Transcript
FINANCIAL ANALYSIS
"Financial statement analysis is the process of identifying of financial strengths
and weaknesses of the firm by properly establishing relationship between the items of
the balance sheet and the profit &loss account," and it is done through ratio analysis.
Ratio Analysis
Ratio means “one number expressed in term of another a ratio is statistical
yardstick by mean of which relationship between two or various figures can be
compared or measured. Here we are going to explain the ratio analysis of MCB.
CATEGORIES OF FINANCIAL RATIOS
Financial ratios can be divided into the following six parts.
A. Liquidity ratios
B. Activity ratios
C. Leverage ratios
D. Profitability ratios
E. Investor ratios
F. Bank special
ratios
A. Liquidity
ratios
Current ratios
Quick ratios
Absolute Liquid ratio
B. Activity ratios
Inventory turnover ratio
Average collection period
Average payment period
Total assets turnover ratio
D. Profitability ratio
Return on total assets
Return on-equity
Return on investment
Return on fixed assets
Average profit per branch
Net profit Margin
Interest income to total income
Interest expense to total expense
Return on advances
E. Investor Ratios
Earning per share
P/E ratio
Dividend per share
Dividend yield ratio
Dividend payout ratio
Break up value/Book value per share
F. Bank special Ratios
Earning assets to total assets
Return on earning assets
Net margin to earning assets
Loan loss coverage ratio
Equity to total assets
Deposit time equity
Loan to deposit ratio
Profitability Ratios
Profitability ratios are used to assess a business's ability to generate earnings as
compared to its expenses and other relevant costs incurred during a specific period of
time. It include following ratios:
• Net Profit Margin
• Return on Assets
• DuPont Return on Assets
• Operating Income Margin
• Return on Operating Assets
• Return on Total Equity
• Gross Profit Margin
Net Profit Margin
Profit margin is very useful when comparing companies in similar industries. A higher
profit margin indicates a more profitable company that has better control over its costs
compared to its competitors.
Formula
Net profit Margin = Net Profit / Net sales
Calculation
Year Net profit Net sales Ratio
2009 15374600000 40043824000 = 0.384
2010 15495297000 51616007000 = 0.300
2011 16873175000 54821296000 = 0.308
Year Year 2010 Year 2009
/ / 15374600000 / 40043824000
Net Profit Margin
0.308 0.3000.384
00.10.20.30.40.5
Year 2011 Year 2010 Year 2009
Graphical representation
Interpretation
Net profit margin measures how much of each dollar earned by the company is
translated into profits. A low profit margin indicates a low margin of safety: higher risk
that a decline in sales will erase profits and result in a net loss.
Net profit margin provides clues to the company's pricing policies, cost structure and
production efficiency. Different strategies and product mix cause the net profit margin to
vary among different companies. Net profit margin is bit better in year 2008 as compare
to other two years.
Return on assets
Return on assets is a measure of how effectively the firm’s assets are being used to
generate profits ROA gives an idea as to how efficient management is at using its
assets to generate earnings. Calculated by dividing a company's annual earnings by its
total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return
Return on Assets
3% 3%
3.50%
3%3%3%3%3%4%
Year 2011 Year 2010 Year 2009
oninvestment".
Formula
Return on Assets = Net profit / Total Assets * 100
Calculation
Year 2011 Year 2010 Year 2009
16873175000 / 567552613000
= 0.030 * 100
= 3.00 %
15495297000 / 509223727000
= 0.030 *100
= 3.00 %
15374600000 /
443615904000
= 0.035 * 100
= 3.50 %
Graphical representation
Interpretation
The purpose of this ratio is to calculate the return that the business is providing on total
assets. This is important from owner’s point of view that what the business is earning
on its assets, how their funds are being utilized. This ratio also provides an indicator of
overall effectiveness of management in generating profit with the available assets the
higher the percentage the better for the organization. If we analyze the above situation
we can find that in 2008 the ratio is pretty good but it drops in year 2009 and good thing
is that it doesn’t drop further are remain constant at 3% in year 2010 also.
Return on Assets
Return on assets (ROA) is a percentage of the after-tax income as compared to the
total assets of the company. Management at Du Pont came up with Return on Assets
(Du Pont), an approach that determines the impact of asset turnover and profit margin
on profits. This interactive tutorial explains the concept by walking you through the
calculations, including where to find the numbers on the financial statements.
Formula
DuPont Return on Assets = (Net Income / Sales) X (Sales / Total Assets)
Calculation
Year 2011 Year 2010 Year 2009
16873175000/
54821296000
*
54821296000 /
567552613000
= 0.030
15495297000 /
51616007000
*
51616007000
/509223727000
= 0.030
15374600000
/40043824000
*
40043824000 /
443615904000
= 0.035
Interpretation
DuPont Return on Assets actually shows the relation of the net income, sales and total
asset during the period. According to the result of the analysis it is clearly indicated that
this ratio is same in year 2010 & 2009 but its high in 2008.
Operating Income Margin
0.672
0.693
0.711
0.64 0.66 0.68 0.7 0.72
Year 2011
Year 2010
Year 2009
Operating Income Margin
A ratio used to measure a company's pricing strategy and operating efficiency.
Formula
Operating income margin = operating income / net sale
Calculation
Year 2011 Year 2010 Year 2009
36833529000 / 54821296000
= 0.672
35778685000 / 51616007000
= 0.693
28483084000 /
40043824000
= 0.711
Graphical representation
Interpretation
This ratio measures the percentage of profit earned on sale after deducting operating
expenses from the Gross Profit. This ratio indicates that how efficiently the expenses
are being controlled by management. The higher the margin the lower would be the
operating expenses and better would be management ability to control expense. As we
look at the graph the figures are little disappointed as for as organization is concern as
you can clearly see in year 2008 company is in a better position to manage the
expanses but unfortunately it drops year by year which is not a good sign because it
shows company has no or less control on there expanses.
Return on operating assets
The return on operating assets measure only includes in the denominator those assets
actively used to create revenue. This focuses management attention on
the amount of assets actually required to run the business, so that it has
a theoretical targeted asset level to achieve.
Formula
Return on operating assets = Net Profit / Operating Assets
Calculation
Year 2011 Year 2009 Year 2008
16,873,175,000 /
325308093000
= 0.052
15495297000 / 313039174000
= 0.049
15374600000 /
323130454000
= 0.048
Graphical representation
Return on operating assets
0.0520.049 0.048
0.046
0.048
0.05
0.052
0.054
Year 2011 Year 2010 Year 2009
Interpretation
This ratio gives the operating efficiency of management. This ratio indicated how
Operating assets are utilized. In other words how much assets are used in operating
activities. High Return on Operating Asset ratio shows the efficient use of operating
assets. The ratio is high in 2010 as compare to 2009 and 2008
Return on total equity
Return on equity (ROE) measures the rate of return on the ownership interest
(shareholders' equity) of the common stock owners. It measures a firm's efficiency at
generating profits from every unit of shareholders' equity (also known as net assets or
assets minus liabilities). ROE shows how well a company uses investment funds to
generate earnings growth.
Formula
Return on Equity = Net Income/Shareholder's Equity *100
Year 2011 Year 2010 Year 2009
16873175000 / 69180011000
= 0.244 * 100
= 24.4 %
15495297000 / 61075932000
= 0.254 *100
= 25.4 %
15374600000 /
52244865000
= 0.294 *100
= 29.4 %
Graphical representation
24.40% 25.40% 29.40%
0.00%
10.00%
20.00%
30.00%
Year 2010 Year 2009 Year 2008
Return on total equity
Interpretation
Return on Equity (ROE) is an indicator of company's profitability by measuring how much profit
the company generates with the money invested by common stock owners. It is also known as
Return on Net worth this ratio doesn’t seem to be fluctuate too much just a little drop in
percentage in year 2009 & 2010 as compare to year 2008 .
0.672
0.6930.711
0.64
0.66
0.68
0.7
0.72
Year 2011 Year 2010 Year 2009
Gross Profit Margin
Gross Profit Margin:
Gross profit margin is a measure of the gross profit earned on sales. The gross profit
margin considers the firm’s cost of goods sold, but does not include other costs. It also
used to assess a firm's financial health by revealing the proportion of money left over
from revenues after accounting for the cost of goods sold. Gross profit margin serves as
the source for paying additional expenses and future savings.
Formula
Gross Profit Margin = Gross Profit / Net Sales
Calculation
Year 2011 Year 2010 Year 2009
36833529000 / 54821296000
= 0.672
35778685000 / 51616007000
= 0.693
28483084000 /
40043824000
= 0.711
Graphical representation
Interpretation
Gross profit margin is an indicator of how efficient a company is and how well it controls
its costs. The higher the margin is, the more effective the company is in converting
revenue into actual profit. By analyzing this graph we can easily say that the
organization is performing good in year 2008 but unfortunately the gross profit margin
come down year by year.
Activity Ratios
Indicates quality of receivables and how successful the firm is in its collections.
Total asset turn over
The total asset turnover represents the amount of revenue generated by a company as
a result of its assets on hand. This equation is a basic formula for measuring how
efficiently a company is operating. The sales represent all the revenue generated by the
company and is disclosed on a company's income statement. The total assets
represent the assets listed on the company's balance sheet.
Formula
Total Assets Turnover = Total Net Sales / Total Assets
Calculation
Year 2011 Year 2010 Year 2009
54821296000 / 567552613000
= 0.097
51616007000 / 509223727000
= 0.101
40043824000 / 443615904000
= 0.090
Total asset turn over
0.097
0.101
0.090
0.08 0.085 0.09 0.095 0.1 0.105
Year 2011
Year 2010
Year 2009
Graphicalrepresentation
Interpretation
Total asset turnover measures the activity of the assets and the ability of the firm to
generate sales through the use of sales there is a decreasing trend from year 2008 but
in 2009 it increases not only increases but at the hightest place as compare to 2010 &
2008 and again falls in 2010.
The lower the total asset turnover ratio, as compared to historical data for the firm and
industry data, the more sluggish the firm's sales. This may indicate a problem with one
or more of the asset categories composing total assets - inventory, receivables, or fixed
assets. The small business owner should analyze the various asset classes to
determine where the problem lies.
There could be a problem with inventory. The firm could be holding obsolete inventory
and not selling inventory fast enough. With regard to accounts receivable, the firm's
collection period could be too long and credit accounts may be on the books too long.
Fixed Assets turnover
1.127
1.257
1.08
0.9 1 1.1 1.2 1.3
Year 2011
Year 2010
Year 2009
Fixed Assets turnover
Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio
measures the efficiency and profit earning capacity of the concern. Higher the ratio,
greater is the intensive utilization of fixed assets. Lower ratio means under-utilization of
fixed assets.
Formula
Fixed Assets Turnover = Net Sales / Total Fixed Asset
Calculation
Year 2010 Year 2009 Year 2008
54821296000 / 48652609000
= 1.127
51616007000 / 41054991000
= 1.257
40043824000 /
37074209000
= 1.080
Graphical representation
Interpretation
The formula is useful in analyzing growth companies to see if they are growing sales in
proportion to their asset bases. The fixed assets turnover ratio really has little meaning
except when it is put in the context of industrial averages, and consideration is made
whether new capital expenditures recently undertaken were such that they could skew
the ratio. For example, the turnover ratio will be lower just after a significant amount of
fixed asset is acquired to upgrade or expand the plant facilities. In the middle mean to
say in the year 2009 the turnover is higher as compare to other two years.
Market Ratios
Dividend per share
The amount of dividend that a stockholder will receive for each share of stock held. It
can be calculated by taking the total amount of dividends paid and dividing it by the total
shares outstanding.
Formula
Dividend per share = Dividend / No of Shares
Calculation
Year 2011 Year 2010 Year 2009
6,461,839,000 / 760214979
= 8.5
5,183,327,000 / 760214979
= 6.82
5,654,493,000 / 760214979
= 7.44
Dividend Per Share
8.506.82 7.44
0.002.004.006.008.00
10.00
Year 2011 Year 2010 Year 2009
Graphical representation
Interpretation
Graph tells that the dividend per share is little bit fluctuate from year to year in 2010 it is
high it Is about 8.5 which drops to 6.82 in year 2009 and again increase to 7.44 in
2008.
Earning Per Share
Total earnings divided by the number of shares outstanding. Earning per share ratio
indicates the proportion of net profit; a company is getting per share. Share holders are
always interested to know the proportionate rate; a company is getting per share. As
price is numerator and earning in denominator, therefore lower value means better
return.
Formula
42.9832.51 27
0.00
20.00
40.00
60.00
Year 2011 Year 2010 Year 2009
Earning Per Share
Earning Per share =Profit Available to shareholders / No of shares outstanding
Calculation
Year 2011 Year 2010 Year 2009
32674094000 / 760214979
= 42.98
24710953000 / 760214979
= 32.51
20526669000 / 760214979
= 27.00
Graphical representation
Interpretation
The earnings per share calculation is the company's net earnings for the period divided
by the average number of shares outstanding during the period. Corporate earnings are
released quarterly and totaled for the fiscal year. The net earnings are the total
revenues for the period minus all of the expenses incurred during the reporting period. A
corporation will report the number of shares outstanding in the earnings report. The
numbers required to calculate the earnings per share will be found in the income
statement portion of a company's earnings report. This ratio shows the
increasing trend in 2008, 2009 and 2010. Because net profit increase but
outstanding share are constant in all of these three years.
Price / Earning Ratio
This ratio is calculated for those shares which have market value. This ratio compares
earning per share with market value of that share. The formula for calculating this ratio
is as follows:
Formula
Price Earning Ratio = Current market Share price/ Earning per Share
Calculation
Year 2010 Year 2009 Year 2008
207.32 / 42.98
= 4.82
207.32 / 32.51
= 6.38
207.32 / 27.00
= 7.68
Current Ratio
It shows the relationship between current assets and current liabilities. And also it
indicates the short term financial position or liquidity of a firm.
Formula
Current ratio = current assets / current liabilities
Year 2009
406541695000 / 363396932000
= 1.119 : 1
Year 2010
468168736000 / 420467889000
=1.113 : 1
Year 2011
518900004000 /467322067000
= 1.110 : 1
ACID TEST RATIO
Formula
Acid test ratio OR Quick ratio = Current assets – Advances / Current Liability
Calculation
Year 2011 Year 2010 Year 2009
518900004000 -
254551589000 /
467322067000
= 264348415000 /
467322067000
= 0.566
468168736000 –
253249407000 /
420467889000
= 214919329000 /
420467889000
= 0.511
406541695000 –
262135470000/
363396932000
=144406225000 /
363396932000
= 0.397
TREND ANALYSIS
In trend analysis we done two types of analysis, these are
1. Horizontal Analysis
It is conducted by setting consecutive balance sheet, income statement or statement of
cash flow side-by-side and reviewing changes in individual categories on a year-to-year
or multiyear basis.
A comparison of statements over several years reveals direction, speed and extent of a
trend(s). The horizontal financial statements analysis is done by restating amount of
each item or group of items as a percentage.
2. Vertical Analysis
Like horizontal analysis this can also done for balance sheet and income statement.
Here we assign 100% value to any key item of balance sheet or income statement and
then see portion of other items in this percentage.
Horizontal analysis of financial position
Financial position
Rupees in millions variance
2011 2010 2009 2008 2007 2006 11vs10 10vs09 09vs08 08vs07 07vs06 06vs05
assests
Cash and
balance with
treasury bank
26,16
8 22565 19386 16030 13356 14879 16 16 21 20 10 26
Balances with
other banks6,235 3785 8364 3955 3497 7333 65 65 111 13 -52 32
Lendings to
financial
institutions
1,592 9172 4614 4480 1444 8393 83 99 3 -69 72 -1
nvestments133,7
510226 67046 35678 39431 28626 31 53 88 -10 38 11
Advances150,7
11
15278
4
13503
4
12881
8
10078
099179 -1 13 5 28 2 15
Operating
fixed assets9,349 9988 9262 8266 5128 3810 -6 8 12 61 35 19
Other assets15,94
5 14190 10621 8964 5535 3813 12 34 18 62 45 40
Total
assests
343,7
5
31474
5
25432
7
20619
1
18217
2
16603
49 24 23 13 10 14
Liabilities
Bills payable 2,756 3090 2946 2585 2627 1839 -11 5 14 -2 43 40
Borrowings 17,27
3 25555 19300 15190 17554 14964 -32 32 27 -13 17 42
Deposits
and other
accounts
291,5
03
25593
7
20597
0
16767
7
14303
7
13183
914 24 23 17 8 11
Sub-
ordinated
loans
6,990 5993 5995 2996 2997 2999 17 0 100 0 0 0
Deferred tax
liabilities83 86 334 13 472 736 -3 -74 2471 -97 -36 30
Other
liabilities7,374 8081 4833 4759 3220 2603 -9 67 2 48 24 27
Net Assets17,77
6 16004 14949 12971 12266 11053 11 7 15 6 11 25
Represented by
Share
capital 7070 6427 5073 4059 3006 2004 10 27 25 35 50 33
Reserves 8136 7691 7236 7667 6950 5815 6 6 -6 10 20 30
Unappropria
VERTICAL ANAYLSIS
VERTICAL ANALYSIS OF PROFIT AND LOSS
2011 VS
2010
2010
VS
2009
2009
VS
2008
2008 VS
2007
2007 VS
2006
2006
VS
2005
MARK-UP / RETURN / INTEREST EARNED 20 21 23 21 20 43
MARK-UP / RETURN / INTEREST EXPENSED 27 32 27 23 24 63
NET MARK-UP / INTEREST INCOME 7 4 17 20 15 25
PROVISION AGAINST NON-PERFORMING LOANS
AND ADVANCES
-30 0 -39 -2 247 77
IMPAIRMENT LOSS ON AVAILABLE FOR SALE
INVESTMENT
- - -68 -11 - -100
PROVISION FOR IMPAIRMENT IN THE VALUE OF
INVESTMENTS
-85 286 15015 -66 299 -
PROVISION AGAINST REVERSE REPO -47 -20 100 - - -
BAD DEBTS WRITTEN OFF DIRECTLY - - -100 100 - -
-40 5 -28 4 248 87
NET MARK-UP / INTEREST INCOME AFTER
PROVISIONS
30 3 67 45 -44 15
TOTAL NON-MARKUP / INTEREST INCOME 4 10 -6 -41 113 38
22 5 36 -10 7 22
TOTAL NON-MARKUP / INTEREST EXPENSES 11 12 19 23 46 27
PROFIT BEFORE TAXATION 90 -22 256 -80 -31 17
PROFIT AFTER TAXATION 73 -15 187 -86 19 11
PROFIT AVAILABLE FOR APPROPRIATION 31 25 -44 -44 16 9
2011 10 09 08 07 06
8 7 8 8 7 9
2 1 3 2 2 4
0 3 2 2 8 5
39 32 26 17 22 17
44 49 53 62 55 60
3 3 4 4 3 2
5 5 4 4 3 2
100 100 100 100 100 100
1 1 1 1 2 1
5 9 8 8 10 10
89 86 86 87 84 85
2 2 3 2 2 2
2 3 2 2 2 2
100 100 100 100 100 100
5 5 6 6 7 7
40 40 34 31 25 18
4648 48 59 57 53
74 6 2 17 16
9393 88 93 99
87
77 12 7 1 13
100100 100 100 100 100
VERTICAL ANALYSIS VERTICAL ANALYSIS VERTICAL ANALYSIS
VERTICAL ANALYSIS
INTERPRETATION
In balance sheet of bank the most important item is earning assets. There are
four earning assets. Bank has strong earning assets like advances investments and
lending to financial institutions has major percentage in of assets of bank. In liability and
equity analysis the Borrowings from financial institutions and deposits have major
portion and reserve and share capital has major portion in equity
top related