Ratio Analysis for the year 2012, 2013,2014 (United Bank,Askari bank and Bank Alfalah)
Ratios analysis are needed to compare and evaluate a company’s performance alone or within the overall industry or market. Data which is used in ratio analysis is compared with rival firms, other successful companies in the country or abroad. Or it is used to compare company performance over the years and what are the prospects for the future. By using trend analysis company’s performance over a period of time can be obtained and depending on favorable and unfavorable trends they can later be separated and analyzed accordingly. Trend analysis frequently uses forecasting to estimate future financial position of an organization.
Significance of Ratio Analysis
By studying the results achieved through data analysis management will be able to see how effectively the banks are managing their assets to generate profits. The study will also determine which of the three companies enjoy a more stable financial position. Investors can benefit from this study by seeing the results and selecting the most stable bank for investment purposes from the three banks mentioned in this study.
Ratio analysis result and major findings
UBL’s ratio fell throughout the period, although the fall was less drastic in 2011 (0.61 times to 0.53 times) than in 2012 (0.53 times to 0.52 times). This was because deposits at pace greater than advances. Askari Bank’s ratio too fell from 0.6 times in 2010 to 0.46 times in 2012, this was beacause of both fall in advances and rise in deposits, this is a worrying trend. Bank Alfalah’s ratio fell by 0.02 times to 0.49 times in 2011 majorly due to high rise in deposits, but rose to 0.51 times in 2012 mainly due to rapid rise in advances resulting in a ratio similar to the best ratio of MCB. Overall UBL currently has a better ratio than the others but a falling trend should be a cause of concern.
UBL experienced a fluctuating performance as its ratio first rose from 18.54% to 25.76% in 2011 but then fell to 23.19% in 2012. But the eventual figure is better than the next best figure of 17.73% of Bank Alfalah, showing the utilizing the equity investments was done better by UBL. Askari Bank performed badly as firstly it rose to 9.86% in 2011 from 6.36% in 2010 but then decreased to 7.1% in 2012, it had a ratio that was poor than UBL and Bank Alfalah in 2012. Bank Alfalah did well as it experienced a continuous rise as it first rose from 4.91% to 15.34% in 2011 and then to 17.73% in 2012.
The table shows UBL had a falling ratio in 2011 of 89.83% in 2011 from 90.22% in 2010. And it again fell to 89.81% in 2012. A lower trend is better as it shows lower financial risk. UBL therefore has performed better than both the other banks. Askari Bank also reduced this ratio over the period as it reduced from 94.92% in 2010 to 94.83% in 2011 and to 94.42% in 2012. Bank Alfalah too reduced its ratio from 94.58% in 2010 to 94.49% in 2011 and to 94.36% in 2012.
The debt/equity ratio first fell from 10.49 times in 2010 to 9.9 times in 2011 due to higher equity. Then it rose to 10.35 times in 2012 with major reason being higher debt issued.
The ratio for Askari Bank steadily fell throughout with a decrease of 0.42 times to 19.75 times in 2011 and then to 18.85 times in 2012. The reason was continuous influx of equity.
Bank Alfalah is maintaining its policy of keeping the ratio similar as it was 19.37 times in first two years with a meager increase to 19.7 times in 2012. Overall, UBL performed better as it lower ratio than other banks which shows it will face less interest payments in future meaning more finance available for other purposes.
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