A

PROJECT REPORT
ON

“PROSPECTUS PROCEDURE AND

FINANCIAL POSITION OF IDBI BANK”
SUBMITTED FOR THE PARTIAL FULFILLMENT OF THE
B.COM. (HONS.)

UNDER GUIDANCE
DR. UPENDRA KUMAR
M.Com., Ph.D
Head, Department of B.Com.(Hons)
Maharaja Agrasen Mahavidyalaya, Bareilly

SUBMITTED BY
PRABHAT SINGHAL
Dr. Upendra Kumar

1
 M.Com., Ph.D.
Head, Department of B. Com. (Hons.)
Maharaja Agrasen Mahavidyalaya, Bareilly

CERTIFICATE
This is to certify that Mr. / miss.
………………………………………………………………….
A regular student of Maharaja Agrasen Mahavidyalaya, Bareilly, B. Com. (Hons)
- IInd year roll no. ……………………………… has undertaken and completed
the project work on
………………………………………………………………………………….
……………………………………………………………………………………
……………………………………………............ as compulsory paper of B.Com.
(Hons) II examination 2010 under my supervision.
It is further certified that the whole project is based on individual efforts and
analysis is found upto the mark. I, therefore
recommended……………………..marks out of 100 marks and the project report
prepared by the candidate should be sent for evaluation.

Dr. Upendra Kumar

(Supervisor)

2
 PREFACE
“Six essential qualities that are the key to Success: sincerity, personal integrity, humility,

courtesy, wisdom, charity.”

“LIFE IS FULL OF SURPRISES... UNEXPECTED SOME BITTER SOME SWEET.

There are many Institutes in Bareilly but only students of Maharaja Agrasen

Mahavidyalaya, Bareilly are using internet & intranet so firstly we would thank our

teachers who are providing us this facility to reach that level from where we can see our

destination. This project is a part of that success.

As everyone knows that is not an easy subject but DR. UPENDRA KUMAR never

made us feel any difficulty in this particular subject.

3
 Acknowledgement

Nothing concrete can be achieved without an optimal combination inspiration and

perspiration. No work can be accompanied without taken the guidance of experts. It is

only critics from ingenious that help transform a product into a quality product.

For this, I am grateful to DR. UPENDRA KUMAR for his constant encouragement and

invaluable critical suggestions given during the review meetings. His timely advice and

help proved his commitment and welfare of his students and the institute as a whole.

Last but not the least, our sincere thanks to all the members who were a vital thrust to our

thoughts and needs throughout the functions assigned to group to get done and prove our

best. Finally thanks to others at Maharaja Agrasen Mahavidyalaya, Bareilly, who put

in numerous hours to make the intangible tangible

PRABHAT SINGHAL

4
 CONTENT
• Certificate

• Preface

• Acknowledgement

• Objective

• Introduction

• Company Profile

• Literature & Review

• Research Methodology

• Financial Statements

• Data Representation

• Conclusion

• Finding

• Limitation

• Bibliography

5
6
 OBJECTIVE OF THE PROJECT

The objective of this project is deeply analyze IDBI BANK and analyse it prospect

procedure and its financial position..

The main objectives of the Project study are:

• Detailed analysis of IDBI BANK and its financial position.

• To enhance my analytical power

• With the help of ratio analysis the company’s position.

• Application of various Technical Tools and Fundamental tools (like

Financial and Non-financial statements).

7
 INTRODUCTION

The Bank:

The birth of idbi bank took place after RBI issued guidelines for entry of new private

sector banks in January 93. Subsequently, IDBI as promoters sought permission to

establish a commercial bank and retained KPMG a management consultant of

international repute to prepare the groundwork for establishing a commercial bank. The

Reserve Bank of India conveyed it's in principle approval to establish idbi bank on

February 11th, 1994. Thereafter the bank was incorporated at Gwalior under Companies

Act on 15th of September 1994 (Registration No. 10-08624 of 1994) with its registered

office at Indore.

Introduction

Financial statements for banks present a different analytical problem than manufacturing

and service companies. As a result, analysis of a bank's financial statements requires a

distinct approach that recognizes a bank's somewhat unique risks.

Banks take deposits from savers, paying interest on some of these accounts. They pass

these funds on to borrowers, receiving interest on the loans. Their profits are derived

from the spread between the rate they pay for funds and the rate they receive from

borrowers. By managing this flow of funds, banks generate profits, acting as the

intermediary of interest paid and interest received and taking on the risks of offering

credit. As one of the most highly regulated banking industries in the world, investors

have some level of assurance in the soundness of the banking system. As a result,

investors can focus most of their efforts on how a bank will perform in different

8
economic environments. In this project, I am trying to provide assistance to the investors,

by showing them the performance of two banks underlying the same functions.

IDBI Bank Limited:

These financial statements have been prepared in accordance with approved accounting

standards as applicable in India. Approved accounting standards comprise of such

International Financial Reporting Standards issued by the International Accounting

Standards Board as are notified under the Companies Ordinance, 1984, provisions of and

directives issued under the Companies Ordinance, 1984 and Banking Companies

Ordinance, 1962 ). In case the requirements of provisions and directives issued under the

Companies Ordinance, 1984 and Banking Companies Ordinance, 1962 and the directives

issued by SBP differ, the provisions of and directives issued under the Companies

Ordinance, 1984 and Banking Companies Ordinance, 1962 and the directives issued by

SBP shall prevail.

Management Team - The Core Strength of The Bank:

Since August 2000 idbi bank has witnessed a transformation in the top management

structure with top talent from foreign banks and private banks coming together to create a

world-class management team. It is totally a customer-focused organization. Existing

talented people within the bank were re-aligned to a functionally driven product & sales

organizational structure. Also, to align employee interests with shareholder interest’s

founder Stock Options (ESOPs) in October 2000 covering 75 % of the existing

employees of idbi bank were distributed.

9
TECHNOLOGY AND TECH INITIATIVES:

Keeping in line with its policy of leveraging technology to drive its business, idbi bank

deployed Finacle, the e-age banking solution from Infosys to consolidate its position,

meet challenges and quickly seize new business opportunities. Entire Finacle rollout was

remarkable considering the fact that it was implemented across all branches in a record

time frame of 5 months. Finacle will provide the critical technology platform to propel

the bank's new thrust and direction.

Achievement of these significant milestones is consistent with idbi bank's continued

focus to create customer and shareholder value through deployment of superior

technology. Investments in technology is part of the plan to put in place building blocks

for creating the right organisational infrastructure which will help idbi bank in

consistently delivering superior products, convenient access channels and efficient

service to our retail and corporate customers.

STRATEGIC RETAIL INITIATIVES:

idbi bank in the previous calendar year initiated its formal foray into retail banking. idbi

bank's depository services product E-Sec is a major success story and the bank today is in

the top three league in India in this segment. A spate of retail products were introduced

such as home finance, loans against shares, educational loans, car loans, Sweep in

account, SMS mobile banking etc. on very competitive terms.

The bank has recently announced its strategic alliance with TATA AIG General

Insurance Company for selling General Insurance Products through select branches &

ATMs of idbi bank.

The bank announced a landmark strategic alliance to make available widely, both

10
organisation products through each other’s distribution channels. Now you can buy

coveted savings Products like the National Savings Certificates (NSC) and Kisan Vikas

Patra (KVP) on Internet. It recently had a tie up with Birla group in the name of Birla Sun

Life Insurance.

The new products, which are going to be announced shortly, are Credit Cards, Debit

Cards etc. idbi bank is continuously looking for ways to leverage its technical strengths

and bring to the retail customer convenience products at reasonable cost. It has started

converting its ATM card into ATM cum Debit card.

11
 COMPANY PROFILE
Company’s introduction:
PROFILE IDBI BANK:
Vision:

“Enabling people to advance with confidence and success”

Mission:

“To make our customer prosper, our staff excels and creates value for shareholders”

List of competitors:

• Standard Chartered Bank

• National Banks

• Allied Bank Limited

The tenth largest development bank in the world has promoted world-class institutions in

India. A few of such institutions built by IDBI are The National Stock Exchange (NSE),

The National Securities Depository Services Ltd. (NSDL), Stock Holding Corporation of

India SHCIL) etc. IDBI is a strategic investor in a plethora of institutions, which have

revolutionized the Indian Financial Markets. IDBI promoted idbi bank to mark the formal

foray of the IDBI group into commercial banking. This initiative has blossomed into a

major success story. idbi bank, which began with an equity capital base of Rs.1000

million (Rs.800 million contributed by IDBI and Rs.200 million by SIDBI), commenced

its first branch at Indore in November 1995. Thereafter in less than seven years the bank

has attained a front ranking position in the Indian Banking Industry.

12
 LITRATURE & REVIEW

DIRECTORS REPORT

The Board of Directors of your Bank has the pleasure of presenting it Report on the

business and operations of your Bank for the financia year ended 31st March 2009.

Strategic initiatives implemented during the year, benefited your Ban immensely,

reflecting improved performance in various key busines areas. Your Bank attained new

heights with total business o Rs.2,15,829 crore at end-March 2009, comprising Rs.

1,12,401 crore o deposits and Rs. 1,03,428 crore of advances. Total assets reached Rs

1,72,402 crore, registering a growth of 31.9% during the financia year. Performance

highlights of your Bank for the period under revie are presented in Table 1.

Profit and Appropriations

During the financial year April 2008-March 2009, gross income of you Bank amounted

to Rs.13,021.6 crore, contributed by interest income of Rs.11,631.7 crore and other

income of Rs.1,389.9 crore. Tota expenditure of your Bank, during the year, excluding

provisions and contingencies, stood at Rs.11,643.7 crore, consisting Rs.1 0,305.8 crore of

interest expenses and Rs.1,337.9 crore of operational expenses. With the provision of

Rs.373.3 crore towards bad & doubtful debts and investments, Rs.19 crore towards

incremental prudential provisions for standard assets, and Rs.127.1 crore towards tax,

total provisions during the period amounted to Rs.51 9.4 crore. Your Banks working

during the year resulted in a Profit Before Tax (PBT)of Rs.985.6 crore. Considering a

provision of Rs.127.1 crore towards taxation, Profit After Tax (PAT) amounted to

Rs.858.5 crore. Appropriation of PAT as approved by the Board of Directors is given in

13
For each share with face value of Rs.10, Earning Per Share (EPS) during the year stood

at Rs.11.9 and Book Value Per Share stood at Rs.102.3 as at end-March 2009. The

Proposed
Directors have the pleasure of recommending dividend at 25% on the fully paid-up

equity capital for the financial year 2008-09.

Capital Adequacy

Capital Adequacy Ratio (CAR) of your Bank is computed in adherence to norms

prescribed by RBI in order to become Basel-ll compliant. The Credit Risk follows the

Standardized Approach, Whereas Market Risk complies with Duration Method of

Standardized Approach and the Operational Risk conforms to Basic Indicator Approach.

Against the stipulated RBI norm of 9%, your Banks CAR as at end-March 2009 worked

out to 11.57%. The Tier-I CAR also was at a comfortable level of 6.81%.

Business Strategy
Your Bank has adopted a stratargy of developing a larger client base in the mid-

corporate, SME and retail sectors, while nurturing the deep relationships that already

exist in the large corporate sector.

The strategy aims to develop a more retail base in both assets and liabilities leading to a

more diversified balance sheet as well as improvement and sustainability in the Net

Interest Income. The strategy also focuses on leveraging the Banks experience in

project/infrastructure financing to become a larger player in investment banking, yielding

higher fee-based income. Your Bank has also adopted aggressive strategics for gaining

higher market share in transaction banking activities for boosting non-fund based income.

The customer-centric business model adopted by your bank would increasingly play a

supportive role towards effective implementation of business strategies.

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New Business Initialives

In line with gaining popularity of mobile phones and improvement in their security

features, the banking regulator allowed mobile based transaction. In order to reap the

benefits of the opportunities arising out of the mobile technology revolution your Bank

has launched Mobile Payment Solutions, which is a secure and convenient payment

option by use of mobile phones. The product includes payments for the purchase of

goods and services from mobile phone and fund transfers subject to prescribed limits.

Your Bank launched IDBI Sulabh Vyapar Loan that aims to provide hassle free finance

to Small Business Enterprises including Small Retail Traders. An individual or a firm

(partnership or proprietorship) engaged primarily in buying and selling mercantile goods

is eligible for this mode of finance. The scope of the product was further enlarged to

cover wider customer segment, such as travel, tourism, hotels, restaurant, health and

education, etc. Your Bank also floated a loan scheme in the SME domain for

Professional and Self Employed engaged in the business covered under service sector.

The Bank has obtained mandate for collecting sales tax in Maharashtra. With regard to

tax collection your Bank is one among the top banks in the country.

Your Bank has successfully implemented the Agriculture Debt Waiver and Debt Relief

Scheme (ADWDRS)-2008 announced by Central Government. During the financial year

2008-09, the Bank has opened a Currency Chest at Chennai taking the total number to

four. The fifth Currency Chest at Panchkula is expected to become operational by the end

of first quarter of current fiscal. The Bank has also obtained In-Principle approval

from the RBI for establishment of Currency Chests at Hyderabad Ahmedabad and Pune.

15
 In order to improve our performance in strategic lines a Performance Acceleration

Programme (PAP) Project Lakshya was implemented focusing renewed thrust on

boosting current account and fee-based income. The project has made significant

contribution and has imparted lot of dynamism in the operating domain. The project was

executed through boot camps in different centers and periodic reviews through tele-

conferencing. The Bank, during the course of the year, has implemented a series of

measures to ensure improved customer satisfaction and cultivated the motto of Customer

first. In this direction, the Bank has organized Customer Grievance Redressal Wleek

during November 17-22,2008 in all its branches. The unresolved issues were addressed at

Customer Care Centre (CCC) for appropriate action. In order to further strengthen our

relationship with customer, your Bank organized Crahak Sahayata Abhiyan (CSA) at

selected cities.

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Organisational Structure
Your Bank has effectively realigned its policy and procedure in order to derive optimum

benefits from its customer-focused vertical model implemented during the previous

financial year. Redeployment of work force was carried out on the basis of skill set

mapping and reorientation in the business model, reflecting priorities with regard to

remunerative lines of business. During the year, your Bank also implemented a new

Fund Transfer Pricing (FTP), based on the market linked bid and offer rates. The new

FTP system enables rational and transparent pricing decisions. It also forms a scientific

basis for evaluating the performance of products/ verticals.

During the period under review your Bank increased its branch network to 509

comprising 179 metropolitan branches, 175 urban branches, 100 semi urban branches and

55 rural branches.

Board of Directors
Banks Board of Directors is broad based and constitution thereof is governed by the

provisions of the Banking Regulation Act, 1949, the Companies Act, 1956, the Articles

of Association of the Bank and satisfies the requirements of corporate governance as

envisaged in the Listing Agreement with the Stock Exchanges. The Board functions

through itself as well as various Board Committees constituted to provide focussed

governance in important functional areas of the Bank. As on March 31, 2009, the Board

comprised of 11 Directors with 3 Executive Directors (including Chairman), 2 Non

Executive Directors and 6 Independent Directors. Shri Yogesh Agarwal, Chairman &

Managing Director as Executive Chairman, Shri O. V. Bundellu and Shri Jitender

Balakrishnan, Dy. Managing Directors as Wholetime Directors, Shri Arun Ramanathan

and Shri Ajay Shankar, Central Government officials as Non Executive Directors, Shri

17
Analjit Singh, Smt. Lila Firoz Poonawalla, Shri K. Narasimha Murthy, Shri H. L. Zutshi,

Shri A. Sakthivel and Shri Subhash Tuli as Independent

Directors constitute the Board.

No Director on the Board of your Bank is in any way related to any other Director on the

Board of the Bank.

Apex Committees

The Board has in total seven committees, namely, Executive Committee, Audit

Committee, Shareholders/ Investors Grievance Committee, Frauds Monitoring

Committee, Risk Management Committee, Customer Service Committee and Information

Technology Committee.

Corporate Governance
Your Bank is committed to adopting the best practices in the area of corporate

governance. Your Bank believes that proper corporate governance is not just a

requirement for regulatory compliance, but also a facilitator for enhancement of

shareholders value. The details of corporate governance practices followed in your Bank

are given in this Annual Report as a separate section under Management Discussion and

Analysis.Disclosure regarding Remuneration of Employees under Section 217(2A) of

the Companies Act, 1956 There were no personnel in the services of the Bank for the

whole year who were in receipt of remuneration of over Rs.24 lakh per annum. Further,

no personnel, who were in the service of the Bank for part of the year, received

remuneration in excess of Rs.2 lakh per month for the period they were in the service of

the Bank.

The provisions of Section 217(1 )(e) of the Act relating to conversion of energy and

technology absorption do not apply to your Bank.

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DirectorsResponsibility Statement

The Board of Directors hereby declares and confirms that:

(i) in the preparation of accounts, the applicable accounting standards had been followed

along with proper explanation relating to material departure.

(ii) the Directors had adapted such accounting policies and applied them consistently

and made judgments and estimates that are reasonable and prudent so as to give a true

and fair view of the state of affairs of your Bank at the end of the accounting year and of

the profit or loss of your Bank for that period.

(iii) the Directors had taken proper and sufficient care for the maintenance of adequate

accounting records, in accordance with the regulatory provisions, for safeguarding the

assets of your Bank and for preventing and detecting fraud and other irregularities.

(iv) the Directors had prepared the accounts on a going concern basis.

19
 AUDITOR’S REPORT
As regards emphasis and observations in the Auditors Report, attention is invited to note

No.16 of Notes to Accounts (Schedule 18), which is self explanatory.

Acknowledgements

The Board of Directors of your Bank expresses its sincere thanks to the Government of

India, Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and

the Insurance Regulatory and Development Authority (IRDA) for their valuable co-

operation and guidance. The Board also acknowledges the co-operation and support

rendered by the State Governments and other banking/ financial institutions. The Board

desires to thank various multilateral institutions and international banks/ institutions for

their periodic support. The Board takes this opportunity to thank all its shareholders and

customers for extending their support during the year and looks forward to their

continued association in the years ahead The Board appreciates sincere and devoted

services displayed by its entire staff and highly value their commitment in improving

your Banks performance

We have audited the attached Balance Sheet of the IDBI Bank Limited (the Bank) as at

March 31, 2009, as also the Profit and Loss Account and the Cash Flow Statement of the

Bank for the year ended on that date annexed thereto.These financial statements are the

responsibility of the Banks management. Our responsibility is to express an opinion on

these financial statements based on our audit. We conducted our audit in accordance with

the auditing standards generally accepted in India. Those standards require that we plan

and perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement. An audit includes examining, on a test basis

20
evidence supporting the amounts and disclosures in the financial statements. An audit

also includes assessing the accounting principles used and significant estimates made by

the management, as well as evaluating the overall financial statement presentation. We

believe that our audit provides a reasonable basis for our opinion. The Balance Sheet and

Profit and Loss Account have been drawn up in accordance with the provisions of

Section 29 of the Banking Regulation Act, 1949 read with Section 211 of the Companies

Act, 1956.

1. We have obtained all the information and explanations, which, to the best of our

knowledge and belief, were necessary for the purposes of our audit and have found them

to be satisfactory.

2. The transactions of the Bank which have come to our notice have been within the

powers of the Bank.

3. The returns received from the offices and branches of the Bank have been found

adequate for the purposes of our audit.

4. In our opinion, proper books of account as required by law have been kept by the

Bank so far as appears from our examination of those books and proper returns adequate

for the purpose of our audit have been received from offices and branched not visited by

us.

5. The Banks Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt

with by this report are in agreement with the books of account and the returns.

21
6. The provisions of Section 274(1 )(g) of the Companies Act, 1956 are not applicable

in terms of Notification No. G.S.R.829 (E) dated- October 21, 2003 issued by

Department of Company Affairs, Government of India

7. The Bank is restructuring an advance to a large public sector power project in

Maharashtra, where the Banks exposure is Rs.2599 Crore. The Government of India and

the Bank have sought special regulatory treatment from Reserve Bank of India (RBI) for

considering the asset as Standard and for exemption from provisioning requirements.

Pending receipt of such special regulatory treatment from RBI, the Bank has classified

the asset as Standard and not made provision, amount whereof has not been ascertained.

Refer Note No.16 of Schedule 18 - Notes forming part of the Accounts.

8. Subject to Paragraph 7 above, I. In our opinion, the Balance Sheet, Profit and Loss

Account and Cash Flow Statement dealt with by this report comply with the Accounting

Standards referred to in sub- section 3(C) of Section 211 of the Companies Act, 1956

read with guidelines issued by the Reserve Bank of India in so far as they apply to the

Bank. II. In our opinion and to the best of our information and according to the

explanations given to us, the said financial statements give the information required by

the Banking Regulation Act, 1949 as well as the Companies Act, 1956 in the manner so

required for banking companies and give a true and fair view in conformity with the

accounting principles generally accepted in India.

a) In the case of the Balance Sheet, of the state of affairs of the Bank as on March

31,2009

b) In the case of the Profit and Loss Account, the same shows a true balance of Profit for

the year ended March 31, 2009 covered by such accounts; and

22
c) In the case of the Cash Flow Statement, of the cash flows for the year ended March

31, 2009.

23
CHAIRMEN REPORT

It is with a sense of satisfaction that I present to you IDBI Banks Annual Report for the

financial year 2008-09. It is indeed heartening to note that in a year when the global

economic meltdown affected banks across the world, your Bank not only withstood the

storm, but showed a surge in overall business performance. Esteemed shareholders would

recall that at the last AGM your Bank had expressed confidence to achieve higher pace of

business growth. I am happy to share with you that in spite of difficult market conditions

your Bank could not only achieve considerable increase in the overall business, but more

importantly, there was significant improvement in the quality of business and earnings.

Your Bank spared no efforts to transform into a cross-functional, forward-looking and

proactive organization. Today, it is my pleasure to say that your Bank has indeed

completed the process of re-organisation into customer- focused business verticals and

stabilized the internal systems.

The financial year 2009-10 is an extremely crucial year for your Bank as it aspires to

decidedly emerge as one of the major players in the intensely competitive banking

domain both in terms of perception and performance.

In the coming year, the emphasis on growth in retail business would continue, without

compromising your Banks pre- eminent position in the corporate banking business. I am

confident that your Bank will achieve still higher growth and improve its market share,

besides enhancing the shareholder value.

The increasingly competitive market environment throws open both challenges and

opportunities. Your Bank, with deep understanding of the financial markets, will adopt

appropriate strategies to assess and mitigate key risks, cope with emerging challenges and

24
capitalise on the opportunities by participating effectively in the growth process of India.

In order to take advantage of global opportunities, your Bank will make foray into

international markets by setting up overseas branches and representative offices.

Considering the rapidly changing global environment together with increased emphasis

on the role of technology in banks operations, your Bank would continually provide

newer products and services required by customers. Accordingly, your Bank would

continuously reinvent and reposition itself through strategic choices and by imbibing and

adopting best global practices. As part of our endeavour to provide a bouquet of financial

products and services under IDBI brand, we would be setting up a Mutual Fund

Shortly.I must emphasise that in the coming year, your Bank would strive to achieve even

better business performance based on various strategic initiatives already underway

aimed at enhancing the stakeholders value. To us, you all are our partners in progress. We

look forward to your continued support in strengthening your Banks position in the

Indian banking firmament.

25
 RESEARCH METHODOLOGY

This section should provide solid or concrete foundations to the study. Quality and value of

the research report depends upon how precisely and accurately the data is collected,

processed, interpreted and analyzed so that fruitful conclusions may be drawn out of it. It

includes:

 Data Collection Sources:

To think about the issue of data collection means you are wondering about the

characteristics of the methods used. Each method has its own advantages and

inconveniences. With each technique you might also found a few people who will

disapprove its use for such or such reason.

At the beginning of a research (Project), it can be important to look for documentary

sources. It is what some will call: “the review of papers ". And here, I use the term

documentary sources in the widest meaning of this term. Indeed, the goal is not to find

only written sources. These documentary sources I use are:

• Sites on the internet,

• Articles from scientific publications,

• Documents on various format (audio, video or computer support),

• Advisers with a particular expertise

The purpose of the gathering of documentary sources is to have a better idea of what have

been said or written about my subject. It is not for the intellectual beauty of the matter

which I should do that. The search for documentary sources allowed me to put a more

adequate glance at the data you will later gather.

26
Also I use secondary sources for data collection for my work, that include internet and

then I use stock exchange for data gathering as the banks are listed in Lahore stock

exchange. So I got their annual reports from there.

 Data Collection Tools:

According to the topic I have selected for my project, the tool used for data collection is

direct observation of the financial statements of the banks.

 Company profile forms

 Company comparison forms

 Stock exchange

 Internet past articles

 Case Study

 Data Processing and Analysis:

We can use several tools to evaluate a company, but I will use one of the most valuable

tool that is “financial ratios“. Ratios are an analyst’s microscope; they allow us get a

better view of the firm’s financial health than just looking at the raw financial statements.

Ratios are useful both to internal and external analysts of the firm. For internal

purposes: ratios can be useful in planning for the future, setting goals, and evaluating the

performance of managers. External analysts use ratios to decide whether to grant credit,

to monitor financial performance, to forecast financial performance, and to decide

whether to invest in the company. I will use Microsoft Word and Microsoft Excel work

sheets to compute the different ratios and analysis.

27
 FINANCIAL STATEMENT
HORIZONTAL ANALYSIS
IDBI BANK
BALANCE SHEET
AS ON DEC 31 2007, 2008 & 2009

(Rupees in ‘000’)
Horizontal Analysis

2007 2008 2009

ASSETS 2007 2008 2009
Cash and balances
56533134 55487664 46310478 122.07 119.8 100
with treasury banks
Balances with
39307321 27020704 35965048 109.29 75.13 100
other banks
Lending to
financial 6193787 1628130 6550128 94.56 24.86 100
institutions
Investments 13814592 177942251 119587476 11.552 148.8 100

Advances 456355507 382172734 349432685 130.6 109.4 100

Other assets 35419252 27346111 17765291 199.37 153.9 100
Operating fixed
14751252 13780555 11954876 123.39 115.3 100
assets
Deferred tax asset 11222444 6613372 2725486 411.76 242.6 100
TOTAL ASSETS 757928389 691991521 590291468 128.4 117.2 100
LIABILITIES
Bills payable 9944257 15418230 5737457 173.32 268.7 100
Borrowings from
financial 46844890 58994609 56392270 83.07 104.6 100
institutions
Deposits and other
597090545 531298127 459140198 130.05 115.7 100
accounts
Sub-ordinate loans 3954925 3100000 0 0 0 0
Liabilities against
assets subject to

28
finance lease

Other liabilities 24913236 19943126 15578177 159.92 128 100

Deferred tax
------- ----------- ---------
liability
TOTAL
682747953 628754092 536848102 127.18 117.1 100
LIABILITIES
NET ASSETS 75180436 63237429 53443366 140.67 118.3 100
REPRESENTED BY

Shareholders Equity
Share capital 7590000 6900000 6900000 110 100 100
Reserves 24243254 19821455 17802584 136.18 111.3 100
Unappropriated
39447648 28341670 20 475,080 159.92 128 100
profit
Total equity
attributable to the
71280902 55063125 45177664 157.78 121.9 100
equity holders of
the Bank
Minority interest 890099 965642 913317 97.458 105.7 100
Surplus on
revaluation of 3009435 7208662 7352385 40.931 98.05 100
assets - net of tax
TOTAL EQUITY 75180436 63237429 53443366 140.67 118.3 100

HORIZONTAL ANALYSIS
IDBI BANK
CONSOLIDATED PROFIT & LOSS ACCOUNT
AS ON DEC 31 2007, 2008 & 2009
2007 2008 2009 Horizontal Analysis

29
 (Rupees in ‘000’) 2007 2008 2009
Mark-up / return /
63,305,033 50,481,021 43,685,740 144.91 115.6 100
interest earned
Mark-up / return /
26,525,556 19,153,957 13,204,037 200.89 145.1 100
interest expensed
Net mark-up /
36,779,477 31,327,064 30,481,703 120.66 102.8 100
interest income
Provision against
non-performing
6,904,919 8,238,227 2,863,207 241.16 287.7 100
loans and
advances - net
Charge / (reversal)
against off-
372,598 (54,626) (45,438) -820.01 120.2 100
balance sheet
obligations
Charge / (reversal)
of provision
against diminution 1,909,887 (84,310) (13,697) -13944 615.5 100
in the value of
investments
Bad debts written
---------- ---------- -------------
off directly
9,187,404 8,099,291 2,804,072
Net mark-up /
interest income 27,592,073 23,227,773 27,677,631 99.691 83.92 100
after provisions
Fee, commission
and brokerage 4,518,408 3,420,051 3,931,710 114.92 86.99 100
income
Income / gain on
2,369,233 2,472,663 1,219,623 194.26 202.7 100
investments
Income from
dealing in foreign 2,374,318 1,487,374 1,102,358 215.39 134.9 100
currencies
Gain on 4,000,330 ------- 0 0 0 0

30
investments in
associate
Other income 3,116,522 2,643,076 2,235,805 139.39 118.2 100
Total non-mark-up
16,378,811 10,023,164 8,489,496 192.93 118.1 100
/ interest income
43,970,884 33,250,937 36,167,127 121.58 91.94 100
Non mark-up /
interest expense
Administrative
21,348,016 18,297,279 15,425,461 138.39 118.6 100
expenses
Other provisions /
200,163 276,111 122,510 163.39 225.4 100
write offs - net
Other charges 64,751 85,152 54,898 117.95 155.1 100
Workers welfare
323,575
fund
Total non mark-up
21,936,505 18,106,32 15,602,869 140.59 0 100
/ interest expenses
Profit before
22,034,379 15,144,617 18,840,487 116.95 80.38 100
taxation
Taxation
- Current 8,661,15 7,220,717 7,144,846 0 101.1 100
- Prior years 233,100 1,668,562 (39,067) -596.67 -4271 100
- Deferred (2,473,891) (3,828,699) (965,607) 256.2 396.5 100
6,420,359 10,084,037 12,700,315 50.553 79.4 100
Profit after
15,614,020 10,084,037 12,700,315 122.94 79.4 100
taxation
Attributable to:
Equity holders of
15,535,011 10,000,231 12,630,259 123 79.18 100
the Bank
Minority interest 79,009 83,806 70,056 112.78 119.6 100
15,614,020 10,084,037 12,700,315 122.94 79.4 100
Basic and diluted
20.47 13.18 18.30 111.86 72.02 100
earnings per share

b) Vertical Analysis
It is a method of financial statement analysis in which each entry for each of the three
major categories of accounts (assets, liabilities and equities) in a balance sheet is

31
represented as a proportion of the total account. The main advantages of analyzing a
balance sheet in this manner are that the balance sheets of businesses of all sizes can
easily be compared. It also makes it easy to see relative annual changes in one business.
When using vertical analysis, the analyst calculates each item on a single financial
statement as a percentage of a total. The term vertical analysis applies because each year's
figures are listed vertically on a financial statement. The total used by the analyst on the
income statement is net sales revenue, while on the balance sheet it is total assets. This
approach to financial statement analysis, also known as component percentages, produces
common-size financial statements. Common-size balance sheets and income statements
can be more easily compared, whether across the years for a single company or across
different companies.

VERTICAL ANALYSIS
IDBI BANK
BALANCE SHEET
AS ON AS ON DEC 31 2007, 2008 & 2009

32
 (Rupees in ‘000’) Vertical Analysis

2007 2008 2009

ASSETS 2007 2008 2009
Cash and
balances with 56533134 55487664 46310478 7.4589 8.019 7.8454
treasury banks
Balances with
39307321 27020704 35965048 5.1862 3.905 6.0928
other banks
Lending to
financial 6193787 1628130 6550128 0.8172 0.235 1.1096
institutions
Investments 13814592 177942251 119587476 1.8227 25.71 20.259

Advances 456355507 382172734 349432685 60.211 55.23 59.197

Other assets 35419252 27346111 17765291 4.6732 3.952 3.0096
Operating
14751252 13780555 11954876 1.9463 1.991 2.0252
fixed assets
Deferred tax
11222444 6613372 2725486 1.4807 0.956 0.4617
asset
TOTAL
757928389 691991521 590291468 100 100 100
ASSETS
LIABILITIES
Bills payable 9944257 15418230 5737457 1.312 2.228 0.972
Borrowings
from financial 46844890 58994609 56392270 6.1806 8.525 9.5533
institutions
Deposits and 45914019
597090545 531298127 78.779 76.78 77.782
other accounts 8
Sub-ordinate
3954925 3100000 0 0.5218 0.448
loans
Liabilities
against assets
subject to
finance lease
Other liabilities 24913236 19943126 15578177 3.287 2.882 2.6391
Deferred tax
------- ----------- ---------
liability
TOTAL 53684810
682747953 628754092 90.081 90.86 90.946
LIABILITIES 2
NET ASSETS 75180436 63237429
33 53443366 9.919 9.14 9.054
REPRESENTED BY

Share capital
34
 VERTICAL ANALYSIS
IDBI BANK
CONSOLIDATED PROFIT & LOSS ACCOUNT
AS ON DEC 31 2007, 2008 & 2009
2007 2008 2009 Vertical Analysis
(Rupees in ‘000’) 2007 2008 2009
Mark-up / return /
63,305,033 50,481,021 43,685,740 100 100 100
interest earned
Mark-up / return /
26,525,556 19,153,957 13,204,037 41.901 37.94 30.225
interest expensed
Net mark-up /
36,779,477 31,327,064 30,481,703 58.099 62.06 69.775
interest income
Provision against
non-performing
6,904,919 8,238,227 2,863,207 10.907 16.32 6.5541
loans and
advances - net
Charge / (reversal)
against off-
372,598 (54,626) (45,438) 0.5886 -0.108 -0.104
balance sheet
obligations
Charge / (reversal)
of provision
against diminution 1,909,887 (84,310) (13,697) 3.017 -0.167 -0.031
in the value of
investments
Bad debts written
---------- ---------- ------------- 0 0 0
off directly
9,187,404 8,099,291 2,804,072 14.513 16.04 6.4187
Net mark-up /
interest income 27,592,073 23,227,773 27,677,631 43.586 46.01 63.356
after provisions
Fee, commission
and brokerage 4,518,408 3,420,051 3,931,710 7.1375 6.775 9
income

35
Income / gain on
2,369,233 2,472,663 1,219,623 3.7426 4.898 2.7918
investments
Income from
dealing in foreign 2,374,318 1,487,374 1,102,358 3.7506 2.946 2.5234
currencies
Gain on
investments in 4,000,330 ------- 0 6.3191 0.3162 0
associate
Other income 3,116,522 2,643,076 2,235,805 4.923 5.236 5.1179
Total non-mark-
up / interest 16,378,811 10,023,164 8,489,496 25.873 19.86 19.433
income
43,970,884 33,250,937 36,167,127 69.459 65.87 82.789
Non mark-up /
interest expense
Administrative
21,348,016 18,297,279 15,425,461 33.722 36.25 35.31
expenses
Other provisions /
200,163 276,111 122,510 0.3162 0.547 0.2804
write offs - net
Other charges 64,751 85,152 54,898 0.1023 0.169 0.1257
Workers welfare
323,575 0.5111 0 0
fund
Total non mark-up
21,936,505 18,106,32 15,602,869 34.652 0 35.716
/ interest expenses
Profit before
22,034,379 15,144,617 18,840,487 34.807 30 43.127
taxation
Taxation
- Current 8,661,15 7,220,717 7,144,846 0 14.3 16.355
- Prior years 233,100 1,668,562 (39,067) 0.3682 3.305 -0.089
- Deferred (2,473,891) (3,828,699) (965,607) -3.908 -7.584 -2.21
6,420,359 10,084,037 12,700,315 10.142 19.98 29.072
Profit after
15,614,020 10,084,037 12,700,315 24.665 19.98 29.072
taxation
Attributable to:
Equity holders of
15,535,011 10,000,231 12,630,259 24.54 19.81 28.912
the Bank

36
Minority interest 79,009 83,806 70,056 0.125 0.17 0.16
15,614,020 10,084,037 12,700,315 24.66 20 29.07
Basic and diluted
20.47 13.18 18.30 3.23 2.61 4.189
earnings per share

4. Comparisons
Financial trend analysis is an applied, practical approach for monitoring the financial
condition of any company through the use of financial indicators. I shall use technique to
compare previous three-year period data and observes how they change. This would
permit an assessment of the current financial condition.
a) Trend Analysis
A firm's present ratio is compared with its past and expected future ratios to determine
whether the company's financial condition is improving or deteriorating over time. Trend
analysis studies the financial history of a firm for comparison. By looking at the trend of
a particular ratio, one sees whether the ratio is falling, rising, or remaining relatively
constant. This helps to detect problems or observe good management.

37
 TREND ANALYSIS
IDBIBANK LIMITED
FOR THE YEARS 2007, 2008 & 2009

Performance Area 2007 2008 2009 Trend

a) Liquidity Ratios

Current Ratio Lower liquidity in

1.20 1.19 1.16
2008
Sales to Working Capital Increase in 2008
0.5 times 0.5 times 0.6 times
Working Capital Lower liquidity in
95155274 104938111 100006655
2008
b) Leverage Ratios

Time Interest Earned Lower since 2008

2.43 1.79 1.83
Debt Ratio Leverage remain
0.91 0.91 0.9
same
Debt to Equity Ratio Drops in leverage in
11.88 11.42 9.58
2008
Current Worth / Net worth Higher in 2008
1.78 1.66 1.33
Ratio
Total Capitalization Ratio Lower during 2008
0.56 0.53 0.42
Long term Assets versus Long Drops in leverage in
0.26 0.33 0.51
term Debt 2008
Debt Coverage Ratio Lower coverage in
0.02 0.008 0.0083
2008
c) Profitability Ratios

Net Profit Margin Lower profitability

29.07% 19.97% 24.66%
during 2008
Operating Income Margin Increased Profitability
57.9% 48% 59.6%
since 2008

38
Return on Assets Lower ROA during
2.27% 1.57% 2.15%
2008
Operating Assets Turnover Lower efficiency
192.7% 192.7% 174.70%
since 2008
Return on Operating Assets Lower efficiency in
13.48% 10.37% 11.19%
2008
Sales to Fixed Assets No change in last 3
3.65 times 3.66 times 3.66 times
years
d) Activity Ratios:

Total Asset Turnover Higher efficiency

0.07 0.07 0.08
since 2008
e) Market Ratios:

Dividend per Share – DPS Good market

1.0019 2.0014 3.597
perceptions
Earning Per Share- EPS Higher In 2008
18.41 14.61 20.57
Price / Earning Ratio Lower in 2008
0.54 0.68 0.49

Dividend Payout Ratio Good market

0.0544 0.137 0.175
perceptions
Dividend Yield Lower in 2008
0.10019 0.20014 0.3597
Book Value per Share Good market
6.5 7.98 9.39
perceptions
f) Statement of cash flow

Operating Cash Flow to Total Lower in 2008

0.033 0.089 0.027
Debt
Operating Cash Flow per Increased during 2008
25.87 81.48 24.02
Share

b) Industry Averages and Comparisons with Competitors

The entire ratio has been compared through above mentioned comparisons and analysis.
Which include horizontal analysis, vertical analysis and trend analysis

39
 DATA INTERPRETATION
Project proceedings

1. RATIO ANALYSIS:

Financial ratios are useful indicators of a firm's performance and financial situation.

Financial ratios can be used to analyze trends and to compare the firm's financials to

those of other firms. Ratio analysis is the calculation and comparison of ratios which are

derived from the information in a company's financial statements. Financial ratios are

usually expressed as a percent or as times per period. Ratio analysis is a widely used tool

of financial analysis.

a) Liquidity Ratios

b) Leverage Ratios

c) Profitability Ratios

d) Activity Ratios

40
 Ratio Analysis

a) Liquidity Ratios

Liquidity ratios measure a firm’s 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 normally 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 are important to businesses because

they are the assets that are used to fund day-to-day operations and pay ongoing expenses.

IDBI BANK

Year 2007 2008 2009

Current Assets 575611106 671597594 731954693
Current Liabilities 480455832 566659483 631948038
Current ratio 1.20 1.19 1.16

IDBI BANK

The current ratio for the year 2007, 2007 & 2008 is 1.20, 1.19 & 1.16 respectively,

compared to standard ratio 2:1 this ratio is lower which shows low short term liquidity

efficiency at the same time holding less than sufficient current assets mean inefficient use

of resources

Sales to Working Capital:

Sales to Working Capital = Sales / Working Capital

41
Sales to working capital give an indication of the turnover in working capital per year. A

low working capital indicates an unprofitable use of working capital.

IDBI BANK

Year 2007 2008 2009

Sales 43685740 43685740 63305033
Working Capital 95155274 104938111 100006655
Sales to Working 0.5 times 0.5 times 0.6 times

Capital

INTERPRETATION:

This liquidity ratio for the years 2007, 2007 & 2008 is 0.5,0.5 & 0.6 times respectively,

compared to standard ratio 2:1 this ratio is lower which shows low short term liquidity

efficiency at the same time holding less than sufficient current assets mean inefficient use

of resources.

The ratios for the last 3 years are 1.06, 1.10 & 1.06, shows below standard of 2:1 which

means efficient use of funds but at the risk of low liquidity.

Working Capital:

Working Capital = Current Assets – Current Liabilities

A measure of both a company's efficiency and its short-term financial health. Positive

working capital means that the company is able to pay off its short-term

liabilities. Negative working capital means that a company currently is unable to meet its

short-term liabilities with its current assets (cash, accounts receivable and inventory).

Also known as "net working capital", or the "working capital ratio".

42
 IDBI BANK

Year 2007 2008 2009

Current Assets 575611106 671597594 731954693
Current Liabilities 480455832 566659483 631948038
Working Capital 95155274 104938111 100006655

Interpretation:

IDBI BANK:

It is very clear from the above calculations that the working capital of the bank is

gradually increasing over the years, which shows good short term liquidity efficiency.

b) Leverage Ratios:

By using a combination of assets, debt, equity, and interest payments, leverage ratio's are

used to understand a company's ability to meet it long term financial obligations.

Leverage ratios measure the degree of protection of suppliers of long term funds. The

level of leverage depends on a lot of factors such as availability of collateral, strength of

operating cash flow and tax treatments. Thus, investors should be careful about

comparing financial leverage between companies from different industries. For example

companies in the banking industry naturally operates with a high leverage as collateral

their assets are easily collateralized.

These include:

Time Interest Earned:

TIE Ratio = EBIT / Interest Charges

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

43
amount of interest due as a function of company’s earnings before interest and taxes

(EBIT). This ratio measures the extent to which operating income can decline before the

firm is unable to meet its annual interest cost.

IDBI BANK

Year 2007 2008 2009

EBIT 32044524 34298574 48559935
Interest Charges 13204037 19153957 19153957
TIE ratio 2.43 1.79 1.83

Interpretation

IDBI BANK

We can see from this ratio analysis that, this company has covered their interest expenses

2.43 times in 2007, 1.79 times in 2007 and 1.8 times in 2008. It means they have

performed pretty much same in 2007 and 2008, but has taken a different look in 2007.

As in 2007 they issued a little high number of long-term loans and does not have good

liquidity position, their EBIT became high thus making TIE a little high as well

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. The proportion of a firm's total assets that

are being financed with borrowed funds. The debt ratio is calculated by dividing total

long-term and short-term liabilities by total assets. The higher the ratio, the more leverage

44
the company is using and the more risk it is assuming. Assets and liabilities are found on

a company's balance sheet.

IDBI BANK

Year 2007 2008 2009

Total debt 53848102 628754092 682747953
Total Assets 590291468 691991521 757928,89
Debt Ratio 0.91 0.91 0.9

Interpretation:

IDBI BANK

Calculating the debt ratio, we came to see that this company is highly leveraged one

Debt to Equity Ratio:

Debt to Equity Ratio = Total debt / Total Equity

The debt to equity ratio is the most popular leverage ratio and it provides detail around

the amount of leverage (liabilities assumed) that a company has in relation to the monies

provided by shareholders. As you can see through the formula below, the lower the

number, the less leverage that a company is using. The debt to equity ratio gives the

proportion of a company (or person's) assets that are financed by debt versus equity. It is

a common measure of the long-term viability of a company's business and, along with

current ratio, a measure of its liquidity, or its ability to cover its expenses. As a result,

debt to equity calculations often only includes long-term debt rather than a company's

total liabilities. A high debt to equity ratio implies that the company has been

aggressively financing its activities through debt and therefore must pay interest on this

financing.

45
 IDBI BANK

Year 2007 2008 2009

Total debt 536848102 628754092 682747953
Total Equity 45177664 55063125 71280902
Debt To Equity Ratio 11.88 11.42 9.58

Interpretation

IDBI BANK

We can see from the above calculations that this ratios continuously decreasing in the last

three years.

Current Worth / Net worth Ratio:

Current Worth to Net worth Ratio= Current Worth / Net worth Ratio

We can calculate current worth and net worth by using following formulas:

Current Worth = Total Current Assets – Total Current Liabilities

Net Worth = Total Assets - Total Liabilities

IDBI BANK

46
 Year 2007 2008 2009
Current Worth 95155274 104938111 100006655
Net Worth 53443366 63237429 75180436
Current Worth to Net 1.78 1.66 1.33

worth Ratio

Interpretation

IDBI BANK

We can see from the above calculations that this ratios continuously decreasing in the last

three years. In 2008 it was 1.78, in 2008 it was 1.66 and in 2008 it was 1.33.

47
Total Capitalization Ratio:

Total Capitalization Ratio = Long-term debt / long-term debt + shareholders' equity

The capitalization ratio measures the debt component of a company's capital structure, or

capitalization (i.e., the sum of long-term debt liabilities and shareholders' equity) to

support a company's operations and growth. Long-term debt is divided by the sum of

long-term debt and shareholders' equity. This ratio is considered to be one of the more

meaningful of the "debt" ratios - it delivers the key insight into a company's use of

leverage.

IDBI BANK

Year 2007 2008 2009

Long Term debt 56392270 62094609 50799915
Long term debt + Equity 101569934 117157734 122080817
Capitalization Ratio 0.56 0.53 0.42
worth Ratio

Interpretation

IDBI BANK

It is obvious from the above calculations that there is a gradual fall in this ratio over the

years.

Long term Assets versus Long term Debt:

Long term Assets versus Long term Debt= Long Term Assets/ Long Term Debts

IDBI BANK

48
 Year 2007 2008 2009
Long Term Assets 14680362 20393927 25973696
Long term debt 56392270 62094609 50799915
L.T Assets /L.T Debts 0.26 0.33 0.51

Debt:worth Ratio

Debt Coverage Ratio:

Debt Coverage Ratio = Net Operating Income / Total Debt

IDBI BANK

Year 2007 2008 2009

Net Operating Income 12074762 5121453 5655568
Total Debt 536848102 628754092 682747953
Debt Coverage Ratio 0.02 0.008 0.0083

Debt:worth Ratio

c) Profitability Ratios:

Profitability is the net result of a number of policies and decisions. This section of the

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. It is these

ratios that can give insight into the all important "profit". Profitability ratios show the

combined effects of liquidity, asset management and debt on operating results. These

ratios examine the profit made by the firm and compare these figures with the size of the

49
firm, the assets employed by the firm or its level of sales. There are four important

profitability ratios that I am going to analyze:

Net Profit Margin:

Net Profit margin = Net Profit / Sales x 100

Net Profit Margin gives us the net profit that the business is earning per dollar of sales.

This margin indicates the profit after all the costs have been incurred it shows that what

% of turnover is represented by the net profit. An increase in the ratios indicates that a

firm is producing higher net profit of sales than before.

IDBI BANK

Year 2007 2008 2009

Net Profit 12700315 10084037 15614020
Sales 43685740 50481021 63305033
Net Profit Margin 29.07% 19.97% 24.66%

Interpretation

IDBI BANK

Therefore, the Net Profit Margin was 29.07% in 2008, decrease to 19.97% in 2008 and

then again increased to 24.66% in 2008

Operating Income Margin:

Operating Income Margin = Operating Income x 100

Net Sales

50
 Operating Income Margin =

Net mark-up / interest income after provisions + Mark-up / return / interest expensed -

Total non mark-up / interest expenses

IDBI BANK

Year 2007 2008 2009

Operating Income 25278799 24275410 37738818
Net Sales 43685740 50481021 63305033
Operating Income 57.9% 48% 59.6%
Margin

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. This is an important ratio for companies

deciding whether or not to initiate a new project. The basis of this ratio is that if a

company is going to start a project they expect to earn a return on it, ROA is the return

they would receive. Simply put, if ROA is above the rate that the company borrows at

then the project should be accepted, if not then it is rejected.

51
IDBI BANK

Year 2007 2008 2009

Net income 12700315 10084037 15614020
Total Average assets 559592686.5 641141494.5 724959955
ROA 2.27% 1.57% 2.15%

Interpretation

IDBI BANK

Return on assets decreased in 2008 and 2008 and it was maximum in year 2008. This

may have occurred because Square used more debt financing in 2008 compared to 2008

and 2008 which resulted in more interest cost and brought the Net income down.

Return on Equity (ROE):

Return on Total Equity = Profit after taxation x 10

Total Equity

Return on Equity measures the amount of Net Income earned by utilizing each dollar of

Total common equity. It is the most important of the “Bottom line” ratio. By this, we can

find out how much the shareholders are going to get for their shares. This ratio indicates

how profitable a company is by comparing its net income to its average shareholders'

equity. The return on equity ratio (ROE) measures how much the shareholders earned for

their investment in the company. The higher the ratio percentage, the more efficient

management is in utilizing its equity base and the better return is to investors.

IDBI BANK

52
Year 2007 2008 2009
Net income 12700315 10084037 15614020
Total Equity 45177664 55063125 71280902
ROE 28.11% 18.31% 21.9%

53
Interpretation

IDBI BANK

The Return on Equity was maximum in 2008 but decreased in 2008 and went down more

in 2008. This again may have happened due to the issue of more long-term debt in 2008

and 2008.

Operating Assets Turnover:

Operating Assets Turnover = Operating Assets x 100

Net Sales

IDBI BANK

Year 2007 2008 2009

Operating Assets 94230402 97259620 110591707
Net Sales 43685740 50481021 63305033
Operating Assets Turnover 192.7% 192.7% 174.70%
Margin

Detail of Operating Assets of IDBI Bank Limited

2008

Operating Assets:

Cash and balances with treasury banks 56533134

Balances with other banks 39307321

Operating fixed assets 14751252

110591707

2008

54
Operating Assets:

Cash and balances with treasury banks 55487664

Balances with other banks 27020704

Operating fixed assets 13780555

97259620

55
2008

Operating Assets:

Cash and balances with treasury banks 46310478

Balances with other banks 35965048

Operating fixed assets 11954876

94,230,402

Detail of Operating Assets IDBI Limited

2008

Operating Assets:

Cash and balances with treasury banks 27859360

Balances with other banks 12731952

Operating fixed assets 10502990

51094302

2008

Operating Assets:

Cash and balances with treasury banks 29436378

Balances with other banks 18380738

Operating fixed assets 11922324

59739440

2008

Operating Assets:

56
Cash and balances with treasury banks 32687335

Balances with other banks 21581043

Operating fixed assets 13773293

68041671

57
Return on Operating Assets:

Return on Operating Assets = Profit after Taxation x 100

Operating assets

IDBI BANK

Year 2007 2008 2009

Net Profit 12700315 10084037 15614020
Operating Assets 94230402 97259620 110591707
Return on Operating Assets 13.48% 10.37% 11.19%

Sales to Fixed Assets:

This ratio is indicates that how much sales are contributed by investment in fixed Assets.

Sales to Fixed Assets = Net Sales / Fixed Assets

IDBI BANK

Year 2007 2008 2009

Net Sales 43685740 50481021 63305033
Fixed Assets 11954876 13780555 14751252
Sales to Fixed Assets 3.65 times 3.66 times 3.66 times

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

58
between level of sales and the investment in various assets inventories, receivables, fixed

assets etc.

Total Asset Turnover:

Total Asset Turnover = Total Sales / Total Assets

The amount of sales generated for every dollar's worth of assets. It is calculated by

dividing sales in dollars by assets in dollars. Asset turnover measures a firm's efficiency

at using its assets in generating sales or revenue - the higher the number the better. It also

indicates pricing strategy: companies with low profit margins tend to have high asset

turnover, while those with high profit margins have low asset turnover.

IDBIBANK

Year 2007 2008 2009

Total Sales 43685740 50481021 63305033
Total Assets 590291468 691991521 757928389
Total Asset Turnover 0.07 0.069 0.08

Interpretation

IDBI BANK

The Return on Equity was maximum in 2008 but decreased in 2008 and went down more

in 2008. This again may have happened due to the issue of more long-term debt in 2008

and 2008.

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e) Market Ratio:

Market Value Ratios relate an observable market value, the stock price, to book values

obtained from the firm's financial statements.

Dividend per Share – DPS:

Dividend per Share = Total amount of Dividend

Number of outstanding shares

Per share capital = 10 per share

Or

No. of shares outstanding = share capital / 10

IDBI BANK

Year 2007 2008 2009

Total amount of Dividend 691350 1381000 2730251
Number of Shares 690000 690000 759000
Dividend per Share 1.0019 2.0014 3.597

Earning Per Share- EPS:

Earning Per Share = Profit after Taxation

Number of Shares

The portion of a company's profit allocated to each outstanding share of common

stock. Earnings per share serve as an indicator of a company's profitability. Earnings per

share are generally considered to be the single most important variable in determining a

share's price. It is also a major component used to calculate the price-to-earnings

valuation ratio.

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 IDBI BANK

Year 2007 2008 2009

Profit after Taxation 12700315 10084037 15614020
Number of Shares 690000 690000 759000
Earning Per Share 18.41 14.61 20.57

Price / Earning Ratio:

Price / Earning Ratio = Stock Price Per Share

Earning Per Shares

The Price-Earnings Ratio is calculated by dividing the current market price per share of

the stock by earnings per share (EPS). (Earnings per share are calculated by dividing net

income by the number of shares outstanding.)

The P/E Ratio indicates how much investors are willing to pay per dollar of current

earnings. As such, high P/E Ratios are associated with growth stocks. (Investors who are

willing to pay a high price for a dollar of current earnings obviously expect high earnings

in the future.) In this manner, the P/E Ratio also indicates how expensive a particular

stock is. This ratio is not meaningful, however, if the firm has very little or negative

earnings. The Price-Earnings Ratio is calculated by dividing the current market price per

share of the stock by earnings per share (EPS). (Earnings per share are calculated by

dividing net income by the number of shares outstanding.) The P/E Ratio indicates how

much investors are willing to pay per dollar of current earnings. As such, high P/E Ratios

are associated with growth stocks. (Investors who are willing to pay a high price for a

dollar of current earnings obviously expect high earnings in the future.)

61
In this manner, the P/E Ratio also indicates how expensive a particular stock is. This ratio

is not meaningful, however, if the firm has very little or negative earnings.

IDBI BANK

Year 2007 2008 2009

Stock price per share 10 10 10
EPS 18.41 14.61 20.57
Price / Earning Ratio 0.54 0.68 0.49

Interpretation

IDBI BANK

The P/E ratio was 0.54 times in 2008 and increased further to as high as 0.68 times in the

following year. However, in 2008 it declined to 0.49 times which is an alarming signal

for the potential investors.

Dividend Payout Ratio:

Dividend Payout Ratio = Dividend per Share

Earning per Share

The percentage of earnings paid to shareholders in dividends. The payout ratio provides

an idea of how well earnings support the dividend payments. More mature

companies tend to have a higher payout ratio. This ratio identifies the percentage of

earnings (net income) per common share allocated to paying cash dividends to

shareholders. The dividend payout ratio is an indicator of how well earnings support the

dividend payment.

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 IDBI BANK

Year 2007 2008 2009

DPS 1.0019 2.0014 3.597
EPS 18.41 14.61 20.57
Dividend Payout Ratio 0.0544 0.137 0.175

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. A stock's dividend yield is expressed as an annual percentage and

is calculated as the company's annual cash dividend per share divided by the current price

of the stock. The dividend yield is found in the stock quotes of dividend-paying

companies. Investors should note that stock quotes record the per share dollar amount of

a company's latest quarterly declared dividend. This quarterly dollar amount is annualized

and compared to the current stock price to generate the per annum dividend yield, which

represents an expected return.

IDBI BANK

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 Year 2007 2008 2009
DPS 1.0019 2.0014 3.597
Share Price 10 10 10
Dividend Yield 0.10019 0.20014 0.3597

Book Value per Share:

Book Value per Share = Shareholders’ Equity

Share Capital

This is defined as the Common Shareholder's Equity divided by the Shares Outstanding

at the end of the most recent fiscal quarter. It is the Indication of the net worth of the

corporation. Somewhat similar to the earnings per share, but it relates the stockholder's

equity to the number of shares outstanding, giving the shares a raw value. Comparing the

market value to the book value can indicate whether or not the stock in overvalued or

undervalued.

IDBI BANK

Year 2007 2008 2009

Equity 45177664 55063125 71280902
Share Capital 6900000 6900000 7590000
Book Value per Share 6.5 7.98 9.39

f) Statement of cash flow:

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Cash flow ratios indicate liquidity, borrowing capacity or profitability. This section of the

financial ratio looks at cash flow indicators, which focus on the cash being generated in

terms of how much is being generated and the safety net that it provides to the company.

These ratios can give users another look at the financial health and performance of a

company.

Operating Cash Flow to Total Debt:

Operating Cash Flow to Total Debt = Operating Cash Flow/Total Debt

This coverage ratio compares a company's operating cash flow to its total debt, which, for

purposes of this ratio, is defined as the sum of short-term borrowings, the current portion

of long-term debt and long-term debt. This ratio provides an indication of a company's

ability to cover total debt with its yearly cash flow from operations. The higher the

percentage ratio, the better the company's ability to carry its total debt.

IDBI BANK

Year 2007 2008 2009

Operating Cash flow 17851517 56224065 18231677
Total Debts 536848102 628754092 682747953
Operating Cash Flow to T.Debt 0.033 0.089 0.027

Operating Cash Flow per Share:

Operating Cash Flow per Share = Operating cash flow / Total Shares

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 IDBI BANK

Year 2007 2008 2009

Operating Cash flow 17851517 56224065 18231677
Total Shares 690000 690000 759000
Operating Cash Flow per Share 25.87 81.48 24.02

Common Size Analysis (Vertical and Horizontal):

The term "trend analysis" refers to the concept of collecting information and attempting

to spot a pattern, or trend, in the information. In some fields of study, the term "trend

analysis" has more formally-defined meanings. Although trend analysis is often used to

predict future events, it could be used to estimate uncertain events in the past. Financial

statement information is used by both external and internal users, including investors,

creditors, managers, and executives. These users must analyze the information in order to

make business decisions, so understanding financial statements is of great importance.

Several methods of performing financial statement analysis exist. I will discuss two of

these methods: horizontal analysis and vertical analysis.

a) Horizontal Analysis

Methods of financial statement analysis generally involve comparing certain information.

The horizontal analysis compares specific items over a number of accounting periods.

For example, accounts payable may be compared over a period of months within a fiscal

year, or revenue may be compared over a period of several years. It is a procedure in

fundamental analysis in which an analyst compares ratios or line items in a company's

financial statements over a certain period of time.

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 Conclusion
Financial Statement Analysis is a method used by interested parties such as investors,
creditors, and management to evaluate the past, current, and projected conditions and
performance of the firm. This report mainly deals with the insight information of the two
mentioned companies. In the current picture where financial volatility is endemic and
financial intuitions are becoming popular, when it comes to investing, the sound analysis
of financial statements is one of the most important elements in the fundamental analysis
process. At the same time, the massive amount of numbers in a company's financial
statements can be bewildering and intimidating to many investors. However, through
financial ratio analysis, I tried to work with these numbers in an organized fashion and
presented them in a summarizing form easily understandable to both the management and
interested investors.
It is required by law that all private and public limited companies must prepare the
financial statements like, income statement, balance sheet and cash flow statement of the
particular accounting period. The management and financial analyst of the company
analyze the financial statements for making any further financial and administrative
decisions for the betterment of the company. That as a financial analyst how can I make
any important financial decision by analyzing the financial statements of the company.
Because, it is the primary responsibility of the financial managers or financial analyst to
manage the financial matters of the company by evaluating the financial statements. I am
also providing some important suggestions and opinions about the financial matters of the
business.

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 Findings

I analysis the financial statements of IDBI Bank Limited:-

 Liquidity position of this bank is not up to standard, it is below industry
average. Working capital of IDBI Bank is better , but bank must improve
their liquidity position.
 Leverage ratios indicate the high risk associated with the company. Generally
leverage ratios, measures the percentage of funds provided by the creditors.
The proportion of a firm’s total assets is being financed with high percentage
of borrowed funds.
 Profitability ratios of Idbi Bank Limited is good and upto the mark..
 IDBI Bank has a good market perception due to continuous declaration of
dividends which is good for its investors and hence increase the believeness
in the minds of customers.
 Earning per share is decreases in 2nd year but afterwards increases which
show that company is good position in the market.

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 LIMITATION
• The data collection was little bit tough because latest data is not
available on the internet.

• Finding the data of Insurance sector is very difficult.

• Problem occurred due to lack of time and facility of internet.

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 Bibliography
• www.moneycontrol.com
• www.investopedia.com
• www.google.com

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