Financial analysis:

Ratio analysis:
In finance, a financial ratio or accounting ratio is a ratio of two selected numerical values
taken from an enterprise's financial statement. There are many standard ratios used to try to
evaluate the overall financial condition of a corporation or other organization. Financial ratios
may be used by managers within a firm, by current and potential shareholders of a firm, and
by a firm's creditors. Security analyst use financial ratios to compare the strengths and
weaknesses in various companies. If shares in a company are traded in financial markets, the
market price of the shares is used in certain financial ratios.

Financial ratios quantify many aspects of a business and are an integral part of financial
statement analysis. Financial ratios are categorized according to the financial aspect of the
business which the ratio measures. Liquidity ratios measure the availability of cash to pay
debt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets. Debt
ratios measure the firm's ability to repay long-term debt. Profitability ratios measure the
firm's use of its assets and control of its expenses to generate an acceptable rate of return.
Market ratios measure investor response to owning a company's stock and also the cost of
issuing stock.

For clarification about what are current assets out of total assets I read NOTES at the end in
the annual reports of bank This is because after reading NOTES I will know which
investments are long term and which are short term. Similarly advances given for more than a
year are long term.

Cash and Balance with treasury banks: Current asset

Balances with other banks: Current asset

Lending to Financial institutions: Through notes

Investments – net: Through notes figure out amount of current and fixed portion

Advances – net: Through notes figure out amount of current and fixed portion

Other assets – net: Through notes but majority are fixed assets

Operating fixed assets: Fixed asset

Deferred tax asset – net: Non-current asset

Similarly, for liabilities

Bills payable: Current liabilities

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Borrowings from financial institutions: Current liabilities

Deposits and other accounts: Through notes figure out amount of current and fixed portion

Sub-ordinated loans: Through notes figure out amount of current and fixed portion

Liabilities against assets subject to finance lease: Through notes figure out amount of
current and fixed portion

Other liabilities: Through notes figure out amount of current and fixed portion

Deferred tax liabilities – net: Non-current liability

Analysis:

Short term solvency or liquidity ratio:

Current ratio:

One of the best known and most widely used ratios is the current ratio ‘it is defined as follow:

CURRENT ASSETS
Current Ratio=
CURRENT LIABILITIES

433745191
¿
421375728

=1.02 times

Interpretation:

This ratio is healthy for the bank which means bank can pay its short term liabilities of the
customer current ratio is at least 1 because of less than 1would mean that net working
capital is negative this would be threatened in a healthy firm.

Cash ratio:

Short term creditor might be interested in the cash ratio.

CASH
CASH RATIO=
CURRENT LIABILITES

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 33961308
¿
421375728

Cash ratio = 0.08times

Interpretation:

The cash ratio indicates to creditors, analysts, and investors the percentage of a company’s
current liabilities that cash and cash equivalents will cover. A ratio above 1 means that a
company will be able to pay off its current liabilities with cash and cash equivalents, and
have funds left over.

Although there is no ideal figure, a ratio of not lower than 0.5 to 1 is usually preferred.

Net working capital ratio:

NWC
NET WORKING CAPITAL ¿ TOTAL ASSESTS=
TOTAL ASSEST

433745191−421375728
¿
442540782

=0.027 or 2.7%

 A relatively low value might indicate relatively low level of liquidity.

Long term solvency ratio:

These are intended to address the firms long term ability to meet its obligations or more
generally its financial leverage.

total assests−total equity

total debt ratio=
total assets

= 0.95 times

Interpretation:

 A debt ratio greater than 1.0 (100%) tells you that a company has more debt than
assets. Meanwhile, a debt ratio less than 100% indicates that a company has more
assets than debt.

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Long term debt ratio:

LONG TERM DEBT

LONG TERM DEBT RATIO=
LONG TERM DEBT +TOTAL EQUITY

=0.49times

Interpretation:

A long-term debt  ratio of 0.5 or less is a broad standard of what is healthy, although that
number can vary by the industry

A high ratio usually indicates a higher degree of business risk because the company must
meet principal and interest on its obligations. Potential creditors are reluctant to give
financing to a company with a high debt position. However, the magnitude of debt depends
on the type of business. For example, a bank may have a high debt ratio but its assets are
generally liquid. A utility can afford a higher ratio than a manufacturer because its earnings
are more stable.

Time interest earned ratio:

EBIT
TIME INTEREST EARNED=
INTEREST

= 0.35 times

Interpretation:

A higher times interest earned ratio is favorable because it means that the company presents
less of a risk to investors and creditors in terms of solvency. From an investor or creditor's
perspective, an organization that has at times interest earned ratio greater than 2.5 is
considered an acceptable risk. Companies that have a times interest earned ratio of less than
2.5 are considered a much higher risk for bankruptcy or default and, therefore, financially
unstable.

Assets turnover ratio:

turn sales
NWC
¿ NWC

=0.08times

Interpretation:

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A high turnover ratio shows that management is being very efficient in using a company’s
short-term assets and liabilities for supporting sales .In contrast, a low ratio may indicate
that a business is investing in too many  accounts receivable and inventory to support its
sales, which could lead to an excessive amount of bad debts or obsolete inventory.

Fixed assets turnover:

sales
¿ asset turnover= assets ¿
net ¿

= 1.26 times

Interpretation:

 Your fixed asset ratio analysis shows a turnover ratio of 8 to 1, which incorrectly

indicates good asset management.

 A high ratio indicates that a company efficiently uses its fixed assets to generate
sales, whereas a low ratio indicates that the firm does not efficiently use its fixed
assets to generate sales. Investors use the ratio to determine their return on
investment (ROI), and creditors use it to assess how well a company can repay loans
used to purchase equipment.

Total asset turnover:

sales
total assest turnover=
total asset

=0.02 times

Interpretation:

 A lower asset turnover ratio indicates that a company is not especially effective at using its
assets to generate revenue.

Profitability measures:

Measures how efficiently a firm uses its assets and manage its operations

net ncome
profit margin=
sales

=17.6%

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