20042012

Financial Analysis on BRAC Bank Ltd.

EWU 2004-2012

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East West University

Ration Analysis on BRAC Bank Ltd. Course code: FIN201 Course title: Managerial Finance Section: 03
Prepared for: Farzana Huda Senior Lecturer Dept. of BBA East West University Prepared by: Moinul Hasan Rawnak Jahan Md. Atiqur Rahman Shahriar Rahman 2011-1-10-183 2011-1-10-374 2011-1-10-270 2009-1-10-094

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LETTER OF TRANSMITTAL

July 23, 2013 Farzana Huda (FZH) Senior lecturer, Dept. Of Business Administration East West University Subject: Submission of Assignment on ratio analysis of BRAC Bank ltd Dear Sir, We are very pleased to submit this Assignment to you. The assignment is on ratio analysis of BRAC Bank Ltd. as you have authorized us in this semester. We are honored to prepare this assignment under your guidance since it gave us the opportunity to how to solve a case as well as different topics of FIN201. We are really grateful for your valuable advices and great cooperation. We tried our best to analyze the information for you as comprehensive as possible and to go deep into the matters and make full use of our capabilities in making the Report meaningful as well, though; there may be some mistakes and shortcomings. We will be pleased to answer any kind of query you think necessary. Now we have placed this report before you for your kind approval. We hope that our report will satisfy you. For any of your further queries we would be at your disposal at your convenience. Sincerely Yours, Moinul Hasan Rawnak Jahan Md. Atiqur Rahman Shahriar Rahman 2011-1-10-183 2011-1-10-374 2011-1-10-270 2009-1-10-094

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Acknowledgement
We would like to express our gratitude and indebtedness to our honorable faculty Farzana Huda , senior Lecturer, Department of Business Administration, East West University. With his inexhaustible guidence, valuable advice, continuous inspiration constructive critisism and generosity she helped us to carry out this assignment successfully. We would also like to express our gratitude to the journalists and web developers who creates journals and websites which helped us to gather all the necessary information. we also like to thanked those people who give their valuable comments and helped us to do a successfull analysis on BRAC Bank. Finally, we would like to thank all group members that directly or indirectly helped us to provide and accumulate all the necessary information for the accomplishment of this assignment.

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Table of Content:
Content
Executive Summary 1. Introduction 1.1 Origin of the report 1.2 Background of the study 1.3 Objective f the study 1.4 Methodology 2 History of the organization 2.1 Vision 2.2 Mission 3 Liquidity Ratios of BRAC Bank(2004-2012) 4 Asset Management Ratios of BRAC Bank(2004-2012) 5 Debt ratio 6 Profitability Ratios of BRAC Bank(2004-2012) 7 Findings and analysis 8 Recommendation 9 Conclusion

No. of Page
06-07 08 08 08 08 08-09 09 10 10 11-14 15-20

20-21 21-28 28 29 29

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Executive Summary
The core competence of the BRAC Bank is to provide the fastest loans to the clients in this country. To retain this competitive advantage BRAC Bank would provide computer and palmtop facilities whether they can give fastest services to clients than other banks. Also to convey the customer focus, BRAC Bank is trying to reduce collateral securities than other banks. It provides more collateral free secured loans to capture the market. Regarding the services by the CRO, almost all clients are satisfied by getting these quick facilities from them. Though Retail banking is one of the major divisions of this bank, BRAC Bank is trying to develop economic condition of the country. So the bank provides loan facility 3 to 30 lacs taka to that small and medium enterprise that has no easy access to banks/financial institutes. The bank already established 91 Zonal offices and 429 unit offices all over the country and 1309 Customer Relation Officers (CRO) providing door-to-door service to clients. Till April 2009, the bank provides loan facilities to 265,000 clients which amount is Tk. 10,000 crore. The success of SME will largely depend son the selection of a business and man behind the business. BRAC Bank provides this facility to those whose business operation is minimum one yearend environment friendly business. It provides no loan facility to tobacco business. The business should be legally registered and must have valid trade license. The entrepreneur should be physically able, preferably between the ages 25 to 50 The liquid position of the company is not good at all. The banks current ratio is below industry average, 4.1. So its liquidity position in terms of current ratio is so weak. They have not enough cash in their hand. But if we compare it year after year it is increasing. But it is not enough. The companys quick ratio is below the industry average. They have not enough cash in their hand. But if we compare year after year the situation is consistently fluctuating. But it is not enough to reach the industry average. The companys asset management ratio is also bed. The companys inventory turnover average is below industry average (7.4 times). The companies DSO are not satisfactory at all. It is below the industry average (32.1days). The companys average total assets turnover ratio of 9years is 0.097 times which is blow the industry average.

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the companys debt ratio is very high. It shows, its creditors supply about 90% of the firms total financing. Its very alarming for the company. The Profitability ratio is also not good for the company in spite of net profit margin is good. Net profit margin is above the industry average. Last few years the world economy was in recession situation. By seeing bellow analysis and the world economys situation we can say the companys financial situation seems like very exhaustive position but it actually not in this position. For the world economic crisis all industries financial position is fall down and this had a great impact on BRAC Bank also. It does not mean that the companys financial position is in good position. Though the world economic crisis the banks financial position should in fair situation but the companys financial position is bellow the fair situation. For the better financial performance of the bank should improve some terms associated with the financial statements. The bank should increase its sales rapidly , utilize its assets properly and collect its receivable as early as possible .

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1. Introduction:
1.1 Origin of the report. East West University promotes meaningfully blends of eastern and western thoughts and innovations. To do this EWU provides many subjects like BUS, MKT and FIN etc. Managerial Finance fin (201) is one of the courses for a student doing in BBA. Precisely i t teaches how can we analyze a financial statement and draw a recommendation for improve it. To practically experience the implementation of all of those issues we have learned through the course Fin-201 that is conduct by Farzana Huda, our respected course teacher of Managerial Finance has given us this assignment on BRAC Banks financial ratio analysis.

1.2 Background of the study The report is done as a part of the research of the course FIN (201).The report focuses on BRAC Banks financial ratio analysis. The research paper is prepared for Farzana Huda, Senior lecturer of business Administration Dept. at East West University. She authorized the task of writing this report to a group of four members. This research is prepared during the semester Summer 2013. A finance student must know about the analysis of a financial statement. As a finance student we try our best to analyze the financial statement of BRAC Bank.

1.3 Objective of the study The main objective of this assignment is to practice the real life financial statements analysis. It will help us to know how we can analyze a financial statement and how we can recommend for improvement and so on. 1.4 Methodology: At first we got the report design and structure from our academic supervisor and moved for the next steps. To prepare this report we had to collect data from both primary and secondary sources1.4.1 Primary Data: Primarily we collected data from annual report of the company. We also collect the information by Discussing with our group members and also from our textbook.

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1.4.2 Secondary Data: We also collect data from secondary source. As Different Journals Through web searching Annual report

1.4.3 Limitations: BRAC Bank enlisted in DSE from 2006. For that reason, we are unable to collect annual report from 2002. So, we prepare our financial analysis report on BRAC bank from 2004 to 2012.

2. History of the BRAC Bank :

BRAC Bank is a scheduled commercial bank established under the Banking Companies Act, 1991 and incorporated as a public company limited by shares on 20 May, 1999 under the Companies Act, 1994 in Bangladesh. The primary objective of the Bank is to carry on all kinds of banking business. The Bank could not start its operation till 03 June, 2001 since the activity of the Bank was suspended by the High Court of Bangladesh. Subsequently, the judgment of the High Court was set aside and dismissed by the Appellate Division of Supreme Court on 04 June, 2001 and accordingly, the Bank has started operations from 04 July, 2001. BRAC Bank has a unique institutional shareholding between BRAC, the largest DFO in the world, the International Finance Corporation (IFC), the commercial arm of the World Bank Group, and Shore Cap International, a concern of Shore Bank Corporation, Americas first and leading community development and environmental banking corporation. A fully operational Commercial Bank, BRAC Bank focuses on pursuing unexplored market niches in the Small and Medium Enterprise Business, which hitherto has remained largely untapped within the country. Almost 40% of BRAC Banks clients had no prior experience with formal banking. The Bank has 313 regional marketing unit offices offering services in the heart of rural and urban communities and employs about 1,800 business loan officers around 70% of total staff. BRAC Bank Limited, a full service commercial bank with Local and International Institutional shareholding, is primarily driven by creating opportunities and pursuing market niches not traditionally met by conventional banks. BRAC Bank has been striving to provide Best-in-theclass services to its diverse range of customers spread across the country under an on-line banking platform. Today, the bank has 81 Branches, 22 SME Service Centers, 48 SME/Krishi Branches, more than 250 ATMs and 405 SME Unit offices across the country. It has disbursed over BDT 14,500

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crores of SME loan and has over 1,200,000 individual customers who access online banking facilities. Its services cuts across all strata of clientele, be it corporate, retail or SME. The reason BRAC Bank is in business is to build a profitable and socially responsible financial institution focused on markets and businesses with growth potential, thereby assisting BRAC and stakeholders to build a just, enlightened, healthy, democratic and poverty free Bangladesh. Which means to help make communities and economy of the country stronger and to help people achieve their dreams? 2.1 Vision: Building profitable and socially responsible financial institution focused on Market and Business with Growth potential, thereby assisting BRAC and stakeholders to build a just, enlightened, healthy democratic and poverty free Bangladesh. 2.2 Mission: Sustained growth in Small & Medium Enterprise sector Continuous low-cost deposit Growth with controlled growth in retail assets. Corporate Assets to be funded through self-liability mobilization. Growth in Assets through syndications and investment in faster growing sectors. Continuous endeavor to increase non-funded income Keep our debt charges at 2% to maintain a steady profitable growth Achieve efficient synergies between the banks branches, SME unit offices and BRAC field offices for delivery of remittance and Banks other products and services Manage various lines of business in a full controlled environment with no compromise on service quality Keep a divers, far flung team fully controlled environment with no compromise on service quality Keep a diverse, far flung team fully motivated and driven towards materializing the banks vision into reality.

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Ratio analysis:
3. Liquidity Ratios of BRAC Bank(2004-2012):
3.1Current ratio:

=1.10 times

=1.09 times

=1.17 times

=1.10 times

=1.14 times

=1.15 times

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=1.15 times

=1.13 times

=1.10 times

Current Ratio of BRAC Bank

1.18 1.16 1.14 1.12 1.1 1.08 1.06 1.04 1.02 1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1.1 1.09 1.1 1.17 1.14 1.15 1.15 1.13 1.1

The Banks current ratio is below industry average is varied from 0.47 to 16.58. So its liquidity position in terms of current ratio is so weak. They have not enough cash in their hand. But if we compare it year after year it is in decreasing. So they should collect their account receivables as soon as possible to strengthen their cash balance.

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3.2Quick ratio:

=1.10 times

=1.09 times

=1.17 times

=1.10 times

=1.14 times

=1.15 times

=1.15 times

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=1.13 times

=1.10 times

Quick Ratio of BRAC Bank

1.18 1.16 1.14 1.12 1.1 1.08 1.06 1.04 1.02 1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1.1 1.09 1.1 1.17 1.14 1.15 1.15 1.13 1.1

They have not enough cash in their hand. But if we compare year after year the situation is consistently decreasing. But it is not enough to reach the industry average. So they should collect cash from account receivables and pay back its current liabilities as soon as possible so that its quick ratio as well as the liquidity ratio can be increased.

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4. Asset Management Ratios of BRAC Bank (2004-2012):

4.1 Days sales outstanding:

=600 days

= 286 days

=301 days

=240 days

=143 days

=221 days

=127 days

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=94 days

=225 days

Days Sales Outstanding of BRAC Bank

700 600 500 400 300

600

286
200 100 0 2003

301 240 143 221 127 94 225

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

The Banks DSO is not satisfactory at all. But if we consider it year after year well find that some ups and downs. i.e. In 2004 it was 600 days; next year(2005) it decreased to 286 days and the following year(2006) it was 301 days which means there was an increase from the previous years. In 2011 the DSO of the company was decreased to 94 days, the collection period of raises to 225 days in 2012. However, it indicates that their credit policy is not good. The customers do not pay their bill in time. So the company should change their credit policy.

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4.2 Fixed asset turnover ratio:

=26.58 times

=9.08 times

=7.17 times

=4.91 times

=5.45 times

=5.52 times

= 5.94 times

=5.49 times

= 6.76 times

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Fixed Assets Turnover Ratio of BRAC Bank

30 25 20 15 10 5 0 2003 2004 2005

26.58

9.08

7.17

4.91

5.45

5.52

5.94

5.49

6.76

2006

2007

2008

2009

2010

2011

2012

2013

The Fixed asset Turnover is low than the industry average and decreasing year by year which is very bad situation for the company as the graph shows but in 2012 it is slightly increasing. 4.3Total asset turnover ratio:

=.081

=.086

=.093

= .10

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= .11 times

=.10 times

= .09 times

=.10

=0.10times

Total Assets Turnover Ratio of BRAC Bank

0.12

0.11
0.1 0.08

0.1 0.0867 0.093

0.1 0.09

0.1

0.1

0.081
0.06 0.04 0.02 0 2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

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BRAC Banks last 9 years asset turnover ratios are again very low compare with the industry average 2.1times, that indicating that the bank is not generating a sufficient volume of business given its investment in total assets. To become more efficient, sales should be increased, some assets should be disposed of, or both of these steps should be taken.

5. Debt ratio (2004-2012):

5.1 Debt ratio:

=94.11%

=95.36%

=92.94%

=93.38%

=92.49%

= 90.67%

=91.40%

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= 92.56%

=93.64%

Debt Ratio of BRAC Bank

96.00%

95.36%
95.00% 94.00% 93.00%

94.11%

93.38%
92.94%
92.00%

93.64% 92.49% 91.40% 92.56%

91.00%

90.67%
90.00% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

So, we see that the banks debt ratio is very high .Its creditors supply about 90% of the firms total financing. So the firm might find it difficult to borrow additional finds if needed. Therefore, it should raise its equity through issuing new stock.

6. Profitability Ratios of BRAC Bank(2004-2012):

6.1 Profit margin on sales:

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=12.17%

=13.16%

=11.97%

=13.35%

=12.15%

=14.92%

=18.80%

=12.69%

=3.99%

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Profit Margin on Sales of Brac Bank

20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

18.80% 14.92% 13.35% 12.17% 12.15% 11.97% 12.69%

13.16%

3.99%

The banks profit margin is not bad. But if we see year after year, it was very good in 2010. But in the year 2012 it the rate was goes down badly. Since the current profit margin was satisfactory, but in 2012 it goes down .We can draw a conclusion that, the company should hold more concentration on the current growth.

6.2 Return on asset:

=0.99%

=1.14%

=1.11%

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=1.33%

=1.34%

=1.45%

=1.69%

=1.29%

=0.39%

Return on Asset of BRAC Bank

1.80% 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1.69% 1.33% 1.14% 1.11% 0.99% 1.34% 1.45% 1.29%

0.39%

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The banks ROA ratio is very bad. The banks asset management is not good. But year to year it is improving although it is not good enough. So the company should manage the asset properly. They should use the asset as their high capacity.

6.3 Return on equity:

=16.83%

=24.61%

=15.79%

=20.12%

=17.90%

=16.85%

=21.04%

=17.29%

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==6.35%

Return on Equity of BRAC Bank

30.00%

25.00%

24.61%

20.00%

20.12% 16.83% 17.90% 15.79% 16.85%

21.04% 17.29%

15.00%

10.00%

5.00%

6.35%

0.00% 2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

The banks ROE ratio is not bad. Here the average ROE is 15.68%. But it is enough to meet up all the expenses of the organization. Therefore, we can say that their income should be increased and their expenses should be decreased so that the return on equity can be increased. 6.4 Earnings per Share:

=3.38 (Currency)

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= 6.3(Currency)

=10.19(Currency)

=9.58(Currency)

=9.51(Currency)

=11.94(Currency)

=1.37(Currency)

=0.93(Currency)

=0.1(Currency)

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Earnings per Share of BRAC Bank

14 12 10 8

11.94 10.19 9.91

9.58

6.3
6 4

3.38
2

1.37
0 2003 2004 2005 2006 2007 2008 2009 2010

0.93 0.1
2012 2013

2011

7. Findings and analysis:

Last few years the world economy was in recession situation. Thats why it is hard to draw a financial situation of a company based on 9 years information. According to last 9 years data BRAC Banks current ratio, quick ratio, days sells outstanding, Fixed Assets Turnover Ratio, Total Assets Turnover Ratio, Debt Ratio, Return on Asset and Return on Equity ratio that means almost all ratio is not much satisfactory. Only the profitability ratio is in a good position. By seeing above analysis and the world economys situation we can say the companys financial situation seems like very exhaustive position but it actually not in this position. For the world economic crisis all industries financial position is fall down and this had a great impact on BRAC Bank also. It does not mean that the banks financial position is in good position. Though the world economic crisis the companys financial position should in fair situation but the banks financial position is bellow the fair situation.

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8. Recommendation:
For the better financial performance of the company the company should improve some terms associated with the financial statements. The company should increase its income rapidly. For doing this the bank can emphasis on their marketing department and customer services. The company should keep and maintain its liquid money more rationally. The company also should use the asset more effectively. Its receivable collection period should be more frequent. It should keep a rational debt proportion. It should increase the equity rather than the debt. And the company also should keep the current profit margin.

9. Conclusion:
Financial managers often makes decisions on the basis of their financial analysis. So its very important to make proper analysis of financial statements. From this financial analysis we can see the banks financial situation. From the financial analysis of BRAC Bank we can say the companys present situation is not good. The company has to work a lot for the recover.

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