CHAPTER 1

BACKGROUND OF THE STUDY

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1.1 INTRODUCTION
Internship program is the systematic progress for gathering, recording and analysis
data about the subject that a student goes to learn on the program. The aim of
internship repot is to connect practical knowledge with theoretical aspects. Now the
world is comprehensive world. So, everybody has to be expect to have both practical
knowledge and the theoretical knowledge.

Internship is conducted to acquire knowledge through practical works, which may

also to be helpful as an experience in the job. There are different types of bank in our
country from that I have accomplished my practical from “Prime Bank Limited”.

During my internship period, I have tried my best to use opportunity to enrich my

knowledge on banking system. After observing thoroughly, I have prepared this
report on the basis of the findings and observing relating to the topic.

1.2 OBJECTIVES OF THE STUDY

The objective of the report can be viewed in two forms:
 Main Objective
 Specific Objective

Main Objective:
This main objective of the report is to primarily analyze the financial performance of
the Prime Bank Ltd, Pahartali Branch.

Specific Objectives:
There are some specific objectives too. These are as follows:
 To know the overview of Prime Bank Limited.
 To describe & and understand theoretical aspects of financial performance
analysis or ratio analysis.
 To analyze the financial performance of Prime Bank Ltd. Pahartali Branch
through ratio analysis of the last five years.
 To find out the findings related to ratio analysis and provide recommendation
to overcome those findings.

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1.3 METHODOLOGY OF THE STUDY
Data Sources:

The main source of the information is the secondary data provided in annual report.
To get the proper picture of financial performance of Prime Bank Limited the
following data sources have been used:

 Annual Report: Bank has to analyze the balance sheet, profit and loss
accounts, income statement and five years financial summary from the annual
report to evaluate the performance of the bank.
 Web-site: All information regarding financial performance is available in the
Prime Bank Limited website. Some of the information is collected from there.
 News Paper and Magazine.
 Publications of Bangladesh Bank.

Data Analysis:

Data are collected from Annual Reports of Prime Bank Limited. The information
provided in the reports is both qualitative and quantitative in nature. So graphs, charts
and tables have been used in presenting those data in Annual Reports to show the
comparison of bank’s performance over the past five years.

1.4 SCOPE OF THE STUDY:

This internship report has covered mainly the performance evaluation of Prime Bank
Limited on financial statements. It gave me a great scope to gather experience and
knowledge in several areas of banking by which I could evaluate my theoretical
knowledge about banking. I worked on five years’ Annual Financial Report of Prime
Bank Limited and five years ‘Annual Financial Report of its Pahartali Branch.

1.5 LIMITATIONS OF THE STUDY

It was a great opportunity for me to work in Prime Bank Limited, Pahartali Branch as
an Intern and a to make a report on the financial performance of it but there were
surely some limitations while making this report. These are:

 The main constraint of the study is insufficiency of information, which has

required for the study. There were various information branch’s employees
couldn’t provide due to security and other corporate obligations.

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 Getting the information and interpreting it, on the basis of my understanding
and then implementing it.

 Since bankers were very busy people, they couldn’t provide me much of a
time which was a disadvantage for me to prepare my report
with detailed information and consultation.

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 CHAPTER TWO

OVERVIEW OF THE BANK

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2.1 Introduction
The Banking system plays a critical role in underpinning economic development.
Against the background of liberalization of economic policies in Bangladesh, Prime
Bank Limited has resulted I n great success in all areas of operation of its Bank with a
view to improve the socio- economic development of the country.
Prime Bank Limited (PBL) was incorporated on 17th April 1995 with an authorized
capital of Tk 1000 million & Tk 100 million of paid up capital by a group of
successful entrepreneurs. Prime Bank is the first private bank to introduce lease
finance, Hire purchase & Customer Credit Schemes in the banking sector in order to
bring about qualitative changes in the lives of people of Bangladesh. PBL through its
steady Progress & continuous success has, by now, earned the reputation of begin one
of the leading private sector Banks of the country.
Prime Bank Limited has already made significant progress within a very short period
of its existence. The bank has been graded as a top class Bank in the country through
internationally accepted CAMEL rating. The bank has occupied an enviable position
among after achieving success in all business operation.
Prime Bank Limited offers all kinds of Commercial Corporate, Islamic Banking and
Personal Banking services covering all segments of society within the frame work of
Banking Company Act and rules and regulations laid down by our Central Bank.
Diversification of products and services include Corporate Banking, retail banking
and Consumer Banking right from industry to agriculture, and real state to software.
Prime Bank Limited, since its beginning has attached more importance in technology
integration. In order to retain competitive edge, investment in technology is always a
top agenda and under constant focus. Keeping the network within a responsible limit,
Bank’s strategy is to serve the customers through capacity building across multi
delivery channels. Bank’s past performance gives an indication of its strength.
Branches are better placed and poised to take our customers through fast changing
times and enable them compete more effectively in the market they operate.

2.2 Mission statement of Prime Bank Limited

 To build Prime Bank Limited into an efficient, market driven, customer

focused institution with good corporate governance structure.
 Continuous improvement in Bank’s business policies, procedure and
efficiency through integration of technology at all levels.

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2.3 Vision statement of Prime Bank Limited
Prime Bank Limited vision is “To be the best Private Bank in Bangladesh in term of
efficiency, capital adequacy, asset quality, sound management and profitability having
strong liquidity”.

2.4 Values of the Prime Bank Limited

 Place customer interest and satisfaction as first priority and provide
customized banking products and services.
 Values addition to the stakeholder through attainting excellence in banking
operation.
 Maintain high ethical standard and transparency in dealing.
 Be a compliant institution through adhering to all regulatory
requirements.
 Contribute significantly for the betterment of the society.
 Ensure higher degree of motivation and dignified working environment
for our human capital and respect optimal work-life balance.
 Committed to protect the environment and go green.

2.5 Objectives of the Prime Bank Limited

 Giving full attention to the customer.

 Identifying customer actual needs.
 Improving customer service quality
 Creating happy relationship with the customer
 Giving importance even to smallest query
 Attracting new worth through higher sales and profit
 Creating image through serve the best service & product
 Achieving corporate objective through joint effort

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2.6 Strategic Priority:

To make all the stakeholders happy and make banking process

an enjoyable experience for everyone.

To be compliant with all the rules and regulation applicable in

Bangladesh.

Foster creativity, innovation and diversity with the view to

sustainable business growth.

Continuous development without compromising the needs of

future generation.

To establish good governance.

Ensuring effective risk management system within entire

phase of activities.

Focusing on Corporate Social Responsibility (CSR) in a

responsible manner.

To build and enhance brand image.

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2.7 DEPARTMENT OF PRIME BANK

GENERAL BANKING:

 Cash
 Accounts
 Clearing
 SME
 Customer Service

LONE AND CREDIT:

 Term Loan
 Personal Loan
 Auto Loan
 Housing Loan
 Over Draft

FOREIGN EXCHANGE:

 Import
 Export
 Remittance

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2.8 Company Structure:

Managing Director (MD)

Deputy Managing Director (AMD)

Senior Executive Vice President (SEVP)

Executive Vice President(EVP)

Senior Vice President( SVP)

Vice President (VP)

Assiatant Vice President (AVP)

First Assistance Vice President (FAVP)

Senior Executive Officer (SEO)

Executive Officer (EO)

Senior Officer (SO)

Officer

Junior Officer (JO)

Assistant Officer (AO)

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2.9 Organogram of Prime Bank Ltd, Pahartali Branch:

Head of Branch
& EVP

Organization
Manager & VP

GB Credit Foreign
Department Departmen Exchange
t Departmen
t

Retail credit Advance

Credit
GB in change Foreign
& SEO Exchange in
change & AVP

Retail Credit in Ad. Credit

change in charge
EO & AVP
SEO

SO

EO SEO EO

Officer
SO
SO

TA Officer

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2.10 Services of Prime Bank Ltd:

SMS Banking:

Through SMS (Short Message Service) facility anyone can access their account using
mobile phone from anywhere, anytime at your convenience to know the account
position.

Customized Loan:

Modern Banking is a result of evolutions driven by changing economic activities and

lifestyles. Prime Bank Ltd.is a new entrant in the private banking scenario of
Bangladesh. It is an immense pleasure for Prime Bank to introduce Customized Loan
to its customers as a unique Loans plan.

Internet Banking:

Prime Bank Ltd symbolizes modern banking with innovation services in Bangladesh.
It has centralized Database with online ATM (Automated Teller Machine), SMS
(short Message Service) and Internet query service. Anyone can use credit/debit card
facility with ATM (Automated Teller Machine).For SMS (Short Message Service)
service anyone should personal cellular phone with at least one account in Prime
BANK Ltd.

Bonus savings Schemes:

Prime Bank Ltd. Promise to fulfill every possible customers need with high efficiency
and satisfaction. Its team of dedicated professionals is committed to provide an
unparalleled service by using the latest technology to make bankable proposals
harvest maximum benefits for the customers, the shareholders the society at large. It
is an immense pleasure for Prime bank Ltd to introduce Bonus Savings to its
customers.

Mobile Banking:

M-banking (Mobile Banking) allows customers to access their bank accounts from
their Mobile Phone. This latest technology driven product is designed to cater for and
facilitate real time banking transactions using a mobile phone currently to subscribers
only.

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Poverty Alleviation:

Bangladesh is a highly populated developing nation, where 80% of the people living
in the rural areas. But these people cannot engage themselves with development and
production activities due to unavailability of capital. Prime Bank highly dedicated to
establish rural branches to empower the poor people.

ATM Service:

Prime Bank Ltd has already set up its own ATM (Automated Teller Machine)
machine at six corresponding branches and is a in the process of setting up its own
ATM (Automated Teller Machine) network at every focused point in the city with a
view of providing retail banking service.

Real Time Online Banking:

Prime Bank symbolizes modern banking with innovation services in Bangladesh .It
has centralized database with online ATM(Automated Teller Machine),SMS (Short
Message Service) and Internet query services. One can use debit/credit card facility
with ATM (Automated Teller Machine).For SMS service one should have personal
cellular phone with at least an account in Prime Bank Ltd. Through internet banking
one can access the account to view and print the balance and account statement for
last twenty transactions.

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2.11 FIVE YEARS FINANCIAL SUMMARY

(Figures in million taka except ratio and per share data)

Results of 2017 2016 2015 2014 2013

operation
Interest Income 22,4034.57 22,360.83 22,999.36 21,318.92 15,351.63
Interest Expense 14,711.18 14,430.24 15,919.86 14,705.21 10,203.21

Net Interest 7,723.38 7,930.59 7,079.50 6,613.71 5,148.42

Income
Non-interest 7,824.62 7,278.80 5,319.08 3,563.95 4,145.95
income
Non-interest 7,145.66 6,489.93 5,272.21 4,415.44 3,321.46
expenses
Gross Revenue 30,259.19 29,639.63 28,318.44 24,882.87 19,497.58
Gross Profit 15,548.00 15,209.39 12,398.58 10,177.66 9,294.37
Operating Profit 8,402.34 8,719.46 7,126.37 5,762.22 5,927.91

Earnings before 8,254.73 7,571.27 6,413.71 4,008.94 5,375.35

interest on long
term debt,
depreciation and
tax
Profit before tax 7,252.34 6,835.67 5,887.32 3,739.06 5,172.91
Net profit after 3,977.34 3,668.73 3,065.41 1,586.13 2,945.80
tax

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 Balance 2017 2016 2015 2014 2013
Sheet
Authorized 15,000.00 15,000.00 15,000.00 15,000.00 8,000.00
capital
Paid up 10,039.34 8,366.12 8,366.12 8,366.12 7,274.88
capital
Shareholder’s 25,588.82 2,24,91.54 20,504.97 18,171.02 15,966.41
equity

Borrowings 10,705.57 6,024.88 6,993.51 4,713.33 -

Deposits 220,866.48 2,11,072.06 1,84,896.85 1,70,530.54 1,39,484.75

Loans and 197,413.64 1,74,146.10 1,48,664.86 1,36,071.65 1,15,506.33

advances

Investments 44,345.73 44,288.60 35,587.25 26,090.32 19,383.42

Fixed assets 8,586.73 8,510.00 7,957.31 5,222.78 3,288.09

Off-balance 150,713.79 1,44,554.47 67,094.06 52,153.26 40,255.37

sheet explsure

Total assets 293,847.23 2,66,100.74 2,26,333.13 2,07,448.38 1,68,891.78

Total 268,258.41 2,43,609.20 2,05,828.17 1,89,277.37 1,52,925.36

liabilities

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 Share Related 2017 2016 2015 2014 2013
Information
Market price per 21.30 29.30 25.10 23.60 43.90
share (of TK. 10 each)
No. of share 1,003.93 836.61 836.61 836.61 727.49
outstanding (of TK.
10 each)
Earnings per share 3.96 4.39 3.66 1.90 4.05
(of TK. 10 each) basic
Earnings per share 3.96 4.39 3.66 1.90 3.52
(of TK. 10 each)
restated
Dividend 20% 30% 20% 10% 27%
Cash Dividend 20% 10% 20% 10% 12%
Stock Dividend 5% 20% - - 15%
Net asset value per 25.49 26.88 24.51 21.72 21.95
share (of TK. 10 each)
Price earning ratio 5.38 6.68 6.85 12.42 10.84
(times)
Market capitalization 21,383.79 24,512.72 20,998.95 19,744.03 31,936.74
(in million Taka)

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 Financial Ratios 2017 2016 2015 2014 2013
(%)
Cost-income ratio 45.96 42.67 42.52 43.38 35.74

Credit-deposit ratio 84.57 78.92 79.81 79.79 82.81

Debt equity ratio 10.48 10.83 10.04 10.42 9.57

(times)
Gross Profit ratio 51.38 51.31 43.78 40.90 47.67

Current ratio 1.14 1.13 1.13 0.80 0.87

Return on assets 1.35 1.38 1.35 0.76 1.74

Return on equity 15.54 16.31 14.90 8.73 18.45

Burden coverage ratio 109.50 112.16 100.89 80.72 124.82

Cost of fund 9.18 10.16 11.66 12.46 11.09

Yeild on advance 11.75 13.87 16.21 16.23 14.81

Capital Adequacy ratio 12.16 10.56 11.53 10.37 10.87

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 Chapter - Three
THEORETICAL ASPECTS OF
RATIO ANALYSIS

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

Ratios are simple to calculate and easy to understand. The persons interested in the
analysis of financial statements can be grouped under three heads,

i) Owners or investors
ii) Creditors and
iii) Financial executives.

Although all these three groups are interested in the financial conditions and operating
results, of an enterprise, the primary information that each seeks to obtain from these
statements differs materially, reflecting the purpose that the statement is to serve.
Investors desire primarily a basis for estimating earning capacity. Creditors are
concerned primarily with liquidity and ability to pay interest and redeem loan within a
specified period. Management is interested in evolving analytical tools that will
measure costs, efficiency, liquidity and profitability with a view to make intelligent
decisions.

There are numerous ratios that can be estimated from the financial statements
pertaining to a business company’s activity, performance, liquidity, and financing.
Some of the most common ratios include the debt-equity ratio, price-earnings ratio,
asset turnover, earnings per share, and working capital.

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3.2 Classification of financial ratios on the basis of function

On the basis of function or test, the ratios are classified as liquidity ratio, activity
ratio, debt ratio, market value ratio and profitability ratios. The diagram of ratios are
given below:

Activity Ratio Market Value Ratio Profitability Ratio

Liquidity Ratio Solvency Ratio

Operating
Price/ Profit Margin
Total Asset Earning
Current
Turnover Debt to Ratio
Ratio
Ratio Equity Ratio
Net Profit
Quick Ratio Earning Per Margin
Fixed Asset Share
Turnover Debt Ratio
Ratio
Net Gross Profit
Working Book Margin
Capital Value Per
Inventory Time Share
Ratio
Turnover Interest
Earned
Ratio Return On Asset
Average
Collection
Period
Return On
Equity

Average
Pyment
Period Return On
Investment

3.3 ANALYSIS OF RATIOS

Ratio analysis is used to evaluate various aspects of a company’s operating and
financial performance such as its efficiency, liquidity, profitability and solvency. The
trend of these ratios over time is studied to check whether they are improving or
deteriorating. Ratios are also compared across different companies in the same sector
to see how they stack up, and to get an idea of comparative valuations. Ratio analysis
is a cornerstone of fundamental analysis.

3.3.1 Liquidity Ratio:

Liquidity ratios measure the adequacy of current and liquid assets and help evaluate
the ability of the business to pay its short-term debts. The ability of a business to pay
its short-term debts is frequently referred to as short-term solvency position or
liquidity position of the business.

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Generally a business with sufficient current and liquid assets to pay its current
liabilities as and when they become due is considered to have a strong liquidity
position and a business with insufficient current and liquid assets is considered to
have weak liquidity position.
Short-term creditors like suppliers of goods and commercial banks use liquidity ratios
to know whether the business has adequate current and liquid assets to meet its
current obligations. Financial institutions hesitate to offer short-term loans to
businesses with weak short-term solvency position.

Current Ratio:
The current ratio is an excellent diagnostic tool as it measure whether are not your
business has enough resources to pay its bills over the next 12 months.
Formula: Current ratio = current asset/ current liabilities

Net Working Capital:

Although it is not actually a ratio, a common measure of a firm’s overall liquidity. It
is calculated by subtracting total current liabilities from total current assets.
Formula: Total current assets – Total current liabilities

Quick Ratio or acid test ratio:

Quick ratio, also known as Acid Test Ratio, shows the ratio of cash and other liquid
resources of an organization in comparison to its current liabilities.
Formula: Quick Ratio = quick asset/ current liabilities

3.3.2 Activity ratio

Activity ratios (also known as turnover ratios) measure the efficiency of a firm or
company in generating revenues by converting its production into cash or sales.
Generally a fast conversion increases revenues and profits.
Activity ratios show how frequently the assets are converted into cash or sales and,
therefore, are frequently used in conjunction with liquidity ratios for a deep analysis
of liquidity.

Total asset turnover ratio:

A financial ratio indicates the effectiveness with which a firm's management uses its
assets to generate sales. A relatively high ratio tends to reflect intensive use of assets.
Total asset turnover is calculated by dividing the firm's annual sales by its total
assets.
Formula: Total asset turnover ratio=Total income/Total asset

Fixed Asset Turnover Ratio:

Fixed asset turnover ratio compares the sales revenue a company to its fixed assets.
This ratio tells us how effectively and efficiently a company is using its fixed assets to
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generate revenues. This ratio indicates the productivity of fixed assets in generating
revenues. If a company has a high fixed asset turnover ratio, it shows that the
company is efficient at managing its fixed assets. Fixed assets are important because
they usually
represent the largest component of total assets.
Formula: Fixed Asset Turnover Ratio = Sales Revenue / Total Fixed Assets

Inventory Turnover Ratio:

Inventory turnover is an efficiency ratio which calculates the number of times per
period a business sells and replaces its entire batch of inventories. It is the ratio of cost
of goods sold by a business during an accounting period to the average inventories of
the business during the period.
Formula: Inventory Turnover =Cost of Goods Sold/Average Inventories

Cost of goods sold = Beginning Inventories + Cost of Goods Manufactured – Ending

Inventories
Average Inventories= (Beginning inventories+ Ending inventories) /2

Average Collection Period:

The average collection period is the approximate amount of time that it takes for a
business to receive payments owed in terms of accounts receivable. The average
collection period is calculated by dividing the average balance of accounts receivable
by total net credit sales for the period and multiplying the quotient by the number of
days in the period.
Formula: Average Collection Period: 365/Receivables Turnover
Receivables Turnover= Sales Revenue/Average Accounts Receivable

Average Payment Period:

This ratio will tell us the numbers of days or months for making the payments of trade
payable. It is propinquity between no. of working days and credit turnover ratio.
Formula: No. of working Days or Months/Creditor Turnover Ratio
Or, Account payable / Net Credit Purchase / 365 or 360

3.3.3 Solvency ratio

Solvency ratios (also known as long-term solvency ratios) measure the ability of a
business to survive for a long period of time. These ratios are very important for
stockholders and creditors.
Solvency ratios are normally used to:
Analyze the capital structure of the company
Evaluate the ability of the company to pay interest on long term borrowings
Evaluate the ability of the company to repay principal amount of the long term loans
(debentures, bonds, medium and long term loans etc.).
Evaluate whether the internal equities (stockholders’ funds) and external equities
(creditors’ funds) are in right proportion.

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Debt to equity ratio:
The debt-equity ratio is a measure of the relative contribution of the creditors and
shareholders or owners in the capital employed in business. Simply stated, ratio of the
total long term debt and equity capital in the business is called the debt-equity ratio.
Formula: Debt to Equity ratio = Total Liabilities/ Total equity

Debt to Asset ratio:

A financial ratio that measures the extent of a company’s or consumer’s leverage. The
debt ratio is defined as the ratio of total – long-term and short-term – debt to total
assets, expressed as a decimal or percentage. It can be interpreted as the proportion of
a company’s assets that are financed by debt.
Formula: Debt to Asset ratio = Total Liabilities/ Total asset

Time Interest Earned Ratio:

The times interest earned ratio, sometimes called the interest coverage ratio, is a
coverage ratio that measures the proportionate amount of income that can be used to
cover interest expenses in the future. The interest coverage ratio is a measure of the
number of times a company could make the interest payments on its debt with its
EBIT. It determines how easily a company can pay interest expenses on outstanding
debt.
Formula: Time Interest Earned Ratio= Income before interest and taxes or
EBIT/Interest expense

3.3.4 Profitability ratio:

Profitability ratios measure the efficiency of management in the employment of
business resources to earn profits. These ratios indicate the success or failure of a
business enterprise for a particular period of time.
Profitability ratios are used by almost all the parties connected with the business.
A strong profitability position ensures common stockholders a higher dividend
income and appreciation in the value of the common stock in future.
Creditors, financial institutions and preferred stockholders expect a prompt payment
of interest and fixed dividend income if the business has good profitability position.
Management needs higher profits to pay dividends and reinvest a portion in the
business to increase the production capacity and strengthen the overall financial
position of the company.

Return on total asset:

Return on total assets, often referred to as return on assets or ROA, is a profitability

ratio that measures how efficiently a company is using its assets to generate profit. A
company with a higher return on total assets compared with its competitors indicates
efficient management.
Formula: ROA= Net income/total asset

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Return on equity:
The owner or shareholders are primarily interested in the return on the amount
invested by them as equity. This gives them a lot of satisfaction if comparable with
the market rate of return on investment. ROE shows how well a company uses
investment funds to generate earnings growth. ROEs between 15% and 20% are
generally considered good.
Formula: ROE=Net income/total equity

Return on Investment:
Return on investment (ROI) is performance measure used to evaluate the efficiency of
investment. It compares the magnitude and timing of gains from investment directly
to the magnitude and timing of investment costs. It is one of most commonly used
approaches for evaluating the financial consequences of business investments,
decisions, or actions.
If an investment has a positive ROI and there are no other opportunities with a higher
ROI, then the investment should be undertaken. A higher ROI means that investment
gains compare favorably to investment costs.
Formula: ROI= Net profit after interest and tax / investment

Lending Deposit Ratio:

Lending Deposit Ratio also known as the LTD ratio. It is a ratio between the banks
total loans and total deposit. It is a part of the Liquidity ratios of a bank. This ratio is
often used by policy makers to determine the lending practices of financial
institution.
Formula: Net loans/ Total Deposit

Capital Adequacy Ratio:

Capital Adequacy Ratio measures of a bank’s capital. It is expressed as a percentage
of a bank’s risk weighted credit exposures. This ratio is used to protect depositors and
promote the stability and efficiency of financial systems around the world.
Formula: Total Capital/ Total Risk

3.3.5 Market value ratio:

Earnings per share (EPS):

Earnings per share are generally considered to be the single most important variable
in determining a share's price. It is also a major component used to calculate the price-
to-earnings valuation ratio.Formula: EPS = Net income/ No. of share outstanding

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Price earnings ratio:

The price earnings ratio of a stock is a measure of the price paid for a share relative to
the income or profit earned by the firm per share.
Formula: Price earnings ratio: Market price per share/ Earnings per share.

Net Asset Value per share:

Net Asset Value per share is the value of a single unit, or share, of a fund. This figure
for a mutual fund is the price at which shares are bought and sold. Because exchange-
traded and closed-ends funds are listed and traded as stocks, which are subject to
market forces their NAVPS and buying or selling prices per share can be divergent.
Formula: Net Asset value/ Share outstanding

Market value per share:

Market value ratios relate an observable market value, the stock price, to book values
obtained from the firm’s financial statement.
Formula: Market value per share = Market value of share/Number

3.4 BENEFITS OF RATIO ANALYSIS

The ratio analysis forms an essential part of the financial analysis which is a vital part
of business planning. The key benefits of ratio analysis include:

Determines profitability
Ratio analysis assists managers to work out the production of the company by
figuring the profitability ratios. Also, the management can evaluate their revenues to
check if their productivity. Thus, probability ratios are helpful to the company in
appraising its performance based on current earning.

Helpful in evaluating solvency

By computing the solvency ratio, the companies are able to keep an eye on the
correlation between the assets and the liabilities. If, in any case, the liabilities exceed
the assets, the company is able to know its financial position. This is helpful in case
they wish to set up a plan for loan repayment.

Better financial analysis

Ratio analysis is also helpful to recluses, in addition to shareholders, debenture
holders, and creditors. Besides, bankers are also able to know the profitability of the
company to find out whether they are able to pay the dividend and interests under a
specific period.

Performance analysis
Ratio analysis is also helpful in analyzing the performance of a company. Through
financial analysis, companies can review their performance in the past years. This is
also helpful in identifying their weaknesses and improving on them.

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Forecasting
At present, many companies use ratio analysis to reveal the trends in production. This
provides them an opportunity for estimation of future trends and thus the foundation
for budget planning so as to determine the course of action for the growth and
development of the business.

3.5 STANDARDS FOR COMPARISON

For making a proper use of ratios, it is essential to have fixed standards for
comparison. A ratio by itself has very little meaning unless it is compared to some
appropriate standard. Selection of proper standards of comparison is a most important
element in ratio analysis. The four most common standards used in ratio analysis are;
absolute, historical, horizontal and budgeted.
Absolute standards are those which become generally recognized as being desirable
regardless of the company, the time, the stage of business cycle, or the objectives of
the analyst. Historical standards involve comparing a company’s own’ past
performance as a standard for the present or future.
In Horizontal standards, one company is compared with another or with the average
of other companies of the same nature.
The budgeted standards are arrived at after preparing the budget for a period Ratios
developed from actual performance are compared to the planned ratios in the budget
in order to examine the degree of accomplishment of the anticipated targets of the
firm.

3.6 LIMITATIONS

The following are the limitations of ratio analysis:

1. It is always a challenging job to find an adequate standard. The conclusions

drawn from the ratios can be no better than the standards against which they
are compared.
2. A change in price level can seriously affect the validity of comparisons of
ratios computed for different time periods and particularly in case of ratios
whose numerator and denominator are expressed in different kinds of rupees.
3. Comparisons are also made difficult due to differences of the terms like gross
profit, operating profit, net profit etc.
4. If companies resort to ‘window dressing’, outsiders cannot look into the facts
and affect the validity of comparison.
5. Financial statements are based upon part performance and part events which
can only be guides to the extent they can reasonably be considered as dues to
the future.
6. Ratios do not provide a definite answer to financial problems. There is always
the question of judgment as to what significance should be given to the
figures.
7. Thus, one must rely upon one’s own good sense in selecting and evaluating
the ratios.

Page | 26
 CHAPTER- FOUR
FINANCIAL PERORMANCE
ANALYSIS OF PRIME BANK
LIMITED, PAHARTALI BRANCH

Page | 27
FINANCIAL PERFORMANCE ANALYSIS OF Prime Bank Ltd,
Pahartali Branch

4.1 Current Ratio:

Current Ratio = Current Asset/ Current Liabilities

Year 2017 2016 2015 2014 2013

Current 176,142.56 158,644.82 146,880.40 13,705.82 118,020.60
Assets
÷ ÷ ÷ ÷ ÷ ÷
Current 141,207.78 141,190.75 131,369.28 170,662.50 134,850.80
Liabilities
Result 1.24 1.12 1.12 0.81 0.87

1.4 1.24
1.12 1.12
1.2

1 0.87
0.81
0.8

0.6

0.4

0.2

0
2013 2014 2015 2016 2017

Current Ratio

According to the current ratio result, it is shown that 2017 has a ratio of 1.24 which
means that branch had 1.24 Taka of current assets against 1 Taka of short term debt or
liability, which means a firm has enough resources to pay its debts over the next 12
months. Gradually current ratio is increasing over the years which means that the
level of liquidity of the bank is optimal.

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4.2 Debt to Equity Ratio:

Debt to Equity ratio = Total Liabilities/ Total equity

Year 2017 2016 2015 2014 2013

Total 288,258.41 263,609.20 225,828.17 209,277.37 172,925.36
Liabilities
÷ ÷ ÷ ÷ ÷ ÷
Total 27,588.82 24,491.54 22,504.97 20,171.02 17,966.41
Equity
Result 10.44 10.76 10.03 10.37 9.62

10.76
10.8
10.6 10.44
10.37
10.4
10.2 10.03

10
9.8 9.62
9.6
9.4
9.2
9
2013 2014 2015 2016 2017

Debt to Equity Ratio

According to the graph, debt to equity ratio of 2017 is lower than 2016 though it is
more than the year of 2015, 2014 and 2013. In 2016 debt ratio is 10.76 which
indicates that branch may not be able to generate enough cash to satisfy its debt
obligations. But in 2017 that branch reduces its debt ratio to 10.44 which means that
the branch is gradually generating cash to ensure a low debt ratio.

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4.3 Debt to Asset Ratio:

Debt to Asset ratio = Total Liabilities/ Total Asset

Year 2017 2016 2015 2014 2013

Total 288,258.41 263,609.20 225,828.17 209,277.37 172,925.36
Liabilities
÷ ÷ ÷ ÷ ÷ ÷
Total 313,847.23 286,100.74 246,333.13 227,448.38 188,891.78
Assets
Result 0.918 0.914 0.916 0.92 0.915

0.92
0.92
0.919 0.918
0.918
0.917 0.916
0.916 0.915
0.915 0.914
0.914
0.913
0.912
0.911
2013 2014 2015 2016 2017

Debt to Asset Ratio

According to the graph, debt to asset ratio of 2017 is lower than 2014 but it is higher
than the year of 2016, 2015 and 2013. The higher ratio the more risk for branch. It can
be interpreted as the proportion of a company's assets that are financed by debt.
Higher ratio means higher risk and in 2017 the ratio is higher than 2016 which
indicates that branch is not using its asset properly to finance its debt.

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4.4 Return on total asset:

ROA= Net income/total asset

Year 2017 2016 2015 2014 2013

Net Profit 4,977.34 4,668.73 5,056.41 2,586.13 3,145.80
after
Taxation
÷ ÷ ÷ ÷ ÷ ÷
Total 313,847.23 286,100.74 246,333.13 227,448.38 188,891.78
Assets
Result 1.58% 1.63% 1.64% 0.70% 1.72%

1.72%
1.80% 1.64% 1.63% 1.58%
1.60%
1.40%
1.20%
1.00%
0.70%
0.80%
0.60%
0.40%
0.20%
0.00%
2013 2014 2015 2016 2017

ROA

According to the graph, ROA of 2017 is lower than 2016 but it is not lower than the
year 2014. It shows that, the branch has earned 1.58% profit from its assets in the year
of 2017. The higher the ratio, the better the company is at using their assets to
generate income but in 2017 the ratio is lower than 2016 which is not good for the
bank. In 2013 the ratio was 1.72% which was best result among the five year result.
Management should use the assets more efficiently to generate more income and to
increase ROA ratio.

Page | 31
4.5 Return on equity:

ROE=Net income/total equity

Year 2017 2016 2015 2014 2013

Net Profit 4,977.34 4,668.73 4,056.41 2,586.13 3,145.80
after
Taxation
÷ ÷ ÷ ÷ ÷ ÷
Total 27,588.82 24,491.54 22,504.97 20,171.02 17,966.41
Equity
Result 18% 19% 18% 12.82% 18.45%

18.45% 19.00%
20.00% 18.00% 18.00%
18.00%
16.00%
12.82%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2013 2014 2015 2016 2017

ROE

Most analysts, in fact, believe that a ROE of 10% or less is unsatisfactory. A return on
equity of 17% or 18% is considered better, 20% excellent, and 25% and above,
superior. According to the graph, in 2014 ROE was 12.82% which was unsatisfactory,
in 2015 ROE was good. And in 2013, 2016, 2017 ROE is showing better result. But in
2017 ROE is less than the year of 2016 and 2013 that is 18.45% which means that
branch is not using its shareholders equity efficiently and failed to generate more
income from the shareholders money.

Page | 32
4.6 Earnings per share (EPS):

EPS = Net income/ No. of share outstanding

Year 2017 2016 2015 2014 2013

Net Profit 4,977.34 4,668.73 4,056.41 2,586.13 3,945.80
after
Taxation
÷ ÷ ÷ ÷ ÷ ÷
No. of share 1,003.93 836.61 836.61 836.61 727.49
outstanding
Result 4.95 5.5 4.84 3.09 5.42

6 5.42 5.5
4.84 4.95
5

4
3.09

0
2013 2014 2015 2016 2017

EPS

The graph shows that, earning per share value of 2017 is lower than 2016 and 2013
but it is higher than the year of 2015 and 2014. Though the earnings increases year by
year but as the no. of share outstanding increases the value of EPS has decreased to
4.95 from 5.5. Earnings per share (EPS) of the last five years are showing the portion
of bank’s profit allocated to each outstanding share of common stock.

Page | 33
4.7 Market value per share:

Market value of share = Market capitalization/Number of share outstanding

Year 2017 2016 2015 2014 2013

Market 21,383.79 24,512.72 20,998.95 19,744.03 31,936.74
capitalization
÷ ÷ ÷ ÷ ÷ ÷
No. of share 1,003.93 836.61 836.61 836.61 727.49
outstanding
Result 21.30 29.30 25.10 23.60 43.90

43.9
45
40
35 29.3
30 25.1
23.6
25 21.3

20
15
10
5
0
2013 2014 2015 2016 2017

Market value per share

According to the graph market value of per share of that branch of 2017 is lower than
the other years. It means that share value of the branch has decreased and it is not
good for financial perspective.

Page | 34
4.8 Price earnings ratio:

Price earnings ratio = Market price per share/ Earnings per share

Year 2017 2016 2015 2014 2013

Market 21.30 25.30 25.10 23.60 33.90
price per
share
÷ ÷ ÷ ÷ ÷ ÷
Earnings 4.95 5.5 4.84 3.09 5.42
per share
Result 4.30 4.77 5.18 7.63 6.25

7.63
8

7 6.25

6 5.18
4.77
5 4.3

0
2013 2014 2015 2016 2017

Price Earning Ratio

According to the graph, price earnings ratio of that branch is decreasing from the year
2015. It is the price paid for a share relative to the income or profit earned by the firm
per share. High price earnings share means that investors are anticipating higher
growth in the future. The graph is showing a lower price earnings ratio from 2015 to
2017. And in 2017 the value of the ratio is lowest. It is not good for the branch.

Page | 35
4.9 Net Asset value per share:

Net Asset value per share = Net Asset value/ No. of Share outstanding

Year 2017 2016 2015 2014 2013

Shareholder’s 25,588.17 22,491.54 20,504.97 18,171.02 15,966.41
equity
÷ ÷ ÷ ÷ ÷ ÷
No. of share 1,003.93 836.61 836.61 836.61 727.49
outstanding
Result 25.49 26.88 24.51 21.72 21.95

30 26.88
25.49
24.51
25 21.95 21.72

20

15

10

0
2013 2014 2015 2016 2017

Net Asset value per share

According to the figure net asset value per share of 2017 is 25.49 which is less than
the year 2016. But the value is more than the other respective year 2015, 2014, and
2013.

Page | 36
4.10 Lending Deposit Ratio:

Lending Deposit Ratio = Net loans/ Total Deposit

Year 2017 2016 2015 2014 2013

Net Loans 197,413.64 1,74,146.10 1,48,664.86 1,36,071.65 1,15,506.33
(Loans and
advances)

÷ ÷ ÷ ÷ ÷ ÷
Deposits 220,866.48 2,11,072.06 1,84,896.85 1,70,530.54 1,39,484.75
Result 89% 83% 80% 80% 83%

89%
90%

88%

86%
83% 83%
84%

82% 80% 80%

80%

78%

76%

74%
2013 2014 2015 2016 2017

Lending Deposit Ratio

According to the graph, lending deposit ratio of 2017 is much higher than the other
respective years of 2016, 2015, 2014, 2013. A good loan to deposit ratio for a bank is
between 80 and 90 percent. An 80 percent ratio means for every Tk.1 a bank receives
in deposits it loans Tk.0.80 to businesses or consumers. So that branch has lent
Tk.0.89 to any businesses or consumers against Tk.1 received in the form of deposit.

Page | 37
4.11 Capital Adequacy Ratio:

Capital Adequacy Ratio = Total Capital/ Total Risk

Year 2017 2016 2015 2014 2013

Total 33,226.45 25,691.18 22,758.76 18,455.74 16,877.06
Capital
÷ ÷ ÷ ÷ ÷ ÷
Total 273,327.11 243,250.40 197,380.55 177,900.41 155,231.89
Risk
Result 12.16% 10.56% 11.53% 10.37% 10.87%

12.50% 12.16%

12.00% 11.53%
11.50%
10.87%
11.00% 10.56%
10.37%
10.50%

10.00%

9.50%

9.00%
2013 2014 2015 2016 2017

Capital Adequacy Ratio

Capital Adequacy Ratio (CAR) is a ratio that regulators in the banking system use to
watch bank's health, specifically bank's capital to its risk. Regulators in the banking
system track a bank's CAR to ensure that it can absorb a reasonable amount of loss.
According to the graph, the capital adequacy ratio of 2017 is higher than compared to
the year of 2016, 2015, 2014 and 2013. Higher capital adequacy ratio is good for that
branch.

Page | 38
4.12 Summary of Total Analysis

Year 2017 2016 2015 2014 2013

Current 1.24 1.12 1.12 0.81 0.87

ratio

Debt to 0.918 0.914 0.916 0.92 0.915

Asset ratio

Debt to 10.44 10.76 10.03 10.37 9.62

Equity ratio

Return on 1.58% 1.63% 1.64% 0.70% 1.72%

Asset (%)

Return on 18% 19% 18% 12.82% 18.45%

Equity (%)

Earnings 4.95 5.5 4.84 3.09 5.42

per share

Market 21.30 29.30 25.10 23.60 43.90

value per
share

Price 4.30 4.77 5.18 7.63 6.25

earnings
ratio

Net Asset 25.49 26.88 24.51 21.72 21.95

value per
share

Lending 89% 83% 80% 80% 83%

Deposit
ratio (%)

Capital 12.16% 10.56% 11.53% 10.37% 10.87%

Adequacy
ratio (%)

Page | 39
 CHAPTER-FIVE
FINDINGS,
RECOMMENDATIONS &
CONCLUSION

Page | 40
 5.1 FINDINGS
1. The current ratio of 2017 of that branch is 1.24% which means that branch
had 1.24 Taka of current assets against 1 Taka of short term debt or liability.
Compared to the past years current ratio of 2016 of the branch is higher and
optimal.
2. In 2017 that branch reduces its debt to equity ratio to 10.44 from 10.76
which means that the bank is gradually lowering its debt to equity ratio to
ensure that the bank generate enough cash to satisfy its debt obligations.
3. In 2017 the debt to assets ratio is 0.918 which is lower than 0.92 of 2014,
indicates that branch is using its assets more properly in 2017 than 2014 to
finance its debt. Though the ratio of 2017 is lower than 2014 but the ratio
value is still higher than the year of 2016, 2015 and 2013.
4. Return on Assets of 2017 is lower than 2016 but it is not lower than the year
2014. It shows that branch has earned 1.58% profit from its assets in the year
of 2017 which is not good for the bank.
5. In 2017 Return on Equity is less than the year of 2016 and 2013 that is
18.45% which means that bank is not using its shareholders equity efficiently
and failed to generate more income from the shareholders money.
6. The earnings of the branch increases year by year but as the no. of share
outstanding increases in 2017 the value of EPS has decreased to 4.95 from 5.5.
Earnings per share of 2017 shows the bank’s profit allocated to each share
outstanding.
7. The market value of per share of that branch of 2017 is lower than the other
years. It means that share value of that branch has decreased and it is not good
for financial perspective.
8. Price earnings ratio of that branch is decreasing from the year 2015 to 2017.
And in 2017 the value of the ratio is lowest which is4.3. It is not good for the
branch.
9. Net asset value per share of 2017 is 25.49 which is less than the year 2016.
But the value is more than the other respective year 2015, 2014 and 2013.

10. Lending deposit ratio of 2017 is 0.89 which is much higher than the other
respective years of 2016, 2015, 2014 and 2013. In 2017 that branch has lent
Tk.0.89 to any businesses or consumers against Tk.1 received in the form of
deposit.
11. The capital adequacy ratio of 2017 is higher than compared to the year of
2016, 2015, 2014 and 2013. Higher capital adequacy ratio is good for that
branch.

Page | 41
 5.2 RECOMMENDATIONS

1. The current ratio of 2017 is satisfactory and the level of liquidity of the
branch is optimal. So branch should maintain its current ratio to operate its
function or business smoothly.
2. Debt to equity ratio is lower in 2017 than 2016 but the branch should use
shareholders equity more efficiently to generate more cash and to fulfill debt
obligations.
3. Debt to asset ratio is low in 2016 than 2017 but branch should use its assets
more efficiently to lower its debt to asset ratio.
4. In 2013 the return on assets ratio was 1.72% which was best result among
the last five year result. So to reach that value of ROA management should use
branch’s assets more efficiently to generate more income and to increase ROA
ratio.
5. That branch should focus more on efficient using of shareholders equity to
generate more income and to raise return on equity ratio because the value
or ROE ratio in not satisfactory.
6. Earnings per share serve as an indicator of a branch's profitability. In 2017
the value of EPS is lower than 2016 but it is only because the no. of share
outstanding increased. But the branch should try more to increase the value of
EPS in the upcoming years.
7. Low market value per share indicates that the total market value of all of
branch's outstanding shares is also low. So branch should take some necessary
steps and focus more on how to increase the value of branch’s shares.
8. Net asset value per share of branch is satisfactory. Branch should maintain
this level and also try to increase the value in the upcoming years.
9. Generally a high P/E ratio means that investors are anticipating higher growth
in the future. But branch’s price earnings ratio is low from 2015 to 2017
which is bad for the branch and indicating the loss that the branch will face in
the future. So bank should try it’s best to increase the value of the ratio.
10. A good lending deposit ratio for a branch is between 80 to 90 percent and
Bank has a good lending deposit ratio of 0.89 in 2017. So branch should
maintain this ratio to the optimum level.
11. Regulators in the banking system track a bank's CAR to ensure that it can
absorb a reasonable amount of loss. And the high capital adequacy ratio of
the Branch in 2017 shows that it has enough money in reserve to bear any loss
in the upcoming years. So branch should maintain this ratio.

Page | 42
 5.3 CONCLUSION
Prime Bank is a bank with difference. During the time of my internship program I
have gathered lots of practical knowledge and experiences and finally agreed this
statement to be true. Working and get involved in such a reputed bank is really great
pleasure for me. This internship program is obvious helpful for further thinking about
my career. Here I felt that, though banking constantly challenging and being equally
challenging, Prime Banks major concentration is always on quality service not on
quantity. Customer focus is their priority not volume of the business. According to me
this concept of Prime Bank has differentiated it from its competitors.

Prime Bank Limited is one of the leading banks in our country. In all economic
condition of our country, Prime Bank Limited has been working with great
confidence and competing tremendously with Government oriented bank, local banks
along with the multinational banks also. Prime Bank Limited always tried its level
best to perform financially well. In spite of trying to do well in some aspects Prime
Bank Limited faced some financial problems from time to time. Some of the problems
were-excessive bad loans, shortage of loans and advances, scarcity of cash in hands
due to vault limit etc. These problems arouse time to time due to economic slowdown,
interest rate fluctuation, emerging capital market, inflation in the money market and
so on. Fighting with all these problems and competing with other banks every
moment the bank is trying to do better to best. If this thing continues we hope that
Prime Bank Limited will develop even more in the future.

Page | 43
References:
 Official website of Prime Bank Limited.
 2017, 2016, 2015, 2014, 2013 Annual Report of Prime Bank Limited.
 Accounting Ratios Analysis/ Financial Ratios Analysis- Classification of
Ratios.
 Ratio an analysis, Prime Bank Ltd financial reporting and analysis software.
 Internship reports of previous students.
 Brigham & Houston. Fundamentals of Financial Management, 10th Edition,
Thomson South- Western.

Page | 44