comparative study of financial report of three indian banks by rafik kaat
DESCRIPTION
Comparison of SBI, ICICI and PNBTRANSCRIPT
1
A
PROJECT REPORT
ON
“COMPARATIVE STUDY OF FINANCIAL REPORT
OF
TOP THREE BANKS OF INDIA”
SUBMITTED TO TILAK MAHARASHTRA UNIVERSITY
IN PARTIAL FULFILLMENT OF 2 YEARS FULL TIME COURSE
MASTER OF BUSINESS ADMINISTRATION
(MBA)
Submitted By:
KAAT RAFIK O.
(Batch 2008-09)
Guided By:
Prof.R.GANESHAN
MAHARASHTRA COSMOPOLITAN EDUCATION SOCIETY‟S
PAI INTERNATIONAL CENTRE FOR MANAGEMENT EXCELLENCE
CAMP- PUNE-411001
2
CERTIFICATE
This is certify that KAAT RAFIK OSMAN BHAI student of PAI international centre for
management excellence, Maharashtra Cosmopolitan Education society, Pune has completed his
field work report on the topic of COMPARATIVE STUDY OF FINANCIAL REPORT OF TOP
THREE BANKS OF INDIA and has submitted the field work report in partial fulfillment of MBA
of the college for the academic year 2008-2009.
He has worked under our guidance and direction. The said report is based on bonafide
information.
Project guide name Prof. R Ganesan
Designation Director
3
PAI INTERNATIONAL CENTRE
FOR
MANAGEMENT EXCELLENCE
Maharashtra Cosmopolitan Education Society
DECLARATION
I hereby declare that project titled “COMPARATIVE STUDY OF FINANCIAL REPORT
OF TOP THREE BANKS OF INDIA” is an original piece of research work carried out by me
under the guidance and supervision of prof. R Ganesan. The information has been collected from
genuine &authentic sources. The work has been submitted in partial fulfillment of the requirement
of MBA to our college.
Place: Signature:
Date: Name of the students:
4
ACKNOWLEDGEMENT
“Perseverance inspiration and motivation have always played a key role in success of any
venture”. I hereby express my deep sense of gratitude to all the personalities involved directly and
indirectly in my project work.
I would thank to God for their blessing and my parents also for their valuable suggestion
and support in my project report.
I would also like to thank our friends and those who have helped us during this project
directly or indirectly.
Last but not the least; I would like to express my sincere gratitude to all the faculty members
who have taught me in my entire MBA curriculum and our Director Prof.R.GANESAN who has
always been a source of guidance, inspiration and motivation. However, I accept the sole
responsibility for any possible errors of omission and would be extremely grateful to the readers of
this project report if they bring such mistakes to my notice.
KAAT RAFIK O.
5
INDEX
1. Introduction
7
2. Bank Profile
1
0
i. SBI
1
1
ii. ICICI
1
4
iii. PNB
1
7
3. Products & Services
2
1
4. Balance Sheet
3
6
5. Ratio Analysis
4
0
6. Objectives
6
2
7. Importance
6
4
8. Advantages, Limitations
Sr.No
Page
No
Subjects
6
6
6
9. Conclusion
6
9
10
.
Bibliography
7
1
INTRODUCTION
7
INRTODUCTION
After preparation of the financial statements, one may be interested in knowing the position
of an enterprise from different points of view. This can be done by analyzing the financial
statement with the help of different tools of analysis such as ratio analysis, funds flow
analysis, cash flow analysis, comparative statement analysis, etc. Here I have done financial
analysis by ratios. In this process, a meaningful relationship is established between two or
more accounting figures for comparison.
Financial ratios are widely used for modeling purposes both by practitioners and
researchers. The firm involves many interested parties, like the owners, management,
personnel, customers, suppliers, competitors, regulatory agencies, and academics, each
having their views in applying financial statement analysis in their evaluations. Practitioners
use financial ratios, for instance, to forecast the future success of companies, while the
researchers' main interest has been to develop models exploiting these ratios. Many distinct
areas of research involving financial ratios can be discerned. Historically one can observe
several major themes in the financial analysis literature. There is overlapping in the
observable themes, and they do not necessarily coincide with what theoretically might be
the best founded areas.
Financial statements are those statements which provide information about profitability and
financial position of a business. It includes two statements, i.e., profit & loss a/c or income
statement and balance sheet or position statement.
The income statement presents the summary of the income earned and the expenses incurred
during a financial year. Position statement presents the financial position of the business at
the end of the year.
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Before understanding the meaning of analysis of financial statements, it is necessary to
understand the meaning of „analysis‟ and „financial statements‟.
Analysis means establishing a meaningful relationship between various items of the two
financial statements with each other in such a way that a conclusion is drawn. By financial
statements, we mean two statements- (1) profit & loss a/c (2) balance sheet. These are
prepared at the end of a given period of time. They are indicators of profitability and
financial soundness of the business concern.
Thus, analysis of financial statements means establishing meaningful relationship between
various items of the two financial statements, i.e., income statement and position statement
Parties interested in analysis of financial statements
Analysis of financial statement has become very significant due to widespread interest of
various parties in the financial result of a business unit. The various persons interested in the
analysis of financial statements are:-
Short- term creditors
They are interested in knowing whether the amounts owing to them will be paid as and
when fall due for payment or not.
Long –term creditors
They are interested in knowing whether the principal amount and interest thereon will be
paid on time or not.
Shareholders
They are interested in profitability, return and capital appreciation.
Management
The management is interested in the financial position and performance of the enterprise as
a whole and of its various divisions.
Trade unions
They are interested in financial statements for negotiating the wages or salaries or bonus
agreement with management.
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Taxation authorities
These authorities are interested in financial statements for determining the tax liability.
Researchers
They are interested in the financial statements in undertaking research in business affairs
and practices.
Employees
They are interested as it enables them to justify their demands for bonus and increase in
remuneration.
You have seen that different parties are interested in the results reported in the financial
statements. These results are reported by analyzing financial statements through the use of ratio
analysis.
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11
BANK PROFILE
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1. STATE BANK OF INDIA
Type-
Public (BSE, NSE:SBI) &
(LSE:SBID)
Founded- Calcutta, 1806 (as Bank of Calcutta)
Headquarters-
Corporate Centre,
Madam Cama Road,
Mumbai 400 021 India
Key people- Om Prakash Bhatt, Chairman
State Bank of India (SBI) (LSE: SBID) is the largest bank in India. It is also, measured by
the number of branch offices and employees, the second largest bank in the world. The bank traces
its ancestry back through the Imperial Bank of India to the founding in 1806 of the Bank of
Calcutta, making it the oldest commercial bank in the Indian Subcontinent. The Government of
India nationalized the Imperial Bank of India in 1955, with the Reserve Bank of India taking a 60%
stake, and renamed it the State Bank of India. In 2008, the Government took over the stake held by
the Reserve Bank of India.
SBI provides a range of banking products through its vast network in India and overseas,
including products aimed at NRIs. With an asset base of $126 billion and its reach, it is a regional
banking behemoth. SBI has laid emphasis on reducing the huge manpower through Golden
handshake schemes and computerizing its operations.
The State Bank Group, with over 16000 branches, has the largest branch network in India. It
has a market share among Indian commercial banks of about 20% in deposits and advances.
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International presence
Regional office of the State Bank of India (SBI), India's largest bank, in Mumbai. The
government of India is the largest shareholder in SBI.
The bank has 52 branches, agencies or offices in 32 countries. It has branches of the parent
in Colombo, Dhakka, Frankfurt, Hong Kong, Johannesburg, London and environs, Los Angeles,
Male in the Maldives, Muscat, New York, Osaka, Sydney, and Tokyo. It has offshore banking units
in the Bahamas, Bahrain, and Singapore, and representative offices in Bhutan and Cape Town.
SBI operates several foreign subsidiaries or affiliates. In 1990 it established an offshore
bank, State Bank of India (Mauritius). It has two subsidiaries in North America, State Bank of India
(California), and State Bank of India (Canada). In 1982, the bank established its California
subsidiary, which now has seven branches. The Canadian subsidiary was also established in 1982
and also has seven branches, four in the greater Toronto area, and three in British Columbia. In
Nigeria, it operates as INMB Bank. This bank was established in 1981 as the Indo-Nigerian
Merchant Bank and received permission in 2002 to commence retail banking. It now has five
branches in Nigeria. In Nepal SBI owns 50% of Nepal SBI Bank, which has branches throughout
the country. In Moscow SBI owns 60% of Commercial Bank of India, with Canara Bank owning
the rest. In Indonesia it owns 76% of PT Bank Indo Monex. State Bank of India already has a
branch in Shanghai and plans to open one up in Tianjin.
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BOARD OF DIRECTORS
1 Shri O.P. Bhatt(Chairman)
2 Shri S.K. Bhattacharyya(MD & CC&RO)
3 Shri Suman Kumar Bery
4 Dr. Ashok Jhunjhunwala
5 Shri Dileep C. Choksi
6 Shri S. Venkatachalam
7 Dr. Deva Nand Balodhi
8 Prof. Mohd. Salahuddin Ansari
9 Dr.(Mrs.) Vasantha Bharucha
10 Shri Arun Ramanathan
11 Smt. Shyamala Gopinath
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2. INDUSTRIAL CREDIT & INVESTMENT CORPORATION
OF INDIA (ICICI)
ICICI was formed in 1955 at the initiative of the World Bank, the government of India and
Indian industry representatives. The principal objective was to create a development financial
institution for providing medium-term and long-term project financing to Indian businesses. Until
the late 1980s, ICICI primarily focused its activities on project finance, providing long-term funds
to a variety of industrial projects. With the liberalization of the financial sector in India in the
1990s, ICICI transformed its business from a development financial institution offering only project
finance to a diversified financial services provider that, along with its subsidiaries and other group
companies, offered a wide variety of products and services. As India‟s economy became more
market-oriented and integrated with the world economy, ICICI capitalized on the new opportunities
to provide a wider range of financial products and services to a broader spectrum of clients.
ICICI Bank was incorporated in 1994 as a part of the ICICI group. ICICI Bank‟s initial
equity capital was contributed 75.0% by ICICI and 25.0% by SCICI Limited, a diversified finance
and shipping finance lender of which ICICI owned 19.9% at December 1996. Pursuant to the
merger of SCICI into ICICI, ICICI Bank became a wholly-owned subsidiary of ICICI. ICICI‟s
holding in ICICI Bank reduced due to additional capital raising by ICICI Bank and sale of shares by
ICICI, pursuant to the requirement stipulated by the Reserve Bank of India that ICICI dilute its
ownership of ICICI Bank. Effective March 10, 2001, ICICI Bank acquired Bank of Madura, an old
private sector bank, in an all-stock merger.
The issue of universal banking, which in the Indian context means the conversion of long-
term lending institutions such as ICICI into commercial banks, had been discussed at length over
the past several years. Conversion into a bank offered ICICI the ability to accept low-cost demand
deposits and offer a wider range of products and services, and greater opportunities for earning non-
fund based income in the form of banking fees and commissions. ICICI Bank also considered
various strategic alternatives in the context of the emerging competitive scenario in the Indian
banking industry. ICICI Bank identified a large capital base and size and scale of operations as key
success factors in the Indian banking industry. In view of the benefits of transformation into a bank
and the Reserve Bank of India‟s pronouncements on universal banking, ICICI and ICICI Bank
decided to merge.
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At the time of the merger, both ICICI Bank and ICICI were publicly listed in India and on
the New York Stock Exchange. The amalgamation was approved by each of the boards of directors
of ICICI, ICICI Personal Financial Services, ICICI Capital Services and ICICI Bank at their
respective board meetings held on October 25, 2001. The amalgamation was approved by ICICI
Bank‟s and ICICI‟s shareholders at their extraordinary general meetings held on January 25, 2002
and January 30, 2002, respectively. The amalgamation was sanctioned by the High Court of Gujarat
at Ahmedabad on March 7, 2002 and by the High Court of Judicature at Bombay on April 11, 2002.
The amalgamation became effective on May 3, 2002. The date of the amalgamation for accounting
purposes under Indian GAAP was March 30, 2002.
The Sangli Bank Limited, an unlisted private sector bank merged with ICICI Bank with
effect from April 19, 2007. On the date of acquisition, Sangli Bank had over 190 branches and
extension counters, total assets of Rs. 17.6billion (US$ 440 million), total deposits of Rs. 13.2
billion (US$ 330 million), total loans of Rs. 2.0 billion (US$ 50million).
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BOARD OF DIRECTORS
1.
N. Vaghul, Chairman
2.
Sridar Iyengar
3.
L. N. Mittal
4.
Narendra Murkumbi
5.
Anupam Puri
6.
Arun Ramanathan
7.
M. K. Sharma
8.
P. M. Sinha
9.
Marti G. Subrahmanyam
10.
T. S. Vijayan
11.
V. Prem Watsa
12.
K. V. Kamath, Managing Director & CEO
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3. PUNJAB NATIONAL BANK (PNB)
Punjab National Bank (PNB) was registered on May 19, 1894 under the Indian Companies
Act with its office in Anarkali Bazaar Lahore. The Bank, founded by Dyal Singh Majithia and Lala
Harkishen Lal, is the second largest government-owned commercial bank in India with about 4,500
branches across 764 cities. It serves over 37 million customers. The bank has been ranked 248th
biggest bank in the world by Bankers Almanac, London. Total Business of the bank for financial
year 2007 is estimated to be approximately US$60 billion. It has a banking subsidiary in the UK, as
well as branches in Hong Kong and Kabul, and representative offices in Almaty, Shanghai, and
Dubai.
We are a leading public sector commercial bank in India, offering banking products and
services to corporate and commercial, retail and agricultural customers. Our banking operations for
corporate and commercial customers include a range of products and services for large
corporations, as well as small and middle market businesses and government entities. We offer a
wide range of retail credit products including housing loans, personal loans and automobile loans.
We cater to the financing needs of the agricultural sector and have created innovative financing
products for farmers. We also provide significant financing to other priority sectors including small
scale industries. Through our treasury operations, we manage our balance sheet, including the
maintenance of required regulatory reserves, and seek to maximize profits from our trading
portfolio by taking advantage of market opportunities.
Our revenue, which is referred to herein and in our financial statements as our income,
consists of interest income and other income. Interest income consists of interest on advances
(including the discount on bills discounted) and income on investments. Income on investments
consists of interest and dividends from securities and our other investments and interest from
interbank loan and cash deposits we keep with the RBI. Our securities portfolio consists primarily
of Government of India and state government securities. We meet our statutory liquidity reserve
ratio requirements through investments in these and other approved securities. We also hold
debentures and bonds issued by public sector undertakings and other corporations, commercial
paper, equity shares and mutual fund units.
Our interest expense consists of our interest on deposits as well as borrowings. Our interest
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Income and expense are affected by fluctuations in interest rates as well as the volume of activity.
Our interest expense is also affected by the extent to which we fund our activities with low interest
or non-interest deposits, and the extent to which we rely on borrowings.
Our non-interest expense consists principally of operating expenses such as expenses for
wages and employee benefits, rent paid on premises, insurance, postage and telecommunications
expenses, printing and stationery, depreciation on fixed assets, other administrative and other
expenses. Provisioning for non-performing assets, depreciation on investments and income tax is
included in provisions and contingencies
We use a variety of indicators to measure our performance. These indicators are presented in
tabular form in the section titled “Selected Statistical Information” on page [·]. Our net interest
income represents our total interest income (on advances and investments) net of total interest
expense (on deposits and borrowings). Net interest margin represents the ratio of net interest
income to the monthly average of total interest earning assets. Our spread represents the difference
between the yield on the monthly average of interest earning assets and the cost of the monthly
average of interest bearing liabilities. We calculate average yield on the monthly average of
advances and average yield on the monthly average of investments, as well as the average cost of
the monthly average of deposits and average cost of the monthly average of borrowings. Our cost of
funds is the weighted average of the average cost of the monthly average of interest bearing
liabilities. For purposes of these averages and ratios only, the interest cost of the unsecured
subordinated bonds that we issue for Tier 2 capital adequacy purposes (“Tier 2 bonds”) is included
in our cost of interest bearing liabilities. In our financial statements, these bonds are accounted for
as “other liabilities and provisions” and their interest cost is accounted for under other interest
expenses.
Since 1969, when we became a public sector bank, we have managed to continue to grow
our business while maintaining a strong balance sheet. As of September 30, 2004, our total deposits
represented 85.9% of our total liabilities. On average, interest free demand deposits and low interest
savings deposits represented 43.8% of these deposits in the first six months of fiscal 2005.These
low-cost deposits led to an average cost of funds excluding equity for the first six months of fiscal
2005 of 4.7%. As of September 30, 2004, our gross and net non-performing assets constituted
7.65% and 0.30% of our gross and net advances, respectively. In fiscal 2004 our total income was
Rs. 96.5 billion and our net profit was Rs. 11.1 billion before adjustment and Rs. 10.6billion after
adjustment as part of the restatement of our financial statements for this Issue. In the first six
months of fiscal 2005 our total income was Rs. 51.9 billion and our net profit was Rs. 7.4billion.
Between fiscal 2002 and 2004, our total income grew at a compound annual rate of12.5%, our
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unadjusted and adjusted net profit grew at a compound annual rate of 40.4% and37.4%,
respectively, and our total deposits and total advances grew at a compound annual growth rate of
17.1% and 17.2%, respectively.
We intend to maintain our position as a cost efficient and customer friendly institution that
Provides comprehensive financial and related services. We seek to achieve this by continuing to
adopt technology which will integrate our extensive branch network. We intend to grow by cross
selling various financial products and services to our customers and by expanding geographically in
India and internationally. We are committed to excellence in serving the public and also
maintaining high standards of corporate responsibility. In line with our philosophy of aiding India‟s
development we have opened branches in many rural areas.
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BOARD OF DIRECTORS
1.
Dr K.C Chakrabarty
2.
Smt. Ravneet Kaur
3.
Shri L.M.Fonseca
4.
Shri. S.R.Khurana
5.
Shri P.K. Nayar
6.
Shri Mohan Lal Bagga
7.
Shri Mushtaq A Antulay
8.
Shri Gautam P. Khandelwal
9.
Shri Vinod Kumar Mishra
10.
Shri Tribhuwan Nath Chaturvedi
11.
Shri G R Sundaravadivel
12.
Shri Devinder Kumar Singla
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PRODUCTS
&
SERVICES
23
1. SBI BANKING
Personal Banking
Agricultural & Rural Banking
NRI Services
International Banking
Corporate Banking
Services
Govt. Business
SME
Personal Banking
Deposit Schemes
Personal Finance
Corp Salary
Package
Services
Agricultural
Agricultural
Banking
Micro Credit
Regional Rural
Banks
NRI Services
Type of Accounts
International
Trade Finance
Merchant Banking
Correspondent
Banking
Corporate Banking
Corporate Accounts
Mid Corporate
Group
Project Finance
Products &
Services
Services
Internet Banking
Mobile Banking
ATM Services
Govt.
Business
Govt.
Accounts.
SME
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Demat Services
PERSONALBANKING
Public
Provident
Fund.
SBI Term Deposits SBI Loan For Pensioners
SBI Recurring Deposits Loan Against Mortgage Of Property
SBI Housing Loan Loan Against Shares & Debentures
SBI Car Loan Rent Plus Scheme
SBI Educational Loan Medi-Plus Scheme
SBI Personal Loan Rates Of Interest
AGRICULTURA
L
State Bank of India Caters to the needs of agriculturists and landless agricultural labourers
through a network of 6600 rural and semi-urban branches. There are 972 specialized branches
which have been set up in different parts of the country exclusively for the development of
agriculture through credit deployment .These branches include 427 Agricultural Development
Branches (ADBs) and 547 branches with Development Banking Department (DBDs) which cater to
agriculturists and 2 Agricultural Business Branches at Chennai and Hyderabad catering to the needs
of hi tech commercial agricultural projects.
Our branches have covered a whole gamut of agricultural activities like crop production ,
horticulture , plantation crops, farm mechanization, land development and reclamation, digging of
wells, tube wells and irrigation projects, forestry, construction of cold storages and godowns,
processing of agri-products, finance to agri-input dealers, allied activities like dairy , fisheries,
poultry, sheep-goat, piggery and rearing of silk worms.
The branch also has farmer's meet in villages to explain to farmers about various schemes
offered by the bank. To give special focus to agriculture lending Bank has set up agri business unit.
Bank has also agri specialists in various disciplines to handle projects/ guide farmers in their agri
25
ventures. Advances are given for very small activity covering poorest of the poor to hi-tech
activities involving large fund outlays.
We are the leaders in agri finance in the country with a portfolio of Rs. 18,000 cars in agri
advances to around 50 lac farmers.
NRI SERVICES
World Class Services from a Bank you can Trust Indians everywhere should become
enlightened International citizens. Wherever you are, whichever country you live, enrich that
nation, not only in financial terms, but also with your sweat knowledge and dignity since that is the
tradition of the country from where you came. At the same time, remember we have a common
umbilical connectivity to our motherland, India.
INTERNATIONAL BANKING
International banking services of State Bank of India are delivered for the benefit of its
Indian customers, non-resident Indians, foreign entities and banks through a network of 84
offices/branches in 32 countries as on 31 March 2008, spread over all time zones. The network is
augmented by a cluster of Overseas and NRI branches within India and correspondent links with
over 522 banks, the world over. Bank's Joint Ventures and Subsidiaries abroad further underline the
Bank's international presence.
The services include corporate lending, loan syndications, merchant banking, handling
Letters of Credit and Guarantees, short-term financing, collection of clean and documentary credits
and remittances.
The Bank has carved a niche for itself in the Euro land with branches located in Antwerp, Paris and
Frankfurt. Indian banks and corporates are able to avail single-window Euro services from the
Bank's Frankfurt branch.
CORPORATE BANKING
SBI is a one shop providing financial products / services of a wide range for large, medium and
small customers both domestic and international.
26
Working Capital Financing
Assistance extended both as Fund based and Non-Fund based facilities to Corporate,
Partnership firms, Proprietary concerns
Working Capital finance extended to all segments of industries and services sector
such as IT Term Loans
to support capital expenditures for setting up new ventures as also for expansion,
renovation etc.
Deferred Payment Guarantees
to support purchase of capital equipments.
Corporate Loans
For a variety of business related purposes to corporate.
Export Credit
To Corporate / Non Corporate
Strategic Business Units
(i) Corporate Accounts Group (CAG)
(ii)Project Finance
(iii) Lease Finance
An exclusive unit providing one s shopping to Corporate
A dedicated set up specialised in financing of infrastructure and other large projects
Exclusive set up for handling large ticket leases.
Pricing
SBI's Prime Lending Rates (PLR) is among the lowest
Presently Bank has two PLR's
SBAR for loans payable on demand and up to one year
for loans payable beyond one year.
SERVICES
Listed on the left are Services, SBI offers to its customers.
DOMESTIC TREASURY
SBI VISHWA YATRA FOREIGN TRAVEL CARD
BROKING SERVICES
REVISED SERVICE CHARGES
ATM SERVICES
27
INTERNET BANKING
E-PAY
E-RAIL
RBIEFT
SAFE DEPOSIT LOCKER
GIFT CHEQUES
GOVERNMENT BUSINESS
State Bank of India's linkage with Government business is widespread. No wonder that out
of 9315 branches in India, about 7000 branches are conducting Government Business. The large
network of our branches provides easy access to the common man to deposit the
following Government dues and pension payments.
SME (small scale industries)
State Bank of India has been playing a vital role in the development of small scale industries
since 1956.The Bank has financed over 8 lakhs SSI units in the country. It has 55 specialised SSI
branches, 99 branches in industrial estates and more than 400 branches with SIB divisions.
The Bank finances for Small Business activities which are of special significance to a large
number of people as many of these activities can be started with relatively lower investment and
with no special skills on the part of the entrepreneurs.
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2. ICICI BANKING
PERSONAL
BANKING
Safety, Flexibility,
Liquidity, Returns!
ICICI Bank offers a wide
Variety of Deposit
Products to suit your
banking requirements.
Simplified Documentation,
Quick Processing, Hassle
Free!!!
Exclusive, Economical,
Expert Advice!!!
ICICI Bank's power-packed,
feature-rich investment
options for meeting all your
investment needs.
29
World Class Service and
Acceptance!!!
A truly world class service as
ICICI Bank cards have both
national and international
acceptance.
Secure, Reliable,
Convenient!!!
Convenience has always
been synonymous with
ICICI Bank and keeping in
line we offer the facility of
buying Insurance policies
online.
30
INTERNATIONAL BANKING
In 2001, we identified international banking as a key opportunity, aiming to cater to the
cross-border needs of clients and leveraging our domestic banking strengths to offer products
internationally. We have made significant progress in the international business since we set up our
first overseas branch in Singapore in 2003. ICICI Bank currently has subsidiaries in the United
Kingdom, Russia and Canada, branches in Singapore, Bahrain, Hong Kong, Sri Lanka, Dubai
International Finance Centre, Qatar Financial Centre and the United States and representative
offices in the United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and
Indonesia. The Bank‟s wholly owned subsidiary ICICI Bank UK PLC has nine branches in the
United Kingdom and a branch each in Belgium and Germany. ICICI Bank Canada has eight
branches including three in Toronto. ICICI Bank Eurasia LLC has six branches including three
branches in Moscow and one in St. Petersburg.
Banking at your fingertips!!!
Why be inline when you can
be online for paying your
utility bills, mobile bills,
prepaid mobile recharge,
Shopping, Credit card,
insurance premium and lots
more.
31
Our international strategy is focused on building a retail deposit franchise, diverse wholesale
funding sources and strong syndication capabilities to support our corporate and investment
banking business; achieving the status of a non-resident Indian (NRI) community bank in key
markets; and expanding private banking operations for India-centric asset classes. During fiscal
2008, we focused on deepening our presence in existing overseas locations and expanding our
operations in key markets. In line with our strategy to establish a presence in large markets with
significant savings pools, we entered into Germany through a branch established by ICICI Bank UK
PLC. We have been able to successfully leverage our technology advantage to create a growing
international deposit base. Total deposits of ICICI Bank UK PLC and ICICI Bank Canada increased
by 76.0% from Rs. 191.28billion at March 31, 2007 to Rs. 335.86 billion at March 31, 2008. We
also received approval for and commenced branch operations in the United States.
We have established a strong franchise among NRIs by offering a comprehensive product
suite, technology enabled access, a wide distribution network in India and alliances with local banks
in various markets. Currently, we have over 500,000 NRI customers. We have undertaken
significant brand-building initiatives in international markets and have emerged as a well-
recognised financial services brand for NRIs. We continue to maintain a market share of 25% in
inward remittances to India. During fiscal 2008, we launched innovative products like instant
money transfer and enhanced our focus on customer relationship management and process
automation. Additionally, we also undertook the development of low cost remittance products in
non-India geographies with correspondent tie-ups for disbursements in over 100 such geographies.
Through our international private banking services, we offer various products to mass
affluent and high net worth clients based on their financial needs and risk appetite. The offerings
range from simple deposits and loans to more sophisticated structured products, private equity and
products giving exposure to the real estate sector in India.
CORPORATE BANKING
Our corporate banking strategy is based on providing comprehensive and customised
financial solutions to our corporate customers. We offer a complete range of corporate banking
products including rupee and foreign currency debt, working capital credit, structured financing,
syndication and transaction banking products and services.
32
Our corporate and investment banking franchise is built around a core relationship team that
has strong relationships with almost all of the country‟s corporate houses. The relationship team is
product agnostic and is responsible for managing banking relationships with clients. We have also
put in place product specific teams with a view to focus on specific areas of expertise in designing
financial solutions for clients. Through our relationship teams working in tandem with product
solution teams, we have deepened our client relationships across our product portfolio or esulting in
significant growth in income and wallet share among all our top corporate clients, as compared to
the previous year.
We have created an integrated Global Investment Banking Group, which is responsible for
working with the relationship team in India and our international subsidiaries and branches, for
origination, structuring and execution of investment banking mandates on a global basis. We have
also restructured our delivery team for transaction banking products by creating dedicated sales
teams for trade services and transaction banking products. This has been done with the intent to
increase our market share from transaction banking products, which will translate into recurring fee
income for the Bank. We have also focused on increasing market share in trade finance by
leveraging and further strengthening correspondent banking relationships.
SME BANKING
During fiscal 2008, our small enterprises customer base increased by 26% to about 1.1
million accounts. We have introduced our service offerings in over 400 new branches, increasing
our coverage to over 1,000 branches. During the year, we have focused on product specialisation
including investment banking for SMEs. We have continued to focus on shaping the small and
medium enterprises sphere in India through initiatives such as the Emerging India Awards”, the
SME CEO Knowledge Series - a platform to mentor and assist SME entrepreneurs, and the “SME
Dialogue” - a weekly feature in a leading financial newspaper sharing SME best practices and
success stories. During the year, we have launched several new products and services like the SME
toolkit – an online business and advisory resource for SMEs.
33
RURAL BANKING AND AGRI-BUSINESS
We believe the rural economy has high growth potential and offers large credit growth
opportunities. Towards this end, our suite of products and services is targeted to address the needs
of both the farm and non-farm sectors. Our retail product suite encompasses loans for crop
production, purchase of farm equipment; commodity based finance as well as various savings,
investment and insurance products. We also offer micro-finance and jewel loans. We have also
focused on enhancing credit to farmers by leveraging on corporate partnerships. For example, we
have partnered with various dairies to provide financing to farmers for purchase of milch cattle. We
also provide credit and banking services to SMEs active in the agricultural value chain. To enhance
our service quality and product delivery capabilities we have developed a large network of rural
branches which is further augmented by non-branch channels.
Rural banking in India is still at a nascent stage and the deployment of technology channels
and modern banking methods for rural lending continues to be an evolving process. In line with our
learning from our rural banking operations, we undertook a comprehensive review of and realigned
our channel architecture, credit underwriting processes and account management systems. We have
put in place a robust risk management structure to Mitigate and manage credit, operational and
fraud risks. Through this, we aim to create a strong foundation for scaling up of our rural business.
34
3.PNB BANKING
CORPORATE AND COMMERCIAL SECTOR LENDING ACTIVITIES
Term loans
Cash credit and other working capital facilities
Bill discounting
Export credits
Other credit and financing products
SERVICES TO NON-RESIDENT INDIANS
We provide personal financial services for NRIs. We have established a branch in Kabul and
Representative offices in other cities overseas in order to facilitate services being provided to NRIs.
We offer foreign currency accounts to NRIs under our Foreign Currency Non-Resident Scheme and
rupee accounts for NRIs under our Non-Resident External and Non-Resident Ordinary Schemes.
We have introduced our Global Foreign Currency Scheme and Global Rupee Deposit Scheme,
which offer benefits and concessions to NRIs and their relatives provided a minimum balance of
Rs. 250,000 or US$5,000 is maintained in the account. We also offer various products for
facilitating remittances from NRIs to India. We recently entered into an arrangement to facilitate
money transfers through Western Union, which is a global leader in money transfer services. We
have also entered into an agreement with Times Online Money Ltd., a Times of India group
company, with a view to establishing an internet based international remittance service. In addition,
we also provide housing loans to NRIs.
RETAIL BANKING
In retail banking, our principal competitors are the large public sector banks, as well as
existing and new private sector banks and foreign banks in the case of retail loan products. The
other public sector banks have large deposit bases and large branch networks, including the State
Bank of India which has 13,593 branches. Private sector and foreign banks compete principally by
offering a wider range of products as well as greater technological sophistication in some cases.
35
Foreign banks, while having a small market penetration overall, has a significant presence among
non-resident Indians and also competes for non-branch based products such as auto loans and credit
cards.
In particular, we face significant competition primarily from private sector banks and to a
lesser degree from other public sector banks, in the housing, auto and personal loan segments. In
mutual fund sales and other investment related products, our principal competitors are brokers,
foreign banks and new private sector banks.
PRODUCTS AND SERVICES FOR AGRICULTURE CUSTOMERS
Agriculture contributes 22% to India‟s GDP and supports approximately two-thirds of
India‟s population. In fiscal 2004, we surpassed the stated national goal that banks should provide at
least18% of their net bank credit (which is gross credit minus Foreign Currency Non-Resident Bank
deposits) to this segment, for which we received an award from India‟s Finance Minister. Our
average credit growth rate in this segment has been 32.2% over the last four years. As of the last
reporting Friday of September 2004, agricultural loans constituted 18.8% of our net bank credit.
SMALL SCALE INDUSTRIES
We provide financing to “small scale industries” or “SSIs”. SSIs are defined as
manufacturing, processing and servicing businesses with up to Rs. 50 million invested in plant and
machinery for certain industries such as hosiery, hand tools, drugs and pharmaceuticals and
stationery items and up to Rs. 10 million invested in plant and machinery for other small scale
industries. SSIs are also considered a priority sector for directed lending purposes. See the section
titled “Business-Directed Lending” below. As of the last reporting Friday in September 2004, SSI
loans constituted 11.3% of our net bank credit. As of the last reporting Friday in September, 2004
we had an outstanding loan portfolio of Rs. 57.3 billion in this segment compared to Rs. 48.5 billion
as of the last reporting Friday in September 2003, representing growth of approximately 18.1%.We
have also received awards and recognition from the Government of India relating to our efforts in
financing SSI businesses.
36
BALANCE
SHEET
37
1. STATE BANK OF INDIA
BALANCE SHEET
AS ON 31-MARCH-2008
Assets Rs(mn) %BT
Net Own Assets 33291.42 0.46
Net Lease Assets(After Lease Adj A/c) 443.39 0.01
Investment 1895012.71 26.26
Advances 4167681.96 57.76
Cash & Money at call 674663.35 9.35
Other Current Assets 443749.84 6.15
Balance Sheet Total(BT) 7215263.12 100.00
Liabilities Rs(mn) %BT
Equity Share Capital 6314.70 0.09
Reserves 484011.91 6.71
Deposits 5374039.41 74.48
Borrowings 517274.11 7.17
Other Cash liab/prov. 833622.98 11.55
Balance Sheet Total(BT) 7215263.12 100.00
Non Performing Assets(NPA) % 1.87 -
Capital Adequacy Ratio(CAR) % 13.47 -
38
2. ICICI
BALANCE SHEET
AS ON 31-MARCH-2008
Assets Rs(mn) %BT
Net Own Assets 33118.26 0.83
Net Lease Assets(After Lease Adj A/c) 7970.72 0.20
Investment 1114543.42 27.88
Advances 2256160.83 56.43
Cash & Money at call 380411.29 9.52
Other Current Assets 205746.26 5.15
Balance Sheet Total(BT) 3997950.76 100.00
Liabilities Rs(mn) %BT
Equity Share Capital 11126.79 0.28
Reserves 453575.31 11.35
Deposits 2444310.50 61.14
Borrowings 656484.34 16.42
Other Cash liab/prov. 432453.83 10.73
Balance Sheet Total(BT) 3997950.76 100.00
Non Performing Assets(NPA) % 1.49 -
Capital Adequacy Ratio(CAR) % 14.92 -
39
3. PUNJAB NATIONAL BANK
BALANCE SHEET
AS ON 31-MARCH-2008
Assets Rs(mn) %BT
Net Own Assets 23149.03 1.17
Net Lease Assets(After Lease Adj A/c) 6.19 0.00
Investment 539917.05 27.34
Advances 1195015.66 60.51
Cash & Money at call 188307.24 9.54
Other Current Assets 41525.21 2.10
Balance Sheet Total(BT) 1974846.65 100.00
Liabilities Rs(mn) %BT
Equity Share Capital 3153.03 0.16
Reserves 104673.49 5.30
Deposits 1664572.26 84.29
Borrowings 54465.60 2.76
Other Cash liab/prov. 147982.29 7.49
Balance Sheet Total(BT) 1974846.65 100.00
Non Performing Assets(NPA) % 0.64 -
Capital Adequacy Ratio(CAR) % 12.96 -
40
RATIO
ANALYSIS
41
PROFITABILITY RATIO
A class of financial metrics that are used to assess a business's ability to generate earnings as
compared to its expenses and other relevant costs incurred during a specific period of time. For
most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a
previous period is indicative that the company is doing well.
Some examples of profitability ratios are profit margin, return on assets and return on
equity. It is important to note that a little bit of background knowledge is necessary in order to
make relevant comparisons when analyzing these ratios.
For instances, some industries experience seasonality in their operations. The retail industry,
for example, typically experiences higher revenues and earnings for the Christmas season.
Therefore, it would not be too useful to compare a retailer's fourth-quarter profit margin with
its first-quarter profit margin. On the other hand, comparing a retailer's fourth-quarter profit
margin with the profit margin from the same period a year before would be far more informative.
OPERATING MARGIN
A ratio used to measure a company's pricing strategy and operating efficiency. Operating
margin is a measurement of what proportion of a company's revenue is left over after paying for
variable costs of production such as wages, raw materials, etc. A healthy operating margin is
required for a company to be able to pay for its fixed costs, such as interest on debt. It Is Also
known as "operating profit margin."
Calculated as:
42
Operating margin gives analysts an idea of how much a company makes (before interest and
taxes) on each dollar of sales. When looking at operating margin to determine the quality of a
company, it is best to look at the change in operating margin over time and to compare the
company's yearly or quarterly figures to those of its competitors. If a company's margin is
increasing, it is earning more per dollar of sales. The higher the margin, the better.
For example, if a company has an operating margin of 12%, this means that it makes $0.12
(before interest and taxes) for every dollar of sales. Often, nonrecurring cash flows, such as cash
paid out in a lawsuit settlement, are excluded from the operating margin calculation because they
don't represent a company's true operating performance.
RATIO AT 31-MARCH 2008
Sr.No.
Name of Bank
Percentage
1
SBI
22.69 %
2
ICICI
14.45 %
3
PNB
21.47 %
43
BAR-GRAPH
INTERPRETATION
It shows that operating efficiency of SBI is better than PNB and ICICI. While operating
efficiency of ICICI is lower than PNB and SBI. So rank of operating efficiency of banks can be
given as SBI, PNB and ICICI.
GROSS PROFIT MARGIN
A financial metric used to assess a firm's financial health by revealing the proportion of
money left over from revenues after accounting for the cost of goods sold. Gross profit margin
serves as the source for paying additional expenses and future savings. It is also known as "gross
margin".
Calculated as:
44
For example, suppose that ABC Corp. earned $20 million in revenue from producing
widgets and incurred $10 million in COGS-related expense. ABC's gross profit margin would be
50%. This means that for every dollar that ABC earns on widgets, it really has only $0.50 at the end
of the day.
This metric can be used to compare a company with its competitors. More efficient
companies will usually see higher profit margins.
RATIO AT 31-MARCH 2008
Sr.No.
Name of Bank
Percentage
1
SBI
21.49 %
2
ICICI
12.99 %
3
PNB
20.67%
45
BAR-GRAPH
INTERPRETATION
This ratio shows financial position of company. Here, financial position of SBI is better than
PNB and ICICI. So SBI is at first rank by its financial position than PNB and ICICI.
NET PROFIT MARGIN
For a business to survive in the long term it must generate profit. Therefore the net profit
margin ratio is one of the key performance indicators for your business.
The net profit margin ratio indicates profit levels of a business after all costs have been taken
into account. It is worth analysing the ratio over time. A variation in the ratio from year to year may
be due to abnormal conditions or expenses. Variations may also indicate cost blowouts which need
to be addressed.
A decline in the ratio over time may indicate a margin squeeze suggesting that productivity
improvements may need to be initiated. In some cases, the costs of such improvements may lead to
a further drop in the ratio or even losses before increased profitability is achieved.
46
The calculation used to obtain the ratio is:
Net Profit Margin = Net Profit x 100
Sales
RATIO AT 31-MARCH 2008
Sr.No.
Name of Bank
Percentage
1
SBI
11.67 %
2
ICICI
10.51 %
3
PNB
12.68 %
47
BAR-GRAPH
INTERPRETATION
This ratio is key performance indicators for business. Key performance means the profit
level of company; from above graph we can say that performance of PNB is better than SBI and
ICICI. So profit level of PNB is at first rank than comes SBI and ICICI.
RETURN ON NETWORTH
Return on Net worth (RONW) is used in finance as a measure of a company‟s profitability.
It reveals how much profit a company generates with the money that the equity shareholders have
invested. Therefore, it is also called „Return on Equity‟ (ROE)
It is expressed as:-
Net Income
RONW = ------------------------------------------- X 100
Shareholder‟s Equity
The numerator is equal to a fiscal year‟s net income (after payment of preference share
dividends but before payment of equity share dividends).The denominator excludes preference
48
shares and considers only the equity shareholding. So, RONW measures how much return the
company management can generate for its equity shareholders.
RONW is a measure for judging the returns that a shareholder gets on his investment as a
shareholder, equity represents your money and so it makes good sense to know how well
management is doing with it.
RATIO AT 31-MARCH 2008
Sr.No.
Name of Bank
Percentage
1
SBI
13.72 %
2
ICICI
8.94 %
3
PNB
19.00 %
BAR-GRAPH
49
INTERPRETATION
This ratio is useful for comparing the profitability of a company to that of other firms in the
same industry. Here, profitability of PNB is more than SBI and PNB. So we can say that PNB is at
first rank by its profitability than comes SBI and ICICI.
LEVERAGE RATIO
Any ratio used to calculate the financial leverage of a company to get an idea of the
company's methods of financing or to measure its ability to meet financial obligations. There are
several different ratios, but the main factors looked at include debt, equity, assets and interest
expenses.
A ratio used to measure a company's mix of operating costs, giving an idea of how changes
in output will affect operating income. Fixed and variable costs are the two types of operating costs;
depending on the company and the industry, the mix will differ.
The most well known financial leverage ratio is the debt-to-equity ratio. For example, if a
company has $10M in debt and $20M in equity, it has a debt-to-equity ratio of 0.5 ($10M/$20M).
Companies with high fixed costs, after reaching the breakeven point, see a greater increase in
operating revenue when output is increased compared to companies with high variable costs. The
reason for this is that the costs have already been incurred, so every sale after the breakeven
transfers to the operating income. On the other hand, a high variable cost company sees little
increase in operating income with additional output, because costs continue to be imputed into the
outputs. The degree of operating leverage is the ratio used to calculate this mix and its effects on
operating income.
DEBT-EQUITY RATIO
A measure of a company's financial leverage calculated by dividing its total
liabilities by stockholders' equity.
50
Note: Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the
calculation. It is also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal
financial statements as well as companies'.
A high debt/equity ratio generally means that a company has been aggressive in financing its
growth with debt. This can result in volatile earnings as a result of the additional interest expense.
If a lot of debt is used to finance increased operations (high debt to equity), the company
could potentially generate more earnings than it would have without this outside financing. If this
were to increase earnings by a greater amount than the debt cost (interest), then the shareholders
benefit as more earnings are being spread among the same amount of shareholders. However, the
cost of this debt financing may outweigh the return that the company generates on the debt through
investment and business activities and become too much for the company to handle. This can lead
to bankruptcy, which would leave shareholders with nothing.
The debt/equity ratio also depends on the industry in which the company operates. For
example, capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio
above 2, while personal computer companies have a debt/equity of under 0.5.
RATIO AT 31-MARCH 2008
Sr.No.
Name of Bank
Percentage
1
SBI
10.96 %
2
ICICI
5.27 %
3
PNB
15.44 %
51
BAR-GRAPH
INTERPRETATION
This ratio indicates what proportion of equity and debt the company is using to finance its
assets. From above diagram we can say that PNB has a high debt-equity ratio means it is aggressive
in financing its growth with debt. Than after SBI has a low debt-equity ratio as comparison with
PNB and ICICI comes at third rank in debt-equity ratio.
FIXED ASSETS TURNOVER RATIO
Measure of the productivity of a firm, it indicates the amount of sales generated by each
dollar spent on fixed assets, and the amount of fixed assets required to generate a specific level of
revenue. Changes in the ratio over time reflect whether or not the firm is becoming more efficient in
the use of its fixed assets. Formula: Sales revenue ÷ average fixed assets.
52
RATIO AT 31-MARCH 2008
Sr.No.
Name of Bank
Percentage
1
SBI
6.31 %
2
ICICI
5.61 %
3
PNB
4.35 %
BAR-GRAPH
53
INTERPRETATION
This ratio shows specific level of revenue by the amount of fixed assets. SBI has a high
level of revenue in comparison with ICICI and PNB. After SBI, ICICI has a high level of revenue
and than comes PNB at last.
LIQUIDITY RATIO
A class of financial metrics that is used to determine a company's ability to pay off its short-
terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of
safety that the company possesses to cover short-term debts.
Common liquidity ratios include the current ratio, the quick ratio and the operating cash
flow ratio. Different analysts consider different assets to be relevant in calculating liquidity. Some
analysts will calculate only the sum of cash and equivalents divided by current liabilities
because they feel that they are the most liquid assets, and would be the most likely to be used to
cover short-term debts in an emergency.
A company's ability to turn short-term assets into cash to cover debts is of the utmost
importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators
frequently use the liquidity ratios to determine whether a company will be able to continue as a
going concern.
CURRENT RATIO
This ratio is a rough indication of a firm's ability to service its current obligations.
Generally, the higher the current ratio, the greater the "cushion" between current obligations and
your Company's ability to pay them. The composition and quality of current assets is a critical
factor in the analysis of your Company's liquidity. It is calculated as Total current assets divided by
total current liabilities.
54
RATIO AT 31-MARCH 2008
Sr.No.
Name of Bank
Percentage
1
SBI
0.07 %
2
ICICI
0.10 %
3
PNB
0.02 %
BAR-GRAPH
55
INTERPRETATION
Current ratio of ICICI is higher than SBI and PNB, means ICICI has a high ability to pay for
its liabilities, and than secondly comes SBI and PNB has a low ability to pay for liabilities in
comparison with ICICI and PNB.
QUICK RATIO
It is also known as the "Acid Test" ratio; it is a refinement of the current ratio and is a more
conservative measure of liquidity. The ratio expresses the degree to which your current Company's
current liabilities are covered by the most liquid current assets. Generally, any value of less than 1
to 1 implies a "dependency" on inventory or other current assets to liquidate short-term debt.
It is calculated as Cash plus trade receivables divided by total current liabilities.
RATIO AT 31-MARCH 2008
56
Sr.No.
Name of Bank
Percentage
1
SBI
6.15 %
2
ICICI
6.42 %
3
PNB
9.40 %
BAR-GRAPH
INTERPRETATION
57
PNB has a high quick ratio means it has enough current assets to cover its current liabilities,
while SBI and ICICI have a low quick ratio in comparison with PNB.
PAYOUT RATIOS
The amount of earnings paid out in dividends to shareholders. Investors can use the payout ratio
to determine what companies are doing with their earnings.
Calculated as:
For example, a very low payout ratio indicates that a company is primarily focused on
retaining its earnings rather than paying out dividends. The payout ratio also indicates how well
earnings support the dividend payments: the lower the ratio, the more secure the dividend because
smaller dividends are easier to pay out than larger dividends.
DIVIDEND PAYOUT RATIO
Dividend payout ratio is the fraction of net income a firm pays to its stockholders in dividends:
The part of the earnings not paid to investors is left for investment to provide for future
earnings growth. Investors seeking high current income and limited capital growth prefer
companies with high Dividend payout ratio. However investors seeking capital growth may prefer
lower payout ratio because capital gains are taxed at a lower rate. High growth firms in early life
generally have low or zero payout ratios. As they mature, they tend to return more of the earnings
back to investors. Note that dividend payout ratio is a reciprocate ratio to dividend cover, which is
calculated as EPS/DPS.
RATIO AT 31-MARCH 2008
Sr.No.
Name of Bank
Percentage
58
1
SBI
22.64 %
2
ICICI
33.12 %
3
PNB
23.40 %
BAR-GRAPH
INTERPRETATION
ICICI has a high dividend payout ratio, so the Investors who are seeking high current
income and limited capital growth should be invest in ICICI bank. PNB and SBI have a low
dividend payout ratio, so investors who are seeking capital growth should be invest in PNB and SBI
because capital gains are taxed at a lower rate.
59
EARNING RETENTION RATIO
The percent of earnings credited to retained earnings. In other words, the proportion of net income
that is not paid out as dividends.
Calculated as:
It can also be calculated as one minus the dividend payout ratio.
RATIO AT 31-MARCH 2008
Sr.No.
Name of Bank
Percentage
1
SBI
77.33 %
2
ICICI
66.35 %
3
PNB
76.59 %
BAR-GRAPH
60
INTERPRETATION
Earning retention ratio is the opposite of the dividend payout ratio. SBI and PNB have a high
earning retention ratio, so the Investors who are seeking high current income and limited capital
growth should be invest in SBI and PNB. ICICI has a low earning retention ratio, so the investors
who are seeking capital growth should be invest in ICICI BANK.
PERSHARE RATIOS
EARNIG PER SHARE
The portion of a company's profit allocated to each outstanding share of common
stock. Earnings per share serve as an indicator of a company's profitability.
Calculated as:
When calculating, it is more accurate to use a weighted average number of shares
outstanding over the reporting term, because the number of shares outstanding can change over
time. However, data sources sometimes simplify the calculation by using the number of shares
outstanding at the end of the period.
61
Diluted EPS expands on basic EPS by including the shares of convertibles or warrants
outstanding in the outstanding shares number.
Earnings per share are generally considered to be the single most important variable in
determining a share's price. It is also a major component used to calculate the price-to-earnings
valuation ratio.
For example, assume that a company has a net income of $25 million. If the company pays
out $1 million in preferred dividends and has 10 million shares for half of the year and 15 million
shares for the other half, the EPS would be $1.92 (24/12.5). First, the $1 million is deducted from
the net income to get $24 million, and then a weighted average is taken to find the number of shares
outstanding (0.5 x 10M+ 0.5 x 15M = 12.5M).
An important aspect of EPS that's often ignored is the capital that is required to generate the
earnings (net income) in the calculation. Two companies could generate the same EPS number, but
one could do so with less equity (investment) - that company would be more efficient at using
its capital to generate income and, all other things being equal, would be a "better" company.
Investors also need to be aware of earnings manipulation that will affect the quality of the earnings
number. It is important not to rely on any one financial measure, but to use it in conjunction with
statement analysis and other measures.
RATIO AT 31-MARCH 2008
Sr.No.
Name of Bank
Percentage
1
SBI
117.33 %
2
ICICI
42.56 %
62
3 PNB 70.38 %
BAR GRAPH
INTERPRETATION
This ratio is an indicator of a company's profitability. From above graph we can say that SBI has a
high profitability than PNB and ICICI. So, PNB comes at second position and ICICI comes at third
position in profitability.
63
OBJECTIVES
OBJECTIVES
Analysis of financial statements is an attempt to assess the efficiency and performance of
an enterprise. For that there are some objectives which are described as under.
1. EARNING CAPACITY OR PROFITABILITY
The overall objective of a business is to earn a satisfactory return on the funds invested in it.
Financial analysis helps in ascertaining whether adequate profits are being earned on the capital
invested in the business or not. It also helps in knowing the capacity to pay the interest and
dividend.
2. COMPARATIVE POSITION IN RELATION TO OTHER FIRMS
The purpose of financial statements analysis is to help the management to make a
comparative study of the profitability of various firms engaged in similar business. Such
64
comparison also helps the management to study the position of their firm in respect of sales
expenses, profitability and using capital.etc.
3. EFFICIENCY OF MANAGEMENT
The purpose of financial statement analysis is to know that the financial policies adopted by
the management are efficient or not. Analysis also helps the management in preparing budgets by
forecasting next year‟s profit on the basis of past earnings. It also helps the management to find out
shortcomings of the business so that remedial measures can be taken to remove these shortcomings.
4. FINANCIAL STRENGTH
The purpose of financial analysis is to assess the financial potential of business. Analysis
also helps in taking decisions;
(a) Whether funds required for the purchase of new machinery and equipments are provided from
internal resources of business or not.
(b) How much funds have been raised from external sources.
5.SOLVECNY OF THE FIRM
The different tools of analysis tells us whether the firm has suffucient funds to meet its short-
term and long-term liabilities or not.
65
IMPORTANCE
66
IMPORTANCE
Ratio analysis is an important technique of financial analysis. It is a means for judging the
financial health of a business enterprise. It determines and interprets the
liquidity,solvency,profitability,etc. of a business enterprise.
It becomes simple to understand various figures in the financial statements through the use of
different ratios. Financial ratios simplify, sumarise, and systemise the accounting figures
presented in financial statements.
With the help of raito analysis, comparision of profitability and financial soundness can be
made between one industry and another. Similarly comparision of current year figures can
also be made with those of previous years with the help of ratio analysis and if some weak
points are located, remidial masures are taken to correct them.
If accounting ratios are calculated for a number of years, they will reveal the trend of costs,
sales, profits and other important facts. Such trends are useful for planning.
Financial ratios, based on a desired level of activities, can be set as standards for judging
actual performance of a business. For example, if owners of a business aim at earning profit
@ 25% on the capital which is the prevailing rate of return in the industry then this rate of
25% becomes the standard. The rate of profit of each year is compared with this standard
and the actual performance of the business can be judged easily.
Ratio analysis discloses the position of business with different viewpoint. It discloses the
position of business with liquidity viewpoint, solvency view point, profitability viewpoint,
etc. with the help of such a study, we can draw conclusion regardings the financial health of
business enterprise.
67
ADVANTAGES
&
LIMITATIONS
68
ADVANTAGES
Ratio analysis is an important and age-old technique of financial analysis. The following are some
of the advantages of ratio analysis:
1. Simplifies financial statements: It simplifies the comprehension of financial statements.
Ratios tell the whole story of changes in the financial condition of the business.
2. Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios
highlight the factors associated with with successful and unsuccessful firm. They also reveal
strong firms and weak firms, overvalued and undervalued firms.
3. Helps in planning: It helps in planning and forecasting. Ratios can assist management, in its
basic functions of forecasting. Planning, co-ordination, control and communications.
4. Makes inter-firm comparison possible: Ratios analysis also makes possible comparison of
the performance of different divisions of the firm. The ratios are helpful in deciding about
their efficiency or otherwise in the past and likely performance in the future.
5. Help in investment decisions: It helps in investment decisions in the case of investors and
lending decisions in the case of bankers etc.
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LIMITATIONS
The ratios analysis is one of the most powerful tools of financial management. Though ratios are
simple to calculate and easy to understand, they suffer from serious limitations.
1. Limitations of financial statements: Ratios are based only on the information which has been
recorded in the financial statements. Financial statements themselves are subject to several
limitations. Thus ratios derived, there from, are also subject to those limitations. For
example, non-financial changes though important for the business are not relevant by the
financial statements. Financial statements are affected to a very great extent by accounting
conventions and concepts. Personal judgment plays a great part in determining the figures
for financial statements.
2. Comparative study required: Ratios are useful in judging the efficiency of the business only
when they are compared with past results of the business. However, such a comparison only
provide glimpse of the past performance and forecasts for future may not prove correct since
several other factors like market conditions, management policies, etc. may affect the future
operations.
3. Problems of price level changes: A change in price level can affect the validity of ratios
calculated for different time periods. In such a case the ratio analysis may not clearly
indicate the trend in solvency and profitability of the company. The financial statements,
therefore, be adjusted keeping in view the price level changes if a meaningful comparison is
to be made through accounting ratios.
4. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There are no
well accepted standards or rule of thumb for all ratios which can be accepted as norm. It
renders interpretation of the ratios difficult.
5. Limited use of single ratios: A single ratio, usually, does not convey much of a sense. To
make a better interpretation, a number of ratios have to be calculated which is likely to
confuse the analyst than help him in making any good decision.
6. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios
have to interpret and different people may interpret the same ratio in different way.
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7. Incomparable: Not only industries differ in their nature, but also the firms of the similar
business widely differ in their size and accounting procedures etc. It makes comparison of
ratios difficult and misleading.
CONCLUSION
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CONCLUSION
Ratios make the related information comparable. A single figure by itself
has no meaning, but when expressed in terms of a related figure, it yields significant
interferences. Thus, ratios are relative figures reflecting the relationship between related
variables. Their use as tools of financial analysis involves their comparison as single
ratios, like absolute figures, are not of much use.
Ratio analysis has a major significance in analysing the financial
performance of a company over a period of time. Decisions affecting product prices, per
unit costs, volume or efficiency have an impact on the profit margin or turnover ratios of
a company.
Financial ratios are essentially concerned with the identification of
significant accounting data relationships, which give the decision-maker insights into the
financial performance of a company.
The analysis of financial statements is a process of evaluating the
relationship between component parts of financial statements to obtain a better
understanding of the firm‟s position and performance.
The first task of financial analyst is to select the information relevant to
the decision under consideration from the total information contained in the financial
statements. The second step is to arrange the information in a way to highlight
significant relationships. The final step is interpretation and drawing of inferences and
conclusions. In brief, financial analysis is the process of selection, relation and
evaluation.
Ratio analysis in view of its several limitations should be considered only
as a tool for analysis rather than as an end in itself. The reliability and significance
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attached to ratios will largely hinge upon the quality of data on which they are based.
They are as good or as bad as the data itself. Nevertheless, they are an important tool of
financial analysis.
BIBLIOGRAPHY
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BIBLIOGRAPHY
Web sites:
www.sbi.com
www.icici.com
www.pnb.com
Books referred:
“Basic Financial Management”- M Y Khan
P K Jain
“Financial Management”-Prasanna Chandra