aasignment 1 afm

7/27/2019 Aasignment 1 Afm

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ASSIGNMENT 1ADVANCED FINANCIAL MANAGEMENT

SUBMITTED BY

314141 VATSAL MAGAJWAL



SECTOR: BANKING SECTOR

COMPANIES: ICICI BANK, STATE BANK OF INDIA AND BANK OF BARODA

INTRODUCTION

This assignment is concerned with the topic Ratio analysis. Ratio is a term which shows the

quantitative relationship between two numbers. And ratio analysis is the technique of

interpretation of financial statements with the help of accounting ratios derived from the balance

sheet and profit and loss account.

IMPORTANCE OF RATIO ANALYSIS

To analyze the financial position.

To assess the operational efficiency.

To determine the trends in the long run.

To compare the performance.

LIMITATIONS OF RATIO ANALYSIS

It is based on the historical data.

It makes comparison difficult due to different accounting methods.

It ignores Qualitative aspects.

There is a limited use of single ratio.

CLASSIFICATION OF RATIO

LIQUIDITYRATIO

OTHERRATIO

TURNOVERRATIO

LEVERAGERATIO

PROFITABILITYRATIO



RATIO ANALYSIS OF ICICI BANK

A.

LIQUIDITY RATIOS

This ratio shows the ability of the organization in meeting the short term payments or obligation.

It includes current ratio, acid test ratio and super quick ratio.

Current ratio =

Interpretation: The ideal current ratio is 2:1. In fact, the ideal ratio of 2:1 is considered as a safe

margin because if current assets are decreased to half i.e. 1 instead of 2 then creditors will also

get their payment in full. But here the current ratio is less than 2 but more than 1 which indicates

that bank have current assets just equal to their current liabilities which is not a good sign as

safety margin is zero or less. Therefore bank has to keep more current assets for maintaining the

satisfactory safety margin.

Acid Test ratio/Quick ratio =

Quick assets = Current asset – Inventory

Year Quick Assets (in crores) Current Liabilities (in crores) Quick ratio

2007 12929.97 21396.16 0.602008 17040.22 25227.88 0.68

2009 37121.33 38228.64 0.97

2010 38041.13 42895.38 0.89

2011 29966.56 43746.43 0.69

Year Current Assets(in crores) Current Liabilities(in crores) Current ratio

2007 21632.56 21396.16 1.01

2008 29549.79 25227.88 1.172009 53421.59 38228.64 1.40

2010 58615.76 42895.38 1.37

2011 54130.18 43746.43 1.24



Interpretation: A quick ratio of 1:1 is considered favorable because for one rupee of current

liability there is atleast one rupee of liquid asset. Higher ratio is favorable. Here ratio is less than

1 in the year 2007, 2008 and 2011 but in 2009 and 2010 it is close to 1 which is not satisfactory.

It shows that bank have not managed their funds properly during this period. Therefore bank

must utilize its fund properly to maintain this ideal ratio of 1:1.

B. PROFITABILITY RATIO

It indicates the profit earning capacity of a business. It is calculated in relation to either sales or

an investment. It includes gross profit ratio, net profit ratio and return on capital employed ratio.

Gross Profit ratio =

*100

Year Gross Profit Sales Gross Profit ratio (in %)

2007 2956 9409.9 31.41

2008 4690.67 13784.49 34.03

2009 5874.7 22994.29 25.55

2010 7960.69 30788.34 25.86

2011 8925.23 31092.55 28.71

Interpretation: The gross profit ratio in 2007 & 2008 is 31.41% and 34.03% respectively.

Thereafter it decreases in 2009 and 2010 and again it pick the momentum. The reason may be

that operating expenses are increasing during those period resulting reducing the gross profit.

Therefore bank should examine the unnecessary operating expenses so that it can provide a

better return.

Net Profit ratio =

*100

Year Net Profit Sales Net Profit ratio (in %)

2007 2005.2 9409.9 21.31

2008 2540.07 13784.49 18.43

2009 3110.22 22994.29 13.53

2010 4157.73 30788.34 13.50

2011 3758.13 31092.55 12.09



Interpretation: Although the net profit and sales are increasing continuously but the net profit

ratio is declining. This is because net profit has not increased in the same proportion as that of

the sales.

Return on capital employed =

*100

Year PBIT Capital employed Capital Employed ratio (in %)2007 9098.09 146263.25 6.22

2008 12694.05 226162.17 5.61

2009 20006.54 306429.44 6.53

2010 28540.34 356900 8.00

2011 27842.9 335554 8.30

Interpretation: It measures the earnings of net assets of the business. The ratio was 6.22% in

2007 and it increase continuously after 2007. It lead to the rising of the bank but very low return

on capital employed.

C. LEVERAGE RATIOS

This ratio shows the ability of the organization to repay the loan and the interest. When any

organization is having more assets than its liability it is known as solvent organization.

Debt Equity ratio =

Year Long term debt (in crores) Equity (in crores) Debt Equity ratio

2007 154760.45 12900 12.00

2008 228833 22553 10.15

2009 319995 24663.26 12.97

2010 352975 46819 7.54

2011 329420 49884 6.60

Interpretation: This ratio compares the funds provided by the creditors to the funds provided by

the owner. The debt equity ratio is high which shows that bank is relying more on its outsiders as

compared to the internal source of capital. This ratio is not satisfactory from the viewpoint of

long term lenders.



Capital gearing ratio =

Year Fixed Interest bearing funds Equity (in crores) Capital gearing ratio

2007 133363 12900 10.34

2008 203605 22553 9.032009 281766 24663.26 11.42

2010 310079 46819 6.62

2011 285672 49884 5.73

Interpretation: When fixed interest fund is more than equity shareholder funds, the company is

said to be highly geared. When it is equal to equity shareholder funds, the company is said to be

evenly geared and when it is less than equity shareholder funds it is said to be low geared. If

capital gearing is high there is a problem of issue of long term loans and issue of equity shares is

attractive and vice versa.

D. TURNOVER RATIOS

This ratio indicate the effective utilization of assets of the organization. It also indicates the

performance of an organization.

Fixed assets turnover ratio =

Year Fixed assets Sales Fixed assets turnover ratio

2007 4040 9409.9 2.33

2008 3980 13784.49 3.46

2009 3925 22994.29 5.86

2010 4110 30788.34 7.49

2011 3800 31092.55 8.18

Interpretation: The ratio is continuously increasing which shows that fixed assets have been

used effectively in the business and also the capital is not blocked in fixed assets.

Stock turnover ratio =

This ratio measures how fast the company turns over its inventory within a year. ICICI

inventory turnover data from March 2005 till March 2014 is nil.



Total assets turnover ratio =

Year Total assets (in crores) Sales (in crores)

Fixed assets turnover

ratio

2007 167659 9409.9 0.062008 251389 13784.49 0.05

2009 344658 22994.29 0.07

2010 399795 30788.34 0.08

2011 379300 31092.55 0.08

Interpretation: The ideal total asset turnover ratio is 2 times. High ratio i.e. more than 2

indicates efficient utilization of assets and low ratio indicate underutilization of assets.

Working capital turnover ratio =

Year Net Working Capital Sales Working capital turnover ratio2007 236.4 9409.9 39.80

2008 4321.91 13784.49 3.19

2009 15192.95 22994.29 1.51

2010 15720.38 30788.34 1.96

2011 10383.75 31092.55 2.99

Interpretation: The ratio is 39.80 times in 2007 which is too high as compared to other years. A

high ratio indicates efficient utilization of working capital and low ratio indicates inefficient

utilization of working capital. But here in 2007 the ratio is too high as compared to other years

which is not good for the bank.

In case of debtors turnover and creditors turnover accounts receivable and accounts

payable are nil from March 2005 till March 2014 so no need to calculate it.

E. OTHER RATIOS

Earnings Per share =



It determines the market price of the equity shares of the company. It also determines the

company’s capacity to pay dividend to its shareholders.

Year Net income available for shareholders No of equity shares (crores) EPS

2007 2005.2 73.67 27.22

2008 2540.07 88.98 28.55

2009 3110 89.93 34.58

2010 4160 111.27 37.39

2011 3758 111.325 33.76

Interpretation: This ratio reflects the performance of the company. It affects the market price of

the shares. Here the ratio is increasing from 2007 to 2010 but it decreases in 2011 due to decline

in profits.

Dividend per share =

Year Dividend Paid(cores) No of equity shares (crores) DPS

2007 632.96 73.67 8.59

2008 760 88.98 8.54

2009 901 89.93 10.02

2010 1227.7 111.27 11.03

2011 1224.6 111.325 11.00

Interpretation: The ratio shows an increasing trend except slight decrease in the year 2011. The

ratio is satisfactory which indicates that bank has a good dividend paying capacity.

Credit deposit ratio =

It shows the relationship between amount of deposits generated by the bank as well as

distribution towards loans and advances.

Year Advances (cores) Deposits (crores) Credit deposit ratio (%)2007 91405 99818 91.57

2008 146163 165083 88.54

2009 195865 230510 84.97

2010 225616 244431 92.30

2011 218310 218347 99.98



Interpretation: The ratio is 91.57% in 2007 and it decreased in the year 2008 and 2009

respectively. Again it increased in the year 2010 and 2011. This indicates that credit performance

of the bank is good.

RATIO ANALYSIS OF SBI

A. LIQUIDITY RATIOS

Current ratio

Year Current ratio

2007 0.05

2008 0.07

2009 0.04

2010 0.04

2011 0.04

Interpretation: The ideal current ratio is 2:1 but the public sector companies have low current

ratio as there is little need of current assets. The liquidity position of the bank is poor. Lesser the

current ratio indicates that firm’s ability to meet the current obligation is not good.

Acid test/Quick ratio

Year Quick ratio

2007 6.52

2008 6.15

2009 5.74

2010 9.07

2011 8.5



Interpretation: The ideal ratio is 1:1. It shows an increasing trend which indicates that firm is

liquid and has the capability to meet its current liabilities in time.

B. PROFITABILITY RATIOS

Gross Profit ratio

Year Gross Profit ratio (%)

2007 16.35

2008 21.49

2009 20.23

2010 21.5

2011 22.43

Interpretation: It shows an increasing trend from the year 2007 to 2011 except in 2009 there isslightly fall. It indicates favorable purchasing and the stability of management to make it

possible to buy the goods in large volume and higher will be the good managing power.

Net Profit ratio

Year Net Profit ratio (%)

2007 10.12

2008 11.65

2009 12.03

2010 10.542011 8.55

Interpretation: It shows an increasing trend from the year 2007 to 2009 but it decreased in the

year 2010 and 2011 respectively. It indicates inadequate returns to the owners as well as bank

may face adverse economic conditions.

C. LEVERAGE RATIOS

Debt Equity ratio Year Debt Equity ratio

2007 13.92

2008 10.96

2009 12.81

2010 12.19

2011 14.37



Interpretation: The ratio is decreasing from 2007 to 2008. It is the danger sign for owners. If

the project fails the owner would suffer loss substantially. From 2009 to 2011 it shows increasing

trend which means bank is relying on their outsiders compared to the internal source of finance.

It is not satisfactory from the viewpoint of long term lenders.

D. TURNOVER RATIOS

Fixed assets turnover ratio

Year Fixed assets turnover ratio

2007 5.44

2008 6.32

2009 7.2

2010 7.26

2011 7.24

Interpretation: The ideal ratio is 5 times. It shows an increasing trend and the ratio is above the

ideal ratio which indicates better utilization of fixed assets.

In case of inventory turnover ratio, SBI inventory data is nil from March 2005 to March

2014.

In case of debtors turnover ratio account receivable is nil and in case of creditors turnover

ratio account payable is nil.E. OTHER RATIOS

Credit deposit ratio

Year Credit deposit ratio

2007 73.44

2008 77.51

2009 74.97

2010 75.96

2011 79.9

Interpretation: The ratio is showing an increasing trend. It indicates that credit performance of

the bank is good.



Dividend per share

Year DPS

2007 12.5

2008 14

2009 14

2010 21.5

2011 29

Interpretation: The ratio is showing an increasing trend which indicates that bank has a good

dividend paying capacity.

RATIO ANALYSIS OF BANK OF BARODA

A.

LIQUIDITY RATIOS

Current ratio

Year Current ratio

2007 0.04

2008 0.03

2009 0.02

2010 0.02

2011 0.02

Interpretation: It shows decreasing trend. It indicates over trading and under capitalization of

assets.



Quick ratio

Year Quick ratio

2007 5.43

2008 6.4

2009 4.43

2010 5.67

2011 6.7

Interpretation: It shows an increasing trend except in the year 2009. It indicates that firm is

liquid and has the ability to meet current assets and current liabilities in time.

B. PROFITABILITY RATIOS

Gross Profit ratio

Year Gross profit ratio (%)

2007 16.45

2008 17.56

2009 18.6

2010 19.06

2011 19.06

Interpretation: The ratio shows an increasing trend. It indicates the stability of the managementto develop huge sales volume. Higher the ratio better are the results.

Net Profit ratio

Year Net profit ratio (%)

2007 9.69

2008 10.35

2009 12.48

2010 15.68

2011 17.18

Interpretation: The ratio shows an increasing trend. It means the bank is providing good returns

to their owner and it also improves the profitability of the firm.



C. LEVERAGE RATIOS

Credit deposit ratio

Year Credit deposit ratio

2007 65.67

2008 68.72

2009 72.78

2010 73.6

2011 73.87

Interpretation: The ratio is showing an increasing trend indicating that bank has a good credit

performance.

Cash deposit ratio

Interpretation: It tells us how much liquidity we have in hand out of the total deposits

receipt. The ratio shows an increasing trend which means bank is holding more cash in

hand which is good.

Investment deposit ratio

Year Investment deposit ratio

2007 32.05

2008 28.46

2009 27.962010 26.22

2011 24.26

Year Cash deposit ratio

2007 4.46

2008 5.7

2009 5.8

2010 5.57

2011 6.11



Interpretation: It tells us where bank is putting our deposit may be for infrastructure, economic

development and other sectors where bank can put so that bank can earn more interest. Higher

ratio is preferable from the viewpoint of bank because of more interest and vice versa.

D.

TURNOVER RATIOS Fixed assets turnover ratio

Year Fixed assets turnover ratio

2007 4.25

2008 3.47

2009 4.2

2010 4.48

2011 5.25

Interpretation: The ratio shows an increasing trend which means better utilization of fixed

assets.

Total assets turnover ratio

Year Total assets turnover ratio

2007 0.07

2008 0.08

2009 0.08

2010 0.08

2011 0.08

Interpretation: The ideal ratio is 2 times. Here all the ratios are below 2 which means there is

underutilization of assets.

In case of inventory turnover ratio, SBI inventory data is nil from March 2005 to March

2014.

In case of debtors turnover ratio account receivable is nil and in case of creditors turnover

ratio account payable is nil.



E. OTHER RATIOS

Dividend per share

Year DPS

2007 62008 8

2009 9

2010 15

2011 16.5

Interpretation: It shows an increasing trend which indicates bank has a good dividend payout

policy and it also makes its owner happy by paying more dividend.

Earnings per share

Year EPS

2007 28.18

2008 39.41

2009 61.14

2010 83.96

2011 108.33

Interpretation: This ratio affects the market price of the company. The ratio is increasing

because of increase in profit.

Price earnings ratio

Year Price earnings ratio

2007 7.93

2008 7.49

2009 3.95

2010 7.872011 9.15

Interpretation: The ratio shows an increasing trend which means investors are anticipating

higher growth in the future.



INTER FIRM COMPARISON BETWEEN ICICI BANK, SBI AND BANK OF BARODA

CREDIT DEPOSIT RATIO (in %)

From the above graph it can be said that credit deposit ratio of SBI was highest in 2011 and

lowest in 2007. Similarly ICICI credit deposit ratio was highest in 2011 and lowest in 2009.

Thereafter BOB credit deposit ratio was highest in 2011 and lowest in 2007. It means that ICICI

bank has generated more loan assets from their deposits compared to other two banks.

INTEREST EXPENSES TO TOTAL EXPENSES (in %)

From the above graph it can be said that interest expense to total expense in SBI was increased

from 2007 to 2008 but it decreases in rest of the year. In case of ICICI the interest expense was

decreased from 2007 to 2009 and again it increased in 2010 and 2011. Similarly with BOB it

7 3 . 4 4

7 7 . 5 1

7 4 . 9 7

7 5 . 9 6

7 9 . 9

9 1 . 5 7

8 8 . 5 4

8 4 . 9 7

9 2 . 3 0

9 9 . 9 8

6 5 . 6 7

6 8 . 7 2

7 2 . 7 8

7 3 . 6

7 3 . 8 7

2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1

CREDIT DEPOSIT RATIO

SBI ICICI BOB

6 1 . 8 5

6 3 . 2 7

6 1 . 6 2

5 4 . 9 3

5 7 . 9

6 6 . 1 4

6 4 . 1 0

6 0 . 7 1

6 6 . 0 0

6 4 . 0 0

6 2 . 1 4

5 9 . 2 3

6 1 . 3

6 5 . 4

5 9 . 4

2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1

INTER EST EXPEN SE TO TOTAL

EXPENSE

SBI ICICI BOB



shows an increasing and decreasing trend. From all the three banks it seems that interest expense

was higher in ICICI bank and therefore people prefer ICICI bank for their savings.

INTEREST INCOME TO TOTAL INCOME (in %)

From the above graph it can be said that in case of SBI the interest income to total income was

decreased from 2007 to 2009 and again it increased in 2010 and 2011. In case of ICICI and BOB

it shows an increasing and decreasing trend. From all the three banks it seems that interest

income to total income was highest in SBI compared to other banks which means people prefer

SBI to take loans and advances.

NET PROFIT MARGIN (in %)

Year SBI ICICI BOB

2007 10.12 21.31 9.69

2008 11.65 18.43 10.35

2009 12.03 13.53 12.48

2010 10.54 13.50 15.68

2011 8.55 12.09 17.18

MEAN 10.578 15.77074 13.076

From the above table it can be said that net profit margin in case of SBI and ICICI was

continuously decreasing from 2007 to 2011 and in case of BOB it is continuously increasing

which means BOB has shown more operational efficiency compared to other two banks.

8 4

8 3 . 4

8 2 . 5 8

8 5

8 8 . 1 2

7 7 . 6 1

7 9 . 0 0

7 7 . 9 0

7 8 . 5 1

8 0 . 9 2

7 8

8 2 . 5 6

7 8 . 9

8 6 . 5

8 7

2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1

INTERE ST INCOME TO TOTAL

INCOME

SBI ICICI BOB



CONCLUSION

All the three banks are performing well in India. Hence on the basis of the above study or

analysis customer has more trust on public sector banks than private sector banks.

References

1) www.moneycontrol.com

2) http://money.rediff.com/companies/bank-of-baroda/14030010/ratio

3) For interpretation of ratios http://www.slideshare.net/Dharan178/ratio-analysis-

2970642.

4) For definition of ratios I have referred to a book Financial Accounting by M Y

KHAN.

5)

For collecting data regarding stock turnover, debtors turnover and creditors

turnover

http://www.gurufocus.com/term/Total%20Assets/IBN/Total%2BAssets/ICICI%2B

Bank%2BLtd.

http://www.moneycontrol.com/


http://money.rediff.com/companies/bank-of-baroda/14030010/ratio


http://www.slideshare.net/Dharan178/ratio-analysis-2970642




http://www.gurufocus.com/term/Total%20Assets/IBN/Total%2BAssets/ICICI%2BBank%2BLtd









aasignment 1 afm

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