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Financial Statement Analysis


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Commercial Bank of Ceylon

Prepared For:
Mr. Dr. Sheikh Abu Taher
Lecturer and
Course Teacher
Financial Accounting (FNB 106)

Prepared By:

Name Student ID
Tanima Sarker 594
Rajesh Paul 617
Mehedi Hassan Rana 623
Lamia Nuzhat Shashi 1923
Md.Hasibul Islam 2131
Batch: 02, (2nd Semester)
BBA Program


Savar, Dhaka
September 07, 2011
Department of Finance & Banking
Jahangirnagar University


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Table of Contents

Contents Page no.
The Vision, Mission, Corporate information 03
Financial statement analysis 04
Income statement 2007-2008 05
Income statement 2009-2010 06
Balance sheet 2007-2008 07
Balance sheet 2009-2010 08
Ratio analysis 09-15
Total assets to shareholder funds: 15
Net assets value per share 16
Dividend per share 16
Earnings per share 17
Profit retention ratio 17
All round growth in profitability, productivity and return in 2010 17
Asset mix 18
Sectoral classification of loans and advances 19
Share capital and gross dividend on ordinary share 19
Net interest income and exchange profit 20
Income 20
Total assets 21
Total deposits 21
Deposit mix 22
Conclusion 22

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Financial Statement Analysis

Institution Name:
Commercial Bank of Ceylon PLC
Fiscal Year:
2007, 2008, 2009 and 2010

The Vision:
To be the most technologically advanced, Innovative and customer friendly
financial services organization

The Mission:
Providing reliable, innovative and customer friendly financial services.
Utilizing cutting edge technology and focusing continuously on productivity
improvement whilst developing our staff and acquiring necessary expertise to
expand logically and regionally
Corporate information:
Commercial bank of Ceylon is a public limited liability company listed on the
Colombo stock exchange, incorporated on June 25, 1969, in Sri Lanka. It is a
licensed commercial bank regulated under the banking act no.30 of 1988
and amendments thereto. The bank was re-registered under the companies
act no 07 of 2007. The registered office of the bank is situated at
Commercial House, no.21, Bristol Street, Colombo 1, Sri Lanka. The ordinary
shares of the bank have a primary listing on the Colombo stock exchange.
Analysis of Income Statement & Balance Sheet:
We have analyzed the accompanying financial statements of Commercial
Bank of Ceylon PLC (Bank), the consolidated financial statement of the
bank and its subsidiaries, which comprise the balance sheets as at December
31, 2010 and the income statements, for the year then ended, and a
summary of significant accounting policies and other explanatory notes.
The Financial Statement includes the following components:
An income statement providing the information on the financial
performance of the group and the bank for the year under review.
A balance sheet providing the information on the financial position of
the group and the bank as at the year end.
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Notes to the financial statements comprising accounting policies used
and other notes.
Our responsibility is to express an opinion on these financial statements based
on our evaluation. We conducted our evaluation in accordance with
Bangladesh Auditing Standards. Those standards require that we plan and
perform the evaluation to obtain reasonable assurance whether the financial
statements are free from material misstatement. An inspection includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An inspection also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We have
obtained all the information and explanation which to the best of our
knowledge and belief were necessary for the purposes of our inspection. We
therefore believe that our assessment provides a reasonable basis for our
opinion.
Financial Statement Analysis:
Financial statement analysis including quantitative, narrative and descriptive
information is disclosed in respect to the previous period for all amounts
reported in the financial statements in order to enhance the inter-period
comparability. When the classification of items in the financial statements is
amended, comparative amounts are also re-classified to confirm with the
current year in order to provide a better presentation.
Our assessment is on two financial year 2009 and 2010. We have compared
the financial result of these two years to know present condition of the bank.
We use the balance sheet and the income statement of the bank for our
assessment. We also use the ratio analysis for our review.
The balance sheet and the Income statement and the comparative ratio
analysis of Commercial Bank of Ceylon of 2007, 2008, 2009 & 2010 are given
below:
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Based on this information we analyze the ratios which are given below:
Liquidity Ratio:

These ratios are used to measure the ability of the firm to meet its current
obligations when they become due or this measures the firms short-term
solvency. Common liquidity ratios are:
1. Current ratio
2. Quick or Acid test ratio
3. Cash ratio

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Current Ratio:
It is a measure of general liquidity and is most widely used to make the
analysis for short term financial position or liquidity of a firm.


Analysis:
The comparison of these years shows that the value of Current Ratio
increased in the year 2008 to 2010 and decreased in 2007 and 2009. It refers
the ability of the firm to pay is current obligation in time. It is increasing
because of the decrease both of the current liabilities and the current assets.
It is therefore suggested that the company should maintain the increasing
trend for the good performance of the company.

Quick or Acid Test Ratio:
It is the ratio of liquid assets to current liabilities. The acid test ratio refers to the
ability of a firm to pay its short term obligations as and when they become
due. It measures the firm's capacity to pay off current obligations
immediately.


Analysis:
The comparison of these year shows that the value of Acid Test Ratio is high in
2009 rather than 2007, 2008 and 2010. It indicates that the firm has much
liquidity and the ability of the firm to meet its current liabilities in time. In 2009
this ratio increased because of the increasing amount of inventory of the
company. But in 2010, it might lose it inventory. It is therefore suggested that
the company should increase its level of inventory.

Cash Ratio:
This Ratio is represented by cash and near cash items. It is a ratio of cash to
current liabilities. In the computation of this ratio only the absolute liquid
assets are compared with the liquid liabilities.
Name 2007 2008 2009 2010

Current Ratio

1.05:1 1.06:1 1.05:1 1.06:1
Name 2007 2008 2009 2010

Acid Taste Ratio

0.2424:1 0.2483:1 0.3880:1 0.2974:1
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Analysis:
The comparison of these years shows that the value of Cash Ratio is high in
the year 2009. It means that the ability of the firm to meet its current or liquid
liabilities with cash is increasing. It increase from 2007 to 2008 and 2008 to
2009 but in 2010 the company loses cash as a result this ratio decrease from
previous year.

Assets management or Activity Ratio:
Ratios those are used to measure how efficiently the firm is managing and
utilizing its assets is called the asset management or activity ratios. These are
Fixed assets turnover ratio
Fixed Assets Turnover Ratio:
Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio
is used for measuring how efficiently the firm is utilizing its fixed assets to
generate the sales. Higher the ratio, greater is the intensive utilization of fixed
assets. Lower ratio means under-utilization of fixed assets.


Analysis:
The comparison of these years shows that the value of fixed asset turnover
ratio remain almost same in 2007 and 2010, a little bit decrease in 2008 and
increased in 2009. This increase is due to the high increase in the values of
both tangible and intangible assets of the firm. So it is suggested that the
company should stabilize its non-current assets.

Debt management or Leverage Ratio:
Leverage ratio means the use of debt (fixed cost funds) in financing a firms
business. These are
Name 2007 2008 2009 2010

Cash Ratio

0.4787:1 0.5046:1 0.5930:1 0.5750:1
Name 2007 2008 2009 2010

Fixed Assets Turnover
Ratio (Times)

0.1119:1 0.1086:1 0.1131:1 0.1111:1
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1. Debt Ratio
2. Time interest earned (TIE) ratio

Debt Ratio:
It measures the percentage of fund provided by creditors. Total debt includes
both current liabilities and long-term debt. It is used to evaluate how the firm
is financed.


Analysis:
The comparison of these years shows that the value of Debt Ratio decreased
in 2008 rather than 2007, 2009 and 2010. The decrease in the Debt Ratio
shows that the debt paying ability of the company has decreased because
the company is increasing its total assets and company is moving towards
growth.

Time Interest Earned Ratio (TIE):
This ratio relates the annual interest charges to the income earned by the
business. It is used to examine the ability of the firm to pay its annual interest
payment.


Analysis:
The comparison of these years shows that the value of time earnings ratio is
increased in 2009. This refers that the interest earning capability of the
company is increasing in 2009 rather than others. In 2010 it decrease a little
bit because of minimum earning but thats not harmful. So the company is in
right track and has to maintain the stabilization.




Name 2007 2008 2009 2010

Debt Ratio(%)

91.18 90.14 92.17 91.16
Name 2007 2008 2009 2010

TIE Ratio (%)

3.90 4.03 4.53 4.38
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Profitability Ratio:
This ratio is used to measure the operating efficiency of a firm. These ratios
show the combined effect of liquidity, asset and debt management on the
firms operating results. These ratios are:

1. Basic Earning Power (BEP) Ratio
2. Return on asset (ROA)
3. Return on equity (ROE)
Basic Earning Power (BEP):
This ratio is used to measure the ability of the firms assets to generate the
operating profit. It shows the raw earning power of the firms assets, before
the influence of taxes and leverage, and it is useful for comparing firms with
different tax situation and different degrees of financial leverage.


Analysis:
The comparison of these years shows that the value of basic earning power
ratio is decreasing from the year 2009 to 2010. It was high in 2008. This refers
that the profitability of the corporation is decreasing. So the company has to
take the rectification initiatives. The bank has to increase total assets and
earnings before interest and taxes.

Return on Assets:
Return on total assets measures the rate of return on total investment. It is
calculated by dividing net income by total assets and usually calculated
before interest and taxes. This ratio is a measure of performance. It is used to
calculate the rate of return on assets after interest and taxes.

Analysis:
The comparison of these years shows that the value of return on assets ratio
decreased in 2009 and is increasing from the year 2009 to 2010. This refers
that the corporation earns an adequate amount of return from their assets.
They should maintain this trend.
Name 2007 2008 2009 2010

BEP Ratio (%)

13.14 15.68 13.57 11.22
Name 2007 2008 2009 2010

Return on Assets (%)

1.67 1.55 1.43 1.60
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Return on Equity:
In measures the rate of return on common stockholders investment.
Stockholders invest to get a return on their money and this ratio tells how well
they are doing in accounting sense.

Analysis:
The comparison of these years shows that the value of return on equity is
almost same in 2008 and 2010, increased in 2007 and decreased in 2009. It is
increasing from the year 2009 to 2010. This refers that the owners of the bank
gets sufficient return from their equity. So they will be pleased and should
maintain the existing trend.

Market Value Ratio:
These ratios are used to indicate what investors think about the firms past
performance and future prospectus. These ratios relate the stock price to its
earnings, cash flows and book value per share. These are:
1. Price/Earnings Ratio
2. Price/Cash flow Ratio
3. Market/Book Value Ratio

Price Earnings Ratio:
This ratio is used to measure how much the investors are willing to pay for a
taka of reported profit.


Analysis:
The comparison of these years shows that the value of price earnings ratio
decreased in 2008 and is increasing from the year 2009 to 2010. This refers
that the investors are very much willing to invest their money of companys
reported profit.


Price/Cash Flow Ratio:
This is used to measure how much investors are willing to pay for a taka of
reported cash flow.

Name 2007 2008 2009 2010

Return on Equity (%)

20.63 17.13 15.83 17.87
Name 2007 2008 2009 2010

Price Earnings Ratio
(times)

9 4 11 18
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Analysis:
The comparison of these two years shows that the value of price cash flow
ratio has not change from the year 2009 to 2010. The corporation has to earn
more profit as well as has to paid more dividends to increase this ratio.

Market/Book Value Ratio:
This is used to measure how much an investor is willing to pay less for a taka of
book value than for one of an average company.


Analysis:
The comparison of these years shows that the value of market or book value
ratio decreased in 2008 and is increasing from the year 2009 to 2010. This
refers that the investors are very much willing to invest more money for each
of share. It means the company has gain more so the price of share of this
company has increased.

Total assets to shareholder funds:
Due to the prudent policies adopted
over time, the bank was able to build
up shareholders funds and free capital,
which stands at Rs. 33.3 Bn. and Rs. 23.8
Bn. respectively as at December 31,
2010. The proposed scrip dividends as
part of the final dividends will have a
favorable impact on the banks capital
adequacy ratios.





Name 2007 2008 2009 2010

Price/Cash Flow Ratio
(%)

9 4 11 18
Name 2007 2008 2009 2010

Market/Book Value
Ratio

147.00 67.00 189.50 259.90
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Net Assets value per share:
The graph shows that the net assets of value per share are increasing in 2010
than previous year. That means that the net assets of the bank are increasing.










Dividend per share:
Dividend per share refers that how much dividend is declared against one
share. The graph shows that the shareholder gets same amount of return in
2010 that what they get in 2009. So they have to take proper initiatives to
increase this rate.










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Earnings per share:
Earnings per share refers that the return to
the investor from their investment. That
means how much a shareholder earns
against his share. The graph shows that
the earnings per share is high than the
previous year. So the corporation is in right
track.




Profit Retention Ratio:
Profit retention means how much amount of profit are retained in the
corporation rather than paid out as dividend. Here we can see that the bank
has declared more dividends from the previous year.










All round Growth in Profitability, Productivity and return in 2010:
The comparison shows the difference between two years of following things:
Profit before and after taxation
Grown of total assets
Income/cost ratio
Gross dividend paid
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In this graph you can see that all round growth in profitability, productivity
and returns are higher in 2010 than 2009. So the company is in right track.
Asset Mix:
Asset mix refers the interest earning assets and the non interest earning assets.
The comparison of two years is given below:











The comparison shows that the bank has used the interest earning assets and
the non interest earning assets equally in the two financial years.
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Sectoral Classification of Loans and Advances:
The company allotted their funds in different sections.



These graphs show that the company has invested more loans and
advances in 2010 than previous year.
Share Capital and Gross Dividend on Ordinary Share:

Every year the corporation has paid the
dividend. The total amount of dividend is
called the gross dividend. The graph
shows that the corporation has the same
amount of capital but paid a huge
more dividend rather than previous year.
It refers that the bank is in the right track.




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Net Interest Income and Exchange Profit:
The Banks net interest income for the year was Rs. 16,411.4 Mn., and
reflected an increase of Rs. 4,001.0 Mn. or 32.2% over the previous year. This
was mainly due to the reduction of 22.0% in interest expenses which was
partly set-off by the drop of 3.3% recorded in interest income. Despite the
substantial growth in volumes, both interest income and interest expense
recorded drops due to the relatively low interest rate regime that prevailed
during the year. However, the reduction in NPAs had a favorable effect on
the interest income of the bank.










Income:
Foreign exchange income reduced by
41.2% due to relatively low volatility in
foreign exchange rates resulting in a
dearth of arbitrage opportunities during
the year. In addition, the appreciation of
the Rupee against the US Dollar had a
negative impact on the exchange profit of
the Bank. Fees and commissions grew by a
substantial 27.3% due to increases
recorded in almost all categories of
commission income. Furthermore, the
relaxation of duty on vehicles and
guarantee commission on account of IPOs
contributed favourably to those categories
of income. The Bank recorded a growth of
14.7% in total operating income over last
year to reach Rs. 23,193.1 Mn. for the year.


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Total Assets: The total of the Banks interest earning assets rose to Rs. 337.3 Bn.
at the end of the year, an increase of Rs. 45.3 Bn. or 15.5%. Similarly, total
interest-bearing liabilities increased by Rs. 35.4 Bn. or 13.7%, to reach Rs. 293.5
Bn. at the end of the year.










Over the last 5 years, the Bank achieved a Compound Annual Growth Rate
(CAGR) of 15.3%, 13.0% and 15.5% in deposits, net advances and total assets
respectively.


Total Deposits:
The Bank recorded a strong organic growth in its business volumes amidst a
highly competitive environment during the year. The deposit base of the Bank
grew by 10.7% or Rs. 25.0 Bn. to record Rs. 259.8 Bn. at the end of the year.

















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Deposit mix:

The Bank also witnessed a favorable shift in the deposit mix. This was partly as
a result of reprising of deposits that matured at low rates due to the low
interest rate regime prevailed during the year 2010.


















Conclusion: Financials show all round excellent performance despite
heightened competition and pressure on margins. The sharp growth in
business volumes is mainly organic. It also demonstrated good diversity across
sources of income. Advances grew by a whopping 45.1 Bn. or 25.2% to reach
a total of Rs. 223 Bn. This is whilst reducing the NPA portfolio by Rs. 2.7 Bn.
bringing down the net NPA ratio to 4.22% from 6.84% in the previous year.
Deposits grew by 10.7% to reach a total of Rs. 259.8 Bn. Both group profit
before and after tax have grown in excess of 30%. The rise in operating
expenses has been well-managed and the cost to income ratio has
improved quite substantially by 2.2% ending at 54.69%.
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Moving forward, the growth momentum will be supported by increasingly
focusing on the basics, such as liquidity, capital and risk management; as well
as diversifying further the sources of income. As Bangladesh steps in to a new
era of economic development, Commercial Bank will be conscious of
playing its part in supporting the economic development thrust of the
country.