Introduction:
Forming a Hypothesis:
Northern Rock Plc (affected in financial crisis) & Dutch-Bangla Bank Limited (not affected in
financial crisis) has similar trend (findings) in overall financial analysis from 2006 (as base
year) to 2008.
Brief History of Selected Companies:
1.Northern Rock:
Northern Rock is a British Bank Founded in 1965. It is best known for becoming the first bank
in 150 years to suffer a bank run after having had to approach the Bank of England for a loan
facility to replace money market funding during the Financial Crisis in 2007-08.The reasons of
getting affected in financial crisis were: Liquidity shortage, Mortgage backed Securities
shortage, Decrease in Stock price etc. It was nationalized (taken into public ownership )
in 2008. (Wikipedia, 2010)
2.Dutch-bangla Bank:
Dutch-Bangla Bank is first joint venture bank of Bangladesh founded in 1996.It id enlisted in
Dhaka Stock Exchange in 200.It has largest Electronic Banking System in Bangladesh. It is
first local bank in Bangladesh to have an automated banking system. It is not financially
affected during Financial crisis of 2007-08. It has set the record for the highest stock price
in the Dhaka Stock Exchange in 2008. (www.dutchbanglabank.com,2010)
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Detail Analysis:
1.Horizontal Analysis of Financial Statements :
i. Operating Profit Analysis:
Name of Bank
2006 (%)
2007(%)
2008 (%)
Northern Rock
100.00%
71.05%
35.22%
Dutch-Bangla Bank
100%
129%
136%
Interpretation:
Operating Income of Northern Rock has declined from 2006 to 2008. On the other hand,
Operating Income of Dutch-Bangla Bank has increased from 2006 to 2008.
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ii.Net Profit/(Loss) After Tax Analysis:
Name of Bank
2006 (%)
2007(%)
2008 (%)
Northern Rock
100.00%
-44.92%
-658.14%
Dutch-Bangla Bank
100%
132%
171%
Interpretation:
Net Profit of Northern Rock has declined as Net loss from 2006 to 2008. On the other hand,
Net Income of Dutch-Bangla Bank has increased from 2006 to 2008.
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iii. Total Asset Analysis:
Name of Bank
2006 (%)
2007(%)
2008 (%)
Northern Rock
100.00%
108.23%
95.45%
Dutch-Bangla Bank
100%
109%
123%
Interpretation:
Total Assets of Northern Rock has increased in 2007 but declined in 2008. On the other hand,
Total Assets of Dutch-Bangla Bank has increased from 2006 to 2008.
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iv.Total Equity Analysis:
Name of Bank
2006 (%)
2007(%)
2008 (%)
Northern Rock
100.00%
84.07%
23.47%
Dutch-Bangla Bank
100%
141%
138%
Interpretation:
Total Equity of Northern Rock has declined from 2006 to 2008. On the other hand, Total
Equity of Dutch-Bangla Bank has increased from 2006 to 2008
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v.Total Debt Analysis:
Name of Bank
2006 (%)
2007(%)
2008 (%)
Northern Rock
100.00%
162.20%
97.27%
Dutch-Bangla Bank
100%
107%
122%
Interpretation:
Total Debt of Northern Rock has declined from 2006 to 2008. On the other hand, Total Debt
of Dutch-Bangla Bank has increased from 2006 to 2008
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vi. Mortgage Backed Securities Analysis:
Name of Bank
2006 (%)
2007(%)
Northern Rock
100.00%
95.87%
Dutch-Bangla Bank
100%
100%
2008 (%)
93.66%
Interpretation:
Total Mortgage backed securities of Northern Rock has highly declined from 2006 to 2008. On
the other hand, Total Mortgage backed securities of Dutch-Bangla Bank has remain stable from
2006 to 2008.
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vii Liquidity Analysis:
a) Cash & Marketable Securities Analysis:
Name of Bank
Northern Rock
Dutch-Bangla Bank
2006 (%)
2007(%)
2008 (%)
100.00%
22.73%
202.77%
100%
132%
114%
Interpretation:
Total Cash & Marketable Securities of Northern Rock has declined in 2007 but increased in
2008. On the other hand, Total Cash & Marketable Securities of Dutch-Bangla Bank has
increased in 2007 but slightly decreased in 2008.
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b) Net cash inflow from operating activities Analysis:
Name of Bank
2006 (%)
2007(%)
2008 (%)
Northern Rock
100.00%
-218.92%
388.31%
Dutch-Bangla Bank
100%
158%
-91%
Interpretation:
Net cash inflow from operating activities of Northern Rock has declined in 2007 but increased
in 2008. On the other hand, Net cash inflow from operating activities of Dutch-Bangla Bank
has increased in 2007 but decreased in 2008.
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viii. Net cash outflow from investing activities Analysis:
Name of Bank
2006 (%)
2007(%)
2008 (%)
Northern Rock
-100.00%
9.90%
151.96%
Dutch-Bangla Bank
-100%
-196%
-153%
Interpretation:
Net cash inflow from investing activities of Northern Rock has highly increased from 2006
to 2008. On the other hand, Net cash inflow from investing activities of Dutch-Bangla Bank has
decreased in 2007 but slightly increased in 2008.
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ix. Net cash inflow from financing activities Analysis:
Name of Bank
2006 (%)
2007(%)
2008 (%)
Northern Rock
100.00%
67.42%
-36.69%
Dutch-Bangla Bank
100%
875%
965%
Interpretation:
Net cash inflow from financing activities of Northern Rock has highly declined from 2006 to
2008. On the other hand, Net cash inflow from financing activities of Dutch-Bangla Bank has
highly increased from 2006 to 2008.
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2.Annual (Average) Stock price Analysis:
Name of Bank
Northern Rock ( In Pound)
Dutch-Bangla Bank( In Taka)
2006
1187
4,707.39
2007
2008
85
90
4,003.83
4,707.39
Interpretation:
Stock price of Northern Rock has highly declined from 2006 to 2008. On the other hand, Stock
price has highly increased from 2006 to 2008.
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3.Financial Leverage Ratio Analysis:
i) Total Debt to Asset Ratio Analysis:
Name of Bank
2006
2007
2008
(In Times)
(In Times)
(In Times)
Northern Rock
0.97
0.98
1.00
Dutch-Bangla Bank
0.96
0.95
0.95
Interpretation:
Total Debt to Asset Ratio of Northern Rock has increased from 2006 to 2008. On the other
hand, Total Debt to Asset Ratio has decreased from 2006 to 2008.
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ii)Debt-equity Ratio Analysis:
Name of Bank
2006
2007
(In Times)
(In Times)
2008
(In Times)
Northern Rock
30.46
58.77
243.45
Dutch-Bangla Bank
26.40
20.15
17.84
Interpretation:
Debt-equity Ratio of Northern Rock has increased from 2006 to 2008. On the other hand, Total
Debt-equity Ratio has decreased from 2006 to 2008.
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iii) Equity Multiplier Analysis:
Name of Bank
2006
2007
(In Times)
(In Times)
2008
(In Times)
Northern Rock
31.46
59.77
164.69
Dutch-Bangla Bank
27.40
21.15
18.84
Interpretation:
Equity Multiplier of Northern Rock has increased from 2006 to 2008. On the other hand, Total
Equity Multiplier has decreased from 2006 to 2008.
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4. Z-Score Model Analysis:
Z-Score Model developed by Altman is generally used to predict bankcrupcy.
If Z < 1.81, then bankruptcy may occur.
Name of Bank
2006
2007
(In Times)
(In Times)
2008
(In Times)
Northern Rock
0.19
(0.21)
(0.05)
Dutch-Bangla Bank
1. 91
3.73
8.31
Interpretation:
According to Z-Score Model, Northern Rock has been in a position to get bankruptcy due to
lower value than 1.81 from 2006 to 2008. On the other hand, Dutch-Bangla Bank is in good
financial position for higher value than 1.81 from 2006 to 2008.
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Analysis of Overall Findings :
i) Northern Rock for having financial crisis:
1. Net loss and Earnings Per Share is severe from 2006 to 2008
2.Cash outflow (Investment activities) has increased more than cash inflows ( operating and
financing activities) with lower return from 2006 to 2008.
Example : Sponsorship in Newcastle United FC
3.Cash inflows from operating activities and marketable securities (Liquidity) has declined
more for huge cash outflows in 2007 . In 2008, Tripartite Authorities of UK has given loan
and nationalized Northern Rock which helps to increase Cash inflows from operating
activities and Marketable Securities (Liquidity) .
4.Mortgage-Backed securities & Stockholders equity have highly declined from 2006 to
2008 which results Subprime mortgage crisis in 2007-2008 and decrease in stock price from
2006 to 2008.
5.All Financial Leverage Ratios has highly increased (not satisfactory) from 2006 to 2008
which is also responsible for Subprime mortgage crisis in 2007.
6.Due to higher financial leverage and Subprime mortgage crisis , Z-score has
turned
down and declined from standard 1.81 during 2006 to 2008. As a result, Nationalization
of Northern Rock has happened in 2008.
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ii) Dutch-Bangla Bank Limited for not having financial crisis:
1.Net income after taxation has improved in 2007 but declined in 2008.
2.Cash flow from Operations and Marketable Securities (Liquidity) has increased in 2007 but
slightly declined in 2008. Therefore, Overall liquidity is satisfactory.
3.Stock price & Stockholders' equity have increased more in 2008 because of highest
record in Stock Price set in Dhaka Stock Exchange and increase in stockholders in 2008.
4.Leverage Ratios is satisfactory from 2006 to 2008 for lower value.
5.Z-Score is also satisfactory from 2006 to 2008 for increase in equity through bonus
stock dividend.
Result of the Hypothesis :
Overall financial analysis of Northern Rock Plc & Dutch-Bangla Bank Limited does not
have similar trend (findings) from 2006 to 2008 . As a result, Type-I Error has occurred.
Assumptions for having Type-I Error :
1.In 2008, Stockholders’ equity of Northern Rock has declined rapidly but Stockholders’ equity
of Dutch-Bangla Bank has increased rapidly. Thus, Opposite trend (findings) between these
two banks may occur from 2006 to 2008.
2.Liquidity of Northern Rock has enhanced in 2008 after suffering severe liquidity crisis in
2007 with the help of the loan provided by Tripartite Authorities in UK. On the other hand,
Liquidity of Dutch-Bangla Bank has slightly decreased in 2008. This reason may be
responsible for opposite trends (findings) between them from 2006 to 2008.
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Conclusion:
Northern Rock has highly affected in financial crisis from 2006 to 2008 for liquidity
shortage (which recovered in 2008 by loan of Tripartite Authorities) ,higher financial leverage
ratios, decrease in stock price and mortgage backed securities etc. As a result, it was
nationalized in 2008. On the other hand, Dutch-Bangla Bank has not affected in financial
crisis for increase in stockholders’ equity, improvement in financial leverage, maintenance
of liquidity (although slightly decreased in 2008) etc. Therefore, Overall findings of these
two banks are not same.
REFERENCES:
 Annual report of Northern Rock (2006 to 2008)
 Annual report of Dutch-Bangla Bank (2006 to 2008)
 http://en.wikipedia.org/wiki/Northern_Rock (2010)
 http://www.dutchbanglabank.com/about_us/brief_history.html (2010)
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APPENDIX
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