ASSIGNMENT 1

ADVANCED FINANCIAL MANAGEMENT

SUBMITTED BY
314141 VATSAL MAGAJWALA
SECTOR: BANKING SECTOR
COMPANIES: ICICI BANK, STATE BANK OF INDIA AND BANK OF BARODA
INTRODUCTION
This assignment is concerned with the topic Ratio analysis. Ratio is a term which shows the
quantitative relationship between two numbers. And ratio analysis is the technique of
interpretation of financial statements with the help of accounting ratios derived from the balance
sheet and profit and loss account.
IMPORTANCE OF RATIO ANALYSIS
To analyze the financial position.
To assess the operational efficiency.
To determine the trends in the long run.
To compare the performance.
LIMITATIONS OF RATIO ANALYSIS
It is based on the historical data.
It makes comparison difficult due to different accounting methods.
It ignores Qualitative aspects.
There is a limited use of single ratio.
CLASSIFICATION OF RATIO

LIQUIDITY
RATIO
OTHER
RATIO
TURNOVER
RATIO
LEVERAGE
RATIO
PROFITABILITY
RATIO
RATIO ANALYSIS OF ICICI BANK

A. LIQUIDITY RATIOS
This ratio shows the ability of the organization in meeting the short term payments or obligation.
It includes current ratio, acid test ratio and super quick ratio.
Current ratio =




Interpretation: The ideal current ratio is 2:1. In fact, the ideal ratio of 2:1 is considered as a safe
margin because if current assets are decreased to half i.e. 1 instead of 2 then creditors will also
get their payment in full. But here the current ratio is less than 2 but more than 1 which indicates
that bank have current assets just equal to their current liabilities which is not a good sign as
safety margin is zero or less. Therefore bank has to keep more current assets for maintaining the
satisfactory safety margin.
Acid Test ratio/Quick ratio =



Quick assets = Current asset Inventory
Year Quick Assets (in crores) Current Liabilities (in crores) Quick ratio
2007 12929.97 21396.16 0.60
2008 17040.22 25227.88 0.68
2009 37121.33 38228.64 0.97
2010 38041.13 42895.38 0.89
2011 29966.56 43746.43 0.69

Year Current Assets(in crores) Current Liabilities(in crores) Current ratio
2007 21632.56 21396.16 1.01
2008 29549.79 25227.88 1.17
2009 53421.59 38228.64 1.40
2010 58615.76 42895.38 1.37
2011 54130.18 43746.43 1.24
Interpretation: A quick ratio of 1:1 is considered favorable because for one rupee of current
liability there is atleast one rupee of liquid asset. Higher ratio is favorable. Here ratio is less than
1 in the year 2007, 2008 and 2011 but in 2009 and 2010 it is close to 1 which is not satisfactory.
It shows that bank have not managed their funds properly during this period. Therefore bank
must utilize its fund properly to maintain this ideal ratio of 1:1.

B. PROFITABILITY RATIO
It indicates the profit earning capacity of a business. It is calculated in relation to either sales or
an investment. It includes gross profit ratio, net profit ratio and return on capital employed ratio.
Gross Profit ratio =

*100
Year Gross Profit Sales Gross Profit ratio (in %)
2007 2956 9409.9 31.41
2008 4690.67 13784.49 34.03
2009 5874.7 22994.29 25.55
2010 7960.69 30788.34 25.86
2011 8925.23 31092.55 28.71

Interpretation: The gross profit ratio in 2007 & 2008 is 31.41% and 34.03% respectively.
Thereafter it decreases in 2009 and 2010 and again it pick the momentum. The reason may be
that operating expenses are increasing during those period resulting reducing the gross profit.
Therefore bank should examine the unnecessary operating expenses so that it can provide a
better return.
Net Profit ratio =

*100
Year Net Profit Sales Net Profit ratio (in %)
2007 2005.2 9409.9 21.31
2008 2540.07 13784.49 18.43
2009 3110.22 22994.29 13.53
2010 4157.73 30788.34 13.50
2011 3758.13 31092.55 12.09

Interpretation: Although the net profit and sales are increasing continuously but the net profit
ratio is declining. This is because net profit has not increased in the same proportion as that of
the sales.
Return on capital employed =


*100
Year PBIT Capital employed Capital Employed ratio (in %)
2007 9098.09 146263.25 6.22
2008 12694.05 226162.17 5.61
2009 20006.54 306429.44 6.53
2010 28540.34 356900 8.00
2011 27842.9 335554 8.30

Interpretation: It measures the earnings of net assets of the business. The ratio was 6.22% in
2007 and it increase continuously after 2007. It lead to the rising of the bank but very low return
on capital employed.
C. LEVERAGE RATIOS
This ratio shows the ability of the organization to repay the loan and the interest. When any
organization is having more assets than its liability it is known as solvent organization.
Debt Equity ratio =



Year Long term debt (in crores) Equity (in crores) Debt Equity ratio
2007 154760.45 12900 12.00
2008 228833 22553 10.15
2009 319995 24663.26 12.97
2010 352975 46819 7.54
2011 329420 49884 6.60

Interpretation: This ratio compares the funds provided by the creditors to the funds provided by
the owner. The debt equity ratio is high which shows that bank is relying more on its outsiders as
compared to the internal source of capital. This ratio is not satisfactory from the viewpoint of
long term lenders.
Capital gearing ratio =



Year Fixed Interest bearing funds Equity (in crores) Capital gearing ratio
2007 133363 12900 10.34
2008 203605 22553 9.03
2009 281766 24663.26 11.42
2010 310079 46819 6.62
2011 285672 49884 5.73

Interpretation: When fixed interest fund is more than equity shareholder funds, the company is
said to be highly geared. When it is equal to equity shareholder funds, the company is said to be
evenly geared and when it is less than equity shareholder funds it is said to be low geared. If
capital gearing is high there is a problem of issue of long term loans and issue of equity shares is
attractive and vice versa.
D. TURNOVER RATIOS
This ratio indicate the effective utilization of assets of the organization. It also indicates the
performance of an organization.
Fixed assets turnover ratio =

Year Fixed assets Sales Fixed assets turnover ratio
2007 4040 9409.9 2.33
2008 3980 13784.49 3.46
2009 3925 22994.29 5.86
2010 4110 30788.34 7.49
2011 3800 31092.55 8.18

Interpretation: The ratio is continuously increasing which shows that fixed assets have been
used effectively in the business and also the capital is not blocked in fixed assets.
Stock turnover ratio =



This ratio measures how fast the company turns over its inventory within a year. ICICI
inventory turnover data from March 2005 till March 2014 is nil.
Total assets turnover ratio =

Year Total assets (in crores) Sales (in crores)
Fixed assets turnover
ratio
2007 167659 9409.9 0.06
2008 251389 13784.49 0.05
2009 344658 22994.29 0.07
2010 399795 30788.34 0.08
2011 379300 31092.55 0.08

Interpretation: The ideal total asset turnover ratio is 2 times. High ratio i.e. more than 2
indicates efficient utilization of assets and low ratio indicate underutilization of assets.
Working capital turnover ratio =

Year Net Working Capital Sales Working capital turnover ratio
2007 236.4 9409.9 39.80
2008 4321.91 13784.49 3.19
2009 15192.95 22994.29 1.51
2010 15720.38 30788.34 1.96
2011 10383.75 31092.55 2.99

Interpretation: The ratio is 39.80 times in 2007 which is too high as compared to other years. A
high ratio indicates efficient utilization of working capital and low ratio indicates inefficient
utilization of working capital. But here in 2007 the ratio is too high as compared to other years
which is not good for the bank.
In case of debtors turnover and creditors turnover accounts receivable and accounts
payable are nil from March 2005 till March 2014 so no need to calculate it.

E. OTHER RATIOS
Earnings Per share =



It determines the market price of the equity shares of the company. It also determines the
companys capacity to pay dividend to its shareholders.
Year Net income available for shareholders No of equity shares (crores) EPS
2007 2005.2 73.67 27.22
2008 2540.07 88.98 28.55
2009 3110 89.93 34.58
2010 4160 111.27 37.39
2011 3758 111.325 33.76

Interpretation: This ratio reflects the performance of the company. It affects the market price of
the shares. Here the ratio is increasing from 2007 to 2010 but it decreases in 2011 due to decline
in profits.
Dividend per share =



Year Dividend Paid(cores) No of equity shares (crores) DPS
2007 632.96 73.67 8.59
2008 760 88.98 8.54
2009 901 89.93 10.02
2010 1227.7 111.27 11.03
2011 1224.6 111.325 11.00

Interpretation: The ratio shows an increasing trend except slight decrease in the year 2011. The
ratio is satisfactory which indicates that bank has a good dividend paying capacity.
Credit deposit ratio =

It shows the relationship between amount of deposits generated by the bank as well as
distribution towards loans and advances.
Year Advances (cores) Deposits (crores) Credit deposit ratio (%)
2007 91405 99818 91.57
2008 146163 165083 88.54
2009 195865 230510 84.97
2010 225616 244431 92.30
2011 218310 218347 99.98

Interpretation: The ratio is 91.57% in 2007 and it decreased in the year 2008 and 2009
respectively. Again it increased in the year 2010 and 2011. This indicates that credit performance
of the bank is good.


RATIO ANALYSIS OF SBI

A. LIQUIDITY RATIOS
Current ratio
Year Current ratio
2007 0.05
2008 0.07
2009 0.04
2010 0.04
2011 0.04

Interpretation: The ideal current ratio is 2:1 but the public sector companies have low current
ratio as there is little need of current assets. The liquidity position of the bank is poor. Lesser the
current ratio indicates that firms ability to meet the current obligation is not good.
Acid test/Quick ratio
Year Quick ratio
2007 6.52
2008 6.15
2009 5.74
2010 9.07
2011 8.5

Interpretation: The ideal ratio is 1:1. It shows an increasing trend which indicates that firm is
liquid and has the capability to meet its current liabilities in time.
B. PROFITABILITY RATIOS
Gross Profit ratio
Year Gross Profit ratio (%)
2007 16.35
2008 21.49
2009 20.23
2010 21.5
2011 22.43

Interpretation: It shows an increasing trend from the year 2007 to 2011 except in 2009 there is
slightly fall. It indicates favorable purchasing and the stability of management to make it
possible to buy the goods in large volume and higher will be the good managing power.
Net Profit ratio
Year Net Profit ratio (%)
2007 10.12
2008 11.65
2009 12.03
2010 10.54
2011 8.55

Interpretation: It shows an increasing trend from the year 2007 to 2009 but it decreased in the
year 2010 and 2011 respectively. It indicates inadequate returns to the owners as well as bank
may face adverse economic conditions.
C. LEVERAGE RATIOS
Debt Equity ratio



Year Debt Equity ratio
2007 13.92
2008 10.96
2009 12.81
2010 12.19
2011 14.37
Interpretation: The ratio is decreasing from 2007 to 2008. It is the danger sign for owners. If
the project fails the owner would suffer loss substantially. From 2009 to 2011 it shows increasing
trend which means bank is relying on their outsiders compared to the internal source of finance.
It is not satisfactory from the viewpoint of long term lenders.
D. TURNOVER RATIOS
Fixed assets turnover ratio
Year Fixed assets turnover ratio
2007 5.44
2008 6.32
2009 7.2
2010 7.26
2011 7.24

Interpretation: The ideal ratio is 5 times. It shows an increasing trend and the ratio is above the
ideal ratio which indicates better utilization of fixed assets.
In case of inventory turnover ratio, SBI inventory data is nil from March 2005 to March
2014.
In case of debtors turnover ratio account receivable is nil and in case of creditors turnover
ratio account payable is nil.
E. OTHER RATIOS
Credit deposit ratio
Year Credit deposit ratio
2007 73.44
2008 77.51
2009 74.97
2010 75.96
2011 79.9

Interpretation: The ratio is showing an increasing trend. It indicates that credit performance of
the bank is good.

Dividend per share
Year DPS
2007 12.5
2008 14
2009 14
2010 21.5
2011 29

Interpretation: The ratio is showing an increasing trend which indicates that bank has a good
dividend paying capacity.


RATIO ANALYSIS OF BANK OF BARODA

A. LIQUIDITY RATIOS
Current ratio
Year Current ratio
2007 0.04
2008 0.03
2009 0.02
2010 0.02
2011 0.02

Interpretation: It shows decreasing trend. It indicates over trading and under capitalization of
assets.

Quick ratio
Year Quick ratio
2007 5.43
2008 6.4
2009 4.43
2010 5.67
2011 6.7

Interpretation: It shows an increasing trend except in the year 2009. It indicates that firm is
liquid and has the ability to meet current assets and current liabilities in time.
B. PROFITABILITY RATIOS
Gross Profit ratio
Year Gross profit ratio (%)
2007 16.45
2008 17.56
2009 18.6
2010 19.06
2011 19.06

Interpretation: The ratio shows an increasing trend. It indicates the stability of the management
to develop huge sales volume. Higher the ratio better are the results.
Net Profit ratio
Year Net profit ratio (%)
2007 9.69
2008 10.35
2009 12.48
2010 15.68
2011 17.18

Interpretation: The ratio shows an increasing trend. It means the bank is providing good returns
to their owner and it also improves the profitability of the firm.

C. LEVERAGE RATIOS
Credit deposit ratio
Year Credit deposit ratio
2007 65.67
2008 68.72
2009 72.78
2010 73.6
2011 73.87

Interpretation: The ratio is showing an increasing trend indicating that bank has a good credit
performance.
Cash deposit ratio






Interpretation: It tells us how much liquidity we have in hand out of the total deposits
receipt. The ratio shows an increasing trend which means bank is holding more cash in
hand which is good.

Investment deposit ratio
Year Investment deposit ratio
2007 32.05
2008 28.46
2009 27.96
2010 26.22
2011 24.26

Year Cash deposit ratio
2007 4.46
2008 5.7
2009 5.8
2010 5.57
2011 6.11
Interpretation: It tells us where bank is putting our deposit may be for infrastructure, economic
development and other sectors where bank can put so that bank can earn more interest. Higher
ratio is preferable from the viewpoint of bank because of more interest and vice versa.
D. TURNOVER RATIOS
Fixed assets turnover ratio
Year Fixed assets turnover ratio
2007 4.25
2008 3.47
2009 4.2
2010 4.48
2011 5.25

Interpretation: The ratio shows an increasing trend which means better utilization of fixed
assets.
Total assets turnover ratio
Year Total assets turnover ratio
2007 0.07
2008 0.08
2009 0.08
2010 0.08
2011 0.08

Interpretation: The ideal ratio is 2 times. Here all the ratios are below 2 which means there is
underutilization of assets.
In case of inventory turnover ratio, SBI inventory data is nil from March 2005 to March
2014.
In case of debtors turnover ratio account receivable is nil and in case of creditors turnover
ratio account payable is nil.



E. OTHER RATIOS
Dividend per share
Year DPS
2007 6
2008 8
2009 9
2010 15
2011 16.5

Interpretation: It shows an increasing trend which indicates bank has a good dividend payout
policy and it also makes its owner happy by paying more dividend.
Earnings per share
Year EPS
2007 28.18
2008 39.41
2009 61.14
2010 83.96
2011 108.33

Interpretation: This ratio affects the market price of the company. The ratio is increasing
because of increase in profit.
Price earnings ratio
Year Price earnings ratio
2007 7.93
2008 7.49
2009 3.95
2010 7.87
2011 9.15

Interpretation: The ratio shows an increasing trend which means investors are anticipating
higher growth in the future.
INTER FIRM COMPARISON BETWEEN ICICI BANK, SBI AND BANK OF BARODA
CREDIT DEPOSIT RATIO (in %)

From the above graph it can be said that credit deposit ratio of SBI was highest in 2011 and
lowest in 2007. Similarly ICICI credit deposit ratio was highest in 2011 and lowest in 2009.
Thereafter BOB credit deposit ratio was highest in 2011 and lowest in 2007. It means that ICICI
bank has generated more loan assets from their deposits compared to other two banks.

INTEREST EXPENSES TO TOTAL EXPENSES (in %)

From the above graph it can be said that interest expense to total expense in SBI was increased
from 2007 to 2008 but it decreases in rest of the year. In case of ICICI the interest expense was
decreased from 2007 to 2009 and again it increased in 2010 and 2011. Similarly with BOB it
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2007 2008 2009 2010 2011
CREDIT DEPOSIT RATIO
SBI ICICI BOB
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2007 2008 2009 2010 2011
INTEREST EXPENSE TO TOTAL
EXPENSE
SBI ICICI BOB
shows an increasing and decreasing trend. From all the three banks it seems that interest expense
was higher in ICICI bank and therefore people prefer ICICI bank for their savings.
INTEREST INCOME TO TOTAL INCOME (in %)

From the above graph it can be said that in case of SBI the interest income to total income was
decreased from 2007 to 2009 and again it increased in 2010 and 2011. In case of ICICI and BOB
it shows an increasing and decreasing trend. From all the three banks it seems that interest
income to total income was highest in SBI compared to other banks which means people prefer
SBI to take loans and advances.
NET PROFIT MARGIN (in %)
Year SBI ICICI BOB
2007 10.12 21.31 9.69
2008 11.65 18.43 10.35
2009 12.03 13.53 12.48
2010 10.54 13.50 15.68
2011 8.55 12.09 17.18
MEAN 10.578 15.77074 13.076

From the above table it can be said that net profit margin in case of SBI and ICICI was
continuously decreasing from 2007 to 2011 and in case of BOB it is continuously increasing
which means BOB has shown more operational efficiency compared to other two banks.

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2007 2008 2009 2010 2011
INTEREST INCOME TO TOTAL
INCOME
SBI ICICI BOB
CONCLUSION
All the three banks are performing well in India. Hence on the basis of the above study or
analysis customer has more trust on public sector banks than private sector banks.
References
1) www.moneycontrol.com
2) http://money.rediff.com/companies/bank-of-baroda/14030010/ratio
3) For interpretation of ratios http://www.slideshare.net/Dharan178/ratio-analysis-
2970642.
4) For definition of ratios I have referred to a book Financial Accounting by M Y
KHAN.
5) For collecting data regarding stock turnover, debtors turnover and creditors
turnover
http://www.gurufocus.com/term/Total%20Assets/IBN/Total%2BAssets/ICICI%2B
Bank%2BLtd.