Ratio Analysis Of Banking Reports(HBL,UBL,MCB etc)

CORPORATE FINANCE

ASSIGNMENT

ON

ANALYSIS OF FINANCIAL STATEMENTS

SUBMITTED TO:

SIR ATIF IQBAL

SUBMITTED BY:

FAHAD AHMED KHAN

HASSAN ALI KHAN

UNIVERSITY OF KARACHI

ANALYSIS OF FINANCIAL STATEMENTS

Financial statement analysis is defined as the process of identifying financial strengths and

weaknesses of the firm by properly establishing relationship between the items of the balance

sheet and the profit and loss account.

OR

Financial Statement Analysis is the process of understanding the risk and profitability of the firm

through analysis of reported financial information, by using different accounting tools and

techniques.

Financial Statements are prepared to meet external reporting obligations and also for decision

making purposes. They play a dominant role in setting the framework of managerial decisions.

But the information provided in Financial Statements is not an end in itself as no meaningful

conclusion can be drawn from these statements alone. However, the information provided in the

financial statements is of immense use in making decisions through analysis and interpretation of

financial statements.

TOOLS OF FINANCIAL STATEMENT ANALYSIS:

Following are the most important tools of financial statement analysis.

1) Horizontal and vertical analysis.

2) Ratio analysis.

1) Horizontal and Vertical Analysis:

Horizontal Analysis or Trend Analysis:

Comparison of two or more year's financial data is known as horizontal analysis, or trend

analysis. Horizontal analysis is facilitated by showing changes between years in both Rupees and

%age form.

Trend Percentage:

Horizontal analysis of financial statements can also be carried out by computing trend

percentages. Trend percentage states several years' financial data in terms of a base year.The

base year equals 100%, with all other years stated in some percentage of this base.

Vertical Analysis:

Vertical Analysis is the procedure of preparing and presenting common size statements.

Common size statement is one that shows the items appearing on it in percentage form as well as

in Rupees form. Each item is stated as a percentage of some total of which that item is a part.

Key financial changes and trends can be highlighted by use of common size statements.

2) Ratios Analysis:

The ratio analysis is the most important tool of financial statement analysis. Ratios simply means

one number expressed in term of another. A ratio is statistical yardstick by means of which

relationships between two or various figures can be compared or measured. Ratios show how

one number is related to another.

Advantages of Ratios Analysis:

1) Simplifies financial statements.

2) Facilitates inter- firm comparison.

3) Helps in planning.

4) Makes inter- firm comparison possible.

5) Help in investment decisions.

There are various ratios which can analyze any particular financial statement of any firm, some

important ratios are given below.

CURRENT RATIO:

Current ratio may be defined as the relationship between current assets and current liabilities.

This ratio is also known as "working capital ratio". It is a measure of general liquidity and is

most widely used to make the analysis for short term financial position or liquidity of a firm.It is

calculated by dividing the total of the current assets by total of the current liabilities.

Current Assets

Current Liabilites

QUICK RATIO:

Liquid ratio is also termed as "Liquidity Ratio", "Acid Test Ratio" or "Quick Ratio".It is the

ratio of liquid assets to current liabilities. The true liquidity refers to the ability of a firm to pay

its short term obligations as and when they become due.

Current Assets-Inventories

Current Liabilities

FIXED ASSET TURNOVER RATIO:

This ratio measures the efficiency and profit earning capacity of the concern.Higher the ratio,

greater is the intensive utilization of fixed assets.Lower ratio means under-utilization of fixed

assets. The ratio is calculated by using following formula:

Net Income/ Profit after tax

Net Fixed Asset

TOTAL ASSET TURNOVER RATIO:

The final asset management ratio, the total assets turnover ratio, measures the turnover of all the

firms assets. It measures the ability of a company to use its assets efficiently.This ratio considers

all assets, current and fixed.

Net Income/ Profit After Tax

Total Assets

DEBT RATE/RATIO :

A ratio that indicates what proportion of debt a company has has relative to assets. The measures

gives an idea to the leverage of the company along with the potential risk the company faces in

terms of its debt load.A debt ratio of greater than 1 indicates that a company has more debt than

assets, meanwhile, a debt ratio of less than 1 indicates that a company has more assets than debt.

Used in conjunction with other measures of financial health, the debt ratio can help investors

determine a company's level of risk.

Debt Ratio = Total Liabilities x 100

Total Assets

TIMES INTEREST EARNED RATIO:

Times interest earned (also called interest coverage ratio) is the ratio of earnings before

interest and tax (EBIT) of a business to its interest expense during a given period. It is a

solvency ratio measuring the ability of a business to pay off its debts.

EBIT*

Interest charges

*EBIT= Earning before interest and tax

BASIC EARNING POWER (BEP) :

This ratio shows the raw earning power of the firms assets before the influence of tax and debts,

and it is useful when comparing firms with different debts and tax situation. The higher the BEP

ratio, the more effective a company is at generating income from its assets.Using EBIT instead

of operating income means that the ratio considers all income earned by the company, not just

income from operating activity. This gives a more complete picture of how the company makes

money.BEP is useful for comparing firms with different tax situations and different degrees of

financial leverage.

EBIT x 100

Total Asset

RETURN ON COMMON EQUITY :

It is the ratio of net profit to share holder's investment. It is the relationship between net profit

(after interest and tax) and share holder's/proprietor's fund. This ratio establishes the profitability

from the share holders' point of view. The ratio is generally calculated in percentage. Return on

equity measures a corporation's profitability by revealing how much profit a company generates

with the money shareholders have invested.

Net income/Profit after tax x 100

Common equity

EARNING PER SHARE:

Earnings per share ratio (EPS Ratio) is a small variation of return on equity capital ratio and is

calculated by dividing the net profit after taxes and preference dividend by the total number of

equity shares.

Net Income/Profit After Tax

No. Of shares

PRICE/EARNING RATIO:

Price earnings ratio (P/E ratio) is the ratio between market price per equity share and earning per

share. The ratio is calculated to make an estimate of appreciation in the va lue of a share of a

company and is widely used by investors to decide whether or not to buy shares in a particular

company.

Market Price per share

Earning per share

BOOK VALUE PER SHARE:

A measure used by owners of common shares in a firm to determine the level of safety

associated with each individual share after all debts are paid accordingly.Should the company

decide to dissolve, the book value per common indicates the dollar value remaining for common

shareholders after all assets are liquidated and all debtors are paid.

In simple terms it would be the amount of money that a holder of a common share would get if a

company were to liquidate.

Book Value per share = common equity

Shares outstanding

MARKET BOOK RATIO:

The ratio of a stock’s market price to its book value gives another indication of how investors

regard the company. Companies that are well regarded by investors which means low risk and

high growth—have high M/B ratios.A ratio used to find the value of a company by comparing

the book value of a firm to its market value.Book value is calculated by looking at the firm's

historical cost, or accounting value.Market value is determined in the stock market through its

market capitalization.

Market value per share

Book value per share

3) RATIO ANALYSIS OF HABIB BANK LIMITED:

CURRENT RATIO:

Current Assets

Current Liabilites

QUICK RATIO:


Current Liabilities

1.09

1.10

1.09 1.09

1.08

1.07

1.08

1.08

1.09

1.09

1.10

1.10

1.11

2011 2010 2009 2008 2007



Net Fixed Asset



Total Assets

1.09

1.10

1.09 1.09

1.08

1.07

1.08

1.08

1.09

1.09

1.10

1.10

1.11

2011 2010 2009 2008 2007

1.161.05

0.790.73 0.73

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2011 2010 2009 2008 2007

DEBT RATE/RATIO :


Total Assets


EBIT*

Interest charges

0.01 0.01 0.01 0.01 0.01

0

0.002

0.004

0.006

0.008

0.01

0.012

2011 2010 2009 2008 2007

90.38%

89.59%

90.23%

91.05%90.86%

88.50%

89.00%

89.50%

90.00%

90.50%

91.00%

91.50%

2011 2010 2009 2008 2007


EBIT x 100

Total Asset



Common equity

1.141.07

0.911

0.83

0

0.2

0.4

0.6

0.8

1

1.2

2011 2010 2009 2008 2007

3.01% 2.92%

2.47%

2.93%

2.18%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

2011 2010 2009 2008 2007

EARNING PER SHARE:


No. Of shares



Earning per share

22.30%

19.61%17.83% 17.19%

18.31%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2011 2010 2009 2008 2007

20.26

17

14.71 14.31 14.61

0

5

10

15

20

25

2011 2010 2009 2008 2007



Shares outstanding

MARKET BOOK RATIO:



5.28

7.028.39

5.03

16.29

0

2

4

6

8

10

12

14

16

18

2011 2010 2009 2008 2007

9.08

8.66

8.248.32

7.98

7.4

7.6

7.8

8

8.2

8.4

8.6

8.8

9

9.2

2011 2010 2009 2008 2007

4) RATIO ANALYSIS OF MUSLIM COMMERCIAL BANK

CURRENT RATIO:

Current Assets

Current Liabilites

QUICK RATIO:

11.813.8

14.98

8.67

29.82

0

5

10

15

20

25

30

35

2011 2010 2009 2008 2007

1.11 1.11 1.11

1.1

1.11

1.094

1.096

1.098

1.1

1.102

1.104

1.106

1.108

1.11

1.112

2011 2010 2009 2008 2007


Current Liabilities



Net Fixed Asset



Total Assets

1.11 1.11 1.11

1.1

1.11

1.094

1.096

1.098

1.1

1.102

1.104

1.106

1.108

1.11

1.112

2011 2010 2009 2008 2007

0.880.81

0.86 0.89

1.02

0

0.2

0.4

0.6

0.8

1

1.2

2011 2010 2009 2008 2007

DEBT RATE/RATIO :


Total Assets


0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

2011 2010 2009 2008 2007

86.40%

86.02%

86.30%

86.82%

86.06%

85.60%

85.80%

86.00%

86.20%

86.40%

86.60%

86.80%

87.00%

2011 2010 2009 2008 2007

EBIT*

Interest charges


EBIT x 100

Total Asset

0

0.5

1

1.5

2

2.5

3

3.5

2011 2010 2009 2008 2007

4.82%

4.62%4.55%

4.93%

5.46%

4.00%

4.20%

4.40%

4.60%

4.80%

5.00%

5.20%

5.40%

5.60%

2011 2010 2009 2008 2007



Common equity

EARNING PER SHARE:


No. Of shares

24.61% 24.39% 25.37%

29.43%

34.73%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

2011 2010 2009 2008 2007



Earning per share



Shares outstanding

23.22

22.222.42

24.47

26.17

20

21

22

23

24

25

26

27

2011 2010 2009 2008 2007

5.8

10.3 9.8

5.16

15.32

0

2

4

6

8

10

12

14

16

18

2011 2010 2009 2008 2007

MARKET BOOK RATIO:



9.449.1

8.037.56 7.53

0

1

2

3

4

5

6

7

8

9

10

2011 2010 2009 2008 2007

14.26

25.1127.36

16.64

53.11

0

10

20

30

40

50

60

2011 2010 2009 2008 2007

5) RATIO ANALYSIS OF ALLIED BANK LIMITED

CURRENT RATIO:

Current Assets

Current Liabilites

QUICK RATIO:


Current Liabilities

1.06 1.06 1.06

1.03

1.04

1.015

1.02

1.025

1.03

1.035

1.04

1.045

1.05

1.055

1.06

1.065

2011 2010 2009 2008 2007



Net Fixed Asset



Total Assets

1.06 1.06 1.06

1.03

1.04

1.015

1.02

1.025

1.03

1.035

1.04

1.045

1.05

1.055

1.06

1.065

2011 2010 2009 2008 2007

0.560.53

0.57

0.36

0.54

0

0.1

0.2

0.3

0.4

0.5

0.6

2011 2010 2009 2008 2007

DEBT RATE/RATIO :


Total Assets


EBIT*

Interest charges

0.01 0.01 0.01 0.01 0.01

0

0.002

0.004

0.006

0.008

0.01

0.012

2011 2010 2009 2008 2007

91.60%

92.00%

92.84%

93.93%93.78%

90.00%

90.50%

91.00%

91.50%

92.00%

92.50%

93.00%

93.50%

94.00%

94.50%

2011 2010 2009 2008 2007


EBIT x 100

Total Asset



Common equity

1.07 1.041.08

0.68

0.92

0

0.2

0.4

0.6

0.8

1

1.2

2011 2010 2009 2008 2007

2.93%2.74%

2.52%

1.62%1.86%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

2011 2010 2009 2008 2007

EARNING PER SHARE:


No. Of shares



Earning per share

26.95% 26.39%27.54%

19.73%22.15%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2011 2010 2009 2008 2007

11.79

10.5210.02

6.33

7.57

0

2

4

6

8

10

12

14

2011 2010 2009 2008 2007



Shares outstanding

MARKET BOOK RATIO:



4.55

6.44 5.914.74

16.91

0

2

4

6

8

10

12

14

16

18

2011 2010 2009 2008 2007

4.37

3.983.64

3.213.42

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2011 2010 2009 2008 2007

6) RATIO ANALYSIS OF UNITD BANK LIMITED:

CURRENT RATIO:

Current Assets

Current Liabilites

QUICK RATIO:


Current Liabilities

12.27

17.04 16.26

9.35

37.43

0

5

10

15

20

25

30

35

40

2011 2010 2009 2008 2007

1.1

1.09 1.09

1.07 1.07

1.055

1.06

1.065

1.07

1.075

1.08

1.085

1.09

1.095

1.1

1.105

2011 2010 2009 2008 2007



Net Fixed Asset



Total Assets

1.1

1.09 1.09

1.07 1.07

1.055

1.06

1.065

1.07

1.075

1.08

1.085

1.09

1.095

1.1

1.105

2011 2010 2009 2008 2007

0.57

0.450.4 0.42

0.48

0

0.1

0.2

0.3

0.4

0.5

0.6

2011 2010 2009 2008 2007

DEBT RATE/RATIO :


Total Assets


EBIT*

Interest charges

0.01 0.01 0.01 0.01 0.01

0

0.002

0.004

0.006

0.008

0.01

0.012

2011 2010 2009 2008 2007

89.36%89.67%

89.49%

92.04%

91.23%

88.00%

88.50%

89.00%

89.50%

90.00%

90.50%

91.00%

91.50%

92.00%

92.50%

2011 2010 2009 2008 2007


EBIT x 100

Total Asset



Common equity

0.74

0.79

0.81 0.81

0.8

0.7

0.72

0.74

0.76

0.78

0.8

0.82

2011 2010 2009 2008 2007

2.74% 2.73%

2.95%

2.86%

2.65%

2.50%

2.55%

2.60%

2.65%

2.70%

2.75%

2.80%

2.85%

2.90%

2.95%

3.00%

2011 2010 2009 2008 2007

EARNING PER SHARE:


No. Of shares



Earning per share

19.23%

16.67% 16.30%17.92%

23.98%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2011 2010 2009 2008 2007

11.98

9 8.53 8.35

11.41

0

2

4

6

8

10

12

14

2011 2010 2009 2008 2007



Shares outstanding

MARKET BOOK RATIO:



4.47

7.3 6.92

4.2

20.85

0

5

10

15

20

25

2011 2010 2009 2008 2007

6.23

5.4 5.234.66 4.76

0

1

2

3

4

5

6

7

2011 2010 2009 2008 2007

7) RATIO ANALYSIS OF MEEZAN BANK

CURRENT RATIO:

Current Assets

Current Liabilites

8.5912.17 11.28

7.5

50

0

10

20

30

40

50

60

2011 2010 2009 2008 2007

0.95

0.910.92

0.82

0.88

0.75

0.8

0.85

0.9

0.95

1

2011 2010 2009 2008 2007

QUICK RATIO:


Current Liabilities



Net Fixed Asset



Total Assets

4.164.78

5.36

7.58

8.59

0

1

2

3

4

5

6

7

8

9

10

2011 2010 2009 2008 2007

0.04

0.02

0.05

0.03

0.07

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

2011 2010 2009 2008 2007

DEBT RATE/RATIO :


Total Assets


EBIT x 100

Total Asset

0.005

0.003

0.0080.007

0.014

0

0.002

0.004

0.006

0.008

0.01

0.012

0.014

0.016

2011 2010 2009 2008 2007

92.65%

92.18%

92.60%

92.99%

91.51%

90.50%

91.00%

91.50%

92.00%

92.50%

93.00%

93.50%

2011 2010 2009 2008 2007



Common equity

EARNING PER SHARE:


No. Of shares

2.04%

1.54%1.40%

1.16%

1.89%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

2011 2010 2009 2008 2007

27.13%

4.63%

11.28%9.80%

16.84%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2011 2010 2009 2008 2007



Earning per share



Shares outstanding

1.34

0.78

1.54

1.26

2.55

0

0.5

1

1.5

2

2.5

3

2011 2010 2009 2008 2007

12.97

21.67

10.22

17.05

15.12

0

5

10

15

20

25

2011 2010 2009 2008 2007

MARKET BOOK RATIO:



0.49

1.68

1.371.29

1.51

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2011 2010 2009 2008 2007

35.47

10.0611.49

16.65

25.23

0

5

10

15

20

25

30

35

40

2011 2010 2009 2008 2007

8) RATIO ANALYSIS OF BANK ISLAMI

CURRENT RATIO:

Current Assets

Current Liabilites

QUICK RATIO:


Current Liabilities

0.93 0.93

0.92

0.96

0.97

0.89

0.9

0.91

0.92

0.93

0.94

0.95

0.96

0.97

0.98

2011 2010 2009 2008 2007



Net Fixed Asset



Total Assets

0.93 0.93

0.92

0.96

0.97

0.89

0.9

0.91

0.92

0.93

0.94

0.95

0.96

0.97

0.98

2011 2010 2009 2008 2007

0.044

0.006

-0.065

-0.009 -0.009

-0.08

-0.06

-0.04

-0.02

0

0.02

0.04

0.06

2011 2010 2009 2008 2007

DEBT RATE/RATIO :


Total Assets


EBIT x 100

Total Asset

0.007

0.001

-0.014

-0.003 -0.003

-0.02

-0.015

-0.01

-0.005

0

0.005

0.01

2011 2010 2009 2008 2007

90.97% 89.42% 86.17%

72.80% 73.39%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

2011 2010 2009 2008 2007



Common equity

EARNING PER SHARE:


No. Of shares

1.03%

0.10%

-1.64%

-1.20%

-0.70%

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2011 2010 2009 2008 2007

7.96%

0.98%

-10.18%

-1.02% -1.17%

-12.00%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

2011 2010 2009 2008 2007



Earning per share



Shares outstanding

0.78

0.09

-0.9

-0.1 -0.12

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

2011 2010 2009 2008 2007

3.97

40.33

-8.05

-72.5

-135-160

-140

-120

-100

-80

-60

-40

-20

0

20

40

60

2011 2010 2009 2008 2007

MARKET BOOK RATIO:



0.97

0.9 0.9

0.980.99

0.84

0.86

0.88

0.9

0.92

0.94

0.96

0.98

1

2011 2010 2009 2008 2007

3.24.03

8.067.4

16.36

0

2

4

6

8

10

12

14

16

18

2011 2010 2009 2008 2007

Ratio Analysis Of Banking Reports(HBL,UBL,MCB etc)

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Transcript of Ratio Analysis Of Banking Reports(HBL,UBL,MCB etc)