COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

DEGREE PROGRAM

FINANCIAL MANAGEMENT ANALYSIS: THE CASE OF UNITED

BANK S.C

BY

Yordanos Asaminew

FEBRUARY, 2020

ADDIS ABAB, ETHIOPOA

FINANCIAL MANAGEMENT ANALYSIS: THE CASE OF UNITED
BANK S.C

A RESEARCH PROPOSAL SUBMITTED TO ADDIS ABABA

UNIVERSITY, COLLEGE OF BUSINESS AND ECONOMICS,
DEPARTMENT OF ACCOUNTING AND FINANCE

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE

DEGREE IN BACHELOR OF ACCOUNTING AND FINANCE

BY
Yordanos Asaminew

ADVISOR
Kassaye Tuji

FEBRUARY, 2020

ADDIS ABABA, ETHIOPIA

 Content Page
Table of Content---------------------------------------------------------------------------------------- i
Abstract--------------------------------------------------------------------------------------------------
iii
Acknowledgments--------------------------------------------------------------------------------------- iv
List of Acronyms----------------------------------------------------------------------------------------- v
CHAPTER ONE
INTRODUCTION-------------------------------------------------------------------------------------- 1
1.1. Background of the Study---------------------------------------------------------------------------
1
1.2. Background of the Organization------------------------------------------------------------------
4
1.3. Statement of the
Problem--------------------------------------------------------------------------- 6
1.4. Research
Question---------------------------------------------------------------------------------- 7
1.5. Objective of the study------------------------------------------------------------------------------ 8
1.5.1 General objective----------------------------------------------------------------------------- 8
1.5.2 Specific objective--------------------------------------------------------------------------- 8
1.6. Scope of the Study----------------------------------------------------------------------------------- 8
1.7. Limitation of the Study----------------------------------------------------------------------------- 8
1.8. Significance of the study-------------------------------------------------------------------------- 9
1.9. Organization of the Study------------------------------------------------------------------------- 9
CHAPTER TWO
LITERATURE REVIEW------------------------------------------------------------------------------ 10
2.1. Theoretical Review---------------------------------------------------------------------------------- 10
2.1.1. An Overview of Financial Management---------------------------------------------------- 10
2.1.2. Goal of financial management---------------------------------------------------------------- 11
2.1.3. Working capital management----------------------------------------------------------------- 11
2.1.3.1. Current asset management--------------------------------------------------------------- 12
2.1.3.1.1. Concept of cash management------------------------------------------------------- 13
2.1.4. Nature of Financial Statements----------------------------------------------------------------- 14
2.1.4.1. Balance Sheet---------------------------------------------------------------------------------- 15

i
 2.1.4.2 Income Statement------------------------------------------------------------------------------
15
2.1.4.3 The Statement of Cash Flows-------------------------------------------------------------- 16
2.1.4.4 The Statement of Stockholders’ Equity-------------------------------------------------- 17
2.1.5. Financial Analysis-------------------------------------------------------------------------------
17
2.1.5.1. Uses of Financial Analysis---------------------------------------------------------------- 17
2.1.5.2. Using Financial Ratios to Assess Financial Management Performance---------- 18
2.1.5.2.1. Comparison to Industry Average----------------------------------------------------- 18
2.1.5.2.2. Common Size Analysis----------------------------------------------------------------- 18
2.1.5.2.3. Trend Analysis----------------------------------------------------------------------------
19
2.1.5.3. Nature of Ratio Analysis--------------------------------------------------------------------- 19
2.1.5.4. Types of Ratios Analysis--------------------------------------------------------------------- 19
2.1.5.4.1. Liquidity Ratios--------------------------------------------------------------------------- 20
2.1.5.4.2. Financial Leverage Ratios--------------------------------------------------------------- 20
2.1.5.4.3. Activity (Asset utilization) Ratios----------------------------------------------------- 20
2.1.5.4.4. Profitability Ratios------------------------------------------------------------------------ 21
2.1.5.4.5. Market Value Ratios-------------------------------------------------------------------- 21
2.1.5.5. Limitations of Financial Management Analysis--------------------------------------- 21
2.2 Empirical Literature---------------------------------------------------------------------------------- 22
2.3 Conclusion and knowledge gap--------------------------------------------------------------------- 24
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY------------------------------------------------ 25
3.1. Research Design---------------------------------------------------------------------------------- 25
3.2. Population and Sampling Techniques------------------------------------------------------------ 25
3.3. Types of Data to be collected --------------------------------------------------------------------- 25
3.4. Method of Data Collection ------------------------------------------------------------------------- 26
3.5. Ethical Consideration-------------------------------------------------------------------------------- 26
CHAPTER FOUR
TIME PLAN AND COST SCHEDULE------------------------------------------------------------- 27
4.1 Cost Schedule--------------------------------------------------------------------------------------- 27
4.2 Time Schedule ------------------------------------------------------------------------------------- 28
Reference----------------------------------------------------------------------------------------------------- 29

ii
Annex---------------------------------------------------------------------------------------------------------- 31

ABSTRACT
The main purpose of this research is to assess the financial management analysis of United
Bank S.C. through a descriptive way of research design by considering its past performance
using the trend analysis and by comparing it with other private commercial banks using the
comparative financial performance analysis approach. Two main sources of data will use for
the study namely, the primary and secondary sources of data. Unstructured interview will be
used as the main instrument to collect the primary data; and this will be data relate with the
opinion of top management regarding the outcomes of computed ratio. On the other hand
secondary data will be obtained for three years (2016/17 to 2018/19) annual audited
statement of the bank; and this will be used to calculate different types of ratios which are
useful for measurement of financial management analysis of the bank. Finally, this study may
be find the financial management of the bank are inadequate and hasn’t enhanced the bank
performance.

Key Words: Financial Management; Working Capital, Financial Ratio, Profitability

iii
 ACKNOWLEDMENTS

First of all I would like to praise God almighty for giving me strength to finalize my thesis.
Next I would like to thank my advisor Mr Kassaye Tuji for his technical and professional
guidance at various stages in writing this proposal.

I would like also to thank to the staff and management of United Bank S.C for their real
commitment to support me collection of secondary data. And special thanks to United Bank
S.C, Shiromeda staff for their technical advice and editorial work they provided in my study.

Last but not least, I would like to extend my gratitude to all my friends, colleagues and my
beloved family who have supported and motivated me to come this far.

iv
 LIST OF ACRONYMS

AIB: Awash International Bank S.C

BOA: Bank of Abyssinia
DB: Dashen Bank S.C
LATD: Liquid asset / Total deposit
NBE: National Bank of Ethiopia
NIB: Nib international Bank S.C
NIITA: Net interest income / Total asset
NPEP: Net profit / No. of employees
ROA: Return on Total Assets
ROE: Return on Equity
TDBRA: Total deposit / Branch
TLBRA: Total loan / Branch
UB: United Bank S.C
WB: Wegagen Bank S.C

v
 CHAPTER ONE
INTRODUCTION
1.1. Back ground of the study
Finance is a very wide and dynamic field of study. It directly affects the decisions of
individuals and organizations that earn or raise money and spend or invest it. Finance is also
the application of economic principles to decision-making that involves the allocation of
money under conditions of uncertainty. Financial management is the specialty area of finance
concerned with financial decision making within a business entity. Although financial
management is often referred to as use of funds properly to ensure that a business or
organization achieves the set of financial goal. Financial managers are primarily concerned
with investment decisions and financing decisions within organizations (Pamela and Frank,
2010).

Financial analysis is the use of financial statements to analyse a company’s financial position
and performance, and to assess future financial performance. It consists of three broad areas
profitability analysis, risk analysis, and analysis of cash flows. Profitability analysis is the
evaluation of a company’s sources and levels of profits and involves identifying and
measuring the impact of various profitability drivers. Risk analysis involves assessing the
solvency and liquidity of a company along with its earnings variability. Analysis of cash
flows is the evaluation of how a company is obtaining and deploying its funds. This analysis
provides insights into a company’s future financing implications (Subramanyam, 2009).

Financial sectors play crucial role in economic growth and industrialization via channelling
funds from surplus units the depositors, to the deficit units, the borrowers, in the process
gaining from the spread of the different interest charged. A considerable growth and
improvement can be observed recent past in terms of number of banks, number of
instruments on offer, range of services provided. There are eighteen licensed commercial
banks operating in the country regulated by the National Bank of Ethiopia (NBE). Sixteen of
these banks are formed privately and the rest are state-owned (NBE Annual Report, 2018).

A bank is a financial intermediary that accepts deposits and channels those deposits into
lending activities. Banks are a fundamental component of the financial system, and are also
active players in financial markets. The essential role of a bank is to connect those who have
capital (depositors), with those who seek capital (borrower wanting to grow)
(http://en.wikipedia.org/ wiki /Bank accessed on December 16, 2019)

1
Banks play a very useful and dynamic role in the economic life of every modern state. A
study of the economic history of western country shows that without the evolution of
commercial banks in the 18th and 19th centuries, the industrial revolution would not have
taken place in Europe. The economic importance of commercial banks to the developing
countries may be viewed thus: promoting capital formation, encouraging innovation,
influence economic activity, facilitator of monetary policy, netting and settlement of
payments, and maturity transformation.

Conversely, Banks are susceptible to many forms of risk which have triggered occasional
systemic crises. These include liquidity risk (where many depositors may request withdrawals
beyond available funds), credit risk (the chance that those who owe money to the bank will
not repay it), and interest rate risk (the possibility that the bank will become unprofitable, if
rising interest rates force it to pay relatively more on its deposits than it receives on its loans).

Banking crises have developed many times throughout history, when one or more risks have
materialized for a banking sector as a whole. Prominent examples include the bank run that
occurred during the Great Depression, the U.S. Savings and Loan crisis in the 1980s and
early 1990s, the Japanese banking crisis during the 1990s, and the sub-prime mortgage crisis
in the 2000s. Usually, the governments bail out the bank through rescue plan or individual
public intervention (http://en.wikipedia.org/ wiki /Bank accessed on December 16, 2019)

According to (Ahmed, 2016) as other sector, banking sector too has to face the present
dynamic changes taken place in the environment to achieve competitive advantages. The
banking sector has adopted new technologies to a considerable level to improve its efficiency
and performance in order to achieve their long term goals. Ability to compete is determined
by its financial management analysis efficiently and effectively.

As such appraising financial management performance is very crucial for all organizations.
This is especially important for financial institutions like banks, because it helps to identify
the major strengths and weaknesses of the business. Financial management analysis also
assists to predict the future performance of the banks. The information obtain from financial
analysis shows the financial position of the organization, that will be interested by various
internal and external stakeholders such as managers, employees, customers, financial
institutions, and government (ibid)

2
According to (Golam, 2014) stated that sound financial health of a bank is the guarantee not
only to its depositors but is equally important for the shareholders, employees and whole
economy as well. The subject of financial management analysis and research into its
measurement is well advanced within finance and management fields. As Searle (2008)
stated the government of all nations should have maximum concern on performance of all
banks which are operating in the territory of the country. In consideration of such outcome
and concern, the financial health of each bank should have been measured from time to time
and managed efficiently and effectively.

Generally, financial statements capture and report on four key business activities planning,
financing, investing, and operating activities. Knowing what information is to be found plus
where to find it and how to use it in financial statement is imperative to intelligently
understanding, analysing, and interpreting financial data. To sum up analysis of financial
statements provides the essential concepts and tools needed by security analysts who make
decisions on the basis of information found in financial statements (Pamela and Frank, 2010).

Therefore, this study will initiate to assess the financial management analysis of United Bank
S.C through the trend analysis and by comparing it with other private commercial banks
using the comparative financial performance analysis approach in order to remain
strategically competitive and profitable within the financial industry.

3
1.2. Background of the organization
United Bank was incorporated as a Share Company on 10 September 1998 following the
Commercial Code of Ethiopia of 1960 and the Licensing and Supervision of Banking
Business Proclamation No. 84/1994. The Bank obtained a banking services license from the
National Bank of Ethiopia and is registered with the Trade, Industry and Tourism Bureau of
the Addis Ababa City Administration.
Over the years united Bank built itself into a progressive and modern Banking institution,
endowed with a strong financial structure and strong management, as well as a large and
ever-increasing customer and correspondent base. Today, United Bank is a full-service bank
that offers its customers a wide range of commercial banking services with a network of
284 Branches and 7 sub-Branches, and several additional outlets on the pipeline. United
Bank's priority in the coming years is to strengthen its capital base, maximizing its return on
equity and benefiting from the latest technology to keep abreast of the latest developments in
the local and international financial services (http://www.unitedbank.com.et/ accessed on
November 22, 2019)
Corporate Philosophy
Vision
To globally be the preferred financial services provider of innovative solutions across Africa. 
Mission
“Committed to exceeding the expectations of our customers and other stakeholders by
providing competitive financial solutions while ensuring efficient service delivery and people
empowerment."
Product and Services
The Bank is engaged in rendering all types of commercial banking services. These include:

Domestic Banking Services: Loan, Saving Account, Current Account, Fixed Time

Account, and Foreign Currency Deposits
International Banking Services: Forex Bureau Service, Trade Finance Service,
Money Transfer Service, and Treasury Service
Interest-Free Banking Services /IFB/: the bank providing the newly developed
interest-free banking services. Current Al Wadiah, Saving Al Wadiah, and
Mudharabah Deposit.

4
Hibir Diaspora: the bank provides a new service designed to suit the needs of the
Diaspora community. The new service package includes, among others, deposit and
loan services, for those Ethiopian Nationals or Foreign Nationals of Ethiopia Origin,
who are living and working abroad for more than one year.  
E-banking Services: the bank provides Card Banking Services through ATM &
POS; United Bank is a pioneer Bank in the country to provide SMS and Internet
Banking services to customers. The state of the art Hibir Mobile and Hibir Online
Banking services are your 24 hours link to account information. 
ATM Local Money Transfer: Send money locally to your loved ones from our
smart ATM's.
Agent Banking: is the conduct of the banking business on behalf of a financial
institution through an agent using various service delivery channels.
Broadband Local Money Transfer: The fastest local money transfer just got better
for you.
International Money Transfer: the bank provides foreign currency exchange
services and money transfer using Western Union, MoneyGram, Express Money,
Dahabshiil, Transfast, Lari Exchange
Hibir-ET: the bank offers a new world-class service that allows you to pay for all
local and international air flights made at Ethiopian Airlines
(http://www.unitedbank.com.et/ accessed on November 22, 2019)

5
1.3. Statement of the problem

Finance is the drive power that rotates the wheels of the business. Financial management has
a profound impact on the business efficiency of any organization. In any organization sound,
financial planning and management is the most vital requirement for successful management.
A study of business failure in an organization would reveal that a majority of such failures
resulted from the lack of proper financial management.

Frequently the inefficient function of an organization is due to lack of financial management,

bad debts, excessive overdue or unwise investment, and unskilled manpower. An
understanding of the distinctive features of financial management in an organization is a
requirement for their efficiency. The success of any organization depends on many factors,
including proper planning, effective execution of activities, suitable evaluation process and
adoption of appropriate control measures.

Mobilization of financial resources arises from the fact that the amount of financial resources
for productive investment is very low. To relieve financial constraints on investment,
financial intermediaries are expected to play a decisive role in bringing about efficient ways
of raising the required level of funds through the application of a proper financial
management system.

Assessment of financial management performance is highly useful to identify the financial

strengths and weaknesses of the firm by properly establishing the relationship between the
items of balance sheet and profit and loss account. It also helps in short-term and long-term
forecasting and growth can be identified with the help of financial management analysis.
Moreover, bank performance assessment can also help improve managerial performance by
identifying the best and worst practices associated with high and low measured efficiency.

Today it becomes extremely essential for commercial banks to evaluate their management
performance because their survival in the dynamic economic environment will be dependent
upon their good performance. Besides, since the Ethiopian banking sector has shown rapid
progress in terms of several commercial banks, total assets, and capital, widening their branch
network, increasing their outreach to remote areas and continuously reporting profits of
different magnitude; the assessment of their financial management performance is very
necessary (Tigist, 2014).

6
A financial institution like United Banks S.C has very important in diverting unutilized
resources to the productive sector of the economy. Today in every developing country, the
central issue of economic development is the problem of managing scarce resources through
an effective and efficient way of financial management system for bringing a better economic
growth of a country.

Although few studies have been made as related to financial performance analysis of banks,
such as performance comparison between the government and private banks, insurance, and
other financial institutions such as financial management analysis in the case of the united
bank remain unexplored. Among those research related to financial performance analysis are;
Melaku (2017) Financial performance analysis of private commercial banks of Ethiopia,
Askalemariam (2016), Evaluation of the financial performance of Dashen bank, Ermias
(2017), Financial performance analysis of privately owned commercial banks in Ethiopia,
Mulalem (2015), Analysing Financial Performance of Commercial Banks in Ethiopia and
Dakito (2015) An Assessment of Banking Performance Using Capital Adequacy in Ethiopia.
All the above researchers used CAMEL Model as ratio analysis by comparing one bank to
another bank to find out the performance of the banks. And among all these researchers, no
one used financial management analysis used to evaluate the financial performance of
commercial banks. Thus, this study will focus on fill these gaps by extending the issue to the
specific context of United Bank. Hence, this becomes the basis of the study and the
researcher has will try to analyse the financial management analysis of the bank by
considering its past performance using the trend analysis and by comparing it with other
private commercial banks using the comparative financial performance analysis approach.
1.4. Research Question
The research will tries to answer the following basic questions which are entirely related to
the financial management analysis of United Bank S.C 
1. Has the bank managed its working capital effectively and efficiently?
2. How far the bank utilizes its financial resources (debts and owners’ equity) to finance
its financial requirements?
3. How does the profitability of the bank under the study period?

7
1.5. Objectives of the Study
The objectives of the study will classify as general and specific as indicated below:
1.5.1. General objective
The general objective of this research will assess the financial management analysis of
United Bank S.C through financial three years audited financial statements.

1.5.2. Specific objectives

 To combine the actual practice of the bank and the theoretical aspects. 
 To look into how the bank managed its working capital efficiently and effectively.
 To identify its strengths and weakness concerning the financial management system in
the previous year.
 To know the relations and trends of financial statement items.
 To assess the profitability of the bank under the study period
1.6. Scope of the Study
The researcher believes that it will be appropriate to conduct the study in the large scale
However, United Bank is one of the largest private banks in Ethiopia having more than
284 branches and 7 sub-branches starched across the country. United bank has also 8 districts
across the country of which of 3 are in Addis Ababa. The study will conduct with the help of
data obtained from audited financial statements. The audited financial statements are the
bank’s annual reports of three year from 2016/17 - 2018/19 and the audited financial records
are obtained from the company annual report. The fact that industry average will be included
in the study constrains the validity of the study. In addition, the researchers believe that the
three year bank performance from the audited annual report offers comprehensive
information about the financial management analysis of UB. In addition to that, the
researchers will try to measure the financial management of the bank in terms of financial
wealth and non-financial measurements are not included in the study.
1.7. Limitation of the Study
The scope of this study is will limit to issue that the study only audited financial statements
items balance sheet, income statement and major components of working capital. The reason
we limit the study because of the following limitations:-
 Lack of experiences: because the researchers are undergraduate student, and thus it is
for the first time, lack of experiences might limit the technique of the study.
 Due to shortage of time the study is restricted for a period of three year.

8
  The bank is measured in financial terms and non-financial measurements are not
included.
 Regarding analysis of financial statements, the research is made based on ratio
analysis.

Therefore, this paper will not expect to provide all details of the financial management
analysis of the bank and the conditions affecting its performance. However, it will hope to
serve as a reference for further study and research on the subject.

1.8. Significance of the Study

Financial management analysis determines a company's health and stability. The major
purpose of this study is to importance for the users of financial information such as for the
researcher, banks managers and executives and for other researchers. For the researcher, the
finding of this study initiate for further research.
Moreover, this study will hope initiate the commercial banks managers and executives to give
due emphasis on the management of identified variables and provides them with
understanding of activities that enhance their financial management performance. Finally,
this study help to provide general ideas and information those individual who are engaged in
research activity regarding to financial management used as reference; thus, it can minimize
the literature gap in the area of the study especially in Ethiopia.
1.9. Organization of the Study
The research project will organize into five chapters: Chapter one will contain the
introduction part dealing with research problems, research questions and objectives,
significance, limitation, and scope of the study. The second chapter will discuss the review of
related literatures about the subject matter. In chapter three will focus on the research design
and methodology. Chapter four will focus on analysis of the subject matter to investigate and
evaluate the problems. Finally, chapter five will cover the conclusions of the findings and
forwards recommendations.

9
 CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1. Theoretical Review

The theoretical review aims at giving the meaning of a word in terms of theories of a specific
discipline. It will contribute to a better understanding of the concept and help in assuming
both knowledge and acceptance of theories that relate to financial management analysis.
2.1.1. An Overview of Financial Management
Almost every day we hear news reports about economic conditions of the whole world.
Finance is the study of how individuals, institutions, governments, and businesses acquire,
spend, and manage money and other financial assets. Understanding finance is important to
all students regardless of the discipline or area of study, because nearly all business and
economic decisions have financial implications. The decision to spend or consume now
rather than save or invest is an everyday decision that we all face (Ronald and Edgar, 2017)

Financial management is the application of planning and control to the finance function. It
helps in profit planning, measuring costs, and controlling inventories, accounts receivables. It
also helps in monitoring the effective deployment of funds in fixed assets and in working
capital. It aims at ensuring that adequate cash is on hand to meet the required current and
capital expenditure. It facilitates ensuring that significant capital is procured at the minimum
cost to maintain adequate cash on hand to meet any exigencies that may arise in the course of
business. Financial management is applicable to every type of organization, irrespective of
the size, kind or nature. Every organization aims to utilize its resources in a best possible and
profitable way (http://www.pondiuni.edu.in/storage/, accessed on December 25, 2019)

Financial management essentially involves risk-return trade-off. Decisions on investment

involve choosing of types of assets which generate returns accompanied by risks. Generally
higher the risk returns might be higher and vice versa. So, the financial manager has to decide
the level of risk the firm can assume and satisfy with the accompanying return. Financial
management affects the survival, growth and vitality of the institution. In the entire study of
financial management whether it is related to investment decisions, financing decisions i.e.
deciding about the sources of financing, or dividend decisions, there is a mixture of science
as well as art (Ibid)

10
2.1.2. Goal of financial management
Goals act as motivators, serve as the standards for measuring performance, help in
coordination of multiplicity of tasks, facilitate in identifying inter departmental relationships
and so on. The goals can be classified as official goals, operative goals and operational goals.
The official goals are the general objective of any organization. They include mechanism of
ROI and market value of the firms.
The operative goals indicate the actual efforts taken by an organization to implement various
plans, policies and norms.
The operational goals are more directed, quantitative and verifiable. In fine, it can be inferred
that the official, operative and operational goals are set with a pyramidal shape, the official
goals at the helm of affairs (concerned with top level executives) operative goals at the middle
level and operational goals at the lower level (http://www.pondiuni.edu.in/storage/, accessed
on December 25, 2019)

2.1.3. Working capital management

Working capital management refers to the decision making with respect to the level and mix
of current assets and current liabilities. In terms of time, this area commands the greatest
attention for financial managers since so many of the variables can change in a short period
of time. A firm can invest in working capital and fixed capital. Working capital is a firm’s
current assets and consists of cash, marketable securities, accounts receivable, and
inventories. The financial manager must decide how much to invest in working capital, or
current assets, and how to finance these current assets (Ronald and Edgar, 2017)
How important are working capital issues? Firms that cannot obtain needed short-term
financing are candidates for bankruptcy. Supplies and raw materials are converted to
inventory. When sold, inventory may become an account receivable and, ultimately, cash.
Unexpected increases in inventory or receivables can harm a firm’s best-laid long-term plans.
If poor planning causes a mismatch between assets and financing sources or between cash
inflows and cash outflows, bankruptcy is a real possibility. Better management of working
capital has great benefits to firms. Recall the balance sheet equation (Total assets = Total
liabilities + Equity) that each dollar of assets must be financed by a combination of a dollar of
liabilities and equity. Less investment in current assets means less financing is needed, so the
costs of financing will be lower, too. Lower financial costs go straight to the “bottom line” in
the form of higher profits (Ibid)

11
In a recessionary economy, as we had during 2007–2009, it is paramount to free up cash and
reduce financing needs. It is not unusual, as reported annually in CFO magazine’s working
capital scorecard issue, for the most improved firms to reduce their working capital needs by
$1 billion or more. If a medium-size company (one with $10 billion in sales) could improve
its working capital practices to the level of the most efficient firm, the firm could reduce
noncash current assets by $1.4 billion. When financing is difficult to obtain, that can help
build a nice cash cushion. Efforts to reduce a working capital have firm-wide benefits that go
beyond the numbers on the balance sheet and income statement. A firm with good working
capital management practices will likely have good processes in marketing and
manufacturing; good communication and sharing of metrics between sales, finance, and
production; and good discipline in plant operations. Improvements in forecasting product
demand will result in better inventory management, lower inventory costs, better cash flow
forecasts, and less need for a financing buffer (Ibid)
2.1.3.1. Current asset management
Besides managing the long-term assets, the financial manager has a duty to manage current
assets efficiently to safeguard the firm against illiquidity or insolvency. Investment in current
assets affects firm’s profitability and liquidity. If the firm does not invest sufficient funds in
current assets, it may become illiquid. But it would lose profitability, as idle current assets,
would not earn anything. Thus, a proper trade-off must be achieved between profitability and
liquidity (www.wisegeek.com, accessed on December 25, 2019)
Current asset management is the handling of the current assets of a company. Any assets that
a company or business has that is the equivalent of cash or can be liquidated into cash in the
period of a year is considered a current asset. Typically, current assets are the inventory a
company has, as well as the accounts receivables and any short-term investments it has in
place.
The main principle in current asset management is to keep the proper flow of income and
liability in balance. Managing current assets also takes into account the long-term
investments of a company, but short-term assets, another name for current assets, is important
in determining the liquidity of a company. The measure of liquidity is really the measure of
how well and how fast a company can pay off its debts. In order to ensure that neither
insufficient nor unnecessary funds are invested in current assets the financial manager should
estimate firm’s working capital needs and make sure that funds would be made available
when needed (Ibid)

12
2.1.3.1.1. Concept of cash management
Cash is the most important current assets for the operations of the business. Cash is the basic
input needed to keep the business running on a continuous basis. It is also the ultimate output
expected to be realized by selling the service of product manufactured by the firm. The firm
should keep sufficient cash, neither more, nor less. Cash shortage disrupt the firm’s
manufacturing operation, while excessive cash will simply remain idle, without contributing
anything towards the firm’s profitability. Thus, a major function of the financial manager is
to maintain a sound cash position (https://www.mbaknol.com, accessed on January 12,
2020)
The term cash management refers to the management of cash resource in such a way that
generally accepted business objectives could be achieved. In this context, the objectives of a
firm can be unified as bringing about consistency between maximum possible profitability
and liquidity of a firm. Cash management may be defined as the ability of a management in
recognizing the problems related with cash which may come across in future course of action,
finding appropriate solution to curb such problems if they arise, and finally delegating these
solutions to the competent authority for carrying them out. The choice between liquidity and
profitability creates a state of confusion. It is cash management that can provide solution to
this dilemma. Cash management may be regarded as an art that assists in establishing
equilibrium between liquidity and profitability to ensure undisturbed functioning of a firm
towards attaining its business objectives (Ibid)
Cash itself is not capable of generating any sort of income on its own. It rather is the prime
requirement of income generating sources and functions. Thus, a firm should go for
minimum possible balance of cash, yet maintaining its adequacy for the obvious reason of
firm’s solvency. Cash management deals with maintaining sufficient quantity of cash in such
a way that the quantity denotes the lowest adequate cash figure to meet business obligations.
Cash management involves managing cash flows (into and out of the firm), within the firm
and the cash balances held by a concern at a point of time. The words, ‘managing cash and
the cash balances’ as specified above does not mean optimization of cash and near cash items
but also point towards providing a protective shield to the business obligations. Cash
management is concerned with minimizing unproductive cash balances, investing temporarily
excess cash advantageously and to make the best possible arrangement for meeting planned
and unexpected demands on the firms’ cash (Ibid)

13
Cash management assumes more important than other current assets because cash is the most
significant and the least productive assets that a firm holds. It is significant because it is used
to play the firm’s obligations. However, cash is unproductive. Like fixed assets or
inventories, it does not produce goods for sale. Therefore, the aim of cash management
should be maintain adequate cash position to keep the firm sufficiently liquid and to use
excess cash in some profitable way (Ibid)

2.1.4. Nature of Financial Statements

Financial statements are summaries of the operating, financing, and investment activities of a
business. Financial statements should provide information useful to both investors and
creditors in making credit, investment, and other business decisions. And this usefulness
means that investors and creditors can use these statements to predict, compare, and evaluate
the amount, timing, and uncertainty of future cash flows. In other words, financial statements
provide the information needed to assess a company’s future earnings and, therefore, the cash
flows expected to result from those earnings. In this chapter, we discuss the four basic
financial statements: the balance sheet, the income statement, the statement of cash flows,
and the statement of shareholders’ equity. Financial statements, which are prepared according
to commonly accepted accounting principles, do reflect the effects of past and current
decisions made by management (Pamela and Frank, 2010).
They involve considerable ambiguity, however. Financial statements are governed by
financial accounting rules that attempt to consistently and fairly account for every business
transaction and the principle of matching revenues and costs through accrual and allocation.
These rules by their very nature leave the results, particularly the economic impact, open to
some interpretation.
The basic financial statements are the balance sheet, the income statement, the statement of
cash flows, and the statement of shareholders’ equity. The balance sheet is a report of what
the company has assets, debt, and equity as of the end of the fiscal quarter or year, and the
income statement is a report of what the company earned during the fiscal period. The
statement of cash flows is a report of the cash flows of the company over the fiscal period,
whereas the statement of shareholders’ equity is a reconciliation of the shareholders’ equity
from one fiscal year end to another (Ibid)

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2.1.4.1. Balance Sheet
The balance sheet is a report of the assets, liabilities, and equity of a company at a point in
time, generally at the end of a fiscal quarter or fiscal year. Assets are resources of the
business enterprise, which are comprised of current or long-lived assets. How did the
company finance these resources? It did so with liabilities and equity. Liabilities are
obligations of the business enterprise that must be repaid at a future point in time, whereas
equity is the ownership interest of the business enterprise. The relation between assets,
liabilities and equity is simple, as reflected in the balance of what is owned and how it is
financed, referred to as the accounting identity:

2.1.4.2 Income Statement

The income statement is a summary of operating performance over a period of time (e.g., a
fiscal quarter or a fiscal year). We start with the revenue of the company over a period of
time and then subtract the costs and expenses related to that revenue. The bottom line of the
income statement consists of the owners’ earnings for the period. To arrive at this “bottom
line,” we need to compare revenues and expenses. The profit or loss calculated in the
statement increases or decreases owners’ equity on the balance sheet. The operating
statement is thus a necessary to the balance sheet in explaining the major component of
change in owners’ equity, and it provides essential performance assessment information
(Ibid)
Though the structure of the income statement varies by company, the basic idea is to present
the operating results first, followed by non-operating results. The cost of sales, also referred
to as the cost of goods sold, is deducted from revenues, producing a gross profit; that is, a
profit without considering all other general operating costs. These general operating expenses
are those expenses related to the support of the general operations of the company, which
includes salaries, marketing costs, and research and development. Depreciation, which is the
amortized cost of physical assets, is also deducted from gross profit. The amount of the
depreciation expense represents the cost of the wear and tear on the property, plant, and
equipment of the company (Ibid)

15
Once we have the operating income, we have summarized the company’s performance with
respect to the operations of the business. But there is generally more to the company’s
performance. From operating income, we deduct interest expense and add any interest
income. Further, adjustments are made for any other income or cost that is not a part of the
company’s core business. There are a number of other items that may appear as adjustments
to arrive at net income. One of these is extraordinary items, which are defined as unusual and
infrequent gains or losses. Another adjustment would be for the expense related to the write-
down of an asset’s value (Ibid)

2.1.4.3 The Statement of Cash Flows

The statement of cash flows is the summary of a company’s cash flows, summarized by
operations, investment activities, and financing activities.
Cash flow from operating activities is basically net income adjusted for (1) noncash
expenditures, and (2) changes in working capital accounts. The adjustment for changes in
working capital accounts is necessary to adjust net income that is determined using the
accrual method to a cash flow amount. Increases in current assets and decreases in current
liabilities are positive adjustments to arrive at the cash flow; decreases in current assets and
increases in current liabilities are negative adjustments to arrive at the cash flow.
Cash flow for/from investing is the cash flows related to the acquisition (purchase) of plant,
equipment, and other assets, as well as the proceeds from the sale of assets. Cash flow
for/from financing activities is the cash flow from activities related to the sources of capital
funds.
Not all of the classifications required by accounting principles are consistent with the true
flow for the three types of activities. For example, interest expense is a financing cash flow,
yet it affects the cash flow from operating activities because it is a deduction to arrive at net
income. This inconsistency is also the case for interest income and dividend income, both of
which result from investing activities, but show up in the cash flow from operating activities
through their contribution to net income.
The sources of a company’s cash flows can reveal a great deal about the company and its
prospects. For example, a financially healthy company tends to consistently generate cash
flows from operations (that is, positive operating cash flows) and invests cash flows (that is,
negative investing cash flows). To remain viable, a company must be able to generate funds
from its operations; to grow, a company must continually make capital investments (Ibid)

16
2.1.4.4 The Statement of Stockholders’ Equity
The statement of stockholders’ equity (also referred to as the statement of shareholders’
equity) is a summary of the changes in the equity accounts, including information on stock
options exercised, repurchases of shares, and Treasury shares. The basic structure is to
include a reconciliation of the balance in each component of equity from the beginning of the
fiscal year with the end of the fiscal year, detailing changes attributed to net income,
dividends, purchases or sales of Treasury stock. The components are common stock,
additional paid-in capital, retained earnings, and Treasury stock. For each of these
components, the statement begins with the balance of each at the end of the previous fiscal
period and then adjustments are shown to produce the balance at the end of the current fiscal
period.
In addition, there is a reconciliation of any gains or losses that affect stockholders’ equity but
which do not flow through the income statement, such as foreign-currency translation
adjustments and unrealized gains on investments. These items are of interest because they are
part of comprehensive income, and hence income to owners, but they are not represented on
the company’s income statement (Ibid)

2.1.5. Financial Analysis

Management, creditors, investors and others to form judgments about the operating
performance and financial position of the firm use information contained in financial
statements. Users of financial statements can get better insight about the financial strength
and weakness of the firm if they properly analyse the information reported in those
statements. Management should be particular interested in knowing the financial strength of
firm to make to make their best use and to be able to spot out the financial weakness of the
firm to take suitable corrective actions. The future plans of the firm should be laid down in
view the firm’s financial strength and weakness. Thus, financial analysis is the starting point
for making plans, before using any sophisticated forecasting and budgeting procedures
(Pandey, 1981)

2.1.5.1. Uses of Financial Analysis

Financial analysis is the process of identifying the financial strengths and weaknesses of the
firm by properly establishing relationships between the items of the balance sheet and the
profit and loss account. Financial analysis can be undertaken by management of the firm or
by parties outside the firm, viz., owner’s creditors, investor and others (Ibid)

17
The nature of analysis will differ depending on the purpose of the analyst. For example, trade
creditors are interested in the fact that the firm should be able to meet their claims over a very
short period of time. Their analysis will, therefore, confine to the evaluation of the firms
liquidity position. The suppliers of long-term debt, on the other hand, are interested in the
firm’s long- term solvency and survival. They analyse the firms profit ability over-time its
ability to generate cash to able to pay interest and return their claims and the relationship
between various sources of funds. Similarly investors, who have invested their money in the
firm’s shares, are most concerned about the firm’s earnings (Ibid)
They restore more confidence in those firms that show steady growth in earnings. As such,
they concentrate on the analysis of the firm’s present and future profitability. They are also
interested in the firm’s financial position to the extent it influences the firms earnings ability.
Finally, management of the firm would be interested in every aspect of the financial analysis.
It is their overall responsibility to see that the resources of the firm are used most effectively
and efficiently, and that the firm’s financial condition is sound (Ibid)
2.1.5.2. Using Financial Ratios to Assess Financial Management Performance
Although financial ratios help us evaluate financial statements, it is often hard to evaluate a
company by just looking at the ratios. For example, if you see that a company has a current
ratio of 1.2; it is hard to know if that is good or bad, unless you put the ratio in its proper
perspective. The company management could look at industry averages; it could compare
itself to specific companies or benchmarks; and it can analyse the trends in each ratio. We
look at all three approaches in this section (Brigham and Daves, 2019)
2.1.5.2.1. Comparison to Industry Average
To determine the financial condition and performance of a firm, its ratios may be comparing
with average ratios of the industry of which the firm is a member. This sort of analysis,
known as the industry analysis, helps to ascertain the financial standing and capability of the
firm vis-a-vis other firms in the industry. Industry ratios are important standards in view of
the fact that each industry has its characteristics which influence the financial and operating
relationships (Ibid)
2.1.5.2.2. Common Size Analysis
Percentage (common size) analysis consists of reducing a series of related amounts to a series
of percentages of a given base. All items in an income statement are frequently expressed as a
percentage of sales; a balance sheet may be analysed on the basis of total assets.

18
This analysis facilitates comparison and is helpful in evaluating the relative size of items or
the relative change in items. A conversion of absolute dollar amounts to percentages may also
facilitate comparison between companies of different size. Common size analysis could be
vertical analysis or horizontal analysis (Ibid)
2.1.5.2.3. Trend Analysis
It is the easiest way to evaluate the performance of a firm is to compare its present ratios with
the past ratios. When financial ratios over a period of time are compared, it is known as the
trend (or time series) analysis. It gives an indication of the direction of change and reflects
whether the firm's financial performance has improved, deteriorated or remained constant
over time. The analyst should not simply determine the change but, more importantly, he/she
should understand why ratios have changed. The change for example, may be affected by
changes in the accounting policies without a material change in the firm's performance (Ibid)
2.1.5.3. Nature of Ratio Analysis
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated
quotient of two mathematical expressions” and as “the relationship between two or more
things”. A financial ratio is a comparison between one bit of financial information and
another. We can classify ratios according to the way they are constructed and the financial
characteristic they are describing. We can also classify ratios according to the dimension of
the company’s performance or condition.
2.1.5.4. Types of Ratios Analysis
Several ratios can be calculated from the accounting data contained in the financial
statements. These ratios can be grouped in to various classes according to the financial
activity or function to be evaluated. The parties, which generally undertake financial analysis,
are short-term creditors, long-term creditors, owners and management. Short-term creditors’
main interest is in the liquidity position or the short-term solvency of the firm (Pamela and
Frank, 2010).
Long term creditors on the other hand are most interested in the long term creditors on the
other hand are more interested in the long term solvency and profitability of the firm.
Similarly owners concentrated on firm’s profitability analysis and the analysis of the firm’s
financial conditions. The management is interested in evaluating every activity of the firm.
They have to protect the interest of all parties and see that the firm grows profitability (Ibid)
According to (Pamela and Frank, 2010) generally, financial ratios are grouped into five
categories.

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2.1.5.4.1. Liquidity Ratios
Liquidity reflects the ability of a company to meet its short-term obligations using those
assets that are most readily converted into cash. Assets that may be converted into cash in a
short period of time are referred to as liquid assets; they are listed in financial statements as
current assets. We often refer to current assets as working capital, because they represent the
resources needed for the day-to-day operations of the company’s long-term capital
investments. Current assets are used to satisfy short-term obligations, or current liabilities.
The amount by which current assets exceed current liabilities is referred to as the net working
capital.
2.1.5.4.2. Financial Leverage Ratios
A company can finance its assets with equity or with debt. Financing with debt legally
obligates the company to pay interest and to repay the principal as promised. Equity
financing does not obligate the company to pay anything because dividends are paid at the
discretion of the board of directors. There is always some risk, which we refer to as business
risk, inherent in any business enterprise. But how a company chooses to finance its operations
the particular mix of debt and equity may add financial risk on top of business risk. Financial
risk is risk associated with a company’s ability to satisfy its debt obligations, and is often
measured using the extent to which debt financing is used relative to equity. We use financial
leverage ratios to assess how much financial risk the company has taken on. There are two
types of financial leverage ratios: component percentages and coverage ratios. Component
percentages compare a company’s debt with either its total capital (debt plus equity) or its
equity capital. Coverage ratios reflect a company’s ability to satisfy fixed financing
obligations, such as interest, principal repayment, or lease payments.

2.1.5.4.3. Activity (Asset utilization) Ratios

Activity rations, also called asset management or turnover ratios, measure how effectively the
firm is managing and utilizing its assets. They indicate how much a firm has invested in a
particular type of asset relative to the revenue the asset is producing. These ratios are
designed to answer these questions: does the total amount of each type of asset as reported on
the balance sheet seem reasonable, too high, or too low in view of current and projected sales
levels.
We use activity ratios for the most part, turnover ratios to evaluate the benefits produced by
specific assets, such as inventory or accounts receivable, or to evaluate the benefits produced
by the totality of the company’s assets.

20
2.1.5.4.4. Profitability Ratios
Liquidity ratios indicate a company’s ability to meet its immediate obligations. Now we
extend the analysis by adding profitability ratios, which help the investor gauge how well a
company is managing its expenses. Profit is the difference between total revenues and total
expenses over a period of time. Profit is the ultimate output of a company, and it will have no
future if it fails to make sufficient profits. Therefore, the financial manager should
continuously evaluate the efficiency of its company in terms of profits. The profitability
ratios are calculated to measure the operating efficiency of the company. Besides
management of the company, creditors and owners are also interested in the profit ability of
the firm.

2.1.5.4.5. Market Value Ratios

It’s a Ratio that relates the firm’s stock price to its earnings and book value per share and a
way to measure the value of a company’s stock relative to that of another company. The
market value ratios are used in three primary ways: 1) By investors when they are deciding to
buy or sell a stock, (2) By investment bankers when they are setting the share price for a new
stock issue and (3) By firms when they are deciding how much to offer for another firm in a
potential merger.

2.1.5.5. Limitations of Financial Management Analysis

Ratios of a company have meaning only when they are compared with some standards. It is
difficult to find out a proper basis of comparison. Usually it is recommended that ratios
should be compared with the industry averages. But the industry average is not easily
available.
The situations of two companies are never same. Similarly, the factors influencing the
performance of a company in one year may change in another year. Thus, the comparison of
the ratios of two companies becomes difficult and meaningless when they are operating in
different situations. The interpretation and comparison of ratios are rendered invalid by the
changing value of money. The accounting figures, presented in the financial statements, are
expressed in the monetary unit, which is assumed to remain constant. In fact, price change
over years and, as a result, assets acquired at different dates will be expressed in different Birr
in the balance sheet. This makes comparison meaningless. In practice, differences exist as to
the meaning of certain terms. Diversity of views exists as to what should be included in
shareholders’ equity, current assets or current liabilities.

21
Whether preference share capital should be included in debt or should current liabilities be
included in debt in calculating debt-equity ratios? Should intangibles assets be exchanged to
calculate the rate of return on investment? If tangible assets have to be included, how will
they be valued? Similarity, profit means different things to different peoples.
The bases to calculate ratios are historical financial statements. The financial analyst is more
interested in what happens in future, while the ratios indicate what happened in the past.
Management of the company has information about the company’s future plans and polices
and, therefore, is able to predict future happening to a certain extent, but the outside analyst
as to rely on the past ratios, which may not necessarily reflects the firm’s financial position
and performance in future (Pandey, 1981)

2.2 Empirical Literature

Although few studies have been made as related to financial performance analysis of banks,
such as performance comparison between the government and private banks, insurance, and
other financial institutions such as financial management analysis in the case of the united
bank remain unexplored. Among those researches related to financial performance analysis
are: Melaku (2017) study sought to analyse the overall performance of private commercial
banks in Ethiopia using CAMEL rating approach. In this study, the financial performance of
six sampled private banks was measured using the audited financial reports of 10 years period
(2007-2016). Novel feature of this study was the inclusion of more explanatory variables,
which were not used by the average researchers i.e. fixed asset to total assets, net profit per
employee, total deposit per no. branches, total loan per no. of branches, measurements.
The descriptive statistics tools used to rate the overall performance of the bank, while panel
regression model was used to measure the impact of CAMEL elements on bank performance
i.e. ROA and ROE. As per the composite rating of CAMEL, the finding of the study revealed
that NIB bank stood on the top followed by; United bank, while Awash bank and Bank of
Abyssinia stood the least. On both panel model estimations, LEVRAGE, NIEGE, NPEP,
TDBRA, TLBRA, NIITA, and LATD explanatory variables were significant in determining
the profitability indicators-ROA and ROE. No asset quality indicators were significant in
determining the profitability ratios.
Askalemariam (2016), Evaluate of the Financial Performance of Dashen bank using CAMEL
Approach through a descriptive way of research design. This study used a descriptive
financial ratio analysis to measure, describe and analyse the performance of Dashen bank
during the period 2006-2015.

22
Statistical tools like average and standard deviation were also calculated. It is highlighted that
the position of Dashen Bank is sound and satisfactory as far as their capital adequacy, asset
quality, management efficiency earning quality and liquidity is concerned. According to the
results, Dashen Bank is committed above a minimum (12%) capital adequacy ratio,
recommended by experts in the banking sector. Therefore, Dashen Bank should maintain or
increase their capital adequacy ratio (CAR) to enhance the safety of its banking system, and
the safety of its depositors. The debt to equity ratio of Dashen Bank was not good to beat its
obligations; this is very risky for the overall sustainability of the bank. Therefore, the bank’s
management has to work to maximize the amount of owners’ equity, and has to search for
other sources so that the performance of the bank can be improved. The researcher suggested
that in the further research one may need to consider this examination.
Ermias (2017), the study were to investigate the performance of privately owned commercial
banks in Ethiopia for the period 2005-2015. The paper uses a descriptive method for analysis
of financial information by using ratio analysis and Pearson correlation was used to show the
relationship between the performance measurements.
The researcher used four types of performance measurement; profitability performance,
liquidity performance, debt management and credit performance. Based on the findings the
overall profitability performance of privately owned banks was in good condition. Banks
liquidity to meet its financial obligation in a timely manner was in a good condition for the
measurement of LADST and NLTA but net loan locked in to non-liquid asset of the banks
was high. Therefore, the bank should improve this to meet their financial obligation. All
privately owned commercial banks in Ethiopia use huge amounts of debt to finance their
asset. This has positive implications of the banks because the main source of finance and
liabilities of the banks are deposit from customers. The Pearson correlation result indicates
banks LADST negatively correlated with ROA and ROE. Generally, the financial
performance of privately owned commercial banks seems better from period to period. There
was variation in their performance.
Mulualem (2015), Analysing Financial Performance of Commercial Banks in Ethiopia
through CAMEL Approach, the empirical CAMEL model findings regarding the elements of
the model and profitability as measured by ROA and ROE suggest the following: the
relationship between capital adequacy ratio and profitability is negative. As to the level of
significance the result shows capital adequacy ratio is insignificant for ROA even at 10%
significant level while it was significant for ROE at 1% significant level.

23
The relationship between Asset quality ratio and profitability is negative and with 1%
significance level statistically significant for ROA whereas insignificant level ROE. As to the
relationship between Management efficiency ratio and profitability is negative and
statistically significant at 1% significance level. In addition to this the coefficient of the
variable was relatively high for both profitability measures. The result showed Positive
relationship between Earning ratio and Profitability with strong statically significance. The
result showed positive relationship between Liquidity ratio and profitability. The result shows
liquidity ratio was statically significant at 5% significant level.

Dakito (2015) studied banking Performance Using Capital Adequacy in Ethiopia during the
period 2000-13. The study showed that there is a positive relationship between capital
adequacy and bank performance at 5% significant level, which supports the theory and the
past studies made in different parts of the world. And it had been indicated by the regression
analysis above that owns fund has positive and significant effect whereas the customer
deposit/creditors fund has negative effect though insignificant on the overall performance of
the banking industry in Ethiopia. Therefore, in order to maximize the profitable level,
banking industry in Ethiopia should look for financing from owners in the form of issuing
stock as much as possible instead of solely depending upon fund from creditors or depositors.
2.3 Conclusion and knowledge gap
All the above researchers used CAMEL Model as ratio analysis by comparing one bank to
another bank to find out the performance of the banks. And among all these researchers, no
one used financial management analysis used to evaluate the financial performance of
commercial banks. Thus, this study will focus on fill these gaps by extending the issue to the
specific context of United Bank. Hence, this becomes the basis of the study and the
researcher has will try to analyse the financial management analysis of the bank by
considering its past performance using the trend analysis and by comparing it with industry
average using the comparative financial performance analysis approach.

24
 CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.1. Research Design

This paper will use descriptive financial ratio analysis to measure, describe and analyse the
financial management analysis of UB during the study period. The data will obtain from the
audited annual report of the bank, and UB’s website.

3.2. Population and Sampling Techniques

The population for this research comprise all private banks operating in Ethiopia in order to
exertion trend analysis (or time series analysis) and comparison against the industry average.
A sample of the top five commercial banks will select based on their total capital at the end of
the 2017/18 financial year end. These are ( AIB, DB, BOA, WB, and NIB) the banks that
dominate the sector with the top 5 banks controlling 55% of the total private bank industry
capital which makes them systemically important banks (NBE Annual Report, 2017/18).
In addition to this, if the study is mainly incorporated with the annual reports of the bank, the
researcher uses primary as well as secondary source of data collection methods. The
population in this study will incorporate six top management officials in finance department,
audit department, and treasury section of UB, which are important for preparation and
interpretation of financial statements and making of decision about the future based on
financial statements. The researchers will assume a sample of two top management officials
from a total of seven populations. Here, the technique of sampling will be purposive. The
researcher’s intentions to use purposive sampling for the population is due to the quality of
information obtain from the samples. In addition to this, such individuals were being part of
top management and also have sufficient financial knowledge.

3.3. Types of Data to be collected

Although the study will mainly focus on historical data, which is based on an analysis of
previous year financial statements, it incorporates both primary and secondary data.
Secondary data will be data relate with financial reports which are useful for measurement of
financial performance of the bank. On the other hand primary data will be data relate with the
opinion of top management regarding the outcomes of computed ratio.

25
3.4. Methods of Data Collection
Secondary data will be collected through company reports, audited financial statements,
magazines and annual published materials. On the other hand primary data will be collected
through unstructured interview with sample of top management officials from the planning
and development section and investment and accounts section of the bank.
The main objective of preferring unstructured interview is to find facts depending on the
situation encountered at the time of interview. If it will structure the possibility of getting
facts is lesser whereas there is a possibility of generating new ideas relying upon the
respondent’s initiation in unstructured interview. Incorporation of facts from secondary
sources will be useful to generate tangible evidences about the financial performance
condition of the bank.
3.5. Methods of Data Analysis
The collected data through the above tools will be analyse using different accounting tools
such as ratio analysis including liquidity ratio, debt ratio, profitability ratio and asset
management ratio, horizontal analysis and vertical analysis to find out the true picture of the
financial management performance of united bank over the recent three years.
Finally, trend analysis (or time series analysis) and comparison against the industry average
will make. The analysed data will be present using tables and diagrams that are appropriate to
explain the facts.

26
 CHAPTER FOUR
COST AND TIME SCHEDULE
4.1 Cost Schedule
As a research proposal it is essential to dot down adequate financial resources necessary to
conduct the study. Cost schedule is summarized as follow.

No. Description Qua. Unit of Unit cost Total cost

measurement
1. Stationary material expense
- Paper A4 size 1 Pad 140.00 Br. 140.00
- Pen 5 Pecs 10.00 50.00
- notebook 1 Pecs 30.00 30.00
2. Transportation expense - Birr - 100.00
3. Telephone expense 2 Card 100.00 200.00
4. Secretarial service expense
Typing service 300.00
Printing 80.00
Photo copy 70.00
Binding and design 30.00
5. Contingent expense 300.00
Total cost Birr
1,300.00

4.2 Time Schedule

No. Activity Jan. Feb. Mar. Apr. May Jun.

1 Advisor contact
2 Literature review
3 Topic relation
4 Design data collection instrument
5 Distribution and collection of questionnaires

27
 6 Analysis and interpretation of data
7 Conclusion and recommendation
8 First draft of the research report
9 Final editing and reporting
10 Submission and presentation

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Please come with your Questionnaire!!!

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