Ratio analysis of Pakistan state oil and SHELL Pakistan

Short term salvage ratios:

                                                

1-    Current ratio = current assets / current liabilities

Year	2010	2011	2012
PSO	1.14	1.6	1.5
Shell Pakistan	0.84	0.90	0.88

If we compare PSO and Shell Pakistan it is clear that PSO is in better position to pay its liabilities because PSO has 1.4 rupees on average to pay its 1 rupee liability.

2-    Quick ratio = current assets- inventories / liabilities

Year	2010	2011	2012
PSO	0.8	.73	0.85
Shell Pakistan	0.43	0.46	0.43

Both companies have excess of inventory that disable them to pay 1 rupee of liability on average PSO have 0.8 rupee to fulfil its one rupee liability and shell have 0.45 rupee for one rupee of liability.

3-    Internal measures = current assets / average daily operation cost

 Average daily operation cost= total cost – deprecation – interest / 365

year	2010	2011	2012
PSO	99	118	123
Shell Pakistan	50	63	58

From the upper calculated ratios it is clear that PSO has liquidity for more days as compare to shell, for PSO 115 days liquidity is available and shell has 56 days liquidity on average.

Long term salvage ratios:

1-    Total debt ratio = total debt / total assets

Year	2010	2011	2012
PSO	6.5%	9.3%	13%
Shell Pakistan	22%	16%	27%

Shell Pakistan has average 22% debt financing and PSO has 8 % on average which shows goodness of Pakistan state oil.

2-    Debt to equity ratio = total debt / total equity

Year	2010	2011	2012
PSO	44%	60%	90%
Shell Pakistan	106%	95%	197%

Financial manager think that a good company is that in which debt to equity ratio should be 60 % equity and 40 % debt but in upper both cases PSO has maximum 90 % debt means PSO  has 1.9 rupee from debt if company has 1 rupee from equity. But in case of Shell it is quite surprising to see shell has minimum debt to equity ratio is 95% and maximum it has 197 % in the year 2012.

3-    Equity multiplier = 1+ total debt/ total equity

Year	2010	2011	2012
PSO	1.44	1.59	1.9
Shell Pakistan	2.1	1.95	2.97

Equity multiplier of both companies is helping to understand the debt to equity ratio.

4-    Long term debt ratio:

Both concerned companies have 0 long term debt so we cannot calculate the long term debt ratio.

5-    Time interest earned ratio = EBIT/interest

Year	2010	2011	2012
PSO	2.77	2.46	2.1
Shell Pakistan	2.9	2.04	0.57

Times interest earned ratio is very important from the creditors view point. PSO high ratio ensures a periodical interest income for lenders. Shell is with weak ratio may have to face difficulties in raising funds for their operations.

6-    Cash coverage ratio = EBIT – depreciation/ interest

Year	2010	2011	2012
PSO	2.88	2.56	2.2
Shell Pakistan	2.9	2.04	0.57

The cash coverage ratio is useful for determining the amount of cash available to pay for interest, and is expressed as a ratio of the cash available to the amount of interest to be paid. The ratio should be substantially greater than 1:1both PSO and Shell have good ratio except Shell in 2012 it is very low percentage.

Asset management ratio:

1-    Inventory turnover = CGS/ inventory

Year	2010	2011	2012
PSO	12.17	8.243	11.18
Shell Pakistan	15.01	11.58	11.71

Days in inventory turnover = 365/ inventory turnover

Year	2010	2011	2012
PSO	29.99	44.28	32.65
Shell Pakistan	24.317	31.52	31.17

In this case Shell is doing well then PSO because inventory turnover reflects the efficiency of firm to convert its inventory to sale, PSO has an average 10 inventory turnovers less then shell which is 12.

2-    Receivable turnover = sales/ account receivable

Year	2010	2011	2012
PSO	51.02	36.44	48.49
Shell Pakistan	23.10	16.91	22.86

PSO is good in his collection of receivable rather than shell on average

PSO collects its receivables 45 times in a year and shell is behind PSO

which collects its receivables 20 times in a year.

3-    Payable turnover = CGS/ account payable

Year	2010	2011	2012
PSO	4.57	4.098	4.0122
Shell Pakistan	9.29	8.437	7.88

Days in payable turnover = 365/ payable turnover

Year	2010	2011	2012
PSO	79.86	89.07	90.97
Shell Pakistan	39.29	43.26	46.32

PSO has low inventory turnover which is favourable for organization.

4-    Net working capital turnover = sales/ NWC

Year	2010	2011	2012
PSO	31.88	23.24	23.27
Shell Pakistan	(43.82)	(62.644)	(52.93)

PSO is efficiently utilize its NWC to generate sales on other hand Shell has negative NWC.

5-    Fixed assets turnover = sales/ net fixed asset

Year	2010	2011	2012
PSO	83.69	83.23	106.36
Shell Pakistan	17.206	19.96	21.94

A financial ratio of net sales to fixed assets. The fixed-asset turnover

 Ratio measures a company's ability to generate net sales from

Fixed-asset investments And PSO’S utilisation is good then shell which is

Very low as compare to PSO.

6-    Total asset turnover = sales/ total asset

Year	2010	2011	2012
PSO	3.67	3.055	2.94
Shell Pakistan	5.81	5.03	5.44

The total asset turnover ratio measures the ability of a company to use

Its assets to efficiently generate sales in this case Shell is doing

 well comparatively because it has an average of 5 times.

               Profitability ratio:

1-    Profit margin = net income/ sales

Year	2010	2011	2012
PSO	0.012	0.018	0.009
Shell Pakistan	0.007	0.004	0.0085

PSO is generating sales greater than Shell which is showing efficiency.

2-    Return on asset = net income/ total asset

Year	2010	2011	2012
PSO	0.045	0.056	0.0261
Shell Pakistan	0.042	0.018	0.0464

 How much net income is generating from sales and in this case both

 Companies are doing approximately equal effort to generate net

 Income from sales.

3-    Return on equity = net income/ total equity

Year	2010	2011	2012
PSO	0.301	0.353	0.18
Shell Pakistan	0.205	0.1097	0.34

It also reflects the generation of net income from equity and both companies are similar here also.

4-    Earnings per share = net income/ no of share outstanding

Year	2010	2011	2012
PSO	52.76	86.17	52.80
Shell Pakistan	23.59	13.23	(24.33)

Upper calculation shoes that PSO earning per share is far better than shell Pakistan.