{A study Financial Analysis of Punjab National Bank}

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 INDEX

S.no Title Pg.

No.
ACKNOWLEDGEMENT

PREFACE

I INTRODUCTION 5

II RESEARCH METHODOLOGY 11

III COMPANY PROFILE- 16

PUNJAB NATIONAL BANK
IV DATA INTERPRETATIONS AND 19
ANALYSIS
V FINDING AND SUGGESTION 29-31

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 CONCLUSIONS 32

REFRENCES 33

CHAPTER -I
INTRODUCTION

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 INTRODUCTION

Financial Analysis -

Financial analysis is the process of reviewing and analysing a company's financial statements
to make better economic decisions. These statements include the income statement, balance
sheet, statement of cash flows, and a statement of changes in equity. Financial statement
analysis is a method or process involving specific techniques for evaluating risks, performance,
financial health, and future prospects of an organization.

Techniques of Financial Analysis-

1) Trend analysis

Trend analysis generally involves charting the path of stock prices to make a projection about
where they are headed. Trends can be upward or downward and indicate a bull market or a bear
market. This is one of the special tools of financial analysis as it can be used to predict the
impact of a range of external factors on a stock.

2) Vertical analysis

In the vertical analysis, all items of a financial statement are expressed as a percentage of a
particular header. For example, a company’s net income, various expenses, input costs etc
could be written as a percentage of the sales. This tool is generally used to gain an insight
regarding the correlation between different factors of production and performance indicators.

3) Horizontal analysis

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 This is one of the most popular methods of financial statement analysis. You must have noticed
that news anchors on television quite often say that XYZ company’s net income has increased
by a certain percentage sequentially or annually. Horizontal analysis helps us understand how
the various indicators in a financial statement such as income, sales, interest margin (for
lenders) etc have grown or faltered over a period of time.

4) Cash flow analysis

Cash flow analysis means tracking the expenses and income of a business during a specific
period. It helps one gauge the working capital requirements of the company and consequently,
its speed of expansion in the market and debt requirements.

5) Ratio analysis

Ratio analysis is one of the few techniques of financial analysis that can help an investor
evaluate a company with its peers — companies in the same industry and of the same size. A
few examples are the earnings to price ratio, the net income to sales ratio and return on assets
ratio. This is also a useful method to find the missing links of private companies.

As an investor, you should ensure that you educate yourself with basic concepts of fundamental
and technical investing before you enter the markets.

Financial Institution-

A financial institution is an establishment that conducts financial transactions such as

investments, loans and deposits. Almost everyone deals with financial institutions on a regular
basis. Everything from depositing money to taking out loans and exchanging currencies must
be done through financial institutions. Here is an overview of some of the major categories of
financial institutions and their roles in the financial system.

Bank-

The definition of a bank varies from country to country. Under English common law, a banker
is defined as a person who carries on the business of banking, which is specified as conducting
current accounts for his customers, paying cheques drawn on him, and collecting cheques for
his customers. Whereas in some legal texts in India, the banking company is defined as the one
which transacts the business of banking which means accepting, for the purpose of lending and
investment of deposits of money from the public, repayable on demand or otherwise and
withdrawals by cheques, draft, order or otherwise. Let us now delve into some known

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 definitions of the bank given by established authors & various statues and try to examine the
essentials of ‘bank’ inferred in these definitions.

A bank deals in money in the same way as a businessman deals in goods. Banks are business
enterprises which deal in money, financial instruments and provide financial services for a
price called interest, discount, commission etc.

Classifications of Bank-

Indian Banks are classified into commercial banks and Co-operative banks. Commercial banks
comprise: (1) Schedule Commercial Banks (SCBs) and non-scheduled commercial banks.
SCBs are further classified into private, public, foreign banks and Regional Rural Banks
(RRBs); and (2) Co-operative banks which include urban and rural Co-operative banks.

Source- https://www.jagranjosh.com/general-knowledge/structure-of-banking-sector-in-india-1448530019-1

Reserve Bank of India (RBI):

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Reserve Bank of India is the apex organization of our country. It is also known as the Central
Bank of India. RBI came into existence on April 01, 1935, with Reserve Bank of India
Regulation Act 1934. It was nationalized by the Government of India on January 01, 1949. It’s
headquartered is in Mumbai and the present Governor of RBI is Mr. Shantikanta Das. RBI is
the backbone of the Indian economy.

Scheduled banks:

Those banks that have entered into the Second Schedule of the Reserve Bank of India Act
1934 have been classified as scheduled banks and those are excluded from the list are termed
as Non-Scheduled Banks.

Commercial Banks

Commercial Banks are the type of banks whose primary objective is to accept deposits and
advance loans to the customers (General Public, Corporate and government). Commercial
Banks are regulated under the Banking Regulation Act 1949. This act gives extensive regularity
powers to Reserve Bank of India over Commercial Banks. It also entitled it to inspect their
workings.

In other words, we can say that a Commercial Bank is a financial institution that accepts
deposits, grants loans. It borrows money from those who have money in surplus and lends to
those who need it. The first commercial bank in India was established in 1770, Bank of
Hindustan. Punjab national bank, Axis bank, Dena bank Union bank and syndicate bank, etc.
are some of the commercial banks operated in India.

Public Sector Banks:

Public Sector Banks which are also known as nationalized banks are the banks in which the
majority of stakes are of the government of India. The Government of India nationalized 20
privately owned banks in 1969 and 1980. The objectives of nationalization of banks are to
raise public confidence in the banking system. Reach of banking services in urban as well as
rural services. To ensure the availability of resources to important sectors of society like
agriculture and small-scale industries.

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Private Sector Banks:

Private Sector Banks are the type of banks in which majorly stakes are owned by the private
sector. In 1951, there were 566 private sector banks operating in India, out of which 474 were
Non-Scheduled and 92 Scheduled banks. Some of the private sector banks operating in India
are Karur Vyasa Bank, City Union Bank, Nainital Bank, and Karnataka Bank, etc.

Foreign Banks:

Foreign Banks in India are the ones whose head office is outside the geographical boundaries
of India. They are governed by the rules of the parent country, whereas, the branches operating
in India have to strictly follow the rules of Reserve Bank of India.

Regional Rural banks:

Regional Rural Banks on RRB were set up by the government of India on September 26, 1975,
under the Regional Rural Banks Act 1976. The main objective of the bank is to provide credit
and other facilities to the small and marginal farmers, agricultural laborers, artisans. It also
aims to develop trade, agriculture, commerce, and industry, etc. in the rural areas. At the
moment, the authorized capital of RRB is Rs. 5 crore and the issued capital is Rupees 1 crore.
50% of the issued capital is to be provided by the central government, 15% by the concerned
state and the rest 35% will be sponsored by the sponsoring commercial bank. The shares of
Regional Rural Banks are to be counted as “Approved Securities”.

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 CHAPTER-II
RESEARCH METHODOLOGY

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 RESEARCH METHODOLOGY

Research-

Research is a careful and detailed study into a specific problem, concern, or issue using
the scientific method. It's the adult form of the science fair projects back in elementary
school, where you try and learn something by performing an experiment. This is best
accomplished by turning the issue into a question, with the intent of the research to
answer the question.

Ex-Research can be about anything, and we hear about all different types of research in
the news. Cancer research has 'Breakthrough Cancer-Killing Treatment Has No Side
Effects in Mice,' and 'Baby Born with HIV Cured.' Each of these began with an issue or
a problem (such as cancer or HIV), and they had a question, like, 'Does medication X
reduce cancerous tissue or HIV infections?'

Research Methodology-

A research methodology or involves specific techniques that are adopted in research

process to collect, assemble and evaluate data. It defines those tools that are used to gather

relevant information in a specific research study. Surveys, questionnaires and interviews

are the common tools of research.

Research Design-

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 The research design refers to the overall strategy that you choose to integrate the
different components of the study in a coherent and logical way, thereby, ensuring you
will effectively address the research problem; it constitutes the blueprint for the
collection, measurement, and analysis of data.

Research objective-

➢ The objective of the study is to know about the financial stability of the bank Punjab
National Bank.
➢ To study the Profitability as well as the liquidity of the Bank.

Data used in Study-

➢ The data is collected from year 2016 to 2020 and the data or the figures are collected
from the Financial Statement (Balance sheet and Profit-Loss Statement) of the
selected Public Sector Bank.

➢ The data presented in this report is obtained from company’s official website, other
management literature and by company’s Annual Reports for the last five years and as
well as moneycontrol.com, ndtvfinance.

Tool Used in The Study

Meaning of Ratios-

A ratio is a comparison of two or more numbers that indicates their sizes in relation to
each other. A ratio compares two quantities by division, with the dividend or number
being divided termed the antecedent and the divisor or number that is dividing termed
the consequent.

Meaning of Ratios Analysis-

Ratio analysis is a tool brought into play by individuals to carry out an evaluative analysis of
information in the financial statements of a company. These ratios are calculated from current
year figures and then compared to past years, other companies, the industry, and also the

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company to assess the performance of the company. Besides, ratio analysis is used
predominantly by proponents of financial analysis.

Ratios to be used in Financial Analysis is-

Gross Profit Ratio

The formulae used for the calculation of gross profit is –

Gross Profit Ratio = (Gross Profit / Net Sales) * 100

Gross profit ratio is a profitability measure that is calculated as the ratio of Gross Profit (GP)
to Net Sales and therefore shows how much profit the company generates after deducting
its cost of revenues.

Net Profit Ratio-

The formula used for the calculation of net profit ratio is-

Net Profit Ratio = (Net Profit / Net Sales) * 100

Higher the net profit ratio better the situation for the business as it indicates the firm is been
effectively reducing the operational expenses.

Return on Capital Employed-

The formula used for the calculation of ROCE is:

ROCE = Earnings Before Interest and Taxes / Capital Employed*100

The ROCE indicates how efficiently the long-term funds of owners and creditors are used. And
thus, higher the ROCE is better.

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Debt Equity Ratio-

The formula for debt-equity ratio is-

Debt Equity Ratio = Total Debts / Shareholders Fund

The ideal ratio of the debt-equity is 2:1 it means that the debt of the company should not be
more than if it is than the company is facing the financial risk.

Current Ratio-

The formula used for calculating current ratio is-

Current Ratio = Current Assets / Current Liabilities

Quick Ratio-

The formula used for the calculation of a quick ratio is-

Quick Ratio = (Cash and Cash Equivalents + Marketable Securities + Accounts

Receivables) / Current Liabilities

An ideal ratio is said to be 1:1. If it is more it is considered to be better. Thus, this ratio is better
to test the short-term financial position of the company.

Return on equity-

The formulae used for the calculation of ROE is

ROE= Net Income/ Shareholder funds
Return on equity (ROE) is a measurement of how effectively a business uses equity – or the
money contributed by its stockholders and cumulative retained profits – to produce income. In
other words, ROE indicates a company’s ability to turn equity capital into net profit. You may
also hear ROE referred to as “return on net assets.”

Operating Profit Ratio-

The formula used for the calculation of Operating Profit is:

OPERATING PROFIT RATIO = (Operating profit / Net sales) × 100

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Operating net profit ratio is calculated by dividing the operating net profit by sales. This ratio
helps in determining the ability of the management in running the business.

CHAPTER-III
COMPANY PROFILE-
Punjab National Bank

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 Company Profile “PUNJAB NATIONAL BANK”

Company Logo –

Headquarters: New Delhi

CEO: S. S. Mallikarjuna Rao (1 Oct 2019–till dt)

Founded: 19 May 1894, Lahore, Pakistan

Founders: Lala Lajpat Rai, Dyal Singh Majithia

Punjab National Bank was incorporated in the year 1894. The company's management includes
Ekta Pasricha, Asha Bhandarker, Vivek Aggarwal, Pankaj Jain, Agyey Kumar Azad, Vijay
Dube, Sanjay Kumar, SS Mallikarjuna Rao.

Punjab National Bank, abbreviated as PNB, is an Indian public sector bank headquartered in
New Delhi, India. The bank was founded in 1894 and is the second largest public sector

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bank (PSB) in India, both in terms of business and its network. The bank has over 180 million
customers, 10,910 branches and 13,000 ATMs post-merger with United Bank of
India and Oriental Bank of Commerce, effective from 1 April 2020.

Subsidiaries:

❖ PNB Housing Finance Ltd.

❖ PNB Metlife India Insurance Company Co. Ltd.
❖ PNB Investments Services Ltd.
❖ PNB (International) Ltd.
❖ PNB Gilts Limited

Listing and shareholding

PNB's equity shares are listed on Bombay Stock Exchange and the National Stock Exchange
of India. It is a constituent of the CNX Nifty at the NSE.

Shareholders (as on 31 December 2019) Shareholding

Promoter Group (Govt. of India) 83.2%

FIs / Banks / Insurance 5.6%

Resident Individual 5.7%

Mutual Funds 2.3%

Foreign Institutional Investors (FIIs) 2.2%

Others 1.1%

Total 100.0%

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 CHAPTER-IV
ANALYSIS AND INTERPRETATION

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 ANALYSIS AND INTERPRETATION

Gross Profit Ratio-

The formula used for the calculation of gross profit ratio is-

Gross Profit Ratio = (Gross Profit / Net Sales) *100

Gross Profit Ratio

2016 -15.86

2017 -44.28

2018 -59.28

2019 -14.67

2020 -26.60

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 Gross Profit ratio
0
2016 2017 2018 2019 2020
-10 -15.86 -14.67

-20 -26.6
-30

-40 -44.28

-50
-59.28
-60

-70

GP ratio

Interpretation: -

The higher the gross profit margin the better. A high gross profit margin means that the
company did well in managing its cost of sales. It also shows that the company has more to
cover for operating, financing, and other costs. The Gross profit margin may be improved by
increasing sales price or decreasing cost of sales. From the above table and chart of Punjab
National Bank that the Gross Profit Ratio of the Punjab National Bank is not in the better to
meet its efficiency and hence, in 2016 the Gross Profit is -15.86%, in 2019 its -14.67 % and in
2020 is -26.6 % so, in 2020 the PNB is not in the better state to meet its efficiency.

Net Profit Ratio-

The formula used for the calculation of net profit ratio is-

Net Profit Ratio = (Net Profit / Net Sales) *100

Net Profit Ratio

2016 -7.21

2017 1.87

2018 -25.8

2019 -19.2

2020 0.66

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 Net Profit Ratio
5

-5

-10

-15

-20

-25

-30
2016 2017 2018 2019 2020
NP Ratio -7.2 1.87 -25.8 -19.2 0.66

Interpretation: -

The profit margin ratio directly measures what percentage of sales is made up of net income.
In other words, it measures how much profits are produced at a certain level of sales. This ratio
also indirectly measures how well a company manages its expenses relative to its net sales.
That is why companies strive to achieve higher ratios. They can do this by either generating
more revenues why keeping expenses constant or keep revenues constant and lower expenses
and thus, the bank suffered a loss in year 2016, 2018 and 2019 therefore cannot generate a
profit to achieve its expenses.

Return on Capital Employed-

The formula used for the calculation of ROCE is:

ROCE = Earnings Before Interest and Taxes / Capital Employed*100

Return on Capital Employed

2016 1.88

2017 2.08

2018 1.37

2019 1.69

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 2020 1.81

ROCE
2.5

1.5

0.5

0
2016 2017 2018 2019 2020
ROCE 1.88 2.08 1.37 1.69 1.81

Interpretation: -

With ROCE, the higher the percentage figure, the better. The figure needs to be compared with
the ROCE from previous years to see if there is a trend of ROCE rising or falling. In above
chart of ROCE of PNB it is been stated that in 2017 it is 2.08% it is higher than the rest of the
year as compared to other year and thus, it is better for the company. And from 2019 to 2020
the ROCE has been improved from 1.69 to 1.81.

Debt- Equity Ratio-

The formula for debt-equity ratio is-

Debt Equity Ratio = Total Debts / Shareholders Fund

Debt-Equity Ratio

2016 17.28

2017 17.39

2018 18.8

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 2019 17.36

2020 13.09

Debt-Equity Ratio
20
18
16
14
12
10
8
6
4
2
0
2016 2017 2018 2019 2020
Debt-Equity Ratio 17.28 17.39 18.8 17.36 13.09

Interpretation: -

A high debt to equity ratio, as we have rightly established tells us that the company is
borrowing more than using its own money which is in deficit and a low debt to equity ratio
tells us that the company is using more of its own assets and lesser borrowings. Ideal debt
equity ratio is considered to be 2, therefore 2016-2020 the debt equity ratio is higher than
the ideal ratio and thus, the company is in the risky position.

Current Ratio-

The formula used for calculating current ratio is-

Current Ratio = Current Assets / Current Liabilities

Current Ratio

2016 1.13

2017 1.22

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 2018 1.38

2019 2.33

2020 2.47

Current Ratio
3

2.5

1.5

0.5

0
2016 2017 2018 2019 2020
Current Ratio 1.33 1.22 1.38 2.33 2.47

Interpretation: -

In general, a current ratio between 1.5 to 2 is considered beneficial for the business, meaning
that the company has substantially more financial resources to cover its short-term debt and
that it currently operates in stable financial solvency. In 2016-2018 the current ratio is less
than 1.5 and thus, the company has substantially more financial resources to cover its short-
term debts, and in 2019-2020 the current ratio is more than 2, and thus it is not able to meet
the short-term solvency of the business.

Quick Ratio-

The formula used for the calculation of a quick ratio is-

Quick Ratio = (Cash and Cash Equivalents + Marketable Securities + Accounts

Receivables) / Current Liabilities
Quick Ratio

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 2016 14.3

2017 6.8

2018 10.0

2019 6.8

2020 8.8

Quick Ratio
16

14

12

10

0
2016 2017 2018 2019 2020
Quick Ratio 14.3 6.8 10.7 6.8 8.8

Interpretation: -

The quick ratio represents the amount of short-term marketable assets available to cover short-
term liabilities, and a good quick ratio is 1 or higher. The greater this number, the more liquid
assets a company has to cover its short-term obligations and debts. A number less than 1 might
indicate that a company doesn’t have enough liquid assets to cover its current liabilities. In all
the year from 2016-2020 the quick ratio is greater than 1 and thus, covers all obligations

Return on equity-

The formulae used for the calculation of ROE is

ROE= Net Income/ Shareholder funds
You may also hear ROE referred to as “return on net-worth.”

Return on Equity

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 2016 -9.47

2017 3.01

2018 -31.2

2019 -22.5

2020 0.74

ROE
5
0
-5
-10
-15
-20
-25
-30
-35
2016 2017 2018 2019 2020
ROE -9.47 3.01 -31.2 -22.5 0.74

Interpretation: -

A higher ROE suggests that a company’s management team is more efficient when it comes to
utilizing investment financing to grow their business (and is more likely to provide better
returns to investors). A low ROE, however, indicates that a company may be mismanaged and
could be reinvesting earnings into unproductive assets. And thus, in year 2016 (-9.47), 2018( -
31.2), 2019(-22.5) the ROE was low than 2017 and 2020. It means that the company was
utilizing it finance well.

Operating Profit Ratio-

The formula used for the calculation of Operating Profit is:
OPERATING PROFIT RATIO = (Operating profit / Net sales)

Operating Profit Ratio

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 2016 -20.9

2017 -17.2

2018 -44.05

2019 -33.35

2020 -16.43

OP Ratio
0
-5
-10
-15
-20
-25
-30
-35
-40
-45
-50
2016 2017 2018 2019 2020
OP Ratio -20.9 -17.2 -44 -33.3 -16.4

Interpretation: -

A higher operating margin is more favourable compared with a lower ratio because this shows
that the company is making enough money from its ongoing operations to pay for its variable
costs as well as its fixed costs and in the above it shows that the operating profit are low so, it
is not favourable for the bank.

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 CHAPTER-V
FINDINGS, SUGGESTION
AND CONCLUSIONS

FINDINGS

➢ As the gross profit of PNB is not in the better state to its efficiency and thus, The Gross
profit margin may be improved by increasing sales price or decreasing cost of sales.

➢ The Net Profit Margin is not able to meet its efficiency in the year 2016,2018,2019 and
thus to improve and increase its net profit ratio the bank should increase its revenues.

➢ ROCE is been improving from 1.69 to 1.81 in 2019 and 2020 it means the bank has
well managed its outdated assets and thus, ROCE is well managed.

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 ➢ The bank has not paid its debt considering the ideal ratio 2 the ratio is greater than the
2 therefore the bank is in the risky situation.

➢ Current ratio of PNB in 2019 and 2020 year is higher than the ideal ratio and thus it is
not able to meet its short-term obligation and other resources. And the quick ratio of
PNB states that is able to meet its short-term resources.

➢ Return on equity is also termed as return on net worth and thus, by analysing the ratio
one can say that the bank is utilising its finances well in year 2020.

SUGGESTIONS
➢ The bank’s current and liquid asset is sufficient to meet the current liabilities of the bank

which shows the sound liquid position. The bank has to take necessary steps to maintain

proper ratio.

➢ The Financial positions of the bank are satisfactory. Further the bank can increase its

financial position by maintaining proper cash in hand and cash in bank.

➢ The operating profit of the bank has decreased. In order to increase the net profit, the

bank has to reduce the expenses.

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 ➢ Proper control over various expenses may increase the net profit of the bank. The

statutory reserve and capital reserve are not satisfactory. The bank has to maintain

proper reserve for the financial of the bank.

➢ The bank has to maintain proper assets to have a good long-term financial position.

CONCLUSIONS

➢ Analysis and interpretation of Balance sheet and Profit Loss statement of Punjab

National Bank is an important tool in assessing the banks performance. It reveals the

strength and weakness of the organization.

➢ According to this study I came to know from the balance sheet and profit loss statement

that the financial position of the bank is satisfactory.

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 ➢ The bank has to take necessary steps to reduce the non-performing assets of the bank

and to increase the net profit of the bank.

➢ From the balance sheet the profitability position of the bank is found to be satisfactory.

➢ From this project I got to know about banking services. It also helped enhance my

knowledge in banking sector.

***************

REFRENCES

❖ https://www.moneycontrol.com/financials/punjabnationalbank/profit-lossVI/PNB05
❖ https://corporatefinanceinstitute.com/resources/knowledge/finance/quick-ratio-
definition/
❖ https://www.ndtv.com/business/stock/punjab-national-bank_pnb/reports
❖ http://www.moneycontrol.com/financials/punjabnationalbank/balance-
sheetVI/PNB05#PNB05
❖ https://ijesc.org/upload/49d6a6d23ef95e9bdb1e6709c21018ba.A%20Study%20on%2
0Financial%20Analysis%20of%20Punjab%20National%20Bank%20(1).pdf
❖ https://corporatefinanceinstitute.com/resources/knowledge/finance/types-of-financial-
analysis/
❖ https://www.accountingformanagement.org/return-on-capital-employed-ratio/
❖ https://www.toppr.com/guides/accountancy/analysis-of-financial-statements/meaning-
significance-objectives-financial-analysis/
❖ https://www.ndtv.com/business/stock/punjab-national-bank_pnb/financials-historical

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