Ratio Analysis of ABL (Allied Bank), UBL (United bank) and MCB (For the year 2020,2021,2022,2024
Ratio Analysis: Understanding Financial Performance
Ratio analysis is a key tool used to evaluate a company’s financial performance by examining relationships between various figures in its financial statements. Commonly used ratios include the liquidity ratio, which assesses a company’s ability to meet short-term obligations, and the profitability ratio, which measures its ability to generate earnings relative to revenue or assets. Efficiency ratios examine how well a company uses its resources, while leverage ratios look at the extent of a company’s debt. Through trend analysis and comparative analysis, businesses can identify strengths and weaknesses, making ratio analysis a critical aspect of financial decision-making and performance evaluation.
Executive Summary
The purpose of the ratio analysis of the report is to analyze the financial statements of the mentioned banks to calculate their financial capacity within the banking sector or with respect to the others. In order to analyze the liquidity, profitability, capital position and efficiency in the use of the available resource ratios, different elements of the same declarations or different declarations are addressed. Thus the current analysis was established to know the real facts regarding financial health performance associated with MCB, ABL and UBL for the year 2020,2021,2022,2024. The reason for conducting this study was to see the actual financial position of the selected banks and the present study has achieved its objective successfully.
Writing a ratio analysis of banks involves assessing the financial health and performance of a bank by analyzing various financial ratios. These ratios help stakeholders, such as investors, analysts, and regulators, gain insights into the bank’s liquidity, profitability, solvency, and efficiency. Here’s a step-by-step guide on how to write a ratio analysis of banks:
How to Write Ratio analysis of banks
Gather Financial Statements:
Obtain the bank’s financial statements, including the balance sheet, income statement, and cash flow statement. You may find these documents in the bank’s annual report or on their website.
Calculate Key Ratios:
Calculate a variety of financial ratios to evaluate the bank’s performance. Some key ratios to include are:
Liquidity Ratios:
Current Ratio = Current Assets / Current Liabilities
Quick Ratio (Acid-Test Ratio) = (Current Assets – Inventory) / Current Liabilities
Profitability Ratios:
Net Interest Margin = (Net Interest Income / Average Earning Assets) * 100
Return on Assets (ROA) = (Net Income / Average Total Assets) * 100
Return on Equity (ROE) = (Net Income / Average Shareholders’ Equity) * 100
Efficiency Ratio = (Non-Interest Expenses / Net Revenue) * 100
Solvency Ratios:
Capital Adequacy Ratio (CAR) = (Tier 1 Capital + Tier 2 Capital) / Risk-Weighted Assets
Debt to Equity Ratio = Total Debt / Shareholders’ Equity
Asset Quality Ratios:
Non-Performing Loan Ratio (NPL) = (Non-Performing Loans / Total Loans) * 100
Loan Loss Provision Ratio = (Loan Loss Provisions / Total Loans) * 100
Interpret the Ratios:
Explain the significance of each ratio and what it indicates about the bank’s financial performance. For example, a high current ratio indicates good short-term liquidity, while a low efficiency ratio suggests operational efficiency.
Compare with Industry Benchmarks:
Compare the bank’s ratios with industry averages or benchmarks to determine how it performs relative to its peers. Highlight any areas where the bank outperforms or lags behind the industry.
Trend Analysis:
Analyze the ratios over multiple years to identify trends. Are the ratios improving, deteriorating, or remaining stable over time? This can provide valuable insights into the bank’s financial trajectory.
Qualitative Analysis:
Consider qualitative factors that may impact the bank’s performance, such as changes in regulations, economic conditions, or the competitive landscape. Discuss how these factors might influence the ratios.
Risk Assessment:
Assess the overall risk profile of the bank based on the ratios and qualitative factors. Are there any signs of financial distress or instability?
Recommendations and Conclusion:
Summarize your findings and offer recommendations. If the bank is performing well, you can suggest areas for further improvement. If there are concerns, provide suggestions for addressing them.
Disclosure of Assumptions:
If you made any assumptions or used specific accounting methods in your analysis, be transparent about them.
Formatting and Presentation:
Present your analysis in a clear, organized, and professional manner. Use charts and graphs to illustrate key points.
Remember that a comprehensive ratio analysis should consider a combination of ratios to provide a holistic view of the bank’s financial health. Additionally, use the most recent and relevant financial data available for your analysis, and be mindful of any changes in accounting standards or reporting practices that may affect your interpretation of the ratios.
The current study has divided this study into several sections, but the more important section of this study is Data Analysis portion. Here, the study has identified the ratios of selected banks. The study has calculated and identified the ratios of each and displayed in table. In each table, there are findings of three selected bank. The study has also presented this data with graph and interpretation. Therefore with the help annual reports, profit and loss, the study has achieved all the objectives mentioned in this report. In Data Analysis section, the study has observed that Net profit margin ratio of MCB has been found greater than other bank. The study has further found that operating to cash flow ratio of MCB is higher then ABL and UBL. Gross spread ratio of ABL has been found on top as compare to other banks. The study has also suggested some measures at the end of this report for improvement.
Table of Contents
Chapter No 1: Introduction. 11
1.1 Introduction of the Project: 11
1.2 The financial period under consideration for analysis (2018, 2019, 2020) 12
1.5 Objectives of the study. 14
1.6 Significance of the project 14
2 Chapter No. 3 METHODOLOGY.. 16
2.2 Data Collection Sources:- 16
2.3 Data Collection Tools/Instruments: 16
2.3.1 Subjects/Participants: 17
2.5 Fieldwork/Data Collection: 18
2.6 Data Processing Tools:- 18
3 Chapter 3 Data / Ratio Analysis. 19
3.3 Non-Interest Income to Total Income Ratio “. 25
3.5 Advances / Deposits Ratio. 29
3.6 Return on Total Equity (ROE) 30
4 Conclusion, Recommendations. 36
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