Financial Statements Analysis of Attock Petroleum Company Limited

MUHAMMAD HUMAYUN MAQBOOL 3850-FMS/MBA/F08 ATTOCK PETROLEUM COMPANY
FINANCIAL STATEMENT ANALYSIS
OF
ATTOCK PETROLEUM COMPANY LIMITED
INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

ACKNOWLEDGMENT
Finally by the grace of Al-mighty Allah I did manage to finish our final project. I have
studied “The Analysis of Financial Statements”. It was a healthy learning experience and
we’re very thankful to my project supervisor Mr. M. Arif Malik for his sincere gratitude
and technical guidance throughout the project. I am also very thankful to my friends
specially who supported me throughout the project and gave me the moral
encouragement.

“This project is dedicated to my

parents”

ATTOCK PETROLEUM COMPANY LIMITED

About APL
Attock Petroleum Limited (APL) is an associate company of the Attock Oil Group of
Companies, which is the only fully vertically integrated Group in the Oil & Gas sector of
Pakistan involved in Exploration & Production, Refining & Marketing. APL's corporate
head office is registered in Islamabad.
Attock Petroleum Limited (APL) is the 4th Oil Marketing Company in Pakistan to be
granted a marketing license in February 1998. Though a new entrant in the field of oil
marketing, APL has managed to establish its presence and reputation as a progressive
and dynamic organization focusing on providing quality and environment friendly
petroleum products and services in Pakistan and abroad. Its steady and substantially
growing market share and customer confidence, which it enjoys, are manifestations of
APL's successful policies. APL is part of the first fully integrated Oil Company of the sub-
continent; APL’s sponsors include Pharaon Commercial Investment Group Limited
(PCIGL) and Attock Group of Companies.
Pharaon Group is engaged internationally in diversified entrepreneurial activities,

including Hotels, Oil Exploration, Production and Refining, Manufacturing of Petroleum
Products, Chemicals, Manufacturing and Trading of Cement, Real Estate etc. The Attock
Group of companies consist of The Attock Oil Company Limited (AOC), Pakistan Oilfields
Limited (POL), Attock Refinery Limited (ARL), Attock Petroleum Limited (APL), Attock
Information Technology Services (Pvt) Limited (AITSL), Attock Cement Pakistan Limited
(ACPL) etc. AOC was incorporated with limited liability in England on December 01,
1913. The company is principally engaged in exploration, drilling and production of
petroleum and related activities in Pakistan. AOC is the pioneer in the oil sector in
Pakistan. Its first oil discovery in Pakistan was made in Khaur district Attock in 1915. The
refining operations were started in 1922 at Morgah near Rawalpindi.

Vision
To become a world class, professionally managed, fully integrated, customer focused,

Oil Marketing Company, offering value added quality and environment friendly products
and services to its customers in Pakistan and beyond.
Mission
To continuously provide quality and environment friendly petroleum products and

related services to industrial, commercial and retail consumers, and exceeding their
expectations through reliability, economy and quality of products and services. We are
committed to benefiting the community and ensuring the creation of a safe, responsible
and innovative environment geared to client satisfaction, end user gratification,
employees' motivation and shareholders’ value.

1- Liquidity Ratios
We will calculate following ratios to determine the liquidity of company
i) Day’s Sales in Receivables
ii) Account Receivables Turnover
iii) Account Receivables Turnover in Days
iv) Inventory Turnover
v) Inventory Turnover in Days
vi) Operating Cycle
vii) Working Capital
viii) Current Ratio
ix) Acid-Test / Quick Ratio
x) Cash Ratio
xi) Sales to Working Capital Ratio
xii) Day’s Sales in Inventory Ratio
xiii) Day’s Sales in Inventory
1- Day’s Sales in Receivables Ratio

Day’s sales in receivables provide an estimate of the number of days, on average, that it takes for
customers to pay their account. The value of receivables at year end referred to in the ratio is equal to the
net balance after deducting any provision for bad or doubtful debts; average daily sales is equal to total
net sales divided by 365.
Receivables at end of period
Day’s sales in receivables =
Average daily sales
Calculated Ratios
Year 2005 2006 2007 2008 2009
Ratio 9.4 12.42 20.70 28.55 40.33
Trend of ratios in Graph

45
40
35
30
25
20
15
10
0
2005 2006 2007 2008 2009
Comments: The Company’s days’ sales in receivables ratio has increased constantly over the period of
time. This indicates the poor management of company for its receivables collection. Company should take
some measures to bring this ratio down because as much longer it takes to receive the sales account it
will bring more ambiguity in collection and may result in bad debts.
2-Account Receivables Turnover Ratio

An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting
debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.
Year 2005 2006 2007 2008 2009

Ratio 38.84 29.39 17.63 12.79 9.06
Trend in Graphs
45
40
35
30
25
20
15
10
0
2005 2006 2007 2008 2009
Comments: The Company’s accounts receivables turnover ratio has declined which means that company
is not taking effective measures to collect its receivables. The A/R Turnover ratio was 38.84 times in year
2005 and it has reached to 9.06 times in year 2009 which may be very harmful for company. This decrease
also shows the in effectiveness of policies of company towards its receivables collection.
3-Account Receivables Turnover in Days Ratio

This ratio shows the number of days for which receivables are transformed into cash. i.e.; they are
converted into cash through collection.
Year 2005 2006 2007 2008 2009
Ratio 9.4 12.42 20.70 28.55 40.30
Trend in Graph
45
40
35
30
25
20
15
10
0
2005 2006 2007 2008 2009
Comments: Account receivables turnover ratio in days has increased which means that the company’s
receivables are being collected in higher period of time which shows the ineffectiveness of company’s
management towards it’s receivables collection. The ratio was 9.4 in year 2005 and it increased to 40.30 in
year 2009 which is 5 times greater than in year 2005. So company doesn’t look desperate to collect it’s
receivables in shorter period of time. The reason may be the relaxed policies of company towards its
collection department. But company should have to take measures to bring this time period down to
make it sure that receivables are collected in time.

4-Inventory Turnover Ratio

A ratio showing how many times a company's inventory is sold and replaced over a period
Cost of Goods sold
INVENTORY TURNOVER RATIO =
Average Inventory
Year 2005 2006 2007 2008 2009
Ratio 144.13 423.53 202.37 157.60 268.87
Trend in Graph
450
400
350
300
250
200
150
100
50
0
2005 2006 2007 2008 2009
Comments: The Company’s inventory turnover ratio has increased in year 2006 as compared to year
2005 which is a good sign for company but it started to decrease in year 2007 and it further
decreased in year 2008. Company has managed to re boost its sales in year 2009 and increased the
turnover ratio of inventory in year 2009. So company has a mixture of trend in the turnover of its
inventory. This indicates that company has the ability to sale its inventory at larger scale if
management takes proper actions.
5-Inventory Turnover Ratio in Days

This shows that after how many days the inventory of the company is sold.
Year 2005 2006 2007 2008 2009
Ratio 2.53 0.86 1.80 2.32 1.37
Trend in Graph
3
2.5
1.5
0.5
0
2005 2006 2007 2008 2009
Comments: The inventory turnover ratio in days was highest in year 2005 and in year 2008. It means
that company has sold effectively its inventory in year 2006, 2007 and 2009 where its inventory was
sold out in just 2 days. But in year 2005 and year 2008 the company was not able to sale its inventory
regularly as compared to other years. Yet company has improved over last year and its inventory is

now being sold out in one and half day which is a good sign for company. As much inventory is sold
the company will earn more profit and it will show the higher profitability of company.

6-Operating Cycle
The average time between purchasing or acquiring inventory and receiving cash proceeds from its sale.
Year 2005 2006 2007 2008 2009
Ratio 23.78 10.68 37.26 66.23 55.21
Trend in Graph
70
60
50
40
30
20
10
0
2005 2006 2007 2008 2009
Comments: The operating cycle in year 2005 was 23.78 days and it reduced to 10.68 days in year 2006
which was a good performance by company which means that company is receiving cash proceeds from
its sales and selling it’s inventory in shorter period of time. The time difference between purchasing and
then collecting cash to complete cycle has been increased after year 2007 from 37.26 to 55.21 days.
Which means that in 2006 it takes only 10 days to complete operating cycle but now in 2009 it takes 55
days to complete a cycle? Although this period has decreased from last year from 66 days to 55 days but
it is still very much higher than it was in history of company.
7-Working Capital
A measure of both a company's efficiency and its short-term financial health. The working capital ratio is
calculated as:
Working Capital = Current Assets – Current Liabilities
Year 2005 2006 2007 2008 2009
Ratio 685178 1301124 2592546 4039284 5469534
Trend in Graph
6000000
5000000
4000000
3000000
2000000
1000000
0
2005 2006 2007 2008 2009
Comments: Working capital of company has a constant trend of increase from year 2005 to year
2009. This is a good sign for the company. This increase shows the financial health of company, the

assets of company are increasing day by day over its liabilities. The company has acquired many
assets and its value is much more than its liabilities.
8-Current Ratio
A liquidity ratio that measures a company's ability to pay short-term obligations
Current Assets
Current Ratio =
Current Liabilites
Year 2005 2006 2007 2008 2009
Ratio 1.51 1.21 1.48 1.41 1.50
Trend in Graph
1.6
1.4
1.2
0.8
0.6
0.4
0.2
0
2005 2006 2007 2008 2009
Comments: Current ratio of company shows the ability to pay its short term liabilities. This ratio has
decreased a bit in year 2006 as compared to year 2005. But company has managed to take it up in year
2007. In year 2008 this ratio has also decreased with a very marginal affect. And again in year 2009
company’s current ratio has increased and gained the level as it was in year 2005. So this shows that
company is in a good position to pay its short term liabilities and it is maintaining adequate current assets
and reserve to meet its current liabilities. There are marginal changes in ratio but they have not any big
impact on the profitability and short term debt paying ability of company.
9-Quick Ratio / Acid-Test 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, the better the
position of the company
Current Assets−Prepaid Expenses−Inventory
Quick Ratio =
Current Liabilities
Year 2005 2006 2007 2008 2009
Ratio 1.43 1.28 1.42 1.38 1.49
Trend in Graph

1.55
1.5
1.45
1.4
1.35
1.3
1.25
1.2
1.15
2005 2006 2007 2008 2009
Comments: The quick ratio of company has decreased in year 2006 as compared to year 2005. But
company took measures and it again increased in year 2007 from its previous level. Company has a
marginal decrease in year 2008 and a good increase in year 2009. This trend of company in its quick ratio
shows that the company has a sense of maintaining good and adequate funds for the payment of short
term obligations with its most liquid assets. Company is managing the assets quiet effectively and
efficiently. There is no need to worry about company’s debt paying ability in short terms.
10- Cash Ratio

The ratio of a company's total cash and cash equivalents to its current liabilities. The cash ratio is most
commonly used as a measure of company liquidity. It can therefore determine if, and how quickly, the
company can repay its short-term debt. A strong cash ratio is useful to creditors when deciding how
much debt, if any, they would be willing to extend to the asking party.
Cash∧Cash Equivalants
Cash Ratio = Current Liabilites
Year 2005 2006 2007 2008 2009
Ratio 0.947 0.90 0.752 0.62 0.67
Trend in Graph
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2005 2006 2007 2008 2009
Comments: Company’s cash ratio remained constant for year 2005 and 2006 but it decreased a bit in year
2007 and 2008. This shows that company decreased maintaining the cash and cash equivalents to its
current liabilities. But in year 2009, as it is a good year for the company, the level of cash and equivalents
has also increased which is a good sign for company. This ratio Is showing that company has a some
extent to meet its liquidity situation. And it can quickly pay its current obligations. But there is a point that
this ratio has decreased from year 2005, 0.947 to 0.67, to year 2009.
11- Sales to Working Capital Ratio

This ratio shows the amount of cash required to maintain a certain level of sales. It is most effective when
tracked on a trend line, so that management can see if there is a long-term change in the amount of cash
required by the business in order to generate the same amount of sales.
Annualized Net Sales
Sales to WC Ratio = Account Recievables+ Inventory −Accounts Payables
Year 2005 2006 2007 2008 2009

Ratio 14.46 31.39 17.02 13.18 11.31
Trend in Graph
35
30
25
20
15
10
0
2005 2006 2007 2008 2009
Comments: Sales to working capital ratio has a decreasing trend from year 2007 to year 2009. It
increased in year 2006 only. This means that company requires fewer amounts to finance and maintain
the level of sales for the particular year. The amount required to generate the level of sales is lower so it
means that company doesn’t need much money for its sales process.

SUMMARY OF LIQUIDITY RATIOS
Ratio 2005 2006 2007 2008 2009

Day’s Sales in Receivables 9.4 12.42 20.70 28.55 40.33
A/R Turnover 38.84 29.39 17.63 12.79 9.06
A/R Turnover in Days 9.4 12.42 20.70 28.55 40.30
Inventory Turnover 144.13 423.53 202.37 157.60 268.87
Inventory Turnover in Days 2.53 0.86 1.80 2.32 1.37
Operating Cycle 23.78 10.68 37.26 66.23 55.21
Working Capital 685178 1301124 2592546 4039284 5469534
Current Ratio 1.51 1.21 1.48 1.41 1.50
Acid Test Ratio 1.43 1.28 1.42 1.38 1.49
Cash Ratio 0.947 0.90 0.752 0.62 0.67
Sales to WC Ratio 14.46 31.39 17.02 13.18 11.31
COMMENTS ON OVERALL LIQUIDITY

If we compare day’s receivables for several years the length of the time that receivables
have been outstanding (gives and indication of their collectability) increase which shows
inefficient management to collect amount from receivables. Account receivables indicate
the liquidity of the receivables which shows continuously negative trend from 2005 to
2009. The account receivables turnover in days also shows negative trend because it
increase year by year. Inventory turnover fluctuate which shows not a positive trend. In
year 2009 and 2006 the inventory turnover in days decreases which shows a favorable
trend. Operating cycle in years 2006 and 2009 decreased, which is positive trend.
Working capital increases continuously which shows that company is stable because its
current assets are higher than its liabilities due this company short-term solvency
chances are minimum. Except in year 2006 and 2008 the company current ratios
increase which shows company can easily pay its short-term debt. Acid test ratio also
increase except in year 2006 and 2009 which shows company has enough liquid assets
to pay its liabilities. In 2009 company cash ratio is high which indicates that the firm is
not using its cash to its best advantage, cash should be but to work in the operations of
the company. Sales to working capital ratio is low, indicates an unprofitable use of
working capital so the company management should take steps to maximize the usage
of its working capital.

2- Profitability Ratios
A class of financial metrics that are used to assess a business's ability to
generate earnings as compared to its expenses and other relevant costs incurred
during a specific period of time. For most of these ratios, having a higher value
relative to a competitor's ratio or the same ratio from a previous period is indicative
that the company is doing well.
Following ratios will be calculated for determining the overall profitability of Attock
Petroleum Company Limited.
i) Net profit Margin
ii) Total Assets Turnover
iii) Return on Assets
iv) Operating Income Margin
v) Operating Assets Turnover
vi) Return on Operating Assets
vii) DuPont Ratio
viii) Return on Investment (ROI)
ix) Return on Equity (ROE)
x) Return on Common Equity (ROC)
xi) Gross Profit Margin

1-Net Profit Margin Ratio

A commonly used profit measure is return on sales, often termed as net profit margin. If a company
reports that it earned 6% last year, this statistic usually means that its profit was 6% of sales. This ratio
gives a measure of net income dollars generated by each dollar of sales. While it is desirable for this ratio
to be high, competitive forces within an industry, economic conditions, use of debt financing, and
operating characteristics such as high fixed cost will cause the net profit margin to vary between and
within industries.
Net income before minority share of
NET PROFIT MARGIN = earning∧non recurring items
Net Sales
Year 2005 2006 2007 2008 2009
Ratio 4.65 3.41 3.92 4.96 4.98
Trend in Graph
NP Margin
6
0
2005 2006 2007 2008 2009
Comments: The net profit margin has decreased in year 2006 when it is compared to year 2005. But
company has managed to boost its net profit from year 2007 to year 2009. This is a good indication for
company because the profit earnings ratio is increasing year by year. The only year in which NP margin
ratio was decreased is 2006 but after that company has recovered and maintained a good level of
earnings.
2-Total Assets Turnover Ratio

Total assets turnover ratio means the activity of the assets and the ability of the firm to generate the sales
through the use of the assets. The total assets turnover ratio may be calculated as follows
Net Sales
TOTAL ASSETS TURNOVER =
Average Total Assets
Year 2005 2006 2007 2008 2009
Ratio 5.24 9.04 5.66 4.35 3.66
Trend in Graph
10
0
2005 2006 2007 2008 2009

Comments: The total assets turnover ratio was increased in 2006 with a great affect but after that it
decreased constantly. This means that company is not using its assets to generate the sales level as it
should. So company management should take measures to increase the level of total asset turnover ratio
so that its assets are fully utilized. Currently company is not working good to use its assets and measures
are required to be taken.

3-Return on Assets Ratio

Return on assets measures the firm’s ability to utilize its assets to create profits by comparing profits with
the assets that generate the profits. This ratio can be calculated as follows
Net income before minorit y share
RETURN ON ASSETS = of earnings∧nonrecurring items
Average Total Assets
Year 2005 2006 2007 2008 2009
Ratio 24.35 30.84 22.18 21.57 18.25
Trend in Graph
35
30
25
20
15
10
0
2005 2006 2007 2008 2009
Comments: Company has a marginal increased in year 2006 of return on its assets but after that year
company failed to utilize its assets and generate adequate return on its assets. It means that company is
not using its assets well and measures and actions are needed to be taken. The ratio has declined from
24.35 times to 18.25 times from year 2005 to year 2009. So there may be a problem in management of
these assets because they are not being fully utilized to earn and generate money.
4-Operating Income Margin Ratio

This ratio includes only operating income in the numerator. This can be computed as follows
Operating Income
OPERATING INCOME MARGIN RATIO =
Net Sales
Year 2005 2006 2007 2008 2009
Ratio 5.65% 4.64% 4.91% 6.15% 5.87%
Trend in Graph
7
0
2005 2006 2007 2008 2009
Comments: Operating income margin ratio decreased in year 2006 but after that company has
managed to increase its operating margin ratio. There may be a lot of reasons that company has
managed its cost of goods sold and other operating expenses. This is a good sign for the company. In
year 2009, although, the operating margin ratio has decreased but it is not much significant and it will
have not any material effect on the profitability of the company.


5-Operating Assets Turnover Ratio

This ratio measures the ability of the operating assets to generate sales dollars/rupees. This ratio can be
calculated through following formula
Net Sales
OPERATING ASSET TURNOVER =
Average Operating Assets
Year 2005 2006 2007 2008 2009
Ratio 4.20 9.5 5.95 4.50 3.82
Trend in Graph
10
0
2005 2006 2007 2008 2009
Comments: Operating assets turnover ratio was higher in year 2006 when it is compared to last 5 years
but it started to decrease over a period of time and reached at its lower value 3.82 in year 2009 which is
not a good sign for the company. The company is not using its operating assets affectively to generate
proper and adequate money. So company management needs to take some corrective actions to enhance
the operating asset turnover ratio.
6-Return on Operating Assets

Return on operating assets can be measured as
Operating Income
RETURN ON OPERATING ASSETS =
Average Operating Assets
Year 2005 2006 2007 2008 2009
Ratio 24.35 30.84 22.18 21.57 18.25
Trend in Graph
35
30
25
20
15
10
0
2005 2006 2007 2008 2009
Comments: The return on operating assets has also decreased over period of time after
year 2006. So company needs to take some corrective actions because currently
company is not earning much on its operating assets as they are not being utilized
effectively and efficiently.

7-Return on Investment Ratio

The return on investment applies to ratios measuring the income earned on the invested capital. These
types of measures are widely used to evaluate enterprise performance. This ratio evaluates the earnings
performance of the firm without regard to the way the investment is financed. It measures the earnings on
investment and indicates how well the firm utilizes its asset base.
Net income before minority share of earnings
RETURN ON INVESTMENT (ROI) = ¿ nonrec urringitems+¿ ¿ ¿
¿
Year 2005 2006 2007 2008 2009
Ratio 67.62 109.71 74.83 70.72 55.63
Trend in Graph
120
100
80
60
40
20
0
2005 2006 2007 2008 2009
Comments: The return on investment was increased in year 2006 which was a good sign for company
but after that year the ratio has declined over the period of time. The company tried to recover in year
2008 but was not able to gain the previous level of ROI and now the company is earning return on
investment at its lower value as compared to its last 5 years. So company has to take some corrective
actions, if it wants to generate adequate return on its investments.

8-Return on Equity
The return on total equity measures the return to both common and preferred shareholders. This is
calculated through following formula
RETURN ON EQUITY =
Net Income Available ¿ Shareholdres−Prefered Dividend ¿
Average Total Equi ty
Year 2005 2006 2007 2008 2009
Ratio 45.45 68.08 50.04 47.72 43.52
Trend in Graph
80
70
60
50
40
30
20
10
0
2005 2006 2007 2008 2009
Comments: Return on equity was higher in year 2006 but after year 2006 it started to decline. The
company was not able to pay the equity shareholders an adequate fund and it is now decreasing year by
year. There may be a lot of reasons of decrease in return on equity that company is trying to keep some
earning in its reserves to invest in some future opportunities or some other purposes. So this decision
depends upon the management of company that how they handle the total earnings and how much they
return on its equity.
9-Return on Common Equity

This ratio measures the return to the common shareholder, the residual owners. We can compute this
ratio as follows
RETURN ON COMMON EQUITY =
Net Income before nonrecurring items−¿ Prefered Dividend
Average Common Equity
Year 2005 2006 2007 2008 2009
Ratio 45.45 68.08 50.04 47.72 43.52
Trend in Graph
80
70
60
50
40
30
20
10
0
2005 2006 2007 2008 2009
Comments: This ratio shows that how much shareholders are getting for their share in company. The
ratio is decreasing constantly after year 2006 so there is a management decision involved in it as whether
they want to pay more or less to its shareholders.


10- Gross Profit Margin

Gross profit equals the difference between net sales revenue and the cost of goods sold. The cost of
goods sold is the beginning inventory plus purchases minus the ending inventory. Comparing gross profit
to the net sales is termed as gross profit margin ratio. And this ratio can be calculated as follows
Gross Profit
GROSS PROFIT MARGIN =
Net Sales
Year 2005 2006 2007 2008 2009
Ratio 4.35 4.44 4.63 5.16 5.32
Trend in Graph
6
0
2005 2006 2007 2008 2009
Comments: The gross profit margin ratio is increasing year by year and it shows a good sign that
company is earning much than last year. The company’s GP margin was 4.35 in year 2005 and now it is
5.32 in year 2009 which is a good sign.

SUMMARY OF PROFITABILITY RATIOS

Ratio 2005 2006 2007 2008 2009
Net profit margin 4.65 3.41 3.92 4.96 4.98
Total assets turnover 5.24 9.04 5.66 4.35 3.66
Return on Assets 24.35 30.84 22.18 21.57 18.25
Operating Income Margin 5.65% 4.64% 4.91% 6.15% 5.87%
Operating Assets Turnover 4.20 9.5 5.95 4.50 3.82
Return on Operating Assets 24.35 30.84 22.18 21.57 18.25
Return on Investment 67.62 109.71 74.83 70.72 55.63
Return on Equity 45.45 68.08 50.04 47.72 43.52
Return on common Equity 45.45 68.08 50.04 47.72 43.52
GP Margin 4.35 4.44 4.63 5.16 5.32
COMMENTS ON OVERALL PROFITABILITY

Net profit margin has increased over the years except in 2006 and 2007 while total asset
turnover shows the decreasing trend over the years. Operating income margin has
increased over the years due to efficient management of admin and selling expenses as
well as Gross profit remains constant except in 2006. When we review the ratios of
return on investment and return on equity which shows a decreasing trend due to
inefficient management of equity.

3- Debt paying ability Ratios

Analysis of only the liquidity or profitability ratios doesn’t give us true picture of firm’s
performance. We have to calculate ratios to check whether company is using its debt
efficiently and taking measures to pay-off its debt as it should.
This analysis indicates the amount of funds provided by outsiders in relation to those
provided by owners of the firm. If a higher proportion of the resource has been
provided by the outsiders, the firm is higher in risk and risk substantially shifted to the
outsiders. A large proportion of debt in the capital structure increases the risk of not
meeting the principal or interest obligation because the company may not genera
adequate funds to meet these obligations.
We will calculate following ratios to analyze debt paying ability of firm
i) Times interest Earned Ratio
ii) Fixed Charge Coverage Ratio
iii) Debt Ratio
iv) Debt to Equity Ratio

1-Times Interest Earned Ratio

The times interest earned ratio indicates a firm’s longer term debt-paying ability from the
income statement view. If the times interest earned are adequate, little danger exists that the
firm will not be able to meet its interest obligations.
Recurring Earnings , Excluding Interest Expenses ,
Tax Expense , Equity Earnings∧Minority
TIMES INTEREST EARNED = Earnings
Interest Expense , Including Capitalized
Interest
Earning before Interest∧Taxes ( EBIT )
TIMES INTEREST EARNED = .
Earning Before Taxes ( EBT )
Year 2005 2006 2007 2008 2009
Ratio ∞ ∞ ∞ ∞ ∞
GRAPH CAN’T BE PRESENTED FOR THIS RATIO
Comments on Ratio:
As company is using no debt so there is no times interest earned for this company .
2-Fixed Charge Coverage Ratio

The fixed charge coverage ratio indicates a firm’s ability to cover fixed charge. It is computed as
follows
Recurring Earnings , Excluding Interest
Expense , Tax Expense , Equity Earnings,
¿ Minority Earnings
FIXED CHARGE COVERAGE RATIO = + Interest Portionof Rentals
Interest Expense , Including Capitalized Interest
+ Interst portion of Rentals
EBIT +¿ Charge (Before Tax)
FIXED CHARGE COVERAGE RATIO =
Fix Charge ( Before Tax ) + Interest
Year 2005 2006 2007 2008 2009
Ratio ∞ ∞ ∞ ∞ ∞
GRAPH CAN’T BE PRESENTED FOR THIS RATIO
Comments on Ratio:
The company is using no debt so fixed charge coverage ratio cannot be calculated

3-Debt Ratio
The debt ratio indicates the firm’s long term debt paying ability. It is computed as follows
Total Liabilites
DEBT RATIO =
Total Assets
Year 2005 2006 2007 2008 2009
Ratio 0.58 0.69 0.61 0.64 0.61
Trend in Graph
0.7
0.68
0.66
0.64
0.62
0.6
0.58
0.56
0.54
0.52
2005 2006 2007 2008 2009
Comments: The firm’s debt ratio has increased in year 2006 as compared to 2005 following
year 2008 but it has decreased in year 2007 and 2009 so there is a mixture of trend in debt ratio
of company. The company’s total liabilities has increased in year 2006 and 2008 but company
has managed to bring it down near to year 2005 ratio as it is 0.61 in 2009 and 0.58 in 2005. So
there is no material effect of this ratio on company’s debt paying ability.
4-Debt to Equity Ratio

The Debt/Equity ratio is another computation that determines the entity’s long term debt paying
ability and is computed as follows
Total Liabilites
DEBT TO EQUITY RATIO =
Shareholder s' Equity
Year 2005 2006 2007 2008 2009
Ratio 0:100 0:100 0:100 0:100 0:100
Trend in Graph

120
100
80
60 Debt
Column1
40
20
0
2005 2006 2007 2008 2009
Comments: The Company is using no debt so the debt to equity ratio always remains 0:100.
And there is no change throughout the period of 5 years.

SUMMARY OF DEBT PAYING RATIOS

Ratio 2005 2006 2007 2008 2009
Times interest earned ∞ ∞ ∞ ∞ ∞
Fixed charge coverage ∞ ∞ ∞ ∞ ∞
Debt Ratio 0.58 0.69 0.61 0.64 0.61
Debt to Equity Ratio 0:100 0:100 0:100 0:100 0:100
COMMENTS ON OVERALL RATIOS

The company, as shown in above calculations, is using no debt. So there is no times
interest earned ratio and fixed charge coverage ratio. The company’s debt ratio has
varied from year 2005 to year 2009 from 0.58 to 0.61 but it will have no material effect
on the ability of company. Company, if wants, can use debt to change its capital
structure as any investor will be ready to provide loans to this company. The company’s
debt ratio to equity ratio has also remained constant as 0:100 because company is
running on 100% equity and no debt are used.
Finally if company is considering taking loan for its capital expenditure purposes
it can do so because this company has good ability to pay its debt and bond rating of
company is also good.

4- Ratios from Investor’s View

Following are the ratios we will calculate
i. Degree of operating Leverage

ii. Earnings per share
iii. Price Earnings Ratio
iv. Dividend Payout Ratio
v. Dividend Yield
vi. Book Value Per Share
vii. Cash Dividends
1-Degree of Operating Leverage

This determines the ratio extent to which company is using leverage for its operations. T is calculated as
follows
%Change∈ EBIT
DEGREE OF OPERATING LEVERAGE =
% Change∈ Sales
Year 2005 2006 2007 2008 2009

Ratio 0 0 0 0 0
Degree of operating leverage is zero so its graph can,t be shown
Comments: The use of debt in financing the asset is called financial leverage. Attock petroleum limited is
100% equity financed company so it does not use any debt that is why its degree of financial leverage will
remain zero throughout the whole five years.
2-Earnings Per Share

This ratio shows that how much shareholders are getting for their one share. It is calculated as follows
Net Income−Prefered Divident

EARNINGS PER SHARE =
No of Common Shares outstanding
Year 2005 2006 2007 2008 2009

Ratio 7.99 24.18 30.01 45.86 53.51
Trend in graph
60
50
40
30
20
10
0
2005 2006 2007 2008 2009
Comments: Earning per share is the amount of net income on the share of common stock. The higher
this ratio the more the attraction for the investor. In the above calculated ratios of Attock petroleum
limited earning per share goes on increasing from year 2005 to 2009 which is a good sign for the
company and also for the investor.
3-Price Earnings Ratio

This ratio can be calculated as follows
Market Price Per Share(V )

PRICE EARNING RATIO =
Diluted Earnings Per Share(EPS)
Year 2005 2006 2007 2008 2009

Ratio 13.73 9.28 13.92 9.43 5.94
Trend in graph
16
14
12
10
0
2005 2006 2007 2008 2009
Comments: Price earning shows how much amount an investor is ready to pay to earn one dollar .Here
price earnings ratio is 13.73 in 2005 while it is 5.94 in 2009 that it keep on decreasing that shows a good
sign for the investor.

4-Dividend Payout Ratio

This ratio shows that how much the company is paying out of its income and this is computed in %age.
The formula for calculating this ratio is as under
Dividend Per Share

DIVIDEND PAYOUT RATIO =
Diluted Earning Per Share
Year 2005 2006 2007 2008 2009

Ratio 43.44 34.47 32.46 36.34 46.92
Trend in graph
50
45
40
35
30
25
20
15
10
0
2005 2006 2007 2008 2009
Comments: Dividend payout ratio shows how much ratio that company given as dividend from earning
per share here shows an increasing trend from year 2006 to 2009.that is a good sign for the investor. This
ratio is beneficial especially for the short term investor who generally looks over the payout ratio.
5- Dividend Yield
This is computed by following formula

Dividend per Common share

DIVIDEND YIELD =
Earnings Per common Share
Year 2005 2006 2007 2008 2009

Ratio 3.11 4.07 3.57 3.85 9.16
Trend in graph
4.5
3.5
2.5
1.5
0.5
0
2005 2006 2007 2008 2009
Comments: Indicate the relation between the dividend and market price per share. Investor point of view.
Low dividend indicates that company has higher retained earnings from which company share price
automatically increase because through retained earning shareholder equity increase. But the investor
who wants current income mainly the short term investor prefer high dividend yield in the above ratio
company also keep on attracting the short term investors by increasing the dividend yield.
6-Book Value per Share:

This ratio can be calculate as per following formula
Total stock holder equity – Preferred Dividend
Book value per share = ------------------------------------------
Number of Common Share Outstanding
Year 2005 2006 2007 2008 2009

Ratio 25 50.20 86.4 115.3 122.96
Trend in graph

140
120
100
80
60
40
20
0
2009 2008 2007 2006 2005
Comments: The book value per share has increased over the last 5 year by Rs.97/share. This shows the
company’s stability and presence in market.
SUMMARY OF INVESTOR RATIOS
Ratio 2005 2006 2007 2008 2009

Degree of Operating leverage - - - - -
Earning per share 7.99 24.18 30.01 45.86 53.51
Price Earning Ratio 13.73 9.28 13.92 9.43 5.94
Dividend payout Ratio 43.44% 34.47% 32.46% 36.34% 46.92%

Dividend Yeild 3.11 4.07 3.51 3.85 9.16
Book Value Per Share
Comments: If we consider the all ratios mentioned above it is clear that there is a great chance for the
investor to invest specially for the short term investor as the earning per share is keep on increasing as
well as company maintaining its payout ratio to attract more short term investor. Company is also
maintaining is dividend yield very well that shows how well company keeps its retained earnings after its
dividend. According to my opinion as the company is not using any debt so if we consider the other ratios
The company can use debt to generate more profits as it is quite sure that more the debt the more the
risk and more its return. This company is more suitable for the short term investor as short term investor
looks over the current income and company is paying the current income a lot better than many of the
other companies.

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Financial Statements Analysis of Attock Petroleum Company Limited

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MUHAMMAD HUMAYUN MAQBOOL 3850-FMS/MBA/F08 ATTOCK PETROLEUM COMPANY

FINANCIAL STATEMENT ANALYSIS

ATTOCK PETROLEUM COMPANY LIMITED

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

“This project is dedicated to my

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

ATTOCK PETROLEUM COMPANY LIMITED

Pharaon Group is engaged internationally in diversified entrepreneurial activities,

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

To become a world class, professionally managed, fully integrated, customer focused,

To continuously provide quality and environment friendly petroleum products and

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

1- Day’s Sales in Receivables Ratio

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

2-Account Receivables Turnover Ratio

Year 2005 2006 2007 2008 2009

3-Account Receivables Turnover in Days Ratio

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

4-Inventory Turnover Ratio

5-Inventory Turnover Ratio in Days

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

9-Quick Ratio / Acid-Test Ratio

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10- Cash Ratio

11- Sales to Working Capital Ratio

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Year 2005 2006 2007 2008 2009

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

SUMMARY OF LIQUIDITY RATIOS

Ratio 2005 2006 2007 2008 2009

COMMENTS ON OVERALL LIQUIDITY

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

1-Net Profit Margin Ratio

2-Total Assets Turnover Ratio

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INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

3-Return on Assets Ratio

4-Operating Income Margin Ratio

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

5-Operating Assets Turnover Ratio

6-Return on Operating Assets

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7-Return on Investment Ratio

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9-Return on Common Equity

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10- Gross Profit Margin

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SUMMARY OF PROFITABILITY RATIOS

COMMENTS ON OVERALL PROFITABILITY

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3- Debt paying ability Ratios

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD

1-Times Interest Earned Ratio

2-Fixed Charge Coverage Ratio

INTERNATIONAL ISLAMIC UNIVERSITY , ISLAMABAD