RATIO ANALYSIS

 PROFITABILITY RATIOS
 LIQUIDITY RATIOS
 ASSET QUALITY RATIOS
 PORTFOLIO MANAGEMENT
 CAPITAL ADEQUACY RATIO
 CAPITAL GEARING RATIOS

PROFITABILITY RATIOS

The continued viability of any bank depends on its ability to earn an

appropriate return on its assets and capital. Good earning performance
enables a bank to fund its operations, remain competitive in the market and
increase or decrease in market funds.
RETURN ON CAPITAL FUND

Formula = Net mark up Received

Capital Funds

2004 = 3370000 = 60.47%

5573149
2003 = 2694106 = 69.06%
3901279
2002 = 1638357 = 54.13%
3026550

INTERPRETATION

This ratio relates the net profits to the amount of capital funds that have
been employed in making that profit.

The above given ratios suggest that the profitability of the bank has
increased very in the year 2003 indicating more profitable operations of the
bank. While discussing the trend analysis, we mentioned that the mark up
charges have increased in some proportion but the mark up earned by the
bank resulting increase in the profit available on the capital funds employed.
This ratio showing a very good financial position of the bank.

RETURN ON INVESTMENT

Formula = Net income after taxes

Total Assets

2004 = 3370000 = 1.79%

5573149
2003 = 1103065 = 1.29%
85386902
2002 = 686994 = 0.98%
70313073

INTERPRETATION
This ratio indicates the profit earned by the bank on the resources
employed. As far as ACBL is concerned, we observe an increase in the
utilization of the resources. It has increased to 1.29 % in the year 2003 from
0.98 % in the year 2002, It has increased to 1.79 % in the year 2004 from
1.29 % in the year 2003, the reason behind the slight increase in the
increase of profit may be due to the efforts of the management.

RETURN ON RISK ASSETS

Formula = Net income after taxes

Total risk assets

2004 = 1923040 = 2.75%

69938041
2003 = 1103065 = 2.46%
44777538
2002 = 550051 = 2.36%
23291367
INTERPRETATION

This ratio, with some fluctuation in 2003 came up from 2.46% in 2003
to2.75 % in the year 2004. It is indicating active utilization in the form of
advances. The bank is finding it difficult to keep the level of its expenses less
in proportion to the advances it has disbursed. Lending, no doubt is the core
function of a banking concern. But the bank should find out effective ways of
credit provisions affecting less on profitability of the operations. Non-mark
up revenues should also be increased in the face of lower credit
disbursements resulting in more.

RETURN ON DEPOSITS

Formula = Net income before taxes

Total Deposits

2004 = 2842740 = 3.41%

 83318795
2003 = 1901800 = 3.08%
61657000
2002 = 1244022 = 2.47%
41200166

INTERPRETATION
Interpret This ratio indicates to what extent deposits which represent funds
mobilization on the part of the bank contribute towards income generation.
Although the other ratios regarding the profitability are showing satisfactory
position of the bank but still bank need to increase its utilization of resources
in order to increase its profitability because the banks have to pay heavy
taxes on their profit.

OPERATING EXPENSES TO NET REVENUE

Formula = Operating Expenses

Net Revenue

(Rs. In million)
 2004 = 1845 = 30.1%
6121
2003 = 1438 = 28.6%
5028
2002 = 1093 = 19.2%
5704

INTERPRETATION

This ratio signifies the proportion of the revenues that is used to cover the
operating expenses of the bank. The ratios calculated above gives a good
picture of the bank’s operations. This ratio is increasing from year 2002 to
2004 and giving a bright picture of the profits for the bank. With respect to
the banking expansions this ratio is showing a very good picture as we know
the expansions required lot of expansions, although the operating expenses
of the bank are increasing as we have seen in the trend ratio but their
proportion of increase is not alarming.
In short, the bank in an attempt to maintain at a good level of liquidity, has
a low level of profitability but there is a continuous push in the profits and
there are chances that the bank will reach at a point of high liquidity and
profitability.

LIQUIDITY RATIOS

The liquidity position of a bank is like a reservoir. It may be adequate,

although nearly depleted, just before the start of the rainy season. Or it may
be inadequate, although three quarters full just before the summer drought.
Liquidity can be defined as:

“The bank’s ability not only to meet possible deposit withdrawals but
also to provide for the legitimate needs of the economy as well”

ADVANCES TO DEPOSITS RATIO

Formula = Advances
Total Deposits
2004 = 69938041 = 83.9%
83318795
2003 = 44778000 = 58.6%
61657000
2002 = 30035484 = 72.62%
51731506

INTERPRETATION

It demonstrate the degree to which bank has already used up its available
resources to accommodate the credit needs of its customers.

This ratio, a comparison of funds generation and its funds mobilization,

indicates the total loans sanctioned by the bank in relation to total amount of
money deposited with the bank stands at 83.9% compared with the last
year figure of 58.6%. This shows that the bank has greater potential to
advance additional loans. Total loan able funds roughly measured by the
deposits are sufficient to enable the bank to make additional loans without
recourse to more or less continuous borrowing. At present, the bank has got
a relatively small amount of advances as compared with its deposits raised.
One reason for fewer advances is the cautious and selective approach on the
part of the management while deciding upon credit proposals.

DUE FROM BANKS TO TOTAL ASSETS

Formula = Due from banks

Total Assets

2004 = 2324839 = 2.17%

107167541
2003 = 5770842 = 6.75%
85386902
2002 = 3414470 = 4.86%
70313073
INTERPRETATION

It is an indication of ACBL’s funds management policies. The funds allocation

to the financial institutions has increased to a great extent despite the fact
that still it holds a small proportion relevant to the total resources raised by
the bank. It is a positive indicator in the sense that the financing to the
banks are the most secure ways of lending. Considering the economic
conditions of the country, it seems to be the best alternative available to the
bank. In the current year this ratio has been reduced to the little extent.
Although it is declining but the situation might not be alarming.

DUE FROM BANKS TO DUE TO BANKS

Formula = Due from banks

Due to Banks

2004 = 2324839 = 16.87%

 13781555
2003 = 5770842 = 36.29%
15903055
2002 = 3414470 = 29.79%
11460394

INTERPRETATION

It shows the relationship between what the bank owes from other banks and
what is due to it. An unfavorable condition has been observed in this ratio in
the current year showing the fact that the bank has to seek fewer funds
from the financial institutions owing to the strong liquid financial position.
This ratio is going on increasing in last year but decreasing in current year,
which involves a slight risk. In the phase of economic instability, the bank’s
management should be efficient to access the risk involved in lending and
they should control this ratio.

DUE TO BANKS TO TOTAL DEPOSITS

Formula = Due to banks
Total deposits

2004 = 13781555 = 16.54%

83318795
2003 = 15903055 = 25.79%
61656607
2002 = 11460394 = 22.15%
51732000

INTERPRETATION
This ratio is an indicative of the proportion of the lending from the financial
institutions in relation to the total funds raised by the bank in the form of
deposits.

This ratio for ACBL is 16.54% in the year 2004. There has been a significant
decline in this ratio as previously the bank depended slightly more on the
borrowings from financial institutions. It shows that the bank is
concentrating on raising funds from depositors and trying to relies less on
the borrowed funds.

• It is a favorable indication in the sense that the bank has large

potential to ask for borrowed funds in the phase of tight liquidity
position.
• Further more, it shows the efficiency of the marketing department to
have created so much of deposits that the bank does not need to look
at the financial institutions for help in improving its liquid position.
• There is another favorable aspect of this declining tendency. The rate
of interest offered to the depositors is very low in comparison with the
interest to be paid to the financial institutions for their funds. A decline
in this ratio means less mark up burden on the bank resulting in less
financial risk for the bank.

COVERAGE RATIO

Coverage ratio measures the capacity of the bank to cover its interest
charges, which are the main obligations on the bank.
INTEREST COVERAGE RATIO

Formula = Earning before int. & Tax

Interest Exp.

2004 = 4688057 = 2.54 times

1845317
2003 = 3339331 = 2.32 times
1437531
2002 = 2336537 = 2.13 times
1092515

INTERPRETATION

It shows whether the bank is earning enough profit before mark up charges
to be paid to the financiers and the taxation obligations due to the
government in order to remain solvent.

The above figure shows the acceptable capacity on the part of the bank to
cover its interest payments. It has increased as compared with the last year.
This increase in the ratio is a sign of improvement for the bank. But this is a
short-term perspective of the bank’s financial position. In view of the long
run financial perspective, this ratio is good for the bank.
 CAPITAL ADEQUACY RATIOS

CAPITAL FUNDS TO TOTAL ASSETS RATIO

Formula = Capital Funds

Total Assets

2004 = 5573149 = 5.20%

107167541
2003 = 3901279 = 4.57%
85386902
2002 = 3026550 = 4.30%
70313073

INTERPRETATION

This ratio indicates the extent of the funds employed by the bank in the total
resources as shown in the balance sheet. This ratio has been decreased in
the current year with a very low margin.
Capital Fund to Risk Assets Ratio

Formula = Capital Fund

Risk Assets

2004 = 5573149 = 7.97%

69938041
2003 = 3901279 = 8.71%
44777538
2002 = 3026550 = 10.07%
30035484

INTERPRETATION

This ratio take into account the difference between cash and marketable
securities & other kind of assets. Cash & marketable securities, which are
risk less items, are excluded to find out the true picture of the capital
adequacy. In case of ACBL the ratio is decreasing.

GRAPHS OF STEADY GROWTH

THE GRAPHS OF GROWTH ARE SHOWN FOR THE LAST FIVE YEARS,
FROM 2000 TO 2004

PROFIT BEFORE TAX

(Rs. In million)
 3000

2500

PROFIT BEFOR TAX

2000

1500

1000

500

0
2000 2001 2002 2003 2004

The above graph shows that the profit before tax of the Askari Commercial
Bank shows a trend of increase and continuous increase in the profit before
tax of the bank, it goes on increasing every year and its ratio has not been
fall since the last five years.
In 2004 the profit before tax increased with greater margin as compared to
the previous four years.

DEPOSITS
(Rs. In million)
 90000
80000

DEPOSITS
70000
60000
50000
40000
30000
20000
10000
0
2000 2001 2002 2003 2004

Askari Commercial Bank is known to be the leading bank in the private

sector. Customers’ shows a lot of loyalty to the bank, therefore, the deposits
of the bank go on increasing every year and its ratio has not been fall since
the last five years.

LOANS AND ADVANCES

(Rs. In million)
80000
70000
60000
50000
ADVANCES

40000
30000
20000
10000
0
2000 2001 2002 2003 2004

The Askari Commercial Bank has adequate amount of money as result of

deposits it keeps with itself of their valuable customers. It keep a certain
percentage of money in order to meet the day to day transactions of the
bank and lend reaming amount as advances and loans which is very
important source of business for the bank. The graph shows that the
capacity of the bank to lend the advances and loans is going on increasing
since the last five years and is highest in the year 2004.

INVESTMENTS
(Rs. In million)

30000

INVESTMENTS
25000
20000

15000

10000
5000

0
2000 2001 2002 2003 2004

The Askari Commercial Bank is showing a mix trend of increase and

decrease in the investments of the bank, it goes on increasing from year
2000 to 2002 and its ratio is highest in 2002. From 2002 it starts declining.

TOTAL ASSETS
(Rs. In million)
 120000

100000

TOTAL ASSETS
80000

60000

40000
20000

0
2000 2001 2002 2003 2004

Total Assets of the bank are increasing every year with the expansion in the
business .In 2004 the assets of the bank has been increased more than
twined a time as compared to the year 2000.which clearly shows the rapid
expansion of the bank.

EARNING PER SHARE

(In Rupees)

18
EARNINGS PER SHARE

16
14
12
10
8
6
4
2
0
2000 2001 2002 2003 2004

The earning per share of the bank is also showing good position and is
enough to satisfy the shareholders of the bank, the number of the
shareholders fund has also been increased from the last five years. The
graph shows that the bank’s earning per share ratio is highest in the year
2004 and is lowest in the year 2000.