Name

Date:
Assignment:
Introduction:

Sohar Power Company SAOG is the owner and operator of the Sultanate of Oman's largest

desalination and power plant, which is located in the town of Sohar. The company was founded

in 1992 (Al-Badi, 2009). Sohar Power was established in 2004 as a consequence of the

successful proposal for the Sohar Integrated Wastewater Treatment Plant. An electric power

plant of 585MW capacity and a desalination plant of 33MW capacity are being developed and

owned by the company near Sohar. Located in the Sohar Industrial Port area of the Sultanate's Al

Batinah district, in the Sultanate's Sohar Industrial Port sector, the facility serves the Sultanate's

industrial port needs. In addition to being conveniently situated near a major natural gas

transmission line and the electrical grid, the facility is also conveniently situated in the center of

the industrial sector. Since the start of commercial operations on May 27, 2007, it has been

selling energy and water to Oman Hydropower Acquisition Company SAOC under the terms of

a long-term hydropower purchase agreement. As of August 2008, a total of 35% of the

company's shares have been successfully listed on the Muscat Stock Exchange following the

company's successful initial public offering. It is the mission of Sohar Power to provide stable

electricity and water to support economic development in the Sultanate, as well as to provide

great operational and financial outcomes for shareholders. In order to reach this aim, the

organization adheres to rigorous standards of safety and corporate governance.

Financial statements:

Income statement:
Financial statement:
Ratio analysis:

Current Ratio= Current Assets

Current Liabilities

For 2019 = 20.35

25.44

= 0.799

For 2020 = = 9.72

14.89

= 0.652

Quick Ratio = Current assets excluding inventory

Current Liabilities

For 2019 = 19.65

25.44

= 0.772

For 2020 = = 8.93

 14.89

= 0.599

Return on Assets = Net income x 100

Average total assets

for 2019 = 1.16 x 100

114.36

= 1.01%

For 2020 = 2.26 x 100

103.065

= 2.19%

Return on Equity = Net income x 100

Shareholders’ Equity

for 2019 = 1.16 x 100

13.93
 = 8.327%

For 2020 = 2.26 x 100

17.03

= 13.271%

Average collection period = Trade Receivables x 365

Credit Sales

For 2019= 14.65 x 365

50.59

= 105.7 days

For 2020= 2.65 x 365

27.26

= 35.5 days

Inventory turnover = Net Sales

Average inventory
 For 2019 = 50.59

0.7

= 72.27 times

For 2020 = 27.26 x 365

0.745

= 36.6 times

The liquidity position of Sohar power has worsened over the year 2020 as compared to year

2019. Current ratio shows the ability of a business’s current assets to pay off its current

liabilities. The current ratio of the company was 0.799 in the year 2019 which indicated that the

current assets were not sufficient to pay off the current liabilities of the company (Chiaramonte,

L. 2017). In the year 2020, the current ratio has reduced from 0.799 to 0.652 which shows that

the current assets have fallen.

Quick ratio shows the ability of liquid assets which excludes inventory to pay off the current

liabilities of the business. The quick ratio was 0.722 in the year 2019 and fell to 0.599 in the year

2020. Sohar power’s quick ratio was low in both the years which shows that when there will be

need to pay off the current liabilities immediately, liquid current assets will not be enough to pay

them.
Profitability position of Sohar power has improved over the year 2020. The return on assets

shows the ability of the assets to generate the net profit. The return on assets of Sohar power was

1.01% in 2019 whereas it increased to 2.19% in year 2020. This shows that the company’s assets

are operating more efficiently and are able to generate increased returns.

Return on equity is the return generated from the shareholder’s equity or net assets of a

company. The return on equity was 8.327% in 2019 and increased to 13.271% in year 2020. This

shows that the company is generating more profit from the capital invested and the return on the

capital exceeded the increase in capital over the year 2020. There was efficient usage of capital

of Sohar Power in 2020.

Average collection period shows the effectiveness of the management practices regarding

accounts receivables. Companies place reliance on the debtors for cash flows. The average

collection period presents the days in which a company receives the cash from its accounts

receivables. The collection period has decreased from 105.7 days in year 2019 to 35.5 days in

year 2020. The fall in collection period indicates that Sohar power’s management was able to

collect its account receivables earlier than in 2019 which might be due to discounts offered or

strict credit terms. This indicates good liquidity position as it will pay off the current liabilities

easily.

Inventory turnover shows the number of times a company has replaced and sold its inventory

during a time. Sohar Power’s inventory turnover reduced from 72.27 times in 2019 to 36.6 times

in year 2020. This shows that lesser sales were made during the year which is indicative by the

data clearly that the net sales reduced from 50.59 to 27.26 in year 2020.
This shows that overall, the company’s profitability position is good in terms of the return earned

from the assets and the shareholders’ funds whereas the current and quick ratio indicate that the

current assets are low as compared to current liabilities which shows the need to clear the current

liabilities and keep them as low as possible. Inventory turnover shows the need to increase sales

in future periods which will help to improve other return ratios as well. Accounts receivables

collection policies are effective as the receipts are received timely.

References:

Madushanka, K.H.I. and Jathurika, M., 2018. The impact of liquidity ratios on

profitability. International Research Journal of Advanced Engineering and Science, 3(4),

pp.157-161.

Al-Badi, A., Malik, A., Al-Areimi, K. and Al-Mamari, A., 2009. Power sector of Oman—Today

and tomorrow. Renewable and Sustainable Energy Reviews, 13(8), pp.2192-2196.

Chiaramonte, L. and Casu, B., 2017. Capital and liquidity ratios and financial distress. Evidence

from the European banking industry. The British Accounting Review, 49(2), pp.138-161.

Rahman, A.A.A.A., 2017. The relationship between solvency ratios and profitability ratios:

Analytical study in food industrial companies listed in Amman Bursa. International Journal of

Economics and Financial Issues, 7(2), pp.86-93.