell transferred their share to BOC and “Burma Eastern Limited” was formed
with 49% share of BOC. The rest portion of ht e share was issued to public & private individual
of Pakistan.

In 1977, it became a subsidiary of Bangladesh Petroleum Corporation.

In 1985 BOC transfer their share to BPC and the company name was changed as “Padma Oil
Company limited”.

The name was changed to Padma Oil Company limited from 3rd September 1988 and its shares
are listed with both the Chittagong and Dhaka stock exchange.

Page 10
2.2 Meghna Petroleum Limited

2.2.1 Company Profile

Meghna Petroleum Limited started its journey with an Authorized Capital and Paid-up capital of
Tk. 100 million and Tk. 50 million respectively. The company was converted to Public limited
company from private limited company on 29 May, 2007 and its authorized capital was
increased to Tk. 4000 million. On 27 August, 2007 the paid-up capital of the company was
increased to Tk. 400 million by issuing Bonus Share.

The company was enlisted with DSE and CSE on 14 November 2007 and 2nd December 2007
respectively with a view of off-load of 1.2 crore shares under direct listing procedure. On 14
January 2008 the shares of the company were off-loaded in the two capital market. At present
there is a Board of Directors comprising of 9 members to run the company. The overall activities
of the company are performed with the approval of the Board of Directors.

Corporate Headquarter 58-59, Agrabad C/A, Chittagong-4100, Bangladesh

Resident Office Meghna Bhaban, 131, Motijheel C/A, Dhaka, Bangladesh
Main Installation Guptahal, Patenga, Chittagong, Bangladesh.
Year of Incorporation 27 December 1977

Business Line Procuring, Storage and marketing of petroleum products,

lubricants, Bitumen, LPG & Battery Water.
Dhaka Stock Exchange.
Stock Exchange Listing
Chittagong stock Exchange.
Authorized capital 400 Crore taka

Paid up capital 44 Crore taka

Number of employee 411

Page 11
2.2.2 History

Meghna petroleum Limited has been serving the nation for the last four decades through
marketing of petroleum products. It was set up on December 27, 1977 as a private limited
company with the objectives of taking over all the physical possession of fixed assets of the
erstwhile Meghna Petroleum Marketing Company Limited and Padma Petroleum Limited as on
March 31, 1978. Meghna Petroleum Marketing Company Limited was created after acquiring the
operation of the then ESSO Eastern Inc. (1962) of America in 1975 and Padma Petroleum
Limited was created in 1972 after acquiring the operation of the then Dawood Petroleum Limited
(1968).

In the year 1976 the assets and liability of the company were transferred and handed over to
Bangladesh Petroleum Corporation (BPC) as per BPC Ordinance no. LXXXVIII. Since then
Meghna Petroleum Limited has been functioning as a subsidiary of BPC.

Page 12
Chapter 03
3.0 Literature Review

Peeler J. Patsula, on January 23, 2006 in his article “successful business analysis” tries to
define that, a sound business analysis tells others a lot about good sense and understanding of the
difficulties that a company will face. We have to make sure that people know exactly how we
arrived to the final financial positions. We have to show the calculation but we have to avoid
anything that is too mathematical. A business performance analysis indicates the further growth
and the expansion. It gives a physiological advantage to the employees and also a planning
advantage.

Chidambaram Rameshkumar, Dr. N. Anbumani on February 2, 2006 in his article “An

overview on financial statements and ratio analysis” argue that Ratio Analysis enables the
business owner/manager to spot trends in a business and to compare its performance and
condition with the average performance of similar businesses in the same industry. To do this
compare your ratios with the average of businesses similar to yours and compare your own ratios
for several successive years, watching especially for any unfavorable trends that may be starting.
Ratio analysis may provide the all-important early warning indications that allow you to solve
your business problems before your business is destroyed by them.

Susan Ward on May 1, 2008 in his article “Financial Ratio Analysis for Performance
Check” emphasis that financial analysis using ratios between key values help investors cope
with the massive amount of numbers in company financial statements. For example, they can
compute the percentage of net profit a company is generating on the funds it has deployed. All
other things remaining the same, a company that earns a higher percentage of profit compared to
other companies is a better investment option.

Jonas Elmerraji on April 2005 in his article “Analyze Investments Quickly With Ratios”
tries to say that ratios can be an invaluable tool for making an investment decision. Even
so, many new investors would rather leave their decisions to fate than try to deal with the
intimidation of financial ratios. The truth is that ratios aren't that intimidating, even if you don't
have a degree in business or finance. Using ratios to make informed decisions about an
investment makes a lot of sense, once you know how use them. `

Page 14
Chapter 04
4.0 Financial Statement Analysis

As both the companies are oil marketing companies their operations and activities are quite
similar. Financial statements are always great or sometimes the only tools to analyze or measure
the performance of an organization. In my report I tried to analyze the performance of these two
companies through the analysis of their balance sheet, profit & loss account or income statement
and cash flow statements of last 3 years. These statements were used to do some trend and ratio
analysis which revealed the comparative performance of the two.

4.1 Financial statements

For our convenience at first we have to have a look at the statements. All the three financial
statements offer different significance. The balance sheet or financial position of the company at
particular date is like a snapshot of the company’s financial position. It is a very important tool
as it holds a lot of important information about the company. The income statement is the
financial statement of significant importance to the shareholders or owners because it shows the
profitability condition of the company. Cash flow statement as its name suggests stands as a tool
to show the liquidity condition of the company. A mix of trends and ratios can be brought up
from these statements which are essential for the report.

First, let us have a quick peep at the statements.

Page 16
4.1.1 Balance sheets

4.1.1.1 Padma Oil Company Limited

Taka in 000
30-Jun-09 30-Jun-08 30-Jun-07
Sources of Fund
Shareholders’ Funds
Share capital 98,000 49,000 49,000
Reserves and surplus 1,671,931 1,293,957 1,059,772
1,769,931 1,342,957 1,108,772
Deferred Tax 47,369 42,263 40,917
Total Funds 1,817,300 1,385,220 1,149,689

Uses of Fund
Fixed Asset- At cost 889,957 748,493 709,092
Less accumulated depreciation 461,211 419,124 382,618
428,746 329,369 326,474
Capital work in progress 48,693 99,221 112,394
Current Asset
Inventories 5,245,777 3,547,217 5,646,558
Debtors 957,264 6,793,459 8,193,653
Due from affiliated companies 16,972,006 12,784,821 13,425,807
Advance deposit and pre-payments 110,212 102,611 89,064
Income tax receivable 154,640 154,640 137,795
Cash and Bank Balance 3,360,084 3,466,826 2,091,817
26,799,983 26,849,574 29,584,694
Less: Current Liabilities
Liabilities for trading supplies and
3,605,730
services 1,498,462 1,222,574
Liabilities for supplies and expenses 3,539,902 2,001,577 1,494,108
Due from affiliated companies 19,691,811 21,958,676 23,181,250
Liabilities for other finance 651,106 674,170 563,380
Other Liabilities 50,723 30,207 24,248
Liabilities for dividend 6,646 5,740 5,157
Provision for income tax 21,472
25,460,122 25,892,944 28,873,873
Net current assets 1,339,861 956,630 710,821
1,817,300 1,385,220 1,149,689

Page 17
4.1.1.2 Meghna Petroleum Limited

Taka in 000
30-Jun-09 30-Jun-08 30-Jun-07
Sources of Fund
Shareholders’ Funds
Share capital 440,000 400,000 104,500
Proposed issue of bonus share 22,000 40,000 295,500
Reserves and surplus 763,995 580,913 339,531
1,225,995 1,020,913 739,531
Employees'
gratuity 151,935 145,828 117,684
Deferred Tax 35,560 31,527 27,367
Total Funds 1,413,490 1,198,268 884,581

Uses of Fund
Fixed Asset- At
cost
Less accumulated depreciation 370,618 365,342 299,102
Capital work in progress 2,356 13,974 49,832
372,974 379,316 348,934
Investment 4,585 4,585 4,585
Current Asset
Inventories 5,762,046 3,442,173 5,267,737
Debtors 5,333,329 7,042,123 4,578,569
Advance deposit and pre-payments 176,462 231,052 160,903
Cash and Bank Balance 1,071,800 789,954 723,686
12,343,637 11,505,302 10,730,896
Less: Current Liabilities
Creditors 11,047,272 10,448,893 10,032,718
workers' profit participation fund & WF 26,938 27,992 17,977
Liabilities for dividend 276,000 180,000 108,500
Provision for income tax -42,504 34,050 40,638
11,307,706 10,690,935 10,199,833
Net current assets 1,035,932 814,367 531,062
1,413,491 1,198,268 884,581

Page 18
4.1.2 Income Statement

4.1.2.1 Padma Oil Company Limited

Taka in 000
30-Jun-09 30-Jun-08 30-Jun-07
Earning on petroleum products 977,866 820,849 729,322
Cost on Petroleum Products
Packing Charges (36,172) (26,089) (18,315)
Handling Charges (5,246) (6,238) (5,881)
(41,418) (32,327) (24,196)
936,448 788,522 705,126
Net Operational gain 46,199 67,330
Net earnings on petroleum products 982,647 855,852 705,126
Overheads
Administrative, selling and distribution expanse (550,040) (590,753) (450,627)
Interest-through BPC (80,034) (85,360) (83,592)
(630,074) (676,113) (534,219)
Trading Profit on Petroleum 352,573 179,739 170,907
Add: Other operating income 205,940 73,440 51,825
Operating Profit on petroleum trading 558,513 253,179 222,732
Add: Operating profit on Agro-chemical trading 95,497 107,500 42,374
Total Operating Profit 654,010 360,679 265,106
Add: Other Non-operating Income 285 3,038 42
Net profit 654,295 363,717 265,148
Less: Contribution to workers Profit
Participation and welfare fund @5% on
net profit 32,715 18,186 (13,255)
Net profit before income tax 621,580 345,531 251,893
Less: Provision for income tax
Current tax 165,000 110,000 (66,670)
Deferred tax 5,106 1,346 (8,897)
170,106 111,346 (75,567)
Net profit after tax transferred to Reserve
and surplus 451,474 234,185 176,326
Earnings per Share (EPS) 46.0687755 47.7928571 35.98

Page 19
4.1.2.2 Meghna Petroleum Limited

Taka in 000
30-Jun-09 30-Jun-08 30-Jun-07
Earning on petroleum products 583,468 775,835 566,897
Expenses
Selling, Distribution and Administration (246,046) (257,472) (239,750)
Interest / Financing Charges (81,403) (71,496) (85,207)
Depriciation / Amortization (44,927) (41,783) (34,614)
(372,376) (370,751) (359,571)
Net Operational gain 37,690 43,900 23,413
Total Operational expenses (334,686) (326,851) (336,158)
Trading Profit / (Loss) 248,782 448,984 230,739
Other Income 289,972 110,849 128,800
Net profit 538,754 559,833 359,539
Less: Contribution to workers Profit
Participation and welfare fund (26,938) (27,992) (17,977)
Net profit before income tax 511,816 531,841 341,562
Less: Provision for income tax
Current Tax (126,700) (146,300) (102,469)
Deferred Tax (4,033) (4,160) (27,367)
(130,733) (150,460) (129,836)
Net profit after tax transferred to Reserve
and surplus 381,083 381,381 211,726
Earnings per Share (EPS) 8.66 9.53 20.26

Page 20
4.1.3 Cash Flow Statement

4.1.3.1 Padma Oil Company Limited

Taka in 000
30-Jun-09 30-Jun-08 30-Jun-07
A. Cash Flow From Operating Activities
Collection from Gross Earnings and Other Income 76,053,093 2,322,749 1,037,067
Payment for cost and Other Expenses (75,901,695) (761,768) (600,231)
Income tax paid (143,528) (126,845) (75,097)
Net cash inflow from operating activities 7,870 1,434,136 361,739
B. Cash flow from investing activities
Capital Expenditure (91,017) (30,310) (48,651)
Net cash used in Investing activities (91,017) (30,310) (48,651)
C. Cash Flow From Financing Activities
Dividend Paid (23,595) (28,817) (28,913)
Net cash used in Financing Activities (23,595) (28,817) (28,913)
Total (A+B+C) (106,742) 1,375,099 284,175
Opening cash and bank balances 3,466,826 2,091,817 1,807,642
closing cash and bank balances 3,360,084 3,466,826 2,091,817
(106,742) 1,375,009 284,175

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4.1.3.2 Meghna Petroleum Limited

Taka in 000
30-Jun-09 30-Jun-08 30-Jun-07
A. Cash Flow From Operating Activities
Collection from Gross Earnings and Other Income 751,614 676,946 340,030
Payment for cost and Other Expenses (294,744) (388,949) (277,065)
Income tax paid (203,254) (152,889) (64,495)
Net cash inflow from operating activities 253,616 135,108 (1,530)
B. Cash flow from investing activities
Capital Expenditure (38,586) (72,164) (76,285)
Net cash used in Investing activities (38,586) (72,164) (76,285)
C. Cash Flow From Financing Activities
Dividend Paid (80,000) (28,500) -
Interest Received 146,816 31,824 31,624
Net cash used in Financing Activities 66,816 3,324 31,624
Total (A+B+C) 281,846 66,268 (46,191)
Opening cash and bank balances 789,954 723,686 769,877
closing cash and bank balances 1,071,800 789,954 723,686
281,846 66,268 (46,191)

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4.2 Findings and Analysis

Now that we have the financial statements we can start analyzing them for our purpose. We
should not discuss any trend or ratio in isolation rather their effects on the other aspects of the
organizations. As I have been instructed I will only discuss the financial aspect of their
performance and ignore the non-financial indicators.

4.2.1 Comparative Trend and Ratio Analysis

4.2.1.1 Liquidity Ratios

Current Ratio:

Current Assets POCL MPL

Current Ratio = 2006 1.03 1.08
Current Liabilities
2007 1.02 1.05
2008 1.04 1.08
2009 1.053 1.09

The Current Ratio expresses the relationship between the firm’s current assets and its current
liabilities. Current assets normally include cash, marketable securities, accounts receivable and
inventories. Current liabilities consist of accounts payable, short term notes payable, short-term
loans, current maturities of long term debt, accrued income taxes and other accrued expenses
(wages).

1.1

1.08

1.06

1.04 POCL
1.02 MPL

0.98
2006 2007 2008 2009

Figure 01: Current Ratio

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The rule says that the current ratio should be at least 2 that mean the current assets should meet
current liabilities at least twice though this rule can change according to industry. Both the
companies have a current ratio just over one. From my research I can assume that it is the
industry average. In our Figure 01 we see that MPL has a better condition than POCL in terms of
current ratio. Current ratio of both the companies shows a slightly increasing trend.

Quick Ratio:

POCL MPL
Quick Assets
Quick Ratio = 2006 0.88 0.57
Current Liabilities 2007 0.83 0.54
2008 0.9 0.75
2009 0.85 0.58

Measures assets that are quickly converted into cash and they are compared with current
liabilities. This ratio realizes that some of current assets are not easily convertible to cash e.g.
inventories. The quick ratio, also referred to as acid test ratio, examines the ability of the
business to cover its short-term obligations from its “quick” assets only (i.e. it ignores stock).

1
0.9
0.8
0.7
0.6
0.5 POCL
0.4
MPL
0.3
0.2
0.1
0
2006 2007 2008 2009

Figure 02: Quick Ratio

Generally a quick ratio less than 1.00 suggests an alarming liquidity condition for any
organization. But low current and quick ratio for both the companies led me to think that the
industry suits low liquidity ratios. However we can clearly notice from the figure that POCL has

Page 24
a far better quick ratio than MPL which means POCL can repay its current debts better. It also
suggests that POCL has more liquid assets than MPL.

Net Working Capital:

Net Working POCL MPL

Net working capital
Capital 2006 0.037 0.066
ratio =
Total Assets 2007 0.024 0.048
2008 0.035 0.069
2009 0.049 0.081

0.09
0.08
0.07
0.06
0.05
POCL
0.04
MPL
0.03
0.02
0.01
0
2006 2007 2008 2009

Figure 03: Net working Capital

Many believe that increasing sales can solve any business problem. Often, they are correct.
However, sales must be built upon sound policies concerning other current assets and should be
supported by sufficient working capital. There are two types of working capital: gross working
capital, which is all current assets, and net working capital, which are current assets less current
liabilities. The net working capital ratio is increased at healthy rate for both the companies. I
personally believe that as both the companies are well established reducing sales should not be
considered rather increasing assets is a solution to low net working capital. In comparison MPL

Page 25
clearly shows a better position in net working capital as it has higher current asset. However
from the quick ratio analysis (figure 02) we know that most of them are not liquid enough.

4.2.1.2 Profitability Ratios

Gross Earnings Trend:

POCL MPL
2006 668,029 525,382
2007 729,322 566,897
2008 820,849 775,835
2009 977,866 583,468

1,200,000

1,000,000

800,000

600,000 POCL
MPL
400,000

200,000

-
2006 2007 2008 2009

Figure 04: Gross Earnings of POCL and MPL (in 000s)

The first indicator is the gross earnings before any expenses every year. It shows a very healthy
and growing trend in case of POCL. From my research I got to know that POCL is one of the
biggest companies of Bangladesh in terms of gross revenue. On the other hand though MPL had
an increasing trend of gross earnings till 2008 but it had a significant fall last year.

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Net Profit Margin:

70%

60%

50%

40%
POCL
30%
MPL
20%
POCL MPL
10% 2006 21% 27%
2007 24% 37%
0%
2008 29% 49%
2006 2007 2008 2009
2009 46% 65%

Figure 05: Net Profit Margin

Gross earning is not an indicator of the actual performance of a company. Net profit margin
shows how the company is controlling its costs. Net profit margins of both the companies are
pretty good. However MPL’s net profit margin is increasing at a great rate.

Return on Assets:

Return on Net Income POCL MPL

Assets (ROA) 2007 0.72% 2.60%
= Average Total Assets 2008 0.83% 3.32%
2009 1.70% 3.10%

Income is earned by using the assets of a business productively. The rate of return on total assets
indicates the degree of efficiency with which management has used the assets of the enterprise
during an accounting period. This is an important ratio for all readers of financial statements.
Investors have placed funds with the managers of the business. The managers used the funds to
purchase assets which will be used to generate returns. If the return is not better than the
investors can achieve elsewhere, they will instruct the managers to sell the assets and they will
invest elsewhere. The managers lose their jobs and the business liquidates.

Page 27
 3.50%

3.00%

2.50%

2.00% POCL
1.50% MPL

1.00%

0.50%

0.00%
2007 2008 2009

Figure 06: Return on Assets

The ratio indicates that POCL has a very poor ROA in comparison to MPL. It can be described
from two perspectives. A low ROA can be the result of low net profit or high average total assets
or both.

500,000
450,000
400,000
350,000
300,000
250,000 POCL
200,000 MPL
150,000
100,000
50,000
-
2006 2007 2008 2009

Figure 07: Net Profit Amount (in 000s)

Page 28
We can clearly notice that except last year MPL had a better net profit amount where in 2008-09
POCL showed better performance. As their net profit amounts do not differ by a huge amount
the answer to such low ROA of POCL lies within the total assets of the company.

35,000,000

30,000,000

25,000,000

20,000,000
POCL
15,000,000 MPL
10,000,000

5,000,000

-
2006 2007 2008 2009

Figure 08: Total assets (in 000s)

From the chart it is proven that POCL has a very high total assets contributing to its low ROA.
To be specific POCL has very high current assets compared to MPL. So MPL is clearly
performing better with a lot less assets than POCL.

Return on Equity:

Return on Net Income POCL MPL

Equity 2007 17% 31%
(ROE) 2008 19% 43.30%
= Average Stockholders’ Equity 2009 29% 33.90%

This ratio shows the profit attributable to the amount invested by the owners of the business. It
also shows potential investors into the business what they might hope to receive as a return. The
stockholders’ equity includes share capital, share premium, distributable and non-distributable
reserves.

Page 29
 60%

40%
POCL
20%
MPL
MPL
0%
POCL
2007
2008
2009

Figure 09: ROE

Again MPL shows a higher ROE over the last few years. However MPL was listed as a public
limited company just a few years ago. Which means it still has a long way to go to achieve long-
term investor confidence. Right now MPL surely has better position in terms of ROE.

4.2.1.3 Market Measures

EPS:

POCL MPL
Net Income
2006 17.7 14.4
Earning Per Share = Number of
common Share 2007 36 20.3
Outstanding 2008 47.8 9.5
2009 46.1 8.7

This number represents the profit of the company equally split among each share of the stock.
EPS is one of the most popular variables when valuing a company. So important, in fact, analysts
are constantly issuing estimates on what future EPS may be. Here EPS of two companies shows
a very differing trend.

EPS of the POCL in this year is low than the previous period. It can be the result of last year’s
stock dividend of 1:2. For that the net profit is divided in twice than the previous period. The
earning is nearly twice from the previous period and the company given stock dividend which
means that the company is in good position than the past. EPS is also growing assuring
investors’ positive outlook for POCL.

Page 30
 60

50

40

30 POCL

20 MPL

10

0
2006 2007 2008 2009

Figure 10: EPS

However MPL’s EPS is declining for last few years. Again there is an explanation. As MPL was
listed just a few years back it is too early to perceive something based on this.

P/E:

Market Price of POCL MPL

Price Earning (PE) Common Stock Per 2007 38.94 -
Ratio = Share 2008 25.68 22.38
Earning Per share 2009 13.23 30.32

40
35
30
25
20
15 POCL
10 MPL
5
0

2007
2008
2009

Figure 11: P/E ratio

Page 31
Essentially, this ratio tells us how much investor is willing to pay for every one dollar of earnings
the company pulls in. As we can see POCL has a declining P/E ratio over the last few years. Last
year POCL stock price reached its lowest ever. The low P/E ratio is the result of this. Again MPL
P/E ratio suggests us literally nothing. I could only have the P/E ratio of last two years as I stated
before it became listed in 2007 and it shows an increase.

Dividend Yield:

Annual Dividends POCL MPL

Dividend Yield
Per Common Share 2006 0.9%
=
Market Price of 2007 0.42%
Common Stock Per 2008 0.41% 1.29%
Share
2009 0.82% 1.52%

1.6%
1.4%
1.2%
1.0%
0.8%
POCL
0.6%
MPL
0.4%
0.2%
0.0% MPL

2006 POCL
2007
2008
2009

Figure 12: Dividend Yield

The dividend yield ratio indicates the return that investors are obtaining on their investment in
the form of dividends. This yield is usually fairly low as the investors are also receiving capital
growth on their investment in the form of an increased share price. It is interesting to note that
there is strong correlation between dividend yields and market prices. Invariably, the higher the
dividend, the higher the market value of the share.
Page 32
We can notice from the data that POCL has a U-shape pattern to their dividend yield because of
its fluctuating share price. However MPL has higher and increasing pattern.

4.2.1.4 Capital Structure & Solvency

Debt to Equity Ratio:

Debt to Equity Ratio= Total Debt

POCL MPL
Total Debt plus Total
Equity 2006 19.83 7.5
2007 26.08 13.99
2008 19.31 10.65
2009 14.41 9.38

30

25

20

15 POCL
MPL
10

0
2006 2007 2008 2009

Figure 13: Debt to Equity Ratio

Debt to equity ratio measures a company’s capital structure. It is a great means to know if the
company is dependent on debt or shareholders funds. The lower the ratio, the better. Both the
companies show a decreasing trend but POCL’s ratio is a lot higher than MPL. However it is
noticeable that most of their debts are current debts. So better credit control measures should be
introduced.

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4.2.2 Cash flow Analysis

Cash flow analysis is primarily used as a tool to evaluate the sources and uses of funds. It
provides insights into how a company is obtaining its financing and deploying its resources. It is
also used as a part of liquidity analysis.

The first things to look are the closing balance and the net cash flow.

4,000,000
3,500,000
3,000,000
2,500,000
2,000,000 POCL
1,500,000 MPL
1,000,000
500,000
-
2006 2007 2008 2009

Figure 14: Closing Balance (in 000s)

1,600,000

1,400,000

1,200,000

1,000,000

800,000 POCL
600,000 MPL

400,000

200,000

-
2006 2007 2008 2009
(200,000)

Figure 15: Net cash Flow (in 000s)

Page 34
It is clearly evident that POCL has not only more cash in hand than MPL but also it has a
growing trend. On the other hand MPL is maintaining a pretty stable but healthy cash in hand. It
is to note that high cash balance does not necessarily mean a good sign. Though it suggests a
good liquidity position, failure to invest surplus fund may affect future profitability.

Net cash flow of MPL shows a lower and more stable trend than POCL. POCL has an alarmingly
fluctuating net cash flow and last year it had a significant fall. A closer look at the different cash
flows can be helpful to the research.

120,000

100,000

80,000

60,000 POCL
MPL
40,000

20,000

-
2006 2007 2008 2009

Figure 16: Net cash outflow in investing activities

Net cash flows in investing activities show an interesting pattern for the companies. Whereas
POCL shows a U-shape pattern, MPL shows an inverted U-shape. It unveils the reason for the
negative net cash flow of POCL last year resulting from a very high investment. This means
MPL and POCL are on very different situations. Whereas MPL is settling down after a high
investment previously undertaken and focusing on its liquidity; POCL is expanding its business
in exchange of its liquidity.

However only ‘investing cash flows’ do not depict a good picture of the real situation. The
operating cash flows should be analyzed. We can see from the figure 18 that POCL made an
extraordinary amount of payment last year to its creditors which clearly resulted their fall in net
cash flows.

Page 35
 2009

2008

2007

- 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000

MPL POCL

Figure 17: Operating expense payment without income tax

The overall analysis of cash flows suggests that POCL is in a tight position in terms of liquidity
because of its investment and huge amount of payment to its creditors. However it is highly
unlikely that this will happen again in very near future. So POCL’s future liquidity position is
expected to be better. On the other hand MPL shows a stable position in every aspect of their
cash flows which is a positive sign.

Cash flows from financing activities are rather insignificant in case of both the companies as
they do not have any notable interest bearing long-term debt. It is a little surprising for big
companies like these. However it led me to think that it’s a norm for this oil marketing industry.
Dividend payments are more or less similar which hardly affects the net cash flow.

Overall cash flow analysis suggests that MPL has a more stable policy towards expansion and
liquidity. Other than last year’s huge payment to the creditors, POCL has a high but somewhat
unstable policy.

Page 36
Chapter 05
5.0 Conclusion

Padma Oil Company Limited and Meghna Petroleum Limited are both profitable companies.
They play a great role in the proper marketing of the very important and petroleum products
throughout the country. Though there are a lot of government regulations exist, the companies’
managing ability is vital to companies’ success. From this point of view both the companies are
performing well enough.

The comparative study unveils some important facts about the companies. Though it is
somewhat unfair to compare the two companies because of their different history, market
capitalization, investment etc. my analysis brought out some important points.

In terms of liquidity, MPL is performing better. MPL has a better current ratio and net working
capital ratio. Though POCL has better quick ratio, the cash flow analysis surely favors MPL.

MPL has a more favorable profitability condition than POCL with higher average net profit
margin, ROA, ROE and net profit amount. Not to mention POCL has total assets equals to 2-3
times of what MPL has but MPL beats POCL in net profit amount every year except last year. It
is a very impressive performance.

As MPL was listed as a public company on 2007, it is too early to comment on its trend on
market measures. POCL has a better EPS but declining P/E ratio whereas MPL had a rise in last
year in P/E. POCL has a more favorable debt-to-equity ratio than MPL.

Ratio, trend and cash flow analysis suggest that MPL perform marginally better than POCL
financially.

Page 38
Bibliography

Annual Reports 2006-07, 2007-08, 2008-2009: Padma Oil Company Ltd.

Annual Reports 2006-07, 2007-08, 2008-2009: Meghna Petroleum Ltd.

Wild, John J et al. (2001) Financial Statement Analysis- 7th edition. McGraw-Hill

Helfert, Erich A. (2001). "The Nature of Financial Statements: The Cash Flow Statement".
Financial Analysis - Tools and Techniques - A Guide for Managers. McGraw-Hill. p. 42.
doi:10.1036/0071395415.

Jonas Elmerraji on April 2005 in his article “Analyze Investments Quickly with Ratios”
http://www.investopedia.com/articles/stocks/06/ratios.asp.

Susan Ward on May 1, 2008 “Financial Ratio Analysis for Performance Check”
http://sbinfocanada.about.com/od/management/a/3ratios.htm.

Dhaka Stock Exchange website: http://www.dsebd.org/

Padma Oil Company website: http://www.pocl.gov.bd/