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“PROSPECTUS PROCEDURE AND FINANCIAL POSITION OF IDBI BANK”
SUBMITTED FOR THE PARTIAL FULFILLMENT OF THE B.COM. (HONS.)
GUIDANCE DR. UPENDRA KUMAR
M.Com., Ph.D Head, Department of B.Com.(Hons) Maharaja Agrasen Mahavidyalaya, Bareilly
SUBMITTED BY PRABHAT SINGHAL
Dr. Upendra Kumar 1
M.Com., Ph.D. Head, Department of B. Com. (Hons.) Maharaja Agrasen Mahavidyalaya, Bareilly
This is to certify that Mr. / miss. …………………………………………………………………. A regular student of Maharaja Agrasen Mahavidyalaya, Bareilly, B. Com. (Hons) - IInd year roll no. ……………………………… has undertaken and completed the project work on …………………………………………………………………………………. …………………………………………………………………………………… ……………………………………………............ as compulsory paper of B.Com. (Hons) II examination 2010 under my supervision. It is further certified that the whole project is based on individual efforts and analysis is found upto the mark. I, therefore recommended……………………..marks out of 100 marks and the project report prepared by the candidate should be sent for evaluation. Dr. Upendra Kumar (Supervisor)
“Six essential qualities that are the key to Success: sincerity, personal integrity, humility, courtesy, wisdom, charity.” “LIFE IS FULL OF SURPRISES... UNEXPECTED SOME BITTER SOME SWEET. There are many Institutes in Bareilly but only students of Maharaja Agrasen Mahavidyalaya, Bareilly are using internet & intranet so firstly we would thank our teachers who are providing us this facility to reach that level from where we can see our destination. This project is a part of that success. As everyone knows that is not an easy subject but DR. UPENDRA KUMAR never made us feel any difficulty in this particular subject.
Nothing concrete can be achieved without an optimal combination inspiration and perspiration. No work can be accompanied without taken the guidance of experts. It is only critics from ingenious that help transform a product into a quality product. For this, I am grateful to DR. UPENDRA KUMAR for his constant encouragement and invaluable critical suggestions given during the review meetings. His timely advice and help proved his commitment and welfare of his students and the institute as a whole.
Last but not the least, our sincere thanks to all the members who were a vital thrust to our thoughts and needs throughout the functions assigned to group to get done and prove our best. Finally thanks to others at Maharaja Agrasen Mahavidyalaya, Bareilly, who put in numerous hours to make the intangible tangible
• • • • • • • • • • • • • • Certificate Preface Acknowledgement Objective Introduction Company Profile Literature & Review Research Methodology Financial Statements Data Representation Conclusion Finding Limitation Bibliography
OBJECTIVE OF THE PROJECT
The objective of this project is deeply analyze IDBI BANK and analyse it prospect procedure and its financial position.. The main objectives of the Project study are:
Detailed analysis of IDBI BANK and its financial position.
• To enhance my analytical power
With the help of ratio analysis the company’s position. Application of various Technical Tools and Fundamental tools (like
Financial and Non-financial statements).
INTRODUCTION The Bank:
The birth of idbi bank took place after RBI issued guidelines for entry of new private sector banks in January 93. Subsequently, IDBI as promoters sought permission to establish a commercial bank and retained KPMG a management consultant of international repute to prepare the groundwork for establishing a commercial bank. The Reserve Bank of India conveyed it's in principle approval to establish idbi bank on February 11th, 1994. Thereafter the bank was incorporated at Gwalior under Companies Act on 15th of September 1994 (Registration No. 10-08624 of 1994) with its registered office at Indore. Introduction Financial statements for banks present a different analytical problem than manufacturing and service companies. As a result, analysis of a bank's financial statements requires a distinct approach that recognizes a bank's somewhat unique risks.
Banks take deposits from savers, paying interest on some of these accounts. They pass these funds on to borrowers, receiving interest on the loans. Their profits are derived from the spread between the rate they pay for funds and the rate they receive from borrowers. By managing this flow of funds, banks generate profits, acting as the intermediary of interest paid and interest received and taking on the risks of offering credit. As one of the most highly regulated banking industries in the world, investors have some level of assurance in the soundness of the banking system. As a result, investors can focus most of their efforts on how a bank will perform in different
economic environments. In this project, I am trying to provide assistance to the investors, by showing them the performance of two banks underlying the same functions. IDBI Bank Limited: These financial statements have been prepared in accordance with approved accounting standards as applicable in India. Approved accounting standards comprise of such International Financial Reporting Standards issued by the International Accounting Standards Board as are notified under the Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, 1984 and Banking Companies Ordinance, 1962 ). In case the requirements of provisions and directives issued under the Companies Ordinance, 1984 and Banking Companies Ordinance, 1962 and the directives issued by SBP differ, the provisions of and directives issued under the Companies Ordinance, 1984 and Banking Companies Ordinance, 1962 and the directives issued by SBP shall prevail.
Management Team - The Core Strength of The Bank:
Since August 2000 idbi bank has witnessed a transformation in the top management structure with top talent from foreign banks and private banks coming together to create a world-class management team. It is totally a customer-focused organization. Existing talented people within the bank were re-aligned to a functionally driven product & sales organizational structure. Also, to align employee interests with shareholder interest’s founder Stock Options (ESOPs) in October 2000 covering 75 % of the existing employees of idbi bank were distributed.
TECHNOLOGY AND TECH INITIATIVES:
Keeping in line with its policy of leveraging technology to drive its business, idbi bank deployed Finacle, the e-age banking solution from Infosys to consolidate its position, meet challenges and quickly seize new business opportunities. Entire Finacle rollout was remarkable considering the fact that it was implemented across all branches in a record time frame of 5 months. Finacle will provide the critical technology platform to propel the bank's new thrust and direction. Achievement of these significant milestones is consistent with idbi bank's continued focus to create customer and shareholder value through deployment of superior technology. Investments in technology is part of the plan to put in place building blocks for creating the right organisational infrastructure which will help idbi bank in consistently delivering superior products, convenient access channels and efficient service to our retail and corporate customers.
STRATEGIC RETAIL INITIATIVES:
idbi bank in the previous calendar year initiated its formal foray into retail banking. idbi bank's depository services product E-Sec is a major success story and the bank today is in the top three league in India in this segment. A spate of retail products were introduced such as home finance, loans against shares, educational loans, car loans, Sweep in account, SMS mobile banking etc. on very competitive terms. The bank has recently announced its strategic alliance with TATA AIG General Insurance Company for selling General Insurance Products through select branches & ATMs of idbi bank. The bank announced a landmark strategic alliance to make available widely, both 10
organisation products through each other’s distribution channels. Now you can buy coveted savings Products like the National Savings Certificates (NSC) and Kisan Vikas Patra (KVP) on Internet. It recently had a tie up with Birla group in the name of Birla Sun Life Insurance. The new products, which are going to be announced shortly, are Credit Cards, Debit Cards etc. idbi bank is continuously looking for ways to leverage its technical strengths and bring to the retail customer convenience products at reasonable cost. It has started converting its ATM card into ATM cum Debit card.
PROFILE IDBI BANK:
Vision: “Enabling people to advance with confidence and success” Mission: “To make our customer prosper, our staff excels and creates value for shareholders” List of competitors: • • • Standard Chartered Bank National Banks Allied Bank Limited
The tenth largest development bank in the world has promoted world-class institutions in India. A few of such institutions built by IDBI are The National Stock Exchange (NSE), The National Securities Depository Services Ltd. (NSDL), Stock Holding Corporation of India SHCIL) etc. IDBI is a strategic investor in a plethora of institutions, which have revolutionized the Indian Financial Markets. IDBI promoted idbi bank to mark the formal foray of the IDBI group into commercial banking. This initiative has blossomed into a major success story. idbi bank, which began with an equity capital base of Rs.1000 million (Rs.800 million contributed by IDBI and Rs.200 million by SIDBI), commenced its first branch at Indore in November 1995. Thereafter in less than seven years the bank has attained a front ranking position in the Indian Banking Industry.
LITRATURE & REVIEW
The Board of Directors of your Bank has the pleasure of presenting it Report on the business and operations of your Bank for the financia year ended 31st March 2009. Strategic initiatives implemented during the year, benefited your Ban immensely, reflecting improved performance in various key busines areas. Your Bank attained new heights with total business o Rs.2,15,829 crore at end-March 2009, comprising Rs. 1,12,401 crore o deposits and Rs. 1,03,428 crore of advances. Total assets reached Rs 1,72,402 crore, registering a growth of 31.9% during the financia year. Performance highlights of your Bank for the period under revie are presented in Table 1. Profit and Appropriations During the financial year April 2008-March 2009, gross income of you Bank amounted to Rs.13,021.6 crore, contributed by interest income of Rs.11,631.7 crore and other income of Rs.1,389.9 crore. Tota expenditure of your Bank, during the year, excluding provisions and contingencies, stood at Rs.11,643.7 crore, consisting Rs.1 0,305.8 crore of interest expenses and Rs.1,337.9 crore of operational expenses. With the provision of Rs.373.3 crore towards bad & doubtful debts and investments, Rs.19 crore towards incremental prudential provisions for standard assets, and Rs.127.1 crore towards tax, total provisions during the period amounted to Rs.51 9.4 crore. Your Banks working during the year resulted in a Profit Before Tax (PBT)of Rs.985.6 crore. Considering a provision of Rs.127.1 crore towards taxation, Profit After Tax (PAT) amounted to Rs.858.5 crore. Appropriation of PAT as approved by the Board of Directors is given in
For each share with face value of Rs.10, Earning Per Share (EPS) during the year stood at Rs.11.9 and Book Value Per Share stood at Rs.102.3 as at end-March 2009. The
Directors have the pleasure of recommending dividend at 25% on the fully paid-up equity capital for the financial year 2008-09. Capital Adequacy Capital Adequacy Ratio (CAR) of your Bank is computed in adherence to norms prescribed by RBI in order to become Basel-ll compliant. The Credit Risk follows the Standardized Approach, Whereas Market Risk complies with Duration Method of Standardized Approach and the Operational Risk conforms to Basic Indicator Approach. Against the stipulated RBI norm of 9%, your Banks CAR as at end-March 2009 worked out to 11.57%. The Tier-I CAR also was at a comfortable level of 6.81%. Business Strategy Your Bank has adopted a stratargy of developing a larger client base in the midcorporate, SME and retail sectors, while nurturing the deep relationships that already exist in the large corporate sector. The strategy aims to develop a more retail base in both assets and liabilities leading to a more diversified balance sheet as well as improvement and sustainability in the Net Interest Income. The strategy also focuses on leveraging the Banks experience in project/infrastructure financing to become a larger player in investment banking, yielding higher fee-based income. Your Bank has also adopted aggressive strategics for gaining higher market share in transaction banking activities for boosting non-fund based income. The customer-centric business model adopted by your bank would increasingly play a supportive role towards effective implementation of business strategies. 14
New Business Initialives In line with gaining popularity of mobile phones and improvement in their security features, the banking regulator allowed mobile based transaction. In order to reap the benefits of the opportunities arising out of the mobile technology revolution your Bank has launched Mobile Payment Solutions, which is a secure and convenient payment option by use of mobile phones. The product includes payments for the purchase of goods and services from mobile phone and fund transfers subject to prescribed limits. Your Bank launched IDBI Sulabh Vyapar Loan that aims to provide hassle free finance to Small Business Enterprises including Small Retail Traders. An individual or a firm (partnership or proprietorship) engaged primarily in buying and selling mercantile goods is eligible for this mode of finance. The scope of the product was further enlarged to cover wider customer segment, such as travel, tourism, hotels, restaurant, health and education, etc. Your Bank also floated a loan scheme in the SME domain for
Professional and Self Employed engaged in the business covered under service sector. The Bank has obtained mandate for collecting sales tax in Maharashtra. With regard to tax collection your Bank is one among the top banks in the country. Your Bank has successfully implemented the Agriculture Debt Waiver and Debt Relief Scheme (ADWDRS)-2008 announced by Central Government. During the financial year 2008-09, the Bank has opened a Currency Chest at Chennai taking the total number to four. The fifth Currency Chest at Panchkula is expected to become operational by the end of first quarter of current fiscal. The Bank has also obtained In-Principle approval from the RBI for establishment of Currency Chests at Hyderabad Ahmedabad and Pune.
In order to improve our performance in strategic lines a Performance Acceleration Programme (PAP) Project Lakshya was implemented focusing renewed thrust on boosting current account and fee-based income. The project has made significant contribution and has imparted lot of dynamism in the operating domain. The project was executed through boot camps in different centers and periodic reviews through teleconferencing. The Bank, during the course of the year, has implemented a series of measures to ensure improved customer satisfaction and cultivated the motto of Customer first. In this direction, the Bank has organized Customer Grievance Redressal Wleek during November 17-22,2008 in all its branches. The unresolved issues were addressed at Customer Care Centre (CCC) for appropriate action. In order to further strengthen our relationship with customer, your Bank organized Crahak Sahayata Abhiyan (CSA) at selected cities.
Your Bank has effectively realigned its policy and procedure in order to derive optimum benefits from its customer-focused vertical model implemented during the previous financial year. Redeployment of work force was carried out on the basis of skill set mapping and reorientation in the business model, reflecting priorities with regard to remunerative lines of business. During the year, your Bank also implemented a new Fund Transfer Pricing (FTP), based on the market linked bid and offer rates. The new FTP system enables rational and transparent pricing decisions. It also forms a scientific basis for evaluating the performance of products/ verticals. During the period under review your Bank increased its branch network to 509 comprising 179 metropolitan branches, 175 urban branches, 100 semi urban branches and 55 rural branches. Board of Directors Banks Board of Directors is broad based and constitution thereof is governed by the provisions of the Banking Regulation Act, 1949, the Companies Act, 1956, the Articles of Association of the Bank and satisfies the requirements of corporate governance as envisaged in the Listing Agreement with the Stock Exchanges. The Board functions through itself as well as various Board Committees constituted to provide focussed governance in important functional areas of the Bank. As on March 31, 2009, the Board comprised of 11 Directors with 3 Executive Directors (including Chairman), 2 Non Executive Directors and 6 Independent Directors. Shri Yogesh Agarwal, Chairman & Managing Director as Executive Chairman, Shri O. V. Bundellu and Shri Jitender Balakrishnan, Dy. Managing Directors as Wholetime Directors, Shri Arun Ramanathan and Shri Ajay Shankar, Central Government officials as Non Executive Directors, Shri 17
Analjit Singh, Smt. Lila Firoz Poonawalla, Shri K. Narasimha Murthy, Shri H. L. Zutshi, Shri A. Sakthivel and Shri Subhash Tuli as Independent Directors constitute the Board. No Director on the Board of your Bank is in any way related to any other Director on the Board of the Bank. Apex Committees The Board has in total seven committees, namely, Executive Committee, Audit Committee, Shareholders/ Investors Grievance Committee, Frauds Monitoring
Committee, Risk Management Committee, Customer Service Committee and Information Technology Committee. Corporate Governance Your Bank is committed to adopting the best practices in the area of corporate governance. Your Bank believes that proper corporate governance is not just a requirement for regulatory compliance, but also a facilitator for enhancement of shareholders value. The details of corporate governance practices followed in your Bank are given in this Annual Report as a separate section under Management Discussion and Analysis.Disclosure regarding Remuneration of Employees under Section 217(2A) of the Companies Act, 1956 There were no personnel in the services of the Bank for the whole year who were in receipt of remuneration of over Rs.24 lakh per annum. Further, no personnel, who were in the service of the Bank for part of the year, received remuneration in excess of Rs.2 lakh per month for the period they were in the service of the Bank. The provisions of Section 217(1 )(e) of the Act relating to conversion of energy and technology absorption do not apply to your Bank. 18
DirectorsResponsibility Statement The Board of Directors hereby declares and confirms that: (i) in the preparation of accounts, the applicable accounting standards had been followed along with proper explanation relating to material departure. (ii) the Directors had adapted such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Bank at the end of the accounting year and of the profit or loss of your Bank for that period. (iii) the Directors had taken proper and sufficient care for the maintenance of adequate accounting records, in accordance with the regulatory provisions, for safeguarding the assets of your Bank and for preventing and detecting fraud and other irregularities. (iv) the Directors had prepared the accounts on a going concern basis.
As regards emphasis and observations in the Auditors Report, attention is invited to note No.16 of Notes to Accounts (Schedule 18), which is self explanatory. Acknowledgements The Board of Directors of your Bank expresses its sincere thanks to the Government of India, Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA) for their valuable cooperation and guidance. The Board also acknowledges the co-operation and support rendered by the State Governments and other banking/ financial institutions. The Board desires to thank various multilateral institutions and international banks/ institutions for their periodic support. The Board takes this opportunity to thank all its shareholders and customers for extending their support during the year and looks forward to their continued association in the years ahead The Board appreciates sincere and devoted services displayed by its entire staff and highly value their commitment in improving your Banks performance We have audited the attached Balance Sheet of the IDBI Bank Limited (the Bank) as at March 31, 2009, as also the Profit and Loss Account and the Cash Flow Statement of the Bank for the year ended on that date annexed thereto.These financial statements are the responsibility of the Banks management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The Balance Sheet and Profit and Loss Account have been drawn up in accordance with the provisions of Section 29 of the Banking Regulation Act, 1949 read with Section 211 of the Companies Act, 1956.
1. We have obtained all the information and explanations, which, to the best of our knowledge and belief, were necessary for the purposes of our audit and have found them to be satisfactory. 2. The transactions of the Bank which have come to our notice have been within the powers of the Bank. 3. The returns received from the offices and branches of the Bank have been found adequate for the purposes of our audit. 4. In our opinion, proper books of account as required by law have been kept by the Bank so far as appears from our examination of those books and proper returns adequate for the purpose of our audit have been received from offices and branched not visited by us. 5. The Banks Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account and the returns.
6. The provisions of Section 274(1 )(g) of the Companies Act, 1956 are not applicable in terms of Notification No. G.S.R.829 (E) dated- October 21, 2003 issued by Department of Company Affairs, Government of India 7. The Bank is restructuring an advance to a large public sector power project in Maharashtra, where the Banks exposure is Rs.2599 Crore. The Government of India and the Bank have sought special regulatory treatment from Reserve Bank of India (RBI) for considering the asset as Standard and for exemption from provisioning requirements. Pending receipt of such special regulatory treatment from RBI, the Bank has classified the asset as Standard and not made provision, amount whereof has not been ascertained. Refer Note No.16 of Schedule 18 - Notes forming part of the Accounts. 8. Subject to Paragraph 7 above, I. In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub- section 3(C) of Section 211 of the Companies Act, 1956 read with guidelines issued by the Reserve Bank of India in so far as they apply to the Bank. II. In our opinion and to the best of our information and according to the explanations given to us, the said financial statements give the information required by the Banking Regulation Act, 1949 as well as the Companies Act, 1956 in the manner so required for banking companies and give a true and fair view in conformity with the accounting principles generally accepted in India. a) In the case of the Balance Sheet, of the state of affairs of the Bank as on March 31,2009 b) In the case of the Profit and Loss Account, the same shows a true balance of Profit for the year ended March 31, 2009 covered by such accounts; and
c) In the case of the Cash Flow Statement, of the cash flows for the year ended March 31, 2009.
It is with a sense of satisfaction that I present to you IDBI Banks Annual Report for the financial year 2008-09. It is indeed heartening to note that in a year when the global economic meltdown affected banks across the world, your Bank not only withstood the storm, but showed a surge in overall business performance. Esteemed shareholders would recall that at the last AGM your Bank had expressed confidence to achieve higher pace of business growth. I am happy to share with you that in spite of difficult market conditions your Bank could not only achieve considerable increase in the overall business, but more importantly, there was significant improvement in the quality of business and earnings. Your Bank spared no efforts to transform into a cross-functional, forward-looking and proactive organization. Today, it is my pleasure to say that your Bank has indeed completed the process of re-organisation into customer- focused business verticals and stabilized the internal systems. The financial year 2009-10 is an extremely crucial year for your Bank as it aspires to decidedly emerge as one of the major players in the intensely competitive banking domain both in terms of perception and performance. In the coming year, the emphasis on growth in retail business would continue, without compromising your Banks pre- eminent position in the corporate banking business. I am confident that your Bank will achieve still higher growth and improve its market share, besides enhancing the shareholder value. The increasingly competitive market environment throws open both challenges and opportunities. Your Bank, with deep understanding of the financial markets, will adopt appropriate strategies to assess and mitigate key risks, cope with emerging challenges and 24
capitalise on the opportunities by participating effectively in the growth process of India. In order to take advantage of global opportunities, your Bank will make foray into international markets by setting up overseas branches and representative offices. Considering the rapidly changing global environment together with increased emphasis on the role of technology in banks operations, your Bank would continually provide newer products and services required by customers. Accordingly, your Bank would continuously reinvent and reposition itself through strategic choices and by imbibing and adopting best global practices. As part of our endeavour to provide a bouquet of financial products and services under IDBI brand, we would be setting up a Mutual Fund Shortly.I must emphasise that in the coming year, your Bank would strive to achieve even better business performance based on various strategic initiatives already underway aimed at enhancing the stakeholders value. To us, you all are our partners in progress. We look forward to your continued support in strengthening your Banks position in the Indian banking firmament.
This section should provide solid or concrete foundations to the study. Quality and value of the research report depends upon how precisely and accurately the data is collected, processed, interpreted and analyzed so that fruitful conclusions may be drawn out of it. It includes:
Data Collection Sources: To think about the issue of data collection means you are wondering about the characteristics of the methods used. Each method has its own advantages and inconveniences. With each technique you might also found a few people who will disapprove its use for such or such reason. At the beginning of a research (Project), it can be important to look for documentary sources. It is what some will call: “the review of papers ". And here, I use the term documentary sources in the widest meaning of this term. Indeed, the goal is not to find only written sources. These documentary sources I use are:
• • • •
Sites on the internet, Articles from scientific publications, Documents on various format (audio, video or computer support), Advisers with a particular expertise
The purpose of the gathering of documentary sources is to have a better idea of what have been said or written about my subject. It is not for the intellectual beauty of the matter which I should do that. The search for documentary sources allowed me to put a more adequate glance at the data you will later gather.
Also I use secondary sources for data collection for my work, that include internet and then I use stock exchange for data gathering as the banks are listed in Lahore stock exchange. So I got their annual reports from there. Data Collection Tools: According to the topic I have selected for my project, the tool used for data collection is direct observation of the financial statements of the banks. Company profile forms Company comparison forms Stock exchange Internet past articles Case Study Data Processing and Analysis: We can use several tools to evaluate a company, but I will use one of the most valuable tool that is “financial ratios“. Ratios are an analyst’s microscope; they allow us get a better view of the firm’s financial health than just looking at the raw financial statements. Ratios are useful both to internal and external analysts of the firm. For internal purposes: ratios can be useful in planning for the future, setting goals, and evaluating the performance of managers. External analysts use ratios to decide whether to grant credit, to monitor financial performance, to forecast financial performance, and to decide whether to invest in the company. I will use Microsoft Word and Microsoft Excel work sheets to compute the different ratios and analysis.
HORIZONTAL ANALYSIS IDBI BANK BALANCE SHEET AS ON DEC 31 2007, 2008 & 2009 (Rupees in ‘000’) 2007 ASSETS Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Other assets Operating fixed assets Deferred tax asset TOTAL ASSETS LIABILITIES Bills payable Borrowings from financial institutions Deposits and other accounts Sub-ordinate loans Liabilities against assets subject to 28 13814592 456355507 35419252 14751252 11222444 757928389 9944257 46844890 177942251 382172734 27346111 13780555 6613372 691991521 15418230 58994609 119587476 349432685 17765291 11954876 2725486 590291468 5737457 56392270 11.552 130.6 199.37 123.39 411.76 128.4 173.32 83.07 148.8 109.4 153.9 115.3 242.6 117.2 268.7 104.6 100 100 100 100 100 100 100 100 56533134 39307321 2008 55487664 27020704 2009 2007 46310478 35965048 122.07 109.29 2008 119.8 75.13 2009 100 100 Horizontal Analysis
finance lease Other liabilities Deferred tax liability TOTAL 24913236 ------19943126 ----------628754092 63237429 15578177 --------536848102 53443366 127.18 140.67 117.1 118.3 100 100 159.92 128 100
682747953 LIABILITIES NET ASSETS 75180436 REPRESENTED BY Shareholders Equity Share capital Reserves Unappropriated profit Total equity attributable to the equity holders of the Bank Minority interest Surplus on revaluation of assets - net of tax TOTAL EQUITY
7590000 24243254 39447648
6900000 19821455 28341670
6900000 17802584 20 475,080
110 136.18 159.92
100 111.3 128
100 100 100
890099 3009435 75180436
965642 7208662 63237429
913317 7352385 53443366
97.458 40.931 140.67
105.7 98.05 118.3
100 100 100
HORIZONTAL ANALYSIS IDBI BANK CONSOLIDATED PROFIT & LOSS ACCOUNT AS ON DEC 31 2007, 2008 & 2009 2007 2008 29 2009 Horizontal Analysis
(Rupees in ‘000’) Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income Provision against non-performing loans and advances - net Charge / (reversal) against offbalance sheet obligations Charge / (reversal) of provision against diminution in the value of investments Bad debts written off directly Net mark-up / interest income after provisions Fee, commission and brokerage income Income / gain on investments Income from dealing in foreign currencies Gain on 4,518,408 3,420,051 3,931,710 27,592,073 23,227,773 27,677,631 1,909,887 (84,310) (13,697) 372,598 (54,626) (45,438) 63,305,033 26,525,556 36,779,477 50,481,021 19,153,957 31,327,064 43,685,740 13,204,037 30,481,703
2007 144.91 200.89 120.66
2008 115.6 145.1 102.8
2009 100 100 100
------------2,804,072 99.691 83.92 100
investments in associate Other income Total non-mark-up / interest income Non mark-up / interest expense Administrative expenses Other provisions / write offs - net Other charges Workers welfare fund Total non mark-up / interest expenses Profit before taxation Taxation - Current - Prior years - Deferred Profit after taxation Attributable to: Equity holders of the Bank Minority interest Basic and diluted earnings per share 3,116,522 16,378,811 43,970,884 2,643,076 10,023,164 33,250,937 2,235,805 8,489,496 36,167,127 139.39 192.93 121.58 118.2 118.1 91.94 100 100 100
21,348,016 200,163 64,751 323,575 21,936,505 22,034,379 8,661,15 233,100 (2,473,891) 6,420,359 15,614,020
18,297,279 276,111 85,152
15,425,461 122,510 54,898
138.39 163.39 117.95
118.6 225.4 155.1
100 100 100
18,106,32 15,144,617 7,220,717 1,668,562 (3,828,699) 10,084,037 10,084,037
15,602,869 18,840,487 7,144,846 (39,067) (965,607) 12,700,315 12,700,315
140.59 116.95 0 -596.67 256.2 50.553 122.94
0 80.38 101.1 -4271 396.5 79.4 79.4
100 100 100 100 100 100 100
15,535,011 79,009 15,614,020 20.47
10,000,231 83,806 10,084,037 13.18
12,630,259 70,056 12,700,315 18.30
123 112.78 122.94 111.86
79.18 119.6 79.4 72.02
100 100 100 100
b) Vertical Analysis It is a method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities and equities) in a balance sheet is 31
represented as a proportion of the total account. The main advantages of analyzing a balance sheet in this manner are that the balance sheets of businesses of all sizes can easily be compared. It also makes it easy to see relative annual changes in one business. When using vertical analysis, the analyst calculates each item on a single financial statement as a percentage of a total. The term vertical analysis applies because each year's figures are listed vertically on a financial statement. The total used by the analyst on the income statement is net sales revenue, while on the balance sheet it is total assets. This approach to financial statement analysis, also known as component percentages, produces common-size financial statements. Common-size balance sheets and income statements can be more easily compared, whether across the years for a single company or across different companies.
VERTICAL ANALYSIS IDBI BANK BALANCE SHEET AS ON AS ON DEC 31 2007, 2008 & 2009
(Rupees in ‘000’)
2007 ASSETS Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Other assets Operating fixed assets Deferred tax asset TOTAL ASSETS LIABILITIES Bills payable Borrowings from financial institutions Deposits and other accounts Sub-ordinate loans Liabilities against assets subject to finance lease Other liabilities Deferred tax liability TOTAL 24913236 ------682747953 13814592 456355507 35419252 14751252 11222444 757928389 9944257 46844890 56533134
2009 2007 2008 8.019 2009 7.8454
1628130 177942251 382172734 27346111 13780555 6613372 691991521 15418230 58994609
6550128 119587476 349432685 17765291 11954876 2725486 590291468 5737457 56392270 45914019 8 0
0.8172 1.8227 60.211 4.6732 1.9463 1.4807 100 1.312 6.1806
0.235 25.71 55.23 3.952 1.991 0.956 100 2.228 8.525
1.1096 20.259 59.197 3.0096 2.0252 0.4617 100 0.972 9.5533
19943126 ----------628754092 63237429 33
15578177 --------53684810 2 53443366
LIABILITIES NET ASSETS 75180436 REPRESENTED BY Share capital
VERTICAL ANALYSIS IDBI BANK CONSOLIDATED PROFIT & LOSS ACCOUNT AS ON DEC 31 2007, 2008 & 2009 2007 2008 (Rupees in ‘000’) Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income Provision against non-performing loans and advances - net Charge / (reversal) against offbalance sheet obligations Charge / (reversal) of provision against diminution in the value of investments Bad debts written off directly Net mark-up / interest income after provisions Fee, commission and brokerage income 35 4,518,408 3,420,051 3,931,710 7.1375 6.775 9 27,592,073 23,227,773 27,677,631 43.586 46.01 63.356 1,909,887 (84,310) (13,697) 3.017 -0.167 -0.031 372,598 (54,626) (45,438) 0.5886 -0.108 -0.104 63,305,033 26,525,556 36,779,477 50,481,021 19,153,957 31,327,064 2009 43,685,740 13,204,037 30,481,703 Vertical Analysis 2007 2008 2009 100 41.901 58.099 100 37.94 62.06 100 30.225 69.775
Income / gain on investments Income from dealing in foreign currencies Gain on investments in associate Other income Total non-markup / interest income
4,000,330 3,116,522 16,378,811 43,970,884
------2,643,076 10,023,164 33,250,937
0 2,235,805 8,489,496 36,167,127
6.3191 4.923 25.873 69.459
0.3162 5.236 19.86 65.87
0 5.1179 19.433 82.789
Non mark-up / interest expense Administrative expenses Other provisions / write offs - net Other charges Workers welfare fund Total non mark-up / interest expenses Profit before taxation Taxation - Current - Prior years - Deferred Profit after taxation Attributable to: Equity holders of the Bank
21,348,016 200,163 64,751 323,575 21,936,505 22,034,379 8,661,15 233,100 (2,473,891) 6,420,359 15,614,020
18,297,279 276,111 85,152
15,425,461 122,510 54,898
33.722 0.3162 0.1023 0.5111
36.25 0.547 0.169 0 0 30 14.3 3.305 -7.584 19.98 19.98
35.31 0.2804 0.1257 0 35.716 43.127 16.355 -0.089 -2.21 29.072 29.072
18,106,32 15,144,617 7,220,717 1,668,562 (3,828,699) 10,084,037 10,084,037
15,602,869 18,840,487 7,144,846 (39,067) (965,607) 12,700,315 12,700,315
34.652 34.807 0 0.3682 -3.908 10.142 24.665
Minority interest Basic and diluted earnings per share
79,009 15,614,020 20.47
83,806 10,084,037 13.18
70,056 12,700,315 18.30
0.125 24.66 3.23
0.17 20 2.61
0.16 29.07 4.189
4. Comparisons Financial trend analysis is an applied, practical approach for monitoring the financial condition of any company through the use of financial indicators. I shall use technique to compare previous three-year period data and observes how they change. This would permit an assessment of the current financial condition.
a) Trend Analysis
A firm's present ratio is compared with its past and expected future ratios to determine whether the company's financial condition is improving or deteriorating over time. Trend analysis studies the financial history of a firm for comparison. By looking at the trend of a particular ratio, one sees whether the ratio is falling, rising, or remaining relatively constant. This helps to detect problems or observe good management.
TREND ANALYSIS IDBIBANK LIMITED FOR THE YEARS 2007, 2008 & 2009 Performance Area a) Liquidity Ratios Current Ratio Sales to Working Capital Working Capital b) Leverage Ratios Time Interest Earned Debt Ratio Debt to Equity Ratio Current Worth / Net worth Ratio Total Capitalization Ratio Long term Assets versus Long term Debt Debt Coverage Ratio c) Profitability Ratios Net Profit Margin Operating Income Margin 29.07% 57.9% 19.97% 48% 24.66% 59.6% Lower profitability during 2008 Increased Profitability since 2008 2.43 0.91 11.88 1.78 0.56 0.26 0.02 1.79 0.91 11.42 1.66 0.53 0.33 0.008 1.83 0.9 9.58 1.33 0.42 0.51 0.0083 Lower since 2008 Leverage remain same Drops in leverage in 2008 Higher in 2008 Lower during 2008 Drops in leverage in 2008 Lower coverage in 2008 Lower liquidity in 2008 Increase in 2008 Lower liquidity in 2008 2007 2008 2009 Trend
1.20 0.5 times 95155274
1.19 0.5 times 104938111
1.16 0.6 times 100006655
Return on Assets Operating Assets Turnover Return on Operating Assets Sales to Fixed Assets d) Activity Ratios: Total Asset Turnover e) Market Ratios: Dividend per Share – DPS Earning Per Share- EPS Price / Earning Ratio Dividend Payout Ratio Dividend Yield Book Value per Share f) Statement of cash flow Operating Cash Flow to Total Debt Operating Cash Flow per Share
2.27% 192.7% 13.48% 3.65 times
1.57% 192.7% 10.37% 3.66 times
2.15% 174.70% 11.19% 3.66 times
Lower ROA during 2008 Lower efficiency since 2008 Lower efficiency in 2008 No change in last 3 years
Higher efficiency since 2008
1.0019 18.41 0.54 0.0544 0.10019 6.5
2.0014 14.61 0.68 0.137 0.20014 7.98
3.597 20.57 0.49 0.175 0.3597 9.39
Good market perceptions Higher In 2008 Lower in 2008 Good market perceptions Lower in 2008 Good market perceptions
Lower in 2008 Increased during 2008
b) Industry Averages and Comparisons with Competitors The entire ratio has been compared through above mentioned comparisons and analysis. Which include horizontal analysis, vertical analysis and trend analysis 39
1. RATIO ANALYSIS: Financial ratios are useful indicators of a firm's performance and financial situation. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms. Ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. Financial ratios are usually expressed as a percent or as times per period. Ratio analysis is a widely used tool of financial analysis.
a) Liquidity Ratios b) Leverage Ratios c) Profitability Ratios d) Activity Ratios
a) Liquidity Ratios Liquidity ratios measure a firm’s ability to meet its current obligations. These include: Current Ratio: Current Ratio = Current Assets / Current Liabilities This ratio indicates the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future. Current assets normally include cash, marketable securities, accounts receivables, and inventories. Current liabilities consist of accounts payable, short-term notes payable, current maturities of long-term debt, accrued taxes, and other accrued expenses. Current assets are important to businesses because they are the assets that are used to fund day-to-day operations and pay ongoing expenses. IDBI BANK Year Current Assets Current Liabilities Current ratio 2007 575611106 480455832 1.20 2008 671597594 566659483 1.19 2009 731954693 631948038 1.16
IDBI BANK The current ratio for the year 2007, 2007 & 2008 is 1.20, 1.19 & 1.16 respectively, compared to standard ratio 2:1 this ratio is lower which shows low short term liquidity efficiency at the same time holding less than sufficient current assets mean inefficient use of resources Sales to Working Capital: Sales to Working Capital = Sales / Working Capital 41
Sales to working capital give an indication of the turnover in working capital per year. A low working capital indicates an unprofitable use of working capital. IDBI BANK Year Sales Working Capital Sales to Working Capital INTERPRETATION: This liquidity ratio for the years 2007, 2007 & 2008 is 0.5,0.5 & 0.6 times respectively, compared to standard ratio 2:1 this ratio is lower which shows low short term liquidity efficiency at the same time holding less than sufficient current assets mean inefficient use of resources. The ratios for the last 3 years are 1.06, 1.10 & 1.06, shows below standard of 2:1 which means efficient use of funds but at the risk of low liquidity. 2007 43685740 95155274 0.5 times 2008 43685740 104938111 0.5 times 2009 63305033 100006655 0.6 times
Working Capital: Working Capital = Current Assets – Current Liabilities A measure of both a company's efficiency and its short-term financial health. Positive working capital means that the company is able to pay off its short-term liabilities. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable and inventory).
Also known as "net working capital", or the "working capital ratio".
IDBI BANK Year Current Assets Current Liabilities Working Capital 2007 575611106 480455832 95155274 2008 671597594 566659483 104938111 2009 731954693 631948038 100006655
Interpretation: IDBI BANK: It is very clear from the above calculations that the working capital of the bank is gradually increasing over the years, which shows good short term liquidity efficiency.
b) Leverage Ratios:
By using a combination of assets, debt, equity, and interest payments, leverage ratio's are used to understand a company's ability to meet it long term financial obligations. Leverage ratios measure the degree of protection of suppliers of long term funds. The level of leverage depends on a lot of factors such as availability of collateral, strength of operating cash flow and tax treatments. Thus, investors should be careful about comparing financial leverage between companies from different industries. For example companies in the banking industry naturally operates with a high leverage as collateral their assets are easily collateralized. These include: Time Interest Earned: TIE Ratio = EBIT / Interest Charges The interest coverage ratio tells us how easily a company is able to pay interest expenses associated to the debt they currently have. The ratio is designed to understand the 43
amount of interest due as a function of company’s earnings before interest and taxes (EBIT). This ratio measures the extent to which operating income can decline before the firm is unable to meet its annual interest cost. IDBI BANK Year EBIT Interest Charges TIE ratio 2007 32044524 13204037 2.43 2008 34298574 19153957 1.79 2009 48559935 19153957 1.83
Interpretation IDBI BANK We can see from this ratio analysis that, this company has covered their interest expenses 2.43 times in 2007, 1.79 times in 2007 and 1.8 times in 2008. It means they have performed pretty much same in 2007 and 2008, but has taken a different look in 2007. As in 2007 they issued a little high number of long-term loans and does not have good liquidity position, their EBIT became high thus making TIE a little high as well
Debt Ratio: Debt Ratio = Total Debt / Total Assets The ratio of total debt to total assets, generally called the debt ratio, measures the percentage of funds provided by the creditors. The proportion of a firm's total assets that are being financed with borrowed funds. The debt ratio is calculated by dividing total long-term and short-term liabilities by total assets. The higher the ratio, the more leverage
the company is using and the more risk it is assuming. Assets and liabilities are found on a company's balance sheet. IDBI BANK Year Total debt Total Assets Debt Ratio 2007 53848102 590291468 0.91 2008 628754092 691991521 0.91 2009 682747953 757928,89 0.9
Interpretation: IDBI BANK Calculating the debt ratio, we came to see that this company is highly leveraged one Debt to Equity Ratio: Debt to Equity Ratio = Total debt / Total Equity The debt to equity ratio is the most popular leverage ratio and it provides detail around the amount of leverage (liabilities assumed) that a company has in relation to the monies provided by shareholders. As you can see through the formula below, the lower the number, the less leverage that a company is using. The debt to equity ratio gives the proportion of a company (or person's) assets that are financed by debt versus equity. It is a common measure of the long-term viability of a company's business and, along with current ratio, a measure of its liquidity, or its ability to cover its expenses. As a result, debt to equity calculations often only includes long-term debt rather than a company's total liabilities. A high debt to equity ratio implies that the company has been aggressively financing its activities through debt and therefore must pay interest on this financing. 45
IDBI BANK Year Total debt Total Equity Debt To Equity Ratio 2007 536848102 45177664 11.88 2008 628754092 55063125 11.42 2009 682747953 71280902 9.58
Interpretation IDBI BANK We can see from the above calculations that this ratios continuously decreasing in the last three years.
Current Worth / Net worth Ratio: Current Worth to Net worth Ratio= Current Worth / Net worth Ratio We can calculate current worth and net worth by using following formulas: Current Worth = Total Current Assets – Total Current Liabilities Net Worth = Total Assets - Total Liabilities
Year Current Worth Net Worth Current Worth to Net worth Ratio Interpretation
2007 95155274 53443366 1.78
2008 104938111 63237429 1.66
2009 100006655 75180436 1.33
IDBI BANK We can see from the above calculations that this ratios continuously decreasing in the last three years. In 2008 it was 1.78, in 2008 it was 1.66 and in 2008 it was 1.33.
Total Capitalization Ratio: Total Capitalization Ratio = Long-term debt / long-term debt + shareholders' equity The capitalization ratio measures the debt component of a company's capital structure, or capitalization (i.e., the sum of long-term debt liabilities and shareholders' equity) to support a company's operations and growth. Long-term debt is divided by the sum of long-term debt and shareholders' equity. This ratio is considered to be one of the more meaningful of the "debt" ratios - it delivers the key insight into a company's use of leverage.
IDBI BANK Year
Long Term debt Long term debt + Equity Capitalization Ratio
2007 56392270 101569934 0.56
2008 62094609 117157734 0.53
2009 50799915 122080817 0.42
worth Ratio Interpretation IDBI BANK It is obvious from the above calculations that there is a gradual fall in this ratio over the years.
Long term Assets versus Long term Debt: Long term Assets versus Long term Debt= Long Term Assets/ Long Term Debts IDBI BANK
Year Long Term Assets Long term debt L.T Assets /L.T Debts Debt:worth Ratio Debt Coverage Ratio:
2007 14680362 56392270 0.26
2008 20393927 62094609 0.33
2009 25973696 50799915 0.51
Debt Coverage Ratio = Net Operating Income / Total Debt
IDBI BANK Year Net Operating Income Total Debt Debt Coverage Ratio Debt:worth Ratio 2007 12074762 536848102 0.02 2008 5121453
2009 5655568 682747953 0.0083
c) Profitability Ratios:
Profitability is the net result of a number of policies and decisions. This section of the discusses the different measures of corporate profitability and financial performance. These ratios, much like the operational performance ratios, give users a good understanding of how well the company utilized its resources in generating profit and shareholder value. The long-term profitability of a company is vital for both the survivability of the company as well as the benefit received by shareholders. It is these ratios that can give insight into the all important "profit". Profitability ratios show the combined effects of liquidity, asset management and debt on operating results. These ratios examine the profit made by the firm and compare these figures with the size of the 49
firm, the assets employed by the firm or its level of sales. There are four important profitability ratios that I am going to analyze: Net Profit Margin: Net Profit margin = Net Profit / Sales x 100 Net Profit Margin gives us the net profit that the business is earning per dollar of sales. This margin indicates the profit after all the costs have been incurred it shows that what % of turnover is represented by the net profit. An increase in the ratios indicates that a firm is producing higher net profit of sales than before.
IDBI BANK Year Net Profit Sales Net Profit Margin 2007 12700315 43685740 29.07% 2008 10084037 50481021 19.97% 2009 15614020 63305033 24.66%
Interpretation IDBI BANK
Therefore, the Net Profit Margin was 29.07% in 2008, decrease to 19.97% in 2008 and then again increased to 24.66% in 2008 Operating Income Margin: Operating Income Margin = Operating Income x 100 Net Sales
Operating Income Margin = Net mark-up / interest income after provisions + Mark-up / return / interest expensed Total non mark-up / interest expenses
IDBI BANK Year Operating Income Net Sales
Operating Income Margin
2007 25278799 43685740 57.9%
2009 37738818 63305033 59.6%
Return on Assets: Return on Assets (ROA) = Profit after Taxation / Average Total assets x 100 ROA, A measure of a company's profitability, equal to a fiscal year's earnings divided by its total assets, expressed as a percentage. This is an important ratio for companies deciding whether or not to initiate a new project. The basis of this ratio is that if a company is going to start a project they expect to earn a return on it, ROA is the return they would receive. Simply put, if ROA is above the rate that the company borrows at then the project should be accepted, if not then it is rejected.
IDBI BANK Year Net income Total Average assets
2007 12700315 559592686.5 2.27%
2008 10084037 641141494.5 1.57%
2009 15614020 724959955 2.15%
Interpretation IDBI BANK Return on assets decreased in 2008 and 2008 and it was maximum in year 2008. This may have occurred because Square used more debt financing in 2008 compared to 2008 and 2008 which resulted in more interest cost and brought the Net income down. . Return on Equity (ROE): Return on Total Equity = Profit after taxation x 10 Total Equity Return on Equity measures the amount of Net Income earned by utilizing each dollar of Total common equity. It is the most important of the “Bottom line” ratio. By this, we can find out how much the shareholders are going to get for their shares. This ratio indicates how profitable a company is by comparing its net income to its average shareholders' equity. The return on equity ratio (ROE) measures how much the shareholders earned for their investment in the company. The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors.
IDBI BANK 52
Year Net income Total Equity
2007 12700315 45177664 28.11%
2008 10084037 55063125 18.31%
2009 15614020 71280902 21.9%
Interpretation IDBI BANK The Return on Equity was maximum in 2008 but decreased in 2008 and went down more in 2008. This again may have happened due to the issue of more long-term debt in 2008 and 2008. Operating Assets Turnover: Operating Assets Turnover = Operating Assets x 100 Net Sales
IDBI BANK Year Operating Assets Net Sales
Operating Assets Turnover Margin
2007 94230402 43685740 192.7%
2008 97259620 50481021 192.7%
2009 110591707 63305033 174.70%
Detail of Operating Assets of IDBI Bank Limited 2008 Operating Assets: Cash and balances with treasury banks Balances with other banks Operating fixed assets 56533134 39307321 14751252 110591707 2008 54
Operating Assets: Cash and balances with treasury banks Balances with other banks Operating fixed assets 55487664 27020704 13780555 97259620
2008 Operating Assets: Cash and balances with treasury banks Balances with other banks Operating fixed assets 46310478 35965048 11954876 94,230,402
Detail of Operating Assets IDBI Limited 2008 Operating Assets: Cash and balances with treasury banks Balances with other banks Operating fixed assets 27859360 12731952 10502990 51094302
2008 Operating Assets: Cash and balances with treasury banks Balances with other banks Operating fixed assets 29436378 18380738 11922324 59739440
2008 Operating Assets: 56
Cash and balances with treasury banks Balances with other banks Operating fixed assets
32687335 21581043 13773293 68041671
Return on Operating Assets: Return on Operating Assets = Profit after Taxation x 100 Operating assets IDBI BANK Year Net Profit Operating Assets
Return on Operating Assets
2007 12700315 94230402 13.48%
2008 10084037 97259620 10.37%
2009 15614020 110591707 11.19%
Sales to Fixed Assets: This ratio is indicates that how much sales are contributed by investment in fixed Assets. Sales to Fixed Assets = Net Sales / Fixed Assets
IDBI BANK Year Net Sales Fixed Assets Sales to Fixed Assets 2007 43685740 11954876 3.65 times 2008 50481021 13780555 3.66 times 2009 63305033 14751252 3.66 times
d) Activity Ratios:
Activity ratio are sometimes are called efficiency ratios. Activity ratios are concerned with how efficiency the assets of the firm are managed. These ratios express relationship 58
between level of sales and the investment in various assets inventories, receivables, fixed assets etc.
Total Asset Turnover: Total Asset Turnover = Total Sales / Total Assets The amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales in dollars by assets in dollars. Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.
IDBIBANK Year Total Sales Total Assets Total Asset Turnover 2007 43685740 590291468 0.07 2008 50481021 691991521 0.069 2009 63305033 757928389 0.08
Interpretation IDBI BANK The Return on Equity was maximum in 2008 but decreased in 2008 and went down more in 2008. This again may have happened due to the issue of more long-term debt in 2008 and 2008.
e) Market Ratio: Market Value Ratios relate an observable market value, the stock price, to book values obtained from the firm's financial statements.
Dividend per Share – DPS: Dividend per Share = Total amount of Dividend Number of outstanding shares Per share capital = 10 per share Or No. of shares outstanding = share capital / 10 IDBI BANK Year Total amount of Dividend Number of Shares Dividend per Share Earning Per Share- EPS: Earning Per Share = Profit after Taxation Number of Shares The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. Earnings per share are generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio. 60 2007 691350 690000 1.0019 2008 1381000 690000 2.0014 2009 2730251 759000 3.597
IDBI BANK Year Profit after Taxation Number of Shares Earning Per Share 2007 12700315 690000 18.41 2008 10084037 690000 14.61 2009 15614020 759000 20.57
Price / Earning Ratio: Price / Earning Ratio = Stock Price Per Share Earning Per Shares The Price-Earnings Ratio is calculated by dividing the current market price per share of the stock by earnings per share (EPS). (Earnings per share are calculated by dividing net income by the number of shares outstanding.) The P/E Ratio indicates how much investors are willing to pay per dollar of current earnings. As such, high P/E Ratios are associated with growth stocks. (Investors who are willing to pay a high price for a dollar of current earnings obviously expect high earnings in the future.) In this manner, the P/E Ratio also indicates how expensive a particular stock is. This ratio is not meaningful, however, if the firm has very little or negative earnings. The Price-Earnings Ratio is calculated by dividing the current market price per share of the stock by earnings per share (EPS). (Earnings per share are calculated by dividing net income by the number of shares outstanding.) The P/E Ratio indicates how much investors are willing to pay per dollar of current earnings. As such, high P/E Ratios are associated with growth stocks. (Investors who are willing to pay a high price for a dollar of current earnings obviously expect high earnings in the future.)
In this manner, the P/E Ratio also indicates how expensive a particular stock is. This ratio is not meaningful, however, if the firm has very little or negative earnings.
IDBI BANK Year Stock price per share EPS Price / Earning Ratio 2007 10 18.41 0.54 2008 10 14.61 0.68 2009 10 20.57 0.49
Interpretation IDBI BANK The P/E ratio was 0.54 times in 2008 and increased further to as high as 0.68 times in the following year. However, in 2008 it declined to 0.49 times which is an alarming signal for the potential investors.
Dividend Payout Ratio: Dividend Payout Ratio = Dividend per Share Earning per Share The percentage of earnings paid to shareholders in dividends. The payout ratio provides an idea of how well earnings support the dividend payments. More mature companies tend to have a higher payout ratio. This ratio identifies the percentage of earnings (net income) per common share allocated to paying cash dividends to shareholders. The dividend payout ratio is an indicator of how well earnings support the dividend payment. 62
IDBI BANK Year DPS EPS Dividend Payout Ratio 2007 1.0019 18.41 0.0544 2008 2.0014 14.61 0.137 2009 3.597 20.57 0.175
Dividend Yield: Dividend Yield = Dividend per Share Share Price Financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. A stock's dividend yield is expressed as an annual percentage and is calculated as the company's annual cash dividend per share divided by the current price of the stock. The dividend yield is found in the stock quotes of dividend-paying companies. Investors should note that stock quotes record the per share dollar amount of a company's latest quarterly declared dividend. This quarterly dollar amount is annualized and compared to the current stock price to generate the per annum dividend yield, which represents an expected return.
Year DPS Share Price Dividend Yield
2007 1.0019 10 0.10019
2008 2.0014 10 0.20014
2009 3.597 10 0.3597
Book Value per Share: Book Value per Share = Shareholders’ Equity Share Capital
This is defined as the Common Shareholder's Equity divided by the Shares Outstanding at the end of the most recent fiscal quarter. It is the Indication of the net worth of the corporation. Somewhat similar to the earnings per share, but it relates the stockholder's equity to the number of shares outstanding, giving the shares a raw value. Comparing the market value to the book value can indicate whether or not the stock in overvalued or undervalued.
IDBI BANK Year Equity Share Capital Book Value per Share 2007 45177664 6900000 6.5 2008 55063125 6900000 7.98 2009 71280902 7590000 9.39
f) Statement of cash flow:
Cash flow ratios indicate liquidity, borrowing capacity or profitability. This section of the financial ratio looks at cash flow indicators, which focus on the cash being generated in terms of how much is being generated and the safety net that it provides to the company. These ratios can give users another look at the financial health and performance of a company.
Operating Cash Flow to Total Debt: Operating Cash Flow to Total Debt = Operating Cash Flow/Total Debt This coverage ratio compares a company's operating cash flow to its total debt, which, for purposes of this ratio, is defined as the sum of short-term borrowings, the current portion of long-term debt and long-term debt. This ratio provides an indication of a company's ability to cover total debt with its yearly cash flow from operations. The higher the percentage ratio, the better the company's ability to carry its total debt. IDBI BANK Year Operating Cash flow Total Debts Operating Cash Flow to T.Debt 2007 17851517 536848102 0.033 2008 56224065 628754092 0.089 2009 18231677 682747953 0.027
Operating Cash Flow per Share: Operating Cash Flow per Share = Operating cash flow / Total Shares
IDBI BANK Year Operating Cash flow Total Shares Operating Cash Flow per Share 2007 17851517 690000 25.87 2008 56224065 690000 81.48 2009 18231677 759000 24.02
Common Size Analysis (Vertical and Horizontal): The term "trend analysis" refers to the concept of collecting information and attempting to spot a pattern, or trend, in the information. In some fields of study, the term "trend analysis" has more formally-defined meanings. Although trend analysis is often used to predict future events, it could be used to estimate uncertain events in the past. Financial statement information is used by both external and internal users, including investors, creditors, managers, and executives. These users must analyze the information in order to make business decisions, so understanding financial statements is of great importance. Several methods of performing financial statement analysis exist. I will discuss two of these methods: horizontal analysis and vertical analysis. a) Horizontal Analysis Methods of financial statement analysis generally involve comparing certain information. The horizontal analysis compares specific items over a number of accounting periods. For example, accounts payable may be compared over a period of months within a fiscal year, or revenue may be compared over a period of several years. It is a procedure in fundamental analysis in which an analyst compares ratios or line items in a company's financial statements over a certain period of time.
Financial Statement Analysis is a method used by interested parties such as investors, creditors, and management to evaluate the past, current, and projected conditions and performance of the firm. This report mainly deals with the insight information of the two mentioned companies. In the current picture where financial volatility is endemic and financial intuitions are becoming popular, when it comes to investing, the sound analysis of financial statements is one of the most important elements in the fundamental analysis process. At the same time, the massive amount of numbers in a company's financial statements can be bewildering and intimidating to many investors. However, through financial ratio analysis, I tried to work with these numbers in an organized fashion and presented them in a summarizing form easily understandable to both the management and interested investors. It is required by law that all private and public limited companies must prepare the financial statements like, income statement, balance sheet and cash flow statement of the particular accounting period. The management and financial analyst of the company analyze the financial statements for making any further financial and administrative decisions for the betterment of the company. That as a financial analyst how can I make any important financial decision by analyzing the financial statements of the company. Because, it is the primary responsibility of the financial managers or financial analyst to manage the financial matters of the company by evaluating the financial statements. I am also providing some important suggestions and opinions about the financial matters of the business.
I analysis the financial statements of IDBI Bank Limited: Liquidity position of this bank is not up to standard, it is below industry average. Working capital of IDBI Bank is better , but bank must improve their liquidity position. Leverage ratios indicate the high risk associated with the company. Generally leverage ratios, measures the percentage of funds provided by the creditors. The proportion of a firm’s total assets is being financed with high percentage of borrowed funds. Profitability ratios of Idbi Bank Limited is good and upto the mark.. IDBI Bank has a good market perception due to continuous declaration of dividends which is good for its investors and hence increase the believeness in the minds of customers. Earning per share is decreases in 2nd year but afterwards increases which show that company is good position in the market.
• The data collection was little bit tough because latest data is not available on the internet. • • Finding the data of Insurance sector is very difficult. Problem occurred due to lack of time and facility of internet.
• • • www.moneycontrol.com www.investopedia.com www.google.com