Chapter no.

Financial Statement Analysis

4.1 Horizontal Analysis

4.2 Vertical Analysis

4.3 Ratio Analysis

 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
Askari Bank Limited
Particular 2018 2017 2016 2015 2014
Assets
cash & balances with 44,239,325 42,568,141 29,685,22 19,130,11
treasury banks 8 3
Balances with other banks 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 314,956,74 295,846,254 268,020,7 217,214,2
8 06 47
Advances 258,693,08 235,163,922 199,930,8 170,677,2
6 12 94
Operating fixed assets 10,728,827 11,019,555 9,230,010 8,299,488
Assets held for sale 80,720 261,762 - 53,703
Deferred tax assets 100,755 - - 875,335
Other assets 22,465,073 21,597,227 19,891,33 20,336,50
6 1
656,708,36 619,139,193 535,866,7 447,082,5
9 14 45
Liabilities
Bills payable 10,769,262 8,579,227 6,094,885 6,855,020
Borrowings 71,587,311 89,261,788 57,323,25 13,742,03
0 0
Deposits & other 525,808,30 472,811,335 433,172,2 387,586,6
Accounts 8 05 20
Sub-ordinated loans 4,992,800 4,994,800 4,996,800 7,992,800
Liabilites against assets - - - -
subject to finance lease
Deferred tax liabilities - 526,430 96,404 -
Other liabilities 11,115,197 10,388,081 7,330,227 7,199,014
586,562,243 509,013,7 423,375,4
624,272,87 71 84
8
Net Assets 32,435,491 32,576,950 26,852,94 23,707,06
3 1
Owner’s Equity
Share capital 12,602,602 12,602,602 12,602,60 12,602,60
2 2
Reserves 11,948,415 8,670,686 6,445,888 4,823,738
Unappropriated Profit 2,849,878 4,084,206 2,763,314 1,862,223
27,400,895 25,357,494 21,811,80 19,288,56
4 3
Surplus on revalution of 5,034,596 7,219,456 5,041,139 4,418,498
assets-net of tax
32,435,491 32,576,950 26,852,94 23,707,06
3 1

Income statement
Particular 2018 2017 2016 2015 2014
Mark-up/return/interest 36,267,220 35,408,195 36,592,09 34,604,210
earned 3
Mark-up/return/interest 20,071,965 20,496,757 21,690,38 22,710,924
expensed 6
Net Mark-up/interest 16,195,255 14,911,438 14,901,70 11,893,286
income 7
Reversal of provision (729,441) 315,840 (83,198)
against non-performing (1,189,533)
loans and advances-net
Impairment loss on 30,047 22,565 217,243 207,669
available for sale
investments
Provision for diminution 108,351 48,052 345,969 197,507
in the value of
investments-net
Reversal of provision (153,958) - - -
against assets held for
sale
Bad debts written off - - - -
directly
(658,824) 879,052 321,978
(1,205,093)
Net Mark-up/interest 17,400,348 15,570,262 14,022,65 11,571,308
income after provisions 5
Non mark-up/ interest
income
Fee, commission and 2,706,794 2,438,914 1,732,140 1,435,180
brokerage income
Dividend income 302,894 304,850 302,721 348,726
Income from dealing in 843,032 639,827 834,956 1,102,565
foreign currencies
Gain on sale of securities- 2,055,293 3,526,687 3,246,294 1,803,844
net
Unrealised gain /(loss) on
revaluation of - - - -
investments classified as
held for trading-net
Other income 347,470 300,195 573,477 744,134

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

interest income
23,655,483 22,780,735 20,712,24 17,005,757
3
Non mark-up/ interest
expenses
Administrative expenses 14,948,796 14,078,992 12,014,23 11,051,692
7
Other provisions/ write 21,832 3,260 49,671 46,956
offs
Other charges 193,401 221,535 216,639 125,696
Total non-markup/ 15,164,029 14,303,787 12,280,54 11,224,344
interest expenses 7
8,491,802 8,476,948 8,431,696 5,781,413
Extra ordinary / unusual - - - -
items
Profit before taxation 8,491,802 8,476,948 8,431,696 5,781,413
Taxation – current (2,129,263) (2,329,796 (1,013,637
(2,265,570) ) )
- Prior years’ (243,344) (266,425) (416,000) -
- deferred (715,001) (860,625) (642,481) (752,844)
(3,256,313) (3,388,277 (1,766,481
(3,223,915) ) )

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

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

Balance Sheet
2017 2016 2015 2014
%
Assets
Cash & balances with treasury banks 4 43 55 -
Balances with other banks 45 -30 17 -
Lendings to financial institutions -67 741 -76 -
Investments 6 10 23 -
Advances 10 18 17 -
Operating fixed assets -3 19 11 -
Assets held for sale -69 0 0 -
Deferred tax assets 0 0 -100 -
Other assets 4 9 -3 -
6 16 20 -
Liabilities
Bills payable 26 41 -11 -
Borrowings -20 56 317 -
Deposits & other Accounts 11 9 12 -
Sub-ordinated loans 0 0 -37 -
Liabilites against assets subject to finance 0 0 0 -
lease
Deferred tax liabilities 446 0 -
Other liabilities 7 42 2 -
6 15 20 -
Net Assets -0.4 21 13 -
Owner’s Equity -
Share capital 0 0 0 -
Reserves 37 35 34 -
Unappropriated Profit -30 48 48 -
8 16 13 -
Surplus on revalution of assets-net of tax -30 43 14 -
-0.4 21 13 -
 Income Statement
2018 2017 2016 2015 2014
%
Mark-up/return/interest earned 2 -3 6 -
Mark-up/return/interest expensed -2 -6 -4 -
Net Mark-up/interest income 9 1 25 -
Reversal of provision against non- 63 331 480 -
performing loans and advances-net
Impairment loss on available for sale 33 -90 5 -
investments
Provision for diminution in the value of 125 -86 75 -
investments-net
Reversal of provision against assets held 0 0 0 -
for sale
Bad debts written off directly 0 0 0 -
82 -175 173 -
Net Mark-up/interest income after 12 12 21 -
provisions
Non mark-up/ interest income
Fee, commission and brokerage income 11 24 21 -
Dividend income -1 1 -13 -
Income from dealing in foreign currencies 32 -23 -15 -
Gain on sale of securities-net -42 9 80 -
Unrealised gain /(loss) on revaluation of 0 0 0 -
investments classified as held for trading-
net
Other income 16 -16 -23 -
-
Total non-markup / interest income -13 6 26 -
4 10 23 -
Non mark-up/ interest expenses
Administrative expenses 6 17 10 -
Other provisions/ write offs 569 -93 6 -
Other charges -13 2 72 -
Total non-markup/ interest expenses 6 16 11 -

Extra ordinary / unusual items 0 0 0 -

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

Interpretation:
In horizontal analysis of Askari Bank’s balance sheet, the bank’s net asset
decreases in 2017 as compared to previous year. At the same time total liabilities
also decreases in 2017. In the income statement net markup is decreased as
compared to previous years.
 Vertical Analysis
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 6 4

Balances with other banks 0 1 2 2
Lendings to financial institutions 0 1 0 1
Investments 47 48 50 49
Advances 39 38 37 38
Operating fixed assets 2 2 2 2
Assets held for sale 0 0 0 0
Deferred tax assets 0 0 0 0
Other assets 3 3 4 5
100 100 100 100
Liabilities
Bills payable 2 1 1 2
Borrowings 11 14 11 3
Deposits & other Accounts 80 76 81 87
Sub-ordinated loans 1 1 1 2
Liabilites against assets subject to finance 0 0 0 0
lease
Deferred tax liabilities 0 0 0 0
Other liabilities 2 2 1 2
95 95 95 95
Net Assets 5 5 5 5
Owner’s Equity
Share capital 2 2 2 3
Reserves 2 1 1 1
Unappropriated Profit 0 1 1 0
4 4 4 4
Surplus on revalution of assets-net of tax 1 1 1 1
5 5 5 5
 Income Statement
2018 2017 2016 2015 2014
%
Mark-up/return/interest earned 100 100 100 100
Mark-up/return/interest expensed 55 58 59 66
Net Mark-up/interest income 45 42 41 34
Reversal of provision against non- -3 -2 1 0
performing loans and advances-net
Impairment loss on available for sale 0 0 1 1
investments
Provision for diminution in the value of 0 0 1 1
investments-net
Reversal of provision against assets held for 0 0 0 0
sale
Bad debts written off directly 0 0 0 0
-3 -2 2 1
Net Mark-up/interest income after 48 44 38 33
provisions
Non mark-up/ interest income
Fee, commission and brokerage income 7 6 5 4
Dividend income 1 1 1 1
Income from dealing in foreign currencies 2 2 2 3
Gain on sale of securities-net 6 10 9 5
Unrealised gain /(loss) on revaluation of 0 0 0 0
investments classified as held for trading-net
Other income 10 1 2 2

Total non-markup / interest income 17 20 18 15

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

Extra ordinary / unusual items 0 0 0 0

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

Interpretation:
Vertical analysis Askari Bank’s balance sheet shows that total assets are 100%.
Investments are 47% of its total assets in year 2017 and 48% in 2016, slightly
decreased in year 2017 from the previous year. The share capital remained same
that means there is no fresh issuance of bond. Vertical analysis of income
statement shows that markup return interest earned is 100%. Interest expense is
55% in 2017 and 58% in 2016, interest expense in 2017 is decreased as compared
to previous year of 2016.
 Ratio Analysis
A ratio analysis is a quantitative analysis of information continued in a company’s
financial statements.

Current Ratio
Formula: Current assets/ Current liabilities

Year 2018 2017 2016 2015 2014

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

Interpretation:
Current ratio measures the business ability to pay its short term liabilities. Askari
bank’s current ratio analysis for 2017 is 1.01; it means current assets are slightly
more than current liabilities. In 2016 it was 1.02. As compared to previous year the
ratio of 2017 is decreased.

Debt Ratio
Formula: Total Debt/ Total assets*100

Years 2018 2017 2016 2015 2014

Total 624,272,878 586,562,243 509,013,771 423,375,484
liabilities
Total assets 656,708,369 619,139,193 535,866,714 447,082,545
Ratio 95 95 95 95
 Time interest earned ratio
Formula: Earning before income tax/ Interest

Year 2018 2017 2016 2015 2014

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

Return on total assets

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

Years 2017 2016 2015 2014

Earnings 9,352,093 7,983,949 6,905,642 2,432,306
available for
common stock
holders
Total assets 656,708,369 619,139,193 535,866,714 447,082,545
Ratio 1 1 1 0.5
 Return on equity
Formula: Earning available for common stockholders/Commonstock equity*100

Years 2018 2017 2016 2015 2014

Earnings available for 9,352,093 7,983,949 6,905,642 2,432,306
common stock holders
Common stock equity 32,435,491 32,576,950 26,852,943 23,707,061
Ratio 28 24 26 10
 Chapter no 5

SWOT Analysis
5.1 strengths
5.2 Weaknesses
5.3 Opportunities
5.4 Threats
5.1 Strengths:

Training and Development:

Askari bank has extensive training &development programs for employees to enhance their
capabilities like no other bank can.

Compensation Benefits:
Askari bank provides various compensation benefits to their employees which boosts their
morale.

Technological Metamorphosis:
In addition to “Oracle Financial Services Software”(OFSS) (previously flexcube) as the core
banking software, the Bank is also implementing “Oracle Financial” as MIS and Supply Chain
Management software, “PeopleSoft” as Human Resource Management software, “Reveleus” as
Risk management software and “Siebel” as Customer Relationship Management software. These
softwares will be fully integrated with OFSS and collectively strengthen the product and service
delivery capacity while improving the overall operational and internal control standards.

Customer-Focused Banking
Askari bank delivers timely solutions that best meet the customer’s financial needs and places
special emphasis on customer care and convenience.

High Credit Quality:

Askari Bank has credit ratings of AA for Long term andA1+ for Short term by PACRA. These
are high credit ratings which support highest quality for timely repayment of financial
commitments.

Ethical Concerns:
Askari Bank management ensures ethical practices of business and enjoys good public
reputation. The customers are valued and are provided with excellent services.
5.1 weaknesses:

Centralization:

The degree of centralization is high because all the decisions are made by the board members
and employees are not made part of decision making process at any level.

Lack of Career Growth:

Askari bank has many employees which are working for over two decades now and who have
blocked the way for career growth of competent junior employees.

Less Job Satisfaction:

Human Resource Management is the most difficult challenge faced not only by the bank but by
all the organizations across the world. Even though the people have been sacrificed in the new
organizational developments, it is becoming clear that the true lasting competitive advantage
comes through human resources and how they are managed. AKBL seems less focused on this
highly critical issue as the job satisfaction level of the employees working at AKBL, is pretty
low.

Lack of Team-Work:
The team-work culture is not prevalent due to the functional structure of the Bank.

Manual Book Keeping:

Although the bank has computerized system yet registers are used to maintain the information
about accounts, atms, cheque books and clearing etc.

Work Load Saturation:

The employees are under pressure most of the times because of the tough targets set by the
top management and feel exhausted and less productive.
5.3 Opportunities:

High payment capacity

Branch Network in Remote Areas

Overseas Branch Expansions

Attract Foreign Investment

Completely Automated Operations

Jagged increase in Imports & Exports

5.4 Threats:

Job Turnover:
Many employees have left the bank and went for
other banks because they feel there career in threat as they are appointed oncontract bases.

High Bank Charges:

As per
Askari Bank‟s Schedule of Charges, 2010,it isapparent that the charges are extremely high on
online funds transfer etc.This can create an alarming condition and the bank can loose some of
itscustomers.

Threat of New Entrants in Banking Industryiv.

Political and Economical instability in Pakistan