Financial analysis - Assignment PDF

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 Ratio= CURRENT ASSETS
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 RATIO= CASH
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:
NET WORKINGCAPITAL ¿ TOTAL ASSESTS= NWC
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 debt ratio=total assests−total equity
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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