Ratio AnalysisRatio analysis enables the analyst to compare
items on a single financial statement or to examine the
relationships between items on two financial statements. After
calculating ratios for each year's financial data, the analyst can
then examine trends for the company across years. Since ratios
adjust for size, using this analytical tool facilitates
intercompany as well as intercompany comparisons. Ratios are often
classified using the following terms: profitability ratios (also
known as operating ratios), liquidity ratios, and solvency ratios.
Profitability ratios are gauges of the company's operating success
for a given period of time. Liquidity ratios are measures of the
short-term ability of the company to pay its debts when they come
due and to meet unexpected needs for cash. Solvency ratios indicate
the ability of the company to meet its long-term obligations on a
continuing basis and thus to survive over a long period of time. 1:
Debt RatioThe proportion of a firm's total assets that are being
financed with borrowed funds. The debt ratio is calculated by
dividing total long-term and short-term liabilities by total
assets.DEBT RATIO = TOTAL LIABILTIES / TOTAL ASSETS 2013 88.2%2014
88.2%
DEBT RATIO
INTERPRETATION Here we can see that there is no change in the
debt ratio. When the debt increase so, loan acquire liability
decrease.
2: Profitability RatiosThe continued viability of any bank
depends on its ability to earn an appropriate return on its assets
and capital. Good earning performance enables a bank to fund its
operations, remain competitive in the market and increase or
decrease in market funds. Profitability ratios relate profit to
sales and investments. These ratios indicate the firms overall
effectiveness of operations and give us idea how well firm utilized
its resources in generating profit and shareholder value. Gross
Profit Margin RatioGross profit margin ratio is used to assess the
profitability of a Bank's core activities. Gross profit margin
indicates the relationship between gross profit and interest
earned. A high gross profit margin indicates that a Bank can make a
reasonable profit.
Gross profit margin = Gross Profit / Interest earned
(Revenue)2013 18.35% 2014 51.23% Analysis The Year 2013 has been an
outstanding year with the bank recording the lowest profit in its
history i.e. 18.35 %.The National Bank of Pakistans wide range of
product offering, large branch network and committed workforce are
some of fundamental strengths that enabled NBP to achieve
exceptional in a very competitive market. The gross profit is
51.23% in 2014.
Net Profit Margin RatioNet profit margin measures the percentage
of revenue remaining after all cost and expenses, including
interest and taxes have been deducted. Net profit margin = Net
Profit after Taxes / Interest earned
2013 5.49%2014 13.94%
Analysis Net profit margin shows in 2013 i.e.. 5.49%, The net
profit margin is on its highest level at the end of 2014 as it
indicates a percentage of 13.94%. it show better performance of NBP
in 2014 as compare to 2013
3: Assets TurnoverThis ratio is useful to determine the amount
of revenue that is generated from each Rupee of assets. The Banks
with low profit margins tend to have high asset turnover, those
with high profit margins have low asset turnover. Assets turnover =
Revenue/ Total Assets2013 0.07 2014 0.07
Interpretation The assets turnover show the same result in both
years.
4 : Current RatioA current ratio is a liquidity ratio that
measures firm ability to pay its short-term obligations.Current
ratio = current liability/ current assets 2013 0.14 2014 0.14
INTERPRETATION Current ratio is a measure of the current
adequacy of company's current assets to meet its current
obligations. It must be greater than 1. If it is less than 1,
liabilities exceed current assets. For every Rs.1 of liabilities,
the company has a ratio amount of current assets available. The
concept behind this ratio is to ascertain whether a company's
short-term assets (cash, cash equivalents, marketable securities,
receivables and inventory) are readily available to pay off its
short-term liabilities (notes payable, current portion of term
debt, payables, accrued expenses and taxes). In theory, the higher
the current ratio, the better.
5 : Return on Assets:The ratio shows the efficiency of
organization that how efficiently utilize their assets. This ratio
relates profit to assets.Return on assets = Net profit after tax /
total assets 2013 0.382014 1.03
6: Cash Ratio This ratio shows that the cash is enough for
payment of current liabilities or not. This ratio is obtained by
dividing cash by current liabilities. For a bank this is the cash
held by the bank as a proportion of deposits in the bank.Cash ratio
= Cash / Current Liabilities2013 0.132014 0.07
