JAIIB Short Notes Part-1 Money Market Overview

JAIIB Short Notes Part-1
Money Market
Introduction
• It is a market for overnight to short-term funds and instruments having a maturity period of one or less
than one year.
• It is regulated by Reserve Bank of India.
• The maturity of the instruments is up to 1 year.
Money Market Instruments

• Treasury Bills
• Cash Management Bills
• Commercial Bills
• Certificate of Deposits
• Commercial Papers
• Call Money Market
• Collateralized Borrowing and Lending Obligation
Call Money Market

• Call money - for a period of 1 day
• Notice money market - between 2–14 days
• Term Money – exceeding 14 days
Participants in the Call Money Market

• RBI – as Regulator
• Schedule Commercial Banks (excluding RRB’s)
• Cooperative Banks
• Land Development Banks
• Primary Dealers
Borrowing Limit: -
• Schedule Commercial Bank – 125% of capital funds
• Cooperative Banks – 2% of their aggregate deposits
• Primary Dealers – 225% of the Net Owned funds
Lending Limit
• Schedule Commercial Bank – 50% of capital funds
• Cooperative Banks – No limit
• Primary Dealers – 25% of the Net Owned funds
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Treasury Bills
• Treasury bills are short-term instruments issued by the Reserve Bank on behalf of the government to
tide over short-term liquidity shortfalls.
• This instrument is used by the government to raise short-term funds to bridge seasonal or temporary
gaps between its receipts (revenue and capital) and expenditure.
• Treasury bills are zero coupon securities and pay no interest. Instead, they are issued at a discount and
redeemed at the face value at maturity.
• The difference between the discount and face value is called as discount.
• Min. value of a T-Bill is Rs. 25,000.
• They are presently issued in three tenors, namely, 91 day, 182 day and 364 day.
Calculating Yield on T-Bills
Participants in the T-Bills Market

• RBI
• Banks
• Mutual funds
• Financial institutions,
• Primary dealers
• State Government
• Central Bank of Nepal

Cash Management Bills (CMBs)
• In 2010, Government of India, in consultation with RBI introduced a new short-term instrument, known
as Cash Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the
Government of India.
• The CMBs have the generic character of T-bills but are issued for maturities less than 91 days.
COMMERCIAL BILLS
• Bills of exchange are negotiable instruments drawn by the seller (drawer) on the buyer (drawee) for
the value of the goods delivered to him.
• Such bills are called trade bills.
• When trade bills are accepted by commercial banks, they are called commercial bills.
• The bank discounts this bill by keeping a certain margin and credits the proceeds.
• Banks, when in need of money, can also get such bills rediscounted by financial institutions such as LIC,
UTI, GIC, ICICI, and IRBI.
• The maturity period of the bills varies from 30 days, 60 days, or 90 days, depending on the credit
extended in the industry.
Certificate of Deposits
❖ Certificates of deposit were introduced in June 1989.
❖ Certificates of deposit are negotiable money market instruments short-term tradable time deposits
issued by commercial banks and financial institutions.
❖ CDs can be issued by:
i) Scheduled commercial banks excluding Regional Rural Banks and Local Area Banks.
ii) Financial institutions (within the limit prescribed by RBI)
• Minimum amount of a CD should be Rs. 1 lakh and should be in the multiples of Rs. 1 lakh thereafter.
• The maturity period of CDs issued by banks should be not less than 7 days and not more than 1 year.
• FIs can issue CDs for a period not less than 1 year and not exceeding 3 years from the date of issue.
• CDs can be issued to entities like individuals, corporations, companies, trusts, funds and
associations.
Commercial Paper
• The Reserve Bank introduced commercial papers in January 1990.
• A commercial paper is an unsecured short-term promissory note issued at a discount by creditworthy
corporates, primary dealers and all-India financial institutions.
• Corporates, primary dealers, and all-India financial institutions are eligible to issue a CP.
• A corporate should have tangible net worth of Rs. 4 crore and a sanctioned working capital limit from
a bank or a financial institution and the borrowal account is a standard asset.
• The minimum credit rating shall be required which is P-2 by CRISIL or equivalent rating by other
approved agencies.
• Maturity – The minimum of 7 days and a maximum of up to 1 year from the date of issue.
• Denomination – Minimum of Rs. 5 lakh and multiples thereof.
• Investment in a CP - A CP may be held by individuals, banks, corporates, unincorporated bodies, NRIs,
and FIIs.

Collateralized Borrowing and Lending Obligation
• The Collateralized Borrowing and Lending Obligation (CBLO) market is a money market segment
operated by the Clearing Corporation of India Ltd (CCIL).
• In the CBLO market, financial entities can avail short term loans by providing prescribed securities as
collateral.
• In terms of functioning and objectives, the CBLO market is almost similar to the call money market.
• Available in the range of 1 – 90 days – 1 year.
• CCIL provides the Dealing System through Indian Financial Network (INFINET), a closed user group to
the members of the Negotiated Dealing System who maintain current account with RBI and through
Internet for other entities who do not maintain current account with RBI.
Who are the participants in the CBLO market?

• Institutions participating in CBLO are entities who have either no access or restricted access to the inter
-bank call money market.
• Nationalized Banks, Private Banks, Foreign Banks, Co-operative Banks, Insurance Companies, Mutual
Funds, Primary Dealers, Bank cum Primary Dealers, NBFC, Corporate, Provident/ Pension Funds etc.,
are eligible for CBLO membership.
Repo
• Repo is a repurchase agreement entered into between eligible counterparties for borrowing and
lending of funds on a collateralized basis.
• Repo involves selling of a security with the agreement to repurchase the same at a future date.
• The seller of the security would receive funds while the buyer of the security receives collateral for the
funds he has lent.
• The rate at which the funds are lent and borrowed is called as repo rate.
Ways and Means of Advance

• The RBI gives temporary loan facilities to the centre and state governments as a banker to government.
This temporary loan facility is called Ways and Means Advances (WMA).
• The WMA scheme aims to meet temporary mismatches in the
receipts and payments of the government. This facility can be
availed by the government if it needs immediate cash from the RBI.
• The WMA is to be vacated after 90 days.
• Interest rate for WMA is currently charged at the repo rate. The
limits for WMA are mutually decided by the RBI and the
Government of India.

Priority Sector Advances
• PSL was launched in 1972 by RBI.
• It is a scheme which aims to give loans to the important sectors of the economy in such a way to ensure
maximum credit flow to the last man in the last village of the country through a strong banking network.
• Priority Sector includes the following categories:
• (i) Agriculture
• (ii) Micro, Small and Medium Enterprises
• (iii) Export Credit
• (iv) Education
• (v) Housing
• (vi) Social Infrastructure
• (vii) Renewable Energy
• (viii) Others
Banks Investment Policy w.r.t Deposits received from Customer
Target in the Priority Sector Advances

Understanding Adjusted Net Bank Credit
Sub- Targets
Agriculture
• The sub target for Agriculture is 18% of ANBC. The bank can give 18% out of the overall target or
additional to the overall target for agriculture purpose. Also, there is specific target for Small and
Marginal Farmers which is 8%.
Farm Credit
• It includes short-term crop loans and medium/long-term credit to farmers
• Loans to distressed farmers indebted to non-institutional lenders.
• Loans to farmers under Kisan Credit Card Scheme.
• Loans to small and marginal farmers for purchase of land for agricultural purposes.
• Loans to farmers for pre and post-harvest activities.
8% - Small and Marginal Farmers

• Marginal Farmers
• Farmers with land holding up to 1 hectare or 2.47105 acres.
• Small Farmers
• Farmers with land holding more than 1 hectare and up to 2 hectares (4.94211 acres).
Also covers: -
• Landless agricultural labourers
• Loans to Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual Small and
Marginal farmers directly engaged in Agriculture and Allied Activities.
• Loans to farmers' producer companies of individual farmers, and co-operatives of farmers directly
engaged in Agriculture and Allied Activities, where the membership of Small and Marginal Farmers is
not less than 75 per cent by number.

Agriculture Infrastructure
• It includes loan for the development of Infrastructure related to
agriculture.
• Loans for construction of storage facilities, cold storage
units/chains to store agriculture produce/ products.
• Soil conservation and watershed development.
• Plant tissue culture and agri-biotechnology, seed production,
production of bio-pesticides, bio-fertilizer, and vermi composting.
• The aggregate sanctioned limit for above loan is ₹ 100 crore per
borrower.
Ancillary Activities
• It includes other activities related to agriculture.
• Loans up to ₹5 crore to co-operative societies of farmers for disposing of the produce of members.
• Loans for setting up of Agriclinics and Agribusiness Centres.
• Loans for Food and Agro-processing up to an aggregate sanctioned limit of ₹100 crore per borrower
from the banking system.
• Loans to Custom Service Units managed by individuals, institutions or organizations who maintain a
fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake farm work
for farmers on contract basis.
• Bank loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-
sized Adivasi Multi-Purpose Societies (LAMPS) for on-lending to agriculture.
• Loans sanctioned by banks to MFIs for on-lending to agriculture sector as per the conditions specified
in paragraph 19 of these Master Directions.
MSME (Micro, Small and Medium Enterprises)

What is MSME?
Whether limits are prescribed for loans sanctioned to Micro, Small and Medium Enterprises to be
classified as priority sector?
• MSME engaged in the manufacture or production of goods under any industry specified in the first
schedule to the Industries - No limit.
• MSME engaged in providing or rendering of services - No limit.
Education
• Loans to individuals for educational purposes including vocational courses up to ₹10 lakh irrespective
of the sanctioned amount will be considered as eligible for priority sector.
Housing
• Loans to individuals up to ₹35 lakh in metropolitan centres (with population of ten lakh and above)
and loans up to ₹25 lakh in other centres for purchase/construction of a dwelling unit per family
provided the overall cost of the dwelling unit in the metropolitan centre and at other centres does not
exceed ₹45 lakh and ₹30 lakh, respectively.
• The housing loans to banks’ own employees will be excluded.
• As housing loans which are backed by long term bonds are exempted from ANBC, banks should either
include such housing loans to individuals up to ₹35 lakh in metropolitan centres and ₹25 lakh in other
centres under priority sector or take benefit of exemption from ANBC, but not both.
• Loans for repairs to damaged dwelling units of families up to ₹5 lakh in metropolitan centres and up to
₹2 lakh in other centres.
Social Infrastructure
• Limit of Rs. 5 crore per borrower for building social infrastructure in Tier II to Tier VI centres are
eligible for classification under priority sector.
• Bank loans up to a limit of ₹ 50 million per borrower for building social infrastructure for activities
namely schools, health care facilities, drinking water facilities and sanitation facilities (including loans
for construction/ refurbishment of toilets and improvement in water facilities in the household) in Tier
II to Tier VI centres are eligible for classification under priority sector.
• Bank credit to Micro Finance Institutions (MFI) extended for on-lending to individuals/ members of
SHGs/ JLGs for water and sanitation facilities is also eligible for classification as priority sector loans
under ‘Social Infrastructure’ subject to certain criteria.

Renewable Energy
• Limit of Rs. 15 crore for purposes like solar based or biomass based power generators, wind mills, etc.
and for non-conventional energy based public utilities viz. street lighting systems, and remote village
electrification. For individual - limit is Rs. 10 lakh per borrower.
• Bank loans up to a limit of ₹ 150 million to borrowers for purposes like solar based power generators,
biomass based power generators, wind mills, micro-hydel plants and for non-conventional energy
based public utilities viz. street lighting systems, and remote village electrification are eligible to be
classified under priority sector loans under ‘Renewable Energy’. For individual households, the loan
limit is ₹ 1 million per borrower.
Weaker Sections
Priority sector loans to the following borrowers will be considered under Weaker Sections category:-
No. Category
(i) Small and Marginal Farmers
(ii) Artisans, village and cottage industries where individual credit limits do not exceed ₹1 lakh
(iii) Beneficiaries under Government Sponsored Schemes such as National Rural Livelihood Mission
(NRLM), National Urban Livelihood Mission (NULM) and Self Employment Scheme for
Rehabilitation of Manual Scavengers (SRMS)
(iv) Scheduled Castes and Scheduled Tribes
(v) Beneficiaries of Differential Rate of Interest (DRI) scheme
(vi) Self Help Groups
(vii) Distressed farmers indebted to non-institutional lenders
(viii) Distressed persons other than farmers, with loan amount not exceeding ₹1 lakh per borrower to
prepay their debt to non-institutional lenders
(ix) Individual women beneficiaries up to ₹1 lakh per borrower
(x) Persons with disabilities
(xi) Overdraft limit to PMJDY account holder up to ₹ 10,000/- with age limit of 18-65 years.
(xii) Minority communities as may be notified by Government of India from time to time.
Bank loans to MFIs for on-lending

Bank credit to MFIs extended for on-lending to individuals and also to members of SHGs / JLGs will be
eligible for categorisation as priority sector advance under respective categories viz., Agriculture, Micro,
Small and Medium Enterprises, Social Infrastructure etc.
• The loan is to be extended to a borrower whose household annual income in rural areas does not
exceed ₹1.25 lakh while for non-rural areas it should not exceed ₹2 lakh.
• Loan does not exceed ₹75,000/- in the first cycle and ₹1,25,000/- in the subsequent cycles.
• Total indebtedness of the borrower does not exceed ₹1,25,000/-. Education and medical expenses will
be excluded while arriving at the total indebtedness of a borrower.
• Tenure of loan is not less than 24 months when loan amount exceeds ₹30,000/- with right to borrower
of prepayment without penalty.

Non-achievement of Priority Sector targets
• Scheduled Commercial Banks having any shortfall in lending to priority sector shall be allocated
amounts for contribution to the Rural Infrastructure Development Fund (RIDF) established with
NABARD and other Funds with NABARD/NHB/SIDBI/ MUDRA Ltd., as decided by the Reserve Bank
from time to time. The achievement will be arrived at the end of financial year based on the average of
priority sector target /sub-target achievement as at the end of each quarter.
Ratio Analysis
Ratio is arithmetical expression of relationship between two or more related or independent figures.
Accounting Ratios
A relation expressed in mathematical terms between individual or group of figures selected from financial
statement. For e.g.-
• Comparison of profits of 2 years.
• Comparison of sales of 2 different companies.
• Comparison of some expense etc..
Objectives of Ratio Analysis :-

✓ It helps in forecasting and budgeting.
✓ It helps to identify strength & weakness of a firm.
✓ It also helps in analysis of performance of a firm.
✓ It helps all stakeholders in drawing conclusions.
✓ It can be also used for interfirm and intrafirm comparison.
Disadvantages of Accounting Ratios:-

Ignores qualitative aspects or non- monetary aspects.
Conclusion:-
Ratio Analysis is based on the fact that a single accounting figure by itself may not communicate any
meaningful information but when expressed in relation to other figure, it may provide some meaningful
information.
Types of
Ratios
Liquidity Solvency Activity Profitability

Ratios Ratios Ratios Ratios

Liquidity Ratios:
To meet its commitments, business needs liquid funds. The ability of the business to pay the amount due
to stakeholders as and when it is due is known as liquidity, and the ratios calculated to measure it are
known as ‘Liquidity Ratios’. These are essentially short-term in nature.
Solvency Ratios:
Solvency of business is determined by its ability to meet its contractual obligations towards stakeholders,
particularly towards external stakeholders, and the ratios calculated to measure solvency position are
known as ‘Solvency Ratios’. These are essentially long-term in nature.
Activity (or Turnover) Ratios:

This refers to the ratios that are calculated for measuring the efficiency of operations of business based on
effective utilization of resources. Hence, these are also known as ‘Efficiency Ratios’.
Profitability Ratios:
It refers to the analysis of profits in relation to revenue from operations or funds (or assets) employed in
the business and the ratios calculated to meet this objective are known as ‘Profitability Ratios’.
Financial Statement
To answer the above questions, the accountant prepares two principal statements,
• Balance sheet - The balance sheet shows the financial position /condition of the firm at a given point of
time.
• Profit and loss account - The profit and loss account reflects the performance of the firm over a period
of time.
• Cash flow statement - The cash flow statement displays the sources and uses of cash during the period.
Financial statements are often an important source of information for financial decisions.
Balance Sheet
It is the summary of the financial balances of an organisation on a given date. In short, it is the image of
company's financial condition. Prominent words in the Balance Sheet are Assets, Liabilities and
Shareholder’s fund.
Assets
Assets can be broadly classified into two types:
1. Fixed Assets
2. Current Assets.
❖ Fixed Assets are held on a long-term basis, such as land, buildings,
machinery, plant, furniture etc. These assets are used for the
normal operations of the business.
❖ Current Assets are assets held on a short-term basis such as
debtors, bills receivable, stock, temporary marketable securities,
cash and bank balances.

Liabilities
Liabilities are classified as:
❖ Long-term liabilities
❖ Short-term liabilities
Long-term liabilities are those that are usually payable after a period of one year, for example, a term
loan from a financial institution or debentures (bonds) issued by a company.
Short-term liabilities are obligations that are payable within a period of one year. for example,
creditors, bills payable, bank overdraft.
Shareholders Fund
❖ Capital Amount invested by the owner in the firm is known as capital.
❖ It may be brought in the form of cash or assets by the owner for the business entity capital is an
obligation and a claim on the assets of business.
❖ It includes Capital and Reserve and Surplus.
❖ It is shown as capital on the liabilities side of the balance sheet.
Total Asset = Capital + Liabilities
Total Asset = Current Asset + Non-current Asset/Long-term Asset.
Total Liabilities = Current Liabilities + Long term/Non- current Liabilities (Debt).
Working capital = Current Asset – Current Liabilities

Liquidity Ratio
Mainly, two ratios are used to highlight the business liquidity they are:-
▪ Current Ratio
▪ Quick Ratio
Current Ratio – It is the proportion of current asset to current liabilities. It is expressed as follows:-
Current Ratio = Current Assets
Current Liabilities
Ideal Ratio = 2:1
❖ This ratio provides degree to which current assets cover current liabilities.
❖ The excess of current assets over current liabilities provides a measure of safety.
❖ The ratio should be reasonable neither very high nor very low.
Current Assets includes – Cash and cash equivalents, Short term loans and advances Bank balance,
B/R, Inventories, Prepaid Expenses, Marketable securities, Debtors, Advance tax.
Current Liabilities includes – Creditors, B/P, Short term borrowings.
❖ More current ratio shows the inability of company to use its funds properly.
❖ Less current ratio shows the firm is unable to pay its obligations.

Quick ratio or Acid-Test Ratio
❖ It is the ratio of quick or liquid assets to current liabilities.
❖ It is expressed as
Quick Ratio = Quick Assets
Current liabilities
❖ The quick assets are those which are quickly convertible into cash.
❖ While calculating Quick assets we exclude the inventories and other current asset such as advance tax
or prepaid expenses etc.
❖ It is considered to be better than current ratio while measuring liquidity.
❖ Ideal Ratio = 1:1
Solvency Ratio:-
• Solvency ratios are calculated to determine the ability of business to services its debt in long term.
• The people who have advanced money to the business on long term basis are interested to know about
the safety of their periodic payments of interest and their principal amount.
Ratios used for calculating the solvency of business are:-

1. Debt to Equity Ratio
2. Total Asset to Debt Ratio
3. Debt to capital employed Ratio
4. Proprietary Ratio
5. Interest coverage Ratio
6. Capital Gearing Ratio
Debt to Equity Ratio:-

This ratio measures the relationship between long term debt and equity.
Debt Equity Ratio = Long term Debt
Shareholders’ Fund
Shareholders’ Fund = Share capital + Reserve and Surplus.
Share Capital = Equity share capital + Preference share capital.
Total Asset to Debt Ratio

✓ This ratio measures the extent of the coverage of long term debts
by assets.
✓ Total asset to debt ratio = Total Assets
Long term Debts
✓ The higher ratio shows that assets have been mainly financed by
owners fund.
✓ The lower ratio shows that assets have been mainly financed by
long term debts.

Debt to Capital Employed Ratio:
This ratio measures the proportion of long-term debt on total Capital employed.
Debt to Capital Employed Ratio = Long term debt
Capital Employed
Capital Employed = Long term debt + shareholders- fund
Low ratio provides security to lenders and high ratio helps management in trading on equity.
Proprietary Ratio
It expresses relationship of proprietor’s(shareholders) funds to total Asset.
Proprietary Ratio = Shareholder’s Fund
Total Assets
Higher proportion of shareholders’ funds in financing the assets is a positive feature
Capital Gearing Ratio

It is calculated to show the proportion of fixed interest/ dividend bearing capital to funds belonging to
equity shareholder.
Capital Gearing Ratio = Preference share capital + debenture + Long Term loan
Equity Share capital + Reserve & Surplus - Losses (if any)
Interest Coverage Ratio

It expresses the relationship between profits available for payment of interest and the amount of interest
payable.
Interest coverage Ratio = Profit before Interest and Tax
Interest on long term debts
A higher ratio ensures safety of interest on debts.
Activity Ratio/Turnover Ratio (Efficiency of the business)

• These ratios indicate the speed at which, activities of the business are being performed.
• These ratios are used for measuring efficiency of the business.
• Higher turnover ratio means better utilization of assets and signifies improved efficiency and
profitability, and as such are known as efficiency ratios.
The important activity ratios calculated under this category are

1. Fixed assets Turnover; and
2. Current asset turnover ratio
3. Working capital Turnover.
4. Inventory Turnover;
5. Trade receivable Turnover;
6. Trade payable Turnover.

Fixed Assets Turnover Ratio
F.A turnover Ratio = Revenue from Operation/COGS

Net Fixed Assets
• Revenue from operation is called as Sales or Turnover.
• Net Fixed Assets – Fixed Asset – Deprecation
• Deprecation – Decline in the value of Asset because of usage or wear tear.
• A higher Fixed Asset Turnover ratio indicates effective utilisation of fixed asset in generating sales.
Some other similar ratios are: -
• Total Asset Turnover ratio
• Capital Employed Turnover ratio/Net asset turnover ratio.
Current Asset Turnover Ratio
C.A Turnover ratio = Sales/COGS

Current Asset
Current Asset means which can be quickly converted into cash.
Working Capital Turnover Ratio
W.C. Turnover ratio = Sales/COGS

Working Capital
Working Capital = Current Assets – Current Liabilities.
Inventory /Stock Turnover Ratio

It determines the number of times inventory is converted into revenue from operations during the
accounting period under consideration.
Inventory Turnover Ratio = Cost of Goods Sold

Average Inventory
Cost of Goods Sold – Sales – Gross Profit

Or
COGS – Opening Stock + Purchase + Direct Expenses – Closing Stock.
Average Inventory
Inventory in beginning + Inventory in end
2
Trade Receivables/Debtors Turnover Ratio

This ratio indicates the number of times the receivables are turned over and converted into cash in an
accounting period.

Trade Receivable Turnover ratio = Net Credit Sales
Average Trade Receivable
• Average Trade Receivable = (Opening Debtors and Bills Receivable + Closing Debtors and B/R)/2
• Credit Sales – Total Sales – Cash Sales – Sales Returns
• Higher turnover means speedy collection from trade receivable.
Average collection period = Number of days or Months

Trade receivables turnover ratio
Trade Payables Turnover Ratio:

It reveals average payment period
Trade Payables Turnover ratio = Net Credit purchases

Average trade payable
Average Trade Payable = (Opening Creditors and Bills Payable + Closing Creditors and Bills Payable)/2
Average Payment Period = No. of days/month in a year

Trade Payables Turnover Ratio
Lower ratio means credit allowed by the supplier is for a long period or it may reflect delayed payment to
suppliers.
Profitability Ratios
• The profitability or financial performance is mainly summarized in the statement of profit and loss.
• Profitability ratios are calculated to analyze the earning capacity of the business which is the outcome
of utilisation of resources employed in the business.
• There is a close relationship between the profit and the efficiency with which the resources employed
in the business are utilized.
The various ratios which are commonly used to analyze the profitability of the business are:
1. Gross profit ratio
2. Operating ratio
3. Operating profit ratio
4. Net profit ratio
5. Return on Investment (ROI) or Return on Capital Employed
(ROCE)
6. Return on Net Worth (RONW)
7. Earnings per share
8. Book value per share
9. Dividend payout ratio
10. Price earning ratio.

1. Gross Profit Ratio:
It expresses the relationship between Gross profit and Sales.
Gross profit x 100
Net Sales
2. Net Profit Ratio

It expresses the relationship between Net profit and Sales.
Net Profit x 100
Net Sales
Net Sales = Total Sales – Sales Return
3. Operating Ratio
Total operating expenses x 100
Net Sales
4. Operating Profit Ratio

Operating Profit x 100
Net Sales
5. Return on Investment (ROI) or Return on Capital Employed (ROCE)

Profit Before Interest, Tax and Dividend x 100
Capital Employed
6. Return on Shareholders Fund or return on Net Worth
= Profit after Tax x 100
Shareholders’ Fund
Capital Employed - Equity Shares + Reserves – Fictitious Assets + Preference + Loan/Debentures
Equity Shares + Reserves – Fictitious Assets + Preference + Loan/Debentures
• Equity Shares + Reserve and Surplus – Fictitious Assets
= Equity Fund
• Equity Shares + Reserve and Surplus – Fictitious Assets +
Preference Share = Shareholders’ Fund/ Equity Capital
• Equity Shares + Reserve and Surplus – Fictitious Assets +
Preference Share + Loan/ Debentures = Capital
Employed/Investment
7. Earnings Per Share = Profit after Interest, Tax and Preference

Dividend
Number of Equity Shares
8. Book Value per Share = Equity Shareholders’ fund

Number of Equity Shares
9. Dividend Payout Ratio = Dividend per Share

Earnings per Share
10. Price Earnings Ratio = Market Price per share

Earnings Per Share


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JAIIB Short Notes Part-1

Money Market Instruments

Call Money Market

Participants in the Call Money Market

1 Adda247 | No. 1 APP for Banking & SSC Preparation

Calculating Yield on T-Bills

Participants in the T-Bills Market

2 Adda247 | No. 1 APP for Banking & SSC Preparation

3 Adda247 | No. 1 APP for Banking & SSC Preparation

Who are the participants in the CBLO market?

Ways and Means of Advance

4 Adda247 | No. 1 APP for Banking & SSC Preparation

Banks Investment Policy w.r.t Deposits received from Customer

Target in the Priority Sector Advances

5 Adda247 | No. 1 APP for Banking & SSC Preparation

8% - Small and Marginal Farmers

6 Adda247 | No. 1 APP for Banking & SSC Preparation

MSME (Micro, Small and Medium Enterprises)

7 Adda247 | No. 1 APP for Banking & SSC Preparation

8 Adda247 | No. 1 APP for Banking & SSC Preparation

Bank loans to MFIs for on-lending

9 Adda247 | No. 1 APP for Banking & SSC Preparation

Objectives of Ratio Analysis :-

Disadvantages of Accounting Ratios:-

Liquidity Solvency Activity Profitability

10 Adda247 | No. 1 APP for Banking & SSC Preparation

Activity (or Turnover) Ratios:

11 Adda247 | No. 1 APP for Banking & SSC Preparation

Total Asset = Capital + Liabilities

Total Asset = Current Asset + Non-current Asset/Long-term Asset.

Total Liabilities = Current Liabilities + Long term/Non- current Liabilities (Debt).

Working capital = Current Asset – Current Liabilities

12 Adda247 | No. 1 APP for Banking & SSC Preparation

Ratios used for calculating the solvency of business are:-

Debt to Equity Ratio:-

Total Asset to Debt Ratio

13 Adda247 | No. 1 APP for Banking & SSC Preparation

Capital Gearing Ratio

Interest Coverage Ratio

Activity Ratio/Turnover Ratio (Efficiency of the business)

The important activity ratios calculated under this category are

14 Adda247 | No. 1 APP for Banking & SSC Preparation

F.A turnover Ratio = Revenue from Operation/COGS

Current Asset Turnover Ratio

C.A Turnover ratio = Sales/COGS

Working Capital Turnover Ratio

W.C. Turnover ratio = Sales/COGS

Inventory /Stock Turnover Ratio

Inventory Turnover Ratio = Cost of Goods Sold

Cost of Goods Sold – Sales – Gross Profit

Trade Receivables/Debtors Turnover Ratio

15 Adda247 | No. 1 APP for Banking & SSC Preparation

Average collection period = Number of days or Months

Trade Payables Turnover Ratio:

Trade Payables Turnover ratio = Net Credit purchases

Average Payment Period = No. of days/month in a year

16 Adda247 | No. 1 APP for Banking & SSC Preparation

2. Net Profit Ratio

4. Operating Profit Ratio

5. Return on Investment (ROI) or Return on Capital Employed (ROCE)

7. Earnings Per Share = Profit after Interest, Tax and Preference

8. Book Value per Share = Equity Shareholders’ fund