FINANCIAL STATEMENT ANALYSIS

Finances

Receivables:

Pakistan State Oil has a very strong balance sheet if we only go by numbers as it has Rs. 182.5
billion assets. In reality, the balance sheet has a huge amount of receivables and payables.
Various government institutions and autonomous bodies owe more than Rs. 41 billion to PSO.
Power companies like HUBCO and KAPCO also owe about Rs. 60.4 billion to PSO.

Debt:
On the other hand, Pakistan State Oil is under a heavy debt of Rs. 136 billion to various domestic
and foreign suppliers. The weak economic condition of Pakistan is clearly shown on Pakistan
State Oil’s balance sheet. The heavy debt incurred by PSO has made the company a very risky
prospect for the investors and it has to pay higher financial charges due to the increased risk of
defaults despite of strong revenue stream.

Revenue:
The revenues of Pakistan State Oil increase to Rs. 877 billion. The chairman of Pakistan State
Oil has set his sight on the sales target of Rs. 1 Trillion by the end of 2012.

The cost of goods sold is generally high and about 96% revenues earned go to the sales Tax,
IFEM and the cost of goods sold. The net profit margin is merely 1% in 2010 as the financial
charges have increased due to the increase of riskiness of Pakistan State Oil.

Inventory:
Pakistan State Oil incurred heavy inventory losses during 2008-09 due to the fuel prices crashed
by 75% from US$ 141/barrel to US$ 33/barrel. We can also observe that Pakistan State Oil have
started to maintain lesser inventory as the fuel price fluctuation increased. The inventory levels
have come down from Rs. 62.36 billion in 2008 to Rs. 43.18 billion in 2010. The decreased
inventory levels have helped Pakistan State Oil to increase the inventory turnover ratio; but the
ever increasing Accounts Receivables have not helped them and the Average Collection Period
has doubled to 45 days in 2010, which was 21 days in 2008.

Liquidity Ratio:

The liquidity ratios for the company do not have any impact because the major portion of current
assets and current liabilities consists of the receivables and payables respectively.
Pakistan State Oil has devised a strategy of matching the maturities of the current assets and
current liabilities in order to maintain the liquidity ratios. The little mismatch is covered by short-
term borrowing by the financial institutions.
An important point to note here is that Pakistan State Oil reported a growth in Sales Revenue
over the past 3 years.