INTRODUCTION TO THE STUDY

Financial statement is that statement which provides information on the firms position at a point in time and its operation over a period of time. Financial statement contains information about the wealth of the organization, which if well analyzed and interpreted can provide valuable insight into firms performance and its operations. Analysis of financial statement is of interests to lenders, investors, owners, outsiders, shareholders and others. Due to ongoing advancements in technology, new legislation, and other innovation, the field of finance is rapidly changing. Introduction to finance develops the three components of finance in an interactive framework that is consistent with the responsibilities of all financial professionals, managers, intermediaries, and investors in today!s economy. In the last decade, the academic study of finance has e"perienced an infusion of new concept and #uantitative methodologies that pace it among the most sophisticated and growing areas of business and economics. $ew developments in the traditional areas of finance theory of rational investor portfolio choice, interpretation and determination of security prices, efficient corporate decision making has been approached from the perspective of a single integrating paradigm derived from economic theory. In our present day economy finance is defined as provision of money at a time when it is re#uired. %very enterprise whether it is big, medium or small needs finance to carry out its operation and to achieve its target. Infact finance is so indispensable today that it is rightly said to be lifeblood of enterprise without ade#uate finance no enterprise can possibly accomplish it ob&ectives

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(he importance of corporation finance has arisen because of the fact that present day business activities are predominantly on a company or corporate form of organization. (he advent of corporate enterprises has resulted into) the increase in size and influence of the business enterprise wide distribution of corporate ownership separation of ownership and management (hese factors have increased the importance of finance.

AIMS OF FINANCE
Ac#uiring sufficient funds *roper utilization of funds Increasing profitability +a"imizing firms value %stimating financial re#uirements Deciding capital structure ,electing a source of finance ,electing a pattern of investment *roper cash management Implementing financial control *roper use of surplus

BUSINESS FINANCE
.usiness finance is the activity, which is concerned with the ac#uisition and conservation of capital funds in meeting the financial re#uirements and overall ob&ectives of the firm. .usiness finance deals primarily with raising, administering and disbursing funds by private own business units operating in non financial fields of industry. (o sum up in simple words we can say that financial management as practiced by business firms can be called corporation finance or business finance.

FINANCIAL STATEMENTS
Financial statements /or financial reports0 are formal records of a business! financial activities. It is a collection of data organized according to logical and consistent accounting procedures. (hese statements provide an overview of a business! profitability and financial condition in both short and long term.

A sound understanding of financial statements helps you) Identify unfavorable trends and tendencies in your business!s operations /for e"ample, the unhealthy buildup of inventory or accounts receivable0 before the situation becomes critical. +onitor your cash flow re#uirements on a timely basis, and identify financing needs early.

+onitor important indicators of financial health /for e"ample, li#uidity ratios, efficiency ratios, profitability ratios, and solvency ratios0.

+onitor periodic increases and decreases in wealth /specifically, owners! or stockholders! e#uity0.

+onitor your performance against your financial plan, if you have developed one.

Definition
According to 2ohn $. +yer 3the financial statements provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets and liabilities and the income statement showing the results of operations during a certain period4

Objectives of financial state ent

(he primary ob&ective of financial statements is to assist in decision making. (he Accounting *rinciples .oard of America /A*.0 states the following other ob&ectives) (o provide reliable financial information about economic resources and obligations of a business firm. (o provide other needed information about changes in such economic resources and obligations. (o provide reliable information about changes in net resources /resources less obligations0 arising out of business activities. (o provide financial information that assists in estimating the earning potentials of business.

 (o disclose, to the e"tent possible, other information related to the financial statements that is relevant to the needs of the users of these statements.

T!"es of financial state ents

6enerally Accepted Accounting *rinciples /6AA*0 specify that a complete set of financial statements must include)

Balance S#eet

(he American Institute of 7ertified *ublic Accountants defines .alance ,heet as, 3A tabular statement of summary of balances /debits and credits0 carried forward after an actual and constructive closing of books of account and kept according to principles of accounting.4

(he purpose of the balance sheet is to show the resources that the company has, i.e., its assets, and from where those resources come from, i.e. its liabilities and investments by owners and outsiders. (he balance sheet shows all the assets owned by the concern and all the liabilities and claims it owes to owners and outsiders. (he 7ompanies Act, '89: has prescribed a particular form for showing assets and liabilities in the balance sheet for companies registered under this act.

Inco e State ent $%&ofit an' Loss Acco(nt)

Income statement is prepared to determine the operational position of the concern. It is a statement of revenues earned and the e"penses incurred for earning that revenue. If there is e"cess of revenues over e"penditures it will show a profit and if the e"penditures are more than the income then there will be a loss. (he income statement may be prepared in the form of a +anufacturing Account to find out the cost of production, in the form of (rading Account to determine gross profit or gross loss, in the form of a *rofit and ;oss Account to determine net profit or net loss. A statement of <etained %arnings may also be prepared to show the distribution of profits.

State ent of C#an*es in O+ne&s, E-(it! $Retaine' Ea&nin*s)

(he term o+ne&,s e-(it! refers to the claims of the owners of the business /shareholders0 against the assets of the firm. It consists of two elements i0 *aid up share capital, i.e. the initial amount of funds invested by the ,hareholders ii0 retained earnings or reserves and surplus representing undistributed *rofits.

(he statement of changes in owners e#uity simply shows the beginning balance of each owners e#uity account, the reasons for increases and decreases in each, and its ending balance. A statement of retained earnings is also known as *rofit and ;oss Appropriation Account or Income Disposal ,tatement. As the name suggests it shows appropriations of earnings. (he balance in this account will show the amount of profit retained in hand and carried forward.

 State ent of C#an*es in Financial %osition.

(he basic financial statements, that is= the balance sheet and the profit and loss account or income statement of a business reveal the net effect of the various transactions on the operational and financial position of the company. .ut there are many transactions that do not operate through profit and loss account. (hus, for a better understanding another statement called statement of changes in financial position has to be prepared to show the changes in assets and liabilities from the end of one period to the end of another point of time. (he ob&ective of this statement is to show the movement of funds /working capital or cash0 during a particular period.

(he statement of changes in financial position may take any of the following two forms)
i0 F(n's Flo+ State ent/ (he funds flow statement is designed to analyse

the changes in the financial condition of a business enterprise between two periods. (he word >Fund is used to denote working capital. (his statement will show the sources from which the funds are received and the uses to which these have been put. (his statement helps the management in policy formulation and performance appraisal.

ii) Cas# Flo+ State ent/ A statement of changes in the financial position of a firm on cash basis is called 7ash Flow ,tatement. It summarises the causes of changes in cash position of a business enterprise between dates of two balances sheets. (his statement is very much similar to the statement of changes in working capital, that is= funds flow statement. A cash flow

statement focuses attention on cash changes only. It describes the sources of cash and its uses.

C#a&acte&istics of i'eal financial state ent

(he financial statements are prepared with a view to depict financial position of the concern. (he financial statements should be prepared in such a way that they are able to give a clear and orderly picture of the concern. (he ideal financial statements have the following characteristics)

De"ict T&(e Financial %osition/ (he information contained in the financial statements should be such that a true and correct idea is taken about the financial position of the concern. $o material information should be withheld while preparing these statements.

Effective %&esentation/ (he financial statements should be presented in a simple and lucid way so as to make them easily understandable. A person who is not well versed with accounting terminology should also be able to understand the statements without much difficulty. (his characteristic will enhance the utility of these statements.

Relevance/ Financial statements should be relevant to the ob&ectives of the enterprise. (his will be possible when the person preparing these statements is able to properly utilise the accounting information. (he information which is not relevant to the statements should be avoided, otherwise it will be difficult to make a distinction between relevant and irrelevant data.

Att&active/ (he financial statements should be prepared in such a way that important information is underlined so that it attracts the eye of the reader.

Easiness/ Financial statements should be easily prepared. (he balances of different ledger accounts should be easily taken to these statements. (he calculation work should be minimum possible while preparing these statements. (he size of the statements should not be very large. (he columns to be used for giving the information should also be less. (his will enable the saving of time in preparing the statements.

Co "a&abilit!/ (he results of financial analysis should be in a way that can be compared to the previous years statements. (he statement can also be compared with the figures of other concerns of the same nature. ,ometimes budgeted figures are given along with the present figures. (he comparable figures will make the statements more useful. (he comparison of figures will enable a proper assessment for the working of the concern.

Anal!tical Re"&esentation/ (he information should be analysed in such a way that similar data is presented at the same place. A relationship can be established in similar type of information. (his will be helpful in analysis and interpretation of data.

B&ief/ If possible, the financial statements should be presented in brief. (he reader will be able to form an idea about the figures. An the other hand, if figures are given in details then it will become difficult to &udge the working of the business.

I "o&tance of financial state ents

(he financial statements are mirror which reflects the financial position and operating strength or weakness of the concern. (hese statements are useful to

management, investors, creditors, bankers, workers, government and public at large. Following ma&or uses of financial statements) As a report of stewardship. As a basis for fiscal policy. (o determine the legality of dividends. As guide to advise dividend action.

As a basis for the granting of credit. As informative for prospective investors in an enterprise As a guide to the value of investment already made. As an aid to government supervision. As a basis for price or rate regulation. As a basis for ta"ation.

Use&s of Financial State ents

Financial statements are used by a diverse group of parties, both inside and outside a business. 6enerally, these users are)

Inte&nal Use&s/ are owners, managers, employees and other parties who are directly connected with a company.

Awners and managers re#uire financial statements to make important business decisions that affect its continued operations. Financial analysis are then performed on these statements to provide management with a more detailed understanding of the figures. (hese statements are also used as part of management!s report to its stockholders, as it form part of its Annual <eport.

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%mployees also need these reports in making collective bargaining agreements /7.A0 with the management, in the case of labor unions or for individuals in discussing their compensation, promotion and rankings.

E0te&nal Use&s/ are potential investors, banks, government agencies and other parties who are outside the business but need financial information about the business for a diverse number of reasons.

*rospective investors make use of financial statements to assess the viability of investing in a business. Financial analysis are often used by investors and is prepared by professionals /Financial Analysts0, thus providing them with the basis in making investment decisions.

Financial institutions /banks and other lending companies0 use them to decide whether to grant a company with fresh working capital or e"tend debt securities /such as a long term bank loan or debentures0 to finance e"pansion and other significant e"penditures.

6overnment entities /(a" Authorities0 need financial statements to ascertain the propriety and accuracy of ta"es and other duties declared and paid by a company.

+edia and the general public are also interested in financial statements for a variety of reasons.

Li itations of financial state ents

(he following are the main limitations of the financial statements)

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Inte&i

an' not final &e"o&ts/ Financial statements do not depict the

e"act position and are essentially interim reports. (he e"act position can be only known if the business is closed.

Lac1 of "&ecision an' 'efiniteness/ Financial statements may not be realistic because these are prepared by following certain basic concepts and conventions.

Lac1 of objective j('*e ent/ Financial statements are influenced by the personal &udgement of the accountant. Ce may select any method for depreciation, valuation of stock, amortization of fi"ed assets and treatment of deferred revenue e"penditure. ,uch &udgement if based on integrity and competency of the accountant will definitely affect the preparation of the financial statements.

Reco&' onl!

oneta&! facts/ Financial statements disclose only

monetary facts, that is= those transactions are recorded in the books of accounts which can be measured in monetary terms. (hose transactions which cannot be measured in monetary terms such as, conflict between production manager and marketing manager may be very important for a business concern but not recorded in the business books.

Histo&ical in nat(&e/ (hese statements are drawn after the actual happening of the events. (hey attempt to present a view of the past performance and have nothing to do with the accounting for the future.

+odern management is forward looking but these statements do not directly help them in making future estimates and taking decisions for the future.

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A&tificial vie+/ (hese statements do not give a real and correct report about the worth of the assets and their loss of value as these are shown on historical cost basis. (hus, these statements provide artificial view as market or replacement value and the effect of the changes in the price level are completely ignored.

Sco"e of

ani"(lations/ (hese statements are sometimes prepared

according to the needs of the situation or the whims of the management. A highly efficient concern may conceal its real profitability by disclosing loss or minimum profit whereas an inefficient concern may declare dividend by wrongly showing profit in the profit and loss account. For this under or over valuation of inventory, over or under charge of depreciation, e"cessive or inade#uate provision for anticipated losses and other such manipulations may be resorted to.

Ina'e-(ate info& ation/ (here are many parties who are interested in the information given in the financial statements but their ob&ectives and re#uirements differ. (he financial statements as prepared under the provisions of the 7ompanies Act, '89:, fail to meet the needs of all. (hese are mainly prepared to safeguard the interest of shareholders.

FINANCIAL ANALYSIS
(he term >financial analysis also known as analysis and interpretation of financial statements, refers to the process of determining financial strengths

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and weaknesses of the firm by establishing strategic relationship between the items of balance sheet, profit and loss account and other operative data.
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(he purpose of financial analysis is to diagnose the information contained in financial statements so as to &udge the profitability and financial soundness of the firm. It is an attempt to determine) (he significance and meaning of the financial statement data so that forecast may be made of the future earnings. Ability to pay interest and debt maturities /both current and long term0. *rofitability of a sound business policy. (he operational efficiency of the concern as a whole and of its various parts or departments. (he comparative study in regard to one firm with another firm or one department with another department

T!"es of financial state ent anal!sis

Different types of financial statements analysis can be made on the basis of)

Acco&'in* to t#e nat(&e of t#e anal!st an' t#e

ate&ial (se' b! #i .

An this basis, the financial analysis can be e"ternal and internal analysis) E0te&nal Anal!sis/ It is made by those persons who are not connected with the enterprise. (hey do not have access to the enterprise. (hey do not have access to the detailed record of the company and have to depend mostly on published ,tatements. ,uch type of analysis is made by investors, credit agencies, governmental agencies and research scholars. Inte&nal Anal!sis/ (he internal analysis is made by those persons who have access to the books of accounts. (hey are members of the organization.

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Analysis of financial statements or other financial data for managerial purpose is the internal type of analysis. (he internal analyst can give more reliable result than the e"ternal analyst because every type of information is at his disposal.

Acco&'in* to t#e objectives of t#e anal!sis. An this basis the analysis can be long term and short term analysis.

Lon*2te&

Anal!sis/ (his analysis is made in order to study the long term

financial stability, solvency and li#uidity as well as profitability and earning capacity of a business concern. (he purpose of making such type of analysis is to know whether in the long run the concern will be able to earn a minimum amount which will be sufficient to maintain a reasonable rate of return on the investment so as to provide the funds re#uired for modernisation, growth and development of the business and to meet its costs of capital. S#o&t2te& Anal!sis/ (his is made to determine the short term solvency,

stability and li#uidity as well as earning capacity of the business. (he purpose of this analysis is to know whether in the short run a business concern will have ade#uate funds of readily available to meet its short term re#uirements and sufficient borrowing capacity to meet contingencies in the near future. (his analysis is made with reference to items of current assets and current liabilities /working capital analysis0.

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Acco&'in* to t#e

o'(s o"e&an'i of t#e anal!sis. An this basis, the

analysis may be horizontal analysis and vertical analysis. Ho&i3ontal $o& D!na ic) Anal!sis/ (his analysis is made to review and analyse financial statements of a number of years and, therefore, based on financial data taken from several years. (his is very useful for long term trend analysis and planning. 7omparative financial statement is an e"ample of this type of analysis. 4e&tical $o& Static) Anal!sis/ (his analysis is made to review and analyse the financial statements of one particular year only. <atio analysis of the financial year relating to a particular accounting year is an e"ample of this type of analysis.

Tec#ni-(es $'evices o&

et#o's) of financial anal!sis

(he following techni#ues can be used in connection with analysis and interpretation of financial statements) Co "a&ative financial state ents (he comparative financial statements are statements of the financial position at different periods of time. (he elements of financial position are shown in a comparative form so as to give an idea of financial position at two or more periods. (he statements of two or more periods are prepared to show absolute data of two or more years, increases or decreases in absolute data in value and in terms of percentages. (he two comparative statements are)

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i0 Co "a&ative Balance S#eet/ the comparative balance sheet analysis is the study of the trend of the same items, group of items and computed items in two or more balance sheets of the same business enterprise on different dates. ii0 Co "a&ative Inco e State ent) the comparative income statement gives the results of the operations of a business. It gives an idea of the progress of a business over a period of time.

T&en' "e&centa*e anal!sis (rend analysis is an important tool of horizontal financial analysis. (his analysis enables to know the changes in the financial function and operating efficiency between the time period chosen. .y studying the trends of each item we can know the direction of changes and based upon the direction of changes, the opinions can be formed. (hese trend ratios may be compared with industry in order to know the strong or weak points of a concern.

Co

on si3e state ent

7ommon size financial statements are those in which figures reported are converted to some common base. Eertical analysis is re#uired for an interpretation of underlying causes of changes over a period of time. For this, items in the financial statements are presented as percentages or ratios to total of the items and a common base for comparison is provided. 7ommon size statements may be used for i0 Co on Si3e Balance S#eet/ a statement in which balance sheet items

are e"pressed as the ratio of each asset to total assets and the ratio of each liability is e"pressed as a ratio of total liabilities.

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ii0 Co

on Si3e Inco e State ent/ the items in income statement can be

shown as percentages of sales to show the relation of each item to sales. A significant relationship can be established.

F(n's Flo+ State ent $o& Anal!sis) (his statement is prepared in order to reveal clearly the various sources where from the funds are procured to finance the activities of a business concern during the accounting period and also brings to highlight the uses to which these funds are put during the said period.

Cas# Flo+ State ent $o& Anal!sis) (his statement is prepared to know clearly the various items of inflow and outflow of cash. It is an essential tool for short term financial analysis and is very helpful in the evaluation of current li#uidity of a business concern. It helps the business e"ecutives of a business in the efficient cash management and internal financial management.

State ent of C#an*es in 5o&1in* Ca"ital $Net 5o&1in* Ca"ital Anal!sis) (his statement is prepared to know the net change in working capital of the business between two specified dates. It is prepared from current assets and current liabilities of the said dates to show the net increase or decrease in working capital.

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 Ratio Anal!sis It is done to develop meaningful relationship between individual items or group of items usually shown in the periodical financial statements published by the concern. An accounting ratio shows the relationship between the two inter related accounting figures as gross profit to sales, current assets to current liabilities, loaned capital to owned capital etc. <atios should not be calculated between the two unrelated figures as it will not serve any useful purpose.

Li itations of Financial State ent Anal!sis

Analysis of financial statements is a very important device but the person using this device must keep in mind its limitations. (he following are the main limitations of the analysis)

Histo&ical nat(&e of financial state ents/ (he basic nature of these statements is historical, that is= relating to the past period. *ast can never be a precise and infallible inde" of the future and can never be hundred per cent helpful for the future forecast and planning.

No s(bstit(te fo& j('*e ent/ Analysis of financial statements is a tool which can be used profitably by an e"pert analyst but may lead to faulty conclusions if used by unskilled analyst. (he results of analysis, thus, should not be taken as &udgements or conclusions.

Reliabilit! of fi*(&es/ (he reliability of analysis depends on reliability of the figures of the financial statements under scrutiny. (he entire working

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of analysis will be vitiated by manipulations in the income statement, window dressing in the balance sheet, #uestionable procedures adopted by the accountant for the valuation of fi"ed assets and such other factors.

Sin*le !ea& anal!sis is not

(c# val(able an' (sef(l/ (he analysis of

these statements relating to a single year only will have limited use and value. It will not be advisable to depend fully on such analysis. Analysis should be e"tended over a number of years so that the results may be compared to draw meaningful conclusions.

Res(lts

a! #ave 'iffe&ent inte&"&etation/ (he results or indications

derived from the analysis of these statements may be differently interpreted by different users. For e"ample, a high current ratio may suit the banker, a supplier of goods or the short term lender but it may be inde" of inefficiency of the management due to non utilisation of funds.

C#an*e in acco(ntin*

et#o's/ Analysis will be effective if the figure

derived from the financial statements are comparable. Due to change in accounting methods /i.e., depreciation method, or method of valuation of stock0, the figures of the current period may have no comparable base, then the whole e"ercise of analysis will become futile and will be of little value.

%itfalls in inte&2fi&

co "a&ison/ Fhen different firms are adopting

different procedures, records, ob&ectives, policies and different items under similar headings, comparison will become more difficult. If done, it will not provide reliable basis to assess the performance, efficiency, profitability and financial condition of the firm as compared to industry as a whole.

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%&ice level c#an*es &e'(ce t#e vali'it! of t#e anal!sis/ (he continuous and rapid changes in the value of money, in the present day economy, also reduce the validity of the analysis. Ac#uisition of assets at different levels of prices make comparison useless as no meaningful conclusions can be drawn from a comparative analysis of such items relating to several accounting periods.

S#o&tco in* of t#e tool of anal!sis/ (here are different tools of analysis available to the analyst. Fhich tool is to be used in a particular situation depends on the skill, training, intelligence and e"pertise of the analyst. If wrong tool is used, it may give misleading results and may lead to wrong conclusions or inferences which may be harmful to the interest of business.

FINANCIAL RATIO ANALYSIS

Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company!s financial statements. (he level and historical trends of these ratios can be used to make inferences about a company!s financial condition, its operations and attractiveness as an investment. Fhen you compare changes in your business!s ratios from period to period, you can pinpoint improvements in performance or developing problem areas. .y comparing your ratios to those in other businesses, you can see possibilities for improvement in key areas. A number of sources, including

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many trade or business associations and organizations, provide data for comparison purposes= they are also available from commercial services.

USE AND SI6NIFICANCE OF RATIO ANALYSIS

(he ratio analysis is one of the most powerful tools of financial analysis. (he use of ratios is not confined to financial managers only. (here are different parties interested in the ratio analysis for knowing the financial position of a firm for different purposes. (he supplier of goods on credit, banks, financial institutions, investors, shareholders and management all make use of ratio analysis as a tool in evaluating the financial position and performance of a firm for granting credit, providing loans or making investments in the firm. Fith the use of ratio analysis one can point out whether the condition of the firm is strong, good, #uestionable or poor. (he conclusions can also be drawn as to whether the performance of the firm is improving or deteriorating. (hus, ratios have wide applications and are of immense use today.

Mana*e&ial Uses of Ratio Anal!sis

i0 <atio analysis helps in making decisions from the information provided in these financial statements. ii0 It helps in financial forecasting and planning. iii0 (he financial strength and weakness of a firm are communicated in a more easy and understandable manner by the use of ratios. iv0 <atios even help in co ordination which is of utmost importance ineffective. v0 <atio analysis even helps in making effective control of the business. vi0 (hese are so many other uses of the ratio analysis. It is an essential part of the budgetary control and standard costing.

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 Utilit! to S#a&e#ol'e&s7Investo&s
An investor in the company will like to assess the financial position of the concern where he is going to invest. Cis first interest will be the security of his investment and then a return in the form of dividend or interest. For the first purpose he will try to asses the value of fi"ed assets and the loans raised against them. (he investor will feel satisfied only if the concern has sufficient amount of assets. ;ong term solvency ratios will help him in assessing financial position of the concern. *rofitability ratios, on the other hand, will be useful to determine profitability position. <atio analysis will be useful to the investor in making up his mind whether present financial position of the concern warrants further investment or not.

Utilit! to C&e'ito&s
(he creditors or suppliers e"tend short term credit to the concern. (hey are interested to know whether financial position of the concern warrants their payments at a specified time or not. (he concern pays short term creditors out of its current assets. If the current assets are #uite sufficient to meet current liabilities then the creditor will not hesitate in e"tending credit facilities. 7urrent and acid test ratios will give an idea about the current financial position of the concern.

Utilit! to E "lo!ees

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(he employees are also interested in the financial position of the concern especially profitability. (heir wage increases and amount of fringe benefits are related to the volume of profits earned by the concern. (he employees make use of information available in financial statements. Earious profitability ratios relating to gross profit, operating profit, net profit, etc. enable employees to put forward their viewpoint for the increase of wages and other benefits.

Utilit! to 6ove&n ent

6overnment is interested to know the overall strength of the industry. Earious financial statements published by industrial units are used to calculate ratios for determining short term, long term and overall financial position of the concerns. *rofitability inde"es can also be prepared with the help of ratios. 6overnment may base its future policies on the basis of industrial information available from various units. (he ratios may be used as indicators of overall financial strength of public as well as private sector. In the absence of the reliable economic information, governmental plans and policies may not prove successful.

CLASSIFICATIONS OF RATIO
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<atios may be classified from the point of view of financial management or ob&ective ;i#uidity <atios. 7apital ,tructure <atios. (urnover <atios. *rofitability <atios.

LI8UIDITY RATIOS /,hort (erm ,olvency0

>;i#uidity means ability of a firm to meet its current liabilities. (he li#uidity ratios, therefore, try to establish a relationship between current liabilities, which are the obligations soon becoming due and current assets, which presumably provide the source from which these obligations will be met. (he failure of a company to meet its obligation due to lack of ade#uate li#uidity will result in bad credit ratings, loss of creditors confidence or even in law suits against the company. (he following ratios are commonly used to indicate the li#uidity of business)

i)

C(&&ent Ratio $5o&1in* Ca"ital Ratio)

(his ratio is most commonly used to perform the short term financial analysis. Also known as the working capital ratio, this ratio matches the current assets of the firm to its current liabilities.

Fo& (la/
C(&&ent &atio 9 C(&&ent Assets7C(&&ent Liabilities

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7urrent assets include cash in hand and at bank, readily marketable securities, bills receivable, debtors less provision for bad and doubtful debts, stock in trade, prepaid e"penses, any other asset which, in the normal course of business will be converted in cash in a years time. 7urrent ;iabilities include all obligations maturing within a year, such as sundry creditors, bills payable, bank overdraft, income ta" payable, dividends payable, outstanding e"penses, provision for ta"ation and unclaimed dividends.

Si*nificance an' Objective/ 7urrent ratio throws good light on the short
term financial position and policy. It is an indicator of a firms ability to promptly meet its short term liabilities. A relatively high current ratio indicates that the firm is li#uid and has the ability to meet its current liabilities. An the other hand, a relatively low current ratio indicates that the firm will find it difficult to pay its bills. $ormally a current ratio of - ) ' is considered satisfactory. In other words, current assets should be twice the amount of current liabilities A very high current ratio is also not desirable because it indicates idleness of funds which is not a sign of efficient financial management.

ii)

8(ic1 Ratio

(his ratio is also known as acid test ratio or li#uid ratio. It is a more severe test of li#uidity of a company. It shows the ability of a business to meet its immediate financial commitments. It is used to supplement the information given by the current ratio.

Fo& (la/ -:

8(ic1 &atio 9 8(ic1 $o& Li-(i') Assets78(ic1 Liabilities

(he #uick assets include cash, debtors /e"cluding bad debts0 and securities which can be realised without difficulty. ,tock is not included in #uick assets for the purpose of this ratio. ,imilarly prepaid e"penses are also e"cluded as they cannot be converted into cash. ;i#uid or #uick liabilities refer to all current liabilities e"cept bank overdraft.

Si*nificance an' Objective) Fhen #uick ratio is used along with current
ratio, it gives a better picture of the firms ability to meet its short term liabilities out of its short term assets. (his ratio is of great importance for banks and financial institutions. 6enerally a #uick ratio of ' )' is considered to represent a satisfactory current financial position. An account of a low ratio, the business may find itself in serious financial difficulties.

iii) Absol(te Li-(i' Ratio

(his is also known as super #uick ratio or cash ratio.

Fo& (la/
Absol(te Li-(i'it! &atio 9 $Cas# : S#o&t te& a&1etable sec(&ities)7C(&&ent liabilities

In calculating this ratio, both inventories and receivables are deducted from current assets to arrive at absolute li#uid assets such as cash and easily marketable investments in securities.

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Si*nificance an' Objective) Cigher the ratio, the higher is the cash
li#uidity. A low ratio is not a serious matter because the company can always borrow from the bank for short term re#uirements.

CA%ITAL STRUCTURE RATIOS OR 6EARIN6 RATIOS /;ong (erm ,olvency0

7apital structure <atios are also known as gearing ratios or solvency ratios or leverage ratios. (hese are used to analyse the long term solvency of any particular business concern. (here are two aspects of long term solvency of a firm) Ability to repay the principal amount when due. <egular payment of interest. Important 7apital ,tructure ratios are)

i) Debt2E-(it! Ratio
(his ratio attempts to measure the relationship between long term debts and shareholders funds. In other words, this ratio measures the relative claims of long term creditors on the one hand and owners on the other hand, on the assets of the company.

Fo& (la/
Debt E-(it! &atio 9 Lon* te& 'ebts7S#a&e#ol'e&s, f(n's

;ong term debts include debentures, long term loans, say from financial institutions. ,hareholders funds on the other hand include share capital /both e#uity and preference0 and accumulated profits in the form of general reserve, capital reserve, and any other fund that belongs to the shareholders. *ast accumulated

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losses and deferred e"penditure like preliminary e"penses should be deducted while computing shareholders funds.

Si*nificance an' Objectives/ (his ratio shows the relative amount of funds supplied to the company by outsiders and by owners. A low debt e#uity ratio implies a greater claim of owners on the assets of the company than the creditors. An the other hand, a high debt e#uity ratio indicates that the claims of the creditors are greater than those of the owners. (he debt e#uity ratio of ') ' is generally acceptable. (he lower the ratio, the less the company has to worry in meeting its fi"ed obligations. (his ratio also indicates the e"tent to which a company has to depend upon outsiders for its financial re#uirements.

ii) %&o"&ieta&! Ratio

(his is a variant of debt e#uity ratio. It measures the relationship between shareholders funds and total assets. Fo& (la/ %&o"&ieta&! &atio 9 S#a&e#ol'e&s, f(n's7Total assets ,hareholders funds comprise of ordinary share capital, preference share capital and all items of reserves and surplus. (otal assets include all tangible assets and only those intangible assets which have a definite realisable value.

Si*nificance an' objective) *roprietary ratio shows the e"tent to which

shareholders own the business and thus indicates the general financial strength of the business. (he higher the proprietary ratio, the greater the long term stability of the company and conse#uently greater protection to creditors. Cowever, a very high proprietary ratio may not necessarily be good because if

-8

funds of outsiders are not used for long term financing, a firm may not be able to take advantage of trading on e#uity.

iii)

Inte&est Cove&a*e Ratio $Fi0e' C#a&*es Cove&)

(his ratio indicates whether the business earns sufficient profit to pay periodically the interest charges.

Fo& (la/
Inte&est Cove&a*e &atio 9 Ea&nin*s befo&e ta0 an' inte&est $EBIT)7Fi0e' inte&est c#a&*es Si*nificance an' Objective/ (his ratio is very important from lenders point of view because it indicates the ability of a company to pay interest out of its profits. (his ratio also indicates the e"tent to which he profits of the company may decrease without in any way affecting its ability to meet its interest obligations. (he standard for this ratio for an industrial company is that interest charges should be covered si" to seven times.

iv) Debt to Total F(n's Ratio

(his ratio shows the relationship between debts and total funds employed in the business.

Fo& (la/
Debts to Total F(n's &atio 9 Debt7Total F(n's (he term debt includes long term loans and current liabilities like sundry creditors, bills payable, bank overdraft, outstanding e"penses etc.

1B

(otal funds employed includes shareholders funds, long tem loans and current liabilities.

Si*nificance an' Objectives/ (his ratio shows the proportion of funds

supplied by outsiders in the total funds employed in the business. (he lower this ratio, the better it is for creditors because they are more secure and vice versa, higher this ratio it gives a feeling of insecurity to the creditors. In other words, a high ratio of debts to total funds employed is a danger signal for creditors. (his ratio also serves the purpose of indicating the possibility of raising additional loans.

v) Ca"ital 6ea&in* Ratio

(his is the ratio between the fi"ed interest bearing securities und e#uity share capital.

Fo& (la/
Ca"ital *ea&in* &atio 9 Fi0e' inco e sec(&ities7E-(it! s#a&e #ol'e&s f(n' Fi"ed income securities include debentures and preference share capital.

Si*nificance an' Objectives/ a company is highly geared if this ratio is

more than one. If it is less than one, it is low geared. If the ratio is e"actly one, it is evenly geared. A highly geared company has the advantage of trading on e#uity.

TURNO4ER RATIOS /*erformance <atios or Activity <atios0

1'

(urnover ratios are used to indicate the efficiency with which assets and resources of the firm are being utilised. (hese ratios are known as turnover ratios because they indicate the speed with which assets are being converted or turned over into sales. (hese ratios, thus, e"press the relationship between sales and various assets. A higher turnover ratio generally indicates better use of capital resources which in turn has a favourable effect on the profitability of the firm. Important turnover ratios are)

i) Invento&! t(&nove& Ratio $Stoc1 T(&nove& Ratio)

(his ratio is calculated by dividing the cost of goods sold by average inventory. It establishes the relationship between the cost of goods sold during a given period and the average amount of stock carried during the period.

Fo& (la/
Invento&! T(&nove& &atio 9 Cost of *oo's sol'7Ave&a*e Stoc1 $Invento&!) Fhere, 7ost of goods sold G ,ales 6ross profit 7ost of goods sold G Apening stock H*urchases H 7arriage inward and other direct e"penses 7losing stock Average ,tock G 'I- /Apening stock H 7losing stock0

Si*nificance an' Objectives/ Inventory or stock turnover ratio indicates

the efficiency of a firms management. (his ratio gives the rate at which stocks are converted into sales and then into cash. A low inventory turnover ratio is an indicator of dull business, accumulation of inventory, over

1-

investment in inventory or unsaleable goods etc. 6enerally speaking, a high stock turnover ratio is considered better as it indicates that more sales are being produced by each rupee of investment in stock but a higher stock turnover ratio may not always be an indicator of favourable results. It may be the result of a very low level of stock which results in fre#uent out of stock positions. ,uch a situation prevents the company from meeting customers demands and the company cannot earn ma"imum profits.

ii) Debto&s T(&nove& Ratio $Receivables T(&nove& Ratio)

(his ratio indicates the relationship between net credit sales and trade debtors. It shows the rate at which cash is generated by the turnover of debtors.

Fo& (la/
Debto&s T(&nove& &atio 9 C&e'it Sales7Ave&a*e Debto&s (he term debtors includes trade debtors and bills receivables. Doubtful debts are not deducted from debtors. +oreover, debtors that do not arise from regular sales should be e"cluded.

Si*nificance an' Objectives/ The significance of this ratio lies in the fact
that debtors constitute one of the important items of current assets and this ratio indicates as to how many days average sales are tied up in the amount of debtors. (he efficiency of debt collection is also indicated by this ratio. A higher debtors turnover ratio indicates that debts are being collected more #uickly. 7hanges in this ratio show the changes in the companys credit policy or changes in its ability to collect from its debtors.

11

iii) Fi0e' Assets T(&nove& Ratio

(his ratio indicates the efficiency with which the firm is utilising its investments in fi"ed assets such as plant and machinery, land and building etc.

Fo& (la/
Fi0e' Assets T(&nove& 9 Sales $o& Cost of Sales)7Net Fi0e' Assets (he term net fi"ed assets means depreciated value of fi"ed assets.

Si*nificance an' Objectives/ 6enerally speaking, a high ratio indicates

efficient utilization of fi"ed assets in generating sales and a low ratio may signify that the firm has an e"cessive investment in fi"ed assets.

iv) 5o&1in* Ca"ital T(&nove& Ratio

(his ratio indicates the efficiency or inefficiency in the utilisation of working capital in making sales.

Fo& (la/
5o&1in* Ca"ital T(&nove& &atio 9 Sa;es7Net +o&1in* Ca"ital (he term net working capital means current assets minus current liabilities. Si*nificance an' Objective/ A high working capital turnover ratio shows the efficient utilisation of working capital in generating sales. A low ratio, on the other hand, may indicate e"cess of net working capital. (his ratio thus shows whether working capital is efficiently utilised or not.

v) Ca"ital T(&nove& Ratio 15

(his ratio shows the relationship between cost of sales /or sales0 and the total capital employed.

Fo& (la/
Ca"ital T(&nove& &atio 9 Cost of Sales $o& Sales)7Total ca"ital e "lo!e' (he term capital employed includes the long term liabilities and total of shareholders funds. From this are deducted non operating assets /e.g., investments0 and fictitious assets like preliminary e"penses, discount on the issue of shares, debits balance of *rofit and ;oss Account, etc.

Si*nificance an' Objectives/ (his ratio shows the efficiency with which
capital employed in a business is used. A high capital turnover ratio indicates the possibility of greater profit and a low capital turnover ratio is a sign of insufficient sales and possibility of lower profits.

vi) C&e'ito&s T(&nove& Ratio

(his ratio also known as *ayables (urnover <atio, measures the relationship between credit purchases and average accounts payable.

Fo& (la/
C&e'ito&s t(&nove& &atio 9 Net c&e'it "(&c#ases7Ave&a*e acco(nts "a!able Accounts payable include creditors and bills payable.

%ROFITABILITY RATIOS
%very business should earn sufficient profits to survive and grow over a long period of time. Infact efficiency of a business is measured in terms of profits.

19

*rofitability ratios are calculated to measure the efficiency of a business. *rofitability of a business may be measured in two ways *rofitability in relation to sales *rofitability in relation to investment. If a company is not able to earn a satisfactory return on investment, it will not be able to pay a reasonable return to its investors and the survival of the company may be threatened. (hese ratios are)

i) 6&oss %&ofit Ratio $6&oss %&ofit Ma&*in)

(his ratio e"presses the relationship between gross profit and sales.

Fo& (la/
6&oss %&ofit &atio 9 $6&oss "&ofit7Net sales) 0 ;<< $et sales means sales minus sales returns. 6ross profit is sales minus cost of goods sold.

Si*nificance an' Objectives/ 6ross profit ratio indicates the average

margin on the goods sold. It shows whether the selling prices are ade#uate or not. It also indicates the e"tent to which selling prices may be reduced without resulting in losses. A low gross profit ratio may indicate a higher cost of goods sold due to higher cost of production. It may also be due to low selling prices. A high gross profit ratio, on the other hand, indicates relatively lower cost and is a sign of good management.

ii) Net %&ofit Ratio $Net %&ofit Ma&*in)

1:

(his is the ratio of net profit to net sales.

Fo& (la/
Net %&ofit &atio 9 $Net "&ofit7Net sales) 0 ;<< In calculating the net profit, all non operating e"penses and losses /e.g. loss on sale of old assets, provision for legal damages etc.0 are deducted and all non operating incomes /e.g. dividend income, interest received on investments etc.0 are added. ,ome accountants deduct income ta" also for calculating the net profit. Si*nificance an' Objectives/ (he net profit ratio is the overall measure of a firms ability to turn each rupee of sales into profit. It indicates the efficiency with which a business is managed. A firm with a high net profit ratio is in an advantageous position to survive in the face of rising cost of production and falling selling prices. Fhere the net profit ratio is low, the firm will find it difficult to withstand these types of adverse conditions.

7omparison of net profit ratio with other firms in the same industry or with the previous years will indicate the scope for improvement. (his will enable the firm to ma"imize its efficiency.

iii) O"e&atin* Ratio

(his is also an important profitability ratio. (his ratio e"plains the relationship between cost of goods sold and operating e"penses on the one hand and net sales on the other.

Fo& (la/ 1?

O"e&atin* &atio 9 =$Cost of *oo's sol' : o"e&atin* e0"enses)7Net sales> 0 ;<< Si*nificance an' Objective/ (he operating ratio is the yardstick to measure the efficiency with which a business is operated. It shows the percentage of net sales that is absorbed by cost of goods sold and operating e"penses. A high operating ratio is considered unfavourable because it leaves a smaller margin of profit to meet non operating e"penses. An the other hand, a lower operating ratio is considered a good sign.

iv) Ret(&n on invest ent $ROI) o& &et(&n on ca"ital e "lo!e'

(his is the most important test of profitability of a business. It measures the overall, profitability. It is ascertained by comparing profit earned and capital /or funds0 employed to earn it.

Fo& (la/
ROI 9 $"&ofit befo&e inte&est an' ta0es7Ca"ital e "lo!e') 0 ;<<

Si*nificance an' Objective/ <Al is the only ratio which measures

satisfactorily the overall performance of a business from the point of view of profitability. (his ratio indicates how well the management has utilised the funds supplied by the owners and creditors. In other words, this ratio is intended to measure the earning power of the net assets of the business. (he higher the <AI, the more efficient the management is considered to be in

1@

using the funds available. In fact, this ratio can also be advantageously used in &udging the performance efficiency of different firms in different industries. +anagement also uses this ratio for decision making purposes.

v) Ret(&n of E-(it! ca"ital

(his ratio establishes the relationship between the net profit available to e#uity shareholder and the amount of capital invested by them.

Fo& (la/
Ret(&n on E-(it! Ca"ital 9 $NAT7E-(it! s#a&e#ol'e&s f(n's) 0 ;<< Fhere, $A( G $et profit after interest, ta"es and preference dividend $et profit for the purpose of this ratio is taken after dividend payable to preference shareholders, if any. %#uity shareholders funds include e#uity capital, reserves and other undistributed profits.

Si*nificance an' Objectives/ (his ratio shows the profit percentage

for e#uity shareholders. A high rate of return on e#uity shareholders funds is favoured by investors and a higher market valuation is placed on such shares. (his ratio is used for inter firm comparison to &udge the comparative profitability of different firms.

vi) Ea&nin* %e& S#a&e $E%S)

(his ratio measures the earnings per e#uity share that is, it measures the profitability of the firm on a per share basis.

18

Fo& (la/
Ea&nin* "e& s#a&e 9 $Net "&ofit afte& ta0es 2 %&efe&ence 'ivi'en')7No. of e-(it! s#a&es %*, is one of the most commonly #uoted and widely publicized ratio.

vii) Divi'en' %a!2o(t Ratio $O& %a!2o(t Ratio)

It indicates the percentage of e#uity share earnings distributed as dividends to e#uity shareholders.

Fo& (la/
Dividend *ay out ratio G Dividend per shareI%arning per share /%*,0

viii) Divi'en' Yiel' Ratio

Dividend is declared by a company as a percentage of par value or paid up value or a specific amount per e#uity share.

Fo& (la/
Divi'en' Yiel' Ratio 9 Divi'en' "e& e-(it! s#a&e7Ma&1et "&ice "e& e-(it! s#a&e (his ratio is important for those investors who make investment decisions for the purpose of earning a reasonable yield on the amount of investment.

i0) %&ice Ea&nin* Ratio $%7E Ratio) 5B

(his ratio is the market price of shares e"pressed as multiple of earning per share /%*,0.

Fo& (la/
%7E &atio 9 Ma&1et "&ice "e& e-(it! s#a&e7Ea&nin* "e& s#a&e (his ratio guides investors to decide whether to buy shares of a company or not.

Li itations of Acco(ntin* Ratios

<atio analysis is very important in revealing the financial position and soundness of the business. .ut, in spite of its advantages, it has some limitations which restrict its use. (hese limitations should be kept in mind while making use of ratio analysis for interpreting the financial statements. (he following are the main limitations of accounting ratios)

False &es(lts if base' on inco&&ect acco(ntin* 'ata/ Accounting ratios can be correct only if the data /on which they are based0 are correct. ,ometimes, the information given in the financial statements is affected by window dressing, i.e., showing position better than what actually is. For e"ample, if inventory values are inflated or depreciation is not charged on fi"ed assets, not only will one have an optimistic view of profitability of the concern but also of its financial position. ,o the analyst must always be on the lookout for signs of window dressing, if any.

No i'ea of "&obable #a""enin*s in f(t(&e/ <atios are an attempt to make an analysis of the past financial statements= so they are historical

5'

documents. $ow a days keeping in view the comple"ities of the business, it is important to have an idea of the probable happenings in future.

4a&iation in acco(ntin*

et#o's/ (he two firms results are comparable

with the help of accounting ratios only if they follow the same accounting methods or bases. 7omparison will become difficult if the two concerns follow the different methods. 7omparison of financial statements of such firms by means of ratios is bound to be misleading.

%&ice level c#an*es/ 7hanges in price levels make comparison for various years difficult. For e"ample, the ratio of sales to total assets in -BB: would be much than in '8@: due to rising prices, fi"ed assets being shown at cost and not at market price.

Onl! one

et#o' of anal!sis/ <atio analysis is only a beginning and

gives &ust a fraction of information needed for decision making. (herefore, to have a comprehensive analysis of financial statements, ratios should be used along with other methods of analysis.

No co

on stan'a&'s/ It is very difficult to lay down a common

standard for comparison because circumstances differ from concern to concern and the nature of each industry is different.

Diffe&ent

eanin*s assi*ne' to t#e sa e te& / Different firms, in order

to calculate ratio may assign different meanings. For e"ample, profit for the purpose of calculating a ratio may be taken as profit before charging interest and ta" or profit before ta" but after interest or profit after ta" and interest. (his may affect the calculation of ratio in different firms and such ratio when used for comparison may lead to wrong conclusions.

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I*no&es -(alitative facto&s/ Accounting ratios are tools of #uantitative analysis on'y. .ut sometimes #ualitative factors may surmount the #uantitative aspects. (he calculations derived from the ratio analysis under such circumstances may get distorted.

No (se if &atios a&e +o&1e' o(t fo& insi*nificant an' (n&elate' fi*(&es/ Accounting ratios may be worked for any two insignificant and unrelated figures as ratio of sales and investment in government securities. ,uch ratios may be misleading. <atios should be calculated on the basis of cause and effect relationship.

RESEARCH METHODOLO6Y
INTRODUCTION

51

Finance and its functions plays very ma&or role in determining the profitability and stability of the business. +ost of the studies in India on business finance have laid more stress in comparing financial results of public and private sector undertaking vis J vis profitability. (he current study undertaken at ALLAHABAD BAN? is to find out and evaluate its financial performance. (he purpose was also to closely e"amine the relationship between various financial elements, which may be compared to the prescribed standards and norms. A research design is purely and simply the framework or plan for a study that guides the collection and analysis of data. It is a blue print that if followed in completing a study. A good research design has the characteristics, viz., and problem definition, specific methods of data collection and analysis, time re#uired for research pro&ect and the estimate of e"penses of to be incurred.

(he three basic types of research design viz., %"ploratory Descriptive 7asual or e"perimental <unning a business means taking decisions all the time. ,ome of these decisions have short term conse#uences, however affects the long term prospects of business. Fhatever the nature of the decision, a common thread is the nature of the information. Information is needed to increase your charges of making the best decisions and this study guides the decision maker.

TITLE OF THE STUDY

55

A study of ANALYSIS OF FINANCIAL PERFORMANCE OF ALLAHABAD BANK

STATEMENT OF THE %ROBLEM

Financial soundness in terms of solvency, li#uidity, leverage, profitability and earning capacity are the main ob&ectives of any organization. %ach and every organization strives to be financially sound. (he financial position of a business concern depends on the growth it attains in every aspect of the concern. (he financial statements clearly reveal the growth of the company over a number of years. .ut it is difficult to analyze and take important decisions only by studying the financial statements without any comparison. In order to facilitate comparison and take strategic and managerial decisions analytical techni#ues are re#uired to study the financial statements. Accounting ratios or <atio Analysis establishes relationship between closely related Financial ,tatements. If the items appearing in the Financial ,tatements are to be really meaningful and useful, they should be analyzed in such a way that one item can be compared with another. <atio Analysis is one of the tools available to analyze the Financial ,tatements. Cence, this *ro&ect <eport contains analysis of Financial ,tatements through 7omparative .alance sheets, ,tatement of 7ash Flow, 7omparative *rofit K ;oss Accounts some of the <atio Analysis and their interpretation.

SCO%E OF THE STUDY

59

(he study is concentrated mainly on understanding and analyzing the financial statements based in the annual reports of -BB@ and -BB8 of ALLAHABAD BANK with reference to 7omparative .alance sheets, ,tatement of 7ash Flow, 7omparative *rofit K ;oss Accounts some of the <atio Analysis and their interpretation.

METHODOLO6Y
(he Cypothesis that was framed for study relating to banks financial performance is the following)

Financial performance of Allahabad bank has shown constant improvement K rise in profits.

Financial performance of Allahabad bank is not constant but it is fluctuating.

(he Data was collected from associated literature, banking &ournals, observations, #uestionnaire and other inputs, from related e"perts. (he method and e"amination of records were widely used in framing this report.

5:

OB@ECTI4ES OF THE STUDY

(he following are the ob&ectives of the study) (he primary ob&ective of the study is to analyze the financial statements, profit and loss account and the balance sheet of the company. (o understand the efficiency of the company. Assess the profitability of the concern. (o study the solvency, li#uidity and long term financial position of the concern. (o interpret the financial statement with the help of accounting ratios derived from financial statements. (o make suggestions out of the findings of the study.

SOURCES OF DATA
%RIMARY DATA
*rimary data is that data or information collected for the first time and which not have been collected from any other sources. *rimary data is called first hand dataIinformation. (he primary data was collected with great care keeping in mind the research ob&ective. *rimary data was collected in the form of )

I visited A;;ACA.AD .A$L during my field work and met with the manager.

5?

(he data was gathered by the medium of detailed discussions with officials of the bank to understand the problems of the re#uirement.

SECONDARY DATA

,econdary data is any data that have been gathered earlier for the same purpose. Fact sheet published by the bank. Annual repots of the bank. $ewspaper. +agazines etc. Internet etc.

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LIMITATIONS OF THE STUDY

(his study e"tensively uses the data provided in the financial reports. If there is any window dressing, the findings could be misleading.

(his being an academic study, it suffers from time and cost constraints. ratio standards.

$o other company is the same sector has been considered to evaluate the Its purely a theoretical study. ;astly different individuals interpret the ratios in a different manner. ,ome information could not be collected as it is confidential.

METHOD OF %ROCESSIN6 AND ANALYSIS OF DATA

<esearch design specific for this study including following) ,election of the study period. 7ollection of information from various &ournals to understand the industrial background of study. Identification of means of financing sources over the study period. 7ollection of banks specific literature that is annual report for the study period. Analysis or tabulated data to recognize the financial position or location of the firm. Finally forwarding recommendations and conclusions to the firm.

58

CHA%TER SCHEME
;. INTRODUCTION
(his chapter talks about the theory behind financials performance evaluation ma&or techni#ues of evaluation contribution in the field and what the study attempting to achieve.

A. RESEARCH METHEDOLO6Y OF THE STUDY

(he design of the study sated the research design, sources of data, sampling plan, fieldwork, data processing analysis plan, and assumptions regarding methodology are discussed here. (he study overview as well as the studies limitations is also discussed here.

B. BAC?6ROUND OF THE STUDY

(his chapter throws light on origin and of the industry as a whole, its present status and ma&or players in the industry.

C. %ROFILE OF THE OR6ANIDATION

(his chapter views the origin and growths of Allahabad bank its business activities, percent status, ob&ectives and the profile of the organization.

E. DISCUSSION OF FINDIN6S

9B

In this chapter data collected is complied, tabulated process and analyzed. (he statistical techni#ues for the construction of graphs and diagram are used to present data.
:. CONCLUSION AND RECOMMEDATIONS

(his chapter contains the summary of finding and suggestion made to increase the profitability.

COM%ANY %ROFILE

9'

INTRODUCTION TO THE BAN?IN6 DEFINITION

(he Indian .anking <egulation Act '858 has defined the term 3.anking4 under section 9 /'0 /b0 as accepting for the purpose of lending or investment, of deposits of money from public, repayable on demand or otherwise, and withdrawl by che#ue, draft, order or otherwise.4

ORI6IN OF THE BAN?IN6

(he term bank is supposed to be derived from banco, the Italian word for bench, the ;ombard 2ews in Italy having benches in the market place where they e"changed money and bills. Fhen a banker failed, his bench was broken by the people, and he was called a bankrupt. (his derivation of the term, however, is probably wrong. M(he true original meaning of banco,Msays +acleod,4 is a heap, or mound, and this word was metaphorically applied to signify a common fund, or &oint stock, formed by the contributions of a multitude of persons.M A brief account of the first banking operations in Eenice will dispel the haze enveloping this sub&ect. In ''?' the financial condition of Eenice was strained in conse#uence of the wars in which the people were engaged. (he great council of the republic finally determined to raise a forced loan. %very citizen was obliged to contribute the hundredth part of his possessions to the ,tate, receiving therefore interest at the rate of five per cent. (he public revenues were mortgaged to secure the interest, and commissioners were appointed to pay the interest to the fund holders and to transfer the stock. (he loan had several names in Italian, 7ompera, +utuo, but the most common was +onte,

9-

a &oint stock fund. Afterward, two more loans were contracted, and in e"change for the money contributed by the citizens, the commissioners gave stock certificates bearing interest, and which could be sold and transferred.

E4ALUATION OF BAN?IN6 IN INDIA

.anking in India originated in the last decades of the '@th century. (he first banks were (he 6eneral .ank of India which started in '?@:, and the .ank of Cindustan, both of which are now defunct. (he oldest bank in e"istence in India is the ,tate .ank of India, which originated in the .ank of 7alcutta in 2une '@B:, which almost immediately became the .ank of .engal. (his was one of the three presidency banks, the other two being the .ank of .ombay and the .ank of +adras, all three of which were established under charters from the .ritish %ast India 7ompany. For many years the *residency banks acted as #uasi central banks, as did their successors. (he three banks merged in '8-' to form the Imperial .ank of India, which, upon India!s independence, became the ,tate .ank of India. Indian merchants in 7alcutta established the Nnion .ank in '@18, but it failed in '@5@ as a conse#uence of the economic crisis of '@5@ 58. (he Allahabad .ank, established in '@:9 and still functioning today, is the oldest 2oint ,tock bank in India. It was not the first though. (hat honor belongs to the .ank of Npper India, which was established in '@:1, and which survived until '8'1, when it failed, with some of its assets and liabilities being transferred to the Alliance .ank of ,imla. Fhen the American 7ivil Far stopped the supply of cotton to ;ancashire from the 7onfederate ,tates, promoters opened banks to finance

91

trading in Indian cotton. Fith large e"posure to speculative ventures, most of the banks opened in India during that period failed. (he depositors lost money and lost interest in keeping deposits with banks. ,ubse#uently, banking in India remained the e"clusive domain of %uropeans for ne"t several decades until the beginning of the -Bth century. Foreign banks too started to arrive, particularly in 7alcutta, in the '@:Bs. (he 7omptoire d!%scompte de *aris opened a branch in 7alcutta in '@:B, and another in .ombay in '@:-= branches in +adras and *ondichery, then a French colony, followed. C,.7 established itself in .engal in '@:8. 7alcutta was the most active trading port in India, mainly due to the trade of the .ritish %mpire, and so became a banking center. (he first entirely Indian &oint stock bank was the Audh 7ommercial .ank, established in '@@' in Faizabad. It failed in '89@. (he ne"t was the *un&ab $ational .ank, established in ;ahore in '@89, which has survived to the present and is now one of the largest banks in India. Around the turn of the -Bth 7entury, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian +utiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities.

COMMERCIAL BAN?S

7ommercial .anks in India are broadly categorized into ,cheduled 7ommercial .anks and Nnscheduled 7ommercial .anks. (he ,cheduled 7ommercial .anks have been listed under the ,econd ,chedule of the <eserve .ank of India Act, '815. (he selection measure for listing a bank

95

under the ,econd ,chedule was provided in section 5- of the <eserve .ank of India Act, '815 (he modern 7ommercial .anks in India cater to the financial needs of different sectors. (he main functions of the commercial banks are transferring of funds, acceptance of deposits, offering those deposits as loans for the establishment of industries, purchase of houses, e#uipments, capital investment purposes etc. (he banks are allowed to act as trustees. An account of the knowledge of the financial market of India the financial companies are attracted towards them to act as trustees to take the responsibility of the security for the financial instrument like a debenture. (he Indian 6overnment presently hires the commercial banks for various purposes like ta" collection and refunds, payment of pensions etc.

FUNCTIONS OF COMMERCIAL BAN?

(he functions of commercial banks are divided into two categories)

'0 %RIMARY FUNCTION.

-0 SECONDARY FUNCTION INCLUDIN6 A6ENCY FUNCTION.

%RIMARY FUNCTION. (he primary functions of a commercial bank include)

99

a) Acce"tin* 'e"osits. b) 6&antin* loans an' a'vances. a) Acce"tin* 'e"osits. (he most important activity of a commercial bank is to mobilize deposits from the public. *eople who have surplus income and savings find it convenient to deposit the amounts with banks. Depending upon the nature of deposits, funds deposited with bank also earns interest. (hus, deposits with the bank grow along Fith the interest earned. If the rate of interest is higher, public are motivated to deposit more funds with the bank. (here is also safety of funds deposited with the bank. b) 6&antin* loans an' a'vances. (he second important function of a commercial bank is to grant loans and advances. ,uch loans and advances are given to members of the public and to the business community at a higher rate of interest than allowed by banks on various deposit accounts. (he rate of interest charged on loans and advances varies depending upon the purpose, period and the mode of repayment. (he difference between the rate of interest allowed on deposits and the rate charged on the ;oans is the main source of a banks income. i) Loans A loan is granted for a specific time period. 6enerally, commercial banks grant short term loans. .ut term loans, that is, loan for more than a year, may also be granted. (he borrower may withdraw the entire amount in lump sum

9:

or in installments. Cowever, interest is charged on the full amount of loan. ;oans are generally granted against the security of certain assets. A loan may be repaid either in lump sum or in installments.

ii) A'vances An advance is a credit facility provided by the bank to its customers. It differs from loan in the sense that loans may be granted for longer period, but advances are normally granted for a short period of time. Further the purpose of granting advances is to meet the day to day re#uirements of business. (he rate of interest charged on advances varies from bank to bank. Interest is charged only on the amount withdrawn and not on the sanctioned amount.

MODES OF SHORT TERM FINANCIAL ASSISTANCE

.anks grant short term financial assistance by way of cash credit, overdraft and bill discounting.

a) Cas# C&e'it

9?

7ash credit is an arrangement whereby the bank allows the borrower to draw amounts upto a specified limit. (he amount is credited to the account of the customer. (he customer can withdraw this amount as and when he re#uires. Interest is charged on the amount actually withdrawn. 7ash 7redit is granted as per agreed terms and conditions with the customers. b) Ove&'&aft Averdraft is also a credit facility granted by bank. A customer who has a current account with the bank is allowed to withdraw more than the amount of credit balance in his account. It is a temporary arrangement. Averdraft facility with a specified limit is allowed either on the security of assets, or on personal security, or both. c) Disco(ntin* of Bills .anks provide short term finance by discounting bills, that is, making payment of the amount before the due date of the bills after deducting a certain rate of discount. (he party gets the funds without waiting for the date of maturity of the bills. Incase any bill is dishonored on the due date, the bank can recover the amount from the customer. SECONDARY FUNCTION INCLUDIN6 A6ENCY FUNCTION. .esides the primary functions of accepting deposits and lending money, banks perform a number of other functions which are called secondary functions. (hese are as follows O

9@

a0 Issuing letters of credit, travellers che#ues, circular notes etc.

b0 Nndertaking safe custody of valuables, important documents, and

securities by providing safe deposit vaults or lockers. c0 *roviding customers with facilities of foreign e"change.
d0 (ransferring money from one place to another= and from one branch to

another branch of the bank.

e0 ,tanding guarantee on behalf of its customers, for making payments

for purchase of goods, machinery, vehicles etc.

f0

7ollecting and supplying business information.

g0 Issuing demand drafts and pay orders.

h0 *roviding reports on the credit worthiness of customers.

ROLE OF THE BAN?S

.anks provide funds for business as well as personal needs of individuals. (hey play a significant role in the economy of a nation) It encourages savings habit amongst people and thereby makes funds available for productive use.

98

 It acts as an intermediary between people having surplus money and those re#uiring money for various business activities. It facilitates business transactions through receipts and payments by che#ues instead of currency. It provides loans and advances to businessmen for short term and long term purposes. It also facilitates import e"port transactions. It helps in national development by providing credit to farmers, small scale industries and self employed people as well as to large business houses which lead to balanced economic development in the country. It helps in raising the standard of living of people in general by providing loans for purchase of consumer durable goods, houses, automobiles, etc.

:B

ABOUT ALLAHABAD BAN?

(he Aldest 2oint ,tock .ank of the 7ountry, Allahabad .ank was founded on April -5, '@:9 by a group of %uropeans at Allahabad. At that &uncture Arganized Industry, (rade and .anking started taking shape in India. Allahabad .ank is oldest nationalized .ank with rich e"perience in e"tending various banking solutions to its valued clients since '@:9. (heir consistent track record of growth with profit provides the confidence of meeting all your .anking re#uirements. In '88' the bank commenced its wholly owned subsidiary All .ank Finance for merchant banking. In 2une -BB: the bank opened its first representative office at ,henzhen, 7hina and same year it rolled out first branch under 7.,. 7urrently the bank serves customers across ''B cities with network : zonal offices, ---? branches /including one in Cong Long0 and --' A(+s. Allahabad .ank is well spread out in India and recently opened first International .ranch at Cong Long. .ank has also arrangements with correspondents at various important overseas locations, which will ensure e"tending to all our $<I customers rich banking e"perience.

:'

%RODUCTS AND SER4ICES OFFERED BY THE BAN? /

%RODUCTS
I. De"osit %&o'(cts

Fle"i fi" Deposit <s.9 .anking All .ank (a" .enefit (erm Deposit ,cheme All .ank *remium ,. Account All .ank +ahila ,anchay Account All .ank Eikash ,. Account All .ank *remium 7urrent Account 7urrent *lus Deposit ,cheme ,ishu +angal Deposit ,cheme
II. Retail C&e'it %&o'(cts

All .ank Cousing Finance ,cheme All .ank %ducational ;oan ,cheme All .ank 7ar Finance ,cheme All .ank ,aral ;oan ,cheme *ersonal ;oan ,cheme for *ensioners *ersonal ;oan ,cheme for DoctorsI +edical *ractitioners ;oan against $,7I LE* All .ank *roperty ;oan All .ank Furnishing ;oan All .ank 6old ;oan ,cheme All .ank +obike ,cheme Averdraft Facility in ,avings .ank Account All .ank Abhusan ,cheme

:-

 All .ank (rade ,cheme All.ank 6yan Dipika ,cheme Allabnk <everse +ortgage ,cheme
III. Ot#e& C&e'it %&o'(cts

Lisan 7redit 7ard Lisan ,hakti Po&ana All.ank %"po

SER4ICES
All Ayushman .ima Po&ana 7ash +anagement ,ervices Depository ,ervices Eisa Debit 7um A(+ 7ard <eal (ime 6ross ,ettlement /<(6,0 $ational %lectronic Funds (ransfer /$%F(0 6old 7ard ,cheme for %"porters 7harter for +,+%s 6overnment .usiness <egional +,+% 7are 7entres

(he Aldest 2oint ,tock .ank of the 7ountry, Allahabad .ank was founded on April -5, '@:9 by a group of %uropeans at Allahabad. At that &uncture Arganized Industry, (rade and .anking started taking shape in India. (hus, the Cistory of the .ank spread over three 7enturies $ineteenth, (wentieth and (wenty First.

:1

MILESTONES
Nineteent# Cent(&! A"&il ACF ;GHE
(he .ank was founded at the confluence city of Allahabad by a group of %uropeans.

T+entiet# Cent(&! ;IA<,s

(he .ank became a part of * K A .anking 7orporation!s group with a bid price of <s.51: per share,

;IAB,s
(he Cead Affice of the .ank shifted to 7alcutta on .usiness considerations.

@(l! ;IF ;IHI

$ationalized along with '1 other banks, .ranches '9' Deposits <s.''8 crores, Advances <s.@- crores.

Octobe&F ;IGI
Nnited Industrial .ank ;td. merged with Allahabad .ank.

;II;,s :5

Instituted All .ank Finance ;td., a wholly owned subsidiary for +erchant .anking.

T+ent!2Fi&st Cent(&! Octobe&F A<<A

(he .ank came out with Initial *ublic Affer /I*A0, of 'B crores share of face value <s.'B each, reducing 6overnment shareholding to ?'.':Q.

A"&ilF A<<E
Follow on *ublic Affer /F*A0 of 'B crores e#uity shares of face value <s.'B each with a premium of <s.?-, reducing 6overnment shareholding to 99.-1Q.

@(neF A<<H
(he .ank (ranscended beyond the $ational .oundary, opening <epresentative Affice at ,henzen, 7hina.

OctF A<<H
<olled out first .ranch under 7.,.

Feb&(a&!F A<<J
(he .ank opened its first overseas branch at Cong Long.

Ma&c# A<<J
.ank!s business crossed <s.'BB,BBB crores mark.

:9

A<<G
Allahabad .ank announces special package for housing loan K +,+%

borrowers
Allahabad .ank revises Interest rates on F7$< and $<% Deposits. Allahabad bank cuts .enchmark *rime ;ending <ate /.*;<0 by ?9

basis points
Allahabad .ank Diwali .onanza O ''Q An (erm Deposits

Allahabad .ank crosses <s.'-9BBB crore business

Allahabad bank increases interest rates on deposits Allahabad .ank 7hairman 7alls An Conble Nnion Finance +inister Allahabad bank keeps housing, personal, education, carIauto loans

unaffected by .*;< increase

Allahabad .ank +aintains Its ,urge Forward Allahabad bank completes Debt Faiver e"ercise Allahabad bank increases .*;< and Deposit interest rates Allahabad .ank ;aunches Debt Faiver ,cheme Allahabad .ank *resents *owerful *erformance and ,pectacular

<esults
Allahabad .ank cuts benchmark prime lending rate /.*;<0 by -9

basis points
Con!ble Nnion Finance +inister opens -'95th branch of Allahabad

.ank at *udukkottai, (amil $adu

Allahabad .ank cuts interest on housing loans .y -9 basis points Allahabad .ank cuts Deposit as well as ;ending rates Allahabad .ank steady on growth path

::

A<<I
Deposits registered 6rowth of -9.18 Q /PAP0 6ross 7redit up by -5.9'Q /PAP0 (otal .usiness soared by -9.B1 Q /PAP0 Aperating *rofit surged by 5? Q /PAP0 *rovision 7overage <atio increased to @@.-8 Q 7apital Ade#uacy <atio surges to '9Q. .ook Ealue per share mounts to <s. '9-.?-. $et $*A reduced to B.19 Q from B.@-Q last year. .ank has geared up 7., implementation and 8:' .ranchesIAffices covering @'.B- Q of the .anks business have been brought within the network. Internet .anking, ,+, .anking, e *ayment of (a"es made available through all 7., .ranches. Instant A(+ cum Debit 7ard facility launched for the customers of 7., .ranches. .ank has installed -'' A(+s facilitating more than 9.@B lacs A(+ Ocum Debit 7ardholders of our .ank. .ank is offering <(6,I$%F( fund transfer facility through its all 7., .ranches in which funds can be transferred to any of :'BBB .ank .ranches across the country.<(6,I$%F( facility has also been e"tended through Internet .anking. Anline *ayment 6ateway ,ervices launched by the .ank for its 7ustomers to make online payments at the billers site with instant debit from their accounts.

:?

%ROFILE
Date of Establis# ent -5 B5 '@:9 Reven(e '595.11 /N,D in +illions0

Co&"o&ate A''&ess - $eta&i ,ubhas <oad, Lolkata ?BBBB', Fest .engal, www.allahabadbank.in

MANA6EMENT DETAILS
C#ai&"e&son 2 * Dua Mana*in* Di&ecto& 2 * Dua

LIST OF DIRECTORS
S#&i Debab&ata Sa&1a& %"ecutive Director S#&i M.R. Na!a1 %"ecutive Director S t. S(1&iti Li1#i 6overnment $ominee Director

:@

S#&i Mo#a

a' Ta#i&

<.I $ominee Director S#&i ?. ?. Do*&a Afficer %mployee Director S#&i %. 4. 6('i&e''! *art (ime $on Afficial Director S#&i %. 4. 6('i&e''! *art (ime $on Afficial Director D&. 4asant Bab(&ao ?a(jal*i ,hareholder Director D&. S#a1eel U3 Da an Ansa&i *art (ime $on Afficial Director S t @o*in'e& ?a(& *art (ime $on Afficial Director

RE6ISTRAR K SHARE TRANSFER A6ENT

+I, +7, ;(D. ??I-A, Cazra <oad, Lolkata ?BBB-8

BUSINESS O%ERATIONS
.ank *ublic

:8

FINANCIALS
Total Inco e <s. @9B::.9-' +illion /year ending +ar -BB80 Net %&ofit <s. ?:@9.8@' +illion /year ending +ar -BB80 Co "an! Sec&eta&! Dina $ath Lumar

BAN?ERS AUDITORS
+Is Eenkat K <angaa +Is ,udit L *arekh K 7o +Is +.<. $arain K 7o. +Is ,. 6hose K 7o. +Is L.+. Agarwal K 7o.

COM%ETITORS DETAILS
,(A(% .A$L AF I$DIA ?B

 7A$A<A .A$L CDF7 .A$L I7I7I EI2AP .A$L N(I *N$2A. $A(IA$A; .A$L

D%$A .A$L
,P$DI7A(% .A$L

BAN?S 4ISION AND MISSION

4ision
(o put the .ank on a higher growth path by building a ,trong 7ustomer base through (alent +anagement, induction of ,tate of the art (echnology and through ,tructural <e organization.

Mission(o ensure anywhere and any time banking for the customer with latest
state of the art technology and by developing effective customer centric relationship and to emerge as a world class service provider through efficient utilization of Cuman <esources and product innovation.

ANALYSIS OF DATA K INTER%RETATION

Comparative Balance sheets as on 31st March 2008 and 31st March 2009 ?'

Particulars

As on As on 31 03 2008 31 03 2009

(Rs in 000) !ncrease" $ #ecrease chan%e

A& Capital ' (ia)ilities 1. Capital 4,467,000 2.Reserves & 47,743,491 Surplus 3. Dep sits 4. " rr #i$gs 5.'t(er )iabilities & *r visi $s *&+otal (ia)ilities B& Assets 1.Cas( & "ala$+e #it( R", 2. "ala$+e #it( ba$-s & . $e/ at +all & S( rt N ti+e 3. ,$vest0e$ts 4. 12va$+es 5. 3i4e2 1ssets 6. 't(er 1ssets -& +otal Assets 716,163,!31 17,919,9!7 43,09!,927

4,467,000 54,052,497 !49,717,!!7 9,370,367 5!,!72,32!

0 63,09,006 13,35,54,056 %!5,49,620& %15773401& 1.-08*8.3

Negligible 13.2% 1!.6% %47.70&% %36.59&% 1-&-$

829,393,23* 9-*,.80,0-9

62,!!!,552

51,153,7!6 %11,734,766& %1!.7&%

7,532,410

15,213,!49 102% 26.71% 1!.26% 3.53% %15&% (1/&1)$

7,6!1,439 234,002,500 296,510,497 62,507,997 497,204,661 5!!,017,634 90,!12,973 10,714,676 11,097,519 3!2,!43 17,050,437 14,4!6,794 %2,563,643& 9-*,.80,0-9 829,393,23* (1.-,08*,8.3)

Anal0sis Based on Comparative Balance 1heets

1) Capital ' (ia)ilities

'0 (he total issued capital as at 1' B1 -BB8 is <s. 5,5:?,BBB,BBB divided
into -,5:?,BBB,BBB e#uity shares of <s.'B each held by central

?-

government and -,BBB,BBB,BBB e#uity ,hares of <s.'BI each held by *ublic K Athers. (he banks authorized capital is <s. '9B,BB,BB,BBB. (he bank has issued appro"imately 8.9Q of its authorized capital. It is observed that there has been no change in the called up capital. An amount of <s.:,BBB towards allotment money has been collected in the year -BB@ -BB8 from the public. (he share of central government in paid up capital stood at <s -5:?BBBBB which is appro"imately 99.-1Q of the paid up capital. (he balance of 55.??Q is held by the public.

-0 It is observed that during the year -BB@ -BB8 the amount of reserves
and surplus has gone up by '1.-Q. (here has been no change in share premium account. (ransfers to statutory reserves and capital reserves have increased during the year -BB@ -BB8 by appro"imately 55Q while transfer to general reserve has dropped by ::Q.

10 Deposits during the year -BB@ -BB8 have grown by '@.:QQ.,avings

bank deposits has grown by '1.?'Q and stood at <s. --?,?51,8B1 thousands. Deposits from banks and others has grown by -'.1-Q and stood at <s. 999,?5-,1:1 thousands.

50 (he borrowings during the year -BB@ -BB8 have gone down by
47.70%. .orrowings from outside India have gone down by a massive 36.59Q during the year -BB@ -BB8. An the other hand borrowings

from <.I has been cleared in -BB: -BB?. .orrowings from banks and other institutions in India have gone down by 'BBQ from <s. '-,@9B,BBB,BBB. .orrowings from outside India are increased to <s. @,:-@,55:,BBB from 5,@'1,?59,BBB. All the borrowings are non secured.

?1

90 Ather liabilities, which include bills payable, and interest outstanding

has gone up -:.?@Q during the year -BB@ -BB8. Autstanding interest stood at <s.1,-5',?B9,BBB during the year -BB@ -BB8. :0 (he total liabilities during -BB@ -BB8 have increased by appro"imately 1:.9Q. It is important to note here that there was no change in share capital, hence indicating that liabilities other than capital have gone up during the year -BB@ -BB8. Assets
'0 (he cash and balance with <.I has deccreased by around -B.1-Q

during the year -BB@ -BB8. (he cash in hand, which has increased, by <s.1,85,:B@,BBB stood at <s.19,8@,B?B,BBB by '-.1-Q. .alance with .anks in 7urrent Accounts has decreased by ?.B?Q during the year -BB@ -BB8.
-0 (he balances with banks and money at call and short notice is nil

during the year -BB@ -BB8. (he balances with banks in India in current accounts and other deposits accounts have marginally decreased by <s. '-85-'B at -5.'9Q. (here is no money at call and short notice in India or outside India. (he balances with banks outside India in current accounts and other deposits accounts have increased to '?'.8@Q. It is important to note that there was <s. ',?58,?15,BBB balance in current accounts with banks outside India during the year -BB? -BB@, but stood at around <s.5,?98,BBB,BBB during -BB@ -BB8.
10 Investments during the year -BB@ -BB8 have marginally gone up by

-:.?' Q and stood at <s. -8:,9'B,58?,BBB . *rovision for depreciation on investments has increased in the year -BB@ -BB8 by 11.:-Q and so increase in gross investment. It is worth noting that around ?-.'-Q of the total investment is in government securities in the year -BB@ -BB8

?5

while investment in shares is only B.@:Q. Investment in debentures and bonds in the year -BB@ -BB8 has dropped -5.'?Q comparatively.
50 Advances during the year -BB@ -BB8 have gone up by '@.-:Q. (erm

loans comprise 99.9:Q of the total advances while cash credits, overdrafts and loan repayable on demand comprise 5'.1-Q. A ma&ority ?@Q of advances is secured by tangible assets while unsecured advances have gone up by 1'.9?Q during the year -BB@ -BB8. (here are no advances outside India while in India, advances in priority and public sector account for 5:.?:Q.
90 Investment in fi"ed assets during the year -BB@ -BB8 has gone up by

1.9?Q. During -BB@ -BB8, premises to the tune of <s. 8,18B,:@B,BBB and other fi"ed assets including furniture fi"tures of <s.?@9,1'@,BBB were added. (he total accumulated depreciation as on 1' B1 B8 stood at <s.5,B8:,1BB,BBB.
:0 Ather assets have gone down by '9Q during the year -BB@ -BB8. Ather

assets include outstanding interest and comprise around 1-Q of the total. (here has been a increase in outstanding interest in the year -BB@ -BB8 as compared to -BB? -BB@. (he inter office ad&ustments is nil for both the year.
?0 (he total assets during -BB@ -BB8 have gone down appro"imately by

'9Q.

?9

Co "a&ative %&ofit K Loss Acco(nts fo& t#e !ea& en'e' B;st Ma&c# A<<G an' B;st Ma&c# A<<I
$Rs in <<<) !ncrease" $ #ecrease chan%e

Particulars

31 03 2008

31 03 2009
73,647,27! 11,419,243 52,060,613

A& !ncome 61,712,159 1. ,$terest ear$e2 9,647,573 2. 't(er i$+ 0e B& 23penditure 1. ,$terest e4pe$2e2 44,9!!,795 2.'perati$g

11,935,119 1,771,670

19.34% 1!.36%

7,071,!1! 2,41!,550

15.72% 20.!9%

?:

e4pe$ses 3. *r visi $ a$2 C $ti$ge$+ies C& 4et Pro5it (A 6 B)

11,575,!34 5,047,679 -,*8/,981

13,994,3!4 11,325,543 6,277,!64 9,-.-,.2. 2,0*1,..3 2*&82$ %16.1%& 124.4%

5 tal ,$+ 0e 5 tal 64pe$2iture

!5,066,521 77,3!0,540

71,359,732 61,612,30!

%13,706,7!9&

%15,76!,232&

%20.4%&

Anal0sis Based on Comparative Pro5it and (oss Account A) Inco e

'0 (he total interest earned during the year -BB@ -BB8 has gone up by '8.15Q. Income on investments has increased by only 'B.?@Q though it may be observed that an investment during the year -BB@ -BB8 has gone up by -:.?'Q.
-0 (here is an increase of '@.1:Q in other income during the year -BB@

-BB8. Income from commission, e"change and brokerage has gone up by -5.?@Q, while income from subsidiaries has decreased by a massive ?5Q.
B) E0"en'it(&e '0 (here is an increase in interest e"pended during -BB@ -BB8 it has gone

up by around '9.?-Q. During -BB@ -BB8 the interest paid on deposits has up by appro"imately '1.5:Q during the year -BB@ -BB8
-0 Aperating e"penses during -BB@ -BB8 have gone up by around

-B.@8Q. *ayment to employees and directors fees is <s. 'B,-8B,BBB of

??

the operating e"penses, advertisement and publicity e"penses has gone down by ?.:?Q during -BB@ -BB8 while law charges have gone down by --.'?Q.
C) Net %&ofits

(he net profits have shown an increase of appro"imately AH.GAQ during -BB@ -BB8.

State ent of Cas# Flo+ fo& t#e !ea& en'e' B;st Ma&c# A<<G

$Rs. in L<<<)

Particulars 1. Cas( 7l # 7r 0 perati$g a+tivities ". Cas( 7l # 7r 0 i$vesti$g a+tivities C. Cas( 7l # 7r 0 7i$a$+i$g a+tivities D. "ala$+es at t(e begi$$i$g 7 t(e /ear Cas( a$2 "ala$+es #it( t(e R", "ala$+es #it( "a$-s a$2 . $e/ at Call 6. "ala$+es at t(e e$2 7 t(e /ear Cas( a$2 "ala$+es #it( t(e R", "ala$+es #it( "a$-s a$2 . $e/ at Call +otal cash 5lo7 durin% the 0ear %18"9C& r %D96&

Rs&

Yea& en'e' B;2<B2<J

7032660 %6!303!& %14651653&

40679399

.9.19*8!7402!!
62!!!552 7532410 -0.209*2 210012-/

?@

State ent of Cas# Flo+ fo& t#e !ea& en'e' B;st Ma&c# A<<I

$Rs. in L<<<)

Particulars 1. Cas( 7l # 7r 0 perati$g a+tivities ". Cas( 7l # 7r 0 i$vesti$g a+tivities C. Cas( 7l # 7r 0 7i$a$+i$g a+tivities D. "ala$+es at t(e begi$$i$g 7 t(e /ear Cas( a$2 "ala$+es #it( t(e R", "ala$+es #it( "a$-s a$2 . $e/ at Call 6. "ala$+es at t(e e$2 7 t(e /ear Cas( a$2 "ala$+es #it( t(e R", "ala$+es #it( "a$-s a$2 . $e/ at Call +otal cash 5lo7 durin% the 0ear %18"9C& r %D96&

Rs&

Yea& en'e' B;2<B2<J

(238/3) (9.*030) (3083...)

62!!!552 7532410 -0.209*2

511537!6 15213!49 **3*-*3/ (.0/332-)

?8

RATIO ANALYSIS
<atio analysis is widely used of financial analysis. It is defined as the systematic use of ratio interpreter statement so that strength and weakness of a firm as well as the historical performance and correct condition, can be determined. ,ingle most important techni#ue of financial analysis in which #uantities are converted into ratios for meaningful comparisons, with past ratios and ratios of other firms in the same or different industries. <atio analysis determines trends and e"poses strengths or weaknesses of a firm.

(P*%, AF <A(IA
;. S#o&t te& A. Lon* te& Solvenc! Ratio Solvenc! Ratio

B. T(&n2ove& Ratio C. %&ofitabilit! Ratio

;. SHORT TERM SOL4ENCY RATIO

(hese are the <atio, which measures, the short term solvency of financial position of the firm. (hese <atios are calculated to comment upon the short term paying capacity of a concern or the firms ability to current obligations

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(he various types are) a) C(&&ent Ratio b) 8(ic1 Ratio

a) CURRENT RATIO
It may be defined as the relationship current liabilities. (he <atio is a measure of the general li#uidity of the .ank for a short period of time. C(&&ent Assets $CA) C(&&ent Ratio 9 22222222222222222222222222222222222222222 C(&&ent Liabilities $CL)

CURRENT RATIO
YEAR Total c(&&ent asset Total c(&&ent liabilities JBCF<GBFG;G C(&&ent Ratio <.JJ GEIF<GGFAEC <.JH A<<J2<G EHJFHAEFHAB A<<G2<I HECFBGEFAHI

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0 .7 7 0.768 0.766 0.764 0.762 0 .7 6 0.758 0.756 0.754 C u rre n t R a tio 2 0 0 7 -0 8 2 0 0 8 -0 9

Inte&"&etation/ As conventional rules, a current ratio of -)' or more is considered satisfactory. (he higher the current ratio, the greater the margin of safety, the larger the amount of current assets in relation to current liabilities, the more the items ability to meet its current obligations.

b) 8UIC? RATIO It can be defined as the relationship between #uick or li#uid assets and current or li#uid liabilities .An assets is said to be li#uid if it can be converted

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and cash with in a short period without loss of value. Ruick assets include all current assets e"cept stock and prepaid e"penses.

RuickI;i#uid Assets 8(ic1 Ratio 9 222222222222222222222222222222222222222222 7urrent ;iabilities

YEAR Total c(&&ent asset Total c(&&ent liabilities C(&&ent Ratio

A<<J2<G EHJFHAEFHAB

A<<G2<I HECFBGEFAHI

JBCF<GBFG;G <.JJ

GEIF<GGFAEC <.JH

8UIC? RATIO

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0 .7 7 0 .7 6 8 0 .7 6 6 0 .7 6 4 0 .7 6 2 0 .7 6 0 .7 5 8 0 .7 5 6 0 .7 5 4 C u rre n t R a t io 2 0 0 7 -0 8 2 0 0 8 -0 9

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Inte&"&etation/ .y conversion a #uick ratio of ')' is considered satisfactory. It is considered that if #uick assets e#ual to current liabilities, then the concern can meet its obligations.

CA%ITAL STRUCTURES AND LON6 TERM SOL4ENCY RATIO

Debt Debt ME-(it! Ratio 9 222222222222222222222222 E-(it!

Solvenc! &atio 9

Total Liabilities 22222222222222222222222222222222222 Total Assets

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Yea& Debt E-(it! Total Assets Total Liabilities

A<<J2<G ;JFI;IFIGJ CFCHJF<<< IJHFCG<F<JI GAIFBIBFABH

A<<G2<I IFBJ<FBHJ CFCHJF<<< GAIFBIBFABH IJHFCG<F<JI

YEAR Debt2E-(it! RATIO Solvenc! Ratio

A<<J2<G C.<; ;.;J

A<<G2<I A.<I <.GC

7omments) Debt %#uity <atio is decreased from -BB? B@/5.B'0 +arch -BB@ -BB8 /-.B80 as the ratio has been decreased by 5?.?BQ, from <s. '?8- cr. to 81- cr. It shows that the .ank financial position is becoming more sound as it is crossing every financial year.

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(here is fall in the ratio but all the time it always maintain the ratio which is above standard /-)'0 so, we can that solvency position is not bad at all.

4 .5 4 3 .5 3 2 .5 2 1 .5 1 0 .5 0 2 0 0 7 -0 8 2 0 0 8 -0 9 D e b t - E q u it y R A T I ! o "#e n $ y R a t io

;) RETURN ON E8UITY RATIO

<eturn on %#uity <atio indicates the profitability of owners investment. Net %&ofit

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Ret(&n on E-(it! Ratio 9 222222222222222222222 N ;<< E-(it!

%a&tic(la&s Net %&ofit E-(it! Ratio

A<<J2<G JFHGEFIG; CFCHJF<<< EG.;AO

A<<G2<I IFJCJFCAC CFCHJF<<< CE.GBO

Inte&"&etation/ Fith compared to the figures of the year -BB? B@, there has been fall of profit to total e#uity during the year -BB@ B8. ,o, the overall position of the bank is not favorable at all. Its position was good in the year -BB? B@.
Ratio

60.00%

50.00%

40.00%

30.00%

Ratio

20.00%

10.00%

0.00% 2007-08 2008-09

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;. RETURN ON IN4ESTMENT RATIO (his ratio indicates profitability according to the total money invested
Net %&ofit Ret(&n on Invest ent Ratio 9 2222222222222222222222222222 N;<< Invest ents

Rs. In t#o(san'

%a&tic(la&s Net %&ofit Invest ents Ratio

A<<J2<G JFHGEFIG; ABCF<<AFE<< B.AGC

A<<G2<I IFJCJFCAC AIHFE;<FCIJ B.AGJ

Inte&"&etation/ (he above study shows on upward trend in the ratio in the year -BB@ B8 as compared to -BB? B@, which is same so its a good sign for the bank.

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R a t io

3 .2 9 % 3 .2 9 % 3 .2 9 % 3 .2 8 % 3 .2 8 % 3 .2 8 %

R a t io

2 0 0 7 -0 8

2 0 0 8 -0 9

RETURN ON CA%ITAL EM%LOYED RATIO

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EBIT Ret(&n on Ca"ital E "lo!e' Ratio 9 2222222222222222222222222222222N;<< Ca"ital E "lo!e'

<s. In thousand Yea& A<<J2<G GEF<HHFEA; EBIT A<<G2<I J;FBEIFJBA

Ca"ital E "lo!e' JGHFAICFB<I I;JFH<JFJE;

Yea& A<<J2<G A<<G2<I

Ret(&n Ca"ital ;<.G;O J.JJO

Inte&"&etation/ (he <eturn on 7apital has been very low in the year -BB@ B8 as compared to previous year that is -BB? B@. (he higher the <eturn on capital means higher the soundness of the bank. In the year -BB? B@, <eturn on 7apital is 'B.@' in the ne"t year -BB@ B8 /?.??Q0 decreased little.

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R e t u r n C a & it a "

1 2 .0 0 % 1 0 .0 0 % 8 .0 0 % 6 .0 0 % 4 .0 0 % 2 .0 0 % 0 .0 0 % 2 0 0 7 -0 8 2 0 0 8 -0 9 R e t u rn C a & it a "

NET %ROFIT TO TOTAL INCOME

(he bank net profit as compared to the total income of the bank is depicted with this ratio of net profit to total income.

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Net %&ofit Net %&ofit to Total Ratio 9 22222222222222222222222222222222222 N;<< Total Inco e

<s. In thousand

%a&tic(la& A<<J2<G JFHGEFIG; Net %&ofit GEF<HHFEA; Total Inco e J;FBEIFJBA A<<G2<I IFJCJFCAC

Ratio I.<BO ;B.HEO

Ratio

14.00% Inte&"&etation/ 12.00% 10.00%

(he $et *rofit of the bank has increased from 8.B1Q in the year -BB?

B@ to '1.:9Q in the year -BB@ B8. .ut there has been steady growth rate of net profit from the year -BB? B@. ,o, increase in the net profit is good at all
8.00% for the bank. 6.00% 4.00% 2.00% 0.00% 2007-08 2008-09 Ratio

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A. NET %ROFIT TO TOTAL DE%OSIT RATIO (he ratio illustrates the profit, which is earned with respect to the deposit made.
Net %&ofit Net %&ofit to Total De"osit Ratio 9 22222222222222222222222222222222222222 N;<< Total De"osits

<s. In thousand

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%a&tic(la&s A<<J2<G JFHGEFIG; Net %&ofit J;HF;HBFGB; Total De"osit GCIFJ;JFGGJ A<<G2<I IFJCJFCAC

Ratio ;.<JO ;.;CO

Inte&"&etation/ (he above ratio shows a increase in the net profit respective of a steady growth of deposits.

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R a t io

1 .1 4 % 1 .1 2 % 1 .1 0 % 1 .0 8 % 1 .0 6 % 1 .0 4 % 1 .0 2 % 2 0 0 7 -0 8 2 0 0 8 -0 9 R a t io

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FINDIN6S K RECOMENDATIONS/
'. (he authorized capital of the .ank is <s.'9BB crores divided into e#uity shares of <s 'B each.

-. (he .ank has issued and subscribed capital of <s.55:.? crores. (he capital
was last raised during -BB5 -BB9.

1. (he share of central government of India is 99.-1Q of the paid up capital.

(he balance of 55.??Q is held by the public. (he bank has no amount due towards allotment money.

5. (he total foreign shareholding /$<I and FIIs0 as at 1'st +arch -BB8 was
@.@Q, which is within the stipulated level of -BQ of the total paid up capital of the .ank.

9. During -BB@ -BB8, reserves and surplus went up by '1.-Q and it was
<s. 5?,?51,58',BBB as at 1'st +arch -BB8.

:. (he net worth of the .ank was <s.'9-'.1@ crores as on 1'st +arch -BB8. ?. (he total deposit stood at <s. @5,8?' crores at the end of -BB8. @. In -BB@ -BB8, the deposits grew by '@.:Q.
8. A ma&ority 9:Q of the deposits have a maturity of over ' year and below 1 years. Anly -Q of the deposits have a maturity period of 9 years and above. 'B. (he .anks share in the total deposits of ,cheduled 7ommercial .anks /,7.s0 stood at -9.5BQ at the end of -BB8 stood at 1@:.1@ crores. '-0 (he .anks cost of deposit came down to 9.58Q for the year -BB@ -BB8 from :.88Q for the year -BB? -BB@. '10 .orrowings during the year -BB@ -BB8 went down by 5?.?BQ. '50 .orrowings from outside India went up by massive ?8.-9Q during -BB: -BB? and stood at <s.@@-.@5 crores as at 1'st +arch -BB?. '90(he entire borrowings of the .ank, both from within India as

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well as outside India are un secured. ':0A ma&or 5?Q of the borrowings have a maturity period of 8' to '@B days. Anly 1Q of the borrowings have maturity of over ' year and below 1 years.

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(he total liabilities during -BB@ -BB8 went up by '?.?Q.(here was no change in share capital, hence indicating that liabilities other than capital have gone up.

'@0 '80
-B0 -'0

(he cash in hand which was <s.:-@@.@: crores at the end of -BB@ went down to <s.9''9.1@ crores as on 1'st +arch -BB8. (he .anks balance with <.I in 7urrent Accounts decreased by -B.1-Q during -BB@-BB8 (he balances with .anks outside India in 7urrent Accounts and other deposit accounts gone up by 5'-.?8Q during -BB@ -BB8. (he .ank does not have money at call and short notice with .anks or other institutions in India or outside India. Investments increased by -:.:'Q during -BB@ -BB8. A ma&ority :-Q of the investments have maturity period of over 9 years. Around ''Q of the investments are short term with maturity below ' year.

--0
-10

-50

Around ?'.?BQ of the .anks investments is in government securities while only .@8Q of the total investment is in %#uity shares.

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(he average yield on investments during -BB@ -BB8 stood at 8.11Q.

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CONCLUSIONS/
(he topic 3A$ A$A;P,I, AF (C% FI$A$7IA; ,(A(%+%$( AF A;;ACA.AD .A$L4 was undertaken to study in detail regarding the banking function and financial statement analysis.

After having conducted by the analysis for the first ob&ective i.e. the study and analysis of A;;ACA.AD .A$L has the tremendous improvement achievement done by A;;ACA.AD .A$L. After completing 'BB years A;;ACA.AD .A$L has achieved tremendous results in short period of span. (his shows in short period time it will number one in banking sector. $early 89Q of customers are satisfied. (aking overall into account we can say that good services are offered to customer. (he one of the main ob&ective is service, the service offered by A;;ACA.AD .A$L to the customer in terms of A(+, 7learance, ;ocker facility, e 7he#ue facility, etc. these are facilities given by the bank in all facility they doing well compared to the other bank. As far as the main concerned is +arket *otentiality for A;;ACA.AD .A$L. It is observed form the analysis that the bank can e"pand its market by few changes and improving advertisement. .y reviving the interest rates, reducing the margins etc. bank can considerably attract new customers. (hus from this analysis it is seen that the overall performance of the institution is profitable. And in this stiff era of competition by making some

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minutes changes the bank a successfully maintain and improve its market position.

ANNENURE
Teno& E0istin* Inte&est Rate ".a. $O) Fo& Fo& Rs. Fo& belo+ ; c& to Rs.;< c& Rs. ; c& less t#an K above Rs. ;< c& ? days to '5 days '9 days to -8 days 1B days to 59 days 5: days to :B days :' days to 8B days 8' days to '?8 days '@B days to -:8 days -?B days to 1:5 days ' year to less than - years - years to less than 1 years $A '.9B '.9B Revise' Inte&est Rate ".a. $O) Fo& belo+ Rs. ; c& $+.e.f. AB.;;.<I) $A Fo& Rs. ; c& to less t#an Rs. ;< c& $+.e.f. ;G.;;.<I) '.9B Fo& Rs.;< c&K above $+.e.f. ;G.;;.<I) '.9B

1.BB

-.BB

-.BB

1.BB

-.BB

-.BB

1.BB

-.-9

-.-9

1.BB

-.-9

-.-9

5.BB

-.?9

-.?9

5.BB

-.?9

-.?9

5.BB

-.?9

-.?9

5.BB

-.?9

-.?9

9.-9

1.-9

1.-9

9.BB

1.-9

1.-9

:.BB :.BB ?.BB

5.-9 9.BB 9.?9

5.-9 9.BB 9.?9

9.9B 9.9B :.9B

5.-9 9.BB :.BB

5.-9 9.BB :.BB

?.BB

9.?9

9.?9

:.?9

9.9B

9.9B

'BB

1 years to less than 9 years 9 yrs and upto 'B yrs

?.-9

9.9B

9.9B

?.BB

9.9B

9.9B

?.9B

9.9B

9.9B

?.-9

9.9B

9.9B

(he above rates will be applicable for fresh deposits and renewal of deposits and rates are sub&ect to revision at any time. As part of our 7entenary year celebrations, ,enior 7itizens are offered an additional rate of B.?9Q over and above the mentioned rates for deposits with maturity period above 8' days. (hese rates are applicable to deposits opened I renewed after +arch '-, -BB@.

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%ENAL RATE OF INTEREST FOR %REMATURE 5ITHDRA5AL OF DOMESTIC TERM DE%OSITS

*eriod of Deposit *remature Any amount closure of term Non Resi'ent $E0te&nal) R("ee Savin*s De"osit Acco(nt $NRE2SB) deposits for reinvestmen Inte&est t Rate O ".a. in our $(nc#an*e' since ;G.;;.A<<E) bank $ '9 days and upto ' /one0 B.E< Any $o penal rate to be o yearS amount charged p Non Resi'ent $E0te&nal) R("ee Te& De"osit Acco(nt $NRE) e f&o <;.<B.A<;< 5it# effect n al ra %e&io' E0istin* &ate O ".a. Revise' Rate O ".a. te +.e.f ;st Feb&(a&!F +.e.f ;st Ma&c#F to A<;< A<;< b ' year -.:B A.EI e to less than years c h to less than 1 - years -.8' A.GB ar years g 1 years 1.91 B.CC e only d -. 1. All others All others ' Q penal interest to be charged ;.A o(nt of De"osit%enal Rate of Inte&est

(he above rates are applicable to fresh deposits and for renewal of deposits only. (hese rates are sub&ect to change without notice and the depositors will be advised of the current rates on the date of deposit. (he depositors may contact) FOREI6N DE%ARTMENT HEAD OFFICE '5, India %"change *lace,-nd Floor, Lolkata ?BB BB'. (elephone)/B110--1':?B1,:?B5,:?B: FAT)/B110--1' ?B-. % +AI; ID ) hofd.allbankUgmail.com

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