Project report on GOCC BANK BIJAPUR

GOVERNMENT OFFICIAL’S CO-OPERATIVE BANK LTD, BIJAPUR

Contents

Sl.No

.

Titles Page No.

I Chapter 1

Executive summary

Statement of the Problem

Scope of the study

Limitations of the study

Objectives of the Study

Methodology and data collection

2-6

II Chapter 2

INDUSTRY PROFILE 7-10

III Chapter 3

ORGANIZATION PROFILE 11-19

IV Chapter 4

Introduction to the topic 20-28

V Chapter 5

Analysis and interpretation 29-46

VI Chapter 4

Findings

Suggestions

Conclusion

Bibliography

47-56

KLS’s Institute of Management Education and Research, Belgaum Page 1


EXECUTIVE

SUMMARY



EXECUTIVE SUMMARY

Finance is a very important business entity it is required from the establishment of the

business for liquidity or winding up of a business, so financial institutions play a very

important role in the operation of the business.

In the early days banking business was confined to receiving of deposits and lending of

money. But now, a modern banker undertakes wide variety of functions to assist their

customers. They provide various facilities to customers which makes the transaction easy

and comfortable.

Financial institutions such as banks, financial service companies, insurance companies,

securities firms and credit unions have very different ways of reporting financial

information. Running a bank is just difficult as analyzing it for investment purposes.

In this report emphasizes on knowing the financial position of the

Government Official’s Co-Operative Bank Ltd, Bijapur. The project title is “A study of

financial performance based on ratio analysis” which means a process to identify the

financial performance of a firm by properly establishing the relationship between the

items of balance sheet and profit & loss account.



DESIGN OF THE

STUDY



TITLE OF THE PROJECT:

“A Study of Financial Performance Based On Ratios” at GOCC Bank Bijapur.

PROJECT OBJECTIVES:

To recognize the diagnostic role of financial ratios.

To study the source and uses of ratio analyses.

To know the financial performance of the organization

To study different ratios in GOCC bank

To determine the profitability and liquidity of the bank through ratios analysis

To compare the present and previous year’s performance of GOCC bank

STATEMENT OF THE PROBLEM:

Ratios are very useful to draw the conclusion so that the management knows factors are

contributing towards growth, which help in improving the profitability and liquidity of

the organization.

SCOPE OF THE STUDY:

The study is exclusively conducted for Government officials co-operative Bank Ltd,

Bijapur. It covers details of the company information comparison of financial statements

of last 5 years, Techniques of statement analysis like ratio analysis finally, findings and

suggestions has been made a part of this project.

LIMITATIONS OF THE STUDY:

The following are the limitations of the study

The period of the study is limited to 5 years.

The study of the ratio analysis is done at GOCC Bank and no comparison is made

with other institution.

The accuracy of the result depends upon the information present on the balance

sheet and P&L a/c.



METHODOLOGY AND DATA COLLECTION

Methodology

Methodology is the way in which we collect the data. The tools for collection of data for present

project are the primary data and secondary data. The information furnished in this report has

been collected from primary data as well as secondary data.

Data collection

Primary data has been collected by approaching to General Manager and other

staff members.

The sources of secondary data are annual reports of the Bank. The company profile

was made available by the officials through several documents. Theoretical help was

derived from books and past reports and records. Support from internet and other

journals.



INDUSTRY

PROFILE



CO-OPERATIVE BANKS OVERVIEW

Co-operation means working together. The history of modern civilization is that without

cooperation the social & economic progress would have been impossible. Cooperative

movement owes its origin to England, where a great philosopher, Robert Owen (1771-

1858) gave the idea of 'self help through mutual help, to mitigate the sufferings of the

exploited class in the wake of industrial revolution.

The policy makers of our country considered cooperation as an instrument for

development of rural economy particularly the neglected section of the nation.

Considering this concept of cooperation in mind, the idea took a concrete shape in

India first time in 1904 when the cooperative credit societies Act a measure designed

to face rural indebt ness & provide for registration of credit societies was passed. Later in

1912, the cooperative societies Act also provided for registration of non-credit societies,

well as, federation of cooperatives. Since then cooperative movement has made

noticeable progress with some hindrances, especially in agricultural credit, marketing &

processing of agricultural produce.

The Idea of growth of cooperative movement in India can be had from the fact that

there were as many 3.5 lakh cooperative societies of all type with total membership of

about 16 crores & total working capital about 62500 crores as on 30 June 1990. The

distinguishing feature of cooperative system is that it is largely village-based. In other

word, it is suit for village dominates country like ours. Participation of masses at different

levels in development schemes is a must.

The idea of cooperative essentially is based on the principle of involving the people

themselves directly in the mage of their affairs of different kinds because it is the people

who know best what their problems are, what their priorities are & what could be the best

solutions to suit their needs.

The cooperative banking in India has grown in size & volume. A special feature of

cooperative banks in India is its federal structure the units ranging from primary level to

national level. Cooperative banking in India can be divided into two important areas viz

agriculture and non-agriculture. The agricultural co-operative banks are primary

cooperative banks at the village level, central co-operative banks at the district level

horticulture. During the recent years, the land development banks are bent upon lending

bans only for land improvement and cultivation.



The no. of land development banks increased from 5 in 1950-51 to 19 in 1983-84, while

that of primary banks increased from 286 to 1170 during the same period. But nearly

70% of LDBS are located in the three southern states of Tamilnadu, Andhra Pradesh and

Karnataka.

GROWTH OF CO-OPERATIVE SOCIETY IN INDIA: -

Particulars 1960-61 1970-71 1980-81 1985-86 1988-89

1. No. of Societies

(in lakhs) 3.32 3.20 3.26 3.21 3.50

2. Membership

(in lakhs) 352 644 1176 1420 1600

3. Share Capital

(in Crores)

222 251 2088 3998 5242

4. Working Capital

(in Crores)1312 6810 25119 41548 62500

The above tables shows no. Of societies increased very slowly; which was 3.32 lakh in

1960-61 and 3.50 lakh in 1988-89 only. Members increased from 352 lakh in 1960-61 to

1600 lakhs in l988-89 indicate that people have shown a keen interest in cooperation.

While working capital and share capital also increased made a major and important role

in rural & agricultural lending.



MEANING OF CO-OPERATIVE BANK:

“A form of organization wherein persons voluntarily associate together as human beings

on the basis of equality for the promotion of the economic interest of themselves”

FEATURES:

Co-operative Banks are organized and managed on the principal of Co-operation, self-

help and mutual help. They function with the rule of “One Member, One Vote”. Co-

operative Banks perform all the main banking functions of deposits, supply of Credit and

provision of remittance facilities. Co-operative Banks provide limited banking products

and are functionally specialist in agriculture related products. Co-operative Banks now

provide Housing loans, Vehicle loans, Industrial loans, Hypothecation loans etc.

Some Co-operatives are Scheduled Banks while other are Non - schedule Banks. Co-

operative Banks are subject to CRR and liquidity requirement and other Scheduled and

Non - scheduled Banks requirement is less than commercial Banks. Although the Reserve

Bank of India had power to regulate the Co-operative Bank but this has been exercised

only after 1979 in respect of non agricultural advances they were free to charge any rates

at their discretion.

The main aim of the Co-operative Banks is to provide cheaper credit to their members

and not to maximize profits. They may access the money market to improve their income

so as to remain viable.



ORGANIZATION

PROFILE



HISTORY OF THE GOCC BANKHISTORY OF THE GOCC BANK

This institution was started as Co-operative Society in the year 1909 under the provision

of the Co-operative Societies Act 1904, with view to meet the pressing credit need of the

Society. The founder this bank is Shri.Shate.

It commenced business with small capital without any deposits. And got the status of the

Bank in the year 1989, it received a license from RBI on 23rd September 1989. Today it is

one well managed Co-operative Bank with annual turnover of more than rupees 5 crores.

In the year 2009 the bank completed a entire decade i.e 100 years.

ORGANIZATION FROFILE

GOVERNMENT OFFICIAL’S CO-OPERATIVE BANK LTD, BIJAPUR. Branch

was started in 12-10-1909 in Karnataka.

Location: MAHAVEER ROAD, Bijapur-586101

Infrastructure: 1) well equipped building.

2) Safety Lockers

Man Power: (Main branch) Total 38 employees are working in this bank.

Major Customer: - Professional like state government employees



OBJECTIVES OF THE BANKOBJECTIVES OF THE BANK

Providing variety of loans in order to full fill the needs of the members of the bank

to create funds by means of issue of Shares. Acceptance of deposits, donations

and loans from higher agencies and to lend out to the members of the

Bank at a moderate rate of interest.

To satisfying the employees through good remuneration as well as wealthy

relationship with employees.

Giving quality service to the members of the bank.

Adding new features to the bank so that it will help the members of the bank.

The objectives of the bank to promote the economic interest of its members and to

encouraging them for savings.

To create funds by deposits and borrowings here after to lend members at

moderate rates of interest

To lend money to its members for their specific needs on gold or immovable

properties.


Junior assistants

First Division Clerks

General Manager

Manager

Accountants

Recovery Officer

Board of Directors


ORGANIZATION CHART

AUTHORITY OF CHAIRMAN:



1. The chairman shall have general preside over the meetings of the board, he shall have

general control over the paid staff and to do such other things as will be conducive to

the interest of the bank under the general directions of the board of the directors.

2. To sanction regular expenditures, salaries of the staff, office rent, electric charges

usual contingent expenses subject to the approved of the board.

3. To inspect at any time during the working hours of the bank by himself or

along with the members of the board, cash valuables and other securities of the bank

and to respond the matter to the board for its information and to take necessary action

in consultation with the board.

4. Any other powers that may be delegated by the board of the directors. The chairman

and one of the elected directors and the secretary of the bank shall sign all documents.

DUTIES OF BOARD OF THE DIRECTORS

The board of directors shall have the following duties.

1. To admit new members

2. To consider the applications for shares

3. To consider the applications for registration of members

4. To consider the applications for transfer of shares or refund of shares amount

5. To hear and deal with complaints

6. To hear, deal, and structionise the loan applications and to grant loans according

to purpose

7. To institute defend and comprise legal proceedings

8. To incur and sanction office rent and other necessary expenses in connection with

the management of the bank including the purchase of furniture, stationary,

articles required for office use.

9. To make steps for recovery of overdue loans

10. To consider the audit report inspection note and take necessary action

TYPES OF LOANS



The loans can be broadly classified as follows.

1. Short term loans as demand loan.

2. Long Term loan.

1. Short Term Loan : It is granted for a short period of a year or less than one year.

2. Long Term loan: Term loan is of two types

a. Medium term loan being repayable in 1 to 3 years.

b. Long-term loan being repayable in above 3 to 5 years.

TYPES OF LOANSTYPES OF LOANS

1. Personal Security Loan

2. Staff House Loan

3. Vehicle Loan

4. Members House Construction Loan

5. F.D Loan

6. C.T.D Loan

7. Loan on the basis of N.S.C Letter

8. Staff Personal Loan

9. Loan on the basis of N.S.C. Letter

10. Pigmy Loan

11. Staff vehicle Loan

12. Members House Pledge Loan

PROCEDURE OF SANCTIONING OF LOANPROCEDURE OF SANCTIONING OF LOAN



Bank has rules and regulations regarding loan sanction. The first rule for getting

loan is “a person should be a member of the bank”. Only after that he is eligible for

getting loan.

PROCEDURE FOR GETTING MEMBERSHIP OF THE BANK

If a person wants to be a member of the Bank he should be Government office employee

(State Government, but except 4th categories, means peons), then he can apply for

membership.

In meeting, the BOD and other members will decide whether he is eligible for

membership or not, if they accept then he will be called as the member of the bank. Once

he gets the membership of the bank, then he can apply for the loan. There are some

criteria that have to be evaluated while loan sanctioning. These criteria’s differ according

to the purpose of the loans and type of the loans. These are not standardized for particular

loan. These depend on situation and condition of economy and position of the applicant.

If applicant has, credit worthiness the criteria will not considered as much importance. If

applicant has less credit worthiness and has lot of liabilities then criteria may be

considered important and adhered strictly with those criteria’s.

Step 1: Receiving of Application

The bank has printed application format for every type of loans .The application forms

are designed in such a way that it furnishes all the information regarding applicant and

purpose of loan and other information.

This is very important because the processing of application starts from here onwards.

The application contains various clauses that have to be filled by applicant and he has to

give declaration about genuineness of the information.

Step-2: Processing Of Application

Next step is the processing of applications. This level branch Manager studies application

proposal carefully visibility assessment of loan proposal. At this stage, only he can reject

the proposal if it is not feasible. He checks all the factors to determine feasibility of loan

proposal with respect to amount of loan, credibility of the applicant, purpose of loans,

repayment of loan, ability of the applicant to utilize properly and maintenance of the asset

etc. It is the primary assessment, which reflects feasibility of the loan proposal.

Step-3: Field Study Report



There are field officers in bank. Their work is to visit the applicants working place and

collect information and to submit a report to the bank. They collect actual information of

the applicant. They collect some other extra information like requirements of the loan to

the applicant, financial condition of the applicant, his transactions with others etc.

These types of casual visit are given by field officers and they provide information to the

bank. The applicant may not mention or tell some hidden facts and these are identified by

the field visit. When the fields study report matches with the information given in the

application. Only after that the application is accepted and forwarded.

Step-4: Recommendation & Built-up Proposal to Head Office

After completing field study Branch Manager forwards to the head office. He has to give

his own opinion about loan proposal and recommend on that proposal. His

recommendation or opinion is very important to the head office to evaluate the loan

proposal. The loan sanction wholly depends upon his recommendation of branch

manager. Because he is nearer to the applicants ability to repayment of interest and

principal.

He must examine consequence of the loan and sanction and highlight risk factors. The

Branch Manager will inform to the Head Office about applicant & his ability to

repayment it. The Branch Manager also highlights true income of the applicant & what

would be the income after loan sanction. The Branch Manager recommendation include

other factors like safety, risk in loan proposal, profitability of the Bank etc.

SCHEMES

The total number of members in banks are increasing day by day. For the convenient of

the customer’s bank has got the permission from town municipal commissioner Bijapur to

purchase 10,000 sq.mtrs plot at Basavan Bagewadi.

Safe Deposit Locker:

For the convenient of the customers bank has provided the Safe Deposit Locker facility.

Earlier it is not there, on 2006 they started to provide the facility.

Bank has started a scheme i.e. “Pratiba Puraskar Yojana” during 2005-2006. The

scheme is mainly for the staffs and members children’s who have scored highest marks in

the annual examination, the said students will be honored under “Pratiba Puraskar

Yojana”.

Special Schemes:



As per the Reserve Bank of India guidelines / directions the bank is giving 1% interest for

the senior citizens.

Insurance security is provided for the depositors up to Rs. 100000/-.

DEPOSIT SCHEMES

1. Current Deposit

2. Savings Bank Deposit

3. Fixed Deposit

4. Kalpavruksha Deposit

5. Sanchit Deposit

6. Cash Certificate Deposit

7. Pigmy Deposit

8. Cumulative Deposit

9. Members Thrift Deposit.

INTERESTS ON DEPOSIT :INTERESTS ON DEPOSIT :

1. Above 30 days and up to 180 days - 6.5%

2. Above 180 days and up to 364 days - 7.5%

3. Above 364 days and up to 24 months - 8.5%

4. Above 24 months and up to 36 months - 9%

5. Above 36 months and up to 60 months - 9.25%

6. Above 60 months - 9.5%



INTRODUCTION

TO TOPIC

INTRODUCTION



When we observed the financial statement comprising the balance sheet and

profit or loss account is that they do not give all the information related to financial

operations of firm, they can provide some extremely useful information to the extent that

the balance sheet shows the financial position on a particular date in terms of structure of

assets, liabilities and owner’s equity and profit or loss account shows the results of

operation during the year. Thus the financial statements will provide a summarized view

of the firm. Therefore in order to learn about the firm the careful examination of a

valuable reports and statements through financial analysis or ratio is required.

MEANING AND DEFINITION

Ratio analysis is one of the powerful techniques which are widely used for interpreting

financial statements. This technique serves as a tool for assessing the financial soundness

of the business. It can be used to compare the risk and return relationship of firms of

different sizes. The term ratio refers to the numerical or quantitative relationship between

two items/ variables.

The idea of ratio analysis was introduced by Alexander Wall for the first time in 1919.

Ratios are quantitative relationship between two or more variables taken from financial

statements.

Ratio analysis is defined as, “the systemic use of ratio to interpret the financial

statement so that the strength and weakness of the firm as well as its historical

performance and current financial condition can be determined.

In the financial statement we can find many items are co-related with each other for

example current assets and current liabilities, capital and long term debt, gross profit and

net profit purchase and sales etc

BASIS OF COMPARISON



Ratios are relative figures reflecting the relationship between variables. They

enable analysts to draw conclusions regarding financial operations. The use of the ratios,

as a tool of financial analysis involves their comparison, for a single ratio like absolute

figures, fails to reveal the true position. For example, if in the case of a firm, the return on

capital employed is 15 percent in a particular year, what does it indicate? Only if the

figure is related to the fact that in the preceding year the relevant return was 12 per cent or

18 percent, it can be inferred whether the profitability of the firm has declined or

improved. Alternatively, if we know that the return for the industry as a whole is 10

percent or 20 percent, the profitability of the firm in question can be evaluated.

Comparison with related facts is, therefore, the basis of ratio analysis. Four types of

comparison are involved

i. Trend ratio

Trend ratios involve a comparison of the ratios of a firm over time, that is,

present ratios are compared with the past ratio of the same firm. Trend ratio indicates

the direction of change in the performance, improvement, deterioration or constancy-

over the years. This kind of ratio particularly applicable to the items of profit and loss

account. It is advisable that trends of the sales and the net income may be studied in

the light of two factors: the rate of fixed expansion or secular trend in the growth of

the business and the general price level. it might be found in practice that a number of

firms would show a persistent growth over the period of the years.

ii. Intra firm comparison

Intra firm comparison involving comparison of the ratio of the firm with those of

the others in the same line of business or for the industry as a whole reflects its

performance in relation to its competitors.

iii. Comparison of items within a single year’s financial statement of

a firm

iv. Comparison with standard or plans.

IMPORTANCE OF THE RATIO ANALYSIS



As a tool of financial management, ratios are of crucial significance. The

importance of the ratio analysis lies in the fact that it presents facts on a comparative basis

and enables the drawing of inference regarding the performance of a firm. Ratio analysis

is relevant in assessing the performance of a firm in respect of the following aspects.

1. USEFULL TOOL FOR ANALYSIS :

Ratios are exceptionally useful tool with which one can infer the financial

performance of the enterprise over a period of time with the help of ratio analysis.

Conclusions can be drawn regarding several aspects such as financial health,

profitability and operational efficiency of the firms.

Liquidity position to meet its short term obligations and long term solvency. They

indicate strength and weakness of the firms.

2. LIQUIDITY POSITION

With the help of ratio analysis conclusion can be drawn regarding the liquidity position of the

firm. The liquidity position of the firm would be satisfactory if it is able to meet its current

obligation when they become due. a firm can be said to have the ability to meet its short term

liabilities if it has sufficient liquidity funds to pay the interest on its short maturing debts

usually within a year as well as to repay the principal.

3. LONG TERM SOLVENCY

Ratio analysis is equally useful for assessing the long term financial viability of the

firm. This aspects of the financial position of a borrower is of concern to the long

term creditors, security analysis and the present and potential owners of a business.

The long term solvency is measured by the leverage or capital structure and

profitability ratios which focus on earning power and operating efficiency. Ratio

analysis reveals the strength and weakness of a firm in this respect. The leverage

ratios, for instances, will indicate whether a firm has a reasonable proportion of

various sources of finance or whether heavily loaded with debt in which case its

solvency is exposed to serious strain. Similarly the various profitability ratio would

reveal whether or not the firm is able to offer adequate return to its owners consistent

with the risk involved.

4. OPERATING EFFICIENCY



Yet another dimension of the usefulness of the ratio analysis, relevant from the view

point of the management, is that it throws light on the degree of the efficiency in the

management and utilization of its assets. The various activity ratios measure this kind

of operational efficiency. In fact, the solvency of a firm is, in the ultimate analysis,

dependent upon the sales generated by the use of its assets-total as well as its

components.

5. OVERALL PROFITABILITY

Unlike the outside parties which are interested in one aspect of the financial position

of a firm, the management is constantly concerned about the overall profitability of

the enterprise. That is, they are concerned about the ability of the firm to meet its

short term as well as long term obligations to its creditors, to ensure a reasonable

return to its owners and secure optimum utilization of the assets of the firm. This is

possible if an integrated view is taken and all the ratios are considered together.

6. INTER-FIRM COMPARISON

Ratio analysis not only throws the light on the financial position of a firm but also

serves as a stepping stone to remedial measures. This is made possible due to

interfirm comparison and comparison with the averages. A single figure of a

particular ratio is meaningless unless it is related to some standard or norm. One of

the popular techniques to compare the ratio of the firm with the industry average. It

should be reasonably expected that the performance of a firm should be in broad

conformity with that of the industry to which it belongs. An interfirm comparison

would demonstrate the firm’s position vis-à-vis its competitors.

7. TREND ANALYSIS

Finally, ratio analysis enables a firm to take the time dimension into account. In other

words, whether the financial position of a firm is improving or deteriorating over the

years. This is made possible by the use of the trend analysis. The significance of a

trend analysis of the ratio lies in the fact that the analyst can know the direction of

movement, that is, whether the movement is favorable or unfavorable.



ADVANTAGES AND DISADVANTAGES OF RATIO ANALYSIS:

ADVANTAGES:

Simplifies financial statements: Ratio Analysis simplifies the comprehension

of financial statements. Ratios tell the story of changes in financial condition

of the business.

Measurement of the profitability: We can measure the profitability of

the business by calculating gross profit, net profit, expenses and other ratios.

Profitability is the profit earning capacity of the business. So, profitability

ratios indicate the actual performance of the business. If these ratios fall,

effective control measures will be applied to improve the working of the

business.

Judges the operational efficiency of the business: With the help of

ratio analysis comparison of the performance between different divisions of

the firm is possible. The ratios are helpful in deciding about the firm’s

efficiency in the past and likely in the future

Facilitates inter firm comparison: Ratio analysis provides data for inter

company comparison. Ratio highlights the association with successful and

unsuccessful firms. They also reveal strong and weak companies, overvalued

and undervalued companies.

Assessing the efficiency of the business: We can ascertain whether the

firm is solvent or not by calculating solvency ratios show relationship between

liabilities and assets. If total assets are lesser than outside liabilities, it shows

unsound position of the business. In such case the business will try its best to

improve its solvency i.e., ability to repay loans.

Makes intra firm comparison possible: Ratio analysis also makes possible

comparison of the performance of different division of the company. The ratio

helpful in deciding about their efficiency.

Helps in planning: Ratio Analysis helps in planning and forecasting over

period of time a company develops certain norms that may indicates future



success/ failure. If relationship changes in firms data over different time

periods. The ratio may provide clues on trends and future problems.

Liquidity position: With the help of ratio analysis conclusions can be drawn

regarding liquidity position of the company. The liquidity position of a

company could be satisfactory if it is able to meet its current obligations when

they become due.

Long term solvency: Ratio analysis equally useful for assessing the long-term

financial viability of a firm. The long-term solvency is measured by the

leverage / capital structure and profitability ratios, which focus on earning

power and operating efficiency.

Useful in improving future performance: Ratio analysis indicates

the weak spots of the business. This helps management in overcoming such

weakness and improving the overall performance of thee business in future.

DISADVANTAGES:

Ratio analysis is a widely used tool of financial analysis. Yet, it suffers from

various limitations. The operational implication of this is that while using ratios, the

conclusion should not been taken on their face value. Some of the limitation which

characterize ratio analysis are

1. Difficulty in comparison

One serious limitation of ratio analysis arises out of the difficulty associated

with their comparability. One technique that is employed is interfirm comparison. But

such comparisons are vitiated by different procedures adopted by various firms. The

difference may relate to

Difference in the basis of inventory valuation

Different depreciation methods (i.e. straight line vs. written down basis)

Estimated working life of the assets, particularly of plant and equipment

Amortization of intangible assets like goodwill, patents and so on.

Amortization of deferred revenue expenditure such as preliminary

expenditure and discount on issue of shares

Capitalization of lease

Treatment of extraordinary items of income and expenditure and so on



Secondly, apart from different accounting procedures, companies may

have different accounting periods, implying differences in the composition

of the assets, particularly the current assets. For these reasons, the ratios of

two firms may not be strictly comparable.

2. Impact of inflation

The second major limitation of the ratio analysis as a tool of financial analysis

is associated with price level changes. This, in fact is a weakness of the traditional

financial statement which are based on historical cost. An implication of this feature

of the financial statement as regards ratio analysis is that assets acquired at different

periods are, in effect, shown at different prices in the balance sheet, as they are not

adjusted for changes in the price level. As a result, ratio analysis will not yield strictly

comparable and therefore, dependable results.

3. Conceptual Diversity

Yet another factor which affects the usefulness of ratios is that there is

difference of opinion regarding the various concepts used to compute the ratios. There

is scope for diversity of opinion as to what constitutes shareholders’ equity, debt,

asset, profit and so on. Different firms may use these terms in different senses or the

same firm may use them to mean different things at different times.

Reliance on a single ratio for a particular purpose may not be a conclusive

indicator. For instance, the current ratio alone is not an adequate measure of short-

term financial strength; it should be supplemented by the acid test ratio, debtor’s

turnover ratio and inventory and inventory turnover ratio to have a real insight into the

liquidity aspect.

CLASSIFICATION OF RATIO



1. Profitability Ratios

a. Ratio of profit to total income

b. Ratio of profit to deposits

c. Return on equity

d. Return on Capital

e. Ratio of return on assets

2. Operating Ratios

a. Ratio of interest earned to interest paid

b. ratio of interest paid to total income

c. Ratio of staff expenses to total expenses

d. Ratio of total expenses to total income.

3. Solvency ratios

a. ratio of cash to deposit

b. ratio of investment to deposits

c. Credit deposit ratio

d. ratio of fixed assets to net worth

e. Current assets ratio

f. Quick ratio

g. Fixed assets ratio



ANALYSIS AND

INTERPRETATION



PROFITABILITY RATIO:

This ratio shows the earning ability of organization, in other words profitability ratios are

designed to provide answers to questions such as :-

a) Is the profit earned by the firm adequate?

b) What rate of return does it represents?

c) What is the rate of profit for various divisions and segments of the firm?

d) What is the rate of return to equity share holders?

The profitability of the firm can be determined on the following ratios

1. RATIO OF NET PROFIT TO INCOME:

This ratio implies that the percentage of net profit earned by the organization out of its income.

Here this ratio indicates the net profit ratio out of total profit. Normally it is expected between

10%-15%.

Ratio of net profit to total income = net profit *100

Total income


Year Ratio of net profit

to income (%)

Amount

2004-05 6.8 =4091762/59681976*100

2005-06 6.5 =4910114/71618371*100

2006-07 1.54 =1001704/64788253*100

2007-08 2.32 =1504277/64562627*100

2008-09 2.95 =2024423/68469180*100


2004-05 2005-06 2006-07 2007-08 2008-090

1

2

3

4

5

6

7

86.8 6.5

1.542.32

2.95

Ratio of net profit to income (%)

Interpretation:

The ratio of profit to income is drastically came down from 6.5%(2005-06) to

1.54%(2006-07) it is because of increase in the expenses like advertisement expenses and

increase in nonperforming asset. and last two years it is showing gradual growth

2.32%(2007-08) and 2.95%(2008-09). which show that last 3 years profitability is not

adequate.



2. Ratio of profit to deposits: This ratio shows organization’s earnings on deposits.

Normal expected rate is (1.0 -2.0).

Ratio of profit to deposits = profit / total deposits *100

year Ratio of profit to

deposits

Amounts

2004-05 0.92 =4091762/442160198*100

2005-06 1.01 =4910114/484646420*100

2006-07 0.21 =1001764/472873643*100

2007-08 0.30 =1504277/489297593*100

2008-09 0.36 =2024423/550966276*100

2004-05 2005-06 2006-07 2007-08 2008-090

0.2

0.4

0.6

0.8

1

1.2

0.921.01

0.210.3

0.36

Ratio of profit to deposits

Interpretation:

Ratio of profit to total deposits in the first year 2004-05 it was 0.92% and in year 2005-06

it was 1.01. And last three years i.e. 0.21%, 0.30 and 0.36%.Iit indicates that the Bank has

not utilized its deposits effectively.



3. Return on asset : An indicator of how profitable a company is relative to its total

assets. ROA gives an idea as to how efficient management is at using its assets to

generate earnings. Calculated by dividing profit by its total assets. Normally it is expected

to be between 0.6% to 2.0%.

Return on asset = profit / total assets * 100

Year 2004-05 2005-06 2006-07 2007-08 2008-090

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0.740.8

0.160.23

0.28

Ratio of return on assets

Interpretation:

Return on asset ratio 0.74 %( 2004-05) And 0.8% (2005-06). After this next three years

Ratio’s are 0.16%,023% and 0.28% . This trend shows that the organization is not good in

converting investment into profit as the expected level is between 0.60% to 2.0%.


Year

Ratio of

return on

assets

Amounts

2004-05 0.74 =4091762/546861500*100

2005-06 0.80 =4910114/606309871*100

2006-07 0.16 =1001764/614073557*100

2007-08 0.23 =1504277/636396364*100

2008-09 0.28 =2024423/715676149*100


4. Return on equity: This ratio measures the return on the owners (both equity and

preference shareholders) invested in the firm. Normally it is expected to be (10%-17%).

=profit / equity *100

Year Return on equity

(%)

= Amounts

2004-05 16 =4091762/25264485*100

2005-06 17.85 =4910114/27492955*100

2006-07 3.38 =1001764/29587190*100

2007-08 4.98 =1504277/30194249*100

2008-09 6.4 =2024423/31584149*100

2004-05 2005-06 2006-07 2007-08 2008-0902468

101214161820

1617.85

3.384.98

6.4

Return on equity (%)

Interpretation:

The return on equity ratio in the first year it was 16% then in second year it was17.85%

then in third year drastically came down to 3.38% due to decrease in the profit ,in last two

years it is showing gradual growth i.e. ,4.98% and 6.4%.still the ratio is not satisfactory as

still it is far behind from the expected rate.



5. Return on capital employed: This ratio shows the return on capital employed (share

capital, reserve, retained earnings and long term borrowings) used in the organization.

Normally this ratio is expected to be (15%-20%).

Return on capital employed = profit / capital employed * 100

YearReturn on capital

employed (%) = Amount

2004-05 7.04 =4091762/58049562*100

2005-06 6.72 =4910114/72991040*100

2006-07 1.19 =1001704/83792976*100

2007-08 1.59 =1504277/94314060*100

2008-09 1.99 =2024423/101574578*100

Year 2004-05 2005-06 2006-07 2007-08 2008-090

1

2

3

4

5

6

7

87.04 6.72

1.191.59

1.99000000000001

Return on capital employed (%)

Interpretation:

The return on capital ratio in second year it came down to 6.72% in third year it

drastically came down to 1.19% after that next two year it is gradually moving up. But the

ratio is not satisfactory it indicates that the capital is not utilized properly as normal

expected rate is 15% to 20%.



II. OPERATING RATIO

This ratio gives the operation efficiency of the organization. The operation efficiency can

be determined by following ratios

1. Ratio of interest earned to interest paid: this ratio shows the percentage of interest

earned on loans and advances and interest paid on deposits. Normally it is expected to be

<200%.

Ratio of interest earned to interest paid == interest earned / interest paid *100

year

Ratio of interest

earned to interest

paid (%)

amounts

2004-05 135 =58309746/4377981*100

2005-06 128 =60308734/44876384*100

2006-07 152 =63780425/41956898*100

2007-08 156 =61470557/39279940*100

2008-09 155 =67496035/436336125*100

2004-05 2005-06 2006-07 2007-08 2008-090

20406080

100120140160180

135 128

152 156 155

Ratio of interest earned to interest paid (%)

Interpretation:

This ratio decreases from 135% (2004-05) to 128 % (2005-06) because interest paid on

barrowing was more after that last three years it is showing consistent performance

i.e.152 %(2006-07) ,156% (2007-08) and 155% (2008-09).this ratio is not satisfactory as

it is expected be <200%.



2. Ratio of interest paid to total income: this ratio shows the percentage of interest paid

to deposits accepted.

Ratio of interest to total income= interest paid /total income *100

Year

Ratio of interest paid

to total income amounts

2004-05 72.3% =4377981/59681976*100

2005-06 62.6% =44876384/71618371*100

2006-07 64.76% =41956898/64788253*100

2007-08 60.80% =39279940/645662627*100

2008-09 63.73% =43636125/68469180*100

2004-05 2005-06 2006-07 2007-08 2008-0954.00%56.00%58.00%60.00%62.00%64.00%66.00%68.00%70.00%72.00%74.00% 72.30%

62.60%

64.76%

60.80%

63.73%

Ratio of interest paid to total income

Interpretation:

Ratio of interest paid to total income decreases from 72.3% (2004-05) to 62% (2005-06)

because decrease in interest paid on the borrowings again the ratio slightly increased in

the next year to 64.76% (2006-07) and in last two years it is showing 60.80% (2007-08)

and 63.73% (2008-09).Normally this ratio is expected to be below 40% so this ratio is not

satisfactory



3. Ratio of staff expenses to total expenses: this ratio is the percentage of staff expenses

to total expenses

Ratio of staff expenses to total expenses= staff expenses / total expenses*100

Year

Ratio of staff

expenses to total

expenses (%)

Amount

2004-05 9.9 =5504232 / 55590214 *100

2005-06 9.11 =5812554/63748726*100

2006-07 10.35 =6603975/63786489*100

2007-08 11.73 =7400383/63058350*100

2008-09 14.1 =9415551/66444757*100

2004-05 2005-06 2006-07 2007-08 2008-0902468

10121416

9.9 9.1110.35

11.7314.1

Ratio of staff expenses to total expenses (%)

Interpretation:

The ratio shows that the staff expenses are gradually increasing year after year and last

year it is increased to 14.1% (2008-09) from 11.73% (2007-08) .payment of the employs

is increasing.



4. Ratio of expenses to income: This ratio shows the percentage of expenses to total

income. Normally this ratio is expected to be in the range (50%-75%).

Ratio of expenses to income =total expenses / total income *100

Year

Ratio of

expenses to

income%

Amount

2004-05 93.14 =55590214/59681976*100

2005-06 91.27 =66708257/71618371*100

2006-07 98.45 =63786549/64786549*100

2007-08 97.67 =63058350/64562627*100

2008-09 97.04 =66444757/68469180*100

2004-05 2005-06 2006-07 2007-08 2008-0986

88

90

92

94

96

98

100

93.14

91.27

98.4597.67

97.04

Ratio of expenses to income

Interpretation:

Ratio of expenses to income is very high for last three years i.e. 98.45% (2006-007),

97.67 % (2007-08) and 97.04(2008-09) due to increase in operating expenses and staff

expenses. Normally it is expected to be in the range (50%-75%) so this ratio is not

satisfactory.



5. Ratio of administration expenses to total income: This ratio indicates the percentage

of administration expenses out of total income where the administration expenses include

like rent, printing charges, insurance ect.

= administration expenses / total income * 100

Year Ratio of admn exp to

tol inc (%)

Amount

2004-05 11.28 =6733790/59681976*100

2005-06 10.03 =7184570/71618371*100

2006-07 13.48 =8734763/64788253*100

2007-08 13.53 =8741118/64562627*100

2008-09 17.04 =11976146/68469180*100

2004-05 2005-06 2006-07 2007-08 2008-090

2

4

6

8

10

12

14

16

18

11.2810.03

13.48 13.53

17.04

Ratio of admn exp to tol inc (%)

Interpretation:

Ratio of administration expenses to total income shows that in second year the ratio

reduced to 10.3% then again in third year it raised to 13.48% ,forth year shows not much

difference but last year it raised to 17.04% .the rise in the ratio is due to increase in the

administrative expenses which comprises printing , stationary and other administrative

expenses.



III. Solvency Ratio

This ratio helps to know the liquidity of the firm i.e. ability to meet its short term

obligations or current liabilities. The solvency of the firm can be determined in the

following ratios.

1. Current ratio is measure of liquidity. Current assets are divided by current liabilities.

The higher the current ratio, the more assurance those current liabilities can be paid.

Standard ratio for current ratio is 2:1.

1. Current ratio = current asset / current liabilities *100

year Current ratio (%) Amount

2004-05 3.52 =21163324/6005364*100

2005-06 9.24 =40855205/4419397*100

2006-07 2.27 =20807053/9134617*100

2007-08 4.51 =38570706/8537389*100

2008-09 3.91 =33151812/8473360*100

2004-05 2005-06 2006-07 2007-08 2008-090123456789

10

3.52

9.24

2.27

4.513.91

Current ratio (%)

Interpretation:

Current ratios are satisfactory but in the year 2005-06 it is 9.24 and in 2007-08 it is 4.5

excess of current ratio indicates that presence of ideal money so the organization should

maintain current ratio in such a manner that there should not be ideal current asset.



2. Ratio of cash to deposits: This ratio helps to find what extent the deposits used and

cash balance in hand

This ratio helps to find what extent the deposits used and cash balance in hand. The

conversion into cash while payment of deposits is very important for any bank. If there is

more need of deposit liquidity the bank as to keep more funds in cash. This ratio can be

calculated with the following formula.

Ratio of total cash to total deposit= total cash / total deposit *100

Year Ratio of cash to deposits (%) Amount

2004-05 4.78 =21163324/442160198*100

2005-06 8.42 =40855205/484646620*100

2006-07 4.4 =20807053/472873643*100

2007-08 7.88 =38570706/489297593*100

2008-09 6.01 =33151812/550966276*100

2004-05 2005-06 2006-07 2007-08 2008-090

1

2

3

4

5

6

7

8

9

4.78

8.42

4.4

7.88

6.01

Ratio of cash to deposits (%)

Interpretation:

ratio of cash to total deposits increases from 4.78%(2004-05) to 8.42% (2005-06) then it

decrease to 4.4 (2006-07) but in last two years it is showing 7.8% and 6.01% The

organization need to reserve (10%-20%) of cash reserves to meet current obligation.



3. Ratio of investments to deposits This ratio shows at what extent the firm invested its

deposits on scurrilities from its deposits.

Ratio of investment to deposit = total investment / total deposits *100

Year Ratio of

investment to

deposit (%)

Amount

2004-05 30.25 =133757414/442160198*100

2005-06 33.63 =163027644/484646620*100

2006-07 34.80 =164600881/472873643*100

2007-08 37.68 =184404122/489297593*100

2008-09 46.24 =254781961/550966276*100

2004-05 2005-06 2006-07 2007-08 2008-090

5

10

15

20

25

30

35

40

45

50

30.2533.63 34.8

37.68

46.24

Ratio of investment to deposit (%)

Interpretation:

The investment to deposit ratio is gradually increasing year by year. But the ratio is not

satisfactory it indicates the presence of ideal money so bank need to invest the ideal

money available.



4. Ratio of credit deposit: This ratio shows the percentage of loans and advances

provided by bank from its deposits. This ratio is purely depending upon the lending

policy of the bank and also the loan requirements of bank customer. If there is increase in

loans demand higher than the likely rise in deposits the bank has to keep more of its funds

in liquid assets to meet the increase in the loan demand and this is also depending upon

the nature of loan and type of deposit of the bank.

Ratio of credit deposit= loan and advances / total deposits *100

Year Ratio of credit deposit

(%)

Amount

2004-05 75.09 =332042108/442160198*100

2005-06 71.20 =345101283/484646620*100

2006-07 77.82 =368035233/472873643*100

2007-08 72.18 =353195064/489297593*100

2008-09 65.14 =358899844/550966276*100

2004-05 2005-06 2006-07 2007-08 2008-0955

60

65

70

75

80

75.09

71.2

77.82

72.18

65.14

Ratio of credit deposit (%)

Interpretation:

Credit deposits ratio is showing consistent performance but last year it has been decreased

to 65.14% (2008-09) from 72.18% (2008-09).but the ratios are satisfactory except the last

year. The normal expected rate of this ratio ranges between (70%-80%).



5. Ratio of loans to total assets: The loans to total assets ratio measures the total loans as

a percentage of total assets. The higher this ratio indicates a bank is loaned up and its

liquidity is low. The higher the ratio more risky the bank may be to higher defaults. This

figure is determined as follows:

Ratio of loans to total assets = loans / total assets *100

Year Ratio of loan to total

assets (%)

Amount

2004-05 60.84 =332042108/545686150*100

2005-06 56.91 =3451011233/606309871*100

2006-07 59.93 =368035233/614073557*100

2007-08 55.49 =353195064/636396364*100

2008-09 50.14 =358899844/715676149*100

2004-05 2005-06 2006-07 2007-08 2008-090

10

20

30

40

50

60

7060.84

56.9159.93

55.4950.14

Ratio of loan to total assets (%)

Interpretation:

Ratio of loan to total assets decreases from 60.84%(2004-05) to 56.91%(2005-06) then

again it increase to 59.93%(2006-07) after that it decrease to 55.49%(2007-08) and

50.14%(2008-09) .this ratio is not satisfactory because it is expected to be (60%-80%)



6. Ratio of current asset to fixed asset: This ratio shows the percentage of current assets

and fixed assets.

Ratio of current asset to fixed asset = current asset / fixed asset * 100

Year Ratio of C.A TO F.A (%) = current asset / fixed asset * 100

2004-05 657.8 =21163324 /3216946*100

2005-06 1386.1 =40855205/2947328*100

2006-07 441.9 =20807053/4717653*100

2007-08 883.85 =38570706/4363899*100

2008-09 743.8 =33151812/4456903*100

2004-05 2005-06 2006-07 2007-08 2008-090

200

400

600

800

1000

1200

1400

1600

Ratio of C.A TO F.A (%)

Interpretation:

Ratio of current asset to fixed asset in second year it increased to 1386.1% from 657.8%

of first year then in third year it suddenly reduced to 441.9 then in forth year it increased

to 883.85% last year it slightly reduced to 743.8%.this ratio is satisfactory. The increase

in the ratio indicates that excess amount of cash in hand.



FINDINGS



FINDINGS:

The ratio of profit to income has drastically come down from 6.5%(2005-

06) to 1.54%(2006-07), it is because of increase in the expenses like

advertisement expenses and increase in nonperforming asset and last two

years it is showing gradual growth 2.32 %( 2007-08) and 2.95 %( 2008-

09), which show that last 3 years profitability is not adequate.

Organization need to cut down the expenses.

This ratio is not satisfactory as it is very less compared to the expected

ratio.

Ratio of profit to total deposits in the first year 2004-05 was 0.92% and in

year 2005-06 it was 1.01. And last three years i.e. 0.21%, 0.30 and

0.36%.Iit indicates that the Bank has not utilized its deposits effectively.

Return on asset ratio 0.74 %( 2004-05) And 0.8% (2005-06). After this

next three years Ratio’s are 0.16%,023% and 0.28% . This trend shows

that the organization is not good in converting investment into profit as the

expected level is between 0.60% to 2.0%.

The return on equity ratio in the first year was 16% then in second year it

was17.85% then in third year it drastically came down to 3.38% due to

decrease in the profit ,in last two years it is showing gradual growth

i.e. ,4.98% and 6.4%.still the ratio is not satisfactory as still it is far behind

from the expected rate.

The return on capital ratio in second year came down to 6.72% in third

year it drastically came down to 1.19% after that next two year it is

gradually moving up. But the ratio is not satisfactory which indicates that

the capital is not utilized properly as normal expected rate is 15% to 20%.



Ratio of interest earned to interest paid decreased from 135% (2004-05) to

128 % (2005-06) because interest paid on barrowing was more after that

last three years it is showing consistent performance i.e.152 %(2006-

07) ,156% (2007-08) and 155% (2008-09).this ratio is not satisfactory as it

is expected be < 200%.

Ratio of interest paid to total income decreases from 72.3% (2004-05) to

62% (2005-06) because decrease in interest paid on the borrowings again

the ratio slightly increased in the next year to 64.76% (2006-07) and in last

two years it is showing 60.80% (2007-08) and 63.73% (2008-

09).Normally this ratio is expected to be below 40% so this ratio is not

satisfactory.

The ratio shows that the staff expenses are gradually increasing year after

year and last year it is increased to 14.1% (2008-09) from 11.73% (2007-

08) .payment of the employs is increasing.

Ratio of expenses to income is very high for last three years i.e. 98.45%

(2006-007), 97.67 % (2007-08) and 97.04(2008-09) due to increase in

operating expenses and staff expenses. Normally it is expected to be in the

range (50%-75%) so this ratio is not satisfactory.

Ratio of administration expenses to total income shows that in second year

the ratio reduced to 10.3% then again in third year it raised to

13.48% ,forth year shows not much difference but last year it raised to

17.04% .the rise in the ratio is due to increase in the administrative

expenses which comprises printing , stationary and other administrative

expenses.

Current ratios are satisfactory but in the year 2005-06 it is 9.24 and in

2007-08 it is 4.5 times excess of current ratio indicates that presence of

ideal money so the organization should maintain current ratio in such a

manner that there should not be ideal current asset.



Ratio of cash to total deposits increases from 4.78%(2004-05) to 8.42%

(2005-06) then it decrease to 4.4 (2006-07) but in last two years it is

showing 7.8% and 6.01% this ratio is satisfactory but the organization

need to reserve (10%-20%) of cash reserves to meet current obligation.

The investment to deposit ratio is gradually increasing year by year. But

the ratio is not satisfactory it indicates the presence of ideal money so bank

need to invest the ideal money available.

Credit deposits ratio is showing consistent performance but last year it has

been decreased to 65.14% (2008-09) from 72.18% (2008-09).but the ratios

are satisfactory except the last year. The normal expected rate of this ratio

ranges between (70%-80%).

Ratio of loan to total assets decreased from 60.84%(2004-05) to

56.91%(2005-06) then again it increase to 59.93%(2006-07) after that it

decrease to 55.49%(2007-08) and 50.14%(2008-09) .this ratio is not

satisfactory because it is expected to be (60%-80%).

Ratio of current asset to fixed asset in second year has increased to

1386.1% from 657.8% of first year then in third year it suddenly reduced

to 441.9 then in forth year it increased to 883.85% last year it slightly

reduced to 743.8%.this ratio is satisfactory. The increase in the ratio

indicates excess amount of cash in hand.



SUGGESTIONS



SUGGESTIONS:

Regarding administration expenses the expenses like salary to employee, printing

and stationery are increasing, so it should appoint right person in the right job so

the organization can get maximum contribution with limited payment. As

regarding printing and stationary it should adopt new software programs by which

it can achieve paper less work and it reduces manual work.

Current ratios are satisfactory but in the year 2005-06 it is 9.24 and in 2007-08 it

is 4.5 excess of current ratio indicates that presence of ideal money so the

organization should utilize that ideal money.

Ratio of profit to deposits decreases from (2004-05) 0.68% to 0.16% (2005-

06) .after that the ratio shows a gradual growth in last three years i.e. 0.21%,0.30

and 0.36%.the organization need to use the deposits effectively.

The expenses are very high for last three years i.e. 98.45% (2006-007), 97.67 %

(2007-08) and 97.04(2008-09) so it needs to be minimized.

The organization can improve on selection of assets class for investment and other

related factors such as timing etc. This could enhance their Return to Total Assets

and Total Investment to Total Deposits ratios.



CONCLUSION



CONCLUSION:

This society is existed on the bases of co-operation of its members it shows how co-

operation is achieved in the society and this society has a great opportunity of increase of

its members.

When we analyse its financial performance through ratios there is great decline of its

profit in the year of 2006-07 but in the last three year there is a small increment in its

financial performance but it is not enough because the society has huge experience and it

has faced many problems during this period. Still society facing problems from

nationalised banks in some aspects. If the society takes suggestions given then it will

reach its maximum profitability.



BIBLIOGRAPHY



BIBLIOGRAPHY

Balance sheet and Financial Statements were analysed and interpreted from

the Banks ANNUAL REPORT journal.

Text Books

Financial Management : Khan and Jain

Financial Accounting : Narayanaswamy


Project report on GOCC BANK BIJAPUR

Documents