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"Financial statement analysis is the process of identifying of financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit &loss account," and it is done through ratio analysis.
Ratio Analysis
Ratio means one number expressed in term of another a ratio is statistical yardstick by mean of which relationship between two or various figures can be compared or measured. Here we are going to explain the ratio analysis of MCB.
A. Liquidity ratios
Current ratios Quick ratios Absolute Liquid ratio
B. Activity ratios
Inventory turnover ratio Average collection period Average payment period Total assets turnover ratio
D. Profitability ratio
Return on total assets Return on-equity Return on investment Return on fixed assets Average profit per branch Net profit Margin Interest income to total income Interest expense to total expense Return on advances
E. Investor Ratios
Earning per share P/E ratio Dividend per share Dividend yield ratio Dividend payout ratio Break up value/Book value per share
Profitability Ratios
Profitability ratios are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. It include following ratios: Net Profit Margin Return on Assets DuPont Return on Assets Operating Income Margin Return on Operating Assets Return on Total Equity Gross Profit Margin
Formula
Net profit Margin = Net Profit / Net sales
Calculation
Year 2009
Ratio
2010
15495297000
51616007000
= 0.300
2011
16873175000
54821296000
= 0.308
Year
Year 2010
Year 2009
15374600000 / 40043824000
Graphical representation
Net Profit Margin
0.5 0.4 0.3 0.2 0.1 0 0.384 0.308 0.300
Year 2011
Year 2010
Year 2009
Interpretation
Net profit margin measures how much of each dollar earned by the company is translated into profits. A low profit margin indicates a low margin of safety: higher risk that a decline in sales will erase profits and result in a net loss.
Net profit margin provides clues to the company's pricing policies, cost structure and production efficiency. Different strategies and product mix cause the net profit margin to vary among different companies. Net profit margin is bit better in year 2008 as compare to other two years.
Return on assets
Return on assets is a measure of how effectively the firms assets are being used to generate profits ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return oninvestment".
Formula
Return on Assets = Net profit / Total Assets * 100
Calculation
Year 2011 16873175000 / 567552613000 = 0.030 * 100 = 3.00 % Year 2010 15495297000 / 509223727000 = 0.030 *100 = 0.035 * 100 = 3.00 % = 3.50 % Year 2009 15374600000 / 443615904000
Graphical representation
Return on Assets
4% 3% 3% 3% 3% 3%
Interpretation
The purpose of this ratio is to calculate the return that the business is providing on total assets. This is important from owners point of view that what the business is earning on its assets, how their funds are being utilized. This ratio also provides an indicator of overall effectiveness of management in generating profit with the available assets the higher the percentage the better for the organization. If we analyze the above situation we can find that in 2008 the ratio is pretty good but it drops in year 2009 and good thing is that it doesnt drop further are remain constant at 3% in year 2010 also.
Return on Assets
Return on assets (ROA) is a percentage of the after-tax income as compared to the total assets of the company. Management at Du Pont came up with Return on Assets (Du Pont), an approach that determines the impact of asset turnover and profit margin on profits. This interactive tutorial explains the concept by walking you through the calculations, including where to find the numbers on the financial statements.
Formula
DuPont Return on Assets = (Net Income / Sales) X (Sales / Total Assets)
Calculation
Year 2011 16873175000/ 54821296000 * 54821296000 / 567552613000 Year 2010 15495297000 / 51616007000 * 51616007000 /509223727000 Year 2009 15374600000 /40043824000 * 40043824000 / 443615904000
= 0.030
= 0.030
= 0.035
Interpretation
DuPont Return on Assets actually shows the relation of the net income, sales and total asset during the period. According to the result of the analysis it is clearly indicated that this ratio is same in year 2010 & 2009 but its high in 2008.
Formula
Operating income margin = operating income / net sale
Calculation
Year 2011 36833529000 / 54821296000 Year 2010 35778685000 / 51616007000 Year 2009 28483084000 / 40043824000
= 0.672
= 0.693 = 0.711
Graphical representation
Interpretation
This ratio measures the percentage of profit earned on sale after deducting operating expenses from the Gross Profit. This ratio indicates that how efficiently the expenses are being controlled by management. The higher the margin the lower would be the operating expenses and better would be management ability to control expense. As we look at the graph the figures are little disappointed as for as organization is concern as you can clearly see in year 2008 company is in a better position to manage the expanses but unfortunately it drops year by year which is not a good sign because it shows company has no or less control on there expanses.
Formula
Return on operating assets = Net Profit / Operating Assets
Calculation
Year 2011 16,873,175,000 / 325308093000 Year 2009 15495297000 / 313039174000 Year 2008 15374600000 / 323130454000
Graphical representation
Interpretation
This ratio gives the operating efficiency of management. This ratio indicated how Operating assets are utilized. In other words how much assets are used in operating activities. High Return on Operating Asset ratio shows the efficient use of operating assets. The ratio is high in 2010 as compare to 2009 and 2008
assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth.
Formula
Return on Equity = Net Income/Shareholder's Equity *100
= 25.4 % = 29.4 %
Graphical representation
Return on total equity
30.00% 20.00% 24.40% 10.00% 0.00% Year 2010 Year 2009 Year 2008 25.40% 29.40%
Interpretation
Return on Equity (ROE) is an indicator of company's profitability by measuring how much profit the company generates with the money invested by common stock owners. It is also known as Return on Net worth this ratio doesnt seem to be fluctuate too much just a little drop in percentage in year 2009 & 2010 as compare to year 2008 .
Formula
Gross Profit Margin = Gross Profit / Net Sales
Calculation
Year 2011 36833529000 / 54821296000 = 0.672 Year 2010 35778685000 / 51616007000 = 0.693 = 0.711 Year 2009 28483084000 / 40043824000
Graphical representation
Interpretation
Gross profit margin is an indicator of how efficient a company is and how well it controls its costs. The higher the margin is, the more effective the company is in converting revenue into actual profit. By analyzing this graph we can easily say that the organization is performing good in year 2008 but unfortunately the gross profit margin come down year by year.
Activity Ratios
Indicates quality of receivables and how successful the firm is in its collections.
Formula
Total Assets Turnover = Total Net Sales / Total Assets
Calculation
Year 2011 54821296000 / 567552613000 Year 2010 51616007000 / 509223727000 Year 2009 40043824000 / 443615904000
= 0.097
= 0.101
= 0.090
Graphicalrepresentation
Total asset turn over
Year 2009 Year 2010 Year 2011 0.08 0.085 0.090 0.101 0.097 0.09 0.095 0.1 0.105
Interpretation
Total asset turnover measures the activity of the assets and the ability of the firm to generate sales through the use of sales there is a decreasing trend from year 2008 but in 2009 it increases not only increases but at the hightest place as compare to 2010 & 2008 and again falls in 2010. The lower the total asset turnover ratio, as compared to historical data for the firm and industry data, the more sluggish the firm's sales. This may indicate a problem with one or more of the asset categories composing total assets - inventory, receivables, or fixed assets. The small business owner should analyze the various asset classes to determine where the problem lies.
There could be a problem with inventory. The firm could be holding obsolete inventory and not selling inventory fast enough. With regard to accounts receivable, the firm's collection period could be too long and credit accounts may be on the books too long.
Formula
Fixed Assets Turnover = Net Sales / Total Fixed Asset
Calculation
Year 2010 54821296000 / 48652609000 Year 2009 51616007000 / 41054991000 Year 2008 40043824000 / 37074209000
= 1.127
= 1.257 = 1.080
Graphical representation
Interpretation
The formula is useful in analyzing growth companies to see if they are growing sales in proportion to their asset bases. The fixed assets turnover ratio really has little meaning except when it is put in the context of industrial averages, and consideration is made whether new capital expenditures recently undertaken were such that they could skew the ratio. For example, the turnover ratio will be lower just after a significant amount of fixed asset is acquired to upgrade or expand the plant facilities. In the middle mean to say in the year 2009 the turnover is higher as compare to other two years.
Formula
Dividend per share = Dividend / No of Shares
Calculation
Year 2011 Year 2010 Year 2009
6,461,839,000 / 760214979
5,183,327,000 / 760214979
5,654,493,000 / 760214979
= 8.5
= 6.82
= 7.44
Graphical representation
7.44
Year 2011
Year 2010
Year 2009
Interpretation
Graph tells that the dividend per share is little bit fluctuate from year to year in 2010 it is high it Is about 8.5 which drops to 6.82 in year 2009 and again increase to 7.44 in 2008.
Formula
Earning Per share =Profit Available to shareholders / No of shares outstanding
Calculation
Year 2011 32674094000 / 760214979 Year 2010 24710953000 / 760214979 Year 2009 20526669000 / 760214979
= 42.98
= 32.51
= 27.00
Graphical representation
42.98 32.51 27
Interpretation
The earnings per share calculation is the company's net earnings for the period divided by the average number of shares outstanding during the period. Corporate earnings are released quarterly and totaled for the fiscal year. The net earnings are the total revenues for the period minus all of the expenses incurred during the reporting period. A corporation will report the number of shares outstanding in the earnings report. The numbers required to calculate the earnings per share will be found in the income statement portion of a company's earnings report. This ratio shows the increasing trend in 2008, 2009 and 2010. Because net profit increase but outstanding share are constant in all of these three years.
Formula
Price Earning Ratio = Current market Share price/ Earning per Share
Calculation
Year 2010 207.32 / 42.98 Year 2009 207.32 / 32.51 Year 2008 207.32 / 27.00
= 4.82
= 6.38
= 7.68
Current Ratio
It shows the relationship between current assets and current liabilities. And also it indicates the short term financial position or liquidity of a firm.
Formula
Current ratio = current assets / current liabilities Year 2009 406541695000 / 363396932000
= 1.119 : 1
=1.113 : 1
= 1.110 : 1
Calculation
TREND ANALYSIS
In trend analysis we done two types of analysis, these are
1.
Horizontal Analysis
It is conducted by setting consecutive balance sheet, income statement or statement of cash flow side-by-side and reviewing changes in individual categories on a year-to-year or multiyear basis. A comparison of statements over several years reveals direction, speed and extent of a trend(s). The horizontal financial statements analysis is done by restating amount of each item or group of items as a percentage.
2.
Vertical Analysis
Like horizontal analysis this can also done for balance sheet and income statement. Here we assign 100% value to any key item of balance sheet or income statement and then see portion of other items in this percentage.
treasury bank Balances with other banks Lendings financial institutions nvestments Advances Operating fixed assets Other assets Total assests Liabilities Bills payable Borrowings Deposits and 133,75 150,71 1 9,349 15,945 343,75 10226 15278 4 9988 14190 31474 5 3090 25555 25593 7 5993 67046 13503 4 9262 10621 25432 7 2946 19300 20597 0 5995 35678 12881 8 8266 8964 20619 1 2585 15190 16767 7 2996 39431 10078 0 5128 5535 18217 2 2627 17554 14303 7 2997 28626 99179 31 -1 53 13 88 5 -10 28 38 2 11 15 to 1,592 9172 4614 4480 1444 8393 83 99 3 -69 72 -1 6,235 3785 8364 3955 3497 7333 65 65 111 13 -52 32
-6 12 9
8 34 24
12 18 23
61 62 13
35 45 10
19 40 14
-11 -32 14
5 32 24
14 27 23
-2 -13 17
43 17 8
40 42 11
other accounts Sub-ordinated loans Deferred liabilities Other liabilities Net Assets Represented by Share capital Reserves Unappropriate d profit Surplus on tax
17
100
83
86
334
13
472
736
-3
-74
2471
-97
-36
30
7,374 17,776
8081 16004
4833 14949
4759 12971
3220 12266
2603 11053
-9 11
67 7
2 15
48 6
24 11
27 25
10 6 86
27 6 -16
25 -6 170
35 10 -86
50 20 19
33 30 11
1267
1184
1806
936
166
1434
-34
93
463
-88
18
17,776
16004
14949
12791
12266
11053
11
15
11
25
2009 VS 2008 23
2008 VS 2007
2007 VS 2006
2006 VS 2005
20
21
21
20
43
27
32
27
23
24
63
17
20
15
25
-30
-39
-2
247
77
-68
-11
-100
PROVISION FOR IMPAIRMENT IN THE VALUE OF INVESTMENTS PROVISION AGAINST REVERSE REPO
-85
286
15015
-66
299
-47
-20
100
-100
100
-40
NET MARK-UP / INTEREST INCOME AFTER PROVISIONS TOTAL NON-MARKUP / INTEREST INCOME
5 3
-28 67
4 45
248 -44
87 15
30
10
-6
-41
113
38
22
TOTAL NON-MARKUP / INTEREST EXPENSES
5 12
36 19
-10 23
7 46
22 27
11
PROFIT BEFORE TAXATION PROFIT AFTER TAXATION PROFIT AVAILABLE FOR APPROPRIATION
90 73 31
-22 -15 25
-31 19 16
17 11 9
VERTICAL ANAYLSIS
2011
8
10 7
09 8 3 2 26 53 4 4 100 1 8 86 3 2 100 6 34 48 6 31
08 8 2 2 17 62 4 4 100 1 8 87 2 2 100 6
07 7 2 8 22 55 3 3 100 2 10 84 2 2 100 7 25
06 9 4 5 17 60 2 2 100 1 10 85 2 2 100 7 18 53 16
2 0 39 44 3 5 100
1
1 3 32 49 3 5 100 1
5 89 2 2 100 5
40
9 86 2 3 100 5 40 48 4
46
59 2
57 17
93
93
88
93
99
87
7
7 100
12 100
7 100
1 100
13 100
100
INTERPRETATION
In balance sheet of bank the most important item is earning assets. There are four earning assets. Bank has strong earning assets like advances investments and lending to financial institutions has major percentage in of assets of bank. In liability and equity analysis the Borrowings from financial institutions and deposits have major portion and reserve and share capital has major portion in equity