Financial Analysis of BOP

Risk Management and Ratio Analysis of BOP

Bank of Punjab

Executive Summary:

The bank of Punjab (BOP) established in 1989 and got the status of scheduled bank in 1994. The

bank of Punjab offer number of products in their customer. There are 293 braches of BOP in the

whole country. Functionally the bank of Punjab is divided in the division and the each division is

headed bye the general managers.

The government of the Punjab holds the majority of the shares in BOP. It is doing business in

commercial banking and the retail banking. Corporate banking treasury and investment and trade

finance. The shares of BOP are traded in all three stock Exchanges of the Pakistan.

As for as the different ratios of the Bank Of the Punjab, they all give the healthy sign regarding

financial position of the Bank as well as the operation results of the different financial years. All

ratios are fully in accordance with the banking industry’s standard and norm which is a yard stick

to measure the performance of any bank. These ratio depict and indicate that the financial

strength of the on a higher side and further prospect of the Bank is brighter.

At the end the conclusion and the recommendations are the part of the report.

History:

The Bank of Punjab started functioning with the inauguration of its first branch of 7-Egerton

Road, Lahore on November 15, 1989. The founder of the bank Mr. Nawaz Sharif performed the

inauguration.

The Bank of Punjab is working as a scheduled bank with its 273 branches in all major cities of

the country. The bank provides all types of banking services such as Deposit in Local currency,

Client Deposits in Foreign currency, Remittances and Advances to businesses, trade, industry

and agriculture. The Bank of Punjab ahs entered into a new era of science to the nation under the

experienced and professional hands of its management.

The Bank of Punjab has played a vital role in the national economy through mobilization of

untapped local resources, promoting savings and providing funds for investments.

The Bank of Punjab has played a vital role in the economy through mobilization of untapped

local resources, promoting savings and providing funds for investment.

The Bank of Punjab has the privilege to discharge its responsibilities towards national prosperity

and progress. Within the couple of years of its scheduling, the bank has not only carved out for

itself prominent niche in the mainstream banking of the country but in certain areas it has the

distinction of taking the lead. In short span of time the Bank has been able to evolve a distinct

corporate culture through of its owned-based policies, which are realistic and are on highly

professional footings.

Vision Statement:

“To be a customer focused bank with service Excellence”

Mission Statement:

“To exceed the expectation of our stakeholders by

Leveraging our relationship with the government of

Punjab and delivering a complete range of professional

Solutions with a focus on program driven products

And services in the agriculture and middle markets

Through a motivated team"

Risk Management Process:

Managing risks on projects is a process that includes risk assessment and a mitigation strategy

for those risks. Risk assessment includes both the identification of potential risk and the

evaluation of the potential impact of the risk. A risk mitigation plan is designed to eliminate or

minimize the impact of the risk events—occurrences that have a negative impact on the project.

Identifying risk is both a creative and a disciplined process. The creative process includes

brainstorming sessions where the team is asked to create a list of everything that could go wrong.

All ideas are welcome at this stage with the evaluation of the ideas coming later.

RISK IDENTIFICATION:

A more disciplined process involves using checklists of potential risks and evaluating the

likelihood that those events might happen on the project. Some companies and industries develop

risk checklists based on experience from past projects. These checklists can be helpful to the

project manager and project team in identifying both specific risks on the checklist and

expanding the thinking of the team. The past experience of the project team, project experience

within the company, and experts in the industry can be valuable resources for identifying

potential risk on a project.

Identifying the sources of risk by category is another method for exploring potential risk on a

project. Some examples of categories for potential risks include the following:

Technical

Cost

Schedule

Client

Contractual

Weather

Financial

Political

Environmental

People

The people category can be subdivided into risks associated with the people. Examples of people

risks include the risk of not finding the skills needed to execute the project or the sudden

unavailability of key people on the project. David Hillson[1] uses the same framework as the

work breakdown structure (WBS) for developing a risk breakdown structure (RBS). A risk

breakdown structure organizes the risks that have been identified into categories using a table

with increasing levels of detail to the right.

The result is a clearer understanding of where risks are most concentrated. Hillson’s approach

helps the project team identify known risks, but can be restrictive and less creative in identifying

unknown risks and risks not easily found inside the work breakdown structure

RISK EVALUATION:

After the potential risks have been identified, the project team then evaluates the risk based on

the probability that the risk event will occur and the potential loss associated with the event. Not

all risks are equal. Some risk events are more likely to happen than others, and the cost of a risk

event can vary greatly. Evaluating the risk for probability of occurrence and the severity or the

potential loss to the project is the next step in the risk management process.

Having criteria to determine high impact risks can help narrow the focus on a few critical risks

that require mitigation. For example, suppose high-impact risks are those that could increase the

project costs by 5% of the conceptual budget or 2% of the detailed budget. Only a few potential

risk events met these criteria. These are the critical few potential risk events that the project

management team should focus on when developing a project risk mitigation or management

plan. Risk evaluation is about developing an understanding of which potential risks have the

greatest possibility of occurring and can have the greatest negative impact on the project. These

become the critical few

There is a positive correlation

—both increase or decrease

together—between project risk

and project complexity. A

project with new and emerging

technology will have a high-

complexity rating and a

correspondingly high risk. The

project management team will

assign the appropriate resources to the technology managers to assure the accomplishment of

project goals. The more complex the technology, the more resources the technology manager

typically needs to meet project goals, and each of those resources could face unexpected

problems.

Risk evaluation often occurs in a workshop setting. Building on the identification of the risks,

each risk event is analyzed to determine the likelihood of occurring and the potential cost if it did

occur. The likelihood and impact are both rated as high, medium, or low. A risk mitigation plan

addresses the items that have high ratings on both factors—likelihood and impact.

A project team analyzed the risk of some important equipment not arriving to the project on

time. The team identified three pieces of equipment that were critical to the project and would

significantly increase the costs of the project if they were late in arriving. One of the vendors,

who was selected to deliver an important piece of equipment, had a history of being late on other

projects. The vendor was good and often took on more work than it could deliver on time. This

risk event (the identified equipment arriving late) was rated as high likelihood with a high

impact. The other two pieces of equipment were potentially a high impact on the project but with

a low probability of occurring.

Not all project managers conduct a formal risk assessment on the project. One reason, as found

by David Parker and Alison Mobey[2] in their phenomenological study of project managers, was

a low understanding of the tools and benefits of a structured analysis of project risks. The lack of

formal risk management tools was also seen as a barrier to implementing a risk management

program. Additionally, the project manager’s personality and management style play into risk

preparation levels. Some project managers are more proactive and will develop elaborate risk

management programs for their projects. Other managers are reactive and are more confident in

their ability to handle unexpected events when they occur. Yet others are risk averse, and prefer

to be optimistic and not consider risks or avoid taking risks whenever possible.

On projects with a low complexity profile, the project manager may informally track items that

may be considered risk items. On more complex projects, the project management team may

develop a list of items perceived to be higher risk and track them during project reviews. On

projects with greater complexity, the process for evaluating risk is more formal with a risk

assessment meeting or series of meetings during the life of the project to assess risks at different

phases of the project. On highly complex projects, an outside expert may be included in the risk

assessment process, and the risk assessment plan may take a more prominent place in the project

execution plan.

On complex projects, statistical models are sometimes used to evaluate risk because there are too

many different possible combinations of risks to calculate them one at a time. One example of

the statistical model used on projects is the Monte Carlo simulation, which simulates a possible

range of outcomes by trying many different combinations of risks based on their likelihood. The

output from a Monte Carlo simulation provides the project team with the probability of an event

occurring within a range and for combinations of events. For example, the typical output from a

Monte Carlo simulation may reflect that there is a 10% chance that one of the three important

pieces of equipment will be late and that the weather will also be unusually bad after the

equipment arrives.

RISK MITIGATION:

After the risk has been identified and evaluated, the project team develops a risk mitigation plan,

which is a plan to reduce the impact of an unexpected event. The project team mitigates risks in

the following ways:

Risk avoidance

Risk sharing

Risk reduction

Risk transfer

Each of these mitigation techniques can be an effective tool in reducing individual risks and the

risk profile of the project. The risk mitigation plan captures the risk mitigation approach for each

identified risk event and the actions the project management team will take to reduce or

eliminate the risk.

Risk avoidance usually involves developing an alternative strategy that has a higher probability

of success but usually at a higher cost associated with accomplishing a project task. A common

risk avoidance technique is to use proven and existing technologies rather than adopt new

techniques, even though the new techniques may show promise of better performance or lower

costs. A project team may choose a vendor with a proven track record over a new vendor that is

providing significant price incentives to avoid the risk of working with a new vendor. The

project team that requires drug testing for team members is practicing risk avoidance by avoiding

damage done by someone under the influence of drugs.

Risk sharing involves partnering with others to share responsibility for the risk activities. Many

organizations that work on international projects will reduce political, legal, labor, and others

risk types associated with international projects by developing a joint venture with a company

located in that country. Partnering with another company to share the risk associated with a

portion of the project is advantageous when the other company has expertise and experience the

project team does not have. If the risk event does occur, then the partnering company absorbs

some or all of the negative impact of the event. The company will also derive some of the profit

or benefit gained by a successful project.

Risk reduction is an investment of funds to reduce the risk on a project. On international

projects, companies will often purchase the guarantee of a currency rate to reduce the risk

associated with fluctuations in the currency exchange rate. A project manager may hire an expert

to review the technical plans or the cost estimate on a project to increase the confidence in that

plan and reduce the project risk. Assigning highly skilled project personnel to manage the high-

risk activities is another risk reduction method. Experts managing a high-risk activity can often

predict problems and find solutions that prevent the activities from having a negative impact on

the project. Some companies reduce risk by forbidding key executives or technology experts to

ride on the same airplane.

Risk transfer is a risk reduction method that shifts the risk from the project to another party. The

purchase of insurance on certain items is a risk transfer method. The risk is transferred from the

project to the insurance company. A construction project in the Caribbean may purchase

hurricane insurance that would cover the cost of a hurricane damaging the construction site. The

purchase of insurance is usually in areas outside the control of the project team. Weather,

political unrest, and labor strikes are examples of events that can significantly impact the project

and that are outside the control of the project team.

CONTINGENCY PLAN:

The project risk plan balances the investment of the mitigation against the benefit for the project.

The project team often develops an alternative method for accomplishing a project goal when a

risk event has been identified that may frustrate the accomplishment of that goal. These plans are

called contingency plans. The risk of a truck drivers’ strike may be mitigated with a contingency

plan that uses a train to transport the needed equipment for the project. If a critical piece of

equipment is late, the impact on the schedule can be mitigated by making changes to the

schedule to accommodate a late equipment delivery.

Contingency funds are funds set aside by the project team to address unforeseen events that

cause the project costs to increase. Projects with a high-risk profile will typically have a large

contingency budget. Although the amount of contingency allocated in the project budget is a

function of the risks identified in the risk analysis process, contingency is typically managed as

one line item in the project budget.

Some project managers allocate the contingency budget to the items in the budget that have high

risk rather than developing one line item in the budget for contingencies. This approach allows

the project team to track the use of contingency against the risk plan. This approach also

allocates the responsibility to manage the risk budget to the managers responsible for those line

items. The availability of contingency funds in the line item budget may also increase the use of

contingency funds to solve problems rather than finding alternative, less costly solutions. Most

project managers, especially on more complex projects, will manage contingency funds at the

project level, with approval of the project manager required before contingency funds can be

used.

The 5C's

Capacity:

to repay is the most critical of the five factors, it is the primary source of repayment - cash. The

prospective lender will want to know exactly how you intend to repay the loan. The lender will

consider the cash flow from the business, the timing of the repayment, and the probability of

successful repayment of the loan. Payment history on existing credit relationships - personal or

commercial- is considered an indicator of future payment performance. Potential lenders also

will want to know about other possible sources of repayment.

Capital:

is the money you personally have invested in the business and is an indication of how much you

have at risk should the business fail. Interested lenders and investors will expect you to have

contributed from your own assets and to have undertaken personal financial risk to establish the

business before asking them to commit any funding.

Collateral:

or guarantees, are additional forms of security you can provide the lender. Giving a lender

collateral means that you pledge an asset you own, such as your home, to the lender with the

agreement that it will be the repayment source in case you can't repay the loan. A guarantee, on

the other hand, is just that - someone else signs a guarantee document promising to repay the

loan if you can't. Some lenders may require such a guarantee in addition to collateral as security

for a loan.

Conditions:

describe the intended purpose of the loan. Will the money be used for working capital,

additional equipment or inventory? The lender will also consider local economic conditions and

the overall climate, both within your industry and in other industries that could affect your

business.

Character:

is the general impression you make on the prospective lender or investor. The lender will form a

subjective opinion as to whether or not you are sufficiently trustworthy to repay the loan or

generate a return on funds invested in your company. Your educational background and

experience in business and in your industry will be considered. The quality of your references

and the background and experience levels of your employees will also be

The Bank of Punjab

Profit and Loss Account

As on 31st December

2012

Rs. (000)

2013

Rs. (000)

Markup/ return/interest earned 17,539,538 17,752,652

Markup/return/ interest expensed 13,939,377 16,614,000

Net markup/interest income

3,600,161 1,138,652

Provision against non-performing loans and

advances-net 1,616,421 18,863,580

Provision for diminution in the value of investments24,479 388,757

Bad debts written off directly 246,869 ----

1,887,769 19,252,337

Net markup/interest income after provisions 1,712,392 (18,113,685)

NON MARK-UP/INTEREST INCOME

Fee, commission and brokerage income 659,488 579,520

Dividend income 1,812,870 2,025,160

Income from dealing in foreign currencies 377,233 324,327

Gain on Sale of Securities 2,039,535 733,787

Unrealized Gain / Loss on Revaluation of

Investments classified as held for trading ---- --------

Other income 547,635 526,186

Total non mark-up/interest income 5,436,761 4,188,980

7,149,153 (13,924,705)

NON MARK-UP/ INTEREST EXPENSES

Administrative expenses 2,255,342 2,808,835

Provision against lending to financial Institution -------- 10,101

Provision against off Balance Sheet Items 292 ----

Provision against receivable from NIT ---- ---

Other charges 37,950 114,700

Total non- markup/ interest expenses (2,293,584) (2,933,636)

4,855,569 (16,858,341)

Extraordinary /unusual items --------- ---------

PROFIT BEFORE TAXATION 4,855,569 (16,858,341)

Taxation

For the year –Current 170,700 207,600

-Deferred

For prior year –Current (19,921) 1,052,000

-Deferred 250,772 8,033,001

401,551 6,773,401

PROFIT AFTER TAXATION 4,454,018 (10,084,940)

Un-appropriate profit b/f 3,226,961 3,468,956

Reversal of Excess management fee accrued last

year ----- 6,250

Transfer from surplus on revaluation of Fixed assets 5,866 5,572

– net of tax

3,232,827 3,468,278

Profit available for appropriation 7,686,845 (6,616,662)

Balance Sheet

As on 31st December

2012

Rs. (000)

2013

Rs. (000)

ASSETS:

Cash and Balances with treasury Banks 14,210,302 10,685,058

Balances with other Banks 1,927,662 2,178,455

Lending's to financial institutions 2,450,000 633,333

Investments 73,461,693 22,689,608

Advances 133,899,143 131,724,113

Other assets 5,789,116 6,122,406

Operating fixed assets 3,252,759 3,471,838

Deferred Tax assets

--------- 8,388,162

Total Assets 234,990,675 185,892,973

LIABILITIES

Bills payable 937,647 1,219,801

Borrowings from financial institutions 17,842,915 12,278,773

Deposits and Other accounts 191,968,377 164,071,732

Subordinated Loans -------- -----

Liabilities against assets subject to

finance lease 40,321 30,632

Other liabilities 2,983,977 4,564,481

Deferred Tax liabilities 2,205,530 -------

Total Liabilities 215,978,767 182,165,419

Net Assets 19,011,908 3,727,554

Represented By:

Share Capital 4,230,379 5,287,974

Reserves 7,427,232 7,427,232

Un-appropriate Profit 3,468,956 (7,674,257)

Total Equity 15,126,567 5,040,949

Surplus on Revaluation of Assets 3,885,341 (1,313,395 )

Analysis Ratios

For the analysis, management and the investors make some ratio analysis, in which Liquidity

Ratios, Profitability Ratios, Market Ratios, Activity Ratios, Leverage ratios are familiar.

In order to analysis the financial performance of the bank, investors and management use the

ratio analysis in which following ratios are calculated:

1. Liquidity Ratios

2. Leverage Ratios

3. Profitability Ratios

4. Activity Ratios

Liquidity Ratios

Liquidity ratios means to measure short term solvency of the company. Ability of the company

to pay off its short term debt. Following ratios are calculated in order to measure the short term

solvency of the company

Current Ratio

Acid Test Ratio

Current Ratio

Current Assets = Cash and Balance with Treasury Banks + Balance with other Banks +Lending to Financial Institution + Short Investment + Short Advances + Other AssetsCurrent Liabilities = Bill Payables + Short Borrowing + Short Deposit + Other Liabilities

Current Ratio = Current Assets / Current liabilities

Year 2012 Year 2013

=Rs.173,120,729/ Rs.140,202,371= 1.23 : 1

=Rs.128,967,953/ Rs.107,914,057= 1.19 : 1

Workings:For 2012Current Assets = 14,210,302+1,927,662+2,450,000+65,857,861+82,885,788

+5,789,116 = Rs.173, 120,729 Current Liabilities = 937,647 + 15,857,522 + 120,423,225 + 2,983,977 = Rs. 140,202,371For 2013Current Assets = 10,685,057+2,178,455+633,333+20,038,517+89,323,454+6,109,137 =Rs. 128,967,953 Current Liabilities = 1,219,801 + 10,601,169 + 91,528,830 + 4,564,257 = Rs. 107,914,057Graphical Representation:

2012 20130%

20%

40%

60%

80%

100%1.23 1.19

Current Ratio

Explanation: The standard of this ratio is 2:1, means current assets are twice the current liabilities. But Bank of Punjab has a lower current ratio to the standard rate. In 2012, it was 1.23 and in 2013 it will be 1.19 which is more than the 2012.

Acid Test Ratio

Current Assets = Cash and Balance with Treasury Banks + Balance with other Banks +Lending to Financial Institution + Short Investment + Short Advances + Other Assets Current Liabilities = Bill Payables + Short Borrowing + Short Deposit + Other LiabilitiesPrepaid expenses = Advances, deposits, advance rent and other prepayments

Acid Test Ratio = Current Assets – (Inventories + prepayments) / Current liabilities

Year 2012 Year 2013= Rs.173,120,729- Rs. 159,438 Rs. 140,202,371= 1.23

=Rs. 128,967,953-Rs.161,553/ Rs.107,914,057= 1.19

Workings:For 2012Current Assets = 14,210,302+1,927,662+2,450,000+65,857,861+82,885,788+5,789,116 = Rs.173, 120,729 Current Liabilities = 937,647 + 15,857,522 + 120,423,225 + 2,983,977 = Rs. 140,202,371Prepaid Expenses = Rs.159, 438

For 2013 Current Assets = 10,685,057+2,178,455+633,333+20,038,517+89,323,454+6,109,137 =Rs. 128,967,953Current Liabilities = 1,219,801 + 10,601,169 + 91,528,830 + 4,564,257 = Rs. 107,914,057Prepaid Expenses = Rs.161, 553

Graphical Representation:

2012 20131.161.171.181.191.2

1.211.221.231.24

Acid Test Ratio

Explanation:

As the Acid test ratio from year 2012 to 2013 is: Rs. 1.23 and Rs 1.19 respectively. In all two years acid test ratio is slight more than is standard ratio. It must be 1:1 in order to proof the short term solvency of the bank to pay off is short term bank.

Leverage Ratios These ratios show the capital structure of the firm. Through these ratios we find that how the firm finance their activities. It is more important for the lender to assess that the firm can repay the loan amount or not. Increasing debt increases the likelihood of bankruptcy of the firm. Following ratios falls under this category,

Time Interest Earned Debt Ratio Debt to Equity Ratio Debt to Tangible Net Worth Total Capitalization Ratio

Time Interest Earned Ratio:

Time Interest Earned = Profit before tax + Interest Expense (EBIT) / Interest Expense

Year 2012 Year 2013=Rs.4,855,569/Rs.13,939,377= 0.35

=(Rs.16,832,906)/Rs.16,614,000= -1.01

Working Given in the Profit and Loss AccountFor 2012

Profit before tax+ Interest Expense = Rs. 4,855,569Interest Expense = Rs. 13,939,377

For 2013

Profit before tax+ Interest Expense = Rs. -16,832,906 Interest Expense = Rs. 16,614,000


2012 2013

-1.2-1

-0.8-0.6-0.4-0.2

00.20.40.6

0.35

-1.01

Time Interest Earned Ratio:

Explanation: The Time Interest Earned Ratio of BOP is not better. The ratio is consistently is declining even in 2013 it went negative. This graph is showing that the bank EBIT is not enough to cover its interest expenses.

Debt Ratio Total Debt = Bills Payable + Borrowings from financial institutions + Deposits & other accounts + Subordinate Loans + Liabilities against assets subject to finance lease + deferred tax liabilities+ Other liabilitiesTotal Assets = Given in the Balance Sheet Debt Ratio = (Total Debt / Total Assets) * 100

Year 2012 Year 2013=Rs.215,978,767/Rs.234,990,675= 91.90%

=Rs.182,165,419/Rs.185,909,120= 97.99%

Working

For 2012

Total Debt = 937,647+17,842,915+191,968,377+40,321+2,205,530+2,983,977 = Rs.215,978,767For 2013

Total Debt = 1,219,801, + 12,278,773 + 164,072,532 + 0 + 30,632+ 0 +4,564,481 = Rs. 182,165,419


2012 201388.00%

90.00%

92.00%

94.00%

96.00%

98.00%

100.00%

Debt Ratio

Explanation: Debt ratio is measure of debt with the total assets. The graph shows that the debt ratio is consistently increasing that indicates the dependence on debt is increasing and in 2013 it is at the higher level. From 2012 to 2013 it rapidly increased. In 2013 the total Debt was the almost 97% of Total Assets.

Debt / Equity Ratio

Total Debt = Bills Payable + Borrowings from financial institutions + Deposits & other accounts + Subordinate Loans + Liabilities against assets subject to finance lease + deferred tax liabilities+ Other liabilitiesTotal Equity = Share Capital + Reserves + Un-appropriated Profit

Debt to Equity Ratio = Total Debt / Total Equity

Year 2012 Year 2013

=Rs.215,978,767/Rs.15,126,567= 14.27

=Rs.182,165,419/Rs.5,040,949= 36.13

Working

For 2012

Total Debt = 937,647 + 17,842,915 + 191,968,377 + 0 +40,321+2,205,530+2,983,977 = Rs.215,978,767Total Equity = 4,230,379 + 7,427,232 + 3,468,956 = Rs.15,126,567For 2013Total Debt = 1,219,801, + 12,278,773 + 164,072,532 + 0 + 30,632+ 0 +4,564,481 = Rs.182,165,419Total Equity = 5,287,974 + 7,427,232 + (– 7,658,686 (Loss)) = Rs.5,040,949


2012 201305

10152025303540

Debt / Equity Ratio

Explanation:As we already observed that the debt is increasing, in this graph we compare it with the equity. We find the consistent increase in the debt to equity ratio. In 2013 it was at the higher level. The debt exceeded the equity.

Debt to Tangible Net Worth

Debt to Tangible Net Worth = Total Debt / Tangible Net Worth

Year 2012 Year 2013=Rs.210,789,260/Rs.18,993,725= 11.10

=Rs.177,601,738/Rs.3,735,613= 47.54

Working

For 2012Tangible Net Worth = 234,990,675 – 215,978,767 – 18,183= Rs.18,993,725

For 2013Tangible Net Worth = 185,909,120 – 182,165,995 – 7,512 = Rs.3,735,613


2012 201305

101520253035404550

Debt to Tangible Net Worth

Explanation:As the graph is showing that the debt to tangible net worth ratio is increasing. From 2012 to 2013 it rapidly increased due to the increase in debt. So the BOP has not Net Tangible Net Worth to cover the Debt. Total capitalization Ratio

Year 2012 Year 2013=Rs.55,571,712/Rs. 70,698,279 = 0.7860 Times

=Rs. 46,755,209/ Rs.51,796,158= 0.9026 Times

Long Term Debt = Deposit and other account + Liabilities against assets subject to finance lease + Deferred tax liabilities + other liabilities

Working

For 2012

Long Term Debt = 53,219,973+30615+ 2,205,530+115,594= Rs.55,571,712

=55,571,712/ (55,571,712 + 15,126,567)=55,571,712/ 70,698,279

For 2013

Long Term Debt =46,555,790+19859+0+ 179,560= Rs.46,755,209= 46,755,209/ (46,755,209+ 5,040,949)= 46,755,209/51,796,15


2012 20130.720.740.760.780.8

0.820.840.860.880.9

0.92

Total Capitalization Ratio

Explanation:The total capitalization ratio compares the total debt with the sum of debt and equity. The low capitalization ratio indicates the financial fitness of the firm. According to the graph, I can see that the ratio in 2013 is higher. In 2012, it was at the lowest level in selected years.

Profitability RatiosProfitability ratios measure the earning ability of the firm. Following ratios are calculated:

Net Profit Margin Return on Assets Return on Total Equity Gross Profit Margin

Net Profit Margin

Net Profit = Profit after TaxationTotal Revenue = Markup/ return/interest earned

Net Profit Margin = Net Profit / Total Revenue

Year 2012 Year 2013= Rs.4,454,018 / Rs. 17,539,538= 25.39%

= (Rs.10,084,940) / Rs.17,752,652= -56.81%

Working

For 2012

Net Profit = Rs.4,454,018Total Revenue = Rs.17,539,538

For 2013

Net Profit = Rs.-10,084,940Total Revenue = Rs.17,752,652


2012 20130%

10%20%30%40%50%60%70%80%90%

100%

Profitability Ratios

Explanation:The net profit margin is declining from 2012 to 2013, as shown in graph. The net profit margin is decreases as compared to last years. The Bank of Punjab has to bear a loss.

Return on Assets

Net Profit = Profit after TaxationTotal Assets = Given in the Balance Sheet

ROA = Net Income / Total Assets

Year 2012 Year 2013= Rs.4,454,018 / Rs.234,990,675= 1.895%

= (Rs.10,084,940)/ Rs.185,892,973= -5.425%

Working

For 2012

Net Profit = 4,454,018Total Assets = 234,990,675

For 2013

Net Profit = 10,084,940Total Assets = 185,892,973


2012 2013

-6.00%-5.00%-4.00%-3.00%-2.00%-1.00%0.00%1.00%2.00%3.00%

Return on Assets

Explanation:It is simple Return on Assets, which calculate through net income, and total assets but the result is same as in Du-Pont ROA. It is showing the consistent decline in the return on Assets.

Activity RatiosActivity ratios measure a firm’s ability to convert different accounts within their balance sheets into cash or sales.

Total Assets Turnover Fixed Assets Turnover

Total Assets Turnover

Total Assets Turnover Ratio = Interest or Markup / Total Assets

Year 2012 Year 2013=Rs.17,539,538/Rs.234,990,675= 0.075 times

=Rs.17,752,652/Rs.185,892,973= 0.095 times

WorkingGive in the Profit and Loss Account and Balance Sheet

For 2012 Markup/ return/interest earned = Rs.17, 539,538Total Assets = Rs. 234,990,675

For 2013 Markup/ return/interest earned = Rs.17, 752,652Total Assets = Rs. 185,892,973


2012 20130

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.1

Total Assets Turnover

Explanation:Total Asset turnover ratio measures the firm’s effectiveness in generating the revenue from its investments in total assets. The graph is showing the increase in the total assets turnover ratio. But it’s not real growth because when we analyze the Financial Statements of BOP we find that in 2012 the income and assets increased so the ratio also increased but in 2013 income decreased whereas the assets decrease with more ratio. So this factor caused the increase in the total assets turnover in 2013.

Fixed Assets Turnover

Fixed Assets Turnover Ratio = Interest or Markup / Fixed Assets

Year 2012 Year 2013=Rs.17,539,538/Rs.3,252,759= 5.39 times

=Rs.17,752,652/Rs.3,471,838= 5.11 times

Working Give in the Profit and Loss Account and Balance Sheet

For 2012

Interest or Markup = Rs.17, 539,538Fixes Assets = Operating Fixes Assets = Rs.3, 252,759

For 2013

Interest or Markup = Rs. Rs.17, 752,652Fixes Assets = Operating Fixes Assets = Rs.3, 471,838 Graphical Representation:

2012 20134.8

4.9

5

5.1

5.2

5.3

5.4

5.5

5.6

5.7

Fixed Assets Turnover

Explanation:The fixed asset turnover ratio measures the company's effectiveness in generating sales from its investment in fixed assets. The graph shows the decline in fixed assets turnover. It means that the generation of revenue on the fixed assets is declining. The Bank of Punjab is not using its fixed assets effectively.

.

Financial Analysis of BOP

Business