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 Tre nd 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 Pe rcentage: 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 a nd 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. Curre nt Assets Curre nt 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. Curre nt Assets-Inventories Curre nt 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 Afte r 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* Inte rest 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 Afte r 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 stocks 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: Curre nt Assets Curre nt Liabilites
1.11 1.10 1.10 1.09
1.10
1.09
1.09
1.09
1.09 1.08 1.08
1.08 1.07 2011 2010 2009 2008 2007
QUICK RATIO: Current Assets-Inventories Curre nt Liabilities
1.11 1.10
1.10
1.10 1.09 1.09 1.09 1.08 1.08 1.09 1.09
1.08
1.07 2011 2010 2009 2008 2007
FIXED ASSET TURNOVER RATIO: Net Income/ Profit after tax Net Fixed Asset
1.4 1.2 1 1.16 1.05 0.79
0.8 0.6
0.4 0.2 0 2011 2010
0.73
0.73
2009
2008
2007
TOTAL ASSET TURNOVER RATIO: Net Income/ Profit Afte r Tax Total Assets
0.012 0.01
0.01 0.008 0.006 0.004
0.01
0.01
0.01
0.01
0.002
0
2011
2010
2009
2008
2007
DEBT RATE/RATIO : Debt Ratio = Total Liabilities x 100 Total Assets
91.50%
91.05%
91.00%
90.86%
90.38% 90.23% 89.59%
90.50% 90.00%
89.50% 89.00%
88.50%
2011 2010 2009 2008 2007
TIMES INTEREST EARNED RATIO: EBIT* Interest charges
1.2
1 0.8 0.6 0.4
1.14
1.07
1 0.91 0.83
0.2
0
2011
2010
2009
2008
2007
BASIC EARNING POWER (BEP) : EBIT x 100 Total Asset
3.50%
3.01%
3.00% 2.50% 2.00%
2.92% 2.47%
2.93%
2.18%
1.50%
1.00%
0.50%
0.00% 2011 2010 2009 2008 2007
RETURN ON COMMON EQUITY : Net income/Profit after tax x 100 Common equity
25.00% 20.00% 15.00% 10.00% 5.00% 0.00%
22.30% 19.61%
17.83%
17.19%
18.31%
2011
2010
2009
2008
2007
EARNING PER SHARE: Net Income/Profit Afte r Tax No. Of shares
25
20.26 20 15
10 5 17
14.71
14.31
14.61
0 2011 2010 2009 2008 2007
PRICE/EARNING RATIO: Market Price per share Earning per share
18 16
14 12 10 8.39
16.29
8 6
4 2 0 2011 5.28
7.02
5.03
2010
2009
2008
2007
BOOK VALUE PER SHARE: Book Value per share = common equity Shares outstanding
9.2
9
9.08
8.8
8.6 8.4 8.2 8
8.66
8.32 7.98
8.24
7.8
7.6
7.4 2011 2010 2009 2008 2007
MARKET BOOK RATIO: Market value per share Book value per share
35 30 25 29.82
20
15 11.8 13.8 14.98
10
5
8.67
0
2011 2010 2009 2008 2007
4) RATIO ANALYSIS OF MUSLIM COMMERCIAL BANK
CURRENT RATIO: Current Assets Curre nt Liabilites
1.112 1.11 1.108 1.106 1.104 1.102 1.1
1.11
1.11
1.11
1.11
1.1
1.098 1.096 1.094

2011 2010 2009 2008 2007
QUICK RATIO:
Current Assets-Inventories Current Liabilities
1.112
1.11
1.11
1.11
1.11
1.11
1.108
1.106
1.104 1.102 1.1
1.1
1.098 1.096 1.094 2011 2010 2009 2008 2007
1.2
1.02 1
0.8 0.6 0.4 0.2
0.88
0.81
0.86
0.89
0
2011 2010 2009 2008 2007
0.035 0.03 0.025 0.02 0.015 0.01 0.005 0 2011 2010 2009 2008 2007
87.00% 86.82% 86.80% 86.60% 86.40% 86.40% 86.30%
86.20% 86.02% 86.00%

85.80% 85.60% 2011 2010 2009 2008
86.06%
2007
TIMES INTEREST EARNED RATIO:
EBIT* Interest charges
3.5 3 2.5 2
1.5
1 0.5
0 2011 2010 2009 2008 2007
5.60%
5.46%
5.40%
5.20% 5.00% 4.93%
4.82%
4.62% 4.55%
4.80%
4.60% 4.40%
4.20%
4.00%
2011
2010
2009
2008
2007
40.00% 35.00% 34.73% 29.43%
30.00%
25.00% 20.00%
24.61%
24.39%
25.37%
15.00%
10.00% 5.00%
0.00%
2011 2010 2009 2008 2007
27 26.17 26
25 24 23 22 23.22 24.47
22.2
22.42
21 20 2011 2010 2009 2008 2007
18
16
15.32
14
12 10
10.3
9.8
8
6 4 2 0
5.8
5.16
2011
2010
2009
2008
2007
10
9 8 7
9.44
9.1 8.03 7.56 7.53
6
5 4
3
2 1 0 2011 2010 2009 2008 2007
60 50
53.11
40
30 20 14.26 25.11
27.36
16.64
10
0 2011 2010 2009 2008 2007
5) RATIO ANALYSIS OF ALLIED BANK LIMITED
1.065 1.06 1.055 1.05 1.045 1.04 1.035 1.03 1.025 1.02 1.015
1.06
1.06
1.06
1.04 1.03
2011
2010
2009
2008
2007
1.065 1.06 1.055 1.05 1.045 1.04 1.035 1.03 1.025 1.02 1.015
1.06
1.06
1.06
1.04
1.03
2011
2010
2009
2008
2007
0.6
0.5 0.4 0.3 0.2
0.56
0.57 0.53
0.54
0.36
0.1
0 2011 2010 2009 2008 2007
0.012 0.01
0.01 0.008
0.01
0.01
0.01
0.01
0.006
0.004 0.002
0 2011 2010 2009 2008 2007
94.50%
94.00% 93.50% 93.00% 92.50% 92.00% 92.84% 93.93% 93.78%
92.00%
91.50% 91.00% 90.50% 90.00%
91.60%
2011
2010
2009
2008
2007
1.2 1 0.8 0.6
1.07
1.04
1.08
0.92
0.68
0.4
0.2 0
2011
2010
2009
2008
2007
3.50% 3.00% 2.93%
2.74%
2.52%
1.86%
2.50%
2.00% 1.62%
1.50%
1.00%
0.50%
0.00% 2011 2010 2009 2008 2007
30.00%
25.00% 20.00%
26.95%
26.39%
27.54%
22.15% 19.73%
15.00%
10.00% 5.00%
0.00%
2011 2010 2009 2008 2007
14
12 10 8 6 4 2 0 7.57 11.79 10.52 10.02
6.33
2011
2010
2009
2008
2007
18
16
16.91
14
12 10 8 6 4.55 6.44 5.91
4.74
4
2
0
2011 2010 2009 2008 2007
5
4.5 4 4.37
3.98
3.64
3.5
3 2.5
3.21
3.42
2
1.5 1
0.5
0
2011
2010
2009
2008
2007
40 35
30 25 20 15 10 5
37.43
17.04 12.27
16.26
9.35
0 2011 2010 2009 2008 2007
6) RATIO ANALYSIS OF UNITD BANK LIMITED:
1.105 1.1 1.095 1.09 1.085 1.08 1.075 1.07 1.065 1.06 1.055
1.1 1.09 1.09
1.07
1.07
2011
2010
2009
2008
2007
1.105 1.1 1.095 1.09 1.085 1.08 1.075 1.07 1.065 1.06 1.055
1.1
1.09 1.09
1.07
1.07
2011
2010
2009
2008
2007
0.6
0.5
0.57
0.45 0.4 0.48 0.42
0.4
0.3
0.2
0.1
0
2011 2010 2009 2008 2007
0.012
0.01
0.01 0.008
0.01
0.01
0.01
0.01
0.006
0.004 0.002 0
2011
2010
2009
2008
2007
92.50% 92.00% 91.50%
92.04%
91.23%
91.00%
90.50% 90.00% 89.50% 89.36%
89.67%
89.49%
89.00%
88.50% 88.00% 2011 2010 2009 2008 2007
0.82
0.81 0.79
0.81 0.8
0.8
0.78 0.76 0.74
0.74
0.72
0.7
2011 2010 2009 2008 2007
3.00% 2.95% 2.90% 2.85% 2.80% 2.75% 2.70% 2.65% 2.60% 2.55% 2.50%
2.95% 2.86% 2.74%
2.73% 2.65%
2011
2010
2009
2008
2007
30.00%
25.00%
20.00% 15.00% 19.23%
23.98%
17.92%
16.67%
16.30%
10.00%
5.00% 0.00% 2011 2010 2009 2008 2007
14 12 10
11.98 9
11.41 8.53
8.35
8 6 4 2 0
2011 2010 2009 2008 2007
25
20.85
20 15 10 5 0 2011 2010 2009 2008 2007 4.47
7.3
6.92 4.2
7
6 5 4
6.23 5.4
5.23
4.66 4.76
3
2 1
0
2011 2010 2009 2008 2007
60 50 50
40
30
20
10 0 2011 2010 2009 2008 2007 8.59 12.17 11.28
7.5
7)
RATIO ANALYSIS OF MEEZAN BANK
1 0.95
0.95
0.91
0.9 0.85 0.8
0.92 0.88 0.82
0.75
2011 2010 2009 2008 2007
10 9 8 7 6 5 4 3 2 1 0
8.59 7.58 5.36
4.16
4.78
2011
2010
2009
2008
2007
0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 2011 2010 2009 2008
0.07
0.05 0.04 0.03 0.02
2007
0.016 0.014 0.012 0.01 0.008 0.006 0.004 0.002 0 2011 2010 2009 2008 0.005 0.003
0.014
0.008
0.007
2007
93.50% 93.00% 92.99% 92.65% 92.60%
92.50%
92.00%
92.18% 91.51%
91.50% 91.00%
90.50% 2011 2010 2009 2008 2007
2.50% 2.04% 2.00% 1.54% 1.89% 1.40% 1.16%
1.50%
1.00% 0.50%
0.00%
2011 2010 2009 2008 2007
30.00%
27.13%
25.00%
20.00% 15.00% 10.00% 5.00%
16.84% 11.28% 4.63% 9.80%
0.00%
2011 2010 2009 2008 2007
2.55
2.5
2
1.5 1 1.34 0.78 1.54 1.26
0.5
0
2011
2010
2009
2008
2007
25
21.67
20
15 10 5 0 2011 2010 2009
17.05
15.12 12.97
10.22
2008
2007
1.8 1.6 1.4
1.68
1.51 1.37 1.29
1.2
1 0.8
0.6
0.4 0.2 0
0.49
2011
2010
2009
2008
2007
40
35.47
35
30 25.23 16.65 10.06 11.49
25
20 15 10 5 0 2011 2010 2009 2008 2007
8) RATIO ANALYSIS OF BANK ISLAMI
0.98 0.97
0.96 0.95
0.97
0.96
0.94
0.93 0.92 0.91
0.93
0.93
0.92
0.9
0.89
2011
2010
2009
2008
2007
0.98
0.97 0.96 0.95
0.97
0.96
0.94
0.93 0.92 0.91
0.93
0.93
0.92
0.9
0.89
2011
2010
2009
2008
2007
0.06
0.044
0.04 0.02 0 2011 -0.02 2010 2009 2008 -0.009 2007 -0.009
0.006
-0.04 -0.06 -0.08

-0.065
0.01 0.005
0.007
0.001 0
2011 2010 2009 2008 -0.003 2007 -0.003
-0.005 -0.01
-0.015 -0.02
-0.014
100.00%
90.97%
90.00%
80.00% 70.00% 60.00%
89.42%
86.17%
72.80% 73.39%
50.00% 40.00%
30.00% 20.00% 10.00%
0.00%
2011 2010 2009 2008 2007
1.50%
1.03% 1.00%
0.50% 0.10%
0.00% 2011 2010 2009 2008 2007 -0.70% -1.20%
-0.50%
-1.00%
-1.50%
-2.00%
-1.64%
10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% -6.00%

-8.00% -10.00% -12.00%
7.96%
0.98% 2011 2010 2009 2008 -1.02% 2007 -1.17%
-10.18%
1
0.8 0.6 0.4 0.2 0
0.78
0.09 2011 2010 2009 2008 -0.1 2007 -0.12
-0.2 -0.4
-0.6 -0.8 -1
-0.9
60 40 20 0 -20 -40 -60 -80 -100 -120 -140 -160
40.33
3.97 2011 2010 2009 -8.05 2008 2007
-72.5
-135
1
0.98 0.96 0.94 0.92 0.9 0.9 0.97
0.99 0.98
0.9 0.88
0.86 0.84 2011 2010 2009 2008 2007
18 16 14 12
16.36
10 8 6 4
2 0 2011 2010 3.2 4.03
8.06
7.4
2009
2008
2007

Ratio Analysis of Banking Reports (HBL, UBL, MCB Etc)

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CORPORATE FINANCE

ANALYSIS OF FINANCIAL STATEMENTS

ANALYSIS OF FINANCIAL STATEMENTS

TOOLS OF FINANCIAL STATEMENT ANALYSIS:

1) Horizontal and Vertical Analysis:

Net Income/ Profit Afte r Tax Total Assets DEBT RATE/RATIO :

EARNING PER SHARE:

MARKET BOOK RATIO:

3) RATIO ANALYSIS OF HABIB BANK LIMITED:

CURRENT RATIO: Curre nt Assets Curre nt Liabilites

1.11 1.10 1.10 1.09

1.08 1.07 2011 2010 2009 2008 2007

QUICK RATIO: Current Assets-Inventories Curre nt Liabilities

1.4 1.2 1 1.16 1.05 0.79

DEBT RATE/RATIO : Debt Ratio = Total Liabilities x 100 Total Assets

TIMES INTEREST EARNED RATIO: EBIT* Interest charges

BASIC EARNING POWER (BEP) : EBIT x 100 Total Asset

25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

EARNING PER SHARE: Net Income/Profit Afte r Tax No. Of shares

0 2011 2010 2009 2008 2007

PRICE/EARNING RATIO: Market Price per share Earning per share

7.4 2011 2010 2009 2008 2007

4) RATIO ANALYSIS OF MUSLIM COMMERCIAL BANK

CURRENT RATIO: Current Assets Curre nt Liabilites

1.112 1.11 1.108 1.106 1.104 1.102 1.1

1.098 1.096 1.094

Current Assets-Inventories Current Liabilities

DEBT RATE/RATIO : Debt Ratio = Total Liabilities x 100 Total Assets

87.00% 86.82% 86.80% 86.60% 86.40% 86.40% 86.30%

86.20% 86.02% 86.00%

TIMES INTEREST EARNED RATIO:

EBIT* Interest charges

0 2011 2010 2009 2008 2007

BASIC EARNING POWER (BEP) : EBIT x 100 Total Asset

40.00% 35.00% 34.73% 29.43%

EARNING PER SHARE: Net Income/Profit Afte r Tax No. Of shares

21 20 2011 2010 2009 2008 2007

PRICE/EARNING RATIO: Market Price per share Earning per share

9.1 8.03 7.56 7.53

5) RATIO ANALYSIS OF ALLIED BANK LIMITED

CURRENT RATIO: Current Assets Curre nt Liabilites

QUICK RATIO: Current Assets-Inventories Curre nt Liabilities

0 2011 2010 2009 2008 2007

DEBT RATE/RATIO : Debt Ratio = Total Liabilities x 100 Total Assets

TIMES INTEREST EARNED RATIO: EBIT* Interest charges

1.2 1 0.8 0.6

BASIC EARNING POWER (BEP) : EBIT x 100 Total Asset

3.50% 3.00% 2.93%

EARNING PER SHARE: Net Income/Profit Afte r Tax No. Of shares

PRICE/EARNING RATIO: Market Price per share Earning per share

0 2011 2010 2009 2008 2007

6) RATIO ANALYSIS OF UNITD BANK LIMITED:

CURRENT RATIO: Current Assets Curre nt Liabilites

1.1 1.09 1.09

QUICK RATIO: Current Assets-Inventories Curre nt Liabilities

DEBT RATE/RATIO : Debt Ratio = Total Liabilities x 100 Total Assets

92.50% 92.00% 91.50%

TIMES INTEREST EARNED RATIO: EBIT* Interest charges

BASIC EARNING POWER (BEP) : EBIT x 100 Total Asset

2.95% 2.86% 2.74%

EARNING PER SHARE: Net Income/Profit Afte r Tax No. Of shares

PRICE/EARNING RATIO: Market Price per share Earning per share