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Fall 2014
RATIO ANALYSIS
Ratio analysis is the calculation and comparison of ratios which are derived from the information
in a company's financial statements. Ratio points out the operating efficiency of the firm i.e.
whether the management has utilized the firms assets correctly, to increase the investors
wealth. It ensures a fair return to its owners and secures optimum utilization of firms assets.
Following types of ratios will be used to analyze Bank AL Habib:
a) Liquidity Ratios
b) Leverage Ratios
c) Profitability Ratios
d) Activity Ratios
e) Market Ratios
f) Statements of Cash Flow
a) Liquidity Ratios
Liquidity ratios measure a firms ability to meet its current obligations. These include:
Current Ratio:
Current Ratio = Current Assets / Current Liabilities
This ratio indicates the extent to which current liabilities are covered by those assets expected to
be converted to cash in the near future. Current assets include cash, marketable securities,
accounts receivables, and inventories. Current liabilities consist of accounts payable, short-term
notes payable, current maturities of long-term debt, accrued taxes, and other accrued expenses.
Current Assets
Current Liabilities
Current Ratio
2013
340,214,195
325,214,195
1.04
2012
328,657,723
312,879,246
1.05
2011
233,761,330
223,421,314
1.04
Current Ratio
1.052
1.05
1.048
1.046
Axis Title
1.044
1.042
1.04
1.038
1.036
1.034
Current Ratio
2013
2012
2011
1.04
1.05
1.04
The current ratio is maintaining a stable outlook for the bank and is above the satisfaction level
of 1:1. The ratio suggests that the bank is monitoring the ratio and so it is being kept constant
with increase in number of assets and liabilities. This means that the bank is able to pay off its
liabilities easily at any point in time.
Sales
2013
41,163,717
2012
44,414,947
2011
39,223,613
Working Capital
Sales To WC
15,000,000
2.74
15,778,477
2.81
10,340,016
3.79
Sales To WC
4
3.5
3
Axis Title
2.5
2
1.5
1
0.5
0
Sales To WC
2013
2012
2011
2.74
2.81
3.79
Sales of the bank (interest + non-interest income) declined by 3 billion mainly because of
low current account deposits as compared to saving and fixed deposits hence working capital
has decreased slightly but is stable.
Working Capital:
Working Capital = Current Assets Current Liabilities
A measure of a company's efficiency and its short-term financial health.
Current Assets
Current Liabilities
Working Capital
2013
340,214,195
325,214,195
15,000,000
2012
328,657,723
312,879,246
15,778,477
2011
233,761,330
223,421,314
10,340,016
Working Capital
18,000,000
16,000,000
14,000,000
Axis Title
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
Working Capital
2013
2012
2011
15,000,000
15,778,477
10,340,016
The Working capital has decreased slightly which reflects deposits have increased with a higher
ratio than that of advances and investments.
Advances to
Deposit Ratio
2013
0.43
2012
0.43
2011
0.38
Axis Title
0.41
0.4
0.39
0.38
0.37
0.36
0.35
Advances to Deposit Ratio
2013
2012
2011
0.43
0.43
0.38
The stable outlook of advances to deposits portrays the interest of the key management in
maintaining a constant ratio. Bank Al Habib has had a constant ratio which corresponds
well with the policy of prudent banking and extensive credit risk analysis.
Investment to
Deposit Ratio
2013
0.62
2012
0.73
2011
0.74
Axis Title
0.68
0.66
0.64
0.62
0.6
0.58
0.56
Investment to Deposit Ratio
2013
2012
2011
0.62
0.73
0.74
The ratio has declined over the year which is reflected in the decline of bank borrowing.
Investments usually are of a longer time period hence bank has focused on early yields and given
advances to customers so the advances ratio has been kept at a constant rate.
b) Leverage Ratios:
By using a combination of assets, debt, equity, and interest payments, leverage ratios are used to
understand a company's ability to meet it long term financial obligations.
The interest coverage ratio tells us how easily a company is able to pay interest expenses
associated to the debt they currently have. The ratio is designed to understand the amount of
interest due as a function of companys earnings
Interest
coverage ratio
2013
1.73
2012
1.99
2011
1.92
The ratio has declined as compared to last year mainly because of reduction in EBIT for the
bank. The main reason of a lower profit is associated with the increased rate on Saving deposits
and SBPs requirement of paying profit on savings accounts on average monthly balance which
was previously lowest monthly balance.
Debt Ratio:
Debt Ratio = Total Debt / Total Assets
The ratio of total debt to total assets, generally called the debt ratio, measures the percentage of
funds provided by the creditors.
Debt ratio
2013
0.94
2012
0.94
2011
0.95
Debt to Equity
Ratio
2013
17.2
2012
18.0
2011
18.4
Axis Title
17.8
17.6
17.4
17.2
17
16.8
16.6
Debt to Equity Ratio
2013
2012
2011
17.2
18
18.4
Banks usually have a higher debt to equity ratio has debt mainly consists of Deposits which
holds a major chunk of liabilities side.
C.A.R
2013
14.3%
2012
15.96%
2011
16.69%
A capital adequacy ratio of 14.3 percent means that a banks capital is 14.3 percent of the
size of its credit exposures in 2013. Similarly 15.96 % and 16.69% of the capital is for its
credit exposure in 2012 and 2011 respectively.
c) Profitability Ratios:
Profitability is the net result of a number of policies and decisions. This section discusses the
different measures of corporate profitability and financial performance. These ratios, much like
the operational performance ratios, give users a good understanding of how well the company
utilized its resources in generating profit and shareholder value. The long-term profitability of a
company is vital for both the survivability of the company as well as the benefit received by
shareholders.
2013
12.5%
2012
12.3%
2011
11.6%
Axis Title
12.00%
11.80%
11.60%
11.40%
11.20%
11.00%
Net Profit Margin
2013
2012
2011
12.50%
12.30%
11.60%
NPM has shown an increasing trend which portrays that banks have been increasing their sales
which comes in the shape of interest and non-interest income while they have also reduced the
cost which is in shape of profit paid on saving accounts.
2013
18.24%
2012
19.9%
2011
18.25%
Operating margin has decreased mainly due to increase in administrative expenses of the bank.
The bank is eyeing expansion in its branch network and opened 30+ Branches in 2013 which is
highlighted in the increasing admin and salary expenses.
20.00%
Axis Title
19.50%
19.00%
18.50%
18.00%
17.50%
17.00%
Net Op. Margin
2013
2012
2011
18.24%
19.90%
18.25%
Return on Assets:
Return on Assets (ROA) = Profit after Taxation / Average Total assets x 100
ROA, A measure of a company's profitability, equal to a fiscal year's earnings divided by its total
assets, expressed as a percentage.
ROA
2013
1.19%
2012
1.37%
2011
1.29%
According to above calculations 1.19 number of paisa earned on each rupee of assets in
2013. We can say net profit of bank is 1.19% of its average of total assets in 2013.
Similarly net profit is 1.37% and 1.29% of its average of total assets in 2012 and 2011
respectively.
2013
20.3%
ROE
2012
23%
2011
22.96%
ROE
23.50%
23.00%
22.50%
22.00%
Axis Title
21.50%
21.00%
20.50%
20.00%
19.50%
19.00%
18.50%
ROE
2013
2012
2011
20.30%
23%
22.96%
According to above calculations 20.3 number of paisa earned on each rupee of stock
holders equity in 2013. We can say net profit of bank is 20.3 % of its average of stock
holders equity in 2013.
d) Activity Ratios:
Activity ratio are sometimes are called efficiency ratios. Activity ratios are concerned with how
efficiency the assets of the firm are managed. These ratios express relationship between level of
sales and the investment in various assets inventories, receivables, fixed assets etc.
Total Sales
Total Assets
Total Asset
Turnover
2013
41,162,000
460,726,918
0.089
2012
44,414,000
453,105,539
0.098
2011
39,222,000
384,282,461
0.102
e) Market Ratio:
Market Value Ratios relate an observable market value, the stock price, to book values obtained
from the firm's financial statements.
DPS
2013
2.95
2012
2.14
2011
1.42
DPS
3.5
Axis Title
2.5
1.5
0.5
0
DPS
2013
2012
2011
2.95
2.14
1.42
The bank has been rolling out an increased rate of dividends over the years which reflect that the
bank paying out a hefty amount to shareholders and retaining less.
EPS
2013
5.1
2012
5.4
2011
4.5
EPS has mainly declined due to decrease in profit after taxation for the bank as compared to
previous year.
EPS
6
Axis Title
0
EPS
2013
2012
2011
5.1
5.4
4.5
Price / Earning
Ratio
2013
9.04
2012
8.8
2011
7.9
The increasing trend of P/E ratio instills confidence of the customers to invest in BAHLs shares.
2013
0.57
Dividend Payout
Ratio
2012
0.39
2011
0.315
0.5
Axis Title
0.4
0.3
0.2
0.1
0
Dividend Payout Ratio
2013
2012
2011
0.57
0.39
0.315
The dividend payout ratio has increased significantly despite lower earnings in 2013 which
reflects that the management is committed to give back to the shareholders a hefty percentage of
what the bank has earned.
Dividend Yield:
Dividend Yield = Dividend per Share / Share Price
Financial ratio that shows how much a company pays out in dividends each year relative to its
share price. In the absence of any capital gains, the dividend yield is the return on investment for
a stock.
Dividend Yield
2013
4.26%
2012
3.8%
2011
3.4%
2013
25.03
2012
23.5
2011
19.5
P/B RATIO
2013
1.59
2012
1.38
2011
1.19
The P/B ratio is showing an increasing trend which is a sign of good stock market growth and
price appreciation. Hence we can say that the stock is over valued.
Operating Cash
Flow to Total Debt
2013
0.017
2012
0.086
2011
0.24
The operating cash flow has decreased over the years mainly because of borrowing with other
banks which has decreased significantly over the years and the bank is funding liabilities from its
own cash.