Financial Ratios Analysis

According to Sheridan Titman in his Financial Management: Principles and Applications,

he defined Financial Ratios as a second method for systematizing the financial information in the
income statement and statement of financial position of the reporting entity. There are 5 ratios
being mentioned by the author. First is about Liquidity Ratios wherein it wants to know how
liquid the firm is in paying its current liabilities. Second is Capital Structure Ratios wherein it
wants to analyze the financing of its assets. Third is all about Asset Management Efficiency
Ratio and it focuses about the management of the entitys assets and how efficient are those
assets. Fourth is the Profitability Ratio and it tackles about the return of investments if the
company has earned its investments. Lastly, the Market Value Ratios wants to know if the
managers are creating value for the shareholders.
BDO Unibank Inc. has disclosed some of its ratios and some are have to be computed for
the purposes of financial ratio analysis. In its financial statements, BDO has a different structure
of its elements. Example, under assets, it does not contain the account cash, accounts receivables
and inventories since the company is a banking corporation. Under its liabilities, they are mostly
composed of loans and the account payable and note payable accounts do not appear. In the
income statement, the revenues recorded by the firm are all from interest from loans. So the
ratios that we will be presenting are the ratios available with regards to the structure of the
financial statements of BDO.

A. Comparative Ratios (2013-2009)

Here are the ratios that are present, either disclosed by BDO or calculated, for the
analysis of the comparative ratios.

Ratios
Current Ratio
Debt Ratio
Total Assets Turnover Ratio
Fixed Assets Turnover Ratio
Gross Profit Margin (%)
Net Profit Margin (%)
Return on Assets (%)
Return on Equity (%)
Loans/Deposit Ratio (%)
Total Capital Ratio (%)
Dividend Pay-out (%)

2013
0.35
0.902
0.026
2.438
34.22
3.16
1.48
15.06
61.42
15.51
14.23

2012
0.21
0.876
0.029
2.23
27.36
3.34
1.3
10.44
73.63
19.24
29.55

2011
0.22
0.912
0.031
2.169
22.99
3.5
1.11
12.6
70.09
15.8
24.62

2010
0.26
0.911
0.034
2.284
20.75
4.03
1.05
11.85
60.71
13.84
23.84

2009
0.22
0.921
0.036
2.079
16.85
4.06
0.9
11.43
62.06
12.17
10.57

Current Ratio
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2013

2012

2011

2010

2009

The current ratio is being calculated by dividing the current assets to the current liabilities
of the firm. In analyzing current ratios, the higher the ratio is, the more liquid the firm is in
paying its liabilities. For the case of BDO in its 5-year comparative ratios, generally it has stable
ratio from 2009-2012 due to fluctuating ratios but in 2013, it has increased from 0.20 in 2012 to
0.35. Although the increase was great, the firm is still to be said not that liquid because the
liquidity ratio is still below 1. It can be inferred that BDO has a little amount of current assets to

satisfy its current liabilities. Its assets are more on current loan receivables and it has no
cash/inventories that can be used to satisfy these liabilities. It is a banking institution so it doesnt
mean that banks always have cash.

Debt Ratio
0.93
0.92
0.91
0.9
0.89
0.88
0.87
0.86
0.85
2013

2012

2011

2010

2009

In calculating the debt ratio, it is the quotient between the total liabilities and the total
assets of the firm. This is the percentage which assets are being financed by its liabilities. The
higher the debt ratio, the more dependent the company is in financing assets using liabilities. For
BDO, the debt ratio from 2009-2012 has decreased especially for 2011 which it has 0.91 to 0.875
where it has a dramatic decrease in the debt ratio. After 2012, it has returned to 0.90 debt ratio.
This means that 90% of its liabilities are used to finance its assets.

Total Assets Turnover Ratio

0.04
0.04
0.03
0.03
0.02
0.02
0.01
0.01
0
2013

2012

2011

2010

2009

The total assets turnover ratio reveals how managed the assets are in proportion to the
sales of the company. It is computed by getting the quotient between the total sales/revenues of
the firm and total assets. The higher the ratio, there is a better management of assets being
conducted by the firm. For BDO, the trend of its total assets turnover has decreased. It means
that the firm has not been maximizing its assets very well in generating revenues within 5 years
because of the decrease in the turnover. Another important part here is that the ratios range from
0.0250.035 which is really low. The company, in general, has not been maximizing its assets in
generating revenues around times compared to other corporations, which is a very bad thing for a
banking firm.

Fixed Assets Turnover Ratio

2.5
2.4
2.3
2.2
2.1
2
1.9
1.8
2013

2012

2011

2010

2009

The same logic follows for the fixed assets turnover ratio. However, this ratio only
focuses on the fixed assets of the firm. The method of solving this is through dividing the net
fixed assets from the total sales/revenues of the firm. For the comparative ratios, it has an
increasing trend in the fixed assets turnover ratio. We can infer here that the firm has been
maximizing its fixed assets to generate revenues. For 2013, it has its highest mark of 2.4 times.
In contrast with the total assets turnover ratio, we can say that the current assets of the firm have
not been helping the firm in generating its revenues. It is only the fixed assets that has been
maximized well by the firm.

Gross Profit Margin (%)

40
30
20
10
0
2013

2012

2011

2010

2009

For the gross profit margin, it is calculated through the quotient of gross profits and sales.
The gross profit margin of BDO has been improving constantly over the 5 year comparative
ratios which is a good thing for the firm because they are generating more sales every year from
2009-2013.

Net Profit Margin (%)

5
4
3
2
1
0
2013

2012

2011

2010

2009

The net profit margin is being calculated through dividing the net profit by the total
sales/revenues of the firm. The net profit margin has an opposite trend compared to the gross
profit margin where the gross profit margin has an increasing trend from 2009-2013. The net
profit margins trend has decreased from 2009-2013. This means that BDO, although has
improved its sales over the years, their expenses have also increased over the years making the
net profit margin trend decrease. The range of their net profit margin is also low compared to
other corporations, but this is subjective since it is a banking corporation so it is acceptable.

Return on Assets (%)

2
1.5
1
0.5
0
2013

2012

2011

2010

2009

Return on Assets is basically seeing if the entity has a very good control on it expenses
and efficient use of its assets to generate sales/revenues. This is computed by the quotient
between net operating income and total assets. The analysis of this is that the higher the

percentage, the better. For the past 5 years of BDO, it has an increasing trend of return on assets.
It means that the firm has a very good control over its expenses and its assets to generate sales.

Return on Equity (%)

16
14
12
10
8
6
4
2
0
2013

2012

2011

2010

2009

Return on Equity is technically similar with Return on Assets. This is from the point of
view of the shareholders whether they are earning enough in the corporation. This is solved
through dividing the net income and common equity. Same as Return on Assets, higher return on
equity is better. For BDO, both Return on Assets and Return on Equity have same trends where
they are increasing from 2009 to 2013. This means that the shareholders are earning from the
operations of the firm. 15% return on equity in 2013 has to be noted since it has a high rate of
return for the shareholders.

Loans/Deposit Ratio (%)

80
60
40
20
0
2013

2012

2011

2010

2009

The loan/deposit ratio is somehow like a debt and liquidity ratio also because
loan/deposit ratio focuses on the question if the firm has enough deposits to pay its loans. For
BDO, it has fluctuating ratios over the 5 years.

Dividend Pay-out (%)

35
30
25
20
15
10
5
0
2013

2012

2011

2010

2009

The dividend pay-out ratio is defined as the measurement of the rate of net income
distributed to the shareholders as dividends. It is calculated by the quotient of net income and
dividends of that year. The analysis of dividend pay-out is not the increase or decrease per year
but the trend is what the potential investors looking for. They are interested on the trend. For
BDO, the trend is fluctuation, therefore, it can be said that for the past 5 years, the trend is stable
and potential investors can invest in BDO for having stable dividend pay-out ratio for the past 5
years.

Total Capital Ratio (%)

25
20
15
10
5
0
2013

2012

2011

2010

2009

Total capital ratio or capital adequacy ratio is being defined as a measurement of the
banks position in terms of its capital over its assets. For the case of BDO, it has an increasing
trend in terms of its total capital ratio. The banks position, therefore, is stable since its capital
ranges 13%-19% of the entitys assets. It is safe to assume that the owners of BDO will be
getting 13-19% over the comparative years after the assets have satisfied their liabilities.
Ratios
Current Ratio
Debt Ratio
Total Assets
Turnover Ratio
Fixed Assets
Turnover Ratio
Operating Profit
Margin (%)
Net Profit Margin
(%)
Return on Assets
(%)
Return on Equity
(%)
Loans/Deposit
Ratio (%)
2014-2019 Forecast Ratios

2014

2012

2011

2010

2009

2019

1.134276
56

1.1429702
1

1.147199
39

1.1510626
2

1.141163
92

1.143322
85

0.666666
67

0.8749134
4

0.871688
05

0.8687624
6

0.876298
3

0.874643
59

0.030908
47

0.0301245
5

0.029398
7

0.0290953
3

0.029028
55

0.029694
24

2.197121
34

2.2375221
4

2.236112
44

2.2524722
5

2.257242
43

2.234142
82

0.385139
79

0.4114984
7

0.432676
55

0.4474151
8

0.381309
66

0.411607
93

0.337010
19

0.3645754
7

0.385852
34

0.4008045

0.401376
97

0.377923
9

0.011904
08

0.0123962
1

0.012720
13

0.0130176
9

0.011068
87

0.012222
38

0.108877
43

0.1108737
1

0.112161
61

0.1124643
9

0.117027
4

0.112420
55

0.672716
69

0.6804602
9

0.691332
52

0.6862735
8

0.671866
5

0.680510
89

The forecast ratios above do not require an analysis since the values were merely derived from
percentage of sales method. However, certain target ratios for the firm should be discussed
further.
The paper aims to analyze the financial statements of a commercial bank entity. Bank financial
statements generally have a different format than the usual statements of a business entity as they

have very unique operating structures. Furthermore, the banking system has key ratios and
factors that must always be analyzed and secured. The loan to deposit ratio helps assess a banks
liquidity, and by extension, the aggressiveness of the banks management. A loan to deposit ratio
that ranges from 50 to 70% would be good for the entity depending on the circumstances as it is
not too high which could cause vulnerability to any sudden adverse changes in its deposit base,
nor too low which could mean that the bank is holding on to unproductive capital and earning
less than it should. Next, the total capital ratio is one of the most critical points an investor or a
bank regulator would analyze in a commercial bank financial statement. For a bank, this ratio
can serve as a margin of error as it can determine how risky a balance sheet is, and the degree to
which the bank is vulnerable to an unexpected increase in bad loans. For the case of BDO, they
have had a decent capital ratio over the years which could still be improved but should not really
be a top priority depending on the circumstances and certain events such as dividend payments
and signing off acquisitions. The return on equity and assets of BDO has been increasing which
is a good sign for investors and the firm could keep on adding to this or simply maintain the rate
as it already experienced a good amount of improvement over the years. The gross profit margin
of BDO has been increasing throughout meaning they were having more sales and the company
while the net profit margin has been decreasing. This could mean that they were spending more,
such as marketing and advertising expenditures, in order to increase sales in which they
succeeded. The firm should continue at this rate since sales are going up with not so significant
decrease in the net profit margin, however they should be careful with their expenditures as they
might encounter unexpected constraints in the future.