How Financial Ratios and Performance Affect Banking Customers

This report investigates the influence of financial ratios and overall financial performance on the decision-making processes of customers within the banking industry, specifically focusing on the Greater London area. The research explores the significance of financial information for various stakeholders, including customers, and examines how ratio analysis serves as a crucial tool for evaluating a company's financial health. The study employs a positivist philosophy and an inductive approach, utilizing both primary and secondary data collection methods, with a sample size of 50. Qualitative analysis, including thematic analysis, is used to interpret the data gathered through questionnaires. The report aims to determine whether ratio analysis is an effective indicator of an organization's financial performance and how this impacts customer behavior, investment choices, and their overall perception of banking institutions. The structure includes an introduction, literature review, research methodology, data analysis, and conclusions with recommendations. The findings are expected to provide valuable insights for both customers and other researchers interested in the financial aspects of the banking sector.

How the financial ratios and performance
affects the Customers of the banking
industry in the greater London

ACKNOWLEDGEMENT
First and foremost, I would like to express my gratitude to my mentor who has assisted
me in providing knowledge and enough support for carrying out the research in an effective
manner. Next in the series, I would like to thank my friends, colleagues and family members
who have assisted me at every stage of thesis. With their support, I was able to complete my
dissertation effectually. Lastly, I would also like to acknowledge my team members who have
helped me in gathering information and analyzing it later.

ABSTRACT
Financial information is very important for different types of users. These users include
customers, employees, government, suppliers and many other stakeholders. It acts as an aid in
fulfilling different types of business goals and objectives. The concept of financial ratios is
referred as the one that presents the relationship examined from financial information of
organization. In addition to this it is being used for the purpose of making comparison. The role
of financial ratios has been greatly viewed towards expressing the association among items of
financial statements.
In the present study, researcher aims at evaluating how financial ratios and performance
affects the customer of banking industry in greater London. For this, investigator undertakes
various tools and techniques so that entire study can be carried out effectively. Under present
research positivism philosophy has been selected. Further inductive approach has been selected.
In the present study, both primary and secondary methods has been employed and 50 sample size
has been selected. Moreover qualitative method has been used to present the findings in which
thematic analysis will be carried out by making different themes on the basis of questionnaire so
that responses of respondents can be analysed effectively and efficiently.
From the above study it can be concluded that financial ratios are good indicator of
financial performance of an organization. The customers in the baking industry takes a good
interest in the performance as they are required to take different types of decisions. The financial
performance can be judged by making use of the tool called ratio analysis. This technique has
been considered as the effective technique in reflecting what the company has done.

TABLE OF CONTENTS
Chapter- 1 Introduction....................................................................................................................4
1.1 Background of the research ..................................................................................................4
1.2 Background of the banking industry in London ...................................................................4
1.3 Research Aim & Objectives ................................................................................................5
1.4 Research question..................................................................................................................5
1.5 Significance of the study........................................................................................................5
1.6 Chapter structure....................................................................................................................5
CHAPTER- 2 LITERATURE REVIEW ........................................................................................7
2.1 Introduction............................................................................................................................7
2.2 Different types of financial ratios calculated by the companies in the banking industry.....7
2.3 Impact of Ratio analysis & performance on behavior of customers in the banking industry9
2.4 Usefulness of company’s financial information to the customers in the banking industry. 10
Chapter- 3 Research Methodology................................................................................................12
3.1 Introduction..........................................................................................................................12
3.2 Research Philosophy............................................................................................................12
3.3 Research Approach..............................................................................................................12
3.4 Research Strategy................................................................................................................12
3.5 Data collection methods.......................................................................................................13
3.6 Sampling..............................................................................................................................13
3.7 Data Analysis.......................................................................................................................13
3.8 Ethical Consideration...........................................................................................................14
3.9 Limitations ..........................................................................................................................15
CHAPTER – 4 DATA ANALYSIS..............................................................................................16
4.1 Introduction..........................................................................................................................16
4.2 Qualitative analysis..............................................................................................................16
Thematic technique....................................................................................................................16
Chapter- 5 conclusion and recommendation..................................................................................25
5.1 Conclusion...........................................................................................................................25
5.2 Recommendation.................................................................................................................26
References .....................................................................................................................................28
APPENDIX ...................................................................................................................................29

CHAPTER- 1 INTRODUCTION
Title: How the financial ratios and performance affects the Customers of the banking
industry in the greater London
1.1 Background of the research
Financial information is very important for different types of users. These users include
customers, employees, government, suppliers and many other stakeholders. It helps in fulfilling
different types of business goals and objectives (Cadle and et.al., 2010). The information can be
produced in different forms such as reports, budgets, statements, declarations etc. This kind of
data is also very useful for one of the most important stakeholders that are customers. They keep
an interest in it as they want to know how the company is performing, what is its position, what
is the market share etc. The background of this study deals with the behavior of the customers in
the banking industry (Harrison and Horngren 2007). It makes an attempt to find out it how the
ratios and business performance can affect the decisions of the banking customers.
1.2 Background of the banking industry in London
At present the banks in United Kingdom have refined their services. Many of them are
offering similar services. The differentiation can be seen only in terms of different interest rates.
Recently a trend noticed in the industry has been to not to advertise interest rates. It helps the
bank in avoiding to offer such advertised rates at least 60% of their customers. Over the last 40
years the banking system in UK has acknowledged a dramatic shift with total assets increasing
from 100% of GDP to 450% (UK Banking Industry Structure, 2014). It is expected that the
industry will continue to grow in the upcoming future. The sector is dominated by banks such as
Lloyds Group, Barclays, Royal Bank of Scotland and HSBC. The market is clearly of oligopoly
nature because of different categories of business. It is having comparative advantages in the
international banking services. London has been identified as the major centre for the financial
services for the customers. The sector is widely perceived to be dominated by the London. Hence
it can be said that the city is significantly known for banking services (Rasid and et.al., 2011).
1.3 Research Aim & Objectives
The major aim of the research study is to analyze how the financial ratios and
performance affects the Customers of the banking industry in the greater London. Following
objectives have been framed:
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 To discuss different types of financial ratios calculated by the companies in the banking
industry
 To evaluate the impact of Ratio analysis & performance on behavior of customers in the
banking industry
 To find out how the company’s financial information is useful for the customers in the
banking industry
1.4 Research question
To identify whether ratio analysis is an effective tool for judging the financial
performance of an organization or not?
1.5 Significance of the study
Every research is carried out with a motive. This research study has been performed to
analyze the behavior of the customers in the banking industry. Information produced from the
financial statements is very useful for the customers as they are able to take different financial
decisions (Melville, 2008). This research finds out how the ratio analysis can prove to be useful
for the customers. It discovers in what manner it affects their respective investment decisions.
The results of the study can be very useful especially for the people who plans to make
investment in the shares of a particular company. Further it will be beneficial for the other
researchers who wishes to perform research on the same subject.
1.6 Chapter structure
The present research possess combination of several chapters that plays effective role in
completion of thesis in an effective manner. The chapters that would be discussed in the present
thesis have been stated as under: Chapter 1 Introduction: It is considered as initial part of the dissertation that
demonstrates overview of the subject matter in the investigation. The chapter effective
provides framework relating with the phenomenon utilized within research. This section
starts with the overview of the topic on which investigation has be done. Along with this
it also involves aim and objectives of the research that is on the basis of research
questions. Lastly tools and techniques that would be utilized are included along with its
importance. Chapter 2 Literature review: This is another major crucial part of the thesis that includes
viewpoints of various authors in relation to impact of financial ratios and performance on
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customers of banking industry. The chapter makes evaluation of the knowledge and
information that exists in the prevailing piece of literature in secondary source form.
Moreover it also includes importance of financial ratios to the customers. Based upon the
published data, depth analysis relating with the phenomenon under subject would be
carried out. Chapter 3 Research methodology: On the basis of research objectives, this particular
chapter of thesis demonstrates tools that can be employed by the researcher when
conducting the research. The section involves the tools that will be applied by the
analysts towards carrying out the investigation. In addition to this justification regarding
selection of specific tool would be provided with the aim to offer in-depth knowledge
regarding subject matter under investigation. Chapter 4 Data analysis and findings: This chapter presents that data which is being
collected by the means of primary and secondary sources. This chapter will analyze the
data collected. With the assistance of such analyst would be able to get suitable resultant
from the research. This chapter is significant as in this researcher would attain
appropriate outcomes through investigation.
 Chapter 5 Conclusion and Recommendation: It is the last chapter of thesis that presents
the outcomes that have been attained by making analysis of data gathered. In addition to
this the specific section includes suitable recommendations that can acts as an aid in
addressing various issues in the investigation.
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CHAPTER- 2 LITERATURE REVIEW
2.1 Introduction
After introduction chapter another part of dissertation is referred to as literature review. It
is considered as most imperative part of thesis. In this chapter, opinions of various authors
relating to subject matter under investigation are presented with effectiveness. The information
that is being demonstrated in this section is collected by the means of secondary sources. Such is
referred to as the base that assist in conducting the investigation in forward direction. Literature
review section plays critical role in analyzing the gap that has occurred in the past researches.
Such gaps are resolved in the present investigation with the aim to draw valid outcomes. In
addition to this the present chapter critically evaluates opinions of several researchers in brief
manner. Thus this acts as an aid in development of sound theoretical base with respect to
phenomenon under subject. In the present thesis, literature review section demonstrates the
concept of financial ratios and its importance for the customers of UK banking in industry.
Along with this it analyze the manner in which customers decisions are developed through
analysis of company's performance.
2.2 Different types of financial ratios calculated by the companies in the banking industry
The concept of financial ratios is referred as the one that presents the relationship
examined from financial information of organization. In addition to this it is being used for the
purpose of making comparison. The role of financial ratios has been greatly viewed towards
expressing the association among items of financial statements. In accordance with the views of
Rodríguez-Ruiz, Rodríguez-Duarte and Gómez-Martínez, (2016) it has been examined that there
is presence of several kind of financial ratios that are being used by the banking industry so as to
disclose their financial position in the internal and external market. Management can make use of
ratios in order to make identification of internal strengths and weaknesses. Further it assist in
estimating financial performance of bank in future course of time. Investors can make use of
ratios for the purpose of comparing performances of the company that are operating in the
similar industry. The financial ratios that are being used by banking industry has been
enumerated in the manner stated as such: Liquidity ratios: It is referred to as the one that offers information relating to the
organizations ability in meeting short term financial obligations. Liquidity ratio is the
measure that examines the adequacy of current as well as liquid assets. In addition to this
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it assists in making evaluation of the organization to make payment against its short term
debts. Business having adequate current as well liquid assets for payment its current
liabilities when it becomes due presents the strong liquidity position of the firm. However
organization that possess insufficient liquid and current asset demonstrates the weaker
liquidity position. As per the views of Cummings and Wright, (2016) it has been
determined that the liquidity of the firm can be measured by the means of ratios that
includes current ratio, quick ratio, absolute ratio as well as current cash debt coverage
ratio. Solvency ratios: It is ratio that demonstrates the financial stability of the organization. As
such it is effective in measuring the debt of the firm in relation to its assets and equity.
The firm possessing greater amount of debt might not be flexible for managing its cash
flow in case the rate of interest increases. In accordance with the views of Ravichandran
and Pandeeswari, (2016) it has been examined that the role of solvency ratio has been
greatly assessed in determining the ability of the firm to survive for longer duration of
time. For examining the solvency ratio of business the most commonly used ratios are
debt to asset and debt to equity. It has been gained that solvency ratio is effective in
making analysis of the capital structure of the business. In addition to this makes
evaluation of the firm ability towards payment of interest on long term borrowings.
Moreover it makes judgment regarding whether internal as well as external equities are in
correct proportion. Profitability ratios: Profit is considered as the primary goal of different organizations. All
kinds of firms whether small or large needs to bring consistent improvement in the profit
with the aim to survive and prosper. Yahaya, Mansor and Okazaki, (2016) argued that a
firm that is suffering from losses is not able to survive for longer duration time.
Profitability ratio is one that measures the efficiency of the management in employing
business resources for earning profits. This ratio determines the success or failure of the
firm for a specific duration time.
 Efficiency ratios: It is one that is effective in measuring the efficiency of the organization
towards generation of revenues by the means of conversion of its production into cash or
sales. Efficiency ratio examines how frequently assets are being converted into cash or
sales. In accordance with the views of Kanagaretnam, Zhang and Zhang, (2016) it has
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been examined that two most commonly used efficiency ratios includes inventory
turnover as well as receivables turnover. Higher inventory turnover ratio presents that the
business is successful in converting its inventory into sales. On the other hand high
account receivables implies that the firm is successful in making collection of its
outstanding credit balances.
2.3 Impact of Ratio analysis & performance on behavior of customers in the banking industry
There is greater impact of ratio analysis as well as performance on the customer behavior
within banking sector. In accordance with the views of Ricci, (2015) it has been examined that
there is positive role played by ratio analysis in affecting the customers that includes investors in
terms of banking sector. Through ratio analysis the firm is able disclose its financial position
before the customers in an effective manner. This would further acts as an aid for the customers
in carrying out suitable decision making with effectiveness. It has been assessed that customer
service is the key to business performance. It acts as an aid for the organization in retaining and
growing the existing customers. As per the views of Balakrishnan, Watts and Zuo, (2015) it has
been gained that it has been gained that performance of the firm largely affects the decision
making done by the customers. As such they make investment of their funds within the financial
institution. Thus selection regarding the bank to be chosen for investment of financial resources
has to be done with due care. This can be effectively carried out with the assistance of technique
such as ratio analysis which offers immense amount of knowledge regarding the position of the
organization in the market.
Customers involves investors of the business that required suitable and accurate
information regarding profitability position of the company. This is due to the reason that they
make investment of their financial resources in the organization to a greater extent. Investment of
funds in profitable institution ensures that firm can attain greater amount return. This would
result in increasing satisfaction level of the customers to a significant level. In accordance with
the views of Saghi-Zedek and Tarazi, (2015) it has been examined that in the present era there is
greater competition among the number of banks existing in UK. Thus this increases complexity
among the customers regarding selection of the financial institution that can fulfill their
requirement in an effective manner.
By the means of calculating ratio that customers can be offered with accurate information
that can affect their buying decision. In contrast to this Busch and Kick, (2015) asserts that in
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case of default done in the financials of the company the decision making of the customers is
adversely affected. This can lead to development of inaccurate choice that can influence return of
the client for long run course of time. Every business is engaged in development of its financial
statement for the purpose of disclosing its accounts before public. This is in order to increase
awareness among the customers regarding the financial stability of the firm. Such further
communicates the customer in selecting suitable financial institution for saving the amount of
funds. The factor such as owners equity reflects the clear picture of entire business which is
effective for the clients in development of investment decision. In accordance with the views of
Cummings and Wright, (2016) it has been examined that there is significant role of the
customers to view such as it is effective in portraying the clear picture of the organization that
presents whether it would be able to survive in the market for long run course of time or not.
2.4 Usefulness of company’s financial information to the customers in the banking industry
According to Raashid, Rasool and Raja, (2015) , decision making is one of the most
tough ask for any individual or entrepreneur. However, it is important for the person to evaluate
and analyze each and every aspect before making any decision. Looking at the economic
condition of banking industry in UK clearly indicates that there is potential growth for the banks
and institutions in coming years which indeed attracting large number of investors invest in.
Supporting to this fact Yeung, He and Zhang, (2015) states that, GDP of 450% highlights the
improved performance of banking sector of UK.
In the study of Falzon and Gardener, (2016) researcher evaluated that, to make
investment decisions in any company individual or investor needs to analyze financial
statements. Thus, authors describe the financial statements analysis as the process of converting
data from financial statements into usable information for the person so that he/she can make
smart decisions and invest in profitable venture. Similar to this Dimitrijevic, (2016) illustrates
that, financial statement analysis is critical in making effective stock investment decisions.
However, there are several statements such as balance sheet, income statement, cash flow
statement and statement of owners’ equity capital which showcase the overall financial picture of
the bank and helps the people of Greater London to make smart decision on the investment.
Rodríguez-Ruiz, Rodríguez-Duarte and Gómez-Martínez, (2016) states that, the financial
statements of the company of banking sector contains a summarized information its financial
affairs and are organized systematically. The main purpose of preparing financial statements is
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that they fulfill the common needs of most users so that they can portray their economic
decisions on the past performances of the company. Primary objective of financial reporting is it
provide adequate amount of and valuable information to the individual on the basis of which
he/she can make successful decisions. In this regard research of Ricci, (2015) proposed that,
investors require adequate information related to cash receipts so that they can make decisions
regarding dividends or interest etc. Further author states that, investors considering financial
information of bank or institution makes decision whether or not to buy more shares or to invest
or dis invest within the functioning of business.
As per the study of Ravichandran and Pandeeswari, (2016), balance sheet of a company
drives many decisions from strategic to investment. However, some of the investors consider
balance sheet as the best statement to get overall view of business economic position. However,
high net worth indicates that investor should invest in the business functioning and vice-versa.
Whereas Melville, (2008)states that, income statement assist in providing information regarding
the profitability position of the firm. For an investor this statement is the base for every decision
it is because of the fact it should the income and expenditure made by the firm during reporting
period so that future trends of profits can be made easily. Further researcher understood from the
study of Cadle and et.al., (2010) that, statement of cash flow reveals all the information that is
useful in making investment decisions. It indicates that inflow and outflow of funds as well as
the management of money so that liquidity position of the company is maintained or not.
However, in case if liquidity and profitability position of bank is not showing fruitful outcomes it
is not feasible firm or investment proposal for the investors.
Therefore, on the basis of above study it has been analyzed that financial statements of
the firm provides detailed information for the investor to make smart and effective decisions.
However, it is the duty of individual or entrepreneur to assess and each and every aspect of the
financial report so that can understand the actual position and predict the future performance
appropriately.
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