Ratio Analysis of Pakistani Oil Industries
Ratio Analysis of Pakistani Oil Industries
Ratio Analysis of Pakistani Oil Industries
LETTER OF TRANSMITTAL
INTRODUCTION TO BUSINESS FINANCE 2
FINANCIAL RATIO ANALYSIS
IoBM.
CBM.
Dear Madam,
Here is the report you asked us to prepare during the semester of the
Introduction to Business Finance course that is based on the "Refinery
Sector".
The report is ready for your perusal. For any query contact the following
members.
Sincerely,
Arsalan Tahir-7946
M. Ovais Iqbal-8155
Ali Shayan-7807
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FINANCIAL RATIO ANALYSIS
ACKNOWLEDGEMENT
Table of Contents
INTRODUCTION TO REFINERIES
• BOSICOR LTD. 8
• LIQUIDITY RATIOS 9
• EFFICIENCY/ACTIVITY RATIOS 13
• DEBT/LEVERAGE RATIOS 20
• PROFITABILITY RATIOS 22
• MKT/EQUITY RATIOS 27
Conclusion 30
Recommendations 31
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Appendix 32
INTRODUCTION TO COMPANIES
On October 28, the plant came into operation two months ahead of schedule. It
incorporates some of the most modern refinery equipment and techniques. On
November 14, the opening of the Refinery was performed by Field Marshal Mohammad
Ayub Khan, President of Pakistan. The design capacity of the Refinery was to process 1
million tons of crude oil annually, but that very year it was decided to expand the
capacity of the Refinery to 2.1 million tons per annum, as soon as possible after
operations had commenced.
Today, Products derived from refining of crude oil meet an overwhelming part of the
world energy needs. PRL , since inception has been the principle manufacturer and
supplier of petroleum products to the domestic markets, Pakistan Defense Force and
Railways. It continues to server the energy needs of the country with professional
excellences and high degree of commithment. PRL takes pride in the competitive edge
it enjoys of respect of efficiency, lower operating cost, high quality human resource,
reliability and introduction to newer geration technologies.
The Government of Pakistan had decided to place the National Refinery Limited under
the administrative control of Ministry of Petroleum & Natural Resources in November
1998.
In June 2003 the Government of Pakistan decided to include NRL in its privatisation
programme. The selling of 51% equity and transfer of management control to a strategic
investor had been proposed accordingly, the due diligence process for the privatisation
was initiated. After competitive bidding NRL was acquired by Attock Oil Group in July
2005.
The Company has been privatised and the management handed over to the new owner
(Attock Oil Group) on July 7, 2005.
The refinery complex of the Company comprises of three refineries, consisting of two
lube refineries and one fuel refinery. First Lube Refinery commissioned in 1966 with
designed capacity of 539,700 tons per annum of Crude Processing and 76,200 tones
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per annum of Lube Base Oils. Second Lube Refinery commissioned in 1985 with
designed capacity of 100,000 tons per annum of Lube Base Oils.
NRL enjoys a competitive edge, as it is the only refinery producing LBO in Pakistan.
Original paid-up capital of the Company was Rs 80 million which was subscribed by the
holding company i.e. AOC, Government of Pakistan, investment companies and general
public. The present paid-up capital of the Company is Rs 454.896 million.
ARL is the pioneer of crude oil refining in the country with its operations dating back to
1922. Backed by a rich experience of more than 80 years of successful operations,
ARL’s plants have been gradually upgraded/replaced with state-of-the-art hardware to
remain competitive and meet new challenges and requirements.
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It all began in February 1922, when two small stills of 2,500 barrel per day (bpd) came
on stream at Morgah following the first discovery of oil at Khaur where drilling started on
January 22, 1915 and at very shallow depth of 223 feet 5,000 barrels of oil flowed. After
discovery of oil in Dhulian in 1937, the Refinery was expanded in late thirties and early
fourties. A 5,500 bpd Lummus Two-Stage-Distillation Unit, a Dubbs Thermal Cracker,
Lubricating Oil Refinery and Wax Purification facility and the Edeleanu Solvent
Extraction unit for smoke-point correction of Kerosene were added.
BOSICOR LTD.
Abraaj Capital buys 40 percent stake in Bosicor, companies to become
Pakistan’s leading integrated refining and petrochemicals group.
The Group’s subsidiary, BPL, the fifth-largest oil refinery in Pakistan currently operates
with a rated capacity of 30,000 barrels per day (bpd) and a market share of 12 per cent.
Established in 1995, BPL is listed on all the three stock exchanges of the country.
BPL is active in the production, marketing and sale of petroleum products. The
company started its operation with capital of Rs. 1,105.066 Million and assets of Rs.
2,248.063 million. This now stands at Rs. 3,921.044 million and Rs. 7,109.700 million
respectively. The company will use Country’s first Single Buoy Mooring (SBM) which is
being installed near the coastal belt of Balouchistan in close proximity of the refinery.
The company is in process of enhancing its storage capacity by 126,000 metric tons.
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Liquidity Ratios
Liquidity ratios attempt to measure a company's ability to pay off its short-term debt
Obligations and reflect its short- term financial strengths or solvency.
Current Ratio
The ratio is mainly used to give an idea of the company's ability to pay back its short-
term liabilities (debt and payables) with its short-term assets (cash, inventory,
receivables). The higher the current ratio, the more capable the company is of paying its
obligations. The Current Ratio is one of the best known measures of financial strength
and tells us about the liquidity position of the company. It is calculated in the following
way:
The current ratio tells us that how much current assets we have to pay off our current
liabilities. Ideally your current ratio should be between 2 and 3, if it is above 3 it means
that you are wasting away your assets instead of investing them.
The following table gives us the current ratio for the four companies over the last two
years, along with the industry averages of each year.
FY08 FY07
PRL 1.3 1.4
NRL 1.51 1.61
ARL 0.88 0.75
BPL 0.91 1
Avg. 1.15 1.19
2 PRL
1.5
NRL
1
0.5 ARL
0 BRL
2008 2007 Avg.
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Analysis:
Looking at the figures, one can clearly see that all the four companies are in line with
the industry average. Generally, Suitable current ratio lies between 1 & 2. But ARL and
BRL both have liquidity problem because there ratios are less than 1. A ratio under 1
suggests that the companies would be unable to pay off their obligations if they came
due at that point. While these shows the companies are not in good financial health, it
does not necessarily mean that they will go bankrupt - as there are many ways to
access financing - but it is definitely not a good sign. NRL and PRL maintain their
current ratio over fiscal years.
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Quick Ratio
Quick ratio is a liquidity indicator that further refines the current ratio by measuring the
amount of the most liquid current assets there are to cover current liabilities. The quick
ratio is more conservative than the current ratio because it excludes inventory and other
current assets, which are more difficult to turn into cash. Therefore, a higher ratio
means a more liquid current position.
The following table gives us the quick ratio for the three companies over the period of
2007-08, along with the industry averages of each year.
FY08 FY07
PRL 0.8 0.7
NRL 1.05 1.13
ARL 0.73 0.57
BPL 0.44 0.37
Avg. 0.75 0.69
1.2
1 PRL
0.8
NRL
0.6
0.4 ARL
0.2 BRL
0
Avg.
2008 2007
ANALYSIS:
The values given in the table above show that the subtraction of inventory from currents
assets has lead to a constant percentage decrease in all of the current ratios; which
means that all four companies have a similar level of inventory relative to their size.
NRL is again the group leader with the highest levels of quick ratios. NRL has abundant
cash flows and it can utilize them by investing.
BRL being a new company doesn’t have very consistent current ratios as compared to
other companies.
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Efficiency/Activity Ratios
Inventory Turnover Ratio:
Inventory turnover ratio is one of the Accounting Liquidity ratios, a financial ratio. This
ratio measures the number of times, on average; the inventory is sold during the period.
Its purpose is to measure the liquidity of the inventory.
The following table gives us the inventory turnover ratio for the period of 2007-08.
ANALYSIS:
This ratio shows that the how many times inventory was used and then again replaced.
The higher the ratio, the better it is. The ratio shows that all companies follow industry
average except for BRL which lowers the industry average. BRL performance is not
good because its sales are 2-3times less than other three companies. A low turnover
rate may point to overstocking or deficiencies in the product line or marketing effort.
These trends also reflect in inventory turnover in days. The figures tell us that industry
median turnover is 54.25days in 2008. PRL, NRL and ARL have low turnover in days
that shows there high efficiency.
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The following table gives us the receivable ratio for the period of 2007-08.
RECIEVEABLE TURNOVER(times)
FY08 FY07
PRL 28.5 29
NRL 32 30
ARL 27.5 22
BPL 129 98.6
Avg. 54.25 44.9
2007
Avg.
BRL
ARL
NRL
2008
PRL
0 5 10 15 20 25 30 35 40
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ANALYSIS:
Account receivable turnover ratios companies ability to collect its account
receivable. PPL’s position in this ratio is strong. NRL’s performance has been the best
among all the companies. The company takes on average 22 days to collect its
receivables. BRL's performance is not good at all. BRL have a receivable collection
problem. The company takes on average 90-130 days to collect its receivables. This
indicates that the customers are not paying their dues on time. The company should
review its credit policy soon to improve the collection period. Except for BRL other
companies’ collection period is in line with each other with a average of 29days.
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The following table gives us the average payment period for the four companies
over the last two years, along with the averages of each year.
ANALYSIS:
The payment period indicates the average period for paying debts related to inventory
purchases. There is a mix trend found in payment period in industry. The figures show
that industry payment period average is increased in 2008. PRL and NRL pays its dues
more rapidly then industry. ARL payment period is near industry average whereas BRL
have very high payment period that raise industry average. It shows that BRL is not able
to pay its due on time.
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The total assets turnover is a measure of the firm’s overall effectiveness in generating
sales that can be calculated by dividing sales by total assets. It simply tells us whether
the firm is managing its assets efficiently or not. It is calculated as follows:
The following table gives us the Total Asset Turnover ratio for the four companies over
the last two years.
5
4 PRL
3 NRL
2 ARL
1 BRL
0 Avg.
2008 2007
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FINANCIAL RATIO ANALYSIS
ANALYSIS:
NRL shows a good performance. NRL managed its assets effectively and efficiently
which is indicated in its performance. This indicates that the company doesn’t have
liquidity problems and is able to collect its receivables within time. ARL and BRL
performance lies below the industry average. The ratios indicate that the company is
having liquidity problem or troubles in collecting its receivables. The company should
improve its receivable policy and maintain more cash in the business. PRL performance
has been impressive and consistent. This indicates that it had managed its current
asset quite well. The company should maintain its existing receivables policy. PRL’s
performance is well above the industry average and it indicates that the business could
be easily liquidated.
BRL compared to the other companies has the most sluggish performance. Its ratios
are below the industry average. The low ratios also indicate that the company fails to
manage its assets properly. It needs to at least be at par with the industry average.
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Debt Ratio:
The debt ratio compares a company's total debt to its total assets, which is used to gain
a general idea as to the amount of leverage being used by a company. A low
percentage means that the company is less dependent on leverage, i.e., money
borrowed from and/or owed to others. The lower the percentage, the less leverage a
company is using and the stronger its equity position. In general, the higher the ratio,
the more risk that company is considered to have taken on.
The following table gives us the debt ratio for the four companies over the last two
years, along with the averages of each year.
DEBT RATIO
FY08 FY07
PRL 0.71 0.67
NRL 0.61 0.6
ARL 0.76 0.82
BPL 0.84 0.76
Avg. 0.73 0.7125
1
0.8 PRL
0.6 NRL
0.4 ARL
0.2 BRL
0 Avg.
2008 2007
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FINANCIAL RATIO ANALYSIS
ANALYSIS:
The debt financing of the all companies except ARL is increased in 2008, even the
industry debt ratio is also increased in 2008. If we look at all of the companies, we can
clearly illustrate that all the companies are debt financed. Even the industry ratio shows
that the industry itself is debt financed. If the Debt Ratio is increasing, this may be a sign
the company has not been able to secure long-term, instead having to secure short-
term. From the table, we can clearly see that the debt ratio of ARL has been decreased
in 2008. by this, we mean If the Debt Ratio is decreasing, it is generally a positive sign,
showing the company may be paying off its Short-Term debt or possibly refinancing its
Short-Term Debt into Long-Term Debt. Refinancing is not a bad sign in itself, as they
may simply be trying to reduce their interest payments.
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Profitability Ratios
It measures the profitability of the firm as the name suggests itself. These ratios help to
judge the overall performance of the Company by looking at the profit of the Company.
The following table gives us the net margin ratio for the three companies over the last 2
years.
10
PRL
5 NRL
0 ARL
FY08 FY07 BRL
-5
ANALYSIS:
ARL has a profit margin ratio above that of PRL and NRL. This shows that when it
comes to cost leadership ARL is the company in this sector.
NRL profit margins are more or less the same and show an increase in 2008 whereas.
BRL managed to get some profit after loss in FY07 that helps to increase industry
average.
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Calculated as:
The following table gives us the gross profit margin ratio for the four companies over the
last two years, along with the averages of each year.
ANALYSIS:
The overall industry ratio draws a good picture as all the companies had shown
magnificent increase in their profit except for light decrease in NRL. NRL besides its
decrement has the highest gross profit margin as compared to the other companies.
BRL shows a considerable improvement. BRL being in loss in 2007 has managed to
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gain 6% gross profit margin in 08, showing approximately 16times improvement. PRL
and ARL illustrate approx. equal increase of 200% in their gross profit.
Analysis:
Here the trend shows that NRL has the highest Operating Profits in 07, as well as in 08.
As other ratio show the overall increase in industry performance .BRL seems to show a
good improvement as compared to its 07 performance, from negative profit to compete
with other three companies. ARL and NRL ahs also showed great performance.
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The following table gives us the return on total asset ratio for the four companies over
the last two years.
ANALYSIS:
From the above figures we can see that industry average has increased magnificently
because all of the companies showed effective utilization of their assets. NRL has
consistent ratio & remained above the other companies. PRL and ARL have utilized their
assets effectively as witnessed by the figures of 417% and 455% increase respectively.
BRL covering its negative profit has managed to gain positive result which indicates that
BRL'S return on investment is getting higher with each successive year which is good
sigh of its prospects.
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Return on Equity:
Return on Equity (ROE, Return on average common equity, and return on net worth)
measures the rate of return on the ownership interest (shareholders' equity) of the
common stock owners. It measures a firm's efficiency at generating profits from every
dollar of shareholders' equity (also known as net assets or assets minus liabilities). It
shows how well a company uses investment dollars to generate earnings growth. ROE
is equal to a fiscal year's net income (after preferred stock dividends but before common
stock dividends) divided by total equity (excluding preferred shares), expressed as
percentage.
80
60 PRL
40 NRL
20 ARL
0 BRL
-20 FY08 FY07 Avg.
-40
ANALYSIS:
It can be illustrated easily that industries average of return on equity amplified from last
year. ARL leads the industry with 63.38% return to their share holder. NRL return is
slightly decreased but still above industry average that keeps investors perception
positive. BRL has grown over the time but its ROE can not appreciated when we
compared it to industry average but this can affect its reputation positively as the
investors can be hopeful for better return in future.
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FINANCIAL RATIO ANALYSIS
Market-to-Book Ratio:
Market-to-Book Ratio is the ratio of the current share price to the book value per share. It
measures how much a company worths at present, in comparison with the amount of capital
invested by current and past shareholders into it. The formula is:
2
PRL
1.5
NRL
1
ARL
0.5
BRL
0
Avg.
FY08 FY07
Analysis:
The data of 2007 shows that all the Refineries being compared here are successful, because all
of them, except BRL, are able to sell their stocks above their book values but in 2008 M/B ratios
of BRL and ARL has increased because its market value has increased.
In2008 PRL and PRL has Shown a decrease in their ratio whereas ARL and BPL has shown a
increase in ratio.
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Price/Earning Ratio:
A valuation ratio of a company's current share price compared to its per-share earnings.
Calculated as under:
Price/Earning Ratio
FY08 FY07
PRL 2.5 26.54
NRL 3.96 5.45
ARL 2.91 10.89
BPL 463.25 4.88
Avg. 118.155 11.94
500
400 PRL
300 NRL
200 ARL
100 BRL
0 Avg.
FY08 FY07
ANALYSIS:
In 2007 PRL the highest price earning ratio. This shows that investors have confidence
in company's good future. Investors have high expectation from the company. All the
companies have decreased their P/E ratio except BPL in 2008.P/E ratio of BPL raised
the Average bar of the industry from 11.94 to 118.55.
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Dividend Payout:
The dividend payout is the ratio of dividends per share to earnings per share. For
example, if this ratio is 0.63 it tells us that out of 100% earning the company is paying
63% dividends. It is giving more dividends this would increase the demand of the share.
Calculated as:
ANALYSIS:
This ratio tells us how much of the total profit the company gives away as dividends.
Dividend payout of ARL and PRL are increased in 2008 and BPL and NRL showed a
decrease in the ratio, which may be due to increase investment and expenditure.NRL
has the highest payout ratio in 2007.
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ANALYSIS:
This ratio tells that how much the investor is getting return on his/her investment. By
looking at the figures it is clear that NRL is giving highest returns in the sector in
2007.But in 2008 NRL dividend yield significantly decreased.
BPL yield decreased and is lower than the average market ratio. The overall decrease
in yield is may be due to macro environment factors.
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CONCLUSION
In accordance to the analysis from an investor point of view from all the four
companies National Refinery Limited is the best company to invest in. Following are
the points to support the above written statement.
• The company’s liquidity ratios have increased and fall near the industry
average.
• NRL has the highest dividend yield ratio among the remaining companies.
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RECOMMENDATIONS
• ARL & BPL should increase its quick and current ratio. Lower ratios shows that
they have more liability than their assets.
.
• The return on Equity of NRL is increasing only . The companies should work
towards an increasing return.
APPENDIX:
ATTOCK REFINERY LIMITED
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