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Ratio Analysis of Dhaka Bank

Introduction

This is a report of performance analysis of the company entitled Dhaka Bank. The ratio analysis will help to compare the financial performance of this bank with City Bank Limited. The period of analysis is from 2004 to 2009. The performance of Dhaka Bank has been analyze in terms of Liquidity ratios Leverage ratios Activity (efficiency) ratios Profitability ratios Market Position ratios Liquidity Ratios The most important tasks that the management of any financial institution faces is ensuring adequate liquidity at all times in any emergencies. This mean that a liquid financial firm either has the right amount of immediately spendable funds on hand when they are required or can raise liquid funds in timely fashion by borrowing or selling assets. A liquid asset is one that trades in an active market and hence can be quickly converted to cash at the going market price and a firm liquidity position deals with the question such as will the firm be able to pay off its debt as they come due over next year or so? Will it have trouble satisfying the obligation? A full liquidity analysis require the use of cash budget, but by relating the amount the cash and other current asset to current obligation, Ratio analysis provides a quick, easy-touse measures of liquidity. Some of the categories of ratios are given below. i. Cash position indicator: Cash and deposit due form depository institution / total asset, where greater proportion of cash implies the institution is in a stronger position to handle immediate cash needs.
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Ratio Analysis of Dhaka Bank


ii. Liquid securities indicators: Govt. securities / total asset, which compares the most marketable securities an institutions can hold with the overall size of its asset portfolio, the greater the portion of the government securities, the more liquid the depository institutions position tends to be. iii. Capacity ratio: Net loans and leases/ total asset, which is really a negative liquidity indicator because loans and leases are often the most illiquid of asset. iv. Core deposit ratio: Core deposit / total asset, where core deposits include total deposits less all deposits over $ 100K. core deposit are primarily small denomination checking and savings accounts that are considered un likely to be withdrawn on short notices and so carried lower liquidity requirement. v. Deposit composition ratio: Demand deposit/time deposits, where demand deposits are subject to immediate withdrawal via check writing, while time deposits have fixed maturities with penalties for early withdrawal. This ratio measures how stable a funding base each institution possesses; a decline suggests greater deposit stability and a lesser need for liquidity. vi. Hot money ratio: Money market assets divided by volatile liabilities. It reflects whether the institution has roughly balanced the volatile liabilities it has issued with money market assets it holds.

Leverage Ratios

Debt Management Ratios attempt to measure the firm's use of Financial Leverage and ability to avoid financial distress in the long run. These ratios are also known as Long-Term Solvency Ratios.

Ratio Analysis of Dhaka Bank


Debt is called Financial Leverage because the use of debt can improve returns to stockholders in good years and increase their losses in bad years. Debt generally represents a fixed cost of financing to a firm. Thus, if the firm can earn more on assets which are financed with debt than the cost of servicing the debt then these additional earnings will flow through to the stockholders. Moreover, our tax law favors debt as a source of financing since interest expense is tax deductible. With the use of debt also comes the possibility of financial distress and bankruptcy. The amount of debt that a firm can utilize is dictated to a great extent by the characteristics of the firm's industry. Firms which are in industries with volatile sales and cash flows cannot utilize debt to the same extent as firms in industries with stable sales and cash flows. Thus, the optimal mix of debt for a firm involves a tradeoff between the benefits of leverage and possibility of financial distress. i. Total debt to total asset ratio: The ratio of the Total debt to total asset, generally called debt ratio, measures the percentage of funds provided by creditors. Total debt includes both current liability and long term debt. Creditors preferred lower debt ratio because the lower the ratio, the greater cushion against the creditors. On the other hand stockholders want more leverage because it magnifies expected earnings. ii. Debt equity The Debt to Equity Ratio measures how much money a company should safely be able to borrow over long periods of time. It does this by comparing the company's total debt (including short term and long term obligations) and dividing it by the amount of owner's equity The result get after dividing debt by equity is the percentage of the company that is indebted (or "leveraged"). The normal level of debt to equity has changed over time, and depends on both economic factors and society's general feeling towards credit. Generally, any company that has a debt to equity ratio of over 40 to 50% should be looked at more carefully to make sure there are no liquidity problems. iii. Interest Coverage Ratio: The interest coverage ratio is a measurement of the number of times a company could make its interest payments with its earnings before interest and taxes; the lower the ratio, the higher the companys debt burden. As a general rule of
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Ratio Analysis of Dhaka Bank


thumb, investors should not own a stock that has an interest coverage ratio under 1.5. An interest coverage ratio below 1.0 indicates the business is having difficulties generating the cash necessary to pay its interest obligations. The history and consistency of earnings is tremendously important. The more consistent a companys earnings, the lower the interest coverage ratio can be. EBIT has its short fallings; companies do pay taxes, therefore it is misleading to act as if they didnt. A wise and conservative investor would simply take the companys earnings before interest and divide it by the interest expense. This would provide a more accurate picture of safety.

Activity (Efficiency) Ratios A ratio used to calculate a bank's efficiency. Not all banks calculate the efficiency ratio the same way. Asset management, also called asset utilization, ratios tells a company how well their assets are working to generate sales. Cash is always the best asset but it doesn't generate any revenue. The other assets on your balance do generate sales revenue. Those other assets are accounts receivable, inventory, and fixed assets. i. Operating Efficiency Ratio: Operating efficiency ratio measures how efficiently bank manages its expanse, which usually means reducing operating expense and incasing operating revenue. ii. Employee Productivity Ratio: This ratio means reducing operating expenses and increasing of their employee through use of equivalent employees. iii. Tax management efficiency: Tax management efficiency ratio reflecting the use of security gain or losses and other management tools (such as buying tax- exempt bonds) to minimize tax exposure, which is the ratio of before- tax income to total revenue as an indicator of how many dollars of revenue survive after operating expense removed, which is basically a measure of operating efficiency and expense control. automated equipment and improved employee training, which is calculated by Net operating income / Number full time

Ratio Analysis of Dhaka Bank


iv. Expense management efficiency: This is a ratio of pre tax net operating income to total operating revenue. Measures how efficiently the bank able to manage its operating expense. v. Asset management efficiency: Which is nothing but the degree of asset utilization (AU) that reflects the portfolio manages policies, especially the mix and yield on asset. This ratio is calculated by total operating revenue divided by total asset. vi. Funds management efficiency: Which is nothing but equity multiplier (EM),

calculated as total asset divided by total equity capital. EM reflects leverage or financing policy: the source chosen to fund the financial institution- debt financing or equity financing. Profitability Ratios The profitability ratios are used to measure how well a company is performing in terms of profit. The profitability ratios are considered to be the basic bank financial ratios. In other words, the profitability ratios give the various scales to measure the success of the firm. The profitability ratios can also be defined as the financial measurement that evaluates the capacity of a company to produce yield against the expenses and costs over a particular time period. If a company is having a higher profitability ratio compared to its competitor, it can be inferred that the company is doing better than that particular competitor. The higher or same profitability ratio of a company compared to its previous period also indicates that the company is doing well. Some of the categories of ratios are given below. i. Return on Equity (ROE): The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. ROE is expressed as a percentage and calculated as, Return on Equity = Net Income/Shareholder's Equity. ii. Return on Assets (ROA): An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to
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Ratio Analysis of Dhaka Bank


generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment". The formula for return on assets is, Net income divided by total asset. Some investors add interest expense back into net income when performing this calculation because they'd like to use operating returns before cost of borrowing. iii. Net Interest Margin (NIM): Is a measurement of the difference between the interest incomes generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits). It is considered similar to the gross margin of non-financial companies, which basically measures how large a spread between interest revenue and interest cost management has been able to achieve by close control over earning asset and pursuit of the cheapest sources of funding. Calculated as (interest income interest expense) / Total earning asset. iv. Net Non interest Margin: Unlike Net interest Margin, Net Non interest Margin measures the amount of non-interest revenue generating from service fees the financial firm has been able to collect relative to the amount of non- interest cost incurred from salaries and wages, repair and maintenance of facilities , and probation for loan loss expense. Calculated as (Non Interest Revenues Non Interest Expenses)/ Total Assets. v. Net Operating Margin: A ratio used to measure a company's pricing strategy and operating efficiency. It is a measurement of what proportion of a company's revenue is left over, before taxes and other indirect costs (such as rent, bonus, interest, etc.), after paying for variable costs of production as wages, raw materials, etc. A good operating margin is needed for a company to be able to pay for its fixed costs, such as interest on debt. Calculated as, (Total Operating Revenues Total Operating Expenses) / Total Assets. vi. Earnings per Share (EPS): The portion of a company's profit allocated to each outstanding share of common stock, which serves as an indicator of a company's profitability. Calculated as, Net Income After Tax / Common Equity Shares Outstanding.

Ratio Analysis of Dhaka Bank


Market Position Ratios Market position ratio, reflect the firms stocks price to it earnings, cash flow and book value per share. This ratio gives management an indication of what investors think of the companys past performance and future prospects. If the liquidity, assets management, debt management and profitability ratios all look good then the market value ratios will be high and the stock price will probably be as high as can be expected. i. Price-Earning (P/E) Ratio: The P/E Ratio indicates how much investors are paying for per dollar of return. It is calculated by dividing current market price of share by the earning per share of common stock. ii. Market-Book Ratio: The Market-to-Book Ratio is calculated by dividing market price per share by the book value per share. A firm's book value reflects historical cost accounting. Hence the market to book value ratio compares the market value of the companys investment to their cost. Market-book value ratio indicates what the investors are giving against each taka value of share. It also reflects overall performance of the company. iii. Dividend per Share (DPS): Dividend per share ratio shows how much return the common shareholders are getting against each share. It is calculated by dividing the net income by number of common share outstanding. iv. Dividend Yield: The dividend yield is a comparison between the dividend and market price of share. It shows the return that the share holder gets against each taka of investment.

Ratio Analysis of Dhaka Bank

CALCULATION AND ANALYSIS OF RATIOS

Liquidity Ratios 1. Cash position indicator: 2004 0.038 0.056 2005 0.046 0.068 2006 0.051 0.059 2007 0.053 0.071 2008 0.106 0.055 2009 0.106 0.067
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Dhaka Bank City Bank

Ratio Analysis of Dhaka Bank

Time series analysis: Dhaka Bank: In 2004 the cash position indicator of the bank shows that it is 3.8%, which tells us that for every BDT 100 this bank has TK. 3.8 as cash and deposit due from depository institutions. As the time passes by the banks cash deposit indicator increases steadily till 2009 when its cash position indicator ratio was 10.6%. Dhaka bank had a sharp increase in this ratio from 2007 to 2008 when in increased by 5.3%, thus we can say that its liquidity position has become better with the passage of time. City Bank: In 2004 the cash position indicator ratio was 5.60%, which means for each BDT 100 of total asset the bank had BDT 5.60 as a cash and deposit due form depositary institutions. However in following years City banks cash position indicator has increased and finally in 2009 it had 6.70% though there was a decline in 2006 when this ratio was 5.9% whereas the ratio in the previous year was 6.8%. Cross-sectional analysis: In comparing the two banks we can see that though City Bank was in a good position in relation to Dhaka Bank during the years 2004-2007, Dhaka bank exceeded them in the year 2008 when Dhaka banks cash position indicator was almost twice as more than the City Bank. Thus we can
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Ratio Analysis of Dhaka Bank


say that as the time passed Dhaka banks performance in handing it cash has improved which is observable from the comparison of the two banks. Thus we can say that Dhaka banks liquidity position has become better in compared to City bank with the passage of time.

2. Liquid security indicator: 2004 Dhaka Bank City Bank 0.099 0.112 0.108 0.091 0.123 0.124 0.093 0.146 0.100 0.133 0.109 0.111 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: In 2004 liquid security indicator ratio for Dhaka Bank was 9.9% i.e. for each TK.100 this bank is holding TK.9.9 worth government securities. There was a continuous increase for this ratio till 2006 when it was 12.3% and then there was a decrease in 2007 and then it increased steadily to 2009 when this ratio was 10.9%. By analyzing this we can say that this bank on an average holds 10% liquid assets and its liquidity position has become better in 2009 in compared 2004.

City Bank: In 2004 liquid security indicator ratio was 11.2 % which means for each BDT 100 the bank is holding BDT 11.2 government securities. Between several up and down it end up in
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Ratio Analysis of Dhaka Bank


2009 by keeping 11.1% of government securities. By analyzing this we can say that this bank on an average holds more than 10% liquid assets. Cross-sectional analysis: in comparing both the banks we see that in 2004 the Dhaka Banks liquid security indicator ratio was lower than City bank. Then in the next year this ratio for Dhaka Bank was higher than the City Bank by 1.7%. In 2006 both the banks liquid security indicator ratio becomes almost same and in the later years City banks liquid security indicator ratio was more than Dhaka bank and in 2009 this ratio for both the banks was almost equal. By analyzing these two banks in this regards we can say that City Bank on an average has more liquid assets than the Dhaka bank.

3. Capacity ratio: 2004 Dhaka Bank City Bank 58.7 64.6 70.7 66.1 70.7 64.9 69.6 54.9 69.9 60.3 68.0 56.9 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: Capacity ratio, which is basically a negative liquidity indicator, indicates that with the passes of time and till 2006 capacity ratio for Dhaka bank has increased though at a very small pace and then it decreased till 2009. Though the change in the capacity ratio was not much and it was almost stable. In 2004 Capacity ratio for this bank was 58.9% and in 2009 it decreased to 68%. Thus we can say that in 2004 Dhaka Banks capacity ratio was 58.90%, which means for
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Ratio Analysis of Dhaka Bank


each BDT 100 Dhaka Bank made BDT 58.9 as a loan, which is very illiquid and it has increased at a very little pace with the passage of time. City Bank: In 2004 City Banks capacity ratio was 64.60%, which means for each BDT 100 City Bank made BDT 64.60 as a loan, which is very illiquid. Moreover in 2005-2006 years also it had almost same amount of loan. But in 2007, its capacity ratio decreased to 54.9%, then again increased to 60.3%in 2008 and again reduced to 56.9% in 2009. Thus we can say there was a fluctuation in the liquidity position of this bank in relation to its loan. Cross-sectional analysis: By comparing the two banks we see that except 2004 Dhaka bank was more illiquid than the City bank. Though City banks fluctuation in regard to this ratio was higher than the Dhaka bank then also City banks capacity ratio remained below Dhaka bank and thus we can say that Dhaka bank is more illiquid than City bank thus Dhaka bank may face more problems when it might require a large sum of liquid money. 4. Core deposit ratio: 2004 Dhaka Bank City Bank 0.608 0.524 0.633 0.604 0.685 0.599 0.661 0.516 0.617 0.509 0.609 0.556 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: From the graph it is noticeable that Dhaka Banks core deposit ratio all through the time between 2004 and 2009 has been more than 60%. Its highest core deposit ratio was in 2006 when it was 68.5% and it was lowest during 2004 when the ratio was 60.8%. The ratio
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Ratio Analysis of Dhaka Bank


increased constantly till 2006 and then decreased constantly till 2009 and it ends up in 60.9%. Thus we can say that on an average this bank has maintained more than BDT 60 as core deposit for each BDT 100. Thus from this ratio we can say that this bank has a quite satisfactory liquidity position. City Bank: In 2004 the core deposit ratio was 52.4%, which means for each BDT 100 of asset City had BDT 52.4 as core deposit. The higher this ratio is the better the liquidity position has. In 2005, its Core deposit ratio increased to 60.4% but declined to 59.9% to 50.9% in 2006-2008. After that, in 2009 its increased to 55.6%. Cross-sectional analysis: By analyzing both the banks we can say that Dhaka bank has constantly maintained a higher core deposit ratio than City Bank. Moreover City bank has more fluctuations in its core deposit ratio graph than Dhaka bank. Thus from here we can say that Dhaka bank is more liquid than City bank since Dhaka banks has more core deposit than City bank. 5. Deposit Composition Ratio: Dhaka Bank City Bank 2004 0.314 0.672 2005 0.359 0.475 2006 0.227 0.419 2007 0.288 0.612 2008 0.205 0.548 2009 0.242 0.468

Time series analysis:


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Ratio Analysis of Dhaka Bank


Dhaka Bank: This ratio for Dhaka Bank was 31.4% in 2004, and then it increased and decreased alternatively and became 24.2% in 2009. From here it can be said that this ratio has decreased from 31.4% in 2004 to 24.2% in 2009, thus it can be said that over the time the liquidity requirement of the bank has decreased as this ratio said that the lower the ratio the lower the requirement for external fund. City Bank: This ratio measures how stable funding bases the bank posses. The demand deposits are subject to immediate withdrawal while time deposits have fixed maturities with penalties for early withdrawal. Therefore, a decline in this ratio suggests higher liquidity. In 2004, City Banks deposit composition ratio was 67.2%. It gradually declined to 47.5% and 41.9%.But it increased to 61.2% in 2007, again decreased 54.8%in 2008 and to 46.8% in 2009. Cross-sectional analysis: By comparing this ratio for the two banks it can be said that requirement of the external fund is lower for Dhaka bank that City bank as this ratio constantly has been lowers for Dhaka bank in comparison to City bank. 6. Hot money ratio: 2004 2.560 1.121 2005 2.835 0.914 2006 7.059 0.778 2007 0.852 0.692 2008 2.891 0.625 2009 3.164 0.754

Dhaka Bank City Bank

Time series analysis:


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Ratio Analysis of Dhaka Bank


Dhaka Bank: This ratio has a very different structure in compared to others, from 2004 there was a sharp rise in this ratio in 2006 where it rises from 2.56 times in 2004 to 7.059 times in 2006 and in 2007 it reaches its minimum to .852 times and it became 3.164 times in 2009. It can thus be said except 2006 and 2007 the amount of money market assets to cover the volatile liabilities has been almost equal. Thus liquidity position has shown betterment from 2004-2006 and then again shown betterment from 2007-2009. City Bank: In 2004 the hot money ratio was 1.121 times. The lower this ratio is the higher the liquidity position. In 2005, its hot money ratio decreased to 0.914 times and continue to fall to 0.625 times in 2008, but increased to 0.754 times in 2009. Overall, the hot money ratio of City bank declined. Cross-sectional analysis: By comparing both the banks it can be said that although the times City bank require less money market assets to cover the volatile liabilities in comparison to the Dhaka bank. Thus from this perspective it can be said that City bank has a better position in paying out its volatile liabilities. Thus we can say that Dhaka bank has more liquid than City bank. 7. Tangible Net Worth plus Term Liabilities/Net Fixed Asset:
200 5 189. 659 28.24 6 200 7 141. 193 20.15 29 200 8 123. 955 13.24 97

Dhaka Bank City Bank

2004 149. 1913 20.441 57

2006 163.62 5175 22.7125 509

2009 123. 2114 17.346 74

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Ratio Analysis of Dhaka Bank


Time series analysis: Dhaka bank: With the passage of time Dhaka bank has shown a great fluctuation in this ratio. Throughout the time it has maintained a very high equity and term deposit in comparison to its fixed asset, where we see that this ratio reaches its peak in 2005 when this ratio was 189.6 and it then decreased to 123.21 in 2009. So, we can say that this bank has maintained a great amount of Net Worth plus Term Liabilities in comparison to its Net Fixed Asset. Cross-sectional analysis When both of the banks are compared then it is found that Dhaka banks Tangible Net Worth plus Term Liabilities/Net Fixed Asset is much higher than the
City bank. Thus, we can say that Dhaka bank has maintained its Net Worth plus Term

Liabilities in comparison to its Net Fixed Asset far more better than the City bank, which means Dhaka bank has more potential to generate higher amount of Net Worth plus Term Liabilities by utilizing its Net Fixed Asset. 8. Loans to Deposits ratio:
2004 Dhaka Bank City Bank 0.764 0.817 2005 0.847 0.809 2006 0.913 0.838 2007 0.858 0.668 2008 0.91 6 0.777 2009 0.912 0.707

Time series analysis: With the passage of time it has been found that this ratio has increased, this ratio has been 76.4% in 2004 and it became 91.1% in 2009, though there was a decline in this ratio in 2007. So, it can be said that with the passage of time this banks gross loan has increased, which can pose a threat to its liquidity position.
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Ratio Analysis of Dhaka Bank


Cross-sectional analysis: By comparing both the banks it can be said that Dhaka bank has higher amount of gross loan in comparison to the total deposit, thus Dhaka bank has higher potential to earn more income than to pay for its interest expense in comparison to the City bank. So, we can say that Dhaka bank is more efficient in controlling its gross loan in comparison to its total deposit, which is good for this ban when we compare this bank with the City bank.

9. Liquid Assets to Total Deposits:


Dhaka Bank City Bank 2004 0.9653 26 0.8293 2005 0.819 95 0.7251 2006 1.619784 19 0.7083 2007 0.861 88 0.6324 2008 0.879 05 0.5945 2009 0.9192 56 0.5946

Time series analysis: It has been found that this ratio has remained constant with the passage of time except in 2006 when it has risen up to 1.62 times, whereas it was found that this ratio was .965 times in 2004 and in 2009 it was found to decreased to 0.919 times. So, it can be said that changes in liquid asset has been almost proportionate to the change in total deposit, thus has maintained a satisfactory liquidity position. Cross-sectional analysis: By comparing both the banks it can be said that Dhaka bank has a higher proportion of liquid asset out of their total deposit in compared to City bank. Thus it can be said that Dhaka bank has a better liquidity position according to this ratio in compared to City bank.
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Ratio Analysis of Dhaka Bank

10. Loan commitment ratio: 2004 0.398 0 2005 0.507 0 2006 0.503 0 2007 0.358 0 2008 0.365 0 2009 0.322 0

Dhaka Bank City bank

Time series analysis: Loan commitment ratio has been found to increasing from 2004 (39.8%) to 50.7% in 2005 and then it decreased to 35.8% in 2007. Though it increased in 2008, in deceased again in 2009 where it was 32.2%. So, it can be said that with the passage of time Unused loan commitment has varied and this variation was not proportionate with the change in total asset, though it varied but it was not to a great extent. Since the Unused loan commitment ratio was least in 2009 thus we can say that there is least liquidity risk in this year in compared to other years. Since the loan commitment is least in 2009 thus we can say that Dhaka bank has a better liquidity position in 2009 than 2004. Cross-sectional analysis: By comparing both the banks it was found that City bank does not have any loan commitment thus this ratio was found to be zero for them but Dhaka bank has some unused loan commitment, thus we can say that city bank does not have any risk associated with Unused loan commitment but Dhaka bank has this type of risk.

Leverage Ratios
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Ratio Analysis of Dhaka Bank


1. Debt to total assets: 2004 Dhaka Bank City Bank 0.947 0.946 0.933 0.945 0.947 0.947 0.946 0.941 0.944 0.926 0.936 0.923 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: From the graph we can see that there exists a great fluctuation in this ratio. In 2004 the debt to total assets ratio was 94.7%, which means that for BDT 100 of the total asset of the bank it has BDT 94.7. After 2004 there was a sudden fall in this ratio to 93.3% in 2005 and in 2006 it again jumped to 94.7% and then it fall constantly to 93.6% in 2009. Thus from here we can say that on an average the stockholder wealth may go down with the passage of the time as higher debt to total assets ratio brings more money for the shareholders. City Bank: In 2004 the debt to total assets ratio was 94.6 % which means for BDT 100 of total asset the bank holding BDT 94.6 as debt. In following years it maintained almost similar amount of debt like 94.5% (2005), 94.7% (2006), 94.1% (2007), 92.6% (2008) and finally 92.3% (2009).

Cross-sectional analysis: By analyzing both the banks we can say that as with the passage of time City banks debt to total assets ratio has fallen at a higher pace than the Dhaka bank. Though in 2005 City banks debt to total assets ratio was higher than Dhaka bank but except that
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Ratio Analysis of Dhaka Bank


year in all other years the Dhaka banks debt to total assets ratio was higher than City bank. Thus, we can say that leverage for the Dhaka bank is higher than City bank and thus debt holder may have more faith on City bank, whereas shareholders in Dhaka bank has more potential to earn more and risk of City banks shareholder is lower as leverage for this bank is lower than Dhaka bank.

2. Debt to equity: 2004 Dhaka Bank City Bank 17.938 17.607 13.925 17.027 17.873 17.747 17.378 15.962 16.786 12.542 14.661 12.04 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: It can be noted from the graph that with the passage of the time debt to equity ratio of this bank has decreased where in 2004 this ratio was 17.938 i.e. the debt is 17.938 times than equity and in 2009 the ratio has decreased to 14.661. Thus we can say that with the passage of time the debt have gone up or the equity has increased.

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Ratio Analysis of Dhaka Bank


City Bank: In 2004 the debt to equity ratio was 17.61 which mean which mean City bank held 17.61 times of total equity as a long term loan. In following years it fluctuates and ends up in 2009 by 12.04 times, which mean it had almost 12.18 times equity in response to debt. Cross-sectional analysis: By comparing the two banks we can say that City banks debt to equity ratio was higher in first 3 years and in the last three years Dhaka banks debt to equity ratio was higher. Thus we can say that though both the banks debt to equity ratio has decreased with the passage of time, City banks decrease was in much more rapid pace than the Dhaka bank. So, Dhaka banks leverage is higher than the city bank in the long run and risk is also higher for Dhaka bank in this perspective.

3. Interest coverage ratio: 2004 Dhaka Bank City Bank 1.455 1.831 1.357 1.914 1.281 1.582 1.378 1.388 1.358 1.555 1.395 1.614 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: Dhaka banks interest coverage ratio was highest in 2004 when it was 1.455 which means that this bank could cover their interest expenses by 1.455 times with their current level of EBIT. Then it decreased steadily till 2006 and then there was ups and down and it become 1.395 in 2009. So, we can say that with the fluctuation in the interest coverage ratio the debt burden of the bank has also fluctuated.

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Ratio Analysis of Dhaka Bank


City Bank: In 2004 the ratio was 1.831 times, which means City bank could cover their interest expenses by 1.831 times with their current level of EBIT. Moreover, its ratio managed to increase EBIT into 1.914 times over debt in 2005, but decreased to 1.582times to 1.614 times in the following years. Cross-sectional analysis: By comparing both the banks we can say that City bank has a better position in paying off its interest expense in comparison to Dhaka bank. In most cases except 2007 City bank has a interest coverage ratio higher than 1.5 thus we can say that they have a lower interest rate risk but Dhaka banks interest coverage ratio has been consistently less than 1.5 thus we can presume that they have a higher interest rate risk than the City bank.

Activity (Efficiency) Ratios 1. Operating efficiency ratio: 2004 Dhaka Bank City Bank 0.412 0.423 0.399 0.408 0.696 0.435 0.366 0.512 0.348 0.481 0.336 0.484 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: It was found that operating efficiency ratio for Dhaka bank was 41.4% in 2004 which mean that for every BDT 100 this bank has TK.41.4 as expense. Operating efficiency ratio decreases in the next year but in 2006 it has a sharp rise and it increases to 69.6% and in the later
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Ratio Analysis of Dhaka Bank


years it decreased constantly and it was 33.6% in 2009. Thus we can say that over the time the bank has decreased its expenses except in 2006 which is a good thing for the bank. City Bank: In 2004 the ratio was 42.3% which for each BDT100 the bank incur BDT 42.3 as an expense. Moreover in the following years Bank did slightly weak expanse management, therefore in 2009 it had operating efficiency 48.4%. Cross-sectional analysis: when we compare both the banks then we find that City banks operating efficiency ratio was lower than Dhaka bank in 2005 and 2006, except these two years this ratio for Dhaka bank was lower than the City bank. So, we can say that Dhaka bank was actually better than City bank in managing their expense and was better able to reduce its operating cost. 2. Employee Productivity Ratio: Dhaka Bank City Bank 2004 2,071,520.6 8 886,236.23 2005 2,161,449.99 1,153,563.34 2006 1,615,575.2 9 1,330,988.9 5 2007 3,764,234.0 5 1,291,909.9 5 2008 4,327,799.3 9 1,584,017.2 2 2009 4,583,093.2 3 1,801,930.8 3

Time series analysis: Dhaka Bank: For Dhaka bank the employee productivity ratio increased from 2004 to 2005 and there was a decrease in 2006 and in the later years it has increased constantly to BDT 4,583,093 in 2009 whereas this ratio was TK. 2,071,520 in 2004. Thus we can say that the bank was able to

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Ratio Analysis of Dhaka Bank


reduce its operating expense and has increased its operating income with the passage of time and the employees were very productive. City Bank: In 2004 each employee generated operating income of TK 886,236 on average. In 2005 each employee generated operating income of TK 6,828,805 on average. The ratio increased because operating income was more than what it was in 2004. In 2006 the ratio again decreased but from 2007, 2008 and 2009 the ratio increased again. The employee productivity increased because during the year operating income almost doubled whereas number of employee didnt increase in such proportion. Cross-sectional analysis: By comparing both the banks we can say that this ratio was far higher for Dhaka bank in comparison to the City bank. Thus we can say that Dhaka bank was more able to reduce its operating cost or its employees were more enthusiastic towards their work and thus they have shown better performance in this regards. 3. Tax management efficiency: 2004 Dhaka Bank City Bank 0.565 0.462 0.603 0.478 0.535 0.368 0.460 0.425 0.450 0.393 0.449 0.59 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: During 2004 tax management efficiency ratio for Dhaka bank was .565, which means that the banks after tax income is .565 times the pretax income. In the next year there was an increase in this ratio to .603 times and in the following years it has decreased constantly to .

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Ratio Analysis of Dhaka Bank


449 in 2009. Thus we can observe that the bank is not managing its taxable assets properly with the passage of time. City Bank: In 2004 bank had after tax income 0.462 times the pretax income. After several fluctuations it was 0.59 times in 2009, which means it has increased its tax deductible investment. Moreover, they tried to increase their ratio in following years. Cross-sectional analysis: When analyzing both the banks together, it was found that except in 2005 Dhaka bank showed a constant decrease in this ratio but for city bank there were several fluctuations and except in 2009 this ratio was lower than the Dhaka bank. Thus it can be presumed that except 2009 the Dhaka bank was better able to manage its taxable assets in comparison to the City bank. 4. Expenses management efficiency: 2004 Dhaka Bank City Bank 0.019 0.026 0.018 0.024 0.018 0.024 0.020 0.027 0.019 0.028 0.018 0.028 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: After analyzing this banks expenses management efficiency, it can be said that the bank has managed its cost very diligently and the cost was almost steady with the passage of time and they have maintained a ratio between 1.8% and 2.0%. Thus they have maintained the operating expense between 1.8% and 2.0% out of the total asset although out the years between 2004 and 2009.
25

Ratio Analysis of Dhaka Bank


City Bank: Bank has managed its expenses very nicely over times. Initially in 2004 it had 2.6% of operating expenses over total assets. However at the end of 2009 they smartly hold that ratio into 2.8%. Cross-sectional analysis: It is observable that Dhaka bank was better able to minimize its operating cost in relation to the assets in comparison with the City bank although out the years between 2004 and 2009.

5. Asset Management efficiency (asset utilization (AU)): 2004 Dhaka Bank City Bank 0.045 0.061 0.045 0.06 0.026 0.056 0.055 0.053 0.055 0.059 0.054 0.057 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: In 2004 Dhaka banks asset utilization (AU) ratio was 4.5%, which remained same in the next year but in 2006 there was a sudden decline to 2.6% and then it rises to 5.4% in 2009. From here it can be said that this bank has recovered 4.5% of the assets by its operating revenue in 2004 which then increases to 5.5% in 2008 and 5.4% in 2009. Thus we can presume that with the passage of time the bank became more efficient and thus increased its operating revenue by utilizing its assets except in 2006.

26

Ratio Analysis of Dhaka Bank


City Bank: In 2004 this bank managed 6.1% operating revenue over its total asset. Their performance had been almost stable in following years. There for it had 5.7% asset management ratio in 2009. Cross-sectional analysis: By comparing both the banks we can conclude that except in 2007 City bank was more efficient than Dhaka bank in earning its operating revenue by utilizing its assets and thus their operating revenue was higher than the Dhaka bank.

6. Fund management efficiency (equity multiplier (EM)): 2004 Dhaka Bank City Bank 18.938 18.607 14.925 18.027 18.873 18.747 18.378 16.962 17.786 13.542 15.661 13.04 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: Fund management efficiency ratio for Dhaka bank has fluctuated over the time and it was highest in 2004 which was 18.938 and then there were downs and ups and in 2009 this ratio was 15.661. Thus it can be said that though this bank had total assets were 18.938 times the total equity in 2004 but this has decreased to 15.661 in 2009. Thus its total equity on an average has increased over the time.

27

Ratio Analysis of Dhaka Bank


City Bank: In 2004 bank had total asset 18.607 times higher than total equity. That means, at that time bank had huge debt. However in following year it decreased and came into 13.040 times in 2009. Cross-sectional analysis: except in 2005 Dhaka banks fund management efficiency ratio has been higher than the City bank. Thus it can be presumed that City bank has lower equity in comparison to its total assets than the Dhaka bank. Thus City bank has more leveraged than the Dhaka bank.

7. Rate Paid on Funds


2004 Dhaka Bank City Bank 0.0708 0.0556 2005 0.078 7 0.051 5 2006 0.0841 0.0701 2007 0.088 1 0.095 5 2008 0.09 16 0.07 53 2009 0.0878 0.0707

Time series analysis: Dhaka Bank: As we can see from the graph that this ratio increases from 2004 to 2008 and then it decreased in 2009. Thus it can be said that though total interest expense in relation to earning assets has increased till 2008 but it decreased in 2009, thus it can be concluded that in 2009 Dhaka bank was more efficient than in other years. Cross-sectional analysis: By comparing both the banks we can conclude that except in 2007 Dhaka bank has more earnings generated from earning assets to pay for its interest expense when
28

Ratio Analysis of Dhaka Bank


compared to City bank. Thus, we can say that Dhaka bank has a better position in this regard than the City bank. 8. Efficiency Ratio
Dhaka Bank City Bank 2004 0.382 181 0.4229 53 2005 0.664 86 0.408 09 2006 0.74734 296 0.435396 07 2007 0.576 62 0.511 75 2008 0.533 95 0.480 84 2009 0.506 742 0.4835 86

Time series analysis: It has been found that this ratio has increased from 38.2% in 2004 to 50.67% in 2009 and this ratio was highest in 2006 which was 74.73%. Thus it can be concluded that except in 2006 when this ratio was highest, change in the total non interest expense has been proportionately lower when in compared to the net interest and non interest income, thus it can be said that with the passage of time this bank became efficient and thus was able to reduce their non interest expense. Cross-sectional analysis: By comparing both the banks we can say that Dhaka banks efficiency ratio is better than the City banks ratio. Here we can say that Dhaka bank has better ability to cover up total noninterest expense with its income from interest and non-interest.
So, it can be concluded that Dhaka bank has a higher earning potential in this respect in consideration to the City bank.

Profitability Ratios
29

Ratio Analysis of Dhaka Bank


1. Return on Equity (ROE): 2004 Dhaka Bank City Bank 24.032 26.827 20.874 27.621 19.934 9.484 22.516 11.949 20.972 9.44 19.320 13.961 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: In 2004 return on equity for Dhaka bank was 24.032%, which means that Dhaka bank has earned TK 24.032 for their shareholders per BDT 100 equity money. In the next two year this ratio has decreased and it became 19.934% in 2006 and then it again increased in 2007 to 22.972%. In the next two years there was again a decline in this ratio and it became 19.320% in 2009. From here it can be said that though Dhaka bank earned a higher return for its shareholders in 2004 but it has declined with the passage of time and it became lowest in 2009. City Bank: In 2004 the share holders of City bank has earned TK 26.82 per TK 100 worth of their investments. In 2005 shareholder earning was the highest among these six years of analysis which is 27.62. In 2006 the share holders of this bank has earned TK 9.484 per TK 100 worth of their investments. The ratio has decreased a drastically as total equity capital increased at higher proportion compare to net income after tax. In 2007 the share holders of City bank has earned TK 11.949 per TK 100 worth of their investments. In 2008 and 2009, the share holders of this bank has earned TK 9.44 and TK 13.96 respectively, per TK 100 worth of their investments. The ratio has decreased significantly as total equity capital increased at higher proportion compare to net income after tax.

30

Ratio Analysis of Dhaka Bank


Cross-sectional analysis: In comparing the two banks it was found that though City banks return on equity was higher in first two years but it then decreased drastically and it became lower than Dhaka bank. Thus it can be said that though Dhaka banks return on equity decreased over time but in relation to the City bank it decreased at a lower rate, thus relative return for Dhaka banks shareholders was higher than City banks shareholders.

2. Return on Assets (ROA): 2004 Dhaka Bank City Bank 1.269 1.442 1.399 1.532 1.056 0.506 1.225 0.704 1.179 0.697 1.234 1.071 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: In 2004 the return on assets (ROA) for this bank was 1.269%, which means that by utilizing BDT 100 the bank can earn a net income of TK 1.269. The return on assets (ROA) was lowest in 2006 when it was 1.056% and it was highest in 2005 when this ratio was 1.399%. After 2006 there was an increase in this ratio to 1.225% and it became 1.234% in 2009. Thus it can be said that there was fluctuation in the net income and thus the return on assets (ROA) has also several fluctuations. City Bank: In 2004 City bank has made a net profit of TK 1.44 by utilizing TK 100 worth of Assets. In 2005 Return on asset was almost same as in 2004. In 2006 it has decreased significantly due to decrease in net income after tax. In 2007 return on asset was slightly higher
31

Ratio Analysis of Dhaka Bank


than in 2006 and it was TK 0.704. In 2008, return on asset was same as in 2007. In 2009 its ratio was TK 1.071 by utilizing TK 100 worth of Assets. Cross-sectional analysis: In comparing both the banks it can be said that though Dhaka bank has fluctuations in the return on assets (ROA) but this fluctuation was lower than City bank whose fluctuation was much higher and except in the first two years Dhaka banks return on assets (ROA) was higher than the City bank. Thus it can be concluded that Dhaka bank earns a more stable net income in comparison to the City bank. 3. Net interest Margin: 2004 Dhaka Bank City Bank 2.207 2.653 2.262 3.057 1.999 2.533 2.763 1.944 2.752 2.638 2.649 2.708 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: It can be said that in 2004 the bank made a net interest income of TK 2.207 by utilizing TK 100 worth of Assets. This ratio has shown a steady increase except in 2006 and became 2.649% in 2009. Thus it can be said that with the passage of time the bank has earned a higher net interest income which is actually good for the bank. City Bank: In 2004 the bank made a net interest income of TK 2.65 by utilizing TK 100 worth of Assets. In 2005 this bank made a net interest income rise to TK 3.06. In 2006 this bank made a net interest income fall to TK 2.55. The ratio decreased because the income from holding asset decreased at a significant rate compare to the decrease in supply cost of funds for holding assets.
32

Ratio Analysis of Dhaka Bank


In 2007 the company made a net interest income of TK 1.94 by utilizing TK 100 worth of Assets. In 2008 the company made a net interest income of TK 2.64 by utilizing TK 100 worth of Assets. The ratio increased because the difference between interest income & interest expense was increased at a higher proportion compare to the increase in total assets. Cross-sectional analysis: When both the banks are compared then it is observable that except 2007 and 2008 Dhaka banks net interest margin was lower than the City bank. Thus it can be said that Dhaka bank has a lower net interest income in relation to the City bank and it would be wiser for Dhaka bank to try and increase their net interest income as this is one of the most important income that the banks make to compete effectively with the City bank. 4. Net Non-interest Margin: 2004 2.299 0.843 2005 2.701 0.48 2006 2.32 0.617 2007 0.737 0.632 2008 0.809 0.435 2009 0.965 0.242

Dhaka Bank City Bank

Time series analysis: Dhaka Bank: In 2004 net non-interest margin for Dhaka bank was 2.299%, which means Dhaka bank earns TK 2.299 of net non-interest income by investing its BDT 100 worth of its total assets. After 2004 there was a steady decrease of this ratio till 2007 when net non-interest margin becomes 0 .737% and then it increased in the next two years and it was 0.965% in 2009. Thus it can be said that this banks net non-interest income has gone down after 2004 and then again it showed an increase from 2008.
33

Ratio Analysis of Dhaka Bank


City Bank: Initially City bank had net interest margin of 0.843 times of its total asset. Between several fluctuations finally bank able to decrease its net interest margin in 2009. However in 2007 it had highest net interest margin with 0.632 times. Cross-sectional analysis: Between 2004 and 2009, in all the years Dhaka banks net noninterest margin was higher than the City bank. Though this ratio was almost same in 2007 but still Dhaka banks net non-interest margin was higher. Thus it can be said that Dhaka bank earns a higher net non-interest income than the City bank and thus Dhaka bank are in a better position than the City bank in earning net non-interest income. 5. Net operating Margin: 2004 Dhaka Bank City Bank 2.650 3.496 2.701 3.537 0.801 3.15 3.500 2.576 3.561 3.073 3.614 2.95 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: From the analysis of the Dhaka bank it can be said that it made a net operating profit of TK 3.5 by utilizing TK 100 worth of assets. Over the time this ratio has increased at a constant pace except in 2006 when it decreased to 0 .801% and then it increased again and became 3.614% in 2009. Thus it can be said that over the time this bank has earned a higher operating profit by utilizing its assets which tells us that the bank has became more efficient in controlling its operating expenses with the passage of time.

34

Ratio Analysis of Dhaka Bank


City Bank: In 2004 City bank made a net operating profit of TK 3.5 by utilizing TK 100 worth of assets. Over the year City bank almost maintained its net operating ratio but it dropped to 2.95% in 2009. Cross-sectional analysis: By comparing both the banks it is noticeable that in the first three years Dhaka banks net operating margin was lower than the City bank and in the later years its net operating margin was higher than the City bank. This suggests that where Dhaka bank has became more efficient in controlling its operating expenses City bank became less efficient in controlling this expense, thus Dhaka bank earn a higher net operating profit in relation to its total assets with the passage of time compared to the City bank. 6. Earnings per share (EPS): 2004 Dhaka Bank City Bank 60.750 79.22 43.990 75.13 45.170 20.2 36.390 25.14 39.420 25.34 45.099 52.11 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: The higher the EPS the higher the earning potential for the banks shareholders and higher the growth. In case of Dhaka bank it is observed that EPS has alternative ups and downs, where it increased in one year and in the next year it decreased again except 2008 and 2009, where there was consecutive rise in the EPS. In 2004 the EPS was TK60.75, which was highest and the EPS was lowest in 2007 when it was TK.36.39. In 2009 the EPS became TK45.099. This means that the shareholders have earned a fluctuated EPS, which may not be very good for the bank as they may have problems in finding out future equity capital.

35

Ratio Analysis of Dhaka Bank


City Bank: In 2004 the common stockholder earning per share was TK 79.22. In 2005 the common stockholder earning per share was TK 75.13. In 2006, 2007 and 2008 EPS was TK 20.20, TK 25.14 and TK 25.34 respectively. The EPS has fallen because net income after tax decreased and also the number of common stock outstanding increased significantly. But 2009 earnings per share rose due to increase in net income after tax and EPS was TK 52.11. Cross-sectional analysis: When two banks are compared then it was found that Dhaka banks EPS was much more stable than the City bank, whose EPS has showed a higher fluctuation and it moved in between TK79.22 and TK20.2 whereas Dhaka banks EPS was in between TK60.75 and TK36.39. Thus it can be said that shareholders for City bank has experienced a much higher fluctuation in EPS due to fluctuation of net income and number of common stock than Dhaka banks shareholders.

7. Earnings spread Dhaka Bank 2004 0.061 2005 0.048 2006 0.046 2007 0.011 2008 0.053 2009 0.052

It has been found that with the passage of time this ratio has fluctuated a lot where it was found that this ratio has decreased till 2007 and it 2007 it became least and reached 1.1% and then it increased and became 5.2% in 2009. So, it can be said that total interest income in relation to total earning asset has decreased in a higher rate than total interest expense in relation to total interest bearing liability, which is not a good scenario for this bank.

36

Ratio Analysis of Dhaka Bank


8. Net profit margin 2004 Dhaka Bank City Bank 0.282 0.237 0.311 0.2563 0.400 0.090 0.222 0.13 0.216 0.11 0.227 0.18 2005 2006 2007 2008 2009

Time series analysis: This ratio has increased from 28.2% in 2004 to 40% in 2006 and then it decreased to 22.2% in 2007 and in increased a little and became 22.7% in 2009. Thus it can be said that Net income in relation to total operating revenue has increased from 2004 to 2006 thus in this period the firms profit was more satisfactory and it was most satisfactory in 2006 and then the profit margin in relation to total operating revenue decreased which shows a declining condition for this bank. Cross-sectional analysis: Since Dhaka banks Net profit margin was found to be more than City bank with the passage of time thus it can be said that profitability of Dhaka bank is actually better than the City bank. 9. Overhead Margin 2004 Dhaka Bank City Bank
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2005

2006

2007

2008

2009

0.019 0.026

0.018 0.024

0.018 0.024

0.020 0.027

0.019 0.028

0.018 0.028

Ratio Analysis of Dhaka Bank

Time series analysis: Dhaka bank: From here it can be said that with the passage of time this ratio has remained almost same for this bank, which was 1.9% in 2004 and it became 1.8% in 2009 and it reached 2% in 2007 which was the highest. Thus it can be said that total non interest expense in relation to the total asset has remained almost constant thus it can be presumed that non interest expense for this bank has not changed a lot with the passage of time. Cross-sectional analysis: In comparing the two banks it can be said that this ratio for Dhaka banks has been constantly lower than City bank. Thus it can be concluded that Dhaka bank is more efficient in controlling its non interest expense than the City bank.

Market position Ratio: 1. Price earnings ratio: 2004 Dhaka Bank City Bank 14.033 11.08 2005 10.662 10.236 2006 10.317 19.307 2007 19.401 28.848 2008 9.158 17.818 2009 10.732 14.009

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Ratio Analysis of Dhaka Bank

Time series analysis: Dhaka Bank: It has been found that P/E ratio of the bank has constantly decreased from 2004 to 2006 where the P/E ratio was 14.033 in 2004 it decreased to 10.317 in 2006. Then it again increased in 2007 and it was highest in this year which was 19.401 and it decreased in 2008 to 9.158 and in 2009 it became 10.732. By observing the trend we can say that the P/E ratio has fluctuated with the passage of time mainly due to the fluctuation of EPS and change in the market value of the share which decreased drastically in 2008 which reflect the downward movement of the P/E ratio in 2008. Thus in 2004 the banks shareholders could have earned TK1 by investing TK14.033, though in the following years the shareholders have earned TK1 by investing less money but at the same time the growth rate of the bank has gone down. City Bank: In 2004 the price of the share was TK 11.08 for every TK 1 it generates. In 2005 the ratio was almost same and was TK 10.24 per share but in 2006 and 2007 the ratio rose because price per share decrease at a higher proportion compare to decrease in EPS. But in 2008 the ratio declined because price per share decrease at a higher proportion compare to decrease in EPS and 2009 the ratio also declined because the increase in EPS at a higher proportion compare to the increase in price per share. Cross-sectional analysis: By comparing both the banks we see that except for the first two years the P/E ratio of Dhaka bank has been lower than the City bank. This has mainly happened due to decrease in the EPS of the City bank from 2006 till 2008 and a higher market value of the share, though this price was not very high in comparison to Dhaka bank. Since on an average City banks P/E ratio is higher than the Dhaka bank thus we can say that City bank has a higher

39

Ratio Analysis of Dhaka Bank


growth rate and is more profitable for the shareholders in the long run, though in Dhaka bank the shareholders can earn TK1 return by investing less money. 2. Market book value ratio: 2004 Dhaka Bank City Bank 3.792 2.972 2.599 2.827 2.356 1.831 4.368 3.447 1.746 1.682 2.074 1.956 2005 2006 2007 2008 2009

Time series analysis: Dhaka Bank: In 2004 the investors of Dhaka bank are willing pay TK 3.792 for TK 1 book value of share. Then in the next two years investors of Dhaka bank are willing pay less money for TK 1 book value of share and again this ratio has increased and reached its peak in 2007 when investors faith in this bank was highest thus they wanted to pay TK4.368 for TK 1 book value of share. In the next year in reaches its minimum level to 1.746 and then again increases to 2.074 in 2009. This fluctuation was mainly due to the change in the market value of the share which decreased drastically in 2008 which reflect the downward movement of the market book value ratio. City Bank: In 2004 the investors are willing pay TK 2.97 for TK 1 book value of share. In 2005 and 2006 the ratio decrease as market share price decreased compare to book value of the share decreases. In 2007 the ratio increase as market share price increased at a higher proportion where as the book value of the share decreased. The ratio was found inconsistent. In 2009 it was TK 1.96 for TK 1 book value of share.

40

Ratio Analysis of Dhaka Bank


Cross-sectional analysis: Except in 2005 in all other years the investors of Dhaka bank had higher faith in Dhaka bank in comparison to the City bank, thus the market book value ratio for Dhaka bank was higher in these cases. It reflects that if the bank is liquidated except 2005 the Dhaka bank would get higher amount money in comparison to the City bank.

3. Dividend per Share (DPS): 2004 Dividend per Share Dhaka Bank City Bank 6.057 50 2005 8.798 50 2006 3.957 10 2007 5.459 15 2008 6.505 15 2009 11.250 25

41

Ratio Analysis of Dhaka Bank

Time series analysis: Dhaka Bank: DPS of the Dhaka bank has shown several fluctuations with the passage of time. In 2004 DPS was 6.057% and in 2009 it became 11.25%. This ratio was least in 2006 when it became 3.957%. So, it can be said that though the earning for the shareholders on one share was Tk.6.057 against each share they hold which has increased to Tk. 11.25 in 2009. Thus we can say that the shareholders income has increased from 2004 to 2009 but it declined in 2006.

City Bank: In 2004 and 2005 the shareholders got TK 50 as dividend against each share they hold. In 2006 the ratio decreased to Tk 10 against each share they hold. But in 2007 & 2008 the ratio was same Tk 15 against each share they hold. The ratio decreased mainly because the dividend paid increased compare to the total equity share outstanding. In 2009 it was Tk 25 as dividend against each share they hold.

Cross-sectional analysis By analyzing both the banks it can be said that though City Banks DPS has fluctuated a lot but Dhaka banks DPS fluctuation was lower. Where City banks DPS has decreased from 50% to 10% in 2006, Dhaka banks DPS has remained almost static and it was within 5-11%. By comparing these two bankss it can be said that the earning for the shareholders in City bank was
42

Ratio Analysis of Dhaka Bank


much higher than Dhaka bank in the beginning but in the later years Dhaka bank has made progress in this issue. 4. Dividend Yield: 2004 0.713 5.69638 3 2005 1.876 6.501950 2006 0.849 2007 0.773 2.0682 5 2008 1.802 3.3222 6 2009 2.324 3.4246 6

Dhaka Bank Dividend Yield City Bank

6 2.5641

Time series analysis: Dhaka Bank: The dividend yield ratio shows the return that the share holder gets against each taka of investment. Its a comparison of dividend and market share price. This banks dividend yield has increased from 2004to 2005 and then it decreased in 2006 to 2005 and then it increased in the next two years and became 2.324% in 2009 where it was only .713% in 2004. This increase in this ratio might encourage share holder to invest and cause the share price to go up. City Bank: We find that the City bank dividend yield was not consistent during these six years of analysis. In 2005 dividend yield of City bank was higher than rest of the five years. Overall this banks dividend yield decreased from year 2004 to year 2009. It is very important ratio for the investor. So this decrease discourage share holder to invest and cause the share price down. Cross-sectional analysis

43

Ratio Analysis of Dhaka Bank


Though city banks Dividend yield has been greater than Dhaka bank but it showed a great fluctuation and it has decreased a lot with the passage of time, whereas Dhaka banks dividend yield has increased with the passage of time and in 2009 this bank has almost catch up City bank in this regards. Thus with the passage of time this increase in this ratio might encourage share holder to invest and cause the share price to go up in Dhaka bank in relation to the City bank. 5. Dividend Payout: Dividend Payout Dhaka Bank City Bank 2004 0.112 0.631154 2005 0.234 0.6655131 2006 0.127 0.49505 2007 0.150 0.59666 2008 0.150 0.59195 2009 0.250 0.47975

Time series analysis: Dhaka Bank: This ratio was 11.2% in 2004 and it increased to 25% in 2009, which was a great increase though this ratio was 15% in 2008. The higher this ratio is the better for stockholders. Thus, since this ratio has increased to a greater degree from 2004 to 2009, thus we can say that Dhaka bank is serving well to their shareholders. Cross-sectional analysis: By comparing the two banks it is found that City banks dividend payout ratio is much higher than Dhaka bank though City banks dividend payout ratio has decreased from 2004 to 2009 then also this ratio for City bank was much higher than the Dhaka bank. Thus it can be said that City banks shareholders are actually earning more than the Dhaka banks shareholders. 6. Book value per share:
44

Ratio Analysis of Dhaka Bank


Dhaka Bank City Bank 2004 224.135 295.302 2005 180.440 272.005 2006 197.817 212.998 2007 161.618 210.391 2008 206.773 268.445 2009 233.385 373.248

Time series analysis: Dhaka Bank: Dhaka banks Book value per share has increased from 224.135 (2004) to 233.385 in 2009, though this ratio has been lower in between these two periods. Thus it can be said that Dhaka bank if liquidated today will earn a higher amount of money than if it were liquidated in the earlier years, so this banks value has increased will the passage of time as shown in 2009. Cross-sectional analysis): By comparing the two banks it is found that City banks Book value per share is much higher than Dhaka bank and this ratio was higher through out the years. Thus it can be said that Dhaka bank if liquidated today will earn a lower amount of money than City bank. Though earning potential for both the banks has increased over the time.

RECOMMENDATIONS

After observing all of the ratios I want to suggest investors to buy Dhaka Banks share as its performance has shown an increase with the passage of time. If we look very closely to its ROA and ROE we come to know that Dhaka bank has maintained these two ratios better than City bank and with the passage of time it has not fluctuated much rather in ROA we find them to be increasing. We find some fluctuation in EPS and P/E of Dhaka bank, thus I believe that they
45

Ratio Analysis of Dhaka Bank


must be more cautious in maintaining these two ratios and thus try to increase these by increasing market price of the share. Dhaka banks Dividend per Share (DPS) was found to be lower than the City Bank and I believe that it would be better for the investors if Dhaka banks management decide to increase cash dividend to their shareholders or make them understand of the future increment of return due present investment as they are retaining a large portion of the net income, otherwise they may lose the opportunity to equity money in the future when it is needed. Dhaka bank should do their best to improve their leverage position as all these ratios shows that they have a very high leverage and thus they also have a higher risk, thus in this respect they need to increase the amount of equity capital as too much leverage may be associated with more risk. Dhaka bank also need to take essential measure to improve their tax management ratio as this ratio has decreased in 2009 and became lower than city bank though this ratio in all other years has been more than City bank and thus can increase their nontaxable assets which can reduce overall tax for the company. Dhaka bank should also take effective measure to decrease its total noninterest expense as efficiency ratio has shown a decline in 2009.

Bibliography

1. http://www.dhakabankltd.com/ 2. http://www.dhakabankltd.com/about_branches.php

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