Financial Analysis of askari bank 2012

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%


oninvestment".

Formula

Return on Assets = Net profit / Total Assets * 100

Calculation


16873175000 / 567552613000

= 0.030 * 100

= 3.00 %

15495297000 / 509223727000

= 0.030 *100

= 3.00 %

15374600000 /

443615904000

= 0.035 * 100

= 3.50 %


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


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


36833529000 / 54821296000

= 0.672

35778685000 / 51616007000

= 0.693

28483084000 /

40043824000

= 0.711


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


16,873,175,000 /

325308093000

= 0.052

15495297000 / 313039174000

= 0.049

15374600000 /

323130454000

= 0.048


Return on operating assets

0.0520.049 0.048

0.046

0.048

0.05

0.052

0.054


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


16873175000 / 69180011000

= 0.244 * 100

= 24.4 %

15495297000 / 61075932000

= 0.254 *100

= 25.4 %

15374600000 /

52244865000

= 0.294 *100

= 29.4 %


24.40% 25.40% 29.40%

0.00%

10.00%

20.00%

30.00%


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


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


36833529000 / 54821296000

= 0.672

35778685000 / 51616007000

= 0.693

28483084000 /

40043824000

= 0.711


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


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


54821296000 / 48652609000

= 1.127

51616007000 / 41054991000

= 1.257

40043824000 /

37074209000

= 1.080


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


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



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


Earning Per Share

Earning Per share =Profit Available to shareholders / No of shares outstanding

Calculation


32674094000 / 760214979

= 42.98

24710953000 / 760214979

= 32.51

20526669000 / 760214979

= 27.00


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


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


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

Financial Analysis of askari bank 2012

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