analysis of shell pakistan

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1. Introduction

Shell isasuperiorbrandnamewithovera100-yearhistoryinthesubcontinent.ShellinPakistan

hasplayedaleadingroleinabridgingthegrowingenergydemandgapinthecountryandhasa

stakeinPakistanRefinery,LPGdistributionandashareholdinginthewhiteoilpipeline.The

primarygoalofthecompanyistoposition itselfasthepreferredoilandGasCompanyin

Pakistan,leadingthefieldinitscommitmenttocustomerservice,qualityofproducts,safetyand

environmentalprotection.Overthelastdecade,ShellPakistanhasdevelopedarobustprogra

m

ofsocialinvestment,whichsupportsorganizationsandinitiativesinareasofhealth,education,

welfare, communitydevelopment, heritageandenvironment.

ShellPakistanLimited(ShellPakistan)isengagedinmarketingofcompressednaturalgasand

petroleum.The companyprovidesdifferenttypesoflubricatingoil.ShellPakistancatersto

businessesandmotorists.ThecompanyforbusinessesprovidesShellcards,aviationcustome

r

service,explorationandproduction,transport,liquefiedpetroleumgasandindustrialoperation

s forpower,automotiveand sugar.ShellPakistanfor

motoristsprovidescustomerservice,carcare

tips,shellHelixmotoroilandShelladvancemotorcycleoil.Thecompanyalsoparticipatesin

motorsportslikeformulaoneandMotoGPbytyingupwithAudi,FerrariandDucati.Shell

Pakistanisheadquarteredat Karachi,Pakistan.

Shell’srangeofinnovativeproductsisconstantlyexpanding,supportedbyextensiveresearch

anddevelopment.Withaneyeonthefuture,ShellhasevolvedwithanewidentityinPakistan.

TheoverallbrandpositioningtodayhasalsoevolvedinlinewiththeglobalthemeofMadeto

Move, which is symbolicof Shell’sendeavor for our customers,who are foreveron the

move.

Oureffortstopromotebusinessexcellencearenotjustlimitedtoourproductsandservices,but

arealsoincluded inthewaywedobusiness.Overthepastyear,ShellPakistanhasmade

commendablestridesinintroducingglobaltechnicalstandardsintotheindustry.In2009,Shell

Pakistanhad inductedeight such vehicles,withthe fleetexpectedto doublein number by

theend of2010.Inordertofurtherstrengthenandstreamlineourinternal

processesandtoincrease

efficiencies,ShellPakistanhasembarkedonShellGroup’sGlobal‘Downstream-

One’journey.TheultimategoalofDownstream-

Oneistoreducebusinesscomplexityandincreaseoperational efficiency in order to reduce

costs and increase competitiveness, while simultaneously enhancing customer

satisfaction. Shell Pakistan commenced its challenging Downstream-One journey with

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an introductory mobilization session in January 2010. With just over 21 months left for

our momentous Go-Live on 1st April 2012, Shell Pakistan is engaging and preparing its

stakeholders and businesses for the ensuing changes and benefits that will come from

moving to a truly global system. Shell Pakistan’s IT department contributed to

strengthening efficiencies within the organization in 2009-2010 by providing a

robust infrastructure for supporting our growing business. The capacity of our

international circuit was upgraded successfully to ensure a more reliable communication

network to support consolidated Shell systems. Shell Aviation also rolled out its global

Apron system at Karachi airport, which will allow real-time communication from the

apron to back-office IT systems. This is the first implementation of its kind for the

aviation industry in Pakistan.

a) Vision As Shell Pakistan Limited, we strive to deliver result, perform to the highest standards,

develop our people, provide quality customer service and actively pursue consistent

safety improvements.

A firm foundation based performance enables us to deliver strong returns and values

growth for our shareholders, greater and better choice 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 aspiration.

b) Mission 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.

c) Objectives 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.

Their role is to ensure that they extract and deliver them profitably and in

environmentally and socially responsible ways.

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A. Financial Leverage Ratio

i. Debt-to-Equity Ratio

Shows the extent to which firm is financed by debt

Formula= Total Debt/Total Equity

Debt-to-Equity Ratio SHELL 2011= 213,828+25,169,302/8,270,603=3.069

Year SHELL PSO PRL INDUSTRY

2011 3.069 6.351 13.943 7.788

2010 1.914 3.105 2.493 2.504

2009 2.088 2.569 2.056 2.238

2008 1.786 2.371 1.637 1.931

Internal comparison

Shell’s debt to equity ratio is rising and falling after every year it means they have

financed the debt according to the company needs.Shell Pakistan is using the mostly

equity financingrather than debt financing but in 2011 they use debt financing that’s why

ratio is increased.

External comparison

The debt to equity ratio shows the ratio of debt against equity in company’s capital

structure. The less the ratio of debt to equity is better to pay its debt by equity. The shell

has low debt to equity ratio than its competitor so it is better for shell. But it is still below

than industry average.

ii. Debt-to-Total-Assets Ratio

Shows the percentage of the firm’s assets that are supported by debit financing

Formula= Total Debt/Total Assets

Debt-to-Total-Assets Ratio SHELL, 2011= 213,828+25,169,302/33,653,733=0.754


2011 0.745 0.864 0.933 0.847

2010 0.657 0.756 0.714 0.709

2009 0.676 0.720 0.673 0.690

2008 0.641 0.703 0.621 0.655

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Internal comparison

The higher the debt ratio, the higher the degree of financial leverage that company has.

Shell’s debt to total assets ratio increased in absolute amount because of changing in

total assets which are financed by debt that’s why in 2011 a minor increase in debt ratio

is seen.

External comparison

The debt to total asset ratio shows that how the company finance their assets by equity

or debt. The Shell has the less debt to total asset ratio than its competitors and industry

average while the competitors finance their major portion of assets by debt.

iii. Total Capitalization Ratio

Shows the relative importance of long-term debt to long-term financing of the firm

Formula= Total Debt/LT-Debt + Equity

Total CapitalizationRatio SHELL, 2011= 213,828+25,169,302/33,653,733=0.754


2011 3.069 6.101 13.943 7.704

2010 1.617 3.023 2.493 2.378

2009 2.088 2.478 2.056 2.207

2008 1.786 2.290 1.637 1.904

Internal comparison

Shell’s total capitalization ratio is rising and falling after every year which means they

used long term debt when they needed. In 2011, 2009 and 2008 Shell’s capitalization

ratio is same as debt to equity ratio but in 2010 it fall down which tell us relative

importance of long term debt of firm. In 2010 they use long term financing.

External comparison

The Shell has the less total capitalization ratio than its competitors and industry average

due to less long term debtwhile the competitors finance their major portion by long term

debt.

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2. Problems Of Shell Pakistan

a) The Shell Pakistan has weaker the quick 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.

b) Shell Pakistan has less EBIT to cover interest charges.

c) 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. So the gross profit margin is decreased as

that of previous years.


huge operating cost i.e. taxes etc. because Shell is low leveraged firm as

compared to the industry. So the net profit margin is decreased.

The net profit after taxes of Shell Pakistan are not satisfactorily and they

have huge investment in equity financing as compared to the industry.

3. Actions by the Company to Overcome Problems

a) Shell Pakistan is improving the weaker quick ratios

It is improving the inventory management problem with Shell Pakistan.

It is improving the too high inventory of Shell Pakistan.

b) Shell Pakistan is improving the EBIT to cover interest charges if any that is why

Shell Pakistan is using very minute long term debt as compared to industry

ratios.

c) 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 and also improves

their sales.

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It is improving the too high cost of goods sold or they have huge operating

cost i.e. taxes etc. as compared to the industry. So it is improving its net

profit margin.

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. Our Suggestions that the Company Should Imitate

a) The Shell Pakistan should improve the weaker quick ratios

By improving inventory management problem with Shell Pakistan.

By improving too high inventory system

b) Shell Pakistan should improve EBIT by decreasing COGS to cover interest

charges and use very minute or no long term debt.

c) There are some other problems with the profitability ratios which Shell Pakistan

should improve

The cost of goods sold may be too high or they have huge investment in

the assets. They can improve their profitability ratio by two ways either

they can reduce COGS or improve pricing policy


huge operating cost i.e. taxes etc. they can improve profitability by using

debts.

Shell is low leverage firm that’s why paying high taxes and low net profit

after tax shell should use debt to avoid high taxes

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5. Upcoming Global Challenges For Shell Pakistan

Balancing short and long term interests

Over staffing problem

Global financial crisis

Shortage of raw material

Globally growing fuel requirements

Shortage of sources

Energy crisis

Demand and supply issues

Globally competition

Taxes rate

Trade policies of different countries

Unemployment issues

Foreign exchange issues.

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6. Summary of the Analysis

FINANCIAL LIVERAGE RATIOS

Debt-to-Equity 3.069 1.914 6.351 3.105 13.943 2.49

Debt-to-total-assets 0.754 0.657 0.864 0.756 0.933 0.71

Total capitalization ratio 3.069 1.617 6.101 3.023 13.943 2.49

FINANCIAL LIVERAGE RATIOS

Debt-to-Equity 2.088 1.786 2.57 2.37 2.06 1.6

Debt-to-total-assets 0.676 0.641 0.72 0.7 0.67 0.6

Total capitalization ratio

2.088 1.786 2.48 2.29 2.06 1.6

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7. APPENDIX

A. Shell balance sheet and income statement

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B. PSO balance sheet and income statement

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C. PRL balance sheet and income statement

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8. REFERENCES

WWW.GOOGLE.COM

WWW.KSE.COM.PK (PERSONEL VISIT)

WWW.PSOPK.COM(EMPLOY)

WWW.SHELL.COM(PERSONEL VISIT)

WWW.WIKIPEDIA.COM

http://www.google.com/

http://www.kse.com.pk/

http://www.psopk.com/

http://www.shell.com/

http://www.wikipedia.com/

analysis of shell pakistan

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