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Ranathuga Marketing Management Department of Commerce and management University of Kelaniya .University Financial Ratio Analysis Hatton National Bank L. H. S.
Acknowledg eme nt This assignment was prepared for the purpose of getting the understanding about the meaning of ratio analysis and its application on Hatton National Bank. Ajith P. . Thank you for all. I am really grateful to our Strategic Marketing Management Lecture Mr. Medis for giving advice. As well as I thank to all those who helped in the preparation of this assignment.
Conte nt Introduction 01 Bank Profile 02 Introduction to Financial Analysis 03 Annual Reports 06 Ratio Analysis of Hatton National Bank Profitability Ratios 08 Leverage Ratios 14 Investment Ratios 16 Productivity Ratios 24 Capital Adequacy Ratios 26 Activity Ratios 28 Conclusion 32 .
All of the listed company should do this ratio analysis as legal requirement. includes no of individual ratios that are relating to Hatton National Bank. the financial statement of HNB will be analyzed. Like Leverage (Gearing) Ratios. This first part briefly describes about the company background. some idea could be generated on behalf of Hatton National Bank’s financial strength. Then move to analysis part of the financial statement of Hatton National Bank. Under those categories. Most of the organizations today do this ratio analysis in order to get idea about financial strength of their company. Activity Ratios. Under above mentioned categories. Liquidity Ratios. Then it moves into the ratio analysis part of Hatton National Bank. In here.Page |1 Introduction This assignment has been mainly focused on understanding the financial ratio analysis of a company. This report will be explained the ratio analysis of Hatton National Bank on annual report of 2008. In that part. there are number of ratio categories under Hatton National Bank. Profitability Ratios and Investment Ratios. .
Bank Prof ile
The bank name is Hatton National Bank that started their business in year 1888 to provide
the investors in large scale plantations as well as to the small savers amongst the plantation
workers. Then in 1970 was the actual birth of Hatton National Bank and the Hatton National
Bank is a listed public company incorporated in Sri Lanka in March 1970, with limited
liability and the company registered no was PQ 82 (previous PBS 613) and also The Ordinary
Shares and the Unsecured Subordinated Redeemable Debentures of the Company are listed
on the Colombo Stock Exchange in Sri Lanka and Global Depository Receipts of the
Company are listed on the Luxemburg Stock Exchange
The Hatton National Bank has so many products on behalf of their customers. Those
products are categorized under Personal Banking, Corporate Banking, Development
Banking, Electronic Banking, International Banking and Correspondent Banking.
What is F i n a n c i a l R a t i o A n a l y s i s
Ratio analysis is essentially concerned with the calculation of relationships which after
proper identification and interpretation may provide information about the operations and
state of affairs of a business enterprise.
The analysis is used to provide indicators of past performance in terms of critical success
factors of a business. This assistance in decision-making reduces reliance on guesswork and
intuition and establishes a basis for sound judgment.
Significance of Using Ratios
The significance of a ratio can only truly be appreciated when:
1. It is compared with other ratios in the same set of financial statements.
2. It is compared with the same ratio in previous financial statements (trend analysis).
3. It is compared with a standard of performance (industry average). Such a standard
may be either the ratio which represents the typical performance of the trade or
industry, or the ratio which represents the target set by management as desirable
for the business.
Financial ratio analysis groups the ratios into categories which tell us about different facets
of a company's finances and operations. An overview of some of the categories of ratios is
Leverage (Gearing) Ratios
The ratios indicate the degree to which the activities of a firm are supported by creditors’
funds as opposed to owners. The relationship of owner’s equity to borrowed funds is an
important indicator of financial strength. The debt requires fixed interest payments and
repayment of the loan and legal action can be taken if any amounts due are not paid at the
Increased turnover can be just as dangerous as reduced turnover if the business does not have the working capital to support the turnover increase. Financial leverage will be to the advantage of the ordinary shareholders as long as the rate of earnings on capital employed is greater than the rate payable on borrowed funds. there is no cash and therefore profitability must be seen as a critical success factors. In order for the assets to be used effectively. Failure to do this will result in the total failure of the business. profitable companies can still fail for a lack of cash. the greater the degree of financial strength. The greater the proportion of equity funds. overtrading occurs. Activity ratios are therefore used to assess how active various assets are in the business. Liquidity Ratios Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as they fall due. as it would be forced into liquidation. investors in the business would rather take their money and place it somewhere else. the business needs a high turnover. Profitability Ratios Profitability is the ability of a business to earn profit over a period of time. A relatively high proportion of funds contributed by the owners indicate a surplus which shields creditors against possible losses from default in payment. As turnover increases more working capital and cash is required and if not. Unless the business continues to generate high turnover. Activity Ratios If a business does not use its assets effectively. Without profit. as already pointed out. A company should earn . Although the profit figure is the starting point for any calculation of cash flow. assets will be inactive as it is impossible to buy and sell fixed assets continuously as turnover changes.Page |4 appointed time. The main concern of liquidity ratio is to measure the ability of the firms to meet their short-term maturing obligations.
Note that when we refer to the share price. Profits are essential. The profitability ratios show the combined effects of liquidity.Page |5 profits to survive and grow over a long period of time. asset management (activity) and debt management (gearing) on operating results. For this reason. Profitability is a result of a larger number of policies and decisions. The overall measure of success of a business is the profitability which results from the effective use of its resources. irrespective of social consequences. it is difficult to perform these ratios on unlisted companies as the market price for their shares is not freely available. . Investment Ratios These ratios indicate the relationship of the firm’s share price to dividends and earnings. but it would be wrong to assume that every action initiated by management of a company should be aimed at maximizing profits. Market value ratios are strong indicators of what investors think of the firm’s past performance and future prospects. One would first have to value the shares of the business before calculating the ratios. we are talking about the Market value and not the Nominal value as indicated by the par value.
238 907.364.456 2.667.124.562 3.317 4.300 1.802 2.50 .826 3.516 188.8.131.520 Provision for loan losses 18 1.859 79.754 4.075.702.485.584 1.268 Provision for employee retirement benefits 17 787.212 49.Page |6 Income Statement Bank For the year ended 31st December Note 2008 Rs 000 Group 2007 Rs 000 2008 Rs 000 2007 Rs 000 INCOME 9 37.996.287.288 49.135 Less: OPERATING EXPENSES 15 Personnel expenses 16 Premises.022.086 12.313 1.456 55.994.022.754 - - (6.698 20.946.915 29.802 13.180 15.199.495 457.084 1.858.648 4.565.166.840 Other expenses 20 PROFIT FOR THE YEAR 4.564.038 32.218.233 3.990 78.142 216.431.829.536 4.081.668 1.364.121.224 16.826 3.00 3.334.321 125.527 4.945.503 2.430.312.158 4.869 17.020 18.401) 14.600 10.126.50 *4.599.075.284 3.340 12.538 3.189.889 Interest income 10 32.913 Provision for fall in value of investments PROFIT FROM OPERATIONS Share of profit / (loss) of associates (net of income tax) 2.266 13.979 184.108.40.2069.250.569 2.512 92.782 3.404 220.127.116.11 12.169.068 2.434.114.542.02 13.491.980 3.679.469 Attributable to: Equity holders of the Bank Minority interest PROFIT FOR THE YEAR BASIC EARNINGS PER SHARE (Rs) DIVIDEND PER SHARE (Rs) 3.434 2. equipment and establishment expenses Fee and commission expenses 1.267 12.491 11.006 3.414.38 *4.535 4.725.660.828 795.165.561.238 907.248 14.913 1.126 4.470.128 451.158 18.104.22.1684 Dividend income 13 538.789 1.648 19 PROFIT BEFORE INCOME TAX Less: Income tax expense 259.169 253.885.803 3.395.438.830.885.496 Fee and commission income 12 2.554 Less: Interest expenses 11 19.060.684 52.980 21 3.298 1.292 10.784.200 5.656 2.023 423.829 2.334.784.718 38.831.805.421.67 12.653 11.751.629.667 15.333 2.159.346 Other inc ome 14 Operating Income 665.550.00 3.393.673 2.267 - 4.468 Net interest income Foreign exchange profit 1.
400.156.270.930 2.851 872.093 2.866.963.411 5.979 68.256 81.953 1.618 30.851 872.082.915.856 - 24 25 26 27 28 28 29 30 31 32 33 34 35 36 Group - .893.451 9.390 821.896.793 2.290 2007 Rs 000 23.970.117 261.275.321 9.826 4.167 214.505 6.357 236.455 132.707 3.535.747.455 165.549 57.623.065.904.269.069.493.659 21.322 13.401.580.909 219.270.299.407.030 232.633 40 41 42 43 44 2007 Rs 000 19.908 1.326 250.315 21.539.030 5.487.861.206 20.411 3.786 19.720.252 12.549 2.000 2.450 143.390 982.989.588.293.989.059.226 5.799.864 8.861.260 8.323 241.649.401.402 16.Non life Subordinated debentures Deferred tax liabilities Other liabilities Total Liabilities EQUITY Stated capital Statutory reserve fund Retained earnings Other reserves Total Equity attributable to equity holders of the Bank Minority interest Total Equity Total Liabilities and Equity Commitments and Contingencies 22 23 2008 Rs 000 23.392.957 57.906.864 6.958.693 14.514 1.648 727.352.419.321 9.893.086 187.493 18.882 1.233 7.580.816 23.977.348 175.614.734.937 255.958.573 30.096.605.952 11.539.700 176.794 607.386 238.559.384 8.868 25.405.198.181.059.574 470.078 175.138 1.707 2.976 1.483.664 17.901.790.584 20.301.137 235.752 4.414.096.395.505 2.410 6.205 712.235 4.537 11.160 1.059.584 1.233 7.262.392.505 161.301.303 20.566.296.360.000 71.542.313 13.574 68.461.326 186.676 1.859.011 234.618 15.794 605.414.405.047.069.856 1.921.301 347.416.419 26.707 2.455 143.519.584 1.284 255.663 188.333 232.318 261.937 11.664 219.557.769 2.706 13.065.Life Insurance provision .455 132.Page |7 Balance Sheet Bank As at 31st December Note ASSETS Cash and cash equivalents 00 Statutory deposit with Central Banks 00 Government treasury bills Commercial papers Securities purchased under re-sale agreements Dealing securities Investment securities 00 Bills of exchange Loans and advances Lease rentals receivable within one year Lease rentals receivable after one year Non-current assets held for sale Investments in associates 00 Investment in joint venture 00 Investments in subsidiaries 00 Investment properties Property.172 46 236.872 4.620 14.661 6.957 - 47 2008 Rs 000 159.002.002.440 9.963.390 821.897.047.862 880.584 22.674 340.318 3.158.541 127.303 15.862 127.450 144.847.237 1.380.303 15.179.976 1. plant and equipment Intangible assets Other assets Total Assets LIABILITIES Deposits from customers Dividends payable Borrowings Securities sold under re-purchase agreements Bills payable Current tax liabilities Insurance provision .558 183.998 759.628 13.017 753.302 241.598 7.864 8.419.395.450.264 4.045.979 - 8.467 6.489 20.930 2.348 982.323 37 38 39 225.769.717 1.689.288 - - - 180.731 186.937 5.616.985.906.390 5.575 210.000 589.707 2.059.172 18.865.036.754.026.659.237 1.198.096.562 5.
A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors.50% 10.50% 10.00% 8.08% 8. Here the company has not controled its cost betterly than year 2007.66% Analysis According to above details.66% 2007 2008 .08%. 2007(Rs.08% 8. Normally it calculates by dividing profit for the year from total income.50% 8.50% 9. 10.66% in year 2008 compare with year 2007 of 10.'000) 2008 (Rs. the net profit margin was reduce to 8.00% 9. The reduction was 1.42% in year 2008 compare to year 2007.00% 7.'000) Profit for the year × 100 Profit for the year × 100 Total Income Total Income 3022456 × 100 3218980 × 100 29994718 37165915 10.Page |8 Rati o Ana ly si s of H NB Profitability Ratios Net Profit Margin The net profit margin is very useful when comparing companies in similar industries. The formula and figures are relating to HNB bank.
The reduction was 2.12% in year 2008 compare to year of 2007 of 36.00% 2007 2008 . The formula and figures are relating to the HNB bank is as follows.87% 37.00% 35. gross profit margin shows that the ratio was reduce to 34.87%.00% 36.'000) 2008 (Rs.00% 34.00% 32.12% 34. 38.Page |9 Gross Profit ofit Margin Gross profit margin indicates the relationship between net interest income and the total income generate by interest income and operation income.75% in year 2008 compare to last year. A high gross profit margin indicates that a business can make a reasonable profit on total income.12% Analysis According to above information. Normally it calculates by dividing net interest income from average total income.87% 34.'000) Net Interest Income × 100 Net Interest Income × 100 Total Income Total Income 11060340 × 100 12679491 × 100 29994718 37165915 36.00% 36. 2007(Rs.00% 33.
It is better compare to last year of 56.50% 54.20% in year 2007.50% 55.20% 54.30% by 1. The cost to income ratio was reducing to 54. That mean.30% Analysis According to above details.P a g e | 10 Cost to Income Ratio Cost to income ratio is the ratio that represents relationship between cost and income of a company.50% 53. it good for the company in terms of profit maximization.00% 56.00% 55. redu the net income of Hatton National Bank is increased. It is better to note that if the cost to income ratio is low. the cost to income ratio was 54.50% 56. So shareholders can get more dividends from the company as well as investors.20% 54. Normally it calculates by dividing operating expenditure from net income. 56.90% in year 2008.20%.30% in year 2008 and it is 56.00% 53. Following formula and figures are relating to Hatton National Bank.00% 54. Operating Expenditure 100 Net Income Operating Expenditure 100 Net Income 56.30% 2007 2008 . when the cost is reduced.
It is unfavorable to shareholders.5 19. Therefore owners of company will be dissatisfied in terms of return on shareholder’s fund and it will affect the company goodwill. Then investors may be invested in another bank or etc.28% in year 2007.00% 16.50% 16.28%.00% 2007 2008 .50% in year 2008 from 19.50% in year 2008 from 19. 2007 (Rs.'000) Profit for the Year × 100 Profit for the Year × 100 Average Equity Average Equity 3022456 × 100 3218980 × 100 15674419 19499983.78% to 16.P a g e | 11 Return on Equity (After tax) The Return on Equity of a company measures the ability of the management of the company to generate sufficient returns for the capital invested by the owners of a company.'000) 2008 (Rs. The following diagram shows that the return on equity is reduced to 16. Following formula and figures are relating to Hatton National Bank . 20.00% 18. the return on equity was down by 2.28% 19.50% Analysis According to the above details.00% 15. General ly a return of 10% would be desirable to provide dividends to owners and have funds for future growth of the company. It normally calculates by dividing profits for the year from average equity.00% 19.00% 17.28% 16.
It normally calculates by dividing profits for the year from average assets of a company.30% 1. Therefore HNB Bank has not been able to use its total assets more efficiently over the year.P a g e | 12 Return on Average Assets The return on assets is a measure of how effectively the firm's assets are being used to generate profits. 1. investors will be unhappy with this ratio.32% 1.32% in year 2008 from 1.25% 2007 2008 .35% 1.42% 1.'000) Profit for the Year × 100 Average Assets Profit for the Year × 100 Average Assets 3022456 × 100 3218980 × 100 214488348.5 244088260 1.32% Analysis The return on average assets was down in year 2008 to 1. This ratio is very much important to investors to get their decisions. 2007 (Rs. In this situation.45% 1.42%. The following diagra m shows that the return on average assets is reduced to 1.40% 1.'000) 2008 (Rs.42% in 2007 because increasing rate of total asset is higher than the increasing rate of net income. The formula and nd relative figures for Hatton National Bank are as follows.32% from 1.42% 1.
00% 47.89% and for year 2008 was 49.00% 49. the contribution of fixed assets to achieve its expected profit margin.00% 46.89% Analysis According to above details.69% year 2007. But in year 2008. The formula a nd relative figures for Hatton National Bank are as follows. it was reduce to 46. It cannot identify a significant different between year 2007 and 2008.00% 2007 2008 .8% compare to last year.89% by 2.89% 46. 50.69% 49. The following diagram shows that the return on fixed assets ratio has reduced to 46. Simply say.69% 46.P a g e | 13 Return on Fixed Assets The return on fixed assets means is that the company’s ability to achieve its efficiency by using its fixed assets in terms of profit generation.00% 45.69%.'000) Profit for the Year × 100 Total Fixed Assets Profit for the Year × 100 Total Fixed Assets 3022456 × 100 6082558 3218980 × 100 6865648 49.00% 48.'000) 2008 (Rs. Normally it calculates by dividing profits for the year from total fixed assets. 2007 (Rs. A higher return on fixed assets ratio io result usually indicates an efficient use of assets.89% in year 2008 compare to 49. return on fixed assets for year 2007 was 46.
6 12. 2007 (Rs.3 12. It normally ca lculates by dividing total assets from total equity. 12.4 12. The following diagram shows that the ratio of total assets to shareholders fund has reduced to 12.4 in year 2008 from 12.2 2007 2008 .7 12.64 12.5 12.'000) 2008 (Rs.24 times so it is not much impact on shareholders’ equity.4 Analysis The above details are shown that total assets to shareholders fund is 12.P a g e | 14 Leverage Ratios Total Assets to Shareholder’s Fund A total asset to shareholder’s fund represents the times that can cover the total equity from total assets. Simply say.64 times in year 2007 and it were down to 12.64 time 12. The reduction was 0.'000) Total Assets Total Assets Total Equity Total Equity 232906348 255270172 18419030 20580937 12.64 in year 2007. it shows the relationship between total assets and shareholders fund.4 times in year 2008. The more times are very importing in that analysis.4 times 12. Following formula and figures are relating to Hatton National Bank.
00% 32.02%.90% 33. 33.02% 33. So that. The purpose of this ratio is to indicate the percentage of the shareholder's funds invested in fixed assets. The formula of fixed assets to total equity and figures for Hatton National Bank is as follows.'000) Total Fixed Assets × 100 Total Fixed Assets × 100 Total Equity Total Equity 6082558 × 100 6865648 × 100 18419030 20580937 33.30% in year 2008 compare to last year of 33.30% in year 2008.80% 2007 2008 . But it cannot be identified significant difference between year 2007 and year 2008. fixed assets to shareholders fund is rather better. 2007 (Rs. The above details are shown that fixed assets to shareholders fund in year 2007 were 33.30% Analysis It is better that the fixed asset to shareholders fund is more than 100%.10% 33.'000) 2008 (Rs.28%.02% 32.40% 33.02% and 33.30% 33. Normally. it calculates by dividing total fixed assets from sh areholders fund.20% 33.30% 33. It is increasing about 0. The following diagram shows that the ratio of fixed assets to sharehol ders fund has increased to 33.P a g e | 15 Fixed Assets to Shareholders’ Fund This ratio establishes the relationship between fixed assets and shareholders funds.
But in the side of shareholder. it is not good for the Hatton National Bank because the dividend payment was increase.00 Analysis According to above details.P a g e | 16 Investment Ratios Dividend per Share Dividend per share is very similar to earning per share. So that total expenditure is also increased.4 3.9 3.'000) 2008 (Rs.'000) Dividend Payment No of Shares Outstanding Dividend Payment No of Shares Outstanding Rs. When company is issuing more shares that can be obtained less dividend per share.50. they much satisf y for that dividend payment. 4. 3.8 3.7 3. 4 Rs. 4.00 and it is for year 2007 was Rs.3 3.5 3. Some other investors invest ors also can be attracted through that increased. 2007(Rs.1 4 3.2 Rs.50 in year 2008 compare to last year of 2007. 4. The increase was Rs .5 2007 2008 .6 3. The dividend per share is the ratio that calculates value for per share of shareholders. 3. 3.50 Rs. the dividend per share for year 2008 was Rs. Dividend per share is the ratio that represents the profits for shareholder’s a share purchase from bank. It n ormally calculates by dividing total dividend payment from number of shares outstanding during the year.
And it is better to investors to invest their valuable money in HNB bank.4 13. The following diagram shows that the earning per share has increased to Rs.67 Rs. 12. 12.6 13.2 13 12.84 in year 2008 compare to last year. 13.6 12. 13. The formula and figures for Hatton National Bank are as follows. the earning per share for year 2007 was Rs.67.67 Analysis According to the above information.83 2007 2008 . 0.8 13. 12. 2007 (Rs.'000) Profit for the year No of Shares issued Profit for the year No Shares issued 3022456 235529 3218980000 23529000 Rs. And also earnings per share can be served as an indicator of a company's profitability. 12. It normally calculates by dividing profit for the year from number of shares issued.83 year 2007. 13.P a g e | 17 Earning per Share The earning per share can be expressed as the portion of a company's profit allocated to each outstanding share of common stock.'000) 2008 (Rs.4 Rs.64 in year 2008 from Rs. 13. 13. shareholders are enjoyed more profits from bank.83 Rs. In that situation. It is increased by Rs.83 and for year 2008 was Rs.8 12.
dividend yield in year 2007 was 2. In the absence of any capital gains.'000) 2008 (Rs.5 × 100 4 × 100 122. The following diagram shows that the ratio of dividend yield has increased to 5.75 2. 7.00% 0.'000) Dividend Per Share × 100 Market Share price Dividend Per Share × 100 Market Share price 3.73%. The formul a and relative figures for Hatton National Bank B ank are as follows.00% 5.86% in year 2007.86% and in year 2008 was 5.00% 2. It normally calculates by dividing dividend per share from market share price. the dividend yield is the return on investment for a stock. It was increased by 2.73% Analysis According to above details.86% 5.00% 4.73% in year 2008 from 2.73% 2.00% 3.00% 1. 2007 (Rs.00% 5. It is much more important to shareholders and to investors to invest much more in Hatton National Bank .86% 2007 2008 .5 69.87% in year 2008 compare to year 2007.P a g e | 18 Dividend Yield The dividend yield ratio shows how much a company pays out in dividends each year relative to its share price.00% 6.
'000) Earning Per Share × 100 Earning Per Share × 100 Market Share Price Market Share Price 12.00% 10.00% 5. 2007 (Rs. The formula a nd relative ative figures for HNB are as follows. 25. So it is very important to investors to invest in HNB bank.5 69.00% 19.00% 2007 2008 .00% 10.59% Analysis When consider above details. It provides more information to investors and shareholders. the earning yield for year 2008 was increased to 19.67 × 100 122.47% 0. This earnings yield is used by many investment managers to determine optimal asset allocations.P a g e | 19 Earning Yield The earning (yield which is the inverse of the P/E ratio) shows the percentage of each invested in the stock that was earned by the company.59% 20. It is very significant increases in year 2008.12%.59% from 10. It calculates by earning per share from current market share price.75 10.'000) 2008 (Rs.83 × 100 13. The following diagram shows that the ratio of earning yield has increased to 19.47% 19.47% in year 2007 by 9.47%.59% in year 2008 from year 2007 of 10.00% 15.
4 3.'000) Profit for the Year Profit for the Year Gross Dividend Gross Dividend 3022456 3218980 824000 942000 3.3 in year 2008 compare to last year.7 3.4 times 3.7 times in year 2007. 3. 2007 (Rs.7 times and for year 2008 was 3. The formula and nd relative figures for Hatton National Bank is as follows.P a g e | 20 Dividend Cover (times) This show how many times over the profits could have paid the dividend.4 times in year 2008 from 3.6 3.2 2007 2008 .3 3. dividend cover for year 2007 was 3. The following diagram shows that the dividend cover ratio has reduced to 3. These ratios are much more important to shareholders and outside investors to invest in HNB. A large amount is very good for that ratio.'000) 2008 (Rs.5 3.8 3. HNB But the dividend cover ratio was lese in year 2008 compare to last year.7 times 3.4 times.7 times 3.. It was reduced by 0. So it is b ad thing for Hatton National Bank. It calculates by dividing profits for the year from gross dividend.4 times Analysis According to above details.
the price earning ration in year 2007 was 9.55 Times 5. it is bad result for Hatton National Bank and sometime ime investors may move to another bank to purchase the shares.'000) Market Share Price Earning Per Share Market Share Price Earning Per Share 122.1 times 4 2 0 2007 2008 . 12 10 9.55 times 8 6 5.67 9. The ratio is calculated to make an estimate of appreciation in the value of a share of a company and is widely used by investors to decide whether or not to buy shares in a particular company. It calculates by dividing market share price from e arning per share. 2007 (Rs.5 12.'000) 2008 (Rs.55 times and it is for year 2008 was 5.75 13.83 69. The he relative figures for Hatton National Bank are as follows.1 times in year 2008 from 9.1 times.1 Times Analysis According to above details. It decreased by 4.55 times in year 2007.P a g e | 21 Price Earning Ratio Price earning ratio (P/E ratio) is the ratio between market price per equity share and earning per share. The following diagram shows that the price earning ratio has reduced to 5.45 times in year 2008 compare to year 200 7.
38.20 Rs. 87. In that situation. 78. It changes by Rs. 87.'000) Total Equity Total Equity No of Shares No of Shares 18419030 235529 20580937 235529 Rs.20 and for year 2008 was Rs. 78.18 from 2007 to 2008.2 75 70 2007 2008 . 90 Rs. 87. 9. 2007 (Rs. Normally it calculates by dividing total equity from number of shares issued.38 85 80 Rs.P a g e | 22 Net Assets per Share The net assets per share represent the compa ny’s value per share.38 from Rs.38 Analysis According above figures. Its calculation is normally different from company to company. 78. In year 2008 have increased the net assets per share to Rs. 87. the net assets per share value for year 2007 was Rs. the shareholders are much satisfied and it is important to investors to get their decisions.'000) 2008 (Rs. 78. Here there is a significant difference between year 2007 and year 2008.20 in year 2007. The following formula and figu res are relating to the HNB HNB.
'000) Profit before Interest and Tax Profit before Interest and Tax Interest Paid Interest Paid 7. Normally it calculates by di viding Profit before interest and tax from net interest income.'000) 2008 (Rs.28 times in year 2008 compare to last year of 7.14 times. 2007(Rs.28 times Analysis According to above details.14 times 9. it will get more time to fulfill the interest expenditure. So that to cover the interest. the interest coverage ratio was increase to 9.14 times 2 0 2007 2008 . The increased was 2.28 times 7. 10 8 6 4 9.P a g e | 23 Interest Cover Ratio The mean is that the safety margin that the business has in terms of being able to meet its interest obligations.14 times in year 2008 compare to last year. This is so bad for the bank because the interest cover ratio has increased. A high interest cover ratio means that the business is easily able to meet its interest obligations from profits. The formula and figures are relating to the Hatton National Bank.
04 to Rs. 732.42. 732. 35. 697.42 and it is for year 2007 was Rs. The following formula and figures are relating to the Hatton National Bank. Normally it calculates by dividing net income from number of employees of company or organization. The contribution of employees to gene generate net income is high in that this year. 740 730 720 710 700 690 680 670 Rs.'000) Net Income Net Income No of employees No of employees 3022456 3218980 4334 4395 Rs.'000) 2008 (Rs.P a g e | 24 Productivity Ratios Net Income per Employee Net assets per employee shows that what the contribution of per employee to generate the net income of the company. 732. 697. 2007(Rs. It is better rather than year 2007.'000) (Rs. the net income per employee in year 2008 was Rs.38 2007 2008 . 732. In year 2008 it was increased by Rs.42 Analysis According to above details. 697.38.38 Rs.42 Rs.
55537.7 54000 52000 50000 48000 Rs.'000) 2008 (Rs. It normally calculates by dividing average assets from no of employees employed in the bank.7 Analysis According to the above details. The following formula and figures are relating to the Hatton National Bank. The contribution of per employee was increase by 6048 in year 2008 compare to year 2007.P a g e | 25 Assets per Employee This is simply the relationship between assets and no employees. 49489.7 Rs.5 244088260 4334 4395 Rs. 56000 Rs. This is very much better compare to last year.7 46000 2007 2008 .7 and it is for year 2007 was 49489. 2007(Rs. 49489.'000) Average Asset Average Asset No of Employees No of Employees 214488348. 55537. assets per employee in year 2008 were 55537.
08% 11.60% 11. Keeping with the international standards of Basel Committee on Banking Regulations and Supervisory Practices.00% 2007 2008 .P a g e | 26 Capital Adequacy Ratios Capital Adequacy is a measure of a commercial bank’s ability to withstand the as sociated risks of its business.40% 12.40% 11. Core Capita Ratio Core capital represents the paid -up up ordinary share capital. Regulators find it necessary that every bank holds adequate capital to absorb unexpected cted losses as a going concern.20% 12. Capital Adequacy Ratio (CAR) was measured on the basis of Credit and Market risk under the Basel I accord and under Basel II it takes into account the Credit.40% 11. statutory reserve fund.80% 11. general and other reserves. 2007 2008 Core Capital (Tier I) x 100 Core Capital (Tier I) x 100 Total Risk-weighted Assets Total Risk-weighted weighted Assets 12. Market and Operational risks. Sri Lanka has been following Basel II CAR calculation from January 2008 after conducting parallel calculations in 2007. whilee they price their products and services to take care of expected losses.00% 11. share premium.08% 12.20% 11. Publish retained reserves.
P a g e | 27 Analysis In 2008 the Bank’s core capital and total capital base improved by 5% & 11% to Rs 16. .00 per share was paid during the year. while 2007 ratio was computed according to Basel I. The decline shown in the ratio is mainly due to the introduction of operational risk under Basel II in 2008.08% in 2007 slipped marginally to 11. which did not consider operational risk in computing capital adequacy ratios. The Bank’s total capital ratio which stood at 12.23 Bn & Rs 20 Bn respectively.40% in 2008. sluggish capital markets and slowdown in asset growth. however it will continue to closely monitor the growth projections and new developments in capital markets domestically as well as globally. Currently the Bank is comfortably positioned in terms of its capital ratios. Further in 2007 there was no interim dividend payment whilst in 2008 an interim dividend of Rs 1. This year the Bank did not raise a significant amount of new core or supplementary capital due to high interest rates.
00% 20.90% and it is for year 2007 was 28. ment. the income growth calculates by dividing change of income compare to last year from last year income. Normally. 2007 (Rs. and HNB Stockbrokers (Pvt) Ltd and so on.994.'000) Change in Income × 100 Growth of Income × 100 Income for the Year 2006 Income from year 2007 8370911 × 100 7171197 × 100 21493695 29.95%.05% in year 2008. It is important to note that the income from dividends witnessed a significant growth of 330% to Rs 538321 with main contributions coming from HNB Securities Ltd. The formula and financial figures for income growth of HNB Bank are as follows. 90% in year 2008 from 38.90% Analysis According to above details.00% 23.00% 38.90% 0. the growth of income in year 2008 was 23. Under bank income statement.95%. HNB Assurance PLC.00% 2007 2008 .718 38.P a g e | 28 Activity Ratios Growth of Income This represents the growth of income of a company compare to last year income. the income consists of interest income and operating income. Commercial Bank PLC. it can be seen a significant reduction in income growth by 15.95% 23. DFCC Bank. 60. The following diagram shows that the income growth reduction to 23.95% 40.'000) 2008 (Rs.
It is somewhat good rather than last year net interest growth. Normally.P a g e | 29 Net Interest Income Growth The mean here is that.00% 14.’ Change in Net Interest erest Income × 100 Net Interest Income for 2006 Change in Net Interest erest Income × 100 Net Interest Income for 2007 2293438 × 100 18451961 1618151 × 100 11060340 12.00% 13.'000) 000) 2008 (Rs. 15.43%. net interest income growth is calculated by dividing change in net interest income compare to last year from last year net interest income.’000) (Rs. the change in net in terest income of HNB for year 2007 is Rs. 2293438 as a percentage 12.50% 11. The following diagram shows that the net interest growth from 12. And also change in net interest income for year 2008 is Rs.63%.63% in year 2008. 2007 (Rs.43% 2007 2008 .00% 11.63% 12.50% 13.50% 12.00% 12.43% to 14. the change in net interest income compare to last year net interest income.50% 14.00% 14.63% Analysis According to the above information.43% 14. 1618151 as a percentage 14. The formula for net interest income growth and t he relative figures for HNB are as follows under 2007 and 2008.
2007 (Rs.'000) Change in Equity × 100 Total Equity of 2006 Change in Equity × 100 Total Equity of 2007 5489222 × 100 12929808 2161907 × 100 18419030 42. 2161907 as a percentage 11.P a g e | 30 Growth of Shareholders’ Shareholders Funds The growth of shareholders fund is that the percentage of change in total equity compare to last year total equity. the growth of shareholders funds is calculated by dividing the change in shareholders fund from last year shareholders fund and multiply by 100 to show as a percentage. 5489222 as a percentage 42. 20580937) than year 2007 (Rs. Normally.45% and the change in equity in 2008 was Rs.45 in year 2007.74%.'000) 2008 (Rs. Here the formula of growth of shareholders fund f and the figures for Hatton National Bank are as follows. The following diagram shows that the growth of shareholders fund reduction to 11.74% Analysis The above figures are relating to the growth of shareholders fund of HNB bank.45% 11. 18419030). the increase in total equity was much more less compare to year 2007. . Even total equity in year 2008 was higher as an amount (Rs. The change in equity in 2007 was Rs.74% in ye ar 2008 from 42.
The increased is 0. Normally it calculates by dividing ing turnover from its total assets.5 37165915 244088260 0.135 0. 0.15 times Analysis Acoording to above details. This ratio should compare with another company to get better adea about the company performance. Following formula and figures are representing the HNB bank performance.P a g e | 31 Total Assets Turnover The total assets turnover indicates that how effectively a company is used its all assets to generate company turnover. So this better to company with another company.01 in year 2008 than last year.15 times 0.14 times 0. Invetors always try to compare ration with another company.'000) Turnover Average Total Assets Turnover Average Total Assets 29994718 214488348.15 times in year 2008 from 0. Here all assets are compared with its turnover.14 times 2007 2008 .14 times in year 2007.15 0. the total assets turnover was increase to 0. 2007(Rs.'000) 2008 (Rs.14 0.145 0.155 0.
P a g e | 32 Conclusion This assignment is mainly focused on understanding the financial strength of Hatton National Bank. HNB Assurance PLC. retaining one of the highest bases among commercial banks in the Country.2%.58 Bn as the Bank retained part of the profits generated during 2008 to support future business growth.42 Bn to Rs 20.17 Bn in 2008 despite the challenges mentioned above. Firstly. DFCC Bank. The assets are distributed among corporate. Commercial Bank PLC. while growth in interest earning assets during 2008 was 12. the Bank declared a final dividend on 2007 . Noninterest income grew this year by 26.91 Bn.4% to Rs 4. Here to measure the financial strength of Hatton National Bank. HNB Stockbrokers (Pvt) Ltd & Dialog Telekom PLC preference share investment. Then can consider the growth of shareholders’ fund. Then can consider the growth of Assets. Income from dividends witnessed a significant growth of 330% to Rs 538 Mn with main contributions coming from HNB Securities Ltd. reaching Rs 255.3 Bn compared to last year’s Rs 232. During 2008.6%. Interest Income was the predominant contributor towards the Bank’s top line.9% to reach Rs 37.7% respectively.73 Bn. I used ratio analysis technique and it is easy to us in terms of financial analysis.6% and 4. can consider the growth of income of HNB. Shareholders’ funds grew from Rs 18. small and medium enterprises. Growth in interest income was mainly driven by the increase in yields as a result of the surge in interest rates in the Country.43 Bn this year. resulting in the non interest income to net income ratio improving to 27% in 2008. The Bank’s total asset value depicted an increase of 9. individuals and other entities and are strongly constructed on a qualitative portfolio rather than quantitative which reduces our credit risk and increase our ability to sustain business in difficult times. total interest income this year showed a significant growth of 23. which grew by 23. Both commission income and exchange income witnessed a growth of 13.5% to Rs 32.
reflecting 41% of shareholders’ funds.5% this year. Return on Average Equity (ROAE) saw a dip from last year’s standing of 19.P a g e | 33 profits of Rs 3.23 Bn & Rs 20 Bn respectively. having always retained an optimistic stance even in the most trying times in the past and also having established and implemented strategies and paradigms that bank feels will hold on HNB in good stead to weather the challenges. profitability and good returns. recording a marginal decline from 2007. The Bank has further proposed a final dividend of Rs 3.32%. while 2007 ratio was computed according to Basel I. The Bank’s total capital ratio which stood at 12.08% in 2007 slipped marginally to 11. while an interim dividend of Rs 1.3% to 16.00 per share was declared on 2008 profits which amounted to Rs 235 Mn. slowing domestic economy and weakening external sector creating a formidable journey for the financial services industry. However. In 2008 the Bank’s core capital and total capital base improved by 5% & 11% to Rs 16. Then move into the capital adequacy ratios. Next year will continue to be challenging with high interest rates.5% within three years. Thenafter can consider the return on average assets.50 per share which amounted to Rs 824 Mn. However.43 Bn. . Increase in free capital was also witnessed in 2008 which amounted to Rs 8. Return on Average Assets this year stood at 1.00 per share on 2008 profits.40% in 2008. the Bank will continue to strive towards sustainable growth. the Bank is in line to achieve its medium term ROAA goal of 1. which did not consider operational risk in computing capital adequacy ratios. The decline shown in the ratio is mainly due to the introduction of operational risk under Basel II in 2008.
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