Kinnaird College for Women Lahore

Analysis of Financial statement

Pre-mid assignment 2

Submitted to: Dr. Atia Alam

Submitted by: Noor Amjad

Major: Accounting & Finance

Date: 20 September 2018

 Oil & Gas Development Company Limited
Balance sheet

Analysis of Liabilities and Owner’s equity:

In 2015 the share capital of the Oil and Gas development company was 50,000,000. In which
10,752,321 were issued and the rest of them were 39,247,679. These are still with the company
and can be issued when the company is in need of it but the gap should be of 10-12 years.
Moreover the company is having the bonus shares and they were amounting 32,256,963. These
bonus shares are to given to motivate the employees and improve their efficiency as well as their
productivity. While in 2016 and 2017 the number of share issued as well as the share capital was
the same. The bonus share was also the same in 2016-2016.

The capital reserves of the company in 2015-2017 were 836000. They represent bonus shares
issued by former wholly owned subsidiary - Pirkoh Gas Company (Private) Limited (PGCL)
prior to merger. Capital reserves are the ones that held with the company for more than one year
and they are beneficial for the long term. The company is also having self insurance for 2015
they were 6,620,000 and they increased to 7,470,000 in 2016 and again increased in 2017 to
8,920,000. These reserves are set for the employees in case of insurance for things such as rigs,
buildings, plants, wells, pipelines, workmen compensation, vehicle repair and losses for
petroleum product in transit. They are not available for distribution to shareholders. Company
set them aside to cater it later or if they are not utilized the company do some investment against
these reserves. In 2016-2017 the company also set the Capital redemption reserve fund -
associated company amounting 2,118,000 which represent Company’s share of profit that were
set aside by an associated company to redeem redeemable preference shares in the form of cash
to the preference shareholders. While in 2016 the self insurance-associated company was only
20,000 which were increased in 2017 amounting 120,000. They were Company's share of profit
set aside by an associated company for self insurance of general assets, vehicles and personal
accident for security personnel. The company also set some other reserves amounting 85,373 in
2016 and 99,287 in 2017 represents Company's share of profit set aside by an associated
company from distributable profits for the year related to undistributed percentage return reserve.
Moreover the unappropriated profit of the company in 2015 was 392,055,684 which were
increased to 425,093,910 in 2016 and it was again increased in 2017 amounting 457,881,766.
This increase means the company has retained its profit. They didn’t distribute dividend to the
shareholders. But as the company is having ongoing projects so they may invest that profit in
them.

Company noncurrent liabilities include the deferred taxation, deferred employees benefits and
provision for decommissioning cost. The deferred tax liability is a result of temporary
differences between the companies’s accounting and tax carrying values, the anticipated and
enacted income tax rate, and estimated taxes payable for the current year. These all are long term
and paid for more than one year.

Current liabilities of oil and gas Development Company consist of trade and other payable. In
which payable to government of Pakistan –on account of Kunnar discount were 2.085,112 in
2015. This represents payable to Ministry of Finance in respect of price discount on Kunnar
crude sale, withheld by the Company due to related receivable from a customer and tax
recoveries made by tax authorities. In 2015 workers profit participation fund were 6,685,650
while they were decreased to 4,237,231 in 2016 and 1,291,445 in 2017. The employees’ pension
trusts in 2015 were 3,116,025 which were increased to 9,272,728 in 2016 and decreased in 2017
to 8,833,994. This pension plan is a defined benefit final salary plan invested through approved
trust fund. The trustees of the fund are responsible for plan administration and investment. The
Company appoints the trustees. All trustees are employees of the Company. The plan exposes the
Company to various actuarial risks: investment risk, salary risk and longevity risk from the
pension plan. The Company expects to make a contribution of Rs 12,422 million (2016: Rs
12,583 million) to the employees' pension trust during the next financial year. No gratuity fund
was given in 2015 while in 2016 it was 69,009 which were increased to 122,881 in 2017. The
unpaid dividend of the company in 2015 was 16,000,346 while it was decreased in 2016 to
12,439,784 and slightly increased to 13,862,361 in 2017. The payment of dividend has been
withheld since GoP is considering to revamp Benazir Employees' Stock Option Scheme
(BESOS) as communicated to the Company by Privatization Commission of Pakistan (PCP).
Ratio Analysis:

𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐚𝐬𝐬𝐞𝐭𝐬
Current ratio= 𝐜𝐮𝐫𝐫𝐞𝐧𝐭 𝐥𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐞𝐬

2015: 219,778,551/ 61,901,977= 3.5

2016: 254,800,670/ 58,969,148= 4.3

2017: 342,460,219/ 53,610,444 = 6.3

In 2015 the current ratio is 3.5 which are quite good for the company as the company is having
sound financial position and it’s less than 5 which means company is paying its liabilities
efficiently. While in 2016 it increased to 4.3 which means company is doing well. In 2017 the
current ratio is increased to 6.3 which is major decrease in current liabilities of the company so it
will affect the company’s performance as well as the profitability of the company. Company
liquidity will also be increased which is a good indicator for the company.

𝐓𝐨𝐭𝐚𝐥 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬
Debt Ratio: = 𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬

2015: 111,270,351/553,791,391= 0.2

2016: 110,932,972/589,565,439 = 0.18

2017: 114,303,636/627,287,973 = 0.18

In 2015 the debt ratio of the company is 0.2 which is less than 0.5 which means company has
lower overall debt. While in 2016 -2017 it remained the same 0.18 which is a lot less than 0.5
this is a relatively low ratio and implies that company will be able to pay back his loan. It
shouldn’t have a problem getting approved for their loans. It also indicates that the company is
bearing less risk and has twice as many assets as liabilities. Moreover a lower debt ratio usually
implies a more stable business with the potential of longevity.

𝐓𝐨𝐭𝐚𝐥 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬
Debt to equity ratio= 𝐓𝐨𝐭𝐚𝐥 𝐬𝐭𝐨𝐜𝐤𝐡𝐨𝐥𝐝𝐞𝐫𝐬 𝐞𝐪𝐮𝐢𝐭𝐲

2015: 111,270,351/ 442,520,968 = 0.25

2016: 110,932,972/ 478,632,567 = 0.23

2017: 114,303,636/ 512,984,337= 0.22

In 2015 the debt to equity ratio of the company was 0.25 which is less than 0.5. A debt ratio of
0.5 means that there are half as many liabilities than there is equity. In other words, the assets of
the company are funded 2-to-1 by investors to creditors. While in 2016 it was decreased to 0.23
and 0.22 in 2017 which implies a more financially stable business.

Sector Analysis:

Following companies are involved in this sector analysis:

 Oil & Gas Development Company Limited

 Pakistan Petroleum Limited
 Petroleum
 Pak Oil Limited

By doing the ratio analysis we can evaluate which company is doing good or better than others.
Firstly the oil n gas development company limited (OGDC) is having the current ratio within 5 it
was just increased in 2017 to 6.3 while the other companies for example the Pakistan petroleum
limited the current ratio of this company is very low within 2 it is good for the company n the
petroleum company current ratio of 2015-2017 is less than 2 it is very low as compare to 5
percentage. Lastly the Pak Oil limited current ratio of this company lies within 3. In my views
according to current ratio Pakistan petroleum limited is doing a good job as this company current
ratio is lying within 5 and it means company is having sound financial position and paying its
liabilities efficiently.

Now this evaluation is also done with the debt ratio. This ratio shows the proportion of total
assets financed by the firm’s creditors. According to the calculation the Pak Oil limited is doing
a great job in this section. As this company is having the debt ratio less than 0.5 it’s between 0.4
throughout 2015-2017. Other companies are not doing so good n having very less debt ratio.
This also shows that the company can bear the burden of loans. And effectively pay its debts.

Companies debt to equity ratio are not a good sign if they are less than 0.5 and according to the
calculation the debt to equity ratio is only good of Oil n gas development company it lies in less
than 2 throughout 2015-2017. Moreover this ratio is a measure of financial leverage that relates
the amount of a firm’s debt financing to the amount of equity financing. The Pak Oil limited is
having the debt ratio in a moderate position but if it will keep on increasing then it’s not a good
sign for the company.

Overall some of the companies are involved in projects such as Oil and Gas Development
Company and the Pakistan petroleum company. Some are making profit throughout the three
years 2015-2017. Finally in my views Pak Oil limited is doing a lot better than the other
companies they are investing in some useful projects as well as their profits are also increased
from 2015-2017. Production of this company is also increased throughout the years. And they
ratio analysis is also better than the other company.