Financial ratio Analysisof

HIMALAYAN BANK LIMITED

PRESENTED BY:Pramod Thapa (064BME625)Sushil Regmi (064BME646)Umanga Bhattari (064BME647)Utsavshree Rajbhandari (064BME648)

Institute Of Engineering (IOE)Department of Mechanical Engineering

Pulchowk CampusLalitpur, Nepal

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Objective of study

• To understand the financial statement

• To analyze the data given in financial statement

• To analyze the financial performance and position of HBL

• To be able to take decisions with economic benefit and excellence.

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Introduction

• First private commercial bank of Nepal estd in 1992

• Started banking services in 1993

• 31 branches

• Objective of bank is to become first choice by sitting on hearts and minds of the customers and is to render banking services to different sector

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Services

The bank provides following services:

• Deposits

• Corporate financing

• Consortium financing

• Retail financing

• Small and medium sized business financing

• Card services

• International trade business services

• Inward remittances

• Treasury services

• Safe deposit locker services

• Ancillary services

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Financial Statement

• Collection of financial data for fixed period of time

• It is more than just “crunching numbers”; it involves obtaining a broader picture of the organisation in order to evaluate appropriately how that organisation is performing

• Help business owners and other interested people to analyse the data in financial statements to provide them with better information about such key factors for decision making and ultimate business survival.

• To evaluate an organisation’s Financial performance and Financial position

• Mainly classified into 3 parts

• Balance Sheet

• Income Statement

• Cashflow Statement

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Financial Statement(cont.)

•Balance SheetCompany’s financial position at the end of reporting period

Also called ‘statement of financial position’

Consist of Assets, liabilities , Ownership’s Equity

• Income statementShows whether the company is making or loosing money.

Consist of various income and expenses , PBIT, tax amount and dividend etc.

•Cash flow StatementA record of all cash transactions.

Shows how the company is generating cash.

How the cash is used.

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Balance sheet2061/62

2004/2005Rs. In Million

2062/632005/2006

Rs. In Million

2063/642006/2007

Rs. In Million

2064/652007/08

Rs. In Million

2065/662008/09

Rs. In Million

Capital Structure

Authorized Capital 1000.00 1000.00 1000.00 2000.00 2000.00

Issued Capital 650.00 772.20 810.81 1013.51 1216.22

Liabilities

Issued and Paid up capital 643.50 772.20 810.81 1013.51 1216.22

Reserve & Surplus 898.25 993.98 1335.69 1499.48 1903.67

Debenture 360.00 360.00 360.00 860.00 500.00

Borrowings 146.05 144.62 235.97 83.18 0.00

Deposits 24814.01 26490.85 30048.42 31842.79 34681.35

Others 556.35 698.74 728.26 876.57 1019.10

Total 27,418.16 29,460.39 33,519.14 36,175.53 39,320.32

Assets

Cash & Bank Balance 2014.47 1717.35 1757.34 1448.14 3048.53

Investment 12133.42 11894.31 13533.01 13858.71 9881.48

Loan, advances & overdraft 12424.52 14642.56 16998.00 19497.52 24793.16

Fixed Assets 295.82 540.82 574.06 726.07 952.20

Others 549.92 665.34 656.73 645.09 644.96

Total 27418.16 29460.39 33519.14 36175.53 39320.327

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Income statement(P/L statement)

2061/622004/2005

Rs. In Million

2062/632005/2006

Rs. In Million

2063/642006/2007

Rs. In Million

2064/652007/08

Rs. In Million

2065/662008/09

Rs. In MillionProfit and Loss Account

Interest Income 1446.47 1626.47 1775.58 1963.65 2342.20Other operating income 311.42 415.90 385.19 457.59 580.63Non operating income (Net) -85.46 55.55 100.26 141.19 13.32Total Income 1672.43 2097.92 2261.03 2562.43 2936.15

Expenditures:Interest Expenses 561.96 648.84 767.41 823.74 934.78Overhead Expenses(Employees) 178.59 234.59 272.23 307.53 360.98Other Operating expenses 277.38 329.70 341.56 329.01 398.32

Loan loss provision 73.90 145.15 90.69 58.43 68.81Total Expenditure 1091.83 1358.28 1471.89 1518.71 1762.88

Profit before tax 580.60 739.64 789.14 1043.72 1173.27Provision for bonus 58.06 67.24 71.74 94.88 106.66Tax provision 214.27 214.94 225.58 312.97 313.77Net profit after tax 308.28 457.46 491.82 635.87 752.83

Dividend Per share (with bonus share) 31.58 35.00 40.00 45.00 43.56Market Price 920 1100 1740 1980 1760

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Cash flow statementparticulars 2004/05 2006/07 2007/08 2008/09A.Cash flow from operation activities 585,545,427 590,618,284 273,069,707 978,388,7411. cash receipt 1,760,345,858 1,897,766,254 1,944,218,385 2,909,793,5031.1 interest income 1,446,468,083 1,419,900,506 1,442,245,205 2,324,173,0951.2 commission and discount income 132,815,882 165,447,872 202,888,358 284,302,2771.3 income from exchange transaction 137,300,987 198,130,134 192,600,803 249,982,6061.4 recovery of loan written off -2,902,317 42,380,758 4,992,6231.5 other income 43,760,906 117,190,059 621,032,411 48,342,872

2.cash payment 561,963,770 648,841,818 1,871,148,658 1,931,404,7632.1intrest expense 561,963,770 648,841,818 823,744,838 832,463,3292.2 staff expense 178,589,357 191,130,134 307,528,289 345,418,1842.3 office overhead expense 223,232,416 235,879,091 240,568,995 305,661,3292.4 income tax paid 211,014,888 230,798,830 299,306,535 352,978,0352.5 other expenses 94,883,888

cash flow before changes in working capital1. increase/decrease in money at call 72,180,900 564,199,100 1,191,494,359 652,264,1502.increase/decrease in short term investments 2,400,239,049 -801,968,7503.increase/decrease in loan and bill purchases 619,790,462 2,318,893,556 2,504,143,790 5,378,904,0894.increase/decrease in other liabilities 272,752,640 168,075,252 47,063,907 26,492,817

(increase/decrease ) of current liabilities 2,824,015,643 1,648,886,464 1,555,660,563 2,802,581,4221. increase/decrease in deposits 2,803,679,000 1,676,839,656 1,794,371,600 2,838,555,8232.increase/decrease in certificate of deposits3.increase/decrease in short term borrowings 9,000,000 -1,423,389 152,789,838 83,177,9734.increase/decrease in other liabilities 11,336,643 -26,529,803 85,921,199 47,203,572

B.cash flow from investment activities1. increase/decrease in long term investment 1,517,192,226 2,802,581,4222. increase/decrease in fixed assets 31,645,636 288,025,916 237,756,761 2,838,555,8233.intrest income from long term investment 573,707,6904.divedent income (334,353 -611,705 1,850,862 83,177,9735. others 34,418,750 47,203,572

Current year cash flow from all activities 13,286,736 297,118,621 309,198,380 1,600,383,897D. Opening balance of cash and bank balance 2,001,184,221 2,014,470,957 1,757,341,251 1,448,142,891E.Closing balance of cash and bank balance 2,014,470,957 1,717,352,336 1,448,142,831 3,048,528,788 9

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Financial Ratio Analysis

• most commonly used tools to interpret the financial statements so that the strength and weakness of firm can be judged

• Compare performance against other firms or industry standards and also with past performance

• Study the efficiency and risk of operations

• Classified into 5 main categories:Profitability Ratios

Combine effect of liquidity,debt management and asset management

Liquidity or Short-Term Solvency ratiosExtent to which current assets can be converted into cash

Asset Management or Activity Ratios How effectively firm is managing it’s assets

Financial Structure or Capitalisation or Debt Management ratioBusiness ability to pay long term loan

Market Test RatiosWhat company think of the company’s past performance and future prospects

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1. Profitability RatiosProfit margin or Net profit

• To measure how much profit is earned per unit revenue

• Profit margin says margin of safety

• Good at present context of the bank

Revenue

IncomeNet profitNet

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1. Profitability RatiosReturn on Asset

• measures a company's success in using its assets to earn a profit

• At the moment company’s earning power is very low and debt is very high

• Although there is good profit margin but this figure of ROA shows that the bank is unsuccessful in using its assets to earn profit

Asset Total

IncomeNet :ROA

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1. Profitability RatiosReturn on Equity

• Relationship between net income and common stockholders’ investment

• It answers the question, “How much income is earned for every Rs.100 invested by common shareholders?”

• Looks good internally but it is satisfactory compare to other equal ranking commercial banks

equity Total

IncomeNet :ROE

2004/05 2005/06 2006/07 2007/08 2008/09

Net profit after tax 308.28 457.46 491.82 635.87 752.83

Average common equity 1541.75 1766.18 2146.5 2512.99 3119.89

ROE(%) 19.995459725.9010972822.912648525.3033239324.1300174

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3500

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2. Liquidity or Short-Term Solvency ratios

• Working capital management is important as it signals the firm’s ability to meet short term debt obligations.

• The WC of the bank is rising every year which is a good sign.

sliabilitiecurrent -assetcurrent capital Working

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2. Liquidity or Short-Term Solvency ratioCurrent ratio

• the ability of the bank to meet its current obligation

• The acceptable benchmark is 1:1 but a ratio below this value represents liquidity risk ness as there is insufficient current assets to cover current liabilities.

• Satisfactory, risk of rise in liabilities• Need to improve this ratio in order to be

safe from any financial difficulty

liabilitescurrent

assetcurrent :ratioCurrent

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3. Asset Management or Activity RatiosAsset turnover

• measures how efficiently the firm is using the assets

• Turnover means; how many number of times the assets flow through a firm's operations and into sales

• Greater rate of turnover or conversion indicates more efficiency of a firm in managing and utilizing its assets

• Has been increasing till 062/063 but due to political crisis decreases during fiscal year 063/064

asset totalAvg.

salenet overAsset turn

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4. Financial Structure or Capitalisation Ratios Debt ratio

• tells us the proportion of the company's assets that it has financed with debt

• Decreasing yearly yet not satisfactory

• As bank, this ratio seems to be quite good because its has used its debt successfully in investments and loans.

asset Total

Debt Total ratioDebt

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4. Financial Structure or Capitalisation Ratios Time-Interest Earned Ratio

• Measures the ability of the bank to pay off its creditors

• The ratio is very low for all fiscal year.

• For an organization this is not a good sign to its creditors.

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5. Market Test RatiosEarning per share

• Profit earned by each shareholder

• Help to decide company whether to increase or reduce the number of shares on issue

shareordinary issued of No.

incomeNet shareper Earning

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5. Market Test RatiosPrice Earnings ratio

• The price/earnings (P/E) ratio shows how much investors are willing to pay per dollar of reported profits

• Measure the price paid for a share relative to profit earned per share

• higher the ratio, the higher the quality of the earnings by firm on the share market.

• P/E ratio= 19 means that Purchasers are paying Rs 19 for 1 rupees income

shareper Earnings

shareper priceMarket ratio Earning Price

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5. Market Test Ratios

• EPS tells us what profit the common shareholders are getting for every share

• The book value per share measures the amount that would be distributed to shareholder if all assets were sold at their balance-sheet carrying amounts and if all creditors were paid off

• The price/earnings (P/E) ratio shows how much investors are willing to pay per dollar of reported profits

goutstandin stockscommon of No.

IncomeNet EPS

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CONCLUSION

• Bank has good profit margin

• Low ROA value but Satisfactory ROE value

• Bank is borrowing to much money

• Bank should increase current ratio to some extent to decrease risk

• If bank doesn’t develop necessary steps then bank is likely to experience its rough period

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Thank You