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Liquidity ratios play an important role in determining a debtor's ability to pay off current debt
obligations without raising external capital. It also measures a company’s margin of safety through the
calculation of metrics including the Current Ratio and Quick Ratio. Liquidity ratios are most useful
when they are used as comparative form.
Current Ratio:
The Current Ratio is a liquidity ratio that determines a company’s ability to pay short-term
obligations or those due within one year. The formula of Current Ratio is
Current Ratio = Current Assets / Current Liabilities. Now we will analyze current ratios of
some banks.
Analysis:
The Current ratio of a good bank should always be greater 1 indicating a company’s ability to pay its
short term obligations. Here, we can see that The Banks of Bangladesh which are Ebl Ltd., MTBL
Ltd. and Islami bank have ratio greater than 1. But in comparison, the three foreign banks which are
HDFC, Bank of Montreal and Royal bank of Canada have current ratio less than 1 which poses a
concern about the bank’s inability to cover its short-term liabilities within a year, which is not a good
sign for a bank. So, in this regard the Bangladeshi Banks are doing better than the Foreign Banks.
Financial Risk
1.000000019
Financial Risk Financial Risk Financial Risk
1
1
0.944419971
0.943681439
0.941701458
0.940934664
0.940628778
0.940305082
0.940167104
0.939829258
0.939127825
0.938505818
0.937492601
0.918124503
0.914546869
0.90191126
ISLAMI BANK MUTUAL TRUST EASTERN BANK BANK OF ROYAL BANK OF HDFC BANK
BANK MONTREAL CANADA
Figure: Comparison between Local banks and foreign banks in terms of Financial risk.
Here, the lower Debt to Equity, the riskier so we can see the foreign banks are in a good situation
comparing to the local banks.
Efficiency
100%
80%
60%
40%
20%
0%
Islami Bank Mutual Eastern Bank of Royal Bank HDFC Bank
Trust Bank Bank Montreal of Canada
Figure: Comparison between Local banks and foreign banks in terms of Efficiency.
It costs a Bank to generate $1 of revenue. Here, the local banks needed less cost and the foreign banks
needed more to generate $1 of revenue.
Profitability Ratio
Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate
earnings relative to its revenue, operating costs, balance sheet assets, and shareholders' equity over
time, using data from a specific point in time.
Net interest margin is a ratio that measures how successful a firm is at investing its funds in
comparison to its expenses on the same investments.
Analysis:
0.05 0.04
0.04 0.03 0.03
0.03 0.02
0.02 0.014 0.013
0.01 2016
0 2017
2018
The higher this ratio is, the better company performs in terms of profitability. Here the condition
of the banks of Bangladesh is good rather than the foreign banks. The percentage is low of Royal
Bank and Bank of Montreal.
Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
Analysis:
0.018 0.017
0.016
0.014 0.0098
0.012 0.0095 0.0094
0.01 0.0075
0.008 0.0055
0.006
0.004 2016
0.002
0
2017
2018
The higher ratios are preferable for a firm. The increasing trend of this ratio would show that the
company’s asset use for the profit generation is reasonable, and it increases the amount of profit,
generated by 1 dollar of its assets value. Here the condition of the foreign banks is better than the
banks of Bangladesh because they have higher value.
ROE is considered a measure of how effectively management is using a company’s assets to create
profits.
0.2
0.18 0.17 0.166 0.16
0.16
0.14 0.12
0.12 0.11
0.097
0.1
0.08
0.06 2016
0.04
0.02 2017
0 2018
Mutual Trust Eastern Bank Islami Bank HDFC Royal Bank of Bank of
Bank(MTB) Limited (EBL) (Housing Canada Montreal
Development
Finance
Corporation)
Bank
The value of the return on equity ratio is desirable to be high, because that would mean efficient usage
of investors’ funds. We can see the value is higher of the foreign banks and also in a stable situation.
So their condition is better than the banks of Bangladesh.
Market Positioning
P/E Ratio
The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current
share price relative to its per-share earnings (EPS). The price-to-earnings ratio is also sometimes
known as the price multiple or the earnings multiple.
P/E ratios are used by investors and analysts to determine the relative value of a company's shares in
an apples-to-apples comparison. It can also be used to compare a company against its own historical
record or to compare aggregate markets against one another or over time.
Formula: P/E Ratio= Market value per share/ Earnings per share
25
20
MTB
15 EBL
Islami Bank
10 HDFC
Royal Bank
5 Bank of Montreal
0
2016 2017 2018
Analysis:
PE ratio of HDFC bank has always been lees compared to both the other 2 foreign banks as
well as Local Banks.
Whereas Royal Bank and Bank of Montreal have more or less been at the same position
although their PE ratio compared to local banks is a little less.
Among the 3 local banks. EBL has been more volatile than other 2 whereas both MTB and
Islami Bank kept on rising in terms of their PE ratio.
Islami Banks has the highest PE ratio among both the local as well as foreign banks.
Appendix