You are on page 1of 5

Ratio analysis of Pakistan state oil and

SHELL Pakistan
Short term salvage ratios:
1- Current ratio = current assets / current liabilities
Year
PSO
Shell Pakistan

2010
1.14
0.84

2011
1.6
0.90

2012
1.5
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
PSO
0.8
.73
Shell Pakistan
0.43
0.46

2012
0.85
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
PSO
Shell Pakistan

2010
6.5%
22%

2011
9.3%
16%

2012
13%
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
PSO
44%
60%
Shell Pakistan
106%
95%

2012
90%
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
PSO
Shell Pakistan

2010
1.44
2.1

2011
1.59
1.95

2012
1.9
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
PSO
Shell Pakistan

2010
2.77
2.9

2011
2.46
2.04

2012
2.1
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
PSO
Shell Pakistan

2010
2.88
2.9

2011
2.56
2.04

2012
2.2
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
PSO
12.17
8.243
Shell Pakistan
15.01
11.58
Days in inventory turnover = 365/ inventory turnover
Year
2010
2011
PSO
29.99
44.28
Shell Pakistan
24.317
31.52

2012
11.18
11.71
2012
32.65
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
PSO
Shell Pakistan

2010
51.02
23.10

2011
36.44
16.91

2012
48.49
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
PSO
4.57
4.098
Shell Pakistan
9.29
8.437
Days in payable turnover = 365/ payable turnover
Year
2010
2011
PSO
79.86
89.07
Shell Pakistan
39.29
43.26

2012
4.0122
7.88
2012
90.97
46.32

PSO has low inventory turnover which is favourable for organization.


4- Net working capital turnover = sales/ NWC
Year
PSO
Shell Pakistan

2010
31.88
(43.82)

2011
23.24
(62.644)

2012
23.27
(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 PSOS utilisation is good then shell which is
Very low as compare to PSO.
6- Total asset turnover = sales/ total asset
Year
PSO
Shell Pakistan

2010
3.67
5.81

2011
3.055
5.03

2012
2.94
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
PSO
Shell Pakistan

2010
0.012
0.007

2011
0.018
0.004

2012
0.009
0.0085

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


2- Return on asset = net income/ total asset
Year
PSO
Shell Pakistan

2010
0.045
0.042

2011
0.056
0.018

2012
0.0261
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
PSO
Shell Pakistan

2010
0.301
0.205

2011
0.353
0.1097

2012
0.18
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
PSO
Shell Pakistan

2010
52.76
23.59

2011
86.17
13.23

2012
52.80
(24.33)

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

You might also like