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CHAPTER 4
FINANCIAL ANALYSIS OF NATIONAL BANK OF PAKISTAN
4.1 Financial Analysis
Financial analysis refers to an assessment of the viability, stability and profitability
of business. Financial statements reveal trends in the business and help the
organization better foresee how the organization is performing presently.
Financial analysis (also referred to as financial statement analysis or accountinganalysis or Analysis of finance) refers to an assessment of the viability, stability
and profitability of a business, sub-business or project.
Typically, financial analysis is used to analyze whether an entity is stable, solvent,
liuid, or profitable enough to be invested in. !hen loo"ing at a specific company,
the financial analyst will often focus on the income statement, balance sheet, and
cash flow statement.
4.1.1 C!!n size analysis
#ommon size analysis e$presses comparisons in percentages. %t includes vertical
analysis and horizontal analysis .&ertical analysis compares each amount with a
base amount elected from the same year. 'orizontal analysis compares each
amount with a base amount for a selected base year.
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4.1.1.1 "e#tical Analysis f NBP
Table . &ertical *nalysis of +s alance sheet
Yea# $%14
Rs in &%%%'
$%14( $%1)
Rs in &%%%'
$%1)(
ASSETS
#ash and balance with
treasury ban"
/01,2,304 2( 5,014,6644 (
alance with other ban"s 154/2 ( 0400340 (7ending to financial inst 3/13 3( 5/022 (
%nvestments 5232350 42( 4/2015 1/(*dvances 24611/2/ ( 2162461/ 5(8perating fi$ed assets 44454512 1( 452002 1(9efferred Ta$ *ssets /00152 ( 6/2001 (8ther assets /04/150 2( 053260 2(
1*+4,*-+,*%
1
66( 1*)/$*$4,*$-
)
66(
LIABILITIESills payables 6013 ( 40/223 (orrowings 401604 1( 14150/3 1(9eposits and other accounts 1465656 06( 605104 0(Finance lease 2/ 6( 4242 6(9eferred ta$ liabilities - 6( - 6(8ther 7iabilities 044/60 5( 3150432 5(Total liabilities 1*)-/%--%, 00( 1$1*1++*/)) 0/(
+et *ssets 015/1//1 1( 26224546 (
:hare capital 11354 ( 11354 1(;eserves 41//2/2 1( 4454234 1(inappropriate profit 5/35530 ( /342 (euity 614165 3( 652665 3(
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:urplus on revaluation of
*ssets
23051336 ( 551/2021 (
1$*+,$*,,$ 1( 1-%*--)*+)% (
S0#ces Ann0al #e2#ts $%13$%14
Inte#2#etatin
The major components in the balance sheet of ban"s are deposits, advances and
investments. *dvances decreased from 164 and o 16, increased from < to
5
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rovision against non
performing advances
604/34 1 35/446 15
;eversal of provision
for diminution ininvestment values
350 50 4/311 /
ad debt written off - 1 4616 25
rovision against
balance sheet obligations
44/1166 2 36146 2
/46465 /523361
Net 5a#602 Inc!e )+*4,*$$ $ 1,*/)%*$-% $-
SO7RCE Ann0al Re2#t $%1)3$%14
Inte#2#etatin
The &ertical *nalysis of %ncome :tatement of + as given in the above table
shows a decreasing trend in 164 and then increasing trend in 16. =ar"up
e$penses are actually cost of sale in case of a ban". %ncreasing trend in gross profit
shows the efficiency of the ban"s management in controlling mar"up e$penses. *
loo" at the figure of total of total income of the ban" reveals a decrease. *s total
income is the sum of both mar"up income and the non mar"up income, this
decrease in total income is due to the decrease in the mar"up income. This
organizations total non mar"up income consists of fee and commission, dividend
income, e$change income and other income.
4.1.1.) H#izntal Analysis f NBPs Balance inte#2#etatin
Yea# $%14 $%1) $%14 8s
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Rs in &%%%' Rs in &%%%' $%1)
(
ASSETS#ash and balance with
treasury ban"
/01,2304 50,146644 -40<
alance with other ban"s 15,4/2 0400340 -4<
7ending to financial inst 3/13 5/,022 5<
%nvestments 5232350 4/2015 <
*dvances 24611/2/ 2162461/ 1<
8perating fi$ed assets 44454512 452002 -4<
9efferred Ta$ *ssets /00152 6/2001 -6
8ther assets /04/150 053260 1)
1*+4,*-+,*%
1
1*)/$*$4,*$-
)
1$.,(
LIABILITIES
ills payables 6013 40/223 -1<
orrowings 401604 14150/3 2/<
9eposits and other accounts 1465656 605104 1<
Finance lease 2/ 4242 6<
9eferred ta$ liabilities - - 6<
8ther 7iabilities 044/60 3150432 2<Total liabilities 1)-/%--%, 1$11++/)) 1.0<
+et *ssets 015/1//1 26224546 <
:hare capital 11354 11354 6<
;eserves 41//2/2 4454234 1<
inappropriate profit 5/35530 /342 /<
euity 614165 6,52,665 /<
:urplus on revaluation of
*ssets
230,51336 55,1/2,021 14<
1$*+,$*,,$ 1-%*--)*+)% <
Table.4 'orizontal analysis of +s alance :heet
:ource? *nnual ;eport 164-16
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Inte#2#etatin
#ommon size horizontal analysis of + for the year 164-16, in asset side of
the + balance sheet. #ash and balance with treasury ban"s, alances with other
ban" shows positive trend in 164 and 16 in both years. 7ending to financial
institution investment are decreased in 16 than 164. *dvances shows increase
in 16 net advances. 8perating fi$ed assets are decreased in 16. 9eferred ta$
assets also decreased in 16. 8ther assets are increased in 16 as compare to
164.
The liability part of the + balance sheet shows negative trend of bills payable in
shows increase in 16 as compared to 164. orrowings, deposits and other
accounts shows increase in 16. it shows that ban" have sufficient funds to
maintain its financial position. 7iabilities against assets subject to finance lease,
deferred ta$ liability they show decrease in 16. +et *ssets of share capitals,
;eserves, %nappropriate profit of the ban" shows increase in 16 it means that
ban" have sufficient funds for investments.
4.1.1.4 H#izntal Analysis f NBPs inc!e state!ent an
Yea# $%14
Rs in &'
$%1)
Rs in &'
$%1) 8s $%14(
=ar"up revenue 5,15,30 66,/1,416 5
=ar"up >$pense 366//565 260/450 5
+et =ar"up 55114 4/1/3/21 2
rovision against non
performing advances
604/34 35/446 1
;eversal of provision for
diminution in investment
values
350 4/311
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ad debt written off - 4616 1
rovision against balance
sheet obligations
44/1166 36146 1
/46465 /523361
Net 5a#602 Inc!e )+*4,*$$ 1,*/)%*$-% 2Ta9le 4.4 H#izntal analysis f NBPs Inc!e State!ent
S0#ce Ann0al Re2#t $%1)3$%14
4.+ Rati AnalysisRati Analysis
;atio analysis is an important and old techniue of financial analysis. ;atios are important and
helpful in the reference that?
These simplify the comprehension of financial statement and tell the whole story of changes in
the financial conditions of the business. These provide data for inter-firm comparison. The ratios
highlight the factors associated with successful and unsuccessful firms, also reveal strong and
wea" firms. These help in planning and forecasting these can assist management in its basic
functions of forecasting, planning, coordination and control. These help in investment decision
in case of investor and lending decision in case of an"ers etc.
'owever, the ratios are only indicators, they cannot be ta"en as final regarding good or bad
financial position of the business other things have also to be seen. @reat care is needed while
calculating meaningful ratios and in interpreting them. *lthough there are several ratios, which
an analyst can employ yet the type of ratios he would, use entirely depends on the purpose for
which the analysis is done i.e., a creditor would "eep him abreast about the ability of a concern
to cover up its current obligations and so would care about current and liuid ratios, Turnover of
receivables, coverage of interest by the level of earnings etc.
4.+.14.+.1 Li:0i;ity Ratis
%n graphs 16should be near origin. ;ound the figures upto 1 decimal places !e need to
provide complete wor"ing of the ratios. we are reuired to carefully study the table regarding
Amaturities of assets and liabilitiesB. !here you can easily find the current and long term part of
assets and liabilities. *ssets and liabilities having upto year maturity are considered as current
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assets and current liabilities. This table is given in the annual report of the selected ban". Cou
need to re-calculate the current and long-term parts of assets and liabilities according to this
table.
These are includes?
• C0##ent Rati
#urrent ratio
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Aci; Test Rati
*cid test ratio
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P#fita9ility Ratis
Arofitability measures enable the analyst to evaluate the ban" or firmEs profits with respect to agiven level of sales, a certain level of assets or the ownerEs investment. !ithout profits, a ban" or
firm could not attract outside capitalB
• Ret0#n n Ttal Assets
$%14 ;s. %n A666B $%1) ;s. %n A666B
(1445056 D5/25/60)G66 =361054D4311/124)G66
1.4 %.+1
;eturn on *sset H rofit before Ta$ D Total *ssets G66
C!!ents
This ratio shows that the returns on assets are %ncreasing as compare to previous years and
overall profit with its available assets is increasing as well.
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Return on Total Assets
2013
2014
Ret0#n n Ttal E:0ity
;eturn on total euity H (+et incomeD total euity)G66
$%14;s. %n A666B $%1);s. %n A666B
(2630D614165)G66 (5462304D652665)G66
14( +.%/(
C!!ents
;eturn on euity indicates the net income by the total euity of the owners. %n the year of 16,
%n the year of 16, the total euity is grater than net income. %t means that generally, the ban" has high return.
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Return on Total Equity
2013
2014
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>e9t Rati
9ebt ;atioH Total liabilitiesD total assets.
$%14 ;s. %n A666B $%1) ;s. %n A666B
5/25/60D42362260/ 4311/124D1505344
1.1) 1.1)
C!!ents
These values indicate that the firm has financed close to total of its assets with debt. This ratio is
same in both 164 I 16.The higher this ratio, the greater the firmEs degree of indebtedness and
the more financial leverage it has.
Debt Ratio
2013
2014
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• >e9t3E:0ity Rati
9ebt-euity ratio H total liabilities D total share holder euity.
$%14 ;s. %n A666B $%1) ;s. %n A666B
42362260/D614165 1505344D652665
11., 11.+
C!!ents
9ebt >uity ;atio slightly increased in the year 16 than the previous year 164.
Debt Equity Ratio
20132014
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5a#6et Ratis
=ar"et ratio relates a firmEs mar"et value, as measured by its current shares price to
certain accounting values.
These include?
• >i8i;en; 2e# s?a#e
9ividend per share HTotal dividendD no of share outstanding
Dividend per Ratio
2013
2014
C!!ents
9ividend per ;atio ;atio slightly increased in the year 16 than the previous year 164
$%14 ;s. %n A666B $%1) ;s. %n A666B
16322//D6,60,06 122633D520/40
%.+44% %.4+$
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Ea#nin@ 2e# S?a#e
>arning per share H +et incomeD no of share outstanding.
$%14 ;s. %n A666B $%1);s. %n A666B
2630D260324 5462304D51333/
1.% 1.%
C!!ents
This ratio is same as in previous year. %n these ratios, net income is greater than no of shares
outstanding. ThatEs why, the earning per share is same and growth rate as well as. %t shows
profitability between the shareholders.
Earning Per Share
2013
2014
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• 5a#6et Ca2italizatin Rati
9ebt to total capital ratio H outstanding shares $ share value
$%14 ;s. %n A666B $%1) ;s. %n A666B
3564115/6D(3564115/6J0 ,0,32) 20402/16D(20402/16-3,145,43)
3564115/6D2205603 20402/16D21244334
1.1$$)/, 1.11-$//$
C!!ents
This ratio is relating the long-term debt to the permanent capital of the ban". %t shows that the
fi$ed assets decrease than previous years which show a good sign. This ratio is considered to be
satisfactory.
Market Captalization Ratio
2013
2014
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Inte#est C8e#a@e Rati,
*lso "nown as Times %nterest >arned ;atio (T%>), states the number of times a company is
capable of bearing its interest e$pense obligation out of the operating profits earned during a
period.
%nterest cover ;atioH rofit before interest and ta$ D %nterest >$pense
$%14 ;s. %n A666B $%1) ;s. %n A666B
2630D1445056 542304D361054
%. %./
C!!ents
This ratio increased from6.3 to6.0 in the year 16
nterest Cover Ratio
2013
2014