Financial Statement Analysis

Financial statement analysis is the process of identifying financial strengths and weaknesses of
the firm by properly establishing relationship between the items of the balance sheet and income
statement.

Three techniques may be used in evaluating financial statements data:

 Horizontal analysis
 Vertical analysis
 Ratio analysis

Balance Sheet:

A balance sheet is a financial statement that reports a company's assets, liabilities and
shareholders' equity at a specific point in time, and provides a basis for computing rates of return

and evaluating its capital structure.

Consolidated Balance Sheet

Five years statement of Balance Sheet
For the year ended December 31

Particular 2018 2017 2016 2015 2014

Assets
cash & balances with treasury 49,187,645 44,239,325 42,568,141 29,685,228 19,130,113
banks
Balances with other banks 4,093.402 3,193,835 5,845,748 8,295,724 7,068,111
Lendings to financial - 2,250,000 6,836,584 812,898 3,427,753
institution
Investments 260,233,987 314,956,748 295,846,254 268,020,706 217,214,247
Advances 343,107,147 258,693,086 235,163,922 199,930,812 170,677,294
Operating fixed assets 12,791,827 10,728,827 11,019,555 9,230,010 8,299,488
Assets held for sale 741,361 80,720 261,762 - 53,703
Deferred tax assets 3,773,779 100,755 - - 875,335
Other assets 32,522,174 22,465,073 21,597,227 19,891,336 20,336,501
706,451,322 656,708,369 619,139,193 535,866,714 447,082,545
Liabilities
Bills payable 15,512,880 10,769,262 8,579,227 6,094,885 6,855,020
Borrowings 52,702,323 71,587,311 89,261,788 57,323,250 13,742,030
Deposits & other Accounts 573,596,926 525,808,308 472,811,335 433,172,205 387,586,620
Sub-ordinated loans 9,993,600 4,992,800 4,994,800 4,996,800 7,992,800
Liabilites against assets subject - - - - -
to finance lease
Deferred tax liabilities 3,773,779 - 526,430 96,404 -
Other liabilities 21,178,476 11,115,197 10,388,081 7,330,227 7,199,014
672,984,205 624,272,878 586,562,243 509,013,771 423,375,484

Net Assets 33,600,361 32,435,491 32,576,950 26,852,943 23,707,061

Owner’s Equity
Share capital 12,602,602 12,602,602 12,602,602 12,602,602 12,602,602
Reserves 15,588,694 11,948,415 8,670,686 6,445,888 4,823,738
Unappropriated Profit 3,710,867 2,849,878 4,084,206 2,763,314 1,862,223
31,902,163 27,400,895 25,357,494 21,811,804 19,288,563
Surplus on revaluation of 1,654,920 5,034,596 7,219,456 5,041,139 4,418,498
assets-net of tax
33,600,361 32,435,491 32,576,950 26,852,943 23,707,061

706,451,322 656,708,369 619,139,193 535,866,714 447,082,545

 Income Statement:

An income statement (also referred to as a profit and loss statement) is one of the financial
statement that shows the company’s revenues and expenses during a particular period. The
purpose of the income statement is to show managers and investors whether the company made
money (profit) or lost money (loss) during the period being reported.

Consolidated Income statement

5 years Statement of Income

For the year ended December 31

Particular 2018 2017 2016 2015 2014

Mark-up/return/interest 43,669,883 36,267,220 35,408,195 36,592,093 34,604,210
earned
Mark-up/return/interest 25,059,925 20,071,965 20,496,757 21,690,386 22,710,924
expensed
Net Mark-up/interest 18,609,958 16,195,255 14,911,438 14,901,707 11,893,286
income
Reversal of provision against 3,116,070 (1,189,533) (729,441) 315,840 (83,198)
non-performing loans and
advances-net
Impairment loss on available 231,312 30,047 22,565 217,243 207,669
for sale investments
Provision for diminution in 1,596,027 108,351 48,052 345,969 197,507
the value of investments-net
Reversal of provision against - (153,958) - - -
assets held for sale
Bad debts written off directly - - - - -
 1,460,575 (1,205,093) (658,824) 879,052 321,978
Net Mark-up/interest 15,891,521 17,400,348 15,570,262 14,022,655 11,571,308
income after provisions
Non mark-up/ interest
income
Fee, commission and 3,116,070 2,706,794 2,438,914 1,732,140 1,435,180
brokerage income
Dividend income 231,312 302,894 304,850 302,721 348,726
Income from dealing in 1,596,027 843,032 639,827 834,956 1,102,565
foreign currencies
Gain on sale of securities-net 260,103 2,055,293 3,526,687 3,246,294 1,803,844
Unrealised gain /(loss) on
revaluation of investments - - - - -
classified as held for trading-
net
Other income 418,081 347,470 300,195 573,477 744,134

Total non-markup / interest 5,621,593 6,255,483 7,210,473 6,689,588 5,434,449

income
24,231,551 23,655,483 22,780,735 20,712,243 17,005,757
Non mark-up/ interest
expenses
Administrative expenses 16,240,514 14,948,796 14,078,992 12,014,237 11,051,692
Other provisions/ write offs 1,460,575 21,832 3,260 49,671 46,956
Other charges 191,067 193,401 221,535 216,639 125,696
Total non-markup/ interest 15,891,521 15,164,029 14,303,787 12,280,547 11,224,344
expenses
8,340,030 8,491,802 8,476,948 8,431,696 5,781,413
Extra ordinary / unusual items - - - - -
Profit before taxation 6,879,455 8,491,802 8,476,948 8,431,696 5,781,413
 Taxation – current (2,448,177) (2,265,570) (2,129,263) (2,329,796) (1,013,637)
- Prior years’ 4,431,278 (243,344) (266,425) (416,000) -
- deferred (2,659) (715,001) (860,625) (642,481) (752,844)
(2,448,177) (3,223,915) (3,256,313) (3,388,277) (1,766,481)

Profit after taxation 4,431,278 5,267,887 5,220,635 5,043,419 4,014,932

4.1 Horizontal Analysis:

Horizontal analysis (also known as trend analysis) is a financial statement analysis technique that
shows changes in the amounts of corresponding financial statement items over a period of time.
It is a useful tool to evaluate the trend situations.

Formula: Current year amount-base year amount/base year amount*100

Balance Sheet

2018 2017 2016 2015

%
Assets
Cash & balances with treasury banks 49 44 43 55
Balances with other banks 28 -45 -30 17
Lendings to financial institutions - -67 741 -76
Investments -17 6 10 23
Advances 33 10 18 17
Operating fixed assets 29 -3 19 11
Assets held for sale -12 -69 0 0
Deferred tax assets 3645 0 0 -100
Other assets 14 4 9 -3
7 6 16 20
Liabilities
Bills payable 44 26 41 -11
Borrowings -26 -20 56 317
Deposits & other Accounts 9 11 9 12
Sub-ordinated loans 0 0 0 -37
Liabilites against assets subject to finance lease 0 0 0

Deferred tax liabilities - - 446 0

Other liabilities 24 7 42 2
7 6 15 20
Net Assets 3 -0.4 21 13
Owner’s Equity
Share capital 0 0 0 0
Reserves 30 37 35 34
Unappropriated Profit 37 -30 48 48
17 8 16 13
Surplus on revalution of assets-net of tax -67 -30 43 14
3 -0.4 21 13

7 6 16 20

Interpretation:

Total assets of Askari bank have been slightly increased in 2018 from the previous year. The
main reason for this increase is that Cash & balances with treasury banks increase in 2018 with
an amount of 49%. Another reason for increase in assets of bank is the large amount of balances
with other banks.

Banks liabilities have been increased in 2018 as compared to 2017 which means that a large
amount of debts have been taken by a bank in this year. Another reason is of this increase is that
the bills payable have been increased by 44% in 2018.
 There is no increase or decrease in share capital in year 2018 if compared to the share capital of
year 2017 and 2016. The share capital of banks should be increased by increasing its earning as
whether bank has maintained its stability still in order to grow bank should increase share capital.

Income Statement

2018 2017 2016 2015

%
Mark-up / return / interest earned 20 2 -3 6
Mark-up / return / interest expensed 25 -2 -6 -4
Net Mark-up/interest income 14 9 1 25
Reversal of provision against non-performing loans - 63 331 480
and advances-net
Impairment loss on available for sale investments - 33 -90 5
Provision for diminution in the value of 125 -86 75
investments-net -
Reversal of provision against assets held for sale 0 0 0 0
Bad debts written off directly 0 0 0 0
- 82 -175 173
Net Mark-up / interest income after provisions 15 12 12 21
Non mark-up / interest income
Fee, commission and brokerage income 15 11 24 21
Dividend income -23 -1 1 -13
Income from dealing in foreign currencies 89 32 -23 -15
Gain on sale of securities-net 0 -42 9 80
Unrealised gain / (loss) on revaluation of 0 0 0 0
investments classified as held for trading-net
Other income -87 16 -16 -23
Total non-markup / interest income -15 -13 6 26
8 4 10 23
Non mark-up / interest expenses
Administrative expenses 6 6 17 10
Other provisions/ write offs 203 569 -93 6
Other charges -10 -13 2 72
Total non-markup / interest expenses 9 6 16 11

Extra ordinary / unusual items 0 0 0 0

Profit before taxation 16 0 1 46
Taxation – current 7 6 -9 130
- Prior years’ 0 -9 0 0
- deferred 24 -17 34 -15
2 -1 -4 92
Profit after taxation 1 1 4 26

Interpretation:

Net income of Askari Bank has been increased in 2018 as compared to 2017 and 2016, the main
reason for this increase is, the net mark up interest income is increased in 2018 by 14% because
of loans and advances taken by the bank in 2018 decreases by a large amount. Another reason for
this increase is increase in net mark up interest earned by the bank. Total non mark up interest
income has been decreased in 2018 as compared to 2017 which is not a favorable point.

Net income of askari bank has been increased with a large amount in 2018 as compared to
previous years.the main reason for this increase is that the net mark up interest income is
increased in2018 by 14%. Another reason for this increase is increase in net mark up interest
earned by a bank. Total non mark up interest income has been decreases in 2018. Expenses done
 by a bank in these years shows that in 2018 bank has done low expenses due to which its income
increased. Bank’s administration expenses didn’t increase and remain same in 2018 and 2017.

4.2 Vertical Analysis:

Vertical analysis is the propositional Analysis of a financial statement, each line item on a
financial statement is listed as a percentage of another item. Vertical analysis is also useful for
timeline analysis, to see relative changes in accounts over time, such as on a comparative basis
over a five-year period.

Formula: Individual item of financial statement/total of item head*100

Balance Sheet

2018 2017 2016 2015 2014

%
Assets

cash & balances with treasury banks 7 7 7 6 4

Balances with other banks 1 0 1 2 2
Lendings to financial institutions 0 0 1 0 1
Investments 37 47 48 50 49
Advances 49 39 38 37 38
Operating fixed assets 2 2 2 2 2
Assets held for sale 0 0 0 0 0
Deferred tax assets 0 0 0 0 0
Other assets 5 3 3 4 5
100 100 100 100 100
Liabilities
Bills payable 2 2 1 1 2
Borrowings 7 11 14 11 3
Deposits & other Accounts 81 80 76 81 87
Sub-ordinated loans 1 1 1 1 2
Liabilites against assets subject to finance lease 0 0 0 0 0
Deferred tax liabilities 0 0 0 0 0
Other liabilities 0 2 2 1 2
95 95 95 95 95
Net Assets 5 5 5 5 5
Owner’s Equity
Share capital 2 2 2 2 3
Reserves 0 2 1 1 1
Unappropriated Profit 1 0 1 1 0
5 4 4 4 4
Surplus on revalution of assets-net of tax 0 1 1 1 1
5 5 5 5 5
100 100 100 100 100

Interpretation:

Vertical analysis Askari Bank’s balance sheet shows that Investments and advances covers the
major part of balance sheet. The share capital remained same that means there is no fresh
issuance of bond. The borrowing of bank constitutes to liabilities which have been declining
rapidly every year that is a good sign that they have less liability to account for. The liability of
borrowing is 7% in 2018, 11% in 2017 and 14% in 2016. Decrease in borrowing results in
decrease in interest expenses. Deposits and other accounts constitute the largest portion of
liabilities overtime and in year 2018 their portion is 81%, in 2017 is 80% and in 2016 is 76% of
total liabilities. Deposits and other accounts increased from 2016 to 2018 continuously. There is
a slight difference in 2016 and 2018. The bank has not pay return or interest on this deposit. So
their larger portion is good for the bank.

Income Statement

2018 2017 2016 2015 2014

%
Mark-up/return/interest earned 100 100 100 100 100
Mark-up/return/interest expense 57 55 58 59 66
Net Mark-up/interest income 43 45 42 41 34
Reversal of provision against non-performing loans 0 -3 -2 1 0
and advances-net
Impairment loss on available for sale investments 0 0 0 1 1
Provision for diminution in the value of 0 0 1 1
investments-net 0
Reversal of provision against assets held for sale 0 0 0 0 0
Bad debts written off directly 0 0 0 0 0
- -3 -2 2 1
Net Mark-up/interest income after provisions - 48 44 38 33
Non mark-up/ interest income
Fee, commission and brokerage income 7 7 6 5 4
Dividend income 1 1 1 1 1
Income from dealing in foreign currencies 4 2 2 2 3
Gain on sale of securities-net 1 6 10 9 5
Unrealised gain /(loss) on revaluation of investments 0 0 0 0 0
classified as held for trading-net
Other income 1 10 1 2 2

Total non-markup / interest income 13 17 20 18 15

55 65 64 57 49
Non mark-up/ interest expenses
Administrative expenses 37 41 40 33 32
Other provisions/ write offs 0 0 0 0 0
Other charges 0 1 1 1 0
Total non-markup/ interest expenses 36 42 40 34 32

Extra ordinary / unusual items 0 0 0 0 0

Profit before taxation 16 23 24 23 17
Taxation – current -6 6 -6 -6 -3
- Prior years’ 0 1 -1 -1 0
- deferred - 2 -2 -2 -2
- 9 -9 -9 -5
Profit after taxation 10 15 15 14 12

Interpretation:

On the total mark up interest earned, larger part is contributed by net markup interest expense
which is 57% in 2018. Profit after taxation is lower in 2018 as compared to previous year,
because of more expenses and payment of taxes by the bank in this year. According to the
vertical analysis of income statement the net markup / interest income has decreased again in
year 2018 the reason is the increase in markup / return / interest expenses this year.

4.3 Ratio Analysis

A ratio analysis is a quantitative analysis of information continued in a company’s financial

statements. Ratio analysis is the comparison of line items in the financial statements of a
business. Ratio analysis is used to evaluate a number of issues with an entity, such as its
liquidity, efficiency of operations, and profitability. Following are the types of ratio analysis:

•Liquidity ratio

•Debt ratio

•Profitability ratio

Liquidity Ratio:

Liquidity ratio is the ratio between the liquid assets and liabilities of bank or other institution. It
indicates whether a company's current assets will be sufficient to meet the company's obligations
when they become due.
 The following financial ratios are considered to be liquidity ratios:

 Current ratio
 Quick ratio or acid test ratio

Current Ratio:

The current ratio is a liquidity ratio that measures a company's ability to pay short-term
obligations or those due within one year. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its current debt and other payables.

Formula: Current assets / Current liabilities

Year 2018 2017 2016 2015 2014

Current assets 706,451,322 623,332,994 586,260,649 506,745,368 501,587,140
Current 672,984,205 613,157,681 575,647,732 417,517,518 416,176,470
liabilities
Ratio 1.04 1.01 1.02 1.21 1.21

1.4

1.2

0.8

Series 1
0.6

0.4

0.2

0
2018 2017 2016 2015 2014
 Interpretation:

Askari bank’s current ratio analysis for 2018 is 1.04; it means current assets are slightly more
than current liabilities. In 2017 it was 1.01. As compared to previous year the ratio of 2018 is
increased.

Debt Ratio:

Debt ratio is a solvency ratio that measures a firm’s total liabilities as a percentage of its total
assets. The debt ratio shows a company’s ability to pay off its liabilities with its assets.

Formula: Total Debt/ Total assets*100

Years 2018 2017 2016 2015 2014

Total liabilities 673,023,135 624,272,878 586,562,243 509,013,771 423,375,484
Total assets 706,532,042 656,708,369 619,139,193 535,866,714 447,082,545
Ratio 95 95 95 95 95

100

90

80

70

60

50
Series 1
40

30

20

10

0
2018 2017 2016 2015 2014
 Interpretation:

The ratio has remained same from 2014-2018 which means bank total debt has been increasing
in the same ratio every year.

Time interest earned ratio:

The times interest earned ratio is a measure of a company's ability to meet its debt obligations
based on its current income.

Formula: Earning before income tax/ Interest

Year 2018 2017 2016 2015 2014

Earnings before 24,231,551 23,655,831 22,780,735 20,712,243 17,005,757
income tax
Interest 15,891,521 15,164,029 14,303,787 12,280,547 11,224,344
Ratio 1.52 1.55 1.59 1.69 1.52

1.8

1.6

1.4

1.2

1
Series 1
0.8

0.6

0.4

0.2

0
2018 2017 2016 2015 2014

Interpretation:
 The ratio have been decreased in 2018 as compared to previous years this means
fewer earnings are available to meet interest payments of the bank.

Profitability Ratio:

Profitability analysis of a firm indicates the overall efficiency of the management. Without profit
a company cannot attract the outside capital. Profitability analysis includes:

•Return on total assets

•Return on equity

• Earning per share

Return on total assets:

Return on assets is a profitability ratio that provides how much profit a company is able to
generate from its assets. Return on assets measures how efficient a company's management is in
generating earnings from their economic resources or assets on their balance sheet.

Formula: Earning available for common stockholders/ Total assets*100

Years 2018 2017 2016 2015 2014

Earnings 12,791,827 9,352,093 7,983,949 6,905,642 2,432,306
available for
common stock
holders
Total assets 706,451,322 656,708,369 619,139,193 535,866,714 447,082,545
Ratio 2 1 1 1 0.5
 2.5

1.5

Series 1
1

0.5

0
2018 2017 2016 2015 2014

Interpretation:

The ratio is increased in 2018 as compared to previous years that show that the bank used its
assets efficiently to generate its income which increased.

Return on equity

Formula: Earning available for common stockholders/Common stock equity*100

Years 2018 2017 2016 2015 2014

Earnings available for 12,791,827 9,352,093 7,983,949 6,905,642 2,432,306
common stock holders
Common stock equity 33,600,361 32,435,491 32,576,950 26,852,943 23,707,061
Ratio 38 28 24 26 10
 40

35

30

25

20
Series 1
15

10

0
2018 2017 2016 2015 2014

Interpretation:

The ratio increases in 2018 as compared to previous year. In year 2017 it is 28% and in 2016 it
was 24%.This shows that the return on equity isn’t inconsistent that makes it unattractive to
become a stockholder of Askari Bank.
Govt. postgraduate college for women, Samanabad Lahore

Submitted to: Mam Mahnoor

Submitted by: Aleeza Fatima

Roll No.: 061631001

Class: BBA (hons)

Subject: Financial Reporting and Analysis

Govt. postgraduate college for women, Samanabad Lahore

Submitted to: Mam Mahnoor

Submitted by: Amna Zahid

Roll No.: 061631003

Class: BBA (hons)

Subject: Financial Reporting and Analysis