a) Introduction of company

Oil and Gas Development Company Limited (OGDCL), 'the Company', was incorporated on 23
October 1997 under the Companies Ordinance, 1984 (now the Companies Act, 2017). The
Company was established to undertake exploration and development of oil and gas resources,
including production and sale of oil and gas and related activities formerly carried on by Oil and
Gas Development Corporation. The registered office of the

Company is located at OGDCL House, Plot No. 3, F-6/G-6, Blue Area, Islamabad, Pakistan. The
shares of the Company are quoted on Pakistan Stock Exchange Limited

b) Opinion on Financial Statements

CORPORATE FINANCE

(NAME)
Financial Statements for the year ended 30 June 2019 of Oil and Gas Development Company
Limited were audited by A. F. Ferguson & Co. & KPMG Taseer Hadi & Co.They have given an
unqualified opinion on the audit report which means that the financial statements present a true
and fair view.

c) Corporate Social Responsibility initiatives

Following are some of the corporate social responsibility initiatives taken by Oil and Gas
Development Company Limited;

— OGDCL Board approved an amount of Rs 114.896 million against own initiative fund for
OGDCL National Talent Hunt Program 2018 for scholarships of 300 students in six months
foundation semester from Gilgit Baltistan, KPK, Punjab, Baluchistan and Sindh and 100
students in 4 year Regular Bachelors (Hons) program at Sukkur IBA observing district quota
and preference seats for OGDCL production districts. 186 students have been qualified for
the regular program scholarship.

— After massive awareness/promotion campaigns, 27 eye camps in company’s operational areas

have been concluded providing 35,914 OPDs, 27,056 medicines, 18,716 glasses, 4,650
special glasses and 3,378 surgeries.

— The MOU shall remain effective for 3 years. During this time period, 45 Mammography
screening Camps

d) Governance Mechanism

Oil and Gas Development Company Limited is controlled by the following core management
team;

— Mr. Irteza Ali Qureshi (Chief Financial Officer)

— Dr. Naseem Ahmad (Managing Director/CEO)

— Dr. Mohammad Saeed Khan Jadoon (Executive Director-Exploration)

— Mr. Muhammad Aamir Salim (Executive Director-Petroserve)

— Mr. Jahangaiz Khan (General Manager – Incharge Production)

— Mr. Ahmed Hayat Lak (Company Secretary/General Manager-Legal Services)

— Mr. Muhammad Shoaib Baig (Executive Director-Human Resource/Admin)

— Mr. Masood Nabi (Executive Director-Business Development & Joint Venture)

Incentives

Following are some of the incentives provided;

— Awards are paid to employees on start of commercial production and new discoveries of
natural resources. Bonus includes performance bonus with respect to officers and for staff
under section 10-C of the West Pakistan Industrial and Commercial Employment (standing
orders) Ordinance 1968.

— The employees of the Company have option to avail car facility as per the entitlement policy
of the Company

e) Acquisition of new assets

Particulars Amount Depreciation Method

Buildings, offices and roads on freehold land 54,599,000 2.5-8% reducing balance
Buildings, offices and roads on leasehold land 265,939,000 2.5-8% reducing balance
Plant & Machinery 16,856,552,000 4-20% reducing balance
Rigs 143,776,000 10% reducing balance
Pipelines 613,712,000 10% reducing balance
Office & Domestic Equipment 44,599,000 15% reducing balance
Office & technical data computers 115,400,000 33.33% reducing balance
Furniture & fixtures 7,328,000 10% reducing balance
Vehicles 64,922,000 20% reducing balance

f) Beta for the firm

The beta of Pioneer Cement Ltd is 1.01

g) Comment of Deferred Tax Account

OGDCL has recognized deferred tax liability on the basis of following taxable/deductible
temporary differences;

— Accelerated depreciation on property, plant and equipment

— Expenditure of prospecting, exploration and evaluation and development and production

assets

— Provision for decommissioning cost

— Long term investment in associate

— Provision for doubtful debts, claims and advances

— Provision for slow moving and obsolete stores

— Unrealized exchange gain – net

— Others

h) Ratio Analysis

 Cash Ratio

Cash ratio is the measure of the company’s ability to pay off its current liabilities with only cash
& cash equivalents.

Cash ratio of Oil and Gas Development Company Limited is calculated as follows;

Cash Ratio = Cash + Cash Equivalents

Total Current Liabilities
Cash Ratio = 20,569,709,000+74,726,436,000+ 113,770,186,000
72,643,471,000
Cash Ratio = 2.88

 Quick Ratio
 Quick ratio is the measure of the company’s ability to pay off its current liabilities by readily
available cash and cash equivalents.

Quick ratio of Oil and Gas Development Company Limited is calculated as follows;

Quick Ratio = Cash + Cash equivalents - Short term investments + Current receivables
Current Liabilities
Quick Ratio = 20,569,709,000+242,731,940,000+7,762,428,000
72,643,471,000
Quick Ratio = 3.73

 Current Ratio

Current ratio is the measure of the company’s ability to pay off its current liabilities with current
assets.

Current ratio of Oil and Gas Development Company Limited is calculated as follows;

Current Ratio = Current Assets

Current Liabilities
Current Ratio = 509,785,826,000
72,643,471,000
Current Ratio = 7.01

 Account Receivable Turnover

Account Receivable turnover measures how long do a company takes to convert its receivables
into cash.

Asset Receivable Turnover of Oil and Gas Development Company Limited is calculated as
follows;

Asset Receivable
Net credit sales
Turnover Ratio =
 Average accounts receivable
Asset Receivable
261,481,188,000
Turnover Ratio =
(242,731,940,000+163,691,820,000+7,762,428,000+452,987,000)/2
Asset Receivable
1.26
Turnover Ratio =

 Days sale outstanding

Days sale outstanding measures the average number of days of collection from receivables.

Days sale outstanding of Oil and Gas Development Company Limited is calculated as follows;

Days sale outstanding = Accounts receivable x 365

Net Credit Sales
Days sale outstanding = (242,731,940,000+7,762,428,000) x 365
261,481,188,000
Days sale outstanding = 349.66

 Inventory turnover

Inventory turnover depicts how well inventory is managed in a company by comparing cost of
goods sold with average inventory for a period.

Inventory turnover of Oil and Gas Development Company Limited is calculated as follows;

Inventory turnover = Cost of Goods Sold

Average inventory
Inventory turnover = 94,419,625,000
(446,645,000+346,829,000)/2
Inventory turnover = 238

 Days sale in inventory

 Number of days the company will take to sell its entire inventory is termed as Days sale in
inventory

Days sale in inventory of Oil and Gas Development Company Limited is calculated as follows;

Days sale in inventory = Inventory x 365

Cost of goods sold
Days sale in inventory = 446,645,000 x 365
94,419,625,000
Days sale in inventory = 1.73 days

 A/C payable turnover

Ability of the company to pay off its Accounts Payables is termed as A/C Payable Turnover

A/C Payable turnover of Oil and Gas Development Company Limited is calculated as follows;

A/C Payable Turnover = Total purchases

Accounts payable
A/C Payable Turnover = 94,419,625,000
2,275,190,000
A/C Payable Turnover = 41.5

 Days payable

Average time taken by company to settle of its bills and invoices to other company and vendors
is termed as Days Payable.

Days payable of Oil and Gas Development Company Limited is calculated as follows;

Days Payable = 365

Accounts Payable Turnover
Days Payable = 365
41.5
 Days Payable = 8.8

 Cash conversion cycle

Time taken by company to convert its investment in assets into cash is termed as Cash
Conversion Cycle.

Cash conversion cycle of Oil and Gas Development Company Limited is calculated as follows;

Cash conversion cycle = Days inventory outstanding + Days sale outstanding – Days Payable

Cash conversion cycle = Days inventory outstanding + Days sale outstanding – Days Payable
Cash conversion cycle = 349.66+1.73-8.8
Cash conversion cycle = 342.59

 Asset turnover ratio

Company’s ability to generate sales from its assets is termed as Asset turnover ratio.

Asset turnover ratio of Oil and Gas Development Company Limited is calculated as follows;

Asset turnover ratio = Net Sales

Average total assets
Asset turnover ratio = 261,481,188,000
(766,597,190,000+666,477,197,000)/2
Asset turnover ratio = 0.37

 Gross Margin

Gross margin ratio compares gross margin and net sales of the company.

Gross Margin Ratio of Oil and Gas Development Company Limited is calculated as follows;

Gross Margin Ratio = Gross profit

Net sales
 Gross Margin Ratio = 167,061,563,000
261,481,188,000
Gross Margin Ratio = 0.63

 Net Profit Margin

Amount of income earned with each sale is termed as net profit margin ratio

Net Margin Ratio of Oil and Gas Development Company Limited is calculated as follows;

Net Margin Ratio = Net Income

Net sales
Net Margin Ratio = 118,385,788,000
261,481,188,000
Net Margin Ratio = 0.45

 Return on Assets

Net income produced by total assets is termed as return on assets.

Return on assets ratio of Oil and Gas Development Company Limited is calculated as follows;

Return on assets Ratio = Net Income

Average Total Assets
Return on assets Ratio = 118,385,788,000
(766,597,190,000+666,477,197,000)/2
Return on assets Ratio = 0.17

 Return on Capital Employed

Efficiency of a company to generate profits from capital employed.

Return on capital employed ratio of Oil and Gas Development Company Limited is calculated as
follows;
 Return on capital employed ratio = Net Operating profit
Total assets-Current Liabilities
Return on capital employed ratio = 176,599,413,000
766,597,190,000-72,643,471,000
Return on capital employed ratio = 0.25

 Return on Equity

Ability of the company to generate profits from investment of shareholders.

Return on equity ratio of Pioneer Cement Ltd is calculated as follows;

Return on equity ratio = Net income

Shareholder’s equity
Return on equity ratio = 118,385,788,000
43,009,284,000
Return on equity ratio = 2.75

 Debt Ratio

The measure of total liabilities as a percentage of its total assets.

Debt ratio of Pioneer Cement Ltd is calculated as follows;

Debt ratio = Total liabilities

Total assets
Debt ratio = 68,588,471,000+72,643,471,000
766,597,190,000
Debt ratio = 0.18

 Debt/Equity Ratio

Comparison of a company’s total equity to its debts is debt to equity ratio.

Debt ratio of Pioneer Cement Ltd is calculated as follows;

Debt/Equity ratio = Total liabilities

Total equity
Debt/Equity ratio = 68,588,471,000+72,643,471,000
625,365,248,000
Debt/Equity ratio = 0.23

 Earnings Per Share

Amount of income earned per share is termed as EPS

EPS of Pioneer Cement Ltd is calculated as follows;

EPS = Net Income-preferred dividends

Weighted average common shares outstanding
EPS = 118,385,788,000
4,300,928,400
EPS = 27.52

 Price / Earnings Ratio

Market value of a stock relative to its earnings is called price/earnings ratio.

Price earnings ratio of Pioneer Cement Ltd is calculated as follows;

Price earnings ratio = Market value price per share

EPS
Price earnings ratio = 131.49
27.53
Price earnings ratio = 4.78

 Dividend Payout Ratio

 Percentage of net income distributed among shareholders in the form of dividends.

Dividend payout ratio of Pioneer Cement Ltd is calculated as follows;

Dividend payout ratio = Total dividends

Net income
Dividend payout ratio = 94,620,424,000
118,385,788,000
Dividend payout ratio = 0.799

 Dividend Yield

Amount of cash dividend distributed among shareholders relative to market value per share.

Dividend yield of Pioneer Cement Ltd is calculated as follows;

Dividend yield = Cash dividends per share

Market value per share
Dividend yield = 8.5
131.49
Dividend yield = 0.07

i) Conclusion

Company has excellent liquidity ratios and have more than enough assets to cover up its
liabilities. Moreover, turnover ratios are also satisfactory and as per the market norms. Company
is enjoying satisfactory profit ratios, and this enables company to provide high ROCE and ROE.
OGDCL is a low geared company as indicated by the debt ratio.