Contents

1) HORIZONTAL ANALYSIS................................................................................................2

A. Ratios for assessing Financial Health...........................................................................2

B. Ratios for assessing Profitability...................................................................................3

2) Vertical analysis................................................................................................................4

3) RATIO ANALYSIS............................................................................................................6

I. LIQUIDITY RATIO.........................................................................................................6

II. SOLVENCY ANALYSIS................................................................................................7

III. PROFITABILITY RATIO............................................................................................8

4) COMPARISON WITH COMPETITORS............................................................................9

1. Competitors...................................................................................................................9

2. Financial information of the company and the competitors.........................................10

Financial Statement of BDBL..........................................................................................10

Financial Statement of BOB............................................................................................13

Financial statement of T-Bank........................................................................................16

Financial Statement of BNB............................................................................................18

3. Financial metrics for comparison.................................................................................20

4. Calculation of metrics..................................................................................................20

5. ANALYZE THE DATA.................................................................................................21

6. CONCLUSION............................................................................................................22
FINANCIAL ANALYSIS of BDBL

1) HORIZONTAL ANALYSIS

Horizontal analysis, also known as trend analysis is a financial analysis technique used to
evaluate the performance and changes in a company’s financial statements over a specified
period. It helps identify trends, patterns, and changes in key financial indicators, allowing for
a better understanding of the company’s growth or decline over time.

Ratio analysis

Ratios 31 December 2021 31 December 2020

A. Ratios for assessing Financial Health

Capital Turnover Ratio (As per BAS) 0.78 1.33

(Turnover / Capital Employed)

Current Ratio (As per BAS) 1.07 8.66

(Current Assets / Current Liabilities)

Fixed Asset Turnover Ratio (As per BAS) 8.05 6.19

(Turnover / Fixed Asset)

B. Ratios for assessing Profitability

Profit on Capital Employed Ratio (As per BAS) 11.16% -9.00%

(PAT/Capital Employed)

Profit Turnover Ratio (As per BAS) 14.24% -7.00%

(NP/ Total Income)

Total Expenses to total income ratio (As per 77.85% 94.00%

BAS)

(Total Expenses/ Total Income) * 100

A. Ratios for assessing Financial Health

1. Capital Turnover Ratio:

For 2020, BDBL have a healthy capital ratio, (1.33) It shows that BDBL efficiently
utilizes the amount of capital invested.
 Compared to 2020, Capital turnover ratio of BDBL for 2021 decreased (0.78)
indicating that the company is not managing its capital investment efficiently to
generate the required revenue.

2. Current Ratio:

For 2020 BDBL have a good current ratio (i.e., 8.66) indicating that BDBL is more
capable of paying off short term liabilities.
Compared to 2020, current ratio of BDBL for 2021 decreased by 7.59 and came
down to 1.07, that is lower than required indicating that BDBL will have a difficult time
in paying short term debts and0 liabilities.

3. Fixed Asset Turnover Ratio:

For 2020, BDBL has a good Fixed Asset Turnover Ratio for both 2020 and 2021.
For 2020, BDBL have Fixed asset Turnover Ratio of 6.19 and for 2021, 8.05.
Fixed asset Turnover Ratio of 2021 slightly increased, that is by 1.86 indicating that
there is greater efficiency in regards to managing fixed assets; therefore, it gives
higher returns on asset investments.
Low fixed asset Turnover Ratio indicates that the business is underperforming in
sales and has a relatively high amount of investment in fixed assets

B. Ratios for assessing Profitability

1. Profit on capital employed ratio:

Profit on capital employed ratio also known as Return on capital employed (ROCE).
BDBL had a really bad ROCE for the year 2020 as their ROCE was in negative (i.e., -
9%) indicating that the company is not generating sufficient returns on its capital
investments.
Whereas, for 2021, BDBL's ROCE increased to +11.16%, which is good, signifying
that the company is generating substantial profits relative to the capital it has
employed. It indicates effective management of resources and a potentially attractive
investment opportunity. Although BDBL have a positive ROCE, BDBL should have at
least ROCE of 20% to indicate that the company is in a good financial position.
2. Profit Turnover Ratio:
For 2020, the profit turnover ratio is -7.00% which indicates that during the year the
bank is not able to effectively generate profits from its sales however, in 2021 the
profit turnover ratio has increased to 14.24% which indicates that the bank is able to
 effectively generate profits from sales. A higher ratio suggests better profitability
hence; the bank is able to generate more profit from each unit of sales.
3. Total Expenses to total income ratio:
For 2020, BDBL had total expenses to total income ratio of 94% which means that
the company’s expenses account for 94% of its total income indicating that BDBL’s
expenses are eating into its income and reducing profitability. Whereas, for 2021,
BDBL’s total expenses to total income ratio decreased, which is good (i.e., to 77.85%
from 94%) which means that BDBL’s expenses account for only 77.85% of its total
income indicating that BDBL is operating efficiently and has a higher potential for
profitability. However, total expenses to total income ratio below 60% is often
considered favorable for financial companies. This indicates that the company is able
to keep its expenses well below its total income, leaving a significant portion of
income available for-profit generation and other investment.

2) Vertical analysis

Vertical analysis is an accounting tool that enables proportional analysis of documents, such
as financial statements. While performing a vertical analysis, every line item on a financial
statement is entered as a percentage of another item. For example, on an income
statement, every line item is stated in terms of the percentage of gross sales.

When is vertical Analysis Used?

Vertical analysis is most commonly used within a financial statement for a single reporting
period, e.g., quarterly. It is done so that accountants can ascertain the relative proportions of
the balances of each account.

Vertical analysis is exceptionally useful while charting a regression analysis or a ratio trend
analysis. It enables the accountant to see relative changes in company accounts over a
given period of time.

Advantage of vertical Analysis

 Comparison of Components: Vertical analysis enables easy comparison of

individual components of a financial statement, such as income statement or balance
sheet items, by expressing them as a percentage of a common base. This makes it
easier to identify trends, spot variations, and understand the relative significance of
each component.
  Performance Evaluation: Vertical analysis helps in evaluating the performance of a
company over time. By analyzing changes in the percentage composition of various
financial statement items, such as revenue, expenses, assets, and liabilities, one can
assess the company's financial health, identify areas of improvement, and pinpoint
potential issues.
 Intercompany and Industry Comparisons: Vertical analysis allows for the
comparison of financial statements between different companies or industry sectors.
By expressing financial data as percentages, it removes the impact of size
differences and presents a clearer picture of the relative proportions of various
components. This makes it easier to benchmark performance and identify areas
where a company may lag or excel compared to its peers.

Practical Examples

Statement of Comprehensive income with Vertical Analysis

In the context of vertical analysis, we can examine each line item in BDBL's statement of
comprehensive income for the year ended December 31, 2021and 2020, as a percentage of
the total revenue. This allows us to assess the proportion and relative impact of each
element on the company's financial performance.

The Total operating income for the year 2021 has been increased to 219.22% from the
Negative 675.54% of 2020. This indicate that, company's ability to generate profits from its
primary activities, after deducting operating expenses from the gross profit when it compared
to the income year of 2020.

Whereas as it compared to 2020, the total operating expenses for the income year 2021 has
been reduced to negative 63.62% from the 526.57% indicating that the company have low
production cost or high selling price in the income year 2021.

3) RATIO ANALYSIS

I. LIQUIDITY RATIO

Liquidity is the ability to satisfy the company’s short term obligations using assets that can be
most readily converted into cash.

It measures the liquidity of the firm and it’s ability to meet it’s maturing short term obligations.

1. Working capital ratio

Working capital ratio measures the available cash that the company can readily use
for day to day operations.
Working capital ratio= Current assets-Current liabilities
WCR= 31,298,011,493.10 - 28,725,315,210.84
WCR= 2,572,696,282.26
BDBL has working capital worth of Nu.2,572,696,282.26 to carry out day today
activities as a working capital ratio.

2. Current ratio
The current ratio measures a company’s ability to pay off its short-term debts with its
current assets.
Current ratio= current assets/ current liabilities
CR= 31,298,011,493.10 / 28,725,315,210.84
CR=1.08
A higher current ratio generally indicates a stronger financial position, while a lower
ratio suggests that a company may have difficulty paying off its short-term debts.
Current ratio of 1.08 indicates that the BDBL may have difficulty meeting its short-
term obligations, such as paying bills or servicing debt, if its cash flow slows down.
 II. SOLVENCY ANALYSIS

Solvency refers to a company’s ability to remain in business over the long term.

i. Debt to Equity Ratio

Total Liabilities
Debt −¿−Equity Ratio=
Total Stockholders ’ Equity
28,725,315,210.84
=
2,865,709,173.90

¿ 10.24 :1

The 2021 ratio of BDBL indicates that for every Nu.1 of capital that stockholders
provided, creditors provided Nu. 10.24 indicating higher risk to lenders and investors
because it indicates that BDBL is financing a significant amount of its potential
growth through borrowing. Although BDBL is having a high debt equity ratio, we shall
not assume that BDBL is having a poor debt ratio because BDBL being a financial
company, they use more debt financing than other types of industries. Therefore
higher debt equity ratio isn't always bad, it often indicates higher financial risk.

ii. Times interest earned ratio (TIER)

Net Income+ Interest Expense + Income Tax Expense

¿ Interest Earned Ratio=
Interest Expenses
335,988,539.38+1,623,667,915.51+42,800,836.19+143,995,088.30
¿
1,623,667,915.51

2,146,452,379.38
¿
1,623,667,915.51
¿ 1.32
The times interest earned ratio indicates the company’s ability to meet
the current year’s interest payments out of the current year’s earnings.
The times interest earned ratio of BDBL for 2021 is 1.32 indicating a
higher risk of defaulting on interest payments. A times interest earned
ratio of 3 or higher is often considered a good benchmark for financial
companies. A ratio of 3 indicates that the company's earnings are
sufficient to cover its interest payments three times over, providing a
comfortable margin of safety.
 III. PROFITABILITY RATIO

1. Gross profit Ratio

Gross profit
Gross Profit Ratio= × 100
net sales
640,063,595.78
¿ ∗100
2,263,731,511.29
¿ 28.28 %
BDBL had a Gross profit ratio of 28.28% that is low, which indicates
higher production costs or pricing challenges. A higher gross profit ratio
indicates that a company is generating more profit from its core
operations.

1. Profit Margin Ratio

Net income
Profit Margin Ratio= ×100
Net sales
335,988,539.38
¿ × 100
2,263,731,511.29
¿ 14.84 %
A high profit margin indicates that the company is controlling its
expenses. This is because sales minus expenses equals net income; if
the ratio of net income to sales is high, the company is not only
generating revenue but also minimizing expenses. On the other hand,
low profit margin ratio indicates that the sale price that a company
choose is not much higher than the cost. BDBL had a profit margin ratio
of 14.84% which is good that indicates that BDBL is not only generating
revenue but also minimizing expenses.

1. Return On Shareholders’ Equity Ratio

( Net Income - Preferred Dividends )
Return on Shareholders’ Equity Ratio = × 100
Average shareholders’ Equity

totol common equity of 2020+totol common equity of 2021

Average Shareholders Equity=
2

Total common equity

 For 2020 :600,317,000.00+ 715,001,981.16=1,315,318,981.16

For 2021 :600,317,000.00+ 948,276,005.70=1,548,593,005.7

totol common equity of 2020+totol common equity of 2021

Average Shareholders Equity=
2

1,315,318,981.16+1,548,593,005.7
¿
2

¿ 1,431,955,993.43

335,988,539.38−0
ReturnOn Shareholders Equity Ratio= ×100
1,431,955,993.43

¿ 23.46 %

A high Return On Shareholders’ Equity Ratio generally indicates that a company

is generating strong profits relative to the amount of shareholders' equity
invested in the business. It suggests that the company is utilizing its assets
efficiently to generate earnings and create value for its shareholders. A low
Return On Shareholders’ Equity Ratio typically suggests that a company is not
generating significant profits in relation to its shareholders' equity. It may indicate
that the company's operational efficiency is low or that its profitability is weak. A
low Return On Shareholders’ Equity Ratio could be a sign of underperformance
or inefficiency within the company. BDBL had a Return On Shareholders’ Equity
Ratio of 23.46%, a good Return On Shareholders’ Equity Ratio indicating that
BDBL is generating strong profits relative to the amount of shareholders' equity
invested in the business BDBL is utilizing its assets efficiently to generate
earnings and create value for its shareholders.

Return On Shareholders’ Equity Ratio above 10% is generally considered

acceptable for financial companies. However, successful and well-managed
financial companies often achieve higher ROE ratios, sometimes even
exceeding 15% or more.

4) COMPARISON WITH COMPETITORS

1. Competitors

 Bank of Bhutan Limited (BOBL)

 Bhutan National Bank (BNB)
  Tashi Bank (T-Bank)

2. Financial information of the company and the competitors

Financial Statement of BDBL

Financial Statement of BOB
Financial statement of T-Bank
Financial Statement of BNB
3. Financial metrics for comparison

I. Return on Assets (ROA): is a financial ratio which shows the percentage of how
profitable company is in relation to its assets.
II. Return on Equity (ROE): ROE is a profitability ratio that provides return on
capital employed by the owners (shareholders) of the company. It excludes
dividend and interest paid to preference shareholders.

4. Calculation of metrics

Profit after tax (PAT )

ROA= ×100
Total Assets
335,988,539.38
ROA ( BDBL )= ×100
31,591,024,384.74
 ¿ 1.06 %

481,979,577.12
ROA ( BOB )= ×100
100,679,697,880.69

¿ 0.48 %

103,953,271
ROA (T −BANK )= ×100
13,575,492,649

¿ 0.77 %

768,179,788
ROA ( BNB )= ×100
52,797,858,200
¿ 1.45 %

Profit after Tax( PAT )

ROE= × 100
Shareholders equity
335,988,539.38
ROE ( BDBL )= × 100
2,865,709,173.90
¿ 11.72%

481,979,577.12
ROE ( BOB ) = ×100
8,224,045,890.96
¿ 5.86 %

103,953,271
ROE (T −Bank )= × 100
1,085,228,845
¿ 9.58 %

768,179,788
ROE ( BNB )= × 100
6,957,348,364
¿ 11.04 %

5. ANALYZE THE DATA

Ratios/Banks BDBL BOBL T-Bank BNB

Return on Assets 1.06% 0.48% 0.77% 1.45%
(ROA)

Return On Equity 11.72% 5.86% 9.58% 11.4%

(ROE)

Higher ROA means more assets efficiency. Higher the ROA is better as it indicates that the
company is doing well. It indicates that there is increase in profit for every investment. So,
from the above given ratio we can say that BDBL is doing better as compared to its
competitors like BOB and T-Bank in the year 2021. However BNB outperform BDBL with
1.45%.

Higher ROE indicates the company is profitable and making effective use of the available
resources. On the other hand, lower ROE indicates improper allocation of resources and as
profitable. During the accounting year 2021, BDBL is profitable with its ROE 11.72% as
compared to the competitors.

6. CONCLUSION

In Conclusion, BDBL outperform other banks in the year 2021.

Submitted by:
1. Nima Dema
2. Pelden Singye
3. Pema Jamtsho
4. Leki Dorji
5. Lobzang Wangdi
6. Jangchu Dema