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Ratio Analysis PDF
Ratio Analysis PDF
RATIO ANALYSIS
for
Orissa State Co-Operative
Bank, BBSR
Submitted by:
And finally, I am thankful to Dr. T. K. Lenka (Principal), R.C.E.M for permitting me to do my SIP
at OSCB, Bhubaneswar and giving me adequate scope for doing something good and innovative. Last
but not the least; I would like to thank my college whose sincere co-operation helped me a lot in bring
this project in a fruitful manner.
This is to certify that Manas Ranjan Mahanta is a bona fide student of Indus Business Academy,
Bangalore and is presently pursuing his Post Graduate Diploma in Management.
Under my guidance he has submitted his project titled “RATIO ANALYSIS FOR ORISSA STATE CO-
OPEATIVE BANK, BHUBANESWAR” in partial fulfillment of the requirement during the Post Graduate
Diploma in Management.
This project has not been previously submitted as part of another degree or diploma of another
Business School or University.
Under my guidance he has submitted his paper titled “RATIO ANALYSIS FOR ORISSA STATE CO-
OPEATIVE BANK, BHUBANESWAR” in partial fulfillment of the requirement during the Post Graduate
Diploma in Management.
This paper has not been previously submitted as part of another degree or diploma of another
Business School or University.
This is my original work and has not been previously submitted as a part of another degree or
diploma of another Business School or University.
The findings and the closing remarks of this paper are based on my personal study and
experience.
Subject:
Financial statement analysis refer to the process of determining financial strength and
weakness of the firm by establishing strategic relationship between the items of the balance sheet,
profit and loss account and other operative data.
First task of the analysis is to select the information relevant to the decision.
Second task is to arrange the information in a way to highlight significant relationship.
Final task is interpretation and drawing of inferences and conclusion.
Limitation:
It is based on mathematical interpretation of the figure and ignores the factors such as
management style, motivation of workers, leadership etc..
It is affected by price level changes.
It does not give any clue for future.
Methodology:
The research involved extensive and intensive studies of the Orissa State Co-operative Bank
Limited. In this project report a science effort has been made to study the ratio analysis of the bank.
During this study I study the financial position and performance of the bank. At last, I have given
interpretation and conclusion of the study.
Data choice:
The whole of my study is based on secondary data of O.S.C.B. Ltd. I have not taken any primary
data for such study. During the study I have taken help of following secondary data.
The objective:
The sole objective of the project is to help the management of the organization in decision
making regarding the subject matters. Calculation of ratio is only a clerical task whereas the
interpretation of it need immense skill, Intelligence and foresightedness. The sole objective of the
project is to help the management of the organization in decision making regarding the subject
matter. One of the easiest and most popular way of evaluating performance of the organization is to
compare its present ratios with the past ones called comparison over time and through Development
Action Plan. It gives an indication of the direction of change and reflects whether the organization’s
financial position and performance has improved, deteriorated or remained constant over a period of
time.
Here more emphasis was given on historical comparison and on forecasting the immediate
future trends.
o Liquid Ratio:
Current Ratio
Quick Ratio
o Leverage or Capital Structure Ratio:
Debt to Equity Ratio
Funded Debt to Total Capital Ratio
Equity or Proprietary Ratio
Current Asset to Proprietary Ratio
Fixed Asset to Proprietary Ratio
Solvency Ratio
Debt Asset Ratio
Fixed Asset to Current Asset Ratio
o Profitability Ratio:
Return on Asset
Return on Capital Employed
Return on Equity Capital
Earnings per Share
Overview:
The Orissa State Co-operative bank, a scheduled bank, under RBI Act was registered in the year
of 1948 as the apex bank of the short term co-op credit structure of Orissa with an objective of
development of agrarian economy of Orissa by catching the credit equipment of the terms of the
state.
The O.S.C.B. has made a humble beginning with a share capital of Rs 1.76 Lacks and a
borrowing of Rs. 25.50 Lacks to address the problem of farm credit dispensation. The O.S.C.B. in its
own way has contributed in providing of farm credit and input of bring the desired changes over the
years. The bank has been trying to develop the primary societies vie PACS (Primary agricultural co-op
society) which constitutes of schemes as LAMPS (Large scale agricultural multipurpose society) / FSS
(farm service society). The activities of the O.S.C.B. are not confined to dispensation of farm credit
alone. As a scheduled bank, it has responded to the sweeping change in banking services in view of
advancement in information technology. The bank has assumed the role of leader of the co-op credit
structure to develop the lover tiers to cope with the emerging challenges of banking activities. The
activities of O.S.C.B. are:
Integration of all branches and extension accepting deposit from the public and offering all banking
facilities to its customers through its fully computerized branches and extension counts at
Bhubaneswar, Cuttack, Paradeep and Sabalpur. The banking services offers by the banks include
acceptance of all types of deposits, bills and exchange, issue of letter of credit, advances loans to farm
and non-farm sector.
A few months after the formation of Orissa province the Orissa co-operative bank was
registered on 15th August 1936. It could not start it’s function due to pending of government decisions
on the enquiry into the condition of co-operative movement in Orissa. The name of Orissa state Co-
operative bank was named in the year 1951-52. The main objective of the bank was:
Objectives:
To cater to the credit requirement of farmer-members of the Primary Agriculture
Cooperative Societies.
To implement the Kissan Credit Card (KCC) scheme to ensure instant finance and adequacy
in credit delivery.
To step up production and productivity in agriculture through promotion of farm
mechanization and better land and water management.
To create employment opportunities by channeling credit for promotion of dairy, poultry,
pisciculture handloom, transport and Micro Small and Medium Enterprises (MSMEs).
To cater to the credit needs of small traders and artisans for income generation and
employment opportunities under Swarojgar Credit Card (SCC) Scheme.
To extend credit facilities to Tenant Farmer Groups (TFGS), Joint Liability Groups (JLGs),
Oral Leasees, Share Croppers and Self Help Groups (SHGs) for farm and non-farm
operations.
To recognize and reward good repayment habits of farmer-members through Kalinga
Kissan Gold Card (KKGC) scheme.
To direct efforts towards achieving the State Government – given targets under various
crop production programmes and implementation of policies on the cooperative sector
Activities:
First State Cooperative Bank in the Country to provide state-of-the-art banking services
through fully computerized branch network.
ATM facility is available at Main Branch (Pandit Jawaharlal Nehru Marg, Bhubaneswar),
Saheednagar Branch (Saheednagar, Bhubaneswar), Ashok Nagar Branch (Western Tower
Market Building, Unit-II, Bhubaneswar), Cuttack Road Branch (Plot No. 236, Rout Complex,
Laxmisagar), Sailashree Vihar Branch (DAV Public School Campus, Chandrasekharpur),
Kalinga Hospital Campus Branch (Chandrasekharpur, Bhubaneswar), Cuttack (Durgha
Bazar, Cuttack), Berhampur (Old Bus stand, Berhampur), Sambalpur Branch (Main Road,
Budharaja, Sambalpur), Paradeep Branch (Madhuban), Angul (Amalapada) and Rourkela
Branch (Civil Market Area). All the retail outlets and the ATMs are connected to provide
anywhere and anytime banking.
Providing insurance services to the customers of the Bank as corporate agent of Tata AIG
Insurance Co. Ltd.
Providing investment opportunity to all sections in the form of attractive saving products
including Tax Benefit Scheme.
State Land Development Banks State Co-operative Bank Urban Co-operative Bank
Members
Introduction:
The term “Ratio Analysis” is made up of two words “Ratio” and “Analysis”. Ratio Analysis
means a tool of analysis based on ratios. Ratio Analysis is a process determines and interpreting
numerical relationship of different items of financial statement. It provides yardstick that to measure
the relationship between variables or as a quotient (one item as ascertain number of items the other
item). It is technical tool in the hands of management to “Measure the financial process”.
According to Accountant’s hand book by Wixon, Kell and Bedford, “a ratio is an expression of
the quantitative relationship between two numbers”.
Ratio Analysis is a tool which enables the organization to arrive at the following factors:
Liquidity position
Profitability
Solvency
Financial Stability
Quality of the management
Safety and security of the loans and advances to be or already been provided
1. Selection of relevant data from the financial statement depending upon the objective of
analysis.
2. Calculation of appropriate ratios from the relevant data.
3. Compression of the calculation ratios of the same organization in the past or the ratios
developed from projected financial statement or the ratios of same other organization.
4. Interpretation of Ratios.
Interpretation of ratio:
Interpretation of ratios is an important factor. Though calculation of ratios is also important
but it is only clerical task whereas interpretation needs skill, intelligence and foresightedness. The
impact of factors such as price level changes, change in accounting policies windows dressing etc.
should also be kept in mind when attempting to interpret ratios. The interpretation of the ratios can
be made in following ways:
Other Uses:
There are so many other uses of the ratio analysis, it is an essential part of the budgetary
control and standard costing ratios are of immense importance in the analysis and
interpretation financial statements as they bring the strength or weakness of an
organization.
2. Utility to shareholders/Investors:
An investor in the company will like to assess the financial position of the concern where he is
going to invest. His first interest will be the security of his investment and then return in the
form of dividend or interest. For the first purpose he will try to assess the value of fixed assets
and the loans raised against them. The investor will feel satisfied only if the concern has
sufficient amount of assets. Long term solvency ratios will help him in assessing financial
position of the concern. On the other hand, Profitability ratios will be useful to determine
profitability position. Ratio Analysis will be useful to the investor inn making up his mind
whether present financial position of the concern warrants further investment or not.
3. Utility to Creditors:
The creditors or suppliers extend short term credit to the concern. They are interested to
know whether financial position of the concern warrants their payments at a specified time or
not. The concern pays short term creditors out of its current assets. If the current assets are
quite sufficient to meet current liabilities then the creditor will not hesitate in extending credit
facilities. Current and Acid test ratios will give an idea about the current financial position of
the concern.
4. Utility to Employees:
The employees are also interested in the financial position of the concern specially
profitability. The employees make use of information available in financial statements. Various
profitability ratios relating to gross profit, operating profit, net profit, etc. enable employees to
put forward their viewpoint for the increase of wages and other benefits.
5. Utility to Government:
Government is interested to know the overall strength of the industry. Various financial
statements published by industrial units are used to calculate ratios for determining short
term, long term and overall financial position of the concerns. Profitability indexes can also be
prepared with the help of ratios. Government may base its future policies on the basis of
industrial information available from various units. The ratios may be used as indicators of
overall financial strength of public as well as private sector. In the absence of the reliable
economic information, government plans and policies may not prove successful.
5. Window dressing:
Financial statements can easily by window dressed to present a better picture of its financial
and profitability position to outsiders. Hence, one has to very careful in making a decision from
ratios calculate from such financial statements. But it may be very difficult for an outsider to
know about the window dressing made by an organization.
Classification of Ratios:
The use of ratio analysis is not confined to financial manger only. There are different parties
interested in the ratio analysis for knowing the financial position of a firm/organization for different
purposes. In view of various users of ratios there are many types of ratios which can be calculated
from the information given in the financial statements.
RATIOS
Traditional Fundamental
Classification classification or Significant
or statement according to ratio
of ratios importance
PROFITABILITY RATIO
LEVERAGE RATIO
Return on assets
LIQUIDITY RATIO
Debt-Equity Ratio
Return on capital
Current Ratio
Current assets to employed
Quick Ratio Proprietary ratio
Return on equity
Fixed assets to capital
proprietary ratio
Earnings per share
1. Liquidity Ratios:
It measures the organization ability to meet its current obligation. In fact analysis of liquidity
budgets and cash and fund flow statement. But liquidity ratios by establishing a relationship
between case and other current asset to current obligation, Provide a quick measure of liquitdity.
A very high degree of liquidity is also bad as idle assets earn nothing. So, it is necessary to strike a
proper between high liquidity and lack of liquidity. The most common ratio relevant to the study
is:
Current Ratio
Quick Ratio
Current Ratio:
Current ratio is defined as the relationship between current assets and current liabilities. This
ratio is also known as working capital ratio is widely used to make the analysis of short term
financial position of the firm.
Current Assets: Cash in hand, Cash at bank, Money at call and short notice, Advances (Short
term loan cash credit and over draft), Interest receivable, Bills receivable
Current Liability: Borrowing term loan, bills payable, Interest payable, Other liabilities, Saving
bank, current Deposit.
Interpretation:
As a convention of current ratio the average of 2:1 is referred to be a banker’s rule of thumb. Here
OSCB was unable to do this in his past and was struggling for it. But in this current year it has reached
a ratio to 2.15:1 which is a good sign for the organization. But the organization has to maintain the
stability in the ratio. If they are goes little bit high, then also it is not a good sign for the organization
as there will be so much of asset and they will be unable to utilize them. If you are simply keeping
your asset without using them, it is not good for organization. So Current asset is in balance for this
time period just the organization needs to maintain this pace.
1.40
1.20
1.00
0.40
0.20
0.00
2005-06 2006-07 2007-08 2008-09 2009-10
Interpretation:
The standard norm of absolute ratio is 0.5:1 . The Quick Ratio of 2009-10 tells that they have not used
their assets properly and had been idle for the year which is not a good sign for the organization. So It
is better to utilize the resources as much as possible, because it will give you more interest than idle.
Debt-Equity ratio
Funded debt to total capitalization ratio
Equity proprietary ratio
Current assets to proprietary ratio
Fixed assets to proprietary ratio
Solvency ratio
Debt asset ratio
Fixed assets to current assets ratio
Debt-Equity Ratio:
A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders’
equity. It indicates what proportion of equity and debt the company is using to finance its assets.
Share capital
Reserve fund and other
Overdue interest
Overdue interest reserve
Profit & Loss
18.00
16.00
14.00
12.00
10.00 Liabilities
8.00 Shareholder's equity
6.00
4.00
2.00
0.00
2005-06 2006-07 2007-08 2008-09 2009-10
Interpretation:
A high debt/equity ratio of OSCB means that a company has been aggressive in financing its growth
with debt. This can result in volatile earnings as a result of the additional interest expense.
If a lot of debt is used to finance increased operations (high debt to equity), the company could
potentially generate more earnings than it would have without this outside financing. If this were to
increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as
more earnings are being spread among the same amount of shareholders. However, the cost of this
debt financing may outweigh the return that the company generates on the debt through investment
and business activities and become too much for the company to handle.
Cash
Balance with other banks
Money at call and short notice
Investments
Advances
Interest Receivable
Bills Receivable
Adjusting head
Premises
Furniture and fixture less depreciation
Other assets
Non-banking assets acquired in satisfaction of claims
Profit and loss
Shareholders’
Year Total Assets Ratio
Equity
2005-06 2,849,870,112.00 21,582,633,954.00 0.13:1
2006-07 4,732,460,000.00 29,510,930,000.00 0.16:1
2007-08 2,964,006,007.00 38,936,464,932.00 0.08:1
2008-09 3,546,046,665.00 39,573,434,197.00 0.09:1
2009-10 3,567,737,970.00 124,652,343,442.00 0.03:1
1.00
0.90
0.80
0.70
0.60
Shareholders Equity
0.50
0.40 Total Assets
0.30
0.20
0.10
0.00
2005-06 2006-07 2007-08 2008-09 2009-10
Interpretation:
This ratio throws light on the general financial strength of the company. It is also regarded as a test of
the soundness of the capital structure. Higher the ratio or the share of shareholders in the total
capital of the company, better is the long-term solvency position of the company. A low proprietary
ratio will include greater risk to the creditors. As we can see the ratio of OSCB is low, so here there is a
risk of creditors. The business of the OSCB depends upon creditors to supply its working capital. So
management has to look after this matter carefully and try to find invest little bit more shareholders
equity.
14.00
12.00
10.00
4.00
2.00
0.00
2005-06 2006-07 2007-08 2008-09 2009-10
Interpretation:
The current assets over the shareholder’s fund are very high over the year. It means OSCB has utilized
most of his proprietary funds in current asset.
Debt Asset Ratio: (Short term debt + Long term debt)/Total Asset
1.00
0.90
0.80
0.70
0.60
Debt
0.50
0.40 Total Assets
0.30
0.20
0.10
0.00
2005-06 2006-07 2007-08 2008-09 2009-10
Interpretation:
The debt asset ratio of OSCB is higher over the year, which may create a problem in future in they
continue this ratio; they will be unable to take addition loan. So management has to think for some
other resources or should increase little bit shareholders fund which will be beneficial for them.
Following are the important overall profitability ratios, which relevant to be the Business concern are:
Return on Asset
Return on Capital Employed
Return on Equity Capital
Earnings per Share
Return on Assets:
This ratio indicates how profitable a company is relative to its total assets. The return on assets (ROA)
ratio illustrates how well management is employing the company's total assets to make a profit. The
higher the return, the more efficient management is in utilizing its asset base. The ROA ratio is
calculated by comparing net income to average total assets, and is expressed as a percentage.
Net Profit
0.80%
0.70%
0.60%
0.50%
0.40% Net Profit
0.30%
0.20%
0.10%
0.00%
2005-06 2006-07 2007-08 2008-09 2009-10
Interpretation:
The return on assets of OSCB is not at all satisfactory. OSCB is not even getting 1% return from total
assets which is the biggest issue for the organization and the management has to deeply focus on this.
There may be so many reasons behind this. But according to me there are some measure problem
such as now a days there are so many other private limited banks are in the market along with them
uncountable public limited banks are growing day by day. And now a days banks are providing so
many facilities like mobile banking, ATM, Core banking etc. But OSCB is lacking in all these areas.
6.00%
2.00%
0.00%
2005-06 2006-07 2007-08 2008-09 2009-10
Conclusion:
The return on capital employed of OSCB has reduced in 2007-08. But after that it is trying to recover
and has improved a little bit. But that is not enough for the organization. They need to focus more on
this area.
No of Equity Share
Year Net Profit EPS
Holders
2005-06 174,443,023.00 4,500,000.00 38.77
2006-07 169,964,997.00 4,500,000.00 37.77
2007-08 91,603,000.00 4,500,000.00 20.36
2008-09 96,910,330.12 4,500,000.00 21.54
2009-10 373,452,170.00 4,500,000.00 82.99
100.00
80.00
60.00
EPS (in Rs.)
40.00
20.00
0.00
2005-06 2006-07 2007-08 2008-09 2009-10
Interpretation:
Earnings per share are generally considered to be the single most important variable in determining a
share's price. It is also a major component used to calculate the price-to-earnings valuation ratio. For
OSCB, till 2009, it will very less, but it has increased in 2009-10 which is a good sign for the
organization
The ratio analysis is the responsibility of the banks management. The analysis and
interpretation of ratio is essential to bring out the mystery behind the figure in ratio analysis.
The transactions of the bank, which have come to my notice, have been with in the
power of the bank.
Proper books of account as required by the law have been kept by the bank insofar as it
appears from my observation of those books.
Proper returns have been received from the bank’s branches.
The balance sheet, the profit and loss accounts are in agreement with the books of
account and the branch returns.
The bank should focus more on advancing loans and money from depositors
It should reduce the cost of management
It should recover its money from defaulters in a limited time
It should control the non-operation expenses and other expenditure.
It should diversify its business and should give loans to non-agriculture sector
To increase the net profit at higher rate, carefully designed risk management systems
and increasingly higher aspiration levels of customers services should be taken
It should introduce ATM service in rural area which will be beneficial for the farmers
which will attracts them to take loan from bank
Reference:
Website:
www.oscb.coop