RATIO ANALYSISFINANCIAL ANALYSIS

The financial position of any firm be appraised by analyzing its balance sheet as well as its statements of accounts. The financial statement of any organization shows the results of its operations and its position in business. There is a big difference between data and information. When the data is arranged in such a way that it clearly indicate some facts the data becomes information.

Although the balance sheet and income statement gives a great idea about the financial position of an organization but unless the data of these statements are not compared over the years they do not represent the actual position. The comparison shows the increases, decreases and growth of an organization, which helps to predict the future potential of an organization. The financial statement of any organization includes: The balance sheet The profit and loss accounts

With the help of these four items, financial analysis of an organization can be conducted. Analysis of data helps to conclude the financial strength of an organization. Financial analysis can be done by

Horizontal analysis Vertical analysis

HORIZONTAL ANALYSIS

Through this analysis we can check what change is going on within the years in the items of balance sheet and profit and loss account. In the analysis year 2007 is considered base year for year 2008.

VERTICAL ANALYSIS

In this analysis the percentage of each item of balance sheet and profit and loss account is calculated to the total and then the change in this percentage is checked within years. The following pages shows the horizontal and vertical analysis of Balance sheet and Profit and loss account.

BALANCE SHEET (ASSETS)As on 31st December 2008-07

Rupees (000)

Item 2008 2007

Cash and balance with treasury banks

39631172 39683883

Balance with other bank

4043100 3807519

Lending’s to financial institutions

4100079 1051372

Investments-net 96256874 113089261

Advances-net 262510470

218960598

Operating fixed assets 17263733 16024123

Deferred tax asset-net ― ―

Other assets-net 19810476 17868761

Total 443615904

410485517

MUSLIM COMMERCIAL BANK LIMITED BALANCE SHEET (LIABILTY)As on 31st December 2008-07

Rupees (000)

Item 2008 2007

Bills payable 10551468 10479058

Borrowing from bank 22663840 39406831

Deposits and other accounts

330274155

292098066

Sub-ordinated loan ― 479232

Liabilities against assets subject to finance lease

― ―

Deferred tax liability- 437137 1180162

net

Other liabilities 21253250 11722493

TOTAL LIABILITES 385179850

355365842

NET ASSETS 58436054

55119675

Represented by

Share capital 6282768 6282768

Reserves 36768765

34000638

Inappropriate profit 9193332

5130750

52244865 45414156

Surplus on revaluation of assets- net of tax

6191189 9705519

58436054

55119675

MUSLIM COMMERCIAL BANK LIMITED

BALANCE SHEET (ASSETS)Horizontal Analysis As on 31st December 2008-07

Rupees (000)

Item 2008 2007 %age

Cash and balance with treasury banks

39631172 39683883 (1%)

Balance with other bank

4043100 3807519 6%

Lending’s to financial institutions

4100079 1051372 289%

Investments-net 96256874 113089261

(15%)

Advances-net 262510470

218960598

19%

Operating fixed assets 17263733 16024123 7%

Deferred tax asset-net ― ― ―

Other assets-net 19810476 17868761 10%

Total 443615904

410485517

8%

MUSLIM COMMERCIAL BANK LIMITED BALANCE SHEET (LIABILITIES)Horizontal Analysis As on 31st December 2008-07

Rupees (000)

Item 2008 2007 %age

Bills payable 10551468

10479058

0.69%

Borrowing from bank

22663840

39406831

(42%)

Deposits and other accounts

330274155

292098066

13%

Sub-ordinated loan

― 479232 ―

Liabilities against assets subject to finance lease

― ― ―

Deferred tax liability-net

437137 1180162 (63%)

Other liabilities

21253250

11722493

81%

TOTAL LIABILITES

385179850

355365842

8%

NET ASSETS 58436054

55119675

6%

Represented by

Share capital 6282768 6282768 ―

Reserves 36768765

34000638

8%

Unappropriated profit

9193332

5130750

79%

52244865

45414156

15%

Surplus on revaluation of assets- net of tax

6191189 9705519 (36%)

58436054

55119675

6%

MUSLIM COMMERCIAL BANK LIMITED BALANCE SHEET (ASSETS)VERTICAL ANALYSIS As on 31st December 2008-07

Rupees (000)

Items 2008 2007

Cash and balances with treasury banks

8.93% 9.67%

Balance with other bank 0.91 0.93

Lending to financial institutions

0.92 0.26

Investment-net 21.70 27.55

Advance-net 59.18 53.34

Operating fixed assets 3.90 3.90

Deferred tax asset-net ― ―

Other assets-net 4.47 4.35

Total 100% 100%

MUSLIM COMMERCIAL BANK LIMITED BALANCE SHEET (LIABILITIES)VERTICAL ANALYSIS As on 31st December 2008-07

(Rupees in 000)

Item 2008 2007

Bills payable 2.38% 2.55%

Borrowing from bank 5.11

9.60

Deposits and other accounts

74.45 71.16

Sub-ordinated loan ― 0.17

Deferred tax liability-net 0.09 0.29

Other liabilities 4.79 2.86

Share capital 1.42 1.53

Reserves 8.29

8.28

Un-appropriated profit 2.07

1.25

Surplus on revaluation of assets- net of tax

1.40 2.36

Total 100% 100%

MUSLIM COMMERCIAL BANK LIMITED PROFIT AND LOSS ACCOUNTS For the period ended December 2008-07

Rupees (000)

Items 2008 2007

Markup/return/interest earned

40043824

31786595

Markup/return/interest expenses

11560740

7865533

Net markup/interest income

28483084

23921062

Provision for diminution in the value of investments-net

2683994 105269

Provision against loans and advances-net

1335127 2959583

Bad debts written off directly

― 199

4019121

3065051

Net markup/interest income after provisions

24463963

20856011

NON-MARKUP/INTEREST INCOME

Fee, commission & brokerage income

2866729 2634610

Dividend income 617554 632300

Income from dealing in foreign currencies

727564 693408

Gain on sale of securities-net

740429 1500865

Unrealized loss on revaluation of investments classified as held for trading

(103198)

(13105)

Other income-net 942362 1000149

Total non-markup/interest income

5791440

6448227

30255403

27304238

NON-MARKUP/INTEREST EXPENSES

Administrative expenses 7546878 5426116

Other provision/(reversal)-net

10120 (3743)

Other charges 830839 573830

Total non-markup/interest expenses

8387837

5996203

Extra ordinary/unusual item

― ―

PROFIT BEFORE TAXATION

21867566

21308035

Taxation-current year 7341257 6442356

-prior year (864824 (129447

) 3)

-deferred 16533 894590

6492966

6042473

PROFIT AFTER TAXATION

15374600

15265562

Unappropriated profit brought forward

5130750 5530973

Transfer from surplus on revaluation of fixed assets-net

21319 11855

5152069

5542828

Profit available for appropriation

20526669

20808390

Basic and diluted EPS-after tax

24.47 24.30

MUSLIM COMMERCIAL BANK LIMITED PROFIT AND LOSS ACCOUNTS (INCOME) HORIZONTAL ANALYSIS For the period ended December 2008-07

Rupees (000)

Items 2008 2007 %age

Interest / return earned 40043824

31786595

25%

Fees, commission etc. 2866729 2634610

9%

Income from dealing in foreign currencies

727564 693408 4%

Dividend income 617554 632300 (3%)

Other income 942362 1000149

(6%)

MUSLIM COMMERCIAL BANK LIMITED PROFIT AND LOSS ACCOUNTS (EXPENSES) HORIZONTAL ANALYSIS For the period ended December 2008-07

Rupees (000)

Items 2008 2007 %age

Interest expenses 11560740

7865533

46%

Administrative expense 7546878 5426116

39%

Provision against non-performing advances

1335127 2959583

(55%)

Other provisions 10120 (3743) (170%)

Bad debts ― 199 ―

Other charges 830839

573830 44%

Profit before tax 21867566

21308035

2%

Tax 6492966 6042473

7%

MUSLIM COMMERCIAL BANK LIMITED PROFIT AND LOSS ACCOUNTS (INCOME) Vertical Analysis As at December 2008-07

Items 2008 %age 2007 %age

Interest earned 40043824

87% 31786595

83.11%

Fees, commission etc.

2866729

6.24% 2634610

6.89%

Income for dealing foreign currency A/C

727564 1.58% 693408 1.81%

Dividend income 617554 1.34% 632300 1.66%

Other income 942362 2.05% 1000149

2.61%

Gain on sale of securities

740429 1.61% 1500865

3.92%

Total 45938462

100% 38247927

100%

MUSLIM COMMERCIAL BANK LIMITED PROFIT AND LOSS ACCOUNTS (EXPENSES) Vertical Analysis As at December 2008-07

Items 2008 %age 2007 %age

Interest expenses 11560740

25.22% 7865533

20.57%

Administrative expense

7546878

16.47% 5426116

14.19%

Provision for diminution the value of investment

2683994

5.86% 105269 0.28%

Provision against non-performing advance

1335127

2.91% 2959583

7.74%

Other provisions 10120 0.02% (3743) (0.009)

Bad debts ― ― 199 0.0005

Other charges 830839 1.81% 573830 1.50%

Profit before tax 21867566

47.71% 21308035

55.73%

Total 45835264

100% 38234822

100%

PERFORMANCE 1993-2002

The following figures will give an idea of the progress made after privatization. (Rs. In million)

1993 2002

Authorized share capital 2000 3500Paid-up share capital 663 2665Reserve funds & other reserves

12010 3027

Total assets (excl. contra) 75427 235139Deposits 62783 182706Advances 30753 78924Investments 27864 89610Imports 32734 48842Exports 16931 28284Home remittance 3023 32962Pre-tax profit 346 3103No. of branches 1290 1045No. of employees 13768 10926No. of accounts 3411427 4463530

Balance sheet (assets)Horizontal analysisComments

■ Cash is increased in 2007 but decrease in 2008; it shows that the liquidity position of the bank is going to be weak, so it is alarming sign for the bank. Therefore bank should take necessary steps according to the position.

■ There is decreasing trend in balance with other banks which is a negative sign.

■ Increase in money at call and short notice, it means that customers of bank are very punctual in making payments. Therefore it is good sign for the bank.

■ In the field of investment there is increasing trend with the passage of time. It is common term of finance” more investment more return.

■ As we know that main source of profit of a bank is the difference between the percentages of interest, Banks pay less rate of interest than receiving the interest from the customers. In this case advance to customers very low in 2007 but increase in 2008. It means that MCB is running very well.

■ MCB is in a position that it is earning more and more profit with passage of time. Then bank can purchase more and more fixed assets, and it is bank is doing. Assets of the banks are increasing day by day by purchasing the assets. More assets mean that bank has more capacity to pay off its liabilities. There is increasing trend in field of fixed assets. It is due to purchase of new assets.

■ Other assets have a decreasing trend which is not a positive sign. Decrease in assets decrease the worth of organization liabilities

■ There is increasing trend in dep osits and other accounts which shows the credibility of the bank.

■ Borrowing is decreasing in 2008 but there is increasing trend in the year 2007. Although it is seeing that bank’s borrowing is increasing with the passage of time which is not a good sign but there is a positive thing in this behalf, usually banks borrow money at that time when they would have to give it for earning more profit, I think the Muslim Commercial Bank doing the same thing for increasing its profits.

■ Bills payable increase in 2008 but decrease in 2007 negative sign.

■ Other liability has an increasing trend not good because increase in liability decreases the liquidity position of the bank.

■ Share capital increase that shows the creditability of bank.

■ The Muslim Commercial Bank Limited is increasing its reserves and Un-appropriated profit in order to increase its lending power, which is good sign, because according to the prudential regulations of State Bank of Pakistan, a bank can lend money (per party exposure) equal to the 30% of its assigned capital plus reserves.

MUSLIM COMMERCIAL BANK LIMITEDPROFIT AND LOSS A/CHORIZONTAL ANALYSISIncome■ Interest income increase in 2008 will great

proposition which is favorable. It means that interest received by the bank is increasing with the passage of time. It is good for a banking company.

■ As we all know that banks provide many services for their customers and also act as a agent of the customer. The banks receive fee and commission after their services; it is a main source of bank to receive fee and commission from their customers. In case bank is taking more fees as compared to previous years. This is good for the bank.

■ In foreign currency dealing and dividend there is huge increasing trend which shows the investment of bank in healthy organization.

■ Other income decrease in 2008 but this increase mean positive situation.

Expense ■ Return on deposit decreases which shows good sign

and it is due to decrease in return rate.

■ Adam and diminution and provision against non performing loan decreasing turned that is favorable.

■ Bad debts increased with huge amount not positive sign.

■ Profit before taxation has increased with greater proportion.

■ Tax increases which are not bad because it is interrelated with profit, if profit increased, tax also increase.

Vertical analysisIncome ■ Interest earned decrease which is negative sign.

■ As we know that banks provide many facilities other than money lending and borrowing. Banks receive fee, commission etc. for these services. Therefore fee and commission income are increasing which is good and favorable signs.

■ Divided income increased but it is very small.

■ Other income increase with great proportion good sign.

Expenses ■ Return on deposit decrease good sign because it

increases the profit.

■ Administration expenses are increased but no alarming rate.

■ Position against non performing loan us zero which show bank have good customer.

■ All provision is zero which sows the good credit policy.

■ Bad debt and other charges increased but the situation is not alarming.

■ Profit increased.

■ Tax is increased but it is interrelated with profit.

Overall Review

The Bank has now completed more than 12 years, since its privatization and it is, indeed, gratifying to note that during this period, MCB has performed well and has sustained its growth in all the major sectors. The well deserved credit, for this good performance and progress, must surely go to the Bank’s management, its Directors and, in no small measure, to the entire MCB team for its dedication, concerted efforts and excellent team spirit.

MCB has been a pioneer among the banks in Pakistan, particularly in introducing a number of innovative banking products and services. For the first time in the history of Pakistan, these multifarious products mostly in the shape of saving schemes have been introduced by MCB with brand names. This has set the trend and many other banks, both local and foreign, have since followed in MCB’s footsteps, by launching new products and services, on similar lines.

Ratios Analysis

Ratio analysis is an important and age-old technique of financial analysis. Ratios are important and helpful in the reference that: These simplify the comprehension of financial

statement and tell the whole story of changes in the financial conditions of the business.

These provide data for inter-firm comparison. The ratios highlight the factors associated with successful and unsuccessful firms, also reveal strong and weak firms.

These help in planning and forecasting these can assist management in its basic functions of forecasting, planning, coordination and control.

These help in investment decision in case of investor and lending decision in case of Bankers etc.

However, the ratios are only indicators, they cannot be taken as final regarding good or bad financial position of the business other things have also to be seen.

1. PROFITABILITY RATIOS:

I. RETURN ON EQUITY Rs. (000)

2008 200715374600×10058436054

15265562×10055119675

26.31% 27.69%

COMMENTS

Earning per share is a good measure of profitability & when compared with EPS of similar other companies, it gives a view of the comparative earnings power of the company.EPS of MCB is increasing from 2000 continuously, having a vast difference & it is good for shareholders.

2.RETURN ON ASSETS Rs. (000)

2008 200715374600×100443615904

15265562×100410485517

3.46% 3.72%

3. EARNING PER SHARE Rs. (000)

2008 200715374600628276843

15265562628276843

2.44 2.43

4. return on shareholders investment/ networth

2008 2007 N.P.A.T×1 00Shareholder’s fund

15374600× 100 43051533

15265562×100 40283406

35.71% 37.89%

COMMENTS There is a slight decrease in return on net worth. As the primary objective of every business is to maximize its earnings so this reveals that how the resources of MCB are being used. This ratio is of great importance to the present and prospective shareholders as well as for the management of the company.

NOTE

We assumes net worth by share capital + reserves, as we have not any clear-cut indication about current assets and current liabilities by which we could calculate net worth.

5. INTEREST EXPENSES / TOTAL EXPENSES RATIO

Rs. (000)2008 200711560740×10045835264

7865533×10038234822

25.22% 20.57%

6. INTEREST INCOME / TOTAL INCOME RATIO Rs. (000)

2008 200740043824×10045938462

31786595×10038247927

87% 83%

1.NET PROFIT MARGIN

Rs. (000)2008 200715374600×10045938462

15265562×10038247927

33.46% 39.91%

BALANCE SHEET RATIO

CURRENT RATIO

2008 2007Current assetsCurrent liabilities

325995218 362078873

280320761 314299617

0.90:1 0.89:1

COMMENTS

With the help of current ratio we can see the stability of the firm. A ratio equal to 2:1 is acceptable however it is used to measure the short term financial position of a firm. The MCB’S current ratio is gradually going up and in overall MCB is in good financial position & known as backbone of banking industry due to its credibility

NOTE

As there is no clear indication about current assets so we worked on assumptions. We took current assets as following

Cash Balances with treasury banks Balances with other banks Advances Other assets

We exclude Lending’s to financial institution Investments

Considering them fixed we assumed current liabilities as following

Bills payable Deposits Other liabilities

We exclude Borrowing from financial institution Subordinated loans-as there are loans from

directors.

DEBT TO EQUITY RATIO

2008 2007 Long-term loan+ deferred tax liability /fixed assets + deferred tax assets

23100977 17263733

41066225 16024123

1.338:1 2.56:1

. COMMENTS

Debt to equity ratio is a relationship between external equities or outsider firms and the internal equities and shareholders fund. The purpose of this ratio is to get an idea of the cushion available to the creditors on the profit of the company. The standard for this ratio is 60:40 but there can’t be any rule of thumb for all types of businesses. NOTEIn long term loans, we assumed

Borrowings from financial institution Loan from directors Deferred tax liabilities

In fixed assets we assumed

Operating fixed assets Deferred tax assets

PROPRITORY RATIO

2008 2007Net worth/total assets

21657368 443615904

21548330 410485517

4.88% 5.25%

COMMENTS

This is a variant of debt equity ratio. It is used to measure the future position of the business. This ratio throws light on

general financial position of the company. Higher the ratio better is the solvency position of the company. MCB is showing increasing trend and ratio indicates shareholder’s participation in total assets is enough, which indicates low risk to creditors.

MANAGEMENT RATIO

1. BREAK-UP VALUE

2008 2007Net worth/outstanding shares

21657368 628276843

21548330 628276843

34.47% 34.29%

COMMENTS

Best price from the investor’s point of view is called break up value. Break up value of MCB is increasing from past three years, which shows stability of business.