A Financial Analysis Of OGDCL Finance Essay

Published: 2021-06-28 13:25:04
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OGDCL is the largest oil and gas company in Pakistan.it has a monoply and stands with a authorities support.Being the national oil and gas company OGDCL holds the flagship of the state ‘s geographic expedition and production sector.it will be deserving observing that the company is a market leader in Pakistan, in footings of militias, production and acreage.The company contributes 21 % of Pakistan ‘s entire natural gas production and 54 % of its oil production.There are 75 OGDCL Fieldss in Pakistan of which 45 Fieldss are owned and operated while 30 Fieldss are Non-operated.the company is besides registered in London Stock Exchange in add-on to state ‘s ain major stock exchanges.The company is all set to sit the moving ridge of E & A ; P activity.The company is with the vision of going the taking manufacturer and provider of oil and gas in the international market by utilizing all the possible options including strategic treaty.Being the most stable company, gross revenues gross and net incomes of the company presently enhanced by 9 % and 6.5 % to Rs 142.572 billion and Rs 59.177 billion severally.
Company HISTORY
The authorities of Pakistan established Oil and Gas Development Corporation ( OGDCL ) under an regulation dated 20th September 1961 as a statutory corporation to set about geographic expedition and development of oil and gas resources.The company was converted into a public limited company in 1997 and renamed as Oil and Gas Development Company Limited ( OGDCL ) .
MOTIVATION TO CHOOSE THIS TOPIC
My academic cognition and anterior apprehension during my survey of ACCA, sing accounting and finance, is the cardinal factor of motive for me to take the subject of fiscal statement and concern analysis of the organization.Financial coverage, public presentation direction and control and fiscal information direction are the topics which I have studied and which genuinely relate to the fiscal statement and concern analysis.This undertaking offers me to use this cognition and accomplishments in a existent concern scenario.
Reasons to take the company
I have selected this organizaton ( OGDCL ) for analysis because it is the largest and the most stable organisation so far in the country.As it is besides listed in the London stock exchange so, it seems more appropriate to take this company for analysis because ACCA is besides a making which has bais in UK so it will supply me the chance to analyse its fiscal place and fiscal public presentation in international context.Moreover, the monoply of the company in the field of Petroleum and Gas geographic expedition and production enhanced my motive to prosecute the analysis undertaking of the organisation.
RESEARCH AIM AND OBJECTIVE
1 the primary aim of my study is to measure the fiscal public presentation of the company in context of overall concern public presentation of OGDCL for the twelvemonth 2008-2010
2 the research purpose to supply the impartial and nonsubjective sentiment on the fiscal every bit good as the concern public presentation of the company.
RESEARCH QUESTION
1 what really is the concern scheme of the OGDCL
2 what is the bing and predating two fiscal place of the company
3 what factors impacting the fiscal and concern public presentation of OGDCL during the period 2009 to 2010.
4 what are the deduction of OGDCL future growing
Overall RESEARCH FRAMEWORK AND TOOLS USED TO ANSWER THE RESEARCH QUESTION
Evaluation OF FINANCIAL PERFORMANCE
In order to measure the fiscal public presentation of OGDCL the undermentioned tools are used in the study
Ratio analysis
Horizontal analysis
Vertical analysis
BUSSINESS EVALUATION
The concern scheme and growing chance of the OGDCL is evaluated by the undermentioned two tools
1 porters theoretical account
2 swot theoretical account
FINANCIAL ANALYSIS
To measure the fiscal status and public presentation of the company the fiscal analyst need a yardstick.The yardstick often ratio analysis.
The restriction of accounting ratio is that it is based on accounting world and ignores the economic worlds.
PROFITABILITY RATIO
GROSS PROFIT MARGIN NET PROFIT MARGIN CAPITAL EMPLOYED RETURN ON EQUITY
LIQUIDITY RATIO
CURRENT RATIO QUICK RATIO
EFFICIENCY RATIO
DEBTORS TURNOVER DEBTORS IN DAYS CREDITORS DAYS NET ASSET TURNOVER
Investing Ratio
EARNING /SHARE INTEREST COVER DIVIDEND/SHARE
PROFITABILITY RATIO
GROSS PROFIT MARGIN
A step calculated by spliting gross net income by net sales.Gross net income is indicant of house ability to turn a dollar of gross revenues into net income after the cost of good sold.
Gross net income margin= gross profit/net gross revenues
2008
2009
2010
Current
Discrepancy
Current
Discrepancy
Current
70 %
+ 0.39
69.92 %
70.57
The above tendency show that company maintain the gross net income ratio about 70 % during the three years.Although there is addition in gross revenues 25 % in twelvemonth 2008,39 % in twelvemonth 2009 and 9 % addition but the mcrcalo has been counter by the cost of goods sold with about same per centum.
GRAPH AND INDUSTRY AVERAGE
Net Net income Margin
Net income divided by net gross revenues, a step of direction ability to transport a dollar of gross revenues down to the bottom line for the stock holder, it besides measures how good a company control its cost
Net net income border = net income/net gross revenues
2008
2009
2010
Current
40
Deviation
-6
Current
43
Deviation
+3
Current
42
Net net income border
In the twelvemonth 2008, the company demo the divergence of 6 % in net net income border, the ruin is chiefly due to the revenue enhancement judicial proceeding, the proviso for the revenue enhancement of the company is 33 billion which is 118 % more so the twelvemonth 2007
There is a addition in 2009 by 3 % this is due to increase in sale gross by 4 % and lessening in royalty every bit good as revenue enhancement disbursal by 12 % and 25 % .
Although in twelvemonth 2010 the sale have been by 9 % but this addition is counter down by revenue enhancement, royalty and every bit good as the operation expenses.This is chief cause of lessening in net income border by 1 % .
GRAPH AND GROSS Section
RETURN ON EQUITY
Interest Coverage RATIO
Interest coverage ratio is the ratio of net incomes before involvement and revenue enhancement to the sum of involvement charge for the period
Interest coverage ratio give an penetration into the ability of the company to serve its debt
2008
2009
2010
Current
Deviation
Current
divergence
Current
Interest coverage= PBIT/INTEREST
EARNING PER Share
Net incomes per portion represent the sum of net income earn by each ordinary portion
In a simple word it means the sum of net income available for the mean stockholder
EPS = PROFIT AFTER TAX/ACTUAL NUMBER OF SHARES
2008
2009
2010
Current
11.54
Deviation
+.93
Current
12.91
Deviation
+1.37
Current
13.76
The above tendency shows the steady growing in the EPS.The ground for the growing is really obvious from the entity ‘s fiscal statement that there is steady growing profit.The ground for growing has already been discussed in in the profitableness ratio.
The of import point should be considered here that there is no alteration in equity aˆ¦aˆ¦aˆ¦ .
Graph
DIVIDEND /SHARE
The sum of dividend received by the ordinary portion is called dividend per portion
2008
2009
2010
Current
9.50
Deviation
+.50
Current
8.25
Deviation
-1.25
Current
5.50
The OGDCL have a diminishing tendency since 2008, when you consider the undermentioned figure, this will evidently do it clear why the company has such diminishing tendency, even though there is steady growing in net income.
Dividend payout ratio
2008
2009
2010
92 %
64 %
40 %
The company has a policy to retain net income.
ASSETS TURNOVER RATIO
This ratio measures the direction ‘s efficiency in bring forthing gross from the net assets at disposal.
If this ratio gives the higher consequence, the more the direction is efficient in bring forthing the gross from their net assets.
Net Asset turnover
Year ( XXXX )
Percentage ( % )
2008
87
2009
79
2010
70
Reasons for Decline
Assetss
OGDCL Asset Turnover ratio lessenings from the last three old ages, this is due to important addition in value of its fixed assets, as from the fiscal consequences the addition in fixed assets is shown as in table below:
Particulars
2008
2009
2010
Fixed Asset ( Rs in Billion )
67.71
87.69
103.18
Current Assets ( Rs in billion )
79.82
85.46
120.43
As shown in the tabular array the highlighted figures tells us that the fixed assets are increasing 30 % from 08 to 09 and 18 % from 09 to 10 and hence significantly increasing from 2008 to 2010 which will do lessening in the plus turnover, Besides we have seen that the value of current assets in the twelvemonth 2010 will hold an important addition, as 41 % addition from 09 to 10, this will besides impact the plus turnover. This company is non utilizing its assets expeditiously. Management efficiency is traveling to worsen.
Gross saless
We will discourse besides the value of gross revenues which will besides impact this ratio, but for this company the value of gross revenues is non significantly impact this ratio as the gross revenues gross does non hold any important alteration in the last three old ages as shown in the tabular array:
Particulars
2008
2009
2010
Net Gross saless ( Rs in Billion )
125.91
130.83
142.57
From the figures in the tabular array demoing that there is undistinguished alteration in the value of gross revenues in the twelvemonth 2008 & A ; 2009 due to this plus turnover will non consequence because of these consequences.
But in twelvemonth 2010 the value of gross revenues increases 9 % which should impact the plus turnover but unluckily in this twelvemonth the value of fixed assets and current assets are increased excessively much that the consequence of the gross revenues is cancelled.
Redresss for Good Asset turnover:
The company should increase the value of its gross revenues as much so that the addition in plus will non upset the turnover.
Alternatively, the company should dispose of some of its non utile assets and use fewer assets expeditiously.
CURRENT RATIO
The current ratio measures the adequateness of current assets to run into the current liabilities as they fall due.
Current Ratio
Particulars
2008
2009
2010
Current ratio ( times )
3.72
4.01
3.46
Reasons for Change
As we know that these values of current ratios are extracted from the figures of current assets and current liabilities of the last three old ages, so we will discourse the alteration in the value of current assets and liabilities which will do these ratios to alter.
Table shows the value of current assets and Current liabilities from the last three old ages.
Particulars
2008
2009
2010
Current Asset ( Rs in Billion )
79.82
85.46
120.43
Current Liabilities ( Rs in Billion )
21.44
21.29
34.84
From the figures of 2008 & A ; 2009 we have seen that value of current liability was non altering but merely there is a alteration in the value of current assets which will do the addition in current ratio in 2009. But in 2010 the current ratio diminutions which is due to greater addition in the value of current liabilities increases 67 % while less addition in the current assets 41 % which will consequences in lower current ratio. If the value of current assets increases much more than current liabilities than current ratio will increase, but this do non go on in this twelvemonth.
ACID TEST RATIO
This is a portion of current ratio and is found by comparing liquid resources i.e. , hard currency and bank balance, readily salable securities and book debt with current liabilities.
A diminution in this ratio indicates overtrading which, if serious, may set down the company in troubles.
A good current ratio accompanied by a low quick ratio will bespeak a disproportionately high investing in stocks.
Acid trial Ratio
Quick ratio of OGDCL of the last three old ages is every bit follow in tabular array:
Particulars
2008
2009
2010
Quick ratio ( times )
2.94
3.25
3.03
As shown in the tabular array, the tendency in the speedy ratio is same as in the current ratio. So we should analyze the alteration in value of stock here.
Stock degrees in the last three old ages are as follows:
Particulars
2008
2009
2010
Stock In trade ( Rs in ‘000 ‘ )
151,782
108,301
172,084
These consequences show that stock in trade lessening in the twelvemonth 2009 which will ensue addition in the speedy ratio in this twelvemonth. As in the tabular array stock in trade lessenings 29 % from 08 to 09 and all of a sudden 59 % addition in the stock in trade from 09 to 10.
DEBTOR ‘S TURNOVER RATIO
Debtor ‘s turnover ratio establishes the relationship between recognition gross revenues and histories receivable.
A high debitor ‘s turnover ratio will intend that debts are being collected expeditiously. It is dependable step of the clip of hard currency flow from recognition gross revenues. A low debitor turnover ratio will state us that direction is executing inefficiently.
Debtors turnover =
Debtor ‘s turnover ratio of OGDCL of the last three old ages is shown in the tabular array as follow:
Particulars
2008
2009
2010
Debtors turnover ratio ( times )
3.66
2.70
2.05
From the figures we have seen that from the last three old ages the debitor ‘s turnover ratio is traveling to worsen. This will demo that debts are non being collected expeditiously. Hence it indicates a hapless recognition control.
Reason for Decline
There are several grounds for the worsening debitor ‘s turnover ratio, for illustration we should discourse here the value of recognition gross revenues and history receivable ( trade debts ) figures
The value of trade debts from the last three old ages are as follow:
Particulars
2008
2009
2010
Trade Debts ( Rs in ‘000 ‘ )
40,705,299
56,140,092
82,992,291
From the figures we have seen that the value of debts from 2008 to 2010 is about 51 % addition which is a immense addition in the value of debts this addition consequence on the debitor turnover ratio to worsen. The OGDCL, s direction allowed his debts to increase which is demoing their weak efficiency in their direction.
DEBTOR ‘S COLLECTION Time period
It shows the figure of yearss sale that remain ungathered on the norm. On comparing with the official recognition period, it would whether the debts are collected in clip or non.
Debtor ‘s aggregation period x 365
Debtors collection period of OGDCL from the last three old ages are as follow:
Particulars
2008
2009
2010
Debtors Collection Period ( Days )
100
135
178
From the debitors collection period there is 78 % addition in yearss of which the debt is to be collected from the twelvemonth 2008 to 2010, which is a immense addition and it shows us that debt of the company is collected in longer yearss in 2010 as compared to 2008. It will bespeak the hapless recognition control of the company.
Reason for Increase
The ground for the great addition in the debitors ‘ aggregation period is due to the important addition in the value of Trade debts which is 51 % addition from 2008 to 2010. The figures are shown in the old debitor ‘s turnover ratio.
Business Analysis
Business analysis is the set of undertakings and techniques used to work as a affair among stakeholders in order to understand the construction, policies and operations of an organisation, and to urge solutions that enable the organisation to accomplish its ends. It involves understanding how organisations function to carry through their intents and specifying the capablenesss an organisation to supply merchandises and services to external interest holders. It includes the definition of organisational ends, how those ends connect to specific nonsubjective, finding the classs of action that an organisation has to set about to accomplish those ends and aims, and specifying how the assorted organisational units and interest holders within and outside of that organisation interact.
Need to execute of a concern analysis:
Business analysis is performed to understand the current province of a company ( OGDC ) or to function as a footing for the ulterior designation of it ‘s concern demands. It besides defines and validate solutions that meet OGDC ‘s concern demands, ends and aims.
Techniques applied for concern analysis:
There are assorted concern techniques used to transport out the analysis. The major 1s used are:
SWOT analysis:
This is an effectual concern tool in transporting out a company ‘s internal and external analysis. Company ‘s internal analysis can be carried out looking at the Strengths and Weaknesses whereas external analysis requires looking at the Opportunities and Threats. OGDCL ‘s Strengths, Weaknesses, Opportunities and Threats have been looked at in this analysis which are as follows:
Strengths
OGDCL is the largest oil and gas company in Pakistan.
It has a monopoly and a great assurance in the Oil and Gas market due to Govt of Pakistan ‘s support.
It is besides listed on an International Stock Exchange.
OGDC has Dynamic & A ; Strong Financial Position due to the experience of four decennaries.
It holds nearby 50 blocks/ grant which are the tremendous combination among other oil and gas companies in Pakistan.
Paramount concern locations which are found after long procedure.
Best quality procedure and processs.
Experienced and proficient work force.
Invention of Wellss through adept Geologists.
Assurance of the clients.
The company is being expanded to other states of the universe like Yemen, Sudan, Iraq and Nigeria.
Failings
Unsatisfied work force: Recently there was a labor work stoppage at OGDCL which affected batch of its concern.
Lack of selling expertness.
Undifferentiated merchandises or services in relation to the rivals.
Lack of coordination of operations.
Government Influence.
For employees there is a slow publicity procedure which reduces the public presentation.
Lack of cheque and balance.
Opportunities
Traveling into new market sections that offer improved net incomes.
A developing market such as the Internet.
Amalgamations, joint ventures or strategic confederations.
A market vacated by an uneffective rival.
Large workshops for preparation and development.
Support of the Ministry of Petroleum and Natural Resources.
Better Competitive Position.
Menaces
Fear of Privatization.
Monetary value wars with rivals.
A rival has a new, advanced merchandise or service bends to tuff competition through globalisation which brings the strong companies in Pakistan.
Rivals have superior entree to channels of distribution.
POTER ‘S FIVE FORCES MODEL ANALYSIS
This theoretical account describes the OGDC in relation to its economic environment. The competitory place of an OGDC depends on five competitory forces. Together these forces determine the overall net income potency of the company. Although, looking at an single house, its ability to gain higher net income borders will be determined by conditions or non it can pull off the five forces more efficaciously than rivals. All five forces together provide a good overview of the company and can assist to gauge OGDCL ‘s farther net income potency. The five forces are discussed one by one:
Industrial Rivalry
This describes the strength of competition of a company between other companies. In instance of Oil and Gas Development Company Limited the major viing companies are National Refinery Limited ( NRL ) , Pak-Arab refinery limited ( PARCO ) and Pakistan Refinery Limited ( PRL ) . They are viing with OGDCL on the footing of their merchandises and pricing doing it heard for any new challengers to come in. The competition is intense because the OGDC is every bit sized plenty among these companies. Therefore, the exchanging cost of OGDC is comparatively low as the fixed cost is immense plenty which promote the rivals to make full fresh capacity by monetary value film editing. The exchanging cost in oil and gas industry is comparatively low.
Menace of Potential Substitute
Menace of utility exist in OGDC because the merchandise ‘s demand is affected by the monetary value alteration of a utility merchandise e.g. LNG replacing CNG. The monetary value snap of oil and gas merchandises like Petrol and CNG is affected by the replacement merchandises because more replacements are going available and the demand go more elastic since clients have more options such as CNG, LPG, and LSD etc. Because of the handiness of close replacement of oil and gas merchandise the company may raise monetary values. While the menace of replacements typically impacts OGDC through monetary value competition, there are other concerns in accessing the menaces of replacement like the replaceability of liquid oxygenated merchandises and bio-fuels versus gas, oil and Diesel.
The Bargaining Power of The Buyers
The major purchasers of OGDC ‘s merchandises are Attock Petroleum Limited ( APL ) , Pakistan State Oil Company LTD, Shell Pakistan LTD, Caltex Oil Pakistan LTD and Total Parco Pakistan LTD. The dickering power of the purchasers is weaker because they have the menace of forward integrating by the manufacturers like Saudi Arabian Oil Company ( SAUDI ARAMCO ) , British Petroleum ( BPP ) , etc who can take over their ain distribution or retailing. Significant purchaser exchanging cost which means purchaser can non easy exchange to another merchandise. Buyers are fragmented which means the purchasers have no peculiar influence on merchandise and manufacturer supply critical parts of purchasers input.
The Bargaining Power of The Suppliers
In resistance to OGDC the major providers of petroleum oil and natural gas are Saudi Arabian Oil Company ( SAUDI ARAMCO ) , E.N.I Pakistan LTD, B.H.P Petroleum, Pakistan Petroleum Limited, Orient Petroleum International Private Limited ( O.P.I ( PVT ) LTD ) , O.M.V Pakistan, and British Petroleum. Therefore, the providers are powerful they have an influence on bring forthing industry such as selling natural stuff at a higher monetary value to capture some of the industry net incomes. They can incorporate frontward. They have the information of their purchaser.
Menaces of New Entrants
Barriers to come in in Oil and Gas industry are originating from many beginnings. In instance of OGDCL ‘s which is Government keeping company, barriers are revenue enhancements, freight border, Petroleum Development Levy, patents and proprietarily cognition.
Note:
Beginnings which were fruitful in analysing the above described analysis are:
www.brecorder.com
www.accountancyforum.com
www.google.com
www.scribd.com

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