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Financial ratio Analysis

of
HIMALAYAN BANK LIMITED

PRESENTED BY:
Pramod Thapa (064BME625)
Sushil Regmi (064BME646)
Umanga Bhattari (064BME647) Institute Of Engineering (IOE)
Department of Mechanical Engineering
Utsavshree Rajbhandari (064BME648)
Pulchowk Campus
Lalitpur, Nepal
Objective of study

To understand the financial statement


To analyze the data given in financial statement
To analyze the financial performance and position of HBL
To be able to take decisions with economic benefit and excellence.

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Introduction

First private commercial bank of Nepal estd in 1992


Started banking services in 1993
31 branches
Objective of bank is to become first choice by sitting on hearts
and minds of the customers and is to render banking services
to different sector

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Services

The bank provides following services:


Deposits
Corporate financing
Consortium financing
Retail financing
Small and medium sized business financing
Card services
International trade business services
Inward remittances
Treasury services
Safe deposit locker services
Ancillary services

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Financial Statement

Collection of financial data for fixed period of time


It is more than just crunching numbers; it involves obtaining a broader picture
of the organisation in order to evaluate appropriately how that organisation is
performing
Help business owners and other interested people to analyse the data in
financial statements to provide them with better information about such key
factors for decision making and ultimate business survival.
To evaluate an organisations Financial performance and Financial position

Mainly classified into 3 parts


Balance Sheet
Income Statement
Cashflow Statement

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Financial Statement(cont.)

Balance Sheet
Companys financial position at the end of reporting period
Also called statement of financial position
Consist of Assets, liabilities , Ownerships Equity

Income statement
Shows whether the company is making or loosing money.
Consist of various income and expenses , PBIT, tax amount and dividend
etc.

Cash flow Statement


A record of all cash transactions.
Shows how the company is generating cash.
How the cash is used.

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Balance sheet
2061/62 2062/63 2063/64 2064/65 2065/66
2004/2005 2005/2006 2006/2007 2007/08 2008/09
Rs. In Million Rs. In Million Rs. In Million Rs. In Million Rs. In Million
Capital Structure
Authorized Capital 1000.00 1000.00 1000.00 2000.00 2000.00
Issued Capital 650.00 772.20 810.81 1013.51 1216.22

Liabilities
Issued and Paid up capital 643.50 772.20 810.81 1013.51 1216.22
Reserve & Surplus 898.25 993.98 1335.69 1499.48 1903.67
Debenture 360.00 360.00 360.00 860.00 500.00
Borrowings 146.05 144.62 235.97 83.18 0.00
Deposits 24814.01 26490.85 30048.42 31842.79 34681.35
Others 556.35 698.74 728.26 876.57 1019.10
Total 27,418.16 29,460.39 33,519.14 36,175.53 39,320.32

Assets
Cash & Bank Balance 2014.47 1717.35 1757.34 1448.14 3048.53
Investment 12133.42 11894.31 13533.01 13858.71 9881.48
Loan, advances & overdraft 12424.52 14642.56 16998.00 19497.52 24793.16
Fixed Assets 295.82 540.82 574.06 726.07 952.20
Others 549.92 665.34 656.73 645.09 644.96
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Total 27418.16 29460.39 33519.14 36175.53 39320.327
Income statement(P/L statement)
2061/62 2062/63 2063/64 2064/65 2065/66
2004/2005 2005/2006 2006/2007 2007/08 2008/09
Rs. In Million Rs. In Million Rs. In Million Rs. In Million Rs. In Million
Profit and Loss Account
Interest Income 1446.47 1626.47 1775.58 1963.65 2342.20
Other operating income 311.42 415.90 385.19 457.59 580.63
Non operating income (Net) -85.46 55.55 100.26 141.19 13.32
Total Income 1672.43 2097.92 2261.03 2562.43 2936.15

Expenditures:
Interest Expenses 561.96 648.84 767.41 823.74 934.78
Overhead Expenses(Employees) 178.59 234.59 272.23 307.53 360.98
Other Operating expenses 277.38 329.70 341.56 329.01 398.32

Loan loss provision 73.90 145.15 90.69 58.43 68.81


Total Expenditure 1091.83 1358.28 1471.89 1518.71 1762.88

Profit before tax 580.60 739.64 789.14 1043.72 1173.27


Provision for bonus 58.06 67.24 71.74 94.88 106.66
Tax provision 214.27 214.94 225.58 312.97 313.77
Net profit after tax 308.28 457.46 491.82 635.87 752.83

Dividend Per share (with bonus share) 31.58 35.00 40.00 45.00 43.56
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Market Price 920 1100 1740 1980 1760
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Cash flow statement
particulars 2004/05 2006/07 2007/08 2008/09
A.Cash flow from operation activities 585,545,427 590,618,284 273,069,707 978,388,741
1. cash receipt 1,760,345,858 1,897,766,254 1,944,218,385 2,909,793,503
1.1 interest income 1,446,468,083 1,419,900,506 1,442,245,205 2,324,173,095
1.2 commission and discount income 132,815,882 165,447,872 202,888,358 284,302,277
1.3 income from exchange transaction 137,300,987 198,130,134 192,600,803 249,982,606
1.4 recovery of loan written off -2,902,317 42,380,758 4,992,623
1.5 other income 43,760,906 117,190,059 621,032,411 48,342,872

2.cash payment 561,963,770 648,841,818 1,871,148,658 1,931,404,763


2.1intrest expense 561,963,770 648,841,818 823,744,838 832,463,329
2.2 staff expense 178,589,357 191,130,134 307,528,289 345,418,184
2.3 office overhead expense 223,232,416 235,879,091 240,568,995 305,661,329
2.4 income tax paid 211,014,888 230,798,830 299,306,535 352,978,035
2.5 other expenses 94,883,888

cash flow before changes in working capital


1. increase/decrease in money at call 72,180,900 564,199,100 1,191,494,359 652,264,150
2.increase/decrease in short term investments 2,400,239,049 -801,968,750
3.increase/decrease in loan and bill purchases 619,790,462 2,318,893,556 2,504,143,790 5,378,904,089
4.increase/decrease in other liabilities 272,752,640 168,075,252 47,063,907 26,492,817

(increase/decrease ) of current liabilities 2,824,015,643 1,648,886,464 1,555,660,563 2,802,581,422


1. increase/decrease in deposits 2,803,679,000 1,676,839,656 1,794,371,600 2,838,555,823
2.increase/decrease in certificate of deposits
3.increase/decrease in short term borrowings 9,000,000 -1,423,389 152,789,838 83,177,973
4.increase/decrease in other liabilities 11,336,643 -26,529,803 85,921,199 47,203,572

B.cash flow from investment activities


1. increase/decrease in long term investment 1,517,192,226 2,802,581,422
2. increase/decrease in fixed assets 31,645,636 288,025,916 237,756,761 2,838,555,823
3.intrest income from long term investment 573,707,690
4.divedent income (334,353 -611,705 1,850,862 83,177,973
5. others 34,418,750 47,203,572
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Current year cash flow from all activities 13,286,736 297,118,621 309,198,380 1,600,383,897 9
D. Opening balance of cash and bank balance 2,001,184,221 2,014,470,957 1,757,341,251 1,448,142,891
Financial Ratio Analysis

most commonly used tools to interpret the financial statements so that


the strength and weakness of firm can be judged
Compare performance against other firms or industry standards and also
with past performance
Study the efficiency and risk of operations
Classified into 5 main categories:
Profitability Ratios
Combine effect of liquidity,debt management and asset management
Liquidity or Short-Term Solvency ratios
Extent to which current assets can be converted into cash
Asset Management or Activity Ratios
How effectively firm is managing its assets
Financial Structure or Capitalisation or Debt Management ratio
Business ability to pay long term loan
Market Test Ratios
What company think of the companys past performance and future prospects
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1. Profitability Ratios
Profit margin or Net profit

Net Income
Net profit
Revenue
To measure how much profit is earned per
unit revenue
Profit margin says margin of safety
Good at present context of the bank

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1. Profitability Ratios
Return on Asset

Net Income
ROA :
Total Asset
measures a company's success in using its
assets to earn a profit
At the moment companys earning power is
very low and debt is very high
Although there is good profit margin but
this figure of ROA shows that the bank is
unsuccessful in using its assets to earn
profit

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1. Profitability Ratios
Return on Equity

3500 30

Net Income
ROE : 3000
Total equity 25

Relationship between net income and 2500


common stockholders investment 20

It answers the question, How much


2000
income is earned for every Rs.100
invested by common shareholders? 15
Looks good internally but it is
1500
satisfactory compare to other equal
ranking commercial banks
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1000

5
500

0 0
2004/05 2005/06 2006/07 2007/08 2008/09
Net profit after tax 308.28 457.46 491.82 635.87 752.83
Average common equity 1541.75 1766.18 2146.5 2512.99 3119.89
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2. Liquidity or Short-Term Solvency ratios

Working capital current asset - current liabilitie s


Working capital management is important Working capital(in million)
as it signals the firms ability to meet short
Working capital(in million)
term debt obligations.

The WC of the bank is rising every year 3041.82


which is a good sign. 2878.40

2003.96
1612.35 1618.75

2061/62
2062/63
2063/64
2064/65
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2. Liquidity or Short-Term Solvency ratio
Current ratio

current asset
Current ratio :
current liabilites

the ability of the bank to meet its current


obligation
The acceptable benchmark is 1:1 but a
ratio below this value represents liquidity
risk ness as there is insufficient current
assets to cover current liabilities.
Satisfactory, risk of rise in liabilities
Need to improve this ratio in order to be
safe from any financial difficulty

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3. Asset Management or Activity Ratios
Asset turnover

net sale
Asset turn over
Avg. total asset
Asset trunover
measures how efficiently the firm is using the 6.20%
assets
Turnover means; how many number of times the 6.00%
assets flow through a firm's operations and into
5.96%
sales 5.80%

Greater rate of turnover or conversion indicates


more efficiency of a firm in managing and utilizing 5.60% 5.52%
its assets 5.43%

Has been increasing till 062/063 but due to 5.40%

political crisis decreases during fiscal year 5.28% 5.30%


063/064 5.20%

5.00%

4.80%
2061/62 2062/63 2063/64 2064/65 2065/66
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4. Financial Structure or Capitalisation Ratios
Debt ratio

Total Debt
Debt ratio
Total asset
tells us the proportion of the company's
assets that it has financed with debt
Decreasing yearly yet not satisfactory
As bank, this ratio seems to be quite good
because its has used its debt successfully
in investments and loans.

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4. Financial Structure or Capitalisation Ratios
Time-Interest Earned Ratio

Measures the ability of the bank to pay off


its creditors
The ratio is very low for all fiscal year.
For an organization this is not a good sign
to its creditors.

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5. Market Test Ratios
Earning per share

Net income
Earning per share
No. of issued ordinary share
Profit earned by each shareholder Earning Per Share
Help to decide company whether to 70.00

increase or reduce the number of shares


on issue 60.00

50.00

40.00

Rs.
30.00

20.00

10.00

0.00
2061/6 2062/6 2063/6 2064/6 2065/6
2 3 4 5 6
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Earning Per Share 47.91 59.24 60.66 62.74 61.90 19
5. Market Test Ratios
Price Earnings ratio

Market price per share


Price Earning ratio
Earnings per share
The price/earnings (P/E) ratio shows how
Price Earning Ratio
much investors are willing to pay per dollar
of reported profits 35.00
31.56

Measure the price paid for a share relative


30.00
28.69
to profit earned per share 25.00 28.43

19.20
higher the ratio, the higher the quality of the 20.00
18.57
earnings by firm on the share market.
15.00

P/E ratio= 19 means that Purchasers are 10.00


paying Rs 19 for 1 rupees income
5.00

0.00
2061/62 2062/63 2063/64 2064/65 2065/66
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5. Market Test Ratios

Net Income
EPS
No. of common stocks outstandin g

EPS tells us what profit the common


shareholders are getting for every share

The book value per share measures the


amount that would be distributed to
shareholder if all assets were sold at their
balance-sheet carrying amounts and if all
creditors were paid off

The price/earnings (P/E) ratio shows how


much investors are willing to pay per dollar of
reported profits

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CONCLUSION

Bank has good profit margin


Low ROA value but Satisfactory ROE value
Bank is borrowing to much money
Bank should increase current ratio to some extent to decrease risk
If bank doesnt develop necessary steps then bank is likely to
experience its rough period

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Thank You