PSO wins an arbitration case in LCIA against Gunvor: sources

Financial statistics for the first half of Pakistan State Oil’s current fiscal year highlight worries over the company’s financial health.

PSO wins an arbitration case in LCIA against Gunvor: sources

The recently issued financial reports of Pakistan State Oil (PSO), the national oil firm, have once again prompted worries over the business’s financial stability. The figures for the first half of the company’s current fiscal year provide a fairly bleak picture of the company’s financial performance.

Being the major importer of Pakistan’s petroleum products, PSO is responsible for importing a variety of items, including as crude oil, liquefied natural gas, and finished goods like high-speed diesel and motor gas. Nevertheless, during the six-month period ending December 31, 2022, the firm had a loss of Rs 3.6 billion, and its cashflow saw a net decline of Rs 27.23 billion in cash and cash equivalents.

The state-owned company’s situation has worsened as a result of the nation’s continuous economic and political upheaval. The government’s attempts to manage inflation and restrict imports by increasing interest rates have a devastating effect on PSO’s finances.

In times of financial instability, the company’s liquidity, as measured by its capacity to convert assets into cash, is crucial. PSO’s current ratio, which evaluates the company’s ability to meet current liabilities with current assets, is 1.27. Although a ratio larger than 1 is preferable, it is vital to compare ratios with those of other firms in the same sector in order to make fair comparisons.

The quick ratio, which includes inventories, is seen as more positive from a liquidity viewpoint. The quick ratio for PSO is 0.83, which is somewhat lower than the prior quarter’s ratio of 0.87. Equally important is the operational cash flow ratio, which measures a company’s capacity to repay existing debts. The operational cash flow ratio of -0.19 for PSO is concerning, as it indicates that the firm spent more money than it made during the last three months.

Without a healthy operational cash flow ratio, businesses cannot survive over the long term. A corporation with a negative ratio must create extra positive cash flow from either financing or investing operations in order to stay solvent. The most recent financial reports from PSO demonstrate the company’s precarious financial status. Even if there are some encouraging indicators, such as the current ratio, the quick ratio, and the operational cash flow ratio, the organization must take aggressive steps to solve the issues it faces. Without a turnaround, the company’s long-term capacity to pay its obligations and remain solvent is uncertain.

The views expressed in this article are the author’s own and do not necessarily reflect Coverpage’s editorial stance

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