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Shell Pakistan ___________________________________________________________________________________________ ______ INSTITUTE OF BUSINESS AND TECHNOLOGY REPORT ON SHELL PAKISTAN BM-1020 S.M.Mairaj BM/993 Ubaid Saeed BEM/1050 Malik Qamarar Hayat BEM/1043 Faiza Zahid Course Code: FIN-601 Teacher: Usman Ali Institute of Business & Technology 1

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Page 1: Shell Report

Shell Pakistan

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INSTITUTE OF BUSINESS AND TECHNOLOGY

REPORT ONSHELL PAKISTAN

BM-1020 S.M.MairajBM/993 Ubaid SaeedBEM/1050 Malik Qamarar HayatBEM/1043 Faiza Zahid

Course Code: FIN-601

Teacher: Usman Ali

CITY CAMUS- SHAHRAH-E-FAISALFALL 2010

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Letter of Transmittal

Group MembersFinancial ManagementBIZTEKCity Campus

November 8, 2009Mr Adeel Abdullah DurveshCourse Teacher Financial ManagementBIZTEKCity Campus

Sir,

We have prepared a report for “Financial Management” as course requirement. We found it a very interesting subject to work on. We have tried our level best to understand how to formulate and document a professional report based on our learning from the course.

We research on the financial statements of company namely “Shell Pakistan”. We tried to find out the entire problem faced by the organization with suitable suggestions and the upcoming global challenges.

We are pleased to inform you that due to your cooperation we are able to complete and submit this report on time. We request you to please go through this report and feel free to give us a feedback. We will be honored to answer all your queries.

Regards,

BME/726 Khalid Bashir _____________

BME/739 Ejaz Ahmed _____________

BME/719 Malik Muhammad Imran _____________

BEM/1050 Malik Qamarar Hayat _____________

BEM/1043 Faiza Zahid _____________

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Acknowledgement

First of all we would like to thank Almighty God for giving us the strength, courage to accomplish all tasks big and small, the will power and patience in making this report possible.

To develop this research report was a laborious task for all of us group members and we couldn’t have accomplished this without the help and support of a lot of people.

We would like to thank our Teacher Mr. Adeel Durvesh, who gave us all the guidance and advice in making this report possible. We are grateful for his help and co-operation.

We would also like to thank all the people for the information they provided us for our project, we could never have been completed it without their co-operation.

In the end we hope and pray that this report meets the criteria, which we were asked to adhere to.

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Executive Summary

Shell Pakistan Limited General Business Principles govern how Shell Pakistan Ltd. conducts its affairs.

The objectives of Shell Pakistan Ltd. are to engage efficiently, responsibly and profitably in oil, gas, chemicals and other selected businesses and to participate in the search for and development of other sources of energy to meet evolving customer needs and the world’s growing demand for energy.

They believe that oil and gas will be integral to the global energy needs for economic development for many decades to come. Their role is to ensure that they extract and deliver them profitably and in environmentally and socially responsible ways.

They seek a high standard of performance, maintaining a strong long-term and growing position in the competitive environments in which they choose to operate.

They aim to work closely with their customers, partners and policy-makers to advance more efficient and sustainable use of energy and natural resources.

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CONTENTS

Page No.COVER PAGELETTER OF TRANSMITTALACKNOWLEDGEMENTEXECUTIVE SUMMARY

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CHAPTER NO. 1 INTRODUCTION1.1 Introduction1.2 Mission Statement1.3 Vision Statement1.4 Objectives

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CHAPTER NO. 2 RESPONSIBILITIES OF SHELL PAKISTAN2.1 Share Holders2.2 Customers2.3 Employees2.4 Those With Whom They Do Business2.5 Society

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CHAPTER NO. 3 PRINCIPLES OF SHELL PAKISTAN3.1 Economic3.2 Competition3.3 Business Integrity3.4 Political Activities3.5 Health, Safety, Security and The Environment3.6 Local Communities3.7 Communication and Engagement3.8 Compliance3.9 Living By Their Principles

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CHAPTER NO. 4 FINANCIAL HEALTH OF SHELL PAKISTAN4.1 Liquidity Ratios

4.1.1 Current Ratios4.1.2 Acid Test Ratio4.1.3 Summary of Liquidity Ratios4.1.4 Trend Analysis of Current Ratios4.1.5 Trend Analysis of Acid Test Ratios4.1.6 Summary of the Current and Acid Test Ratios Trend Analysis

4.2 Financial Leverage Ratios4.2.1 Debt to Equity Ratio4.2.2 Debt to Total Assets Ratio4.2.3 Total Capitalization Ratio4.2.4 Summary of Financial Leverage Ratios4.2.5 Trend Analysis of Debt to Equity Ratios4.2.6 Trend Analysis of Debt to Total assets Ratios4.2.7 Trend Analysis of Debt to Total Capitalization Ratio4.2.8 Summary of Financial Leverage Ratios Trend Analysis

4.3 Coverage Ratios4.3.1 Interest Coverage Ratio4.3.2 Summary of Interest Coverage Ratio

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4.3.3 Trend Analysis of Interest Coverage Ratio4.3.4 Summary of Interest Coverage Ratios Trend Analysis

4.4 Activity Ratios4.4.1 Inventory Turnover Ratio4.4.2 Total Assets Turnover Ratio4.4.3 Summary of Activity Ratio4.4.4 Trend Analysis of Inventory Turnover Ratio4.4.5 Trend Analysis of Total Assets Turnover Ratio4.4.6 Summary of Activity Ratios Trend Analysis

4.5 Profitability Ratios4.5.1 Gross Profit Margin in %4.5.2 Net Profit Margin in %4.5.3 Return on Investment in %4.5.4 Return on Equity in %4.5.5 Summary of Activity Ratio in %4.5.6 Trend Analysis of Gross Profit Margin in %4.5.7 Trend Analysis of Net Profit Margin in %4.5.8 Trend Analysis of Return on Investment %4.5.9 Trend Analysis of Return on Equity %4.5.10 Summary of profitability Ratios Trend Analysis4.5.11Problems in Shell Pakistan4.5.12 Actions Executed by the Company to Overcome Problems4.5.13 Our Suggestions that the Company Should Imitate4.5.14 Upcoming Global Challenges that Company Has to Face

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CHAPTER NO. 5 CONCLUSION AND RECOMMENDATIONS5.1 Conclusion5.2. Recommendations

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BIBLIOGRAPHY 32

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CHAPTER NO. 1 INTRODUCTION

1.2 Introduction

1.2 Mission Statement

1.3 Vision Statement

1.4 Objectives

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1. Introduction

1.1 Introduction to Shell Pakistan:

The Shell brand name enjoys a 100-year history in this part of the world, dating back to 1899 when Asiatic Petroleum, the far eastern marketing arm of two companies Shell Transport Company and Royal Dutch Petroleum Company, began importing kerosene oil from Azerbaijan into the subcontinent. Even today, the legacy of the past is visible in a storage tank carrying the date - 1898.

The documented history of Royal Dutch Shell in Indo Pakistan subcontinent dates back to 1903 when partnership was struck between The Shell Transport & Trading Company and the Royal Dutch Petroleum Company to supply petroleum to Asia.

In 1928, to enhance their distribution capabilities, the marketing interest of Royal Dutch Shell and the Burmah Oil Company Limited in India were merged and Burmah Shell Oil Storage & Distribution Company of India was born. After the independence of Pakistan in 1947, the name was changed to the Burmah Shell Oil Distribution Company of Pakistan. In 1970, when 51% of the shareholding was transferred to Pakistani investors, the name of changed to Pakistan Burmah Shell (PBS) Limited. The Shell and the Burmah Groups retained the remaining 49% in equal propositions. In February of 1993, as economic liberalization began to take root and the Burmah divested from PBS, Shell Petroleum stepped into raise its stake to 51%. The years 2001-2 have seen the Shell Petroleum Company successively increasing its share, with the Group now having a 76% stake in Shell Pakistan Ltd (SPL)- an expression of confidence.

1.2 Mission of Shell Pakistan:

Shell Pakistan Ltd. employees share a set of core values – honesty, integrity and respect for people. We also firmly believe in the fundamental importance of trust, openness, teamwork and professionalism, and pride in what we do.

1.3 Vision Statement:

As Shell Pakistan Limited, we strive to deliver results, perform to the highest standards, develop our people, provide quality customer service and actively pursue consistent safety improvements. A firm foundation based on performance enables us to deliver strong returns and values growth for our shareholders, greater and better choices for our customers and opportunities and improvements in the quality of life of our communities. In an unsettled world, our commitment to performance at every level continues to be both the challenges and the aspiration.

1.4 Objectives of Shell Pakistan:

The objectives of Shell Pakistan Ltd. are to engage efficiently, responsibly and profitably in oil, gas, chemicals and other selected businesses and to participate in the search for and development of other sources of energy to meet evolving customer needs and the world’s growing demand for energy. They believe that oil and gas will be integral to the global energy needs for economic development for many decades to come. Their role is to ensure that they extract and deliver them profitably and in environmentally and socially responsible ways.

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CHAPTER NO. 2 RESPONSIBILITIES OF SHELL PAKISTAN

2.1 Share Holders

2.2 Customers

2.3 Employees

2.4 Those With Whom They Do Business

2.5 Society

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2. Responsibilities Of Shell Pakistan

Shell Pakistan Ltd. recognizes five areas of responsibility. It is the duty of management continuously to assess the priorities and discharge these inseparable responsibilities on the basis of that assessment.

2.1 Shareholders:

To protect shareholders’ investment, and provide a long-term return competitive with those of other leading companies in the industry.

2.2 Customers:

To win and maintain customers by developing and providing products and services which offer value in terms of price, quality, safety and environmental impact, which are supported by the requisite technological, environmental and commercial expertise.

2.3 Employees:

To respect the human rights of their employees and to provide them with good and safe working conditions and competitive terms and conditions of employment. To promote the development and best use of the talents of their employees; to create an inclusive work environment where every employee has an equal opportunity to develop his or her skills and talents. To encourage the involvement of employees in the planning and direction of their work; to provide them with channels to report concerns. They recognize that commercial success depends on the full commitment of all employees.

2.4 Those With Whom They Do Business:

To seek mutually beneficial relationships with contractors, suppliers and in joint ventures and to promote the application of these Shell Pakistan Ltd. General Business Principles or equivalent principles in such relationships. The ability to promote these principles effectively will be an important factor in the decision to enter into or remain in such relationship.

2.5 Society:

To conduct business as responsible corporate members of society, to comply with applicable laws and regulations, to support fundamental human rights in line with the legitimate role of business, and to give proper regard to health, safety, security and the environment.

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CHAPTER NO. 3 PRINCIPLES OF SHELL PAKISTAN

3.1 Economic

3.2 Competition

3.3 Business Integrity

3.4 Political Activities

3.5 Health, Safety, Security and The Environment

3.6 Local Communities

3.7 Communication and Engagement

3.8 Compliance

3.9 Living By Their Principles

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3. Principles of Shell Pakistan

There are the following principles of Shell Pakistan which are elaborated below:

3.1 Principle 1: Economic:

Long-term profitability is essential to achieving our business goals and to our continued growth. It is a measure both of efficiency and of the value that customers place on Shell Pakistan Ltd. products and services. It supplies the necessary corporate resources for the continuing investment that is required to develop and produce future energy supplies to meet customer needs. Without profits and a strong financial foundation, it would not be possible to fulfill responsibilities.

Criteria for investment and divestment decisions include sustainable development considerations (economic, social and environmental) and an appraisal of the risks of the investment.

3.2 Principle 2: Competition:

Shell Pakistan Ltd. supports free enterprise. They seek to compete fairly and ethically and within the framework of applicable competition laws; they will not prevent others from competing freely with them.

3.3 Principle 3: Business Integrity:

Shell Pakistan Ltd. insists on honesty, integrity and fairness in all aspects of their business and expects the same in their relationships with all those with whom they do business. The direct or indirect offer, payment, soliciting or acceptance of bribes in any form is unacceptable.   Facilitation payments are also bribes and should not be made. Employees must avoid conflicts of interest between their private activities and their part in the conduct of company business. Employees must also declare to their employing company potential conflicts of interest. All business transactions on behalf of Shell Pakistan Ltd. must be reflected accurately and fairly in the accounts of the company in accordance with established procedures and are subject to audit and disclosure.

3.4 Principle 4: Political Activities:

a. Of companies Shell Pakistan Ltd. acts in a socially responsible manner within the laws of the countries in which they operate in pursuit of their legitimate commercial objectives. Shell Pakistan Ltd. does not make payments to political parties, organizations or their representatives. Shell Pakistan Ltd. does not take part in party politics. However, when dealing with the government, Shell Pakistan Ltd. has the right and the responsibility to make their position known on any matters which affect them, their employees, their customers, their shareholders or local communities in a manner which is in accordance with their value and the Business Principles.

b. Of employees Where individuals wish to engage in activities in the community, including standing for election to public office, they will be given the opportunity to do so where this is appropriate in the light of local circumstances.

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3.5 Principle 5: Health, Safety, Security And The Environment:

Shell Pakistan Ltd. has a systematic approach to health, safety, security and environmental management in order to achieve continuous performance improvement.

To this end, Shell Pakistan Ltd. Manages these matters as critical business activities, sets standards and targets for improvement, and measures, appraises and reports performance externally.

They continually look for ways to reduce the environmental impact of their operations, products and services.

3.6 Principle 6: Local Communities:

Shell Pakistan Ltd. aims to be good neighbors by continuously improving the ways in which they contribute directly or indirectly to the general well-being of the communities within which they work.

They manage the social impacts of their business activities carefully and work with others to enhance the benefits to local communities, and to mitigate any negative impacts from their activities.

In addition, Shell Pakistan Ltd. takes a constructive interest in societal matters, directly or indirectly related to their business.

3.7 Principle 7: Communication and Engagement:

Shell Pakistan Ltd. recognizes that regular dialogue and engagement with their stakeholders is essential. They are committed to reporting of their performance by providing full relevant information to legitimately interested parties, subject to any overriding considerations of business confidentiality.

In their interactions with employees, business partners and local communities, they seek to listen and respond to them honestly and responsibly.

3.8 Principle 8: Compliance:

They comply with all applicable laws and regulations of the counties in which they operate.

3.9 Living by Their Principles:

Their shared core values of honesty, integrity and respect for people, underpin all the work they do and are the foundation of their Business Principles.

The Business Principles apply to all transactions, large or small, and drive the behavior expected of every employee in Shell Pakistan Ltd. in the conduct of its business at all times.

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They are judged by how they act. Their reputation will be upheld if they act in accordance with the law and the Business Principles. They encourage their business partners to live by them or by equivalent principles.

They encourage their employees to demonstrate leadership, accountability and teamwork, and through these behaviors, to contribute to the overall success of Shell Pakistan Ltd.

It is the responsibility of management to lead by example, to ensure that all employees are aware of these principles, and behave in accordance with the spirit as well as with the letter of this statement.

The application of these principles is underpinned by a comprehensive set of assurance procedures which are designed to make sure that their employees understand the principles and confirm that they act in accordance with them.

As part of the assurance system, it is also the responsibility of management to provide employees with safe and confidential channels to raise concerns and report instances of non-compliance. In turn, it is the responsibility of Shell Pakistan Ltd. employees to report suspected breaches of the Business Principles to Shell Pakistan Ltd.

The Business Principles have for many years been fundamental to how they conduct their business and living by them is crucial to their continued success.

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CHAPTER NO. 4 FINANCIAL HEALTH OF SHELL PAKISTAN4.1 Liquidity Ratios

4.1.1 Current Ratios4.1.2 Acid Test Ratio4.1.3 Summary of Liquidity Ratios4.1.4 Trend Analysis of Current Ratios4.1.5 Trend Analysis of Acid Test Ratios4.1.6 Summary of the Current and Acid Test Ratios Trend Analysis

4.2 Financial Leverage Ratios4.2.1 Debt to Equity Ratio4.2.2 Debt to Total Assets Ratio4.2.3 Total Capitalization Ratio4.2.4 Summary of Financial Leverage Ratios4.2.5 Trend Analysis of Debt to Equity Ratios4.2.6 Trend Analysis of Debt to Total assets Ratios4.2.7 Trend Analysis of Debt to Total Capitalization Ratio4.2.8 Summary of Financial Leverage Ratios Trend Analysis

4.3 Coverage Ratios4.3.1 Interest Coverage Ratio4.3.2 Summary of Interest Coverage Ratio4.3.3 Trend Analysis of Interest Coverage Ratio4.3.4 Summary of Interest Coverage Ratios Trend Analysis

4.4 Activity Ratios4.4.1 Inventory Turnover Ratio4.4.2 Total Assets Turnover Ratio4.4.3 Summary of Activity Ratio4.4.4 Trend Analysis of Inventory Turnover Ratio4.4.5 Trend Analysis of Total Assets Turnover Ratio4.4.6 Summary of Activity Ratios Trend Analysis

4.5 Profitability Ratios4.5.1 Gross Profit Margin in %4.5.2 Net Profit Margin in %4.5.3 Return on Investment in %4.5.4 Return on Equity in %4.5.5 Summary of Activity Ratio in %4.5.6 Trend Analysis of Gross Profit Margin in %4.5.7 Trend Analysis of Net Profit Margin in %4.5.8 Trend Analysis of Return on Investment %4.5.9 Trend Analysis of Return on Equity %4.5.10 Summary of profitability Ratios Trend Analysis4.5.11Problems in Shell Pakistan4.5.12 Actions Executed by the Company to Overcome Problems4.5.13 Our Suggestions that the Company Should Imitate4.5.14 Upcoming Global Challenges that Company Has to Face

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4. Financial Health of Shell Pakistan

4.1 Comparisons of Liquidity Ratios:

4.1.1 Current Ratios:

Year Shell Industry (PSO+ARL/2)2008 1.29 1.062007 1.005 1.112006 1.13 1.172005 1.06 1.17 Current ratios of Shell Pakistan are improving; it is not a problem for the Shell Pakistan as compared to the industry ratios.

4.1.2 Acid Test Ratio:

Year Shell Industry (PSO+ARL/2)20.08 0.52 0.652007 0.58 0.722006 0.57 0.712005 0.52 0.76 The Shell Pakistan has weaker the acid test ratios. There is inventory management problem with Shell Pakistan. May be the inventory of Shell Pakistan is too high as compared with the industry ratios.

4.1.3 Summary of Liquidity Ratios:

Year Shell Industry (PSO+ARL/2)Current 1.29 1.06Acid Test 0.52 0.65 Current ratios of Shell Pakistan are improving; it is not a problem for the Shell Pakistan as compared to the industry ratios.

The Shell Pakistan has weaker the acid test ratios. There is inventory management problem with Shell Pakistan. May be the inventory of Shell Pakistan is too high as compared with the industry ratios.

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4.1.4 Trend Analysis of Current Ratios:

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1.3

1.2

1.1 Shell

1.0 Industry

2005 2006 2007 2008

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4.1.5 Trend Analysis of Acid Test Ratios:

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0.70

0.60 Shell

0.50 Industry

2005 2006 2007 2008

Analysis Year

4.1.6 Summary of the Current and Acid Test Ratios Trend Analysis:

Current ratios of Shell Pakistan are improving; it is not a problem for the Shell Pakistan as compared to the industry ratios.

The Shell Pakistan has weaker the acid test ratios. There is inventory management problem with Shell Pakistan. May be the inventory of Shell Pakistan is too high as compared with the industry ratios.

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4.2 Financial Leverage Ratios:

4.2.1 Debt to Equity Ratio:

Year Shell Industry (PSO+ARL/2)2008 0.29 205.282007 0.72 179.712006 0.32 167.822005 0.006 147.65 Shell Pakistan is using the equity financing, while the industry is using the debt financing. May be the Shell Pakistan has the excessive funds that is why it is using equity financing rather than the debt financing as compared to the industry.

4.2.2 Debt to Total Assets Ratio:

Year Shell Industry (PSO+ARL/2)2008 0.10 55.972007 0.23 54.642006 0.12 53.642005 0.0024 51.03 Shell Pakistan is financing the assets by using the equity financing, while the industry is using the debt financing.

4.2.3 Total Capitalization Ratio:

Year Shell Industry (PSO+ARL/2)2008 0.25 8.252007 0.72 9.012006 0.32 9.072005 0.006 12.07 Shell Pakistan is using the equity financing, while the industry is using the debt financing. May be the Shell Pakistan has the excessive funds that is why it is using equity financing rather than the debt financing as compared to the industry.

4.2.4 Summary of Financial Leverage Ratios:

Year Shell Industry (PSO+ARL/2)Debt to Equity 0.29 205.28Debt to Total Assets 0.10 55.97Total Capitalization 0.25 8.25 Shell Pakistan is using the equity financing, while the industry is using the debt financing. May be the Shell Pakistan has the excessive funds that is why it is using equity financing rather than the debt financing as compared to the industry.

Shell Pakistan is financing the assets by using the equity financing, while the industry

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is using the debt financing.

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4.2.6 Trend Analysis of Debt to Equity Ratios:

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210

150

100 Shell

0.006 Industry

2005 2006 2007 2008

Analysis Year

4.2.6 Trend Analysis of Debt to Total assets Ratios:

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50

40 Shell

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2005 2006 2007 2008

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4.2.7 Trend Analysis of Debt to Total Capitalization Ratio

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08 Shell

0.006 Industry

2005 2006 2007 2008

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Analysis Year

4.2.8 Summary of Financial Leverage Ratios Trend Analysis:

Shell Pakistan is using the equity financing, while the industry is using the debt financing. May be the Shell Pakistan has the excessive funds that is why it is using equity financing rather than the debt financing as compared to the industry.

Shell Pakistan is financing the assets by using the equity financing, while the industry is using the debt financing.

4.3 Coverage Ratios:

4.3.1 Interest Coverage Ratio:

Year Shell Industry (PSO+ARL/2)2008 8.74 48.22007 1.29 28.082006 12.55 55.152005 12.00 59.73 Shell Pakistan has less EBIT to cover interest charges that is why is using very minute long term debt as compared to industry ratios.

4.3.2 Summary of Interest Coverage Ratio:

Year Shell Industry (PSO+ARL/2)Interest Coverage 8.74 48.2

Shell Pakistan has less EBIT to cover interest charges that is why is using very minute long term debt as compared to industry ratios.

4.3.3 Trend Analysis of Interest Coverage Ratio:

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30

15 Shell

01 Industry

2005 2006 2007 2008

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Analysis Year

4.3.4 Summary of Interest Coverage Ratios Trend Analysis:

Shell Pakistan has less EBIT to cover interest charges that is why is using very minute long term debt as compared to industry ratios.

4.4 Activity Ratios:

4.4.1 Inventory Turnover Ratio:

Year Shell Industry (PSO+ARL/2)2008 6.89 16.652007 13.18 11.052006 10.75 11.12005 13.57 11.4 The inventory turnover ratios of Shell Pakistan are best in year 2005, 2006 and 2007 but it is being worse in year 2008 as compared to the industry ratios. There is inventory management problem with Shell Pakistan. May be the inventory of Shell Pakistan is too high as compared with the industry ratios.

4.4.2 Total Assets Turnover Ratio:

Year Shell Industry (PSO+ARL/2)2008 3.52 3.242007 3.93 3.22006 4.16 3.232005 4.78 3.08 The assets turnover ratios of Shell Pakistan are healthy as compared to the industry ratios. The Shell Pakistan is utilizing its assets efficiently. The Shell Pakistan has the good assets management system as compared to the industry.

4.4.3 Summary of Activity Ratio:

Year Shell Industry (PSO+ARL/2)Inventory Turnover 6.89 16.65Total Assets Turnover 3.52 3.24 The inventory turnover ratios of Shell Pakistan are best in year 2005, 2006 and 2007 but it is being worse in year 2008 as compared to the industry ratios. There is inventory management problem with Shell Pakistan. May be the inventory of Shell Pakistan is too high as compared with the industry ratios.

The assets turnover ratios of Shell Pakistan are healthy as compared to the industry ratios. The Shell Pakistan is utilizing its assets efficiently. The Shell Pakistan has the good assets management system as compared to the industry.

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4.4.4 Trend Analysis of Inventory Turnover Ratio:

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12

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06 Industry

2005 2006 2007 2008

Analysis Year

4.4.5 Trend Analysis of Total Assets Turnover Ratio:

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04

03 Shell

02 Industry

2005 2006 2007 2008

Analysis Year

4.4.6 Summary of Activity Ratios Trend Analysis:

The inventory turnover ratios of Shell Pakistan are best in year 2005, 2006 and 2007 but it is being worse in year 2008 as compared to the industry ratios. There is inventory management

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problem with Shell Pakistan. May be the inventory of Shell Pakistan is too high as compared with the industry ratios.

The assets turnover ratios of Shell Pakistan are healthy as compared to the industry ratios. The Shell Pakistan is utilizing its assets efficiently. The Shell Pakistan has the good assets management system as compared to the industry.

4.5 Profitability Ratios:

4.5.1 Gross Profit Margin in %:

Year Shell Industry (PSO+ARL/2)2008 0.10 12.452007 0.05 11.352006 0.08 12.192005 0.09 12.81 The cost of goods sold may be the too high of Shell Pakistan or they have huge investment in the assets. The concerned of Shell Pakistan is toward the equity financing as compared to the industry.

4.5.2 Net Profit Margin in %:

Year Shell Industry (PSO+ARL/2)2008 0.036 4.452007 0.006. 4.022006 0.02 4.312005 0.02 4.26 The cost of goods sold may be the too high of Shell Pakistan or they have huge operating cost ie taxes etc. as compared to the industry.

4.5.3 Return on Investment in %:

Year Shell Industry (PSO+ARL/2)2008 0.12 8.152007 0.024 5.92006 0.11 7.962005 0.11 8 The net profit of Shell Pakistan is not satisfactorily and they have huge investment in assets as compared to the industry.

4.5.4 Return on Equity in %:

Year Shell Industry (PSO+ARL/2)2008 0.37 29.752007 0.07 18.552006 0.30 25.12005 0.29 22.9

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The net profit after taxes of Shell Pakistan are not satisfactorily and they have huge investment in equity financing as compared to the industry.

4.5.5 Summary of Activity Ratio in %:

Year Shell Industry (PSO+ARL/2)Gross Profit Margin 0.10 12.45Net Profit Margin 0.036 4.45Return Investment 0.12 8.15Return on Equity 0.37 29.75 The cost of goods sold may be the too high of Shell Pakistan or they have huge investment in the assets. The concerned of Shell Pakistan is toward the equity financing as compared to the industry.

The cost of goods sold may be the too high of Shell Pakistan or they have huge operating cost ie taxes etc. as compared to the industry.

The net profit of Shell Pakistan is not satisfactorily and they have huge investment in assets as compared to the industry.

The net profit after taxes of Shell Pakistan are not satisfactorily and they have huge investment in equity financing as compared to the industry.

4.5.6 Trend Analysis of Gross Profit Margin in %:

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13

08

04 Shell

.01 Industry

2005 2006 2007 2008

Analysis Year

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4.5.7 Trend Analysis of Net Profit Margin in %:R

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05

03

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.01 Industry

2005 2006 2007 2008

Analysis Year

4.5.8 Trend Analysis of Return on Investment %:

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.01 Industry

2005 2006 2007 2008

Analysis Year

4.5.9 Trend Analysis of Return on Equity %:30

15

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2005 2006 2007 2008

Analysis Year

4.5.10 Summary of profitability Ratios Trend Analysis:

The cost of goods sold may be the too high of Shell Pakistan or they have huge investment in the assets. The concerned of Shell Pakistan is toward the equity financing as compared to the industry.

The cost of goods sold may be the too high of Shell Pakistan or they have huge operating cost ie taxes etc. as compared to the industry.

The net profit of Shell Pakistan is not satisfactorily and they have huge investment in assets as compared to the industry.

The net profit after taxes of Shell Pakistan are not satisfactorily and they have huge investment in equity financing as compared to the industry.

4.5.11 Problems in Shell Pakistan:

1. The Shell Pakistan has weaker the acid test ratios due to the following:

There is inventory management problem with Shell Pakistan.

May be the inventory of Shell Pakistan is too high as compared with the industry ratios.

2. Shell Pakistan has less EBIT to cover interest charges that is why is using very minute long term debt as compared to industry ratios.

3. There are some other problems with the profitability ratios which are mentioned below:

The cost of goods sold may be the too high of Shell Pakistan or they have huge investment in the assets. The concerned of Shell Pakistan is toward the equity financing as compared to the industry. So the gross profit margin is less.

The cost of goods sold may be the too high of Shell Pakistan or they have huge operating cost ie taxes etc. as compared to the industry. So the net profit margin is less.

The net profit of Shell Pakistan is not satisfactorily and they have huge investment in assets as compared to the industry.

The net profit after taxes of Shell Pakistan are not satisfactorily and they have huge investment in equity financing as compared to the industry.

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Shell Pakistan

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4.5.12 Actions Executed by the Company so far to Overcome Problems:

1. The Shell Pakistan is improving the weaker acid test ratios as mentioned below:

It is improving the inventory management problem with Shell Pakistan.

It is improving the too high inventory of Shell Pakistan.

2. Shell Pakistan has the excessive funding so there is no need to Shell Pakistan to improve the EBIT to cover interest charges that is why is using very minute long term debt as compared to industry ratios.

3. There are some other problems with the profitability ratios of Shell Pakistan and is trying to improve:

It is improving the cost of goods sold which is too high of Shell Pakistan or they have huge investment in the assets. The concerned of Shell Pakistan is toward the equity financing as compared to the industry. So it is improving its gross profit margin.

It is improving the too high cost of goods sold of Shell Pakistan or they have huge operating cost ie taxes etc. as compared to the industry. So it is improving its net profit margin.

The net profit of Shell Pakistan is improving with less risk factor and they have huge investment in assets as compared to the industry.

The net profit after taxes of Shell Pakistan is going satisfactorily with less risk factor and they have huge investment in equity financing as compared to the industry.

4.5.13 Our Suggestions that the Company Should Imitate:

1. The Shell Pakistan should improve the weaker acid test ratios due to the following:

Inventory management problem with Shell Pakistan.

Too high inventory of Shell Pakistan as compared with the industry ratios.

2. Shell Pakistan should improve EBIT to cover interest charges that is why is using very minute long term debt as compared to industry ratios.

3. There are some other mentioned below problems with the profitability ratios which Shell Pakistan should improve:

The cost of goods sold may be the too high of Shell Pakistan or they have huge investment in the assets. The concerned of Shell Pakistan is toward the equity financing as compared to the industry.

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Shell Pakistan

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The cost of goods sold may be the too high of Shell Pakistan or they have huge operating cost ie taxes etc. as compared to the industry.

The net profit of Shell Pakistan is not satisfactorily and they have huge investment in assets as compared to the industry.

The net profit after taxes of Shell Pakistan is not satisfactorily and they have huge investment in equity financing as compared to the industry.

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Shell Pakistan

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4.5.14 Upcoming Global Challenges that the Company Has to Face:

As part of the Business Principles, they commit to contribute to sustainable development. This requires:

Balancing short and long term interests.

Integrating economic, environmental and social considerations.

Over staffing problem.

Global financial crisis.

Shortage of raw material.

Globally growing fuel requirements.

Shortage of sources.

Energy crisis.

Demand and supply issues.

Environmental problems.

Other global economic issues.

Globally competition

Freight and subsidies.

Currency volatility.

Taxes rate.

ISO certification.

Trade and tariff problems.

Trade policies of different countries

Unemployment issues.

Foreign exchange

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CHAPTER NO. 5 CONCLUSION AND RECOMMENDATIONS

5.1 Conclusion

5.2. Recommendations

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5. Conclusion and Recommendations

5.1 Conclusion:

After compiling the report following is concluded:

1. The Shell Pakistan has weaker the acid test ratios due to the following:

There is inventory management problem with Shell Pakistan.

May be the inventory of Shell Pakistan is too high as compared with the industry ratios.

2. Shell Pakistan has less EBIT to cover interest charges that is why is using very minute long term debt as compared to industry ratios.

3. There are some other problems with the profitability ratios which are mentioned below:

The cost of goods sold may be the too high of Shell Pakistan or they have huge investment in the assets. The concerned of Shell Pakistan is toward the equity financing as compared to the industry. So the gross profit margin is less.

The cost of goods sold may be the too high of Shell Pakistan or they have huge operating cost ie taxes etc. as compared to the industry. So the net profit margin is less.

The net profit of Shell Pakistan is not satisfactorily and they have huge investment in assets as compared to the industry.

The net profit after taxes of Shell Pakistan are not satisfactorily and they have huge investment in equity financing as compared to the industry.

5.2 Recommendations:

Following is strongly recommended to improve the financial health of Shell Pakistan:

1. The Shell Pakistan should improve the weaker acid test ratios due to the following:

Inventory management problem with Shell Pakistan.

Too high inventory of Shell Pakistan as compared with the industry ratios.

2. Shell Pakistan should improve EBIT to cover interest charges that is why is using very minute long term debt as compared to industry ratios.

3. There are some other mentioned below problems with the profitability ratios which Shell Pakistan should improve:

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Shell Pakistan

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The cost of goods sold may be the too high of Shell Pakistan or they have huge investment in the assets. The concerned of Shell Pakistan is toward the equity financing as compared to the industry.

The cost of goods sold may be the too high of Shell Pakistan or they have huge operating cost ie taxes etc. as compared to the industry.

The net profit of Shell Pakistan is not satisfactorily and they have huge investment in assets as compared to the industry.

The net profit after taxes of Shell Pakistan is not satisfactorily and they have huge investment in equity financing as compared to the industry.

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Shell Pakistan

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Bibliography:

www.shell.com.pk dated 5 October 2009.

www.psopk..com dated 7 October 2009.

www.arl.com.pk dated 10 October 2009.

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