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    Ratio Analysis of Banks: Measuring Returns

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    abhisek0456
    This document reviews five types of ratios used to analyze banks: 1) return or profitability ratios like return on assets (ROA) and return on equity (ROE) to measure profitability, 2) operating efficiency ratios like operating expenses to gross operating income to measure costs, 3) tax management ratios like tax-exempt positions to measure tax burden, 4) liquidity ratios like cash to total assets to measure liquid assets, and 5) capital adequacy ratios like capital ratios and leverage ratios to measure capital strength. Formulas are provided for calculating key ratios within each category.

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    Ratio Analysis of Banks: Measuring Returns

    Uploaded by

    abhisek0456
    14 views5 pages
    This document reviews five types of ratios used to analyze banks: 1) return or profitability ratios like return on assets (ROA) and return on equity (ROE) to measure profitability, 2) operating efficiency ratios like operating expenses to gross operating income to measure costs, 3) tax management ratios like tax-exempt positions to measure tax burden, 4) liquidity ratios like cash to total assets to measure liquid assets, and 5) capital adequacy ratios like capital ratios and leverage ratios to measure capital strength. Formulas are provided for calculating key ratios within each category.

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    Trans Bank Ratios

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    This document reviews five types of ratios used to analyze banks: 1) return or profitability ratios like return on assets (ROA) and return on equity (ROE) to measure profitability, 2) operating efficiency ratios like operating expenses to gross operating income to measure costs, 3) tax management ratios like tax-exempt positions to measure tax burden, 4) liquidity ratios like cash to total assets to measure liquid assets, and 5) capital adequacy ratios like capital ratios and leverage ratios to measure capital strength. Formulas are provided for calculating key ratios within each category.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    14 views5 pages

    Ratio Analysis of Banks: Measuring Returns

    Uploaded by

    abhisek0456
    This document reviews five types of ratios used to analyze banks: 1) return or profitability ratios like return on assets (ROA) and return on equity (ROE) to measure profitability, 2) operating efficiency ratios like operating expenses to gross operating income to measure costs, 3) tax management ratios like tax-exempt positions to measure tax burden, 4) liquidity ratios like cash to total assets to measure liquid assets, and 5) capital adequacy ratios like capital ratios and leverage ratios to measure capital strength. Formulas are provided for calculating key ratios within each category.

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    of 5

    RATIO ANALYSIS OF BANKS

    REVIEW FIVE TYPES OF RATIOS-


    1. RETURN OR PROFITABILITY
    2. OPERATING EFFICIENCY
    3. TAX MANAGEMENT
    4. LIQUIDITY
    5. CAPITAL ADEQUACY
    MEASURING RETURNS:
    RETURN ON ASSETS (ROA) =
    NET PROFIT  TOTAL ASSETS

    RETURN ON EQUITY (ROE) =


    NET PROFIT  COMMON EQUITY

    OR ROE =

    NET PROF X G.O.I. X TOT ASSETS


    GROSS OP.INC TOT ASSETS COM.EQ’TY
    NET PROFIT MARGIN =
    NET PROFIT  GROSS OPER INCOME

    NET INTEREST MARGIN =


    TOT INTEREST INCOME - INT EXPENSE
    TOTAL ASSETS OR EARNINGS ASSETS

    INT INC. ON LOANS/AVG LOAN PORTFOLIO

    INT INC ON SECUR./AVG SECUR PORTFOLIO


    MEASURING OPERATING EFFICIENCY:
    TOTAL OPER EXP  GROSS OPER. INC.

    GROSS OPERATING INCOME/ ASSETS

    TOT NON-INTEREST INCOMETOT ASSETS

    TOT NON-INT INCOVERHEAD EXPENSES

    AVERAGE YIELD ON ASSETS =


    TOTAL INTEREST INCOMETOTAL ASSETS
    INTEREST EXPENSE/GROSS OPER.INC.

    TOTAL INTEREST EXPTOTAL ASSETS

    TAX MANAGEMENT MEASURES:


    TAX EXEMPT POSITION=
    INVMT IN TAX EXEMPT SEC  TOT ASSETS

    LOAN LOSS PROV  GROSS OPER INC

    MEASURING LIQUIDITY:
    CASH & DUE FROM BANKSTOT ASSETS

    TOT DEMAND DEPOSITS  TOTAL ASSETS


    TIME DEPOSITSTOTAL ASSETS

    LOANS AND MORTGAGESTOTAL ASSETS

    MEASURING CAPITAL ADEQUACY:

    CAPITAL RATIO =
    EQUITY CAPITAL  TOTAL ASSETS

    LEVERAGE RATIO =
    TOTAL ASSETS  EQUITY CAPITAL

    LOAN LOSS RES  TOT LOANS & MORT.

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