An Assignment on Financial Modeling

SUBMITTED TO:
Nusrat Khan
Assistant Professor
Department of Finance
University of Dhaka

SUBMITTED BY:
Asif Abdullah
ID No. 18-070
Sec: B
Department of Finance
University of Dhaka

SUBMISSION DATE: 4TH OCTOBER, 2015

CHAPTER 1: FINANCIAL STATEMENTS

INCOME STATEMENT
Income statement is demonstrated by following graphs and charts which will be
discussed and interpreted later. This graphs and charts will show the income and
expenditure structure of Prime Finance and Investment Ltd.

An inverse relationship between interest expense and interest income has been
observed here. The operating expense however is not related with interest expense
or interest income is almost stable over last three years.

Net profit after tax

Whatever the interest income related to interest expense and operating expense,

net profit is always increasing over last three years which indicated good profitable
position of the company.

INTERPRETETION
After analyzing the overall income statement of the company it was found that
there were some unusual items those were not regular in nature but were very high
in number which cause the overall net income to rise from year to year. This regular
increase of the net income is an indication of the efficiency of the management who
can cover up the fluctuation of regular interst income by unusual items. The net
interest income was rising which means the company was able to maintain a stable
interest charge maintaining all its costs.

BALANCE SHEET
In a balance sheet, assets, liabilities and equity portion are analyzed. Here, the
average of the items of balance sheet for last three years are shown in graphical pie
chart to explain the financial situation of the company

Total assets

The assets structure of the firm was upward sloping.

Total liabilities

The liabilities structure of the firm was upward sloping.

Total shareholders' equity

The equity structure of the firm was upward sloping.

INTERPRETETION
The overall asset, liability and the equity portion of the firm shows an unstable
condition of the financial structure of the firm. The firm borrowed fund during the
political clash in 2011 and 2013. But the firm was able to meet all its liability with
the existing asset level over the horizon which was a good sign for it.

CHAPTER 2: COMMON SIZE

COMMON SIZE OF INCOME STATEMENT

Total operating expenses

5%
10%
0%
1%
5%
4%
2%
1%
10%

63%

Salaries and other employee benefits

Rent, taxes, insurance, electricity etc.

Legal expenses

Postage, stamp, telecommunication etc.

Stationery, printing, advertisements etc.

Managing director's salary and fees

Directors' fees

Auditors' fees

Depreciation and repair of assets

Other expenses

The common sizing of the operating expenses shows that the salary and allowances
were the major factor for the operating expenses. The geometric average of the
commission fee seems stable here but the amount was very unstable over the
calculation horizon.

. COMMON SIZE OF BALANCE SHEET

PROPERTY AND ASSETS

1%4%

8%

87%

Total Cash
Total balance with other banks and financial institutions
Total Investments
Total loans, advances and leases

From the chart, it can be explained that the biggest portion of companys total
assets is loans, advances and leases as it is the core object of the business. The
remaining part is allocated to the rest of the assets like cash, investments, balance
with other bank etc.

Liabilities
20%

25%

55%

Borrowings from other banks, financial institutions and agents

Total deposits and other accounts
Other liabilities

More than half of the liabilities are deposits and other accounts and the rest of the
liabilities are divided to borrowings and other liabilities.

Capital/ shareholders' equity

15%

4%
49%

15%
17%

Paid up capital

Statutory reserve

Non-controlling interest

Revaluation reserve

Retained earnings

Almost half the equity portion is paid up capital and a significant portion is divided
into staturoy reserve and retained earnings.

CHAPTER 3: RATIO ANALYSIS

SHORT TERM SOLVENCY RATIO

Short Term Solvency Ratio

Current Ratio
Quick Ratio
Cash Ratio
NWC to TA

In the short term solvency ratio analysis the average results show a good position of
the firm in the business. The average current and quick ratio was satisfactory for
the firm. The net working capital was satisfactory in regard to the total asset. The
defensive interval ratio shows a insignificant result. It measured the ability of the
company to run without accessing into the non-current assets.

LONG TERM SOLVENCY RATIO

Long Term Solvency Ratio

Debt Equity
Equity Multiplier
Times Interest Earned
Liquidity Coverage Ratio

The average long term solvency ratio also shows a better position of the firm. The
debt equity ratio and the equity multiplier show a better position of the firm in the
business. The times interest earned ratio shows a better picture as the company

was able to manage the interest income and expenses in a efficient way.

ASSET MANAGEMENT RATIO

Asset Management Ratio

0.66
0.53

0.51

NWC Turnover
Fixed Asset Turnover
Total Asset Turnover

0.19
0.10

0.16

0.16

0.08

0.09

The asset management ratio shows the company manages the asset base in a very
efficient way so that the assets were always available for the firm to meet its
liability any time needed.

DUPONT

Dupont
0.29
0.26
Profit Margin
ROA

0.19

ROE

0.06
0.02

0.07
0.02

0.09
0.03

The five factor DuPont analysis was done in this scenario and the results were as
same as the previously calculated ROE. The factors show a deeper look into the
formation of the ROE.

MARKET VALUE RATIO

Market Value Ratio

The different market value ratio shows a better market value for the firm. The P/E
and the P/B ratio show that the price of the shares was very high in the market
which may fall in future. The Tobin's Q ratio also shows the market value was very
near to the asset base of the company.

CHAPTER 4: PRO FORMA INCOME STATEMENT

AND BALANCE SHEET

CHAPTER 5: EFN

EFN

INTERPRETETION
Here, EFN will be negative which can be used to pay dividends or buying long term
assets.

CHAPTER 6: BREAK EVEN POINT

Break Even Point

1,730,634,564
1,710,146,817
1,689,901,610
1,669,896,072
1,650,127,365

DOL

The degree of operating leverage was fluctuating over the next 5 years. This shows
a fluctuating situation of the fixed expenses of the company.

CHAPTER 7: SCENARIO ANALYSIS