Financial Statement Analysis of Bank Al Falah and Habib Bank Limited

7/27/2019 Financial Statement Analysis of Bank Al Falah and Habib Bank Limited

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Title of the project

Financial Statement Analysis ofBank AlFalah And Habib Bank Limited


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Introduction of the Project

This project is deal with the Financial Statement Analysis

Financial Statement Analysis is a method used by

interested parties such as investors, creditors, andmanagement to evaluate the past, current, and projected

conditions and performance of the firm

It objective is to forecast and/or determine the actual

financial status and performance of a project


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Introduction (continued)

Are of concern is banking

A bank is a financial institution licensed by a

government.

Banking is one of the most highly regulated industries inthe world

Analysis of a bank's financial statements requires a

distinct approach

They generate profit from the flow of funds This work will provide assistance to the investors


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Introduction of Bank Al Falah

Bank Alfalah Limited was incorporated on June 21st

1992

The Bank is currently operating through 195 branches in74 cities,

With a vision to be the premier organization operating

locally & internationality

Maintained a strong credit rating of AA for long termand A one plus for the short term.


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Introduction of Habib Bank

One of the largest bank in Pakistan

Listed bank

HBL was incorporated on 25th August 1941

Operated in the private sector until its nationalization in1974.

A network of 1,705 domestic branches; 55 overseas

branches in 26 countries spread over Europe, the Middle

East, Far East, Asia, Africa and the United States; HBL is currently rated AA (Long term) and A-1+


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Objectives and Significance

Objectives To provide insight into how the banks work.

To Elaborate the strengths and weakness of the banks.

To give the stock holder a clear view about the financial

feasibility of both the banks. It will provide a good understanding of the business cycle.

Primary objective is to determine the actual financial

status and performance of the banks.

To measure the achievement of financial objectives of aborrower.


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Significance (continued)

Significance It is the process of examining relationships among

financial statement elements and making comparisonswith relevant information.

Important for investors who buy the companys stock. Useful for financial analysts

Very useful for the stockholders

Summarized all the data into a form which is easily

understood by all the relevant parties. Financial ratios are only meaningful when compared

with other information

Ratio analysis can reveal much about a company and itsoperations


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Data Collection Sources

Sites on the internet

Articles from scientific publications

Documents on various format (audio, video or

computer support) Advisers with a particular expertise

Stock exchange


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Data Collection Tools

Stock Exchange

Company profile forms

Company comparison forms

Internet past articles

Case Study


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Data Processing

Financial Ratios

Ratios are an analysts microscope

Ratios are useful both to internal and external

analysts

Microsoft Word and Microsoft Excel work sheets


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Ratio Analysis

Its a tool which enables the banker or lender to arrive at thefollowing factors :

Liquidity position

Profitability

Solvency

Financial Stability

Quality of the Management

Safety & Security of the loans & advances to be or

already been provided


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Ratio Analysis (continued)

Ratios Analysis will cover following ratios:

a) Liquidity Ratios

b) Leverage Ratios

c) Profitability Ratios

d) Activity Ratios

e) Market Ratios

f) Statements of Cash Flow


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a) Liquidity Ratios

Current Ratio

It is the relationship between the current assets andcurrent liabilities of a concern.

Current Ratio = Cur rent Assets/Current L iabi l i ties

Year 2006 2007 2008Current Assets 575611106 671597594 731954693

Current Liabilities 480455832 566659483 631948038

Current ratio 1.20 1.19 1.16

BANK AL FALAH

Year 2006 2007 2008Current Assets 265182551 316972828 335217471

Current Liabilities 249906022 286843944 315476169

Current ratio 1.06 1.10 1.06

HABIB BANK


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Sales to Working Capital

It give an indication of the turnover in working capital

per year

Sales to Working Capital = Sales / Working CapitalHABIB BANK

Year2006 2007 2008

Sales 43685740 43685740 63305033

Working Capital 95155274 104938111 100006655

Sales to Working Capital 0.5 times 0.5 times 0.6 times

BANK AL FALAHYear

2006 2007 2008

Sales 21191470 25783871 31046583

Working Capital 15276529 30128884 19741302

Sales to Working 1.38 0.85 1.57


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Working Capital

It is a measure of both a company's efficiency and its

short-term financial health

Working Capital = Cur rent Assets Current L iabi l i ties

HABIB BANK

Year 2006 2007 2008Current Assets 575611106 671597594 731954693Current Liabilities 480455832 566659483 631948038Working Capital 95155274 104938111 100006655

BANK AL FALAHYear 2006 2007 2008Current Assets 265182551 316972828 335217471Current Liabilities 249906022 286843944 315476169Working Capital 15276529 30128884 19741302


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b) Leverage Ratios:

Time Interest EarnedThe interest coverage ratiotells us how easily a company is able to

pay interest expenses associated to the debt they currently have.

TI E Ratio = EBI T / I nterest Charges

HABIB BANK

Year2006 2007 2008

EBIT 32044524 34298574 48559935

Interest Charges 13204037 19153957 19153957

TIE ratio 2.43 1.79 1.83

BANK AL FALAH

Year 2006 2007 2008EBIT 17798831 21156515 22125914

Interest charges 15232886 16620963 20331194

TIE ratio 1.16 1.27 1.08


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Debt Ratio

The proportion of a firm's total assets that are beingfinanced with borrowed funds

Debt Ratio = Total Debt / Total AssetsHABIB BANK

Year 2006 2007 2008Total debt 536848102 628754092 682747953

Total Assets 590291468 691991521 757928,89

Debt Ratio 0.91 0.91 0.9

BANK AL FALAH

Year 2006 2007 2008Total debt 263443596 312675308 331946025

Total Assets 275685541 328895152 348990764

Debt Ratio 0.95 0.95 0.95


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Debt to Equity Ratio

The debt to equity ratio gives the proportion of a company (or

person's) assets that are financed by debt versus equity s

Debt to Equity Ratio = Total debt / Total Equity

HABIB BANK

Year 2006 2007 2008Total debt 536848102 628754092 682747953

Total Equity 45177664 55063125 71280902

Debt To Equity Ratio 11.88 11.42 9.58

BANK AL FALAH

Year 2006 2007 2008Total debt 263443596 312675308 331946025

Total Equity 10572605 13766673 14608523

Debt To Equity Ratio 24.91 22.71 22.72


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Current Worth / Net worth Ratio

Current Worth to Net worth Ratio= Cur rent Worth / Net

worth Ratio

HABIB BANK

Year2006 2007 2008

Current Worth 95155274 104938111 100006655

Net Worth 53443366 63237429 75180436

Current Worth to Net worth Ratio 1.78 1.66 1.33

BANK AL FALAH

Year 2006 2007 2008Current Worth 15276529 30128884 19741302

Net Worth 12241945 16219844 17044739

Current Worth to Net worth Ratio 1.247 1.85 1.15


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Total Capitalization Ratio

Total Capital ization Ratio = Long-term debt / long-term

debt + shareholders' equi ty

HABIB BANK

Year2006 2007 2008

Long Term debt 56392270 62094609 50799915

Long term debt + Equity 101569934 117157734 122080817

Capitalization Ratio worth Ratio 0.56 0.53 0.42

BANK AL FALAH

Year2006 2007 2008

Long Term debt 13537574 25831364 16469856

Long term debt + Equity 24110179 39598037 31078379

Capitalization Ratio worth Ratio 0.56 0.65 0.52


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Long term Assets versus Long term

Debt

Long term Assets versus Long term Debt= Long Term

Assets/ Long Term Debts

HABIB BANK

Year 2006 2007 2008Long Term Assets 14680362 20393927 25973696

Long term debt 56392270 62094609 50799915

L.T Assets /L.T Debts Debt:worth

Ratio0.26 0.33 0.51

BANK AL FALAH

Year 2006 2007 2008Long Term Assets 13773293 11922324 10502990

Long term debt 13537574 25831364 16469856

L.T Assets /L.T Debts worth Ratio 1.01 0.46 0.63


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Debt Coverage RatioDebt Coverage Ratio = Net Operating Income / Total

Debt

HABIB BANK

Year 2006 2007 2008Net Operating Income 12074762 5121453 5655568

Total Debt 536848102 628754092 682747953

Debt Coverage Ratio Debt:worth

Ratio0.02 0.008 0.0083

BANK AL FALAHYear 2006 2007 2008

Net Operating Income 14574192 15118049 16880487

Total Debt 263443596 312675308 331946025

Debt Coverage Ratio

worth Ratio0.055321869 0.048350633 0.0508531


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c) Profitability Ratios

Net Profit MarginNet Profi t margin = Net Profi t / Sales x

100

Year2006 2007 2008

Net Profit 12700315 10084037 15614020

Sales 43685740 50481021 63305033

Net Profit Margin 29.07% 19.97% 24.66%

HABIB BANK

Year2006 2007 2008

Net Profit 1762691 3130229 1301301

Sales 21191470 25783871 31046583

Net Profit Margin 8.31% 12.1% 4%

BANK AL FALAH


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Operating Income Margin:

Operating Income Margin = Operating Income x 100

Net Sales

HABIB BANK

Year2006 2007 2008

Operating Income 25278799 24275410 37738818

Net Sales 43685740 50481021 63305033

Operating Income Margin 57.9% 48% 59.6%

BANK AL FALAH

Year 2006 2007 2008Operating Income 14574192 15118049 16880487

Net Sales 21191470 25783871 31046583

Operating Income Margin 0.687738604 0.586337443 0.5437148


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Return on Assets

Return on Assets (ROA) = Profi t after Taxation / Average

Total assets x 100

HABIB BANK

Year 2006 2007 2008

Net income 12700315 10084037 15614020

Total Average assets 559592686.5 641141494.5 724959955

ROA 2.27% 1.57% 2.15%

BANK AL FALAH

Year2006 2007 2008

Net income 1762691 3130229 1301301

Total Average assets 137966927.5 302290346.5 338942958

ROA 1.27% 1.01% 0.038%


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Return on Equity (ROE)Return on Total Equity = Profi t after taxation x 10

Total Equi ty

HABIB BANK

Year 2006 2007 2008Net income 12700315 10084037 15614020

Total Equity 45177664 55063125 71280902ROE 28.11% 18.31% 21.9%

BANK AL FALAH

Year 2006 2007 2008Net income 1762691 3130229 1301301Total Equity 10572605 13766673 14608523

ROE 16.6% 22.5% 8.9%


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DuPont Return on Assets

DuPont Return on Assets = Profit after taxation x 100Total Assets

HABIB BANK

Year

2006 2007 2008

Net Profit 12700315 10084037 15614020

Total assets 590291468 691991521 757928389

DuPont ROA 2.15% 1.46% 2.06%

BANK AL FALAH

Year 2006 2007 2008Net Profit 1762691 3130229 1301301

Total assets 275685541 328895152 348990764DuPont ROA 0.006 0.009 0.003


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Operating Assets TurnoverOperating Assets Turnover = Operating Assets x 100

Net Sales

HABIB BANK

Year 2006 2007 2008Operating Assets 94230402 97259620 110591707

Net Sales 43685740 50481021 63305033Operating Assets Turnover Margin 192.7% 192.7% 174.70%

BANK AL FALAH

Year 2006 2007 2008Operating Assets 51094302 59739440 68041671

Net Sales 21191470 25783871 31046583

Operating Assets Turnover Margin 2.41% 2.31% 2.19%


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Return on Operating Assets

Return on Operating Assets = Profi t after Taxation x 100Operating assets

HABIB BANK

Year2006 2007 2008

Net Profit 12700315 10084037 15614020Operating Assets 94230402 97259620 110591707

Return on Operating Assets 13.48% 10.37% 11.19%BANK AL FALAH

Year 2006 2007 2008Net Profit 1762691 3130229 1301301

Operating Assets 51094302 59739440 68041671Return on Operating Assets 0.034 0.052 0.019


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Sales to Fixed Assets

This ratio is indicates that how much sales are contributed by

investment in fixed Assets.Sales to F ixed Assets = Net Sales / F ixed Assets

HABIB BANK

Year 2006 2007 2008Net Sales 43685740 50481021 63305033

Fixed Assets 11954876 13780555 14751252Sales to Fixed Assets 3.65 times 3.66 times 3.66 times

BANK AL FALAH

Year 2006 2007 2008Net Sales 21191470 25783871 31046583

Fixed Assets 10502990 11922324 13773293Sales to Fixed Assets 2.017 times 2.16 times 2.25 times


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d) Activity Ratios

Total Asset Turnover

Asset turnover measures a firm's efficiency at using itsassets in generating sales or revenue.

Total Asset Turnover = Total Sales / Total Assets

HABIB BANK

Year 2006 2007 2008Total Sales 43685740 50481021 63305033

Total Assets 590291468 691991521 757928389

Total Asset Turnover 0.07 0.07 0.08

BANK AL FALAH

Year 2006 2007 2008Total Sales 21191470 25783871 31046583Total Assets 275685541 328895152 348990764

Total Asset Turnover 0.07 0.07 0.08


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e) Market Ratio

Dividend per ShareDPS

Dividend per Share = Total amount of Dividend

Number of outstanding shares

HABIB BANK

Year2006 2007 2008

Total amount of Dividend 691350 1381000 2730251Number of Shares 690000 690000 759000

Dividend per Share 1.0019 2.0014 3.597BANK AL FALAH

Year 2006 2007 2008Total amount of Dividend 00 00 975000

Number of Shares 500000 650000 799500

Dividend per Share 00 00 1.21


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Earning Per Share- EPS

Earning Per Share = Prof i t after Taxation

Number of Shares

HABIB BANK

Year 2006 2007 2008Profit after Taxation 12700315 10084037 15614020

Number of Shares 690000 690000 759000Earning Per Share 18.41 14.61 20.57

BANK AL FALAH

Year 2006 2007 2008Profit after Taxation 1762691 3130229 1301301Number of Shares 500000 650000 799500

Earning Per Share 3.525 4.815 1.627


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Price / Earning RatioThe Price-Earnings Ratio is calculated by dividing the current

market price per share of the stock by earnings per share (EPS).Price / Earning Ratio = Stock Price Per Share

Earning Per SharesHABIB BANK

Year 2006 2007 2008Stock price per share 10 10 10

EPS 18.41 14.61 20.57Price / Earning Ratio 0.54 0.68 0.49

BANKAL FALAH

Year 2006 2007 2008Stock price per share 10 10 10

EPS 3.525 4.815 1.627Price / Earning Ratio 2.83 2.07 6.14


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Dividend Payout Ratio

The percentage of earnings paid to shareholders in dividends

Dividend Payout Ratio = Dividend per Share

Earning per ShareHABIB BANK

Year 2006 2007 2008DPS 1.0019 2.0014 3.597

EPS 18.41 14.61 20.57

Dividend Payout Ratio 0.0544 0.137 0.175

BANK AL FALAH

Year 2006 2007 2008DPS 00 00 1.21

EPS 3.525 4.815 1.627

Dividend Payout Ratio 00 00 0.74


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Dividend Yield

Financial ratio that shows how much a company pays out in

dividends each year relative to its share price.

Dividend Yield = Dividend per Share

Share PriceHABIB BANK

Year 2006 2007 2008DPS 1.0019 2.0014 3.597

Share Price 10 10 10

Dividend Yield 0.10019 0.20014 0.3597

BANK AL FALAH

Year 2006 2007 2008DPS 00 00 1.21

Share Price 10 10 10

Dividend Yield 00 00 0.121


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Book Value per ShareThis is defined as the Common Shareholder's Equity divided by the

Shares Outstanding at the end of the most recent fiscal quarter.Book Value per Share =Shareholders Equity

Share Capital

HABIB BANK

Year 2006 2007 2008Equity 45177664 55063125 71280902

Share Capital 6900000 6900000 7590000

Book Value per Share 6.5 7.98 9.39

BANK AL FALAH

Year 2006 2007 2008Equity 10572605 13766673 14608523

Share Capital 5000000 6500000 7995000

Book Value per Share 2.11 2.11 1.82


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f) Statement of cash flow

Operating Cash Flow to Total DebtThis ratio provides an indication of a company's ability to cover total debt with its

yearly cash flow from operationsOperating Cash F low to Total Debt = Operating Cash F low/Total Debt

HABIB BANK

Year 2006 2007 2008Operating Cash flow 17851517 56224065 18231677

Total Debts 536848102 628754092 682747953Operating Cash Flow to T.Debt 0.033 0.089 0.027

BANK AL FALAH


Total Debts 263443596 312675308 331946025Operating Cash Flow to T.Debt 0.029 0.126 0.007


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Operating Cash Flow per Share

Operating Cash F low per Share = Operating cash f low /Total Shares

HABIB BANK


Total Shares 690000 690000 759000

Operating Cash Flow per Share 25.87 81.48 24.02

BANK AL FALAH


Total Shares 500000 650000 799500

Operating Cash Flow per Share 15.70 60.99 3.12


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2. Common Size Analysis (Vertical

and Horizontal):

Also known as trend analysis

Use to predict future

Used to estimate uncertain events in the past Several methods of performing financial statement

analysis exist.

I will use two of them

Horizontal analysis

Vertical analysis


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Horizontal Analysis

Methods of financial statement analysis

Generally involve comparing certain information

Compares specific items over a number of accounting

periods

Decision is often based on the investing time horizon

under consideration.


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Vertical Analysis

Method of financial statement analysis

Also known as component percentages, produces

common-size financial statements.

The term vertical analysis applies because each year's

figures are listed vertically on a financial statement

Use three major categories of accounts (assets, liabilities

and equities) in a balance sheet

Easy to see relative annual changes in one business


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Conclusion/Findings

Liquidity position of both companies is not up to standard, both are

below industry average

Working capital of Habib Bank is better than Bank La Falah

Profitability ratios of Habib Bank Limited are better than Bank AL

Falah Limited.

Net profit of Bank Al falah Limited is low due to heavy financial

charges

Habib Bank has a good market perception due to continuous

declaration of dividends

Bank LA Falah limited has not announced in dividend in the year2006 and 2007

Earning per Share and Operating cash flow of Habib Bank Limited

is also better than Bank AL Falah Limited.


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Recommendations

Both banks need to improve their liquidity status

Bank al falah need to improve their financial performance on the

other hand habib bank is going nicely in this competition.

Bank Al falah Limited has to minimize it financial charges. Both the banks need to reduce financial leverage risk.


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Thank You