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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

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