EBL& TBL 2003 Format

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A

TERM PAPER

ON

- ANALYSIS OF FINANCIAL STATEMENT

BY USING THE TECHNIQUE OF RATIO ANALYSIS

Between

EASTERN BANK LTD.

&

TRUST BANK LTD.

Submitted By:

A.K.M.MUSTAFIZUR RAHMANID: 20123037

Guided By:

Dr.SHEIK ABU TAHERLECTURER

DEPARTMENT OF FINANCE AND BANKINGJAHANGIRNAGAR UNIVERSITY

SAVAR, DHAKA.

-ANALYSIS OF FINANCIAL STATEMENT



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DECLARATION

I hereby declare that the project titled FINANCIAL STATEMENT ANALYSIS OFEASTERN BANK LTD. AND TRUST BANK LTD. is an original piece of research workcarried out by me under the guidance and supervision of HONOURABLE COURSEINSTRUCTOR DR. SHEIK ABU TAHER. The information has been collected from genuine &authentic sources.

Signature:Date: 29/12/2012

A.K.M.MUSTAFIZUR RAHMAN




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ACKNOWLEDGEMENT

I wish to express my deep sense of gratitude and indebtedness to Dr. Sheik Abu Taher,Department of Finance and Banking, Jahangirnagar University for introducing the present topicand for his inspiring guidance, constructive criticism and valuable suggestions throughout theproject work.I am also thankful to Md. Shariful Islam ACMA, Lecturer of Department of Accounting and

Information Systems, Jahangirnagar University.

Lastly, I would like to thank and express my gratitude towards my friends who at various stageshad lent a helping hand.

However, I accept the sole responsibility for any possible errors of omission and would be

extremely grateful to my honorable instructor of this project report if bring any mistakes to my

notice.

Date:29/12/2012 (A.K.M.Mustafizur Rahman)




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Table of CONTENT

SL. NO. CONTENTS PAGE NO.

1 Executive Summary 5

2 Objectives of study 6

3 Research Methodology 7

4 Company Profile 8

5 Theoretical Background 14

6 Financial Ratio analysis 19

7 Financial Overview of

EBL&TBL

24

8 Ratios of EBL&TBL 28

9 Summary of Ratios 38

10 Observation and Findings 39

11 Importance 40

12 Advantages 41

13 Limitations 42

14 Conclusion 43

15 Bibliography 44




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EXECUTIVE SUMMARY

Project Title: Financial Statement Analysis

Company Name: Eastern Bank Ltd. & Trust Bank Ltd.

Financial statements are formal records of the financial activities of a business, person, or otherentity and provide an overview of a business or person's financial condition in both short andlong term. They give an accurate picture of a companys condition and operating results in acondensed form. Financial statements are used as a management tool primarily by companyexecutives and investors in assessing the overall position and operating results of the company.

Analysis and interpretation of financial statements help in determining the liquidity position,long term solvency, financial viability and profitability of a firm. Ratio analysis shows whetherthe company is improving or deteriorating in past years. Moreover, Comparison of differentaspects of all the firms can be done effectively with this. It helps the clients to decide in whichfirm the risk is less or in which one they should invest so that maximum benefit can be earned.

Bank industries are capital intensive; hence a lot of money is invested in it. So before investingin such companies one has to carefully study its financial condition and worthiness.Unfortunately very limited work has been done on analysis and interpretation of financial

statements of EBL &TBL. An attempt has been carried out in this report to analyze and interpretthe financial statements of Eastern Bank Ltd. & Trust Bank Ltd.

From ratio analysis of Eastern Bank & Trust Bank Ltd. of 2011, it was concluded that currentratio of Trust Bank Ltd. was more better than Eastern Bank, acid test ratio shows us that theposition of both bank was almost same but trust banks position was little bit good than easternbank, debt-equity ratio tells that the Trust Bank Ltd. is trying to lower its debt equity ratio bylowering its liabilities and increasing its equity. And The Eastern Bank Ltd. is trying to higher itsdebt equity ratio by increasing its liabilities and increasing its equity, return on assets ratio showsthat trust banks position was not good, Return on Capital Employed Ratio Eastern Banksposition was more better than Trust Banks position, also in Return on shareholder equity

Eastern Banks position was satisfactory. And then EPS measures the profit earned per share.The higher EPS will attract more investors to acquire shares in the company as it indicates thatthe business is more profitable enough to pay the dividends in time. So it is of utmost importanceto investors in order to decide the prospects. However in the earning per share ratio EasternBanks position was better than Trust Bank.




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OBJECTIVE OF THE STUDY

The principle aim of this project is the understanding and assessment of financial ratios basedon the statements of the company.

The next aim of the project is to recognize the position of the company through those ratios anddata available. This recognition is a leading factor in changes of each and every company and thebase and root of lots of management decisions.




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RESEARCH METHODOLOGY

Research framework: This study is based on the data about Eastern Bank Ltd. & TrustBank Ltd. for a detailed study of its financial statements, documents and system ratios andfinally to recognize and determine the position of the company.

Types of data which helped to prepare this report:

1. First type is the primary data which was collected personally to be used and studied toprepare and reach the objectives already mentioned.

2. The secondary data which was already prepared so these data was only used to reach theaims and objectives of this project. These data has been collected from the Annual reportsof the company.

COMPANY PROFILE




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Eastern Bank Ltd.:

Sustainability is now increasingly recognized as central to the growth of emerging marketeconomies. For the private sector, this represents both a demand for greater social andenvironmental responsibility as well as a new landscape of business opportunity. Eastern BankLtd (EBL) is committed to making sustainability an integral part of day-to-day work in officesand to continually improving the environmental and social performance of operations whichwe commonly refer to as corporate footprint. The sustainability strategy articulates EBLsstrategic commitment to sustainable development and is an integral part of their approach to riskmanagement. EBLs priority as a good corporate citizen is to earn money in a manner that is bothsocially and ecologically responsible and of course, sustainable. EBL knows its target customersand as such offers new products and services to cater to their contemporary taste and need. In thepast couple of years the Bank came up with several exciting products and service propositions:Some of them are a first of its kind in Bangladesh. Priority Banking, Travel related products, lifeinsurance covered DPS, Platinum Credit Card, SME Debit Card to name a few. EBL is one ofthe first banks in Bangladesh to launch Mobile-based remittance service marking a new era of

banking services among the unbanked population of the country. EBL SME Banking holds astrong foothold in the market and offers several specialized financial solutions for theentrepreneurs. EBL introduced Invoice Factoring for the first time in Bangladesh and hasdedicated Women Entrepreneur Cell to cater to the banking needs of the particular segment. Onthe corporate banking front, EBL is a market leader in Syndication deals which demonstrates thebank's financial capacity and strength. In the last five years, EBL has closed syndication dealsworth more than BDT 1500 core. EBL received its biggest recognition when country's nationalflag carrier Biman Bangladesh Airlines mandated pre-delivery purchase deal to Eastern BankLtd. for two Boeing 777-300ERs. In the banking history of Bangladesh, EBL is the first localbank to handle such a mega project. In 2009, EBL launched Investment Banking wing, whichcontributed significantly in the EBL revenue stream in the very first year of its operation. The

crowning glory of EBL's commitment to perform with passion has been winning the BestFinancial Institution 2010, the most coveted award of the country at the DHL-Daily StarBangladesh Business Awards 2010.The Global Brand Congress held in Mumbai conferred EBLGlobal Awards for Brand Excellence in the Best Banking and Financial Services' category. InEBL's journey to excellence, a great achievement has been added. Centralized Trade Services ofEBL has achieved Quality Management Systems Certificate as per ISO 9001:2008 standardawarded by Bureau Veritas Certification under accreditation from the UK Accreditation Services(UKAS). Later, the whole centralized (Corporate, Consumer, SME and Treasury) operations ofthe bank have achieved Quality Management Systems Certificate as per ISO 9001:2008standard. EBL is the first Bangladeshi Bank to achieve the recognitions for its commitment toquality delivery. The Institute of Chartered Accountants of Bangladesh (ICAB) recognized

Annual Report of Eastern Bank Limited (EBL) as one of the best published reports in 2009. EBLwas awarded the 2nd prize at 10th ICAB National Awards for the Best Published Accounts andReports. EBL is also a recipient of 'Certificate of Merit' in the Best Presented Accounts Award2009 by South Asian Federation of Accountants (SAFA). Last year their Annual Report 2010 gotthe 3rd Prize at the ICMAB Best Corporate Awards and was conferred Certificate of Merit byICAB. EBL has also been awarded by IFC as the Most Active GTFP Issuing Bank in South Asia2009-2010 and the Most Active Issuing Bank in Agribusiness Sector in South Asia 2010-2011.




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Global Awards for Brand Excellence

DHL-Daily Star Bangladesh Business Awards 2010

ICMAB Best Corporate Awards 10th ICAB National Awardsfor




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EBL Brand Value Proposition:

Sustainability

Setting StandardsMobilizing Capital

Innovation

Embracing changesDevising Solutions

CommitmentInitiating Co-Creation

Building Social Capital

Vision:

To become the most valuable brand in the financial services in Bangladesh creating long-lasting value for our stakeholders and above all for the community we operate in by transformingthe way we do business and by delivering sustainable growth.

Mission:

To deliver service excellence to all our customers, both internal and external and tomaximize shareholders' value.

Values:

Service excellence, openness, trust, commitment, integrity,responsible corporate citizen.




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History

With a vision to become the bank of choice and to be the most valuable financial brand in BangladeshEastern Bank Ltd. (EBL) began its journey in 1992. Over the years EBL has established itself as a leadinprivate commercial bank in the country with undisputed leadership in Corporate Banking and a stronConsumer and SME growth engines. EBL's ambition is to be the number one financial services providecreating lasting value for its clientele, shareholder, employees and above all for the community it operateinBangladesh Banking Sector has grown from strength to strength over the past one decade and is fiercecompetitive, especially in the Consumer Banking segment. EBL offers a wide range of depository, loaand card products to cater virtually for every customer segment. From Student Banking to PrioritBanking to Platinum card EBL has almost all banking products in its repertoire. The product basket is ric

in content featuring different types of Savings and Current Accounts, Personal Loans, Debit Cards, CredCards, Pre-paid Cards, Internet Banking, Corporate Banking, SME Banking, Investment BankinTreasury & Syndication services. The customers are served through a network of 61 Branches, 138 ATMand 26 Kiosks countrywide. EBL has its presence in 11 major cities/towns in the country including DhakChittagong, Sylhet, Khulna, Rajshahi & Coxs Bazar.EBL is also the first bank to introduce Priority Banking in Bangladesh. In priority segment, EBL offehigh quality products and services and dedicated Relationship Managers is committed to help managfinancial health, preserve lifestyle and maintain priorities of the customers wherever life takes them.EBL is known for its product innovation in the market. During the past five years, EBL introduced 1new-to-Bangladesh financial products and services. EBL Matribhumi the bundle product for expatriaBangladeshis, insurance covered monthly savings scheme, VISA corporate cards, remittance card an

mobilebased remittance solution are just a few of them. On the SME banking window EBL offerecustomerfriendly and groundbreaking products like EBL Uddom and EBL Mukti. At present, EBConsumer, SME and Corporate Banking units are capable of handling every kind of customer financineeds. EBL is the first bank in Bangladesh to go online. EBL provided the first Green Loan iBangladesh in Solar Panel manufacturing plant which will contribute to transform the lives of 1 milliopeople of the most remote and off-grid areas by lighting up their homes. EBL is the first ever local bank finance Aircraft purchase deal of Biman Bangladesh Airlines. Prior to this, only multinational banks useto finance such projects. EBL generates highest profitability per employee in Bangladesh Banking sectoEBL launched first ever Bank- sponsored Mutual Fund in Bangladesh.




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Trust Bank Ltd.:

Trust Bank Limited is one of the leading private commercial banks having a spread network of73 branches, 7 SME centers, 96 ATM Booths and 60 POS in 50 Branches across Bangladesh andplans to open more branches to cover the important commercial areas in Dhaka, Chittagong,Sylhet and other areas in 2012. The bank, sponsored by the Army Welfare Trust (AWT), is firstof its kind in the country. With a wide range of modern corporate and consumer financialproducts Trust Bank has been operating in Bangladesh since 1999 and has achieved public

confidence as a sound and stable bank.In 2001, the bank introduced automated branch bankingsystem to increase efficiency and improve customer service. In the year 2005, the bank movedone step further and introduced ATM services for its customers.Since banks business volumeincreased over the years and the demands of the customers enlarged in manifold, our technologyhas been upgraded to manage the growth of the bank and meet the demands of our customers.In January 2007, Trust Bank successfully launched Online Banking Services which facilitateAny Branch Banking, ATM Banking, Phone Banking, SMS Banking, & Internet Banking to allcustomers. Customers can now deposit or withdraw money from any Branch of Trust Banknationwide without needing to open multiple accounts in multiple Branches.Via Online Servicesand Visa Electron (Debit Card), ATMs now allow customers to retrieve 24x7 hours Accountinformation such as account balance checkup through mini-statements and cashwithdrawals. Trust Bank has sucessfully introduced Visa Credit Cards to serve its existing andpotential valued customers. Credits cards can now be used at shops & restaurants all aroundBangladesh and even internationally. Trust Bank is a customer oriented financial institution. Itremains dedicated to meet up with the ever growing expectations of the customer because atTrust Bank, customer is always at the center.




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Vision

Build a long-term sustainable financial institution through financial inclusion and deliveroptimum value to all stakeholders with the highest level of compliance.

Mission

Long Term Sustainable Growth- diversified business with robust risk management.

Financial Inclusion- bring unbanked population into banking network through low cost andtechnology based service delivery.

Accountable to all stakeholders- customers, shareholders, employees & regulators.

Highest level of compliance and transparency at all levels of operation.

Value

Trustworthy

Dependable

Reliable

Professional

Dynamic

Fair

Positioning statement

Trust Bank is a contemporary, upbeat brand of distinctive quality of service and solution thatoffers a rewarding banking experience as preferred choice of banking partner every time,everywhere.




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Theoretical Background

FINANCIAL STATEMENTS

Financial statements are summaries of the operating, financing, and investment activities of abusiness. Financial statements should provide information useful to both investors and creditorsin making credit, investment, and other business decisions. And this usefulness means thatinvestors and creditors can use these statements to predict, compare, and evaluate the amount,timing, and uncertainty of potential cash flows. In other words, financial statements provide the

information needed to assess a companys future earnings and therefore the cash flows expectedto result from those earnings. In this chapter, we discuss the four basic financial statements: thebalance sheet, the income statement, the statement of cash flows, and the statement ofshareholders equity. The analysis of financial statements is provided in Part Six of this book.

ACCOUNTING PRINCIPLES AND ASSUMPTIONS

The accounting data in financial statements are prepared by the firms management according toa set of standards, referred to as generally accepted accounting principles (GAAP). The financialstatements of a company whose stock is publicly traded must, by law, be audited at least

annually by independent public accountants (i.e., accountants who are not employees of thefirm). In such an audit, the accountants examine the financial statements and the data from whichthese statements are prepared and attestthrough the published auditors opinionthat thesestatements have been prepared according to GAAP. The auditors opinion focuses on whetherthe statements conform to GAAP and that there is adequate disclosure of any material change inaccounting principles

The financial statements are created using several assumptions that affect how we use andinterpret the financial data:

Transactions are recorded at historical cost. Therefore, the values shown in the statements are

not market or replacement values, but rather reflect the original cost (adjusted for depreciation, inthe case of depreciable assets).

The appropriate unit of measurement is the dollar. While this seems logical, the effects of inflation, combined with the practice of recording values at historical cost, may cause problemsin using and interpreting these values.

The statements are recorded for predefined periods of time. Generally, statements are produced to cover a chosen fiscal year or quarter, with the income statement and the statement of




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cash flows spanning a periods time and the balance sheet and statement of shareholders equityas of the end of the specified period. But because the end of the fiscal year is generally chosen tocoincide with the low point of activity in the firms operating cycle, the annual balance sheet andstatement of shareholdersequity may not be representative of values for the year.

Statements are prepared using accrual accounting and the matching principle. Most businesses

use accrual accounting, where income and revenues are matched in timing such that income isrecorded in the period in which it is earned and expenses are reported in the period in which theyare incurred to generate revenues. The result of the use of accrual accounting is that reportedincome does not necessarily coincide with cash flows. Because the financial analyst is concernedultimately with cash flows, he or she often must understand how reported income relates to acompanys cash flows.

It is assumed that the business will continue as a going concern. The assumption that the business enterprise will continue indefinitely justifies the appropriateness of using historicalcosts instead of current market values because these assets are expected to be used up over timeinstead of sold.

Full disclosure requires providing information beyond the financial statements. The requirement that there be full disclosure means that, in addition to the accounting numbers forsuch accounting items as revenues, expenses, and assets, narrative and additional numericaldisclosures are provided in notes accompanying the financial statements. An analysis of financialstatements is therefore not complete without this additional information.

Statements are prepared assuming conservatism. In cases in which more than one interpretation of an event is possible, statements are prepared using the most conservativeinterpretation.The financial statements and the auditors findings are published in the firms annual andquarterly reports sent to shareholders and the 10K and 10Q filings with the Securities and

Exchange Commission (SEC).Also included in the reports, among other items, is a discussion bymanagement, providing an overview of company events. The annual reports are much moredetailed and disclose more financial information than the quarterly reports.

There are three basic financial statements:

Balance sheet

Income statement

Cash Flow statement

THE BALANCE SHEET

The balance sheet is a summary of the assets, liabilities, and equity of a business at a particularpoint in timeusually the end of the firms fiscal year. The balance sheet is also known as thestatement of financial condition or the statement of financial position. The values shown for the




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different accounts on the balance sheet are not purported to reflect current market values; rather,they reflect historical costs.

Assets are the resources of the business enterprise, such as plant and equipment that are used togenerate future benefits. If a company owns plant and equipment that will be used to produce

goods for sale in the future, the company can expect these assets (the plant and equipment) togenerate cash inflows in the future.

Liabilities are obligations of the business. They represent commitments to creditors in the formof future cash outflows. When a firm borrows, say, by issuing a long-term bond, it becomesobligated to pay interest and principal on this bond as promised. Equity, also called shareholdersequity or stockholders equity, reflects ownership. The equity of a firm represents the part of itsvalue that is not owed to creditors and therefore is left over for the owners. In the most basicaccounting terms, equity is the difference between what the firm ownsits assetsand what itowes its creditorsits liabilities.

EQUITY

Equity is the owners interest in the company. For a corporation, ownership is represented bycommon stock and preferred stock. Shareholders equity is also referred to as the book value ofequity, since this is the value of equity according to the records in the accounting books. Thevalue of the ownership interest of preferred stock is represented in financial statements as its parvalue, which is also the dollar value on which dividends are figured. For example, if you own ashare of preferred stock that has a $100 par value and a 9% dividend rate, you receive $9 individends each year. Further, your ownership share of the company is $100. Preferredshareholders equity is the product of the number of preferred shares outstanding and the parvalue of the stock; it is shown that way on the balance sheet. The remainder of the equity belongsto the common shareholders. It consists of three parts: common stock outstanding (listed at paror at stated value), additional paid-in capital, and retained earnings. The par value of commonstock is an arbitrary figure; it has no relation to market value or to dividends paid on commonstock. Some stock has no par value, but may have an arbitrary value, or stated value, per share.Nonetheless, the total par value or stated value of all outstanding common shares is usuallyentitled capital stock or common stock. Then, to inject reality into the equity part of the balance sheet, an entry called additional paid-in capital is added; this is the amount received bythe corporation for its common stock in excess of the par or stated value

THE INCOME STATEMENT

An income statement is a summary of the revenues and expenses of a business over a period oftime, usually one month, three months, or one year. This statement is also referred to as theprofit and loss statement. It shows the results of the firms operating and financing decisionsduring that time.The operating decisions of the companythose that apply to production and marketinggenerate sales orrevenues and incur the cost of goods sold (also referred to as the cost of salesor the cost of products sold). The difference between sales and cost of goods sold is gross




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profit. Operating decisions also result in administrative and general expenses, such asadvertising fees and office salaries. Deducting these expenses from gross profit leaves operatingprofit, which is also referred to as earnings before interest and taxes (EBIT), operatingincome, or operating earnings. Operating decisions take the firm from sales to EBIT on theincome statement.

The results of financing decisions are reflected in the remainder of the income statement. Wheninterest expenses and taxes, which are both influenced by financing decisions, are subtractedfrom EBIT, the result is net income. Net income is, in a sense, the amount available to owners ofthe firm. If the firm has preferred stock, the preferred stock dividends are deducted from netincome to arrive at earnings available to common shareholders. If the firm does not havepreferred stock (as is the case with Fictitious and most nonfictitious corporations), net income isequivalent to earnings available for common shareholders. The board of directors may thendistribute all or part of this as common stock dividends, retaining the remainder to help financethe firm.Companies must report comprehensive income prominently within their financial statements.Comprehensive income is a net income amount that includes all revenues, expenses, gains, and

losses items and is based on the idea that all results of the firmwhether operating ornonoperating should be reflected in the earnings of the company. This is referred to as the all-inclusive income concept. The all-inclusive income concept requires that these items berecognized in the financial statements as part of comprehensive income.It is important to note that net income does not represent the actual cash flow from operationsand financing. Rather, it is a summary of operating performance measured over a given timeperiod, using specific accounting procedures. Depending on these accounting procedures, netincome may or may not correspond to cash flow.

CASH FLOW STATEMENT:

It is a statement, which measures inflows and outflows of cash on account of any type ofbusiness activity. The cash flow statement also explains reasons for such inflows and outflows ofcash so it is a report on a company's cash flow activities, particularly its operating, investing andfinancing activities.




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FINANCIAL ANALYSIS

Financial analysis is a tool of financial management. It consists of the evaluation of the financialcondition and operating performance of a business firm, an industry, or even the economy, andthe forecasting of its future condition and performance. It is, in other words, a means forexamining risk and expected return. Data for financial analysis may come from other areaswithin the firm, such as marketing and production departments, from the firms own accountingdata, or from financial information vendors such as Bloomberg Financial Markets, MoodysInvestors Service, Standard & Poors Corporation, Fitch Ratings, and Value Line, as well asfrom government publications, such as the Federal Reserve Bulletin. Financial publications suchas Business Week, Forbes, Fortune, and the Wall Street Journal also publish financial data

(concerning individual firms) and economic data (concerning industries, markets, andeconomies), much of which is now also available on the Internet. Within the firm, financialanalysis may be used not only to evaluate the performance of the firm, but also its divisions ordepartments and its product lines. Analyses may be performed both periodically and as needed,not only to ensure informed investing and financing decisions, but also as an aid in implementingpersonnel policies and rewards systems. Outside the firm, financial analysis may be used todetermine the creditworthiness of a new customer, to evaluate the ability of a supplier to hold tothe conditions of a long-term contract, and to evaluate the market performance of competitors.

Who uses these analyses?

Financial statements are used and analyzed by a different group of parties, these groups consistsof people both inside and outside a business. Generally, these users are:

A. Internal Users: are owners, managers, employees and other parties who are directlyconnected with a company:

1. Owners and managers require financial statements to make important business decisions thataffect its continued operations. Financial analysis is then performed on these statements toprovide management with more detailed information. These statements are also used as part of

management's report to its stockholders, and it form part of the Annual Report of the company.

2. Employees also need these reports in making collective bargaining agreements with themanagement, in the case of labour unions or for individuals in discussing their compensation,promotion and rankings.




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B. External Users: are potential investors, banks, government agencies and other parties whoare outside the business but need financial information about the business for numbers ofreasons.

1. Prospective investors make use of financial statements to assess the viability of investing in a

business. Financial analyses are often used by investors and is prepared by professionals(financial analysts), thus providing them with the basis in making investment decisions.2. Financial institutions (banks and other lending companies) use them to decide whether togive a company with fresh loans or extend debt securities (such as a long- term bank loan ).

3. Government entities (tax authorities) need financial statements to ascertain the propriety andaccuracy of taxes and duties paid by a company.

4. Media and the general public are also interested in financial statements of some companies fora variety of reasons.

FINANCIAL RATIO ANALYSIS

Ratio analysis is such a significant technique for financial analysis. It indicates relation of twomathematical expressions and the relationship between two or more things.

Financial ratio is a ratio of selected values on an enterprise's financial statement.There are many standard ratios used to evaluate the overall financial condition of a corporationor other organization. Financial ratios are used by managers within a firm, by current andpotential stockholders of a firm, and by a firms creditor. Financial analysts use financial ratiosto compare the strengths and weaknesses in various companies.

Values used in calculating financial ratios are taken from balance sheet, income statement andthe cash flow of company, besides Ratios are always expressed as a decimal values, such as 0.10,or the equivalent percent value, such as 10%.

Essence of ratio analysis:

Financial ratio analysis helps us to understand how profitable a business is, if it has enoughmoney to pay debts and we can even tell whether its shareholders could be happy or not.

Financial ratios allow for comparisons:

1. between companies2. between industries3. between different time periods for one company4. between a single company and its industry average

To evaluate the performance of one firm, its current ratios will be compared with its past ratios.When financial ratios over a period of time are compared, it is called time series or trendanalysis. It gives an indication of changes and reflects whether the firms financial performance




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has improved or deteriorated or remained the same over that period of time. It is not the simplychanges that has to be determined, but more importantly it must be recognized that why thoseratios have changed. Because those changes might be result of changes in the accounting policeswithout material change in the firms performances.Another method is to compare ratios of one firm with another firm in the same industry at the

same point in time. This comparison is known as the cross sectional analysis. It might be moreuseful to select some competitors which have similar operations and compare their ratios withthe firms. This comparison shows the relative financial position and performance of the firm.Since it is so easy to find the financial statements of similar firms through publications or Mediasthis type of analysis can be performed so easily.To determine the financial condition and performance of a firm, its ratios may be compared withaverage ratios of the industry to which the firm belongs. This method is known as the industryanalysis that helps to ascertain the financial standing and capability of the firm in the industry towhich it belongs.Industry ratios are important standards in view of the fact that each industry has its owncharacteristics, which influence the financial and operating relationships. But there are certain

practical difficulties for this method. First finding average ratios for the industries is such aheadache and difficult. Second, industries include companies of weak and strong so the averagesinclude them also. Sometimes spread may be so wide that the average may be little utility. Third,the average may be meaningless and the comparison not possible if the firms with in the sameindustry widely differ in their accounting policies and practices. However if it can bestandardized and extremely strong and extremely weak firms be eliminated then the industryratios will be very useful.

What does ratio analysis tell us?

After such a discussion and mentioning that these ratios are one of the most important tools thatis used in finance and that almost every business does and calculate these ratios, it is logical toexpress that how come these calculations are of so importance.What are the points that those ratios put light on them? And how can these numbers help us inperforming the task of management?

The answer to these questions is: We can use ratio analysis to tell us whether the business

1. is profitable2. has enough money to pay its bills and debts3. could be paying its employees higher wages, remuneration or so on

4. is able to pay its taxes5. is using its assets efficiently or not6. has a gearing problem or everything is fine7. is a candidate for being bought by another company or investor

But as it is obvious there are many different aspects that these ratios can demonstrate. So forusing them first we have to decide what we want to know, then we can decide which ratios weneed and then we must begin to calculate them.




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Which Ratio for whom:

As before mentioned there are varieties of people interested to know and read these informationand analyses, however different people for different needs. And it is because each of thesegroups have different type of questions that could be answered by a specific number and ratio.

Therefore we can say there are different ratios for different groups, these groups with the ratiothat suits them is listed below:

1. Investors: These are people who already have shares in the business or they are willing to bepart of it. So they need to determine whether they should buy shares in the business, hold on to

the shares they already have or sell the shares they already own. They also want to assess theability of the business to pay dividends. As a result the Return on Capital Employed Ratio is theone for this group.

2. Lenders: This group consists of people who have given loans to the company so they want tobe sure that their loans and also the interests will be paid and on the due time. Gearing Ratioswill suit this group.

3. Managers: Managers might need segmental and total information to see how they fit into theoverall picture of the company which they are ruling. And Profitability Ratios can show themwhat they need to know.

4. Employees: The employees are always concerned about the ability of the business to provideremuneration, retirement benefits and employment opportunities for them, therefore theseinformation must be find out from the stability and profitability of their employers who areresponsible to provide the employees their need. Return on Capital Employed Ratio is themeasurement that can help them.

5. Suppliers and other trade creditors: Businesses supplying goods and materials to otherbusinesses will definitely read their accounts to see that they don't have problems, after all, anysupplier wants to know if his customers are going to pay them back and they will study theLiquidity Ratio of the companies.

6. Customers: are interested to know the Profitability Ratio of the business with which they aregoing to have a long term involvement and are dependent on the continuance of presence of that.

7. Governments and their agencies: are concerned with the allocation of resources and, theactivities of businesses. To regulate the activities of them, determine taxation policies and as thebasis for national income and similar statistics, they calculate the Profitability Ratio ofbusinesses.




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8. Local community: Financial statements may assist the public by providing information aboutthe trends and recent developments in the prosperity of the business and the range of its activitiesas they affect their area so they are interested in lots of ratios.

9. Financial analysts: they need to know various matters, for example, the accounting conceptsemployed for inventories, depreciation, bad debts and so on. therefore they are interested inpossibly all the ratios.10. Researchers: researchers' demands cover a very wide range of lines of enquiry ranging fromdetailed statistical analysis of the income statement and balance sheet data extending over manyyears to the qualitative analysis of the wording of the statements depending on their nature ofresearch.

CLASSIFICATION OF RATIOS

In isolation, a financial ratio is a useless piece of information. In context, however, a financialratio can give a financial analyst an excellent picture of a company's situation and the trends thatare developing. A ratio gains utility by comparison to other data and standards.Financial ratios quantify many aspects of a business and are an integral part of financialstatement analysis. Financial ratios are categorized according to the financial aspect of thebusiness which the ratio measures. Although these categories are not fixed in all over the worldhowever there are almost the same, just with different names:

1. Profitability ratios which use margin analysis and show the return on sales and capitalemployed.

2. Rate of Return Ratio (ROR) or Overall Profitability Ratio: The rate of return ratios arethought to be the most important ratios by some accountants and analysts. One reason why therate of return ratios is so important is that they are the ratios that we use to tell if the managingdirector is doing their job properly.

3. Liquidity ratios measure the availability of cash to pay debt, which give a picture of acompany's short term financial situation.

4. Solvency or Gearing ratios measures the percentage of capital employed that is financed bydebt and long term finance. The higher the gearing, the higher the dependence on borrowing and

long term financing. The lower the gearing ratio, the higher the dependence on equity financing.Traditionally, the higher the level of gearing, the higher the level of financial risk due to theincrease volatility of profits. It should be noted that the term Leverage is used in some texts.

5. Turn over Ratios or activity group ratios indicate efficiency of organization to various kindsof assets by converting them to the form of sales.

6. Investors ratios usually interested by investors.




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FINANCIAL OVERVIEW OF EASTERN BANK LTD.

Eastern Bank Ltd.BALANCE SHEET

As on December 31, 2011.Particulars BDT Million BDT Million

AssetsCash 6022

Balances with othersinstitutions

3531

Money at call and short

notice

2650

Investments 16910

Loans 81773

Total Assets: 110886

Total Fixed Assets: 4453

Other Assets 1991

Non Banking Assets 247

Total Assets: 117577

Liabilities & Shoulders Equity

Current Liabilities 21650

Long-term Liabilities 75535

Other Liabilities 5985

Total Liabilities 103170

Paid up Capital 4527

Statutory Reserve 3551

Total reserve 4576

Foreign CurrencyTranslation Gain

15

Retained Earnings 1735

Total ShareholdersEquity

14407




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Total Liabilities &Shareholders Equity

117577

Eastern Bank Ltd.SUMMARISED P&L ACCOUNT

For the year ended 31 December 2011.

Particulars BDT TAKA BDT TAKA

Net Interest Income 3314

Total Operating Income 7791

Total OperatingExpenses

2685

Net Operating Income 5107

Total Provisions 978

Profit Before tax 4129

Provision For Tax (1739)

Deferred tax Income 131

Net Profit After Tax 2521

Statutory Reserve (825)


No. of Ordinary Share 452 Million(Not in BDT)

Earnings Per Share 5.57




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Trust Bank LtdBalance Sheet

As on 31 December 2011



Particulars BDT Million BDT Million

Assets

Cash 5699

Balances with othersinstitutions

3847

Money at call and shortnotice

1440

Investments 9654

Loans 50801

Total Assets: 71441

Total Fixed Assets: 421

Other Assets 4350

Total Assets: 76214

Liabilities & ShareholdersEquity

Current Liabilities 2344

Long-Term Liabilities 65819

Other Liabilities 2525

Total Liabilities 70688

Paid up Capital 2661

Statutory Reserve 1827

Other reserve 4


Total ShareholdersEquity

5526

Total Liabilities &

Shoulders Equity

76214


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Trust Bank LtdSummarized P&L Account

For the year ended 31 December 2011Particulars BDT TAKA BDT TAKA

Net Interest Income 885

Total Operating Income 3060

Total OperatingExpenses

1500

Net Operating Income 1560

Total Provisions 256

Profit Before tax 1304

Provision For Tax (687)

Net Profit After Tax 617

Statutory Reserve (260)


No. of Ordinary Share 266 Million(Not in BDT)

Earnings Per Share 2.32

RATIOS OF Eastern Bank Ltd. & Trust Bank Ltd.




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LIQUIDITY RATIOS:

The two liquidity ratios, the current ratio and the acid test ratio, are the most important ratios inalmost the whole of ratio analysis and they are also the simplest to use. Liquidity ratios provideinformation about a firms ability to meet its short- term financial obligations. They are ofparticular interest to those extending short term credit to the firm. Two frequently-used liquidityratios are current and quick ratio.While liquidity ratios are most helpful for short-term creditors/suppliers andbankers, they are also important to financial managers who must meetobligations to suppliers of credit and various government agencies. Acompany's ability to turn short-term assets into cash to cover debts is of theutmost importance when creditors are seeking payment. Bankruptcyanalysts and mortgage originators frequently use the liquidity ratios to

determine whether a company will be able to continue as a going concern. Acomplete liquidity ratio analysis can help uncover weaknesses in thefinancial position of the business. Generally, the higher the value of the ratio,the larger the margin of safety that the company possesses to cover short-term debts.

1.CURRENT RATIO:

Current AssetsCurrent Ratio= -----------------------

Current LiabilitiesBDT IN MILLION

EBL TBL

Current Assets 29113 5699

Current Liability 21650 2344

Current Ratio 1.34 2.43

Comments:

The ratio is mainly used to give an idea of the companys ability to pay back its short-term liabilities with its short-term assets. The higher the current ratio, the more capablethe company is of paying its obligations. As we know that a ratio of 2:1 is consideredsafe, we can say that the financial position of Trust bank is more better than Easternbank .The low current ratio does not mean that the firm will go bankrupt, but it isdefinitely is not a good sign for Eastern bank. Short term creditors prefer a high currentratio since it reduce their risk.




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2. Quick or Acid-Test Ratio

The essence of this ratio is a test that indicates whether a firm has enough short-termassets to cover its immediate liabilities without selling inventory. So it is the backingavailable to liabilities that must be paid almost immediately. There are two terms of

liquid asset and current liabilities in this formula, Liquid asset is all current assets exceptthe inventories and prepaid expenses, because prepaid expenses cannot be converted tocash. The Current liabilities include all current liabilities except bank overdraft and cashcredit since they are not required to be paid off immediately.

Quick AssetsAcid test or Quick Ratio= -----------------------

Current Liabilities

BDT IN MILLION

EBL TBL

Quick Assets 25582 4350

Current Liability 21650 2344

Quick Ratio 1.18 1.85

Comments:

The acid-test ratio is far more forceful than the current ratio, primarily because thecurrent ratio includes inventory assets which might not be able to turn to cashimmediately. Companies with ratios of less than 1 cannot pay their current liabilities andshould be looked at with extreme caution. Furthermore, if the acid-test ratio is muchlower than the current ratio, it means current assets are highly dependent on inventory.




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Capital Structure Ratios:

1. Debt Equity ratio:

This ratio reflects the relative claims of creditors and share holders against the assets of the firm,debt equity ratios establishment relationship between borrowed funds and owner capital tomeasure the long term financial solvency of the firm. The ratio indicates the relative proportionsof debt and equity in financing the assets of the firm.

Long-Term DebtDebt Equity Ratio= -----------------------------

Shareholders Equity

BDT IN MILLION

EBL TBL

Long-Term Debt 13181 6589

Shareholders Equity 14407 5526

Debt Equity Ratio 0.91 1.19

Comments:

In this ratio shareholders fund is the share capital plus reserve and surpluses. In case ofhigh debt equity it would be obvious that the investment of creditors is more than owners.And if it is so high then it brings the firm in a risky position. Or if it is too low it mightindicate that the organization has not utilized its capacity of borrowing which must beutilized and that is because the borrowing from outsiders is a good source of fund forbusiness with lower returns in compare to equity. The Trust Bank Ltd. is trying to lowerits debt equity ratio by lowering its liabilities and increasing its equity. And The EasternBank Ltd. is trying to higher its debt equity ratio by increasing its liabilities andincreasing its equity.




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2. Debt to Total Capital Ratio:

It is primarily the ratio between the Total Shareholders Equity and total assets. It indicates therelationship between owners fund and total assets. And shows the extent to which the ownersfunds are sunk in assets or different kinds of it.

TotalShareholders EquityDebt to total Capital Ratio= -----------------------------------

Total Assets

BDT IN MILLION

EBL TBL

TotalShareholders Equity 14407 5526

Total Assets 110885 76214

Debt to total Capital Ratio 0.01 0.07

Comments:

This ratio indicates the proportion of proprietors funds used for financing the total assets. As a

very rough measure, it is suggested that 2/3rd to 3/4th of the total assets should be financedthrough borrowings. A high ratio will indicate high financial strength but a very high ratio willindicate that the firm is not using external funds adequately.




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RETURN ON ASSETS:

This ratio actually measures the profitability of the investments in the firm.

Net Profit after TaxesReturn on Assets (ROA) = -----------------------------------*100

Total Assets

BDT IN MILLION

EBL TBL

Net profit after taxes 2521 617


Return on Assets 2.27 0.8

Comments:

It Measures the profitability of the total funds per investment of a firm.




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RETURN ON CAPITAL EMPLOYED:

This Ratio is considered to be very important. It indicates the percentage of net profits beforeinterest and tax to total capital employed. It reflects the overall efficiency with which capital isused. The ratio of a particular business should be compared with other business firms in the same

industry to find out the exact position of the business.

Net Profit after TaxesRETURN ON CAPITALEMPLOYED = ---------------------------------------*100

Total Capital Employed

BDT IN MILLION

EBL TBL


Total Capital Employed 4527 2661

Return on Capital Employed 55.7 23.18

Comments:

A measure of the return that a company is realizing from its capital employed. The ratio can alsobe seen as representing the efficiency with which capital is being utilized to generate revenue. Itis commonly used as a measure for comparing the performance between businesses and forassessing whether a business generates enough returns to pay for its cost of capital. Of course thehigher the ratio, the better will be the profitability of the company.




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RETURN ON TOTAL SHAREHOLDER EQUITY:

This ratio also known as return on shareholdersfunds or return on proprietorsfunds or return onnet worth, indicates the percentage of net profit available for equity shareholders to equity

shareholdersfunds and not on total capital employed.

Net Profit after Taxes

Return on shareholder equity = ---------------------------------------*100Total shareholder equity

BDT IN MILLION

EBL TBL


Total shareholder equity 14407 5526

Return on shareholder equity17.5 11.17

Comments:

This ratio indicates the productivity of the owned funds employed in the firm.

However, in judging the profitability of a firm, it should not be overlooked that

during inflationary periods, the ratio may show an upward trend because the

numerator of the ratio represents current values whereas denominator

represents historical values.




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INVESTORS RATIOS

EARNINGS PER SHARE:

EPS measures the profit earned per share. The higher EPS will attract more

investors to acquire shares in the company as it indicates that the business

is more profitable enough to pay the dividends in time. So it is of utmost

importance to investors in order to decide the prospects.

Net Profit of Equity HoldersEarnings per Share = ----------------------------------------

Number of Ordinary Share

BDT IN MILLION

EBL TBL

Net Profit of Equity Holders 2521 617

Number of Ordinary Share 452 266

Earnings per Share 5.57 2.32

Comments:

As mentioned above, EPS is one of the important criteria for measuring the

performance of a company. If EPS increases, the possibility of a higher

dividend per share also increases. However, the dividend payment depends

on the policy of the company. Market price of shares of a company may also

show an upward trend if the EPS is showing a rising trend. However, it should

be remembered that EPS of different companies may vary from company to

company due to the following different practices by different companies

regarding stock in trade, depreciation, source of rising finance, tax-planningmeasures etc.




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Basic Earning Power (BEP) :

EBITBasic Earning Power (BEP) = -------------------

Total Assets

BDT IN MILLION

EBL TBL

EBIT 5107 3060


Basic Earning Power 4.34% 4.28%

Comments:

BEP removes the effect of taxes and financial leverage and is useful for

comparison. Here we can see that both the bank almost in the same

situation.




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Coverage Ratios

Interest Coverage:

EBITInterest Coverage = -------------------

Interest

BDT IN MILLION

EBL TBL

EBIT 5107 1560

Interest 978 256

Interest Coverage 5.22 6.09

Comments:It is a ratio that can used to determine how easily a company can pay the

outstanding debt. A ratio of more than 1.5 is satisfactory. Here we can see

that both of the banks interest coverage ratios are more than 1.5. So we can

say that both banks are in a good position in the market. Though TBL is little

bit more than EBL.




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SUMMARY OF RATIOS

Eastern Bank LTD Trust Bank Ltd.

Current Ratio 1.34 2.43

Acid test Ratio 1.18 1.85

Debt Equity Ratio0.91 1.19

Debt to Total Capital Ratio 0.01 0.07

Return on Assets 2.27 0.08

Return On CapitalEmployed

55.7 23.18

Return onshareholder equity

17.5 11.17

Earnings perShare

5.57 2.32

Basic EarningPower

4.34% 4.28%

Interest Coverage 5.22 6.09




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Observation and Findings

Based on the ratios and calculations made on my paper I can analyze that current ratio of TrustBank Ltd. was more better than Eastern Bank, acid test ratio shows us that the position of bothbank was almost same but trust banks position was little bit good than eastern bank, debt-equityratio tells that the Trust Bank Ltd. is trying to lower its debt equity ratio by lowering its liabilities

and increasing its equity. And The Eastern Bank Ltd. is trying to higher its debt equity ratio byincreasing its liabilities and increasing its equity, return on assets ratio shows that trust banksposition was not good, Return on Capital Employed Ratio Eastern Banks position was morebetter than Trust Banks position, also in Return on shareholder equity Eastern Banks positionwas satisfactory. And then EPS measures the profit earned per share. The higher EPS will attractmore investors to acquire shares in the company as it indicates that the business is moreprofitable enough to pay the dividends in time. So it is of utmost importance to investors in orderto decide the prospects. However in the earning per share ratio Eastern Banks position wasbetter than Trust Bank.




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IMPORTANCE:

Ratio analysis is an important technique of financial analysis. It is a means for judging thefinancial health of a business enterprise. It determines and interprets the liquidity, solvency,profitability etc. of a business enterprise.

It becomes simple to understand various figures in the financial statements through the use of different ratios. Financial ratios simplify, summarize, and systemize the accounting figurespresented in financial statements.

with the help of ratios analysis, comparison of profitability and financial soundness can be made between one industry and another. Similarly comparison of current year figures can also be

made with those of previous years with the help of ratio analysis and if some weak points arelocated, remedial measures are taken to correct them.

If accounting ratios are calculated for a number of years, they will reveal the trend of costs, profits and other important facts. Such trends are useful for planning.

Financial ratios, based on a desired level of activities, can be set as standards for judging actual performance of a business. For example, if owners of a business aim at earning profit @25% on the capital which is the prevailing rate of return in the industry then this rate of 25%becomes the standard. The rate of profit of each year is compared with this standard and theactual performance of the business can be judged easily.

Ratio analysis discloses the position of business with different viewpoint. It discloses the position of business with liquidity viewpoint, solvency view point, profitability viewpoint, etc.with the help of such a study, we can draw conclusion regarding the financial health of businessenterprise.




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ADVANTAGES:

Ratio analysis is an important and age-old technique of financial analysis. The following aresome of the advantages of ratio analysis:

1. Simplifies financial statements: It simplifies the comprehension of financial statements.Ratios tell the whole story of changes in the financial condition of the business.

2. Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratioshighlight the factors associated with successful and unsuccessful firm. They also reveal strongfirms and weak firms, overvalued and undervalued firms.

3. Helps in planning: It helps in planning and forecasting. Ratios can assist management, in itsbasic functions of forecasting. Planning, co-ordination, control and communications.

4. Makes inter-firm comparison possible: Ratios analysis also makes possible comparison of

the performance of different divisions of the firm. The ratios are helpful in deciding about theirefficiency or otherwise in the past and likely performance in the future.

5. Help in investment decisions: It helps in investment decisions in the case of investors andlending decisions in the case of bankers etc.




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LIMITATIONS:

The ratios analysis is one of the most powerful tools of financial management. Though ratios aresimple to calculate and easy to understand, they suffer from serious limitations.

1. Limitations of financial statements: Ratios are based only on the information which hasbeen recorded in the financial statements. Financial statements themselves are subject to severallimitations. Thus ratios derived, there from, are also subject to those limitations. For example,non-financial changes though important for the business are not relevant by the financialstatements. Financial statements are affected to a very great extent by accounting conventionsand concepts. Personal judgment plays a great part in determining the figures for financialstatements.

2. Comparative study required: Ratios are useful in judging the efficiency of the business onlywhen they are compared with past results of the business. However, such a comparison onlyprovide glimpse of the past performance and forecasts for future may not prove correct sinceseveral other factors like market conditions, management policies, etc. may affect the future

operations.

3. Problems of price level changes: A change in price level can affect the validity of ratioscalculated for different time periods. In such a case the ratio analysis may not clearly indicate thetrend in solvency and profitability of the company. The financial statements, therefore, beadjusted keeping in view the price level changes if a meaningful comparison is to be madethrough accounting ratios.

4. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There are nowell accepted standards or rule of thumb for all ratios which can be accepted as norm. It rendersinterpretation of the ratios difficult.

5. Limited use of single ratios: A single ratio, usually, does not convey much of a sense. Tomake a better interpretation, a number of ratios have to be calculated which is likely to confusethe analyst than help him in making any good decision.

6. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios haveto interpret and different people may interpret the same ratio in different way.

7. Incomparable: Not only industries differ in their nature, but also the firms of the similarbusiness widely differ in their size and accounting procedures etc. It makes comparison of ratiosdifficult and misleading.




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CONCLUSION

Ratios make the related information comparable. A single figure by itself has no meaning, butwhen expressed in terms of a related figure, it yields significant interferences. Thus, ratios are

relative figures reflecting the relationship between related variables. Their use as tools offinancial analysis involves their comparison as single ratios, like absolute figures, are not ofmuch use.

Ratio analysis has a major significance in analyzing the financial performance between twocompany over a period of time. Decisions affecting the position of company in the currentmarket.

Financial ratios are essentially concerned with the identification of significant accounting datarelationships, which give the decision-maker insights into the financial performance of acompany.

The analysis of financial statements is a process of evaluating the relationship betweencomponent parts of financial statements to obtain a better understanding of the firms positionand performance.

Ratio analysis in view of its several limitations should be considered only as a tool foranalysis rather than as an end in itself. The reliability and significance attached to ratios willlargely hinge upon the quality of data on which they are based. They are as good or as bad as thedata itself. Nevertheless, they are an important tool of financial analysis.




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BIBLIOGRAPHY

Web Sites:

WWW.EBL-BD.COM

WWW.TRUSTBANK.COM.BD

Books Referred:ESSENTIALS OF MANAGERIAL FINANCE- BESLEY & BRINGHAM

ACCOUNTING PRINCIPLES- WEYGANDT & KIMMEL KIESO.

Annual Reports

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