INTRODUCTION TO THE STUDY

Financial statement is that statement which provides information on the firm’s position at a point in time and its operation over a period of time. Financial statement contains information about the wealth of the organization, which if well analyzed and interpreted can provide valuable insight into firm’s performance and its operations. Analysis of financial statement is of interests to lenders, investor’s, owners, outsiders, shareholders and others. Due to ongoing advancements in technology, new legislation, and other innovation, the field of finance is rapidly changing. Introduction to finance develops the three components of finance in an interactive framework that is consistent with the responsibilities of all- financial professionals, managers, intermediaries, and investors in today's economy. In the last decade, the academic study of finance has experienced an infusion of new concept and quantitative methodologies that pace it among the most sophisticated and growing areas of business and economics. New developments in the traditional areas of finance theory of rational investor portfolio choice, interpretation and determination of security prices, efficient corporate decision making has been approached from the perspective of a single integrating paradigm derived from economic theory. In our present day economy finance is defined as provision of money at a time when it is required. Every enterprise whether it is big, medium or small needs finance to carry out its operation and to achieve its target. Infact finance is so indispensable today that it is rightly said to be lifeblood of enterprise without adequate finance no enterprise can possibly accomplish it objectives

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The importance of corporation finance has arisen because of the fact that present day business activities are predominantly on a company or corporate form of organization. The advent of corporate enterprises has resulted into: • the increase in size and influence of the business enterprise • wide distribution of corporate ownership • separation of ownership and management These factors have increased the importance of finance.

AIMS OF FINANCE
• Acquiring sufficient funds • Proper utilization of funds • Increasing profitability Maximizing firms value • Estimating financial requirements • Deciding capital structure • Selecting a source of finance • Selecting a pattern of investment • Proper cash management • Implementing financial control • Proper use of surplus

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BUSINESS FINANCE
Business finance is the activity, which is concerned with the acquisition and conservation of capital funds in meeting the financial requirements and overall objectives of the firm. Business finance deals primarily with raising, administering and disbursing funds by private own business units operating in non- financial fields of industry. To sum up in simple words we can say that financial management as practiced by business firms can be called corporation finance or business finance.

FINANCIAL STATEMENTS
Financial statements (or financial reports) are formal records of a business' financial activities. It is a collection of data organized according to logical and consistent accounting procedures. These statements provide an overview of a business' profitability and financial condition in both short and long term.

A sound understanding of financial statements helps you: • Identify unfavorable trends and tendencies in your business's operations (for example, the unhealthy buildup of inventory or accounts receivable) before the situation becomes critical. • Monitor your cash flow requirements on a timely basis, and identify financing needs early.

Monitor important indicators of financial health (for example, liquidity ratios, efficiency ratios, profitability ratios, and solvency ratios).

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The Accounting Principles Board of America (APB) states the following other objectives: • To provide reliable financial information about economic resources and obligations of a business firm. • Monitor your performance against your financial plan. owners' or stockholders' equity). • To provide financial information that assists in estimating the earning potentials of business. if you have developed one. • To provide other needed information about changes in such economic resources and obligations.• Monitor periodic increases and decreases in wealth (specifically. • To provide reliable information about changes in net resources (resources less obligations) arising out of business activities. 4 .  Definition According to John N. Myer “the financial statements provide a summary of the accounts of a business enterprise. the balance sheet reflecting the assets and liabilities and the income statement showing the results of operations during a certain period”  Objectives of financial statement The primary objective of financial statements is to assist in decision making.

• Income Statement (Profit and Loss Account) 5 . The Companies Act.” The purpose of the balance sheet is to show the resources that the company has. other information related to the financial statements that is relevant to the needs of the users of these statements. The balance sheet shows all the assets owned by the concern and all the liabilities and claims it owes to owners and outsiders.e..  Types of financial statements Generally Accepted Accounting Principles (GAAP) specify that a complete set of financial statements must include: • Balance Sheet The American Institute of Certified Public Accountants defines Balance Sheet as. and from where those resources come from.• To disclose. 1956 has prescribed a particular form for showing assets and liabilities in the balance sheet for companies registered under this act.e. its liabilities and investments by owners and outsiders. its assets. to the extent possible. i. i. “A tabular statement of summary of balances (debits and credits) carried forward after an actual and constructive closing of books of account and kept according to principles of accounting.

in the form of a Profit and Loss Account to determine net profit or net loss. • Statement of Changes in Owners’ Equity (Retained Earnings) The term owner’s equity refers to the claims of the owners of the business (shareholders) against the assets of the firm. A statement of retained earnings is also known as Profit and Loss Appropriation Account or Income Disposal Statement. If there is excess of revenues over expenditures it will show a profit and if the expenditures are more than the income then there will be a loss. The statement of changes in owners’ equity simply shows the beginning balance of each owner’s equity account. As the name suggests it shows appropriations of earnings.e. The income statement may be prepared in the form of a Manufacturing Account to find out the cost of production.Income statement is prepared to determine the operational position of the concern. in the form of Trading Account to determine gross profit or gross loss. and its ending balance. the initial amount of funds invested by the Shareholders ii) retained earnings or reserves and surplus representing undistributed Profits. i. The balance in this account will show the amount of profit retained in hand and carried forward. A statement of Retained Earnings may also be prepared to show the distribution of profits. It is a statement of revenues earned and the expenses incurred for earning that revenue. It consists of two elements i) Paid-up share capital. the reasons for increases and decreases in each. 6 .

• Statement of Changes in Financial Position. Thus. A cash flow 7 . that is. the balance sheet and the profit and loss account or income statement of a business reveal the net effect of the various transactions on the operational and financial position of the company. The objective of this statement is to show the movement of funds (working capital or cash) during a particular period. ii) Cash Flow Statement: A statement of changes in the financial position of a firm on cash basis is called Cash Flow Statement. The word ‘Fund’ is used to denote working capital. funds flow statement. This statement will show the sources from which the funds are received and the uses to which these have been put. for a better understanding another statement called statement of changes in financial position has to be prepared to show the changes in assets and liabilities from the end of one period to the end of another point of time. This statement helps the management in policy formulation and performance appraisal. The statement of changes in financial position may take any of the following two forms: i) Funds Flow Statement: The funds flow statement is designed to analyse the changes in the financial condition of a business enterprise between two periods. that is. It summarises the causes of changes in cash position of a business enterprise between dates of two balances sheets. This statement is very much similar to the statement of changes in working capital. The basic financial statements. But there are many transactions that do not operate through profit and loss account.

• Effective Presentation: The financial statements should be presented in a simple and lucid way so as to make them easily understandable. • Attractive: The financial statements should be prepared in such a way that important information is underlined so that it attracts the eye of the reader. This characteristic will enhance the utility of these statements. A person who is not well versed with accounting terminology should also be able to understand the statements without much difficulty.  Characteristics of ideal financial statement The financial statements are prepared with a view to depict financial position of the concern. otherwise it will be difficult to make a distinction between relevant and irrelevant data. No material information should be withheld while preparing these statements. • Relevance: Financial statements should be relevant to the objectives of the enterprise. The ideal financial statements have the following characteristics: • Depict True Financial Position: The information contained in the financial statements should be such that a true and correct idea is taken about the financial position of the concern. This will be possible when the person preparing these statements is able to properly utilise the accounting information. 8 .statement focuses attention on cash changes only. The information which is not relevant to the statements should be avoided. It describes the sources of cash and its uses. The financial statements should be prepared in such a way that they are able to give a clear and orderly picture of the concern.

This will enable the saving of time in preparing the statements. The comparison of figures will enable a proper assessment for the working of the concern. The reader will be able to form an idea about the figures. the financial statements should be presented in brief. A relationship can be established in similar type of information. The balances of different ledger accounts should be easily taken to these statements.  Importance of financial statements The financial statements are mirror which reflects the financial position and operating strength or weakness of the concern. The calculation work should be minimum possible while preparing these statements. • Brief: If possible. The statement can also be compared with the figures of other concerns of the same nature. On the other hand.• Easiness: Financial statements should be easily prepared. The comparable figures will make the statements more useful. • Comparability: The results of financial analysis should be in a way that can be compared to the previous years statements. • Analytical Representation: The information should be analysed in such a way that similar data is presented at the same place. These statements are useful to 9 . Sometimes budgeted figures are given along with the present figures. The columns to be used for giving the information should also be less. The size of the statements should not be very large. This will be helpful in analysis and interpretation of data. if figures are given in details then it will become difficult to judge the working of the business.

both inside and outside a business. • • To determine the legality of dividends. As guide to advise dividend action. These statements are also used as part of management's report to its stockholders. • As a basis for fiscal policy. managers. • As a basis for taxation. creditors.management. • As informative for prospective investors in an enterprise • As a guide to the value of investment already made. 10 . employees and other parties who are directly connected with a company. workers. • As a basis for the granting of credit. as it form part of its Annual Report. • As an aid to government supervision. government and public at large. Generally. • As a basis for price or rate regulation.  Users of Financial Statements Financial statements are used by a diverse group of parties. these users are: Internal Users: are owners. • Owners and managers require financial statements to make important business decisions that affect its continued operations. investors. Following major uses of financial statements: • As a report of stewardship. bankers. Financial analysis are then performed on these statements to provide management with a more detailed understanding of the figures.

Employees also need these reports in making collective bargaining agreements (CBA) with the management, in the case of labor unions or for individuals in discussing their compensation, promotion and rankings.

External Users: are potential investors, banks, government agencies and other parties who are outside the business but need financial information about the business for a diverse number of reasons.

Prospective investors make use of financial statements to assess the viability of investing in a business. Financial analysis are often used by investors and is prepared by professionals (Financial Analysts), thus providing them with the basis in making investment decisions.

Financial institutions (banks and other lending companies) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-term bank loan or debentures) to finance expansion and other significant expenditures.

Government entities (Tax Authorities) need financial statements to ascertain the propriety and accuracy of taxes and other duties declared and paid by a company.

• Media and the general public are also interested in financial statements for a variety of reasons.

 Limitations of financial statements
The following are the main limitations of the financial statements:

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Interim and not final reports: Financial statements do not depict the exact position and are essentially interim reports. The exact position can be only known if the business is closed.

Lack of precision and definiteness: Financial statements may not be realistic because these are prepared by following certain basic concepts and conventions.

Lack of objective judgement: Financial statements are influenced by the personal judgement of the accountant. He may select any method for depreciation, valuation of stock, amortization of fixed assets and treatment of deferred revenue expenditure. Such judgement if based on integrity and competency of the accountant will definitely affect the preparation of the financial statements.

Record only monetary facts: Financial statements disclose only monetary facts, that is; those transactions are recorded in the books of accounts which can be measured in monetary terms. Those transactions which cannot be measured in monetary terms such as, conflict between production manager and marketing manager may be very important for a business concern but not recorded in the business books.

Historical in nature: These statements are drawn after the actual happening of the events. They attempt to present a view of the past performance and have nothing to do with the accounting for the future.

Modern management is forward looking but these statements do not directly help them in making future estimates and taking decisions for the future.

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Artificial view: These statements do not give a real and correct report about the worth of the assets and their loss of value as these are shown on historical cost basis. Thus, these statements provide artificial view as market or replacement value and the effect of the changes in the price level are completely ignored.

Scope of manipulations: These statements are sometimes prepared according to the needs of the situation or the whims of the management. A highly efficient concern may conceal its real profitability by disclosing loss or minimum profit whereas an inefficient concern may declare dividend by wrongly showing profit in the profit and loss account. For this under or over valuation of inventory, over or under charge of depreciation, excessive or inadequate provision for anticipated losses and other such manipulations may be resorted to.

Inadequate information: There are many parties who are interested in the information given in the financial statements but their objectives and requirements differ. The financial statements as prepared under the provisions of the Companies Act, 1956, fail to meet the needs of all. These are mainly prepared to safeguard the interest of shareholders.

FINANCIAL ANALYSIS
The term ‘financial analysis’ also known as analysis and interpretation of financial statements, refers to the process of determining financial strengths

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governmental agencies and research scholars. ` The purpose of financial analysis is to diagnose the information contained in financial statements so as to judge the profitability and financial soundness of the firm. credit agencies. They do not have access to the detailed record of the company and have to depend mostly on published Statements. They are members of the organization. the financial analysis can be external and internal analysis: External Analysis: It is made by those persons who are not connected with the enterprise. • Profitability of a sound business policy. They do not have access to the enterprise. It is an attempt to determine: • The significance and meaning of the financial statement data so that forecast may be made of the future earnings. profit and loss account and other operative data. • The operational efficiency of the concern as a whole and of its various parts or departments. • Ability to pay interest and debt maturities (both current and long term). 14 . On this basis.and weaknesses of the firm by establishing strategic relationship between the items of balance sheet. Such type of analysis is made by investors. • The comparative study in regard to one firm with another firm or one department with another department  Types of financial statement analysis Different types of financial statements analysis can be made on the basis of: • According to the nature of the analyst and the material used by him. Internal Analysis: The internal analysis is made by those persons who have access to the books of accounts.

solvency and liquidity as well as profitability and earning capacity of a business concern. The purpose of this analysis is to know whether in the short run a business concern will have adequate funds of readily available to meet its short-term requirements and sufficient borrowing capacity to meet contingencies in the near future. growth and development of the business and to meet its costs of capital. The internal analyst can give more reliable result than the external analyst because every type of information is at his disposal. The purpose of making such type of analysis is to know whether in the long-run the concern will be able to earn a minimum amount which will be sufficient to maintain a reasonable rate of return on the investment so as to provide the funds required for modernisation. 15 .Analysis of financial statements or other financial data for managerial purpose is the internal type of analysis. This analysis is made with reference to items of current assets and current liabilities (working capital analysis). • According to the objectives of the analysis. Long-term Analysis: This analysis is made in order to study the long-term financial stability. Short-term Analysis: This is made to determine the short-term solvency. On this basis the analysis can be long-term and short-term analysis. stability and liquidity as well as earning capacity of the business.

Comparative financial statement is an example of this type of analysis. increases or decreases in absolute data in value and in terms of percentages. The statements of two or more periods are prepared to show absolute data of two or more years.  Techniques (devices or methods) of financial analysis The following techniques can be used in connection with analysis and interpretation of financial statements: • Comparative financial statements The comparative financial statements are statements of the financial position at different periods of time. Vertical (or Static) Analysis: This analysis is made to review and analyse the financial statements of one particular year only. based on financial data taken from several years. therefore. The elements of financial position are shown in a comparative form so as to give an idea of financial position at two or more periods. Ratio analysis of the financial year relating to a particular accounting year is an example of this type of analysis.• According to the modus operandi of the analysis. On this basis. This is very useful for long-term trend analysis and planning. The two comparative statements are: 16 . Horizontal (or Dynamic) Analysis: This analysis is made to review and analyse financial statements of a number of years and. the analysis may be horizontal analysis and vertical analysis.

This analysis enables to know the changes in the financial function and operating efficiency between the time period chosen. Vertical analysis is required for an interpretation of underlying causes of changes over a period of time. It gives an idea of the progress of a business over a period of time. • Common size statement Common size financial statements are those in which figures reported are converted to some common base. Common size statements may be used for i) Common Size Balance Sheet: a statement in which balance sheet items are expressed as the ratio of each asset to total assets and the ratio of each liability is expressed as a ratio of total liabilities. 17 . By studying the trends of each item we can know the direction of changes and based upon the direction of changes. items in the financial statements are presented as percentages or ratios to total of the items and a common base for comparison is provided. These trend ratios may be compared with industry in order to know the strong or weak points of a concern. group of items and computed items in two or more balance sheets of the same business enterprise on different dates.i) Comparative Balance Sheet: the comparative balance sheet analysis is the study of the trend of the same items. ii) Comparative Income Statement: the comparative income statement gives the results of the operations of a business. the opinions can be formed. • Trend percentage analysis Trend analysis is an important tool of horizontal financial analysis. For this.

18 . • Cash Flow Statement (or Analysis) This statement is prepared to know clearly the various items of inflow and outflow of cash. • Statement of Changes in Working Capital (Net Working Capital Analysis) This statement is prepared to know the net change in working capital of the business between two specified dates. It is an essential tool for short-term financial analysis and is very helpful in the evaluation of current liquidity of a business concern. It helps the business executives of a business in the efficient cash management and internal financial management. A significant relationship can be established. • Funds Flow Statement (or Analysis) This statement is prepared in order to reveal clearly the various sources where from the funds are procured to finance the activities of a business concern during the accounting period and also brings to highlight the uses to which these funds are put during the said period. It is prepared from current assets and current liabilities of the said dates to show the net increase or decrease in working capital.ii) Common Size Income Statement: the items in income statement can be shown as percentages of sales to show the relation of each item to sales.

thus. The results of analysis. The following are the main limitations of the analysis: • Historical nature of financial statements: The basic nature of these statements is historical. An accounting ratio shows the relationship between the two inter-related accounting figures as gross profit to sales. The entire working 19 . • No substitute for judgement: Analysis of financial statements is a tool which can be used profitably by an expert analyst but may lead to faulty conclusions if used by unskilled analyst. Past can never be a precise and infallible index of the future and can never be hundred per cent helpful for the future forecast and planning. current assets to current liabilities.• Ratio Analysis It is done to develop meaningful relationship between individual items or group of items usually shown in the periodical financial statements published by the concern. Ratios should not be calculated between the two unrelated figures as it will not serve any useful purpose. loaned capital to owned capital etc. relating to the past period. should not be taken as judgements or conclusions. Limitations of Financial Statement Analysis Analysis of financial statements is a very important device but the person using this device must keep in mind its limitations. • Reliability of figures: The reliability of analysis depends on reliability of the figures of the financial statements under scrutiny. that is.

it will not provide reliable basis to assess the performance.e. • Change in accounting methods: Analysis will be effective if the figure derived from the financial statements are comparable. • Results may have different interpretation: The results or indications derived from the analysis of these statements may be differently interpreted by different users. objectives. • Pitfalls in inter-firm comparison: When different firms are adopting different procedures. policies and different items under similar headings. For example. the figures of the current period may have no comparable base. comparison will become more difficult. or method of valuation of stock).of analysis will be vitiated by manipulations in the income statement. questionable procedures adopted by the accountant for the valuation of fixed assets and such other factors. profitability and financial condition of the firm as compared to industry as a whole. records. window dressing in the balance sheet. If done.. depreciation method. Due to change in accounting methods (i. It will not be advisable to depend fully on such analysis. a supplier of goods or the short-term lender but it may be index of inefficiency of the management due to non-utilisation of funds. • Single year analysis is not much valuable and useful: The analysis of these statements relating to a single year only will have limited use and value. Analysis should be extended over a number of years so that the results may be compared to draw meaningful conclusions. then the whole exercise of analysis will become futile and will be of little value. 20 . efficiency. a high current ratio may suit the banker.

its operations and attractiveness as an investment. in the present day economy. When you compare changes in your business's ratios from period to period. The level and historical trends of these ratios can be used to make inferences about a company's financial condition.• Price level changes reduce the validity of the analysis: The continuous and rapid changes in the value of money. including 21 . you can see possibilities for improvement in key areas. Which tool is to be used in a particular situation depends on the skill. also reduce the validity of the analysis. If wrong tool is used. • Shortcoming of the tool of analysis: There are different tools of analysis available to the analyst. intelligence and expertise of the analyst. you can pinpoint improvements in performance or developing problem areas. it may give misleading results and may lead to wrong conclusions or inferences which may be harmful to the interest of business. FINANCIAL RATIO ANALYSIS Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. A number of sources. Acquisition of assets at different levels of prices make comparison useless as no meaningful conclusions can be drawn from a comparative analysis of such items relating to several accounting periods. training. By comparing your ratios to those in other businesses.

USE AND SIGNIFICANCE OF RATIO ANALYSIS The ratio analysis is one of the most powerful tools of financial analysis. The conclusions can also be drawn as to whether the performance of the firm is improving or deteriorating. The use of ratios is not confined to financial managers only. v) Ratio analysis even helps in making effective control of the business. financial institutions. vi) These are so many other uses of the ratio analysis. investors. Thus. The supplier of goods on credit. shareholders and management all make use of ratio analysis as a tool in evaluating the financial position and performance of a firm for granting credit. provide data for comparison purposes. they are also available from commercial services. With the use of ratio analysis one can point out whether the condition of the firm is strong. good. It is an essential part of the budgetary control and standard costing.many trade or business associations and organizations. banks. iii) The financial strength and weakness of a firm are communicated in a more easy and understandable manner by the use of ratios. iv) Ratios even help in co-ordination which is of utmost importance ineffective. ratios have wide applications and are of immense use today. There are different parties interested in the ratio analysis for knowing the financial position of a firm for different purposes. 22 . providing loans or making investments in the firm. ii) It helps in financial forecasting and planning. questionable or poor. • Managerial Uses of Ratio Analysis i) Ratio analysis helps in making decisions from the information provided in these financial statements.

Current and acid-test ratios will give an idea about the current financial position of the concern.term creditors out of its current assets.• Utility to Shareholders/Investors An investor in the company will like to assess the financial position of the concern where he is going to invest. Long-term solvency ratios will help him in assessing financial position of the concern. For the first purpose he will try to asses the value of fixed assets and the loans raised against them. will be useful to determine profitability position. on the other hand. They are interested to know whether financial position of the concern warrants their payments at a specified time or not. The investor will feel satisfied only if the concern has sufficient amount of assets. • Utility to Creditors The creditors or suppliers extend short-term credit to the concern.  Utility to Employees 23 . The concern pays short. Profitability ratios. If the current assets are quite sufficient to meet current liabilities then the creditor will not hesitate in extending credit facilities. Ratio analysis will be useful to the investor in making up his mind whether present financial position of the concern warrants further investment or not. His first interest will be the security of his investment and then a return in the form of dividend or interest.

enable employees to put forward their viewpoint for the increase of wages and other benefits. etc. governmental plans and policies may not prove successful. net profit. In the absence of the reliable economic information.  Utility to Government Government is interested to know the overall strength of the industry. Various financial statements published by industrial units are used to calculate ratios for determining short-term. The ratios may be used as indicators of overall financial strength of public as well as private sector. CLASSIFICATIONS OF RATIO 24 . Their wage increases and amount of fringe benefits are related to the volume of profits earned by the concern. long-term and overall financial position of the concerns. The employees make use of information available in financial statements. Profitability indexes can also be prepared with the help of ratios. Various profitability ratios relating to gross profit.The employees are also interested in the financial position of the concern especially profitability. operating profit. Government may base its future policies on the basis of industrial information available from various units.

Also known as the working capital ratio. try to establish a relationship between current liabilities. loss of creditor’s confidence or even in law suits against the company. which are the obligations soon becoming due and current assets. The failure of a company to meet its obligation due to lack of adequate liquidity will result in bad credit ratings.Ratios may be classified from the point of view of financial management or objective • Liquidity Ratios. therefore. The liquidity ratios. • Profitability Ratios. • Turnover Ratios. Formula: Current ratio = Current Assets/Current Liabilities 25 . LIQUIDITY RATIOS (Short Term Solvency) ‘Liquidity’ means ability of a firm to meet its current liabilities. this ratio matches the current assets of the firm to its current liabilities. The following ratios are commonly used to indicate the liquidity of business: i) Current Ratio (Working Capital Ratio) This ratio is most commonly used to perform the short-term financial analysis. • Capital Structure Ratios. which presumably provide the source from which these obligations will be met.

prepaid expenses.Current assets include cash in hand and at bank. in the normal course of business will be converted in cash in a year’s time. stock in trade. bank overdraft. ii) Quick Ratio This ratio is also known as acid test ratio or liquid ratio. outstanding expenses. It is an indicator of a firm’s ability to promptly meet its short-term liabilities. It is a more severe test of liquidity of a company. A relatively high current ratio indicates that the firm is liquid and has the ability to meet its current liabilities. readily marketable securities. any other asset which. such as sundry creditors. bills payable. Formula: 26 . On the other hand. bills receivable. current assets should be twice the amount of current liabilities A very high current ratio is also not desirable because it indicates idleness of funds which is not a sign of efficient financial management. It shows the ability of a business to meet its immediate financial commitments. a relatively low current ratio indicates that the firm will find it difficult to pay its bills. dividends payable. provision for taxation and unclaimed dividends. In other words. income tax payable. Current Liabilities include all obligations maturing within a year. It is used to supplement the information given by the current ratio. Significance and Objective: Current ratio throws good light on the shortterm financial position and policy. Normally a current ratio of 2 : 1 is considered satisfactory. debtors less provision for bad and doubtful debts.

27 . Generally a quick ratio of 1 :1 is considered to represent a satisfactory current financial position. Formula: Absolute Liquidity ratio = (Cash + Short term marketable securities)/Current liabilities In calculating this ratio. iii) Absolute Liquid Ratio This is also known as super quick ratio or cash ratio. Liquid or quick liabilities refer to all current liabilities except bank overdraft. it gives a better picture of the firm’s ability to meet its short-term liabilities out of its short-term assets. Similarly prepaid expenses are also excluded as they cannot be converted into cash. Stock is not included in quick assets for the purpose of this ratio. On account of a low ratio. both inventories and receivables are deducted from current assets to arrive at absolute liquid assets such as cash and easily marketable investments in securities.Quick ratio = Quick (or Liquid) Assets/Quick Liabilities The quick assets include cash. the business may find itself in serious financial difficulties. This ratio is of great importance for banks and financial institutions. Significance and Objective: When quick ratio is used along with current ratio. debtors (excluding bad debts) and securities which can be realised without difficulty.

say from financial institutions. Important Capital Structure ratios are: i) Debt-Equity Ratio This ratio attempts to measure the relationship between long term debts and shareholders’ funds.Significance and Objective: Higher the ratio. Shareholders’ funds on the other hand include share capital (both equity and preference) and accumulated profits in the form of general reserve. long term loans.  Regular payment of interest. There are two aspects of long term solvency of a firm:  Ability to repay the principal amount when due. and any other fund that belongs to the shareholders. Past accumulated 28 . capital reserve. the higher is the cash liquidity. These are used to analyse the long term solvency of any particular business concern. In other words. CAPITAL STRUCTURE RATIOS OR GEARING RATIOS (Long Term Solvency) Capital structure Ratios are also known as gearing ratios or solvency ratios or leverage ratios. Formula: Debt Equity ratio = Long term debts/Shareholders’ funds Long term debts include debentures. A low ratio is not a serious matter because the company can always borrow from the bank for short term requirements. this ratio measures the relative claims of long term creditors on the one hand and owners on the other hand. on the assets of the company.

This ratio also indicates the extent to which a company has to depend upon outsiders for its financial requirements. The higher the proprietary ratio. On the other hand. Total assets include all tangible assets and only those intangible assets which have a definite realisable value. preference share capital and all items of reserves and surplus.losses and deferred expenditure like preliminary expenses should be deducted while computing shareholders’ funds. The debt equity ratio of 1: 1 is generally acceptable. However. ii) Proprietary Ratio This is a variant of debt equity ratio. the greater the long term stability of the company and consequently greater protection to creditors. a very high proprietary ratio may not necessarily be good because if 29 . the less the company has to worry in meeting its fixed obligations. Significance and Objectives: This ratio shows the relative amount of funds supplied to the company by outsiders and by owners. Significance and objective: Proprietary ratio shows the extent to which shareholders own the business and thus indicates the general financial strength of the business. A low debt equity ratio implies a greater claim of owners on the assets of the company than the creditors. It measures the relationship between shareholders’ funds and total assets. The lower the ratio. Formula: Proprietary ratio = Shareholders’ funds/Total assets Shareholders’ funds comprise of ordinary share capital. a high debt equity ratio indicates that the claims of the creditors are greater than those of the owners.

Formula: Interest Coverage ratio = Earnings before tax and interest (EBIT)/Fixed interest charges Significance and Objective: This ratio is very important from lender’s point of view because it indicates the ability of a company to pay interest out of its profits.funds of outsiders are not used for long term financing. 30 . bills payable. iv) Debt to Total Funds Ratio This ratio shows the relationship between debts and total funds employed in the business. outstanding expenses etc. This ratio also indicates the extent to which he profits of the company may decrease without in any way affecting its ability to meet its interest obligations. Formula: Debts to Total Funds ratio = Debt/Total Funds The term debt includes long term loans and current liabilities like sundry creditors. The standard for this ratio for an industrial company is that interest charges should be covered six to seven times. bank overdraft. a firm may not be able to take advantage of trading on equity. iii) Interest Coverage Ratio (Fixed Charges Cover) This ratio indicates whether the business earns sufficient profit to pay periodically the interest charges.

the better it is for creditors because they are more secure and viceversa. The lower this ratio. If the ratio is exactly one. This ratio also serves the purpose of indicating the possibility of raising additional loans. A highly geared company has the advantage of trading on equity. TURNOVER RATIOS (Performance Ratios or Activity Ratios) 31 .Total funds employed includes shareholders’ funds. long tem loans and current liabilities. In other words. it is evenly geared. Significance and Objectives: This ratio shows the proportion of funds supplied by outsiders in the total funds employed in the business. it is low geared. v) Capital Gearing Ratio This is the ratio between the fixed interest bearing securities und equity share capital. a high ratio of debts to total funds employed is a danger signal for creditors. If it is less than one. Significance and Objectives: a company is highly geared if this ratio is more than one. higher this ratio it gives a feeling of insecurity to the creditors. Formula: Capital gearing ratio = Fixed income securities/Equity share holders fund Fixed income securities include debentures and preference share capital.

A higher turnover ratio generally indicates better use of capital resources which in turn has a favourable effect on the profitability of the firm. Important turnover ratios are: i) Inventory turnover Ratio (Stock Turnover Ratio) This ratio is calculated by dividing the cost of goods sold by average inventory. A low inventory turnover ratio is an indicator of dull business. accumulation of inventory. thus.Closing stock Average Stock = 1/2 (Opening stock + Closing stock) Significance and Objectives: Inventory or stock turnover ratio indicates the efficiency of a firm’s management. This ratio gives the rate at which stocks are converted into sales and then into cash. It establishes the relationship between the cost of goods sold during a given period and the average amount of stock carried during the period. These ratios. Formula: Inventory Turnover ratio = Cost of goods sold/Average Stock (Inventory) Where. over 32 .Turnover ratios are used to indicate the efficiency with which assets and resources of the firm are being utilised. express the relationship between sales and various assets. Cost of goods sold = Sales . These ratios are known as turnover ratios because they indicate the speed with which assets are being converted or turned over into sales.Gross profit Cost of goods sold = Opening stock +Purchases + Carriage inward and other direct expenses .

Formula: Debtors Turnover ratio = Credit Sales/Average Debtors The term debtors includes trade debtors and bills receivables. debtors that do not arise from regular sales should be excluded. Such a situation prevents the company from meeting customers’ demands and the company cannot earn maximum profits. Changes in this ratio show the changes in the company’s credit policy or changes in its ability to collect from its debtors. 33 . It may be the result of a very low level of stock which results in frequent out-of-stock positions. It shows the rate at which cash is generated by the turnover of debtors. The efficiency of debt collection is also indicated by this ratio.investment in inventory or unsaleable goods etc. a high stock turnover ratio is considered better as it indicates that more sales are being produced by each rupee of investment in stock but a higher stock turnover ratio may not always be an indicator of favourable results. Moreover. Generally speaking. A higher debtors turnover ratio indicates that debts are being collected more quickly. ii) Debtors Turnover Ratio (Receivables Turnover Ratio) This ratio indicates the relationship between net credit sales and trade debtors. Doubtful debts are not deducted from debtors. Significance and Objectives: The significance of this ratio lies in the fact that debtors constitute one of the important items of current assets and this ratio indicates as to how many days’ average sales are tied up in the amount of debtors.

may indicate excess of net working capital. Formula: Working Capital Turnover ratio = Sa1es/Net working Capital The term net working capital means current assets minus current liabilities. land and building etc. Significance and Objectives: Generally speaking. Significance and Objective: A high working capital turnover ratio shows the efficient utilisation of working capital in generating sales. A low ratio. on the other hand. This ratio thus shows whether working capital is efficiently utilised or not. iv) Working Capital Turnover Ratio This ratio indicates the efficiency or inefficiency in the utilisation of working’ capital in making sales. v) Capital Turnover Ratio 34 . a high ratio indicates efficient utilization of fixed assets in generating sales and a low ratio may signify that the firm has an excessive investment in fixed assets. Formula: Fixed Assets Turnover = Sales (or Cost of Sales)/Net Fixed Assets The term net fixed assets means depreciated value of fixed assets.iii) Fixed Assets Turnover Ratio This ratio indicates the efficiency with which the firm is utilising its investments in fixed assets such as plant and machinery.

PROFITABILITY RATIOS Every business should earn sufficient profits to survive and grow over a long period of time.. Formula: Capital Turnover ratio = Cost of Sales (or Sales)/Total capital employed The term capital employed includes the long term liabilities and total of shareholders funds. A high capital turnover ratio indicates the possibility of greater profit and a low capital turnover ratio is a sign of insufficient sales and possibility of lower profits. measures the relationship between credit purchases and average accounts payable. discount on the issue of shares. debits balance of Profit and Loss Account. 35 . investments) and fictitious assets like preliminary expenses. etc.g.This ratio shows the relationship between cost of sales (or sales) and the total capital employed. Significance and Objectives: This ratio shows the efficiency with which capital employed in a business is used. From this are deducted non-operating assets (e. vi) Creditors Turnover Ratio This ratio also known as Payables Turnover Ratio. Formula: Creditors turnover ratio = Net credit purchases/Average accounts payable Accounts payable include creditors and bills payable. Infact efficiency of a business is measured in terms of profits.

These ratios are: i) Gross Profit Ratio (Gross Profit Margin) This ratio expresses the relationship between gross profit and sales. Formula: Gross Profit ratio = (Gross profit/Net sales) x 100 Net sales means sales minus sales returns. indicates relatively lower cost and is a sign of good management.Profitability ratios are calculated to measure the efficiency of a business. on the other hand. It shows whether the selling prices are adequate or not. It also indicates the extent to which selling prices may be reduced without resulting in losses. Gross profit is sales minus cost of goods sold. ii) Net Profit Ratio (Net Profit Margin) 36 . It may also be due to low selling prices. A low gross profit ratio may indicate a higher cost of goods sold due to higher cost of production. A high gross profit ratio. Profitability of a business may be measured in two ways • Profitability in relation to sales • Profitability in relation to investment. If a company is not able to earn a satisfactory return on investment. Significance and Objectives: Gross profit ratio indicates the average margin on the goods sold. it will not be able to pay a reasonable return to its investors and the survival of the company may be threatened.

Formula: 37 . interest received on investments etc.This is the ratio of net profit to net sales. Comparison of net profit ratio with other firms in the same industry or with the previous years will indicate the scope for improvement.g. iii) Operating Ratio This is also an important profitability ratio.) are deducted and all non-operating incomes (e. dividend income.g. the firm will find it difficult to withstand these types of adverse conditions. This will enable the firm to maximize its efficiency. This ratio explains the relationship between cost of goods sold and operating expenses on the one hand and net sales on the other. A firm with a high net profit ratio is in an advantageous position to survive in the face of rising cost of production and falling selling prices. loss on sale of old assets.) are added. It indicates the efficiency with which a business is managed. Where the net profit ratio is low. provision for legal damages etc. Significance and Objectives: The net profit ratio is the overall measure of a firm’s ability to turn each rupee of sales into profit. Formula: Net Profit ratio = (Net profit/Net sales) x 100 In calculating the net profit. all non.operating expenses and losses (e. Some accountants deduct income tax also for calculating the net profit.

This ratio indicates how well the management has utilised the funds supplied by the owners and creditors. this ratio is intended to measure the earning power of the net assets of the business. In other words. The higher the ROI. iv) Return on investment (ROI) or return on capital employed This is the most important test of profitability of a business. It shows the percentage of net sales that is absorbed by cost of goods sold and operating expenses. It is ascertained by comparing profit earned and capital (or funds) employed to earn it. On the other hand. profitability. It measures the overall. a lower operating ratio is considered a good sign. Formula: ROI = (profit before interest and taxes/Capital employed) x 100 Significance and Objective: ROl is the only ratio which measures satisfactorily the overall performance of a business from the point of view of profitability.Operating ratio = [(Cost of goods sold + operating expenses)/Net sales] x 100 Significance and Objective: The operating ratio is the yardstick to measure the efficiency with which a business is operated. the more efficient the management is considered to be in 38 . A high operating ratio is considered unfavourable because it leaves a smaller margin of profit to meet non-operating expenses.

NAT = Net profit after interest. vi) Earning Per Share (EPS) This ratio measures the earnings per equity share that is. it measures the profitability of the firm on a per share basis. Management also uses this ratio for decision making purposes. A high rate of return on equity shareholders funds is favoured by investors and a higher market valuation is placed on such shares. Significance and Objectives: This ratio shows the profit percentage for equity shareholders. taxes and preference dividend Net profit for the purpose of this ratio is taken after dividend payable to preference shareholders. This ratio is used for inter-firm comparison to judge the comparative profitability of different firms. this ratio can also be advantageously used in judging the performance efficiency of different firms in different industries. reserves and other undistributed profits. Formula: Return on Equity Capital = (NAT/Equity shareholders funds) x 100 Where.using the funds available. v) Return of Equity capital This ratio establishes the relationship between the net profit available to equity shareholder and the amount of capital invested by them. 39 . Equity shareholders funds include equity capital. if any. In fact.

ix) Price Earning Ratio (P/E Ratio) 40 . of equity shares EPS is one of the most commonly quoted and widely publicized ratio.Formula: Earning per share = (Net profit after taxes .Preference dividend)/No. vii) Dividend Pay-out Ratio (Or Pay-out Ratio) It indicates the percentage of equity share earnings distributed as dividends to equity shareholders. Formula: Dividend Pay-out ratio = Dividend per share/Earning per share (EPS) viii) Dividend Yield Ratio Dividend is declared by a company as a percentage of par value or paid up value or a specific amount per equity share. Formula: Dividend Yield Ratio = Dividend per equity share/Market price per equity share This ratio is important for those investors who make investment decisions for the purpose of earning a reasonable yield on the amount of investment.

These limitations should be kept in mind while making use of ratio analysis for interpreting the financial statements.e. So the analyst must always be on the lookout for signs of window dressing. Formula: P/E ratio = Market price per equity share/Earning per share This ratio guides investors to decide whether to buy shares of a company or not. But. if inventory values are inflated or depreciation is not charged on fixed assets. the information given in the financial statements is affected by window dressing. in spite of its advantages. i.. The following are the main limitations of accounting ratios:  False results if based on incorrect accounting data: Accounting ratios can be correct only if the data (on which they are based) are correct. For example. showing position better than what actually is. it has some limitations which restrict its use. so they are historical 41 .  No idea of probable happenings in future: Ratios are an attempt to make an analysis of the past financial statements.This ratio is the market price of shares expressed as multiple of earning per share (EPS). not only will one have an optimistic view of profitability of the concern but also of its financial position. Limitations of Accounting Ratios Ratio analysis is very important in revealing the financial position and soundness of the business. Sometimes. if any.

This may affect the calculation of ratio in different firms and such ratio when used for comparison may lead to wrong conclusions. ratios should be used along with other methods of analysis. in order to calculate ratio may assign different meanings. fixed assets being shown at cost and not at market price.  Price level changes: Changes in price levels make comparison for various years difficult. Therefore. For example. Comparison will become difficult if the two concerns follow the different methods.  Only one method of analysis: Ratio analysis is only a beginning and gives just a fraction of information needed for decision-making.  No common standards: It is very difficult to lay down a common standard for comparison because circumstances differ from concern to concern and the nature of each industry is different. Comparison of financial statements of such firms by means of ratios is bound to be misleading. For example. profit for the purpose of calculating a ratio may be taken as profit before charging interest and tax or profit before tax but after interest or profit after tax and interest. it is important to have an idea of the probable happenings in future. to have a comprehensive analysis of financial statements.  Variation in accounting methods: The two firms’ results are comparable with the help of accounting ratios only if they follow the same accounting methods or bases. the ratio of sales to total assets in 2006 would be much . 42 .  Different meanings assigned to the same term: Different firms.documents. Now-a-days keeping in view the complexities of the business.than in 1986 due to rising prices.

RESEARCH METHODOLOGY INTRODUCTION 43 . The calculations derived from the ratio analysis under such circumstances may get distorted. Ignores qualitative factors: Accounting ratios are tools of quantitative analysis on1y.  No use if ratios are worked out for insignificant and unrelated figures: Accounting ratios may be worked for any two insignificant and unrelated figures as ratio of sales and investment in government securities. Ratios should be calculated on the basis of cause and effect relationship. Such ratios may be misleading. But sometimes qualitative factors may surmount the quantitative aspects.

A good research design has the characteristics. which may be compared to the prescribed standards and norms. TITLE OF THE STUDY 44 . viz. The purpose was also to closely examine the relationship between various financial elements. The current study undertaken at ALLAHABAD BANK is to find out and evaluate its financial performance. Some of these decisions have short term consequences. a common thread is the nature of the information. Most of the studies in India on business finance have laid more stress in comparing financial results of public and private sector undertaking vis-à-vis profitability.. The three basic types of research design viz. • Exploratory • Descriptive • Casual or experimental Running a business means taking decisions all the time. Whatever the nature of the decision.. specific methods of data collection and analysis. It is a blue print that if followed in completing a study.Finance and its functions plays very major role in determining the profitability and stability of the business. time required for research project and the estimate of expenses of to be incurred. A research design is purely and simply the framework or plan for a study that guides the collection and analysis of data. however affects the long term prospects of business. Information is needed to increase your charges of making the best decisions and this study guides the decision maker. and problem definition.

In order to facilitate comparison and take strategic and managerial decisions analytical techniques are required to study the financial statements. If the items appearing in the Financial Statements are to be really meaningful and useful. Accounting ratios or Ratio Analysis establishes relationship between closely related Financial Statements. this Project Report contains analysis of Financial Statements through Comparative Balance sheets. Each and every organization strives to be financially sound. But it is difficult to analyze and take important decisions only by studying the financial statements without any comparison. they should be analyzed in such a way that one item can be compared with another. leverage. liquidity. Statement of Cash Flow. Comparative Profit & Loss Accounts some of the Ratio Analysis and their interpretation. The financial statements clearly reveal the growth of the company over a number of years. Ratio Analysis is one of the tools available to analyze the Financial Statements.A study of “ANALYSIS OF FINANCIAL PERFORMANCE OF ALLAHABAD BANK” STATEMENT OF THE PROBLEM Financial soundness in terms of solvency. profitability and earning capacity are the main objectives of any organization. Hence. The financial position of a business concern depends on the growth it attains in every aspect of the concern. SCOPE OF THE STUDY 45 .

46 . from related experts. The Data was collected from associated literature. Statement of Cash Flow. The method and examination of records were widely used in framing this report.  Financial performance of Allahabad bank is not constant but it is fluctuating. questionnaire and other inputs. observations. Comparative Profit & Loss Accounts some of the Ratio Analysis and their interpretation. METHODOLOGY The Hypothesis that was framed for study relating to banks’ financial performance is the following:  Financial performance of Allahabad bank has shown constant improvement & rise in profits.The study is concentrated mainly on understanding and analyzing the financial statements based in the annual reports of 2008 and 2009 of ALLAHABAD BANK with reference to Comparative Balance sheets. banking journals.

• Assess the profitability of the concern. SOURCES OF DATA PRIMARY DATA Primary data is that data or information collected for the first time and which not have been collected from any other sources. Primary data is called first hand data/information. 47 . • To understand the efficiency of the company. Primary data was collected in the form of : • I visited ALLAHABAD BANK during my field work and met with the manager. liquidity and long-term financial position of the concern. profit and loss account and the balance sheet of the company. The primary data was collected with great care keeping in mind the research objective. • To interpret the financial statement with the help of accounting ratios derived from financial statements.OBJECTIVES OF THE STUDY The following are the objectives of the study: • The primary objective of the study is to analyze the financial statements. • To make suggestions out of the findings of the study. • To study the solvency.

SECONDARY DATA Secondary data is any data that have been gathered earlier for the same purpose.  Internet etc.  Fact sheet published by the bank.  Magazines etc.• The data was gathered by the medium of detailed discussions with officials of the bank to understand the problems of the requirement. 48 .  Newspaper.  Annual repots of the bank.

METHOD OF PROCESSING AND ANALYSIS OF DATA Research design specific for this study including following: Selection of the study period. • This being an academic study.  Collection of banks specific literature that is annual report for the study period.  Collection of information from various journals to understand the industrial background of study. the findings could be misleading. If there is any window dressing. • Some information could not be collected as it is confidential. • Lastly different individuals interpret the ratios in a different manner. • No other company is the same sector has been considered to evaluate the • It’s purely a theoretical study. it suffers from time and cost constraints.LIMITATIONS OF THE STUDY • This study extensively uses the data provided in the financial reports. 49 . ratio standards.  Analysis or tabulated data to recognize the financial position or location of the firm.  Identification of means of financing sources over the study period.  Finally forwarding recommendations and conclusions to the firm.

2.CHAPTER SCHEME 1. sampling plan. and assumptions regarding methodology are discussed here. 4. BACKGROUND OF THE STUDY This chapter throws light on origin and of the industry as a whole. 3. percent status. data processing analysis plan. DISCUSSION OF FINDINGS 50 . its present status and major players in the industry. PROFILE OF THE ORGANIZATION This chapter views the origin and growths of Allahabad bank its business activities. RESEARCH METHEDOLOGY OF THE STUDY The design of the study sated the research design. The study overview as well as the studies limitations is also discussed here. fieldwork. INTRODUCTION This chapter talks about the theory behind financials performance evaluation major techniques of evaluation contribution in the field and what the study attempting to achieve. 5. sources of data. objectives and the profile of the organization.

COMPANY PROFILE 51 .In this chapter data collected is complied. tabulated process and analyzed. CONCLUSION AND RECOMMEDATIONS This chapter contains the summary of finding and suggestion made to increase the profitability. The statistical techniques for the construction of graphs and diagram are used to present data. 6.

” is a heap. "The true original meaning of banco. and commissioners were appointed to pay the interest to the fund holders and to transfer the stock. receiving therefore interest at the rate of five per cent. formed by the contributions of a multitude of persons. Mutuo.” ORIGIN OF THE BANKING The term bank is supposed to be derived from banco. and withdrawl by cheque. Compera. and he was called a bankrupt. Every citizen was obliged to contribute the hundredth part of his possessions to the State. repayable on demand or otherwise. but the most common was Monte. is probably wrong. The great council of the republic finally determined to raise a forced loan. 52 . and this word was metaphorically applied to signify a common fund. or joint stock. of deposits of money from public. the Italian word for bench. draft. This derivation of the term. The public revenues were mortgaged to secure the interest. The loan had several names in Italian."says Macleod. In 1171 the financial condition of Venice was strained in consequence of the wars in which the people were engaged. his bench was broken by the people. or mound. order or otherwise. however. When a banker failed.INTRODUCTION TO THE BANKING DEFINITION The Indian Banking Regulation Act 1949 has defined the term “Banking” under section 5 (1) (b) as accepting for the purpose of lending or investment. the Lombard Jews in Italy having benches in the market-place where they exchanged money and bills." A brief account of the first banking operations in Venice will dispel the haze enveloping this subject.

promoters opened banks to finance 53 . Indian merchants in Calcutta established the Union Bank in 1839. The Allahabad Bank. with some of its assets and liabilities being transferred to the Alliance Bank of Simla. and which could be sold and transferred. For many years the Presidency banks acted as quasi-central banks. That honor belongs to the Bank of Upper India. which almost immediately became the Bank of Bengal. and which survived until 1913. but it failed in 1848 as a consequence of the economic crisis of 1848-49. The first banks were The General Bank of India which started in 1786. both of which are now defunct. which was established in 1863. upon India's independence. when it failed. which originated in the Bank of Calcutta in June 1806. EVALUATION OF BANKING IN INDIA Banking in India originated in the last decades of the 18th century. established in 1865 and still functioning today. became the State Bank of India. The oldest bank in existence in India is the State Bank of India. This was one of the three presidency banks. as did their successors. two more loans were contracted. all three of which were established under charters from the British East India Company. It was not the first though.a joint stock fund. the other two being the Bank of Bombay and the Bank of Madras. the commissioners gave stock certificates bearing interest. which. is the oldest Joint Stock bank in India. When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States. Afterward. and in exchange for the money contributed by the citizens. The three banks merged in 1921 to form the Imperial Bank of India. and the Bank of Hindustan.

Calcutta was the most active trading port in India. followed. in the 1860s. The first entirely Indian joint stock bank was the Oudh Commercial Bank. With large exposure to speculative ventures. The selection measure for listing a bank 54 . Around the turn of the 20th Century. Around five decades had elapsed since the Indian Mutiny. established in 1881 in Faizabad. 1934. COMMERCIAL BANKS Commercial Banks in India are broadly categorized into Scheduled Commercial Banks and Unscheduled Commercial Banks. branches in Madras and Pondichery. Subsequently. most of the banks opened in India during that period failed. the Indian economy was passing through a relative period of stability. which has survived to the present and is now one of the largest banks in India. established in Lahore in 1895. mainly due to the trade of the British Empire. Indians had established small banks. industrial and other infrastructure had improved. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860. The depositors lost money and lost interest in keeping deposits with banks. Foreign banks too started to arrive. It failed in 1958. then a French colony. most of which served particular ethnic and religious communities. and so became a banking center. HSBC established itself in Bengal in 1869. banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. and another in Bombay in 1862. and the social.trading in Indian cotton. The next was the Punjab National Bank. particularly in Calcutta. The Scheduled Commercial Banks have been listed under the Second Schedule of the Reserve Bank of India Act.

The Indian Government presently hires the commercial banks for various purposes like tax collection and refunds. equipments. payment of pensions etc. 1934 The modern Commercial Banks in India cater to the financial needs of different sectors. The banks are allowed to act as trustees. FUNCTIONS OF COMMERCIAL BANK The functions of commercial banks are divided into two categories: 1) PRIMARY FUNCTION. purchase of houses. capital investment purposes etc. acceptance of deposits. On account of the knowledge of the financial market of India the financial companies are attracted towards them to act as trustees to take the responsibility of the security for the financial instrument like a debenture. 2) SECONDARY FUNCTION INCLUDING AGENCY FUNCTION. The primary functions of a commercial bank include: 55 .  PRIMARY FUNCTION. The main functions of the commercial banks are transferring of funds. offering those deposits as loans for the establishment of industries.under the Second Schedule was provided in section 42 of the Reserve Bank of India Act.

Thus.a) Accepting deposits. Such loans and advances are given to members of the public and to the business community at a higher rate of interest than allowed by banks on various deposit accounts. period and the mode of repayment. that is. public are motivated to deposit more funds with the bank. The rate of interest charged on loans and advances varies depending upon the purpose. Generally. i) Loans A loan is granted for a specific time period. Depending upon the nature of deposits. There is also safety of funds deposited with the bank. b) Granting loans and advances. funds deposited with bank also earns interest. commercial banks grant short-term loans. may also be granted. b) Granting loans and advances. But term loans. The difference between the rate of interest allowed on deposits and the rate charged on the Loans is the main source of a bank’s income. People who have surplus income and savings find it convenient to deposit the amounts with banks. loan for more than a year. deposits with the bank grow along With the interest earned. The borrower may withdraw the entire amount in lump sum 56 . The second important function of a commercial bank is to grant loans and advances. If the rate of interest is higher. The most important activity of a commercial bank is to mobilize deposits from the public. a) Accepting deposits.

ii) Advances An advance is a credit facility provided by the bank to its customers. A loan may be repaid either in lump sum or in installments. interest is charged on the full amount of loan. Further the purpose of granting advances is to meet the day to day requirements of business. MODES OF SHORT TERM FINANCIAL ASSISTANCE Banks grant short-term financial assistance by way of cash credit. It differs from loan in the sense that loans may be granted for longer period. but advances are normally granted for a short period of time. The rate of interest charged on advances varies from bank to bank.or in installments. a) Cash Credit 57 . overdraft and bill discounting. Loans are generally granted against the security of certain assets. However. Interest is charged only on the amount withdrawn and not on the sanctioned amount.

Besides the primary functions of accepting deposits and lending money.  SECONDARY FUNCTION INCLUDING AGENCY FUNCTION. Incase any bill is dishonored on the due date. Overdraft facility with a specified limit is allowed either on the security of assets. that is. The party gets the funds without waiting for the date of maturity of the bills. the bank can recover the amount from the customer. or both. b) Overdraft Overdraft is also a credit facility granted by bank. banks perform a number of other functions which are called secondary functions. It is a temporary arrangement. c) Discounting of Bills Banks provide short-term finance by discounting bills. These are as follows – 58 . Interest is charged on the amount actually withdrawn. The customer can withdraw this amount as and when he requires.Cash credit is an arrangement whereby the bank allows the borrower to draw amounts upto a specified limit. or on personal security. The amount is credited to the account of the customer. making payment of the amount before the due date of the bills after deducting a certain rate of discount. Cash Credit is granted as per agreed terms and conditions with the customers. A customer who has a current account with the bank is allowed to withdraw more than the amount of credit balance in his account.

b) Undertaking safe custody of valuables. c) Providing customers with facilities of foreign exchange. e) Standing guarantee on behalf of its customers. f) Collecting and supplying business information. They play a significant role in the economy of a nation:  It encourages savings habit amongst people and thereby makes funds available for productive use. for making payments for purchase of goods. ROLE OF THE BANKS Banks provide funds for business as well as personal needs of individuals. important documents. g) Issuing demand drafts and pay orders. h) Providing reports on the credit worthiness of customers. and securities by providing safe deposit vaults or lockers. d) Transferring money from one place to another. travellers cheques. and from one branch to another branch of the bank. machinery.a) Issuing letters of credit. 59 . circular notes etc. vehicles etc.

60 .  It also facilitates import export transactions.  It helps in national development by providing credit to farmers. houses. etc.  It provides loans and advances to businessmen for short term and longterm purposes. automobiles. It acts as an intermediary between people having surplus money and those requiring money for various business activities.  It facilitates business transactions through receipts and payments by cheques instead of currency.  It helps in raising the standard of living of people in general by providing loans for purchase of consumer durable goods. smallscale industries and self-employed people as well as to large business houses which lead to balanced economic development in the country.

In 1991 the bank commenced its wholly-owned subsidiary All Bank Finance for merchant banking. Their consistent track record of growth with profit provides the confidence of meeting all your Banking requirements. Allahabad Bank is well spread out in India and recently opened first International Branch at Hong Kong. China and same year it rolled out first branch under CBS. Allahabad Bank was founded on April 24. 61 . which will ensure extending to all our NRI customers rich banking experience. 2227 branches (including one in Hong Kong) and 221 ATMs. Trade and Banking started taking shape in India. Currently the bank serves customers across 110 cities with network 6 zonal offices. In June 2006 the bank opened its first representative office at Shenzhen. Bank has also arrangements with correspondents at various important overseas locations. At that juncture Organized Industry. Allahabad Bank is oldest nationalized Bank with rich experience in extending various banking solutions to its valued clients since 1865.ABOUT ALLAHABAD BANK The Oldest Joint Stock Bank of the Country. 1865 by a group of Europeans at Allahabad.

5 Banking  All Bank Tax Benefit Term Deposit Scheme  All Bank Premium SB Account  All Bank Mahila Sanchay Account  All Bank Vikash SB Account  All Bank Premium Current Account  Current Plus Deposit Scheme  Sishu Mangal Deposit Scheme  II. Retail Credit Products  All Bank Housing Finance Scheme  All Bank Educational Loan Scheme  All Bank Car Finance Scheme  All Bank Saral Loan Scheme  Personal Loan Scheme for Pensioners  Personal Loan Scheme for Doctors/ Medical Practitioners  Loan against NSC/ KVP  All Bank Property Loan  All Bank Furnishing Loan  All Bank Gold Loan Scheme  All Bank Mobike Scheme  Overdraft Facility in Savings Bank Account  All Bank Abhusan Scheme 62 . Deposit Products  Flexi-fix Deposit  Rs.PRODUCTS AND SERVICES OFFERED BY THE BANK : PRODUCTS I.

Thus. the History of the Bank spread over three Centuries . All Bank Trade Scheme  AllBank Gyan Dipika Scheme  Allabnk Reverse Mortgage Scheme III. Allahabad Bank was founded on April 24. Twentieth and Twenty-First. 63 .Nineteenth. At that juncture Organized Industry. 1865 by a group of Europeans at Allahabad. Trade and Banking started taking shape in India. Other Credit Products  Kisan Credit Card  Kisan Shakti Yojana  AllBank-Expo SERVICES  All Ayushman Bima Yojana  Cash Management Services  Depository Services  Visa Debit Cum ATM Card  Real Time Gross Settlement (RTGS)  National Electronic Funds Transfer (NEFT)  Gold Card Scheme for Exporters  Charter for MSMEs  Government Business  Regional MSME Care Centres The Oldest Joint Stock Bank of the Country.

Rs.436 per share. 1923’s The Head Office of the Bank shifted to Calcutta on Business considerations.Rs. 1991’s 64 .MILESTONES Nineteenth Century April 24.151 Deposits . merged with Allahabad Bank.119 crores. 1865 The Bank was founded at the confluence city of Allahabad by a group of Europeans. 1969 Nationalized along with 13 other banks. 1989 United Industrial Bank Ltd. July 19. Twentieth Century 1920’s The Bank became a part of P & O Banking Corporation's group with a bid price of Rs. Advances . October.82 crores. Branches .

June. February. 2006 Rolled out first Branch under CBS. a wholly owned subsidiary for Merchant Banking. 2005 Follow on Public Offer (FPO) of 10 crores equity shares of face value Rs. Oct. China.. March 2007 Bank's business crossed Rs.10 each with a premium of Rs. 2007 The Bank opened its first overseas branch at Hong Kong.10 each. reducing Government shareholding to 55.16%. of 10 crores share of face value Rs.23%. 65 . opening Representative Office at Shenzen. Twenty-First Century October.100. 2006 The Bank Transcended beyond the National Boundary. reducing Government shareholding to 71. April.72.000 crores mark. 2002 The Bank came out with Initial Public Offer (IPO).Instituted All Bank Finance Ltd.

Diwali Bonanza – 11% On Term Deposits  Allahabad Bank crosses Rs. personal. car/auto loans unaffected by BPLR increase  Allahabad Bank Maintains Its Surge Forward  Allahabad bank completes Debt Waiver exercise  Allahabad bank increases BPLR and Deposit interest rates  Allahabad Bank Launches Debt Waiver Scheme  Allahabad Bank Presents Powerful Performance and Spectacular Results  Allahabad Bank cuts benchmark prime lending rate (BPLR) by 25 basis points  Hon'ble Union Finance Minister opens 2154th branch of Allahabad Bank at Pudukkottai.  Allahabad bank cuts Benchmark Prime Lending Rate (BPLR) by 75 basis points  Allahabad Bank.125000 crore business  Allahabad bank increases interest rates on deposits  Allahabad Bank Chairman Calls On Hon’ble Union Finance Minister  Allahabad bank keeps housing. Tamil Nadu  Allahabad Bank cuts interest on housing loans By 25 basis points  Allahabad Bank cuts Deposit as well as Lending rates  Allahabad Bank steady on growth path 66 . education.2008  Allahabad Bank announces special package for housing loan & MSME borrowers  Allahabad Bank revises Interest rates on FCNR and NRE Deposits.

 Bank is offering RTGS/NEFT fund transfer facility through its all CBS Branches in which funds can be transferred to any of 61000 Bank Branches across the country.  Online Payment Gateway Services launched by the Bank for its Customers to make online payments at the billers’ site with instant debit from their accounts.  Instant ATM-cum Debit Card facility launched for the customers of CBS Branches.82% last year. Bank has installed 211 ATMs facilitating more than 5.  Net NPA reduced to 0.72.  Internet Banking.51% (YOY)  Total Business soared by 25. 67 . e-Payment of Taxes made available through all CBS Branches.2009  Deposits registered Growth of 25. 152.03 % (YOY)  Operating Profit surged by 47 % (YOY)  Provision Coverage Ratio increased to 88.35 % from 0.80 lacs ATM –cum-Debit Cardholders of our Bank. SMS Banking.39 % (YOY)  Gross Credit up by 24.02 % of the Bank’s business have been brought within the network.RTGS/NEFT facility has also been extended through Internet Banking.  Bank has geared up CBS implementation and 961 Branches/Offices covering 81.  Book Value per share mounts to Rs.29 %  Capital Adequacy Ratio surges to 15%.

33 (USD in Millions)  Corporate Address 2 Netaji Subhas Road.R. Kolkata-700001.in MANAGEMENT DETAILS  Chairperson . Sukriti Likhi Government Nominee Director 68 .PROFILE  Date of Establishment 24-04 1865  Revenue 1454.J P Dua  Managing Director. www.allahabadbank.J P Dua  LIST OF DIRECTORS  Shri Debabrata Sarkar Executive Director  Shri M. Nayak Executive Director  Smt. West Bengal.

V. Shri Mohammad Tahir RBI Nominee Director  Shri K. Kolkata-700029 BUSINESS OPERATIONS Bank . Gudireddy Part Time Non . K.Public 69 . Hazra Road.Official Director REGISTRAR & SHARE TRANSFER AGENT M/S MCS LTD.Official Director  Dr. Dogra Officer Employee Director   Shri P. Gudireddy Part Time Non . Shakeel Uz Zaman Ansari Part Time Non .Official Director Shri P. 77/2A.Official Director  Smt Joginder Kaur Part Time Non . V. Vasant Baburao Kaujalgi Shareholder Director  Dr.

R.521 Million (year ending Mar 2009) Net Profit . 7685. M/s S.981 Million (year ending Mar 2009) Company Secretary Dina Nath Kumar BANKERS AUDITORS      M/s Venkat & Rangaa M/s Sudit K Parekh & Co M/s M. 85066. Ghose & Co.M. Agarwal & Co.Rs. Narain & Co.Rs. M/s K. COMPETITORS DETAILS  STATE BANK OF INDIA 70 .FINANCIALS    Total Income .

induction of State-of-the-art Technology and through Structural Re-organization. CANARA BANK  HDFC BANK  ICICI  VIJAY BANK  UTI  PUNJAB NATIONAL BANK   DENA BANK SYNDICATE BANK BANKS VISION AND MISSION Vision To put the Bank on a higher growth path by building a Strong Customer-base through Talent Management. ANALYSIS OF DATA & INTERPRETATION Comparative Balance sheets as on 31st March 2008 and 31st March 2009 71 . MissionTo ensure anywhere and any time banking for the customer with latest state-of-the-art technology and by developing effective customer centric relationship and to emerge as a world-class service provider through efficient utilization of Human Resources and product innovation.

000 2. Capital 4.766) (18.843 17.050.717. Deposits 4.7% 829.467.006 13.927 4.204.552 51.370.328 0 63.Total Liabilities B. Fixed Assets 6.437 14. Advances 5.849 102% 26.480.Reserves & 47.Cash & Balance with RBI 2.519 382.486. 4.887 9.643) 976.467.163.236 976.052.393.367 58.153.467. Balance with banks & Money at call & Short Notice 3.7)% 7.1)% 7.000. Investments 4.097.843) Analysis Based on Comparative Balance Sheets 1) Capital & Liabilities 1) The total issued capital as at 31-03-2009 is Rs.661 588.000.634 90.714.497 849.017.973 10.563. Borrowings 5.794 (2.056 (85.500 296.26% 3.Particulars As on As on 31-03-2008 31-03-2009 (Rs in 000) Increase/ % Decrease change A.086.734.507.491 Surplus 3.54. Capital & Liabilities 1.872.079 62. Assets 1. Total Assets 716.410 15.Other Liabilities & Provisions 6.53% (15)% (15.831 17.49.888.467.236 (147.439 234.10 each held by central 72 .393.079 829.002.676 11.997 497.497 62.919.000 divided into 2.987 43. Other Assets 7.812.098.09.213.786 (11.000 equity shares of Rs.681.743.480.532.2% 18.620) (15773401) 147086843 Negligible 13.000 54.6% (47.35.70)% (36.510.71% 18.59)% 17.

8. It is observed that there has been no change in the called-up capital. Deposits from banks and others has grown by 21.32% and stood at Rs.59% during the year 2008-2009.6. 227.446. The share of central government in paid-up capital stood at Rs 246700000 which is approximately 55. An amount of Rs.000 equity Shares of Rs. 73 . Borrowings from banks and other institutions in India have gone down by 100% from Rs.00. The bank’s authorized capital is Rs.743.000.00. 4) The borrowings during the year 2008-2009 have gone down by 47. On the other hand borrowings from RBI has been cleared in 2006-2007.850.70%.745.10/. 12.2%.5% of its authorized capital.628.000.813.000 towards allotment money has been collected in the year 2008-2009 from the public.000.000 from 4. 3) Deposits during the year 2008-2009 have grown by 18.77% is held by the public.000.each held by Public & Others. 2) It is observed that during the year 2008-2009 the amount of reserves and surplus has gone up by 13. Borrowings from outside India are increased to Rs. The balance of 44.6%%. 150.Savings bank deposits has grown by 13.742.government and 2.000. Transfers to statutory reserves and capital reserves have increased during the year 2008-2009 by approximately 44% while transfer to general reserve has dropped by 66%.23% of the paid-up capital.903 thousands.71% and stood at Rs. All the borrowings are nonsecured. 555. The bank has issued approximately 9.000. There has been no change in share premium account. Borrowings from outside India have gone down by a massive 36.363 thousands.

241.070.94.608.78% during the year 2008-2009. 1294210 at 24.15%.000 balance in current accounts with banks outside India during the year 2007-2008.32%. The cash in hand. but stood at around Rs. There is no money at call and short notice in India or outside India.32% during the year 2008-2009.07% during the year 2008-2009.98%. The balances with banks outside India in current accounts and other deposits accounts have increased to 171. 3) Investments during the year 2008-2009 have marginally gone up by 26.705.000 during 2008-2009.3. It is important to note here that there was no change in share capital. 6) The total liabilities during 2008-2009 have increased by approximately 36. It is worth noting that around 72.35. Outstanding interest stood at Rs.98.71 % and stood at Rs. 1.510.000 by 12.759. by Rs.734.5%. and interest outstanding has gone up 26.12% of the total investment is in government securities in the year 2008-2009 74 . which include bills payable. 2) The balances with banks and money at call and short notice is nil during the year 2008-2009.62% and so increase in gross investment. hence indicating that liabilities other than capital have gone up during the year 2008-2009.000 . The balances with banks in India in current accounts and other deposits accounts have marginally decreased by Rs.5) Other liabilities. It is important to note that there was Rs. Provision for depreciation on investments has increased in the year 2008-2009 by 33. 296.000 during the year 2008-2009.000 stood at Rs. which has increased.4.000.749.3.497. Assets 1) The cash and balance with RBI has deccreased by around 20. Balance with Banks in Current Accounts has decreased by 7.

318. The inter-office adjustments is nil for both the year. There are no advances outside India while in India. overdrafts and loan repayable on demand comprise 41. During 2008-2009.096.000.680. There has been a increase in outstanding interest in the year 2008-2009 as compared to 2007-2008. premises to the tune of Rs. Term loans comprise 55.4.000 were added. 75 .390. A majority 78% of advances is secured by tangible assets while unsecured advances have gone up by 31.57% during the year 2008-2009.57%.while investment in shares is only 0. 4) Advances during the year 2008-2009 have gone up by 18.17% comparatively.76%.785.000 and other fixed assets including furniture fixtures of Rs.56% of the total advances while cash credits. 5) Investment in fixed assets during the year 2008-2009 has gone up by 3.26%. 6) Other assets have gone down by 15% during the year 2008-2009.32%. advances in priority and public sector account for 46.86%. 7) The total assets during 2008-2009 have gone down approximately by 15%. Other assets include outstanding interest and comprise around 32% of the total.300. Investment in debentures and bonds in the year 2008-2009 has dropped 24. 9. The total accumulated depreciation as on 31-03-09 stood at Rs.

418. Interest earned 9.712. Income 61.278 11.Operating 11.419. Interest expended 44.071. Other income B.988.771.670 19.550 15.36% 7.060.119 1. Expenditure 1.818 2.795 2.243 52.159 1.Comparative Profit & Loss Accounts for the year ended 31st March 2008 and 31st March 2009 (Rs in 000) Increase/ % Decrease change Particulars 31-032008 31-032009 73.573 2.89% 76 .72% 20.647.647.613 A.34% 18.935.

expenses 3. Provision and Contingencies C. Net Profit (A – B)

11,575,834 5,047,679 7,685,981

13,994,384 11,325,543 6,277,864 9,747,424 2,061,443 26.82% (16.1%) 124.4%

Total Income Total Expenditure

85,066,521 77,380,540

71,359,732 61,612,308

(13,706,789)

(15,768,232)

(20.4%)

Analysis Based on Comparative Profit and Loss Account A) Income

1) The total interest earned during the year 2008-2009 has gone up by 19.34%. Income on investments has increased by only 10.78% though it may be observed that an investment during the year 2008-2009 has gone up by 26.71%.
2) There is an increase of 18.36% in other income during the year 2008-

2009. Income from commission, exchange and brokerage has gone up by 24.78%, while income from subsidiaries has decreased by a massive 74%.
B) Expenditure 1) There is an increase in interest expended during 2008-2009 it has gone

up by around 15.72%. During 2008-2009 the interest paid on deposits has up by approximately 13.46% during the year 2008-2009
2) Operating expenses during 2008-2009 have gone up by around

20.89%. Payment to employees and directors fees is Rs. 10,290,000 of

77

the operating expenses, advertisement and publicity expenses has gone down by 7.67% during 2008-2009 while law charges have gone down by 22.17%.
C) Net Profits

The net profits have shown an increase of approximately 26.82% during 2008-2009.

Statement of Cash Flow for the year ended 31st March 2008

(Rs. in ‘000)

Particulars A. Cash flow from operating activities B. Cash flow from investing activities C. Cash flow from financing activities D. Balances at the beginning of the year Cash and Balances with the RBI Balances with Banks and Money at Call E. Balances at the end of the year Cash and Balances with the RBI Balances with Banks and Money at Call Total cash flow during the year (A+B-C) or (D-E)

Rs.

Year ended 31-03-07
7032660 (683038) (14651653)

40679399

49419687 8740288
62888552 7532410 70420962 21001275

78

Statement of Cash Flow for the year ended 31st March 2009

(Rs. in ‘000)

Particulars A. Cash flow from operating activities B. Cash flow from investing activities C. Cash flow from financing activities D. Balances at the beginning of the year Cash and Balances with the RBI Balances with Banks and Money at Call E. Balances at the end of the year Cash and Balances with the RBI Balances with Banks and Money at Call Total cash flow during the year (A+B-C) or (D-E)

Rs.

Year ended 31-03-07
(23853) (946030) (3083444)

62888552 7532410 70420962

51153786 15213849 66367635 (4053327)

79

SHORT TERM SOLVENCY RATIO These are the Ratio. It is defined as the systematic use of ratio interpreter statement so that strength and weakness of a firm as well as the historical performance and correct condition. TYPES OF RATIO 1. Ratio analysis determines trends and exposes strengths or weaknesses of a firm. can be determined. Single most important technique of financial analysis in which quantities are converted into ratios for meaningful comparisons. Profitability Ratio 1. which measures. the short-term solvency of financial position of the firm. These Ratios are calculated to comment upon the short term paying capacity of a concern or the firm’s ability to current obligations 80 . with past ratios and ratios of other firms in the same or different industries.RATIO ANALYSIS Ratio analysis is widely used of financial analysis. Turn-over Ratio 4. Long term Solvency Ratio 3. Short term Solvency Ratio 2.

083.623 2008-09 654. The Ratio is a measure of the general liquidity of the Bank for a short period of time.818 Current Ratio 0.088.76 2007-08 567.254 0.625.The various types are: a) Current Ratio b) Quick Ratio a) CURRENT RATIO It may be defined as the relationship current liabilities. Current Assets (CA) Current Ratio = ----------------------------------------Current Liabilities (CL) CURRENT RATIO YEAR Total current asset Total current liabilities 734.77 859.385.269 81 .

766 0.754 C u rre n t R a tio 2 0 0 7 -0 8 2 0 0 8 -0 9 Interpretation: As conventional rules.An assets is said to be liquid if it can be converted 82 .7 7 0. a current ratio of 2:1 or more is considered satisfactory. The higher the current ratio. the larger the amount of current assets in relation to current liabilities.762 0 . b) QUICK RATIO It can be defined as the relationship between quick or liquid assets and current or liquid liabilities .758 0. the greater the margin of safety.0 . the more the items ability to meet its current obligations.7 6 0.768 0.764 0.756 0.

088.and cash with in a short period without loss of value. Quick/Liquid Assets Quick Ratio = -----------------------------------------Current Liabilities YEAR Total current asset Total current liabilities Current Ratio 2007-08 567.385.77 859. Quick assets include all current assets except stock and prepaid expenses.818 0.254 0.76 QUICK RATIO 83 .083.269 734.623 2008-09 654.625.

7 5 8 0 .7 6 6 0 .7 6 8 0 .7 5 6 0 .7 6 4 0 .0 .7 5 4 C u rre n t R a t io 2 0 0 7 -0 8 2 0 0 8 -0 9 84 .7 6 0 .7 6 2 0 .7 7 0 .

It is considered that if quick assets equal to current liabilities. CAPITAL STRUCTURES AND LONG TERM SOLVENCY RATIO Debt Debt –Equity Ratio = -----------------------Equity Solvency ratio = Total Liabilities ----------------------------------Total Assets 85 .Interpretation: By conversion a quick ratio of 1:1 is considered satisfactory. then the concern can meet its obligations.

09) as the ratio has been decreased by 47.370.17 2008-09 2.236 2008-09 9.01) March 2008-2009 (2.393.467.84 Comments: Debt-Equity Ratio is decreased from 2007-08(4.Year Debt Equity Total Assets Total Liabilities 2007-08 17. It shows that the Bank financial position is becoming more sound as it is crossing every financial year.987 4.079 YEAR Debt-Equity RATIO Solvency Ratio 2007-08 4.480. 86 .367 4.000 976.09 0. to 932 cr.000 829.079 829.01 1.236 976.480.393. from Rs.70%.919. 1792 cr.467.

5 2 1 .E q u it y R A T IO S o lve n c y R a t io 1) RETURN ON EQUITY RATIO Return on Equity Ratio indicates the profitability of owner’s investment. we can that solvency position is not bad at all.5 0 2 0 0 7 -0 8 2 0 0 8 -0 9 D e b t .5 4 3 .5 3 2 .There is fall in the ratio but all the time it always maintain the ratio which is above standard (2:1) so. Net Profit 87 . 4 .5 1 0 .

747.685.X 100 Equity Particulars Net Profit Equity Ratio 2007-08 7. Its position was good in the year 2007-08.12% 2008-09 9.00% 30. So.00% 0.00% 2007-08 2008-09 88 .981 4.424 4.00% Ratio 20.00% 40.467. there has been fall of profit to total equity during the year 2008-09.000 58.000 45.467.00% 10.Return on Equity Ratio = --------------------.83% Interpretation: With compared to the figures of the year 2007-08.00% 50. the overall position of the bank is not favorable at all. Ratio 60.

RETURN ON INVESTMENT RATIO This ratio indicates profitability according to the total money invested Net Profit Return on Investment Ratio = ---------------------------. which is same so it’s a good sign for the bank.497 3.424 296. 89 .747.287 Interpretation: The above study shows on upward trend in the ratio in the year 2008-09 as compared to 2007-08.X100 Investments Rs.981 234.685.510. In thousand Particulars Net Profit Investments Ratio 2007-08 7.1.284 2008-09 9.500 3.002.

2 9 % 3 .2 9 % 3 .2 8 % R a t io 2 0 0 7 -0 8 2 0 0 8 -0 9 RETURN ON CAPITAL EMPLOYED RATIO 90 .2 8 % 3 .2 9 % 3 .R a t io 3 .2 8 % 3 .

Return on Capital is 10. The higher the Return on capital means higher the soundness of the bank.359.294.309 917.77% Interpretation: The Return on Capital has been very low in the year 2008-09 as compared to previous year that is 2007-08.81% 7.066.751 Year 2007-08 2008-09 Return Capital 10.77%) decreased little.732 Capital Employed 786.81 in the next year 2008-09 (7.521 EBIT 2008-09 71. In the year 2007-08.EBIT Return on Capital Employed Ratio = -------------------------------X100 Capital Employed Rs. 91 .607. In thousand Year 2007-08 85.

0 0 % 6 .0 0 % 4 .0 0 % 0 .0 0 % 2 0 0 7 -0 8 2 0 0 8 -0 9 R e t u rn C a p it a l NET PROFIT TO TOTAL INCOME The bank net profit as compared to the total income of the bank is depicted with this ratio of net profit to total income.R e t u r n C a p it a l 1 2 .0 0 % 1 0 .0 0 % 8 .0 0 % 2 . 92 .

00% 4.00% 10.X100 Total Income Rs.00% 2.981 Net Profit 85. increase in the net profit is good at all 8.65% in the year 2008-09.747.03% 13.359.732 2008-09 9.00% Interpretation: 12. So. In thousand Particular 2007-08 7.685.65% Ratio 14.521 Total Income 71. But there has been steady growth rate of net profit from the year 2007-08.00% for the bank.00% 0.00% The Net Profit of the bank has increased from 9.066. 6.Net Profit Net Profit to Total Ratio = ----------------------------------.00% 2007-08 2008-09 Ratio 93 .424 Ratio 9.03% in the year 2007- 08 to 13.

2.X100 Total Deposits Rs. Net Profit Net Profit to Total Deposit Ratio = -------------------------------------. which is earned with respect to the deposit made. In thousand 94 . NET PROFIT TO TOTAL DEPOSIT RATIO The ratio illustrates the profit.

07% 1.717.424 Ratio 1.685. 95 .163.831 Total Deposit 849.981 Net Profit 716.14% Interpretation: The above ratio shows a increase in the net profit respective of a steady growth of deposits.Particulars 2007-08 7.887 2008-09 9.747.

0 6 % 1 .1 2 % 1 .0 2 % 2 0 0 7 -0 8 2 0 0 8 -0 9 R a t io 96 .0 4 % 1 .R a t io 1 .0 8 % 1 .1 4 % 1 .1 0 % 1 .

47.1521. reserves and surplus went up by 13. both from within India as 97 .1500 crores divided into equity shares of Rs 10 each.38 crores.882.8%. 10. The authorized capital of the Bank is Rs. The share of central government of India is 55. The bank has no amount due towards allotment money. 8. 2. 4. 6.84 crores as at 31st March 2007. The Bank’s share in the total deposits of Scheduled Commercial Banks (SCBs) stood at 25. A majority 56% of the deposits have a maturity of over 1 year and below 3 years. The balance of 44. which is within the stipulated level of 20% of the total paid-up capital of the Bank. The total foreign shareholding (NRI and FIIs) as at 31st March 2009 was 8.FINDINGS & RECOMENDATIONS: 1. The net worth of the Bank was Rs. During 2008-2009.38 crores as on 31st March 2009.000 as at 31st March 2009. 7.6%.971 crores at the end of 2009. 3. 9. 5. Only 2% of the deposits have a maturity period of 5 years and above. 84.491. 15)The entire borrowings of the Bank. In 2008-2009.40% at the end of 2009 stood at 386. The Bank has issued and subscribed capital of Rs. The capital was last raised during 2004-2005. the deposits grew by 18. 14) Borrowings from outside India went up by massive 79. 12) The Bank’s cost of deposit came down to 5.446.70%.77% is held by the public.99% for the year 2007-2008.7 crores. The total deposit stood at Rs.25% during 2006-2007 and stood at Rs.2% and it was Rs.49% for the year 2008-2009 from 6.23% of the paid-up capital. 13) Borrowings during the year 2008-2009 went down by 47.743.

17) The total liabilities during 2008-2009 went up by 17.There was no change in share capital. A majority 62% of the investments have maturity period of over 5 years. 16)A major 47% of the borrowings have a maturity period of 91 to 180 days.89% of the total investment is in Equity shares. Around 11% of the investments are short term with maturity below 1 year.well as outside India are un-secured. Only 3% of the borrowings have maturity of over 1 year and below 3 years.79% during 2008-2009. 25) The average yield on investments during 2008-2009 stood at 9.61% during 2008-2009.6288.86 crores at the end of 2008 went down to Rs.7%. 22) 23) 24) Around 71. The Bank does not have money at call and short notice with Banks or other institutions in India or outside India.38 crores as on 31st March 2009. Investments increased by 26. The Bank’s balance with RBI in Current Accounts decreased by 20. 98 . 18) 19) 20) 21) The cash in hand which was Rs.70% of the Bank’s investments is in government securities while only .32% during 20082009 The balances with Banks outside India in Current Accounts and other deposit accounts gone up by 412. hence indicating that liabilities other than capital have gone up.33%.5115.

reducing the margins etc. This shows in short period time it will number one in banking sector. Nearly 95% of customers are satisfied. Clearance. these are facilities given by the bank in all facility they doing well compared to the other bank. After completing 100 years ALLAHABAD BANK has achieved tremendous results in short period of span. Thus from this analysis it is seen that the overall performance of the institution is profitable. As far as the main concerned is Market Potentiality for ALLAHABAD BANK. By reviving the interest rates. Locker facility. And in this stiff era of competition by making some 99 . the service offered by ALLAHABAD BANK to the customer in terms of ATM.e. the study and analysis of ALLAHABAD BANK has the tremendous improvement achievement done by ALLAHABAD BANK.Cheque facility. The one of the main objective is service. bank can considerably attract new customers. After having conducted by the analysis for the first objective i. It is observed form the analysis that the bank can expand its market by few changes and improving advertisement.CONCLUSIONS: The topic “AN ANALYSIS OF THE FINANCIAL STATEMENT OF ALLAHABAD BANK” was undertaken to study in detail regarding the banking function and financial statement analysis. etc. e. Taking overall into account we can say that good services are offered to customer.

50 For Rs. For below 1 cr to Rs. (%) For below Rs.75 4.00 2.00 2.25 5.25 5.10 cr& above (w.75 2.00 2.75 5.11. 18.75 4.00 5.50 100 .e.f.00 5.09) NA For Rs.00 2.00 2.e.11.50 6.a.00 3. 23. 10 cr 7 days to 14 days 15 days to 29 days 30 days to 45 days 46 days to 60 days 61 days to 90 days 91 days to 179 days 180 days to 269 days 270 days to 364 days 1 year to less than 2 years 2 years to less than 3 years NA 1.25 2.25 2.75 2.f.a.25 5.11.75 5.25 5.00 2.minutes changes the bank a successfully maintain and improve its market position.00 2.f.00 4.00 3.75 5.50 5.00 2.00 3.25 3.00 4.75 2.75 5.00 6.10 cr Rs.50 1.00 6.00 6. 1 cr less than & above Rs.25 6.75 4. 18.25 3. (%) For For Rs.75 4. ANNEXURE Tenor Existing Interest Rate p.25 3.09) 1.50 Revised Interest Rate p.00 2.25 4.75 2.00 5. 1 cr to less than Rs.25 3.25 5.50 3.00 7.50 5. 1 cr (w.50 4.00 2.e.00 7. 10 cr (w.75 6.09) 1.

25 5. As part of our Centenary year celebrations. 101 .25 5.00 5.50 5.50 7.50 5.50 5.50 5.50 The above rates will be applicable for fresh deposits and renewal of deposits and rates are subject to revision at any time.75% over and above the mentioned rates for deposits with maturity period above 91 days.50 7.3 years to less than 5 years 5 yrs and upto 10 yrs 7. These rates are applicable to deposits opened / renewed after March 12. Senior Citizens are offered an additional rate of 0. 2008.50 7.50 5.

Rate % (unchanged since 18.a.2nd Floor.60 2. All others All others 1 % penal interest to be charged 1. Kolkata-700 001.com 102 .11.59 e years c h 2 years to less than 3 2. E. Revised Rate % p. 3. India Exchange Place.MAIL ID : hofd. The depositors may contact: FOREIGN DEPARTMENT HEAD OFFICE 14. to 2010 2010 b 1 year to less than 2 2.a.allbank@gmail.f 1st March.83 ar years g 3 years only 3.2005) bank N 15 days and upto 1 (one) 3.91 2.50 Any No penal rate to be o year* amount charged p Non Resident (External) Rupee Term Deposit Account (NRE) e With effect from 01.6706 FAX:(033)2231-702.03.2010 n al ra Period Existing rate % p. Telephone:(033)22316703.e. w.Amount of DepositPenal Rate of Interest The above rates are applicable to fresh deposits and for renewal of deposits only.PENAL RATE OF INTEREST FOR PREMATURE WITHDRAWAL OF DOMESTIC TERM DEPOSITS Period of Deposit Premature Any amount closure of term Non Resident (External) Rupee Savings Deposit Account (NRE-SB) deposits for reinvestmen Interest t in our p.f 1st February.a.53 3.e. te w.44 e d 2. These rates are subject to change without notice and the depositors will be advised of the current rates on the date of deposit.6704.

103 .

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