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A
PROJECT REPORT
ON
“PROSPECTUS PROCEDURE AND
FINANCIAL POSITION OF IDBI BANK”
SUBMITTED FOR THE PARTIAL FULFILLMENT OF THE
B.COM. (HONS.)
UNDER GUIDANCE DR. UPENDRA KUMAR M.Com., Ph.D Head, Department of B.Com.(Hons) Maharaja Agrasen Mahavidyalaya, Bareilly
SUBMITTED BY
PRABHAT SINGHALDr. Upendra Kumar
1
M.Com., Ph.D.
Head, Department of B. Com. (Hons.)
Maharaja Agrasen Mahavidyalaya, Bareilly
CERTIFICATE
This is to certify that Mr. / miss.
………………………………………………………………….
A regular student of Maharaja Agrasen Mahavidyalaya, Bareilly, B. Com. (Hons)
- IInd year roll no. ……………………………… has undertaken and completed
the project work on
………………………………………………………………………………….
………………………………………………………………………………………
…………………………………………............ as compulsory paper of B.Com.
(Hons) II examination 2010 under my supervision.
It is further certified that the whole project is based on individual efforts and
analysis is found upto the mark. I, therefore
recommended……………………..marks out of 100 marks and the project report
prepared by the candidate should be sent for evaluation.
Dr. Upendra Kumar
(Supervisor)
2
PREFACE
“Six essential qualities that are the key to Success: sincerity, personal integrity, humility,
courtesy, wisdom, charity.”
“LIFE IS FULL OF SURPRISES... UNEXPECTED SOME BITTER SOME SWEET.
There are many Institutes in Bareilly but only students of Maharaja Agrasen
Mahavidyalaya, Bareilly are using internet & intranet so firstly we would thank our
teachers who are providing us this facility to reach that level from where we can see our
destination. This project is a part of that success.
As everyone knows that is not an easy subject but DR. UPENDRA KUMAR never
made us feel any difficulty in this particular subject.
3
AcknowledgementNothing concrete can be achieved without an optimal combination inspiration and
perspiration. No work can be accompanied without taken the guidance of experts. It is
only critics from ingenious that help transform a product into a quality product.
For this, I am grateful to DR. UPENDRA KUMAR for his constant encouragement and
invaluable critical suggestions given during the review meetings. His timely advice and
help proved his commitment and welfare of his students and the institute as a whole.
Last but not the least, our sincere thanks to all the members who were a vital thrust to our
thoughts and needs throughout the functions assigned to group to get done and prove our
best. Finally thanks to others at Maharaja Agrasen Mahavidyalaya, Bareilly, who put
in numerous hours to make the intangible tangible
PRABHAT SINGHAL
4
CONTENT Certificate
Preface
Acknowledgement
Objective
Introduction
Company Profile
Literature & Review
Research Methodology
Financial Statements
Data Representation
Conclusion
Finding
Limitation
Bibliography
5
OBJECTIVE OF THE PROJECT
The objective of this project is deeply analyze IDBI BANK and analyse it prospect
procedure and its financial position..
The main objectives of the Project study are:
Detailed analysis of IDBI BANK and its financial position.
To enhance my analytical power
With the help of ratio analysis the company’s position.
Application of various Technical Tools and Fundamental tools (like Financial
and Non-financial statements).
6
7
INTRODUCTION
The Bank:
The birth of idbi bank took place after RBI issued guidelines for entry of new private
sector banks in January 93. Subsequently, IDBI as promoters sought permission to
establish a commercial bank and retained KPMG a management consultant of
international repute to prepare the groundwork for establishing a commercial bank. The
Reserve Bank of India conveyed it's in principle approval to establish idbi bank on
February 11th, 1994. Thereafter the bank was incorporated at Gwalior under Companies
Act on 15th of September 1994 (Registration No. 10-08624 of 1994) with its registered
office at Indore.
Introduction
Financial statements for banks present a different analytical problem than manufacturing
and service companies. As a result, analysis of a bank's financial statements requires a
distinct approach that recognizes a bank's somewhat unique risks.
Banks take deposits from savers, paying interest on some of these accounts. They pass
these funds on to borrowers, receiving interest on the loans. Their profits are derived
from the spread between the rate they pay for funds and the rate they receive from
borrowers. By managing this flow of funds, banks generate profits, acting as the
intermediary of interest paid and interest received and taking on the risks of offering
credit. As one of the most highly regulated banking industries in the world, investors
have some level of assurance in the soundness of the banking system. As a result,
investors can focus most of their efforts on how a bank will perform in different
8
economic environments. In this project, I am trying to provide assistance to the investors,
by showing them the performance of two banks underlying the same functions.
IDBI Bank Limited:
These financial statements have been prepared in accordance with approved accounting
standards as applicable in India. Approved accounting standards comprise of such
International Financial Reporting Standards issued by the International Accounting
Standards Board as are notified under the Companies Ordinance, 1984, provisions of and
directives issued under the Companies Ordinance, 1984 and Banking Companies
Ordinance, 1962 ). In case the requirements of provisions and directives issued under the
Companies Ordinance, 1984 and Banking Companies Ordinance, 1962 and the directives
issued by SBP differ, the provisions of and directives issued under the Companies
Ordinance, 1984 and Banking Companies Ordinance, 1962 and the directives issued by
SBP shall prevail.
Management Team - The Core Strength of The Bank:
Since August 2000 idbi bank has witnessed a transformation in the top management
structure with top talent from foreign banks and private banks coming together to create a
world-class management team. It is totally a customer-focused organization. Existing
talented people within the bank were re-aligned to a functionally driven product & sales
organizational structure. Also, to align employee interests with shareholder interest’s
founder Stock Options (ESOPs) in October 2000 covering 75 % of the existing
employees of idbi bank were distributed.
9
TECHNOLOGY AND TECH INITIATIVES:
Keeping in line with its policy of leveraging technology to drive its business, idbi bank
deployed Finacle, the e-age banking solution from Infosys to consolidate its position,
meet challenges and quickly seize new business opportunities. Entire Finacle rollout was
remarkable considering the fact that it was implemented across all branches in a record
time frame of 5 months. Finacle will provide the critical technology platform to propel
the bank's new thrust and direction.
Achievement of these significant milestones is consistent with idbi bank's continued
focus to create customer and shareholder value through deployment of superior
technology. Investments in technology is part of the plan to put in place building blocks
for creating the right organisational infrastructure which will help idbi bank in
consistently delivering superior products, convenient access channels and efficient
service to our retail and corporate customers.
STRATEGIC RETAIL INITIATIVES:
idbi bank in the previous calendar year initiated its formal foray into retail banking. idbi
bank's depository services product E-Sec is a major success story and the bank today is in
the top three league in India in this segment. A spate of retail products were introduced
such as home finance, loans against shares, educational loans, car loans, Sweep in
account, SMS mobile banking etc. on very competitive terms.
The bank has recently announced its strategic alliance with TATA AIG General
Insurance Company for selling General Insurance Products through select branches &
ATMs of idbi bank.
The bank announced a landmark strategic alliance to make available widely, both
10
organisation products through each other’s distribution channels. Now you can buy
coveted savings Products like the National Savings Certificates (NSC) and Kisan Vikas
Patra (KVP) on Internet. It recently had a tie up with Birla group in the name of Birla Sun
Life Insurance.
The new products, which are going to be announced shortly, are Credit Cards, Debit
Cards etc. idbi bank is continuously looking for ways to leverage its technical strengths
and bring to the retail customer convenience products at reasonable cost. It has started
converting its ATM card into ATM cum Debit card.
11
COMPANY PROFILE
Company’s introduction:
PROFILE IDBI BANK:
Vision:
“Enabling people to advance with confidence and success”
Mission:
“To make our customer prosper, our staff excels and creates value for shareholders”
List of competitors:
Standard Chartered Bank
National Banks
Allied Bank Limited
The tenth largest development bank in the world has promoted world-class institutions in
India. A few of such institutions built by IDBI are The National Stock Exchange (NSE),
The National Securities Depository Services Ltd. (NSDL), Stock Holding Corporation of
India SHCIL) etc. IDBI is a strategic investor in a plethora of institutions, which have
revolutionized the Indian Financial Markets. IDBI promoted idbi bank to mark the formal
foray of the IDBI group into commercial banking. This initiative has blossomed into a
major success story. idbi bank, which began with an equity capital base of Rs.1000
million (Rs.800 million contributed by IDBI and Rs.200 million by SIDBI), commenced
its first branch at Indore in November 1995. Thereafter in less than seven years the bank
has attained a front ranking position in the Indian Banking Industry.
12
LITRATURE & REVIEW
DIRECTORS REPORT
The Board of Directors of your Bank has the pleasure of presenting it Report on the
business and operations of your Bank for the financia year ended 31st March 2009.
Strategic initiatives implemented during the year, benefited your Ban immensely,
reflecting improved performance in various key busines areas. Your Bank attained new
heights with total business o Rs.2,15,829 crore at end-March 2009, comprising Rs.
1,12,401 crore o deposits and Rs. 1,03,428 crore of advances. Total assets reached Rs
1,72,402 crore, registering a growth of 31.9% during the financia year. Performance
highlights of your Bank for the period under revie are presented in Table 1.
Profit and Appropriations
During the financial year April 2008-March 2009, gross income of you Bank amounted
to Rs.13,021.6 crore, contributed by interest income of Rs.11,631.7 crore and other
income of Rs.1,389.9 crore. Tota expenditure of your Bank, during the year, excluding
provisions and contingencies, stood at Rs.11,643.7 crore, consisting Rs.1 0,305.8 crore of
interest expenses and Rs.1,337.9 crore of operational expenses. With the provision of
Rs.373.3 crore towards bad & doubtful debts and investments, Rs.19 crore towards
incremental prudential provisions for standard assets, and Rs.127.1 crore towards tax,
total provisions during the period amounted to Rs.51 9.4 crore. Your Banks working
during the year resulted in a Profit Before Tax (PBT)of Rs.985.6 crore. Considering a
provision of Rs.127.1 crore towards taxation, Profit After Tax (PAT) amounted to
Rs.858.5 crore. Appropriation of PAT as approved by the Board of Directors is given in
13
For each share with face value of Rs.10, Earning Per Share (EPS) during the year stood
at Rs.11.9 and Book Value Per Share stood at Rs.102.3 as at end-March 2009. The
Proposed
Directors have the pleasure of recommending dividend at 25% on the fully paid-up
equity capital for the financial year 2008-09.
Capital Adequacy
Capital Adequacy Ratio (CAR) of your Bank is computed in adherence to norms
prescribed by RBI in order to become Basel-ll compliant. The Credit Risk follows the
Standardized Approach, Whereas Market Risk complies with Duration Method of
Standardized Approach and the Operational Risk conforms to Basic Indicator Approach.
Against the stipulated RBI norm of 9%, your Banks CAR as at end-March 2009 worked
out to 11.57%. The Tier-I CAR also was at a comfortable level of 6.81%.
Business Strategy
Your Bank has adopted a stratargy of developing a larger client base in the mid-
corporate, SME and retail sectors, while nurturing the deep relationships that already
exist in the large corporate sector.
The strategy aims to develop a more retail base in both assets and liabilities leading to a
more diversified balance sheet as well as improvement and sustainability in the Net
Interest Income. The strategy also focuses on leveraging the Banks experience in
project/infrastructure financing to become a larger player in investment banking, yielding
higher fee-based income. Your Bank has also adopted aggressive strategics for gaining
higher market share in transaction banking activities for boosting non-fund based income.
The customer-centric business model adopted by your bank would increasingly play a
supportive role towards effective implementation of business strategies.
14
New Business Initialives
In line with gaining popularity of mobile phones and improvement in their security
features, the banking regulator allowed mobile based transaction. In order to reap the
benefits of the opportunities arising out of the mobile technology revolution your Bank
has launched Mobile Payment Solutions, which is a secure and convenient payment
option by use of mobile phones. The product includes payments for the purchase of
goods and services from mobile phone and fund transfers subject to prescribed limits.
Your Bank launched IDBI Sulabh Vyapar Loan that aims to provide hassle free finance
to Small Business Enterprises including Small Retail Traders. An individual or a firm
(partnership or proprietorship) engaged primarily in buying and selling mercantile goods
is eligible for this mode of finance. The scope of the product was further enlarged to
cover wider customer segment, such as travel, tourism, hotels, restaurant, health and
education, etc. Your Bank also floated a loan scheme in the SME domain for
Professional and Self Employed engaged in the business covered under service sector.
The Bank has obtained mandate for collecting sales tax in Maharashtra. With regard to
tax collection your Bank is one among the top banks in the country.
Your Bank has successfully implemented the Agriculture Debt Waiver and Debt Relief
Scheme (ADWDRS)-2008 announced by Central Government. During the financial year
2008-09, the Bank has opened a Currency Chest at Chennai taking the total number to
four. The fifth Currency Chest at Panchkula is expected to become operational by the end
of first quarter of current fiscal. The Bank has also obtained In-Principle approval
from the RBI for establishment of Currency Chests at Hyderabad Ahmedabad and Pune.
15
In order to improve our performance in strategic lines a Performance Acceleration
Programme (PAP) Project Lakshya was implemented focusing renewed thrust on
boosting current account and fee-based income. The project has made significant
contribution and has imparted lot of dynamism in the operating domain. The project was
executed through boot camps in different centers and periodic reviews through tele-
conferencing. The Bank, during the course of the year, has implemented a series of
measures to ensure improved customer satisfaction and cultivated the motto of Customer
first. In this direction, the Bank has organized Customer Grievance Redressal Wleek
during November 17-22,2008 in all its branches. The unresolved issues were addressed at
Customer Care Centre (CCC) for appropriate action. In order to further strengthen our
relationship with customer, your Bank organized Crahak Sahayata Abhiyan (CSA) at
selected cities.
16
Organisational Structure
Your Bank has effectively realigned its policy and procedure in order to derive optimum
benefits from its customer-focused vertical model implemented during the previous
financial year. Redeployment of work force was carried out on the basis of skill set
mapping and reorientation in the business model, reflecting priorities with regard to
remunerative lines of business. During the year, your Bank also implemented a new
Fund Transfer Pricing (FTP), based on the market linked bid and offer rates. The new
FTP system enables rational and transparent pricing decisions. It also forms a scientific
basis for evaluating the performance of products/ verticals.
During the period under review your Bank increased its branch network to 509
comprising 179 metropolitan branches, 175 urban branches, 100 semi urban branches and
55 rural branches.
Board of Directors
Banks Board of Directors is broad based and constitution thereof is governed by the
provisions of the Banking Regulation Act, 1949, the Companies Act, 1956, the Articles
of Association of the Bank and satisfies the requirements of corporate governance as
envisaged in the Listing Agreement with the Stock Exchanges. The Board functions
through itself as well as various Board Committees constituted to provide focussed
governance in important functional areas of the Bank. As on March 31, 2009, the Board
comprised of 11 Directors with 3 Executive Directors (including Chairman), 2 Non
Executive Directors and 6 Independent Directors. Shri Yogesh Agarwal, Chairman &
Managing Director as Executive Chairman, Shri O. V. Bundellu and Shri Jitender
Balakrishnan, Dy. Managing Directors as Wholetime Directors, Shri Arun Ramanathan
and Shri Ajay Shankar, Central Government officials as Non Executive Directors, Shri
17
Analjit Singh, Smt. Lila Firoz Poonawalla, Shri K. Narasimha Murthy, Shri H. L. Zutshi,
Shri A. Sakthivel and Shri Subhash Tuli as Independent
Directors constitute the Board.
No Director on the Board of your Bank is in any way related to any other Director on the
Board of the Bank.
Apex Committees
The Board has in total seven committees, namely, Executive Committee, Audit
Committee, Shareholders/ Investors Grievance Committee, Frauds Monitoring
Committee, Risk Management Committee, Customer Service Committee and Information
Technology Committee.
Corporate Governance
Your Bank is committed to adopting the best practices in the area of corporate
governance. Your Bank believes that proper corporate governance is not just a
requirement for regulatory compliance, but also a facilitator for enhancement of
shareholders value. The details of corporate governance practices followed in your Bank
are given in this Annual Report as a separate section under Management Discussion and
Analysis.Disclosure regarding Remuneration of Employees under Section 217(2A) of
the Companies Act, 1956 There were no personnel in the services of the Bank for the
whole year who were in receipt of remuneration of over Rs.24 lakh per annum. Further,
no personnel, who were in the service of the Bank for part of the year, received
remuneration in excess of Rs.2 lakh per month for the period they were in the service of
the Bank.
The provisions of Section 217(1 )(e) of the Act relating to conversion of energy and
technology absorption do not apply to your Bank.
18
DirectorsResponsibility Statement
The Board of Directors hereby declares and confirms that:
(i) in the preparation of accounts, the applicable accounting standards had been followed
along with proper explanation relating to material departure.
(ii) the Directors had adapted such accounting policies and applied them consistently
and made judgments and estimates that are reasonable and prudent so as to give a true
and fair view of the state of affairs of your Bank at the end of the accounting year and of
the profit or loss of your Bank for that period.
(iii) the Directors had taken proper and sufficient care for the maintenance of adequate
accounting records, in accordance with the regulatory provisions, for safeguarding the
assets of your Bank and for preventing and detecting fraud and other irregularities.
(iv) the Directors had prepared the accounts on a going concern basis.
19
AUDITOR’S REPORT
As regards emphasis and observations in the Auditors Report, attention is invited to note
No.16 of Notes to Accounts (Schedule 18), which is self explanatory.
Acknowledgements
The Board of Directors of your Bank expresses its sincere thanks to the Government of
India, Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and
the Insurance Regulatory and Development Authority (IRDA) for their valuable co-
operation and guidance. The Board also acknowledges the co-operation and support
rendered by the State Governments and other banking/ financial institutions. The Board
desires to thank various multilateral institutions and international banks/ institutions for
their periodic support. The Board takes this opportunity to thank all its shareholders and
customers for extending their support during the year and looks forward to their
continued association in the years ahead The Board appreciates sincere and devoted
services displayed by its entire staff and highly value their commitment in improving
your Banks performance
We have audited the attached Balance Sheet of the IDBI Bank Limited (the Bank) as at
March 31, 2009, as also the Profit and Loss Account and the Cash Flow Statement of the
Bank for the year ended on that date annexed thereto.These financial statements are the
responsibility of the Banks management. Our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our audit in accordance with
the auditing standards generally accepted in India. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis
20
evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by
the management, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion. The Balance Sheet and
Profit and Loss Account have been drawn up in accordance with the provisions of
Section 29 of the Banking Regulation Act, 1949 read with Section 211 of the Companies
Act, 1956.
1. We have obtained all the information and explanations, which, to the best of our
knowledge and belief, were necessary for the purposes of our audit and have found them
to be satisfactory.
2. The transactions of the Bank which have come to our notice have been within the
powers of the Bank.
3. The returns received from the offices and branches of the Bank have been found
adequate for the purposes of our audit.
4. In our opinion, proper books of account as required by law have been kept by the
Bank so far as appears from our examination of those books and proper returns adequate
for the purpose of our audit have been received from offices and branched not visited by
us.
5. The Banks Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt
with by this report are in agreement with the books of account and the returns.
21
6. The provisions of Section 274(1 )(g) of the Companies Act, 1956 are not applicable
in terms of Notification No. G.S.R.829 (E) dated- October 21, 2003 issued by
Department of Company Affairs, Government of India
7. The Bank is restructuring an advance to a large public sector power project in
Maharashtra, where the Banks exposure is Rs.2599 Crore. The Government of India and
the Bank have sought special regulatory treatment from Reserve Bank of India (RBI) for
considering the asset as Standard and for exemption from provisioning requirements.
Pending receipt of such special regulatory treatment from RBI, the Bank has classified
the asset as Standard and not made provision, amount whereof has not been ascertained.
Refer Note No.16 of Schedule 18 - Notes forming part of the Accounts.
8. Subject to Paragraph 7 above, I. In our opinion, the Balance Sheet, Profit and Loss
Account and Cash Flow Statement dealt with by this report comply with the Accounting
Standards referred to in sub- section 3(C) of Section 211 of the Companies Act, 1956
read with guidelines issued by the Reserve Bank of India in so far as they apply to the
Bank. II. In our opinion and to the best of our information and according to the
explanations given to us, the said financial statements give the information required by
the Banking Regulation Act, 1949 as well as the Companies Act, 1956 in the manner so
required for banking companies and give a true and fair view in conformity with the
accounting principles generally accepted in India.
a) In the case of the Balance Sheet, of the state of affairs of the Bank as on March
31,2009
b) In the case of the Profit and Loss Account, the same shows a true balance of Profit for
the year ended March 31, 2009 covered by such accounts; and
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c) In the case of the Cash Flow Statement, of the cash flows for the year ended March
31, 2009.
23
CHAIRMEN REPORT
It is with a sense of satisfaction that I present to you IDBI Banks Annual Report for the
financial year 2008-09. It is indeed heartening to note that in a year when the global
economic meltdown affected banks across the world, your Bank not only withstood the
storm, but showed a surge in overall business performance. Esteemed shareholders would
recall that at the last AGM your Bank had expressed confidence to achieve higher pace of
business growth. I am happy to share with you that in spite of difficult market conditions
your Bank could not only achieve considerable increase in the overall business, but more
importantly, there was significant improvement in the quality of business and earnings.
Your Bank spared no efforts to transform into a cross-functional, forward-looking and
proactive organization. Today, it is my pleasure to say that your Bank has indeed
completed the process of re-organisation into customer- focused business verticals and
stabilized the internal systems.
The financial year 2009-10 is an extremely crucial year for your Bank as it aspires to
decidedly emerge as one of the major players in the intensely competitive banking
domain both in terms of perception and performance.
In the coming year, the emphasis on growth in retail business would continue, without
compromising your Banks pre- eminent position in the corporate banking business. I am
confident that your Bank will achieve still higher growth and improve its market share,
besides enhancing the shareholder value.
The increasingly competitive market environment throws open both challenges and
opportunities. Your Bank, with deep understanding of the financial markets, will adopt
appropriate strategies to assess and mitigate key risks, cope with emerging challenges and
24
capitalise on the opportunities by participating effectively in the growth process of India.
In order to take advantage of global opportunities, your Bank will make foray into
international markets by setting up overseas branches and representative offices.
Considering the rapidly changing global environment together with increased emphasis
on the role of technology in banks operations, your Bank would continually provide
newer products and services required by customers. Accordingly, your Bank would
continuously reinvent and reposition itself through strategic choices and by imbibing and
adopting best global practices. As part of our endeavour to provide a bouquet of financial
products and services under IDBI brand, we would be setting up a Mutual Fund
Shortly.I must emphasise that in the coming year, your Bank would strive to achieve even
better business performance based on various strategic initiatives already underway
aimed at enhancing the stakeholders value. To us, you all are our partners in progress. We
look forward to your continued support in strengthening your Banks position in the
Indian banking firmament.
25
RESEARCH METHODOLOGY
This section should provide solid or concrete foundations to the study. Quality and value of
the research report depends upon how precisely and accurately the data is collected,
processed, interpreted and analyzed so that fruitful conclusions may be drawn out of it. It
includes:
Data Collection Sources:
To think about the issue of data collection means you are wondering about the
characteristics of the methods used. Each method has its own advantages and
inconveniences. With each technique you might also found a few people who will
disapprove its use for such or such reason.
At the beginning of a research (Project), it can be important to look for documentary
sources. It is what some will call: “the review of papers ". And here, I use the term
documentary sources in the widest meaning of this term. Indeed, the goal is not to find
only written sources. These documentary sources I use are:
Sites on the internet,
Articles from scientific publications,
Documents on various format (audio, video or computer support),
Advisers with a particular expertise
The purpose of the gathering of documentary sources is to have a better idea of what have
been said or written about my subject. It is not for the intellectual beauty of the matter
which I should do that. The search for documentary sources allowed me to put a more
adequate glance at the data you will later gather.
26
Also I use secondary sources for data collection for my work, that include internet and
then I use stock exchange for data gathering as the banks are listed in Lahore stock
exchange. So I got their annual reports from there.
Data Collection Tools:
According to the topic I have selected for my project, the tool used for data collection is
direct observation of the financial statements of the banks.
Company profile forms
Company comparison forms
Stock exchange
Internet past articles
Case Study
Data Processing and Analysis:
We can use several tools to evaluate a company, but I will use one of the most valuable
tool that is “financial ratios“. Ratios are an analyst’s microscope; they allow us get a
better view of the firm’s financial health than just looking at the raw financial statements.
Ratios are useful both to internal and external analysts of the firm. For internal
purposes: ratios can be useful in planning for the future, setting goals, and evaluating the
performance of managers. External analysts use ratios to decide whether to grant credit,
to monitor financial performance, to forecast financial performance, and to decide
whether to invest in the company. I will use Microsoft Word and Microsoft Excel work
sheets to compute the different ratios and analysis.
27
FINANCIAL STATEMENT
HORIZONTAL ANALYSIS
IDBI BANK
BALANCE SHEET
AS ON DEC 31 2007, 2008 & 2009
(Rupees in ‘000’) Horizontal Analysis
2007 2008 2009
ASSETS 2007 2008 2009
Cash and balances
with treasury banks56533134 55487664 46310478 122.07 119.8 100
Balances with
other banks39307321 27020704 35965048 109.29 75.13 100
Lending to
financial
institutions
6193787 1628130 6550128 94.56 24.86 100
Investments 13814592 177942251 119587476 11.552 148.8 100
Advances 456355507 382172734 349432685 130.6 109.4 100
Other assets 35419252 27346111 17765291 199.37 153.9 100
Operating fixed
assets14751252 13780555 11954876 123.39 115.3 100
Deferred tax asset 11222444 6613372 2725486 411.76 242.6 100
TOTAL ASSETS 757928389 691991521 590291468 128.4 117.2 100
LIABILITIES
Bills payable 9944257 15418230 5737457 173.32 268.7 100
Borrowings from
financial
institutions
46844890 58994609 56392270 83.07 104.6 100
Deposits and other
accounts597090545 531298127 459140198 130.05 115.7 100
28
Sub-ordinate loans 3954925 3100000 0 0 0 0
Liabilities against
assets subject to
finance lease
Other liabilities 24913236 19943126 15578177 159.92 128 100
Deferred tax
liability------- ----------- ---------
TOTAL
LIABILITIES682747953 628754092 536848102 127.18 117.1 100
NET ASSETS 75180436 63237429 53443366 140.67 118.3 100
REPRESENTED BY
Shareholders Equity
Share capital 7590000 6900000 6900000 110 100 100
Reserves 24243254 19821455 17802584 136.18 111.3 100
Unappropriated
profit39447648 28341670 20 475,080 159.92 128 100
Total equity
attributable to the
equity holders of
the Bank
71280902 55063125 45177664 157.78 121.9 100
Minority interest 890099 965642 913317 97.458 105.7 100
Surplus on
revaluation of
assets - net of tax
3009435 7208662 7352385 40.931 98.05 100
TOTAL EQUITY 75180436 63237429 53443366 140.67 118.3 100
29
HORIZONTAL ANALYSIS
IDBI BANK
CONSOLIDATED PROFIT & LOSS ACCOUNT
AS ON DEC 31 2007, 2008 & 2009
2007 2008 2009 Horizontal Analysis
(Rupees in ‘000’) 2007 2008 2009
Mark-up / return /
interest earned63,305,033 50,481,021 43,685,740 144.91 115.6 100
Mark-up / return /
interest expensed26,525,556 19,153,957 13,204,037 200.89 145.1 100
Net mark-up /
interest income36,779,477 31,327,064 30,481,703 120.66 102.8 100
Provision against
non-performing
loans and
advances - net
6,904,919 8,238,227 2,863,207 241.16 287.7 100
Charge / (reversal)
against off-
balance sheet
obligations
372,598 (54,626) (45,438) -820.01 120.2 100
Charge / (reversal)
of provision
against diminution
in the value of
investments
1,909,887 (84,310) (13,697) -13944 615.5 100
Bad debts written
off directly---------- ---------- -------------
9,187,404 8,099,291 2,804,072
Net mark-up /
interest income
27,592,073 23,227,773 27,677,631 99.691 83.92 100
30
after provisions
Fee, commission
and brokerage
income
4,518,408 3,420,051 3,931,710 114.92 86.99 100
Income / gain on
investments 2,369,233 2,472,663 1,219,623 194.26 202.7 100
Income from
dealing in foreign
currencies
2,374,318 1,487,374 1,102,358 215.39 134.9 100
Gain on
investments in
associate
4,000,330 ------- 0 0 0 0
Other income 3,116,522 2,643,076 2,235,805 139.39 118.2 100
Total non-mark-up
/ interest income 16,378,811 10,023,164 8,489,496 192.93 118.1 100
43,970,884 33,250,937 36,167,127 121.58 91.94 100
Non mark-up /
interest expense
Administrative
expenses21,348,016 18,297,279 15,425,461 138.39 118.6 100
Other provisions /
write offs - net200,163 276,111 122,510 163.39 225.4 100
Other charges 64,751 85,152 54,898 117.95 155.1 100
Workers welfare
fund323,575
Total non mark-up
/ interest expenses21,936,505 18,106,32 15,602,869 140.59 0 100
Profit before
taxation22,034,379 15,144,617 18,840,487 116.95 80.38 100
Taxation
- Current 8,661,15 7,220,717 7,144,846 0 101.1 100
31
- Prior years 233,100 1,668,562 (39,067) -596.67 -4271 100
- Deferred (2,473,891) (3,828,699) (965,607) 256.2 396.5 100
6,420,359 10,084,037 12,700,315 50.553 79.4 100
Profit after
taxation15,614,020 10,084,037 12,700,315 122.94 79.4 100
Attributable to:
Equity holders of
the Bank15,535,011 10,000,231 12,630,259 123 79.18 100
Minority interest 79,009 83,806 70,056 112.78 119.6 100
15,614,020 10,084,037 12,700,315 122.94 79.4 100
Basic and diluted
earnings per share20.47 13.18 18.30 111.86 72.02 100
b) Vertical Analysis
It is a method of financial statement analysis in which each entry for each of the three
major categories of accounts (assets, liabilities and equities) in a balance sheet is
represented as a proportion of the total account. The main advantages of analyzing a
balance sheet in this manner are that the balance sheets of businesses of all sizes can
easily be compared. It also makes it easy to see relative annual changes in one business.
When using vertical analysis, the analyst calculates each item on a single financial
statement as a percentage of a total. The term vertical analysis applies because each year's
figures are listed vertically on a financial statement. The total used by the analyst on the
income statement is net sales revenue, while on the balance sheet it is total assets. This
approach to financial statement analysis, also known as component percentages, produces
common-size financial statements. Common-size balance sheets and income statements
can be more easily compared, whether across the years for a single company or across
different companies.
32
VERTICAL ANALYSIS
IDBI BANK
BALANCE SHEET
AS ON AS ON DEC 31 2007, 2008 & 2009
(Rupees in ‘000’)Vertical Analysis
2007 2008 2009
ASSETS 2007 2008 2009
Cash and
balances with
treasury banks
56533134 55487664 46310478 7.4589 8.019 7.8454
Balances with
other banks39307321 27020704 35965048 5.1862 3.905 6.0928
Lending to
financial
institutions
6193787 1628130 6550128 0.8172 0.235 1.1096
Investments 13814592 177942251 119587476 1.8227 25.71 20.259
Advances 456355507 382172734 349432685 60.211 55.23 59.197
Other assets 35419252 27346111 17765291 4.6732 3.952 3.0096
Operating
fixed assets14751252 13780555 11954876 1.9463 1.991 2.0252
Deferred tax
asset11222444 6613372 2725486 1.4807 0.956 0.4617
TOTAL
ASSETS757928389 691991521 590291468 100 100 100
LIABILITIES
Bills payable 9944257 15418230 5737457 1.312 2.228 0.972
Borrowings
from financial
46844890 58994609 56392270 6.1806 8.525 9.5533
33
institutions
Deposits and
other accounts597090545 531298127 459140198 78.779 76.78 77.782
Sub-ordinate
loans 3954925 3100000 0 0.5218 0.448
Liabilities
against assets
subject to
finance lease
Other liabilities 24913236 19943126 15578177 3.287 2.882 2.6391
Deferred tax
liability------- ----------- ---------
TOTAL
LIABILITIES682747953 628754092 536848102 90.081 90.86 90.946
NET ASSETS 75180436 63237429 53443366 9.919 9.14 9.054
REPRESENTED BY
Share capital
Reserves 7590000 6900000 6900000 1.001 1 1.169
Unappropriate
d profit24243254 19821455 17802584 3.199 2.86 3.016
Total equity
attributable to
the equity
holders of the
Bank
39447648 28341670 20 475,080 5.205 4.1 3.287
Minority
interest 71280902 55063125 45177664 9.405 7.96 7.653
Surplus on
revaluation of
assets - net of
890099 965642 913317 0.117 0.14 0.155
34
tax
TOTAL
EQUITY3009435 7208662 7352385 0.397 1.04 1.246
9.919 9.14 9.054
35
VERTICAL ANALYSIS
IDBI BANK
CONSOLIDATED PROFIT & LOSS ACCOUNT
AS ON DEC 31 2007, 2008 & 2009
2007 2008 2009 Vertical Analysis
(Rupees in ‘000’) 2007 2008 2009
Mark-up / return /
interest earned63,305,033 50,481,021 43,685,740 100 100 100
Mark-up / return /
interest expensed26,525,556 19,153,957 13,204,037 41.901 37.94 30.225
Net mark-up /
interest income36,779,477 31,327,064 30,481,703 58.099 62.06 69.775
Provision against
non-performing
loans and
advances - net
6,904,919 8,238,227 2,863,207 10.907 16.32 6.5541
Charge / (reversal)
against off-
balance sheet
obligations
372,598 (54,626) (45,438) 0.5886 -0.108 -0.104
Charge / (reversal)
of provision
against diminution
in the value of
investments
1,909,887 (84,310) (13,697) 3.017 -0.167 -0.031
Bad debts written
off directly---------- ---------- ------------- 0 0 0
9,187,404 8,099,291 2,804,072 14.513 16.04 6.4187
Net mark-up /
interest income
after provisions
27,592,073 23,227,773 27,677,631 43.586 46.01 63.356
36
Fee, commission
and brokerage
income
4,518,408 3,420,051 3,931,710 7.1375 6.775 9
Income / gain on
investments 2,369,233 2,472,663 1,219,623 3.7426 4.898 2.7918
Income from
dealing in foreign
currencies
2,374,318 1,487,374 1,102,358 3.7506 2.946 2.5234
Gain on
investments in
associate
4,000,330 ------- 0 6.3191 0.3162 0
Other income 3,116,522 2,643,076 2,235,805 4.923 5.236 5.1179
Total non-mark-
up / interest
income
16,378,811 10,023,164 8,489,496 25.873 19.86 19.433
43,970,884 33,250,937 36,167,127 69.459 65.87 82.789
Non mark-up /
interest expense
Administrative
expenses21,348,016 18,297,279 15,425,461 33.722 36.25 35.31
Other provisions /
write offs - net200,163 276,111 122,510 0.3162 0.547 0.2804
Other charges 64,751 85,152 54,898 0.1023 0.169 0.1257
Workers welfare
fund323,575 0.5111 0 0
Total non mark-up
/ interest expenses21,936,505 18,106,32 15,602,869 34.652 0 35.716
Profit before
taxation22,034,379 15,144,617 18,840,487 34.807 30 43.127
Taxation
- Current 8,661,15 7,220,717 7,144,846 0 14.3 16.355
37
- Prior years 233,100 1,668,562 (39,067) 0.3682 3.305 -0.089
- Deferred (2,473,891) (3,828,699) (965,607) -3.908 -7.584 -2.21
6,420,359 10,084,037 12,700,315 10.142 19.98 29.072
Profit after
taxation15,614,020 10,084,037 12,700,315 24.665 19.98 29.072
Attributable to:
Equity holders of
the Bank15,535,011 10,000,231 12,630,259 24.54 19.81 28.912
Minority interest 79,009 83,806 70,056 0.125 0.17 0.16
15,614,020 10,084,037 12,700,315 24.66 20 29.07
Basic and diluted
earnings per share20.47 13.18 18.30 3.23 2.61 4.189
4. Comparisons
Financial trend analysis is an applied, practical approach for monitoring the financial
condition of any company through the use of financial indicators. I shall use technique to
compare previous three-year period data and observes how they change. This would
permit an assessment of the current financial condition.
a) Trend Analysis
A firm's present ratio is compared with its past and expected future ratios to determine
whether the company's financial condition is improving or deteriorating over time. Trend
analysis studies the financial history of a firm for comparison. By looking at the trend of
a particular ratio, one sees whether the ratio is falling, rising, or remaining relatively
constant. This helps to detect problems or observe good management.
38
TREND ANALYSIS
IDBIBANK LIMITED
for the years 2007, 2008 & 2009
Performance Area 2007 2008 2009 Trend
a) Liquidity Ratios
Current Ratio1.20 1.19 1.16
Lower liquidity in
2008
Sales to Working Capital 0.5 times 0.5 times 0.6 times Increase in 2008
Working Capital95155274 104938111 100006655
Lower liquidity in
2008
b) Leverage Ratios
Time Interest Earned 2.43 1.79 1.83 Lower since 2008
Debt Ratio0.91 0.91 0.9
Leverage remain
same
Debt to Equity Ratio11.88 11.42 9.58
Drops in leverage in
2008
Current Worth / Net worth
Ratio1.78 1.66 1.33
Higher in 2008
Total Capitalization Ratio 0.56 0.53 0.42 Lower during 2008
Long term Assets versus Long
term Debt0.26 0.33 0.51
Drops in leverage in
2008
Debt Coverage Ratio0.02 0.008 0.0083
Lower coverage in
2008
c) Profitability Ratios
Net Profit Margin29.07% 19.97% 24.66%
Lower profitability
during 2008
Operating Income Margin 57.9% 48% 59.6% Increased Profitability
39
since 2008
Return on Assets2.27% 1.57% 2.15%
Lower ROA during
2008
Operating Assets Turnover192.7% 192.7% 174.70%
Lower efficiency
since 2008
Return on Operating Assets13.48% 10.37% 11.19%
Lower efficiency in
2008
Sales to Fixed Assets3.65 times 3.66 times 3.66 times
No change in last 3
years
d) Activity Ratios:
Total Asset Turnover0.07 0.07 0.08
Higher efficiency
since 2008
e) Market Ratios:
Dividend per Share – DPS1.0019 2.0014 3.597
Good market
perceptions
Earning Per Share- EPS 18.41 14.61 20.57 Higher In 2008
Price / Earning Ratio 0.54 0.68 0.49 Lower in 2008
Dividend Payout Ratio0.0544 0.137 0.175
Good market
perceptions
Dividend Yield 0.10019 0.20014 0.3597 Lower in 2008
Book Value per Share6.5 7.98 9.39
Good market
perceptions
f) Statement of cash flow
Operating Cash Flow to Total
Debt0.033 0.089 0.027
Lower in 2008
Operating Cash Flow per
Share25.87 81.48 24.02
Increased during
2008
40
b) Industry Averages and Comparisons with Competitors
The entire ratio has been compared through above mentioned comparisons and analysis.
Which include horizontal analysis, vertical analysis and trend analysis
41
DATA INTERPRETATION
Project proceedings
1. RATIO ANALYSIS:
Financial ratios are useful indicators of a firm's performance and financial situation.
Financial ratios can be used to analyze trends and to compare the firm's financials to
those of other firms. Ratio analysis is the calculation and comparison of ratios which are
derived from the information in a company's financial statements. Financial ratios are
usually expressed as a percent or as times per period. Ratio analysis is a widely used tool
of financial analysis.
a) Liquidity Ratios
b) Leverage Ratios
c) Profitability Ratios
d) Activity Ratios
42
Ratio Analysis
a) Liquidity Ratios
Liquidity ratios measure a firm’s ability to meet its current obligations. These include:
Current Ratio:
Current Ratio = Current Assets / Current Liabilities
This ratio indicates the extent to which current liabilities are covered by those assets
expected to be converted to cash in the near future. Current assets normally include cash,
marketable securities, accounts receivables, and inventories. Current liabilities consist of
accounts payable, short-term notes payable, current maturities of long-term debt, accrued
taxes, and other accrued expenses. Current assets are important to businesses because
they are the assets that are used to fund day-to-day operations and pay ongoing expenses.
IDBI BANK
IDBI BANK
The current ratio for the year 2007, 2007 & 2008 is 1.20, 1.19 & 1.16 respectively,
compared to standard ratio 2:1 this ratio is lower which shows low short term liquidity
efficiency at the same time holding less than sufficient current assets mean inefficient use
of resources
Sales to Working Capital:
Sales to Working Capital = Sales / Working Capital
43
Year 2007 2008 2009
Current Assets 575611106 671597594 731954693
Current Liabilities 480455832 566659483 631948038
Current ratio 1.20 1.19 1.16
Sales to working capital give an indication of the turnover in working capital per year. A
low working capital indicates an unprofitable use of working capital.
IDBI BANK
INTERPRETATION:
This liquidity ratio for the years 2007, 2007 & 2008 is 0.5,0.5 & 0.6 times respectively,
compared to standard ratio 2:1 this ratio is lower which shows low short term liquidity
efficiency at the same time holding less than sufficient current assets mean inefficient use
of resources.
The ratios for the last 3 years are 1.06, 1.10 & 1.06, shows below standard of 2:1 which
means efficient use of funds but at the risk of low liquidity.
Working Capital:
Working Capital = Current Assets – Current Liabilities
A measure of both a company's efficiency and its short-term financial health. Positive
working capital means that the company is able to pay off its short-term
liabilities. Negative working capital means that a company currently is unable to meet its
short-term liabilities with its current assets (cash, accounts receivable and inventory).
Also known as "net working capital", or the "working capital ratio".
44
Year 2007 2008 2009
Sales 43685740 43685740 63305033
Working Capital 95155274 104938111 100006655
Sales to Working
Capital
0.5 times 0.5 times 0.6 times
IDBI BANK
Interpretation:
IDBI BANK:
It is very clear from the above calculations that the working capital of the bank is
gradually increasing over the years, which shows good short term liquidity efficiency.
b) Leverage Ratios:
By using a combination of assets, debt, equity, and interest payments, leverage ratio's are
used to understand a company's ability to meet it long term financial obligations.
Leverage ratios measure the degree of protection of suppliers of long term funds. The
level of leverage depends on a lot of factors such as availability of collateral, strength of
operating cash flow and tax treatments. Thus, investors should be careful about
comparing financial leverage between companies from different industries. For example
companies in the banking industry naturally operates with a high leverage as collateral
their assets are easily collateralized.
These include:
Time Interest Earned:
TIE Ratio = EBIT / Interest Charges
The interest coverage ratio tells us how easily a company is able to pay interest expenses
associated to the debt they currently have. The ratio is designed to understand the
amount of interest due as a function of company’s earnings before interest and taxes
45
Year 2007 2008 2009
Current Assets 575611106 671597594 731954693
Current Liabilities 480455832 566659483 631948038
Working Capital 95155274 104938111 100006655
(EBIT). This ratio measures the extent to which operating income can decline before the
firm is unable to meet its annual interest cost.
IDBI BANK
Interpretation
IDBI BANK
We can see from this ratio analysis that, this company has covered their interest expenses
2.43 times in 2007, 1.79 times in 2007 and 1.8 times in 2008. It means they have
performed pretty much same in 2007 and 2008, but has taken a different look in 2007.
As in 2007 they issued a little high number of long-term loans and does not have good
liquidity position, their EBIT became high thus making TIE a little high as well
Debt Ratio:
Debt Ratio = Total Debt / Total Assets
The ratio of total debt to total assets, generally called the debt ratio, measures the
percentage of funds provided by the creditors. The 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. The higher the ratio, the more leverage
the company is using and the more risk it is assuming. Assets and liabilities are found on
a company's balance sheet.
IDBI BANK
46
Year 2007 2008 2009
EBIT 32044524 34298574 48559935
Interest Charges 13204037 19153957 19153957
TIE ratio 2.43 1.79 1.83
Interpretation:
IDBI BANK
Calculating the debt ratio, we came to see that this company is highly leveraged one
Debt to Equity Ratio:
Debt to Equity Ratio = Total debt / Total Equity
The debt to equity ratio is the most popular leverage ratio and it provides detail around
the amount of leverage (liabilities assumed) that a company has in relation to the monies
provided by shareholders. As you can see through the formula below, the lower the
number, the less leverage that a company is using. The debt to equity ratio gives the
proportion of a company (or person's) assets that are financed by debt versus equity. It is
a common measure of the long-term viability of a company's business and, along with
current ratio, a measure of its liquidity, or its ability to cover its expenses. As a result,
debt to equity calculations often only includes long-term debt rather than a company's
total liabilities. A high debt to equity ratio implies that the company has been
aggressively financing its activities through debt and therefore must pay interest on this
financing.
IDBI BANK
47
Year 2007 2008 2009
Total debt 53848102 628754092 682747953
Total Assets 590291468 691991521 757928,89
Debt Ratio 0.91 0.91 0.9
Year 2007 2008 2009
Total debt 536848102 628754092 682747953
Total Equity 45177664 55063125 71280902
Debt To Equity Ratio 11.88 11.42 9.58
Interpretation
IDBI BANK
We can see from the above calculations that this ratios continuously decreasing in the last
three years.
Current Worth / Net worth Ratio:
Current Worth to Net worth Ratio= Current Worth / Net worth Ratio
We can calculate current worth and net worth by using following formulas:
Current Worth = Total Current Assets – Total Current Liabilities
Net Worth = Total Assets - Total Liabilities
IDBI BANK
Interpretation
IDBI BANK
We can see from the above calculations that this ratios continuously decreasing in the last
three years. In 2008 it was 1.78, in 2008 it was 1.66 and in 2008 it was 1.33.
48
Year 2007 2008 2009
Current Worth 95155274 104938111 100006655
Net Worth 53443366 63237429 75180436
Current Worth to Net
worth Ratio
1.78 1.66 1.33
Total Capitalization Ratio:
Total Capitalization Ratio = Long-term debt / long-term debt + shareholders' equity
The capitalization ratio measures the debt component of a company's capital structure, or
capitalization (i.e., the sum of long-term debt liabilities and shareholders' equity) to
support a company's operations and growth. Long-term debt is divided by the sum of
long-term debt and shareholders' equity. This ratio is considered to be one of the more
meaningful of the "debt" ratios - it delivers the key insight into a company's use of
leverage.
IDBI BANK
Interpretation
IDBI BANK
It is obvious from the above calculations that there is a gradual fall in this ratio over the
years.
Long term Assets versus Long term Debt:
Long term Assets versus Long term Debt= Long Term Assets/ Long Term Debts
IDBI BANK
49
Year 2007 2008 2009
Long Term debt 56392270 62094609 50799915
Long term debt + Equity 101569934 117157734 122080817
Capitalization Ratio
worth Ratio
0.56 0.53 0.42
Year 2007 2008 2009
Long Term Assets 14680362 20393927 25973696
Long term debt 56392270 62094609 50799915
L.T Assets /L.T Debts
Debt:worth Ratio
0.26 0.33 0.51
Debt Coverage Ratio:
Debt Coverage Ratio = Net Operating Income / Total Debt
IDBI BANK
c)
Profitability Ratios:
Profitability is the net result of a number of policies and decisions. This section of the
discusses the different measures of corporate profitability and financial performance.
These ratios, much like the operational performance ratios, give users a good
understanding of how well the company utilized its resources in generating profit and
shareholder value. The long-term profitability of a company is vital for both the
survivability of the company as well as the benefit received by shareholders. It is these
ratios that can give insight into the all important "profit". Profitability ratios show the
combined effects of liquidity, asset management and debt on operating results. These
ratios examine the profit made by the firm and compare these figures with the size of the
firm, the assets employed by the firm or its level of sales. There are four important
profitability ratios that I am going to analyze:
Net Profit Margin:
Net Profit margin = Net Profit / Sales x 100
Net Profit Margin gives us the net profit that the business is earning per dollar of sales.
50
Year 2007 2008 2009
Net Operating Income 12074762 5121453 5655568
Total Debt 536848102 628754092 682747953
Debt Coverage Ratio
Debt:worth Ratio
0.02 0.008 0.0083
This margin indicates the profit after all the costs have been incurred it shows that what
% of turnover is represented by the net profit. An increase in the ratios indicates that a
firm is producing higher net profit of sales than before.
IDBI BANK
Interpretation
IDBI BANK
Therefore, the Net Profit Margin was 29.07% in 2008, decrease to 19.97% in 2008 and
then again increased to 24.66% in 2008
Operating Income Margin:
Operating Income Margin = Operating Income x 100
Net Sales
Operating Income Margin =
Net mark-up / interest income after provisions + Mark-up / return / interest expensed -
Total non mark-up / interest expenses
IDBI BANK
51
Year 2007 2008 2009
Net Profit 12700315 10084037 15614020
Sales 43685740 50481021 63305033
Net Profit Margin 29.07% 19.97% 24.66%
Year 2007 2008 2009
Operating Income 25278799 24275410 37738818
Net Sales 43685740 50481021 63305033
Operating Income
Margin
57.9% 48% 59.6%
Return on Assets:
Return on Assets (ROA) = Profit after Taxation / Average Total assets x 100
ROA, A measure of a company's profitability, equal to a fiscal year's earnings divided by
its total assets, expressed as a percentage. This is an important ratio for companies
deciding whether or not to initiate a new project. The basis of this ratio is that if a
company is going to start a project they expect to earn a return on it, ROA is the return
they would receive. Simply put, if ROA is above the rate that the company borrows at
then the project should be accepted, if not then it is rejected.
52
IDBI BANK
Interpretation
IDBI BANK
Return on assets decreased in 2008 and 2008 and it was maximum in year 2008. This
may have occurred because Square used more debt financing in 2008 compared to 2008
and 2008 which resulted in more interest cost and brought the Net income down.
.
Return on Equity (ROE):
Return on Total Equity = Profit after taxation x 10
Total Equity
Return on Equity measures the amount of Net Income earned by utilizing each dollar of
Total common equity. It is the most important of the “Bottom line” ratio. By this, we can
find out how much the shareholders are going to get for their shares. This ratio indicates
how profitable a company is by comparing its net income to its average shareholders'
equity. The return on equity ratio (ROE) measures how much the shareholders earned for
their investment in the company. The higher the ratio percentage, the more efficient
management is in utilizing its equity base and the better return is to investors.
IDBI BANK
53
Year 2007 2008 2009
Net income 12700315 10084037 15614020
Total Average assets 559592686.5 641141494.5 724959955
ROA 2.27% 1.57% 2.15%
Year 2007 2008 2009
Net income 12700315 10084037 15614020
Total Equity 45177664 55063125 71280902ROE 28.11% 18.31% 21.9%
Interpretation
IDBI BANK
The Return on Equity was maximum in 2008 but decreased in 2008 and went down more
in 2008. This again may have happened due to the issue of more long-term debt in 2008
and 2008.
Operating Assets Turnover:
Operating Assets Turnover = Operating Assets x 100
Net Sales
IDBI BANK
Detail of Operating Assets of IDBI Bank Limited
2008
Operating Assets:
Cash and balances with treasury banks 56533134
Balances with other banks 39307321
Operating fixed assets 14751252
110591707
2008
Operating Assets:
Cash and balances with treasury banks 55487664
54
Year 2007 2008 2009
Operating Assets 94230402 97259620 110591707
Net Sales 43685740 50481021 63305033
Operating Assets Turnover
Margin
192.7% 192.7% 174.70%
Balances with other banks 27020704
Operating fixed assets 13780555
97259620
55
2008
Operating Assets:
Cash and balances with treasury banks 46310478
Balances with other banks 35965048
Operating fixed assets 11954876
94,230,402
Detail of Operating Assets IDBI Limited
2008
Operating Assets:
Cash and balances with treasury banks 27859360
Balances with other banks 12731952
Operating fixed assets 10502990
51094302
2008
Operating Assets:
Cash and balances with treasury banks 29436378
Balances with other banks 18380738
Operating fixed assets 11922324
59739440
2008
Operating Assets:
56
Cash and balances with treasury banks 32687335
Balances with other banks 21581043
Operating fixed assets 13773293
68041671
57
Return on Operating Assets:
Return on Operating Assets = Profit after Taxation x 100
Operating assets
IDBI Bank
Year 2007 2008 2009
Net Profit 12700315 10084037 15614020
Operating Assets 94230402 97259620 110591707
Return on Operating Assets 13.48% 10.37% 11.19%
Sales to Fixed Assets:
This ratio is indicates that how much sales are contributed by investment in fixed Assets.
Sales to Fixed Assets = Net Sales / Fixed Assets
IDBI BANK
d)
Activity Ratios:
Activity ratio are sometimes are called efficiency ratios. Activity ratios are concerned
with how efficiency the assets of the firm are managed. These ratios express relationship
between level of sales and the investment in various assets inventories, receivables, fixed
assets etc.
58
Year 2007 2008 2009
Net Sales 43685740 50481021 63305033
Fixed Assets 11954876 13780555 14751252
Sales to Fixed Assets 3.65 times 3.66 times 3.66 times
Total Asset Turnover:
Total Asset Turnover = Total Sales / Total Assets
The amount of sales generated for every dollar's worth of assets. It is calculated by
dividing sales in dollars by assets in dollars. Asset turnover measures a firm's efficiency
at using its assets in generating sales or revenue - the higher the number the better. It also
indicates pricing strategy: companies with low profit margins tend to have high asset
turnover, while those with high profit margins have low asset turnover.
IDBIBANK
Interpretation
IDBI BANK
The Return on Equity was maximum in 2008 but decreased in 2008 and went down more
in 2008. This again may have happened due to the issue of more long-term debt in 2008
and 2008.
e) Market Ratio:
Market Value Ratios relate an observable market value, the stock price, to book values
obtained from the firm's financial statements.
Dividend per Share – DPS:
Dividend per Share = Total amount of Dividend
59
Year 2007 2008 2009
Total Sales 43685740 50481021 63305033
Total Assets 590291468 691991521 757928389
Total Asset Turnover 0.07 0.069 0.08
Number of outstanding shares
Per share capital = 10 per share
Or
No. of shares outstanding = share capital / 10
IDBI Bank
Year 2007 2008 2009
Total amount of
Dividend
691350 1381000 2730251
Number of Shares 690000 690000 759000
Dividend per Share 1.0019 2.0014 3.597
Earning Per Share- EPS:
Earning Per Share = Profit after Taxation
Number of Shares
The portion of a company's profit allocated to each outstanding share of common
stock. Earnings per share serve as an indicator of a company's profitability. 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.
IDBI BANK
Price / Earning Ratio:
Price / Earning Ratio = Stock Price Per Share
Earning Per Shares
60
Year 2007 2008 2009
Profit after Taxation 12700315 10084037 15614020
Number of Shares 690000 690000 759000
Earning Per Share 18.41 14.61 20.57
The Price-Earnings Ratio is calculated by dividing the current market price per share of
the stock by earnings per share (EPS). (Earnings per share are calculated by dividing net
income by the number of shares outstanding.)
The P/E Ratio indicates how much investors are willing to pay per dollar of current
earnings. As such, high P/E Ratios are associated with growth stocks. (Investors who are
willing to pay a high price for a dollar of current earnings obviously expect high earnings
in the future.) In this manner, the P/E Ratio also indicates how expensive a particular
stock is. This ratio is not meaningful, however, if the firm has very little or negative
earnings. The Price-Earnings Ratio is calculated by dividing the current market price per
share of the stock by earnings per share (EPS). (Earnings per share are calculated by
dividing net income by the number of shares outstanding.) The P/E Ratio indicates how
much investors are willing to pay per dollar of current earnings. As such, high P/E Ratios
are associated with growth stocks. (Investors who are willing to pay a high price for a
dollar of current earnings obviously expect high earnings in the future.)
In this manner, the P/E Ratio also indicates how expensive a particular stock is. This ratio
is not meaningful, however, if the firm has very little or negative earnings.
IDBI BANK
Interpretation
IDBI BANK
61
Year 2007 2008 2009
Stock price per share 10 10 10
EPS 18.41 14.61 20.57
Price / Earning Ratio 0.54 0.68 0.49
The P/E ratio was 0.54 times in 2008 and increased further to as high as 0.68 times in the
following year. However, in 2008 it declined to 0.49 times which is an alarming signal
for the potential investors.
Dividend Payout Ratio:
Dividend Payout Ratio = Dividend per Share
Earning per Share
The percentage of earnings paid to shareholders in dividends. The payout ratio provides
an idea of how well earnings support the dividend payments. More mature
companies tend to have a higher payout ratio. This ratio identifies the percentage of
earnings (net income) per common share allocated to paying cash dividends to
shareholders. The dividend payout ratio is an indicator of how well earnings support the
dividend payment.
IDBI BANK
Dividend Yield:
Dividend Yield = Dividend per Share
Share Price
Financial ratio that shows how much a company pays out in dividends each year relative
to its share price. In the absence of any capital gains, the dividend yield is the return on
investment for a stock. A stock's dividend yield is expressed as an annual percentage and
62
Year 2007 2008 2009
DPS 1.0019 2.0014 3.597
EPS 18.41 14.61 20.57
Dividend Payout Ratio 0.0544 0.137 0.175
is calculated as the company's annual cash dividend per share divided by the current price
of the stock. The dividend yield is found in the stock quotes of dividend-paying
companies. Investors should note that stock quotes record the per share dollar amount of
a company's latest quarterly declared dividend. This quarterly dollar amount is annualized
and compared to the current stock price to generate the per annum dividend yield, which
represents an expected return.
IDBI BANK
Book Value per Share:
Book Value per Share = Shareholders’ Equity
Share Capital
This is defined as the Common Shareholder's Equity divided by the Shares Outstanding
at the end of the most recent fiscal quarter. It is the Indication of the net worth of the
corporation. Somewhat similar to the earnings per share, but it relates the stockholder's
equity to the number of shares outstanding, giving the shares a raw value. Comparing the
market value to the book value can indicate whether or not the stock in overvalued or
undervalued.
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Year 2007 2008 2009
DPS 1.0019 2.0014 3.597
Share Price 10 10 10
Dividend Yield 0.10019 0.20014 0.3597
IDBI BANK
f)
Statement of cash flow:
Cash flow ratios indicate liquidity, borrowing capacity or profitability. This section of the
financial ratio looks at cash flow indicators, which focus on the cash being generated in
terms of how much is being generated and the safety net that it provides to the company.
These ratios can give users another look at the financial health and performance of a
company.
Operating Cash Flow to Total Debt:
Operating Cash Flow to Total Debt = Operating Cash Flow/Total Debt
This coverage ratio compares a company's operating cash flow to its total debt, which, for
purposes of this ratio, is defined as the sum of short-term borrowings, the current portion
of long-term debt and long-term debt. This ratio provides an indication of a company's
ability to cover total debt with its yearly cash flow from operations. The higher the
percentage ratio, the better the company's ability to carry its total debt.
IDBI BANK
Operating Cash Flow per Share:
64
Year 2007 2008 2009
Equity 45177664 55063125 71280902
Share Capital 6900000 6900000 7590000
Book Value per Share 6.5 7.98 9.39
Year 2007 2008 2009
Operating Cash flow 17851517 56224065 18231677
Total Debts 536848102 628754092 682747953
Operating Cash Flow to T.Debt 0.033 0.089 0.027
Operating Cash Flow per Share = Operating cash flow / Total Shares
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IDBI BANK
Common Size Analysis (Vertical and Horizontal):
The term "trend analysis" refers to the concept of collecting information and attempting
to spot a pattern, or trend, in the information. In some fields of study, the term "trend
analysis" has more formally-defined meanings. Although trend analysis is often used to
predict future events, it could be used to estimate uncertain events in the past. Financial
statement information is used by both external and internal users, including investors,
creditors, managers, and executives. These users must analyze the information in order to
make business decisions, so understanding financial statements is of great importance.
Several methods of performing financial statement analysis exist. I will discuss two of
these methods: horizontal analysis and vertical analysis.
a) Horizontal Analysis
Methods of financial statement analysis generally involve comparing certain information.
The horizontal analysis compares specific items over a number of accounting periods.
For example, accounts payable may be compared over a period of months within a fiscal
year, or revenue may be compared over a period of several years. It is a procedure in
fundamental analysis in which an analyst compares ratios or line items in a company's
financial statements over a certain period of time.
66
Year 2007 2008 2009
Operating Cash flow 17851517 56224065 18231677
Total Shares 690000 690000 759000
Operating Cash Flow per Share 25.87 81.48 24.02
Conclusion
Financial Statement Analysis is a method used by interested parties such as investors,
creditors, and management to evaluate the past, current, and projected conditions and
performance of the firm. This report mainly deals with the insight information of the two
mentioned companies. In the current picture where financial volatility is endemic and
financial intuitions are becoming popular, when it comes to investing, the sound analysis
of financial statements is one of the most important elements in the fundamental analysis
process. At the same time, the massive amount of numbers in a company's financial
statements can be bewildering and intimidating to many investors. However, through
financial ratio analysis, I tried to work with these numbers in an organized fashion and
presented them in a summarizing form easily understandable to both the management and
interested investors.
It is required by law that all private and public limited companies must prepare the
financial statements like, income statement, balance sheet and cash flow statement of the
particular accounting period. The management and financial analyst of the company
analyze the financial statements for making any further financial and administrative
decisions for the betterment of the company. That as a financial analyst how can I make
any important financial decision by analyzing the financial statements of the company.
Because, it is the primary responsibility of the financial managers or financial analyst to
manage the financial matters of the company by evaluating the financial statements. I am
also providing some important suggestions and opinions about the financial matters of the
business.
67
Findings
I analysis the financial statements of IDBI Bank Limited:-
Liquidity position of this bank is not up to standard, it is below industry
average. Working capital of IDBI Bank is better , but bank must improve
their liquidity position.
Leverage ratios indicate the high risk associated with the company. Generally
leverage ratios, measures the percentage of funds provided by the creditors.
The proportion of a firm’s total assets is being financed with high percentage
of borrowed funds.
Profitability ratios of Idbi Bank Limited is good and upto the mark..
IDBI Bank has a good market perception due to continuous declaration of
dividends which is good for its investors and hence increase the believeness
in the minds of customers.
Earning per share is decreases in 2nd year but afterwards increases which
show that company is good position in the market.
68
LIMITATION
The data collection was little bit tough because latest data is not available on the internet.
Finding the data of Insurance sector is very difficult. Problem occurred due to lack of time and facility of internet.
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Bibliography
www.moneycontrol.com
www.investopedia.com
www.google.com
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