FINANCIAL ANALYSIS

"Financial statement analysis is the process of identifying of financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit &loss account," and it is done through ratio analysis.

Ratio Analysis
Ratio means one number expressed in term of another a ratio is statistical yardstick by mean of which relationship between two or various figures can be compared or measured. Here we are going to explain the ratio analysis of MCB.

CATEGORIES OF FINANCIAL RATIOS

Financial ratios can be divided into the following six parts. A. Liquidity ratios B. Activity ratios C. Leverage ratios D. Profitability ratios E. Investor ratios F. Bank special ratios

A. Liquidity ratios
Current ratios Quick ratios Absolute Liquid ratio

B. Activity ratios
Inventory turnover ratio Average collection period Average payment period Total assets turnover ratio

D. Profitability ratio
Return on total assets Return on-equity Return on investment Return on fixed assets Average profit per branch Net profit Margin Interest income to total income Interest expense to total expense Return on advances

E. Investor Ratios
Earning per share P/E ratio Dividend per share Dividend yield ratio Dividend payout ratio Break up value/Book value per share

F. Bank special Ratios

Earning assets to total assets Return on earning assets Net margin to earning assets Loan loss coverage ratio Equity to total assets Deposit time equity Loan to deposit ratio

Profitability Ratios
Profitability ratios are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. It include following ratios: Net Profit Margin Return on Assets DuPont Return on Assets Operating Income Margin Return on Operating Assets Return on Total Equity Gross Profit Margin

Net Profit Margin

Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors.

Formula
Net profit Margin = Net Profit / Net sales

Calculation

Year 2009

Net profit 15374600000

Net sales 40043824000 = 0.384

Ratio

2010

15495297000

51616007000

= 0.300

2011

16873175000

54821296000

= 0.308

Year

Year 2010

Year 2009

15374600000 / 40043824000

Graphical representation
Net Profit Margin
0.5 0.4 0.3 0.2 0.1 0 0.384 0.308 0.300

Year 2011

Year 2010

Year 2009

Interpretation
Net profit margin measures how much of each dollar earned by the company is translated into profits. A low profit margin indicates a low margin of safety: higher risk that a decline in sales will erase profits and result in a net loss.

Net profit margin provides clues to the company's pricing policies, cost structure and production efficiency. Different strategies and product mix cause the net profit margin to vary among different companies. Net profit margin is bit better in year 2008 as compare to other two years.

Return on assets
Return on assets is a measure of how effectively the firms assets are being used to generate profits ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return oninvestment".

Formula
Return on Assets = Net profit / Total Assets * 100

Calculation
Year 2011 16873175000 / 567552613000 = 0.030 * 100 = 3.00 % Year 2010 15495297000 / 509223727000 = 0.030 *100 = 0.035 * 100 = 3.00 % = 3.50 % Year 2009 15374600000 / 443615904000

Graphical representation

Return on Assets
4% 3% 3% 3% 3% 3%

3.50% 3% Year 2011 3% Year 2010 Year 2009

Interpretation
The purpose of this ratio is to calculate the return that the business is providing on total assets. This is important from owners point of view that what the business is earning on its assets, how their funds are being utilized. This ratio also provides an indicator of overall effectiveness of management in generating profit with the available assets the higher the percentage the better for the organization. If we analyze the above situation we can find that in 2008 the ratio is pretty good but it drops in year 2009 and good thing is that it doesnt drop further are remain constant at 3% in year 2010 also.

Return on Assets
Return on assets (ROA) is a percentage of the after-tax income as compared to the total assets of the company. Management at Du Pont came up with Return on Assets (Du Pont), an approach that determines the impact of asset turnover and profit margin on profits. This interactive tutorial explains the concept by walking you through the calculations, including where to find the numbers on the financial statements.

Formula
DuPont Return on Assets = (Net Income / Sales) X (Sales / Total Assets)

Calculation
Year 2011 16873175000/ 54821296000 * 54821296000 / 567552613000 Year 2010 15495297000 / 51616007000 * 51616007000 /509223727000 Year 2009 15374600000 /40043824000 * 40043824000 / 443615904000

= 0.030

= 0.030

= 0.035

Interpretation
DuPont Return on Assets actually shows the relation of the net income, sales and total asset during the period. According to the result of the analysis it is clearly indicated that this ratio is same in year 2010 & 2009 but its high in 2008.

Operating Income Margin

A ratio used to measure a company's pricing strategy and operating efficiency.

Formula
Operating income margin = operating income / net sale

Calculation
Year 2011 36833529000 / 54821296000 Year 2010 35778685000 / 51616007000 Year 2009 28483084000 / 40043824000

= 0.672

= 0.693 = 0.711

Graphical representation

Operating Income Margin

Year 2009 Year 2010 Year 2011 0.64 0.66 0.672 0.68 0.7 0.72 0.693 0.711

Interpretation
This ratio measures the percentage of profit earned on sale after deducting operating expenses from the Gross Profit. This ratio indicates that how efficiently the expenses are being controlled by management. The higher the margin the lower would be the operating expenses and better would be management ability to control expense. As we look at the graph the figures are little disappointed as for as organization is concern as you can clearly see in year 2008 company is in a better position to manage the expanses but unfortunately it drops year by year which is not a good sign because it shows company has no or less control on there expanses.

Return on operating assets

The return on operating assets measure only includes in the denominator those assets actively used to create revenue. This focuses management attention on the amount of assets actually required to run the business, so that it has a theoretical targeted asset level to achieve.

Formula
Return on operating assets = Net Profit / Operating Assets

Calculation
Year 2011 16,873,175,000 / 325308093000 Year 2009 15495297000 / 313039174000 Year 2008 15374600000 / 323130454000

= 0.049 = 0.052 = 0.048

Graphical representation

Return on operating assets

0.054 0.052 0.05 0.048 0.046 Year 2011 Year 2010 0.052 0.049 0.048 Year 2009

Interpretation
This ratio gives the operating efficiency of management. This ratio indicated how Operating assets are utilized. In other words how much assets are used in operating activities. High Return on Operating Asset ratio shows the efficient use of operating assets. The ratio is high in 2010 as compare to 2009 and 2008

Return on total equity

Return on equity (ROE) measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. It measures a firm's efficiency at generating profits from every unit of shareholders' equity (also known as net assets or

assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth.

Formula
Return on Equity = Net Income/Shareholder's Equity *100

Year 2011 16873175000 / 69180011000 = 0.244 * 100 = 24.4 %

Year 2010 15495297000 / 61075932000 = 0.254 *100

Year 2009 15374600000 / 52244865000 = 0.294 *100

= 25.4 % = 29.4 %

Graphical representation
Return on total equity
30.00% 20.00% 24.40% 10.00% 0.00% Year 2010 Year 2009 Year 2008 25.40% 29.40%

Interpretation

Return on Equity (ROE) is an indicator of company's profitability by measuring how much profit the company generates with the money invested by common stock owners. It is also known as Return on Net worth this ratio doesnt seem to be fluctuate too much just a little drop in percentage in year 2009 & 2010 as compare to year 2008 .

Gross Profit Margin:

Gross profit margin is a measure of the gross profit earned on sales. The gross profit margin considers the firms cost of goods sold, but does not include other costs. It also used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.

Formula
Gross Profit Margin = Gross Profit / Net Sales

Calculation
Year 2011 36833529000 / 54821296000 = 0.672 Year 2010 35778685000 / 51616007000 = 0.693 = 0.711 Year 2009 28483084000 / 40043824000

Graphical representation

Gross Profit Margin

0.72 0.7 0.68 0.66 0.64 Year 2011 Year 2010 Year 2009 0.672 0.693 0.711

Interpretation
Gross profit margin is an indicator of how efficient a company is and how well it controls its costs. The higher the margin is, the more effective the company is in converting revenue into actual profit. By analyzing this graph we can easily say that the organization is performing good in year 2008 but unfortunately the gross profit margin come down year by year.

Activity Ratios
Indicates quality of receivables and how successful the firm is in its collections.

Total asset turn over

The total asset turnover represents the amount of revenue generated by a company as a result of its assets on hand. This equation is a basic formula for measuring how efficiently a company is operating. The sales represent all the revenue generated by the company and is disclosed on a company's income statement. The total assets represent the assets listed on the company's balance sheet.

Formula
Total Assets Turnover = Total Net Sales / Total Assets

Calculation
Year 2011 54821296000 / 567552613000 Year 2010 51616007000 / 509223727000 Year 2009 40043824000 / 443615904000

= 0.097

= 0.101

= 0.090

Graphicalrepresentation
Total asset turn over
Year 2009 Year 2010 Year 2011 0.08 0.085 0.090 0.101 0.097 0.09 0.095 0.1 0.105

Interpretation
Total asset turnover measures the activity of the assets and the ability of the firm to generate sales through the use of sales there is a decreasing trend from year 2008 but in 2009 it increases not only increases but at the hightest place as compare to 2010 & 2008 and again falls in 2010. The lower the total asset turnover ratio, as compared to historical data for the firm and industry data, the more sluggish the firm's sales. This may indicate a problem with one or more of the asset categories composing total assets - inventory, receivables, or fixed assets. The small business owner should analyze the various asset classes to determine where the problem lies.

There could be a problem with inventory. The firm could be holding obsolete inventory and not selling inventory fast enough. With regard to accounts receivable, the firm's collection period could be too long and credit accounts may be on the books too long.

Fixed Assets turnover

Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit earning capacity of the concern. Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio means under-utilization of fixed assets.

Formula
Fixed Assets Turnover = Net Sales / Total Fixed Asset

Calculation
Year 2010 54821296000 / 48652609000 Year 2009 51616007000 / 41054991000 Year 2008 40043824000 / 37074209000

= 1.127

= 1.257 = 1.080

Graphical representation

Fixed Assets turnover

Year 2009 Year 2010 Year 2011 0.9 1 1.1 1.127 1.2 1.3 1.08 1.257

Interpretation
The formula is useful in analyzing growth companies to see if they are growing sales in proportion to their asset bases. The fixed assets turnover ratio really has little meaning except when it is put in the context of industrial averages, and consideration is made whether new capital expenditures recently undertaken were such that they could skew the ratio. For example, the turnover ratio will be lower just after a significant amount of fixed asset is acquired to upgrade or expand the plant facilities. In the middle mean to say in the year 2009 the turnover is higher as compare to other two years.

Market Ratios Dividend per share

The amount of dividend that a stockholder will receive for each share of stock held. It can be calculated by taking the total amount of dividends paid and dividing it by the total shares outstanding.

Formula
Dividend per share = Dividend / No of Shares

Calculation
Year 2011 Year 2010 Year 2009

6,461,839,000 / 760214979

5,183,327,000 / 760214979

5,654,493,000 / 760214979

= 8.5

= 6.82

= 7.44

Graphical representation

Dividend Per Share

10.00 8.00 6.00 4.00 2.00 0.00 8.50 6.82

7.44

Year 2011

Year 2010

Year 2009

Interpretation

Graph tells that the dividend per share is little bit fluctuate from year to year in 2010 it is high it Is about 8.5 which drops to 6.82 in year 2009 and again increase to 7.44 in 2008.

Earning Per Share

Total earnings divided by the number of shares outstanding. Earning per share ratio indicates the proportion of net profit; a company is getting per share. Share holders are always interested to know the proportionate rate; a company is getting per share. As price is numerator and earning in denominator, therefore lower value means better return.

Formula
Earning Per share =Profit Available to shareholders / No of shares outstanding

Calculation
Year 2011 32674094000 / 760214979 Year 2010 24710953000 / 760214979 Year 2009 20526669000 / 760214979

= 42.98

= 32.51

= 27.00

Graphical representation

Earning Per Share

60.00 40.00 20.00 0.00 Year 2011 Year 2010 Year 2009

42.98 32.51 27

Interpretation
The earnings per share calculation is the company's net earnings for the period divided by the average number of shares outstanding during the period. Corporate earnings are released quarterly and totaled for the fiscal year. The net earnings are the total revenues for the period minus all of the expenses incurred during the reporting period. A corporation will report the number of shares outstanding in the earnings report. The numbers required to calculate the earnings per share will be found in the income statement portion of a company's earnings report. This ratio shows the increasing trend in 2008, 2009 and 2010. Because net profit increase but outstanding share are constant in all of these three years.

Price / Earning Ratio

This ratio is calculated for those shares which have market value. This ratio compares earning per share with market value of that share. The formula for calculating this ratio is as follows:

Formula

Price Earning Ratio = Current market Share price/ Earning per Share

Calculation
Year 2010 207.32 / 42.98 Year 2009 207.32 / 32.51 Year 2008 207.32 / 27.00

= 4.82

= 6.38

= 7.68

Current Ratio
It shows the relationship between current assets and current liabilities. And also it indicates the short term financial position or liquidity of a firm.

Formula
Current ratio = current assets / current liabilities Year 2009 406541695000 / 363396932000

= 1.119 : 1

Year 2010 468168736000 / 420467889000

=1.113 : 1

Year 2011 518900004000 /467322067000

= 1.110 : 1

ACID TEST RATIO Formula

Acid test ratio OR Quick ratio = Current assets Advances / Current Liability

Calculation

Year 2011 518900004000 254551589000 467322067000

Year 2010 - 468168736000 / 253249407000 / 420467889000

Year 2009 406541695000 262135470000/ 363396932000

= 264348415000 / 467322067000 = 214919329000 / =144406225000 363396932000 / 420467889000

= 0.566 = 0.511 = 0.397

TREND ANALYSIS
In trend analysis we done two types of analysis, these are

1.

Horizontal Analysis

It is conducted by setting consecutive balance sheet, income statement or statement of cash flow side-by-side and reviewing changes in individual categories on a year-to-year or multiyear basis. A comparison of statements over several years reveals direction, speed and extent of a trend(s). The horizontal financial statements analysis is done by restating amount of each item or group of items as a percentage.

2.

Vertical Analysis

Like horizontal analysis this can also done for balance sheet and income statement. Here we assign 100% value to any key item of balance sheet or income statement and then see portion of other items in this percentage.

Horizontal analysis of financial position

Financial position Rupees in millions 2011 assests Cash balance and with 26,168 22565 19386 16030 13356 14879 16 16 21 20 10 26 2010 2009 2008 2007 2006 11vs10 variance 10vs09 09vs08 08vs07 07vs06 06vs05

treasury bank Balances with other banks Lendings financial institutions nvestments Advances Operating fixed assets Other assets Total assests Liabilities Bills payable Borrowings Deposits and 133,75 150,71 1 9,349 15,945 343,75 10226 15278 4 9988 14190 31474 5 3090 25555 25593 7 5993 67046 13503 4 9262 10621 25432 7 2946 19300 20597 0 5995 35678 12881 8 8266 8964 20619 1 2585 15190 16767 7 2996 39431 10078 0 5128 5535 18217 2 2627 17554 14303 7 2997 28626 99179 31 -1 53 13 88 5 -10 28 38 2 11 15 to 1,592 9172 4614 4480 1444 8393 83 99 3 -69 72 -1 6,235 3785 8364 3955 3497 7333 65 65 111 13 -52 32

3810 3813 16603 4 1839 14964 13183 9 2999

-6 12 9

8 34 24

12 18 23

61 62 13

35 45 10

19 40 14

2,756 17,273 291,50 3 6,990

-11 -32 14

5 32 24

14 27 23

-2 -13 17

43 17 8

40 42 11

other accounts Sub-ordinated loans Deferred liabilities Other liabilities Net Assets Represented by Share capital Reserves Unappropriate d profit Surplus on tax

17

100

83

86

334

13

472

736

-3

-74

2471

-97

-36

30

7,374 17,776

8081 16004

4833 14949

4759 12971

3220 12266

2603 11053

-9 11

67 7

2 15

48 6

24 11

27 25

7070 8136 1302

6427 7691 702

5073 7236 834

4059 7667 309

3006 6950 2143

2004 5815 1800

10 6 86

27 6 -16

25 -6 170

35 10 -86

50 20 19

33 30 11

revaluation of assets - net of tax

1267

1184

1806

936

166

1434

-34

93

463

-88

18

17,776

16004

14949

12791

12266

11053

11

15

11

25

VERTICAL ANALYSIS OF PROFIT AND LOSS

2011 VS 2010 2010 VS 2009
MARK-UP / RETURN / INTEREST EARNED

2009 VS 2008 23

2008 VS 2007

2007 VS 2006

2006 VS 2005

20

21

21

20

43

MARK-UP / RETURN / INTEREST EXPENSED

27

32

27

23

24

63

NET MARK-UP / INTEREST INCOME

17

20

15

25

PROVISION AGAINST NON-PERFORMING LOANS AND ADVANCES

-30

-39

-2

247

77

IMPAIRMENT LOSS ON AVAILABLE FOR SALE INVESTMENT

-68

-11

-100

PROVISION FOR IMPAIRMENT IN THE VALUE OF INVESTMENTS PROVISION AGAINST REVERSE REPO

-85

286

15015

-66

299

-47

-20

100

BAD DEBTS WRITTEN OFF DIRECTLY

-100

100

-40
NET MARK-UP / INTEREST INCOME AFTER PROVISIONS TOTAL NON-MARKUP / INTEREST INCOME

5 3

-28 67

4 45

248 -44

87 15

30

10

-6

-41

113

38

22
TOTAL NON-MARKUP / INTEREST EXPENSES

5 12

36 19

-10 23

7 46

22 27

11

PROFIT BEFORE TAXATION PROFIT AFTER TAXATION PROFIT AVAILABLE FOR APPROPRIATION

90 73 31

-22 -15 25

256 187 -44

-80 -86 -44

-31 19 16

17 11 9

VERTICAL ANAYLSIS

2011
8

10 7

09 8 3 2 26 53 4 4 100 1 8 86 3 2 100 6 34 48 6 31

08 8 2 2 17 62 4 4 100 1 8 87 2 2 100 6

07 7 2 8 22 55 3 3 100 2 10 84 2 2 100 7 25

06 9 4 5 17 60 2 2 100 1 10 85 2 2 100 7 18 53 16

2 0 39 44 3 5 100
1

1 3 32 49 3 5 100 1

5 89 2 2 100 5
40

9 86 2 3 100 5 40 48 4

46

59 2

57 17

93

93

88

93

99

87
7

7 100

12 100

7 100

1 100

13 100

100

VERTICAL ANALYSIS VERTICAL ANALYSIS VERTICAL ANALYSIS VERTICAL ANALYSIS

INTERPRETATION
In balance sheet of bank the most important item is earning assets. There are four earning assets. Bank has strong earning assets like advances investments and lending to financial institutions has major percentage in of assets of bank. In liability and equity analysis the Borrowings from financial institutions and deposits have major portion and reserve and share capital has major portion in equity