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INDUS BUSINESS ACADEMY, BANGALORE

RATIO ANALYSIS for Orissa State Co-Operative Bank, BBSR


Submitted by:
Manas Ranjan Mahanta IBA, Bangalore Regd. No.: FPB1113/032

Indus Business Academy, Bangalore

ACKNOWLEDGEMENT
I take this opportunity to express my deep sense of gratitude to Prof. Ramesh faculty member, IBA, Bangalore and Mr. P. K. Behera DGM of Orissa state co-operative bank, Bhubaneswar who extended full-cooperation and support to me which helped me to reach final stage of making this report. And finally, I am thankful to Dr. T. K. Lenka (Principal), R.C.E.M for permitting me to do my SIP at OSCB, Bhubaneswar and giving me adequate scope for doing something good and innovative. Last but not the least; I would like to thank my college whose sincere co-operation helped me a lot in bring this project in a fruitful manner.

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Deans Certificate
This is to certify that Manas Ranjan Mahanta is a bona fide student of Indus Business Academy, Bangalore and is presently pursuing his Post Graduate Diploma in Management.

Under my guidance he has submitted his project titled RATIO ANALYSIS FOR ORISSA STATE COOPEATIVE BANK, BHUBANESWAR in partial fulfillment of the requirement during the Post Graduate Diploma in Management.

This project has not been previously submitted as part of another degree or diploma of another Business School or University.

Dr. Subhash Sharma (Dean) Indus Business Academy Lakshmipura,Thataguni Post, Kanakapura Main Road, Bangalore-560062

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Mentors Certificate
This is to certify that Manas Ranjan Mahanta is a bona fide student of Indus Business Academy, Bangalore and is presently pursuing his Post Graduate Diploma in Management. Under my guidance he has submitted his paper titled RATIO ANALYSIS FOR ORISSA STATE COOPEATIVE BANK, BHUBANESWAR in partial fulfillment of the requirement during the Post Graduate Diploma in Management. This paper has not been previously submitted as part of another degree or diploma of another Business School or University.

Prof. Ramesh (Mentor) Indus Business Academy Lakshmipura, Thataguni Post, Kanakapura Main Road, Bangalore-560062

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STUDENT DECLARATION
I, Manas Ranjan Mahanta, the undersigned, a student of Indus Business Academy, Bangalore declare that this project report RATIO ANALYSIS FOR ORISSA STATE CO-OPEATIVE BANK, BHUBANESWAR is submitted, in partial fulfillment of the requiremen t during the Post Graduate Diploma Management (PGDM), at Indus Business Academy, Bangalore.

This is my original work and has not been previously submitted as a part of another degree or diploma of another Business School or University.

The findings and the closing remarks of this paper are based on my personal study and experience.

Manas Ranjan Mahanta FPB1113/032 Indus Business Academy Lakshmipura, Thataguni Post, Kanakapura Main Road, Bangalore-560062

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Table of Contents
CHAPTER I.............................................................................................................................................................. 7 Introduction: ........................................................................................................................................................ 7 Subject: ................................................................................................................................................................ 7 Objective of the study:......................................................................................................................................... 7 Place of the study: ............................................................................................................................................... 7 Scope of the study: .............................................................................................................................................. 8 Limitation: ............................................................................................................................................................ 8 CHAPTER II............................................................................................................................................................. 9 Methodology:....................................................................................................................................................... 9 Data choice: ......................................................................................................................................................... 9 The objective:....................................................................................................................................................... 9 Tools: .................................................................................................................................................................. 10 CHAPTER III.......................................................................................................................................................... 11 Overview: ........................................................................................................................................................... 11 History of OSCB Ltd. ........................................................................................................................................... 11 Mission of OSCB Ltd. .......................................................................................................................................... 12 Objectives: ......................................................................................................................................................... 12 Activities:............................................................................................................................................................ 12 Structure: ........................................................................................................................................................... 14 How O.S.C.B. gets finance: ................................................................................................................................. 14 Functions and role of the Organization: ............................................................................................................ 15 Performane highlights 2009-10: ........................................................................................................................ 16 CHAPTER IV ......................................................................................................................................................... 17 Introduction: ...................................................................................................................................................... 17 Nature of ratio analysis: ..................................................................................................................................... 17 Important or Utility of ratio analysis: ................................................................................................................ 18 Interpretation of ratio:....................................................................................................................................... 18 Guidelines or precautions for the use of ratio:.................................................................................................. 19 Usage and significance of ratio analysis: ........................................................................................................... 20 Limitation of ratio analysis: ................................................................................................................................ 22 Classification of Ratios: ...................................................................................................................................... 23 Analysis of Ratios ................................................................................................................................................... 25 1. Liquidity Ratios: .......................................................................................................................................... 25 Page 5 of 41

Report on Ratio Analysis of OSCB

Indus Business Academy, Bangalore Current Ratio: ................................................................................................................................................. 25 Quick Ratio: .................................................................................................................................................... 27 2. Leverage Ratio: .......................................................................................................................................... 28 Debt-Equity Ratio: .......................................................................................................................................... 28 Equity or Proprietary Ratio: ........................................................................................................................... 30 Current asset to Proprietary Ratio: ................................................................................................................ 32 Debt Asset Ratio:............................................................................................................................................ 33 3. Profitability Ratio: ...................................................................................................................................... 34 Return on Assets: ........................................................................................................................................... 34 Return on Capital Employed: ......................................................................................................................... 35 Earnings per Share (EPS): ............................................................................................................................... 36 Conclusion: ............................................................................................................................................................. 38 Findings: ................................................................................................................................................................. 39 Suggestions: ........................................................................................................................................................... 40 Bibliography: .......................................................................................................................................................... 41

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CHAPTER I
Introduction:
Finance is defined as the provision of money when it is required. Every enterprise needs finance to start and carry out its operation. Finance is known as the life blood of an organization. So finance should be managed effectively.

Subject:
Financial statement analysis refer to the process of determining financial strength and weakness of the firm by establishing strategic relationship between the items of the balance sheet, profit and loss account and other operative data. The analysis of financial statement is a process of evaluating the relationship between different parts of financial statement. Financial statement is used for decision making by various parties interested in item. First task of the analysis is to select the information relevant to the decision. Second task is to arrange the information in a way to highlight significant relationship. Final task is interpretation and drawing of inferences and conclusion.

Objective of the study:


The present study is made as a part of PGDM program for summer training in the form of the job training with following activities: To know the financial position of the OSCB Limited. To know whether the Bank has the strength to fulfill its current obligation or not. To find out the strength and weakness of OSCB Ltd. To check performance of OSCB Ltd. For granting credit providing loans and making investment. To find out the growth rate of OSCB Ltd. To know the liquidity position of OSCB Ltd. To know the long term solvency of OSCB Ltd. To know the operating efficiency of OSCB Ltd. To know the overall profitability of OSCB Ltd.

Place of the study:


All the activities of the project are carried out in the Orissa State Cooperative Bank Ltd, Bhubaneswar.

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Scope of the study:


The data and information were gathered during training.


The scope is limited to the secondary data. The scope is limited till the year 2009-2010.

Limitation:
It is based on mathematical interpretation of the figure and ignores the factors such as management style, motivation of workers, leadership etc.. It is affected by price level changes. It does not give any clue for future.

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CHAPTER II
Methodology:
The research involved extensive and intensive studies of the Orissa State Co-operative Bank Limited. In this project report a science effort has been made to study the ratio analysis of the bank. During this study I study the financial position and performance of the bank. At last, I have given interpretation and conclusion of the study.

Data choice:
The whole of my study is based on secondary data of O.S.C.B. Ltd. I have not taken any primary data for such study. During the study I have taken help of following secondary data. Annual Report of O.S.C.B. Ltd. Annual Audit Report. Balance Sheet. Development Action Plan. Profit and Loss Account.

The objective:
The sole objective of the project is to help the management of the organization in decision making regarding the subject matters. Calculation of ratio is only a clerical task whereas the interpretation of it need immense skill, Intelligence and foresightedness. The sole objective of the project is to help the management of the organization in decision making regarding the subject matter. One of the easiest and most popular way of evaluating performance of the organization is to compare its present ratios with the past ones called comparison over time and through Development Action Plan. It gives an indication of the direction of change and reflects whether the org anizations financial position and performance has improved, deteriorated or remained constant over a period of time. The various kinds of interpretation of ratio as follow: Simple absolute ratios. Group of ratios. Historical comparison. Projected ratios. Inter organization comparison.

Here more emphasis was given on historical comparison and on forecasting the immediate future trends.

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Tools:
There are some of the tools which are relevant for the study of ratio analysis and performance of OSCB Ltd. o Liquid Ratio: Current Ratio Quick Ratio o Leverage or Capital Structure Ratio: Debt to Equity Ratio Funded Debt to Total Capital Ratio Equity or Proprietary Ratio Current Asset to Proprietary Ratio Fixed Asset to Proprietary Ratio Solvency Ratio Debt Asset Ratio Fixed Asset to Current Asset Ratio o Profitability Ratio: Return on Asset Return on Capital Employed Return on Equity Capital Earnings per Share

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CHAPTER III
Overview:
The Orissa State Co-operative bank, a scheduled bank, under RBI Act was registered in the year of 1948 as the apex bank of the short term co-op credit structure of Orissa with an objective of development of agrarian economy of Orissa by catching the credit equipment of the terms of the state. The O.S.C.B. has made a humble beginning with a share capital of Rs 1.76 Lacks and a borrowing of Rs. 25.50 Lacks to address the problem of farm credit dispensation. The O.S.C.B. in its own way has contributed in providing of farm credit and input of bring the desired changes over the years. The bank has been trying to develop the primary societies vie PACS (Primary agricultural co-op society) which constitutes of schemes as LAMPS (Large scale agricultural multipurpose society) / FSS (farm service society). The activities of the O.S.C.B. are not confined to dispensation of farm credit alone. As a scheduled bank, it has responded to the sweeping change in banking services in view of advancement in information technology. The bank has assumed the role of leader of the co-op credit structure to develop the lover tiers to cope with the emerging challenges of banking activities. The activities of O.S.C.B. are: General banking business. Dispensation of farm Credit. Re-finance to DCCB. Production Credit.

Integration of all branches and extension accepting deposit from the public and offering all banking facilities to its customers through its fully computerized branches and extension counts at Bhubaneswar, Cuttack, Paradeep and Sabalpur. The banking services offers by the banks include acceptance of all types of deposits, bills and exchange, issue of letter of credit, advances loans to farm and non-farm sector.

History of OSCB Ltd.


The Orissa provincial co-operative bank is one of the manifestations of the great historical identity of oriya people Orissa Province was formed on 1st April 1935. In April 1914 Bihar and Orissa provincial co-operative banks were formed. A few months after the formation of Orissa province the Orissa co-operative bank was registered on 15th August 1936. It could not start its function due to pending of government decisions on the enquiry into the condition of co-operative movement in Orissa. The name of Orissa state Cooperative bank was named in the year 1951-52. The main objective of the bank was: To finance the o-operative society. To carry on banking business To act as a balancing center for the surplus funds of the societies in Orissa.
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Mission of OSCB Ltd.


Corporate mission of OSCB is to become a strong and competitive Bank offering innovative financial products and services and to lead a rejuvenated short term cooperative credit structures to better serve the people of Orissa.

Objectives:
To cater to the credit requirement of farmer-members of the Primary Agriculture Cooperative Societies. To implement the Kissan Credit Card (KCC) scheme to ensure instant finance and adequacy in credit delivery. To step up production and productivity in agriculture through promotion of farm mechanization and better land and water management. To create employment opportunities by channeling credit for promotion of dairy, poultry, pisciculture handloom, transport and Micro Small and Medium Enterprises (MSMEs). To cater to the credit needs of small traders and artisans for income generation and employment opportunities under Swarojgar Credit Card (SCC) Scheme. To extend credit facilities to Tenant Farmer Groups (TFGS), Joint Liability Groups (JLGs), Oral Leasees, Share Croppers and Self Help Groups (SHGs) for farm and non-farm operations. To recognize and reward good repayment habits of farmer-members through Kalinga Kissan Gold Card (KKGC) scheme. To direct efforts towards achieving the State Government given targets under various crop production programmes and implementation of policies on the cooperative sector

Activities:
First State Cooperative Bank in the Country to provide state-of-the-art banking services through fully computerized branch network. ATM facility is available at Main Branch (Pandit Jawaharlal Nehru Marg, Bhubaneswar), Saheednagar Branch (Saheednagar, Bhubaneswar), Ashok Nagar Branch (Western Tower Market Building, Unit-II, Bhubaneswar), Cuttack Road Branch (Plot No. 236, Rout Complex, Laxmisagar), Sailashree Vihar Branch (DAV Public School Campus, Chandrasekharpur), Kalinga Hospital Campus Branch (Chandrasekharpur, Bhubaneswar), Cuttack (Durgha Bazar, Cuttack), Berhampur (Old Bus stand, Berhampur), Sambalpur Branch (Main Road, Budharaja, Sambalpur), Paradeep Branch (Madhuban), Angul (Amalapada) and Rourkela Branch (Civil Market Area). All the retail outlets and the ATMs are connected to provide anywhere and anytime banking. Providing insurance services to the customers of the Bank as corporate agent of Tata AIG Insurance Co. Ltd. Providing investment opportunity to all sections in the form of attractive saving products including Tax Benefit Scheme.
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Facilitating customers in meeting their credit needs through various financial products and services. Providing Bank-connectivity through Financial inclusion under the policy of Inclusive Growth to the unbanked and under banked sections of the Society by opening No Frills Account and providing General Credit Cards (GCC). Human Resource Development through Agricultural Cooperative Staff Training Institute (ACSTI) of the Bank. Continuous research for product innovation to cope with the emerging challenges in banking industry. Developmental initiatives for furtherance of the Cooperative Credit Structure of the State including computerization of affiliated DCCBs. Transparency in management by adhering to good corporate governance practices. Whistleblowers policy to provide protection to staff members who expose wrong doings, and implementation of Right to Information Laws.

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Structure:
RESERVE BANK OF INDIA

Commercial Bank SBI group Nation Bank RRB Private Bank

Insurance Companies LIC, GIC

Mutual Fund UTI

Development Bank NABARD SIDBI IDBI IFC ICICI IRBI

State Land Development Banks

State Co-operative Bank

Urban Co-operative Bank

Primary Land Development Bank

17 District Central Co-Operative Banks

2749 Primary Agricultural Co-operative Society (PACS)

How O.S.C.B. gets finance:


NABARD

Orissa State Co-Operative Bank

District Central Co-Operative Bank

Primary Agricultural Co-Operative Society

Members

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Functions and role of the Organization:


The Orissa State Co-Operative Bank as the apex level institution of the short term CoOperative Credit delivery system in the state is playing measure role strengthening DCCB/PACS for the socio-economic growth of the state. 1. Role towards Credit policy at the State Level: O.S.C.B. as the leader of the State Co-Operative Credit Structure is drawing annual credit plan (DCCB wise and PACS wise and purpose wise). Simplification of loaning procedure. Kissan Credit card has been introduced to the farmers to ensure adequacy and time liner in credit delivery. 2. Role Towards Rural Savings Mobilization to Attain self Reliance of CCB and PACS: Apex bank has encouraged the DCCBs to introduce new deposit senate such as incurrence linked deposit, daily deposit, pension senate. Apex bank has advised to banks to identify the potential growth centers to pen mini banks at PACSs level. Apex bank has prepared model business for mini banks. So far 800 mini banks are operating in the state and mobile more than 200 deposits. Introduction of deposit guarantee scheme for deposit in PACs (mini Bank) with contribution from State Government apex bank, CCB, PACs. Arranging NABARD is instance from out of Co-Operative Development Fund (CDF) for infrastructure development of PACs operating MINI bank to provide iron safe deposit counters, furniture. Publicity through electronic media by Apex Bank for deposits mobilization of CCBs and PACs. 3. To serve as balancing center in the state for all types of Co-Operative societies registered under the Co-operative Society Act. 4. To make loans and advances to Co-Operative societies in the State. 5. To function as a banker and accept all types deposit is current savings, fixed etc., and borrow from NABARD, Reserve bank of India to finance its affiliated societies. 6. To act as refinancing agency to the affiliated societies in respect of production/investment (agricultural) credit and Handloom credit in the state. 7. Role towards recovery of agricultural loan: With a view to inter competitive spirit among field staff O.S.C.B. has taken the following steps; Introduction of incentive scheme for recovery of loan. Regular review of recovery performance of CCBC/PACS. Publicity through electronic media for recovery of loan of DCCB/PACs. 8. Role towards Inspection and Supervision: O.S.C.B. has prepared guideline for inspection DCCB/PACs and deputes its senior officers for annual inspection of all DCCB and selected PACs for up graduation of their skill. 9. Towards human resource development in Co-Operative:
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The agricultural Co-Operative staff-training institute (ACSTI) under the agenda of O.S.C.B. is impacting training to the staff of DCCB/PACs for up gradation of their skills. 10. Towards Customer Service: A committee under the chairmanship of Sri. M. N. Goiporia has been set up in Sept. 1990 on customer service by Reserve Bank of India Goiporia committee has made suitable recommendation of customer service in the Bank. O.S.C.B. has examine all the recommendation and advised its branches and Dist. Central Co-Operative Banks to follow all the important recommendations to ensure customer satisfaction in the Bank.

Performane highlights 2009-10:


Bank earned net profit of Rs. 10.34 Crore. Proposed to pay dividend @ 2.8% Interest earning raised by 29% to Rs. 349.49 Crore compared to position of Rs. 267.36 Crore earned in 2008-09. Total business stood at Rs. 5873.85 Crore recording a good 36.87% increase Total deposit record highest ever growth of over 46% reaching Rs. 3385 Crore compared to Rs. 2310 crore obtained in the year. Total loan portfolio declined to Rs. 1981.27 Crore from position of 2488.85 crore in the year 2009-10 due to repayment by DCCBs, which benefited under implementation of Agriculture Debt waiver and Debt relief (ADWARD) scheme 2008 of Union Government. Gross investment surged by 43. 75% to Rs. 3293.66 crore compared to corresponding period position at Rs. 3391.3 Crore due to lesser deployment of funds under credit portfolio. Lending business increased to Rs. 2524 Crore notwithstanding slowdown in credit disbursal across the banking industry and this is against previous year achievement at Rs. 2053.05 Crore, forming a good 22.94% growth. Productivity measured by Business per employee reached a new high of Rs. 28.51 Crore. Percentage of Gross NPA to gross advance increased marginally to 4.61 from position of 6.85 in the previous year. Net NPA as per percentage of net advance also increased marginally to 1.43 from 2.91 in the corresponding period of last year.

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CHAPTER IV
Introduction:
The term Ratio Analysis is made up of two words Ratio and Analysis. Ratio Analysis means a tool of analysis based on ratios. Ratio Analysis is a process determines and interpreting numerical relationship of different items of financial statement. It provides yardstick that to measure the relationship between variables or as a quotient (one item as ascertain number of items the other item). It is technical tool in the hands of management to Measure the financial process. According to Accountants hand book by Wixon, Kell and Bedford, a ratio is an expression of the quantitative relationship between two numbers. Ratio Analysis is a tool which enables the organization to arrive at the following factors: Liquidity position Profitability Solvency Financial Stability Quality of the management Safety and security of the loans and advances to be or already been provided

Nature of ratio analysis:


Ratio Analysis is a technique of analysis and interpretation of financial statement. It is the process of establishing and interpreting various ratios for helping in making certain decisions. It is the only means of better understanding of financial strength and weakness of a firm. There are no of ratios, which can be calculated from the information given in the financial statement. But analysis has to select the appropriate data and calculate only a few appropriate ratios from the same keeping in mind the objective of analysis. Following are 4 Steps to involve in Ratio Analysis: 1. Selection of relevant data from the financial statement depending upon the objective of analysis. 2. Calculation of appropriate ratios from the relevant data. 3. Compression of the calculation ratios of the same organization in the past or the ratios developed from projected financial statement or the ratios of same other organization. 4. Interpretation of Ratios.

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Important or Utility of ratio analysis:


Helpful in forecasting. Useful in Co-Ordination. Helpful in control. Helpful in Communication. Helpful in Elevation of Financial Position. Helpful to investors, Financial Institution and Employee.

Interpretation of ratio:
Interpretation of ratios is an important factor. Though calculation of ratios is also important but it is only clerical task whereas interpretation needs skill, intelligence and foresightedness. The impact of factors such as price level changes, change in accounting policies windows dressing etc. should also be kept in mind when attempting to interpret ratios. The interpretation of the ratios can be made in following ways: 1. SINGLE ABSOLUTE RATIO: Generally speaking one cannot draw any meaningful conclusion when a single ratio is considered in isolation. But ratios may be studied in relation to certain rules of thumb which are based upon proven conventions. For Example 2:1 is considered to be a good ratio for Current Assets to Current Liabilities. 2. GROUP OF RATIOS: Ratios may be interpreted by calculating a group of related ratios. A single ratio supports by other related additional becomes more understandable and meaningful. For example the ratio of current assets to current liabilities may be supported by the ratio of Liquid Assets to liquid liabilities to draw more dependable. 3. HISTORICAL COMPARISON: Once of the easiest and most popular ways of evaluating the performance of the organization is to compare its present ratios called comparison overtime. When financial ratios are compared over a period of time it gives an indication of the direction of change and reflect whether the organization performance and financial position has improved, deteriorated or remained constant over a period of time. 4. PROJECTED RATIOS: Ratios can be calculated for future standards based upon the projected or Performa financial statement, these further ratios may be taken as standard for comparison and the ratios calculated on actual financial statement can be compared with the standard ratios to end out variances, if any. Such variances help in interpreting and taking corrective action for movement in future. 5. INTER-ORGANIZATION COMPARISON: Ratios of one organization can also be compared with the ratios of some other selected organization in the same industry at the same point of time. This kind of comparison helps in evaluating relative financial position and performance of the firm. But while making use of
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such comparison, have to be careful regarding the different Accounting methods, policies and procedure adopted by different organization.

Guidelines or precautions for the use of ratio:


The calculation of ratios may not east. The information on which these are based, the constraints of financial statement, objective for using them, the caliber of the analyst etc. are important which influence the use of ratios. Following guidelines or factors may kept in mind while interpreting ratios. 1. ACCURACY OF FINANCIAL STATEMENT: The ratios are calculated rom data available in financial statement. The reliability of ratios is lined to the accuracy of information in the statement. Before calculating ratios one should see whether proper concepts are conventions have been used for preparing financial statements or not. 2. OBJECTIVES OR PURPOSE OF ANALYSIS: The type of ratios be calculated will depend upon the purpose for which these are required, if the purpose is to study current financial position then ratios relating to current assets and current liabilities will be studies. The purpose of user is also important for the analysis of ratios, the purpose or object for which ratios are required to be studies should always be kept in mind for studying various ratios. 3. SELECTION OF RATIOS: Another precaution in ratio analysis is proper selection of appropriate ratios. The ratios should match the purpose for which these are required. Only those should be selected which can throw proper light on the matter to be discussed. 4. USE OF STANDARDS: The ratios will give an indication of financial position only when discussed with reference to certain standards unless otherwise these ratios are compared with certain standards one will not be able to reach at conclusions. These standards may be rule of thumb in case of current ratio (2:1) and acid test ratio (1:1). 5. CALIBER OF THE ANALYST: The ratios are only tools of analysis and their interpretation will depend upon caliber competence of the analyst. He should familiar with various financial statements and the significance of changes, etc. a wrong interaction may create wave for the concern since wrong conclusions may lead to wrong decisions. 6. RATIOS PROVIDE ONLY A BASE: The ratios are only guidelines for the analyst. He should not base his decisions entirely for them the interpreter should use the ratios as guide and may try to solicit any other relevant information which helps in reaching a correct decision before reaching final conclusions.

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Usage and significance of ratio analysis:


Ratio analysis is one of the most powerful tools for financial analysis. It is used as a device to analyze and interpret the financial health of enterprise. The usage of ratio is not confined to financial managers only. As discussed earlier, there are different parties interested in the ratio analysis for knowing the financial position of a firm for different purpose. With the usage of the ratio analysis one can measure the financial condition of an organization and can point out whether the condition is strong, good, questionable or poor. The conclusion can also be drawn as to whether the performance of the organization is improving or deteriorating. Thus ratios have wide application and are of immense use today. 1. 2. 3. 4. 5. 6. Managerial uses of ratio analysis. Utility to shareholders/Investors. Utility to creditors. Utility to employee. Utility to government. Tax audit requirements.

1. Managerial uses of ratio analysis: Helps in Decision Making: Financial statements are prepared primarily for decision making, but the information provided in financial statements is not an end in itself and no meaningful conclusion can be drawn from these statements alone. Ratio analysis helps in making decisions from the information provided in these financial statements. Helps in Financial Forecasting and Planning: Ratio Analysis is of much helpful in financial forecasting and planning. Planning is looking ahead and the ratios calculated for a number of years work as a guide for the future meaningful conclusions can be drawn for future from these ratios. Helps in Communicating: The financial strength and weakness of an organization are communicated in easier and understandable manner by the use of ratios. The information contained in the financial statements is conveyed in a meaningful manner to the one for whom it is meant. Helps in Co-Ordination: Ratios even help in co-ordination, which is of utmost important in effective business management. Better communication of efficiency and weakness of an enterprise results in better co-ordination in the enterprise. Helps in Control: Ratio analysis even helps in making effective control of business, standard ratios can be based upon Performa of financial statements and various or deviations if any, can be found by comparing the actual with the standard so as to take a corrective action at the right time.

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Other Uses: There are so many other uses of the ratio analysis, it is an essential part of the budgetary control and standard costing ratios are of immense importance in the analysis and interpretation financial statements as they bring the strength or weakness of an organization.

2. Utility to shareholders/Investors: An investor in the company will like to assess the financial position of the concern where he is going to invest. His first interest will be the security of his investment and then return in the form of dividend or interest. For the first purpose he will try to assess the value of fixed assets and the loans raised against them. The investor will feel satisfied only if the concern has sufficient amount of assets. Long term solvency ratios will help him in assessing financial position of the concern. On the other hand, Profitability ratios will be useful to determine profitability position. Ratio Analysis will be useful to the investor inn making up his mind whether present financial position of the concern warrants further investment or not. 3. Utility to Creditors: The creditors or suppliers extend short term credit to the concern. They are interested to know whether financial position of the concern warrants their payments at a specified time or not. The concern pays short term creditors out of its current assets. If the current assets are quite sufficient to meet current liabilities then the creditor will not hesitate in extending credit facilities. Current and Acid test ratios will give an idea about the current financial position of the concern. 4. Utility to Employees: The employees are also interested in the financial position of the concern specially profitability. The employees make use of information available in financial statements. Various profitability ratios relating to gross profit, operating profit, net profit, etc. enable employees to put forward their viewpoint for the increase of wages and other benefits. 5. Utility to Government: Government is interested to know the overall strength of the industry. Various financial statements published by industrial units are used to calculate ratios for determining short term, long term and overall financial position of the concerns. Profitability indexes can also be prepared with the help of ratios. Government may base its future policies on the basis of industrial information available from various units. The ratios may be used as indicators of overall financial strength of public as well as private sector. In the absence of the reliable economic information, government plans and policies may not prove successful.

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6. Tax audit requirements: Section-44-AB was inserted in the income Tax At 1984. Under this section every assesse engaged in any business and having turnover or gross receipts exceeding Rs. 40 Lacks is required to get the accounts audited by a chartered accountant and submit the tax audit report before the due date for filing the return of income under section 139 (1). In case of a professional, a similar report is required if the gross receipts exceeds Rs. 10 lacks, clause 32 of the Income Tax Act required that the following accounting ratios should be given. Gross Profit/Turn over Net Profit/Turn over Stock-in-Trade/Turn over Material Consumed/Finished Goods Produced

Limitation of ratio analysis:


The ratio analysis is one of the most powerful tools of financial management. Though ratios are simple to calculate and easy to understand, but they suffer from some serious limitations. 1. Limited use of a single ratio: A single ratio usually does not convey much of a sense. To make a better interpretation a number of ratios have to be calculated which is likely to confuse the analyst than helping him in making any meaningful conclusion. 2. Lack of adequate standard: There are no well accepted standards or rules of thumb for all ratios, which can be accepted as norms, it renders interpretation of the ratios difficulties. 3. Inherent limitations of accounting: Like financial statements, ratios also suffer from the inherent weakness of accounting records such as their historical nature of the past are not necessarily true indicators of the future. 4. Changes in accounting procedure: Changes in accounting procedure by a firm make ratio analysis misleading. Let a change in the valuation of methods of inventories from FIFO to LIFO increase the cost of sales and reduces considerable the value of closing stocks which makes stock turnover ratio to be lucrative and an unfavorable gross profit ratio. 5. Window dressing: Financial statements can easily by window dressed to present a better picture of its financial and profitability position to outsiders. Hence, one has to very careful in making a decision from ratios calculate from such financial statements. But it may be very difficult for an outsider to know about the window dressing made by an organization.
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6. Uncompareble: Not only industries differ in their nature but also the organization/firms of the similar business widely differ in their size and accounting procedure, etc. it makes comparison of ratios difficult and misleading. Moreover comparisons are made due to differences in definitions various financial terms is used in the ratio analysis. 7. Price level changes: While making ratio analysis, no consideration is made to the change in price level and this makes the interpretation of ratios invalid. 8. Absolute figures distortive: Ratios devoid of absolute figures may prove distortive as ratio analysis is primarily a quantitative analysis and not a qualitative analysis.

Classification of Ratios:
The use of ratio analysis is not confined to financial manger only. There are different parties interested in the ratio analysis for knowing the financial position of a firm/organization for different purposes. In view of various users of ratios there are many types of ratios which can be calculated from the information given in the financial statements.

RATIOS

Traditional Classification or statement of ratios

Fundamental classification or according to importance

Significant ratio

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TRADITIONAL CLASSIFICATION OR STATEMENT OF RATIO

Balance Sheet or Position statement ratio

Profit & Loss A/C or income statement ratio

Composite/ Mixed statement ratio

CLASSSIFICATION ACCORDING TO FUNCTIONS

PROFITABILITY RATIO LEVERAGE RATIO LIQUIDITY RATIO Current Ratio Quick Ratio Debt-Equity Ratio Current assets to Proprietary ratio Fixed assets to proprietary ratio Return on assets Return on capital employed Return on equity capital Earnings per share

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Analysis of Ratios
1. Liquidity Ratios:
It measures the organization ability to meet its current obligation. In fact analysis of liquidity budgets and cash and fund flow statement. But liquidity ratios by establishing a relationship between case and other current asset to current obligation, Provide a quick measure of liquitdity. A very high degree of liquidity is also bad as idle assets earn nothing. So, it is necessary to strike a proper between high liquidity and lack of liquidity. The most common ratio relevant to the study is: Current Ratio Quick Ratio

Current Ratio:

Current ratio is defined as the relationship between current assets and current liabilities. This ratio is also known as working capital ratio is widely used to make the analysis of short term financial position of the firm. Current Ratio = Current Assets/Current Liability Current Assets: Cash in hand, Cash at bank, Money at call and short notice, Advances (Short term loan cash credit and over draft), Interest receivable, Bills receivable Current Liability: Borrowing term loan, bills payable, Interest payable, Other liabilities, Saving bank, current Deposit.

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Current Assets 10,585,065,056.04 7,896,555,600.00 27,090,204,599.80 32,652,458,972.31 45,396,012,202.33

Current Liabilities 6,454,307,961.00 25,472,760,000.00 11,778,349,826.00 20,481,404,643.95 21,091,917,305.06

Ratio 1.64:1 0.31:1 2.30:1 1.59:1 2.15:1

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Interpretation: As a convention of current ratio the average of 2:1 is referred to be a bankers rule of thumb. Here OSCB was unable to do this in his past and was struggling for it. But in this current year it has reached a ratio to 2.15:1 which is a good sign for the organization. But the organization has to maintain the stability in the ratio. If they are goes little bit high, then also it is not a good sign for the organization as there will be so much of asset and they will be unable to utilize them. If you are simply keeping your asset without using them, it is not good for organization. So Current asset is in balance for this time period just the organization needs to maintain this pace.

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Indus Business Academy, Bangalore Quick Ratio:

It is defined as the relationship between quick asset and Current liability.

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Quick Asset 2,129,269,639.00 3,293,148,000.00 1,007,695,926.00 17,976,404,402.00 26,477,944,193.00

Current Liabilities 6,653,967,611.00 25,472,760,000.00 11,778,349,826.00 20,481,404,643.00 21,091,917,305.00

Ratio 0.32:1 0.13:1 0.09:1 0.88:1 1.26:1

1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 2005-06 2006-07 2007-08 2008-09 2009-10 Quick Asset Current Liabilities

Interpretation: The standard norm of absolute ratio is 0.5:1 . The Quick Ratio of 2009-10 tells that they have not used their assets properly and had been idle for the year which is not a good sign for the organization. So It is better to utilize the resources as much as possible, because it will give you more interest than idle.

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2. Leverage Ratio:
It is defined as the firms ability to meet the fixed interest and cost repayment schedule associated with its long term borrowing, leverage ratio shows the proportion of debt & equity in financing of the firm. The various leverage ratios relevant to the study are: Debt-Equity ratio Funded debt to total capitalization ratio Equity proprietary ratio Current assets to proprietary ratio Fixed assets to proprietary ratio Solvency ratio Debt asset ratio Fixed assets to current assets ratio

Debt-Equity Ratio:

A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders equity. It indicates what proportion of equity and debt the company is using to finance its assets. Debt-Equity Ratio= Total liabilities/Shareholders Equity Different types of Liabilities are: Borrowings from RBI/NABARD Borrowings from state Govt. Borrowings from other institutions Interest payable Other liabilities Deposits &other account (Fixed deposits, Saving bank deposits, Current deposits)

Shareholder Equities are: Share capital Reserve fund and other Overdue interest Overdue interest reserve Profit & Loss

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Year 2005-06 2006-07 2007-08 2008-09 2009-10

Liabilities 19,862,539,768.00 26,795,857,000.00 42,759,754,770.00 41,970,455,749.00 58,771,551,975.00

Shareholders Equity 2,849,870,112.00 4,732,460,000.00 2,964,006,007.00 3,546,046,665.00 3,567,737,970.00

Ratio 6.97:1 5.66:1 14.43:1 11.84:1 16.47:1

18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 2005-06 2006-07 2007-08 2008-09 2009-10 Liabilities Shareholder's equity

Interpretation:
A high debt/equity ratio of OSCB means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle.

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Indus Business Academy, Bangalore Equity or Proprietary Ratio:

Proprietary ratio (also known as Equity Ratio or Net worth to total assets or shareholder equity to total equity). Establishes relationship between proprietor's funds to total resources of the unit. Where proprietor's funds refer to Equity share capital and Reserves, surpluses and Tot resources refer to total assets. Proprietary Ratio= Shareholders fund/Total Assets List of Total Assets: Cash Balance with other banks Money at call and short notice Investments Advances Interest Receivable Bills Receivable Adjusting head Premises Furniture and fixture less depreciation Other assets Non-banking assets acquired in satisfaction of claims Profit and loss

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Shareholders Equity 2,849,870,112.00 4,732,460,000.00 2,964,006,007.00 3,546,046,665.00 3,567,737,970.00

Total Assets 21,582,633,954.00 29,510,930,000.00 38,936,464,932.00 39,573,434,197.00 124,652,343,442.00

Ratio 0.13:1 0.16:1 0.08:1 0.09:1 0.03:1

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1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 2005-06 2006-07 2007-08 2008-09 2009-10

Shareholders Equity Total Assets

Interpretation:
This ratio throws light on the general financial strength of the company. It is also regarded as a test of the soundness of the capital structure. Higher the ratio or the share of shareholders in the total capital of the company, better is the long-term solvency position of the company. A low proprietary ratio will include greater risk to the creditors. As we can see the ratio of OSCB is low, so here there is a risk of creditors. The business of the OSCB depends upon creditors to supply its working capital. So management has to look after this matter carefully and try to find invest little bit more shareholders equity.

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Indus Business Academy, Bangalore Current asset to Proprietary Ratio:

This ratio is a relationship between current assets and shareholders fund.


Current Assets to Proprietors Ratio = Current Assets / Proprietor's Funds

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Current Asset 10,585,065,056.04 7,896,555,600.00 27,090,204,599.80 32,652,458,972.31 45,396,012,202.33

Proprietary's fund 2,849,870,112.00 4,732,460,000.00 2,964,006,007.00 3,546,046,665.00 3,567,737,970.00

Ratio 3.71:1 1.67:1 9.14:1 9.21:1 12.72:1

14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 2005-06 2006-07 2007-08 2008-09 2009-10 Current Asset Proprietary's fund

Interpretation:
The current assets over the shareholders fund are very high over the year. It means OSCB has utilized most of his proprietary funds in current asset.

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Indus Business Academy, Bangalore Debt Asset Ratio:

It establishes the relationship between debt and total assets. It shows the financial risk in long term. This is a very broad ratio as it includes short- and long-term debt as well as all types of both tangible and intangible assets. Debt Asset Ratio: (Short term debt + Long term debt)/Total Asset

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Debt 16,965,901,097.00 12,514,137,000.00 20,063,775,218.00 19,046,376,307.00 105,548,765,490.00

Total Assets 22,299,832,506.00 29,510,930,000.00 38,936,464,932.00 39,570,343,497.00 124,652,343,442.00

Ratio 0.76:1 0.42:1 0.52:1 0.48:1 0.85:1

1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 2005-06 2006-07 2007-08 2008-09 2009-10

Debt Total Assets

Interpretation:
The debt asset ratio of OSCB is higher over the year, which may create a problem in future in they continue this ratio; they will be unable to take addition loan. So management has to think for some other resources or should increase little bit shareholders fund which will be beneficial for them.

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3. Profitability Ratio:
A class of financial metrics that 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. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well. The primary objective of business undertaking is to earn profit, in the words of Lord Keynes Profit is he engine that drives the business enterprise. Profit is not only needed for its existence but also for its expansion and diversification. The investors want an adequate return on their investment; workers want higher wages, creditors want high security for their interest and loan soon. Following are the important overall profitability ratios, which relevant to be the Business concern are: Return on Asset Return on Capital Employed Return on Equity Capital Earnings per Share

Return on Assets:

This ratio indicates how profitable a company is relative to its total assets. The return on assets (ROA) ratio illustrates how well management is employing the company's total assets to make a profit. The higher the return, the more efficient management is in utilizing its asset base. The ROA ratio is calculated by comparing net income to average total assets, and is expressed as a percentage. Return on Assets: (Net Profit * 100) / Total Assets

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Net Profit 174,443,023.00 169,964,997.00 91,603,000.00 96,910,330.12 373,452,170.00

Total Asset Percentage 22,299,832,506.00 0.78% 29,510,930,000.00 0.58% 38,936,464,932.00 0.24% 39,570,343,497.00 0.24% 124,652,343,442.00 0.30%

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Net Profit
0.80% 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% 2005-06 2006-07 2007-08 2008-09 2009-10 Net Profit

Interpretation:
The return on assets of OSCB is not at all satisfactory. OSCB is not even getting 1% return from total assets which is the biggest issue for the organization and the management has to deeply focus on this. There may be so many reasons behind this. But according to me there are some measure problem such as now a days there are so many other private limited banks are in the market along with them uncountable public limited banks are growing day by day. And now a days banks are providing so many facilities like mobile banking, ATM, Core banking etc. But OSCB is lacking in all these areas.
Return on Capital Employed:

Return on Capital Employed is a ratio that indicates the efficiency and profitability of a company's capital investments.
Return on Capital Employed: (Net Profit * 100) / Total Capital Employed

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Net Profit 174,443,023.00 169,964,997.00 91,603,000.00 96,910,330.12 373,452,170.00

Employed Capital Percentage 2,191,252,452.00 7.96% 2,778,915,623.00 6.12% 25,043,101,000.00 0.37% 26,036,344,102.00 0.37% 29,045,322,012.00 1.29%

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Return on Capital Employed


8.00% 6.00% 4.00% 2.00% 0.00% 2005-06 2006-07 2007-08 2008-09 2009-10 Return on Capital Employed

Conclusion:
The return on capital employed of OSCB has reduced in 2007-08. But after that it is trying to recover and has improved a little bit. But that is not enough for the organization. They need to focus more on this area.
Earnings per Share (EPS):

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: Net Profit/No of Equity Share Holders

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Net Profit 174,443,023.00 169,964,997.00 91,603,000.00 96,910,330.12 373,452,170.00

No of Equity Share Holders 4,500,000.00 4,500,000.00 4,500,000.00 4,500,000.00 4,500,000.00

EPS 38.77 37.77 20.36 21.54 82.99

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EPS (in Rs.)


100.00 80.00 60.00 40.00 20.00 0.00 2005-06 2006-07 2007-08 2008-09 2009-10 EPS (in Rs.)

Interpretation:
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. For OSCB, till 2009, it will very less, but it has increased in 2009-10 which is a good sign for the organization

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Conclusion:
If properly analyzed, ratio analysis can provide valuable insight into a firms performance. Analysis of ratio is of interest to lenders (Short term as well as long term) investors, security analysts, managers and others. Ratio analysis may be done for a variety of purpose, which may range from a simple analysis of the short-term liquidity position of the firm to a comprehensive assessment of the strength and weakness of the firm in various areas. It is helpful in assessing corporate excellence, judging credit worthiness, forecasting bond ratings, predicting bankruptcy and assessing market risk. The ratio analysis is the responsibility of the banks management. The analysis and interpretation of ratio is essential to bring out the mystery behind the figure in ratio analysis. The transactions of the bank, which have come to my notice, have been with in the power of the bank. Proper books of account as required by the law have been kept by the bank insofar as it appears from my observation of those books. Proper returns have been received from the banks branches. The balance sheet, the profit and loss accounts are in agreement with the books of account and the branch returns.

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Findings:
The current assets have increased by 45.22% Cash in hand has increased by 26.99% The DD Ex-advice, Audit and other recovery and house rent receivable are not recovered. The premises and furniture and fittings are decreased by 2.69% and 8.13% respectively. The fixed assets have balanced. The fixed deposit liabilities have increased by 21.09% The current liabilities has increased by 47.12% The membership of the bank has increased by 2714 during the year. The paid up share capital has crossed the limit of authorized share capital The number of defaulter is going up year after year Released the house journal SAMPARK Introduction of the system of memorandum of understanding Strengthening of Kissan credit card scheme. Introduction of Swarojagar Credit Card Scheme The NPA position has been done down compared to previous year The total income has increased by 21% The total expenditure has been increased by 21.85% The bank has introduced sound practices of corporate governance The profit has been increased by 6.14%

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Suggestions:
From all the studies we can suggest some point to improve the profitability of the organization The bank should focus more on advancing loans and money from depositors It should reduce the cost of management It should recover its money from defaulters in a limited time It should control the non-operation expenses and other expenditure. It should diversify its business and should give loans to non-agriculture sector To increase the net profit at higher rate, carefully designed risk management systems and increasingly higher aspiration levels of customers services should be taken It should introduce ATM service in rural area which will be beneficial for the farmers which will attracts them to take loan from bank

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Bibliography:
Management Accounting by Shashi K. Gupta & R. K. Sharma, New Delhi: Kalyani publication Financial Management Theory and Practice by Chandra Prasanna. New Delhi: Hill publishing company Ltd. Financial Accounting by Lal Jawahar and Seema Srivastava, New Delhi: S. Chand and Company Ltd.

Reference: Annual report of OSCB, Bbsr Balance Sheet of OSCB, Bbsr Website: www.oscb.coop

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