RATIO ANALYSIS

To check the efficiency of the banking companies, ratio Analysis is important technique. HBL,
UBL and ABL are banking companies used in this study for financial period of 2014, 2015 and
2016. Ratio Analysis checks current year figures. Different ratios have been discussed in this
study using formulas, graphical representation, result understanding and trend analysis.

1. Net Profit Margin

It is the percentage of revenue left after all expenses have been deducted from sales. In other
words, it can be defined that the amount of profit that a business can extract from its total
sales

Formula
𝑁𝑒𝑡𝑃𝑟𝑜𝑓𝑖𝑡𝐴𝑓𝑡𝑒𝑟𝑇𝑎𝑥𝑎𝑡𝑖𝑜𝑛
= × 100
𝑁𝑒𝑡𝑆𝑎𝑙𝑒
2014 2015 2016
HBL (31,112,000/135,928,93) (35,470,458/139,360,273 (31,820,219/137,807,927
*100 )*100 )*100
= 22.80% = 25.45% = 23.09%
UBL (21,929,561/82,735,467) (25,727,149/94,352,931) (27,730,112/98,219,214)
*100 *100 *100
=26% =27% =28.23%

ABL (15,015,092/67,001,497) (15,120,307/72,116,230) (14,427,050/64,606,019)

*100 *100 *100
=22% = 21% = 22%

Graphical Representation
 30

28.23
25 27
26 25.45
22.8 23.09
20 22 22
21

15

10

0
2014 2015 2016

ABL UBL HBL

Result Understanding
This step explains the process of converting bank’s sales into income. In other words, it explains
that how bank is managing its expenses.
Trend Analysis

In 2014 and 2016, ABL bank shows that Its income was good in these years. However, in 2015
the ratio of the bank lowers down. It mean profit of ABL bank decreased in 2015.
From 2014 to 2016, UBL banks shows that it income was increasing continuously. Its profit is
increasing from 26 to 27 and then 28.23 in 2016.
From 2014 to 2015 for HBL, above values shows that this banking is earning good income in
these years however, in 2016 it was again decreased.
2. Gross Spread Ratio

The gross spread ratio is to explain that how much direct cost will be deducted by banks
from its total revenue. In case of banking company direct cost always includes interest paid to
the depositors. Higher the value of interest paid, lower will be the ratio of gross spread. It also
implies that how much incomes is left after deducting the direct expenses from the total revenue

Formula
𝑁𝑒𝑡𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝑀𝑎𝑟𝑔𝑖𝑛
= × 100
𝑀𝑎𝑟𝑘 − 𝑢𝑝𝐸𝑎𝑟𝑛𝑒𝑑

2014 2015 2016

44,001,196/24,936,885 76,761,401/142,491,463 79,713,711/137,807,927

HBL *100 *100 *100
=51.86% =53.87% =57.86%
UBL (44,966,921/ (55,841,770/94,352,931) (57,042,528/98,219,214)
82,735,467) *100 *100
* 100 =59.18% =58.07%
=54.35%

ABL 28186155/67001497 36139490/72116230 33,260,672 /64,606,019

*100 *100 *100
=42.06% =50.11% =51.48%

Graphical Representation
 70

60
59.18 58.07
50 53.87 54.35
51.86 50.11 51.48

40
42.06
39.96
30

20

10

0
2014 2015 2016

ABL UBL HBL

Result Understanding
This ratio explains the spread of interest between borrowing and lending. Banks try to borrow the
money from depositors and then using these funds to make long-term loans to business.
Trend Analysis
Gross spread ratio looks at the spread of interest between borrowing and lending. In other words,
this spread is the difference between funded revenue as a percentage of earning assets such as
loans. The above values of ABL, HBL and UBL show that higher spread indicates
a higher profit margin for the bank. UBL has high value, it means it has high profit margin as
compared to HBL and ABL While ABL has low profit margin.
3: Spread ratio:
Spread ratio is an indicator to check that how the bank is able to pay its interest, in
contrast, to recover interest from the market.
 Formula

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝐸𝑎𝑟𝑛𝑒𝑑
=
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝐸𝑥𝑝𝑒𝑛𝑠𝑒

2014 2015 2016

HBL 135,928,939/68,498,443 142,491,463/65,730,062 137,807,927/58,490,216

= 1.98 times =2.16 times =2.35 times
UBL 82,735,467/37,768,546 94,352,931/38,511,161 98,219,214/41,176,686
=2.19 times =2.45 times =2.38 times
ABL 67,003,172/38,830,336 72116230/35976740 64,606,019/31,345,347
=1.72 times =2 times =2 times

Graphical Representation
3

2.5
2.45 2.38 2.35
2 2.19 2.16
1.98 2 2

1.5 1.72

0.5

0
2014 2015 2016

ABL UBL HBL

Interpretation

Result understanding
This explains that interest in earned by a bank and how much paid to people.
Trend Analysis
A bank earns money from interest, it receives on loans and other assets, and it pays out money
to customers who make deposits into interest-bearing accounts. If value of spreed ratio increases
then it means that interest on loans and other assets is increasing or its expenses(interest to
customers or despositors) are decreasing.
From 2014 to 2015, ABL bank values shows that it has increased. It shows that its interest to
depositors decreased and interest that it received from loans or assets increased. However, for
2016, it remained same as 2015 because both types of interests decreased.
For UBL, it shows that from 2014 to 2015, its interest from loans or assets increased as
compared to interest expenses While this ratio decreased in 2016.
From 2014 to 2016 shows that HBL bank, It shows that this bank,s interest from loans or assets
to interest expenses continuously increasing.

4 Non-interest income to total income ratio

It explains that how much a bank is earning from Non interest activities. Higher value of this
ratio would be better for any bank

Formula
𝑁𝑜𝑛𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝐼𝑛𝑐𝑜𝑚𝑒
= × 100
𝑇𝑜𝑡𝑎𝑙𝐼𝑛𝑐𝑜𝑚𝑒
 Working

Total Income ABL = Non Interest Income + Interest Income

2014 = 12,735,754+ 76,001,497

= Rs. 88,737,251
Total Income ABL = Non Interest Income + Interest Income
2015 = 9,755,138 + 72,116,230
= Rs.81,871,368
Total Income ABL = Non Interest Income + Interest Income
2016 = 11,210,491+ 64,606,019
= Rs. 75,816,510
UBL
Total Income UBL = Non Interest Income + Interest Income
2014 = 19,296,047 + 82,735,467
= Rs. 102,031,514
Total Income UBL = Non Interest Income + Interest Income
2015 = 21,987,007 + 94,352,931
= Rs. 116,339,938
Total Income UBL = Non Interest Income + Interest Income
2016 = 23,608,642 + 98,219,214
= Rs. 121,827,856
HBL

Total Income HBL = Non Interest Income + Interest Income

2014 = 19,674,789 + 135,928,939
 = Rs. 155,603,728

Total Income HBL = Non Interest Income + Interest Income

2015 = 32,266,316 + 139,360,273
= Rs. 171,626,589

Total Income HBL = Non Interest Income + Interest Income

2016 = 25,485,586 + 137,807,927
= Rs. 163,293,513

2014 2015 2016

HBL (19,674,789/155,603,728) 32,266,316/171,626,589 25,485,586/163,293,513

* 100 *100 *100
=12.6% =18.8% =15.6%
UBL (19,296,047/102,031,514) 21,987,007/116,339,938 23,608,642/121,827,856
* 100 *100 *100
=18.9% =18.8% 19.37%
ABL 12,735,754/88,737,251 9,755,138/81,871,368 11,210,491/75,816,510
*100 *100 *100
=14.35% =11.9% =14.78%

Graphical Representation
 25

20
18.9 18.8 18.8 19.37

15
15.6
14.35 14.78
12.6
10 11.9

0
2014 2015 2016

ABL UBL HBL

Interpretation
Result Understanding
This explains that the amount of income a bank is earning from market sale and how much from
interest.
Trend Analysis

The above values show that non interest income is decreasing for ABL. It means that non interest
income to total income decreased for ABL. However, it again increased because its non interest
income increased much in 2016.
For HBL, It shows that non interest income has increased from 2014 to 2015 however it has
decreased in 2016. It means that HBL earned less non interest income as compared to previous
years.
From 2014 to 2015, UBL status shows that its earnings( non interest income) decreased.
However, It again increased in 2016.
 5 Return on Total Equity

Return on total equity ratio shows that how efficiently a company is working to manage the
funds of its shareholders.
Formula
𝑁𝑒𝑡𝐼𝑛𝑐𝑜𝑚𝑒
= × 100
𝑇𝑜𝑡𝑎𝑙𝐸𝑞𝑢𝑖𝑡𝑦
2014 2015 2016

HBL 31,112,000/137,081,200 35,470,458/149,156,407*1 31,820,219/159,261,511

*100 00 *100
= 22.6% = 23.7% = 19.97%
UBL 21,929,561/94,589,280 25,727,149/105,867,061 27,730,112/116,942,573
* 100 *100 * 100
=23.18% =24.30% =23.71%
ABL 15,015,092/80890325 15120307/89256457 14,427,050/100,673,828
*100 *100 *100
=18.56% =16.94% =14.33%

Graphical Representation
 30

25
24.3 23.7 23.71
23.18 22.6
20
19.97
18.56
15 16.94
14.33
10

0
2014 2015 2016

ABL UBL HBL

Interpretation
Result Understanding
This ratio explains the status of the bank to manage the funds of its shareholders.
Trend Analysis
From 2014 to 2016, It shows the bad results of this bank ABL. ABL is not utilizing the funds of
the shareholders in proper way that is why its income to equity ratio becomes less.
From 2014 to 2015, UBL bank shows good progress. It means that this bank is utilizing the
funds for the progress of the bank while it decreased in 2016.
For HBL, it is showing good progress from 2014 to 2015. It means that is utilizing the income or
funds by proper way however, it decreased in 2016.
6 Debt Ratio

The debt ratio is one of the gearing ratios which indicates the bank’s liabilities in contrast
with its assets or shows that how able company is to pay its debts from its assets.
Formula
𝑇𝑜𝑡𝑎𝑙𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
= *100
𝑇𝑜𝑡𝑎𝑙𝐴𝑠𝑠𝑒𝑡𝑠

2014 2015 2016

HBL 1,611,328,609/1,769,196,254*100 (1,953,058,056/2,124,899,508)* 2,211,716,399/2,393,783,379*100

100
= 91.07 % = 92.39%
= 91.91%
UBL 985,897,655/1,111,414,107 1,258,515,368/1,400,650,843 1,425,764,162/1,577,551,023

*100 *100 *100

=88.70 % =89.85% =90.37%

ABL 761,532,751/843,097,566 902409055/991665512 968,940,580/1,069,614,408*100
*100 *100 =90.58%
=90.32 % =90.99%

Graphical Representation
93

92 92.39
91.91
91
91.07 90.99
90 90.58
90.32 90.37
89.85
89
88.7
88

87

86
2014 2015 2016

ABL UBL HBL

Interpretation
Result Understanding
In this step, It explains the bank’s liabilities in contrast with its assets or shows that how able
company is to pay its debts from its assets.
Trend Analysis
A ratio of 1.0 or 100%( in percentage) means that total liabilities equals total assets. It means that
if bank gets this value then it means that it would have to sell off all of its assets in order to pay
off its liabilities. It means , it is high risky. Once its assets are sold off, the business no longer can
operate.
For ABL, its value is about 90%, it means , it is high risky.
For UBL, it is in range of 88% to 90%. It is also high risky but less than ABL.
For HBL, it is also high risky. As its value is about 91%.
Good value for these banks should be less than 50%.
7: Debt / Equity Ratio
Debt to equity ratios is amount of entity’s capital that is financed from debt and how
much amount is financed from equity
Formula
𝑇𝑜𝑡𝑎𝑙𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
=
𝑇𝑜𝑡𝑎𝑙𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝐸𝑞𝑢𝑖𝑡𝑦

2014 2015 2016

HBL 1,611,328,609/137,081,200 (1,953,058,056/149,156,407) 2,211,716,399/159,261,511

= 13 times
= 11.75 Times = 13.88 times
UBL 985,897,655/94,589,280 1,258,515,368/105,867,061 1,425,764,162/116,942,573

=10.42 Times =11.88 times =12.19 times

ABL 761,532,751/62,053,785 902409055/67,968,647 968,940,580/74,474,468
=12.27 =13.27 Times =13 Times

Graphical Representation
16

14
13.88
12 13.27 13 13
12.27 11.88 12.19
11.75
10
10.42
8

0
2014 2015 2016

ABL UBL HBL

.
Interpretation
Result Understanding
It explains the amount of entity’s capital thatis financed from debt and how much amount is
financed from equity.
Trend Analysis
A debt to equity ratio of 1 would mean that investors and creditors have an equal stake in the
business assets.
Less value of this ratio means more financially stable business. It means that banks who have a
higher debt to equity ratio are considered more risky to creditors and investors as compared to
the banks with lower ratio values.
The above values show that UBL has less values as compared to the ABL and HBL. It values
varies from 10% to 13.88%. It means that UBL has less risk.
8 Advance / Deposit ratio
This ratio measures loans (advances) as a percentage of deposits. It shows that the bank is
funding all its loans from deposits rather than relying on wholesale funding
Formula
Total advances/ Total deposits

𝐴𝑑𝑣𝑎𝑛𝑐𝑒𝑠
=
𝐷𝑒𝑝𝑜𝑠𝑖𝑡𝑠

2014 2015 2016

HBL 560,118,997/1,447,215,447 605,636,271/1,558,310,675 712,132,554/1,793,370,392

=0.38 times =0.38 times =0.39 times
UBL 434,264,050/895,083,053 455,413,880/1,051,235,170 510,110,924/1,179,887,048
=0.48 times =0.43times =0.43times
ABL 306014402/667877615 321605140/734596166 330,230,251/805,110,834
=0.45 times =0.43 times =0.41 times

Graphical Representation
0.6

0.5
0.48
0.4 0.45 0.45
0.43 0.43 0.43
0.41
0.38 0.39
0.3

0.2

0.1

0
2014 2015 2016

ABL UBL HBL

Interpretation
Result Understanding
This step shows that covering the amount of loan from the market that is issued to clients.
Trend Analysis
If the ratio is lower than one, the bank relied on its own deposits to make loans to its customers,
without any outside borrowing. If the ratio is too high, the banks might not have
enough liquidity to cover any unforeseen funding requirements or economic crises.
In this case, ABL has high value as compared to UBL and HBL. HBL has low value. It means
that HBL has relied on its own deposits to make loans to its customers as compared to UBL and
ABL.
9 Operating Cash Flow Ratio:

Operating cash flow ratio is a ratio of cash flow from operations by current liabilities.
While current liabilities are the portion of liabilities due within one year

Formula

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔𝐶𝑎𝑠ℎ𝐹𝑙𝑜𝑤
= × 100
𝐶𝑢𝑟𝑟𝑒𝑛𝑡𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Working

Current Liabilities ABL = Upto 1 Month + Over 1 to 3 Months + Over 3 Month to 6

Months + Over 6 Months to 1 year

2014 = 597,129,297 + 58,878,111 + 69,664,675 + 18,397,115

= Rs. 744,069,198
2015 = 696,320,291 + 96,645,826 + 51,878,289 + 34,011,054
= Rs.878,855,460
2016 = 771,146,137 + 81,743,354 +54,247,606 + 38,994,178
= Rs. 946,131,275
 UBL
Current Liabilities UBL = Upto 1 Month + Over 1 to 3 Months + Over 3 Month to 6
Months + Over 6 Months to 1 year

2014 = 430,525,060 +74,271,733 + 49,054, 860 +29,349,711

= Rs. 583,201,364
2015 = 288,745,459 +162,161,752 +102,526,921 +99,201,881
= Rs. 652,636,013
2016 = 682,091,719 + 88,923,808 + 55,776,653 + 18,656,145
= Rs. 845,448,325
HBL
Current Liabilities HBL = Upto 1 Month + Over 1 to 3 Months + Over 3 Month to 6
Months + Over 6 Months to 1 year
2014 = 376,690,190 + 147,242,568 +117,849,298 + 164,655,538
= Rs. 806,437,594
2015 = 500,148,926 + 128,574,807 + 142,747,879 + 156,954,813
= Rs. 928,426,425
2016 = 557,200,376 + 152,085,760 +149,442,568 + 181,125,562
= Rs. 1,039,854,266

Formula

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔𝐶𝑎𝑠ℎ𝐹𝑙𝑜𝑤
= × 100
𝐶𝑢𝑟𝑟𝑒𝑛𝑡𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

2014 2015 2016

UBL (37,971,267/583,201,364) * (276,536,057/652,636,013)*100 (135,282,225/845,448,325)*100

100 =42.12% =16%
= 6.51%
HBL (99,607,284/806,437,594)* 346,701,985/928,426,425*100 164,417,580/1,039,854,266*100
100 = 37.34% = 15.81%
=12.35%
ABL 99,607,248/744,069,198*100 148,505,002/878,855,460*100 (63,803,312/946,131,275)*100
13.38% =16.89% =6.74%
Graphical Representation
45

40 42.12
35 37.34

30

25

20

15 16.89 16 15.81
10 13.38 12.35

5 6.51 6.74
0
2014 2015 2016

ABL UBL HBL

Result understanding
This ratio explains the operating cash flow.
Trend Analysis
Above results for ABL show that this bank has less ratio as compared to UBL and HBL. It
means that this bank has less operating cash flow ratio as compared to UBL and HBL.
The above formula shows that higher number means a company can cover its current debts more
times, which is a good thing. Companies with a high or increasing operating cash flow ratio are
in good financial health
10 Price to Earnings Ratio
The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its
current share price to its per-share earnings. This shows that how much times company’s share
price is increasing in contrast with earnings per share.
Formula
𝑀𝑎𝑟𝑘𝑒𝑡𝑉𝑎𝑙𝑢𝑒𝑝𝑒𝑟𝑆ℎ𝑎𝑟𝑒
=
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠𝑝𝑒𝑟𝑆ℎ𝑎𝑟𝑒

2014 2015 2016

HBL 233/21.56 200/24.18 214/21.69

= 10.74 = 8.27 = 9.86

UBL 174/17.91 176/21.02 188/22.65

= 9.71 = 8.37 = 8.30

ABL 105/13.11 98/13.20 97/12.60

=8 =7.4 =7.6

Graphical Representation
 12

10 10.74
9.71 9.86
8 8.5
8.37 8.27
8
7.4 7.6
6

0
2014 2015 2016

ABL UBL HBL

Result Understanding

Interpretation
Result Understanding
It is the step of the bank to measure its current share price about its per-share earnings.
Trend Analysis
This ratio measures how many times the earnings per share (EPS) has been covered by current
market price of an ordinary share. The above values shows that ABL has less value, it means that
it has weak position as compared to UBL and HBL. The above table also shows that HBL has
higher value, it means that this bank has strong position. It clearly shows that HBL has higher
P/E ratio that is the indication of strong position of this bank in the market
CONCLUSION AND RECOMMENMDATION.
4.1 : Conclusions.

This study has some objectives. These objectives show that how much of the companies’ assets
are financed through external and internal debt. It is also objective to check procedure of
maximizing their profits by controlling their interest expenses. After analyzing the financial
position of these banks, this research work has achieved its objectives.
This study deals with checking of strengths and weakness of the given banks. Different
ratios were studied in this research work likeNet profit Margin, Operating Cash flow ratio, Gross
Spread ratio, Non-Interest income to total income ratio, Spread ratio, Advances/Deposits ratio,
Return on Equity ratio, Debit Ratio, Debit /Equity ratio and found very important results.
The results show that HBL and UBL are managing very well their expenses as compared to the
ABL HBL is showing good income from 2014 to 2016. It also shows that for UBL and HBL,
interest paid to the depositors in 2016 is quite larger as compared to 2015 and 2014. UBL and
HBL showing less expenses from 2014 to 2015 , however, it increased in next year. For ABL,
earning to total income decreased form 2014 to 2015, however, it again increased in 2016. ABL
is not utilizing the funds of the shareholders in proper way that is why its income to equity ratio
becomes less. For HBL, it is showing good progress from 2014 to 2015. It means that is utilizing
the income or funds by proper way however, it decreased in 2016. UBL bank is showing that this
bank is able company is to pay its debts from its assets from 2014 to 2016. It is good sign for this
company. From 2014 to 2016, UBL and HBL are making progress in these years. It means that
it can easily finance from debt.
The results show that HBL has higher P/E ratio that is the indication of strong position of this
bank in the market. It also shows that ABL has less operating cash flow ratio as compared to
UBL and HBL. HBL has relied on its own deposits to make loans to its customers as compared
to UBL and ABL. Less value of debit equity ratio means more financially stable business, UBL
and HBL are more stable financially as compared to ABL.HBL and UBL are utilizing the
income or funds by proper way as compared to ABL.
HBL bank,s interest from loans or assets to interest expenses continuously increasing. UBL has
good value of net profit margin while HBL is showing good income. Interest earnings also show
that both banks, UBL and HBL have good results as compared to ABL. It means that HBL is at
top. In some case, HBL and UBL are showing same progress. However, ABL has low progress.