RESEARCH REPORT

ON

“A Comparative study on financial performance

of SBI AND PNB BANK”

Guided by-
Ms. Priyanka Singh
(Lecturer)

Submitted By-
ramesh
Roll. No. 1605470110

SESSION 2017-2018
DEPARTMENT OF MANAGEMENT

Babu Banarasi Das

National Institute of Technology & Management
Sector 1, Akhilesh Das nagar, Faizabad Road, Lucknow (U. P.), India
 ACKNOWLEDGEMENT

"I have taken efforts in this research project. However, it would not have been

possible without the kind support and help of many individuals and organizations. I

would like to extend my sincere thanks to all of them.

I am highly indebted to Ms. Priyanka Singh for their guidance and constant

supervision as well as for providing necessary information regarding the project &

also for their support in completing the project.

I would like to express my gratitude towards my parents & member of BBD NITM,

Lucknow for their kind co-operation and encouragement which help me in completion

of this project.

My thanks and appreciations also go to my colleague in developing the project and

people who have willingly helped me out with their abilities."

Ramesh
 PREFACE

MBA is a stepping-stone to the management carrier and to develop good manager. It

is necessary that the theoretical must be supplemented with exposure to the real

environment.

Theoretical knowledge just provides the base and it’s not sufficient to produce a good

manager that’s why practical knowledge is needed.

Therefore the research product is an essential requirement for the student of MBA.

This research project not only helps the student to utilize his skills properly learn field

realities but also provides a chance to the organization to find out talent among the

budding managers in the very beginning.

In accordance with the requirement of MBA course I have done my research project

report on the topic is “A Comparative study on financial performance of SBI AND

PNB BANK”.
 TABLE OF CONTENT

A. Declaration

B. Acknowledgement iii

C. Preface iv

D.

1. Scope of the study 1

2. Introduction to Topic 2
3. Literature Review 32
4. Company Profile 37
5. Research Methodology 44
6. Data Analysis and Interpretation 47
7. Findings 70
8. Conclusion 73
9. Suggestions and Recommendations 75
10. Limitations 77
11. Bibliography 79
Introduction

1
 INTRODUCTION

The first task of financial analysis is to select the information relevant to the decision

under consideration to the total information contained in the financial statement. The

second step is to arrange the information in a way to highlight significant relationship.

The final step is interpretation and drawing of inference and conclusions. Financial

statement is the process of selection, relation and evaluation.

Features of Financial Analysis

 To present a complex data contained in the financial statement in simple and

understandable form.

 To classify the items contained in the financial statement inconvenient and

rational groups.

 To make comparison between various groups to draw various

conclusions.

Purpose of Analysis of financial statements

 To know the earning capacity or profitability.

 To know the solvency.

 To know the financial strengths.

 To know the capability of payment of interest & dividends.

 To make comparative study with other firms.

 To know the trend of business.

 To know the efficiency of mgt.

 To provide useful information to mgt

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Procedure of Financial Statement Analysis

 The following procedure is adopted for the analysis and interpretation of

financial statements:-

 The analyst should acquaint himself with principles and postulated of

accounting. He should know the plans and policies of the managements that he

may be able to find out whether these plans are properly executed or not.

 The extent of analysis should be determined so that the sphere of work may

be decided. If the aim is find out. Earning capacity of the enterprise then

analysis of income statement will be undertaken. On the other hand, if

financial position is to be studied then balance sheet analysis will be

necessary.

 The financial data be given in statement should be recognized and rearranged.

It will involve the grouping similar data under same heads. Breaking down of

individual components of statement according to nature. The data is reduced to

a standard form. A relationship is established among financial statements with

the help of tools & techniques of analysis such as ratios, trends, common size,

fund flow etc.

 The information is interpreted in a simple and understandable way. The

significance and utility of financial data is explained for help indecision

making.

 The conclusions drawn from interpretation are presented to the management

in the form of reports.

Analyzing financial statements involves evaluating three characteristics of a

company: its liquidity, its profitability, and its insolvency. A short-term creditor, such

as a bank, is primarily interested in the ability of the borrower to pay obligations when

3
 they come due. The liquidity of the borrower is extremely important in evaluating the

safety of a loan. A long-term creditor, such as a bondholder, however, looks to

profitability and solvency measures that indicate the company’s ability to survive over

a long period of time. Long-term creditors consider such measures as the amount of

debt in the company’s capital structure and its ability to meet interest payments.

Similarly, stockholders are interested in the profitability and solvency of the

company. They want to assess the likelihood of dividends and the growth potential of

the stock.

Comparison can be made on a number of different bases.

Following are the three illustrations:

1. Intra-company basis.

This basis compares an item or financial relationship within a company in the

current year with the same item or relationship in one or more prior years. For

example, Sears, Roebuck and Co. can compare its cash balance at the end of the

current year with last year’s balance to find the amount of the increase or decrease.

Likewise, Sears can compare the percentage of cash to current assets at the end of the

current year with the percentage in one or more prior years. Intra-company

comparisons are useful in detecting changes in financial relationships and significant

trends.

2. Industry averages.

This basis compares an item or financial relationship of a company with industry

averages (or norms) published by financial ratings organizations such as Dun &

Bradstreet, Moody’s and Standard & Poor’s. For example, Sears’s net income can be

compared with the average net income of all companies in the retail chain-store

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 industry. Comparisons with industry averages provide information as to a company’s

relative performance within the industry.

3. Intercompany basis.

This basis compares an item or financial relationship of one company with the same

item or relationship in one or more competing companies. The comparisons are made

on the basis of the published financial statements of the individual companies. For

example, Sears’s total sales for the year can be compared with the total sales of its

major competitors such as Kmart and Wal-Mart. Intercompany comparisons are

useful in determining a company’s competitive position.

Tools of Financial Statement Analysis

Various tools are used to evaluate the significance of financial statement data. Three

commonly used tools are these:

 Ratio Analysis

 Funds Flow Analysis

 Cash Flow Analysis

Ratio Analysis:

Fundamental Analysis has a very broad scope. One aspect looks at the general

(qualitative) factors of a company. The other side considers tangible and measurable

factors (quantitative). This means crunching and analyzing numbers from the

financial statements. If used in conjunction with other methods, quantitative analysis

can produce excellent results.

Ratio analysis isn't just comparing different numbers from the balance sheet, income

statement, and cash flow statement. It's comparing the number against previous years,

other companies, the industry, or even the economy in general. Ratios look at the

5
relationships between individual values and relate them to how a company has

performed in the past, and might perform in the future.

Meaning of Ratio:

A ratio is one figure express in terms of another figure. It is a mathematical yardstick

that measures the relationship two figures, which are related to each other and

mutually interdependent. Ratio is express by dividing one figure by the other related

figure. Thus a ratio is an expression relating one number to another. It is simply the

quotient of two numbers. It can be expressed as a fraction or as a decimal or as a pure

ratio or in absolute figures as “so many times”. As accounting ratio is an expression

relating two figures or accounts or two sets of account heads or group contain in the

financial statements.

Meaning of Ratio Analysis:

Ratio analysis is the method or process by which the relationship of items or group of

items in the financial statement are computed, determined and presented.

Ratio analysis is an attempt to derive quantitative measure or guides concerning the

financial health and profitability of business enterprises. Ratio analysis can be used

both in trend and static analysis. There are several ratios at the disposal of an analyst

but their group of ratio he would prefer depends on the purpose and the objective of

analysis.

While a detailed explanation of ratio analysis is beyond the scope of this section, we

will focus on a technique, which is easy to use. It can provide you with a valuable

investment analysis tool.

This technique is called cross-sectional analysis. Cross-sectional analysis compares

financial ratios of several companies from the same industry. Ratio analysis can

provide valuable information about a company's financial health. A financial ratio

6
 measures a company's performance in a specific area. For example, you could use a

ratio of a company's debt to its equity to measure a company's leverage. By

comparing the leverage ratios of two companies, you can determine which company

uses greater debt in the conduct of its business. A company whose leverage ratio is

higher than a competitor's has more debt per equity. You can use this information to

make a judgment as to which company is a better investment risk.

However, you must be careful not to place too much importance on one ratio. You

obtain a better indication of the direction in which a company is moving when several

ratios are taken as a group.

Objective of Ratios:

Ratios are worked out to analyze the following aspects of business organization-

A) Solvency-

1) Long term

2) Short term

3) Immediate

B) Stability

C) Profitability

D) Operational efficiency

E) Credit standing

F) Structural analysis

G) Effective utilization of resources

H) Leverage or external financing

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Forms of Ratio:

Since a ratio is a mathematical relationship between two or more variables /

accounting figures, such relationship can be expressed in different ways as follows –

A] As a pure ratio:

For example the equity share capital of a company is Rs. 20, 00,000 & the preference

share capital is Rs. 5,00,000, the ratio of equity share capital to preference share

capital is

20,00,000: 5,00,000 = 4:1.

B] As a rate of times:

In the above case the equity share capital may also be described as 4 times that of

preference share capital. Similarly, the cash sales of a firm are Rs. 12,00,000 & credit

sales are Rs. 30,00,000. So the ratio of credit sales to cash sales can be described as

2.5 [30,00,000/12,00,000] = 2.5 times are the credit sales that of cash sales.

C] As a percentage:

In such a case, one item may be expressed as a percentage of some other items. For

example, net sales of the firm are Rs.50,00,000 & the amount of the gross profit is Rs.

10,00,000, then the gross profit may be described as

20% of sales [ 10,00,000/50,00,000]

Steps in Ratio Analysis

The ratio analysis requires two steps as follows:

1] Calculation of ratio

2] Comparing the ratio with some predetermined standards. The standard ratio may be

the past ratio of the same firm or industry’s average ratio or a projected ratio or the

ratio of the most successful firm in the industry. In interpreting the ratio of a particular

firm, the analyst cannot reach any fruitful conclusion unless the calculated ratio is

8
compared with some predetermined standard. The importance of a correct standard is

oblivious as the conclusion is going to be based on the standard itself.

Types of comparisons

The ratio can be compared in three different ways –

1] Cross section analysis:

One of the way of comparing the ratio or ratios of the firm is to compare them with

the ratio or ratios of some other selected firm in the same industry at the same point of

time. So it involves the comparison of two or more firm’s financial ratio at the same

point of time. The cross section analysis helps the analyst to find out as to how a

particular firm has performed in relation to its competitors. The firm’s performance

may be compared with the performance of the leader in the industry in order to

uncover the major operational inefficiencies. The cross section analysis is easy to be

undertaken as most of the data required for this may be available in financial

statement of the firm.

2] Time series analysis:

The analysis is called Time series analysis when the performance of a firm is

evaluated over a period of time. By comparing the present performance of a firm with

the performance of the same firm over the last few years, an assessment can be made

about the trend in progress of the firm, about the direction of progress of the firm.

Time series analysis helps to the firm to assess whether the firm is approaching the

long-term goals or not. The Time series analysis looks for

(1) Important trends in financial performance

(2) Shift in trend over the years

(3) Significant deviation if any from the other set of data\

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 3] Combined analysis:

If the cross section & time analysis, both are combined together to study the behavior

& pattern of ratio, then meaningful & comprehensive evaluation of the performance

of the firm can definitely be made. A trend of ratio of a firm compared with the trend

of the ratio of the standard firm can give good results. For example, the ratio of

operating expenses to net sales for firm may be higher than the industry average

however, over the years it has been declining for the firm, whereas the industry

average has not shown any significant changes.

The combined analysis as depicted in the above diagram, which clearly shows that the

ratio of the firm is above the industry average, but it is decreasing over the years & is

approaching the industry average.

Pre-Requisites to Ratio Analysis:

In order to use the ratio analysis as device to make purposeful conclusions, there are

certain pre-requisites, which must be taken care of. It may be noted that these

prerequisites are not conditions for calculations for meaningful conclusions. The

accounting figures are inactive in them & can be used for any ratio but meaningful &

correct interpretation & conclusion can be arrived at only if the following points are

well considered.

1) The dates of different financial statements from where data is taken must be same.

2) If possible, only audited financial statements should be considered, otherwise there

must be sufficient evidence that the data is correct.

3) Accounting policies followed by different firms must be same in case of cross section

analysis otherwise the results of the ratio analysis would be distorted.

10
4) One ratio may not throw light on any performance of the firm. Therefore, a group of

ratios must be preferred. This will be conductive to counter checks.

5) Last but not least, the analyst must find out that the two figures being used to

calculate a ratio must be related to each other, otherwise there is no purpose of

calculating a ratio.

Classification of Ratio:

CLASSIFICATION OF RATIO

BASED ON FINANCIAL BASED ON FUNCTION BASED ON USER

STATEMENT

1] BALANCE SHEET 1] LIQUIDITY RATIO 1] RATIOS FOR

RATIO 2] LEVERAGE RATIO SHORT TERM
2] REVENUE 3] ACTIVITY RATIO CREDITORS
STATEMENT 4] PROFITABILITY 2] RATIO FOR
RATIO RATIO SHAREHOLDER

3] COMPOSITE 5] COVERAGE 3] RATIOS FOR

RATIO RATIO MANAGEMENT

4] RATIO FOR
LONG TERM
CREDITORS

11
 Based on Financial Statement

Accounting ratios express the relationship between figures taken from financial

statements. Figures may be taken from Balance Sheet, P& P A/C, or both. One-way of

classification of ratios is based upon the sources from which are taken.

1] Balance sheet ratio:

If the ratios are based on the figures of balance sheet, they are called Balance Sheet

Ratios. E.g. Ratio of current assets to current liabilities or Debt to equity ratio. While

calculating these ratios, there is no need to refer to the Revenue statement. These

ratios study the relationship between the assets & the liabilities, of the concern. These

ratios help to judge the liquidity, solvency & capital structure of the concern. Balance

sheet ratios are Current ratio, Liquid ratio, and Proprietary ratio, Capital gearing ratio,

Debt equity ratio, and Stock working capital ratio.

2] Revenue ratio:

Ratio based on the figures from the revenue statement is called revenue statement

ratios. These ratios study the relationship between the profitability & the sales of the

concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net

profit ratio, Net operating profit ratio, Stock turnover ratio.

3] Composite ratio:

These ratios indicate the relationship between two items, of which one is found in the

balance sheet & other in revenue statement.

There are two types of composite ratios-

a) Some composite ratios study the relationship between the profits & the investments of

the concern. E.g. return on capital employed, return on proprietors fund, return on

equity capital etc.

12
b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios, dividend

payout ratios, & debt service ratios

Based on Function:

Accounting ratios can also be classified according to their functions in to liquidity

ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios.

1] Liquidity ratios:

It shows the relationship between the current assets & current liabilities of the concern

e.g. liquid ratios & current ratios.

2] Leverage ratios:

It shows the relationship between proprietors funds & debts used in financing the

assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietary

ratios.

3] Activity ratios:

It shows relationship between the sales & the assets. It is also known as Turnover

ratios & productivity ratios e.g. stock turnover ratios, debtors’ turnover ratios.

4] Profitability ratios:

a) It shows the relationship between profits & sales e.g. operating ratios, gross profit

ratios, operating net profit ratios, expenses ratios

b) It shows the relationship between profit & investment e.g. return on investment,

return on equity capital.

5] Coverage ratios:

It shows the relationship between the profit on the one hand & the claims of the

outsiders to be paid out of such profit e.g. dividend payout ratios & debt service

ratios.

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Based on User:

1] Ratios for short-term creditors:

Current ratios, liquid ratios, stock working capital ratios

2] Ratios for the shareholders:

Return on proprietors fund, return on equity capital

3] Ratios for management:

Return on capital employed, turnover ratios, operating ratios, expenses ratios

4] Ratios for long-term creditors:

Debt equity ratios, return on capital employed, proprietor ratios.

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Liquidity Ratio: -

Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year)

obligations. The ratios, which indicate the liquidity of a company, are Current ratio,

Quick/Acid-Test ratio, and Cash ratio. These ratios are discussed below

Current Ratio

Meaning:

This ratio compares the current assets with the current liabilities. It is also known as

‘working capital ratio’ or ‘solvency ratio’. It is expressed in the form of pure ratio.

E.g. 2:1

Formula:

Current assets

Current ratio =

Current liabilities

15
The current assets of a firm represents those assets which can be, in the ordinary

course of business, converted into cash within a short period time, normally not

exceeding one year. The current liabilities defined as liabilities which are short term

maturing obligations to be met, as originally contemplated, with in a year.

Current ratio (CR) is the ratio of total current assets (CA) to total current liabilities

(CL). Current assets include cash and bank balances; inventory of raw materials,

semi-finished and finished goods; marketable securities; debtors (net of provision for

bad and doubtful debts); bills receivable; and prepaid expenses. Current liabilities

consist of trade creditors, bills payable, bank credit, and provision for taxation,

dividends payable and outstanding expenses. This ratio measures the liquidity of the

current assets and the ability of a company to meet its short-term debt obligation.

CR measures the ability of the company to meet its CL, i.e., CA gets converted into

cash in the operating cycle of the firm and provides the funds needed to pay for CL.

The higher the current ratio, the greater the short-term solvency. This compares

assets, which will become liquid within approximately twelve months with liabilities,

which will be due for payment in the same period and is intended to indicate whether

there are sufficient short-term assets to meet the short- term liabilities. Recommended

current ratio is 2: 1. Any ratio below indicates that the entity may face liquidity

problem but also Ratio over 2: 1 as above indicates over trading, that is the entity is

under utilizing its current assets.

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Liquid Ratio:

Meaning:

Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compares the

quick assets with the quick liabilities. It is expressed in the form of pure ratio. E.g.

1:1.

The term quick assets refer to current assets, which can be converted into, cash

immediately or at a short notice without diminution of value.

Formula:

Quick assets

Liquid ratio =

Quick liabilities

Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refers to

those current assets that can be converted into cash immediately without any value

strength. QA includes cash and bank balances, short-term marketable securities, and

sundry debtors. Inventory and prepaid expenses are excluded since these cannot be

turned into cash as and when required.

QR indicates the extent to which a company can pay its current liabilities without

relying on the sale of inventory. This is a fairly stringent measure of liquidity because

it is based on those current assets, which are highly liquid. Inventories are excluded

from the numerator of this ratio because they are deemed the least liquid component

of current assets. Generally, a quick ratio of 1:1 is considered good. One drawback of

the quick ratio is that it ignores the timing of receipts and payments.

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Cash Ratio:

Meaning:

This is also called as super quick ratio. This ratio considers only the absolute liquidity

available with the firm.

Formula:

Cash + Bank + Marketable securities

Cash ratio =

Total current liabilities

Since cash and bank balances and short term marketable securities are the most liquid

assets of a firm, financial analysts look at the cash ratio. If the super liquid assets are

too much in relation to the current liabilities then it may affect the profitability of the

firm.

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Investment/ Shareholder

EARNING PER SHARE:-

Meaning:

Earnings per Share are calculated to find out overall profitability of the organization.

Earnings per Share represent earning of the company whether or not dividends are

declared. If there is only one class of shares, the earning per share are determined by

dividing net profit by the number of equity shares.

EPS measures the profits available to the equity shareholders on each share held.

Formula:

Net Profit after Tax

Earnings per share =

Number of equity share

The higher EPS will attract more investors to acquire shares in the company as it

indicates that the business is more profitable enough to pay the dividends in time. But

remember not all profit earned is going to be distributed as dividends the company

also retains some profits for the business

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Dividend per Share:-

Meaning:

DPS shows how much is paid as dividend to the shareholders on each share held.

Formula:

Dividend Paid to Ordinary Shareholders

Dividend per Share =

Number of Ordinary Shares

Dividend Payout Ratio:-

Meaning:

Dividend Pay-out Ratio shows the relationship between the dividends paid to equity

shareholders out of the profit available to the equity shareholders.

Formula:

Dividend per share

Dividend Payout ratio = *100

Earnings per share

D/P ratio shows the percentage share of net profits after taxes and after preference

dividend has been paid to the preference equity holders.

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Gearing

CAPITAL GEARING RATIO:-

Meaning:

Gearing means the process of increasing the equity shareholders return through the

use of debt. Equity shareholders earn more when the rate of the return on total capital

is more than the rate of interest on debts. This is also known as leverage or trading on

equity. The Capital-gearing ratio shows the relationship between two types of capital

viz: - equity capital & preference capital & long term borrowings. It is expressed as a

pure ratio.

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Formula:

Preference capital+ secured loan

Capital gearing ratio =

Equity capital & reserve & surplus

Capital gearing ratio indicates the proportion of debt & equity in the financing of

assets of a concern.

Profitability

These ratios help measure the profitability of a firm. A firm, which generates a

substantial amount of profits per rupee of sales, can comfortably meet its operating

expenses and provide more returns to its shareholders. The relationship between profit

and sales is measured by profitability ratios. There are two types of profitability

ratios: Gross Profit Margin and Net Profit Margin.

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GROSS PROFIT RATIO:-

Meaning:

This ratio measures the relationship between gross profit and sales. It is defined as the

excess of the net sales over cost of goods sold or excess of revenue over cost. This

ratio shows the profit that remains after the manufacturing costs have been met. It

measures the efficiency of production as well as pricing. This ratio helps to judge how

efficient the concern is I managing its production, purchase, selling & inventory, how

good its control is over the direct cost, how productive the concern , how much

amount is left to meet other expenses & earn net profit.

Gross profit

Gross profit ratio = * 100

Net sales

Net Profit Ratio:-

Meaning:

Net Profit ratio indicates the relationship between the net profit & the sales it is

usually expressed in the form of a percentage.

Formula:

NPAT

Net profit ratio = * 100

Net sales

This ratio shows the net earnings (to be distributed to both equity and preference

shareholders) as a percentage of net sales. It measures the overall efficiency of

production, administration, selling, financing, pricing and tax management. Jointly

23
considered, the gross and net profit margin ratios provide an understanding of the cost

and profit structure of a firm.

Return on Capital Employed:-

Meaning:

The profitability of the firm can also be analyzed from the point of view of the total

funds employed in the firm. The term fund employed or the capital employed refers to

the total long-term source of funds. It means that the capital employed comprises of

shareholder funds plus long-term debts. Alternatively it can also be defined as fixed

assets plus net working capital.

Capital employed refers to the long-term funds invested by the creditors and the

owners of a firm. It is the sum of long-term liabilities and owner's equity. ROCE

indicates the efficiency with which the long-term funds of a firm are utilized.

Formula:

NPAT

Return on capital employed = *100

Capital employed

Financial

These ratios determine how quickly certain current assets can be converted into cash.

They are also called efficiency ratios or asset utilization ratios as they measure the

efficiency of a firm in managing assets. These ratios are based on the relationship

between the level of activity represented by sales or cost of goods sold and levels of

investment in various assets. The important turnover ratios are debtors turnover ratio,

average collection period, inventory/stock turnover ratio, fixed assets turnover ratio,

and total assets turnover ratio. These are described below:

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DEBTORS TURNOVER RATIO (DTO)

Meaning:

DTO is calculated by dividing the net credit sales by average debtors outstanding

during the year. It measures the liquidity of a firm's debts. Net credit sales are the

gross credit sales minus returns, if any, from customers. Average debtors are the

average of debtors at the beginning and at the end of the year. This ratio shows how

rapidly debts are collected. The higher the DTO, the better it is for the organization.

Formula:

Credit sales

Debtors turnover ratio =

Average debtors

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Inventory or Stock Turnover Ratio (ITR)

Meaning:

ITR refers to the number of times the inventory is sold and replaced during the

accounting period.

Formula:

Cost of Goods Sold

Stock Turnover Ratio =

Average stock

ITR reflects the efficiency of inventory management. The higher the ratio, the more

efficient is the management of inventories, and vice versa. However, a high inventory

turnover may also result from a low level of inventory, which may lead to frequent

stock outs and loss of sales and customer goodwill. For calculating ITR, the average

of inventories at the beginning and the end of the year is taken. In general, averages

may be used when a flow figure (in this case, cost of goods sold) is related to a stock

figure (inventories).

Fixed Assets Turnover (FAT)

The FAT ratio measures the net sales per rupee of investment in fixed assets.

Formula:

Net sales

Fixed assets turnover =

Net fixed assets

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This ratio measures the efficiency with which fixed assets are employed. A high ratio

indicates a high degree of efficiency in asset utilization while a low ratio reflects an

inefficient use of assets. However, this ratio should be used with caution because

when the fixed assets of a firm are old and substantially depreciated, the fixed assets

turnover ratio tends to be high (because the denominator of the ratio is very low).

Proprietors Ratio:

Meaning:

Proprietary ratio is a test of financial & credit strength of the business. It relates

shareholders fund to total assets. This ratio determines the long term or ultimate

solvency of the company.

In other words, Proprietary ratio determines as to what extent the owner’s interest &

expectations are fulfilled from the total investment made in the business operation.

Proprietary ratio compares the proprietor fund with total liabilities. It is usually

expressed in the form of percentage. Total assets also know it as net worth.

Formula:

Proprietary fund

Proprietary ratio = OR

Total fund

Shareholders fund

Proprietary ratio =

Fixed assets + current liabilities

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Stock Working Capital Ratio:

Meaning:

This ratio shows the relationship between the closing stock & the working capital. It

helps to judge the quantum of inventories in relation to the working capital of the

business. The purpose of this ratio is to show the extent to which working capital is

blocked in inventories. The ratio highlights the predominance of stocks in the current

financial position of the company. It is expressed as a percentage.

Formula:

Stock

Stock working capital ratio =

Working Capital

Stock working capital ratio is a liquidity ratio. It indicates the composition & quality

of the working capital. This ratio also helps to study the solvency of a concern. It is a

qualitative test of solvency. It shows the extent of funds blocked in stock. If

investment in stock is higher it means that the amount of liquid assets is lower.

Debt Equity Ratio:

Mening:

This ratio compares the long-term debts with shareholders fund. The relationship

between borrowed funds & owners capital is a popular measure of the long term

financial solvency of a firm. This relationship is shown by debt equity ratio.

Alternatively, this ratio indicates the relative proportion of debt & equity in financing

the assets of the firm. It is usually expressed as a pure ratio. E.g. 2:1

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Formula:

Total long-term debt

Debt equity ratio =

Total shareholders fund

Debt equity ratio is also called as leverage ratio. Leverage means the process of the

increasing the equity shareholders return through the use of debt. Leverage is also

known as ‘gearing’ or ‘trading on equity’. Debt equity ratio shows the margin of

safety for long-term creditors & the balance between debt & equity.

Return on Proprietor Fund:

Meaning:

Return on proprietors fund is also known as ‘return on proprietor’s equity’ or ‘return

on shareholders’ investment’ or ‘investment ratio’. This ratio indicates the

relationship between net profits earned & total proprietor’s funds. Return on

proprietors fund is a profitability ratio, which the relationship between profit &

investment by the proprietors in the concern. Its purpose is to measure the rate of

return on the total fund made available by the owners. This ratio helps to judge how

efficient the concern is in managing the owner’s fund at disposal. This ratio is of

practical importance to prospective investors & shareholders.

Formula:

NPAT

Return on proprietors fund = * 100

Proprietor’s fund

29
Creditors Turnover Ratio:

It is same as debtors turnover ratio. It shows the speed at which payments are made to

the supplier for purchase made from them. It is a relation between net credit purchase

and average creditors

Net credit purchase

Credit turnover ratio =

Average creditors

Months in a year

Average age of accounts payable =

Credit turnover ratio

Both the ratios indicate promptness in payment of creditor purchases. Higher

creditors turnover ratio or a lower credit period enjoyed signifies that the creditors are

being paid promptly. It enhances credit worthiness of the company. A very low ratio

indicates that the company is not taking full benefit of the credit period allowed by the

creditors.

30
Review of
Literature

31
 REVIEW OF LITERATURE

Kaura, M. N and Bala Subramanian (1979) analyzed ten cement units during the

period of study 1972 to 1977 shows that the financial performance of the selected

cement companies evidenced by Profitability, Liquidity and capital structure ratios

has declined. The non availability of funds has affected the modernization of plants

and periodic rehabilitation of the kilns. Besides, the bottlenecks in supply of raw

materials and power and non remunerative prices have reduced the capacity

utilization, profits and cash flows. The profitability and liquidity position in many

cement companies have been affected adversely because of the problems in supply of

raw materials , transport and power.

Nagarajrao B.S and Chandar K (1980) analyzed the financial efficiency of cement

companies for the selected period of the study 1970 -71 to 1977-78. It can be analyzed

profitability of selected cement companies has been found downward trend from

1970-71 to 1974-75 because the reason of inflation, rising of manufacturing cost,

continuous fall in capacity utilization due to many reasons.

Kumar B. Das (1987) has made an analysis of the financial performance of the

cement industry. it can be analyzed that the net fixed assets as a percentage of total

assets decreased for the period 1970-71 to 1977-78 that was 553.5% to 44.04 %

respectively. Current liabilities have increased than the current assets. Liquidity

performance of the cement industry is not healthy during period of the study. The

Debt Asset ratio has downward During the period of the study and Debt Equity ratio

has slightly increased while net worth ratio has decreased over the years.

32
Nair N.K. (1991) has focused the productivity aspect of Indian Cement Industry. This

study emphasised that cement, being a construction material, occupied a strategic

place in the Indian economy. This study has revealed that, in 1990-91, the industry

had an installed capacity of 60 million tonnes with a production of 48 million tonnes.

In this study, the cement industry was forecasted to have a capacity growth of about

100 million tonnes by the year 2000. This study has also analyzed the productivity

and financial performance ratios of the cement industry with a view to identifying the

major problem areas and the prospects for solving them.

Dr. Dinesh A. Patel (1992) have analyzed Financial Analysis - A Study of Cement

Industry of India for the period of 1979-80 to 1988-89. He can analyzed the

profitability of the cement industry, to examine the short term financial strength of the

cement industry through the analysis of working capital management and to analyzed

the long term financial strength through the analysis of capital structure.

Subir Cokavn and Rejendra Vaidha (1993) have analyzed to evaluate the

performance of cement industry after decontrol. They found that the performance of

the cement industry after decontrol was characterized by outcomes that were

generally competitive and welfare enhancing. This study has revealed that the

structure of the industry changed significantly with large magnitude of relative

technologically and superior capacity being created by many new entrants into the

industry. It was also noticed in this study that there were significant real price increase

and an associated increase in profitability. The performance of firms across the

strategic group was different with firms operating relatively new and large plants

33
appeared to have an advantage. Further, the study has dealt with the nature and effect

of inter-firm heterogeneities in the cement industry.

Chandrasekaran N (1993) has made an attempt to examine determinants of

profitability in cement industry. He identified that profitability was determined by

structural, as well as, behavioural variables. He also identified that the other variables

17 which influenced profitability were growth of the firm, capital turnover ratio,

management of working capital, inventory turnover ratio etc. Some of the main

changes in the cement industry environment during 1980's identified in this study

were: from complete control to decontrol, number of new entrants and substantial

additions of capacity, changing technology from inefficient wet process to efficient

dry process and from conditions of scarcity of cement to near gloat in the market.

Chandrasckaran N (1994) has studied about the market structure of the Indian

Cement industry like demand and supply. It was analyzed in that study that the

demand and supply gap has been considerably reduced and supply of cement during

the period of study has increased due to creation of additional capacity and capacity

utilization.

Srinivasa Rao.G and Indrasena Reddy.P (1995), in their study, analyzed the

financial strength of paper industry had been improving from year to year. The

company's performance in relation to generating internal funds in the form of reserves

and surplus was excellent and also the company was doing well in mobilizing

outsiders' funds. The liquidity position of the company was sound as revealed by

current ratio and quick ratio which were above the standard. The solvency ratio

34
showed that the company had been following the policy of low capital gearing from

the 1990-91 as these ratios had been decreasing from this year. The performance of

the company in relation to its profitability was not up to the expected level. The

company's ability to utilize assets for generation of sales had not been improved much

during the period of study period as revealed by its turnover ratios.

35
Company
Profile

36
STATE BANK OF INDIA (SBI)

SBI, started as Imperial Bank then named State Bank of India

commenced its operations from the year 1955, is the largest commercial bank in India

in terms of profits, assets, deposits, branches and employees. As of March 2008, the

bank has had 21 subsidiaries and 10,000 branches. SBI offering the services of

banking and as well as non- banking services to their customers. It provides a whole

range of financial services which includes Life Insurance, Merchant Banking, Mutual

Funds, Credit Cards, Factoring, Security Trading & Primary dealership in the Money

market. The Bank is actively involved in non-profit activity called community

services banking apart from its normal banking activity.

The bank also concentrate in agriculture, for that it took initiative spotlight

kharif and spotlight rabi campaigns for higher disbursement. It introduced Automated

Teller Machine with Kishan Credit Cards in all circles to assist agriculture peoples,

cumulatively the bank has credit linked 7.68 Lac. Self Help Groups and disbursed

loans to the extent of Rs 3,468 Crs. so far. In the year 2001 the SBI Life was started.

SBI is the only Bank to have been permitted a 74% stake in the insurance business.

The Bank's insurance subsidiary "SBI Life Insurance Company" is a joint venture

with Cardif S.A holds 26% stake. SBI Life enjoys the unique distinction of being the

first private sector life insurance company in India to make profits for two

consecutive years.

During the year 2004-05 SBI was the only one bank in India to ranked among

top 100 banks in the world and also among the top 20 banks in Asia in the annual

survey by "The Banker" as well as in the same year bank received two prestigious

awards for technology from the same The Banker magazine. In the year 2005-06 the

bank introduced "SBI e-tax" an online tax payments facility for direct and indirect tax

37
payment, the centralized pension processing center also launched during the year. SBI

made a partnership with Tata Consultancy Services for setup C-Edg Technologies and

consulting services to the banking, financial services and insurance industry. The

bank noted as The most preferred bank in a survey by TV 18 in association with AC

Nielsen-ORG Marg along with SBI voted as The most preferred housing loan

provider in AWAAZ consumer awards for 2006. In the customer loyalty survey 2006-

07 conducted by "Business World", SBI has been ranked number One in all

parameters of customer satisfication, service orientation, customer care/ call center,

customer loyalty and home loans. SBI Funds (SBIFMPL) was judged "Mutual fund of

the year" by CNBC/TV-18/CRISL. SBI FMBL Equity schemes won 11 awards and

ranging of the AMC in terms of Assets under management remained at 7th position

during the year 2006-07. SBI cards is in 2nd position in the country under market

share. During the year 2006-07 14.81 lac additional cards were issued by SBI and

they crossed the landmark of 3 million cards totally.

The strategic initiatives that SBI have launched business groups in 2007

namely rural and agri business; treasury and marketing; corporate strategy and new

business; and fourth mid corporate group is on the anvil. They also introduced new

products and services such as web-based remittance, instant fund transfer, online-

trading, comprehensive cash management.

SBI opened its 10,000th branch in March 2008; it becomes only the second

bank in the world to have more than 10,000 branches after China's ICBC. SBI is

pursuing aggressive IT policy, where the Automated Teller Machines are now also

enabled to pay utility bills, college fees, book air-line tickets and accept donations,

further bilateral sharing of ATMs was extended to thirteen banks covering 15,700

Automated Teller Machines and an Memorandum of Understanding has been signed

38
with the Indian railways for installing ATMs at 682 railway stations. Infrastructure

fund, private equity, venture capital and pension fund management are under in

process to assist the customer in time. SBI is targeting to emerge as the best rated

bank among public, private, foreign and state -owned banks by the end of the next

fiscal. Employee Stock Option Scheme, where employees have the option to pick up

shares as per their needs is avail in SBI. SBI plans to implement the mobile banking

technology will soon with aim of customer will no be just "Branch customers" but

will be "Bank customer

PUNJAB NATIONAL BANK

Punjab National Bank (PNB), established in the year 1895 at Lahore,

undivided India, has the distinction of being the first Indian bank to have been started

solely with Indian capital. The bank was nationalized in July 1969 along with 13 other

banks. From its modest beginning, the bank has grown in size and stature to become a

front-line banking institution in India at present. With its presence virtually in all the

important centers of the country, Punjab National Bank offers a wide variety of

banking services which include corporate and personal banking, industrial finance,

agricultural finance, financing of trade and international banking. Among the clients

of the Bank are Indian conglomerates, medium and small industrial units, exporters,

non-resident Indians and multinational companies.

A package was developed for corporate customers for fast remittance of funds

from different up-country branches to the controlling office during the year 1996. The

Bank has introduced a scheme for providing finance against mortgage of immovable

property in the year 2000. It commenced its Gold Business in the form of Gold Import

Scheme in September of the same year 2000. An International Co-branded Credit

Card of Punjab National Bank and Hongkong & Shanghai Banking Corporation

39
(HSBC) was launched in New Delhi in November of the year 2000. The scheme

offers international quality gold for sale to the Bank's clientele consisting of exporters

and others at competitive prices. PNB came out with its first Initial public offer (IPO)

in March 2002 for 5,30,60,700 equity shares of Rs 10 each. During the year 2002, the

bank started its branch in M.G. Road, Bangalore named as Mid-Corporate Branch

(MCD) to provide its corporate clients with a credit limit of Rs 3.5 crore and above.

PNB made joint venture with Infosys for the implementation of a Centralized Banking

Solution for it. The Bank received the Best Bank Award' for excellence in banking

technology. PNB tied up with Cisco Systems for networking 3,870 branches as part of

its Rs 150 crore plan.

PNB has taken over Kozhikode-based Nedungadi Bank Ltd (NBL) in

February of the year 2003. The Bank has entered into an alliance with New India

Assurance for selling its general insurance products in the same year 2003. In June of

the year 2003, PNB made Memorandum of Understanding (MoU) with Principal

Financial Services Inc. (USA) and Vijaya Bank for joint venture partnership in Life

Insurance, Pensions and Asset Management’s (MF) business. The Bank has formed a

strategic alliance with Infrastructure Leasing and Financial Services Ltd (IL&FS) to

set up a private equity fund for investing in domestic companies. Entered an

agreement with Oriental Bank of Commerce, Indian Bank, UTI Bank and Global

Trust Bank for sharing ATMs spread across the country. In the year 2004, PNB

acquired the assets of Hindustan Transmission Product Limited (HTPL) under

Sarfaesi. The Bank had signed a corporate agency agreement with Export Credit

Guarantee Corporation of India Ltd (ECGC) for marketing ECGC's export credit

insurance products through the network of the bank's branches. A MoU was signed

for the deployment of various IT-related solutions between the bank and Intel. PNB

40
and ICICI Bank had signed a MoU for ATM network sharing. PNB implements

Loans and Advances Data Desk for Evaluations and Reports, (LADDER) system for

rationalization of returns, asset classification and provisioning, credit monitoring and

NPA management.

The Bank has mandated the project worth of Rs 5-10 crore to Tata

Consultancy Services (TCS) for implement human capital management and payroll

solution in the year 2004. The Bank branch at Kabul, Afghanistan has commenced

soft opening on July 26th of 2004. PNB has launched its corporate Internet banking

facility during November of the year 2004. PNB has coveted as Best IT User in

Banking & Financial Services Industry - 2004 - by NASSCOM in partnership with

Economic Times. The Bank had unveiled ATM at Edappal in the year of 2005. PNB

had adjudged with Golden Peacock Award - for Excellence in Corporate Governance

- 2005 by Institute of Directors. During 2005-06, the bank revamped its organizational

structure. Seven new Zonal Offices were created. The Bank received 'Best IT Team of

the Year Award' - at the IDRBT Banking Technology awards for the year 2005-06.

During the year 2006, PNB had tied up with MasterCard International to

launch a signature-based debit card and opened one new branch in Uttaranchal. Also

during the same year of 2006, the bank has made tie up with Indian Airlines for online

booking of air tickets and ties up with IDBI Capital. PNB had entered into MoU with

India Infrastructure Finance Company (IIFC) in October of the year 2007 with an aim

to extend its cooperation and support to IIFC in areas of creating a deal flow of

infrastructure projects. RBI rejected Punjab National Bank's proposal to float a credit

card joint venture with insurer American International Group Inc. (AIG) and Venture

InfoTech Global Pvt. Ltd, a third-party processor for credit card companies.

41
 PNB aims to expand its base in the entire northern India region for providing

banking facilities at the doorsteps of the peoples. The Bank is serving over 3.5 crores

customers through 4540 Offices including 421 extension counters - largest amongst

Nationalized Banks. PNB is moving with the vision, to be India's most profitable

Universal Bank. Also wants to profitably serve the banking and the financial services

needs of the nation everyday and everywhere.

42
 Research
Methodology

43
 OBJECTIVES OF THE STUDY

 To study the present financial condition of PNB AND SBI BANK.

 To study the market shares in banking sector of PNB AND SBI BANK.

 To study the credit worthiness of the banks.

 To study the solvency of the banks.

44
 RESEARCH METHODOLOGY
Research Design:-

The present study adopts analytical and descriptive research design.

Data Collection:

Secondary Data: The data of the sample companies (for a period of four years from

2013 to 2016) have been collected from the annual reports, published by the

companies and the websites of the companies. A finite sample size of two banks listed

on the National Stock Exchange (NSE) has been selected for the purpose of the study.

They are the PNB Bank and the Housing Development Finance Corporation Ltd.

(HDFC) It is based on the descriptive study.

Method of Data Collection:

The variables used in the analysis of the data are Operating Profit Margin (OPM), Net

Profit Margin (NPM), Return on Equity (RoE), Earnings per Share (EPS), Price

Earnings Ratio (PER), Dividends per Share (DPS), Dividends Payout Ratio (DPR)

and etc The idea behind this type of detailed corporate analysis is to gain an

understanding of the general corporate health and prospects for future growth of the

bank.

45
Data Analysis

46
 ANALYSIS AND INTERPRETATION

(1) RETURN ON EQUITY (ROE)

Return on Equity is seen as a measure of how well a company used reinvested

earnings to generate additional earnings. This is computed using the following
formula and expressed in percentage terms:

RETURN ON EQUITY (%)

YEAR PNB SBI
2016 8.95 16.05
2015 12.79 19.40
2014 11.44 17.47
2013 15.97 20.44
AVEARGE 12.29 18.34

25

20

15
PNB
10 SBI

0
2016 2015 2014 2013

Among all the three banks, SBI could make the highest RoE of 20.44% in 2013,

followed by PNB (15.97%) in 2013. The average RoE of SBI were (18.34%

respectively) while that of PNB was a bit lower (12.29%). Thus, SBI were more

efficient in generating additional earnings by using invested earnings than PNB.

47
(2) EARNINGS PER SHARE (EPS)

Earnings per Share is the measure of company's ability to generate after tax profits per
share held by the investors. This ratio is computed with the help of the following
formula and expressed in rupee terms:

EPS (in Rupees)

YEAR PNB SBI
2016 39.39 46.22
2015 34.84 36.29
2014 32.5 27.92
2013 27.6 22.92
AVERAGE 33.58 33.34

50

45

40

35

30

25 PNB

20 SBI

15

10

0
2016 2015 2014 2013

From the above table, the EPS of PNB and SBI showed an increasing trend from year

to year during the study period. The average EPS of PNB is greater than that of SBI

during the entire study period. Thus, the analysis reveals that PNB was the most

efficient bank in terms of generating earnings per share.

48
(3) PRICE EARNINGS (P/E) RATIO

The Price Earnings ratio highlights the connection between the price and recent
company's performance. This ratio moves either side only when price and profits get
disconnected. This ratio is calculated using the following equation and expressed in
terms of times:

P/E RATIO
YEAR PNB SBI
2016 19.22 28.80
2015 23.26 26.29
2014 27.12 27.74
2013 13.48 25.03
AVERAGE 20.77 26.96

35

30

25

20
PNB
15
SBI
10

0
2016 2015 2014 2013

It reveal that only SBI to achieved the highest price earnings ratio in every year

during the study period, followed by PNB;. Even the four year average price earnings

ratio of SBI was significantly higher (26.96 times) than that of PNB (20.77 times).

Thus, it is inferred that there was more responsiveness between the earnings capacity

and the share price in case of SBI than that of PNB and it reveals that SBI did better

in share market when compared to other banks. However, there was a declining trend

in price earnings position of SBI.

49
(4) DIVIDEND PER SHARE (DPS)

Though Dividends per Share is similar to Earnings per share, DPS shows how much
the shareholders were actually paid by way of dividends. The DPS found out by the
following formula and expressed in rupee terms:

DPS (in Rupees)

YEAR PNB SBI
2016 11.00 8.50
2015 10.00 7.00
2014 8.50 5.50
2013 8.50 4.50
AVERAGE 9.5 6.37

12

10

6 PNB
SBI
4

0
2016 2015 2014 2013

It reveals that DPS position of all the banks increased from year to year during the

period under review. On an average, PNB paid out more dividends (Rs.9.5) than that

of SBI Bank Rs. 6.37, respectively. Thus, it is concluded that it was PNB, which was

more efficient in terms of dividends payment to the shareholders.

50
(5) DIVIDENDS PAYOUT RATIO (DPR)

The Dividends Payout Ratio (DPR) is a model for cash flow measurement used by the
investor to determine if a company is generating a sufficient level of cash flow to
assure a continued stream of dividends to them. It is also a measurement of the
amount of current net income paid out in dividends rather than retained by the
business. This ratio is computed by the following formula and expressed in
percentage terms:

DIVIDEND PAYOUT RATIO (in %)

YEAR PNB SBI
2016 27.92 18.39
2015 28.70 19.28
2014 26.15 19.69
2013 30.79 19.63
AVERAGE 28.39 19.24

40

30

20 PNB
SBI
10

0
2016 2015 2014 2013

An insight into the data reveals that there was a mixed trend in the distribution of

payout ratio of sample companies during the study period. Contrary to the DPS

position, on an average, PNB paid out 28.39% of its earnings as the dividends to the

shareholders, whereas SBI paid out 19.24%, the lowest. Thus, PNB was more

efficient in generating more cash inflows to the shareholders by paying the highest

ratio of earnings as the dividends than SBI, which paid relatively a lower percentage.

51
(6) NET PROFIT MARGIN (NPM)

Net Profit Margin indicates how much a company is able to earn after all direct and
indirect expenses to every rupee of revenue. This ratio is calculated using the
following formula and expressed in percentage terms:

NET PROFIT MARGIN (in %)

YEAR PNB SBI
2016 10.49 21.17
2015 10.75 22.89
2014 13.53 25.43
2013 15.6 29.69
AVERAGE 12.59 24.79

35

30

25

20
PNB
15 SBI
10

0
2016 2015 2014 2013

The above data reveal that it was SBI, which has outperformed PNB in terms of Net

Profit Margin. However, the data also reveal there was stagnation in the NPM

position of SBI whereas PNB could increase the net profit from year to year during

the study period. On an aggregate basis, mean NPM of SBI was 24.79, the highest,

followed by PNB (12.59%), the lowest among three sample companies. Thus, it found

that it was SBI to be the most efficient company in controlling indirect expenses when

compared to PNB.

52
(7) OPERATING PROFIT MARGIN (OPM)

Operating Profit Margin indicates how effective a company is at controlling the costs
and expenses associated with their normal business operations. This ratio is found out
using the following formulae and expressed in percentage terms:

OPERATING PROFIT MARGIN (%)

YEAR PNB SBI
2016 20.10 50.13
2015 20.31 51.43
2014 24.99 50.6
2013 23.04 51.57
AVERAGE 22.11 50.93

60

50

40

30 PNB
SBI
20

10

0
2016 2015 2014 2013

SBI sustained the highest operating profit margin in every year during the study

period followed by PNB, which has registered a reasonably higher margin during the

period under review. On an aggregate basis, SBI was highly successful in controlling

the expenses by registering an average OPM of 50.93%, followed by PNB which

could make average OPM of 22.11% respectively.

53
(8) RETURN ON ASSETS (ROA)

It is used to measure the profitability of the bank in terms of assets employed in the
bank. It is also an yardstick of measuring managerial efficiency in rel the utilization of
assets.

(Net profit after tax but before interest*100)/total assets

Net profit after tax but before interest is nothing but operating profit

RETURN ON ASSETS (in %)

YEAR PNB SBI
2016 1.12 1.32
2015 1.09 1.33
2014 1.30 1.38
2013 1.48 1.47
AVERAGE 1.25 1.37

1.6

1.4

1.2

0.8 PNB
SBI
0.6

0.4

0.2

0
2016 2015 2014 2013

A higher return on total assets is an indicator of high profitability and a good overall

efficiency. Reversely a low return on total assets indicates low profitability on assets

employed and poor managerial efficiency. The ROA of SBI bank is better than the

PNB . In 2016 SBI ROA is 1.32% followed by PNB (1.12%).

54
 SHARE HOLDING PATTERN OF PNB BANK
SHARE HOLDING PATTERN
SHARES [%]

Foreign 72,77,84,145.00 65.37469

Institutions 24,64,56,670.00 22.13847

Govt. Holding 0.00 0.00

Non Promoter Corp. Hold. 5,26,12,667.00 4.72604

Promoters 0.00 0.00

Public and Others 8,63,97,160.00 7.7608

Total 1,11,32,50,642.00 100.00

(Source: Secondary Data)
CHART No: 1

SHARE HOLDING PATTERN OFPNB

5% 0%
0% 8%
Foreign
Institutions

22% Govt Holding

Non Promoter Corp. Hold.
65% Promoters
Public & Others

(Source: Secondary Data)

55
 PNB BANK- RATIO ANALYSIS

BOOK VALUE

ITEMS 2011-12 2012-13 2013-14 2014-15 2015-16

Mkt.: High 615.90 925.00 1348.00 1465.00 537.95

Low 330.05 440.00 791.15 282.15 252.75

EPS 25.99 27.35 32.88 36.02 36.11

DPS 8.5 8.5 10.0 11.0 11.0

(Source: Secondary Data)

CHART No.2

40 36.02 36.11
32.88
35
25.99 27.35
30
25
20
15 10 11 11
8.5 8.5
10
5
0
2011-12
2004 - 05 2012-13
2005 - 06 2013-14
2006 - 07 20072014-15
- 08 2008 – 2015-16
09

EPS DPS

(Source: Secondary Data)

56
 PAY-OUT POLICY

ITEMS 2011-12 2012-13 2013-14 2014-15 2015-16

Reported EPS 25.99 27.35 32.88 36.02 36.11

DPS 8.5 8.5 10.0 11.0 11.0

PAY-OUT RATIO 0.327049 0.310786 0.304136 0.305386 0.304625

(Source: Secondary Data)

CHART No.3

0.327049
0.33
0.325
0.32
0.315 0.310786

0.31 0.304136 0.305386 0.304625

0.305
0.3
0.295
0.29
2011-12
2004 - 05 2012-13
2005 - 06 20062013-14
- 07 2014-152008 -09 2015-16
2007 - 08

PAY-OUT RATIO

(Source: Secondary Data)

57
 RETURN ON EQUITY

ITEMS 2011-12 2012-13 2013-14 2014-15 2015-16

Equity Share Capital 736.76 889.83 899.34 1112.68 1113.29

Reserves and Surplus 11813.2 21316.16 23413.92 45357.53 48922.00

NET WORTH 12549.96 22205.99 24313.26 46470.21 50035.29

PAT 2005.20 2540.07 3110.22 4157.73 4019.16

ROE (%) 15.9777401 11.4386703 12.7922787 8.9470867 8.032651

(Source: Secondary Data)

CHART No.4

15.9777401
16
12.7922787
14
11.4386703
12
8.9470867
10 8.032651
8

0
2011-12
2004 - 05 2012-13
2005 - 06 2013-14
2006 - 07 20072014-15
- 08 2008 – 2015-16
09

ROE (%)

(Source: Secondary Data)

58
 NORMALIZED PRICE EARNING RATIO

ITEMS 2011-12 2012-13 2013-14 2014-15 2015-16

Reported EPS 25.99 27.35 32.88 36.02 36.11

Mkt.: High 615.90 925.00 1348.00 1465.00 537.95

Low 330.05 440.00 791.15 282.15 252.75

Mkt.: High/EPS 23.697576 33.820841 40.997567 40.671849 14.897535

Mkt.: Low/EPS 12.699115 16.087751 24.061740 7.833148 6.999446

Average P/E 18.198346 24.954296 32.529654 24.252499 10.948491

(Source: Secondary Data)

CHART NO.5

32.529654
35
30 24.954296 24.252499
25 18.198346
20
15 10.948491

10
5
0
2011-12
2004 - 05 2012-13
2005 - 06 20062013-14
- 07 2007 -2014-15
08 2015-16
2008 – 09

Average P/E

(Source: Secondary Data)

59
INTRINSIC VALUE CALCULATION:

Dividend Pay-Out Ratio
Avg. Dividend Pay-out Ratio
Dividend declared
= ------------------------
EPS
Dividend Pay-out Ratio for 5 Years
= ----------------------------------------------
5

0.327049+0.310786+0.304136+.305386+0.304625
= ----------------------------------------------------------
---
5
= 0.310396

Average Retention Ratio = 1 - Average Dividend Pay-out Ratio

= 1 – 0.310396
= 0.689604

Sum of ROE for 5 Years

Average Return on Equity = -------------------------------
5

15.97774+11.43867+12.792279+8.947087+8.032651
= --------------------------------------------------
-----
5
= 11.437685%

Long term Growth Rate in Equity (g) = Average Retention Ratio x Avg. ROE
= 0.68904 x 0.114377
= 0.078875

Sum of PE Ratios for 5 Years

Normalized Avg. PE Ratio = -------------------------------------
5

18.198346+24.954296+32.529654+24.252499+10.948491
= ---------------------------------------------------------------
-------
5
= 22.176657

Projected EPS for = EPS for Current year x (1+g)

= 36.11 x (1+0.078875)
= 38.958176

60
 Intrinsic Value = Projected. EPS x Normalized Avg. PE Ratio
= 38.958176 x 22.176657
= 863.962112

Projected DPS = Dividend for Current Year x (1+g)

= 11.00 x (1+0.078875)
= 11.867625

INTERPRETATION
The stock is said to be over priced as the intrinsic value of the security
(863.96) is less than current market price875.70. This means that the investor should
sell the share as the price of the security may come down in future. The short term and
long term solvency of the company is unsatisfactory. The projected earning per share
(EPS) and the dividend per share (DPS) of the security is estimated to be 38.95 and
11.86 respectively

61
 ANALYSIS AND INTERPRETATION OF SBI BANK
SHARE HOLDING PATTERN OF SBI BANK
Table No.6
SHARE HOLDING PATTERN
SHARES [%]

Foreign 20,30,58,960.00 47.76234772

Institutions 4,50,40,249.00 10.59410545

Govt. Holding 6,102.00 0.001435277

Non Promoter Corp. Hold. 4,60,22,249.00 10.82508578

Promoters 8,24,43,000.00 19.39176303

Public and Others 4,85,73,868.00 11.42526276

Total 42,51,44,428.00 100.00

(Source: Secondary Data)
CHART No: 6
SHARE HOLDING PATTERN OF HDFC

11%
Foreign
Institutions
19% 48% Govt Holding
Non Promoter Corp. Hold.
Promoters
11% Public & Others

11%
0%

(Source: Secondary Data)

62
 SBI BANK- RATIO ANALYSIS

Table No.7

BOOK VALUE

ITEMS 2011-12 2012-13 2013-14 2014-15 2015-16

Mkt.: High 748.55 1150.00 1799.00 1825.00 1124.00

Low 461.15 620.00 890.00 800.00 774.00

EPS 20.84 27.04 34.55 43.42 50.67

DPS 4.5 5.5 7.0 8.5 8.5

(Source: Secondary Data)

CHART No:7

60
50.67
50 43.42

40 34.55
27.04
30
20.84
20
7 8.5 8.5
10 4.5 5.5

0
2011-12
2004 - 05 2012-13
2005 - 06 2013-14
2006 - 07 2014-15
2007 - 08 20082015-16
- 09

EPS DPS

(Source: Secondary Data)

63
 Table No.8

PAY-OUT POLICY

ITEMS 2011-12 2012-13 2013-14 2014-15 2015-16

Reported EPS 20.84 27.04 34.55 43.42 50.67

DPS 4.5 5.5 7.0 8.5 8.5

PAY-OUT RATIO 0.215931 0.203402 0.202605 0.195762 0.167752

(Source: Secondary Data)

CHART No.8

0.25 0.215931
0.203402 0.202605 0.195762
0.2 0.167752

0.15

0.1

0.05

0
2011-12
2004 - 05 2012-13
2005 - 06 2006 2013-14
- 07 2014-15
2007 - 08 2008 - 09 2015-16
PAY-OUT RATIO

(Source: Secondary Data)

64
 Table No.9

RETURN ON EQUITY

ITEMS 2011-12 2012-13 2013-14 2014-15 2015-16

Equity Share 309.88 313.14 319.39 354.43 425.14

Reserves and Surplus 4209.67 4986.39 6113.76 11142.80 11142.8

NET WORTH 4519.85 5299.53 6433.15 11497.23 11567.94

PAT 665.56 870.78 1141.45 1590.18 2152.09

ROE (%) 14.726245 16.431268 17.743252 13.830984 18.603917

(Source: Secondary Data)

CHART No: 9

18.603917
20 17.743252
16.431268
14.726245
13.830984
15

10

0
2011-12
2004 - 05 2012-13
2005 - 06 20062013-14
- 07 2014-15
2007 - 08 2008 - 09 2015-16

ROE (%)

(Source: Secondary Data)

65
 Table No.10

NORMALIZED PRICE EARNING RATIO

ITEMS 2011-12 2012-13 2013-14 2014-15 2015-16

Reported EPS 20.84 27.04 34.55 43.42 50.67

Mkt.: High 748.55 1150 1799 1825.00 1124.00

Mkt.: Low 461.15 620 890 800.00 774.00

Mkt.: High/EPS 35.918906 42.529586 52.069465 42.031322 22.182751

Mkt.: Low/EPS 22.128119 22.928994 25.759768 18.424689 15.275311

Average P/E 29.023513 32.729290 38.914617 30.228006 18.729031

(Source: Secondary Data)

CHART No: 10

32.72929 32.914617
35 30.228006
29.023513
30
25
20
13.729031
15
10
5
0
2011-12
2004 - 05 2012-13
2005 - 06 20062013-14
- 07 2007 -2014-15
08 2008 - 092015-16

Average P/E

(Source: Secondary Data)

66
INTRINSIC VALUE CALCULATION:
Dividend Pay-Out Ratio
Avg. Dividend Pay-out Ratio =
Dividend declared
= ------------------------
EPS
Dividend Pay-out Ratio for 5 Years
--------------------------------------------
5

0.215931+0.203402+0.202605+0.195762+0.167752
= ----------------------------------------------------------
-----
5
= 0.197090

Average Retention Ratio = 1 - Average Dividend Pay-out Ratio

= 1 – 0.197090
= 0.80291

Sum of ROE for 5 Years

Average Return on Equity = -------------------------------
5

14.726245+16.431268+17.743252+13.830984+18.603917
= -----------------------------------------------------------
5
= 16.267133

Long term Growth Rate in Equity (g) = Average Retention Ratio x Avg. ROE
= 0.80291 x 0.162671
= 0.130610

Sum of PE Ratios for 5 Years

Normalized Avg. PE Ratio = -------------------------------------
5

29.023513+32.729290+38.914617+30.228006+18.729031
= ---------------------------------------------------------------------
--
5
= 29.924891

Projected EPS for = EPS for Current year x (1+g)

= 50. 67 x (1+0.130610)
= 57.288009

Intrinsic Value = Projected. EPS x Normalized Avg.PRatio

= 57.288009 x 29.924891

67
 = 1714.337425

Projected DPS = Dividend for Current Year x (1+g)

= 85 x (1+0.130610)
= 9.610185

INTERPRETATION
The stock is said to be under priced as the intrinsic value of the security
(1714.34) is higher than current market price 1700.40. This means that the investor
should buy the share as the price of the security may come up in future. The short
term and long term solvency of the company is unsatisfactory. The projected earnings
per share (EPS) and the dividend per share (DPS) of the security is estimated to be
57.2 and 9.6 respectively

68
Findings

69
 FINDINGS

 On the basis of return on equity it is analyzed that SBI bank reinvested their

earnings much better than PNB banks to get the additional profits. So in ROE,

SBI is best.

 On the basis of earning per share it is analyzed that PNB is the most efficient

bank in terms of generating earnings. there are PNB and SBI banks with a

little difference of 0.24 in their average EPS.

 From dividend per share it is analyzed that both banks shows an increasing

trend from 2011 to 2016. But the performance of PNB is better than SBI banks

 From dividend payout ratio it is analyzed that PNB pays out the more dividend

than SBI.

 On the net profit margin basis it is seen that after all direct and indirect

expenses SBI earns more from its revenue and after it there is PNB bank.

 From operating profit margin it is analyzed that SBI controls its cost better

than PNB.

 On the basis of capital adequacy ratio it is analyzed that there is an increasing

trend in all the three banks but the average CAR of PNB bank is better than

SBI.

70
  On the basis of return on assets it is analyzed that SBI’s profitability and

overall efficiency is better than PNB.

Thus from the entire ratio analysis it is concluded that performance of SBI is best in

return on assets, operating profit margin, net profit margin, and return on equity.

Whereas performance of of PNB is best in dividend payout ratio and capital adequacy

ratio.

71
Conclusion

72
 CONCLUSION

Banks are the most common institutions and media for transfer of funds and

investments. The banking business is becoming more and more complex as a result of

liberalization and globalization. The present study is an attempt to examine and

compare the performance of the two largest banks of India, PNB and SBI a Private

Sector banks. The analysis is based on the ratio analysis. The various ratios which is

used in study are Operating Profit Margin (OPM), Net Profit Margin (NPM), Return

on Equity (RoE), Earnings per Share (EPS), Price Earnings Ratio (PER), Dividends

per Share (DPS) , Dividends Payout Ratio (DPR) and etc The brief study of all the

two banks is done and it is found that that PNB is largest bank and then the SBI.

73
Recommendation

74
 RECOMMENDATION

 The time duration for the analysis should be at least 5-10 years for the sake of

better picture of analysis but due to the data availability issues the present study is

restricted up to last four years.

 The present study suggests the companies where they are lacking in their financial

growth. Also it gives knowledge to a company how to increase its efficiency in

comparison with other competitive companies.

 Along with the present findings of the study, the investors also has to keep in

mind about the future contracts of the companies and their future plans so as to get

maximum profit out of them.

75
Limitations

76
 LIMITATIONS

 The study has lack of contact with company personnel acted as hindrance in the

study.

 The study is based on the limited knowledge & information provided by the

websites and software available on internet.

 The basis of selection of sample for the study was vague. Randomly individuals

were picked up to provide their responses.

 There are only five parameters taken for study however there are certain other

parameters on the basis of which accurate inference can be drawn.

 The ratings given are on the basis of data available on internet however the future

efficiency of the low performing company can be better.

77
Bibliography

78
 BIBLIOGRAPHY

 Frost & Sullivan (2007), “Telecom – Catalyzing India’s New Economy”

 Banka Sanjoy (2006), “Mergers and Acquisitions in Indian Telecom Industry-A

Study”

 Jain Rekha (2001), “A review of The Indian Telecom Sector”

 Fortis Investments (2006),”Global Telecom Sector”

 Sharma Seema and Lokesh Singla (2009), “Telecom equipment Industry:

Challenges and Prospects”

 Bhattacharya Manas (2000), “Telecom Sector in India: Vision 2020”.

 Cellular Statistics – Cellular Operator Association of India.

 Tiwari, Verma – “A Fundamental Analysis of Public Sector Banks In India”,

Indian Journal of Finance, Nov 2009.

79