INTROTION AND DESIGN OF THE STUDY

1. INTRODUCTION
Financial statements are prepared primarily for decision making. They played a
dominant role in the frame work of managerial decisions. But the information provided
in the financial statements are not an end in its as no meaningful conclusion can be drawn
from these statements alone.

However, the information provided in the financial

statement is of immense use in making decision through analysis of interpretation of

financial statements.
1.1 FINANCIAL STATEMENT ANALYSIS
The term financial statement is also know as analysis and interpretation of financial
statements. It referrers to the process of determining financial strength and weakness of
the organization, establishing strategic relationship between the items of balance sheet,
profit and loss account and other operative data. In simple words, we can say that
financial analysis is a study of relationship among the various financial items and their
trend as shown in financial statement. It is used to obtain a better understanding of the
firms position and performance.
According to I.M. Pandey, financial analysis is a process of identifying the
financial strength and weakness of the firm by properly establishing relationship between
the items of balance sheet and profit and loss account.
Broadly speaking there are three steps involved in the analysis of financial statements.
They are;
1. Selection.
2. Classification.
3. Interpretation.

The first step involves the selection of information relevant to the purpose of
analysis of financial statements and the second step involves the methodical classification
of the data and the third step is used for drawing of intervenes and conclusions.

1.2 STATEMENT OF THE PROBLEM

The attitude of the government for developing the economy, reach the people
through many sources. The major link through which the downtrodden are accessible to
the bank. A brief analysis of the Alakode Service Co-operative Bank follows.
1.3. IMPORTANCE OF THE STUDY
Without a sound and effecting banking system, Indian cannot have a healthy
economy. The banking system of India should only be hassle but also it should be able to
meet the challenges posed by the technology and other external and internal factors.
Banks have experienced in implementing developmental project involving people
from various strata and beneficiary, contrary to the popular perception that bank have
funded SSI and nurtured entrepreneurship, they have discovered that the poor are credit
worthy and present a huge market for worthy financial products and services. All that
they require is right product mix and delivery channels.
When one dreams alone, it is just a dream: when the whole nations dreams
together, it is the beginning of the reality. It is the time of the banking sector to drawn up
on all their resources to play a catalyst role in the economic development of the country
by providing a rural focus.
Alakode Service Co-operative Bank (ASCB) has over the years carved in
customer service and rural development.

The bank is pioneer in microfinance and

lending to self-help groups. From the social and economic point of view, it is felt to
necessary to focus on the financial growth of ASCB.

1.4. SCOPE OF THE STUDY

This is the study has been undertaken mainly to highlight the financial analysis of
Alakode Service Co-Operative Bank.

1.5 OBJECTIVES OF THE STUDY

To review the working of ASCB.

To analyze the financial statement of ASCB.
To analyze the profitability position of ASCB.
To study the short and longterm solvency position of ASCB.
To offer the suitable suggestion of improving working of the bank based on the
findings.

1.6. RESEARCH METHODOLOGY

1.6.1. Research
Research is conscious approach to find out the truth which is hidden and which
has not been discovered so far, applying standard procedures.
1.6.2

Definition
Redman and Mory defines research as a systemized effort to gain new

knowledge.
1.6.3

Research Methodology.
Research methodology is a systematic way to solve the reserve problems. It is

scientific step that is generally adopted by the Researcher in studying his problems along
with the logic behind them. The literary meaning is a careful investigations or inquiry
especially through a search for new facts in any branch of knowledge.
1.6.4

Primary Data
An informal interview has been conducted with the mangers from finance and

account department and additional information was obtained through the discussion with
the staff members of the bank.
1.6.5

Secondary Data
Secondary datas are collected from the published annual reports.

1.6.6

Period of the Study

The period of the study covers a period from the year 2007-2008 to 2011-2012.

The balance sheet and profit and loss account of the bank are taken for the study.
1.6.7

Tools for the Study

Ratio analysis.

1.6.8

Limitation of the Study

The study covers the period of only 5 years and earlier year have not been
taken into account.
Financial statements are only reports. They are not final because the exact
financial position is known only when the business is sold or liquidated.
Time factor was a major constraint to the study and posed hindrance for
deeper investigation
Some relevant details of the company were kept confidential.

Despite all the above limitations an earnest effort has been made to filter the data and
present it is correctly as possible.

REVIEW OF LITERATURE
This chapter attempts to make a review of study dealing the present study. Only a
few case studies and articles seem to have been made. It is essential for a researcher to
do a review on the literature related to his present study to have a deep knowledge on the
subject. It is only though this literature survey that the researcher takes the initial steps of
fixing the problem of study. A through review of literature will expose the researcher of
previous research conducted on their study etc.
A review of previous studies will help the researcher about the limitations
of the study and their by the researcher could take proper measures to overcome them.
Present chapter gives the reader, a broader outlook on the earlier studies which have been
conducted by various researchers in the area of financial performance. A review of these
studies enabled the researcher to formulate the research problem.
1.

Edward I Mina (1968) examine the development of tradition ratio analysis is a

technique for investigating corporate performance.

His topic was financial

discriminate analysis and peeling of corporate bank rapidly.

2.

Yasahly (1976) examined the working capital management aspects of paper

manufacturing companies by using annual report data of 19 companies by using
for a period of 10 years 1964-1974 several accounting ratios were used in this
study.

3.

Babu S.N. (1992) analyzed the management in tyre companies. It covered two
major aspects viz, working capital management of major tyre companies in India
and the impact on profitability.

3.

N. Ramesh (1994) in his study entitled financial analysis of M/S India shoes at
Madras has provided the financial analysis of the company in general was good.
The company could sources its longterm requirements from the national or state
financial institutions rather to approach the banking sector to avoid delay in the
expansion schemes.

5.

Almee Bower (1998) the working capital management at KLA Tensors

Corporations a case analysis. The focus of the assessment of the working capital
management at the company focused on the firms financial performance is
relation to liquidity and efficiency ratio.

6.

Jarmsa Verbrugge (1999) examined the state ownership and the financial
performance of privatized bank. He concluded that state owned enterprises are
less efficient and more risky than private firms.

7.

Matha S. Rocha (2003) examined the effects of trucking firms financial

performance on safety norms. She concluded that financial performance factors
have an importance influence on crash involvement.

8.

Cram Koeler (2003) examined the relationship between firms environment

performance and financial performance.

He concluded that the financial

performance is related to the environment performance.

9.

Gorila J. Johnson (2004) examined the owned manager gender, financial

performance and growth amongst Australias business longitudinal survey. She
concluded that there are no statistically significant differences between males and
females owner managed business.

10.

Margarita Tsoutsoura (2004) examined the corporate social responsibility and

financial performance of companies. She concluded that must people identify
certain benefits for a business being socially responsible but most business being
benefits are still barred to quantity and measure.

11.

Saranya (2005) in her study, a study on financial performance on cement

industries in South India with special reference to Tamilnadu, Karnataka, and
Andhra Pradesh focused on ascertaining the profitably and measuring the
earning capacity of cement industries.

She has suggested that they have to

develop their longterm and short term solvency position and increased their total
sale by adopting modern marketing technique.

INDUSTRY PROFILE
Introduction
In the present chapter it is attempted to provide a brief sketch on the profile of
banking industry.
Banking in India has its origin as early as in the vedic period. It is believed that
the transition from money lending to banking must have occurred even before Manu, the
Hindu Jurist, who has devoted a section of his work to deposit and advances and laid
down rules relating to rates of interest. For the past three decades, Indias banking
system has several outstanding achievements to its credit.

The most striking is its

extensive research. It is no longer confined to only metropolitan cities in India. In fact,

Indian banking system has reached even to the remote corners of the country. This is one
of the main reasons for Indias growth process. The governments regular policy for
Indian bank since 1969 has paid rich dividend with nationalization of 14 major private
banks of India.
Not long ago, an account holder had to wait for hours at the bank counters for
getting a draft or withdrawing his own money. Today, he has a choice.

Gone are the

days when the most efficient bank transferred money from one branch to other in 2 days.
Now it is simple as instant messaging or dialing a pizza. The first bank in India, though
conservative, was established in 1786. From 1786 till today, the journey of Indian
banking system can be segregated into three distinct phases. They are mentioned below:
Early phase from 1786 to 1969 of Indian banks.
Nationalization of Indian bank up to 1991 and prior to Indian banking sector
reforms.
New phase of Indian banking system with a advent of Indian financial and
banking sector reforms after 1991.

Phase: 1
The general bank of India was setup in the ear 1786.

Next came bank of

Hindustan and Bengal Bank. The East India Company established Bank of Bengal
(1809), Bank of Bombay (1840) and Bank of Madras (1843). As independent units and
called them called Presidency banks. These three banks were amalgamated in 1920 and
Imperial Bank of India was established which started as private shareholders bank,
mostly European shareholders.
In 1865, Allahabad Bank was established and first time exclusively by Indians,
Punjab National Bank Ltd was setup in 1894 with headquarters at Lahore between 1906
and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian
Bank, and Bank of Mysore were setup. Reserve Bank of India came in 1935. During the
first phase, the growth was very slow and bank also experienced period failure between
1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the
functioning and activities of commercial banks, the government of India came up with
the banking companies Act, 1949 which was later changed to banking companies
regulation Act 1949 which was later changed to banking companies regulation Act 1949
as per amending act 1965 (Act No: 23 of 1965). Reserve Bank of India was vested with
extensive powers for the supervision of banking in India as the central banking authority.
During those days, public had lesser confidence in the banks. As a result, deposit
mobilization was slow. The savings bank facility covered by the postal department was
comparatively safer. Moreover, funds were largely given to traders.
Phase: II
Government took major steps in this Indian banking sector reforms after
independence. In 1955, it nationalized Imperial Bank of India with extensive banking
facilities on a large scale especially in rural and semi-urban areas. It formed State Bank
of India to act as principal agent of RBI and handle banking transactions of the union and
state governments all over the country.
Seven banks forming subsidiary of State Banks of India was nationalized in 1960
on 19th July, 1969, major process of nationalization was carried out. It was the effort of

the then prime minister of India Mrs. Indira Gandhi. Fourteen major commercial banks
in the country were nationalized. Second phase of nationalization Indian banking sector
reforms was carried out in 1980 with seven more banks. This step brought 80% of the
banking segment in India under government ownership.
The following are the steps taken by the government of India to regulate banking
institutions in the country:
1949: Enactment of banking regulation Act.
1955: Nationalization of Sate Bank of India.
1959: Nationalization of SBI subsidiaries.
1961: Insurance over extended to deposit.
1969: Nationalization of 14 major banks.
1971: Creation of credit guarantee corporation.
1975: Creation of regional rural banks.
1980: Nationalization of seven banks with deposit over 200 crores.
After the nationalization of banks, the branches of public sector banks India rose to
approximately 800 percentage in deposit and advances took a huge jump by 11000
percentage.
Phase: III
This phase has introduced many more products and facilities in the banking sector
in it reforms measure. In 1991, under chairmanship of M. Narasimham, a committee was
setup by his name which worked for the liberalization of banking practices. The country
is flooded with foreign banks and their ATM stations. Efforts are being put to give a
satisfactory service to customers. Phone banking and Net banking is introduced. The
entire system became more convenient and swift. Time is more importance than money.
The financial system of India has shown a great deal of resilience. It is sheltered from
any crisis triggered by any external macro economic shock as other East Asian Countries
suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high,

10

the capital account is not yet fully convertible, and banks and their customers have
limited foreign exchange exposure.
COMPANY PROFILE
Profile of Alakode Service Co-Operative Bank
The Alakode Service Co-Operative Bank Ltd.no.c.239 is registered as a cooperative society under the Madras Co-Operative Act VI of the 1932 and now functioning
under Kerala State Co-Operative societies Act, 21 of 1969. Its address is P.O. Alakode
and its area of operation is extent to whole of the Alakode village.
.
Alakode Service Co-operative Bank, the pioneer bank in the co-operative sector
came into existence on 1st February 1972 and playing vital in the overall development of
the village. Its head office at Alakode is the central financing agency in the three tier cooperative credit structure. It commenced functioning on 1 st February 1972 and since its
inception it could achieve a steady and consistent progress in all spheres of activities.
The bank has net work of 5 branches including 2 evening branches of the 5
branches, some of the branches are fully computerized and the bank planned to
computerize the remaining branches as early as possible. The function of the bank spread
all over the village in an extent to PACS as well as individual for varied purpose given
emphasis on priory sector advances. The 5 branches usually have 8 to 10 staffs. These
include the branch manager, branch inspector or field supervisor, cashers, accountants,
and attendants. Total no of staff of the bank is 48. The no of staff depends on the size of
the branch.
In addition to the banking activities the bank is extending many welfare activities
like aid for medical treatment for the down trodden, complimenting students in their
meritorious achievements etc. Pension to the building and other construction workers is
also channelized through the bank. Bank is also extends its support to major events of
public interest in the region

11

WELFARE ACTIVITIES
In addition to the banking activities, the bank provides various welfare activities
like aid for medical treatment for the downtrodden, complimenting students in their
meritorious achievements in SSLC, +2 etc. Collection of contribution from the members
of different welfare fund boards such as Kerala Toddy workers welfare fund, Kerala
construction workers welfare fund board etc.

Pension to the building and other

constructions workers and to the members of the board are channelized through the bank.
The bank throughout Kerala and also all over India issue demand draft. The bank also
deals in general insurance. Business in tie up with National Insurance Company and also
extends its support to all major events of public interest in the region.

12

BOARD OF DIRECTORS
K.P Sabu

President

A.G. Ramakrishnan Pillai

Director

Joseph Antony

Director

Mini Raju

Director

Balakrishan P.C.

Director

V.T. Cherian

Director

Babu

Director

Jacob Chako

Director

Koren Thoyen

Director

KEY PERSONS
Selin Mathew

Secretory

K.V. Velayudan

Assistant secretory

E.A. Joseph

Manager

13

POWERS OF THE BOARD OF DIRECTORS

To raise funds necessary for the purpose of carrying out the functions of the bank,
in the form of deposits and loans on such terms and conditions as they may
determine.
To grant loans and advances to members on such terms and conditions as they
may determine from time to time.
To sanction extensions of the period of loans. This became due for repayment,
after recording the reason for such extension in each case.
To sanction investment of the funds of the banks.
To admit members and allot shares and to approve transfer of shares.
To scrutinize and put up the annual budget to the general body.
To make arrangements for the efficient supervision of affiliated societies.
To prescribe and regulate from time to time, the strength of the office and field
staff and their salaried allowances.
To maintain such accounts and registers as specified by the registrar from time to
time.
To place before the general meeting of the bank to registrar notes of audit and of
inspection.
To incur expenditure as may be necessary for the management of the bank.

14

BRANCHES
1. Alakode.
2. Karthikapuram
3. Udayagiri
4. Rayrome
5. Alakode Evening
6. Nellipara Evening

15

BANK LOANS
FARM SECTOR
Kisan credit card
Plantation development loan
Farm mechanization loan
Animal husbandry loan
Agriculture produce loan
Minor irrigation loan
NON FARM SECTOR
Retail credit card
Industrial credit
Housing loan
Education loan
Self-help group finance
Loans to voluntary agencies
LOANS FOR COMMERCIAL BUILDING.
GOLD LOANS

16

DATA ANALYSIS AND INTERPRETATION

The term financial statement analysis include both analysis and
interpretation and therefore a distinction should be made between the two terms. While
the analysis is used to mean the simplification of financial data by methodical
classification of the data given in the financial statements, interpretation means
explaining the meaning and significant of the data simplified. However, analysis and
interpretation are interlinked and complimentary to each other. Analysis is useless
without interpretation and analysis is difficult or even impossible.
The financial statements provide a summarized view of financial position and
operation of the firm. Therefore much can be learned about a firm from a careful
examination of its financial statements as performance report; financial analysis is the
starting point for making plans, before using any sophisticated and planning procedures.
Understanding the past is a pre-requisite for anticipating the future. Financial
analysis is the process of identifying the financial strength and weakness of the firm by
properly establishing relationship between the items of balance sheet and profit and loss
account. Financial analysis can be undertaken by the management of the firm, or by
parties outside the firm, viz, owners, creditors, investors and others.
The factors like deposit, advances, expenses, profit are considered and their
increase and decrease are predicted 2007-2008 as the base years
The following is the tool applied to analyze the financial performance.

17

 Ratio analysis

RATIO ANALYSIS
Ratio analysis is power tool of financial analysis. A ratio analysis is defined as
the indicated quotient of two mathematical expressions and as the relationship
between two or more things. In financial analysis, a ratio is used as bench mark for
evaluating the financial position and performance of a firm.

An accounting figure

conveys meaning when it is related to some other relevant information. The relationship
between two accounting figures expressed mathematically is known as financial ratio.
Ratio helps summarize the large quantizes of financial data into make quantitative
judgment about the firms financial performance.
TYPES OF RATIOS
Several ratios calculated from the accounting data can be grouped into various
classes, according to the financial activity or the function to be evaluated. Following are
the classifications.

Liquidity ratios
Solvency ratios
Profitability ratios
Activity ratios

18

1.

LIQUIDITY RATIO

Liquidity ratio measures the ability of the firm to meet its current obligations. A firm
should ensure that it does not suffer from lack of liquidity, and also that it does not have
excess liquidity. If current asset are sufficient to pay off current liabilities, then liquidity
position will be satisfactory.
Current Ratio or Working Capital Ratio.
Quick Ratio (Acid Ratio)
Absolute Liquidity Ratio.
2. LONG TERM SOLVENCY RATIO
Solvency means the ability of the business to repay its outside labilities. Here, the
term solvency ratio has been used to mean long term financial position of the business.
Solvency ratio also measures the relationship between external equities and internal
equates.
2.1 Debit Equity Ratio.
2.2 Fixed Asset to Proprietors Fund.
2.3 Interest Coverage Ratio.
3. PROFITABILITY RATIO
A company should earn profits to survive and grow over a long period of time.
Profits are essential but it would be wrong to assume that every action initiated by
management of the firm should be aimed at maximizing the profit. Profits are the
differences between the revenue and expense. They are the ultimate output of the

19

company. Therefore, the financial manager should continuously evaluate the company in
term of profits. Following are the important profitably ratios.
3.1 Net Profit Ratio.
3.2 Gross Profit Ratio.
3.3 Operating Ratio

4. ACTIVITY RATIOS
Activity ratio highlights up on the activity and operational efficiency of the
business concern. Activity ratios are employed to evaluate the efficiency with which the
firm manages and utilizes its assets. These are also called turnover ratios. Following are
the important activity ratios.

4.1 Total Assets Turnover Ratio.

4.2 Fixed Assets Turnover Ratio.
4.3 Current Assets Turnover Ratio.
4.4 Working Capital Turnover Ratio.

20

1.1 CURRENT RATIO

Current ratio can be defined as the ratio of current assets to current liabilities and
shows relation between total current assets and current liabilities. This ratio is also know
as working capital ratio as it is a measure of general liquidity and is most widely used to
make the analysis of a short term financial position or liquidity of a firm.
A relatively high current ratio is an indication that the firm is liquid and has the
ability to pay its current obligations in time as and when they become due. On the other
hand, a relatively low current ratio represents that the liquidity position of the firm is not
good and the firm shall not be able to pay its current liabilities in time without facing
difficulties

Current Assets
Curent Ratio=

______________
Current Liabilities

1.2 ABSOLUTE LIQUIDITY RATIO

This ratio is obtained by dividing cash (of course cash in hand and cash at bank)
and marketable securities with liabilities. It is also known as cash position ratio.

Cash + Marketable Securities

Absolute Liquidity Ratio= ___________________________

21

Current Liabilities

2.1 DEBT-EQUITY RATIO

This ratio establishes relationship between long-term debt and owners funds.
This ratio indicates the relative claims of creditors and shareholders against the assets of
the concern. A considerable degree of risk is involved when a business in financed to a
large extent by outsiders.

Long Term Debt

Debt-Equity Ratio

__________________________
Shareholders Fund

2.2 FIXED ASSET TO PROPRIETORS FUND

This ratio acts as supplement to the proprietary ratio and is obtained by dividing the
value of fixed assets by the amount of proprietors fund. Normally it is the duty of the
shareholders to finance the purchase of fixed assets. The ratio is good test of long-term
solvency. If the proprietors fund more than fixed assets, financial condition of the
enterprise is sound and good.

Fixed Assets
Fixed Assets to Proprietors Ratio =________________________

22

Proprietors Fund

2.3 INTEREST COVERAGE RATIO

This ratio is significant for the long term creditors since it indicates whether the
business earned sufficient profit to pay periodic interest charges. This ratio is also termed
as Debt Service Ratio. Higher the ratio is better is the solvency.

EBIT
Interest Coverage Ratio =

___________________
Interest

3.1 GROSS PROFIT RATIO

Gross Profit Ratio expresses the relationship between gross profit and sales. This
ratio is calculated by dividing gross profit by net sales. The gross profit ratio indicates the
extent to which selling price of goods per unit may be decline with out resulting in losses
on operations of a firm. It reflects the efficiency with which a firm produces its products.
As the gross profit is found by deducting cost of goods sold from the net sales, higher the
gross profit ratio better is the result.

Gross Profits
Gross Profit Ratio = _______________________

23

X 100

Net Sales

3.2 NET PROFIT RATIO

Net Profit ratio is the balance of profit and loss account after adjusting interest,
tax, all non operating expense and income. Net profit ratio establishes a relationship
between net profit (after tax) and sales and indicates the efficiency of the management in
manufacturing, selling, administrative and other activities of the firm. It is the measure
of overall profitability. This ratio also indicated the firms capacity to face adverse
economic conditions such as price competition, low demand etc. Obviously, higher the
ratio, the better is the profitability.

Net Profit after Tax

Net Profit Ratio

____________________

X 100

Net Sales
3.3 OPERATING RATIO
This ratio measures the extent to operating cost incurred for making sales. It is an
important ratio that is used to discuss the general profitability of the concern. It is
calculated by dividing the total operating cost by net sales. Lower the ratio, the more
profitable are the operation indicating an efficient control over cost and an appropriate
selling price.

24

Operating Cost
Operating Ratio

_____________________

X 100

Net Sales

4.1 ASSET TURNOVER RATIO

Asset turnover ratio is calculated by dividing the value of total asset with that of net
sales. This ratio indicates the utilization of total asset. A high ratio indicates over trading
of total asset while lower ratio indicates the over investment in asset and non utilization
of capacity

Net Sales
Asset Turnover Ratio

____________________
Total Asset

4.2 FIXED ASSET TURNOVER RATIO

Fixed asset turnover ratio shows the relationship between sales and fixed asset. It
shows whether fixed asset are full utilized that is measures the efficiency with which a
firm is utilizing its fixed asset in generating sales.

Net Sales
Fixed Asset Turnover Ratio =

_________________
Fixed Asset

25

4.3 CURRENT ASSET TURNOVER RATIO

This ratio is supposed to measure the efficiency with which current assets are
employed. A high ratio indicates a high degree of efficiency in asset utilization and a low
ratio reflects inefficient use of assets.

Sales
Current Asset Turnover Ratio

____________________
Current Asset

4.4 WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio is arrived at by dividing the net sales by average
working capital. This ratio also indicates the velocity of the utilization of net working
capital. This ratio also indicates the number of times the working capital hired over
This ratio measures the efficiency with which the working capital is being used by
a firm. This ratio indicates the number of times the working capital is turned over in the
course of a year. A higher ratio indicates efficient utilization of working capital and a low
ratio indicates otherwise. But a very high working capital turnover ratio is not a good
situation for any firm and hence care must be taken while interpreting the ratio.

Sales
Working Capital Turnover Ratio =

____________________

26

Working Capital

ANALYSIS AND INTERPRETATION

1. RATIO ANALYSIS
TABLE 1.1
TABLE SHOWING CURRENT RATIO
Year

Current Asset

Current Liability

Ratio

2007-2008

10308817

6109339

1.69

2008-2009

18491577

6767012

2.75

2009-2010

22832126

7420949

3.08

2010-2011

26905857

9431858

2.85

2011-2012

33847642

11332983

2.99

Total

13.36

Average

2.67

INTERPRETATION:
The acceptable level of current ratio can be taken as 2:1. The current ratio of
Alakode Service Co-operative Bank for the last 5 year (2007-2008, 2008-2009, 2009-

27

2010, 2010-2011, and 2011-2012) are 1.69, 2.75, 3.08, 2.85 and 2.99 respectively. The
average current ratio of this period is 2.67.
It is concluded that the short term solvency of the bank is satisfactory.

CHART 1.1
CHART SHOWING CURRENT RATIO

3.5
3.08
3

2.85

2.75

2.99

2.5

2
1.69

Ratio

1.5

0.5

0
2007-2008

2008-2009

2009-2010

28

2010-2011

2011-2012

TABLE 1.2
TABLE SHOWING ABSOLUTE LIQUIDITY RATIO

Year

Absolute Assets

Current Liability

Ratio

2007-2008

4181825

6109339

0.68

2008-2009

4918660

6767012

0.73

2009-2010

6633313

7420949

0.89

2010-2011

9816378

9431858

1.04

2011-2012

16091940

11332983

1.42

Total

4.76

Average

0.95

INTERPRETATION:
A ratio of 0.75:1 may be usually considered to be satisfactory. The Absolute
Liquidity Ratios of Alakode Service Co-operative Bank for the last 5 year (2007-2008,
2008-2009, 2009-2010, 2010-2011, and 2011-2012) are 0.68, 0.73, 0.89, 1.04 and 1.42
respectively. The average Absolute Liquidity of this period is 0.95

29

It is concluded that the absolute liquidity position of the bank is satisfactory level.

CHART 1.2
CHART SHOWING ABSOLUTE LIQUIDITY RATIO

1.6
1.42
1.4
1.2
1.04
1
0.8

0.89
0.68

0.73

0.6
0.4
0.2
0
2007-2008

2008-2009

2009-2010

30

2010-2011

2011-2012

TABLE 1.3
TABLE SHOWING DEBT EQUITY RATIO

Year

Long Term Debt

Shareholders Fund

Ratio

2007-2008

3882650

1440027

2.70

2008-2009

6393751

1575555

4.06

2009-2010

6039603

1795796

3.36

2010-2011

4761086

2080643

2.29

2011-2012

10278334

2228350

4.61

Total

17.02

Average

3.40

INTERPRETATION:
A ratio of 3:1 may be usually considered to be satisfactory, although there cannot
be any rule of thumb or standard norms for all type of business. The Debt Equity

31

Ratios of Alakode Service Co-operative Bank for the last 5 year (2007-2008, 2008-2009,
2009-2010, 2010-2011, and 2011-2012) are 2.70, 4.06, 3.36, 2.29 and 4.61 respectively.
The average Debt Equity Ratio of this period is 3.40
It is concluded that the longterm solvency position of the bank satisfactory.

CHART 1.3
CHART SHOWING DEBT EQUITY RATIO

4.61

4.5

4.06

4
3.36

3.5
3

2.7
2.29

2.5

Ratio

2
1.5
1
0.5
0
2007-2008

2008-2009

2009-2010

32

2010-2011

2011-2012

TABLE 1.4
TABLE SHOWING FIXED ASSET TO SHAREHOLDERS FUND

Year

Fixed Asset

Shareholders Fund

Ratio

2007-2008

93792

1440027

0.07

2008-2009

135120

1575555

0.09

2009-2010

165791

1795796

0.09

2010-2011

190726

2080643

0.09

2011-2012

179600

2228350

0.08

Total

0.42

Average

0.08

INTERPRETATION:
A ratio of 1:1 may be usually considered to be satisfactory, although there cannot
be any rule of thumb or standard norms for all type of business in a banking company
the investment on fixed asset will be very low, which shows a very low ratio. The fixed
asset to proprietors ratio of Alakode Service Co-operative Bank for the last 5 year (2007-

33

2008, 2008-2009, 2009-2010, 2010-2011, and 2011-2012) are 0.07, 0.09, 0.09, 0.09 and
0.08 respectively. The average Fixed Asset to Proprietors Fund Ratio of the bank for this
period is 0.08.
It is concluded that the Fixed Asset to Proprietors Fund Ratio of the bank is not bad.

CHART 1.4
CHART SHOWING FIXED ASSET TO SHAREHOLDERS FUND

0.1
0.09

0.09

0.09

0.09
0.08

0.08
0.07

0.07

0.06
0.05

Ratio

0.04
0.03
0.02
0.01
0
2007-2008

2008-2009

2009-2010

34

2010-2011

2011-2012

TABLE 1.5
TABLE SHOWING INTEREST COVERAGE RATIO
Year

EBIT

Interest

Ratio

2007-2008

914720

743669

1.23

2008-2009

11899132

974541

1.22

2009-2010

1726593

1437492

1.20

2010-2011

2274497

1876810

1.21

2011-2012

2373229

2133058

1.11

Total

5.97

Average

1.19

INTERPRETATION:
A higher the ratio, better it is. If the interest charges are covered 3 to 5 times, the
ratio is considered to be satisfactory. But it may not be applicable for nonmanufacturing
industries like banks. The Interest Coverage ratio of Alakode Service Co-operative Bank
for the last 5 year (2007-2008, 2008-2009, 2009-2010, 2010-2011, and 2011-2012) are
1.23, 1.22, 1.20, 1.21 and 1.11 respectively. The Average Operating Ratio of the bank for
this period is 1.19.

35

It is concluded that the Interest Coverage Ratio of the bank is satisfactory.

CHART 1.5
CHART SHOWING FIXED ASSET TO SHAREHOLDERS FUND

1.24

1.23
1.22

1.22

1.21
1.2

1.2
1.18
1.16
1.14

Ratio

1.12

1.11

1.1
1.08
1.06
1.04
2007-2008

2008-2009

2009-2010

36

2010-2011

2011-2012

TABLE 1.6
TABLE SHOWING GROSS PROFIT RATIO
Year

Gross Profit

Net Sales

Ratio (%)

2007-2008

171051

1493399

11.45

2008-2009

215372

1849367

11.65

2009-2010

289101

2345762

12.32

2010-2011

397687

2962408

13.42

2011-2012

240171

3208196

7.49

Total

56.33

Average

11.27

INTERPRETATION:
A higher the ratio is always considered good and serves as an index of higher
profitability. There is no standard for this ratio. It varies from business to business. The
Gross Profit Ratio of Alakode Service Co-operative Bank for the last 5 year (2007-2008,
2008-2009, 2009-2010, 2010-2011, and 2011-2012) are 11.45%, ll.65%, 12.32%, 12.42%
and 7.49% respectively. Here we can see a continuous increase in G/P ratio except last
year. The Average G/P Ratio of the bank for this period is 11.27%.

37

It is concluded that the Profitability Position of the bank is good.

CHART 1.6
CHART SHOWING GROSS PROFIT RATIO

38

TABLE 1.7
TABLE SHOWING NETT PROFIT RATIO
Year

Net Profit

Net Sales

Ratio (%)

2007-2008

170353

1493399

11.4

2008-2009

150828

1849367

8.14

2009-2010

220238

2345762

9.39

2010-2011

284850

2962408

9.62

2011-2012

147707

3208196

4.66

Total

43.21

Average

8.64

INTERPRETATION:
A higher the Net Profit ratio, better is the operational efficiency of the concern.
There is no standard for this ratio. It varies from business to business. The Net Profit
Ratio of Alakode Service Co-operative Bank for the last 5 year (2007-2008, 2008-2009,
2009-2010, 2010-2011, and 2011-2012) are 11.40%, 8.14%, 9.39%, 9.62% and 4.66%
respectively. It is observed that the net profit in terms of Net sales is gradually declining.
The Average Net Profit ratio the bank for this period is 8.64%.

39

The management of the bank has to analyze the cause for decline in N/P ratio and take
steps to increase the N/P percentage.

CHART 1.7
CHART SHOWING NET PROFIT RATIO

40

TABLE 1.8
TABLE SHOWING OPERATING RATIO
Year

Operating Cost

Net Sales

Ratio (%)

2007-2008

525298

1493399

35.17

2008-2009

566577

1849367

30.64

2009-2010

612336

2345762

26.10

2010-2011

674214

2962408

22.76

2011-2012

744779

3208196

23.21

Total

137.88

Average

27.58

INTERPRETATION:
Low operating ratio indicates an efficient control over the cost.

Higher the

operating ratio, lower the efficiency of the management. An Operating Ratio Ranging
between 75% and 80% is generally considered as ideal. But it may not be applicable for
all type of business. The Operating Ratio of Alakode Service Co-operative Bank for the
last 5 year (2007-2008, 2008-2009, 2009-2010, 2010-2011, and 2011-2012) are 35.17%,
30.64%, 26.10%, 22.76% and 23.21% respectively. The average Operating Ratio of the
bank for this period is 27.58%.
41

It is concluded that the efficiency of controlling the costs of the Alakode Service Cooperative Bank is very satisfactory.

CHART 1.8
CHART SHOWING OPERATING RATIO

42

TABLE 1.9
TABLE SHOWING TOTAL ASSET TURNOVER RATIO
Year

Net Sales

Total Assets

Ratio

2007-2008

1493399

18321969

0.08

2008-2009

1849367

22850167

0.08

2009-2010

2345762

27345929

0.08

2010-2011

2962408

31669878

0.09

2011-2012

3208196

41990829

0.08

Total

0.41

Average

0.08

INTERPRETATION:
A high ratio indicates over trading of total assets while a low ratio indicates the
over investment in assets and non utilization of capacity. Hence we cant say that a
particular ratio is standard for all types of business. The Assets Turnover Ratio of
Alakode Service Co-operative Bank for the last 5 year (2007-2008, 2008-2009, 20092010, 2010-2011, and 2011-2012) are 0.08, 0.08, 0.08, 0.09 and 0.08 respectively. The
average Ratio of the bank for this period is 0.08.

43

It is concluded that the Assets Turnover Ratio of Alakode Service Co-operative

Bank is not bad as we consider Total income earned as net sales.

CHART 1.9
CHART SHOWING TOTAL ASSETS TURNOVER RATIO

44

TABLE 1.10
TABLE SHOWING FIXED ASSET TURNOVER RATIO
Year

Net Sales

Fixed Assets

Ratio

2007-2008

1493399

93792

15.92

2008-2009

1849367

135120

13.69

2009-2010

2345762

165791

14.15

2010-2011

2962408

190726

15.50

2011-2012

3208196

179600

17.86

Total

77.12

Average

15.42

INTERPRETATION:
If the Fixed Asset Turnover Ratio is too high, it indicates that the firm is over
trading on its fixed assets, but in case of low ratio, it signifies that the firm has an
excessive investment in fixed assets. So the standard ratio will be different according to
the nature of business. The investment on fixed assets by a manufacturing company will
be very high comparing to a banking company.
The Fixed Assets Turnover Ratio of Alakode Service Co-operative Bank for the
last 5 year (2007-2008, 2008-2009, 2009-2010, 2010-2011, and 2011-2012) are 15.92,
13.69, 14.14, 15.50 and 17.86 respectively. The average Ratio of the bank for this period
is 15.42.

45

It is concluded that the ability of Alakode Service Co-operative Bank in utilizing fixed
asset is very good.

CHART 1.10
CHART SHOWING FIXED ASSETS TURNOVER RATIO

46

TABLE 1.11
TABLE SHOWING CURRENT ASSETS TURNOVER RATIO
Year

Net Sales

Current Assets

Ratio

2007-2008

1493399

10308817

0.14

2008-2009

1849367

18491577

0.10

2009-2010

2345762

22832126

0.10

2010-2011

2962408

26905857

0.11

2011-2012

3208196

33847642

0.09

Total

0.54

Average

0.11

INTERPRETATION:
The Current Assets turnover Ratio is very much significant for nom
manufacturing concern or for concern using lesser amount of fixed assets. This ratio
indicates the efficiency in using current assets. There is no standard for this ratio
The Current Assets Turnover Ratio of Alakode Service Co-operative Bank for the
last 5 year (2007-2008, 2008-2009, 2009-2010, 2010-2011, and 2011-2012) are
0.14,0.10, 0.10, 0.11 and 0.09 respectively. The average Ratio of the bank for this period
is 0.11.

47

It is concluded that the ability of Alakode Service Co-operative Bank in utilizing Current
asset is very much satisfactory.

CHART 1.11
CHART SHOWING CURRENT ASSETS TURNOVER RATIO

48

TABLE 1.12
TABLE SHOWING WORKING CAPITAL TURNOVER RATIO
Year

Net Sales

Working Capital

Ratio

2007-2008

1493399

9671395

0.15

2008-2009

1849367

17690060

0.10

2009-2010

2345762

22253299

0.11

2010-2011

2962408

26136414

0.11

2011-2012

3208196

33019683

0.10

Total

0.57

Average

0.11

INTERPRETATION:
A high Working capital turnover ratio indicates a presence of over trading and
needs for additional funds. A low ratio indicates under trading and the presence of more
funds which cant be put in to reasonable use.
The Working Capital Turnover Ratio of Alakode Service Co-operative Bank for
the last 5 year (2007-2008, 2008-2009, 2009-2010, 2010-2011, and 2011-2012) are
0.15,0.10, 0.11, 0.11 and 0.10 respectively. The average Ratio of the bank for this period
is 0.11 (11%).

49

It is concluded that the working capital turn over ratio of Alakode Service Co-operative
Bank is satisfactory.
CHART 1.12
CHART SHOWING WORKING CAPITAL TURNOVER RATIO

50

FINDINGS, SUGGESTIONS AND CONCLUSION

Findings
The Average Current Ratio of Alakode Service Co-Operative Bank during the
period of study is 2.67. It shows a better position of the bank to meet the short
term obligations.
The Average Absolute Liquidity Ratio of the bank during the period of the study
is 0.95. It shows that the absolute liquidity position of the bank is satisfactory
level.
The average debt equity ratio acquired by the bank during the period of study is
3.4. It shows that the longterm solvency position of the bank is very satisfactory.
The average ratio of Fixed Asset to Shareholders fund required by the bank during
the period of study is 0.08. It shows that the Fixed Asset to Proprietors Fund ratio
of the bank is not bad, as the investment on fixed asset by the bank will generally
be very low.
The average operating ratio of the bank during the period of study is 1.19. It
shows that the interest coverage ratio of the bank is okay.
The average Gross Profit ratio of the bank during the period of study is 11.27%.
It shows that the profitability position of the bank is good.
The average net profit ratio of the bank during the period study is 8.64. It shows
that the profitability position of the bank is good.
The average Operating Ratio of the bank during the period of study is 27.85%. It
shows the efficiency of controlling cost of the bank is very satisfactory.

51

 The Average Asset Turnover ratio of bank during the period of study is 0.08%. It
shows the efficiency the Asset Turnover Ratio of Alakode Service Co-operative
Bank is not bad as we consider the total income earned as net sales.
The Average Fixed Asset Turnover Ratio of the bank during the period of study is
15.42. It shows that the ability of Alakode Service Co-operative Bank in utilizing
its fixed asset is very good.
The Average Current Asset Turnover Ratio of the bank during the period of study
is 0.11. It shows that the ability of Alakode Service Co-operative Bank in
utilizing is its current asset is very much satisfactory.
The average Working Capital Turnover Ratio of the bank during the period of
study is 0.11. It shows that the Working Capital Turnover ratio of Alakode
Service Co-operative Bank is very satisfactory

52

Suggestions
1. The interest coverage ratio of the bank is low. Repayment of part or full loan
improving the operating efficiency or both will improve the financial strength of the
bank.
2. The Gross Profit Ratio of the bank in 2011-2012 is very low. So the bank should
analyze the cause and should take steps to increase its gross profit
3. The management of the bank has to analyze the cause for declining the net profit and
takes steps to increase the net profit percentage.
4. The bank should control its operating expenses to improve its operating ratio.
5. The total Asset Turnover ratio of the bank is very low which indicates over investment
in asset and non-utilizing of capacity. So the bank should have proper policies to
overcome this problem.
6. The retained earning of the bank having increasing with which the bank can reinvest.
7. The bank should come forward in tracing out new prospective borrowers and help in
the development of the nation.

53

CONCLUSION
The study entitled a study on financial performance of Alakode Service Cooperative Bank, Kerala, is done on the financial statement of Alakode Service Cooperative Bank for the last 5 years (from 2007-2008 to 2011-2012). Financial statements
represent the snap shot of concerns activities at the end of a particular period.
Financial statements reveal how a business has prospered under the leadership of
management personnel. Financial appraisal is a technique to evaluate the past, current
and projected performance of the concern.
The present study was undertaken with object of evaluating financial stability of
ASCB. The data for the present study were obtained from the published annual reports of
the Alakode Service Co-operative Bank.
Bank can go even for diversification and expansion of the product. The retained
earnings of the bank have been increasing, with which the bank can reinvest to increase
its earning.
The bank has sound liquidity position because the current and absolute liquidity
ratios are very satisfactory. The solvency ratio of the bank also in a satisfactory level.
ASCB has also got a good profitability position.
Thus, Alakode Service Co-operative Bank shows a satisfactory position for the
period of study (from 2007-2008 to 2011-2012).

54

BIBLIOGRAPHY
Books Referred
1. Research methodology - Methods and techniques, CR Kothari.
2. Financial Management - by IM Pandey.
3. Financial Management by Shashi K. Gupta and P.K. Sharma.
4. Principles of Management Accounting Dr. S.N. Maheshwari.
Reports
Five year Annual Reports of Alakode Service Co-operative Bank (from 2007-2008 to
2011-2012)
Website
www.wikipedia.com
www.rbi.com
www.ascb.com

55

Balance Sheet Of Alakode Service Co-Operative Bank For The Period Of Study
(from 2007-2008 to 2011-2012)
Capital and Liabilities

As on
31-03-2008

As on
31-03-2009

As on
31-03-2010

As on
31-03-2011

As on
31-03-2012

Capital

10000

10000

10000

10000

10000

Share Capital Deposit

64143

64143

64143

64143

64143

Reserve and Surplus

1365884

1501412

1721650

2006500

2154207

Deposit

12361870

14079344

18931706

24058706

28656186

Borrowings

3882650

6393751

6039603

4761086

10278334

801517

578827

769443

827959

22850167

27345929

31669878

41990829

Cash & Balance with 967084

RBI

1173806

1688841

1447141

1471524

Balance with bank and 296110

Money at call short
notice
Investments
2918631

224665

156924

2672413

7158116

3520189

4787548

5696824

7462300

Advances

13570172

17082194

20140123

21035408

23010990

Fixed Assets

93792

135120

165791

190726

179600

Other Assets

476180

714193

406702

627366

2708299

Other
Provi

Labilities

TOTAL

And 637422
18321969

ASSETS

56

TOTAL

18321969

22850167

27345929

31669878

41990829

Source: Annual reports of ASC Bank.

Profit & Loss Accounts Of ASC Bank For The Period Of Study
(from 2007-2008 to 2011-2012)
As on
31-03-2008

As on
31-03-2009

As on
31-03-2010

As on
31-03-2011

As on
31-03-2012

Interest earned

1423181

1709005

2204878

2625889

3021825

Other Income

69607

140362

105610

336519

186371

Provision trfd Back

611

35274

TOTAL

149399

1849367

2345762

2962408

3208196

Interest expended

743669

974541

1437492

1876810

2133058

Operating expenses

525298

566577

612336

674214

744779

Provi. & contingencies

53381

92877

6833

13697

90188

TOTAL

1322348

1633995

205661

2564721

2968025

Net Profit before

Taxation

171051

215371

289101

397687

240171

Less: Prior period

Adjustments

698

812

INCOME

EXPENDITURE

PROFIT/LOSS

Less: Fringe Benefit Tax

Paid

Less: IT for the FY

64032
0

57

1099

1392

67764

111445

0
0
924641

Net Profit after Tax

170353

150528

Source: Annual reports of ASC Bank.

58

220238

284850

147707