Financial Ratio Analysis: Pakistan State Oil Essay

In 2011, company is more liquid than other dickens years this is due to increase of Rs 983917 in actual summation from 2010 to 2011. And in 2011 to 2012 there is decrease of Rs 227300 in current asset. Quick Ratio is high in 2012 because stock-in-trade i.e. inventory decreases by Rs. 6854599 in 2012. Fixed Asset turnover is higher it means company has utilized its fixed assets more efficiently as comparing to other period. Debt ratio and debt to equity ratio render that Company is more leveraged in 2012 than other periods.This higher leverage in part explains Companys myopic financial performance of 2012 relative to 2011 because the leverage commits Companys interest payments that must be paid regardless of economic and market conditions. The ratios indicate that Companys has a higher cost of sales in 2012 than the 2011.In 2012 Companys has a better liquidity position, with both the current ratio and the quick ratio being higher than other years. In 2012, total assets are highe r than other two years and its fixed asset turnover is significantly higher than other year. Alternatively, the poor fixed asset turnover may indicate overcapacity caused by extremely poor forecasts of future sales. Or, the poor ratio may indicate a fundamental inability or inefficiency in using the deployed assets. Keep in mind, though, that the debt ratios used in the ratio summary above used total liabilities as a measure of debt. In contrast, capital structure analysis focuses specifically on long-term debt in cypher leverage.DuPont System of Financial AnalysisThe DuPont analysis is similar with analyzing ratios Company has an advantage in its leverage ratio in 2012 (Assets to Equity 6.95 compared to 6.26 and 6.89) and in its use of assets in 2010 (Total Asset Turnover of 4.93 compared to 4.19 and 3.9), yet has a poorer return on equity due to its low net profit margin. While one would expect a somewhat lower net profit margin for a firm with a higher leverage ratio (the firm has to pay interest to religious service the debt that gives the higher leverage ratio).ReferencePSO Annual Report 2012 and 2011