2.

3 Analysis of financial Ratios

The financial ratios are the true indicators of companys financial performance and help it
to compare its performance with the industry in terms of percentages. The banking sector has the
most significant influence of these ratios since their operations are solely based on monetary
dealings. There are various financial ratios proposed by the financial scholars to check the
current financial status and performance of the bank. Among them, few holds strategic
importance for the banks of UK since they could tell exactly what how the bank is performing
right now and how it intended to perform in the near future (Lo & Lu, 2006).
The liquidity indicator is among those few ratios that are highly relevant to the banking
sector. It determines the extent to which the firm is able to meet its obligation in relation to the
current operations of the business. The liquidity ratio emphasised on paying off debts without
affecting the usual operations of the banks. The current ratio and the working capital ratio are the
two main ratios used to measure the liquidity of the banks and are calculated based on the data
available on the balance sheet (Masciandaro, 2010). The solvency is another financial indicator
used by the banks. There are three ratios that come under solvency indicator. These include
equity/asset ratio, debt/asset ratio and debt/equity ratio. The solvency determines the extent of
firms liability and debt in relation to the owners equity invested in the business (Lo & Lu,
2006). The financial efficiency indicator is another measure of the firms performances. The
financial efficiency indicator capitalises on the current assets of the company for generating
value in the core operations of the business such as procurement, manufacturing, marketing,
financing and pricing. The profitability indicators measure the extent to which the current factors
of productions specifically capital and labour has the ability to generate the profits for the
business. The ratios that come under profitability measures are operation profit margins, net

profit margins, rate of return on equity and rate of return on assets(Carmen &Kenneth, 2008;
Raghuram, 2005).
There are other ratios that could also be utilised to determine the financial efficiency of
the company. These entail the total expense ratio, operating expense ratio, net income ratio
depreciation expense ratio, asset turnover ratio and interest expense ratio. All these ratios can
prove to be highly significant in terms of effectively managing the financial strategies at the time
and after the period of recession (Carmen & Kenneth, 2008; Raghuram, 2005).

For this particular research, case study approach along with collecting the data from the banks of
United Kingdom was designed. These banks are selected carefully keeping in mind all the
requirements that is necessary to be generated from the investigated population sample. The
financial management strategies and tactics used by the banks of United Kingdom and the impact
of global economic recession on them is the prime objective behind this research.