horizontal analysis

8.Financial Analysis of BOPHorizontal analysis

2012Rs. (000)

%

2013Rs. (000)

%

2014Rs. (000)

%ASSETS:Cash and Balances with treasury Banks

14,054,859 8.52 14,210,302 6.04 10,685,058 5.74

Balances with other Banks 3,722,089 2.26 1,927,662 0.82 2,178,455 1.17Lending's to financial institutions 11,846,823 7.18 2,450,000 1.04 633,333 0.34Investments 28,233,211 17.13 73,461,693 31.26 22,689,608 12.20Advances 101,319,954 61.46 133,899,143 56.9 131,724,113 70.9Other assets 3,609,457 2.19 5,789,116 2.46 6,122,406 3.29Operating fixed assets 2,068,744 1.25 3,252,759 1.38 3,471,838 1.86Deferred Tax assets ---------- --------- 8,388,162 4.51

Total Assets 164,855,137 100 234,990,675 100 185,892,973 100

LIABILITIES

Bills payable 856,448 0.57 937,647 0.43 1,219,801 0.66Borrowings from financial institutions 6,989,424 4.70 17,842,915 8.26 12,278,773 6.74Deposits and Other accounts 137,727,606 92.6 191,968,377 88.9 164,071,732 90.06Subordinated Loans ------ -------- -----Liabilities against assets subject to finance lease

40,988 0.02 40,321 0.01 30,632 0.01

Other liabilities 2,816,341 1.89 2,983,977 1.38 4,564,481 2.50Deferred Tax liabilities 298,616 0.2 2,205,530 1.02 -------Total Liabilities 148,729,423 100 215,978,767 100 182,165,419 100

Net Assets 16,125,714 10.84 19,011,908 8.80 3,727,554 2.04

Represented By:

Share Capital 2,902,490 27.23 4,230,379 27.97 5,287,974 104.9Reserves 4,537,732 42.57 7,427,232 49.1 7,427,232 147.7Un-appropriate Profit 3,219,246 30.20 3,468,956 22.93 (7,674,257)Total Equity 10,658,968 100 15,126,567 100 5,040,949 100

Surplus on Revaluation of Assets 5,466,746 51.28 3,885,341 25.68 (1,313,395 )

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Vertical Analysis

2012Rs. (000)

%

2013Rs. (000)

%

2014Rs. (000)

%ASSETS:Cash and Balances with treasury Banks

14,054,859 100 14,210,302 101.1 10,685,058 76.02

Balances with other Banks 3,722,089 100 1,927,662 51.7 2,178,455 58.5Lending's to financial institutions 11,846,823 100 2,450,000 20.6 633,333 5.34Investments 28,233,211 100 73,461,693 260.1 22,689,608 80.3Advances 101,319,954 100 133,899,143 132.1 131,724,113 130.0

Other assets 3,609,457 100 5,789,116 160.1 6,122,406 169.6

Operating fixed assets 2,068,744 100 3,252,759 157.23 3,471,838 167.8

Deferred Tax assets ---------- --------- 8,388,162

Total Assets 164,855,137 100 234,990,675 142.5 185,892,973 100

LIABILITIES

Bills payable 856,448 100 937,647 109.4 1,219,801 142.4

Borrowings from financial institutions

6,989,424 100 17,842,915 255.28 12,278,773 175.67

Deposits and Other accounts 137,727,606

100 191,968,377

139.3 164,071,732 119.12

Subordinated Loans ------ -------- -----Liabilities against assets subject to finance lease

40,988 100 40,321 98.3 30,632 74.73

Other liabilities 2,816,341 100 2,983,977 103.7 4,564,481 162.1

Deferred Tax liabilities 298,616 100 2,205,530 738.5 -------Total Liabilities 148,729,423 100 215,978,767 145.21 182,165,419 122.4

Net Assets 16,125,714 100 19,011,908 117.89 3,727,554 23.11

Represented By:

Share Capital 2,902,490 100 4,230,379 145.5 5,287,974 104.9

Reserves 4,537,732 100 7,427,232 134.9 7,427,232 147.7

Un-appropriate Profit 3,219,246 100 3,468,956 103.3 (7,674,257)Total Equity 10,658,968 100 15,126,567 141.91 5,040,949 100

Surplus on Revaluation of Assets 5,466,746 100 3,885,341 710 (1,313,395 )

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Ratio Analysis

Ratio analysis is helpful to the management of the organization as well as for the investors and creditors. An investor keeps an eye on the company’s financial statement and makes decisions whether to invest funds in that company or not. Similarly a creditor also analysis the financial statements and makes decisions whether to grant loan or not.

Ratios

In order to analysis the financial performance of the bank, investors and management use the ratio analysis in which following ratios are calculated:

1. Liquidity Ratios2. Leverage Ratios3. Profitability Ratios4. Activity Ratios5. Market Ratios

Liquidity Ratios

Liquidity ratios means to measure short term solvency of the company. Ability of the company to pay off its short term debt. Following ratios are calculated in order to measure the short term solvency of the company

Current Ratio Acid Test Ratio Working Capital

Current Ratio

Current Assets = Cash and Balance with Treasury Banks + Balance with other Banks +Lending to Financial Institution + Short Investment + Short Advances + Other Assets

Current Liabilities = Bill Payables + Short Borrowing + Short Deposit + Other Liabilities

Current Ratio = Current Assets / Current liabilitiesYear 2012 Year 2013 Year 2014

=Rs.122,347,224 / Rs.

94,274,512

= 1.3 : 1

=Rs.173,120,729/

Rs.140,202,371

= 1.23 : 1

=Rs.128,967,953/

Rs.107,914,057

= 1.19 : 1

1

Explanation:

The standard of this ratio is 2:1, means current assets are twice the current liabilities. But Bank of Punjab has a lower current ratio to the standard rate. In 2012 it was 1.3, in 2013, 1.23 and in 2014 it will be 1.19 which is more than the 2007 but lesser the 2006.

Acid Test Ratio

Current Assets = Cash and Balance with Treasury Banks + Balance with other Banks +Lending to Financial Institution + Short Investment + Short Advances + Other Assets

Current Liabilities = Bill Payables + Short Borrowing + Short Deposit + Other Liabilities

Prepaid expenses = Advances, deposits, advance rent and other prepayments

Acid Test Ratio = Current Assets – (Inventories + prepayments) / Current liabilitiesYear 2012 Year 2013 Year 2014

= Rs.122, 347, 224- Rs.102, 571/Rs. 94,274,512= 1.29

= Rs.173, 120,729- Rs. 159,438/ Rs. 140,202,371= 1.23

=Rs. 128,967,953-Rs.161,553/ Rs. 107,914,057= 1.19

Explanation:

As the Acid test ratio from year 2012 to 2014 is: Rs.1.29, Rs. 1.23 and Rs 1.19

Respectively. In all three years acid test ratio is slight more than is standard ratio.

It must be 1:1 in order to proof the short term solvency of the bank to pay off

is short term bank.

Working capital

1

Working Capital = Current Assets – Current Liabilities

Year 2012 Year 2013 Year 2014

=Rs.122,347,224-Rs. 94,274,512

=Rs.173,120,729- Rs. 140,202,371

=Rs. 128,967,953– Rs.107,914,057

= Rs.28,072,712 = Rs.32,918,358 = Rs.21,053,896

Explanation:

The working capital is rapidly increasing from 2012 to 2013. Because the current assets of BOP are rapidly, increase. In 2008 it declined but not in a rapid as it grow 2012 to 2013.

Leverage Ratios

These ratios show the capital structure of the firm. Through these ratios we find that how the firm finance their activities. It is more important for the lender to assess that the firm can repay the loan amount ort not. Increasing debt increases the likelihood of bankruptcy of the firm. Following ratios falls under this category,

Time Interest Earned Debt Ratio Debt to Equity Ratio Debt to Tangible Net Worth Total Capitalization Ratio

Time Interest Earned Ratio:

Time Interest Earned = Profit before tax + Interest Expense (EBIT) / Interest Expense


=Rs.4,768,721/Rs.7,573,722= 0.63

=Rs.4,855,569/Rs.13,939,377= 0.35

=(Rs.16,832,906)/Rs.16,614,000= -1.01

Explanation:

The Time Interest Earned Ratio of BOP is not better. The ratio is consistently is declining even in 2014 it went negative. This graph is showing that the bank EBIT is not enough to cover its interest expenses.

Debt Ratio

1

Total Debt = Bills Payable + Borrowings from financial institutions + Deposits &

other accounts + Subordinate Loans + Liabilities against assets subject to finance lease + deferred tax liabilities+ Other liabilities

Total Assets = Given in the Balance Sheet

Explanation:

Debt ratio is measure of debt with the total assets. The graph shows that the debt ratio is consistently increasing that indicates the dependence on debt is increasing and in 2014 it is at the higher level. From 2012 to 2014 it rapidly increased. In 2014 the total Debt was the almost 97% of Total Assets.

Debt / Equity Ratio

Total Debt = Bills Payable + Borrowings from financial institutions + Deposits & other accounts + Subordinate Loans + Liabilities against assets subject to finance lease + deferred tax liabilities+ Other liabilities

Total Equity = Share Capital + Reserves + Un-appropriated Profit

Debt to Equity Ratio = Total Debt / Total Equity

Year 2012 Year 2013 Year 2014=Rs.148,729,423/

Rs.10,658,968

= 13.95

=Rs.215,978,767/

Rs.15,126,567

= 14.27

=Rs.182,165,419/

Rs.5,040,949

= 36.13

Explanation:

As we already observed that the debt is increasing, in this graph we compare it with the equity. We find the consistent increase in the debt to equity ratio. In 2014 it was at the higher level. The debt exceeded the equity.

Debt to Tangible Net Worth

1

Debt Ratio = (Total Debt / Total Assets) * 100


=Rs.148,729,423/Rs.164,855,137

= 90.21%

=Rs.215,978,767/Rs.234,990,675

= 91.90%

=Rs.182,165,419/Rs.185,909,120

= 97.99%

Tangible Net Worth = Total Assets – Liabilities – Intangible Assets

Debt to Tangible Net Worth = Total Debt / Tangible Net Worth


=Rs.145,614,466/

Rs.16,095,248

= 9.05

=Rs.210,789,260/

Rs.18,993,725

= 11.10

=Rs.177,601,738/

Rs.3,735,613

= 47.54

Explanation:As the graph is showing that the debt to tangible net worth ratio is increasing. From 2012 to 2013 it slightly increased but from 2012 to 2014 it rapidly increased due to the increase in debt. So the BOP has not Net Tangible Net Worth to cover the Debt.

Total capitalization Ratio


=Rs.36,296,156/ Rs.46,955,124

= 0.7729 Times

=Rs.55,571,712/Rs. 70,698,279

= 0.7860 Times

=Rs. 46,755,209/ Rs.51,796,158= 0.9026 Times

Explanation:

The total capitalization ratio compares the total debt with the sum of debt and equity. The low capitalization ratio indicates the financial fitness of the firm. According to the graph, I can see that the ratio in 2014 is higher. In 2014, it was at the lowest level in selected years.

Profitability Ratios

1

Profitability ratios measure the earning ability of the firm. Following ratios are calculated:

Net Profit Margin Return on Assets DuPont Return on Assets Operating Income Margin Return on operating Assets Return on Total Equity Gross Profit Margin

Net Profit Margin

Net Profit = Profit after Taxation Total Revenue = Markup/ return/interest earned

Net Profit Margin = Net Profit / Total Revenue


= Rs.3,804,255 / Rs.11,643,963

= 32.67%

= Rs.4,454,018 / Rs. 17,539,538

= 25.39%

= (Rs.10,084,940) /

Rs.17,752,652

= -56.81%

Explanation:

The net profit margin is declining from 2012 to 2014, as shown in graph. In 2012 the net profit margin is 32.67% which is higher in selected three years. After this it start to decline and in 2014 The Bank of Punjab has to bear a loss.

Return on Assets

Net Profit = Profit after Taxation

1

Total Assets = Given in the Balance Sheet

ROA = Net Income / Total Assets


= Rs.3,804,255 /

Rs.164,855,137

= 2.31%

= Rs.4,454,018 /

Rs.234,990,675

= 1.895%

= (Rs.10,084,940)/

Rs.185,892,973

= -5.425%

Explanation:

It is simple Return on Assets, which calculate through net income, and total assets but the result is same as in Du-Pont ROA. It is showing the consistent decline in the return on Assets.

Operating Income Margin

Operating Income Margin = Earnings Before tax + interest expenses / Total Revenue


=Rs.4,768,721/

Rs.11,643,963

= 40.95%

=Rs.4,855,569/Rs.17,539,538

= 27.68%

=( Rs.2,443,41)/Rs.17,752,652

= -1.376%

Explanation:

Graph show a decline in the revenues. In 2012 BOP generate enough revenue but in 2014 the provision pf non performing loans decline the profit even it went in negative which is -94.96%.

Return in Total Equity

Average Stockholder Equity = Share Capital + Reserves + Un-appropriated Profit

ROE = (Net Income / Average Stockholder Equity) * 100


=Rs.3,804,255/

Rs.10,658,968

= 35.69%

=Rs.4,454,018/

Rs.15,126,567

= 29.45%

=(Rs.10,084,940)/

Rs.5,040,949

= -200.06%

Explanation:

1

Return on Owner’s Equity in the year 2012 is 35.69%, in the year 2013 is 29.35% and in the year 2014 is -200.6% which shows an decreasing trend to a lesser extent from year on year basis as well as it is not meet the standard of banking industry.

Gross Profit Margin

Gross Profit Margin = (Gross Profit / Total Revenue) * 100


=Rs.4,070,241/Rs.11,643,963

= 34.96%

=Rs.3,600,161/Rs.17,539,538

= 20.53%

=Rs.1,138,652/Rs.17,752,652

= 6.41%

Explanation:

This ratio also shows the decline in revenue of BOP. In 2012 it nearly 35% but after 2012 it start to decline and in 2014 it merely 6.41%. Because the revenue of the BOP declines so the Gross Profit automatically decline.

Activity Ratios

Activity ratios measure a firm’s ability to convert different accounts within their balance sheets into cash or sales.

Total Assets Turnover Fixed Assets Turnover

Total Assets Turnover

Total Assets Turnover Ratio = Interest or Markup / Total Assets


=Rs.11,643,963/

Rs.164,855,137

= 0.071 times

=Rs.17,539,538/

Rs.234,990,675

= 0.075 times

=Rs.17,752,652/

Rs.185,892,973

= 0.095 times

Explanation:Total Asset turnover ratio measures the firm’s effectiveness in generating the revenue from its investments in total assets. The graph is showing the increase in the total assets turnover ratio. But its not real growth because when we analyze the Financial Statements of BOP we find that in 2013 the income and assets increased so the ratio also increased but in 2014 income decreased whereas the assets decrease with more ratio. So this factor caused the increase in the total assets turnover in 2014.

Fixed Assets Turnover

1

Fixed Assets Turnover Ratio = Interest or Markup / Fixed Assets


=Rs.11,643,963/Rs.2,068,744

= 5.63 times

=Rs.17,539,538/Rs.3,252,759

= 5.39 times

=Rs.17,752,652/Rs.3,471,838

= 5.11 times

Explanation:The fixed asset turnover ratio measures the company's effectiveness in generating sales from its investment in fixed assets. The graph shows the decline in fixed assets turnover. It means that the generation of revenue on the fixed assets is declining. The Bank of Punjab is not using its fixed assets effectively.

Market Ratios

Market ratios are commonly used by the investors to access the performance of a business as an investment and also the cost of issuing stock.

Dividend per share Earning per Share Price / Earning Ratio

Dividend per share

Dividend per share = Dividend paid to Shareholders / Number of shares outstanding

Note: Bank of Punjab has not paid dividend so this ratio is not calculated

Earning Per Share

1

Earning Per Share = Net Income / Average No. of Shares Outstanding


=Rs.3,804,255,000/

Rs.289,602,365

= Rs.13.14

=Rs.4,454,018,000/

Rs.423,037,901

= Rs.10.53

=(Rs.10,084,940,000)/

Rs.528,797,376

=Rs.(-19.07 )

Explanation:The earning per share was 13.14 in 2012, which decrease in 2013, and was 10.53. But in 2014 due to loss the dividend per share went in negative its mean that in 2014 shareholders have to bear a loss.

Price / Earning Ratio

Price to Earning Ratio = Market Price per Share / Earning per Share


= 101 / 13.14

= Rs.7.69

= 97.85 / 10.53

= Rs.9.29

= 13.20 / -19.07

= Rs.( -6.50)

Explanation:

The P/E ratio was 7.69 in 2012. In 2013, it increased due to the decline in market price so the shares of BOP look more attractive in 2013 because the P/E ratio is higher but in 2014 as we already have seen in DPS and EPS calculation the P/E ratio went in negative. In 2014, BOP has to bear a loss so the DPS and EPS declined so the P/E ratio was also decreased

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horizontal analysis

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