Dividend payout ratio: The dividend payout ratio is the amount of dividends paid to stockholders relative to the amount of total net income of a company. The payout ratio is a key financial metric used to determine the sustainability of a company's dividend payments. Formula: Dividend Payout Ratio = Dividend Per Share Diluted Earnings Per Share Calculations: 2019 2018 7 . 45.2 = 0.15 => 15% No dividend declared in 2018 so no dividend payout ratio. Interpret ation: A lower payout ratio is generally preferable to a higher payout ratio, with a ratio greater than 100% indicating the company is paying out more in dividends than it makes in net income In 2015 company payout ratio is 8% while that of in 2014 company hadn’t announced any dividends. Dividend yield A financial ratio that indicates how much a company pays out in dividends each year relative to its share price. Dividend yield is represented as a percentage and can be calculated by dividing the dollar value of dividends paid in a given year per share of stock held by the dollar value of one share of stock. Formula: Dividend yield = dividend per share Market price per share Calculations: 2015 2014 No dividend declared in 2014 so no dividend yield. 6 . 454 = 0.013 => 1.3% Interpretation: In 2015 company had dividend yield of 1.3% against market price of per share. But in 2014 company wasn’t announced any dividend so there was no dividend to elaborate the analysis. This shows that how much a company pays out in dividends each year relative to its share price. So 1.3% is showing that company is not performing well to full fill the required rate by share holders. That’s the reason company wasn’t announced dividends last year. Book value per share: Book value per share ratio determines the value of an equity in an organization relative to a market’s will provide a comparative analysis between book value and market value in book value per share analysis should consider common share holder and their equity on the whole.ttashare holder equity –proffered share convert in common shareholder equity. Formula: total stockholder equity – preferred stock equity # Of common share outstanding Calculations: 2014 2015 168088188000 179,059,805,000 271,685,939 271,685,939 = 659.06 = 618.6 Interpretation: With this ratio we depict that during the year company book value is increase that investors may view the stock as more valuable, and the stock price increases. In 2015 the company’s equity increase thus increase in book value in 2015. Investor ratio summary Ratio 2015 2014 Earnings per share: 68.8 84.9 Price earnings ratio 6.6 6.08 Dividend payout ratio 8% - Dividend yield 1.3% - Book value per share 659.06 618.6 Company’s Leverage: These ratios measures investor response to owning company stock and also the cot of issuing the stock market ratio and concerned will the return and value of investments. Profitability calculated that measure the amount of income each share will receive if all of the constable security like (share option right purchase common share, bound, prefer stock that will convert to common stock on basic earnings per share. In 2015 company’s earnings per share decreases which means company’s worth decreases and net income decreases during the year. In 2015 company payout ratio is 8% while that of in 2014 company hadn’t announced any dividends. During the year company book value is increase that investors may view the stock as more valuable, and the stock price increases. In 2015 the company’s equity increase thus increase in book value in 2015 PROFITIBILITY RATIO: Profitability ratios compare income statement accounts and categories to show a company's ability to generate profits from its operations. Profitability ratios focus on a company's return on investment in inventory and other assets. These ratios basically show how well companies can achieve profits from their operations. Investors and creditors can use profitability ratios to judge a company's return on investment based on its relative level of resources and assets. In other words, profitability ratios can be used to judge whether companies are making enough operational profit from their assets. In this sense, profitability ratios relate to efficiency ratios because they show how well companies are using their assets to generate profits. Profitability is also important to the concept of solvency and going concern. Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate earnings compared to its expenses and other relevant cost incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or relative to the same ratio from a previous period indicates that the company is doing well. Some industries experience seasonality in their operations. The retail industry, for example, typically experiences higher revenues and earnings for the Christmas season. It would not be useful to compare a retailer's fourth-quarter profit margin with its first-quarter profit margin.. Some profitability ratio is as follows: o Profit ratio: o Net profit margin: o Return on Asset ratio o Total asset turnover ratio o DUPOUNT analysis o Return on equity o Operating Margin Ratio Profit ratio: The net profit percentage is the ratio of after-tax profits to net sales. It reveals the remaining profit after all costs of production, administration, and financing have been deducted from sales, and income taxes recognized.It is one of the best measures of the overall results of a firm, especially when combined with an evaluation of how well it is using its working capital. The measure is commonly reported on a trend line, to judge performance over time. It is also used to compare the results of a business with its competitors Net profit margin: Net profit margin is ratio that shows segregated relation related to company's net profit and its revenue. this ratio shows how much money is collected by company as revenue and which transmitted into profit. The higher ratio of net profit margin will be considered as better. Formula: Net profit Margin = Net profit Net sales Calculations 2015 2014 26413442000 25025071000 206205987000 200653482000 = 0.121 = 0.1316 Interpretation: The measure is commonly reported on a trend line, to judge performance over time. It is also used to compare the results of a business with its competitors. Here the net profit ratio show that company’s profit decreases during the year. While sales is also deceases but the decrease in sales is less than the decrease in net profit. Return on Asset ratio Return on asset ratio is an indicator of how profitable a company is relative to its total asset this ratio will indicate the efficiency of management in utilizing the asset to generate revenue. Higher to return on asset the better will be the indication about company circumstances because in this situation the company is gaining more profit against lesser investment Formula: = Net income Total Asset Calculations: 2015 2014 26413442000. 124,814,725,000 25025071000 115,146,026,000 =0.11 =0.112 Interpretation: Higher the return on asset better will be the company conditions and position in market. Here with is analysis we depicts that un 2015 company’s return on asset is decrease thus showing that company is facing bad circumstances and need to improve its condition. Total asset turnover ratio: Total asset turnover ratio is ratio of the value of the company's sales or revenue generated relative to the value of its assets. This ratio indicate how efficiently the management is replying its assets to generate maximum sales A higher asset turnover ratio is always considered as favourable because it indicates the efficient utilization of assets.Lower asset turnover ratio indicates the inefficiently and pour management of organization Formula: Total asset turnover ratio= Net Sales . Average total Asset Calculations: 2015 2014 200653482000 236301239500 = 0.849 ation: 206205987000 222248988000 =0.927 Interpret Higher the asset turnover better the company’s position and management of assets while lower the turnover inefficient and poor the management of assets in the company. In 2015 company show lower turnover then 2014 that means company is not managing it efficiently and it needs to improve. DUPOUNT analysis: (return on asset) This analysis advised by DuPont also known as DuPont model. This analysis indicates the financial position of an organization by considering three elements 1. Profit Margin 2. Total Asset turnover 3. Financial leverage DuPont analysis breaks down the return on equity to expand it for calculation and utilization of return for investor .Moreover DuPont analysis is the combination of multiplication of operating income margin and total asset turnover which will result exactly equal to return on an asset of an organization. This model is derived to analyze different performance measure. Formula: Return on asset = Net profit margin x Total Asset Turnover Calculations: 2015 2014 0.13 x 0.849 0.121 x 0.927 = 0.11 = 0.1121 Interpretation: This analysis ensures the correctness and preciseness on previous calculated ratio, such as asset turnover and net profit margin and return on asset. Also we depicts that the company performance is decrease during the year as its ratios are showing downward trend. So company should focus on maintain and efficient utilization of assets. Return on equity Return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders haveinvestor Formula: Return on equity ratio = Net income S.H equity Calculation: 2015 2014 26,413,442,000 179,059,805,000 25,025,071,000 168,088,188,000 =0.147 = 0.148 Interpretation: This ratio shows the return on equity. During the year 2014 company return on equity was 14.8% while that in 2015 its 14.7% it is a minor and slightly change but show decreases in return. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders has investor Operating Margin Ratio The operating ratio is a financial term defined as a company's operating expenses as a percentage of revenue. This financial ratio is most commonly used for industries which require a large percentage of revenues to maintain operations. The operating ratio shows the efficiency of a company's management by comparing operating expense to net sales. Formula Operating ratio = Operating income Net sales Calculations: 2015 = 26,413,442,000 200,653,482,000 2014 = 26,026,071,000 206,205,987,000 = 0.13 = 0.12 Interpretation: The smaller the ratio, the greater the organization's ability to generate profit. If revenues decrease. When using this ratio, however, investors should be aware that it doesn't take debt repayment or expansion into account. Gross profit Margin: Gross profit margin is a financial metric used to assess a company's financial health and business model by revealing the proportion of money left over from revenues after accounting for the cost of goods sold (COGS). Gross profit margin is also known as gross margin. Formula Gross Profit Margin =Gross Profit Net sales Calculations: 2015 2014 77171384000 77927187000 200653482000 206205987000 =0.38 =0.733 Interpretation: The gross profit of company is decreases in 2015 this shows that company is facing such circumstances in which it is unable to generate it profit. Profitability Ration Summary: Ratio 2015 2014 Net profit margin 0.1325 0.121 Return on Asset ratio 0.11 0.112 Total asset turnover ratio 0.849 0.927 Return on equity 0.147 0.148 Operating Margin Ratio 0.13 0.12 Gross profit Margin 0.38 0.733 Interpretation: As per analysis of PSO Company the overall performance of this organization is averagely to mark. Because this organization is not attaining its economies of scales and not performing business activities efficiently. The Return on Asset is constant during the year there is no improving in this regard. And a decrease in Total asset turnover ratio shoeing company is not maintaining its asset and utilization of assets are not efficiently that’s why there is no improvement in company performance. DebtRatio (long Term debt analysis) Long-term debt is a financial obligation for which payments will be required after one year from the measurement date. This information is used by investors, creditors, and lenders when examining the long-term liquidity of a business. Long-term debt is classified in a separate line item in a company's balance sheet. Examples of long-term debt are those portions of bonds, loans, and leases for which the payment obligation is at least one year in the future. For a firm being financially sustainable means being able to carry its debt.Usually, the debt ratio analysis is being applied to a company by potential creditors to see, how creditworthy it is and analyze its willingness and ability to pay the debt. Generally, greater amount of company’s debt means greater financial risk of its bankruptcy. Long-term debt paying ability of a firm can be viewed as indicated by the income statement and by the balance sheet. Time Interest Earned The times interest earned ratio, sometimes called the interest coverage ratio, is a coverage ratio that measures the proportionate amount of income that can be used to cover interest expenses in the future. In some respects the times interest ratio is considered a solvency ratio because it measures a firm's ability to make interest and debt service payments. Since these interest payments are usually made on a long-term basis, they are often treated as an ongoing, fixed expense. As with most fixed expenses, if the company can't make the payments, it could go bankrupt and cease to exist. Thus, this ratio could be considered a solvency ratio. Formula Times interest earned ratio = Income before Interest and Taxes Interest Payment Calculation: 2015 2014 26,413,442,000 25,025,071,000 692,940,000 776,511,000 = 34.01 =36.11 Interpretation: This ratio is associated with solvency ratio. it indicates a firms long-term debt paying ability . it show how many times company could pay the interest and taxes. Higher the value more the favourable will be the company condition. Here in PSO Company the ratio value decrease that means company ability is decrease during the year. In 2014 company pays 36 times while in 2015 it 34 times. Fixed Charge Coverage The fixed charge coverage ratio is used to examine the extent to which fixed costs consume the cash flow of a business. The ratio is most commonly applied when a company has incurred a large amount of debt, and must make ongoing interest payments. If the resulting ratio is low, it is a strong indicator that any subsequent drop in the profits of a business may bring about its failure. The ratio is typically used by lenders evaluating an existing or prospective borrower. To calculate the fixed charge coverage ratio, combine earnings before interest and taxes with any lease expense, and then divide by the combined total of interest expense and lease expense. This ratio is intended to show estimated future results, so it is acceptable to drop from the calculation any expenses that are about to expire. Formula Fixed charge coverage = Income before interest and taxes Fixed charges ‘ Calculations: 2015 2014 26,413,442,000 = 1,597,045,000 = 16.53 25,025,071,000 1,239,933,000 = 20.18 Interpretation: This ratio tells how many times greater the firm income compared with its fixed charges. Higher the ratio better will be the company positioning to meet their financial challenges. Here in PSO Company fixed charge coverage ratio deceases during the year as it up to the mark but decrease from last year means company is not improving its condition. Debt Ratio Debt ratio is a solvency ratio that measures a firm's total liabilities as a percentage of its total assets. In a sense, the debt ratio shows a company's ability to pay off its liabilities with its assets. In other words, this shows how many assets the company must sell in order to pay off all of its liabilities.This ratio measures the financial leverage of a company. Companies with higher levels of liabilities compared with assets are considered highly leveraged and more risky for lenders. This helps investors and creditors analysis the overall debt burden on the company as well as the firm's ability to pay off the debt in future, uncertain economic times. Calculations: 2015 2014 = 63,119,716,000 = 62,334,770,000 242,179,512,000 = 0.26 230,422,958,000 = 0.27 Formula Debt Ratio =Total Debt Total Asset Interpretation: Lower the ratio better will be the company conditions. In PSO company last two year analysis we depicts that company has enough assets to pay its debt against its assets. Debt/ Equity Ratio: The debt to equity ratio is a financial, liquidity ratio that compares a company's total debt to total equity. The debt to equity ratio shows the percentage of company financing that comes from creditors and investors. A higher debt to equity ratio indicates that more creditor financing (bank loans) is used than investor financing (shareholders). Formula Debt to equity ratio = Total Debt. Share Holder Equity Calculations: 2015 2014 63,119,716,000 62,334,770,000 172,949,711,000 151,259,397,000 = 0.364 = 0.41 Interpret ation: In this ratio company evaluates the financing. Favourable conditions vary company to company. Here the equity increases during the year. And minor increase in debt also. Here in PSO Company there is a decrease in value of ratio which shows that company is in better position making more equity financing then debt financing. Debt to Tangible Net Worth Ratio A ratio indicating the level of creditor's protection in case of the firm’s insolvency by comparing company’s total liabilities with shareholder’s equity. This is a more conservative indicator comparing to debt to equity ratio, because intangible assets not always have value when a company is going through the process of liquidation. For instance, if the trademark is not planned for use by any of other firms, its value would equal zero. In this case funds obtained from intangible assets sale can't be used for covering the liabilities to creditors. Eliminating intangible assets from computation is very important for analysts in terms of measuring the real debt-paying ability of a firm. Formula Debt to Tangible Net Worth Ratio= Total Liabilities . Shareholder's Equity - Intangible Assets Calculations: 2015 2014 63,119,716,000 62,334,770,000 151,259,397,000 172,949,711,000 = 0.36 = 0.41 Interpretation: This ratio shows how well creditor are protected and getting their desire return. And what if company is winding up then how is it paying the creditor. Here the paying condition of company is decreasing which is a alarming condition for company. Debt Ratio Summary Ratio 2015 2014 Time interest Earned 34 36 Debt ratio 0.26 0.27 Fixed charge Coverage ratio 16 20 Debt to equity ratio 0.364 0.41 Debt to tangible ratio 0.36 0.41 Interpretation: Here in PSO Company the ratio value decrease that means company ability is decrease during the year. In 2014 company pays 36 times while in 2015 it 34 times. Here in PSO Company fixed charge coverage ratio deceases during the year as it up to the mark but decrease from last year means company is not improving its condition. The debt to equity ratio shows the percentage of company financing that comes from creditors and investors. A higher debt to equity ratio indicates that more creditor financing (bank loans) is used than investor financing (shareholders). These ratios shows how well creditor are protected and getting their desire return. And what if company is winding up then how is it paying the creditor. Here the paying condition of company is decreasing which is a alarming condition for company. Horizontal Analysis: The horizontal analysis compares specific items over a number of accounting periods. This analysis helps the financial managers to compares ratios or line items in a company’s financial statements over a certain period of time. Horizontal analysis looks at the trend of financial statements over multiple periods, using a specified base period. Horizontal analysis typically shows the changes from the base period in dollar and percentage. The percentage change is calculated by first dividing the dollar change between the comparison year and the base year by the item value in the base year, then multiplying the quotient by 100%. Horizontal analysis of Income statement:(Base year 2014) Item 2015 2014 Net sales 97% 100% Cost of goods sales 96% 100% Gross profit 99% 100% Operating expenses 96% 100% Operating profit 109% 100% Income before interest and tax 105% 100% Interest expense 130% 100% Income tax 154% 100% Net income 80% 100% Horizontal Analysis Of balance sheet: Item 2015 2014 Current asset 108% 100% Non Current assets 101% 100% Total assets 105% 100% Current Liabilities 97% 100% Noncurrent liabilities. 122% 100% Total liabilities 101% 100% Total equity 114% 100% Interpretation: According to data given as above we see that net sales during the year 2015 is smaller than 2014 that is3% decrease, cost of Goods sold decreases by 4%, gross profit decrease by 1% . If we talk about expenses horizontal analysis during the year then operating expenses also decreases by 4%. and operating profit increases 9% from 2014 to this year. Income before interest and tax increases n 2015 as of 5%, interest expense increase 30%, income tax increases 54%. At the end if we analyze the net income horizontally then e can find that the income during the year decreases which is alarming condition for the PSO company. It decreases by 20%. Current assets, noncurrent assets total assets are increasing in 2015, similarly equity and liabilities are also increases. While the current liabilities decreases 3% in 2015. The over experience of the company from 2014 to 2015 is not well. As it needs to improve the policies and strategies to increase its profitably. Vertical Analysis: This Analysis helps the Financial Analyst to compare the different items of financial statements the term vertical describes the way of doing the analysis as it enables to compare items in same year. This technique also known as component percentage produces common size financial statements. And these financial statements are more easily comparable Vertical analysis is a method of financial statement analysis in which each entry for each of the three major categories of accounts, or assets, liabilities and equities, in a balance sheet is represented as a proportion of the total account. Vertical analysis is also used across other financial statements as a percentage measure. Vertical Analysis Of Income Statement:(Base for analysis is sale) Item 2015 2014 Net sales 100% 100% Cost of goods sales 61% 62% Gross profit 38% 37% Operating expenses 86% 87% Operating profit 14% 12.6% Income before interest and tax 13% 12.1% Interest expense 0.38% 0.287 Income tax 3.4% 2.1% Net income 9.3% 11.1% Vertical Analysis Of balance sheet: Item 2015 2014 Total assets (As base) 100% 100% Non Current assets 48.4% 50.1% Current asset 51.5% 49% Total liabilities (as Base) 100% Noncurrent liabilities. Current Liabilities Total asset(as base) 100% 19.9% 26% 80% 83% 100% 100% Total equity 71% 27% Total liabilities 26% 72.9% Interpretation: In the above vertical analysis of income statement we observe that putting the net sales constant the CGS decreases by 1% during the year and gross profit also increases by 1%. Operating expenses decreases by 1% while the operating profit is showing 2% increases in 2015. Net income of PSO in 2015 while doing the vertical analysis putting sales constant is showing decrease by 2.7%. In vertical analysis of balance sheet we can observe that the current asset are showing increase of 2% while that of noncurrent assets showing decrease in 2015 as of 2%. Company is also changes its policies regarding financing from debt or equity in 2015 the PSO company is focusing on equity financing rather than debt financing Cross Analysis: We have choose Shell for the cross analysis within the petroleum industry. so following are the cross ratio analysis for PSO with shell. Liquidity Ratio: Current Ratio 2015 2014 PSO 2.47 2.213 Shell 0.83 0.85 Interpretation: PSO has better results than Shells because PSO current ratio is up to the mark in both years while the shell is low in both years. So we can say that PSO is maintaining its current assets and liabilities efficiently. Acid test ratio 2015 2014 PSO 1.24 1.88 Shell 0.34 0.83 Interpretation: The acid test ratio is tougher test if liquidity than current ratio. Comparing PSO and Shell ratio showing that PSO is in better condition to pay its short term liabilities. Activity ratio/Market Ratio: Day’s sale in receivables: 2015 2014 PSO 51.88 49.9 Shell 12.63 13.82 Interpretation: It is showing that in 2015 PSO takes 51 days to recover its receivables while shell takes only 12 days which is good for company. Account receivable turnover PSO 2015 2014 7.07 7.34 3.24 Shell 3.80 Interpretation: In 2015 PSO is receiving it account receivable 7 times while shell is 3 time. As both the companies are showing decreasing trend during the year. Inventory turnover in days: 2015 2014 PSO 53.4 51.8 Shell 52 40 Interpretation: It is showing that in 2015 PSO takes 53 days to covert its inventory into sale while shell takes 52 days there is minor and slightly difference in their inventory conversion cycle. Earnings per Share: 2015 2014 PSO 68.5 Rs 84 Rs Shell 87 Rs 40Rs Interpretation: This ratio is clearly telling that the earning of shareholder of shell company are more better then PSO because shells had increased its EPS from 40 to 87 Rs per share while PSO EPS is showing gradual decrease in EPS from Rs 84 to Rs 68. Profitability Ratio: Net Profit: PSO 2015 2014 0.1325 0.121 Shell 0.56 0.45 Interpretation: Net profit of PSO and Shell is showing huge difference .the profit and earning of shell are far better than PSO. Gross Profit Ratio 2015 2014 PSO 0.38 0.733 Shell 0.98 0.87 Interpretation: Gross profit Ratio of PSO in 2015 is 0.38 while that of shell is 0.98 which is showing that Shell profit during the year was better than PSO. Similarly PSO has improve its Gross profit from 2014 to 2015 while PSO is showing Decreasing trend. Debt Ratio: Debt Ratio: 2015 2014 PSO 26% 27% Shell 14% 15% Interpretation: PSO has more dependency on debts for financing of assets and to deal with risk. While Shell debt ratios are lower than PSO showing less dependency on debt financing Debt to equity ratio: 2015 2014 PSO 0.364 0.41 Shell 0.63 0.65 Interpretation: PSO has lower ratio of equity than Shell. But both companies are not only rely on equity financing but also debt financing to finance their asset. Conclusion Of our analysis as investor: When we look at the company overall situation as an investor then we keep all aspects of company in consideration that include its liquidity position, its long term liquidity position, market stability as well as market value of company . Or analysis shows that company liquidity position is not good that is bad news to the investors who invest long run. The activity ratio of a company also shows the bad position, its mean that company is less efficient in generating cash and sales that is negative thing for short term investors. The profitability ratio of the company also shows the bad position as compared to previous year which shows that company is not generating enough profit from its sales. It also shows the bad news for the investor who invest short time period and earn profit. The debt ratio of the company indicates that it is not in a position to pay its debt that is not a good thing for the company and it also bad news for the investor who invests in long run. The market ratio of the company is also showing bad position that indicates that investors perceive the bad news about the company and are reluctant to invest in that company. Suggestions: Suggestions to the company are that as there are some factors missing related to assets management so management of the company must take steps to make use of asset more effective so that liquidity position can be improved. Company also has more debt so it is needed to low its debt and also impose terms and condition so that company can pay its long term debts. Market price per share in 2015 is 454 & 2014 is 514 Weighted average number of ordinary shares in issue 2015 is 271,685,939& 2014 is 271,685,939 Dividend for 2015 was 6 Rs per share and in 2014 company hadn’t declared the dividend.