ADVANCE FINANCIAL ANALYSIS

TERM PROJECT
PAKISTAN STATE OIL (PSO): A FINANCIAL DISSECTION
SU BM
I TT
E D
TO:
DR. NAUMAN AFGAN
SUBMITTED BY:
FAHD BIN HAFEEZ
FAIZAN HAYAT
HASAN ALTAF
HASSAN SHABBIR
HINA ILYAS
Intr!"#t$n
P%&$'t%n St%t( O$) (PSO):
PSO is a globally competitive, state-owned mega corporation and market leader in Oil industry
in Pakistan. It is included in KSE-3 Inde! and is "ead#uartered in Karac"i. PSO also "as well
establis"ed presence in countries abroad.
PSO was $ounded in %&'( as a result o$ integration o$ private sector t"roug" t"e nationali)ation
program. *"e +overnment o$ Pakistan "olds ,(- s"are in PSO t"roug" direct "olding and also
t"roug" indirect "olding by +overnment owned institutions. PSO currently "as '3- s"are o$
black oil market, ,&- s"are o$ t"e w"ite oil market and 3,- participation in lubricant industry.
It "as 3. outlets constituting o$ t"e .- participation in total industry network.
/espite t"e pro$itable per$ormance o$ t"e corporation, PSO is under "uge pressure because o$ t"e
circular debt w"ic" "as e!ceeded ( billion 0s. /ue to t"e power1energy sector being unable to
pay $or t"e $uel prices, t"e payables o$ PSO are rising. 2owever t"e receivables are at t"e
moment $ar more t"an t"e payables. 3s per 4%4, PSO5s payables were at %.6 billion w"ereas t"e
receivables stood at 4(( billion.
An%)*'$':
*"e purpose o$ t"is study is to analy)e t"e $inancial per$ormance o$ PSO t"roug" t"e period 4'
to 4%%. 3s mentioned in introduction, PSO "as been a success$ul and one o$ t"e very $ew
pro$itable state owned corporations in Pakistan despite t"e circular debt situation, so it is #uite
use$ul to analy)e t"e way $inancial statements depict t"e w"ole picture.
*"e scope o$ t"e study is to analy)e t"e $inancial per$ormance o$ PSO based on7
0atio 3nalysis
8as" 9low 3nalysis
8ommon Si)e 3nalysis
R%t$ An%)*'$':
*"ere are a lot o$ ratios t"at can be calculated to :udge t"e $inancial and operational per$ormance
o$ an organi)ation7 "owever, eac" ratio serves a di$$erent purpose $or t"e investors and creditors
o$ t"e $irm. *"ese ratios "elp analy)e t"e $inancial strengt"s and weaknesses o$ a company.
*"ese may include t"e ability to pay s"ort-term and long-term obligations and to e$$iciently use
t"e available resources.
9igure % presents a general overview o$ di$$erent $inancial ratios t"at can be used to analy)e a
company5s per$ormance.
SUMMARY OF FINANCIAL RATIOS
F$+"r( ,: D$--(r(nt F$n%n#$%) R%t$'
Suc" ratios can also "elp compare di$$erent $irms in same line o$ business. *"e ratio analysis in
t"is study includes7
;i#uidity 0atios
Solvency 0atios
3sset <anagement 0atios
Pro$itability 0atios and
899O ratios
C%'. F)/ An%)*'$':
*"e cas" $low analysis represents t"e sources t"roug" w"ic" company obtain its cas" in$low and
t"e pro:ect or activities t"e company use to in:ect its cas". It analyses t"e $low o$ cas" wit"in a
given period o$ time as any cas" movement outside t"e business represents as cas" out$low w"ile
ST
Liquidity
LT Solvency Risk
Current
Ratio
Quick
Ratio
CFFO to
CL Ratio
CFFO
to TL
Debt/equit
y Ratio
Debt/TC
Ratio
Interest
Coverag
e Ratio
CFFO
to
Interes
Financial Healt/Risk
!sset "gt
#$ectiveness
%ro&tabili
ty
Return
to
O'erating %er(or)ance
Rec*
Turnover
Ratio
Inv*
Turnov
er
Total !sset
Turnover
!vg* Rec*
Collection
Ratio
!vg*
+o* o(
Days
Return on
Total !sset
Return
on
Sales
Ratio
Return
on
#quity
#arning
%er
Sare
Cas
Dividen
d ,ield
Cas
Dividend
cas" in$low represents t"e cas" movement inside t"e business. *"e di$$erence between t"ese cas"
in$low and out$low is called t"e $ree cas" $low.
C00n S$1( An%)*'$':
8ommon si)e analysis is a use$ul ways to track t"e per$ormance o$ a company over time. It can
also be used as a comparison wit" t"e ot"er companies in t"e industry wit" same lines o$
business. *"is analysis can be done $or all t"ree o$ t"e $inancial statements but $or t"is study we
"ave done common si)e analysis $or7
Income Statement
=alance S"eet
R%t$ An%)*'$'
L$2"$!$t* R%t$'
TABLE 1: LIQUIDITY RATIO
R!TIOS F, -.// F,
-./.
F, -..0 F, -..1 F,
-..2
CO"%!+,
!3#R!4#
C5RR#+T R!TIO /*/6 /*/7 /*.2 /*-7 /*-7 /*2
Q5IC8 R!TIO .*2- .*20 .*29 .*92 .*67 .*60
CFFO TO C5RR#+T
LI!:ILIT, R!TIO
.*.9 .*.7 .*.9 .*/. .*/. .*.-
C"rr(nt R%t$:
8onsidering t"e $ive years analysis o$ PSO current ratio, 6..- o$ current assets "ave been
reduced since 4' to 4%%. In year 4' and 4., t"e ratio remains consistent to %.4( w"ic" is
greater t"an t"e average industry current ratio. *"e average current ratio o$ t"e company stands
at %.' w"ic" s"ows t"e "ealt"y condition o$ current assets to current liabilities and it contributes
to build a trust $actor wit"in t"e investor community because it s"ows t"e li#uidity o$ t"e
company and its ability to meet t"e current liabilities.
FIGURE 2: CURRENT RATIO
3lt"oug", t"e average industry current ratio is greater t"an t"e average company current ratio but
it is not revealing a greater di$$erence w"ile PSO "olds .- o$ t"e market s"are in Pakistan so,
it5s #uite reasonable to di$$erence between t"e company and average industry current ratio.
3"$#& R%t$:
*"e >uick ratio presents a very "ealt"y scenario o$ t"e company to meet its most current
obligations as t"e average company #uick is .6& against t"e industry ratio o$ .'%. *"e company
"as consistently improved its ability to meet its current obligations wit"out t"e consideration o$
inventory into its current assets as a$ter 9? 4., t"e company "as s"own a progress in its ability
to meet current obligations wit"out t"e consideration o$ inventory in current assets. In $ive years
$rom 4' to 4%%, company "as grown its potential to meet current obligations to %4.,- w"ic"
is a very positive notion $or t"e investors and s"ort term loan providers to trust in company5s
ability to respond to t"eir s"ort term obligations wit"out any "urdles.

FIGURE 3: QUICK RATIO
CFFO t C"rr(nt L$%4$)$t* R%t$:
*"is ratio s"ows t"e ability o$ t"e company to meet its most current credit claims wit" t"e "elp o$
cas" $low $rom operations. It depends on "ow well t"e generate cas" $low consistently to meet its
current obligations.
D(' N(+%t$5( C%'. F)/ -r0 O6(r%t$n' % Pr4)(07
Its depends on t"e ability o$ t"e company to generate its sale into cas" but un$ortunately,
companies sell t"eir product mostly on credits so identi$ying negative cas" $low $rom operations
would not be :ustice wit" t"e operational measurement o$ any company. So, a negative 899O to
current liability ratio doesn5t present t"e weak operational ability to meet its current liabilities but
it may "ave impact $rom sales on credit. 3s PSO sells most o$ its product on credits to di$$erent
ot"er organi)ations w"ic" may increase t"e level o$ account receivables and "ence, decrease t"e
899O to current liability ratio.
FIGURE 4: LIQUIDITY RATIO
8. B(n(-$t -r0 L$2"$!$t* R%t$ An%)*'$'7
*"e stake"olders w"o "ave s"ort run stakes in t"e company5s ability to meet its current
obligations take more interest to measure li#uidity ratio as t"ey provide or invest in company
stokes $or s"orter period o$ time so t"ey are more in interested to measure t"e ability o$ t"e
company to meet t"eir current obligations. <oreover, company5s management and long term
creditors also keep an eye on t"e company5s ability to retain t"e strengt" to meet s"ort rum
obligations because it may "ave e$$ect on company5s long term ability to meet its long term
obligations because consistent negative variations in li#uidity ratio poses a t"reat to company5s
ability to meet its run obligations.
H/ 0"#. $' F%5r%4)( L$2"$!$t* R%t$ -r PSO:
It totally depends on t"e si)e and volume o$ t"e company, its investment pro:ects and more
importantly, t"e average industry li#uidity ratio. *"ere is no range o$ acceptable li#uidity ratio as
it depends on multiple $actors but best estimate may be taken by comparing t"e average li#uidity
ratio o$ t"e company wit" average industry li#uidity ratio. 8onsidering t"e comparison between
t"e average company5s li#uidity ratio and average industry li#uidity ratio, it is observed t"at PSO
"olds a reasonably strong position as average o$ t"e industry is measured by all companies
operating in t"e industry regardless o$ t"eir si)e.
SOLVENCY RATIOS
*"ese ratios measure t"e abilities o$ a company to repay its long term debts and t"e interests on
t"e debts. Solvency is a company5s long term de$ault risk. *"ese ratios give t"e analysis o$ t"e
company5s survival in t"e long run. 8reditors and S"are"olders are particularly interested in
knowing t"e debt servicing abilities o$ a company and t"at is w"ere t"ese ratios come in.
Petroleum industry is a capital intensive and "ig" levels o$ debt can seriously "amper its growt"
and e!pansion. Solvency ratios in suc" industries are very widely used to "ave a better
understanding o$ use o$ debt and e#uity levels. ;et us analy)e eac" o$ t"ese important ratios $or
t"e company we "ave c"osen t"at is Pakistan State Oil @PSOA.
D(4t t E2"$t*:
/ebt to E#uity ratio is one o$ t"e most widely used ratio in any $inancial analysis. 3s t"e name
suggests it5s a ratio o$ debts to t"e e#uity and is o$ten calculated to "ave an idea about t"e long
term solvency o$ a company. *"e e#uation can be e!pressed as
*"e ratio can be interpreted di$$erently $or di$$erent sectors. Bsually companies wit" "ig"er
ratios are riskier $or investments. On t"e ot"er "and lower values depict t"e e#uity is being used
alone to service t"e debts.
T%4)( 9: An%)*'$' - -$n%n#$%) 't%t(0(nt' -r0 9::; <9:,, - PSO
Y(%r 9::; 9::= 9::> 9:,: 9:,,
Ln+ T(r0
L$%4$)$t$('
4(%(3'% 4(.'(6 4,4''3. 4.3644' 34,'4(.
S.%r(.)!(r'
E2"$t*
4&3&4%' 3&6,,( 4.''., 4&336,. (%&4&.,
D(4t t
E2"$t* R%t$
.%%,4 .''. .%4%% .&6' .'''
D(4t t E2"$t* R%t$ $nt(r6r(t%t$n:
*"e /ebt to E#uity 0atio $or PSO s"ows t"at it "as sustained values over t"e period o$ time and
"as been repaying its obligations primarily t"roug" its e#uity $inancing. *"e average value o$ t"e
ratios over t"e time period o$ study $rom 4' to 4%% is .&&. and t"e value "as been
decreasing $or t"e last couple o$ years.
G(%r$n+:
3lso known as t"e Cet +earing 0atio or /ebt to 3ssets 0atio, it is $inancial ratio t"at compares
total assets to borrowed $unds. It is a measure o$ $inancial leverage, t"e e!tent to w"ic" a
company5s activities are $unded by ownerDs $unds versus creditorDs $unds.
T%4)( ?: G(%r$n+ R%t$' -r0 9::;<9:,,
Y(%r 9::; 9::= 9::> 9:,: 9:,,
Ln+ T(r0
L$%4$)$t$('
4(%(3'% 4(.'(6 4,4''3. 4.3644' 34,'4(.
Tt%) A''(t' '('3'3%, %4'%%4 %,3(4%6(3 444(''(% 4646'3(6
G(%r$n+ R%t$ .343 .%& .%6, .%( .%4(
D(4t t C%6$t%)$1%t$n:
/ebt to capitali)ation ratio gives an insig"t into a company5s use o$ leverage. *"is ratio measures
t"e component o$ debt as it is used to support growt" and operations. *"e amount o$ debt is not
$i!ed $or an organi)ation and company may use di$$erent amounts to support its operations and
ot"er activities. 3 low level o$ debt compared to t"e e#uity portion is usually considered a sign o$
company5s $inancial $itness. Proper utili)ation o$ t"e debt increases t"e number o$ available
resources and "elps in e!pansion. Pro$itability o$ a "ig"ly leveraged company may be limited by
t"e large amount o$ interest payments w"ic" could spell trouble in times o$ economic
uncertainty.
T%4)( @: T.( !(4t t #%6$t%)$1%t$n -r0 t.( F$n%n#$%) St%t(0(nt' - PSO
Y(%r 9::; 9::= 9::> 9:,: 9:,,
Ln+ T(r0
L$%4$)$t$('
4(%(3'% 4(.'(6 4,4''3. 4.3644' 34,'4(.
S.%r(.)!(r'
E2"$t*
4&3&4%' 3&6,,( 4.''., 4&336,. (%&4&.,
D(4t t
C%6$t%)$1%t$n
.%33 .'44 .%. ...4 .'4%
Int(r6r(t%t$n - D(4t t C%6$t%)$1%t$n:
0atios $or PSO, w"ic" are lesser t"an %, reveal t"at it relies less on debt and t"e assets are
primarily $inanced by e#uity. *"e company "as consistently maintained a low debt to capital
ratio t"roug"out t"e past years. *"e "ig" levels o$ e#uity $inancing reveal investor5s con$idence
in t"e company as it does in t"e petroleum sector in general.
A''(t M%n%+(0(nt R%t$'
3sset management ratios basically compare t"e assets to its sales revenue. It indicates t"at "ow
e$$iciently a $irm is utili)ing its assets to generate revenue. So it5s a way to analy)e t"at "ow
e$$iciently and e$$ectively a company is using its assets and to w"at e!tent its assets are
contributing towards t"e sales and revenue generation. *"ese ratios provide important insig"ts
into di$$erent $inancial areas o$ t"e company and its "ig"lig"ts its strengt"s and weaknesses.
*"e various ratios t"at are under t"e "ead o$ 3sset management ratios are
3ccount receivable *urnover
Inventory *urnover
0eceivable turnover in days
Inventory turnover in days
*otal 3sset turnover
9i!ed 3sset turnover
So t"ese 0atios attempt to measure t"e $irmDs success in managing its assets to generate
sales. =elow is t"e table s"owing t"e calculations o$ t"e ratio over t"e , year period ranging
4'-4%%. *"e e!planation o$ t"e ratios is covered under eac" "eading separately.
T%4)( A: A''(t M%n%+(0(nt R%t$ S"00%r*
Y(%r 9::; 9::= 9::> 9:,: 4%%
ABR
t"rn5(r
%(.'.33.(( %(.''6,6663 %.66'%% '.'.(%%(4.3 6.&.%%4.33
ABR
t"rn5(r
$n D%*'
4(.6.&..',% 4(.'%4'4,' 36.4,.%4%' (6..&3'%, ,4.4.3.%(6
In5(ntr*
T"rn5(r
//*6;0;1
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T"rn5(r
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A''(t'
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//
A##"nt R(#($5%4)( t"rn5(r:
*"e 3ccount 0eceivables *urnover assess t"e $irmDs management o$ its 3ccounts 0eceivables
and, "ence, its credit policy. *"e ratio basically tells t"e number o$ times t"e account receivables
are turned over t"at is 0eceivables *urnover 0atio is one o$ t"e e$$iciency ratios and measures
t"e number o$ times receivables are collected, on average, during t"e $iscal year. *"e "ig"er t"e
0eceivables *urnover 0atio t"e better since t"is implies t"at t"e $irm is collecting on its accounts
receivables sooner. =ut i$ t"e ratio is too "ig" t"en t"is s"ows t"at t"e $irm may be o$$ering too
large discounts or it may be "aving too muc" restrictive credit terms. *"e 0eceivables *urnover
0atio is calculated by dividing Sales by 3ccounts 0eceivables.
A##"nt R(#($5%4)( T"rn5(rD N(t Cr(!$t S%)('B A5+. A##"nt R(#($5%4)(
+iven above are t"e calculations $or 3ccount 0eceivable turnover $or t"e period o$ 4'-4%% o$
Pakistan State Oil @PSOA. 3s its evident $rom t"e above calculation t"at t"e turnover ratio
declined signi$icantly $rom 4'-4%%. 3s its mentioned above t"at t"e "ig"er t"e turnover ratio,
t"e better it is as it tells you t"at at w"at rate t"e receivables are being turned over in a given
period. So t"e low ratio can be due to multiple reasons. Possibly it could be poor and ine$$ective
credit policies. So t"e company needs to reassess and revise its credit terms. *"e account
receivable @as a percentage o$ total assetsA increased $rom 4'-4%%
*"e trade debt alone increased $rom almost %.- to (.-. Cet Sales as a percentage o$ total sales
remain consistent during t"is time. *"at is w"y t"e account receivable turnover declined. So t"e
account receivables are being collected at a lower rate. +rap" is presented in appendi!.
R(#($5%4)( T"rn5(r $n D%*'BA5(r%+( C))(#t$n 6(r$!:
0eceivable turnover in days actually tells t"e number o$ days $or w"ic" t"e receivables remain
outstanding. It5s a number o$ days on average t"at it takes a company to collect its accounts
receivables, i.e. t"e average number o$ days re#uired to convert receivables into cas". *"e lesser
number o$ days it takes to collect t"e receivables, t"e better it is. =elow is t"e table s"owing t"e
calculation $or t"e receivable turnover in days. 3s t"e ratio is calculated $rom t"e receivable
turnover so it is "ig"ly correlated to it. 3s you can see in t"e table below t"at t"e number o$ days
to collect receivables $or PSO "as increased $rom 4( days to ,4 days. *"is can be attributed to
t"e results o$ 3ccount receivable turnover, t"e ratio calculated previously. *"e number o$ days
"as increased because o$ lower turnover ratio w"ic" can be t"e result o$ ine$$ective or too lenient
credit policies. +rap" o$ t"e values is presented in appendi!.
R(#($5%4)( T"rn5(r $n D%*'D?EAB A##"nt R(#($5%4)( T"rn5(r
In5(ntr* t"rn5(r r%t$:
It5s a ratio t"at tells t"e number o$ times t"e inventory gets rolled over in a year. It s"ows "ow
many times a companyDs inventory is sold and replaced over a period.
In5(ntr* T"rn5(r D C't - G!' S)!BA5(r%+( In5(ntr*
*"e above table s"ows t"e result o$ inventory turnover calculation $or PSO $or t"e period o$
4'-4%%. *"e calculation s"ow a mi!ed trend t"at is t"e ratio is not contant over t"e period
rat"er it "as $luctuated over t"e time. =ut t"e e!tent o$ $luctuation is not t"at "ig", its in narrow
range. ;ow inventory turnover is a signal o$ ine$$iciency and poor sales or e!cess inventory. It
could be because o$ overstocking and t"us leads to poor li#uidity, w"ereas "ig" ratio indicates
better li#uidity. +enerally t"e inventory turnover $or PSO "as been ade#uate. =ut it can improve
t"e ratio as ade#uately "ig"er ratio is desirable t"oug" it s"ould not be too "ig". *"e inventory as
a percentage o$ total assets increased s"arply in 4. $rom 3&- in 4' to (&- in 4. and t"en
it declines substantially till 4%%. 3nd 8O+S remain almost contents $rom 4'-4%%. So t"e
ratio declined in 4. and t"en increased $rom t"en on till 4%%. +rap" is presented in appendi!.
In5(ntr* T"rn5(r $n !%*':
*"e ratio actually tells t"e number o$ days $or it takes t"e inventory to turnover or converted to
sales be it cas" or account receivable.
In5(ntr* T"rn5(r $n !%*'D?EAB In5(ntr* T"rn5(r
*"e above table s"ows t"e inventory turnover in days5 calculation $or PSO $or t"e period o$
4'-4%%. 3gain t"e number o$ days varies across t"e period. *"e ratio is dependent upon t"e
Inventory *urnover ratio. *"e "ig"er t"e Inventory turnover ratio, t"e lesser is t"e number o$
days it takes to convert t"e inventory to sales. *"e less number o$ days are desirable as it s"ows
t"at t"e inventory is converting to sales #uickly. *"e lowest number o$ days $or PSO is t"at o$ 4,
days in 9? 4% and "ig"est is t"at o$ 36 days in 4.. +rap" related to t"e computation is given
in appendi!.
Tt%) A''(t T"rn5(r:
*"e 3ssets turnover ratio actually measures t"e e$$iciency o$ t"e assets to generate sales. 2ig"er
t"e number, t"e better. 8ompanies "aving low pro$it margins tend to "ave "ig" asset turnover,
w"ile t"ose wit" "ig" pro$it margins "ave low asset turnover.
Tt%) A''(t T"rn5(r DN(t '%)('BA5(r%+( tt%) %''(t'
*"e above table s"ows t"e calculations related to t"e asset turnover $or PSO $or t"e period o$
4'-4%%. *"e asset turnover ratio is on a lower side w"ic" mig"t be due to a number o$ $actors.
*"is may indicate a problem wit" one or more o$ t"e asset categories composing total assets.
+rap" is presented in appendi!.
F$C(! A''(t' T"rn5(r:
*"e $i!ed-asset turnover ratio measures t"e ability o$ a company to generate sales $rom $i!ed-
asset investments- speci$ically property, plant and e#uipment. *"e "ig"er t"e ratio t"e better it is
as t"e "ig"er $i!ed asset turnover indicates t"at t"e company "as been more e$$ective in using t"e
investment in $i!ed assets to generate revenues.
F$C(! A''(t' T"rn5(rD N(t '%)('Bn(t -$C(! %''(t'
*"e above table s"ows t"e calculations o$ $i!ed asset turnover $or PSO $or t"e period o$ 4'-
4%%. *"is ratio s"ows a remarkable increase $rom 4' to 4%%. *"e increase in ratio over t"e
period indicates t"e e$$iciency o$ t"e PSO5s $i!ed assets in generating sales so its $i!ed assets are
adding to t"e revenues o$ t"e company. 9i!ed assets as percentage o$ total assets decreased $rom
4'-4%%. 3nd net sales as percentage o$ total sales remain almost constant over 4'-4%%.
*"at is t"e reason $or increase in t"e turnover. Ee calculated t"e ratio by taking t"e net $i!ed
assets amount in t"e balance s"eet and we divided net sales by t"is amount* +rap" is presented
in appendi!.
Pr-$t%4$)$t* r%t$'
PSO $inancial statements were analy)ed to assess t"e pro$itability based on t"e $ollowing $our
pro$itability assessment ratios7
Operating Income 0eturn on Investment @OI0OIA
Operating Pro$it <argin @OP<A
*otal 3sset *urnover @*3*A
*imes Interest Earned @*IEA
*"ese pro$itability ratios "elp analy)e t"e sales per$ormance, ability to control e!penses and t"e
e$$iciency by w"ic" a company utili)es its assets in an e$$ective manner. *"e time coverage $or
t"e analysis was $rom 4' F 4%%. *able below gives a compre"ensive overview o$ all t"ese
ratios during t"e , year span mentioned "ere.
T%4)( E: Pr-$t%4$)$t* R%t$' S"00%r*
4' 4. 4& 4% 4%%
OI0OI
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*"e $ormula $or calculation o$ eac" o$ t"e ratios is given in 3ppendi!.
O6(r%t$n+ In#0( R(t"rn n In5('t0(nt:
*"is is t"e measure o$ t"e operating income relative to t"e assets and is t"e measure o$ t"e
e$$ectiveness o$ t"e $irm to generate pro$it on $irm5s assets. Ee can see $rom t"e above table t"at
t"e ratio "as somew"at stable outlook in year 4' and 4., and increase in 4.(, times in gross
pro$it in 4. compared to 4', and again in 4% and 4%%. 2owever we see a great dip in t"e
ratio $rom roug"ly %'- in 4. to -3- in 4&. *"is is mainly because o$ t"e company going
into an operating loss instead o$ pro$it. *"e negative value o$ t"e loss amount translated into a
negative ratio amount.
*"is decrease in operating income can be attributed to decrease in gross pro$it margin and
increase in general operating e!pense o$ t"e company. Gertical analysis o$ t"e pro$it and loss
account s"ows t"at cost o$ goods sold was also ,- more relative to t"e revenue compared to t"e
4. period.
*"e grap"ical representation o$ t"e , year term ratio can be seen in 3ppendi!.
O6(r%t$n+ Pr-$t M%r+$n:
Operating pro$it margin is a part o$ OI0OI and "ence its movement is similar to t"at o$ OI0OI. It
is t"e measure o$ pro$itability relative to sales. *"e data in t"e table s"ows a similar trend w"ere
OP< increased in 4. compared to 4', almost a %- :ump. /ue to t"e decrease in t"e
operating income, resulting $rom increased 8O+S and general e!penses, 4& saw a signi$icant
dip w"ere t"e ratio went into negative scale. *"is was due to decrease in operating income and
also a smaller percentage s"ows t"at t"e overall revenues in 4& increased.
*"e per$ormance during 4% and 4%% stabili)ed. 4%% s"owed increase in revenues but also
s"owed increased e!penses. 3lso, slig"t improvement in 4%% was due to t"e decreased accounts
payable and increased account receivables as percentage o$ total assets.
*"e grap"ical trend o$ t"e operating pro$it margin $rom year 4' to 4%% is presented in
3ppendi!.
Tt%) A''(t T"rn5(r:
*otal asset turnover @*3*A is t"e second part o$ OI0OI. It is t"e comparative analysis o$ t"e
e$$ectiveness o$ t"e management to generate sales relative to t"e total assets presented in t"e
balance s"eet. *"e ratio remained $airly stable $rom 4. to 4%7 "owever we see di$$erences in
year 4' and t"en again in 4%%.
9rom t"e perspective o$ a base year o$ 4,, total assets "ad a %- increase $rom %(3- to
4(3-, t"e revenues did not increase by t"e same percentage and was only increased by 6.-
$rom %64 to 43-. 2ence we see t"at t"e *3* value $ell $rom nearly ,., to (.,. Similarly i$ we
compare year 4% and 4%% taking 4, as a base year, sales increases were only 3.- more but
total assets in 4%% increased by %,-, $rom 3.'- in 4% to ,4 - in 4%%. 2ence we see *3*
value o$ nearly 3.' in 4%%.
+rap"ical depiction o$ t"e trends o$ *3* $rom 4' to 4%% is sown in 3ppendi!.
T$0(' Int(r('t E%rn(!:
It is t"e ability o$ a $irm to cover its interest e!penses as measured by operating income relative
to interest e!pense. *"is ratio seems #uite stable in 4% and 4%%. 2owever, $rom t"e 4' to
4& period, it seemed #uite volatile. 9inancing e!penses were "ig" compared to sales in 4'
relative to 4.. Operating income increased by 3 times in 4. compared to 4' w"ereas t"e
$inancing cost increased by only %.4 times. Percentage o$ $inancing costs wit" 46 as base year
decreased in 4. compared to 4'.
In 4&, t"ere were two problems $aced. 9irstly, t"e revenues $ell and company went into a loss.
Secondly, t"e $inancing costs increased at a dramatic rate. 9inancing costs were ..'- o$ t"e
revenues in 4& as compared to 4.. ;ong-term liabilities increased and payables also
increased by a signi$icant amount. In 4%, even-t"oug" t"e $inancing costs increased, but t"e
revenue generated also increased by a signi$icant amount "ence resulting in an increased score o$
*IE. +rap" depicting t"e $ive year trend o$ *IE is presented in t"e 3ppendi!.
An%)*'$' - Pr-$t%4$)$t* R%t$':
F$+"r( A: Pr-$t%4$)$t* R%t$' 9::; < 9:,,
F$+"r(: Tr(n! - Pr-$t%4$)$t* R%t$'
*"e grap" presented in 9igure s"ows general trends o$ di$$erent pro$itability ratios $rom year
4' to 4%4. It is very clear $rom t"e grap" t"at a general dip was observed in 4&. *"is means
t"at by any measure o$ any o$ t"e pro$itability ratio, t"e company was not in a good s"ape.
0evenues declined, $inancing costs increased and "ence t"e general evaluation seemed negative.
/ue to increased total assets by 4%%, OI0OI and *3* s"ow a downward trend "owever t"e
ot"er two ratios remain una$$ected. *"is is because t"e ot"er two ratios, *IE and OP< do not
incorporate t"e e$$ect o$ total assets in t"eir calculations. *"e general trend, "owever, is
consistent.
CFFO %n! E2"$t*
R(t"rn n (2"$t*:
0OE is t"e amount o$ income received as a percentage o$ s"are"oldersD e#uity. 0eturn on e#uity estimates
a corporation5s pro$itability by revealing "ow muc" pro$its a company generates wit" t"e money
s"are"olders "ave invested. It is also known as return on net wort". 0eturn on e#uity is a valuation
multiple t"at is commonly used in order to determine t"e value o$ a company. 0OE is t"e amount o$ pro$it
t"at is generated by t"e money t"at "as bon invested wit" a company by t"e s"are"olders.
*"e $ormula $or 0OE is,
R(t"rn n E2"$t* D N(t In#0(BS.%r(.)!(rF' E2"$t*
*"e values o$ t"e ratios are in t"e $ollowing table
T%4)( ;: R(t"rn n E2"$t* r%t$
R%t$ 9::; 9::= 9::> 9:,: 9:,,
ROE .443&'%&., .(,3.,&.,. -.34&,4'% .3.(.3% .3,4'3%3%
F$+"r( E: R(t"rn n E2"$t* tr(n!' 9::;<9:,,
*"e return on e#uity as is obvious $rom t"e above calculations and grap" is $ollowing a volatile
pattern. *"is can be mainly attributed to t"e volatile pattern o$ net income and c"anges in t"e
s"are "older5s e#uity.
CFFO t $nt(r('t #.%r+(':
8as" $low $rom operations to interest c"arge ratio "elps us in determining w"et"er t"e
company5s current cas" $low $rom operations would cover t"e company5s $inancial cost or
interest e!pense. *"e $ollowing table contains t"e values,
T%4)( =: CFFO t Int(r('t r%t$ t%4)(
R%t$ 9::; 9::= 9::> 9:,: 9:,,
CFFOB$nt(r('t 3.%.'(',.43 4.&6.3.(,( -.''('&3%4 .,%6.&636 -.''6.'6
899O1interest c"arge ratio "as $ollowed a volatile pattern in t"e given period t"at is mainly
attributed to t"e rise in debt and t"e "as resulted in increased interest c"arges. <oving $urt"er, an
element w"ic" is weakening t"e situation is 899O w"ic" is "ig"ly volatile and in two years was
negative, a$$ecting t"e ratio.
CFFO t tt%) )$%4$)$t$(':
*"is ratio "elps us in accessing t"at "ow muc" t"e current cas" $lows would "elp a company to
cover its total liabilities.
*"e $ollowing table contains t"e values o$ t"e ratio
T%4)( >: CFFO t )$%4$)$t* r%t$ t%4)(
R%t$ 9::; 9::= 9::> 9:,: 9:,,
CFFOBtt%)
)$%4$)$t$('
.6.6%6.%4 .(4%4,%& -.36(4'&43 .4.6'%.'% -.3.%4466
It is evident $rom t"e table t"at t"is ratio is unstable over t"e period o$ time and t"e main reason
is t"e increasing debt w"ic" was also evident in t"e case o$ t"e previous ratio w"ere $inance cost
was "ig" adversely a$$ecting t"e ratio.
9ollowing grap" s"ows t"e 899O ratios.
F$+"r( ;: C06%r$'n - t.( t/ CFFO r%t$'
D$5$!(n! 6%*"t r%t$:
*"is ratio provides an idea t"at "ow well a company5s income support dividend payment, t"e
mature t"e company is, t"e "ig"er t"e ratio. *"e $ollowing table contains t"e values,
T%4)( ,:: D$5$!(n! 6%*"t r%t$ 9::;<9:,,
R%t$ 9::; 9::= 9::> 9:,: 9:,,
C%'.
!$5$!(n!'B
n(t $n#0(
.(436&6 .%,4,,,664 -.%4.4'4(. .&('66%& .&4.(4'(
F$+"r( =: D$5$!(n! 6%*"t r%t$G +r%6.$#%) !(6$#t$n
/i$$erent amounts o$ dividends "ave been paid in t"ese $ive years. In 4& since income is
negative, dividends cannot be paid. /ividends increased overtime but since income also
increased so ratio "as not increased overtime.
C%'. F)/ An%)*'$'
*"ere are mainly two main items to be considered more important in t"e analysis o$ cas" $low
statement7 one is net cas" $rom operations w"ile ot"er is net cas" available to company at t"e end
o$ t"e $iscal period.
*"e $ive year data o$ PSO s"ows t"at t"e company is obtaining a positive sum o$ $ree cas" $low
$rom its cas" $low statement reveals low involvement in s"ort term and medium term investment.
TABLE ,,: CASH FLO8 ANALYSIS (9::;<9:,,)
YEAR CASH INFLO8 CASH OUTFLO8 FREE CASH FLO8
4' (.3%,%& 4,%&% (,.(4.
4. ,4%6&,% %6'66 (%(&4&%
4& &%'%4&6,., %3.,(4, &34',(.,
4% %,(&4.. %4,36. %(..(3&4
4%% %&3,'&(,3%, %34(&%% %&4(6&((

9rom 4', alt"oug", t"e company started investing in assets and s"ort run investment but
reasonably less t"an t"e cas" in$low $rom ot"er activities. *"e di$$erence between t"e cas"
in$low and t"e cas" out$low grows consistently over t"e years $rom 4' to 4%%.

FIGURE >: CASH FLO8 ANALYSIS
*"ere could be anot"er reason w"y company is consistently keeping a larger sum o$ money as
$ree cas" $low as di$$erent companies eit"er reali)e it to save t"e cas" $or $uture uncertainties and
long term pro:ect or keeping a track on t"e operational o$ t"e business as large companies re#uire
larger sum o$ money reserved $or t"eir daily operations and uncertainties.

3 company "olding ma:ority o$ t"e industry s"are makes little investment in di$$erent pro:ect
represents little development activities but t"ere could ot"er reasons o$ t"is positive $ree cas"
$low as sale o$ assets and operational e!cellence could be t"e reasons to obtain t"ese results.
*"e company is consistently giving positive net income in t"ese $ive years $rom 4' to 4%% and
little investing activities and t"is makes t"e company to reserve "ig"er $ree cas" $low amount.
*"ere could be ot"er obligations as well to keep a larger sum o$ money unused in any s"ort run
pro:ect as t"is implies di$$erently to di$$erent industries.
C00n S$1( An%)*'$'
3s was introduced in t"e beginning, common si)e analysis "elps us analy)e t"e trends in t"e
$inancial statements w"ic" can "elp us $ind out reasons $or c"ange
A66(n!$C I
S)5(n#* R%t$' Gr%6.'
A66(n!$C II
A''(t M%n%+(0(nt R%t$' Gr%6.'
A##"nt R(#($5%4)( T"rn5(r
R(#($5%4)( T"rn5(r $n !%*'
Inventory Turnover
Inventory Turnover n !"y#
A''(t t"rn5(r
F$e! A##et# Turnover
A66(n!$C III
Pr-$t%4$)$t* R%t$' Gr%6.'
Operating Income 0eturn on Investment
Operating Pro$it <argin
*otal 3sset *urnover
*imes Interest Earned
R(-(r(n#('