Mari Petroleum Ltd

Share Capital

The authorized shares for the year 2017 for Mari Petroleum are 2,500,000 from which the
company has issued 1.102,500 up till now. This means that the company still has authorized
1.397,500,000 shares left which it can issue whenever it needs financing.

The company issued 24,850,007 shares for cash. The shares 11,899,993 were issued other than
cash which means that the company gave stock dividends. Shares are given as dividends. When
the company thinks that they are going in losses they give stock dividends. One of the other
reasons that they give stock dividends are that it gives negative impact of the company if it issues
shares again in the market. The company should offer seasoned equity after 12 to 13 years.

73,500,000 shares are given as bonus shares to employees in 2017. The amount was same in
2016 and 2015. It is the kind of motivation for employees to work hard. These bonus shares also
resolves agency problem.

Capital redemption fund at the end of the year 2017 are Rs 10,590,001 whereas the amount of
redemption fund was the same in 2016. In 2015, it was Rs 1,300,000 which shows that the
company is accumulating the returns in its capital redemption fund reserve fund.

The company also has self-insurance reserve account which is mainly for general assets,
vehicles, personal accident for security personnel. In 2016, the insurance reserve amount was Rs
100,000. In 2017, the amount was Rs 600,000. It is good for company that they have already
saved some amount as insurance reserve because if it faces any kind of insurance loss (e.g
vehicle damage) in future, it will face liquidity problem at that time. So, the insurance account
saves the company from liquidity issues.

Then there is profit and loss account in which there is undistributed return. Undistributed returns
mean that the returns are yet to be distributed to the shareholders. The amount of undistributed
return that the company will distributed among its shareholders in 2017 is Rs.138.805. In 2016,
the undistributed return was Rs .119, 291. In 2015, the undistributed return was Rs. 35,537. The
company got this profit due to the increase in hydrocarbons production in all three years. The
returns got from the production of hydrocarbons have increased every year. In result, the
shareholders of the company will get happy as they are getting the returns and the future
performance of the company will get better as the company can get more return from this
production in upcoming years.

Unappropriated balance for the year 2017 is Rs.12, 609,928. In 2016, this balance was Rs .4,
746,555. In 2016, the company also retained their profits for the investment in exploration and
development activities in Mari Field as well as outside Mari Field. The value of unappropriated
balance has increased so much in 2017 which means that the company has retained its profits. It
didn’t distribute dividends to the shareholders but instead it gave stock dividends and invested
the profits to increase the production of hydrocarbons. But if no such investment or increase in
production is specified that means that means that the Managers of the company are using the
profits for their personal use.

Non-current liabilities

The amount of long term financing in the year 2015 was high as compared to 2017 and 2016. In
2015, the amount was Rs.9, 290,001. In 2016, the company reduced its financing and the amount
was Rs.1, 000,000. In 2017, the amount was Rs.4, 172,727. In 2015, the interest rate was the
highest 10.82%. The interest rate for the year 2016 was 6.67% and 6.23% in 2017. From 2015 to
2017 the company has improved a lot. In 2016, despite of getting low interest rate then 2015 the
company did not invest much because it already had done enough financing in year 2015.

In 2017, the more decrease in interest rate and increase in long term financing shows that due to
the low interest rate offered, the company is taking more loans. The company’s risk is decreased
due to the low interest rate and the company has an incentive to take more loans. The company
took two loans in 2017 from MCB and Habib Bank. The company took Rs. 9,000 million loan
for financing exploration and developmental projects. The company might get a benchmark due
to low interest rate offered to the company then other companies in the sector. But the company
has given strong collateral that’s why the interest rate is low.

But as the financing has increased so much in 2017 as compared to 2016, the company did more
financing of Rs. 3,172,727 (4,172,727– 1,000,000) in 2017 which indicates that company
should not further take loans next year because the risk will increase as it has already taken a
high amount of loans for financing in 2017.
The company should focus on paying loans and further don’t take loans in 2018. As the company
has done investments from taking these loans so its first priority should be to make money from
these investments and pay the loans.

The company’s development and production assets have increased so much in year 2017. The
value is Rs. 7,409,878 whereas in 2016, it was 3,002,063. So the company has increased its
production and should increase more if needed to pay back these long term loans.

In any case if the company is not able to pay back the loans then it can sell its ideal asset to
payback the loans. The property, plant and equipment also increased in 2017. If loans keep on
increasing, the restricted covenants also increase. .

Current Liabilities

Current liabilities are a company's debts or obligations that are due within one year or within a
normal operating cycle. The company’s current liabilities include trade and other payables,
current maturity of long term financing and interest accrued on long term financing.

In Current Liabilities, trade & other payables and interest & mark-up accrued falls in the
category of Operating Current Liabilities. It means these are used for the day-to-day operations
of the company. Short-term borrowings and current portion of long-term borrowings falls in the
category of Financing Current Liabilities. The company’s trade and other payables fall in the
operating current liabilities whereas current maturity of long term financing and interest accrued
on long term financing fall in financing current liabilities.

The amount for trade and other payables for the year 2017 are Rs. 55,191,169 and for the year
2016 was Rs. 34,669,221. In 2015, the trade liabilities were Rs. 36,656,379. The company’s
trade liabilities have increased in the year 2017 a lot as compared to previous years which is not
good for the company. Trade and other payables are that money which the company has to pay to
the creditors. Creditors/suppliers will get upset if they won’t get money on time and they’ll move
towards the competitors. The operating current liabilities of the company has increased (trade
and other payables) so much in 2017 from 2015 which means that company needs more
liabilities or debts to run its daily operations. This shows the weak financial position of the
company.
Current maturity of long term financing is that portion of bank debt which the company has to
pay in one year. The amount of current maturity in the year 2015 was Rs. 1,632,505. In 2016, it
reduced to Rs. 151,774. It was a good sign for the company as it reduced its debt in 2016 a lot. It
showed that the company paid its debt on time and has the capacity to repay its all debt. But the
scenario changed as in 2017 the current maturity of long term financing increased a lot again to
Rs. 955,037 which shows that the company did not pay its debt on time in 2017 and as it took a
lot more loan it shows that the company is taking loans but not paying its bank debt.

Interest accrued of long term financing is that interest which the company has to pay to the bank
this year. In 2015, the amount of interest accrued of long term financing was Rs. 1,109,742. It
reduced a lot to Rs. 196,154in 2016. It was a good sign for the company which means that the
company has paid its due interest on time and has the ability to repay all of its interest. But the
scenario changed when interest accrued of long term financing increased a lot again in 2017. In
2017, it increased to Rs. 254,552 which shows that the company did not pay its interest on time
and its liabilities are increasing which is not good for company.

Current Assets

The company’s inventory consists of stores and spares. The company doesn’t have stock and
trade as Mari Petroleum is of oil and gas sector. This sector deals with natural resources and
there is no such inventory in this sector because raw materials of these companies are derived
from natural resources. The company has long term assets that are development and production
assets, exploration and evaluation assets, property plant and equipment.

Stores and spares are not considered as inventory in strict terms but are added in inventory. The
stores and spares are decreasing in year 2017 as compared to year 2016. It has decreased a lot in
year 2017 by 53.1%. Stores include share in joint operations operated by the company. During
the year, an amount of Rs. 1,643,387 million in respect of stores and spares has been classified as
stores and spares held for capital expenditure, classified under property, plant and equipment.

The trade debts are account receivable which the company has yet to receive. Mari petroleum’s
trade debts include trade debt due from related parties and due from others. Trade debts due from
related parties increased in year 2017 as compared to 2016 which shows that some parties have
borrowed more goods from the company on account. Trade debts due from related parties in
2017 are Rs. 23,28,804. Company considers these debts as good which means that company
thinks that they will get their due money soon from related parties.

Trade debt due from others are also considered good as the company thinks they will get the
money soon so they are considering it good. But still, trade debts due from related parties and
trade debts due from others are net of provision of doubtful debts. Because if in any case any
related party or others will not pay Mari Petroleum the money, then Mari petroleum will write it
off it in its balance sheet. The total amount of trade debts for year 2017 are Rs. 54,426,085.

As the trade debts increased a lot this year this means that the related parties/others who
borrowed goods are not paying back on time. It will affect the operating cycle of the company
and the company should speed up its receipts.

Cash and bank balances

In 2017, the company’s cash in hand has increased as compared to year 2016. It shows that the
company’s liquidity is increased. Cash in hand is that amount that the companies have with
themselves and can use at any time whenever needed.

The amount of deposit accounts increased a lot this year as compared to 2016. These include
foreign currency accounts amounting to US$ 4.24 million. This indicates that the company is
bearing more foreign exchange risk this year as compared to last year. The appreciation and
depreciation will affect the company. Appreciation will be good as the price of dollar will
increase then your currency. But depreciation won’t be good for the company because the
increase or decrease in dollar price will affect the company.

The company has a local currency accounts ranges from 3.75% to 6.00%, as it is local currency it
will not have any effect of dollar that whether the dollar price is increasing or not because local
currency is Pakistan dominated currency.

The amount of current accounts decreased as compared to year 2016. The current account has no
interest rate and the cash is ideally held and no profit is earned. In 2017, the amount of current
accounts decreased which is a good sign that the company used the money somewhere and will
get a return on it because in current accounts no profit is earned.
Non current assets

Non-Current Assets are the company’s long-term investments where the full value will not be
realized within one accounting year. Total non-current assets of Mari petroleum in 2017 are
more than the non-current assets of 2016. The total non-current assets in 2017 are Rs. 28,291,199
where as in 2016 it was Rs. 26,832,365. It shows that company invested less in long-term
investments in 2017 than in 2016.

But on the other hand, total long-term loans were increased in 2017 as compared to 2016
showing that company had not have enough money and it had to take more loans to invest in.
The total long term loans in 2017 are Rs. 32,233 where as in 2016 it was Rs. 27,069.

Income Statement

Income Statement is used for reporting a company’s financial position over a specified
accounting period. It is also known as statement of profit and loss or statement of revenue and
expenses. The income statement focuses on the four key items which are revenue, expenses,
gains and losses.

The company’s sales have increased in year 2017 than 2016 which shows that company
produced more products and demand for its products in public also increased due to which its
sales increased. On an income statement, profit calculated by deducting the cost of goods sold
from total net sales is called gross profit. Due to the increase in sales, gross profit of the company
also increased in 2017 than 2016.

The net profit of the company also increased in 2017 than 2016. Net profit is the money left over
after the business pays off all of it debts and operating costs for a given month, financial quarter
or fiscal year. Declining net profit is not the sign of a healthy business and may indicate
problems in a variety of areas, from employee management to pay scales and methods of
production. This can impact the financial welfare of every person involved with the business. As
the net profit has increased it means that the company has the ability to pay its monthly debt
obligations. It also shows that the company is efficient because inefficiency also leads to low net
profit.
As net profit is increased, the company has cash available to cope with problems that can occur
through the normal course of business operation, including equipment failure and damage to the
business's physical location.

Cash flows from operating, investing and financing activities

A cash flow statement is a financial statement that provides aggregate data regarding all cash
inflows a company receives from its ongoing operations and external investment sources, as well
as all cash outflows that pay for business activities and investments during a given period.

The cash flow from operating activities constitutes the revenue-generating activities of a
business. Indicating the cash-generating abilities of a company's core business activities, this
section tells how much cash a company generated from its core business operations and is
reported on a company's quarterly and annual reports. The cash flow from operating activities
has decreased in 2017 from 40%.

Cash flow from investing activities would include the outflow of cash for long term assets such
as land, buildings, equipment, etc., and the inflows from the sale of assets, businesses, securities,
etc. Most cash flow investing activities are cash out flows because most entities make long term
investments for operations and future growth. Cash flows from investing activities of Mari
petroleum in 2016 were in negative and in 2017; its amount decreased more and was also in
negative showing the bad sign for the company.

Cash flow from financing activities is the cash out flow to the entities investors (i.e. interest to
bondholders) and shareholders (i.e. dividends and stock buybacks) and cash inflows from sales
of bonds or issuance of stock equity. Most cash flow finance activities are cash outflows since
most entities only issue bonds and stocks occasionally. Cash flows from financing activities of
Mari Petroleum were negative in 2016 but got positive in 2017.

Cash and cash equivalents at the end of the year have increased in 2017 as compared to 2016. As
it has increased, it means that the company has enough net cash and won’t be facing liquidity
issues. Company will have enough cash to fulfill its needs as it has no liquidity issue.

Long term financing received by the company has increased a lot in 2017. Due to the increase in
loans, the cash flows are greater but the company has to see that whether it is generating profits
from its investments because it has to repay the loan. The company has to see that are enough
profits being generated so they can cover their finance cost.

Solvency is the ability of the firm to pay its debt. As the cash and cash equivalents at the end of
year have increased, it means that the company is solvent enough to pay its debt. The company
has also repaid some portion of long term financing which shows that it has generated some
profits and is able to payback its debt.

As the cash in hand is more, the company has more financial flexibility. It can take loans in
unfortunate situations. As the investment done is huge as more loans are taken this year that’s
why cash in hand has increased. The company has to figure out that whether its cash figure can
cover its debt to asset and debt to equity ratio.

Sector analysis

Oil and gas Development Company’s inventory is greater than the company of Pak Oil Limited.
Pakistan Petroleum doesn’t have any inventory but only stores and spares. Mari petroleum’s
stores and spares are less than that of Pakistan’s Petroleum’s stores and spares.

The highest value of trade debt is of Oil and Gas Development Company. Its value is Rs.
118,574,468 whereas Pak Oil limited has the lowest trade debt at Rs. 3,292,966. The trade debt
of Mari Petroleum is Rs. 54,426,085 while Pakistan petroleum limited has it’s at Rs. 99,283,854.

Pakistan Oil limited has the highest receivable turnover at 8.23% whereas Mari Petroleum has
the lowest receivable turnover at 0.69%. Accounts receivable turnover is the number of times per
year that a business collects its average accounts receivable. Account receivable turnover
evaluates the goods that company issue on credit and how fastly it receives its payment due on
account. The debts of Pak Oil Company have the highest expectation of collecting its debts. Mari
Petroleum has the lowest expectation of collecting its debts.

OGDC has the highest sales / account receivable ratio which is 1.44 whereas Mari Petroleum has
the lowest sales / account receivable ratio, the more it is good. So, Mari Petroleum has the best
sales / account receivable ratio.
According to the cash flows of the companies, Mari petroleum is in the first positon as it has
more debt to equity and debt to asset ratio as compared to its sectoral companies. The debt to
equity ratio of Mari petroleum is 2.66, OGDC has 0.11, and Pak petroleum limited has 0.5. the
debt to asset ratio of Mari petroleum is 0.72, OGDC has 0.18 and Pak petroleum has 0.33. Mari
petroleum has better liquidity, solvency and financial flexibility. Mari petroleum has more ability
to pay its debt as compared to other companies of sector. Mari petroleum has more ability to
raise capital and get loans as compared to other companies in sector. These factors set Mari
petroleum on advantage. Shareholders will get happy in result and more investors will be
attracted towards Mari petroleum as compared to other companies of this sector.

Ratios

Debt to equity = total liabilities / total stockholder’s equity

= 11,656,539,000 + 56,400,758,000 / 25,537,670,000

= 2.66

Debt ratio = total liabilities / total assets

= 11,656,539,000 + 56,400,758,000 / 28,291,199,000 + 65,303,768,000

= 72%

Current ratio = current assets / current liabilities

= 65,303,768,000 / 56,400,758,000

= 1.157

Total asset turnover = Sales / Total assets

= 28,175,487 / 93,594,967

= 0.301

Gross profit margin = Gross profit / sales

= 24,591,965 / 28,175,487
 = 87%

Average collection period = Accounts receivable / (Annual sales/365)

= 54,426,085 / (28,175,487/365)

= 705.06 days

Return on total assets = Earnings available for common stockholders / Total assets

= 9,136,194 / 93,594,967 = 9.7 %

Debt to equity

Mari Petroleum 2.66

Oil and Gas Development Company 0.22
Pak Oil Limited 0.50
Pakistan Petroleum 0.83

Average of debt to equity = 2.66 + 0.22 + 0.5 + 0.83 / 4 = 1.05

The debt to equity ratio is a measure of the company’s financial leverage that relates the amount
of a firm’s debt financing to the amount of equity financing. The company needs to cut down this
ratio immediately to avoid problems. This ratio shows that most of the company’s assets are
financed through debt which is not a good sign. As the average debt to equity ratio is 1.05 it
means that companies of this sector should have this much debt to equity ratio. The ratios
indicate that the performance of the Mari petroleum company is not stable as it has the highest
debt to equity ratio. The higher debt to equity ratio isn’t a good sign for the company as it shows
that the investors haven’t funded the operations as much as creditors have and the reason behind
this might be that the company isn’t performing well due to which the investors doesn’t want to
fund the business operations. Mari petroleum should decrease this ratio to 1.05 to get stable as it
is the average debt to equity ratio of all the companies of this sector. Mari petroleum due to high
debt to equity ratio may not be able to attract additional capital. OGDC has the lowest debt to
equity ratio which shows that the investors have funded the operations of the company and the
company is in a good position. Moreover, Pakistan petroleum and Pakistan oil are also in a good
position.

Average Collection period

 705.0
Avg. Collection period 6 days
800

700

600

500

400
Avg. Collection period
300

200

100

0
Mari Petroleum OGDC Pak petroleum Pak Oil

OGDC 54.44
days
Pak petroleum 9.4
days
Pak oil 44.36
days

Average of avg. collection period = 705.06 + 54.44 + 9.4 + 44.36 / 4 = 203.315 days

The average collection period is the average number of days required to collect invoiced amounts
from customers. The measure is used to determine the effectiveness of a company's credit
granting policies and collection efforts. Mari petroleum has the highest average collection period
whereas pak petroleum has the lowest average collection period. The lower average collection
period is preferred because the company can convert its receivables into cash in lesser time and
use the cash to fulfill its needs. Pak petroleum is in advantage as it can convert its receivables
into cash in less days and the company won’t have to face any liquidity issues. Mari petroleum
has very extreme average collection period which means that the company has sold its goods but
the customers are not paying them. Mari petroleum has to take it as serious concern and should
focus on lowing the average collection period. Their average collection period is high due to the
very increased amount of trade debts which indicates that company should not further sale out its
good on credit. Mari petroleum should at least lower its average collection period to 203 days in
order to get stable as it is the average of avg collection period of this sector.

Mari Petroleum 2.66

Oil gas and development company 0.22
Pakistan petroleum 0.5
Pak Oil 0.83