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Start In the Name of ALLAH Almighty the Most Gracious

the Ever Merciful.

Ratio Analysis for Banking Companies

Bank Al-Falah
Bank Al-Habib
Muslim Commercial Bank

A proposal for project

To be submitted to the department of Management Sciences
Virtual University of Pakistan
To fulfill the requirement for the degree of
Masters in Business Administration (MBA)

Submitted by:
Amber Shaheen
Student ID: mc090406185
MBA Finance (3.5 years) 7th semester
Submission date: 23rd May, 2013

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Table of content
Chapter No. 1: INTRODUCTION
1.1: Introduction of the project ------------------------------------------------------ 04
1.2: introduction of selected banking companies-----------------------------------04
1.3: objective of this project ----------------------------------------------------------05
1.4: significance of this project-------------------------------------------------------05

Chapter No. 2: PROJECT PROCEEDING

page no: 7

2.1: Ratio Analysis--------------------------------------------------------------------- 05

2.2: Trend Analysis----------------------------------------------------------------------05
2.3. Methodology ------------------------------------------------------------------------06

Chapter No. 3: METHODOLOGY

3.1: data collection sources--------------------------------------------------------------07
3.3: data processing tools----------------------------------------------------------------07

Chapter No. 4:
A: \Introduction of Students---------------------------------08
B: BIBLIOGRAPHY------------------------------------------09

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Chapter No. 1:
1.1 INTRODUCTION OF THE PROJECT
Understanding the financial ratios is key point in the success of any business. Capital is
backbone of any business and every businessman wants to use his capital in such a way that he
has to spend little and get high productivity by using his capital. Businessman always wants to
reduce their costs and earns high profit which need a total planning and structure so that he can
get desired results. And financial ratios are toll to check all these. Financial ratios help the
business to analyze the fluctuation in financial conditions and to check how the business is going
over the time. These ratios help to understand the strength and weakness of business. There are
hundreds financial ratios which are used by using business, whether they are service oriented or
industry.
Banking companies in Pakistan are most profit making organizations of which are working since
last many decades.
Many researchers have been completed research on financial statement analysis of banking
companies but there is always a place of improvement in every field of life. Financial statement
analysis is key of calculation of financial data. It provides opport7unity to predict about the
growth of organization and to make improvement in all the sectors and to make future plans.
Financial statement analysis use past data for calculation so can easily identify all the problem
which business have faced and can be occur in future. Ratios are most important tool of financial
analysis that help to implement plans, to check profitability, liquidity, leverage, reordering,
structure of business and interest coverage ratio.
This project will cover three most important banking organizations in Pakistan which are
working on national level and will predict about their financial conditions in last three years. The
banking companies which I have selected are Al-Falah Bank, Bank Al-Habib and Muslim
Commercial Bank. This project will make analysis on their financial position, on structure of
companies, about their objectives and goals and financing decisions. It will compare three years
profitability of these companies.
The important point of this project is to compare the profitability, liquidity and performance and
financial condition of all these three companies with each other and other all banking industries
as these are leading banking companies of Pakistan. The research shall explain the financial
analysis of financial ratios and analysis with comparison of all companies financial statements
which incorporated horizontal & vertical rations and trend ratios etc and it also will include
common size analysis, review of descriptive material and comparisons of results with other types
of data.

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1.2 INTRODUCTION OF SELECTED BANKS
BANK AL-FALAH:
The Bank Al-Falah is most growing banking company in online banking anf have introduced the
new methods of banking in Pakistan. It has made progress in very short period of time and now
is known in whole country. Bank Al-Falah Limited was established under companies ordinance
1984 in June 1992 and started its operation from November 1997. It was owned and incorporated
by Abu Dhabi group and its 6th largest bank of Pakistan. It has 471 branches in 163 cities of this
country. It representative office is in Dubai and also working in many other countries. The Bank
provides financial solutions to their customers, different corporations, well established
institutions and many governments sectors through a broad spectrum of products and services. Its
services include corporate and investment banking, consumer banking and credit, securities
brokerage, commercial, SME, agri-finance, Islamic and asset financing.
HABIB

BANK LIMITED:

Its services well recognized in the whole country and most well known banking company in
Pakistan. It has started to provide its services in Pakistan in 1947 and established their head
office in Karachi. It was nationalized in 1974 and continues to dominating the banking sector
market share in inward foreign remittances (55%) and loans to small industries, traders and
farmers. International operations were expanded to include the USA, Singapore, Oman, Belgium,
Seychelles and Maldives and the Netherlands. It has been providing the basic banking services in
throughout the country and has many branches in all the major cities of Pakistan and even in
villages.

MCB BANK LIMITED:

MCB Bank Limited, with more than 60 years of experience as one of the leading banks in
Pakistan, was incorporated on July 9 in 1947. MCB was nationalized along with other private
banks in 1974 as part of Government of Pakistan's economic reform movement and was later
privatized to Nishat Group lead consortium in 1991. MCB is reputed as one of the soundest
financial institution and as one of the leading banks in Pakistan with a deposit base of PKR. 545
bln (apprx.) and total assets of PKR 766 bln approximately. The bank is versed as one of the
oldest and most responsible banks in Pakistan and has played vital role in representing the
country on global platforms while being one of the few institutions that are recognized and
traded in the international market.

1.3 FINANCIAL PERIOD UNDER DISCUSSION:

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Financial period mean the time duration for which accounts and financial statement are closed.
For the comparison of financial ratios of these three selected banks I will use last three years
financial statements. For this project I will use financial statements year 2010 to 2012.

1.4 OBJECTIVES OF THIS PROJECT

The objective of this project is to provide insight into how banking companies work, what are the
strengths, opportunities, competitors, and weakness of these companies, which banking company
is more feasible than the other. By the help of the ratio its give clear concept about the financial
feasibility of the all these 3 banking companies so that they can take a appropriate financing
decision.

Objectives of this project will be:

1. To analyze the selected companies efficiency in managing their resource for
generating profit.
2. To assess the composition of capital structure of the selected banks, for example how
much of the companies assets are financed through external and internal debt.
3. To find out that how effectively selected banks are maximizing their profits by
controlling their interest expenses.
4. to compare the selected banks interest income with their interest expense.
5. Are these selected banks able to pay the current liabilities from their cash equivalents?

1.4: SIGNIFICANCE OF THIS PROJECT

This project will be use to analyze the financial performance of these three banking companies
and will provide detail of their financial policies, decision, structure and working. It will use used
three past financial data to make different calculation in this project and on the basis of that
analysis it will predict the about the future growth of these companies. It will make me able to
understand the use of ratio in analysis of data and will broaden my field of study.

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Output of the financial analysis will be to compute, determine and to present the relationship
between different financial statements in different years. The results of this project will derive
the quantitative measure or guide concerning regarding financial position and profitability of
banking enterprises. The insights gained through financial analysis of multi-year financial ratios
will help to understand. Result of this project will help to compare the results of financial ratios
year to years and in budgeting forecasting.
This research will assist the management to make necessary decisions about future budgeting
because the ratio analysis will show the major difference in the financial positions and will
compare the profitability of banking companies. Than they can change their policies according to
the results.
After analyzing the results the creditors can know the financial strength of these banking
companies and can trust to give the credit to these companies. Stockholder can find the new
ways of investment in these banking companies when they will see the results of financial ratios.

Chapter No. 2: PROJECT PROCEEDING

The project proceeding will include the following steps:
1. will make a specimen for the project
2. Collection of annual financial reports of these three banking companies.
3. calculation of specified ratios
4. comparison of annual financial reports of all banking companies
5. results after calculation of ratios
6. comparison of results derived from financial ratios
7. graphical representation of financial results
8. Financial decision about the profitability and financial positions.
9. Recommendation about the future financial policies like budgeting, credit taking, interest
ratios etc.
10. Final submission of project.

2.1: Ratio Analysis:

All these ratios will be calculated in this project and will be used to make financial ratio analysis:
1. Net Profit Margin
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2. Operating Cash Flow Ratio
3. Gross Spread Ratio
4. Non-Interest Income to Total Income Ratio
5. Spread Ratio
6. Advances / Deposits Ratio
7. Returns On Equity ( ROE) Ratio
8. Debt Ratio
9. Debt / Equity Ratio
10. Price/Earnings Ratio

2.2: Trend Analysis:

Trend analysis studies the financial history of organizations for comparison. It is the
comparative analysis of a company's financial ratios over time. This helps to detect
problems or observe good management. Ratios are plotted on graph to see whether the ratios are
falling, rising, or remaining relatively constant.

Chapter No. 3: METHODOLOGY

3.1: data collection sources:
The secondary data will be used for this purpose as all the information can be getting from the
websites of these companies and also from their annual financial reports of these selected banks
of last three years. All the data can be found on the websites of these banking companies.

3.3: data processing tools:

For data processing the tabulations, financial calculations, and charts the software package of
MS Office 2003 in which word will be used to write the reports and excel will be used to
present, analyze and processing the data of financial statements for different calculation the
scientific calculator will also help.

Section II
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A: Introduction of Student:
Last Degree Obtained:
Bachelor of Commerce (B.COM)
From University Of Punjab

Organization Name Where I am Currently Employed:

Urgetech (Software House)

Designation:
Assistant Accounts Officer

Experience:
I have worked in different organization on different levels:
A: Doing Job in current organization Urgetech As an Assistant Accounts Officer since
November 2012 to till now.
B: 2 years experience Lecturer and Management Officer in PAMS College
C: 6 months experience as a Co-coordinator in Consultancy Office named as Legend
School of Accountancy Lahore.

B: BIBLIOGRAPHY
The following website is used for help to collect the data:
http://www.hbl.com/about-us-history.php
http://www.bankalfalah.com/
http://www.mcb.com.pk/mcb/about_mcb.asp
http://vulms.vu.edu.pk

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