A STUDY ON

FINANCIAL ANALYSIS
OF PUNJAB
NATIONAL BANK
 INTRODUCTION
Financial Analysis -

Financial analysis is the process of reviewing and analysing a company's financial statements to make
better economic decisions. These statements include the income statement, balance sheet, statement of
cash flows, and a statement of changes in equity. Financial statement analysis is a method or process
involving specific techniques for evaluating risks, performance, financial health, and future prospects
of an organization.
■ Techniques of Financial Analysis-

1) Trend analysis-Trend analysis generally involves charting the path of stock prices to make a
projection about where they are headed. Trends can be upward or downward and indicate a bull
market or a bear market. This is one of the special tools of financial analysis as it can be used to
predict the impact of a range of external factors on a stock.

2)Cash flow analysis-Cash flow analysis means tracking the expenses and income of a business
during a specific period. It helps one gauge the working capital requirements of the company and
consequently, its speed of expansion in the market and debt requirements.

3) Ratio analysis-Ratio analysis is one of the few techniques of financial analysis that can help an
investor evaluate a company with its peers — companies in the same industry and of the same size. A
few examples are the earnings to price ratio, the net income to sales ratio and return on assets ratio.
This is also a useful method to find the missing links of private companies. As an investor, you should
ensure that you educate yourself with basic concepts of fundamental and technical investing before
you enter the markets.
Financial Institution-

A financial institution is an establishment that conducts financial transactions such as

investments, loans and deposits. Almost everyone deals with financial institutions on a
regular basis. Everything from depositing money to taking out loans and exchanging
currencies must be done through financial institutions. Here is an overview of some of the
major categories of financial institutions and their roles in the financial system.
 Classifications of Bank-

Indian Banks are classified

into commercial banks and
Co-operative banks.
Commercial banks comprise:
(1) Schedule Commercial
Banks (SCBs) and non-
scheduled commercial banks.
SCBs are further classified
into private, public, foreign
banks and Regional Rural
Banks (RRBs); and (2) Co-
operative banks which include
urban and rural Co-operative
banks.
Reserve Bank of India (RBI):

Reserve Bank of India is the apex organization of our country. It is also known as the
Central Bank of India. RBI came into existence on April 01, 1935, with Reserve Bank of
India Regulation Act 1934. It was nationalized by the Government of India on January 01,
1949. It’s headquartered is in Mumbai and the present Governor of RBI is Mr. Shantikanta
Das. RBI is the backbone of the Indian economy.

Scheduled banks and Non Scheduled banks:

Those banks that have entered into the Second Schedule of the Reserve Bank of India Act
1934 have been classified as scheduled banks and those are excluded from the list are
termed as Non-Scheduled Banks.
Commercial Banks-

■ Commercial Banks are the type of banks whose primary objective is to accept deposits
and advance loans to the customers (General Public, Corporate and government).
Commercial Banks are regulated under the Banking Regulation Act 1949. This act gives
extensive regularity powers to Reserve Bank of India over Commercial Banks. It also
entitled it to inspect their workings.

■ In other words, we can say that a Commercial Bank is a financial institution that accepts
deposits, grants loans. It borrows money from those who have money in surplus and
lends to those who need it. The first commercial bank in India was established in 1770,
Bank of Hindustan. Punjab national bank, Axis bank, Dena bank Union bank and
syndicate bank, etc. are some of the commercial banks operated in India.
Public Sector Banks:

Public Sector Banks which are also known as nationalized banks are the banks in which the
majority of stakes are of the government of India. The Government of India nationalized 20
privately owned banks in 1969 and 1980. The objectives of nationalization of banks are to
raise public confidence in the banking system. Reach of banking services in urban as well as
rural services. To ensure the availability of resources to important sectors of society like
agriculture and small-scale industries.

Private Sector Banks:

Private Sector Banks are the type of banks in which majorly stakes are owned by the private
sector. In 1951, there were 566 private sector banks operating in India, out of which 474
were Non-Scheduled and 92 Scheduled banks. Some of the private sector banks operating in
India are Karur Vyasa Bank, City Union Bank, Nainital Bank, and Karnataka Bank, etc.

Foreign Banks and RRBs

 Research Methodology
Research-

Research is a careful and detailed study into a specific problem, concern, or issue using the
scientific method. It's the adult form of the science fair projects back in elementary school,
where you try and learn something by performing an experiment. This is best accomplished
by turning the issue into a question, with the intent of the research to answer the question.

Research Methodology-

A research methodology or involves specific techniques that are adopted in research process
to collect, assemble and evaluate data. It defines those tools that are used to gather

relevant information in a specific research study. Surveys, questionnaires and interviews are
the common tools of research.
Data used in Study-

➢ The data is collected from year 2016 to 2020 and the data or the figures are collected from the Financial
Statement (Balance sheet and Profit-Loss Statement) of the selected Public Sector Bank.

➢ The data presented in this report is obtained from company’s official website, other management
literature and by company’s Annual Reports for the last five years and as well as moneycontrol.com,
ndtvfinance.

Tool Used in The Study

Meaning of Ratios-

A ratio is a comparison of two or more numbers that indicates their sizes in relation to each other.
A ratio compares two quantities by division, with the dividend or number being divided termed
the antecedent and the divisor or number that is dividing termed the consequent.

Meaning of Ratios Analysis-

Ratio analysis is a tool brought into play by individuals to carry out an evaluative analysis of
information in the financial statements of a company. These ratios are calculated from current year
figures and then compared to past years, other companies, the industry, and also the company to
assess the performance of the company. Besides, ratio analysis is used predominantly by
proponents of financial analysis.
 Ratios to be used in Financial Analysis is-

Gross Profit Ratio

The formulae used for the calculation of gross profit is –

Gross Profit Ratio = (Gross Profit / Net Sales) * 100

Gross profit ratio is a profitability measure that is calculated as the ratio of Gross Profit (GP)
to Net Sales and therefore shows how much profit the company generates after deducting
its cost of revenues.

Net Profit Ratio-

The formula used for the calculation of net profit ratio is-

Net Profit Ratio = (Net Profit / Net Sales) * 100

Higher the net profit ratio better the situation for the business as it indicates the firm is been
effectively reducing the operational expenses.
Return on Capital Employed-

The formula used for the calculation of ROCE is:

ROCE = Earnings Before Interest and Taxes / Capital Employed*100

The ROCE indicates how efficiently the long-term funds of owners and creditors are used.
And thus, higher the ROCE is better.

Debt Equity Ratio-

The formula for debt-equity ratio is-

Debt Equity Ratio = Total Debts / Shareholders Fund

The ideal ratio of the debt-equity is 2:1 it means that the debt of the company should not be
more than if it is than the company is facing the financial risk.
Current Ratio-

The formula used for calculating current ratio is-

Current Ratio = Current Assets / Current Liabilities

Quick Ratio-

The formula used for the calculation of a quick ratio is-

Quick Ratio = (Cash and Cash Equivalents + Marketable Securities + Accounts

Receivables) / Current Liabilities

An ideal ratio is said to be 1:1. If it is more it is considered to be better. Thus, this ratio is
better to test the short-term financial position of the company.
Return on equity-

The formulae used for the calculation of ROE is

ROE= Net Income/ Shareholder funds

Return on equity (ROE) is a measurement of how effectively a business uses equity – or the
money contributed by its stockholders and cumulative retained profits – to produce income.
In other words, ROE indicates a company’s ability to turn equity capital into net profit.

Operating Profit Ratio-

The formula used for the calculation of Operating Profit is:

OPERATING PROFIT RATIO = (Operating profit / Net sales) × 100

Operating net profit ratio is calculated by dividing the operating net profit by sales. This
ratio helps in determining the ability of the management in running the business.
 Company Profile-” PUNJAB
NATIONAL BANK”
Headquarters: New Delhi

CEO: S. S. Mallikarjuna Rao (1 Oct 2019–till dt)

Founded: 19 May 1894, Lahore, Pakistan

Founders: Lala Lajpat Rai, Dyal Singh Majithia

Punjab National Bank was incorporated in the year 1894. The company's management
includes Ekta Pasricha, Asha Bhandarkar, Vivek Aggarwal, Pankaj Jain, Agyey Kumar
Azad, Vijay Dube, Sanjay Kumar, SS Mallikarjuna Rao.

Punjab National Bank, abbreviated as PNB, is an Indian public sector bank headquartered in
New Delhi, India. The bank was founded in 1894 and is the second largest public sector
bank (PSB) in India, both in terms of business and its network. The bank has over 180
million customers, 10,910 branches and 13,000 ATMs post-merger with United Bank of
India and Oriental Bank of Commerce, effective from 1 April 2020.
 ANALYSIS AND INTERPRETATION
Gross Profit Ratio- Interpretation: -

Gross Profit Ratio The higher the gross profit margin the better.
A high gross profit margin means that the
2016 -15.86 company did well in managing its cost of
Gross Profit ratio
0 sales. It also shows that the company has
2017 -44.28 more to cover for operating, financing, and
-10

-20 other costs. The Gross profit margin may be

2018 -59.28
-30 improved by increasing sales price or
2019 -14.67 -40
decreasing cost of sales. From the above
-50
table and chart of Punjab National Bank that
2020 -26.60 the Gross Profit Ratio of the Punjab National
-60
Bank is not in the better to meet its
-70
2016 2017 2018 2019 2020 efficiency and hence, in 2016 the Gross
GP ratio -15.86 -44.28 -59.28 -14.67 -26.6
Profit is -15.86%, in 2019 its -14.67 % and
in 2020 is -26.6 % so, in 2020 the PNB is
not in the better state to meet its efficiency.
 Net Profit Ratio Net Profit Ratio-
Net Profit Ratio
2016 -7.21 5

2017 1.87 -5

-10
2018 -25.8
-15

2019 -19.2 -20

-25

2020 0.66 -30

2016 2017 2018 2019 2020
NP Ratio -7.2 1.87 -25.8 -19.2 0.66

Interpretation: -

It measures how much profits are produced at a certain level of sales. This ratio also indirectly
measures how well a company manages its expenses relative to its net sales. That is why
companies strive to achieve higher ratios. They can do this by either generating more revenues
why keeping expenses constant or keep revenues constant and lower expenses and thus, the bank
suffered a loss in year 2016, 2018 and 2019 therefore cannot generate a profit to achieve its
expenses.
 Return on Capital Employed-

Return on Capital Employed

ROCE
2016 1.88 2.5
2
2017 2.08 1.5
1
2018 1.37
0.5

2019 1.69 0
2016 2017 2018 2019 2020
ROCE 1.88 2.08 1.37 1.69 1.81
2020 1.81
Interpretation: -

With ROCE, the higher the percentage figure, the better. The figure needs to be compared
with the ROCE from previous years to see if there is a trend of ROCE rising or falling. In
above chart of ROCE of PNB it is been stated that in 2017 it is 2.08% it is higher than the
ROCE noted 1.88% in 2016. it was lower in 2018 as compared to 2017. and thus,
compared to 2020 from 2019 it has increased from 1.69 % to 1.81 % it means the bank
has well managed its outdated assets and thus, ROCE is well managed.
 Debt- Equity Ratio-
Debt-Equity Ratio Debt-Equity Ratio
20
2016 17.28
15
2017 17.39
10
2018 18.8
5
2019 17.36
0
2016 2017 2018 2019 2020
2020 13.09 Debt-Equity Ratio 17.28 17.39 18.8 17.36 13.09

Interpretation: -

A high debt to equity ratio, as we have rightly established tells us that the company is
borrowing more than using its own money which is in deficit and a low debt to equity
ratio tells us that the company is using more of its own assets and lesser borrowings.
Ideal debt equity ratio is considered to be 2, therefore 2016-2020 the debt equity ratio is
higher than the ideal ratio and thus, the company is in the risky position.
 Current Ratio-
Current Ratio
Current Ratio
2016 1.13
3
2.5
2017 1.22 2
1.5
2018 1.38 1
0.5
0
2019 2.33 2016 2017 2018 2019 2020
Current Ratio 1.33 1.22 1.38 2.33 2.47
2020 2.47

Interpretation: -

In general, a current ratio between 1.5 to 2 is considered beneficial for the business, meaning
that the company has substantially more financial resources to cover its short-term debt and that
it currently operates in stable financial solvency. In 2016-2018 the current ratio is less than 1.5
and thus, the company has substantially more financial resources to cover its short-term debts,
and in 2019-2020 the current ratio is more than 2, and thus, the company or bank financial
position is satisfactory.
 Quick Ratio-

Quick Ratio
Quick Ratio
16
14
2016 14.3
12
10
2017 6.8 8
6
2018 10.0 4
2
2019 6.8 0
2016 2017 2018 2019 2020
Quick Ratio 14.3 6.8 10.7 6.8 8.8
2020 8.8

Interpretation: -

The quick ratio represents the amount of short-term marketable assets available to cover
short-term liabilities, and a good quick ratio is 1 or higher. The greater this number, the
more liquid assets a company has to cover its short-term obligations and debts. A
number less than 1 might indicate that a company doesn’t have enough liquid assets to
cover its current liabilities. In all the year from 2016-2020 the quick ratio is greater than
1 and thus, covers all obligations
 Return on equity-

Return on Equity
ROE
2016 -9.47 5
0
-5
2017 3.01 -10
-15
-20
2018 -31.2 -25
-30
-35
2019 -22.5 2016 2017 2018 2019 2020
ROE -9.47 3.01 -31.2 -22.5 0.74
2020 0.74
Interpretation: -
A higher ROE suggests that a company’s management team is more efficient when it
comes to utilizing investment financing to grow their business (and is more likely to
provide better returns to investors). A low ROE, however, indicates that a company may
be mismanaged and could be reinvesting earnings into unproductive assets. And thus, in
year 2016 (-9.47), 2018( -31.2), 2019(-22.5) the ROE was low than 2017 and 2020. It
means that the company was utilizing it finance well.
 Operating Profit Ratio-
Operating Profit Ratio

2016 -20.9 OP Ratio

0
2017 -17.2
-10

2018 -44.05 -20

-30
2019 -33.35
-40
-50
2020 -16.43 2016 2017 2018 2019 2020
OP Ratio -20.9 -17.2 -44 -33.3 -16.4

Interpretation: -

A higher operating margin is more favourable compared with a lower ratio because
this shows that the company is making enough money from its ongoing operations
to pay for its variable costs as well as its fixed costs and in the above it shows that
the operating profit are low.
 FINDINGS

➢ As the gross profit of PNB is not in the state to meet its efficiency and thus, The Gross profit margin may be
improved by increasing sales price or decreasing cost of sales.

➢ The Net Profit Margin is not able to meet its efficiency in the year 2016,2018,2019 and thus to improve and
increase its net profit ratio the bank should increase its revenues.

➢ ROCE is been improving from 1.69 to 1.81 in 2019 and 2020 it means the bank has well managed its
outdated assets and thus, ROCE is well managed.

➢ The bank has not paid its debt considering the ideal ratio 2 the ratio is greater than the 2 therefore the bank is
in the risky situation.

➢ Current ratio of PNB in 2019 and 2020 year is higher than the ideal ratio and thus it means that the company
financial position is satisfactory and other resources. And the quick ratio of PNB states that is able to meet
its short-term resources.

➢ Return on equity is also termed as return on net worth and thus, by analysing the ratio one can say that the
bank is utilising its finances well in year 2020.
 SUGGESTIONS

➢ The Financial positions of the bank are satisfactory. Further the bank can increase its financial position

by maintaining proper cash in hand and cash in bank.

➢ The operating profit of the bank has decreased. In order to increase the net profit, the bank has to

reduce the expenses.

➢ Proper control over various expenses may increase the net profit of the bank. The statutory reserve and

capital reserve are not satisfactory. The bank has to maintain proper reserve for the financial of the

bank.

➢ The bank has to maintain proper assets to have a good long-term financial position.
 CONCLUSIONS

➢ Analysis and interpretation of Balance sheet and Profit Loss statement of Punjab National Bank is an

important tool in assessing the banks performance. It reveals the strength and weakness of the organization.

➢ According to this study I came to know from the balance sheet and profit loss statement that the financial

position of the bank is satisfactory.

➢ The bank has to take necessary steps to reduce the non-performing assets of the bank and to increase the net

profit of the bank.

➢ From the balance sheet the profitability position of the bank is found to be satisfactory.

➢ There is an increase in share capital of the bank every year. This indicates that the bank has good reputation.

➢ From this project I got to know about banking services. It also helped enhance my knowledge in banking
sector.
 REFRENCES

❖ https://www.moneycontrol.com/financials/punjabnationalbank/profit-lossVI/PNB05
❖ https://corporatefinanceinstitute.com/resources/knowledge/finance/quick-ratio-definition/
❖ https://www.ndtv.com/business/stock/punjab-national-bank_pnb/reports
❖ http://www.moneycontrol.com/financials/punjabnationalbank/balance-
sheetVI/PNB05#PNB05
❖ https://ijesc.org/upload/49d6a6d23ef95e9bdb1e6709c21018ba.A%20Study%20on%20Fina
ncial%20Analysis%20of%20Punjab%20National%20Bank%20(1).pdf
❖ https://corporatefinanceinstitute.com/resources/knowledge/finance/types-of-financial-
analysis/
❖ https://www.accountingformanagement.org/return-on-capital-employed-ratio/
❖ https://www.toppr.com/guides/accountancy/analysis-of-financial-statements/meaning-
significance-objectives-financial-analysis/
❖ https://www.ndtv.com/business/stock/punjab-national-bank_pnb/financials-historical