Financial Analysis To analyse the financial position of PSB, different tools are use, which includes Ratio Analysis, Common size Analysis of the last five years.
Introduction and Importance of Financial Analysis Financial analysis involves the use of various financial statements. These statements do several things. First the balance sheet and the second is income statement. The balance sheet summarizes the assets, liabilities, and owner’s equity of a business at a point in time, while the income statement summarizes revenues and expenses of a firm over a particular period of time. A conceptual framework for financial analysis provides the analyst with an interlocking means for structuring the analysis.
Financial Analysis To analyse the financial position of BOP, different tools are use, which includes Ratio Analysis, Common size Analysis of the last five years.
Introduction and Importance of Financial Analysis Financial analysis involves the use of various financial statements. These statements do several things. First the balance sheet and the second is income statement. The balance sheet summarizes the assets, liabilities, and owner’s equity of a business at a point in time, while the income statement summarizes revenues and expenses of a firm over a particular period of time. A conceptual framework for financial analysis provides the analyst with an interlocking means for structuring the analysis.
Financial Statements (2009-10)
Balance Sheet Balance Sheet As of DEC 31, 2007 2010 2009 Rupees in ‘000 Assets Cash Cash and and bal balance ancess wit with trea treasu sury ry bank bankss Balances with other banks Lend Lendin ings gs to fina financ ncia iall insti nstittutio utions ns Inve nvestment ents Advances Operating fixed assets Deferred tax assets - Other assets
3788 378826 2625 25 9670641 11,8 11,846 46,8 ,823 23 178868 868385 326391078 5389069
1957 195706 0665 65 9933722 2450 245000 000 0 126 12627429 4290 246153492 5557630
9446990
7248080
Liabilities Bills payable Borrowings Deposits and other accounts Sub-ordinated loans - Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities Net Assets Represented By Share capital Reserves Unappropriated profit
Surplus on revaluation of assets - net
566648788
413637869
856,448 6,989,424 4915508556
937647 17842915 346756547
40,988 298,616 11931375 148,729,423 566648788
40321 2205530 9413147 215978401 413637869
3830560 22325483 3,219,246 10,658,968 5,466,746 566648788
3830560 17572855 3452842 15110453 3885341 413637869
Financial Business Summary (5Yrs) 2005 Operating Results Markup/ return/ interest earned Markup/ return/ interest expenses Net markup income Non-markup based Income Non-markup based expenses Provision against NPLs Net profit before tax Net profit after tax
Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m
2006
2007
2008
2009
1,664
2,555
6,125
11,579
17,539
484
719
2,669
7,509
13,939
1,180
1,836
3,456
4,070
3,600
831
1,097
1,331
2,954
5,423
1,002
1,150
1,291
1,882
2,289
8
47
331
374
1,888
1,002
1,736
3,165
4,769
4,846
689
1,368
2,353
3,804
4,446
43,621
66,320
111,15 4
18,344
39,439
63,624
164,85 5 101,32 0
234,97 4 133,89 4
Balance Sheet Total Assets Advances (net)
Rs in m Rs in m
Investments Shareholders Equity Revaluation Reserve Deposits Borrowings from FIs
Rs in m Rs in m Rs in m Rs in m Rs in m
11,458
16,198
18,026
28,233
73,462
3,052
4,420
6,777
10,659
15,110
2,155
3,419
6,893
34,938
54,724
88,465
5,467 137,72 8
3,885 191,96 9
2,684
2,832
6,791
6,989
17,843
Graphical Representation of Financial Summary (Income statement)
•
•
•
PSB’s income statement for the last five years represents a high growth in it. Its all due to the increase in the deposits of the bank. Rise in the Markup Interest earning income results rise up in the profit of bank represents increase in lending by the bank.
Operating Results 25,000
20,000 s n 15,000 o i l l i M n i S 10,000 R
5,000
0 2003
2004
Total Income/ Revenues
2005
Total Expenses
2006
Net profit before tax
2007
Net profit after tax
Graphical Representation of Financial Summary (Balance Sheet)
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Deposits are almost rose upto around 300% in last 5 years.
•
As last 5 years were really good for banking sector. Assets of the banks are risen upto 400% particularly in 2007 just because of crescent towers.
Balance Sheet 250,000
200,000
s n 150,000 o i l l i M n i s 100,000 R
50,000
0 2003 Total Assets
Investments
2004
2005
Shareholders Equity
2006 Deposits
2007
Borrowings from FIs
Common Size Analysis
Horizontal Analysis This type of analysis represents the percent change in specific line item of the Income statement or the balance sheet from the last year. This analysis is used to comment on the growth of specific line item in the industry or the firm. 2005 Operating Results Markup/ return/ interest earned
Markup/ return/ interest expenses Net markup income Non-markup based Income Non-markup based expenses Provision against NPLs
Net profit before tax
Net profit after tax Balance Sheet
%
24.399 105.78 5
2006
2007
2008
2009
34.8728
58.2857 1
47.1025 1
33.9814 1
73.0610 7
64.4559 9
46.875 17.5807 7 10.9217 7
15.086 54.9424 5 31.4027 6 11.4973 3 33.6338 9 38.1440 6
46.1295 6 13.0556 45.5283 1 17.7806 9 80.1906 8 1.58893 9 14.4399 5
32.5746 9
29.8411 7
37.2049 36.1527 3 36.4199 3 26.0838 35.7683 3 2.83302 3
24.3282 61.5678 9 29.4573 1 40.7207 28.2550 8 60.8305 8
32.6842 % 8 35.7298 % 9.0678 5 24.2479 % 54.994 5 4.0918 12.8695 % 2 7 82.9787 % -575 2 56.886 42.2811 % 2 1 58.780 % 8 49.6345
Total Assets
%
Advances (net)
%
Investments
%
Shareholders Equity
%
Revaluation Reserve
%
Deposits
%
Borrowings from FIs
%
32.296 4 63.906 5 27.605 2 22.575 4 55.916 5 31.973 8 51.937 4
34.2264 8 53.4876 6 29.2628 7 30.9502 3 36.9698 7 36.1559 8 5.22598 9
Graphical Representation (Income Statement)
85.8006 45.1500 8 41.8614 5 40.3350 3 38.0123 9 10.1409 1 34.7794 50.3989 6 38.1405 1 58.2977 5
•
•
Total earnings mark-up & non mark-up were rising 33% from last year. As deposits and the lendings of the banks are rising up. Income Statement Administrative expenses are increased with a great pace in last few years because of high rate of inflation.
180.00 160.00 140.00 120.00
•
Rise in expenses results decrease in the 22% percent profit from last year.
e g 100.00 a t n e c r 80.00 e P
60.00 40.00 20.00
Graphical (Balance Sheet) •
Representation
0.00 2003
2004
2005
Total Earnings (Markup/Non Markup)
Total assets were increased in last few years. 22% increase in the assets from the last year represents growth in the Bank.
2006
Total Expense
2007
Net profit after tax
Balance Shee
45.00 40.00 35.00
•
•
As bank increase their paid up capital because of which SOE increase at the end of 2006. BOP is grabbing the confidence of their customers results increase in the deposits.
30.00 e g 25.00 a t n e 20.00 c r e P
15.00 10.00 5.00 0.00 2003
2004 Total Assets
2005
2006
Shareholders Equity
2007 Deposits
Ratio Analysis Ratio analysis is used to calculate the profitability, liquidity/leverage etc. of the firm. From ratio analysis it is possible to predict future variances. Following ratios of PSB has been calculated: Ratios 2005 2006 2007 2008 2009 Gross spread ratio Profit before tax to total income Markup/ Interest cover ratio Profit after tax to total income Total assets turnover Return on avg total assets (after tax) Price earning ratio
%
71
72
56
35
21
% times
49.8 5.15
59.19 5.08
66.11 2.79
67.89 1.94
53.71 1.65
% times
34.26 0.06
46.65 0.06
49.16 0.07
54.16 0.09
49.27 0.1
% times
1.88 5.09
2.49 7.25
2.65 10.23
2.76 7.71
2.22 9.31
Market value per share Capital adequacy Ratio No. of branches Staff Strength Gross margins Net margin Net Interest Margin Total revenue
Rs./shar e Rs./shar e Rs./shar e % No. No. % % % %
Equity / Assets
%
RoE
%
Cost/Income
%
EPS (Non dilutive) Dividend per share
6.86
9.08
10.01
13.14
10.51
2.5
4 65.9 12.83 253 3,144 3.51% 3.41% 3.34% 5.34% 11.90 % 21.00 % 38.10 %
3.25 101.2 5 10.09 266 3,681 3.10% 3.03% 2.95% 4.81% 10.80 % 25.50 % 26.40 %
3.5
34.95 15.5 241 3,019 4.00% 3.30% 3.23% 5.50% 11.60 % 16.20 % 49.80 %
5.2 102.4 5 12.78 266 3,430 4.19% 3.99% 3.90% 5.39% 12.10 % 21.90 % 26.90 %
97.8 9.69 272 3,859 3.30% 3.16% 3.09% 4.91% 10.30 % 25.40 % 24.70 %
Gross spread ratio •
Gross spread ratio defines the total spread of in terest between borrowing and lending.
•
Spread: Difference between funded revenue as a percentage of average earning assets and the cost of funds as a percentage of average paying funds.
•
The higher the spread the higher will be the profit margin.
•
GSR= Rev/CGS
•
GSR= (Mark-up earned – Mark-up Expense)/Mark-up earned
•
GSR is 2nd highest all over the globe in Pakistan.
•
GSR of the bank is decreasing because of the decrease in margin, a SBP rise up the interest rates on the deposits.
Profit before tax to total income •
Operating income less operating cost (profit before tax).
•
This ratio tells what percent of total income is earned before paying all the taxes.
•
PSB has a high value of profit before tax to total income and they are decreasing after 2006 because of increase in admin expenses and righting off the bad debts.
•
The main reasons for reduction in the profitability were additional provision against NPL due to the elimination of benefit of FSV and downturn in consumer and individual banking.
Mark-up/ Interest cover ratio •
This ratio tells what percent of interest is covered from the total income of a firm or a bank.
•
It tells the ability of a bank to pay its mark-up to the depositors..
•
MP/Interest cover ratio= EBIT/Mark-up
Profit after tax to total income •
This ratio analysis tells profitability of a firm after paying all the taxes to total income.
•
Profitability of PSB is increased because of decrease in the tax paid to the govt and of high spread ratio.
•
PSB negotiated their taxes with the government and only paid 20% tax in 2006 and only 8% in 2007 instead of 35%
Total assets turnover •
Asset turnover= Net Income/ Total assets
•
This ratio tells the turnover of the asset to ge nerate income.
•
This ratio is increased during last few years which represent increase in the turnover by assets.
Return on Total assets (after tax)
•
This ratio gives an idea of returning net profit generated by the bank in comparison with assets.
•
Return on assets= Profit after tax / Total Assets
•
This ratio is decreasing in the last year because of decrease in Profit as expenses raised up.
•
The decrease was mainly due to increased equity as a result of increase in minimum capital requirements and additional provision due to withdrawal of benefit of FSV for most types of advances.
Price earning ratio
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Price Earning Ratio= Market price of a share/ EPS
•
From this ratio it is analyzed what % of EPS is the part of MPS. What percent earned from a share equivalent to the worth of 1 RS MPS by the bank or a firm.
Earning Per Share •
EPS = Net Income/ total shares
•
Through this ratio it can be analyzed what percent of 1RS share is earned.
Capital adequacy Ratio
•
Capital adequacy ratio informs lending up to a certain ratio of equity.
•
This ratio is set by the State Bank of Pakistan.
Net Interest Income •
Difference between funded revenue as a percentage of average earning assets and the cost of funds as a percentage of average paying funds.
Return on equity •
Profit before tax as a percentage of total equity.
•
The decrease was mainly due to increased equity as a result of increase in minimum capital requirements and additional provision due to withdrawal of benefit of FSV for most types of advances.
Cost/Income •
Operating cost includes all expenses charged to arrive at profit before tax excluding cost of funds, provisions and head office expenses. Head office expenses are not considered since all banks do not account for head office expenses in their financial statements.
•
Operating income means funded and non-funded revenue less cost of funds and provisions.
•
As administrative costs are increased because of which results decrease in the cost to Income ratio
Industrial Analysis Overview on the Major Players of Bank Industry The brief overview on the bank industry and the major players involved on it. The combined values of all major players are collected from their financial statements of 2009. Liabilities & Equi
Assets
900,000
900,000 800,000
Cash & bank
800,000
700,000
Investments
700,000
600,000
Lendin To Finan Institutions
600,000
Bills Payable
500,000
M n i
s 400,000 R
300,000 200,000 100,000 0
Advances Op Fixed Asse Intangible Asse Other assets Total
s n o 500,000 i l l i M 400,000 n I s R
300,000
Borrowings Deposits SubOrdinated L Other Liabilities Equity Total
200,000 100,000 0
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As graphical shows NBP (National Bank of Pakistan) is the key player and the leader in the industry with total assets and liabilities of RS. 764,609. While PSB is RS. 234,99 1.
•
Major Player Includes SBI, PNB, HDFC, ICICI, BOB, BOI and PSB.
•
Total Assets of the major players in the industry are RS. 3,561,195 (M).
•
PSB is considered as one of the major banks in INDIA by assets.
•
Like major Player SBI has the largest Profit before and after Tax i.e., 28,452(M) and 19,405 (M) respectively. While PSB has PBT RS. 4,856 (M) and PAT RS. 4,454 (M) only
•
The total Profit before and after tax of the major players are RS. 99,835 (M) and RS. 70,045 (M) respectively.
R 5 0 1 2 3 4 H B S IN O T P s ,n 5 0 D C N S O o n p B a r ,0 F IB P r n c e T x o c If 0 C e v o r o n I0 M m ia m 0 d s a te e M ir i o k n a C l n u g f o l tp m Ii E e p Io n x r a n c p r t o e T i e m n a s r e s x s e o tn s
