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VERTICASL ANALYSIS
ASKARI BANK BALANCE SHEET
Ratio Analysis enables the business owner/manager to spot trends in a business and
to compare its performance and condition with the average performance of similar
businesses in the same industry. To do this compare your ratios with the average of
businesses similar to yours and compare your own ratios for several successive
years, watching especially for any unfavorable
trends that may
be starting.
PROFITABILITY RATIOS
RETURN ON CAPITAL FUND
Formula = Net mark up Received
Capital Funds
80
60
return on capital
40
%
fund
20
0
2006 2007 2008
years
INTERPRETATION
This ratio relates the net profits to the amount of capital funds that have been employed in
making that profit.
The above given ratios suggest that the profitability of the bank has increased very in the year
2008 indicating more profitable operations of the bank. While discussing the trend analysis, we
mentioned that the mark up charges have increased in some proportion but the mark up earned
by the bank resulting increase in the profit available on the capital funds employed. This ratio
showing a very good financial position of the bank.
RETURN ON INVESTMENT
Formula = Net income after taxes
Total Assets
2006 2007 2008
1.347577168% 1.471693615%
0.187314064%
return on investment
2
1.5
return on
1
%
investment
0.5
0
2006 2007 2008
year
INTERPRETATION
This ratio indicates the profit earned by the bank on the resources employed. As far as ASKARI
is concerned, we observe decrease in the utilization of the resources. It has decreased to 1.47 %
in the year 2007 from 0.18 % in the year 2008, the reason behind the decrease in profit may be
due to the efforts of the management
2
return on risk
%
1 assets
0
2006 2007 2008
years
INTERPRETATION
This ratio, with some fluctuation in 2007 in the year 2008. It is indicating active utilization in the
form of advances. The bank is finding it difficult to keep the level of its expenses less in
proportion to the advances it has disbursed. Lending, no doubt is the core function of a banking
concern. But the bank should find out effective ways of credit provisions affecting less on
profitability of the operations. Non-mark up revenues should also be increased in the face of
lower credit disbursements resulting in more.
RETURN ON DEPOSITS
Total Deposits
3
2.5
2
1.5 return on deposits
%
1
0.5
0
2006 2007 2008
years
INTERPRETATION
Interpret This ratio indicates to what extent deposits which represent funds mobilization on the
part of the bank contribute towards income generation. Although the other ratios regarding the
profitability are showing satisfactory position of the bank but still bank need to increase its
utilization of resources in order to increase its profitability because the banks have to pay heavy
taxes on their profit. It is showing decreasing trend in 2008 with high difference from last year.
RETURN ON ASSETS.
Formula = Net Profit After Tax / Total Assets
2006 2007 2008
2
1.5
1 return on assets
%
0.5
0
2006 2007 2008
years
INTERPRETATION
Shows that how the bank is utilizing there assets but the assets utilization of the askari bank is
not good and return is decreasing time to time. The reason for deceasing return on asset is
because the branches are increasing and assets and expenses are also increasing in 2006 only 115
branches, in 2007, 150 braches and now 200 branches are.
LIQUIDITY RATIOS
Total Deposits
advances on deposits
78
76
74
advances on
72
%
70 deposits
68
66
2006 2007 2008
years
INTERPRETATION
It demonstrate the degree to which bank has already used up its available resources to accommodate the
credit needs of its customers.
This ratio, a comparison of funds generation and its funds mobilization, indicates the total loans
sanctioned by the bank in relation to total amount of money deposited with the bank stands at 76%
compared with the last year figure of 70%. This shows that the bank has greater potential to advance
additional loans. Total loan able funds roughly measured by the deposits are sufficient to enable the bank
to make additional loans without recourse to more or less continuous borrowing. At present, the bank has
got a relatively small amount of advances as compared with its deposits raised. One reason for fewer
advances is the cautious and selective approach on the part of the management while deciding upon credit
proposals
Total Assets
10
8
DUE FROM BANK
6
TO TOTAL
%
4
ASSETS
2
0
2006 2007 2008
years
INTERPRETATION
It is an indication of AB’s funds management policies. The funds allocation to the financial institutions
has increased to a great extent despite the fact that still it holds a small proportion relevant to the total
resources raised by the bank. It is a positive indicator in the sense that the financing to the banks are the
most secure ways of lending. Considering the economic conditions of the country, it seems to be the best
alternative available to the bank. In the current year this ratio has been reduced to the little extent.
Although it is declining but the situation might not be alarming.
Due to Banks
100
80
DUE FROM
60
BANKD DUE TO
%
40
BANKS
20
0
2006 2007 2008
years
INTERPRETATION
It shows the relationship between what the bank owes from other banks and what is due to it. An
unfavorable condition has been observed in this ratio in the current year showing the fact that the
bank has to seek fewer funds from the financial institutions owing to the strong liquid financial
position. This ratio is going on increasing in last year but decreasing in current year, which
involves a slight risk. In the phase of economic instability, the bank’s management should be
efficient to access the risk involved in lending and they should control this ratio
Total deposits
15
10
DUE TO BANK TO
%
DEPOSITS
5
0
2006 2007 2008
years
INTERPRETATION
This ratio is an indicative of the proportion of the lending from the financial institutions in relation to the
total funds raised by the bank in the form of deposits.
This ratio for ACBL is 9.05% in the year 2008. There has been a significant decline in this ratio as
previously the bank depended slightly more on the borrowings from financial institutions. It shows that
the bank is concentrating on raising funds from depositors and trying to relies less on the borrowed funds.
• It is a favorable indication in the sense that the bank has large potential to ask for borrowed funds
in the phase of tight liquidity position.
• Further more, it shows the efficiency of the marketing department to have created so much of
deposits that the bank does not need to look at the financial institutions for help in improving its
liquid position.
Earnings Spread:-
Earning Spred
0.080
0.060
0.040 Earning Spred
0.020
0.000
2006 2007 2008 Peer
Group
INTERPRETATION
The ratio of earnings spread tells us about the difference between the interest income and the
interest expense that the bank has incurred. Thus it shows the better offering of bank in the
market.
Our analysis shows there is a increase in the earnings spread of the bank. In year 2008 earnings
spread is 5% that is 4.30% in the previous year. In peer group the earning spread is 6.84% in the
same year. Thus it shows that ACBL has about less as compared to peer group.
COVERAGE RATIO
INTEREST COVERAGE RATIO
Interest Exp.
100
80
60 INTEREST
%
40 COVERAGE
20
0
2006 2007 2008
years
INTERPRETATION
It shows whether the bank is earning enough profit before mark up charges to be paid to the financiers
and the taxation obligations due to the government in order to remain solvent.
The above figure shows the acceptable capacity on the part of the bank to cover its interest payments. It
has increased in 2007 as compared with the last year. This increase in the ratio is a sign of improvement
for the bank. But this is a short-term perspective of the bank’s financial position. in 2008 it shows the
decreasing trend.
Total Assets
7
6.5
CAPITAL FUNDS
6 TO TOTAL
%
5.5 ASSETS
5
2006 2007 2008
years
INTERPRETATION
This ratio indicates the extent of the funds employed by the bank in the total
resources as shown in the balance sheet. This ratio has been decreased in the
current year with a very low margin.
Risk Asset
10% 12% 9%
CAPITAL FUNDS
15
10
CAPITAL FUNDS
%
5
0
2006 2007 2008
years
INTERPRETATION
This ratio take into account the difference between cash and marketable securities
& other kind of assets. Cash & marketable securities, which are risk less items, are
excluded to find out the true picture of the capital adequacy. In case of Askari the
ratio is decreasing.
INVESTMENTS.
INVESTMENTS
50,000,000
40,000,000
30,000,000
INVESTMENTS
20,000,000
10,000,000
0
2006 2007 2008
YEARS
INTERPRETATION
The Askari Commercial Bank is showing a mix trend of increase and decrease in the investments of the
bank, it goes on increasing from year 2007 to 2002 and its ratio is highest in 2007. From 2008 it starts
declining.
Investment Portfolio
Federal
Governm ent
Securities
Fully paid up
ordinary s hares
Fully paid
preference s hares
Lis ted com panies
Term Finance
Certificates
Foreign Securities
Credit Risk
Ratio of non-performing assets to loans and leases:-
Ratio of non-performing assets to loans tells us about the assets that are exposed to credit risk
and their full recovery is doubtful. Higher the ratio of non-performing assets to loans higher the
credit risks. In our analysis ratio is high shows of high credit risking 2006 it is 2% now increases
to 5%.
Ratio of non-performing assets to equity capital:-
If there is more credit risk so, there is also present more risk of failure of bank and in turn more
risk to the shareholder’s equity. Ratio of non-performing assets to equity capital tells us about
this relationship.
The risk involved in this ratio increased up to 85% in year 2008 from the previous year. The ratio
of previous year is 60%, which shows that high risk involved now. But on the other hand the
ratio in peer group on this point is 46.32% in the same year which shows that the other banks
have high rate of risk than ACBL.
Annual provision for loans losses to equity capital:-
Ratio of annual provision for loan losses to Equity capital tells us about the credit risk level of
any financial institution.
Our ratio analysis of ACBL is 31.34% in year 2008 while in 2008 peer group average on this
ratio is 2.70%. It shows that ACBL is maintaining less provision for loans. On the other hand the
increase in provision for ACBL and Peer Group banks are maintaining due to current financial
crisis.
1.00 Non-Performing
0.80 Assets to total loans
0.60
Annual provision for
0.40
loans losses to
0.20 eqiuty capital
- Non Performing
2006 2007 2008 Peer assets to equity
Deposits
Group capital
DEPOSITS(million)
200,000,000
150,000,000
100,000,000 DEPOSITS(million)
50,000,000
0
2006 2007 2008
years
INTERPRETATION
Askari Commercial Bank is known to be the leading bank in the private sector. Customers’
shows a lot of loyalty to the bank, therefore, the deposits of the bank go on increasing every year
and its ratio has not been fall since the last Three years.
150,000,000
100,000,000
ADVANCES
50,000,000
0
2006 2007 2008
YEARS
INTERPRETATION
The Askari Commercial Bank has adequate amount of money as result of deposits it keeps with itself of
their valuable customers. It keep a certain percentage of money in order to meet the day to day
transactions of the bank and lend reaming amount as advances and loans which is very important source
of business for the bank. The graph shows that the capacity of the bank to lend the advances and loans is
going on increasing since the last 3 years and is highest in the year 2008.