chap-6 financial analysis

8/3/2019 Chap-6 Financial Analysis

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Bank's Profile

CHAPTERNO-6

Financial Analysis


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FINANCIAL ANALYSISFINANCIAL ANALYSIS

The financial statement of any organization shows the results of its operation and its position

in business. It is a process which involves reclassification and summarization of information

through the establishment of ratios and trends. The overall objective of financial statement

analysis is the examination of a firms financial position.

Horizontal analysis

Through this analysis we can check that what changes with are in years in the items of

balance sheet and profit and loss account. Last year is become base the for next year. And

change can be easily analyzed.

Vertical analysis

In vertical analysis of balance sheet the percentage of each item of statement is calculated to

total and then the change in the percentages is checked with in years.

Ratio Analysis

Ratio analysis involves methods of calculating and interpreting financial ratio to analyze and

monitor the firm performances. The basic inputs to ratio analysis are the firms balance sheet

and income statement.

BALANCE SHEET

FOR THE YEARS ENDED DECEMBER 31

(2008 2010)


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Assets

(Rupee in Thousands) Year 2008 Year 2009 Year 2010


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Current Assets

Cash and balances with

treasury banks 106,503,756 115,827,868 115,442,360

Balances with other banks 38,344,608 28,405,564 30,389,664

lending to financial

institutions 17,128,032 19,587,176 23,025,156

Account Receivable 24,217,655 25,147,192 26,888,226 Investments 170,822,491 217,642,822 301,323,804

Advances 412,986,865 475,243,431 477,506,564

Total Current Assets 770,003,407 881,854,053 974,575,774

Fixed Assets

operating fixed Assets 3,204,572 3,062,271 6,952,666

deferred tax - - -

other Assets 44,550,347 59,666,438 53,496,240

Total Assets 817,758,326 944,582,762 1,035,024,680

Liabilities Current

Liabilities

Bills Payable 10,219,061 10,621,169 8,006,631

Borrowing 40,458,926 45,278,138 20,103,591

Deposits & other Accounts 624,939,016 727,464,825 832,151,888

Total Current Liabilities 130672708 148642447 145099907

Non-Current

Liabilities

Sub-ordinate Loans - - -

Liabilities against assets

subject to finance lease 25,274 42,629 106,704

Tax liabilities - - -

Other liabilities 46,160,038 42,269,623 39,656,831

Total Liabilities 715,299,108 825,676,384 906,528,852Share

Holders

Equity

Share Capital 8,969,751 10,763,702 13,454,628

Reserves (R.E) 19,941,047 22,681,707 24,450,244

Inappropriate income 52,456,204 60,696,510 65,857,438

Surplus on revaluation of

assets- net of tax 21,092,216 24,764,459 24,733,518

Total Common Equity 102,459,218 118,906,378 128,495,828

Total Liabilities & Owner Equity102,459,218

118,906,378

128,495,828

INCOME STATEMENTS


(2008 2010)

(Rupee in Thousands) Year 2008 Year 2009 Year 2010

SALES Mark-up/Return/Interest earned 60,942,789 77,947,697 88,472,134

COGS Mark-up/Return/Interest expensed 23,884,768 40,489,649 45,250,476


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Provision against non-performing loans

and advances-net 10,593,656 37,458,048 43,221,658

Provision /(Reversal) for diminution in

the value of investment-net 4,000 605,629 2,954,678

Bad debts Written off directly - - -

26,087,216 25,788,713 33,251,969

Other

Income Non-mark-up/interest income

Fee, commission, and brokerage income 7,925,370 8,930,391 9,631,579 Dividend income 2,878,332 1,920,336 1,099,493

Income from dealing in foreign currencies 3,969,057 3,028,165 2,211,139

Income from sale and Purchase of securities 395,427 4,591,894 2,512,363

Unrealized loss on revaluation of Investments

Classified as held for trading-net 1,707 2,355 6,730

Other Income 1,245,669 552,216 2,171,336

42,503,078 21,300,173 24,415,119

Other

Expenses Non-Mark Up/Interest Expenses

Administrative Expenses 18,171,191 22,571,470 26,202,577

Provision against other assets-net 747,521 620,780 148,026

Other charges 583,361 321,647 118,887 Extra-ordinary/unusual items - - -

23,000,998 21,300,173 24,415,119

Gross

Profit Profit Before Taxation (EBIT) 7,542,408 21,300,173 24,415,119

Taxation Taxation-Current 11,762,650 8,871,513 9,835,048

-Prior Years - (4,133,282) (939,256)

-Deferred - (999,904) (2,043,887)

Profit After Taxation 15,458,590 17,561,846 17,563,214

Unappropriated profit brought forward 45,134,358 52,456,204 60,696,510

Unappropriated profit brought forward

Transfer from surplus on revaluation of fixed

assets on account of incremental depreciation 130,456 123,934 117,738

Net Profit Profit available for appropriation 60,933,234 70,141,984 78,377,462

BALANCE SHEET


(2008 2010)HORIZANTAL ANALYSIS

Particulars

Incur/Dec in

%age

Incur/Dec in

%age

Assets

(Rupee in Thousands) Year 2009 Year 2010 Current Assets

Cash and balances with treasury

banks 8.392759 8.754726


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Balances with other banks -20.7459 -25.9203

lending to financial institutions 34.42966 14.35742

Account Receivable 11.02737 3.838262

Investments 76.39586 27.40876

Advances 15.6227 15.07471

Total Current Assets 26.56772 14.52599

Fixed assets

operating fixed Assets -4.44056 116.9608

deferred tax - -

other Assets 33.93036 20.08041

Total Assets 15.50879 26.56853

Liabilities Current

Liabilities

Bills Payable 3.934882 -21.65

Borrowing 11.91137 -50.3111

Deposits & other Accounts 16.40573 33.15729

Total Current Liabilities 13.75172 11.04071

Non-Current

Liabilities Sub-ordinate Loans - -

Liabilities against assets subject

to finance lease 25,274 322.1888

Tax liabilities - -

Other liabilities 46.16038 -14.0884

Total Liabilities 15.43093 26.73423

Share

Holders

Equity

Share Capital 20.00001 50.00002

Reserves (R.E) 13.74381 22.61264

Inappropriate income 15.70893 25.54747

Surplus on revaluation of assets-

net of tax 17.41042 17.26372

Total Common Equity 16.0524 25.41168

Total Liabilities & Owner Equity

16.0524 25.41168

INCOME STATEMENTSFOR THE YEARS ENDED DECEMBER 31

(2008 2010)HORIZANTAL ANALYSIS

Particulars

Incur/Dec in

%age

Incur/Dec in

%age

(Rupee in Thousands) Year 2009 Year 2010

SALES Mark-up/Return/Interest earned 27.90307 45.17244

COGS Mark-up/Return/Interest expensed 69.5208 89.45328

Provision against non-performing loans

and advances-net 253.5894 307.9957

Provision /(Reversal) for diminution in

the value of investment-net 15040.73 73766.95


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Bad debts Written off directly - -

-1.14425 27.46461

Other

Income Non-mark-up/interest income

Fee, commission, and brokerage income 12.68106 21.52845

Dividend income -33.283 -61.801

Income from dealing in foreign currencies -23.7057 -44.2906

Income from sale and Purchase of securities 1061.249 535.3544

Unrealized loss on revaluation of Investments

Classified as held for trading-net 37.96134 294.2589

Other Income -55.6691 74.31083

-49.8856 -42.5568

Other

Expenses Non-Mark Up/Interest Expenses

Administrative Expenses 24.21569 44.19846

Provision against other assets-net -16.9548 -80.1977

Other charges -44.8631 -79.6203

Extra-ordinary/unusual items - -

-7.39457 6.148085

Gross Profit Profit Before Taxation (EBIT) 182.4055 223.7046

Taxation Taxation-Current -24.579 -16.3875 -Prior Years - -

-Deferred - -

Profit After Taxation 13.60574 13.61459

Unappropriated profit brought forward 16.22233 34.47961

Unappropriated profit brought forward Transfer

from surplus on revaluation of fixed assets on

account of incremental depreciation 5.262478 -4.99944

Net Profit Profit available for appropriation -13.1287 11.74115

LIQUIDIT RATIO

Liquidity ratios measure of the amount of funds a company can quickly use to settle its

debts.

Net Working Capital Ratio: A measure of both a company's efficiency and its

short-term financial health. The working capital ratio is calculated as:

Formula = Total current assets Total current liabilities= NWC Ratio

2010 = 974,575,774 145099907 = 145,099,907

2009 = 881,854,053 148642447 = 148,642,447

2008 = 770,003,407 130672708 = 130,672,708


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120,000,000

130,000,000

140,000,000

150,000,000

20082009

2010

130,672,708

148,642,447

145,099,907

Interpretation

The analysis shows that Net Working Capital Ratio has decreased in 2010 to 145,099,907 but

it has increased in 2009 to 148,642,447, and decreased in 2008 to 130,672,708.

Current Ratio: It measures the firms ability to meet its short term obligation. The

current ratio is the ratio of current assets to current liabilities: It is expressed as follows.

Formula = Current Assets

Current Liabilities

2010 = 974,575,774 = 7.182%

145099907

2009 = 881,854,053 = 6.605%

148642447

2008 = 770,003,407 = 6.065%

130672708

5

6

7

8

20082009

2010

6.065

6.6057.182

Interpretation


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The analysis shows that Current Ratio has increased in 2010 to 7.182, but it has decreased to

6.605 in 2009, and in 2008 to 6.065.

ACTIVITY RATIO

Activity ratios measure how quickly a firm converts non-cash assets to cash assets.

Account Receivable Turnover: It gives the number of times accounts receivables

is collected during the year.

Formula = Net Credit Sales

Average Account Receivables

2010 = 88,472,134 = 3.290 times

26,888,226

2009 = 77,947,697 = 3.075 times

25,147,192

2008 = 60,942,789 = 2.516 times

24,217,655

0

2

4

20082009

2010

2.516 3.075 3.29

Interpretation

Analysis shows that Account Receivable Turnover Ratio has decreased to 3.516 in 2008 as

compared to 2009 which is 3.075. It again strengthened in 2010 to 3.290.

Total Assets Turnover: It indicates the efficiency with which the firm uses it assets

to generate sales.

Formula = _____Net Sales ____

Average Total Assets


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2010 = 88,472,134 = 0.090%

974,575,774

2009 = 77,947,697 = 0.088%

881,854,053

2008 = 60,942,789 = 0.079%

770,003,407

0.07

0.08

0.09

20082009

2010

0.079

0.088 0.09

Interpretation

Analysis shows that Total Assets Turnover has decreased to 0.079 in 2008 as compared to

2009 which is 0.088. It again strengthened in 2010 to 0.090.

LEVERAGE/DEBET RATIOS: Leverage/ Capital Structure/ Debt ratios measure

the firm's ability to repay long-term debt.

Debit Ratio

It measures the proportion of the total assets financed by the firms credit.Formula = Total Liabilities (Debt)

Total Assets

2010 = 906,528,852 = 0.875%

1,035,024,680

2009 = 825,676,384 = 0.874%

944,582,762

2008 = 715,299,108 = 0.874%

817,758,326


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0.873

0.874

0.875

20082009

2010

0.874 0.874

0.875

Interpretation

Analysis shows that Debt Ratio has increased to 0.875 in 2010 as compared to 2009 which is0.874 and in 2008 to 0.874.

Debt Equity Ratio

It significant measure of solvency since a high degree of debt in the capital structure maymake it difficult for the company to meet interested charges and principles payments at

maturity.

Formula = Total Liabilities

Total Stock Holders Equity

2010 = 906,528,852 = 7.05%

128,495,828

2009 = 825,676,384 = 6.94%

118,906,378

2008 = 715,299,108 = 6.98%

102,459,218


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6.8

6.9

7

7.1

20082009

2010

6.986.94

7.05

Interpretation

Analysis shows that Debt Equity Ratio has increased to 7.05 in 2010 as compared to 2009which is 6.94. It strengthened in 2008 to 6.98.

PROFITABILTY RATIO: Profitability ratios measure the firm's use of its assets

and control of its expenses to generate an acceptable rate of return.

Gross Profit Margin

It expresses the relationship of gross profit to net sales and is expressed in terms of

percentage. This ratio is a tool that indicates the degree to which selling price of goods per

unit may decline without resulting in losses.

Formula = Gross Profit x 100

Net Sales

2010 = 33,251,969 x 100 = 37.58%88,472,134

2009 = 25,788,713 x 100 = 33.08%

77,947,697

2008 = 26,087,216 x100 = 42.80%

60,942,789


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0

20

40

60

20082009

2010

42.8

33.08 37.58

Interpretation

Analysis shows that Cash Ratio has decreased to 37.58 in 2010 . It again strengthened in

2008 to 42.80 while dropped to 33.08 in 2009.

Return On Total Assets

It measures the overall effectiveness of management in generating profits with its availableassets also at ROI.

Formula = Earning Available for Common Stockholders

Total Assets

2010 = 78,377,462 = 0.075%

1,035,024,680

2009 = 70,141,984 = 0.074%

944,582,762

2008 = 60,933,234 = 0.073%

817,758,326

0.072

0.074

0.076

20082009

2010

0.0730.074

0.075


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Interpretation

Analysis shows that Return on Total Assets has increased to 0.075 in 2010. While it again

decreased in 2009 to 0.074% while dropped to 0.073% in 2008.

Return On Total Equity

It measures the return earned on the common stock holders investment in the firms.Formula = Earning Available for Common Stockholders

Common Stock Equity

2010 = 78,377,462 = 5.82%

13,454,628

2009 = 70,141,984 = 6.51%

10,763,702

2008 = 60,933,234 = 6.79%

8,969,751

5

5.5

6

6.5

7

20082009

2010

6.796.51

5.82

Interpretation

Analysis shows that Return on Total Equity has decreased to 5.82% in 2010 as compared to

2009 which is 6.51%. It again strengthened in 2008 to 6.79%.

Earning Per Share

It measures ability to meet short-term cash needs more rigorously by eliminating inventory.Formula = Net Income Preferred Dividends

Common Stock Standing


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Assuming Share Price Rs.1 then

2010 = 78,377,462 - 0 = 5.82%

13,454,628

2009 = 70,141,984 - 0 = 6.51%

10,763,7022008 = 60,933,234 - 0 = 6.79%

8,969,751

5

5.5

6

6.5

7

20082009

2010

6.796.51

5.82

Interpretation

Analysis shows that Cash Ratio has decreased to 5.82% in 2010 as compared to 2009 whichis 6.51%. It again strengthened in 2008 to 6.79%.

chap-6 financial analysis

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