Financial ratio Analysis of HIMALAYAN BANK LIMITED

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

Institute Of Engineering (IOE) Department of Mechanical Engineering Pulchowk Campus Lalitpur, Nepal

Objective of study

To understand the financial statement

To analyze the data given in financial statement To analyze the financial performance and position of HBL To be able to take decisions with economic benefit and excellence.

www.company.com 2

Introduction

First private commercial bank of Nepal estd in 1992 Started banking services in 1993 31 branches Objective of bank is to become first choice by sitting on hearts and minds of the customers and is to render banking services to different sector

www.company.com 3

Services

The bank provides following services: Deposits Corporate financing Consortium financing Retail financing Small and medium sized business financing Card services International trade business services Inward remittances Treasury services Safe deposit locker services Ancillary services

www.company.com 4

Financial Statement

Collection of financial data for fixed period of time It is more than just crunching numbers; it involves obtaining a broader picture of the organisation in order to evaluate appropriately how that organisation is performing Help business owners and other interested people to analyse the data in financial statements to provide them with better information about such key factors for decision making and ultimate business survival. To evaluate an organisations Financial performance and Financial position Mainly classified into 3 parts Balance Sheet Income Statement Cashflow Statement

www.company.com 5

Financial Statement(cont.)

Balance Sheet

Companys financial position at the end of reporting period Also called statement of financial position Consist of Assets, liabilities , Ownerships Equity

Income statement

Shows whether the company is making or loosing money. Consist of various income and expenses , PBIT, tax amount and dividend etc.

Cash flow Statement

A record of all cash transactions. Shows how the company is generating cash. How the cash is used.

www.company.com 6

Balance sheet
2061/62 2004/2005 Rs. In Million Capital Structure Authorized Capital Issued Capital Liabilities Issued and Paid up capital Reserve & Surplus Debenture Borrowings Deposits Others Total Assets Cash & Bank Balance Investment Loan, advances & overdraft Fixed Assets Others Total
www.company.com

2062/63 2005/2006 Rs. In Million 1000.00 772.20

2063/64 2006/2007 Rs. In Million 1000.00 810.81

2064/65 2007/08 Rs. In Million 2000.00 1013.51

2065/66 2008/09 Rs. In Million 2000.00 1216.22

1000.00 650.00

643.50 898.25 360.00 146.05 24814.01 556.35 27,418.16

772.20 993.98 360.00 144.62 26490.85 698.74 29,460.39

810.81 1335.69 360.00 235.97 30048.42 728.26 33,519.14

1013.51 1499.48 860.00 83.18 31842.79 876.57 36,175.53

1216.22 1903.67 500.00 0.00 34681.35 1019.10 39,320.32

2014.47 12133.42 12424.52 295.82 549.92 27418.16

1717.35 11894.31 14642.56 540.82 665.34 29460.39

1757.34 13533.01 16998.00 574.06 656.73 33519.14

1448.14 13858.71 19497.52 726.07 645.09 36175.53

3048.53 9881.48 24793.16 952.20 644.96 39320.32 7

Income statement(P/L statement)

2061/62 2004/2005 Rs. In Million Profit and Loss Account Interest Income Other operating income Non operating income (Net) Total Income Expenditures: Interest Expenses Overhead Expenses(Employees) Other Operating expenses Loan loss provision Total Expenditure Profit before tax Provision for bonus Tax provision Net profit after tax Dividend Per share (with bonus share)
www.company.com Market Price

2062/63 2005/2006 Rs. In Million

2063/64 2006/2007 Rs. In Million

2064/65 2007/08 Rs. In Million

2065/66 2008/09 Rs. In Million

1446.47 311.42 -85.46 1672.43

1626.47 415.90 55.55 2097.92

1775.58 385.19 100.26 2261.03

1963.65 457.59 141.19 2562.43

2342.20 580.63 13.32 2936.15

561.96 178.59 277.38 73.90 1091.83 580.60 58.06 214.27 308.28 31.58 920

648.84 234.59 329.70 145.15 1358.28 739.64 67.24 214.94 457.46 35.00 1100

767.41 272.23 341.56 90.69 1471.89 789.14 71.74 225.58 491.82 40.00 1740

823.74 307.53 329.01 58.43 1518.71 1043.72 94.88 312.97 635.87 45.00 1980

934.78 360.98 398.32 68.81 1762.88 1173.27 106.66 313.77 752.83 43.56 1760
8

particulars A.Cash flow from operation activities 1. cash receipt 1.1 interest income 1.2 commission and discount income 1.3 income from exchange transaction 1.4 recovery of loan written off 1.5 other income 2.cash payment 2.1intrest expense 2.2 staff expense 2.3 office overhead expense 2.4 income tax paid 2.5 other expenses

Cash flow statement

2004/05 2006/07 2007/08 2008/09 585,545,427 590,618,284 273,069,707 978,388,741 1,760,345,858 1,897,766,254 1,944,218,385 2,909,793,503 1,446,468,083 1,419,900,506 1,442,245,205 2,324,173,095 132,815,882 165,447,872 202,888,358 284,302,277 137,300,987 198,130,134 192,600,803 249,982,606 -2,902,317 42,380,758 4,992,623 43,760,906 117,190,059 621,032,411 48,342,872 561,963,770 561,963,770 178,589,357 223,232,416 211,014,888 648,841,818 648,841,818 191,130,134 235,879,091 230,798,830 1,871,148,658 823,744,838 307,528,289 240,568,995 299,306,535 1,931,404,763 832,463,329 345,418,184 305,661,329 352,978,035 94,883,888

cash flow before changes in working capital 1. increase/decrease in money at call 2.increase/decrease in short term investments 3.increase/decrease in loan and bill purchases 4.increase/decrease in other liabilities (increase/decrease ) of current liabilities 1. increase/decrease in deposits 2.increase/decrease in certificate of deposits 3.increase/decrease in short term borrowings 4.increase/decrease in other liabilities B.cash flow from investment activities 1. increase/decrease in long term investment 2. increase/decrease in fixed assets 3.intrest income from long term investment 4.divedent income 5. others Current year cash flow from all activities www.company.com D. Opening balance of cash and bank balance E.Closing balance of cash and bank balance

72,180,900 2,400,239,049 619,790,462 272,752,640 2,824,015,643 2,803,679,000 9,000,000 11,336,643

564,199,100 -801,968,750 2,318,893,556 168,075,252 1,648,886,464 1,676,839,656 -1,423,389 -26,529,803

1,191,494,359 2,504,143,790 47,063,907 1,555,660,563 1,794,371,600 152,789,838 85,921,199

652,264,150 5,378,904,089 26,492,817 2,802,581,422 2,838,555,823 83,177,973 47,203,572

31,645,636 (334,353

288,025,916 -611,705

1,517,192,226 237,756,761 573,707,690 1,850,862 34,418,750 309,198,380 1,757,341,251 1,448,142,831

2,802,581,422 2,838,555,823 83,177,973 47,203,572 1,600,383,897 1,448,142,891 3,048,528,788 9

13,286,736 2,001,184,221 2,014,470,957

297,118,621 2,014,470,957 1,717,352,336

Financial Ratio Analysis

most commonly used tools to interpret the financial statements so that the strength and weakness of firm can be judged Compare performance against other firms or industry standards and also with past performance Study the efficiency and risk of operations

Classified into 5 main categories:

Profitability Ratios
Combine effect of liquidity,debt management and asset management

Liquidity or Short-Term Solvency ratios

Extent to which current assets can be converted into cash

Asset Management or Activity Ratios

How effectively firm is managing its assets

Financial Structure or Capitalisation or Debt Management ratio

Business ability to pay long term loan

Market Test Ratios

What company think of the companys past performance and future prospects
www.company.com 10

1. Profitability Ratios
Profit margin or Net profit

Net Income Net profit = Revenue

To measure how much profit is earned per unit revenue Profit margin says margin of safety Good at present context of the bank

www.company.com 11

1. Profitability Ratios
Return on Asset

Net Income ROA := Total Asset

measures a company's success in using its assets to earn a profit At the moment companys earning power is very low and debt is very high Although there is good profit margin but this figure of ROA shows that the bank is unsuccessful in using its assets to earn profit

www.company.com 12

1. Profitability Ratios
Return on Equity
3500 30

Net Income ROE := Total equity

Relationship between net income and common stockholders investment It answers the question, How much income is earned for every Rs.100 invested by common shareholders? Looks good internally but it is satisfactory compare to other equal ranking commercial banks

3000

25

2500 20 2000 15 1500 10 1000

500

0 Net profit a fter tax R OE (% )

2004/05 308.28

2005/ 06 457.46 1766.18

2006/ 07 491.82 2146.5

2007/08 635.87 2512.99

2008/ 09 752.83 3119.89

Avera g ec ommon equity 1541.75

19.9954597 25.90109728 22.9126485 25.30332393 24.1300174

www.company.com 13

2. Liquidity or Short-Term Solvency ratios

Working capital = current asset - current liabilities

Working capital management is important as it signals the firms ability to meet short term debt obligations. The WC of the bank is rising every year which is a good sign.

www.company.com 14

2. Liquidity or Short-Term Solvency ratio Current ratio

Current ratio := current asset current liabilites

the ability of the bank to meet its current obligation The acceptable benchmark is 1:1 but a ratio below this value represents liquidity risk ness as there is insufficient current assets to cover current liabilities. Satisfactory, risk of rise in liabilities Need to improve this ratio in order to be safe from any financial difficulty

www.company.com 15

3. Asset Management or Activity Ratios Asset turnover

net sale Asset turnover = Avg. total asset

measures how efficiently the firm is using the assets Turnover means; how many number of times the assets flow through a firm's operations and into sales Greater rate of turnover or conversion indicates more efficiency of a firm in managing and utilizing its assets Has been increasing till 062/063 but due to political crisis decreases during fiscal year 063/064

www.company.com 16

4. Financial Structure or Capitalisation Ratios Debt ratio

Total Debt Debt ratio = Total asset

tells us the proportion of the company's assets that it has financed with debt Decreasing yearly yet not satisfactory As bank, this ratio seems to be quite good because its has used its debt successfully in investments and loans.

www.company.com 17

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

Measures the ability of the bank to pay off its creditors The ratio is very low for all fiscal year. For an organization this is not a good sign to its creditors.

www.company.com 18

5. Market Test Ratios Earning per share

Net income Earning per share = No. of issued ordinary share

Profit earned by each shareholder Help to decide company whether to increase or reduce the number of shares on issue

www.company.com 19

5. Market Test Ratios Price Earnings ratio

Market price per share Price Earning ratio = Earnings per share

The price/earnings (P/E) ratio shows how much investors are willing to pay per dollar of reported profits Measure the price paid for a share relative to profit earned per share higher the ratio, the higher the quality of the earnings by firm on the share market. P/E ratio= 19 means that Purchasers are paying Rs 19 for 1 rupees income

www.company.com 20

5. Market Test Ratios

Net Income No. of common stocks outstanding

EPS =

EPS tells us what profit the common shareholders are getting for every share The book value per share measures the amount that would be distributed to shareholder if all assets were sold at their balance-sheet carrying amounts and if all creditors were paid off The price/earnings (P/E) ratio shows how much investors are willing to pay per dollar of reported profits

www.company.com 21

CONCLUSION

Bank has good profit margin Low ROA value but Satisfactory ROE value Bank is borrowing to much money Bank should increase current ratio to some extent to decrease risk If bank doesnt develop necessary steps then bank is likely to experience its rough period

www.company.com 22

Thank You