FA3 Assignment Bank Dhofar

Financial Accounting 3 (S.A.O.G)

Bank Dhofar

Table of Contents

Particulars

Page No.

Introduction

2

Company Background

3-4

Ratio Analysis

3-17

Analysis of Additional Techniques

18-24

Analysis of Cash Flow Statements

25-27

SWOT Analysis of Bank Dhofar

28

PEST Analysis

29

Users of Financial Statements

30-32

Limitations

32-33

Performance Report

34

Appendices

35-37

Bibliography

38

Taher AL Belush Belushii (25257) (25257)

Assessment 1 1


Bank Dhofar

Bank Dhofar (S.A.O.G)

Introduction:

The purpose of this study is to analyze and evaluate the financial data of Bank Dhofar (S.A.O.G) for the financial periods from 2002 to 2005. Furthermore, an overview of banking sector sector in Oman Oman will be be discussed discussed or or assessed assessed in this study study by by PEST PEST analysis. analysis. Also SWOT analysis of Bank Dhofar will be included in this study. In addition, the performance of Bank Dhofar (S.A.O.G) will be critically evaluated by using using relev relevant ant ratio ratio analy analysi siss and and addit additio ional nal techn techniqu iques es for for exam example ple,, Horiz Horizon onta tall Analysis, Vertical Analysis and Z scores. Moreover, a critical analysis of cash flow statements will be stated with examination of users of financial statements and limitations of ratio analysis.

Company Background:

Bank Bank Dhofar Dhofar started started operations operations in 1990, 1990, by acquiring acquiring the Muscat branch branch of BNPBNPParibas and was incorporated as an Omani commercial bank. Moreover, it took over the 11 branches of Bank of Credit & Commerce International (BCCI) in 1992. Bank Dhofar is wholly owned and managed by Omanis. In 1998, it divested 40% of its share in a public offer and got listed in the Muscat Securities Market and was converted into a SAOG company – Bank Dhofar Al Omani Al Fransi SAOG. In 2001, it acquired 16 branches of Commercial Bank of Oman after the latter was merged with Bank Muscat. In 2003, the Bank acquired Majan International Bank SAOC (MIB), an Omani closed joint stock company. Furthermore, on 30 September 2003 the bank held an Extra-ordinary General Meeting and decided to change the name of the Bank from Bank Dhofar Al Omani Al Fransi SAOG to Bank Dhofar SAOG.


Assessment 1 2


Bank Dhofar

Bank Dhofar (S.A.O.G)

Introduction:

The purpose of this study is to analyze and evaluate the financial data of Bank Dhofar (S.A.O.G) for the financial periods from 2002 to 2005. Furthermore, an overview of banking sector sector in Oman Oman will be be discussed discussed or or assessed assessed in this study study by by PEST PEST analysis. analysis. Also SWOT analysis of Bank Dhofar will be included in this study. In addition, the performance of Bank Dhofar (S.A.O.G) will be critically evaluated by using using relev relevant ant ratio ratio analy analysi siss and and addit additio ional nal techn techniqu iques es for for exam example ple,, Horiz Horizon onta tall Analysis, Vertical Analysis and Z scores. Moreover, a critical analysis of cash flow statements will be stated with examination of users of financial statements and limitations of ratio analysis.

Company Background:

Bank Bank Dhofar Dhofar started started operations operations in 1990, 1990, by acquiring acquiring the Muscat branch branch of BNPBNPParibas and was incorporated as an Omani commercial bank. Moreover, it took over the 11 branches of Bank of Credit & Commerce International (BCCI) in 1992. Bank Dhofar is wholly owned and managed by Omanis. In 1998, it divested 40% of its share in a public offer and got listed in the Muscat Securities Market and was converted into a SAOG company – Bank Dhofar Al Omani Al Fransi SAOG. In 2001, it acquired 16 branches of Commercial Bank of Oman after the latter was merged with Bank Muscat. In 2003, the Bank acquired Majan International Bank SAOC (MIB), an Omani closed joint stock company. Furthermore, on 30 September 2003 the bank held an Extra-ordinary General Meeting and decided to change the name of the Bank from Bank Dhofar Al Omani Al Fransi SAOG to Bank Dhofar SAOG.


Assessment 1 2


Bank Dhofar

Bank Dhofar currently operates through a network of 48 branches and 66 ATMs with staff strength of 598.

Shareholding:

The authorized share capital of the bank consists of 50,000,000 shares of RO 1 each. At 31 December 2005, the issued and paid up share capital comprise 41,961,818 shares of RO 1 each. The following shareholders of the Bank own 10% or more of the Bank’s shares: Name of Shareholder

Share holding %

Dhofar International Development and Investment Company SAOG Civil Service Pension Fund

30.00% 10.00%

2005 No. of Shares

12,588,545 4,196,181

Source: Bank Dhofar Annual Report

Regardi Regarding ng to the above above table, table, Dhofar Dhofar Internat Internationa ionall Develo Developme pment nt and Invest Investment ment Company SAOG owns the largest individual shareholding with 30% stake in the Bank, while the Civil Service Pension Fund holds 10% stake and the remaining 60% is owned by others others including including general general public. public.

Ratio Analysis:

Ratios provide very useful tools to assess the organization by making two basic types of comparisons: i.

ii.

The The analy analyst st can can comp compare are a pres presen entt ratio ratio with with past past (or (or expec expected ted)) ratios ratios for for the the organization to determine if there has been an improvement or deterioration or no change over time. The ratios ratios of of one one organ organizat ization ion may be comp compared ared with with simila similarr organiz organizatio ations. ns.

Perhaps the most commonly used ratios in business are Financial Ratios. These are developed developed by use of the income statement and the balance sheet. In fact, ratio analysis will give clues but not answers.

In this study, the Financial Ratios will be applied to the Bank Dhofar’s Financial Statements for the periods from 2002 to 2005 as well as these ratios will be discussed and analyzed.


Assessment 1 3


Bank Dhofar

As we know, know, financi financial al institu institution tionss such such as banks, banks, financi financial al service servicess compan companies ies and insurance companies have different ways of reporting financial information. This study will will give give the most most relev relevant ant infor informa matio tion n to analy analyze ze the the Bank Bank Dhofa Dhofar’s r’s Fina Financi ncial al Statements.

1. Pr Profi ofita tabi bilit lity y Ratio Ratios: s: The profitab profitabilit ility y ratios ratios measure measure profit profit in relation relation to revenu revenuee general generally ly the higher higher percentage percentage the better. better.

Gross Profit Ratio: This This tells tells how how much much profit profit the prod produc uctt or serv service ice is makin making g with withou outt over overhe head ad consi conside derat ration ions. s. As such such,, it indica indicates tes the the effic efficien iency cy of operat operatio ions ns as well well as how how products products are priced. priced. It is calculated by dividing the organization’s Gross Profit by the total Revenue: Gross Profit Ratio =

Amount in ‘000 Omani Rial

Gross Profit Revenue Gross Profit Ratio

Gross Profit× 100 Revenue

2002 9,335 24,640 37.89%

2003 11,423 27,675 41.28%

2004 12,600 30,019 41.97%

2005 16,131 34,738 46.44%

Ratio Calculati Calculation on based based on Bank Bank Dhofar’s Dhofar’s Annual Annual Reports Reports

From the above table, the Gross Profit Ratio increased increased in 2003 and reached at 41.28% compared with 37.89% for 2002. In 2005, Bank Dhofar significantly raised the gross profit ratio ratio to 46.44% which was the higher gross profit ratio over the study period. This is due to grew in the gross profit of the Bank by 22% from RO 9,335 K for the year 2002 to RO 11,423 K for 2003. This increase was a result of higher interest income coupled with increased fee income and profit from investments. Again in 2005 the gross profit of the Bank grew by 28% from RO 12,600 K for the year 2004 to RO 16,131 K for 2005. One of the main reasons behind the 28% jump in gross profit in 2005 was the decrease in provisions for impaired loans from ( RO 5,314 k) in 2004 to (RO 2,781 k) in 2005 by -48%.


Assessment 1 4


Bank Dhofar

Gross Profit Ratio 40,000 30,000

9 8 . 7 3

8 2 . 1 4

7 9 . 1 4

2003

2004

4 4 . 6 4

50% 40% 30% 20% 10% 0%

20,000 10,000 0 2002

Gross Profit

Revenue

2005

Gross Profit Ratio

Net Profit Ratio (Return on Revenue): This ratio indicates the relative efficiency of the firm after taking into account all expenses and income taxes. In other word, it is the relationship between the net profit after tax and total revenue. It is calculated as follows:

Net Profit Ratio =


Profit after tax Revenue Net Profit Ratio

Profit after tax Revenue

2002 8,295 24,640 33.66%

2003 10,156 27,675 36.70%

× 100

2004 11,078 30,019 36.90%

2005 14,199 34,738 40.87%

Ratio Calculation based on Bank Dhofar’s Annual Reports

As stated above, the net profit of the Bank has been consistently on upward trend during the last 4 years. Bank Dhofar reported a net profit of RO 10,156 K for the year 2003 as compared to RO 8,295 K for the year 2002 and a net profit of RO 14,199 K for the year 2005 as compared to RO 11,078 K for the year 2004, which represented an increase in Net Profit Ratio from 33.66% in 2002 to 36.70% in 2003 and from 36.90% in 2004 to 40.87% in 2005. This increase was mainly a result of the bank’s expansion in the retail business, which resulted in a sharp increase in commission earnings from a consistently growing loan book. Commission earnings grew from RO 1,039 K in 2002 to RO 2,198 K in 2005 resulted an increase by 112.0%. Moreover, Bank Dhofar diversified its operating earnings through fees and commissions from trade financing, brokerage, credit card operations, investment banking and asset management services. The increase in the Net Profit Ratio trend can be seen in the following graph:

Taher AL Belushi (25257)

Assessment 1 5


Bank Dhofar

Net Profit Ratio 40,000 30,000

6 6 . 3 3

0 7 . 6 3

% 0 9 . 6 3

7 8 . 0 4

2003

2004

2005

50% 40% 30% 20% 10% 0%

20,000 10,000 0 2002

Profit after tax

Revenue

Net Profit Ratio

Rate of Return on Equity (ROE): This ratio is calculated by dividing the net profit after tax (net earnings) by the net worth (shareholders’ Equity). This shows the earning power on shareholders’ book investment.

Return on Equity (ROE) =


Profit after tax Shareholders’ Equity Return on Equity (ROE)

Profit after tax × 100 Shareholders’ Equity

2002 8,295 47,408 17.50%

2003 10,156 63,127 18.38%

2004 11,078 67,771 16.93%

2005 14,199 79,405 19.30%


This ratio indicates how much company is making on the money that was invested in the firm. Furthermore, the calculation of this ratio indicates to investors how efficiently the company operates and how well the firm is being managed.

From the view point of Bank Dhofar, the bank generated a 17.50% return on the capital invested by the owners of the bank in 2002. This return increased to 18.38% in 2003 and slightly decreased to 16.93% in 2004. In 2005, the return on the capital invested jumped to 19.30%.

Generally, the rate of Return on Equity of the Bank Dhofar was desirable to provide a good percentage of dividends to owners and have funds for future growth of the Bank.


Assessment 1 6


Bank Dhofar

Return on Equity (ROE) 75,000 60,000 45,000 30,000 15,000 0

0 3 . 9 1

% 8 3 . 8 1

% 0 5 . 7 1

2002

3 9 . 6 1

2003

P ro fit after tax

20% 19% 18% 17% 16% 15%

2004

S hareho lders’ E quity

2005

R eturn o n E quity

Return on Assets (ROA): This ratio is one of the most widely used in the analysis of profitability since it indicates how efficiently the assets are being used. Moreover, it measures the earning power of firm’s assets.

Net Profit Ratio =


Profit after tax Total Average Assets Return on Assets (ROA)

Profit after tax × 100 Total Average Assets

2002 8,295 344,003 2.41%

2003 10,156 474,085 2.48%

2004 11,078 551,293 2.16%

2005 14,199 618,225 2.43%


The above table indicates the ability of Bank Dhofar to utilize the assets employed in the Bank to earn a good return.

More or less the Bank Dhofar maintained the same level of Return on Assets over the study period. In 2003, the Return on Assets was 2.48% it slightly increased from 2.41% in 2002. In 2004, the rate of Return on Assets decreased and reached at 2.16% and again in 2005 it increased and reached at 2.43%. This was a result of the increase in net income at higher pace than the increase in average total assets.


Assessment 1 7


Bank Dhofar

A consistently increase in the Bank’s Return on Assets indicates to the powerful of the Bank’s management to use the bank’s assets efficiently which in turn tells the investors the firm is doing well and catches a lot of investors. Return on Assets (ROA) 2.43%

618,225

2005

14,199 2.16% 2004

551,293

11,078 2.48%

2003

Return on Assets 474,085

10,156

Total Assets Profit after tax

2.41%

344,003

2002

8,295

2. Liquidity Ratios: The Liquidity Ratios indicate the ease of turning assets into cash. Moreover, liquidity ratios provide information about a firm’s ability to meet its short-term financial obligations. However, the firm should ensure that there is no shortage in liquidity as well as there is no excess.

Current Ratio:

This ratio is obtained by dividing the Total Current Assets of the company by its Total Current Liabilities. This tells whether the company has enough current assets to meet the payments of its current payments.

Current Ratio =

Total Current Assets Total Current Liabilities

Current assets normally includes cash, account receivable and inventories while current liabilities consist of account payable, short term loans, accrued income taxes, wages and other accrued expenses.

Current Ratio of 2:1 is considered an indicator of reasonable financial strength. A ratio of less than 1.0 indicates that the organization does not have sufficient current assets to meet current payment obligations.


Assessment 1 8



Bank Dhofar

2002 323,524 296,595 1.091:1

Total Current Assets Total Current Liabilities Current Ratio RO

2003 442,563 410,958 1.077:1

2004 517,815 483,522 1.071:1

2005 585,839 538,820 1.087:1


From the above table, an analysis of current ratio of Bank Dhofar will raise. In 2002, the bank had 1.091 RO worth of current assets for every 1 RO of Current Liabilities.

The ability of the bank to pay its liabilities over 12 month decreased to 1.077 & 1.071 in 2003 & 2004 respectively. Furthermore, in 2005 current ratio grew to 1.087 RO for every 1 RO indicating increasing trend on liquidity, however the Bank is still unable to meet its current liabilities sufficiently from its current assets.

In other word, the current ratio of the Bank Dhofar needs additional financial resources. To improve the current ratio of the Bank, it should decrease its current liabilities (account payable, short term loan etc) to meet current payment sufficiently. Current Ratio

700,000 600,000

1.095 1.091 1.087

500,000 400,000

1.085 1.080

1.077

300,000 200,000

1.090

1.075 1.070

1.071

100,000

1.065

0

1.060 2002

Total Current Ass ets

2003

2004

Total Current Liabilities

2005

Current Ratio

3. Efficiency Ratios: Efficiency Ratios measure how successful the organization is in using the assets to generate Revenue.

Assets Turnover Ratio: Assets Turnover Ratio is the relationship between revenue and assets. The organization should manage its assets efficiently to maximize the revenue. Moreover, this ratio


Assessment 1 9


Bank Dhofar

indicates the efficiency with which the organization uses all its assets to generate revenue. It is calculated by dividing the organization’s revenue by the total assets. Revenue Average Total Assets

Assets Turnover Ratio=

From the following table, the assets turnover ratio decreased from 0.072 times in 2002 to 0.068 times in 2003. In 2004 & 2005 again the assets turnover ratio decreased and reached at 0.059 times. This was mainly because the average total assets increased by 70% over the study period which in turn decreased the assets turnover ratio. One of the major reasons behind the 70% jump in average total assets over the study period was the merged between Bank Dhofar & Majan International Bank in 2003. Amount in ‘000 Omani Rial

2002 24,640 344,003 0.072 times

Revenue Average Total Assets Assets turnover Ratio

2003 27,675 409,044 0.068 times

2004 30,019 512,689 0.059 times

2005 34,738 584,759 0.059 times


Therefore, the lower Assets turnover Ratio, the less efficient the Bank is generating revenue from total assets employed.

Assets turnover Ratio 600,000 500,000

0.080

0.072

0.068

0.059 0.060

0.059

400,000 300,000

0.040

200,000

0.020

100,000 0

0.000 2002

Revenue

2003

2004

A verage Total Assets

2005

A ssets turnover Ratio

Working Capital Turnover Ratio : Working Capital Turnover Ratio provides useful information as to how effectively the company is using its working capital to generate revenue. It is calculated by dividing revenue by working capital: Revenue Working Capital

Working Capital Turnover Ratio=


Assessment 1 10


Bank Dhofar

Where as Working Capital is (Current Assets – Current Liabilities).


Revenue Working Capital Working Capital turnover Ratio

2002 24,640 26,929 0.915 times

2003 27,675 29,267 0.946 times

2004 30,019 32,949 0.911 times

2005 34,738 40,656 0.854 times


As a result of the above table, the working capital ratio for the Bank Dhofar in 2003 was 0.946 times showed an increase from 2002 by 3%. In 2004 & 2005 the ratio was 0.911 times & 0.854 times respectively. This means, the Bank using its working capital effectively to generate revenue. WorkingCapital turnover Ratio 50,000

1.000

40,000

0.950

0.946

30,000

0.915

0.911

0.900

20,000 0.854

10,000 0

0.850 0.800

2002

Revenue

2003

2004

Working Capital

2005

Working Capital turnover R atio

4. Solvency Ratios: Solvency Ratios measures to assess a company’s ability to meet its long term obligations.

Interest Coverage Ratio:

The Interest Coverage Ratio is a measurement of the number of times a company could make its interest payments with its earnings before interest and tax.


Profit before Interest & Tax

Interest Expense Interest Coverage Ratio

2002 15,751 6,416 2.455 times

2003 17,696 6,273 2.821 times

2004 19,355 6,755 2.865 times

2005 26,473 10,342 2.560 times


From the Bank Dhofar point of view in 2002, the interest coverage ratio was at 2.455 times of the PBIT covers the interest expense. However, the interest coverage ratio is


Assessment 1 11


Bank Dhofar

more than 1.5 indicates the ability of the bank to generate necessary cash to pay its interest obligations.

For the period from 2003 to 2004 the ratio more or less successfully has been increased to arrive at 2.821 & 2.865 times of PBIT covers the interest expense. In 2005, the interest coverage ratio has been slightly decreased to reach at 2.560 times of the PBIT cover the interest expense.

In other word, the Bank is generating good return to meet its interest payments, therefore it had a positive effect on interest covered ratio.

Interest Coverage Ratio 30,000 2.821

25,000

2.900

2.865

2.800 2.700

20,000 2.560

15,000 10,000

2.600 2.500

2.455

2.400

5,000

2.300

-

2.200 2002

Inter es t Ex pens e

2003

2004

Pr of it bef or e Inter es t & Tax

2005 Inter es t Cov er age Ratio

Debt Ratio: This ratio measures the financial strength that reflects the proportion of capital which has been funded by debt. This ratio calculated as follows: Long term debt Total Assets A debt to asset ratio of no more than 50 percent has been considered prudent. A higher ratio indicates a possible over use of leverage and it may indicate potential problems meeting the debt payments. Debt Ratio=


Long term debt Total Assets Debt Ratio

2002 344,003 0.00%

2003 7,362 474,085 1.55%

2004 7,362 551,293 1.34%

2005 7,362 618,225 1.19%



Assessment 1 12


Bank Dhofar

The chart below shows a decrease trend during the period from 2003 to 2005. In 2003, the extent of borrowing was 1.55% whereas it slowly jumped down to 1.34% & 1.19% in 2004 & 2005 respectively. Bank Dhofar had a low debt ratio which in turn shows the financial strength of the bank. Moreover, it shows the lower a bank’s reliance on debt to finance its assets. The more debt ratio the more fixed interest payments and repayment of the loan and legal action can be taken if any amount due are not paid on the appointed time. From the point of debt ratio, the bank has the greater proportion of equity funds which reflects the greater degree of financial strength. Financial leverage will be the advantage of the ordinary shareholders as long as the rate of earnings on capital employed is greater than the rate payable on borrowed funds.

Debt Ratio 700,000

2.00%

600,000

1.55%

500,000

1.50% 1.34%

400,000

1.19% 1.00%

300,000 200,000

0.50%

100,000 -

0.00% 2002 Total Assets

0.00% 2003

2004 Long term debt

2005 Debt Ratio

5. Investment Ratios: Earning Per Share (EPS) : Earning per share is one of the most important ratios for investors. It tells them the earning strength of the company and it is generally used to evaluate public joint stock companies.

The shareholders are particularly interested in knowing how much has been earned during the financial year on each of the shares held by them.

This ratio calculated as follows:


Assessment 1 13


Bank Dhofar

Profit after tax – preference dividends No. of Ordinary Shares

Earning Per Share (EPS)=

From the following table, Bank Dhofar had high earning per share over the period 2002 to 2005. In 2002, Bank Dhofar made RO 0.235 profit share and it was constantly continued in the 2003 & 2004 to reach at RO 0.263 & RO .264 per share. The year 2005, was a milestone for bank Dhofar. Bank Dhofar reported EPS of RO 0.338 for the year end 2005, an increase of 28% over the study period. This increase was due to an increase in Net profit RO 14,199.


Profit After Tax (excluding Preference Dividends)

No. of Ordinary Shares Earning per Share (EPS) RO

2002

2003

2004

2005

8,295 35,280 0.235

10,156 38,621 0.263

11,078 41,962 0.264

14,199 41,962 0.338


Earning Per Share 50,000 40,000

6 2 . 0

3 2 . 0

30,000 20,000

3 3 . 0

6 2 . 0

0.400 0.300 0.200 0.100

10,000 -

0.000 2002

2003

Profit After Tax

2004

2005

No. of Ordinary Shares

EPS

Price Earning (PE): Price Earning Ratio is a useful indicator of what premium investors are prepared to pay or receive for the investment.

It is calculated by dividing The Market Price per Share by Earning per Share:

Market Price per Share Earning per Share

Price Earning (PE)=


Assessment 1 14



Market Value Per Share Earning Per Share Price Earning (PE)

Bank Dhofar

2002 2.260 0.235 9.612 times

2003 3.000 0.263 11.408 times

2004 3.750 0.264 14.205 times

2005 3.600 0.338 10.639 times


The above table shows the share was traded at much higher premium in 2004 were than 2002, 2003, and 2005. In 2004 the price was 14.408 times higher than earnings while in 2002, 2003 and 2004 the price was only 9.612, 11.408 & 10.639 times higher respectively.

In other words, the above statement shows high Price Earning of Bank Dhofar share which generally reflects lower risk and higher growth prospects for earnings.

This high Price earning ratio catches more investors to invest and buy Bank Dhofar’s Share.

Price Earning (PE) 4.000

R n I

2.000 1.000

0 4 . 1 1

2 1 6 . 9

3.000

0 2 . 4 1

3 6 2 . 0

5 3 2 . 0

3 6 . 0 1 8 3 3 . 0

4 6 2 . 0

-

15.000 10.000 5.000 0.000

2002

2003

Market Value Per Share

2004

2005

Earning Per Share

Price Earning (PE)

Dividends Cover Ratio: This ratio measures the extent of earnings that are being paid out in the form of dividends.

It is calculated by dividing The Profit after tax by Dividends: Profit after tax Dividends

Dividends Cover Ratio=


Assessment 1 15


Bank Dhofar

From the following table it reveals that how many times the dividend of Bank Dhofar which has been paid are covered by earnings.

In 2002, the dividend covered 1.318 times by earnings, while in 2003 the coverage ratio increased to reach at 1.614 times by earnings.

In 2004, dividends paid by Bank Dhofar have been covered by 1.760 times by earnings which in turn reflect the high ratio over the study period. In 2005, the ratio was 1.692 times which is lower than 2004 by -4%.

This means Bank Dhofar made high dividends cover ratio over the study period. However, a higher cover would indicate that a larger percentage of earnings are being retained and reinvested in the business while a lower dividends cover would indicate the opposite. Amount in ‘000 Omani Rial

2002 8,295 6,294 1.318 times

Profit After Tax Dividends Dividends Cover Ratio

2003 10,156 6,294 1.614 times

2004 11,078 6,294 1.760 times

2005 14,199 8,392 1.692 times


Dividends Cover Ratio 15,000

1 3 . 1

10,000

2 9 6 . 1

6 7 . 1

1 6 . 1

2.000 1.500 1.000

5,000

0.500

-

0.000 2002

Profit After Tax

2003

Dividends

2004

2005

Dividends Cover Ratio

Dividends Payout Ratio: This ratio looks at the dividend payment in relation to net income and can be calculated as follows:

Dividends Profit after tax

Dividends Payout Ratio=


Assessment 1 16


Bank Dhofar

Bank Dhofar paid high Dividends payout ratio in 2002 of 75.88% than 2003 61.97%. In 2004, the dividends payout ratio decreased to 56.82% and it is slightly increased to 59.10% in 2005.

Overall Bank Dhofar paid a high percentage of dividends to shareholders which in turn increase the market price of Bank Dhofar’s share. Therefore, it is a good sign for the shareholders to hold the company shares with favorable dividends on there investments.


2002 6,294 8,295 75.88%

Dividends Profit After Tax Dividends Payout Ratio

2003 6,294 10,156 61.97%

2004 6,294 11,078 56.82%

2005 8,392 14,199 59.10%


Dividends Payout Ratio 8 8 . 5 7

15,000 10,000

7 9 . 1 6

0 1 . 9 5

2 8 . 6 5

5,000

80% 60% 40% 20%

-

0% 2002

Dividends

2003

Profit After Tax

2004

2005

Dividends Payout Ratio

Dividends Yield Ratio:

The dividend yield ratio indicates the return that investors are obtaining on their investment in the form of dividends.

This yield is usually low as the investors are also receiving capital appreciation on their investments in the form of an increase of share price.


Assessment 1 17


Bank Dhofar

Moreover, the higher the dividends the higher the market value of the share which shows strong correlation between dividend yields and market prices. This ratio calculated as follows: Dividends Per Share Market value Per Share

Dividends Yield Ratio=


2002 0.178 2.260 7.89%

Dividends Per Share Market Value Per Share Dividends Yield Ratio

2003 0.150 3.000 5.00%

2004 0.150 3.750 4.00%

2005 0.200 3.600 5.56%

From the above table, the Dividends Yield Ratio decreased from 7.89% to 5.56% over the study period. The main reason for this is that the dividend per share dropped from RO 0.178 in 2002 to RO 0.150 in 2004 and again increased in 2005 and reached at RO 0.200. While at the same time the price of a share increased over the study period.

Dividends Yield Ratio 4.000

10%

% 9 8 . 7

3.000 R 2.000 n I

8%

% 0 0 . 5

1.000

6 5 . 5

0 0 . 4

6% 4% 2%

-

0% 2002

2003

Dividends Per Share

2004

2005

Market Value Per Share

Dividends Yield Ratio

Analysis of Additional Techniques:

1. Vertical Analysis: Vertical/Cross-sectional/ Common size statements came from the problems in comparing the financial statements of the firms that differ in size.


Assessment 1 18


•

•

Bank Dhofar

In the balance sheet the assets as well as the liabilities and equity are each expressed as a 100% and each item in these categories is expressed as percentage of the respective totals. In the common size income statements, turnover is expressed as 100% and every item in the income statement is expressed as a percentage of turnovers.

Analysis of asset structure of Bank Dhofar Over 2002-2003: 2002 RO'000

% of Total

2003 RO'000

Cash & cash equivalents Investments in securities Loans and Advances to Banks Loans and Advances to Customers Other Assets

10,372 14,226 12,583 266,006

3.0% 4.1% 3.7% 77.3%

13,983 22,860 20,271 367,185

2.9% 4.8% 4.3% 77.5%

40,816

11.9%

49,786

10.5%

Total Assets

344,003

100%

474,085

100%

Particulars

% of Total

During the year 2002 & 2003 Bank Dhofar has consistently increased its book sized. Bank Dhofar’s total assets at the end of FY2003 amounted to RO 474.08 mn, compared with RO 344 mn in FY 2002, a whooping growth of 37.8%. Bank Dhofar acquired the majan International Bank in March 2003 which helped the bank to enlarge its asset size by RO 96.5 mn. Over 2002-2003, the balance sheet composition has remained more or less consistent with respects to its various components. Loans & advances to customers as a % of total assets remained in the range of 77.3% to 77.5% during this period. As a result of acquisition of Majan International Bank in 2003 for total consideration of RO 26.8 mn, partly financed by cash and the balance through issuing 6,681,818 shares of Bank Dhofar shares in addition to RO 7.36 mn subordinated bonds bearing 7% coupon payable annually and maturing in April 2008. (Bank Dhofar’s Annual Report 2003) The investments in securities as a % of total assets increased in 2003 and reached at 4.8% compared with 2002 4.1%. Furthermore, loans & advances to banks as a % of total assets increased in 2003 and reached at 4.3% compared with 2002 3.7%.


Assessment 1 19


Bank Dhofar

Composition of Assets as on 2003

10.50% 2.95% 4.82%

4.28%

77.45%

Cas h & cash equvalents

Investments in securities

Loans and Advances to Banks

Loans and Advances to Cus tom ers

Other Assets

Analysis of asset structure of Bank Dhofar Over 2004-2005:

2004 RO'000

% of Total

2005 RO'000

Cash & cash equivalents Investments in securities Loans and Advances to Banks Loans and Advances to Customers Other Assets

38,096 25,415 18,708 406,503

6.9% 4.6% 3.4% 73.7%

84,344 24,568 25,826 470,937

13.6% 4.0% 4.2% 76.2%

62,571

11.3%

12,550

2.0%

Total Assets

551,293

100%

618,225

100%

Particulars

% of Total

Bank Dhofar’s total assets at the end of FY 2005 was RO 618.23 mn, compared with RO 551.29 mn in FY 2004, recording a growth of 12%. The investment of securities as a % of the total assets decreased in 2005 and reached at 4.0% compared with 2002 4.6%. Moreover, loans & advances to banks as a % of total assets increased in 2005 and reached at 4.2% compared with 2004 3.4%. Loans and advances to customers as a % of total assets increased in 2005 and reached at 76.2% compared with 2004 73.7%.


Assessment 1 20


Bank Dhofar

Composition of Assets as on 2005

2.03%

13.64%

3.97% 4.18%

76.18%

Cash & cas h equvalents

Investments in securities

Loans and Advances to Banks

Loans and Advances to Cus tom ers

Other Ass ets

Analysis of Bank Dhofar's Liabilities and Equity: Particulars

Deposits from Customers % of total Other Liabilities % of total Subordinated Bonds % of total Total Shareholder's Equity % of total Total Liabilities and Equity

2002 RO'000

2003 RO'000

2004 RO'000

2005 RO'000

277,219 80.6% 19,376 5.6% 0 0.0% 47,408

348,298 73.5% 55,298 11.7% 7,362 1.6% 63,127

421,093 76.4% 55,067 10.0% 7,362 1.3% 67,771

452,132 73.1% 79,326 12.8% 7,362 1.2% 79,405

13.8%

13.3%

12.3%

12.8%

344,003

474,085

551,293

618,225

Bank Dhofar’s total liabilities and equity at the end of FY2005 amounted to RO 618.23 mn, compared with RO 344 mn in FY 2002, recording an increase of 80%. Total shareholder’s equity as a % of total liabilities and equity decreased in 2005 and reached at 12.8% compared with 2002 13.8%. Deposits from customers as a % of total liabilities and equity decreased in 2005 and reached at 73.1% compared with 2002 80.6%. Pursuant to a merger agreement with Majan Bank, Bank Dhofar in 2003 issued 7.36 mn subordinated bonds of RO 1 each for 5 year to the erstwhile shareholders of Majan.


Assessment 1 21


Bank Dhofar

Analysis of Bank Dhofar's Income Statements Structure:

The common-size income statement items expressed as a percentage of total revenue.

Particulars

Interest Expense % of total Revenue Other Operating Income % of total Revenue Other Operating Expenses % of total Revenue Taxation % of total Revenue Net Profit % of total Revenue Total Revenue

2002 RO'000

2003 RO'000

2004 RO'000

2005 RO'000

6,416 26.0% 4,068 16.5% 12,957 52.6% 1,040 4.2% 8,295

6,273 22.7% 5,040 18.2% 15,019 54.3% 1,267 4.6% 10,156

6,755 22.5% 5,187 17.3% 15,851 52.8% 1,522 5.1% 11,078

10,342 29.8% 5,584 16.1% 13,849 39.9% 1,932 5.6% 14,199

33.7%

36.7%

36.9%

40.9%

24,640

27,675

30,019

34,738

The Interest expenses as a % of total revenue increased in 2005 and reached at 29.8% compared with 2002 26%. The operating Income as a % of total revenue was more or less 16% to 18% over the study period. The net profit of Bank Dhofar as a % of total revenue consistently increased and reached at 40.9% compared to 33.7%, 36.7% & 36.0% in 2002, 2003 & 2004 respectively.


Assessment 1 22


Bank Dhofar

2. Horizontal Analysis:

This technique is also known as comparative analysis. It is conducted by setting repeated balance sheet. Income statement or statement of cash flow side by side and reviewing changes in individual categories year to year. The most important item revealed by comparative financial statement analysis is trend. A comparison of statements over several years reveals direction, speed and extent of a trend. Comparative Balance Sheet: 2001 RO'000

2002 RO'000

2003 RO'000

2004 RO'000

% Change

16,361 100 257,676 100 63,017 100

14,226 -13% 266,006 3% 63,771 1%

22,860 61% 367,185 38% 84,040 32%

25,415 24,568 11% -3% 406,503 470,937 11% 16% 119,375 122,720 42% 3%

Total Assets

337,054

344,003

474,085

551,293

Deposits from Customers % Change Other Liabilities % Change Total Shareholder's Equity

268,406 100 25,997 100 42,651 100

277,219 3% 19,376 -25% 47,408 11%

348,298 421,093 452,132 26% 21% 7% 62,660 62,429 86,688 223% 0% 39% 63,127 67,771 79,405 33% 7% 17%

337,054

344,003

474,085

Particulars

Investments in securities % Change Loans and Advances to Customers

% Change Other Assets

% Change Total Liabilities and Equity

551,293

2005 RO'000

618,225

618,225

Comparative Balance Sheet is the study of the trend of the same items which summed up in term of two or more balance sheet of the business on various dates.

As stated above the total assets of the Bank Dhofar increased dramatically over last 4 years. The effected change was mostly in 2003 when Bank Dhofar acquired MIB. Investment in securities & loans and advances increased in 2003 & by 61% & 38% respectively. The change in Deposits from Customer in 2003 was 26% which was the highest change over the study period. In 2004 & 2005, the change in deposits from customer was 21% & 7% respectively.


Assessment 1 23


Bank Dhofar

The highest change in total shareholder’s equity was in 2003 by 33%. In 2004 & 2005, the change in total shareholders equity was 7% & 17% respectively.

Comparative Income Statement:

Particulars

Net Income % Change Operating Expenses % Change Taxation % Change Net Profit

2002 RO'000

2003 RO'000

2004 RO'000

2005 RO'000

18,189 100 (8,854) 100 (1,040)

22,439 23% (11,016) -24% (1,267)

25,097 12% (12,497) -13% (1,522)

29,301 17% (13,170) -5% (1,932)

-22%

-20%

-27%

10,156

11,078

14,199

100 8,295

Comparative Income Statement gives the results of the business operations. The comparative income statement shows the progress of the business over a period of time.

From the above table, Bank Dhofar has successfully increased the Net profit over the study period and reached at RO 14,199 K at the end of 2005. In 2003, the net income increased by 23% but in 2004 & 2005 the net income increased by 12% & 17% respectively. The change in operating expenses increased to reach at -24% in 2003 and -13% & -5% in 2004 & 2005 respectively.


Assessment 1 24


Bank Dhofar

Z-Score Model: Z-Score Model = 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.999X5

Where: Working Capital Total Assets Retained Earning Total Assets

X1 = X2 =

Profit before interest & tax

X3 =

Total Assets Market Value of Shares Book Value of debt Revenue Total Assets

X4 = X5 =

The following table shows X values of Bank Dhofar:

X1 X2 X3 X4 X5

2002

2003

2004

2005

0.00093937 6 0.00006234 8 0.00151098 4

0.00074080 4 0.00007831 5 0.00123177 9

0.00071720 1

0.00078915

0.000105262

0.000159877

0.001158576

0.001413092

0

0.00000306 0.05439753 6

0.00000293

0.071555655

0.00000244 0.05831723 2

0.056133709

0.074

0.060

0.056

0.058

Z-Score

Where:

Working Capital Retained Profit Profit before tax & Interest Market Value of Share Book Value of debt

2002

2003

2004

2005

26,929 1,532

29,267 2,652

32,949 4,145

40,656 7,060

15,751 2.260 0

17,696 3.000 7,362

19,355 3.750 7,362

26,473 3.600 7,362


Assessment 1 25


Revenue Total Average Assets

24,640 344,003

Bank Dhofar

27,675 474,085

30,019 551,293

34,738 618,225

Cash Flow Statements:

A statement of Cash flows is a detailed report that shows how the company generated cash over a specified period of time. It shows where the financial resources have come from and where they have gone.

The cash flow statement is distinct from the income statement and balance sheet because it does not include the amount of future incoming and outgoing cash that has been recorded on credit. Therefore, cash is not the same as net income, which on the income statement and balance sheet, includes cash sales and sales made on credit.

Users of a company’s financial statements might even be misled by a reported profit figure. For example, shareholders may expect more dividends; employees may expect higher wages based on the profit of the company without having the knowledge of the cash position. Similarly, the survival of a business depends not so much on profits as on its ability to pay its debts when they fall due.

The cash flow statement is divided into three parts:

•

Cash from Operations: Operating activities are the daily internal activities of a business that either require cash or generate it. They include cash collection from customer, cash paid to suppliers and employees, cash paid for operating expenses etc.

•

Cash from Investing: Cash used for investing in assets as well as the proceeds from the sale of other businesses, equipment, or other long term assets.

•

Cash from Financing: Cash paid or received from issuing and borrowing of funds. This also includes dividends paid (Dividends paid may also be shown as operating cash flows).


Assessment 1 26


•

Bank Dhofar

Net change in cash: This is a net movement from all the cash flows in the period.

The following table is a Cash Flow Statements of the Bank Dhofar for the period from 2002 to 2005:

2002 RO'000

2003 RO'000

2004 RO'000

2005 RO'000

Net Cash Flow from Operating activities Net Cash Flow from Investing Activities Net Cash Flow from Financing Activities Net change in cash and cash equivalents Cash and cash equivalents at 31 January

5,318 2,621 (3,481) 4,458 5,914

23,525 (13,442) (6,472) 3,611 10,372

33,504 (3,097) (6,294) 24,113 13,983

48,855 3,687 (6,294) 46,248 38,096

Cash and cash equivalents at 31 December

10,372

13,983

38,096

84,344

Particulars

From the view point of Bank Dhofar’s cash flow statement, there was an increase in the cash generated from the operating activities over the study period.

The net Cash Flow from operating activities increased by 342% from RO 5,318 K for the year 2002 to RO 23,525 K for 2003. This huge increase was a result of high deposits from customers in 2003 amounted RO 22,871 K compared to RO 8,813 K in 2002 which increased by 160%. Moreover, interest and commission receipts increased by 17% in 2003 compared to 2002.

In 2005, the net Cash Flow from operating activities grew by 46% from RO 33,504 K for the year 2004 to RO 48,855 K for 2005. One of the main reasons behind 46% increase in the net cash from operating activities in 2005 was increase in the deposits from banks by 247% compared to 2004. Furthermore, interest and commission receipts increased by 15% in 2005 compared to 2004. In short, from the above cash flow statement indicates positive cash flow from cash earned from operations, which is good sign for investors that the company is doing well as well as improving and generating enough cash from operations and that there is enough money to make such investments.


Assessment 1 27


Bank Dhofar

The net Cash Flow from investing activities decreased by -613% from RO 2,621 K for the year 2002 to RO (13,442) K for 2003. This decrease was due to acquisition of Majan International Bank in March 2003. In March 2003, Bank Dhofar paid RO 7,350 K in cash for MIB existing shareholders. Moreover, Bank Dhofar paid RO 6,017 K cash and cash equivalent for cash flow purposes acquired by MIB.

The following statements of cash flows in respect of the acquisition of MIB: Cash & balances with CBO Due from Banks Due to Banks cash and cash equivalent for cash flow purposes acquired from MIB

RO’000 4,112 2,888 (13,017) (6,017)

Source: Bank Dhofar Annual Report 2003

In 2004, the net Cash Flow from investing activities was a negative balance of RO (3,097) K . This was mainly because of purchasing of investments amounted RO (4,137) K in 2004 and proceeds from sale of investments was RO 1,343 K in the same period. Moreover, in 2004 there was an acquisition of property and equipment amounted RO (1,149) K . In 2005, the net Cash Flow from investing activities was a positive balance of RO 3,687 K . The positive balance was due to increase in the proceeds from sale of investments amounted RO 6,512 K . In general, the negative cash flow form investing activities in 2003 & 2004 was a result of Bank’s decision to expand its activities through acquisition of Majan International Bank which in fact would be a good thing for the future.

The net Cash Flow from financing activities over the study period was almost payments of dividends. In 2003, the net cash flow from investing activities was RO (6,472) K decreased by -86% compared to 2002 negative balance of RO (3,481) K . The negative balance of RO (6,472) K in 2003 was total of dividends paid of RO 6,294 K and directors remunerations paid of RO 178.

In 2004, the net cash flow from financing activities increased by 3% and reached at negative balance of RO (6,294) K . In 2005, the net cash flow from investing activities was more or less the same negative balance of 2004 RO (6,294) K . This was fully the payments of dividends.

The Net Change in Cash and cash equivalent was a healthy indicator. During the year from 2002 to 2005 the net change in Cash and cash equivalent has consistently increased. The net change in cash increased in 2003 and reached at RO 13,983 K compared with RO 10,372 K for 2002. In 2005, the net change in cash significantly increased to RO 84,344 K which was the higher balance of net change in Cash over the study period.


Assessment 1 28


Bank Dhofar

Mostly, this was due to the sharp increase in the net Cash Flow from Operating activities which in turn indicates how the company generating cash from operating activities and it is a good signal for investors to keep in mind the ability of the company to pay its liabilities when they fall due.

SWOT Analysis of Bank Dhofar:

Strengths/Opportunities: •

Bank Dhofar is one of the well-known banks in Oman, with a market share of 10.3% of the total domestic banking assets, 11.2% in terms of total credit and 15.05% in terms of total customer deposits as pf September end 2004.

•

The bank operates a 48 branch network throughout he country which provides the bank a large presence.

•

Year 2003 was an eventful year for Bank Dhofar when its completed its merger with Majan International Bank.

•

As one of the leading banks in Oman, the bank can expect governmental support in case of financial needs.

•

Privatization projects and other infrastructure development projects initiated by Omani government would provide the bank with business opportunities in corporate and investment banking field.

•

In an expect rising interest rate environment, a low cost funding base for Bank Dhofar will help it in insulting and improving its profitability.

•

The bank has healthy levels of capitalization which will allow it to expand its loan book.

•

The bank’s ratings are comparable to its banking peers in Oman, as reflected in the following ratings: Fitch: BBBCapital Intelligence: BBB- ( Bank Dhofar Annual Report)


Assessment 1 29


Bank Dhofar

Weaknesses/Challenges :

•

Increased competition in the domestic market, not only from the local banks but also from the foreign banks in Oman may adversely affect the deposit base growth of the bank. Also, the entrance of bank Sohar with RO 100,000,000 share capital in the market will affect the market structure in the Omani banking sector.

•

Significant changes in the regulatory environment and other banking regulation could bring some distortion to the overall banking sector.

•

Oil dependent economy which would affect the operation environment if faced with price swings and production change.

PEST Analysis: The external environment of an organization can be analyzed by conducting a PEST analysis. This is a simple analysis of an organization Political, Economical, Social and Technological environment.

Banking Industry in Oman:

Oman’s financial sector has been considerably strengthened and transformed in recent years leading to a modern financial consisting of commercial banks, specialized banks and other financial institution.

Out of the 14 commercial banks, 5 are locally incorporated and 9 are the local branches of foreign banks.

Upon joining World Trade Organization (WTO), Oman has made extensive commitments to open and free up its banking sector.

The Central Bank of Oman has also undertaken several measures to ensure financial sector stability and efficiency in the domestic market. The CBO has also intensified its efforts to expand the monetary and capital markets and issuing government development bonds and treasury bonds.


Assessment 1 30


Bank Dhofar

Moreover, commercial banks have also issued certificates of deposits and have undertaken investment related activities.

Banks in Oman have an important role to play in economic development of the country by promoting private sector activities and mobilizing resources for financing productive sector of the economy.

There has also been an increasing acceleration of the applications in information technology and the internet, e-commerce and e-banking etc in providing banking services. In this respect local banks face certain challenges, particularly in the field of E-commerce.

Users of Financial Statements: Users of financial statements are parties who are willing to know or obtain information about the financial performance of a particular company. According to the analysis of Bank Dhofar’s financial statements as has been analyzed earlier, the operating performance of Bank Dhofar has shown a good performance over the study period. Regarding to the operating performance of Bank Dhofar such demand may a raise on financial statements information by the following parties:

•

Current Shareholders:

These are major recipients of the financial statements of corporation. They would like to know how their fund has been used by the firm. Moreover, they interest whether the company is paying a good percentage of dividends and whether the market value of the share is high or not to obtain capital appreciation. In other word, shareholders interested in Dividend payout Ratio as well as Earning per share is most important. Furthermore, huge reserve of the company is a good indicator for issuing bonus share and dividends. As has been analyzed earlier, Bank Dhofar’s dividend payout ratio more or less was stable at 60% to 75%. Moreover, the market value per share of the Bank Dhofar has been increased during the last 4 years. It jumped from RO 2.260 to RO 3.600 increased by 59% which is a good indicator for shareholders to hold the company share. The following chart shows the market value per share of the Bank Dhofar:


Assessment 1 31


Bank Dhofar

Market Value Per Share 3 . 7

4.000

O R n 3.000 i e c i r P 2.000 t e k r 1.000 a M

5 0

3 . 0 0 0

2 . 2 6 0

3 . 6 0 0

-

2002

2003

2004

2005

Years Market Value Per Share

•

Potential Shareholders:

People who want to invest in the company. Regarding to the results shown before, the Bank paid a good percentage of dividends and the payout ratio was fine which in turn make these people buy the bank’s share. Moreover, the Earning per Share of the Bank Dhofar was consistently increased during the last 4 years. Bank Dhofar reported EPS of RO 0.338 for the year end 2005, an increase of 28% over the study period. This was a good signal for potential investors to buy the company’s share.

•

Government:

Government officials are generally concerned that reporting and valuation regulation have been compiled with and that taxable income is fairly represented.

•

Creditors:

These are people who lent the company in the form of loan. They concern whether the company has made profit or loss. Also, they interested in liquidity of the firm to ensure that the company has enough money to repay the loan.


Assessment 1 32


Bank Dhofar

As an analysis made earlier on Cash Flow statement of the Bank Dhofar, the Bank was generating cash from operating activities and it was healthy position.

•

Management:

These are the people who utilize the financial statement information in many of their financing, investment and operating decisions. A financial statement based variable such as the current debt to equity ratio or the interest coverage ratio is frequently important in deciding how much long-term debt to raise. They also need the financial statements information for making future concepts and preparing the Budget of the organization.

•

Employees:

Employees have several motivations. They have interest in the continued and profitable operations of their firm. Financial statements are an important source of information about current and potential future profitability and solvency. They may also need them to monitor the viability of their pension plan.

•

Competitors:

They are surely interested in the financial statement of other firms. They need the financial statement to compare the profitability ratios, sales, growth of the other firms, new expansion and financial position of other firms with themselves. Also, they need it for future plan whether the company should expand the business or download new product in the market.

Limitations of information provided in the Financial Statement:

The objectives of financial reporting are affected not only by the environment in which financial reporting takes place but also by the limitations of the kind of information that financial statements can provide.

Limitation of Ratios can be through:

i.

Accounting Information:


Assessment 1 33


-

ii.

iii.

Bank Dhofar

Different Accounting Policies: The choices of accounting policies may distort inter company comparisons. Example IAS 16 allows valuation of assets to be based on either revalued amount or at depreciated historical cost.

Information problems: -

Ratios are not definitive measures: Ratios need to be interpreted carefully. They can provide clues to the company’s performance or financial situation. But on their own, they cannot show whether performance is good or bad. Ratios require some quantitative information for an informed analysis to be made.

-

Ratios are based on financial statements which are summaries of the accounting records. Through the summarisation some important information may be left out which could have been of relevance to the users of accounts. The ratios are based on the summarised year end information which may not be a true reflection of the overall year’s results.

Comparison of performance over time: -

-

Inflation renders comparisons of results over time misleading as financial figures will not be within the same levels of purchasing power. Changes in results over time may show as if the enterprise has improved its performance and position when in fact after adjusting for inflationary changes it will show the different picture. When comparing performance over time, the changes in technology should be considered. The movement in performance should be in line with the changes in technology. For ratios to be more meaningful the enterprise should compare its results with another of the same level of technology as this will be a good basis measurement of efficiency.


Assessment 1 34


Bank Dhofar

Bank Dhofar Performance Report: To: Board of Directors

Subject: Financial Analysis of Bank Dhofar for the period from 2002 to 2005.

From: Taher Albelushi (Financial Analyst) Date: 20th November 2006

The outlook for 2002-2005:

As stated above, Bank Dhofar continued its excellent achievements as almost financial indicators showed significant growth.


Assessment 1 35


Bank Dhofar

The total assets grew in 2005 by 80% over the last 4 year and reached RO 618 mn. The net consumer loans portfolio increased from RO 266 mn in 2002 to reach RO 471 mn, a growth of 77%. Also, the customer deposits recorded growth of 63% and increased from RO 277 mn at the end of 2002 to RO 452 mn at the end of 2005.

The shareholders’ equity was RO 79 mn at 31 December 2005 compared with RO 47 mn at 31 December 2002.

Also, most profitability indicators recorded significant growth, as net revenue grew by 41% from RO 24.6 mn for the year 2002 to RO 34.7 mn for 2005. Albeit, the

operating expenses have increased due to the additional expenses related to the merger of Majan International Bank activities.

The Bank maintained an acceptable Return on Assets ratio of 2.43% for the year 2005 compared with 2.41% for 2002.

The net profit of the Bank grew in 2005 by 71% and reached RO 14.2 mn compared with RO 8.2 mn in 2002. This remarkable growth in net profit improved the earning per share from RO 0.235 in 2002 to RO 0.338 in 2003.

Appendix: BALANCE SHEET 2002

Amount in '000 Omani Rial

Assets Cash & balances with Central Bank of Oman Treasury bills Placements with banks Loans and advances (Gross) Other assets Provisions Total Current Assets Investments in securities Property and equipment (Gross) less: accumulated depreciation


10,372 28,710 12,583 284,402 5,853 (18,396) 323,524 14,226 8,428 (4,975)

Bank Dhofar 2003 2004

13,983 32,837 20,271 404,766 8,287 (37,581) 442,563 22,860 10,435 (6,998)

38,096 50,514 18,708 449,068 3,994 (42,565) 517,815 25,415 10,777 (7,289)

Assessment 1 36

2005

84,344 25,826 515,301 4,732 (44,364) 585,839 24,568 11,929 (8,082)


Bank Dhofar

2,80 Intangible assets Total Assets

0

Liabilities Due to banks Deposits from customers Taxation Subordinated bonds Other liabilities Total Current Liabilities Owner's Equity Paid-up Equity Capital Share premium Legal reserve Subordinated bond reserve Proposed dividends Retained earnings Investment revaluation reserve Total Shareholder's Equity Total Liabilities and shareholder’s Equity

5,22 5

4,57

3,97

5

1

344,003

474,085

551,293

618,225

6,936 277,219 1,566 10,874 296,595

26,575 358,397 2,230 7,362 16,394 410,958

34,364 421,093 7,362 20,703 483,522

60,060 452,132 7,362 19,266 538,820

35,280 0 4,302 0 6,294 1,532 0 47,408

41,962 5,429 5,318 1,472 6,294 2,652 0 63,127

41,962 5,429 6,437 2,944 6,294 4,145 560 67,771

41,962 5,429 7,857 4,416 8,392 7,060 4,289 79,405

344,003

474,085

551,293

618,225

INCOME STATEMENT Amount in '000 Omani Rial

Interest Income Interest Expense Net Interest Income Fees and commision Foreign Exchange gains Profit/(loss) on Investment Securities Other Operating Income Provision for loan impairement Recoveries from provision for Loan impairement Impairement Provision for Investment


2002 24,640 (6,416) 18,224 1,039 273 1,197 1,559 (3,513) (8) (462)

Bank Dhofar 2003 2004 27,675 30,019 (6,273) (6,755) 21,402 23,264 1,450 1,827 404 461 1,702 1,508 1,484 1,391 (3,918) (5,314) 2,667 (57) (707) -

2005 34,738 (10,342) 24,396 2,198 566 1,256 1,564 (2,781) 2,120 (18) -

Assessment 1 37


Bank Dhofar

Provision for property & equipment Net Operating Income Staff wages and salaries Other administrative expenses Depreciation Operating Expenses

(120) 18,189 (4,313) (3,707) (834) (8,854)

(28) 22,439 (5,612) (4,374) (1,030) (11,016)

25,097 (6,654) (4,737) (1,106) (12,497)

29,301 (6,834) (5,270) (1,066) (13,170)

Profit before taxation Income tax expense Net Profit

9,335 (1,040) 8,295

11,423 (1,267) 10,156

12,600 (1,522) 11,078

16,131 (1,932) 14,199

Cash Flow Statement Particulars Cash flows from operating activities Interest and commission receipts Interest payments Cash payments to suppliers and employees Increase in operating assets Loans and advances to customers Loans and advances to banks Purchase of treasury bills Proceeds from sale of treasury bills


2002 RO'000

2003 RO'000

2004 RO'000

2005 RO'000

27,124 (7,797) (5,673) 13,654

31,693 (5,461) (7,105) 19,127

34,187 (6,599) (3,681) 23,907

39,400 (9,028) (15,532) 14,840

(12,009) 599 (42,246) 45,536

(25,153) (6,904) (58,905) 54,895

(42,642) (2,181) (76,276) 62,465

(65,143) 2,167 (8,850) 50,608

Assessment 1 38


Bank Dhofar

(8,120)

(36,067)

(58,634)

(21,218)

8,813 (8,147) 666

22,871 18,634 41,505

62,696 7,411 70,107

31,039 25,740 56,779

6,200 (882) 5,318

24,565 (1,040) 23,525

35,380 (1,876) 33,504

50,401 (1,546) 48,855

903 (867) 3,202 (654) 37 2,621

714 (1,003) 817 (681) 78 (13,367) (13,442)

844 (4,137) 1,343 (1,149) 2 (3,097)

616 (2,016) 6,512 (1,473) 48 3,687

Cash flow from financing activities Dividend paid Directors remuneration paid Net cash used in financing activities

(3,360) (121) (3,481)

(6,294) (178) (6,472)

(6,294) (6,294)

(6,294) (6,294)

Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December

4,458 5,914 10,372

3,611 10,372 13,983

24,113 13,983 38,096

46,248 38,096 84,344

Increase in operating liabilities Deposits from customers Due to banks

Net cash from operating activities Income tax paid Net cash generated from operating activities Cash flows from investing activities Investment income Purchase of investments Proceeds from sale of investments Purchase of property and equipment Proceeds from sale of property and equipment Acquisition of MIB Net cash generated from investing activities

Bibliography/ References

1. Analysing Financial Ratios. (2005). Retrieved: October 28, 2006, from http://www.va-interactive.com/inbusiness/ratio_analysis.htm1


Assessment 1 39

FA3 Assignment Bank Dhofar

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