F.m 2nd assignment with case study


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The Financial Environment in Public sector of Pakistan, Give a theoretical background of the topic and then analyze its practical application in an organization selected by you.

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F.m 2nd assignment with case study

  1. 1. 1 Department of Business Administration. Assignment 2 FINANCIAL MANAGEMENT (562) Submitted To Most Respectable, Prof.AzharMehdi Submitted By Engr.Waseem Saeed Roll AD-512530 Semester 3’ rd ALLAMA IQBAL OPEN UNIVERSITY ISLAMABAD, PAKISTAN. Spring 2010
  2. 2. 2 DEDICATION I dedicate it to my beloved parents and respected teachers.
  3. 3. 3 ACKNOWLEDGMENT All praise and thanks is due to ALLAH, the Lord of mankind and all that exists, for His blessings, benevolence, and guidance at every stage of our life. I am deeply grateful to my course coordinator, Prof.Azhar Mehdi, for his guidance, support, and patience. He has been an invaluable source of knowledge and has certainly helped inspire many of the ideas expressed in this assignment. My words will fail to express my deepest heartfelt thanks to my family, especially my parents & my Cousin, for all what they did, and still doing, to help me be at this position and for their continuous support and encouragement. Any mistakes that remain are mine! I thank you all.
  4. 4. 4 The Financial Environment in Public sector of Pakistan, Give a theoretical background of the topic and then analyze its practical application in an organization selected by you
  5. 5. 5 Table of Contacts 1. Title Page 2. Dedication 3. Acknowledgement 4. Topic 5. What is Public Sector? 6. Evolution of public sector in Pakistan 7. Objectives 8. Distinction Between Public Sector And Private Sector Accounting 9. Financial Markets 10.Definitions of Financial Environment 11.Introduction of Financial Environment 12.What is Financial Environment? 13.World Financial Environment 14.Business & Financial Environment 15.The Financial Environment in Public Sector of Pakistan 16.Production Innovation
  7. 7. 7 WHAT IS PUBLIC SECTOR? The part of the economy concerned with providing basic government services. The composition of the public sector varies by country, but in most countries the public sector includes such services as the police, military, public roads, public transit, primary education and healthcare for the poor. The public sector might provide services that non- payer cannot be excluded from (such as street lighting), services which benefit all of society rather than just the individual who uses the service (such as public education), and services that encourage equal opportunity. Prospectus works with a wide range of public sector organizations - including government departments, local authorities and semi-state companies - to develop strategy and to implement major organizational and transformational programmers that are tailored to the specific demands of today's market. At Prospectus we have an excellent understanding of the particular environment within which public sector organizations operate and the challenges they face. Indeed, a number of Prospectus consultants have previously worked in the public sector. This unique experience in the Irish public sector market - coupled with practical, concise, straight-talking and value-added services.
  8. 8. 8 EVOLUTION OF PUBLIC SECTOR IN PAKISTAN The main objectives of setting up the Public Sector enterprises as stated in Industrial policy Resolutions of 1956 were:  To help in the rapid economic growth and Industrialization of the country and create necessary infrastructure for economic development.  To earn return on investment and utilize resources for development.  To promote redistribution of income and wealth.  To create employment opportunities.  To promote balanced regional development.  To promote import substitutions, save and earn foreign exchanges for the economy. The 2nd Five year Plan document clearly stated that “All industries of basic and strategic importance or in the nature of public utility services should be in the public sector. Other industries, which are essential and require investment on a scale, which only the state, in the present”
  9. 9. 9 OBJECTIVES The objectives of public sector enterprises may be divided intothree categories: 1. Economicobjectives: I. ECONOMIC DEVELOPMENT- Publicenterprises are established to accelerate the rate or economic growth, by setting up key and basic industries like iron and steel, petroleum, power generation, chemicals, machine building,etc. The publicsector provides an essential base for faster economic growth of the country. Expansion of capital goods industries lead to the developmentof other industries. II. PLANNEDGROWTH- The private sector neglects the industries with long gestation periods and low rate of returns. Public enterprises step in to fill up gaps in the industrialstructure by setting up industries which are economically unattractive, butnationally essential. Publicsector provides infrastructural facilities for diversifiedand balanced growth. III. BALANCED REGIONALDEVELOPMENT- Public sector concerns are designed to facilitate the growth of backwardregions so as to reduce regional disparities in industrialgrowth. IV. GENERATION OF SURPLUS- Publicenterprises is expected to generate and distribute surplus for financing five-year plans and other schemes of public welfare. V. Provide employment - One of the importantobjectives of publicenterprises is to reduce the unemploymentby creating employmentopportunities.
  10. 10. 10 2. SOCIAL OBJECTIVES: I. CONTROL MONOPOLY- Sometimes, publicenterprises seek to check private monopoly and restrictive practices and the resulting evils like exploitation. II. EQUITABLEDISTRIBUTION OF WEALTH- Public enterprises is expected to reduce disparities in the distribution ofincome and wealth. Reduction of economic disparities is one of the objectives of our constitution and public enterprises are helpful in checking concentration of economic power. III. PROVISION OF ESSENTIALGOODSAND SERVICES -An importantobjective of publicundertakings is to provide essential goods and services for consumption at reasonable prices. This helps in improving the standard of living of the people. Social control over industry ensures equitable distribution of commodities and helps to protect the consumer from exploitation by greedy businessmen. IV. TAKEOVER OF SICK UNITS - Closure of sick units may result in loss of employmentto a large number of people and wastage of national resources. Public enterprises like the National.
  11. 11. 11 3. POLITICALOBJECTIVES: I. PUBLIC INTEREST -Public enterprises are established in the interestof the country as a whole. II. India has become an industrialpower because of the developmentof public sector concerns. They facilitate self-reliance in strategicsectors. III. NATIONAL DEFENSE -Public enterprises are set up for the manufacture of arms, ammunition, telecommunications, oil, etc., which are essential for the safety and security of the country. IV. SOCIALISM - Publicenterprises are required to future the political ideology of the Governmentas well as to serve the constitutional objectives of socialisticpattern of society.
  12. 12. 12 DISTINCTION BETWEEN PUBLIC SECTOR AND PRIVATE SECTOR ACCOUNTING Public sector accounts are prepared to show the accountability to the concerned departmentand private sector accounts are prepared to find out operating results, profit or loss, out of the commercial transactions undertaken to earn profit. Other differences are as follows: I. Different Accounting System - Private sector accounts are prepared on accrual basis i.e. earning and spending etc. Balance of both debit and credit side equates one another, but public sector accounts are maintained on cash basis i.e. cash receipt and cash payment for the respective period are taken into consideration. II. Profit or Loss - The purpose of public sector account is to depict accountability to the legislature while private sector accounts try to depict commercial profit earned for the year ended. III. Balance Sheet -In private sector accounts, balance sheet shows assets and liabilities on a cumulative basis but in case of public sector accounting, the current year’s expenditures as well as capital receipts are shown. In Private sector accounting final accounts consists of profit and loss account, balance sheet, and statement of changes in financial position. In case of public sector accounts, final accounts consist of public sector account and balancing accounts. Under balancing account, all the balances of the public sector accounts are shown along with receivables and payables.
  13. 13. 13 IV. Equation - In private sector accounting equation of assets and liabilities takes the following form: Capital, Surplus, Other liabilities; fixed assets, Current assets, Investments. But in case of public sector accounting equation takes the following form: Public sector account receivables-Payables. V. System of Entry - Under private sector accounting, double entry system is followed and journal, ledger, trialbalance can be prepared. But in the case of public sector accounting, single entry system is followed because of its inability toprepare trial balance for absence of full information. VI. Depreciation - In private sector accounts, depreciation is charged on income statement to arrive at true profit or loss, so that after the termination of the life of the asset they buy a new asset for replacing the old asset; and also to claim tax exemption from commercial profit. But in case of public sector accounting, there is no provision for providing depreciation. Itlost its relevance in providing depreciation in absence of proper value of asset; but in certain cases like Transportation Company which charges depreciation for maintaining its assets. VII. Form of Accounts - In public sector accounting, the form of accounts takes the following form: (i) Consolidated Fund; (ii) Public Fund and (iii) Contingency Fund. In case of Private sector accounting, concerns registered under the Companies Act shall follow the form prescribed under the Companies Act, 1956.
  14. 14. 14 FINANCIAL MARKETS Financialmarkets represent forums that facilitate the flow of funds among investors, firms, and government units and agencies. Each financial market is served by financial institutions that act as intermediaries. The equity market facilitates the sale of equity by firms to investors or between investors. Some financial institutions serve as intermediaries by executing transactions between willing buyers and sellers of stock at agreed-upon prices. The debt markets enable firms to obtain debt financing from institutional and individual investors or to transfer ownership of debt securities between investors. Some financial institutions serve as intermediaries by facilitating the exchange of funds in return for debtsecurities at an agreed-upon price. Thus it is quite common for one financial institution to act as the institutional investor while another financial institution serves as the intermediaryby executing the transaction that transfers funds to a firm that needs financing. Financial information is used to measure performance and help make decisions about how an organization should operate. Despite its importance, many managers do not fully understand the financial information they use or how it fits into a wider business context.
  15. 15. 15 Financial Environment shows managers how to interpret financial information and, in doing so, make better decisions. It covers important elements of finance that affect organizations large and small. Definition of FinancialEnvironment:- “Market for a financial instrument, in which buyers and sellers find each other and create or exchange financial assets” Financial Environment is aimed at aspiring first time managers who want to improve their understanding of financial information. It does not focus on any particular industry, sector or size of business, making it relevant to the widest possible audience. There are no formal entry requirements and the course assumes no specialistknowledge, although an understanding of basic accountancy terminology is essential. The easy to follow, step-by-step format of this course means participants can work at their own pace, making it ideal for anyone new to financial information. What is a market? 1. A market is a venue where goods and services are exchanged. 2. A financial market is a place where individuals and organizations wanting to borrow funds are brought together with those having a surplus of funds.
  16. 16. 16 Types of financial markets Spot vs. Futures Spotmarketsare markets where assets are bought or sold for ‘on the spot’ delivery. Futures markets are markets in which participants agree today to buy or sell an asset at some future date. Public vs. Private Private markets are markets where transactions are between two parties. Public markets are markets where standardized contracts are traded on organized exchange. Physical assets vs. financial assets Physical markets deal with real assets such as wheat’s, automobiles, computers, etc. Financial assets deal with stocks, bonds, notes, derivatives securities, etc. Money vs. Capital Money markets are markets for short term, highly liquid debt securities. Capitalmarkets are for intermediate or long term debt or corporate stocks. Primary vs. Secondary Primary markets are markets where corporations raise new capital. SecondaryMarketis markets where existing or outstanding securities are traded among investors.
  17. 17. 17 Types of financial intermediaries Commercial banks  Savings and loan association  Pension funds  Life insurance companies What will you get from this topic? When you have completed this course you will be able to: a. Understand the important elements of finance that affect all managers and team leaders. b. Read and understand company accounts, balance sheets and profit and loss accounts. c. Identify sources of finance available to businesses and be able to use key financial ratios to analyze performance. d. Understand the importance of managing cash flows.
  18. 18. 18 INTRODUCTION TO FINANCIAL ENVIRONMENT In every given environment, whether large or small, it is easy to observe different economic functions taking place on continuous basis. To maintain a healthy and acceptable interaction among several economic units, a nation has its laid down rules and expected roles to be played by the citizens and other investors. No nation would ever survive without a sound financial system, which is the law and environmentwith an interchange of wealth, asset and liabilities on regular basis for economic growth. In fact, in the words of HerggottBeckhart, financial system is defined as “the family of rules and regulations and the congeries of financial arrangements, institutions, agents and the mechanism whereby they relate to each other within the financial sector and with the rest of the world.”Financial Environment will give you a theoretical introduction to understanding and analyzing business information.
  19. 19. 19 WHAT IS FINANCIAL ENVIRONMENT? Financial environment includes bond markets, stock markets, commodity markets, OTC markets, Real estate markets and cash or spot markets. These markets act as a platform for the buyers and the sellers to interactin the financial environment. The buyers and sellers of the financial markets are known as Market participants. These participants include investors, speculators and institutional investors. There are certain regulatory authorities(both private and government)who determine some policies and rules which are applicable in a financial environment. All these markets play an importantrole in raisingfinances for the companies and at the same time give profits to the investors. Basicallya financial environment comprises of the public sector enterprises, legal authorities, fiscal authorities which are directly or indirectly impact the financial system, monetary institutions, financial institutions, and official organizations.All these organizations have a direct impact on the financial system of the companies including private and public. Therefore, in order to give the money to the people who need it and to give the profit to the people who want to invest it, financial markets play an important role. There are a number of bodies which are known as financial markets, whoare responsible for making financial environment. Financial environment in an economy deals with the monetary transactions which are based on money, time and risk. Financial environment can be further classified into financial markets which collectively constitute this environment.
  20. 20. 20 WORLD FINANCIAL ENVIRONMENT 1. Money  Powerful thing  Made twenty four hours a day  A commodity, that is officially recognized as a medium of exchange that is widely accepted because issued by a governmentor other public authority in the form of coins of gold, silver, or other metal, or paper bills, used as a measure of value of goods and services and in settlementof debts. 2. FinancialMarkets  A financial marketplace where debtinstruments, primarily bonds, are bought and sold is called a bond marketalso known as the debt market. The dealingin a bond marketis limited to a small group of participants and lacks a central exchange. 3. Foreign Exchange  The exchange of one country’s money for that of another country. When internationaltransactions occur, foreign exchange is the monetary mechanism allowing the transfer of funds from one nation to another.
  21. 21. 21 4. Stock Market  Stock Marketis an organizedmarketwhere shares are issued and traded. 5. Commodity Market  Commodity trading is a kind of financial trading in which primary products, such as food, metals and energy, are bought and sold. 6. RealEstate Market  Real Estate Marketis the marketwhere exchange of real estate property takes place between buyers and sellers. 7. Share Market  Stock markets generally advocate the philosophy of laissez- faire (free market)economy and always argue in favor of less restrictive importand immigration policies. 8. IMF  Dominique Strauss-Kahn (France)is the Managing Director of IMF  186 members
  22. 22. 22 9. World Bank  International Bank for Reconstruction and Development  Existence on December 27, 1945  The largestexternal fund provider for education and HIV/AIDS programs,strongly supports debt relief, and is responding to the voices of the poor people. 10.Balance ofPayments  A Balance of payments (BOP) sheet is an accounting record of all monetary transactions between a country and the rest of the world.  These transactions include payments for the country & appose exports and imports of goods, services, and financial capital, as well as financial transfers.  BOP = Current Account - Capital Account
  23. 23. 23 FINANCIAL SECTOR OF PAKISTAN – THE ROADMAP The financial system in Pakistan has grown substantially, benefiting from multi-pronged financialreforms. These reforms have been pursued persistently and vigorously over a decade or so and have supported economic growth. The inefficiencies and weaknesses, which were typical of banks’operations in the pre-reforms era, have been reduced radically. We have now started to realize the dividends of reforms in the form of a healthier, sounder and stronger banking system. Liberalization and deregulation, core pillars of the reform measures, have served to enhance the size of the banking system both in terms of the number of banks and growth in credit, besides instilling a degree of competition in the banking industry. However, the task of financial sector reforms is far from accomplished. Given the changing dynamics of the economy and its growing complexities and accompanying associated risks, the financial industry has to remain responsive and supportive of the broader economic ambitions and agenda. The country can neither afford slippages nor can we visualize the future dispensation of the bankingsystem of Pakistan. All the major players and stakeholders in the banking system will have to strive for continuity, broadening and deepening of reforms, build and sustain the alreadyimplementedreforms and fill the remaining fissures. The growing competition along with increasingly diversified services, both across the regions and sectors, and improved access to customer-base on the back of
  24. 24. 24 progressive reliance on technology, are the harbingers of the changing and efficient intermediation role of banks in the days ahead. In order to develop the future outlook, I will now examine both the emerging domestic and external trends, which potentially impact the future financial sector architecture: its structure, texture and the operations of financial institutions. In this respect, eightfactors are generally believed to have been the major drivers of change in the financial industrythe world over. They include: 1. Macroeconomic performance and priorities 2. Deregulation and market forces 3. Product innovation 4. Globalization 5. Technological advancements 6. Universal banking 7. Risk Management and Mitigation 8. Changing Role of and demands on the Regulator These forces, to a varying degree, will play a more dominant role in shaping the future complexion of the financial sector and its institutions and entail far reaching implications in terms of stimulating increased competition, greater consolidation,and increased diversification and enhanced dynamism in the financial players and markets. The central bank, along with major players in the market, will continue to develop and refine the mutual vision and plan for the financial system of Pakistan.
  25. 25. 25 All key players will have to correspondingly position themselves, change their attitudes, and be responsive to collectively transform the financial system of Pakistan. MACROECONOMIC PERFORMANCE AND PRIORITIES Financial system of any country has an intrinsic relationship and needs to be shaped in accordance with the broader economic needs, structure and policies. Considering this interdependence, itis imperativeto assess the behavior and trends of the key macroeconomic indicators while drawingthe emerging contours of the financial system. In this respect, the major indicators of the economy during the last few years have shown robust performance. GDPgrowth shot up to over 8 percent in FY05 and the current year also promises higher than 6 percent growth. Undoubtedly, consistent and stable economic policies provided the businesses with confidence. However, easy availability of funds on the back of historically low level of interest rates proved to be the real catalyst for the subsequent sharpgrowth in credit to the manufacturing sector and eventually proved to be the real determinant of high GDP growth. Strong credit demand of the manufacturing sector translated into a sharp increase in the interest income of the banking system, giving rise to unprecedented profits and healthier balance sheets during the last two years. Redeployment of these profits to augmentfinancial services will help meet the growing economic requirements.
  26. 26. 26 The near term economic prospects are promising. The continued strong pace of economic activities, and plans to launch widespread infrastructure reforms offer strong business prospects for the financial sector. Real interest rates remain at tolerable limits. Notwithstanding, there will be demand pressures in particular if the trade deficit grows out of proportion and inflationary tendencies continue to persist. A consequent fall in demand for credit or a possible impairment of the debtrepayment capacity of borrowers does carry the risk of reversing the currentgains enjoyed by the banking system. But these risks are being well managed and ifthe economy continues the growth momentum for the next decade or so, the financial system of Pakistan is expected to reap benefits out of rising incomes, consumption and emerging investment demands. Traditionally, infrastructure projects fell in the public sector’s domain of activities. However, recent years have seen a paradigm shift in this area, with the growing interest of the private sector to undertake such projects. There exists immense potential for the financial institutions to finance such infrastructure projects built on public-private partnerships or even exclusively in the private sector. This will help diversify their activities as well as enhance their earnings. Similarly, financial institutions can take advantage of the changing demographic patterns, rising incomes and enhancement of policy priorities for various sectors. These trends are already visible as reflected by the increasing proportion of urban population, rising literacy rates, and the increasing share of the industrial and services sectors in GDP.
  27. 27. 27 The financing to SME, Agriculture, and Micro finance segments of the economy carries special importance with respect to future economic growth and diversification of banks’ loan portfolios. The State Bank will accord further priority to improvingaccess of developmentfinance to these segments and will work with the provincial and local governments to facilitate a conducive environment, and supportive financial and legal infrastructure to give impetus to economic growth and poverty alleviation. The banks will have to strengthen their systems to meet the challenges and opportunities arising out of their venture into these segments.
  28. 28. 28
  29. 29. 29 DEREGULATION, MARKET FORCES AND CONSOLIDATION The spate of liberalization and deregulation measures in recent years has unleashed strong forces of competition. These are fast defining the future course of Pakistan’s financial sector. Emergingrole of the private sector has displaced the public sector from its dominant position, giving rise to aggressivecompetition across the market operators, and the market pressure by the stakeholders to perform is going to result in fiercer competition. This is expected to change the business landscape and chemistry of the competition as market players will have to use fresh thinking on financial products and the structure of the market, and focus on value creation to survive. The stiffening licensing policy and regulatory capital requirements are alreadyposing a great challenge to the small banks, and with gradual enhancement of the minimum capital requirements in the coming years, they will have to either inject more capital to become compliant or amalgamate with other financial institutions, or as a last option, exit the market. The current trend depicts that new entrants, only allowed by way of strategic partnership in existing banks and/or new Islamicbanks, are coming in with higher capital. More so, consolidation of financial institutions is well underway and is likely to lead to the emergence of fewer but stronger institutions to meet the challenges of the increasingly complicated financial environment of the future. The competitive environment might also force financial institutions to specialize in offering certain types of services based on their respective expertise and market niches.
  30. 30. 30 PRODUCT INNOVATION In a sharp contrast to international trends, the financial system of Pakistan has been lacking in developing innovative products to meet the diversifiedneeds of different customers. However, the emerging financial scenario characterized by intense competition leaves little room for complacency in developing new and attractive products on both the asset and liability sides. Product innovation and developing brand loyalty by creating specialized products will decide the volumes of business and market shares in the future. Presently, the absence of specialized liability products is most conspicuous. The growing awareness among investors and the expected developmentof other avenues of funds’ deployment e.g. the long term fixed income and mutual funds marketprovide attractive alternatives. Thus the financial institutions which take initiative ofthese kinds are likely to grab greater market share of funds in the future. Ideally, greater liberalization with ensuing competition should have led to a narrowing down of spreads. However, in case of Pakistan, there appears to exist a somewhat paradoxical situation, where banks are able to widen their spreads mainly because they enjoy comparative Advantage in offering unique banking services, primarily because of the almost non-existent competition from non-bank finance companies and a dormant institutional finance industry as pension and insurance sector reforms have yet to catch up with other financial sector reforms.
  31. 31. 31 However, the future promises emergence of competitive non- bank companies which offer Alternative sources of investments. And banks will need to generate fee-based income to fill the gapcreated by declining interest incomes. Pakistan’s market has a huge room for the development of derivatives and synthetic products. The growing financial engineering of services and products requires greater attention to the hedging of risks. Financial institutions need to increase their role as risk managers to corporate and other entities by offering a variety of derivative products. Financial institutions are also expected to employ processes and practices, which could help them to become more cost effective and efficient. Certain traditional services might also be outsourced to gain efficiency and focus on core areas as competition might not be the only rule of the game. The financial institutions might also cooperate in offering certain types of services. Presently, this is reflected in the networking of ATMs. This co- optation is expected to become the order of the day as banks seek to enlarge their customer base and at the same time realize costreduction and greater efficiency.
  32. 32. 32 GLOBALIZATION With the falling barriers to capital mobility and opening up of financial services in the wake of WTO, globalization of financial services is expected to accelerate in coming days. As the financial institutions gains size, competitive edge and develop their systems at par with the global practices, it would be profitable to seek greater opportunities offered by the large financial markets around the globe. Particularly, opportunities in emerging and regional future economic power hubs are bright. Moreover, higher trade activities are also likely to give boost to banks’ role in forex business and their support to corporate customers to expand their business across the borders. So far, Pakistani banks have performed fairly well against the foreign banks operating in the country. Lately, under the intense competition put up by the local banks due to significant improvement in their processes, foreign banks have been on the retreat even in the areas where they used to enjoy virtual monopoly. However, with the increasing trade volumes in relation to GDP and growing overseas business opportunities for Pakistani corporate, as well as increasing capital flows, the large foreign banks would find considerable scope to capitalize on their expertise due to their established global position and awareness of different markets around the world.
  33. 33. 33 TECHNOLOGY Technology helps to catalyze efficiency in the provision of financial services and ultimately in determining the winners in the intensely competitive financial markets of the future. Technological breakthroughs have forced fundamental changes in the financial industry: strategic business plans have taken into account new ways of doing businesses, launching e-banking, and using information and technology for developing better internal controls, more sophisticated risk management systems and better and convenient customer services. Hence it is critical that Pakistan’s financial industry adopts an appropriate organizational model that supports a customer-centric approach and reengineers business processes to exploit technology to derive economies of scale and create cost efficiencies. The use of ATMs and e-banking products is gaining currency and almostall banks have established networking of their ATMs with the interconnectivity of switches. Better outreach offered by ATMs will enhance the customer base and offer more alternatives and choices to customers. Further development on e-banking and internet banking will open up new avenues like on-line banking. Among others, the relatively smaller size banks willbe able to compete with the large banks and retain their market presence by using technology more effectively.
  34. 34. 34 Technology tends to have a high degree of obsolescence. Thus, the financial institutions will have to invest heavily in the development of their IT systems, which might initially burden their resources. For this purpose, the financial industry will have to optimize its resources for technology applications. The immediate solution might lie in sharing of facilities. Banks in Pakistan are already cooperating extensively in using ATMs services. The future areas of cooperation might involve payment and settlement, back-office processing, data warehousing etc. At the same time, financial institutions will also have to raise adequate safeguards to deal with the associated operational risks. This would invite special focus of their management in the future. UNIVERSAL BANKING Universal banking has gained sharp acceptance as traditional boundaries of financial service provision have become blurred. In addition to their conventional commercial banking services,banks have withdrawn from specialization to offering a broad menu of services. This presents the banks with opportunities as well as challenges and requires constant development of their expertise in the new areas of their operations. The idea of universal banking, which is still evolving in Pakistan, is likely to galvanize the non-banking financial sector in developing competitive products and use modern technology to secure themselves against banks making inroads into their traditional areas of operations. This is likely to give further impetus to competition in the financial sector for the provision of quality financial services.
  35. 35. 35 At the same time this might catalyze mergers among banks and non-bank financial institutions for their mutual survival. This trend may lead logically to promoting the concept of a financial super market chain, making available all types of credit and non-fund facilities under one roof or in terms of specialized subsidiaries under one over-arching organization. Consolidated accounting and supervisory techniques would have to evolve and appropriate firewalls built to address the risks underlying such large organizations and banking conglomerates. RISK MANAGEMENT The above-mentioned forces of change have significantly increased the importance of strengthening the risk-management practices of the financial system. With the proliferation of new techniques and financial institutions venturing into new areas, a whole range of market related risks have surfaced. This will render the traditional risk- management techniques obsolete as new derivative products and off- balance sheet operations become more common. The hitherto neglected area of operational risk management has also come to assume greater importance and the pervasive use of technology has multiplied the importance of managing this risk in tomorrow’s more volatile banking environment. The financial institutions now have to have enough paraphernalia to tackle these risks in line with the international best practices.
  36. 36. 36 In this respect, risk-management tools built upon the latest technology would provide the financial institutions to manage the host of new risks in a more efficient manner. This will enable them to deploy resources more effectively. The importance of sophisticated risk-management practices will become even more pronounced as the banks strive to implement the Basel II accord. The smooth switch over to Basel II will be a challenging task before the banks, and this has far-reaching implications for the future structure of the banking system. BaselII would require a heavy investment in technology and development of MIS tools to incorporate the internal risk-basedapproach. The risk-based approach to capital allocation will be the inherenttheme, as each asset will be allocated a rating both externally and internally. This will ultimately influence the capital charge for each asset and would thus help minimize the reckless risk-taking by banks on account of the heavy capital charge. As financial innovation becomes ubiquitous and new technology and standards evolve to make financial transactions more complex and volatile, the role of the regulators is going to become tougher in the days ahead. This brings me to the concluding, but not the least important section, i.e. the changing role of and expectations and demands for regulators.
  37. 37. 37 CHANGING ROLE OF REGULATOR The central bank has been transformed substantially. It is today a very user friendly institution, based on feedback of the industry. It is candid in putting forth its views, and over the years has withstood a number of political challenges. Over the next few years, we plan to: First, with the support of the Government, launch adequate initiatives to strengthen the governance of the central bank. In this context, SBP is in the process of benchmarking itself with the other central banks that have attained good governance standards.The evaluation of central banks’ governance practices is judged on the basis of the roles and responsibilities of the Management and the Board of Directors, and the appropriate interaction and interface between the central bank and the government. In deciding an appropriate balance in these roles and responsibilities, it is critical that central bank’s independence is not compromised in terms of the conduct of monetary policy as well as the oversight of the financial sector. In all contexts, it has to be recognized that independence has to be accompanied by effective accountability of the central bank. The institution has to be accountable to the Parliament and the Senate, and work in conformity with the Federal Government’s goals, as the central bank, among other functions, also serves as an advisor to the Government. Second, SBP needs to examine where there is further need for internal strengthening. Few areas where SBP will gear itself further would be in terms of increased responsive to industry changes in order to align
  38. 38. 38 prudential regulations accordingly. Among others, SBP needs to be equipped to assess banks when they adopt higher standards of risk managementwhich will be promoted when Basel II is introduced. Another area would be for the central bank to strengthen its oversight and supervision, with particular emphasis on closer supervision of the emerging conglomerate structures in the banking industry as some of the commercial banks are now owned by industrial groups and brokers. Third, in conclusion, the central bank should energize itself to finance the under-served areas, regions and segments. And, the central bank would like to promote the Islamic Banking Industry, as it has the potential to introduce innovations in the market. As part of the reorganization of the central bank, which is currently in process, we plan to set-up a separate departmentfor developmentfinance, which will push for this objective. Having assumed office in January, I am in the midst of developing a strategy for the next ten years of the financial sector, and my talk today presents some ideological thoughts on the long-term vision paper for the central bank, which will be developed in consultation with the stakeholders. We then need to set up an implementation task force, which will be a combined effort of the banking industry and the central bank to take forward these reforms. There has been tremendous change in the banking industry in the last few years and we need to fine-tune our strategic direction as we go forward.
  39. 39. 39 What’s Different about Sustainability for the Public Sector? “The private sector will move [to sustainable technology and practices] when it makes sense from a revenue and profit motive. The public sector has a two-pronged approach: gaining efficiencies and in its role as a public steward of resources.” The public sector has additional incentives toadopt sustainable technology and Business practices:  Improving service effectiveness: Savings from more efficient power usage can be invested in government and educational services.  Fulfilling government’s role as a public steward: The public sector has a social and fiduciary responsibility to conserve scarce resources.  Enhancing employee recruitment and retention: Public sector employees are retiring in record numbers and government needs to attractthe best and brightest workers to replace them. New college graduates tend to prefer to work for employers committed to sustainability.  Supporting continuity of operations 1. Vendor
  40. 40. 40 BUSINESS& FINANCIAL ENVIRONMENT The global economy has increased the interdependence of national economies. Multinationalcompanies dominate the internationaleconomy. The integration of the financial markets and the internet technology give access to investments in foreign countries. As investors increasinglybuy assets in a high yield foreign currency the exchange rates in this specific currency rises. This leads to a reduction in exported and an increase in imported goods. The balance is easily disturbedand governments find itincreasinglydifficultto control rising inflation. The economic relations between countries are very complex as each country has its monetary policy. Japan for example exerts a strong control on the exchange rates due to a high export percentage, whereas the U.S. does not use the currency operations as a tool of monetary policy. Companies are confronted with differentcultures and markets and have to differentiate their products in order to maximize their profitin clearly separatedmarketsegments. Investments in foreign countries have become easier, and multinational companies benefitfrom economy of scales and low cost production using the cheapest resources available.
  41. 41. 41 THE GLOBAL FACTORS In a global economy, multinationalcompanies independentof national government, dominate the international economy. This increases the interdependence of nations as each multinational company invests their assets in several countries. Those companies respond effectively to differing regionaldemand. Furthermore,they benefit from economy of scales and low cost production using the cheapest resources available. The global economy has opened the market. There are many weaknesses in the business environmentthat constrain sources and uses of finance for economic growth and development. These are cross-cutting issues that involve both the public and the private sector. Fortunately, with increasing stabilityin the macroeconomicenvironmentand efforts by governmentto implement anti-corruption practices, there is a positive climate for reform. Likewise, changes in the business environmentwill inevitably reduce the problems currently faced with regard to many of the market-based, firm-specific, or financial sector issues. However, many of the challenges are institutional, complicated by traditions and business culture, or inadequately addressed due to capacity limitations. The required changes willtake years as a result, with many of the desired successes more likely to be medium-or long-term objectives rather than quick fixes for rapid formalization of income or employment generation. Major challenges and reform needs encompass issues of policy, legal, regulatory, institutional, informational,and infrastructure shortcomings.
  42. 42. 42
  43. 43. 43 COMPANY PROFILE PAK ARAB REFINERY LTD (PARCO)is a Joint Venture between Governmentof Pakistan and the Emirate ofAbu Dhabi, incorporated as a public limited company in 1974. 60% of the share holding is by the Governmentof Pakistan and 40% by the Emirate of Abu Dhabi through its Abu Dhabi Petroleum InvestmentCompany (ADPI), a subsidiary groupof International Petroleum InvestmentCompany (IPIC). PARCO's major business activities are:  Refining  Transportation  Storage  Marketing PARCO is an integrated energy company, and is a key player in the country’s strategicoil supply and logistics. With a refining capacity of 100,000 BPD, combined storage capacity of over one million tons, a marketingjoint venture with TOTAL (France), a technical support venture with OMV (Austria), and a distribution agreementwith SHV (Holland); PARCO has emerged as the strategicfuel supplier to the country with a broad portfolioof operational ventures. The organization encompasses Pakistan’s largestrefineryand 2000kms of cross country pipeline network, including its subsidiaryPAPCO.
  44. 44. 44 With continued support of the Emirate of AbuDhabi, PARCO has been able to realize a number of energy projects that have contributed significantlyin enhancing the country’s economic growth, saving foreign exchange, transferring technology and providingemployment. The performance of the company can be judged by the fact that it has retained its AAA and A1+ long and short term creditrating by PACRA for twelve consecutive years. The company set another first when it obtained three simultaneous international certifications: ISO 9001:2000 (Quality Management System), ISO 14001:2004 (Environmental Management System) and OHSAS 18001:2007 (Occupational Health and Safety Management System).
  45. 45. 45 INTRODUCTION OF PARCO Petroleum energy plays a pivotal role in the socio economic development of a country, especially for a developing country like Pakistan, where demand for petroleum products is fast increasing. Incorporated in May 1974, Pak Arab Refinery Ltd. (PARCO) has now been in existence for 27 years as a joint venture between the governmentof Pakistan (GOP) and Abu Dhabi. Its authorized capital is Rs. 5 billion and paid up capital is Rs. 2160 million of which 60% is held by the GOP and 40% by Abu Dhabi petroleum investments of Abu Dhabi. This long awaited project has been setup despite facing numerous obstacles and hurdles during the 1998-99 periods and despite international sanctions. PARCO is presently engaged in the transportation of petroleum product on behalf of oil marketing companies OMC’s from Karachi to Mahmood Kot near Multan and to Faisalabad and Machike near Lahore through its 1,230 kms. Pipeline. Parco’s pipeline system includes a network of highly sophisticated telecommunication facilities and a comprehensive supervisory control and data acquisition system.
  46. 46. 46 Originally, Parco’s pipeline network was functioning up to Mahmood Kot near Multan, a distance of 864 kms and operating on the basis of two pumping stations at Karachi and Shikarpur with an annual pumping capacity of 2.9 million tons. Two additional intermediary pumping stations commissioned in 1994 at Bubak (Sindh) and at Fazilpur (Punjab) increased the pumping capacity to 4.5 million tons per annum. Later, with further technological upgrading of the system the pumping capacity was increased to 6 million tons. This additionalcapacity is a major step towards meeting the increasing requirements of petroleum products in the central and northern areas of the country, which account for over 60% of the country’s demand of petroleum products. This increased capacity will also come in extremely handy for transporting 4.5 million tons of crude and 1.5 million tons per year of products through the existing pipelines. This timely initiative by PARCO will relieve a lot of pressure on road movement. In June 1997, PARCO completed its 364 Kms. MFM pipeline extension project and extended its operations to Faisalabad and Machike. The project design allows for further expansion of the pipeline from Faisalabad at Kharian besides Sahiwal and from Mahmood Kot to Peshawar.
  47. 47. 47 All PARCO terminals and pumping stations have been designed according to the latest international standards and laid out in a standardized fashion for ease of operation. PARCO crosses country installations have been adjudged to be comparable to the best available in the international oil industry. The refinery will be on stream by September 2000, which will place PARCO in a unique position, with an additional capability to exploit the future trends of the oil industry in Pakistan. MISSION STATEMENT OF PARCO To provide the country and the oil marketing companies (OMC’s) with as good a service in the area of product transportation, as it has in the past with the pipeline transportation. To maximize production of middle distillates and full oil to meet the national demands of petroleum products which is currently around 18 million metric tons, increasing at rate of 5% per annum. VISSION STATEMENT OF PARCO For PARCO to remain amongst tomorrow's corporate winners, it not only needs to have a clear Vision but also a passion for translating that Vision into reality. The big challenge is figuring out what future will be the right one, a future that will give a definite competitive advantage to the company over the long term. We are creating a cause for action besides charting a course on how to get there.
  48. 48. 48 OBJECTIVES OF PARCO The following long term corporate objective, which are inherently embodied in the name of the company are: (P) Professional and Progressive Corporate outlook. (A) Aggressive Pursuit of Technical Excellence Advanced Planning. (R) Reliability of Service (C) Consistency in performance (O) Organized, Systematic Development. FUTURE PROJECTS I. EXPANSION OF THE REFINING BASE - (KHALIFA COASTAL REFINERY) Foreseeing the mounting demand of deficit POL products in Pakistan, PARCO in alliance with International Petroleum Investment Company (IPIC) of Abu Dhabi, is endeavoring on a 250,000 bpd deep conversion refinery with a foreign direct investment of US $6 billion, at Khalifa pointnear Hub in Pakistan’s province of Baluchistan. The IPIC and other UAE Government institutions will have the majority of the shareholding i.e. 74% shares in the project, whereas Pak-Arab Refinery Limited (PARCO) will have 26% of the holding.
  49. 49. 49 IMPORTANCE The developmentof Khalifa Coastal Refinery atKhalifa Point will be a strategicinvestmentand will play a pivotal role in ornamenting the country’s petroleum affluence. With the construction of marine loadingfacilities to feed the refinery along with catering to export requirements, Khalifa Pointwould also developinto another port proficient in handlingliquidpetroleum cargo. This would be significantly instrumental in supplementing the economic developmentof Pakistan in general and Baluchistan in particular. Process selection and refinery configuration are based on meeting regional as well as domestic “MiddleDistillates”requirements. The refinery will be producing petroleum products of internationalquality based on “Euro IV” specifications for improving environmentalstandards besides ensuring the marketability of the products in the international marketplace. KhalifaCoastal Refinery is a deep conversion refinery, designed to process 250,000bpd, and is being designed to process Heavy Crude which will be procured from adjoining gulfcountries like UAE, Iran, and Saudi Arabia etc.
  50. 50. 50 Benefits of Khalifa Coastal Refinery - (KCR)  Foreign DirectInvestmentof about US $6 billion,which is the largest single Foreign Direct Investment (FDI) made in the country so far. This will bolster the much needed economic activity in a relatively less developed area.  Improvement of much needed petroleum infrastructure in the country.  The deficits of Diesel faced by the country will either be wiped out or reduced to minimal quantities.  Strengthen the supply chain integrity of petroleum products in the country.  Generate directand indirectemploymentduring construction as well as the operation phase.  Training and development of local human resource through new opportunities and technology transfer.  The Human Resource employed for the project will be technically trained and exposed to latest technology.  Enhancementof the productivity of local vendor and material supply industry.  Another effort of Government and Private sector to bring welfare to the people of Pakistan, especially in Baluchistan.  Development of other ancillary and support industry around the refinery complex.
  51. 51. 51 FINANCIAL ENVIRONMENT IN PARCO Finance department is the backbone of every organization. In MCR finance department has several sections. The Finance department is responsible for the entire accounting process of the organization, regarding the recording of the transactions, designing the accounting, preparing of financial statements and computer application to the accounting process. In MCR only Trial Balance prepare, all Accounts are maintainedin Karachi head office. Sophisticated techniques are used, LAN & WAN systems, Inter Com facility through MCR to Head Office Karachi are very beneficial to maintain the accounts of PARCO. From this quick and better work is possible. These techniques are very effective and prove efficient for growth and progress of this organization. Now it will possible to check and collected the information or routine work of any employee of PARCO.
  52. 52. 52 SECTIONS OF FINANCE DEPARTMENT Accounting matter of finance department is deal both in the Refinery office and Head office. Head office deals Bankingsection, Payroll section, Insurance Section, Import Section, Income Tax accounting while Refinery office deals initial stage of business transaction, recorded and maintained. Refinery finance department consists of billing payable Section, Receive able Section, Impressed or cash section, MIS Section, Invoice Section, Cost, and Budget & Sales Section. Also other section which are not directly linked with accounts but also necessary. I would like to mention these sections Oil accounting Section, Purchase Section or store or supplies, shipping Section, Commercial department. All final accounts are maintained in Head Office INCOME STATEMENT AND BALANCE SHEET. In the Refinery office only Trial balance posting complete. The main functions of these sections are record the business transactions. Sections are restricted up to the recording and maintaining the accounting data. For proper maintain the accounts, used coding techniques on their voucher. There are four kinds of vouchers. 1. CASH VOUCHER: These vouchers are prepared for payment of petty cash. 2. CHEQUE VOUCHER: CHEQUEpayments made by these vouchers. 3. PAYABLE VOUCHER: This voucher is prepared at the time of making payment to any party. In accounting term, party name will be debited and income, taxes and advances will be credited.
  53. 53. 53 4. JOURNAL VOUCHER: This is also known Adjustment voucher. This voucher is prepared for adjusting any entry. 5. Vouchers are prepared after every transaction. Write narration about these vouchers. These vouchers are signed by certain authorities e.g. (prepared by, checked by, approved by, punched by, Verified by). IMPREST/CASH SECTION Scrutinizing of vouchers / cash disbursements & maintenance of record (REFINERY & PIPELINE) of the following activities: - 1. Cash withdraw from Bank. 2. Payment of Medical Allowance 3. Payment Petrol Subsidy. 4. Payment Hardship Allowance 5. Payment of Out Station Allowance (Rs.100/= per day.) 6. Payment of Tea Allowance (Rs.8.4/= per day to every employee.) 7. Payment of Office Entertainment & Refreshment 8. Payment of Utilities 9. Advances to Employees against Expenses.(If necessary) 10.Statement of General Expenses (T.A & D.A, Suppliers labor etc)
  54. 54. 54 1. Grade I – Payment made by the Head Office. 2. Grade II -- Entertainment1000/=per month and current value of 250 liters petrol paid. 3. Grade III – Rs.600/= per month as entertainment and current value of 200 liters petrol are paid. 4. Grade IV-- Rs.400/=per month as entertainmentand 175 liters petrol paid. 5. Grade V to IX-- Petrol subsidy 150 liters paid to the employees. Salaries of Refinery employees paid by Head Office. Custom Staff payment and submission of Monthly summary to corporate office to recoverable from OMCS. Bloom field Hall School (Advances & Reimbursement of Expenses) Payment of Salaries to casual Staff. Preparation of journal Vouchers of Expenses Statement against advance and maintenance of record. Maintenance of Cash Book Checking of Vouchers, coding and posting and dispatch to Head Office.
  55. 55. 55 COST AND BUDGETING & SALES TAX This Section deals the Budget control and Sales taxes. Cost and Budget: Budget is allocated for every year. This period start from 1st July to30th June. We can classify the budget in to two main heads, Revenue Budget and Capital Budget. Revenue Budget is allocated for operating expenses which are helpful for generate the revenue e.g. telephone, store and supplies etc. Capita Budget is allocated for fixed expenses e.g. furniture and fixture, machinery etc.These are allocated in proper heads, either about Revenue items or Capital items. This will helpful in better coding and maintainingthe record. Each department demanded required budget. When ever any thing is required Indent Sheet is prepared. This is written issue order which is approved by finance department. Tofulfill the need of any thing which is mentioned in Indent Sheet, calls quotations from various department. Suitable quotation accepted and place purchase order. Purchase department prepares Material receipts statement (MCR), when material received. From this received material, issue to the demanded department, and prepare Material Issue Requisition (MIR). Every department prepared the coordinate, in the form of summary. This summary is send via approval of Manager. Board of Director approved it. When ManagingDirector singed it, and then sends to related department.
  56. 56. 56 SALES TAX Sales Tax has coordinated relationship between sales output invoices and purchase input invoices. If amount of sales output invoices increases, we will have to pay sales tax, and if the amount purchase input invoices increase, we recover amount of tax. So for we adjust either we pay or pay. In case of favorable balance, we will not received and carry forward for next transaction. Four copies of Invoices are classified as such. First original invoice, send to consignee, second duplicate copy send to Parco commercial department, triplicate copy receive Parco finance department and quadruplicate copy send to shipping/clearance department. 99 % parties are registered that pay the sales tax 15 % and remaining unregistered parties that pay the sales tax 15 % plus 1.5 % deduct as sales tax, not as the whole 16.5 % deduct as sales tax. Sales tax pays up to 15th date to next month. Head Office purchases the crude oil by the Letter of Credit. We can refund the sales tax amountunder Section 22(1) a, Sales tax act 1990. We adjust the favorable balance, carry forward for next transactions.
  57. 57. 57 SIGNIFICANT OF ACCOUNTING Summary of Significant Accounting Policies are as follow. Basis of Presentation These accounts have been prepared in accordance with International Accounting Standards, as applicable in Pakistan. Accounting Conversion These accounts are prepared under the historical cost ‘convention’ as modified by capitalization of exchange differences. FIXED ASSETS AND CAPITAL WORK-IN-PROCESS Fixed assets except land are stated at cost less accumulated depreciation. Land and capital work in progress are stated at cost. Cost in relation to certain fixed assets and capital work –in- progress signifies in historical, exchange differences e.g. (Assets and liabilities in foreign currencies are translated into rupees at the specifics rate of exchange announce by the State Bank of Pakistan. Prevailing on the balance date, except those which are covered under exchange risk cover scheme, which are translated at cover rate. Exchange gain/loss on loan relating to assets that have been fully depreciated is directly charge to profit and loss account) and financial charges on borrowing for financing the project until such projects are completed or become operational.
  58. 58. 58 Depreciated is charged to income applying the straight line method, where by cost of an assets are written of over its estimated useful life without taking intoaccounts any residual value. Full year depreciated is charged on addition while no depreciation is charged on items disposed off during the year. Maintaining and repaired are charged to income as and when incurred, major renewals and improvements are capitalized and the assets so replace, if any, are retired. Gains and losses are disposals of assets (If any) are included in income currently. Assets Subject to Finance lease Assets subjects to finance lease are stated at the lower of present value of minimum lease payments under the lease agreement under the fair value of assets, the related obligation of the lease are accounted for as liabilities. Assets acquired under the finance lease are depreciated over the useful life of the assets on the straightline method at the rate given:, Depreciation on lease assets is taken to profit and loss accounts. Borrowing Cost Borrowing costs that are attributed to the acquisition, construction, or production of fixed assets have been capitalization as the part of cost of the relevant asset.
  59. 59. 59 INVESTMENT Long Term These are stated at cost. Provision is made for decline, other than temporary, in the value of investment, if any. Short Term These are stated at the lower of cost or market value. Stores & Spares These are valued at the moving average cost, while items considered obsolete are carried at nil value. Items in transit are valued at cost comprising invoice value plus other charges paid thereon. REVENUE RECOGNITION Revenue from Transportation Revenue from transportation of petroleum is recognized on delivering the products. Investment Return on investment recognized at the rate specified in the respective investment scheme and accrued for the period. The income is recognized on the assumption that such investments will be held till the next terminal date.
  60. 60. 60 Ratio analysis Ratio analysis of financial statements refers to the process of Determiningand presenting the relationshipof items and group of items in the statements. Ratioanalysis however is not an exact science but a useful art. It is a Statistical yardstick providing a measure of relationship between two Accounting figures. Ratio analysis can be of use both in the trend or structural Analysis and static analysis. Great care is needed while calculating meaningful ratios and in interpreting them. Although there are several ratios which can be employed by an analyst, yet the type of ratio, he would use entirely depends on the purpose for which the analysis is done i.e., a creditor would keep himself abreast about the ability of a concern to cover up its current obligations and so would care about current and liquid ratios, turnover of receivable, coverageof interest by the level of earning etc. So the Financial statement analysis is the process of identifying of financial strengths and weaknesses of the firm by properly establishing relationshipbetween the items of the balance sheet and the profit and loss account.
  61. 61. 61 The need for ratios arises due to the fact that absolute figures are often misleading. For example, if sale increases from Rs.300, 000/= to Rs.350, 000/=, itmay not be a good thing as appears. The increase in sales may be affected at the cost of a disproportionate rise in expenses. Absolute figures are only valuable if they are studied in relation to each other. EXPENSES OF RATIOS Expenses of ratios are done in the following ways: Actual ratios are arrivedatby dividingone number by another e.g. current asset to current liability is 2:1 Ratiobetween two numerical facts usually over a period of time e.g. Stock turnover is three times a year. Ratio between two numerical may be expressed in percentage.
  62. 62. 62 SWOT ANALYSIS OF PARCO  Strength:-  Government Ownership  Pipeline Network  The Better Quality Brand  Strength is People  Strength Asset  Environmental Friendliness  Financial Strength  Weaknesses :-  Little Promotional Activity  Volatile and Inflammable Nature of the Products  Under Utilization Capacity  Opportunities :-  Growing Demand  Export Market  Threats :-  Substitute Products  Rising Input Costs  Governmental Regulations  Uncertain Political & Economic Conditions  Competition
  63. 63. 63 CONCLUSION Every thing PARCO achieves is the product of team effort. All PARCO employees share the achievements of the company and have every reason to feel proud of what has been achieving so far. However with the diversification in business activity, especially in the finance department, PARCO meet the new challenges, since success lies in better service and consumer satisfaction. PARCO’S future aim is therefore to consolidate a significant account presence, as a major contender in the petroleum sector of Pakistan, with a future that heralds bright prospects. There is need for proof any concept of refresher courses for the employees. If directors would make arrangement to provide training to the employees then they would work efficiently. By this productivity will also increase. I would like to recommend that the management should develop some policies for the promotion of efficient workers. If no policy for the promotion of workers so it will create unrest among the workers. The management should make sound policies for the promotion of efficient workers. This will not only increase the productivity of workers but the management will also retain efficient workers with them.