Page 164 - Pakistan Oilfields Limited - Annual Report 2021

NOTES TO AND FORMING

PART OF THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2021

(ii) Interest rate risk

Interest rate risk represents the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in market interest rates.
The Company has no significant long term interest bearing financial assets and liabilities whose fair
value or future cash flows will fluctuate because of changes in market interest rates.

Financial assets include Rs 47,569,655 thousand (2020: Rs 43,046,489 thousand) which are subject
to interest rate risk. Applicable interest rates for financial assets have been indicated in respective
notes.

If interest rates had been 1% higher/ lower with all other variables held constant, profit after tax for
the year would have been Rs 294,319 thousand (2020: Rs 275,390 thousand) higher/ lower, mainly
as a result of higher/ lower interest income from these financial assets.

(iii) Price risk

Price risk represents the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market prices (other than those arising from interest rate risk or
currency risk), whether those changes are caused by factors specific to the individual financial
instrument or its issuer, or factors affecting all similar instruments traded in the market.

The Company is exposed to equity securities price risk because of investments held by the Company
and classified on the statement of financial position as investments classified as fair value through
profit or loss . To manage its price risk arising from investments in equity securities, the Company
diversifies its portfolio. Diversification of the portfolio is done in accordance with the investment
policy of the Company.

Investments classified as fair value through profit or loss of Rs Nil (2020: Rs 6,519 thousand) were
subject to price risk.

35.3.2 Capital risk management
The Company’s objectives when managing capital are to ensure the Company’s ability not only to
continue as a going concern but also to meet its requirements for expansion and enhancement of its
business, maximize return of shareholders and optimize benefits for other stakeholders to maintain
an optimal capital structure and to reduce the cost of capital.

In order to achieve the above objectives, the Company may adjust the amount of dividends paid to
shareholders, issue new shares through bonus or right issue or sell assets to reduce debts or raise
debts, if required.
Consistent with others in the industry, the Company monitors capital on the basis of the gearing
ratio. The gearing ratio of the Company has always been low and the Company has mostly financed
its projects and business expansions through equity financing. Further, the Company is not subject
to externally imposed capital requirements.

35.3.3 Fair value of financial assets and liabilities

The carrying values of all financial assets and liabilities reflected in the financial statements
approximate their fair values. The table below analyzes financial assets that are measured at fair
value, by valuation method. The different levels have been defined as follows:

162 PAKISTAN OILFIELDS LIMITED