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Comparative Study of Financial Report of Three Indian Banks by RAFIK KAAT

Comparative Study of Financial Report of Three Indian Banks by RAFIK KAAT

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Submitted By: KAAT RAFIK O. (Batch 2008-09)

Guided By: Prof.R.GANESHAN


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






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.




Name of the students:


I would also like to thank our friends and those who have helped us during this project directly or indirectly. 4 . However. KAAT RAFIK O. I would thank to God for their blessing and my parents also for their valuable suggestion and support in my project report. I hereby express my deep sense of gratitude to all the personalities involved directly and indirectly in my project work. inspiration and motivation. 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.GANESAN who has always been a source of guidance. 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.ACKNOWLEDGEMENT “Perseverance inspiration and motivation have always played a key role in success of any venture”.R.

INDEX Sr. Subjects Page No 7 Introduction 2. Products & Services 2 1 4. PNB 1 7 3. ICICI 1 4 iii. Limitations 5 . Advantages. Importance 6 4 8. Balance Sheet 3 6 5. Ratio Analysis 4 0 6.No 1. SBI 1 1 ii. Objectives 6 2 7. Bank Profile 1 0 i.

Conclusion 6 9 10 Bibliography .6 6 9. 7 1 INTRODUCTION 6 .

and academics. The firm involves many interested parties. This can be done by analyzing the financial statement with the help of different tools of analysis such as ratio analysis. 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. one may be interested in knowing the position of an enterprise from different points of view. a meaningful relationship is established between two or more accounting figures for comparison. comparative statement analysis. like the owners. suppliers. It includes two statements. In this process.  Financial ratios are widely used for modeling purposes both by practitioners and researchers. each having their views in applying financial statement analysis in their evaluations. regulatory agencies.. while the researchers' main interest has been to develop models exploiting these ratios.INRTODUCTION  After preparation of the financial statements. funds flow analysis. etc. 7 . cash flow analysis. management. Here I have done financial analysis by ratios. Practitioners use financial ratios. Many distinct areas of research involving financial ratios can be discerned. competitors. customers. i. Historically one can observe several major themes in the financial analysis literature. personnel. to forecast the future success of companies. There is overlapping in the observable themes.e.  The income statement presents the summary of the income earned and the expenses incurred during a financial year. profit & loss a/c or income statement and balance sheet or position statement. for instance. Position statement presents the financial position of the business at the end of the year.

return and capital appreciation.e.  Long –term creditors They are interested in knowing whether the principal amount and interest thereon will be paid on time or not. 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.  Shareholders They are interested in profitability. These are prepared at the end of a given period of time.  Management The management is interested in the financial position and performance of the enterprise as a whole and of its various divisions.  Thus.. we mean two statements.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. By financial statements. They are indicators of profitability and financial soundness of the business concern.  Trade unions They are interested in financial statements for negotiating the wages or salaries or bonus agreement with management.  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. analysis of financial statements means establishing meaningful relationship between various items of the two financial statements. The various persons interested in the analysis of financial statements are: Short.(1) profit & loss a/c (2) balance sheet. i. it is necessary to understand the meaning of „analysis‟ and „financial statements‟. 8 . Before understanding the meaning of analysis of financial statements.

You have seen that different parties are interested in the results reported in the financial statements.  Researchers They are interested in the financial statements in undertaking research in business affairs and practices. Taxation authorities These authorities are interested in financial statements for determining the tax liability. These results are reported by analyzing financial statements through the use of ratio analysis. 9 .  Employees They are interested as it enables them to justify their demands for bonus and increase in remuneration.

10 .


With an asset base of $126 billion and its reach. NSE:SBI) & (LSE:SBID) Founded- Calcutta. The Government of India nationalized the Imperial Bank of India in 1955. and renamed it the State Bank of India. with over 16000 branches. with the Reserve Bank of India taking a 60% stake. the second largest bank in the world. including products aimed at NRIs. In 2008. The bank traces its ancestry back through the Imperial Bank of India to the founding in 1806 of the Bank of Calcutta. STATE BANK OF INDIA Type- Public (BSE. it is a regional banking behemoth. 12 . The State Bank Group. making it the oldest commercial bank in the Indian Subcontinent. Headquarters. the Government took over the stake held by the Reserve Bank of India. 1806 (as Bank of Calcutta) Corporate Centre. Mumbai 400 021 India Key peopleOm Prakash Bhatt. has the largest branch network in India. It is also. It has a market share among Indian commercial banks of about 20% in deposits and advances. SBI provides a range of banking products through its vast network in India and overseas. SBI has laid emphasis on reducing the huge manpower through Golden handshake schemes and computerizing its operations. Chairman State Bank of India (SBI) (LSE: SBID) is the largest bank in India.1.Madam Cama Road. measured by the number of branch offices and employees.

13 . which now has seven branches. the bank established its California subsidiary. in Mumbai. Bahrain. and representative offices in Bhutan and Cape Town. agencies or offices in 32 countries. Muscat. In Nigeria. which has branches throughout the country. and three in British Columbia. SBI operates several foreign subsidiaries or affiliates. and Singapore. India's largest bank. This bank was established in 1981 as the Indo-Nigerian Merchant Bank and received permission in 2002 to commence retail banking. Dhakka. The government of India is the largest shareholder in SBI.International presence Regional office of the State Bank of India (SBI). State Bank of India (Mauritius). In Moscow SBI owns 60% of Commercial Bank of India. with Canara Bank owning the rest. and Tokyo. State Bank of India already has a branch in Shanghai and plans to open one up in Tianjin. The Canadian subsidiary was also established in 1982 and also has seven branches. In 1982. It has offshore banking units in the Bahamas. London and environs. Male in the Maldives. The bank has 52 branches. Hong Kong. In 1990 it established an offshore bank. Osaka. It has branches of the parent in Colombo. and State Bank of India (Canada). In Indonesia it owns 76% of PT Bank Indo Monex. Johannesburg. State Bank of India (California). Frankfurt. four in the greater Toronto area. In Nepal SBI owns 50% of Nepal SBI Bank. Los Angeles. It has two subsidiaries in North America. Sydney. It now has five branches in Nigeria. New York. it operates as INMB Bank.

Salahuddin Ansari Dr.) Vasantha Bharucha Shri Arun Ramanathan Smt. Venkatachalam Dr. Bhatt(Chairman) Shri S. Shyamala Gopinath 14 . Ashok Jhunjhunwala Shri Dileep C.(Mrs. Deva Nand Balodhi Prof. Choksi Shri S.P. Bhattacharyya(MD & CC&RO) Shri Suman Kumar Bery Dr.BOARD OF DIRECTORS 1 2 3 4 5 6 7 8 9 10 11 Shri O. Mohd.K.

Pursuant to the merger of SCICI into ICICI. ICICI Bank acquired Bank of Madura.9% at December 1996. The issue of universal banking. along with its subsidiaries and other group companies. ICICI Bank became a wholly-owned subsidiary of ICICI. ICICI Bank identified a large capital base and size and scale of operations as key success factors in the Indian banking industry. providing long-term funds to a variety of industrial projects. ICICI‟s holding in ICICI Bank reduced due to additional capital raising by ICICI Bank and sale of shares by ICICI. 2001. ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services provider that. ICICI Bank was incorporated in 1994 as a part of the ICICI group. which in the Indian context means the conversion of longterm lending institutions such as ICICI into commercial banks. an old private sector bank. With the liberalization of the financial sector in India in the 1990s. ICICI capitalized on the new opportunities to provide a wider range of financial products and services to a broader spectrum of clients. pursuant to the requirement stipulated by the Reserve Bank of India that ICICI dilute its ownership of ICICI Bank.0% by SCICI Limited. in an all-stock merger. INDUSTRIAL CREDIT & INVESTMENT CORPORATION OF INDIA (ICICI) ICICI was formed in 1955 at the initiative of the World Bank. ICICI Bank‟s initial equity capital was contributed 75.2. Conversion into a bank offered ICICI the ability to accept low-cost demand deposits and offer a wider range of products and services. ICICI Bank also considered various strategic alternatives in the context of the emerging competitive scenario in the Indian banking industry. had been discussed at length over the past several years. and greater opportunities for earning nonfund based income in the form of banking fees and commissions. 15 . offered a wide variety of products and services. In view of the benefits of transformation into a bank and the Reserve Bank of India‟s pronouncements on universal banking. the government of India and Indian industry representatives. ICICI primarily focused its activities on project finance.0% by ICICI and 25. a diversified finance and shipping finance lender of which ICICI owned 19. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. Effective March 10. Until the late 1980s. ICICI and ICICI Bank decided to merge. As India‟s economy became more market-oriented and integrated with the world economy.

2 billion (US$ 330 million). The Sangli Bank Limited.0 billion (US$ 50million).6billion (US$ 440 million). The amalgamation was sanctioned by the High Court of Gujarat at Ahmedabad on March 7. ICICI Capital Services and ICICI Bank at their respective board meetings held on October 25. 2002 and by the High Court of Judicature at Bombay on April 11. 2002 and January 30. 2007. 2002. 2002. 17. total loans of Rs. Sangli Bank had over 190 branches and extension counters. both ICICI Bank and ICICI were publicly listed in India and on the New York Stock Exchange. The amalgamation became effective on May 3. 2001. On the date of acquisition. 2002. an unlisted private sector bank merged with ICICI Bank with effect from April 19. The date of the amalgamation for accounting purposes under Indian GAAP was March 30. The amalgamation was approved by ICICI Bank‟s and ICICI‟s shareholders at their extraordinary general meetings held on January 25.At the time of the merger. total assets of Rs. 2002. 16 . The amalgamation was approved by each of the boards of directors of ICICI. respectively. ICICI Personal Financial Services. total deposits of Rs. 2. 13.

P. Vijayan 11. Subrahmanyam 10. Sinha 9. L. M. Mittal 4. Arun Ramanathan 7. Narendra Murkumbi 5. S. Chairman 2. Kamath. V. T. Vaghul. Managing Director & CEO 17 . K. N. Anupam Puri 6. V. Prem Watsa 12. Sharma 8. M. N. Sridar Iyengar 3. Marti G.BOARD OF DIRECTORS 1. K.

Total Business of the bank for financial year 2007 is estimated to be approximately US$60 billion. Through our treasury operations. We also provide significant financing to other priority sectors including small scale industries. 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. 1894 under the Indian Companies Act with its office in Anarkali Bazaar Lahore. We are a leading public sector commercial bank in India.3. equity shares and mutual fund units. We also hold debentures and bonds issued by public sector undertakings and other corporations. and Dubai. It serves over 37 million customers. London. and seek to maximize profits from our trading portfolio by taking advantage of market opportunities. which is referred to herein and in our financial statements as our income. Our interest expense consists of our interest on deposits as well as borrowings. and representative offices in Almaty. We offer a wide range of retail credit products including housing loans. as well as small and middle market businesses and government entities. including the maintenance of required regulatory reserves. It has a banking subsidiary in the UK.500 branches across 764 cities. personal loans and automobile loans. we manage our balance sheet. We meet our statutory liquidity reserve ratio requirements through investments in these and other approved securities. is the second largest government-owned commercial bank in India with about 4. The bank has been ranked 248th biggest bank in the world by Bankers Almanac. consists of interest income and other income. We cater to the financing needs of the agricultural sector and have created innovative financing products for farmers. commercial paper. Interest income consists of interest on advances (including the discount on bills discounted) and income on investments. founded by Dyal Singh Majithia and Lala Harkishen Lal. as well as branches in Hong Kong and Kabul. Our revenue. PUNJAB NATIONAL BANK (PNB) Punjab National Bank (PNB) was registered on May 19. retail and agricultural customers. Our banking operations for corporate and commercial customers include a range of products and services for large corporations. Our interest 18 . Our securities portfolio consists primarily of Government of India and state government securities. The Bank. offering banking products and services to corporate and commercial. Shanghai.

Net interest margin represents the ratio of net interest income to the monthly average of total interest earning assets. These indicators are presented in tabular form in the section titled “Selected Statistical Information” on page [·]. As of September 30.30% of our gross and net advances. 96. Since 1969. We calculate average yield on the monthly average of advances and average yield on the monthly average of investments. Our cost of funds is the weighted average of the average cost of the monthly average of interest bearing liabilities. our total deposits represented 85. postage and telecommunications expenses. and the extent to which we rely on borrowings. rent paid on premises.Income and expense are affected by fluctuations in interest rates as well as the volume of activity. 2004. insurance. Our net interest income represents our total interest income (on advances and investments) net of total interest expense (on deposits and borrowings). our gross and net non-performing assets constituted 7. 10. In our financial statements. our total income grew at a compound annual rate of12. depreciation on investments and income tax is included in provisions and contingencies We use a variety of indicators to measure our performance. depreciation on fixed assets.6billion after adjustment as part of the restatement of our financial statements for this Issue. 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. 2004.5%.9 billion and our net profit was Rs. In the first six months of fiscal 2005 our total income was Rs. 11. printing and stationery. we have managed to continue to grow our business while maintaining a strong balance sheet.9% of our total liabilities. 7.These low-cost deposits led to an average cost of funds excluding equity for the first six months of fiscal 2005 of 4.4billion. Our interest expense is also affected by the extent to which we fund our activities with low interest or non-interest deposits. As of September 30. when we became a public sector bank.7%. our 19 . Provisioning for non-performing assets. Between fiscal 2002 and 2004. In fiscal 2004 our total income was Rs. respectively.65% and 0. On average. 51.5 billion and our net profit was Rs. other administrative and other expenses. interest free demand deposits and low interest savings deposits represented 43.1 billion before adjustment and Rs. For purposes of these averages and ratios only. as well as the average cost of the monthly average of deposits and average cost of the monthly average of borrowings.8% of these deposits in the first six months of fiscal 2005. Our non-interest expense consists principally of operating expenses such as expenses for wages and employee benefits. 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. these bonds are accounted for as “other liabilities and provisions” and their interest cost is accounted for under other interest expenses.

20 .2%. We are committed to excellence in serving the public and also maintaining high standards of corporate responsibility. We seek to achieve this by continuing to adopt technology which will integrate our extensive branch network. and our total deposits and total advances grew at a compound annual growth rate of 17.1% and 17. respectively.unadjusted and adjusted net profit grew at a compound annual rate of 40. respectively.4% and37.4%. We intend to maintain our position as a cost efficient and customer friendly institution that Provides comprehensive financial and related services. In line with our philosophy of aiding India‟s development we have opened branches in many rural areas. We intend to grow by cross selling various financial products and services to our customers and by expanding geographically in India and internationally.

K. Shri G R Sundaravadivel 12.Khurana 5. Shri. Ravneet Kaur 3.C Chakrabarty 2. S. Shri L. Khandelwal 9. Nayar 6. Shri Gautam P. Smt. Shri Vinod Kumar Mishra 10. Shri Devinder Kumar Singla 21 . Shri P.Fonseca 4. Dr K.R. Shri Tribhuwan Nath Chaturvedi 11. Shri Mushtaq A Antulay 8. Shri Mohan Lal Bagga 7.BOARD OF DIRECTORS 1.M.


Accounts. Business  SME Personal Banking Deposit Schemes Personal Finance Corp Salary Package Services International Trade Finance Merchant Banking Correspondent Banking Agricultural Agricultural Banking Micro Credit Regional Rural Banks NRI Services Type of Accounts Corporate Banking Corporate Accounts Mid Corporate Group Project Finance Products & Services Services Internet Banking Mobile Banking ATM Services Govt. Business Govt. SME 23 . SBI BANKING  Personal Banking  Agricultural & Rural Banking  NRI Services  International Banking  Corporate Banking  Services  Govt.1.

land development and reclamation.  PERSONALBANKING SBI Term Deposits SBI Loan For Pensioners SBI Recurring Deposits Loan Against Mortgage Of Property SBI Housing Loan SBI Car Loan SBI Educational Loan SBI Personal Loan Loan Against Shares & Debentures Rent Plus Scheme Medi-Plus Scheme Rates Of Interest  L AGRICULTURA State Bank of India Caters to the needs of agriculturists and landless agricultural labourers through a network of 6600 rural and semi-urban branches. Bank has also agri specialists in various disciplines to handle projects/ guide farmers in their agri 24 . 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 . fisheries. farm mechanization. plantation crops. finance to agri-input dealers. piggery and rearing of silk worms. Our branches have covered a whole gamut of agricultural activities like crop production . To give special focus to agriculture lending Bank has set up agri business unit. The branch also has farmer's meet in villages to explain to farmers about various schemes offered by the bank. tube wells and irrigation projects. digging of wells. construction of cold storages and godowns. forestry. processing of agri-products. poultry. sheep-goat.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.Demat Services Public Provident Fund. allied activities like dairy . horticulture .

India. The services include corporate lending. We are the leaders in agri finance in the country with a portfolio of Rs. enrich that nation.  NRI SERVICES World Class Services from a Bank you can Trust Indians everywhere should become enlightened International citizens. medium and small customers both domestic and international. 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 Bank has carved a niche for itself in the Euro land with branches located in Antwerp.000 cars in agri advances to around 50 lac farmers. whichever country you live. short-term financing. the world over. remember we have a common umbilical connectivity to our motherland.ventures. Advances are given for very small activity covering poorest of the poor to hi-tech activities involving large fund outlays. merchant banking. handling Letters of Credit and Guarantees. Indian banks and corporates are able to avail single-window Euro services from the Bank's Frankfurt branch. At the same time. Paris and Frankfurt. but also with your sweat knowledge and dignity since that is the tradition of the country from where you came. not only in financial terms. Wherever you are.  INTERNATIONAL BANKING International banking services of State Bank of India are delivered for the benefit of its Indian customers. foreign entities and banks through a network of 84 offices/branches in 32 countries as on 31 March 2008. Bank's Joint Ventures and Subsidiaries abroad further underline the Bank's international presence. 18. non-resident Indians. collection of clean and documentary credits and remittances. 25 . loan syndications.  CORPORATE BANKING SBI is a one shop providing financial products / services of a wide range for large.

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.

Listed on the left are Services, SBI offers to its customers.
    


     


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.



Safety, Flexibility, Liquidity, Returns! ICICI Bank offers a wide Variety of Deposit Products to suit your banking requirements.

Simplified Documentation, Quick Processing, Hassle Free!!!

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Reliable. Secure. Convenient!!! Convenience has always been synonymous with ICICI Bank and keeping in line we offer the facility of buying Insurance policies online. 29 .World Class Service and Acceptance!!! A truly world class service as ICICI Bank cards have both national and international acceptance.

we identified international banking as a key opportunity. Credit card. Thailand. branches in Singapore. Malaysia and Indonesia.  INTERNATIONAL BANKING In 2001. China. Bangladesh. We have made significant progress in the international business since we set up our first overseas branch in Singapore in 2003.Banking at your fingertips!!! Why be inline when you can be online for paying your utility bills. Russia and Canada. 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. Qatar Financial Centre and the United States and representative offices in the United Arab Emirates. ICICI Bank currently has subsidiaries in the United Kingdom. 30 . Bahrain. Shopping. mobile bills. Dubai International Finance Centre. prepaid mobile recharge. Petersburg. Sri Lanka. ICICI Bank Canada has eight branches including three in Toronto. aiming to cater to the cross-border needs of clients and leveraging our domestic banking strengths to offer products internationally. South Africa. Hong Kong. ICICI Bank Eurasia LLC has six branches including three branches in Moscow and one in St. insurance premium and lots more.

achieving the status of a non-resident Indian (NRI) community bank in key markets. Additionally. Through our international private banking services. 31 . We have been able to successfully leverage our technology advantage to create a growing international deposit base.  CORPORATE BANKING Our corporate banking strategy is based on providing comprehensive and customised financial solutions to our corporate customers. During fiscal 2008. 2008. syndication and transaction banking products and services. 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. we have over 500. we offer various products to mass affluent and high net worth clients based on their financial needs and risk appetite. We offer a complete range of corporate banking products including rupee and foreign currency debt. we entered into Germany through a branch established by ICICI Bank UK PLC. We have undertaken significant brand-building initiatives in international markets and have emerged as a wellrecognised financial services brand for NRIs. We continue to maintain a market share of 25% in inward remittances to India. We also received approval for and commenced branch operations in the United States.000 NRI customers. we launched innovative products like instant money transfer and enhanced our focus on customer relationship management and process automation. and expanding private banking operations for India-centric asset classes.Our international strategy is focused on building a retail deposit franchise. 191. private equity and products giving exposure to the real estate sector in India. technology enabled access. Currently.86 billion at March 31. a wide distribution network in India and alliances with local banks in various markets. In line with our strategy to establish a presence in large markets with significant savings pools.28billion at March 31. diverse wholesale funding sources and strong syndication capabilities to support our corporate and investment banking business. we focused on deepening our presence in existing overseas locations and expanding our operations in key markets. 2007 to Rs. Total deposits of ICICI Bank UK PLC and ICICI Bank Canada increased by 76. working capital credit. structured financing. During fiscal 2008. 335. The offerings range from simple deposits and loans to more sophisticated structured products.0% from Rs. We have established a strong franchise among NRIs by offering a comprehensive product suite.

During the year. the SME CEO Knowledge Series . We have also restructured our delivery team for transaction banking products by creating dedicated sales teams for trade services and transaction banking products.a platform to mentor and assist SME entrepreneurs. which will translate into recurring fee income for the Bank. This has been done with the intent to increase our market share from transaction banking products. for origination. and the “SME Dialogue” . We have created an integrated Global Investment Banking Group. structuring and execution of investment banking mandates on a global basis.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. Through our relationship teams working in tandem with product solution teams. as compared to the previous year.a weekly feature in a leading financial newspaper sharing SME best practices and success stories.  SME BANKING During fiscal 2008. We have continued to focus on shaping the small and medium enterprises sphere in India through initiatives such as the Emerging India Awards”. During the year. 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. We have introduced our service offerings in over 400 new branches. we have launched several new products and services like the SME toolkit – an online business and advisory resource for SMEs. 32 . increasing our coverage to over 1. The relationship team is product agnostic and is responsible for managing banking relationships with clients.1 million accounts. we have focused on product specialisation including investment banking for SMEs. 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. our small enterprises customer base increased by 26% to about 1. which is responsible for working with the relationship team in India and our international subsidiaries and branches. We have also focused on increasing market share in trade finance by leveraging and further strengthening correspondent banking relationships.000 branches.

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. 33 . Towards this end. we have partnered with various dairies to provide financing to farmers for purchase of milch cattle. commodity based finance as well as various savings. We also provide credit and banking services to SMEs active in the agricultural value chain. 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. For example. We have also focused on enhancing credit to farmers by leveraging on corporate partnerships. In line with our learning from our rural banking operations. Through this. We also offer micro-finance and jewel loans. our suite of products and services is targeted to address the needs of both the farm and non-farm sectors. We have put in place a robust risk management structure to Mitigate and manage credit. Our retail product suite encompasses loans for crop production. RURAL BANKING AND AGRI-BUSINESS We believe the rural economy has high growth potential and offers large credit growth opportunities. we aim to create a strong foundation for scaling up of our rural business. investment and insurance products. we undertook a comprehensive review of and realigned our channel architecture. purchase of farm equipment. operational and fraud risks. credit underwriting processes and account management systems.

. We have established a branch in Kabul and Representative offices in other cities overseas in order to facilitate services being provided to NRIs.3.000 is maintained in the account. including the State Bank of India which has 13. 250. as well as existing and new private sector banks and foreign banks in the case of retail loan products. we also provide housing loans to NRIs. In addition. 34 . Private sector and foreign banks compete principally by offering a wider range of products as well as greater technological sophistication in some cases. We have introduced our Global Foreign Currency Scheme and Global Rupee Deposit Scheme. We also offer various products for facilitating remittances from NRIs to India.  RETAIL BANKING In retail banking. which is a global leader in money transfer services.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. our principal competitors are the large public sector banks. with a view to establishing an internet based international remittance service. The other public sector banks have large deposit bases and large branch networks.593 branches. which offer benefits and concessions to NRIs and their relatives provided a minimum balance of Rs. 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 recently entered into an arrangement to facilitate money transfers through Western Union. a Times of India group company.000 or US$5. We have also entered into an agreement with Times Online Money Ltd.

while having a small market penetration overall. auto and personal loan segments. 50 million invested in plant and machinery for certain industries such as hosiery.3 billion in this segment compared to Rs. representing growth of approximately 18.2% over the last four years. foreign banks and new private sector banks. Our average credit growth rate in this segment has been 32. See the section titled “Business-Directed Lending” below. SSIs are also considered a priority sector for directed lending purposes.3% of our net bank credit.1%. In particular. 10 million invested in plant and machinery for other small scale industries.We have also received awards and recognition from the Government of India relating to our efforts in financing SSI businesses. As of the last reporting Friday in September 2004. processing and servicing businesses with up to Rs. drugs and pharmaceuticals and stationery items and up to Rs. SSI loans constituted 11. In fiscal 2004. 35 . we face significant competition primarily from private sector banks and to a lesser degree from other public sector banks.5 billion as of the last reporting Friday in September 2003.Foreign banks. 57. 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. SSIs are defined as manufacturing. 48.8% of our net bank credit. our principal competitors are brokers. In mutual fund sales and other investment related products. agricultural loans constituted 18.  PRODUCTS AND SERVICES FOR AGRICULTURE CUSTOMERS Agriculture contributes 22% to India‟s GDP and supports approximately two-thirds of India‟s population. As of the last reporting Friday in September. As of the last reporting Friday of September 2004. has a significant presence among non-resident Indians and also competes for non-branch based products such as auto loans and credit cards. for which we received an award from India‟s Finance Minister. in the housing. 2004 we had an outstanding loan portfolio of Rs. hand tools.  SMALL SCALE INDUSTRIES We provide financing to “small scale industries” or “SSIs”.


71 74. STATE BANK OF INDIA BALANCE SHEET AS ON 31-MARCH-2008 Assets Net Own Assets Net Lease Assets(After Lease Adj A/c) Investment Advances Cash & Money at call Other Current Assets Balance Sheet Total(BT) Rs(mn) 33291.42 443.11 833622.41 517274.48 7.71 4167681.47 %BT 0.26 57.1.01 26.15 100.12 Rs(mn) 6314.55 100.76 9.70 484011.00 %BT 0.91 5374039.00 - Liabilities Equity Share Capital Reserves Deposits Borrowings Other Cash liab/prov.35 443749.17 11.96 674663.39 1895012.87 13.09 6.84 7215263.35 6.46 0.12 1. Balance Sheet Total(BT) Non Performing Assets(NPA) % Capital Adequacy Ratio(CAR) % 37 .98 7215263.

79 453575.76 1.92 %BT 0.29 205746.31 2444310.00 %BT 0.20 27.72 1114543.88 56.26 7970.28 11.49 14.34 432453.73 100.2. Balance Sheet Total(BT) Non Performing Assets(NPA) % Capital Adequacy Ratio(CAR) % 38 .14 16.76 Rs(mn) 11126.52 5.26 3997950.83 380411.42 2256160.83 0.00 - Liabilities Equity Share Capital Reserves Deposits Borrowings Other Cash liab/prov.50 656484.43 9.83 3997950.15 100.35 61.42 10. ICICI BALANCE SHEET AS ON 31-MARCH-2008 Assets Net Own Assets Net Lease Assets(After Lease Adj A/c) Investment Advances Cash & Money at call Other Current Assets Balance Sheet Total(BT) Rs(mn) 33118.

05 1195015.00 %BT 0.03 104673.26 54465.17 0. PUNJAB NATIONAL BANK BALANCE SHEET AS ON 31-MARCH-2008 Assets Net Own Assets Net Lease Assets(After Lease Adj A/c) Investment Advances Cash & Money at call Other Current Assets Balance Sheet Total(BT) Rs(mn) 23149.24 41525.21 1974846.76 7.19 539917.49 100.64 12.54 2. Balance Sheet Total(BT) Non Performing Assets(NPA) % Capital Adequacy Ratio(CAR) % 39 .66 188307.00 - Liabilities Equity Share Capital Reserves Deposits Borrowings Other Cash liab/prov.65 Rs(mn) 3153.29 1974846.34 60.49 1664572.96 %BT 1.51 9.16 5.10 100.03 6.65 0.60 147982.00 27.3.29 2.30 84.


comparing a retailer's fourth-quarter profit margin with the profit margin from the same period a year before would be far more informative. 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. return on assets and return on equity. for example. 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. A healthy operating margin is required for a company to be able to pay for its fixed costs. some industries experience seasonality in their operations." Calculated as: 41 . Therefore. For most of these ratios. etc. On the other hand. it would not be too useful to compare a retailer's fourth-quarter profit margin with its first-quarter profit margin. typically experiences higher revenues and earnings for the Christmas season.  OPERATING MARGIN A ratio used to measure a company's pricing strategy and operating efficiency. The retail industry. 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. raw materials. For instances. It is important to note that a little bit of background knowledge is necessary in order to make relevant comparisons when analyzing these ratios. Some examples of profitability ratios are profit margin. It Is Also known as "operating profit margin. such as interest on debt.

Often. When looking at operating margin to determine the quality of a company. Name of Bank Percentage 1 SBI 22. such as cash paid out in a lawsuit settlement. nonrecurring cash flows. the better. are excluded from the operating margin calculation because they don't represent a company's true operating performance.Operating margin gives analysts an idea of how much a company makes (before interest and taxes) on each dollar of sales. it is earning more per dollar of sales. 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.45 % 3 PNB 21.47 % 42 .69 % 2 ICICI 14.12 (before interest and taxes) for every dollar of sales.No. if a company has an operating margin of 12%. The higher the margin. For example. If a company's margin is increasing. this means that it makes $0. RATIO AT 31-MARCH 2008 Sr.

It is also known as "gross margin". Calculated as: 43 . So rank of operating efficiency of banks can be given as SBI.  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. PNB and ICICI. Gross profit margin serves as the source for paying additional expenses and future savings.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.

For example.99 % 3 PNB 20. This means that for every dollar that ABC earns on widgets. More efficient companies will usually see higher profit margins.50 at the end of the day. ABC's gross profit margin would be 50%. Name of Bank Percentage 1 SBI 21. This metric can be used to compare a company with its competitors.49 % 2 ICICI 12. suppose that ABC Corp.No. it really has only $0. earned $20 million in revenue from producing widgets and incurred $10 million in COGS-related expense.67% 44 . RATIO AT 31-MARCH 2008 Sr.

 NET PROFIT MARGIN For a business to survive in the long term it must generate profit. financial position of SBI is better than PNB and ICICI. The net profit margin ratio indicates profit levels of a business after all costs have been taken into account. In some cases. 45 . It is worth analysing the ratio over time. A decline in the ratio over time may indicate a margin squeeze suggesting that productivity improvements may need to be initiated. So SBI is at first rank by its financial position than PNB and ICICI. Here. Variations may also indicate cost blowouts which need to be addressed. Therefore the net profit margin ratio is one of the key performance indicators for your business. A variation in the ratio from year to year may be due to abnormal conditions or expenses.BAR-GRAPH  INTERPRETATION This ratio shows financial position of company. the costs of such improvements may lead to a further drop in the ratio or even losses before increased profitability is achieved.

67 % 2 ICICI 10.No.68 % 46 .51 % 3 PNB 12.The calculation used to obtain the ratio is: Net Profit Margin = Net Profit Sales x 100 RATIO AT 31-MARCH 2008 Sr. Name of Bank Percentage 1 SBI 11.

it is also called „Return on Equity‟ (ROE)  It is expressed as:Net Income RONW = ------------------------------------------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).  RETURN ON NETWORTH Return on Net worth (RONW) is used in finance as a measure of a company‟s profitability. Key performance means the profit level of company. Therefore.The denominator excludes preference X 100 47 . So profit level of PNB is at first rank than comes SBI and ICICI. It reveals how much profit a company generates with the money that the equity shareholders have invested. from above graph we can say that performance of PNB is better than SBI and ICICI.BAR-GRAPH  INTERPRETATION This ratio is key performance indicators for business.

RONW measures how much return the company management can generate for its equity shareholders. RATIO AT 31-MARCH 2008 Sr.No.00 % BAR-GRAPH 48 . So.shares and considers only the equity shareholding. equity represents your money and so it makes good sense to know how well management is doing with it.94 % 3 PNB 19.72 % 2 ICICI 8. Name of Bank Percentage 1 SBI 13. RONW is a measure for judging the returns that a shareholder gets on his investment as a shareholder.

it has a debt-to-equity ratio of 0. So we can say that PNB is at first rank by its profitability than comes SBI and ICICI. The reason for this is that the costs have already been incurred. The most well known financial leverage ratio is the debt-to-equity ratio. if a company has $10M in debt and $20M in equity. equity. depending on the company and the industry. so every sale after the breakeven transfers to the operating income. 49 . Fixed and variable costs are the two types of operating costs. INTERPRETATION This ratio is useful for comparing the profitability of a company to that of other firms in the same industry.  DEBT-EQUITY RATIO A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. profitability of PNB is more than SBI and PNB. the mix will differ. assets and interest expenses. A ratio used to measure a company's mix of operating costs. Companies with high fixed costs. 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. For example. but the main factors looked at include debt. see a greater increase in operating revenue when output is increased compared to companies with high variable costs.  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. Here. There are several different ratios. On the other hand.5 ($10M/$20M). giving an idea of how changes in output will affect operating income. a high variable cost company sees little increase in operating income with additional output. after reaching the breakeven point.

It is also known as the Personal Debt/Equity Ratio.27 % 3 PNB 15. RATIO AT 31-MARCH 2008 Sr. long-term debt is used instead of total liabilities in the calculation. For example. This can lead to bankruptcy. 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.No. which would leave shareholders with nothing. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. However.44 % 50 . This can result in volatile earnings as a result of the additional interest expense. while personal computer companies have a debt/equity of under 0. this ratio can be applied to personal financial statements as well as companies'. the company could potentially generate more earnings than it would have without this outside financing. then the shareholders benefit as more earnings are being spread among the same amount of shareholders.96 % 2 ICICI 5. The debt/equity ratio also depends on the industry in which the company operates.Note: Sometimes only interest-bearing. If this were to increase earnings by a greater amount than the debt cost (interest). If a lot of debt is used to finance increased operations (high debt to equity).5. Name of Bank Percentage 1 SBI 10. capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2.

Changes in the ratio over time reflect whether or not the firm is becoming more efficient in the use of its fixed assets. it indicates the amount of sales generated by each dollar spent on fixed 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. and the amount of fixed assets required to generate a specific level of revenue. 51 .BAR-GRAPH  INTERPRETATION This ratio indicates what proportion of equity and debt the company is using to finance its assets.  FIXED ASSETS TURNOVER RATIO Measure of the productivity of a firm. Formula: Sales revenue ÷ average fixed assets. Than after SBI has a low debt-equity ratio as comparison with PNB and ICICI comes at third rank in debt-equity ratio.

61 % 3 PNB 4.RATIO AT 31-MARCH 2008 Sr. Name of Bank Percentage 1 SBI 6.No.31 % 2 ICICI 5.35 % BAR-GRAPH 52 .

Generally. The composition and quality of current assets is a critical factor in the analysis of your Company's liquidity. 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. It is calculated as Total current assets divided by total current liabilities. INTERPRETATION This ratio shows specific level of revenue by the amount of fixed assets. A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. the quick ratio and the operating cash flow ratio. and would be the most likely to be used to cover short-term debts in an emergency. 53 . 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. the larger the margin of safety that the company possesses to cover short-term debts. SBI has a high level of revenue in comparison with ICICI and PNB. After SBI. the greater the "cushion" between current obligations and your Company's ability to pay them. the higher the current ratio. Common liquidity ratios include the current ratio. Generally. the higher the value of the ratio.  LIQUIDITY RATIO A class of financial metrics that is used to determine a company's ability to pay off its shortterms debts obligations. ICICI has a high level of revenue and than comes PNB at last.

07 % 2 ICICI 0. Name of Bank Percentage 1 SBI 0.RATIO AT 31-MARCH 2008 Sr.02 % BAR-GRAPH 54 .10 % 3 PNB 0.No.

any value of less than 1 to 1 implies a "dependency" on inventory or other current assets to liquidate short-term debt. and than secondly comes SBI and PNB has a low ability to pay for liabilities in comparison with ICICI and PNB. Generally. It is calculated as Cash plus trade receivables divided by total current liabilities. 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.  QUICK RATIO It is also known as the "Acid Test" ratio. means ICICI has a high ability to pay for its liabilities. RATIO AT 31-MARCH 2008 55 . INTERPRETATION Current ratio of ICICI is higher than SBI and PNB.

No. Name of Bank Percentage 1 SBI 6.40 % BAR-GRAPH  INTERPRETATION 56 .15 % 2 ICICI 6.Sr.42 % 3 PNB 9.

The payout ratio also indicates how well earnings support the dividend payments: the lower the ratio. Calculated as: For example.No. while SBI and ICICI have a low quick ratio in comparison with PNB. the more secure the dividend because smaller dividends are easier to pay out than larger dividends. they tend to return more of the earnings back to investors. a very low payout ratio indicates that a company is primarily focused on retaining its earnings rather than paying out dividends. High growth firms in early life generally have low or zero payout ratios. which is calculated as EPS/DPS. However investors seeking capital growth may prefer lower payout ratio because capital gains are taxed at a lower rate.  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. Note that dividend payout ratio is a reciprocate ratio to dividend cover.PNB has a high quick ratio means it has enough current assets to cover its current liabilities. RATIO AT 31-MARCH 2008 Sr. As they mature.  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. Name of Bank Percentage 57 . Investors seeking high current income and limited capital growth prefer companies with high Dividend payout ratio.

so the Investors who are seeking high current income and limited capital growth should be invest in ICICI bank.12 % 3 PNB 23. so investors who are seeking capital growth should be invest in PNB and SBI because capital gains are taxed at a lower rate. PNB and SBI have a low dividend payout ratio.64 % 1 SBI 2 ICICI 33.22.40 % BAR-GRAPH  INTERPRETATION ICICI has a high dividend payout ratio. 58 .

No. Calculated as: It can also be calculated as one minus the dividend payout ratio. Name of Bank Percentage 1 SBI 77.35 % 3 PNB 76.59 % BAR-GRAPH 59 . the proportion of net income that is not paid out as dividends. EARNING RETENTION RATIO The percent of earnings credited to retained earnings.33 % 2 ICICI 66. In other words. RATIO AT 31-MARCH 2008 Sr.

 PERSHARE RATIOS  EARNIG PER SHARE The portion of a company's profit allocated to each outstanding share of common stock. it is more accurate to use a weighted average number of shares outstanding over the reporting term. so the Investors who are seeking high current income and limited capital growth should be invest in SBI and PNB. SBI and PNB have a high earning retention ratio. Earnings per share serve as an indicator of a company's profitability. 60 . because the number of shares outstanding can change over time. so the investors who are seeking capital growth should be invest in ICICI BANK. Calculated as: When calculating. data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period. ICICI has a low earning retention ratio. However. INTERPRETATION Earning retention ratio is the opposite of the dividend payout ratio.

but to use it in conjunction with statement analysis and other measures.5).5 x 15M = 12.56 % 61 . It is important not to rely on any one financial measure. 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. all other things being equal. First. the EPS would be $1. Two companies could generate the same EPS number. would be a "better" company.No. RATIO AT 31-MARCH 2008 Sr.Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number.33 % 2 ICICI 42.5M). the $1 million is deducted from the net income to get $24 million. assume that a company has a net income of $25 million. but one could do so with less equity (investment) .5 x 10M+ 0. For example.92 (24/12. An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. Name of Bank Percentage 1 SBI 117. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. Earnings per share are generally considered to be the single most important variable in determining a share's price.that company would be more efficient at using its capital to generate income and. and then a weighted average is taken to find the number of shares outstanding (0. It is also a major component used to calculate the price-to-earnings valuation ratio.

From above graph we can say that SBI has a high profitability than PNB and ICICI. PNB comes at second position and ICICI comes at third position in profitability. 62 . So.3 PNB 70.38 % BAR GRAPH  INTERPRETATION This ratio is an indicator of a company's profitability.

Financial analysis helps in ascertaining whether adequate profits are being earned on the capital invested in the business or not. For that there are some objectives which are described as under. It also helps in knowing the capacity to pay the interest and dividend. 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. 1.OBJECTIVES OBJECTIVES Analysis of financial statements is an attempt to assess the efficiency and performance of an enterprise. 2. EARNING CAPACITY OR PROFITABILITY The overall objective of a business is to earn a satisfactory return on the funds invested in it. Such 63 .

64 . 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 in taking decisions. 4.comparison also helps the management to study the position of their firm in respect of sales expenses. FINANCIAL STRENGTH The purpose of financial analysis is to assess the financial potential of business. 5. 3. profitability and using capital. It also helps the management to find out shortcomings of the business so that remedial measures can be taken to remove these shortcomings. (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.SOLVECNY OF THE FIRM The different tools of analysis tells us whether the firm has suffucient funds to meet its shortterm and long-term liabilities or not.etc. Analysis also helps the management in preparing budgets by forecasting next year‟s profit on the basis of past earnings.


etc. 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. It is a means for judging the financial health of a business enterprise. of a business enterprise. solvency view point.profitability.  If accounting ratios are calculated for a number of years.  Financial ratios. The rate of profit of each year is compared with this standard and the actual performance of the business can be judged easily. sumarise.  Ratio analysis discloses the position of business with different viewpoint. we can draw conclusion regardings the financial health of business enterprise.IMPORTANCE Ratio analysis is an important technique of financial analysis.etc.  It becomes simple to understand various figures in the financial statements through the use of different ratios. remidial masures are taken to correct them.solvency. 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. Such trends are useful for planning. Financial ratios simplify. with the help of such a study. comparision of profitability and financial soundness can be made between one industry and another. profitability viewpoint. It determines and interprets the liquidity. sales. It discloses the position of business with liquidity viewpoint. For example. based on a desired level of activities. can be set as standards for judging actual performance of a business.  With the help of raito analysis. and systemise the accounting figures presented in financial statements. they will reveal the trend of costs. 66 . profits and other important facts.


They also reveal strong firms and weak firms. 5.ADVANTAGES Ratio analysis is an important and age-old technique of financial analysis. Planning. overvalued and undervalued firms. Ratios can assist management. co-ordination. Help in investment decisions: It helps in investment decisions in the case of investors and lending decisions in the case of bankers etc. in its basic functions of forecasting. Ratios tell the whole story of changes in the financial condition of the business. 4. Ratios highlight the factors associated with with successful and unsuccessful firm. The following are some of the advantages of ratio analysis: 1. Facilitates inter-firm comparison: It provides data for inter-firm comparison. control and communications. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future. Helps in planning: It helps in planning and forecasting. Simplifies financial statements: It simplifies the comprehension of financial statements. 68 . Makes inter-firm comparison possible: Ratios analysis also makes possible comparison of the performance of different divisions of the firm. 2. 3.

Financial statements themselves are subject to several limitations.LIMITATIONS The ratios analysis is one of the most powerful tools of financial management. be adjusted keeping in view the price level changes if a meaningful comparison is to be made through accounting ratios. 3. In such a case the ratio analysis may not clearly indicate the trend in solvency and profitability of the company. Limited use of single ratios: A single ratio. non-financial changes though important for the business are not relevant by the financial statements. may affect the future operations. Thus ratios derived. Personal bias: Ratios are only means of financial analysis and not an end in itself. Limitations of financial statements: Ratios are based only on the information which has been recorded in the financial statements. The financial statements. For example. Though ratios are simple to calculate and easy to understand. 2. they suffer from serious limitations. Comparative study required: Ratios are useful in judging the efficiency of the business only when they are compared with past results of the business. are also subject to those limitations. 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. 6. there from. 5. 4. a number of ratios have to be calculated which is likely to confuse the analyst than help him in making any good decision. 69 . Ratios have to interpret and different people may interpret the same ratio in different way. usually. management policies. It renders interpretation of the ratios difficult. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. etc. does not convey much of a sense. therefore. Financial statements are affected to a very great extent by accounting conventions and concepts. However. Personal judgment plays a great part in determining the figures for financial statements. 1. Problems of price level changes: A change in price level can affect the validity of ratios calculated for different time periods. To make a better interpretation. There are no well accepted standards or rule of thumb for all ratios which can be accepted as norm.

It makes comparison of ratios difficult and misleading. 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. CONCLUSION 70 .7.

ratios are relative figures reflecting the relationship between related variables. which give the decision-maker insights into the financial performance of a company. it yields significant interferences. The reliability and significance 71 . In brief.  Ratio analysis in view of its several limitations should be considered only as a tool for analysis rather than as an end in itself. relation and evaluation. are not of much use. per unit costs. A single figure by itself has no meaning. but when expressed in terms of a related figure. like absolute figures. volume or efficiency have an impact on the profit margin or turnover ratios of a company. Thus. The final step is interpretation and drawing of inferences and conclusions. Their use as tools of financial analysis involves their comparison as single ratios. The second step is to arrange the information in a way to highlight significant relationships.CONCLUSION  Ratios make the related information comparable. Decisions affecting product prices.  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. financial analysis is the process of selection.  Financial ratios are essentially concerned with the identification of significant accounting data relationships.  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.  Ratio analysis has a major significance in analysing the financial performance of a company over a period of time.

BIBLIOGRAPHY 72 . Nevertheless. they are an important tool of financial analysis. They are as good or as bad as the data itself.attached to ratios will largely hinge upon the quality of data on which they are based.

BIBLIOGRAPHY     Web sites: www.M Y Khan P K Jain “Financial Management”-Prasanna Chandra 73 .icici.com www.pnb.com    Books referred: “Basic Financial Management”.sbi.com www.

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