Financial Statement Analysis _ Soubhagya

8/13/2019 Financial Statement Analysis _ Soubhagya

1/79

Financial Statement Analysis

JSS Academy of Technical Education, Bangalore Page 1

EXECUTIVE SUMMARY

All business organization prepares financial statements after every financial year.

The financial statements clearly indicate the financial position of the business concern. The

published financial statements may of considerable interest to shareholders, trade

organizations, business analyst and many others. Each of these groups may be interested in

different aspects of the business concern according to their own purposes.

The basis for financial planning, analysis and decision making is the financial

information is needed to predict, compare and evaluate the firms earn ing ability. It is also

required to aid in economic decision making investment and financial decision making.

The financial information of an enterprise is contained in the financial statement or

accounting reports.

The financial analysis is the process of analyzing the financial strengths and

weaknesses or the firm by properly establishing the relationships between the items of the

balance sheet and profit and loss account

This report deals with the financial performance of State Bank of Mysore for the

financial year 2005-2009.

This report briefly explains the subject matter (financial statement analysis) of the

study conducted. The basis for financial planning, analysis and decision making is the

financial information. Financial information is needed to predict, compare and evaluate the

firms earning ability.

The objective of the study was to thoroughly analyze the companys performance and

the financial position over the years. The balance sheet and the income statement of the

company provide some extremely useful information to the extent that the balance sheet

mirrors are financial position on a given date in terms of the structure of assets, liabilities,

etc. The comparison of the above statements is therefore an important aid in determining

the companys position and performance over a period of time.


2/79



The first task in the analysis is the selection of the information relevant to the

decision under consideration from the total information contained in the financial

statements. The second task is to arrange the information in a way to highlight comparison

among different variables from balance sheet and income statement of different years. The

final step is that of drawing inferences and conclusions.

The best tool used for the purpose the finding out trends of an organizations growth

over a period of time is comparative statement analysis, common size statement analysis

and ratio analysis. The variables in the balance sheet provides considerable information

which is eventually helpful for the organization as the trends can be studied and it forms the

basis of drawing important inferences. Financial analysis is required for the day-to-day

operations of the business.

Financial statement analysisof State Bank of Mysorehas been taken to analyze

the financial aspects for the better understanding of the financial standing of the bank.


3/79



1. INDUSTRY PROFILE

1.1. GENESIS OF BANKING IN INDIA

In India banking wasoriginated in the last decades of the 18th century. The oldest

bank in existence in India is the State Bank of India and that is the largest commercial bank

in the country. Central banking is the responsibility of the Reserve Bank of India, which is

formally, took over its responsibilities in 1935 from the Imperial Bank of India. After

India's independence in 1947, the Reserve Bank was nationalized and given broader

powers. In 1969 the government nationalized the 14 largest commercial banks; the

government nationalized the six next largest banks in 1980.

Currently, India has 88 scheduled commercial banks (SCBs) - 27 public sector

banks, 31 private banks and 38 foreign banks. They have a combined network of over

53,000 branches and 17,000 ATMs. According to a report by a rating agency ICRA Limited

that, the public sector banks hold over 75 percent of total assets of the banking industry,

with the private and foreign banks holding 18.2% and 6.5% respectively.

1.2. HISTORY OF BANKING IN INDIA

Without a sound and effective banking system in India it cannot get healthy

economy. For the past three decades Indias banking system has several outstanding

achievements to its credit. The most striking is its extensive reach. It is no longer confined

to only metropolitans and cosmopolitans in India. In fact Indian banking system has

reached even to the remote corners of the country. This is one of the reasons for Indias

growth process. The governments regular policy for Indian bank since 1969 has paid rich

dividend with the nationalization of 14 major private banks in India.

An account holder had to wait for hours at the bank counters for getting a draft or

for withdrawing his own money at the time not long ago. Today, he has a choice. Days are

gone when most efficient banks were transferring money from one branch to other in two


4/79



days. Now it is simple as instant messaging or dials a pizza. Money has become the order of

the day.

The first bank in India was established in 1786. From 1786 till today the journey of

Indian Banking System can be segregated into three distinct phases. They are as,

The early phase from 1786 to 1969 of Indian Banks.

Nationalization of Indian banks and up to 1991 prior to Indian banking sector

reforms.

New phase of Indian Banking System with the advent of Indian Financial and

Banking Sector Reforms after 1991.

PHASE1

The General Bank of India was set up in the year 1786. Next came Bank of

Hindustan and Bank of Bengal. The East India Company established Bank of Bengal in

1809, Bank of Bombay in 1840 and Bank of Madras in 1843 as independent units and

called Presidency Banks. These three were amalgamated in 1920 and Imperial Bank of

India was established and which started as private shareholders banks, mostly the

Europeans shareholders.

Allahabad Bank was established in 1865 and first time exclusively by Indians,

Punjab National Bank was set up in 1894 with headquarters at Lahore. Between 1906 to

1913 Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and

Bank of Mysore were set up. Reserve Bank of India is came in 1935.

During the first phase of growth was very slow and banks also experienced periodicfailures between 1913 and 1948. There were approximately 1100 banks, mostly small. To

streamline the functioning and activities of commercial banks, the Government of India

came up with Banking Companies Act 1949, which was later charged to Banking

Regulations Act 1949 as per Amending Act 1965. Reserve Bank of India was vested with

extensive powers for the supervision of banking in India as the Central Banking Authority.


5/79



During those days the public was lesser confidence in the banks. As an aftermath

deposit mobilization was slow. Abreast of it the savings bank facility provided by the postal

department was comparatively safer. Moreover funds were largely given to traders.

PHASE2

After independence Government took major steps in this Indian Banking Sector

Reforms. In 1955, it nationalized Imperial Bank of India with extensive banking facilities

on large scale especially in rural and semi-urban areas. It forms State Bank of India to act

as the principal agent of RBI and to handle banking transactions of the union and state

governments all over the country.

Seven banks forming subsidiary of State Bank of India was nationalized in 19thJuly

1960. In the 1969, major process of nationalization was carried out. It was the effort of the

then Prime Minister of India, Mrs. Indira Gandhi, 14 major commercial banks in the

country was nationalized.

Second phase of nationalization Indian Banking Sector Reforms was carried out in

1980 with seven more banks. This step brought 80% of the banking segment in India under

Government ownership.

The following are the steps taken by government of India to regulate banking

institutions in the country.

1949: Enactment of banking regulations act.

1955: Nationalization of State Bank of India.

1959 : Nationalization of SBI subsidiaries 1961: Insurance cover extended to deposits.

1969: Nationalization of 14 major banks.

1971: Creation of credit guarantee corporation.

1975: Creation of regional rural banks.

1980: Nationalization of seven banks with deposits over 200 crore.


6/79



After the nationalization of banks, the branches of the public sector bank India rose to

approximately 800% in deposits and advances took a huge jump by 11000%.

Banking in the sunshine of government ownership gave the public implicit faith and

immense confidence about the sustainability of these institutions.

PHASE3

This phase has introduced many more products and facilities in the banking sector in

its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was

set up by his name which worked for the liberalization of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are being

put to give satisfactory service to customers. Phone banking and Net banking are

introduced. The entire system became more convenient and swift. Time is given more

importance than money.

The financial system of India has shown a great deal of resilience. It is sheltered

from any crisis triggered by any external macro economics as other East Asian companies

suffered. This is all due to flexible exchange rate regime, the foreign reserves are high, the

capital accounts are not yet fully convertible, and banks and their customers have limited

foreign exchange exposure.

1.3. VISION OF BANKS IN INDIA

The banking scenario in India has already gained all the momentum, with thedomestic and international banks gathering pace. The focus of all banks in India has shifted

their approach to cost, determined by revenue minus profit. This means that all the

resources should be used efficiently to better the productivity and ensure the win-win

situation. To survive in the long run, it is essential to focus on cost saving.

Previously, banks focused on the revenue model which is equal to cost plus profit.

Post the banking reforms, banks shifted their approach to the profit model, which meant

that the bank aimed at higher profit maximization.


7/79



1.4. STRUCTURE OF INDIAN BANKING SYSTEM:

Reserve Bank of India

Scheduled

Banks

Non-Scheduled

Banks

Commercial

Banks

Central Co-

operative Banks

and primary

credit societies

Commercial

banks

State Co-operative

Banks

Indian Banks Foreign Banks

Private Sector

Banks

Public Sector

Banks

Other Nationalized

Banks

Regional Rural

Banks

State Bank of India and

its subsidiaries


8/79



1.5. NATURE OF BANKING INDUSTRY

Banks safeguard money and provide loans, credit and payment services such as

checking accounts, debit cards and cashier checks. Banks also may offer investment and

insurance products. As a variety of models for cooperation and integration among finance

industries emerged, some of the traditional distinctions between banks, insurance

companies and securities firms have diminished. In spite of these changes banks continue to

maintain and perform their primary role- accepting deposits and lending money.

The business of banking consists

In receiving deposits of money on which interest may or may not be allowed;

In making advances of money, principally in the way of discounting notes;

In effecting the transmission of money from one place to another. This is true of the

ordinary banks of deposit and discount, both State and National.

1.6. EMPLOYMENT IN BANKING INDUSTRY

The Banking industry employed about 1.8 million wage and salary workers in 2008.

About 74% jobs were in commercial banks; the remainder was concentrated in savings

institutions and credit unions. In 2008, about 85% of establishments in banking employed

fewer than 20 workers. However, these small establishments, mostly bank branch offices,

employed 38% of all employees. Banks are found everywhere in the united states, but most

bank employees work in heavily populated states such as New York, California, Illinois,

North Carolina, Pennsylvania and Texas.

1.7. FOCUS OF BANKS IN INDIA

The Banking Industry is slated for growth in future with a more qualitative rather

than quantitative approach. The total assets of all commercial banks by end-march 2010 is

projected to touch Rs 40, 90,000 crore. This is going to comprise around 65% of GDP at

current market prices as compared to 67% in 2002-2003. The Banks assets estimated to


9/79



grow at an annual composite rate of growth of 13.4% during the rest of the decade as

against 16.7% between 1994-95 and 2002-03. Barring the asset side, on the liability

perspective, there will be huge additions to the capital base and reserves. People will rely

more on borrowed funds, pace of deposit growth slowing down side by side. However,

advances and investments would not see a healthy growth rate.

1.8. CONSOLIDATION OF BANKS IN INDIA

India would see a large number of global banks controlling huge stakes of the

banking entities in the country. The overseas banking units would bring along with it

capital, technology, and management skills. This would lead to higher competition in the

banking frontier and ensure greater efficiency. The FDI norms in the banking sector would

give more leverage to the Indian banks.

Thus, a consolidation phase in the banking industry in India is expected in the near

future with mergers and acquisitions gathering more pace. One might also see mergers

between public sector banks or public sector banks and private banks. Credit cards,

insurance are the next best strategic places where alliances can be formed.

1.9. FUTURE CHALLENGES OF BANKS IN INDIA

The Indian banks are hopeful of becoming a global brand as they are the major

source of financial sector revenue and profit growth. The financial service penetration India

continues to be healthy, thus the banking industry is also not far behind. As result of this,

the profit for the Indian banking industry will surely surge ahead. The profit pool of the

Indian Banking Industry is probable to augment from US$ 4.8 billion in 2005 to US$ 20

billion in 2010 and further to US$ 40 billion by 2015. This growth and expansion pace

would be driven by the chunk of middle class population. The increase in number of private

banks, the domestic credit market of India is estimated to grow from US$ 0.4 trillion in

2004 to US$ 23 trillion by 2050.


10/79



2. COMPANY PROFILE

2.1. BACKGROUND AND INCEPTION OF STATE BANK OF MYSORE

State Bank of Mysore is established in the year 1913 as Bank of Mysore Ltd. under

the patronage of the erstwhile Govt. of Mysore, at the instance of the banking committee

headed by the great engineer-statesman, Late Dr. Sir M Visvesvaraya. Subsequently, in

March 1960 the bank became an Associate of State Bank of India. State Bank of India

holds 92.33% of shares. The Banks shares are listed in Bangalore, Chennai, and Mumbai

Stock Exchanges.

The bank has regional offices in Bangalore, Mysore, Mangalore, Mandya, Hassan,

Shimoga, Davanagere, Bellary, Tumkur, Kolar, Chennai, Coimbatore, Hyderabad, Mumbai

and New Delhi. The banks turnover in the year 2008-09 was around US$10 billion and

profit about US$ 65 million.

MILESTONES OF STATE BANK OF MYSORE

1913 - The Bank was established as Bank Of Mysore Ltd on the 19th may and

commenced its business on the 2nd October 1913, under the patronage of his

highness of the Maharaja of Mysore, with an authorized capital of Rs.20 lakhs.

1953During the year, the bank was appointed as an agent of the Reserve Bank of

India to conduct Government Business and Treasury Operations.

1959The Bank was constituted as State Bank of Mysore as a subsidiary of State

Bank of India, under State Bank of India (subsidiary banks) act. 1959 enacted

through an act of parliament (act no.38 of 1959).

The Bank has formulated schemes for financing coffee planters/coffee traders

against coffee curers certificate, financing coffee traders, coffee exporters and

coffee curers who also engage in trading.

State Bank of Mysore has various deposit schemes to cater to the requirements of

its customers.


11/79



The Bank also actively participated in all Government sponsored schemes and

contributed its share of financial assistance or the economically weaker sections

through DIR, IRDP, Prime Ministers Rojgar Yojna and SUME schemes.The Bank has sponsored two Regional Rural Banks, Cauvery Grameena Bank and

Kalpataru ameena Bank which have between them 202 branches for the growth of

agriculture and rural industries.

The Bank, as part of State Bank Group has been engaged in financing SSI since

1960 and introduced the concept need based rather than security oriented finance

and entrepreneur scheme under which technically qualified persons were financed

the entire requirement up to Rs. 2 lakhs.

The Bank has 3 specialized SSI branches to assist SSI units and proposes to

establish 3 more such SSI branches shortly.

The Bank has correspondent and agency arrangements all over the world and offers

spot services in 18 major approved currencies.

The Banks computerized dealing room is equipped with state-of-the-art

information network for excellent services to the banks customers.

The Bank also proposed to open 21 NRI service centres to specially cater to the

requirements of NRI customers.

State Bank of Mysore handles a significant part of the day-to-day banking business

of both the state and central governments in the state of Karnataka and is a banker to

various public sector undertakings in the various sectors of the economy.

The Bank has been actively participating in welfare banking needs of the public

through its community services.

The Bank has set up social circles, a voluntary group of employees to conduct the

community service activities, at various centers.

The Bank is the proud recipient of the Rolling Trophy from the Red Cross Society

of Karnataka for 17 years in succession, till date, for having mobilized the

maximum number of blood donors each year, among banking institutions.

The Bank has installed a Main Frame Computer in its Head Office which provides a

useful information system to the Management and Mini Computers at the Zonal

Offices.


12/79



The Bank is the member of the Society for Worldwide Inter Bank Financial

Telecommunication (SWIFT) which was established to offer cost effective and

transmission of financial messages globally, 2 branches of the Bank are presentlycovers the scheme and an additional 15 branches are proposed to be covered under

SWIFT shortly.

1992 The State Government has also taken up vigorously ASHRAYA, a new

housing scheme for the weaker sections and VISHWA, a new rural and cottage

industry scheme. A new programme called AKSHAYA has also been launched to

help children in primary education. The Konkan Railway Project and the new

Mangalore Port Project are also progressing satisfactorily.

The Bank has also been assisting small scale industries by offering technology and

financial consultancy services to the units in its books so as to enable them to

overcome the problems of technological obsolescence, marketing, management etc.

The Bank has been given a special annual award by the Karnataka unit of the Indian

Red Cross Society for the fourteenth time for having held the most number of

voluntary blood donation camps.

1994 Several important measures has been introduced in the busy season credit

policy of November 1993 and the slack season credit policy of may 1994,

announced by Reserve Bank of India.

The Bank extended rehabilitation finance to 54 such units during the year under

review.

The Banks STREE SHAKTI PACKAGE designed exclusively for women.

The Bank also proposes to introduce Automated Teller Machine (ATM) and

Electronic Fund Transfer facility during the next year as a measure of offering state

of the art banking services to its customers.

2000 Mr.M.Sitarama Murty has been appointed as the Managing Director of the

Bank.

CRISIL has reaffirmed the a+ and p1+ rating assigned to the bond issue and the CD

programme of the bank.

2001 The State Bank of Mysore has opened a foreign exchange cell at its

Hirehally Industrial Estate branch at Tumkur District to enable small scale

industrialists to manage their foreign exchange transactions.


13/79



The Bank has closed its issue of unsecured non-convertible debentures after raising

the target of Rs.60 crore.

2002Enters the market of with a coupon of 6.4% per annum for its Tier-2 capitalbonds issue of Rs.60 crore on a private placement basis.

Slashes interest rate on domestic term deposits and on NRE deposits by 25-50 basis

points.

2003 Considers new method of appraisal for lending to the agricultural sector

more on the lines of industrial credit given to trade and commerce.

Declared a dividend of 40% on equity capital for the year ended.

Ties up with the HMT ltd and launches SBM-HMT agri farm scheme, to promote

agricultural mechanization in south India.

Maruti Udyog forges alliances with SBM to offer car finance.

Slashes floating home loan rates and the new loans are as follows; for maturities up

to 5 years-the rates would be 8%, for maturities up to 10 years-the rates would be

8.75% on a floating rate basis and above 10 years-9.25%. The fixed rate housing

loan remained unchanged. Farm lending rate up to Rs.50000 was lowered to 9%.

Inaugurated two branches in Hyderabad.

2004SBM joins hands with LTJD for tractor financing.

State Bank of Mysore has informed that Shri.M.Sitaram Murty, Managing Director

of the Bank retired from the services on December 31, 2003 on attaining super

annuation.

Mr.Vijayanand assumes charges as Managing Director of the Bank from

01/03/2004.

State Bank of Mysore joined the Real Time Gross Settlement System (RTGS)

network that facilitates inter-bank funds settlement on 22 July.

2005SBM unveils new single window system.

2006 Mr.P.P.Pattanayak has assumed charge as Managing Director of the State

Bank of Mysore. Mr.Pattanayak was earlier Deputy Managing Director (DMD) and

Chief Credit Officer of the State Bank of India, Mumbai.


14/79



2.2. NATURE OF BUSINESS CARRIED

Sate Bank of Mysore is carried banking business. The main characteristics of this business

are as follows;

The acceptance of deposits or installment savings etc.

The lending of funds or the discounting of bills.

Exchange transactions.

The guaranteeing of debt or the acceptance of bills.

The handling of money or other matters related to money of the national

government, local bodies, or corporations.

2.3. VISION, MISSION AND QUALITY POLICY

VISION AND MISSION STATEMENT

A premier Commercial Bank in Karnataka, with All India presence, committed to provide

consistently superior and personalized customer service backed by employee pride and will

to excel, earn progressively high returns for shareholders and be responsible corporate

citizen contributing to the well being of the society.

QUALITY POLICY

We always attempt to provide and create an environment for the participants to experience

and learn

Training Philosophy

Training in the State Bank of Mysore is a proactive, planned and continuous process as an

integral part of organization development. It seeks to impart knowledge, improve skills and

reorient attitudes for individual growth and organizational effectiveness.


15/79



2.4. SERVICES PROFILE

Deposits

State Bank of Mysore introduces many deposit schemes. They are,

Mybank Akshaya-Recurring Deposit Scheme (with flexibility)

Ananya Deposit Scheme

Multi Option Deposit Scheme

Long Term Floating Deposit Account

Saving Bank Account

Term Deposits

Reinvestment Deposits

Mystar Deposit Scheme

Power Money

Recurring Deposits

Cash Certificate

Grameena Thevani Yojana

Perennial Income Plan

Super Savings Package

Bhagyalakshmi Deposits

Harsha Deposits

Personal Banking Schemes

Personal Loan

Mortgage Loan

Housing Loan

Happy Home

Gnanamitra Education Loan

Loan for purchase of residential site/plot

MYBANK ADHYAPAK-(to teachers)

MYBANK ARAKSHAK-(to police personnel)

MYBANK UTSAV-(to celebrate festival)


16/79



SBM car loan scheme

SANJEEVINI-product scheme for high cost treatment

MYBANK SAMACHAR-(for journalists)

GAGAN MITRA-(for pilot and air hostesses training)

Mybank udyogi gnanamitra-(for employed persons to undertake higher studies)

C & I Banking Schemes (Commercial and Institutional)

Scheme for trades- Liberalized trade finance

Handy Loans Scheme

Corporate Loan

Current Account Plus Rent Plus

SBM Paryatan Plus

SBM School Plus

Fair Practices Code for Lenders etc

Agri Banking Schemes

Kisan Gold Card Scheme

Kisan Credit Card Scheme Gramin Bandaran Yojana

Scheme for combined Harvesters

Kisan Chakra Scheme

Agriclinics and agri business centres

Solar Photo Voltaic Pumpsets

Scheme for development of Vanilla

Produce Marketing Loan

Drip Irrigation

Sprinkler Irrigation

Swarna mitra Scheme

My Krishigen

General Credit Card etc.


17/79



SME Banking Schemes(Small and Micro Enterprises)

Credit Guarantee Fund Trust Scheme

Loans to SMEs

Laghu Udyami Credit Card Scheme

Stree Shakti Package for women entrepreneurs

Mybank Sanchari Suvidha

Annapurna

Mybank Doctor

Flexi(SSI) term loan

SME Credit Plus

Green Auto

Swarojgar Credit Card Scheme

Mybank Professional Plus

Artisans Credit Card etc

ATM Services

NRI Services

NRI Deposits

Proforma for foreign currency remittances

Account Opening Form for NRIs

Interest rates on NRE Deposits and schemes

Money Transfer to India through Western Union

Remittances to India-Global Link Services etc.

Internet Banking

Real Time Gross Settlement(RTGS) Transactions

National Electronic Fund Transfer (NEFT)


18/79



2.5. AREA OF OPERATION

As the Bank is working in all area of the nation, the State Bank of Mysore is achieved

national level operation.

The State Bank of Mysore branches In Bangalore are- Dr. Ambedkar Veedhi branch,

M.G.Road branch, Jayanagar branch, Malleswaram branch, L.C.Road branch, Basavaraja

Market branch, Industrial Finance branch, Bangalore main branch, R.M.Vilas branch, SSI

Peenya industrial area branch.

And Mysore main branch, market branch and CFTRI branch in Mysore. Davangerebranch in Davangere. JVSL branch in Bellary district. Bhadravathi branch in shimoga.

Mangalore branch in Mangalore. Tirupur branch in Tamil Nadu. Secunderabad branch in

Secunderabad. T.Nagar branch, Industrial Finance branch and Chennai main branch in

Chennai. Bentinck street branch, Shakespeare sarani branch, Rash Behari avenue branch in

Calcutta. Nehru place branch, Karol bagh branch, Nayabazaar branch, Industrial Finance

branch, Connaught place branch and Punjabi bagh branch in New Delhi. Khar branch and

Mumbai main branch in Mumbai. Abids branch and Industrial Finance branch in

Hyderabad. Jaipur branch in Jaipur. Avinashi branch in Coimbatore. Ahmadabad branch

in Ahmedabad. Haritha branch in Dharmapuri district. Vishakhapatnam branch in

Vishakhapatnam. Indore branch and Surat branch in Indore.

Branch Network and ATMs.

The bank has widespread network of 682 branches as on 30.09.2009. and 20

extension counters spread all over India, which includes 5 specialized SSI branches, 4

industrial finance branches, 3 corporate accounts branches, 4 specialized personal banking

branches, 10 agricultural development branches, 3 treasury branches, 1 asset recovery

branch and 8 service branches, offering wide range of services to the customers.

The bank has regional offices in Bangalore, Mysore, Mangalore, Mandya, Hassan,

Shimoga, Davanagere, Bellary, Tumkur, Kolar, Chennai, Coimbatore, Hyderabad, Mumbai

and New Delhi.


19/79



2.6. OWNERSHIP PATTERN

State Bank of Mysore is established in the year 1913 as Bank of Mysore Ltd. And in

the year 1960 the bank became an Associate of State Bank of India. Presently the share

holding pattern of State Bank of Mysore is:

State Bank of India holds 92.33% of shares.

Remaining 7.67% of shares are holds by public.

2.7. COMPETITORS INFORMATION

Main competitors of the State Bank of Mysore are;

Bank of India,

Punjab National Bank,

Bank of Baroda,

Bank of India,

Canara Bank,

Union Bank, IDBI Bank,

Indian Bank,

Oriental Bank and

State Allahabad Bank.

Other competitors are,

Axis Bank American Express Bank ltd Andhra Bank

Centurion Bank ltd ES Bank of India etc. Corporation Bank

Dena Bank Federal Bank India Global Trust Bank ltd

HDFC Bank India Hongkong Shanghai Banking

Corporation Ltd

ICICI Bank ltd

Indian Overseas Bank Industrial Development Bank

of India

ING Vysya Bank ltd

JP Morgan Chase Bank Karnataka Bank Punjab and Sind Bank

Standard Chartered Bank State Bank of Indore State Bank of Hyderabad


20/79



State Bank of Patiala State Bank of Travancore State Bank of Bikaner and

Jaipur

Export and Import Bank Syndicate Bank of India SBI Commercial and

internationalUnited Bank of India UCO Bank State bank of Mysore

2.8. INFRASTRUCTURAL FACILITIES

The State Bank of Mysore, Rajarajeshwari Nagar Branch is having one big hall and

one store room. And the hall encompassed by one manager room, four cash cabins, one

computer room and one ATM room is attached to this building. Totally twelve computers

are installed in the branch including server.

Banks building covers the area of 1400 sq.ft. Quarters or rent facilities are to be

given by head office to the employees working under officerslevel. Training facilities are

also to be given by head office to the new employees.

2.9. ACHIEVEMENT/AWARDS

Achievements in the area of information technology

Core banking solution

State Bank of Mysore boasts of being the first ever Karnataka-based Bank to have

fully networked braches. The Bank is included in Core Banking Solution from 31

December 2005. Within one year, the Bank converted all its branches to Core Banking, in

order to make it more convenient for its customers, who can now bank with State Bank of

Mysore, anytime, anywhere in India.

The Bank is fully on core banking platform since 1st January 2006. The software

provides for Anywhere Banking, Internet Banking, ATMs, Real Time Gross Settlement,

and National Electronic Fund Transfer etc. The new functionalities introduced under the

CBS are: State Bank Group Payment Scheme- Facilitating transfer of funds between

customers accounts across state bank group branches instantaneously.


21/79



SSMS alert- Customers get SMS alert for any transaction which exceeds the

threshold limit and for balance going for below threshold limit and Statement through mail-

Customers get statement through mail at prescribed frequencies as per their request.

Automated Teller Machines

The customers of State Bank of Mysore are now provided easy access to money

through more than 7500 State Bank Group ATMs and ATMs of UTI Bank, HDFC Bank,

Indian Bank, Andhra Bank, Punjab National Bank, Corporation Bank and Dena Bank,

Union Bank of India, Bank of India, UCO Bank, Canara Bank, IndusInd Bank etc.

The ATM availability is around 92.5%. The average transactions in a month are over

27 lacs and cash disbursed exceeds of Rs. 463 crores. The daily average hit per ATM is 282

as on March 2008, compared to 254 for March 2007.

Human Resources

The bank has dedicated workforce of 9720 employees consisting of 3169

supervisory staff, 6551 non-supervisory staff (as on 31.03.2008). The skill and competence

of the employees have been kept updated to meet the requirement of customers keeping in

view the changes in the environment.

Financial Profile

The paid capital of the bank is Rs. 360 million as on 31.03.2009 out of which State

Bank of India holds 92.33%. The networth of the bank as on 31.03.2009 is 1619.44 crores

and the Bank has achieved a capital adequacy ratio of 12.99% as at the end of March 2009.

The Bank has an enviable track record of earning profits continuously and uninterrupted

payment of dividend since its inception in 1913. The Bank earned a net profit of Rs.336.91

crores for the year ended march 2009 and earning per share is at Rs.94

In the year 2004-05, The State Bank of Mysore Rajarajeshwari Nagar branch achieved as

Best Branch Award


22/79



2.10. WORK FLOW MODEL

The work flows from the top management to customers in the following manner.

Top Management (Policy framework)

(Implementation and follow up)

2.11. FUTURE GROWTH AND PROSPECTS.

The Branch has an aspect to become a big branch in that area. The State Bank of

Mysore is going to merge with State Bank of India shortly, so that it will become a global

bank.

LocalHead Offices

Corporate Center

Zonal Offices

Regional Offices

Branches

(Extension)

Customer


23/79



3. MCKENSYS 7S FRAMEWORK

According to McKensysseven elements are distinguished as hard ss and soft

ss. The hard elements are feasible and easy to identify. They can be found in st rategy

statements, corporate plans, organization charts and documentation. The soft elements are

hardly feasible. They are difficult to describe since capabilities, values, and elements of

corporate culture are continuously developing and changing.

McKinseys 7S model provides a useful framework for reviewing the impact of

change. It also provides a useful framework for analyzing the strategic attributes of an

organization.

Strategy, Structure and Systems can be considered the hardware of success whilst

style, staff, skills and shared values can be seen as the usually more successful at the

implementation of strategy. There is no particular order to the 7s; each of the 7s is

elaborated as below:

AN ORGANISATIONS7 Ss


24/79



1. STRATEGY

Strategy is determination of basic long term goals and objectives of an

organization and adoption of courses of action and the allocation of resources for carrying

out these goals.

The bank is taking many initiatives to take advantage of the opportunities as well as

to meet the challenges the banks initiatives in the area of technology, product, marketing,

HR development will enhance its competitive capabilities. Further the bank has also drawn

an ambitious drawn expansion programmed to increase its client base and business

volumes. The bank has also recently appointed a constant guide it in implementation of an

enterprise wide integrated risk management system in the bank. All these efforts will help

the bank to improve upon the performance levels in the coming years.

The continued good performance of the Indian economy promises increasing

opportunities for business growth. The new generation private sector banks have become

active in competition. The foreign banks are likely to increase their operations. This

scenario through challenging is leading to improvements in the functioning of the publicsector banks as well they are now in the process of improving their capabilities in

information technology product innovation and business process reengineering are also

gaining the centre stage with competition driving down the interest spread trust of business

volumes, non interest income recovery and cost control are likely to increase further.

Technology would further influence customer service delivery of products and risk

management particles.

In order to confirm to the global best produces in the area of risk management, Banks

would be increasingly focusing more on new types of risks, likes operational risks.

And also to achieve all goals or objectives the Bank is adopted and following main

course of action is SERVICE. Service is only the finest way to achieve banks goals

because all the activities of the bank are totally based on service providing by the bankers

to the customers.


25/79



2.STRUCTURE

Structure is relatively company arrangements and relationships. It includes

reporting relationships and how a company member is to communicate with other

members.

Functional excellence can only be achieved if there is sufficient integrity and focus

within each business unit and structuring an organization is therefore not an easy task. In

order to understand how an organization merely works, one has to look beyond the

structure as drawn out on a piece of paper.

ORGANISATIONAL SETUP

The Chairman of State Bank of India, Shri.O.P.Bhat is the Chairman of State Bank

of Mysore. The Managing Director is assisted by the chief general manager and 6 general

managers.

ChairmanSri.O.P.Bhat

Managing Director

Mr.Dilip Mavinkurve

Chief General

manager-Mr. A

Ramakrishnan

General

Manager

(Operatio

ns)A K

Basu

General

Manager

(P&D)

Mr.

Sebastian

Chacko

General

Manager(

C&I)-

Mr. S

Vijaykum

ar

General

Manager

(Treasury)

-Mr.

Vijaykuma

r

General

Manager

(Vig &

Inspn)-T

Thomas

Mathew

General

Manager

(Technolo

gy)-

M.K.Nanj

unda


26/79



STRUCTURE OF THE BRANCH

The State Bank of Mysore Rajarajeshwari Nagar Branch Manager is

C.S.Udayakumar; Assistant Manager is S.R.Anandkumar, Special assistant - M.R.Bhagya,

CashierB.N.Ugraiah, Single Window OperatorP.Neelavathamma, Computer Operator-

A.N.Mohanshankar and Seema S Nayak, Peon H.S.Nanjappa and Sweeper R.Nalanda

bai.

3.SYSTEM

Systems is refers to all rules, regulations and procedures both formal and informal

that compliments company structure.

Systems do not only refer to hard copy reports and procedures but also informal

mechanisms such as meeting and conflict management routines. It is important that

systems emphasize, key themes, but at the same time it should permit dissection and

exception systems are powerful influences of behaviors of State Bank of Mysore. Banks

systems include:

The negotiated dealing systems (NDS)

Centralized funds management system (CFMS).

Structured financial messaging systems (SFMS)

Real time group settlement systems (RTGS)

Theses are corporate email solutions for strengthening messaging network, using

INFINET infrastructure of institute for development and research in banking

technology has been implemented at all branches and offices of the bank.

4. STAFF

Staff refers to the number and type of personnel within the organization. The total staff

strength of the bank as at the end of March, 2008 stood at 9720 as against 9666 as at the

end of March, 2007. The staff strength comprised of 3169 officers, 4406 clerical staff and

2145 subordinate staff. Of these 1015 is ex-defense personnel, 110 belonging to physically

handicapped category and 538 belong to minority communities.


27/79



There are two main grades are specified by State Bank of Mysore- Clerical grade and

Management grade. Clerical grade includes-Peon, Computer Operator, Single window

operator, Special assistant and Head cashier or cashier officer. Management grade covers-

Assistant Manager, Deputy Manager, Manager, Chief Manager, Assistant General

Manager, Deputy General Manager, General Manager, Chief General Manager, Managing

Director.

5. STYLE

Style basically means managements attitude forwards its employees, customersand shareholders. The style of the banks management becomes evident through the

patterns of actions taken by members of the top management team over a period of time.

The management style followed in State Bank of Mysore is participative in nature

and in mixture of self-management for customer facing activities and task management for

organizational activities.

If staff is to treat customers as individuals then they themselves will need to be

managed as individuals. This suggests a self management style. However, organizational

activities like making strategic decisions probably require a task management style. The

challenge for management is to mix the styles as appropriate without confusing staff.

6. SKILL

Skills are the distinctive capability of personnel of the organization as a whole.

Skills refer to the fact that employees have the skills needed to carry out the companys

strategy. For staff to develop appropriate new skills requires a learning environment.

Training and development ensuring people know how to do their jobs and stay up to date

with the latest techniques.


28/79



State Bank of Mysore being a service organization requires its employees to possess

business and financial management skills and interpersonal skills and group awareness and

networking skill. The Bank is endeavoring to update and upgrade the skills of its

employees to face the challenges of present day banking.

At the entry level one should pass banking exam which will be conducted by state

bank of India group. Management grade requires minimum graduation level education and

clerical grade requires minimum PUC level education.

7. SHARED VALUE

The fundamental values that are shared in the organization and serve as guiding

principles. Important shared values are the central believes and attitudes.

The framework suggests that, there are multiple factors that influence a companys

ability to change and that because of interconnectedness of variables; it would be difficult

to make significant progress in one area without making progress in other as well.

Central belief, attitude of the Bank totally based on customers. They are;

Bankers need to listen all customersvoice.

They need to work hard to satisfy customers.

They try to magnetize more customers by offering attractive interest rates.

State Bank of Mysore Mission Statement

A premier Commercial Bank in Karnataka, with All India presence, committed to provide

consistently superior and personalized customer service backed by employee pride and will

to excel, earn progressively high returns for shareholders and be responsible corporate

citizen contributing to the well being of the society.


29/79



5.SWOT ANALYSISSWOT matrix conceptual frame work for a systematic analysis that facilitates

matching the external threats and opportunities with internal weaknesses and strength of the

organization.

Based on the competencies and shortcomings, strength, weakness, opportunity and

threat analysis is done for State Bank of Mysore which is presented below,

STRENGTHS WEAKNESSES

This branch is a well established

branch in rajarajeshwari nagar

area.

It was opened in the year 2000, and

it is only the second bank opened

in this place.

Reputation of good services.

Experienced workforce.

Strong capital base.

There are fourteen different banks

already established in surrounding of

this Bank.

It is not a business area.

In this area most of people living are

middle class.

Poor Infrastructure.

Smaller credit card base.

OPPORTUNITIES THREATS

Higher saving oriented peoples

place.

Changing spending habits.

Growing market for loans.

Capturing various banking service

before other nationalized bank and

MNC banks make a foray into it.

There are fourteen different banks

already established in surrounding of

this Bank.

Deregulation creating higher customer

expectations in terms of price

convenience

Entering of private banks to the industry.


30/79



6.ANALYSIS OF FINANCIAL STATEMENTFinancial statements or financial reports are formal records of the financial activities

of a business, person, or other entity. Financial statements provide an overview of a

business or person's financial condition in both short and long term. All the relevant

financial information of a business enterprise, presented in a structured manner and in a

form easy to understand is called the financial statements.

COMPARATIVE BALANCE SHEET OF STATE BANK OF MYSORE AS ON 31ST

MARCH, 2008-2009

(In Rs.Cr)

Particulars March

2008

March

2009

Absolute

Change

%Change

Capital and liabilities:

Total Share Capital 36.00 36.00 0.00 0.00

Equity Share Capital 36.00 36.00 0.00 0.00

Share Application Money 0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00

Reserves 1341.81 1635.11 293.3 21.86

Revaluation Reserves 0.00 599.93 599.93

Net Worth 1377.81 2271.04 893.23 64.83

Deposits 27462.40 32915.77 5453.37 19.86

Borrowings 1731.53 2762.08 1030.55 59.52

Total Debt 29193.93 35677.85 6483.92 22.21

Other Liabilities & Provisions 2497.96 2536.89 38.93 1.56

Total Liabilities 33069.70 40485.78 7416.08 22.43

Assets

Cash & Balances with RBI 2661.55 1735.05 -926.5 -34.8

Balance with Banks, Money at 244.54 407.66 163.12 66.70


31/79



Call

Advances 21027.15 25616.05 4588.9 21.82

Investments 8402.76 11377.96 2975.2 35.41

Gross Block 406.56 1060.28 653.72 160.79

Accumulated Depreciation 283.57 328.91 45.34 15.98

Net Block 122.99 731.37 608.38 494.66

Capital Work In Progress 0.00 0.00

Other Assets 610.72 617.70 6.98 1.14

Total Assets 33069.71 40485.79 7416.08 22.42

Contingent Liabilities 12871.72 17073.93 4202.18 32.65

Bills for collection 2888.47 2935.50 47.03 1.63

Book Value (Rs) 3827.26 464.20 -3363.06 -87.87

ANALYSIS AND INTERPRETATION:

Share capital remains constant.

Reserves and Surplus is 21.86% increase in 2008-2009

o This indicates that profitability of the concern is good.

There is also increase in deposits of the bank:

o 19.86% increase in 2008-2009

Borrowing is increase by 59.52%, it shows bank increase their liability.

Cash and Bank balance with RBI have decreased by 34.8%, which is a not good

indication as it has decreased that liquidity position of the bank.

Investment has increased by 35.41%. The increase in investment is appreciable.

Advances have increased by 21.82%. This indicates that bank is doing quite well,

as it is lending huge advances to its customer. These in turn result in higher

interests to the bank on the advances lent.

Fixed asset has highly increased by 494.66%.

To conclude, the financial position of the Bank seems to be good.


32/79



COMPARATIVE PROFIT AND LOSS ACCOUNT OF STATE BANK OF MYSORE

FOR THE YEAR ENDED 2008-2009

(In Rs.Cr.)Particulars March

2008

March

2009

Absolute

change

%Change

Income

Interest Earned 2494.40 3247.28 752.88 30.18

Other Income 422.13 480.36 58.23 13.79

Total Income 2916.53 3727.64 810.71 27.80

Expenditure

Interest expended 1732.10 2409.02 676.92 39.08

Employee Cost 337.56 384.55 46.99 13.92

Selling and Admin Expenses 106.90 175.23 68.33 63.92

Depreciation 57.78 42.60 -15.18 -26.27

Miscellaneous Expenses 363.34 379.32 15.98 4.40

Preoperative Exp Capitalized 0.00 0.00

Operating Expenses 638.42 719.25 80.83 12.66

Provisions & Contingencies 227.16 262.45 35.29 15.54

Total Expenses 2597.68 3390.72 793.04 30.53

Net Profit for the Year 318.85 336.91 18.06 5.66

Extraordinary Items 0.00 0.00

Profit brought forward 0.00 0.00

Total 318.85 336.91 18.06 5.66

Preference Dividend 0.00 0.00

Equity Dividend 36.00 36.00

Corporate Dividend Tax 6.12 6.12

Per share data (annualized)

Earnings Per Share (Rs) 885.71 93.59 -792.12 -89.43


33/79



Equity Dividend (%) 100.00 100.00

Book Value (Rs) 3827.26 464.20 -3363.06 -87.87

Appropriations

Transfer to Statutory Reserves 276.74 294.80 18.06 6.53

Transfer to Other Reserves -0.01 -0.01

Proposed Dividend/Transfer to

Govt

42.12 42.12

Balance c/f to Balance Sheet 0.00 0.00

Total 318.85 336.91 18.06 5.66


The interest earned is increased by 30.18%. This fact indicates that the bank is

financially sound.

Other income has increased by 13.79%.

The Interest Expended has increased by 39.08%. This indicates that there is gradual

increase in the deposits from the customers which is a good sign as one of their

main businesses is to accept deposits from customers.

The Operating expense has increased by 12.66%. This Operating Expenses in turn

reduces the net profit.

Therefore, the bank should try to reduce its expenses as much as possible to

increases its net profit.

Net Profit has decreased by 5.66%.

To conclude, the operating efficiency of the bank is quite satisfactory.


34/79



7. LEARNING EXPERIENCE

MBA course is complete only when it comprises both classroom as well as industrial

exposure. Summer project undertaken at State Bank of Mysore gave an opportunity to learn

the practical aspects of the theoretical concepts learnt in the syllabus.

The study was greatly educative. I came to know about detail study of banking

industry profile, company profile, area of operation, work flow model and SWOT of State

Bank of Mysore. I have learned how the McKinseys model applied in State Bank of

Mysore and under this I have studied in depth about all 7sand their interrelationships.

This project helped me to know how nationalized bank works and which are measures

have been adopted to increase the efficiency and effectiveness of the bank. And also I

realized that the importance of time in the organization and how the employees follow the

rules and regulations of the bank.

By this project I came to know that financial position of the bank and which are the

mechanism using by the bank to improve the profitability. Financial statement analysis like

comparative statement, common size statement and ratio analysis used to analyze balance

sheet and profit & loss account of five consecutive years, thought me how practically banks

are applying these tools to know the result and to build a future plan.

Finally this project helped me a lot in studying various functions of State Bank of

Mysore and gave an opportunity to compare the theoretical study to practical experiences.


35/79



1. GENERAL INTRODUCTION

1.1. TITLE OF THE PROJECTA report on the study of Financial Statement Analysis at State Bank of Mysore,

rajajareshwary nagar branch

1.2. STATEMENT OF THE PROBLEMThe study has been conducted to an assessment of the viability, stability and

profitability of the bank business. It mainly concentrates on understanding and analyzing

the various transactions of the bank which were carried out to attain its main objectives, to

evaluate the growth achieved in terms of finance and the problems involved in various

decisions making with regard to financing and direct operations.

1.3. OBJECTIVES OF THE STUDY Primary objective:

The main objective of this study is to understand and ascertain the financial

performance of State Bank of Mysore and to analyze that by using common size

statement and ratio analysis.

Secondary objectives :

To study the industry profile of the banking sector and the company profile of

the state bank of mysore.

To know strengths, weaknesses, opportunities and threats of the bank.

To know the liquidity position of the bank.

To analyze the profitability of the bank.

1.4. SCOPE OF THE STUDYThe scope of the study includes study and analysis of financial statements for

the past five consecutive years. The current study is undertaken for the purpose of
http://localhost/var/www/apps/conversion/tmp/scratch_3/project.docxhttp://localhost/var/www/apps/conversion/tmp/scratch_3/project.docx


36/79



knowing the financial performance of the bank. The study focuses attention mainly

on the level of financial performance carried out during the period of 1 st January

2010 to 10

th

March 2010.

1.5. METHODOLOGY

The research design of this study is an analytical research i.e. it is conducted for

achieving a certain purpose. The main purpose of this study is the analysis of financial

statements and to know the profitability position of the Bank.

Data or Information required for the study was collected from annual reports and

balance sheet and profit & loss account of recent five years and for the study of the research

I have used the following tools to find out interpretation:

Comparative statements.

Common size statements.

Ratio analysis.

SOURCES OF DATA

The study has been undertaken by using both primary and secondary data.

Primary Data

Data originally collected for investigation are known as primary data. Such data are original

in character. Primary data may be obtained by applying any one of the following method;

Direct personal interview.

Indirect oral interview.

Information from correspondents.

Mailed questionnaire method.

Schedules sent through enumerators.

The primary data has been collected through direct personal interview, at the State Bank of

Mysore, Rajarajeshwari Nagar branch, Bangalore, from the officials.


37/79



Secondary Data

Data which are not originally collected for investigation are known as secondary data. Suchdata are not original in character. Secondary data may be obtained by applying any one of

the following methods:

Published sources.

Unpublished sources.

The data used for the project is secondary data which has been collected from the banks

annual reports, books, the related websites and other sources.

1.6. LIMITATIONS OF THE STUDY In depth study was not possible because of limited time duration however sufficient

data was collected to do justice to the report.

All the information could not be elicited because of its confidential nature.

Since secondary data is used for analysis, it suffers from the limitations of

Secondary data.


38/79



2. THEORETICAL CONCEPTS OF THE STUDY

2.1. MEANING OF FINANCIAL STATEMENTSA financial statement is a collection of data organized according to logical and

consistent accounting procedures. Its purpose is to covey an understanding of some

financial aspect of a business firm. It may show a position at a moment in time, as in the

case of a balance sheet or may reveal a series of activities over a given period of time, as in

the case of an income statement.

Financial statements can be referred to as representation of the financial status of a

company in a systematically documented form. There are different types of financial

statements. Financial statements are required to be audited by authentic, efficient audit

firms to avoid manipulation of numbers. Statements are usually audited by the accounting

firms after a thorough study of the company records. The accounting and the audit firms

make sure that the company is obeying and operating as per norms laid down by the

Generally Accepted Accounting Principles or GAAP.

2.2. TYPES OF FINANCIAL STATEMENTBasically, there are four different types of financial statements. The different types of

financial statements indicate the different activities occurring in a particular business house.

Balance Sheet

Income statement

Statement of retained earnings

Statement of cash flow or Cash flow statement

Balance sheet:

The balance sheet provides a snapshot of the business's assets, liabilities and owner's

equity for a given time. It provides an insight into the financial status of a company at a

particular time. The balance sheet, type of financial statement is different in comparison to

the other types of financial statements.


39/79



Income statements:

It is known as the P&L statement or the Profit And Loss Statement. This statement,

ascertains the profit and loss of any business. This can be again of two types:

Single Step Income Statement

Multi Step Income Statement

Statements of Retained earnings:

This financial statement denotes alterations in the title rights of equities in any business.

Cash flow statement:

This statement highlights flow of cash over a period of time. The cash flow may be from

investment activities, operations or financing activities.

The cash-flow statement is designed to convert the accrual basis of accounting used to

prepare the income statement and balance sheet back to a cash basis.

2.3. PURPOSE OF FINANCIAL STATEMENTSFinancial statements may be used by the user for different purposes:

Owners and managers require financial statements to make important business

decisions that affect its continued operations.

Prospective investors make use of financial statements to assess the viability of

investing in a business.

Financial institutions use them to decide whether to grant a company with freshworking capital or extend debt securities such as a long-term bank loan or

debentures to finance expansion and other significant expenditures.

Government entities (tax authorities) need financial statements to ascertain the

propriety and accuracy of taxes and other duties declared and paid by a company.

Media and the general public are also interested in financial statements for a variety

of reasons.


40/79



2.4.CHARACTERISTICS OF IDEAL FINANCIAL STATEMENTS.

The ideal financial statement should have the following characteristics:

1. Understandability

2. Relevance

Materiality

Timeliness

3. Reliability

Faithful representation

Substance over form

Completeness

4. Comparability

2.5.MEANING OF FINANCIAL STATEMENTS ANALYSIS:The term financial analysis also known as analysis and interpretation of financial

statement, refers the process of determining financial strength and weakness of the firm by

stabling strategic relationship between the items of balance sheet, profit and loss account

and others operative data. Analyzing financial statement according to Metcalf and Titard

is a process of evaluating the relationship between component parts of a financial

statement to obtain a better understanding of a firms position and performance.

2.6.METHODS OF FINANCIAL ANALYSIS:The analysis and interpretation of financial position and results of operations as well.

A number of methods or devices are used to study the relationship between different

statements. An effort is made to use those devices which clearly analyze the position of the

enterprise. The following methods of analysis are generally used.

1. Comparative statements

2. Trend analysis

3. Common size statements

4. Fund flow analysis

5. Cash flow analysis


41/79



6. Ratio analysis

7. Cost volume profit analysis

1) COMPARATIVE STATEMENTS:

The Comparative financial statements are statements of the financial position at

different periods of time. The elements of financial position are shown in a comparative

form so as to give an idea of financial position at two or more periods. Two financial

statements (balance sheet and income statements) are prepared in comparative form for

financial analysis purposes

Comparative Balance sheet:

The Comparative Balance sheet analysis is the study of the trend of the same items,

group of items and computed items in two or more balance sheets of same business

enterprise on different dates.

Comparative Income statement:

The income statement gives the results of the operations of a business. The

Comparative Income statement gives an idea of progress of a business over a period of

time.

2) TREND ANALYSIS:

The financial statement may be analyzed by computing trends of series of

information. This method determines the direction upwards or downwards and involves the

computation of the percent relationship that each statement item bears to the same item in

the base year.

3) COMMON SIZE STATEMENT:

The common size statements, balance sheet and income statement are shown in

analytical percentages. The figures are shown as percentage of total assets, total liabilities

and total sales. The total assets are taken as 100 and different assets are expressed as a

percent of the total similarly various liabilities. The analyst is able to assess the figures in

relation to total values.

Common size balance sheet

A statement in which balance sheet items are expressed as the ratio of each asset to

total assets and the ratio of each liability is expressed as ration of total liabilities is called

Common size balance sheet.


42/79



Common size income statement:

The items in income statement can be shown as percentage of sales to show the

relation of each item to sale. A significant relationship can be established between itemsstatement and volume of sales.

4) RATIO ANALYSIS:

Meaning of Ratio:

Ratio is a relationship between two figures expressed mathematically. Financial

ratios provide numerical relationship between two relevant financial data. Financial ratios

are calculated from the balance sheet and P&L account. The relationship can be either

expressed as a percent or as a quotient. Ratio summarizes the data for easy understanding

comparison and interpretation.

Therefore, ratios can be classified into following three broad categories.

1) Liquidity ratios

2) Balance sheet ratios

3) Profit and loss account ratios

4) Profitability ratios

These ratios are discussed below:

1) LIQUIDITY RATIOS:The terms Liquidity and short term solvency are used synonymously. Liquidity and

short term solvency means ability of the business to pay its short term liabilities, liability to

pay-off. Traditionally three ratios are used to highlight the business liquidity. These are

current ratio, quick ratio and absolute liquid ratio.

a) Current ratio= Current assets / Current liabilities

b) Quick ratio= Quick assets / Quick liabilities

c) Absolute liquid ratio = Absolute liquid assets / current liabilities

2) BALANCE SHEET RATIOS:

The balance sheet ratios deal with the relationship between two balance sheet items,

e.g. the ratio of current assets to current liabilities. Both the items must, however, pertain to

the same balance sheet.


43/79



The various balance sheet ratios have been named as:

1) Debt-equity ratio = Long term debt / Shareholders fund

2) Proprietary ratio = Shareholders fund / Total assets3) Fixed assets to Net worth ratio = Fixed assets / Net worth

4) Current assets to Net worth ratio = Current assets / Net worth

5) Fixed assets ratio = Fixed assets / Capital employed

3) PROFIT AND LOSS ACCOUNT RATIOS:

These ratios deal with the relationship between two profit and loss account items,

e.g., the ratio of gross profit to sales, or the ratio of net profit to sales. Both the items must,

however, belong to the same profit and loss account.

4) PROFITABILITY RATIOS:

The profitability ratios measure the profitability or the operational efficiency of the

firm. This ratio reflects the final results of business operations. The various profitability

ratios are:

1) Return on equity ratio = Net profit / Share capital

2) Earning per share ratio = Net profit available to shareholders / No. of equity

shares.

3) Ratio of advance to deposits = Advances / Deposits

4) Return on Advance ratio = Net profit / Advance.

5) Return on Investments ratio = Net profit / Investments

6) Return on total assets ratio = Net profit / Total assets

7) Return on capital employed ratio = Net profit / Capital employed

8) Return on shareholders fund ratio = Net profit / Shareholders fund


44/79



DATA ANALYSIS AND INTERPRETATION

COMMON SIZE BALANCE SHEET OF STATE BANK OF MYSORE AS ON 31ST

MARCH, 2005 AND 2006 (In Rs.Cr)

Particulars March

2005

March

2006

Amount Percentage Amount Percentage






Reserves 720.45 4.352 899.22 4.650

Revaluation Reserves 0.00 0.00 0.00 0.00

Net Worth 756.45 4.569 935.22 4.836

Deposits 13585.17 82.07 16368.75 84.65

Borrowings 319.58 1.93 582.22 3.01

Total Debt 13904.75 84.00 16950.97 87.66



Assets

Cash & Balances with RBI 941.53 5.68 745.71 3.86

Balance with Banks, Money at

Call

624.15 3.77 612.76 3.17

Advances 8781.26 53.05 11754.16 60.78

Investments 5796.19 35.02 5693.52 29.44

Gross Block 220.48 1.33 344.14 1.78
http://localhost/var/www/apps/conversion/tmp/scratch_3/project.docxhttp://localhost/var/www/apps/conversion/tmp/scratch_3/project.docx


45/79




Net Block 90.06 0.54 163.30 0.84

Capital Work In Progress 2.18 0.013 0.00 0.00

Other Assets 317.25 1.92 368.00 1.90

Total Assets 16552.62 100.00 19337.45 100.00



Book Value (Rs) 2101.24 12.69 2597.83 13.43



Particulars March

2006

March

2007







Reserves 899.22 4.650 1105.33 4.12


Net Worth 935.22 4.836 1141.33 4.25

Deposits 16368.75 84.65 22022.35 130.75

Borrowings 582.22 3.01 989.92 3.69

Total Debt 16950.97 87.66 23012.27 85.73




46/79



Assets



Call

612.76 3.17 342.76 1.28

Advances 11754.16 60.78 16465.54 61.34

Investments 5693.52 29.44 6989.75 26.03

Gross Block 344.14 1.78 367.53 1.37


Net Block 163.30 0.84 133.39 0.50

Capital Work In Progress 0.00 0.00 0.00 0.00Other Assets 368.00 1.90 815.59 3.04

Total Assets 19337.45 100.00 26842.66 100.00



Book Value (Rs) 2597.83 13.43 3170.36 11.81



Particulars March

2007

March

2008







Reserves 1105.33 4.12 1341.81 4.06


Net Worth 1141.33 4.25 1377.81 4.17


47/79



Deposits 22022.35 130.75 27462.40 83.04

Borrowings 989.92 3.69 1731.53 5.24

Total Debt 23012.27 85.73 29193.93 88.28



Assets



Call

342.76 1.28 244.54 0.74

Advances 16465.54 61.34 21027.15 63.58

Investments 6989.75 26.03 8402.76 25.40

Gross Block 367.53 1.37 406.56 1.23


Net Block 133.39 0.50 122.99 0.37


Other Assets 815.59 3.04 610.72 1.85

Total Assets 26842.66 100.00 33069.71 100.00



Book Value (Rs) 3170.36 11.81 3827.26 11.57



Particulars March

2008

March

2009




48/79







Reserves 1341.81 4.06 1635.11 4.04


Net Worth 1377.81 4.17 2271.04 5.61

Deposits 27462.40 83.04 32915.77 81.30

Borrowings 1731.53 5,24 2762.08 6.82

Total Debt 29193.93 88.28 35677.85 88.12



Assets


Balance with Banks, Money atCall

244.54 0.74 407.66 1.00

Advances 21027.15 63.58 25616.05 63.27

Investments 8402.76 25.40 11377.96 28.10

Gross Block 406.56 1.23 1060.28 2.62


Net Block 122.99 0.37 731.37 1.81


Other Assets 610.72 1.85 617.70 1.53

Total Assets 33069.71 100.00 40485.79 100.00



Book Value (Rs) 3827.26 11.57 464.20 1.15


49/79


50/79



COMMON SIZE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 2005

AND 2006

(In Rs.Cr)

Particulars March2005

March2006


Income

Interest Earned 1167.77 75.17 1346.76 79.53

Other Income 386.01 24.84 346.56 20.46

Total Income 1553.78 100.00 1693.32 100.00

Expenditure


Employee Cost 330.67 21.28 295.96 17.48


Depreciation 31.87 2.05 54.28 3.21


Preoperative Exp Capitalized 0.00 0.00 0.00 0.00



Total Expenses 1397.53 89.94 1590.87 93.95



AND 2007

(In Rs.Cr)

Particulars March

2006

March

2007


Income

Interest Earned 1346.76 79.53 1805.79 83.76


51/79



Other Income 346.56 20.46 350.22 16.24

Total Income 1693.32 100.00 2156.01 100.00

Expenditure


Employee Cost 295.96 17.48 317.57 14.73

Selling and AdminExpenses

208.67 12.32 106.33 4.93

Depreciation 54.28 3.21 59.80 2.77


Preoperative ExpCapitalized

0.00 0.00 0.00 0.00



Total Expenses 1590.87 93.95 1906.79 88.44



AND 2008

(In Rs.Cr)

Particulars March

2007

March

2008


Income

Interest Earned 1805.79 83.76 2494.40 85.53

Other Income 350.22 16.24 422.13 14.47

Total Income 2156.01 100.00 2916.53 100.00

Expenditure


Employee Cost 317.57 14.73 337.56 11.57


Depreciation 59.80 2.77 58.78 2.02


52/79







Total Expenses 1906.79 88.44 2597.68 89.07


COMMON SIZE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 2008AND 2009

(In Rs.Cr)

Particulars March

2008

March

2009


Income

Interest Earned 2494.40 85.53 3297.28 88.45

Other Income 422.13 14.47 480.36 12.87

Total Income 2916.53 100.00 3727.64 100.00

Expenditure


Employee Cost 337.56 11.57 384.55 10.32


Depreciation 58.78 2.02 42.20 1.13





Total Expenses 2597.68 89.07 3390.72 90.96



53/79




The Interest earned as a percentage of total income was:

o 75.17% in the year 2004-2005

o 79.53% in the year 2005-2006

o 83.76% in the year 2006-2007

o 85.53% in the year 2007-2008

o 88.45% in the year 2008-2009

This is a very good sign as there are continuous increases in interest earned by the

bank. Other income was between 24.84 to12.87 percent of total income from the 2005 to

2009.

The percentage of Interest Expended has increased from 40.10% in 2004-2005 to

43.41% in 2005-2006. Further, it increased to 50.70%, 59.39%, 64.63% in the year

2006-2007, 2007-2008, 2008-2009 respectively.

The percentage of Operating Expenses was:

o 39.06% in the year 2004-2005

o 39.56% in the year 2005-2006

o 27.95% in the year 2006-2007

o 21.89% in the year 2007-2008

o 19.30% in the year 2008-2009

From this we can make out that the bank is trying to reduce its operating expenses,

as it affects the net profit of the bank.

The percentage of Net Profit was:

o 10.06% in the year 2004-2005

o 6.05% in the year 2005-2006

o 11.56% in the year 2006-2007

o 10.93% in the year 2007-2008

o 9.04% in the year 2008-2009

To conclude, profitability of the concern is sound.


54/79



RATIO ANALYSIS AND INTERPRETATION

LIQUIDITY RATIOS :

1. CURRENT RATIO.= current assets/ current liabilities.

CA=cash & bank balances, advances.

CL=deposits, other liabilities and provisions.

(Rs. in cr.)

YEARCURRENT

ASSETS

CURRENT

LIABILITIES

CURRENT

RATIO

2004-05 10346.94 15476.6 0.67

2005-06 13112.63 17820.01 0.74

2006-07 18903.93 24711.4 0.76

2007-08 23933.24 29960.36 0.79

2008-09 27758.76 35452.66 0.78

0.67

0.740.76

0.79 0.78

0.6

0.62

0.64

0.66

0.68

0.7

0.72

0.74

0.76

0.78

0.8

2004-05 2005-06 2006-07 2007-08 2008-09

current ratio

current ratio
http://localhost/var/www/apps/conversion/tmp/scratch_3/project.docxhttp://localhost/var/www/apps/conversion/tmp/scratch_3/project.docxhttp://localhost/var/www/apps/conversion/tmp/scratch_3/project.docx


55/79



Interpretation:

Current ratio is the most commonly used to perform the short- term financialanalysis. It is also knows as the working capital ratio. This ratio throws good light on the

short terms financial position and policy. It is an indicator of firms ability to promptly

meet its short- terms liabilities.

A relatively high ratio indicates that the firm is liquid and has the ability to meet its

current liabilities. Normally a current ratio of 2:1 is considered satisfactory.

From the above ta

Financial Statement Analysis _ Soubhagya

Documents

Transcript of Financial Statement Analysis _ Soubhagya