Financial Statement Analysis: Financial statement analysis of a company is very important to get an

overall view about an organization. It generally consists of interpretation of balance sheet and
interpretation of income statement. By using these two sources one can perform the ratio analysis and
trend analysis which are the major tools for analysing the financial performance of a bank. 5.2 Balance
sheet: In financial accounting, a balance sheet or statement of financial position is a summary of the
financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and
ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is
often described as a "snapshot of a company's financial condition". Of the four basic financial
statements, the balance sheet is the only statement which applies to a single point in time of a business'
calendar year. A standard company balance sheet has three parts: assets, liabilities and ownership-
equity. 5.3 Income statement: Income statement also referred as profit and loss statement, earnings
statement, operating statement or statement of operations is a company's financial statement that
indicates how the revenue is transformed into the net income. It displays the revenues recognized for a
specific period, and the cost and expenses charged against these revenues, including write-offs and
taxes. The purpose of the income statement is to show managers and investors whether the company
made or lost money during the period being studied. 5.4 Theoretical Discussion of Financial Ratios: In
the view of the requirements of the various users of ratio, it is divided into the following important
categories which are in the following way-  Liquidity Ratios  Activity Ratio  Debt/ Leverage Ratios 
Profitability Ratios 5.5 Liquidity Ratios: Liquidity ratios measure the firm’s ability to pay off short-term
debt obligation. If a company fail’s to pay its debts, it could face bankruptcy. Generally, cash is the basic
input to keep the business running on a continuous basis. A firm should ensure that it does not suffer
from lack of liquidity, and it does not have excess liquidity as well, because excess cash will remain idle
money which will be harmful for the company’s profitability. 5.6 Profitability Ratios Profitability reflects
the final result of the business operations. In general, profitability ratios measure the profit generating
ability of a company relative to net income, assets, debt and equity. There are two types of profitability
ratios, profit margin ratio and the rate of return ratios. The Profit margin ratio shows the relationship
between profit and revenue. 5.7 Current Ratio The current ratio is a liquidity ratio that measures a
company's ability to pay short-term obligations or those due within one year. It tells investors and
analysts how a company can maximize the current assets on its balance sheet to satisfy its current debt
and other payables. Current Ratio= Current liabilities / Current assets 5.8 Debt to total Asset The debt to
total asset ratio is an indicator of a company’s financial leverage. It tells the percentage of a company’s
total assets that were financed by creditors. Debt to Total Assets=(Short term debt + Long term debt) /
Total asset 5.9 Gross profit Margin Gross profit margin is a metric used to assess a company’s financial
health and business model by revealing the amount of money left over from sales after deducting the
cost of goods sold. Gross profit margin = Gross profit / Net sales 5.10 Net Interest Margin It is usually
expressed as a percentage of what the financial institution earns on loans in a time period and other
assets minus the interest paid on borrowed funds divided by the average amount of the assets on which
it earned income in that time period. Net interest margin = Net interest income / Total earning asset
5.1.1 Net Profit Margin Net Profit Margin is a financial ratio used to calculate the percentage of profit a
company produces from its total revenue. It measures the amount of net profit a company obtains per
amount of revenue gained. Net Profit Margin = Net income / Revenue 5.1.2 Time interest earn The times
interest earned ratio indicates the extent of which earnings are available to meet interest payments. A
lower times interest earned ratio means less earnings are available to meet interest payments and that
the business is more vulnerable to increases in interest rates and being unable to meet their existing
outstanding loan obligations. Times interest earn = EBIT / Interest income 5.1.3 The Degree of Asset
Utilization Generally it calculates the total revenue earned for every amount of assets a company owns.
The degree of asset utilization = Total operating revenue / Total asset. 5.1.4 Equity Multiplier The equity
multiplier is a commonly used financial ratio calculated by dividing a company's total asset value by total
net equity. It is a measure of financial leverage. Companies finance their operations with equity or debt,
so a higher equity multiplier indicates that a larger portion of asset financing is attributed to debt. Equity
Multiplier = Total asset / Total stockholder equity 5.1.5 Total Asset Turnover The asset turnover ratio
measures the value of a company's sales or revenues relative to the value of its assets. The asset
turnover ratio can be used as an indicator of the efficiency with which a company is using its assets to
generate revenue. The higher the asset turnover ratio, the more efficient for a company. Total asset
turnover = Operating income / Total asset 5.1.6 Tax Management Efficiency The tax management
efficiency ratio of a fund measures what percentage of a fund's earnings are lost to taxation. Since the
purpose of a mutual fund is to put money into a firm’s pocket, tax efficiency is a useful way to measure
the desirability of a fund. Tax Management efficiency = Net income / pre-tax net operating income 5.1.7
Asset Management Efficiency Asset management efficiency ratios indicate how successfully a company
is utilizing its assets to generate revenues. Analysis of asset management ratios tells how efficiently and
effectively a company is using its assets in the generation of revenues. Asset management efficiency =
Total operating revenue / Total asset 5.1.8 ROA Return on assets (ROA) is an indicator of how profitable
a company is relative to its total assets. ROA = Net income / Total asset 5.1.9 EPS Earnings per share
(EPS) is the portion of a company's profit allocated to each share of common stock. Earnings per share
serve as an indicator of a company's profitability. EPS = (Net income-Preferred dividends) / End of period
common share outstanding