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VUSTUDENTS.NET TEAM.
Virtual University of Pakistan
Final Project Finance FIN 619
Final Project
FINANCIAL STATEMENT ANALYSIS OF
BANK AL FALAH
AND
HABIB BANK LIMITED
A REPORT
SUBMITTED TO THE DEPARTMENT OF MANAGEMENT SCIENCES,
VIRTUAL UNIVERSITY OF PAKISTAN
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR
THE DEGREE OF MASTERS IN BUSINESS ADMINISTRATION
Submitted By
Mc070400479
Sheikh Waqas Ahmed
Department of Management Sciences,
Virtual University of Pakistan
1
Sheikh Waqas Ahmed
Mc070400479
F i n a l P r o j e c t F i n a n c e F I N 6 1 9
Dedication
I would like to dedicate this project to my parents who have always encourage me
throughout in my academic career and make possible for me to stand where I am today.
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Sheikh Waqas Ahmed
Mc070400479
F i n a l P r o j e c t F i n a n c e F I N 6 1 9
Acknowledgement
In the name of ALLAH, the most kind and most merciful.
First of all I m grateful to ALLAH ALMIGHTY, who bestowed me with health, abilities
and guidance to complete the project in a successful manner, and without HIS help I was
unable to perform this task.
More than anybody else, I would like to acknowledge my project advisor, Dr.
Muhammad Anwar for his never ending support and untiring efforts. He was always
there to guide me whenever I felt stuck off and his encouragement always worked as
moral booster for me. I have found him very helpful while discussing the tricky issues in
this dissertation work. I would also like to thank Mr. Majid Hassan principal JMCIT
Lahore. His critical comments on my work have certainly made me think of new ideas
and techniques.
I am thankful to all my class fellow specially Ambreen Fatima and all other friends who
help me during the project when problem arises, specially my seniors Muhammad Yasir,
Tanzila Riaz, Fatima and Saeed Mahmood for their kind help.
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Sheikh Waqas Ahmed
Mc070400479
Final Project Finance FIN 619
Executive Summary
Common Size Financial Statement discloses the internal structure of the firm. It indicates
the existing relationship between sales and each income statement account. It shows the
mix of assets that produce income and the mix of the sources of capital, whether by
current or long-term debt or by equity funding.
The primary objective of financial analysis is to forecast or determine the actual financial
status and performance of a project
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Sheikh Waqas Ahmed
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Final Project Finance FIN 619
TABLE OF CONTENT
Section I
a) Introduction…………………………………………………….
6
1.1 Background ………………………………………………………..
6
1.2 Introduction of the organization’s business sector …………………
7
1.3 Company’s Introduction ………………………………….………..
8
Introduction of Habib Bank…………………………………….
8
Introduction of Bank AL Falah………………………………...
9
1.4 List of competitors …………………………………………………
10
1.5 Objectives of Projects………………………………….……………
10
1.6 Significance of the Project………………………………………….
11
b) Processing and Analysis…………..…………………….…….
13
Data Collection Sources……………………..…………………………
13
Data Collection Tools………………………………………….………
14
Data Processing and Analysis…………………………….……………
14
Project proceedings……………………………………………….
14
1. Ratio Analysis…………………………………………….………….
14
a) Liquid Ratio…………………………………………………...
15
b) Leverage Ratio………………………………………………… 18
c) Profitability Ratio……………………………………………… 24
d) Activity Ratio………………………………….….…………..
32
e) Market Ratios………………………………………………….
33
f) Statement of Cash Flow……………………………………….
38
2. Common Size Analysis………………………………………………
39
a) Horizontal Analysis…………..……………………….………
40
b) Vertical Analysis……………..………………………………
49
5
S h e i k h W a q a s A h m e d
M c 0 7 0 4 0 0 4 7 9
F i n a l P r o j e c t F i n a n c e F I N 6 1 9
3 Review of Descriptive Information………….……………………...
59
4 Comparisons ………………………………………………………..
60
a) Trend Analysis………………………………………………… 60
b) Industry Averages and Comparisons with Competitors………
65
c) Summary……………………………………………………...
65
d) Conclusions / Findings……………………………………….
66
e) Recommendation …………………………………………….
67
Section II……………………………………………………………. 68
a) Introduction of the student………………………………………. LXVIII
b) Appendix/Appendices………………………...………………….LXVIII
c) Bibliography...……………………………………………………LXXXVII
Section I
a) 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
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.
1.1 Background of the project:
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. Ratio analysis is the most common form of financial analysis. It
6
Sheikh Waqas Ahmed
Mc070400479
Final Project Finance FIN 619
provides relative measures of the firm's conditions and performance. Horizontal Analysis
and Vertical Analysis are also popular forms. Horizontal analysis is used to evaluate the
trend in the accounts over the years, while vertical analysis, also called a Common Size
Financial Statement discloses the internal structure of the firm. It indicates the existing
relationship between sales and each income statement account. It shows the mix of assets
that produce income and the mix of the sources of capital, whether by current or longterm debt or by equity funding. When using the financial ratios, a financial analyst makes
two types of comparisons.
Financial ratio analysis is an important topic and is covered in all mainstream corporate
finance textbooks. It is also a popular agenda item in investment club meetings. It is
widely used to summarize the information in a company's financial statements in
assessing its financial health. In today's information technology world, real time financial
data are readily available via the Internet. Performing financial ratio analysis using
publications, such as Robert Morris Associates’ Annual Statement Studies, Dun &
Bradstreet’s Key Business Ratios, Moody’s Manuals, Standard & Poor’s Corporation
Records, Value Line Investment Survey, etc., is no longer efficient. Since students and
investors now have easy access to on-line databases, the assignments on financial ratio
analysis can be modified accordingly to enhance learning.
In the current scenario where financial instability is rife 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, we shall be able to work with these numbers in an organized fashion and present
them in a concise form easily understandable to both the management and interested
investors.
1.2 Introduction of the organization’s business sector:
The organizations is choose, are from the banking sector. Banking primarily the business
of dealing in money and instruments of credit. Banks were traditionally differentiated
from other financial institutions by their principal functions of accepting deposits, subject
7
Sheikh Waqas Ahmed
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Final Project Finance FIN 619
to withdrawal or transfer by check, and of making loans. A bank is a financial institution
licensed by a government. Its primary activity is to lend money. Many other financial
activities were allowed over time. For example banks are important players in financial
markets and offer financial services such as investment funds. In some countries such as
Germany, banks have historically owned major stakes in industrial corporations while in
other countries such as the United States banks are prohibited from owning non-financial
companies. In Japan, banks are usually the nexus of a cross-share holding entity known
as the zaibatsu. In France, banc assurance is prevalent, as most banks offer insurance
services (and now real estate services) to their clients. The level of government regulation
of the banking industry varies widely, with counties such as Iceland, the United Kingdom
and the United States having relatively light regulation of the banking sector, and
countries such as China having relatively heavier regulation.
Banks have traditionally been distinguished according to their primary functions.
Commercial banks, which include national- and state-chartered banks, trust companies,
stock savings banks, and industrial banks, have traditionally rendered a wide range of
services in addition to their primary functions of making loans and investments and
handling demand as well as savings and other time deposits. Mutual savings banks, until
recently, accepted only savings and other time deposits, and offered limited types of
loans and services. The fact that commercial banks were able to expand or contract their
loans and investments in accordance with changes in reserves and reserve requirements
further differentiated them from mutual savings banks, where the volume of loans and
investments was governed by changes in customers' deposits. Membership in the Federal
Deposit Insurance Corporation is compulsory for all Federal Reserve member banks but
optional for other banks.
1.3 Company’s introduction:
Introduction of Habib Bank of Pakistan:
Habib Bank Limited commonly referred to as "HBL" and head-quartered in Habib
Bank Plaza, Karachi, Pakistan, is the largest bank in Pakistan. HBL is a Banking
Company, which is engaged in Commercial & Retail Banking and related services
domestically and overseas. HBL was incorporated on 25th August 1941 and operated in
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Sheikh Waqas Ahmed
Mc070400479
F i n a l P r o j e c t F i n a n c e F I N 6 1 9
the private sector until its nationalization in 1974. HBL has been approved for
privatization and the privatization commission has selected a Financial Advisor to
prepare a comprehensive plan and assist in the sale process. The government has
appointed a professional management team to restructure the bank and to recover and
clean its doubtful and classified portfolio. HBL is one of the largest commercial bank of
Pakistan. It accounts for a substantial share (20%) of the total commercial banking
market in Pakistan with a network of 1,705 domestic branches; 55 overseas branches in
26 countries spread over Europe, the Middle East, Far East, Asia, Africa and the United
States; 3 HBL wholly owned Subsidiaries namely Habib Bank Financial Services (PVT)
LTD. Karachi, Habib Finance International LTD (Hong Kong) and Habib Finance
Australia Ltd. – Sydney; 2 Joint Ventures namely Habib Nigeria Bank Ltd. (40%) and
Himalayan Bank Ltd. (20%) and 2 representative offices in Iran and Egypt. It continues
to dominate the commercial banking sector with a major market share in inward foreign
remittances (55%) and loans to small industries, traders and farmers. HBL is one of
Pakistan's premier banks in terms of deposits and advances with a huge domestic and
international network. HBL provides its customers a complete range of banking products
and services including retail banking, corporate and institutional banking, trade finance,
consumer finance and credit cards. HBL is currently rated AA (Long term) and A-1+
(Short term) and has a balance sheet size of over USD 11 billion. It is the first Pakistani
bank to raise Tier II Capital from external sources.
Vision:
“Enabling people to advance with confidence and success”
Mission:
“To make our customer prosper, our staff excels and creates value for shareholders”
Introduction of Bank Al Falah:
Bank Alfalah Limited is a private bank in Pakistan owned by the Abu Dhabi Group.
Bank Alfalah Limited was incorporated on June 21st, 1992 as a public limited company
under the Companies Ordinance 1984. Its banking operations commenced from
November 1st ,1997. The bank is engaged in commercial banking and related services as
defined in the Banking companies ordinance, 1962. The Bank is currently operating
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Sheikh Waqas Ahmed
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F i n a l P r o j e c t F i n a n c e F I N 6 1 9
through 195 branches in 74 cities, with the registered office at B.A.Building,
I.I.Chundrigar, Karachi.
This facilitates the commitment to a culture of innovation and seeks out synergies with
clients and service providers to ensure uninterrupted services to its customers. Bank AlFalah is known to perceive the requirements of customers and match them with quality
products and service solutions. During the past five years, this bank has emerged as one
of the foremost financial institution in the region endeavoring to meet the needs of
tomorrow today. With a vision to be the premier organization operating locally &
internationality that provides the complete range of financial services to all segments
under one roof, Bank Al-Falah is one of the most important entities in banking sector of
Pakistan with a strong credit rating of AA for long term and A one plus for the short
term. Since its inception, as the new identity of H.C.E.B after the privatization in 1997,
the management of the bank has implemented strategies and policies to carve a distinct
position for the bank in the market place. Since its inception, as the new identity of
H.C.E.B after the privatization in 1997, the management of the bank has implemented
strategies and policies to carve a distinct position for the bank in the market place.
Strengthened with the banking of the Abu Dhabi Group and driven by the strategic goals
set out by its board of management, the Bank has invested in revolutionary technology to
have an extensive range of products and services.
Vision:
“To be the premier organization operating locally & internationality that provides the
complete range of financial services to all segments under one roof”
Mission:
“To develop & deliver the most innovative products, manage customer experience,
deliver quality services that contributes to brand strength, establishes a competitive
advantage and enhances profitability, thus providing value to the stakeholders of the
bank”
1.4 List of competitors:
•
Standard Chartered Bank
•
National Banks
• Allied Bank Limited
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Sheikh Waqas Ahmed
Mc070400479
Final Project Finance FIN 619
1.5 Objectives of the project:
The objective of this project is to provide insight into how the banks work, what are the
strengths and weakness of the banks, which bank is financially more feasible than the
other. The ratios will be compared of both the banks within the industry to see where the
banks stand. Question such as ‘What are the strengths and weaknesses of each bank?’
will be answered with the comparison of the ratios. To give the stock holder a clear view
about the financial feasibility of both the banks so that they can take the appropriate
decision. And most significantly it will provide a good understanding of the business
cycle and the yield curve - both of which have a major impact on the economic
performance of banks.
The primary objective of financial analysis is to forecast and/or determine the actual
financial status and performance of a project and, where appropriate, of the EAs. This is
to enable ADB to combine that information with all other pertinent data (technical,
economic, social, etc.) to assess the feasibility, viability, and potential economic benefits,
of a proposed or continuing lending operation. Secondary objective is the provision of
Technical Assistance to a borrower and an EA to enable them to make similar
assessments for the project and to apply the techniques to other non-ADB investments. A
tertiary objective is to encourage borrowers to make any necessary changes to their
institutional and financial management systems to facilitate the generation of appropriate
data to support good financial analysis. The objectives of financial analysis as set out
above are intended to measure the achievement of financial objectives of a borrower, the
project to be (or being) financed. The financial performance of a public and private sector
EA should normally be measured by the use of at least one indicator selected from the
range of the following groups of indicators derived from the financial analysis of a
project and its EA: (i) operation; (ii) capital structure, and (iii) liquidity. This means that,
if only one indicator from one of the three categories of indicators above would be the
subject of a loan covenant, the remaining indicator or indicators from each group above
recommended by the financial analyst should be the subject of periodic reporting. The
efficient allocation of resources is an important consideration in pricing policy,
particularly for REEA services. Financial analysis is used to describe the impact of such a
policy.
11
Sheikh Waqas Ahmed
Mc070400479
Final Project Finance FIN 619
I worked on the financial statements of the bank i.e. Balance sheet of the bank and make
some essential calculations in order to give you an idea about the financial stability of the
bank.
1.6 Significance of the project:
Financial statements provide an overview of a business' financial condition in both short
and long term. All the relevant financial information of a business enterprise presented in
a structured manner and in a form easy to understand, is called the financial statements.
Therefore these financial statements are very useful for the stake holder, as they obtain all
insight information. In assessing the significance of various financial data, experts engage
in ratio analyses, the process of determining and evaluating financial ratios. A financial
ratio is a relationship that indicates something about a company's activities, such as the
ratio between the company's current assets, current liabilities or between its accounts
receivable and its annual sales. The basic source for these ratios is the company's
financial statements that contain figures on assets, liabilities, profits, or losses. Financial
ratios are only meaningful when compared with other information. Since they are most
often compared with industry data, ratios help an individual understand a company's
performance relative to that of competitors; they are often used to trace performance over
time.
Ratio analysis can reveal much about a company and its operations. However, there are
several points to keep in mind about ratios. First, financial statement ratios are "flags"
indicating areas of strength or weakness. One or even several ratios might be misleading,
but when combined with other knowledge of a company's management and economic
circumstances, ratio analysis can tell much about a corporation. Second, there is no single
correct value for a ratio. The observation that the value of a particular ratio is too high,
too low, or just right depends on the perspective of the analyst and on the company's
competitive strategy. Third, a ratio is meaningful only when it is compared with some
standard, such as an industry trend, ratio trend, a ratio trend for the specific company
being analyzed, or a stated management objective.
The significance of my project stems from the very nature of the financial statements i.e.
they are usually lengthy, bulky documents which have a huge array of numbers not
readily understandable. Financial statement analysis is the process of examining
12
Sheikh Waqas Ahmed
Mc070400479
Final Project Finance FIN 619
relationships among financial statement elements and making comparisons with relevant
information. It is a valuable tool used by investors and creditors, financial analysts, and
others in their decision-making processes related to stocks, bonds, and other financial
instruments. The goal in analyzing financial statements is to assess past performance and
current financial position and to make predictions about the future performance of a
company. Investors who buy stock are primarily interested in a company's profitability
and their prospects for earning a return on their investment by receiving dividends and/or
increasing the market value of their stock holdings. Creditors and investors who buy debt
securities, such as bonds, are more interested in liquidity and solvency: the company's
short-and long-run ability to pay its debts. Financial analysts, who frequently specialize
in following certain industries, routinely assess the profitability, liquidity, and solvency
of companies in order to make recommendations about the purchase or sale of securities,
such as stocks and bonds. Analysts can obtain useful information by comparing a
company's most recent financial statements with its results in previous years and with the
results of other companies in the same industry. My aim is to summarize all that data into
a form which is easily understood by all the relevant parties.
b) Processing and Analysis
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,
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F i n a l P r o j e c t F i n a n c e F I N 6 1 9
•
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.
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.
Project proceedings
1. RATIO ANALYSIS:
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Sheikh Waqas Ahmed
Mc070400479
Final Project Finance FIN 619
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. It is defined as the systematic use of ratio to interpret the financial
statements so that the strength and weaknesses of a firm as well as its historical
performance and current financial condition can be determined. The term ratio refers to
the numerical or quantitative relationship between two variables. With the help of ratio
analysis conclusion can be drawn regarding several aspects such as financial health,
profitability and operational efficiency of the undertaking. Ratio points out the operating
efficiency of the firm i.e. whether the management has utilized the firm’s assets correctly,
to increase the investor’s wealth. It ensures a fair return to its owners and secures
optimum utilization of firm’s assets. Ratio analysis helps in inter-firm comparison by
providing necessary data. An inter firm comparison indicates relative position. It provides
the relevant data for the comparison of the performance of different departments. If
comparison shows a variance, the possible reasons of variations may be identified and if
results are negative, the action may be initiated immediately to bring them in line. Yet
another dimension of usefulness or ratio analysis, relevant from the View point of
management is that it throws light on the degree efficiency in the various activity ratios
measures this kind of operational efficiency.
a) Liquidity Ratios
b) Leverage Ratios
c) Profitability Ratios
d) Activity Ratios
e) Market Ratios
f) Statements of Cash Flow
Ratio Analysis
a) Liquidity Ratios
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Sheikh Waqas Ahmed
Mc070400479
Final Project Finance FIN 619
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.
HABIB BANK
Year
2006
2007
2008
Current Assets
575611106
671597594
731954693
Current Liabilities
480455832
566659483
631948038
1.20
1.19
1.16
Current ratio
BANK AL FALAH
Year
2006
2007
2008
Current Assets
265182551
316972828
335217471
Current Liabilities
249906022
286843944
315476169
1.06
1.10
1.06
Current ratio
Interpretation
HABIB BANK
The current ratio for the year 2006, 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
BANK AL FALAH
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.
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Final Project Finance FIN 619
Sales to Working Capital:
Sales to Working Capital = Sales / Working Capital
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.
HABIB BANK
Year
2006
2007
Sales
43685740
43685740
Working Capital
Sales to Working
2008
63305033
95155274
104938111
100006655
0.5 times
0.5 times
0.6 times
Capital
BANK AL FALAH
Year
2006
2007
2008
Sales
21191470
25783871
31046583
Working Capital
15276529
30128884
19741302
Sales to Working
1.38
0.85
1.57
Interpretation:
HABIB BANK:
This liquidity ratio for the years 2006, 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
BANK AL FALAH:
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:
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Sheikh Waqas Ahmed
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Final Project Finance FIN 619
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".
HABIB BANK
Year
2006
2007
2008
Current Assets
575611106
671597594
731954693
Current Liabilities
480455832
566659483
631948038
Working Capital
95155274
104938111
100006655
BANK AL FALAH
Year
2006
2007
2008
Current Assets
265182551
316972828
335217471
Current Liabilities
249906022
286843944
315476169
Working Capital
15276529
30128884
19741302
Interpretation:
HABIB 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.
BANK AL FALAH:
This ratio increased to a great extent in 2007, almost double of the year 2006 but later on
in the year 2008 it went down again.
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.
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Sheikh Waqas Ahmed
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Final Project Finance FIN 619
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
(EBIT). This ratio measures the extent to which operating income can decline before the
firm is unable to meet its annual interest cost.
HABIB BANK
Year
2006
2007
EBIT
32044524
34298574
48559935
Interest Charges
13204037
19153957
19153957
1.79
1.83
TIE ratio
2.43
2008
BANK AL FALAH
Year
2006
2007
2008
EBIT
17798831
21156515
22125914
Interest charges
15232886
16620963
20331194
1.16
1.27
1.08
TIE ratio
Interpretation
HABIB BANK
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Final Project Finance FIN 619
We can see from this ratio analysis that, this company has covered their interest expenses
2.43 times in 2006, 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 2006.
As in 2006 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
BANK AL FALAH
We can see that, this company has covered their interest expenses 1.16 times in 2006,
1.27 times in 2007 and 1.08 times in 2008. It means they haven’t improved in the past
years.
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.
HABIB BANK
Year
2006
2007
2008
Total debt
536848102
628754092
682747953
Total Assets
590291468
691991521
757928,89
Debt Ratio
0.91
0.91
0.9
BANK AL FALAH
Year
2006
2007
2008
Total debt
263443596
312675308
331946025
Total Assets
275685541
328895152
348990764
Debt Ratio
0.95
0.95
0.95
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Mc070400479
Final Project Finance FIN 619
Interpretation:
HABIB BANK
Calculating the debt ratio, we came to see that this company is highly leveraged one
BANK AL FALAH
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.
HABIB BANK
Year
Total debt
2006
536848102
2007
628754092
2008
682747953
Total Equity
45177664
55063125
71280902
11.88
11.42
9.58
Debt To Equity Ratio
BANK AL FALAH
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F i n a l P r o j e c t F i n a n c e F I N 6 1 9
Year
Total debt
2006
263443596
2007
312675308
2008
331946025
Total Equity
10572605
13766673
14608523
24.91
22.71
22.72
Debt To Equity Ratio
Interpretation
HABIB BANK
We can see from the above calculations that this ratios continuously decreasing in the last
three years.
BANK AL FALAH
Calculating this debt ratio we can see that it was 24.91, 22.71 & 22.72 in the year 2006,
2007 & 2008 respectively. This shows a decline in the ratio over the 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
HABIB BANK
Year
2006
Current Worth
95155274
Net Worth
Current Worth to Net
2007
104938111
2008
100006655
53443366
63237429
75180436
1.78
1.66
1.33
worth Ratio
BANK AL FALAH
Year
2006
2007
2008
Current Worth
15276529
30128884
19741302
Net Worth
Current Worth to Net
12241945
16219844
17044739
1.247
1.85
1.15
worth Ratio
22
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Mc070400479
Final Project Finance FIN 619
Interpretation
HABIB BANK
We can see from the above calculations that this ratios continuously decreasing in the last
three years. In 2006 it was 1.78, in 2007 it was 1.66 and in 2008 it was 1.33.
BANK AL FALAH
Analysis shows that this ratio was as high as 1.2 among three years. However, it declined
to 1.15 in the year 2008. In 2007 the ratio somewhat increased to 1.85.
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.
HABIB BANK
Year
2006
2007
2008
Long Term debt
56392270
62094609
50799915
Long term debt + Equity
Capitalization Ratio
101569934
117157734
122080817
0.56
0.53
0.42
worth Ratio
BANK AL FALAH
Year
2006
2007
2008
Long Term debt
13537574
25831364
16469856
Long term debt + Equity
Capitalization Ratio
24110179
39598037
31078379
0.56
0.65
0.52
worth Ratio
Interpretation
23
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Mc070400479
Final Project Finance FIN 619
HABIB BANK
It is obvious from the above calculations that there is a gradual fall in this ratio over the
years.
BANK AL FALAH
The ratios for the last 3 years are 0.56, 0.65 and 0.52. Shows below standard of 2:1
Long term Assets versus Long term Debt:
Long term Assets versus Long term Debt= Long Term Assets/ Long Term Debts
HABIB BANK
Year
2006
2007
2008
Long Term Assets
14680362
20393927
25973696
Long term debt
L.T Assets /L.T Debts
56392270
62094609
50799915
0.26
0.33
0.51
Debt:worth Ratio
BANK AL FALAH
Year
2006
2007
2008
Long Term Assets
13773293
11922324
10502990
Long term debt
L.T Assets /L.T Debts
13537574
25831364
16469856
1.01
0.46
0.63
worth Ratio
Debt Coverage Ratio:
Debt Coverage Ratio = Net Operating Income / Total Debt
HABIB BANK
Year
2006
2007
2008
Net Operating Income
12074762
5121453
5655568
Total Debt
Debt Coverage Ratio
536848102
628754092
682747953
0.02
0.008
0.0083
Debt:worth Ratio
BANK AL FALAH
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F i n a l P r o j e c t F i n a n c e F I N 6 1 9
Year
Net Operating Income
Total Debt
2006
14574192
2007
15118049
2008
16880487
263443596
312675308
331946025
Debt Coverage Ratio
0.05532186
0.048350633
0.0508531
worth Ratio
9
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.
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.
HABIB BANK
Year
2006
2007
2008
Net Profit
12700315
10084037
15614020
Sales
43685740
50481021
63305033
29.07%
19.97%
24.66%
Net Profit Margin
BANK AL FALAH
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Mc070400479
F i n a l P r o j e c t F i n a n c e F I N 6 1 9
Year
2006
2007
2008
Net Profit
1762691
3130229
1301301
Sales
21191470
25783871
31046583
8.31%
12.1%
4%
Net Profit Margin
Interpretation
HABIB BANK
Therefore, the Net Profit Margin was 8.31% in 2006, increase to 12.1% in 2007 and then
decrease to 4% in 2008
BANK AL FALAH
Therefore, the Net Profit Margin was 29.07% in 2006, decrease to 19.97% in 2007 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
HABIB BANK
Year
2006
2007
2008
Operating Income
25278799
24275410
37738818
Net Sales
43685740
50481021
63305033
57.9%
48%
59.6%
Operating Income
Margin
BANK AL FALAH
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F i n a l P r o j e c t F i n a n c e F I N 6 1 9
Year
2006
2007
2008
Operating Income
14574192
15118049
16880487
Net Sales
21191470
25783871
31046583
0.687738604
0.586337443
0.5437148
Operating Income
Margin
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.
HABIB BANK
Year
Net income
Total Average assets
ROA
2006
2007
2008
12700315
10084037
15614020
559592686.5
641141494.5
724959955
2.27%
1.57%
2.15%
BANK AL FALAH
Year
Net income
Total Average assets
ROA
2006
2007
2008
1762691
3130229
1301301
137966927.5
302290346.5
338942958
1.27%
1.01%
0.038%
Interpretation
HABIB BANK
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Mc070400479
Final Project Finance FIN 619
Return on assets decreased in 2007 and 2008 and it was maximum in year 2006. This
may have occurred because Square used more debt financing in 2006 compared to 2007
and 2008 which resulted in more interest cost and brought the Net income down.
.
BANK AL FALAH
Return
on
assets
decreased
gradually
throughout
the
years.
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.
HABIB BANK
Year
2006
2007
2008
Net income
12700315
10084037
15614020
Total Equity
45177664
55063125
71280902
28.11%
18.31%
21.9%
ROE
BANK AL FALAH
Year
2006
2007
2008
Net income
1762691
3130229
1301301
Total Equity
10572605
13766673
14608523
16.6%
22.5%
8.9%
ROE
Interpretation
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Mc070400479
Final Project Finance FIN 619
HABIB BANK
The Return on Equity was maximum in 2006 but decreased in 2007 and went down more
in 2008. This again may have happened due to the issue of more long-term debt in 2007
and 2008.
BANK AL FALAH
The Return on Equity was maximum in 2007 but decreased to an extent in the following
years 2007 and 2008. This again may have happened due to the issue of more long-term
debt in 2007 and 2008.
DuPont Return on Assets:
DuPont Return on Assets = Profit after taxation x 100
Total Assets
HABIB BANK
Year
2006
2007
2008
Net Profit
12700315
10084037
15614020
Total assets
590291468
691991521
757928389
DuPont ROA
2.15%
1.46%
2.06%
BANK AL FALAH
Year
2006
2007
2008
1762691
3130229
1301301
Total assets
275685541
328895152
348990764
DuPont ROA
0.006
0.009
0.003
Net Profit
Operating Assets Turnover:
Operating Assets Turnover = Operating Assets x 100
Net Sales
HABIB BANK
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F i n a l P r o j e c t F i n a n c e F I N 6 1 9
Year
2006
2007
2008
Operating Assets
94230402
97259620
110591707
Net Sales
43685740
50481021
63305033
192.7%
192.7%
174.70%
Operating Assets Turnover
Margin
BANK AL FALAH
Year
2006
2007
2008
Operating Assets
51094302
59739440
68041671
Net Sales
21191470
25783871
31046583
2.41%
2.31%
2.19%
Operating Assets Turnover
Margin
Detail of Operating Assets of Habib Bank Limited
2008
Operating Assets:
Cash and balances with treasury banks
56533134
Balances with other banks
39307321
Operating fixed assets
14751252
110591707
2007
Operating Assets:
Cash and balances with treasury banks
55487664
Balances with other banks
27020704
Operating fixed assets
13780555
97259620
2006
Operating Assets:
Cash and balances with treasury banks
46310478
Balances with other banks
35965048
Operating fixed assets
11954876
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Mc070400479
Final Project Finance FIN 619
94,230,402
Detail of Operating Assets of Bank Al Falah Limited
2008
Operating Assets:
Cash and balances with treasury banks
27859360
Balances with other banks
12731952
Operating fixed assets
10502990
51094302
2007
Operating Assets:
Cash and balances with treasury banks
29436378
Balances with other banks
18380738
Operating fixed assets
11922324
59739440
2006
Operating Assets:
Cash and balances with treasury banks
32687335
Balances with other banks
21581043
Operating fixed assets
13773293
68041671
Return on Operating Assets:
Return on Operating Assets = Profit after Taxation x 100
Operating assets
HABIB BANK
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F i n a l P r o j e c t F i n a n c e F I N 6 1 9
Year
Net Profit
Operating Assets
Return on Operating Assets
2006
2007
2008
12700315
94230402
10084037
97259620
15614020
110591707
13.48%
10.37%
11.19%
BANK AL FALAH
Year
2006
2007
2008
Net Profit
1762691
3130229
1301301
Operating Assets
51094302
59739440
68041671
0.034
0.052
0.019
Return on Operating Assets
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
HABIB BANK
Year
2006
2007
2008
Net Sales
43685740
50481021
Fixed Assets
11954876
13780555
63305033
14751252
Sales to Fixed Assets
3.65 times
3.66 times
3.66 times
BANK AL FALAH
Year
2006
2007
2008
Net Sales
21191470
25783871
31046583
Fixed Assets
10502990
11922324
13773293
2.017 times
2.16 times
2.25 times
Sales to Fixed Assets
d) Activity Ratios:
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Final Project Finance FIN 619
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.
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.
HABIB BANK
Year
2006
2007
2008
Total Sales
43685740
50481021
63305033
Total Assets
590291468
691991521
757928389
0.07
0.07
0.08
Total Asset Turnover
BANK AL FALAH
Year
2006
2007
2008
Total Sales
21191470
25783871
31046583
Total Assets
275685541
328895152
348990764
0.07
0.07
0.08
Total Asset Turnover
Interpretation
HABIB BANK
The Return on Equity was maximum in 2006 but decreased in 2007 and went down more
in 2008. This again may have happened due to the issue of more long-term debt in 2007
and 2008.
33
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Final Project Finance FIN 619
BANK AL FALAH
The Return on Equity was maximum in 2007 but decreased to an extent in the following
years 2007 and 2008. This again may have
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
Number of outstanding shares
Per share capital = 10 per share
Or
No. of shares outstanding = share capital / 10
HABIB BANK
Year
2006
2007
2008
Total amount of Dividend
691350
1381000
2730251
Number of Shares
690000
690000
759000
Dividend per Share
1.0019
2.0014
3.597
BANK AL FALAH
Year
2006
2007
2008
00
00
975000
Number of Shares
500000
650000
799500
Dividend per Share
00
00
1.21
Total amount of Dividend
Note: There is no dividend paid by the bank in the year 2006 and 2007
Earning Per Share- EPS:
Earning Per Share =
Profit after Taxation
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Final Project Finance FIN 619
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.
HABIB BANK
Year
2006
2007
2008
12700315
10084037
15614020
Number of Shares
690000
690000
759000
Earning Per Share
18.41
14.61
20.57
Profit after Taxation
BANK AL FALAH
Year
2006
2007
2008
Profit after Taxation
1762691
3130229
1301301
Number of Shares
500000
650000
799500
Earning Per Share
3.525
4.815
1.627
Price / Earning Ratio:
Price / Earning Ratio =
Stock Price Per Share
Earning Per Shares
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
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Final Project Finance FIN 619
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.
HABIB BANK
Year
2006
2007
2008
10
10
10
EPS
18.41
14.61
20.57
Price / Earning Ratio
0.54
0.68
0.49
Stock price per share
BANK AL FALAH
Year
2006
2007
2008
10
10
10
EPS
3.525
4.815
1.627
Price / Earning Ratio
2.83
2.07
6.14
Stock price per share
Interpretation
HABIB BANK
The P/E ratio was 0.54 times in 2006 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.
BANK AL FALAH
The P/E ratio was 2.83 times in 2006 and decreased a little bit in 2007. However, in 2008 it
increased as much higher than before to 6.14 times.
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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.
HABIB BANK
Year
2006
2007
2008
DPS
1.0019
2.0014
3.597
EPS
18.41
14.61
20.57
Dividend Payout Ratio
0.0544
0.137
0.175
BANK AL FALAH
Year
2006
2007
2008
DPS
00
00
1.21
EPS
3.525
4.815
1.627
00
00
0.74
Dividend Payout Ratio
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
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Final Project Finance FIN 619
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.
HABIB BANK
Year
2006
2007
2008
DPS
1.0019
2.0014
3.597
10
10
10
0.10019
0.20014
0.3597
Share Price
Dividend Yield
BANK AL FALAH
Year
2006
2007
2008
DPS
00
00
1.21
Share Price
10
10
10
Dividend Yield
00
00
0.121
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.
HABIB BANK
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F i n a l P r o j e c t F i n a n c e F I N 6 1 9
Year
Equity
Share Capital
2006
2007
2008
45177664
55063125
71280902
6900000
7590000
7.98
9.39
6900000
Book Value per Share
6.5
BANK AL FALAH
Year
2006
2007
2008
Equity
10572605
13766673
14608523
Share Capital
5000000
6500000
7995000
2.11
2.11
1.82
Book Value per Share
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.
HABIB BANK
39
Sheikh Waqas Ahmed
Mc070400479
F i n a l P r o j e c t F i n a n c e F I N 6 1 9
Year
Operating Cash flow
Total Debts
Operating Cash Flow to T.Debt
2006
2007
2008
17851517
536848102
56224065
628754092
18231677
682747953
0.033
0.089
0.027
2006
2007
2008
7852362
39645325
2499606
263443596
312675308
331946025
0.029
0.126
0.007
BANK AL FALAH
Year
Operating Cash flow
Total Debts
Operating Cash Flow to T.Debt
Operating Cash Flow per Share:
Operating Cash Flow per Share = Operating cash flow / Total Shares
HABIB BANK
Year
2006
2007
2008
17851517
56224065
18231677
690000
690000
759000
25.87
81.48
24.02
2006
2007
2008
Operating Cash flow
7852362
39645325
2499606
Total Shares
500000
650000
799500
15.70
60.99
3.12
Operating Cash flow
Total Shares
Operating Cash Flow per Share
BANK AL FALAH
Year
Operating Cash Flow per Share
.
2. Common Size Analysis (Vertical and Horizontal):
40
Sheikh Waqas Ahmed
Mc070400479
Final Project Finance FIN 619
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. The analyst will use his or her
discretion when choosing a particular timeline; however, the decision is often based on
the investing time horizon under consideration.
HORIZONTAL ANALYSIS
HABIB BANK
BALANCE SHEET
AS ON DEC 31 2008, 2007 & 2006
(Rupees in ‘000’)
2008
ASSETS
Cash and balances
with treasury banks
Balances with
other banks
2007
Horizontal Analysis
2006
2008
2007
2006
56533134
55487664
46310478
122.07
119.8
100
39307321
27020704
35965048
109.29
75.13
100
41
Sheikh Waqas Ahmed
Mc070400479
Final Project Finance FIN 619
Lending to
financial
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
Operating fixed
35419252
27346111
17765291
199.37
153.9
100
14751252
13780555
11954876
123.39
115.3
100
11222444
6613372
2725486
411.76
242.6
100
TOTAL ASSETS
LIABILITIES
Bills payable
Borrowings from
757928389
691991521
590291468
128.4
117.2
100
9944257
15418230
5737457
173.32
268.7
100
financial
46844890
58994609
56392270
83.07
104.6
100
597090545
531298127
459140198
130.05
115.7
100
3954925
3100000
0
0
0
0
24913236
19943126
15578177
159.92
128
100
-------
-----------
---------
628754092
536848102
127.18
117.1
100
63237429
53443366
140.67
118.3
100
institutions
assets
Deferred tax asset
institutions
Deposits and other
accounts
Sub-ordinate loans
Liabilities against
assets subject to
finance lease
Other liabilities
Deferred tax
liability
TOTAL
682747953
LIABILITIES
NET ASSETS
75180436
REPRESENTED BY
Shareholders Equity
Share capital
Reserves
Unappropriated
profit
7590000
24243254
6900000
19821455
6900000
17802584
110
136.18
100
111.3
100
100
39447648
28341670
20 475,080
159.92
128
100
42
Sheikh Waqas Ahmed
Mc070400479
Final Project Finance FIN 619
Total equity
attributable to the
71280902
55063125
45177664
157.78
121.9
100
the Bank
Minority interest
Surplus on
890099
965642
913317
97.458
105.7
100
revaluation of
3009435
7208662
7352385
40.931
98.05
100
assets - net of tax
TOTAL EQUITY
75180436
63237429
53443366
140.67
118.3
100
equity holders of
HORIZONTAL ANALYSIS
HABIB BANK
CONSOLIDATED PROFIT & LOSS ACCOUNT
AS ON DEC 31 2008, 2007 & 2006
2008
2007
(Rupees in ‘000’)
Mark-up / return /
interest earned
Mark-up / return /
interest expensed
Net mark-up /
interest income
Provision against
non-performing
loans and
2006
Horizontal Analysis
2008
2007
2006
63,305,033
50,481,021
43,685,740
144.91
115.6
100
26,525,556
19,153,957
13,204,037
200.89
145.1
100
36,779,477
31,327,064
30,481,703
120.66
102.8
100
6,904,919
8,238,227
2,863,207
241.16
287.7
100
372,598
(54,626)
(45,438)
-820.01
120.2
100
1,909,887
(84,310)
(13,697)
-13944
615.5
100
advances - net
Charge / (reversal)
against offbalance sheet
obligations
Charge / (reversal)
of provision
against diminution
43
Sheikh Waqas Ahmed
Mc070400479
Final Project Finance FIN 619
in the value of
investments
Bad debts written
----------
----------
-------------
9,187,404
8,099,291
2,804,072
27,592,073
23,227,773
27,677,631
99.691
83.92
100
4,518,408
3,420,051
3,931,710
114.92
86.99
100
2,369,233
2,472,663
1,219,623
194.26
202.7
100
2,374,318
1,487,374
1,102,358
215.39
134.9
100
investments in
4,000,330
-------
0
0
0
0
associate
Other income
3,116,522
2,643,076
2,235,805
139.39
118.2
100
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
21,348,016
18,297,279
15,425,461
138.39
118.6
100
200,163
276,111
122,510
163.39
225.4
100
64,751
85,152
54,898
117.95
155.1
100
18,106,32
15,602,869
140.59
0
100
off directly
Net mark-up /
interest income
after provisions
Fee, commission
and brokerage
income
Income / gain on
investments
Income from
dealing in foreign
currencies
Gain on
Total non-mark-up
/ interest income
Non mark-up /
interest expense
Administrative
expenses
Other provisions /
write offs - net
Other charges
Workers welfare
fund
Total non mark-up
/ interest expenses
323,575
21,936,505
44
Sheikh Waqas Ahmed
Mc070400479
F i n a l P r o j e c t F i n a n c e F I N 6 1 9
Profit before
taxation
Taxation
- Current
- Prior years
- Deferred
Profit after
taxation
Attributable to:
Equity holders of
the Bank
Minority interest
Basic and diluted
earnings per share
22,034,379
15,144,617
18,840,487
116.95
80.38
100
8,661,15
233,100
(2,473,891)
6,420,359
7,220,717
1,668,562
(3,828,699)
10,084,037
7,144,846
(39,067)
(965,607)
12,700,315
0
-596.67
256.2
50.553
101.1
-4271
396.5
79.4
100
100
100
100
15,614,020
10,084,037
12,700,315
122.94
79.4
100
15,535,011
10,000,231
12,630,259
123
79.18
100
79,009
15,614,020
83,806
10,084,037
70,056
12,700,315
112.78
122.94
119.6
79.4
100
100
20.47
13.18
18.30
111.86
72.02
100
HORIZONTAL ANALYSIS
BANK AL FALAH LIMITED
BALANCE SHEET
AS ON DEC 31 2008, 2007 & 2006
45
S h e i k h W a q a s A h m e d
M c 0 7 0 4 0 0 4 7 9
F i n a l P r o j e c t F i n a n c e F I N 6 1 9
Years
(Rupees in ‘000’)
2008
2007
Horizontal Analysis
2006
ASSETS
Cash and balances
with treasury
2008
2007
2006
118.41
29436378
27859360
118.41
105.7
100
169.5
18380738
12731952
169.5
144.4
100
financial
26.616
3452059
12456653
26.616
27.71
100
institutions
Investments
Advances
Operating fixed
134.46
132.88
88491564
171198992
56502210
144999325
134.46
132.88
156.6
118.1
100
100
131.14
11922324
10502990
131.14
113.5
100
0
0
0
banks
Balances with
other banks
Lending to
assets
Deferred tax asset
Other assets
TOTAL
ASSETS
LIABILITIES
Bills payable
Borrowings
from financial
institutions
Deposits and
other accounts
Sub-ordinate
loans
Liabilities
against assets
subject to
finance lease
Deferred tax
liability
0
159.58
6013097
5633051
159.58
106.7
100
126.59
328895152
275685541
126.59
119.3
100
133.9
100
111.68
4138243
3091135
0
111.68
163.09
21230697
8394130
163.09
252.9
100
125.56
273173841
239509391
125.56
114.1
100
79.798
3220858
3222106
79.798
99.96
100
0
0
0
10.85
71.82
100
0
10.85
1379809
1921338
46
Sheikh Waqas Ahmed
Mc070400479
F i n a l P r o j e c t F i n a n c e F I N 6 1 9
Other liabilities
154.56
9531860
7305496
154.56
130.5
100
126
312675308
263443596
126
118.7
100
16219844
12241945
139.23
132.5
100
6500000
2414833
5000000
2749533
159.9
115.15
130
87.83
100
100
4851840
2823072
122.12
171.9
100
13766673
10572605
138.17
130.2
100
145.94
2453171
1669340
145.94
147
100
139.23
16219844
12241945
139.23
132.5
100
TOTAL
LIABILITIES
NET ASSETS
139.23
REPRESENTED BY
SHAREHOLDERS EQUITY
Share capital
159.9
Reserves
115.15
Unappropriated
122.12
profit
138.17
Surplus on
revaluation of
assets - net of tax
TOTAL
EQUITY
HORIZONTAL ANALYSIS
BANK AL FALAH LIMITED
PROFIT & LOSS ACCOUNT
AS ON DEC 31 2008, 2007 & 2006
2008
Mark-up / return /
interest earned
Mark-up / return /
interest expensed
Net mark-up / interest
income
2007
2006
Horizontal Analysis
(Rupees in ‘000’)
2008
2007
2006
31046583
25783871
21191470
146.51
121.7
100
20331194
16620963
15232886
133.47
109.1
100
10715389
9162908
5958584
179.83
153.8
100
47
Sheikh Waqas Ahmed
Mc070400479
Final Project Finance FIN 619
Provision against nonperforming loans and
2035997
2370867
697690
291.82
339.8
100
0
0
0
advances - net
Provision for
diminution in value of
investment
Bad debts written off
directly
1479062
28298
5844
1537
1841.1
380.2
100
3,543,357
2,376,711
699,227
506.75
339.9
100
7,172,032
6,786,197
5,259,357
136.37
129
100
2,539,321
2,429,599
1,804,998
140.68
134.6
100
300,943
64,722
37,393
804.81
173.1
100
914,845
474,510
386,997
236.4
122.6
100
424,220
2053192
180751
234.7
1136
100
181,571
21530
27599
657.89
78.01
100
1,247,669
1,031,372
842,099
148.16
122.5
100
5,245,427
6,038,466
3,224,639
162.67
187.3
100
12,417,459
12,824,663
8,483,996
146.36
151.2
100
10,741,399
8,272,587
5,874,745
182.84
140.8
100
28,582
6,959
0
0
0
0
Net mark-up / interest
income after
provisions
Non mark-up /
interest income
Fee, commission and
brokerage income
Dividend income
Income from dealing in
foreign currencies
Gain on sale of
securities
Unrealized loss on
revaluation of
investments classifies
as held for trading
Other income
Total non-mark-up /
interest income
Non mark-up /
interest expense
Administrative
expenses
Provisions against offbalance sheet
48
Sheikh Waqas Ahmed
Mc070400479
Final Project Finance FIN 619
obligations
Other charges
Total non mark-up /
interest expenses
Profit before taxation
Taxation
- Current
- Prior years
- Deferred
Profit after taxation
Attributable to:
Unappropriated profit
brought forward
Transferred from
surplus on revaluation
of fixed assets - net of
tax
Profit available for
appropriation
122,758
9,565
43,306
283.47
22.09
100
10,622,739
8289111
5,918,051
179.5
0
100
1,794,720
4,535,552
2,565,945
69.944
0
176.8
0
100
0
1730051
221797
1014835
493419
1301301
1726810
0
321487
1405323
3130229
476226
100874
427902
803254
1962691
219.88
237.17
61.428
66.302
0
75.13
175
159.5
100
100
100
100
4851840
2823072
1886845
24586
24585
26074
94.293
94.29
100
6177727
5977886
3675610
168.07
162.6
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
49
Sheikh Waqas Ahmed
Mc070400479
F i n a l P r o j e c t F i n a n c e F I N 6 1 9
can be more easily compared, whether across the years for a single company or across
different companies.
VERTICAL ANALYSIS
HABIB BANK
BALANCE SHEET
AS ON AS ON DEC 31 2008, 2007 & 2006
50
S h e i k h W a q a s A h m e d
M c 0 7 0 4 0 0 4 7 9
(Rupees in ‘000’)
Vertical Analysis
Final Project Finance FIN 619
2006
2008
2007
2006
2008
2007
56533134
55487664
46310478
7.4589
8.019
7.8454
39307321
27020704
35965048
5.1862
3.905
6.0928
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
Operating
35419252
27346111
17765291
4.6732
3.952
3.0096
14751252
13780555
11954876
1.9463
1.991
2.0252
11222444
6613372
2725486
1.4807
0.956
0.4617
757928389
691991521
590291468
100
100
100
ASSETS
Cash and
balances with
treasury banks
Balances with
other banks
Lending to
financial
institutions
fixed assets
Deferred tax
asset
TOTAL
ASSETS
LIABILITIES
Bills payable
Borrowings
from financial
institutions
Deposits and
other accounts
Sub-ordinate
loans
Liabilities
9944257
15418230
5737457
1.312
2.228
0.972
46844890
58994609
56392270
6.1806
8.525
9.5533
597090545
531298127
78.779
76.78
77.782
3954925
3100000
0
0.5218
0.448
24913236
19943126
15578177
3.287
2.882
2.6391
-------
-----------
--------90.081
90.86
90.946
9.919
9.14
9.054
45914019
8
against assets
subject to
finance lease
Other liabilities
Deferred tax
liability
TOTAL
53684810
628754092
LIABILITIES
2
51
75180436 S h e i k63237429
NET ASSETS
h W a q a s A h53443366
med
Mc070400479
REPRESENTED BY
682747953
Shareholders Equity
Final Project Finance FIN 619
VERTICAL ANALYSIS
HABIB BANK
CONSOLIDATED PROFIT & LOSS ACCOUNT
AS ON DEC 31 2008, 2007 & 2006
2008
2007
(Rupees in ‘000’)
Mark-up / return /
2006
Vertical Analysis
2008
2007
2006
63,305,033
50,481,021
43,685,740
100
100
100
26,525,556
19,153,957
13,204,037
41.901
37.94
30.225
36,779,477
31,327,064
30,481,703
58.099
62.06
69.775
6,904,919
8,238,227
2,863,207
10.907
16.32
6.5541
372,598
(54,626)
(45,438)
0.5886
-0.108
-0.104
1,909,887
(84,310)
(13,697)
3.017
-0.167
-0.031
----------
----------
-------------
0
0
0
9,187,404
8,099,291
2,804,072
14.513
16.04
6.4187
interest income
27,592,073
23,227,773
27,677,631
43.586
46.01
63.356
after provisions
Fee, commission
4,518,408
3,420,051
3,931,710
7.1375
6.775
9
interest earned
Mark-up / return /
interest expensed
Net mark-up /
interest income
Provision against
non-performing
loans and
advances - net
Charge / (reversal)
against offbalance sheet
obligations
Charge / (reversal)
of provision
against diminution
in the value of
investments
Bad debts written
off directly
Net mark-up /
and brokerage
52
Sheikh Waqas Ahmed
Mc070400479
F i n a l P r o j e c t F i n a n c e F I N 6 1 9
income
Income / gain on
2,369,233
2,472,663
1,219,623
3.7426
4.898
2.7918
2,374,318
1,487,374
1,102,358
3.7506
2.946
2.5234
investments in
4,000,330
-------
0
6.3191
0.3162
0
associate
Other income
3,116,522
2,643,076
2,235,805
4.923
5.236
5.1179
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
21,348,016
18,297,279
15,425,461
33.722
36.25
35.31
200,163
276,111
122,510
0.3162
0.547
0.2804
64,751
85,152
54,898
0.1023
0.169
0.1257
0.5111
0
0
investments
Income from
dealing in foreign
currencies
Gain on
Total non-markup / interest
income
Non mark-up /
interest expense
Administrative
expenses
Other provisions /
write offs - net
Other charges
Workers welfare
fund
Total non mark-up
/ interest expenses
Profit before
taxation
Taxation
- Current
- Prior years
- Deferred
Profit after
taxation
Attributable to:
Equity holders of
323,575
21,936,505
18,106,32
15,602,869
34.652
0
35.716
22,034,379
15,144,617
18,840,487
34.807
30
43.127
8,661,15
233,100
(2,473,891)
6,420,359
7,220,717
1,668,562
(3,828,699)
10,084,037
7,144,846
(39,067)
(965,607)
12,700,315
0
0.3682
-3.908
10.142
14.3
3.305
-7.584
19.98
16.355
-0.089
-2.21
29.072
15,614,020
10,084,037
12,700,315
24.665
19.98
29.072
15,535,011
10,000,231
12,630,259
24.54
19.81
28.912
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the Bank
Minority interest
Basic and diluted
earnings per share
79,009
15,614,020
83,806
10,084,037
70,056
12,700,315
0.125
24.66
0.17
20
0.16
29.07
20.47
13.18
18.30
3.23
2.61
4.189
VERTICAL ANALYSIS
BANK AL FALAH LIMITED
BALANCE SHEET
AS ON DEC 31 2008, 2007 & 2006
Years
(Rupees in ‘000’)
2008
2007
Vertical Analysis
2006
ASSETS
Cash and
balances with
treasury banks
Balances with
other banks
Lending to
financial
institutions
Investments
Advances
2008
2007
2006
32987335
29436378
27859360
9.4522
8.95
10.105
21581043
18380738
12731952
6.1838
5.589
4.6183
3315500
3452059
12456653
0.95
1.05
4.5184
75973238
192671169
88491564
171198992
56502210
144999325
21.769
55.208
26.91
52.05
20.495
52.596
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Operating
13773293
11922324
10502990
3.9466
3.625
3.8098
8989186
6013097
5633051
2.5758
1.828
2.0433
348990764
328895152
275685541
100
100
100
3452031
4138243
3091135
0.9891
1.258
1.1213
13690222
21230697
8394130
3.9228
6.455
3.0448
300732858
273173841
239509391
86.172
83.06
86.878
2571169
3220858
3222106
0.7367
0.979
1.1688
208465
1379809
1921338
0.0597
0.42
0.6969
11291280
9531860
7305496
3.2354
2.898
2.6499
331946025
312675308
263443596
95.116
95.07
95.559
NET ASSETS
17044739
REPRESENTED BY:
16219844
12241945
4.884
4.93
4.441
6500000
2414833
5000000
2749533
2.291
0.907
1.98
0.73
1.814
0.997
4851840
2823072
0.988
1.48
1.024
13766673
10572605
4.186
4.19
3.835
2453171
1669340
0.698
0.75
0.606
fixed assets
Other assets
TOTAL
ASSETS
LIABILITIES
Bills payable
Borrowings
from financial
institutions
Deposits and
other accounts
Sub-ordinate
loans
Liabilities
against assets
subject to
finance lease
Deferred tax
liability
Other liabilities
TOTAL
LIABILITIES
Shareholders Equity
Share capital
7995000
Reserves
3166056
Unappropriated
3447467
profit
14608523
Surplus on
revaluation of
2436216
assets - net of tax
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TOTAL
EQUITY
17044739
16219844
12241945
4.884
4.93
4.441
VERTICAL ANALYSIS
BANK AL FALAH LIMITED
PROFIT & LOSS ACCOUNT
AS ON DEC 31 2008, 2007 & 2006
2008
Mark-up / return / interest
earned
Mark-up / return / interest
expensed
Net mark-up / interest
income
Provision against nonperforming loans and
advances - net
Provision for diminution
in value of investment
Bad debts written off
directly
Net mark-up / interest
income after provisions
Non mark-up / interest
2007
2006
Vertical Analysis
(Rupees in ‘000’)
2008
2007
2006
31046583
25783871
21191470
100
100
100
20331194
16620963
15232886
65.486
64.46
71.882
10715389
9162908
5958584
34.514
35.54
41.23
2035997
2370867
697690
6.55
9.195
3.2923
4.76
0
0
1479062
28298
5844
1537
0.091
0.023
0.0073
3,543,357
2,376,711
699,227
11.413
9.218
3.2996
7,172,032
6,786,197
5,259,357
23.101
26.32
24.818
2,539,321
2,429,599
1,804,998
8.1791
9.423
8.5176
300,943
64,722
37,393
0.9693
0.251
0.1765
income
Fee, commission and
brokerage income
Dividend income
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Income from dealing in
914,845
474,510
386,997
2.9467
1.84
1.8262
424,220
2053192
180751
1.3664
7.963
0.8529
181,571
21530
27599
0.5848
0.084
0.1302
1,247,669
1,031,372
842,099
4.0187
4
3.9738
5,245,427
6,038,466
3,224,639
16.895
23.42
15.217
12,417,459
12,824,663
8,483,996
1357.3
2703
2192.3
expense
Administrative expenses
Provisions against off-
10,741,399
8,272,587
5,874,745
5915.8
38424
21286
balance sheet obligations
Other charges
Total non mark-up /
28,582
6,959
0
2.2908
0.042
0
122,758
9,565
43,306
2.3403
0.058
1.343
10,622,739
8289111
5,918,051
85.547
49.87
69.755
1,794,720
4,535,552
2,565,945
1726810
0
321487
1405323
3130229
476226
100874
427902
803254
1962691
27.29
0
6.697
0
1.247
5.45
12.14
12.108
0
1730051
221797
1014835
493419
1301301
5.7807
0
5.5724
0.7144
3.2687
1.5893
4.1914
4851840
2823072
1886845
24586
24585
26074
0.0792
0.095
0.123
6177727
5977886
3675610
19.898
23.18
17.345
foreign currencies
Gain on sale of securities
Unrealized loss on
revaluation of investments
classifies as held for
trading
Other income
Total non-mark-up /
interest income
Non mark-up / interest
interest expenses
Profit before taxation
Taxation
- Current
- Prior years
- Deferred
Profit after taxation
Attributable to:
Unappropriated profit
brought forward
Transferred from surplus
on revaluation of fixed
assets - net of tax
Profit available for
appropriation
3. Review of Descriptive Information
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0.476
2.0192
3.7905
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Final Project Finance FIN 619
Habib Bank Limited:
These financial statements have been prepared in accordance with approved accounting
standards as applicable in Pakistan. 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 and the directives issued by State Bank of Pakistan (SBP). 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.
Amended IAS 27 Consolidated and Separate Financial Statements (effective for annual
periods beginning on or after 1 July 2009) requires accounting for changes in ownership
interest by the group in a subsidiary, while maintaining control, to be recognized as an
equity transaction. When the group loses control of subsidiary, any interest retained in the
former subsidiary will be measured at fair value with the gain or loss recognized in the
profit or loss. The application of the standard is not likely to have an effect on the
Group's financial statements. The auditors conducted their audit in accordance with the
auditing standards as applicable in Pakistan. These standards require that they plan and
perform the audit to obtain reasonable assurance about whether the above said statements
are free of any material misstatement. And in their opinion the consolidated financial
statements present fairly the financial position of Habib Bank Limited as at December 31,
2006, 2007 & 2008 and the results of its operations, its cash flows and changes in equity
for the year then ended in accordance with the approved accounting standards as
applicable in Pakistan.
Bank Al Falah Limited:
The financial statements prepared by the management, present fairly its state of affairs,
the results of its operating cash flow and changes in equity. All directors of the company
are registered as tax payers and none of them has default in payments of any loan to a
banking company. The auditors perform their audit in accordance with the auditing
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standards as applicable in Pakistan. These standards require that they plan and perform
the audit to obtain reasonable assurance about whether the above said statements are free
of any material misstatement. And in their opinion the consolidated financial statements
present fairly the financial position of Habib Bank Limited as at December 31, 2006,
2007 & 2008 and the results of its operations, its cash flows and changes in equity for the
year then ended in accordance with the approved accounting standards as applicable in
Pakistan.
The board of directors through its sub committee called Board Risk Management
Committee (BRMC) oversees the overall risk of the bank. RMD is the organizational arm
performing the functions of identifying, measuring, monitoring and controlling the
various risks and assists the Apex level committee and the various sub- committees in
conversion of policies into action.
Credit risk Management processes encompasses identification, assessment, measurement,
monitoring and control of the credit exposures. The bank, as per State Bank of Pakistan
Guidelines, has migrated to baseII as on January, with the standardized approach.
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.
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TREND ANALYSIS
HABIB BANK LIMITED
FOR THE YEARS 2006, 2007 & 2008
Performance Area
2006
2007
2008
1.20
1.19
1.16
0.5 times
0.5 times
0.6 times
95155274
104938111
100006655
2.43
1.79
1.83
0.91
0.91
0.9
11.88
11.42
9.58
1.78
1.66
1.33
0.56
0.53
0.42
0.26
0.33
0.51
0.02
0.008
0.0083
29.07%
19.97%
24.66%
57.9%
48%
59.6%
Trend
a) Liquidity Ratios
Current Ratio
Sales to Working Capital
Working Capital
Lower liquidity in
2008
Increase in 2008
Lower liquidity in
2008
b) Leverage Ratios
Time Interest Earned
Debt Ratio
Debt to Equity Ratio
Current Worth / Net worth
Ratio
Total Capitalization Ratio
Long term Assets versus Long
term Debt
Debt Coverage Ratio
Lower since 2008
Leverage remain
same
Drops in leverage in
2008
Higher in 2006
Lower during 2008
Drops in leverage in
2006
Lower coverage in
2006
c) Profitability Ratios
Net Profit Margin
Operating Income Margin
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Lower profitability
during 2007
Increased Profitability
since 2008
F i n a l P r o j e c t F i n a n c e F I N 6 1 9
Return on Assets
Operating Assets Turnover
Return on Operating Assets
Sales to Fixed Assets
2.27%
1.57%
2.15%
192.7%
192.7%
174.70%
13.48%
10.37%
11.19%
3.65 times
3.66 times
3.66 times
0.07
0.07
0.08
1.0019
2.0014
3.597
18.41
14.61
20.57
0.54
0.68
0.49
0.0544
0.137
0.175
0.10019
0.20014
0.3597
6.5
7.98
9.39
0.033
0.089
0.027
25.87
81.48
24.02
Lower ROA during
2007
Lower efficiency
since 2008
Lower efficiency in
2007
No change in last 3
years
d) Activity Ratios:
Total Asset Turnover
Higher efficiency
since 2008
e) Market Ratios:
Dividend per Share – DPS
Earning Per Share- EPS
Price / Earning Ratio
Dividend Payout Ratio
Dividend Yield
Book Value per Share
Good market
perceptions
Higher In 2008
Lower in 2008
Good market
perceptions
Lower in 2006
Good market
perceptions
f) Statement of cash flow
Operating Cash Flow to Total
Debt
Operating Cash Flow per
Share
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Lower in 2006
Increased during 2007
F i n a l P r o j e c t F i n a n c e F I N 6 1 9
TREND ANALYSIS
BANK AL FALAH LIMITED
FOR THE YEARS 2006, 2007 & 2008
Performance Area
2006
2007
2008
Trend
1.06
1.10
1.06
1.38
0.85
1.57
Increase in 2008
15276529
30128884
19741302
Lower liquidity in
a) Liquidity Ratios
Current Ratio
Sales to Working Capital
Working Capital
Higher liquidity in
2007
2006
b) Leverage Ratios
Time Interest Earned
1.16
1.27
1.08
0.95
0.95
0.95
Debt to Equity Ratio
24.91
22.71
22.72
Current Worth / Net worth
1.247
Ratio
Total Capitalization Ratio
0.56148790
0.65233950
9
9
1.01
0.46
Debt Ratio
Lower since 2008
Leverage remain
same
Drops in leverage in
2008
Long term Assets versus
1.85
Long term Debt
1.15
Higher during 2007
0.5299458
Increased during
2007
0.63
Higher during
leverage in 2006
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Debt Coverage Ratio
0.05532186
0.04835063
9
3
0.0508531
Lower coverage in
2007
c) Profitability Ratios
Net Profit Margin
Operating Income Margin
0.08%
0.12%
0.68773860
0.58633744
4
3
0.04%
0.5437148
Lower profitability
during 2006
Increased
Profitability since
2006
Return on Assets
Operating Assets Turnover
Return on Operating Assets
Sales to Fixed Assets
0.01277618
0.01035504
5
1
2.41%
2.31%
2.19%
0.034
0.052
0.019
2.017 times
2.16 times
2.25 times
0.07
0.07
0.08
00
00
3.525
4.815
1.627
Higher In 2007
0.54
0.68
0.49
Lower in 2008
00
00
0.74
00
00
0.121
2.11
2.11
1.82
0.0038393
Lower ROA during
2007
Lower efficiency
since 2008
Lower efficiency in
2008
Lower in 2006
d) Activity Ratios:
Total Asset Turnover
Higher efficiency
since 2008
e) Market Ratios:
Dividend per Share – DPS
Earning Per Share- EPS
Price / Earning Ratio
Dividend Payout Ratio
Dividend Yield
Book Value per Share
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1.21
Dividend announced
just in 2008
Good market
perceptions
No Dividend in 2006
& 2007
Good market
perceptions
F i n a l P r o j e c t F i n a n c e F I N 6 1 9
f) Statement of cash flow
Operating Cash Flow to Total
Debt
Operating Cash Flow per
Share
0.029
0.126
0.007
15.70
60.99
3.12
Lower in 2008
Increased during
2007
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
c) Summary
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. Therefore, I select this topic, so that I have
done some solid financial analysis that will certainly help the management of review their
performance and also assist the interested people like investors and creditors. 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
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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.
d) Conclusion / Findings:
I compare and analysis the financial statements of Habib Bank Limited and Bank Al
Falah Limited.
 Liquidity position of both companies is not up to standard, both are below
industry average, but the liquidity position of Habib Bank is better from Bank
AL Falah Limited. Working capital of Habib Bank is better than Bank La
Falah, but both companies must improve their liquidity position.
 Leverage ratios indicate the high risk associated with both the companies.
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 Habib Bank Limited are better than Bank AL Falah
Limited. Net profit of Bank Al falah Limited is low due to heavy financial
charges.
 Habib Bank has a good market perception due to continuous declaration of
dividends but on the other hand Bank LA Falah limited has not announced in
dividend in the year 2006 and 2007.
 Book value per share of Habib Bank Limited is much higher than the Al
Falah Bank. 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. So the net worth
of Habib Bank is better than Al Falah Bank.
 Earning per Share and Operating cash flow of Habib Bank Limited is also
better than Bank AL Falah Limited.
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e) Recommendation
This section deals with your proposed solutions or plans to cover and remove all the ills
and deficiencies that you think (in light of data processing and analysis) needs to be removed
or improved. Recommendations should be vivid, lucid and based on your findings. They
must be logical and applicable.
Section II
a) Introduction of the student
� B.com (2 Years)
� Warsan Homoeopathic Laboratories
� Assistant Accounts Officer
� 2 Years Experience
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b) Appendix/Appendices
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II
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III
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IV
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V
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VI
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F i n a l P r o j e c t F i n a n c e F I N 6 1 9
VII
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F i n a l P r o j e c t F i n a n c e F I N 6 1 9
VIII
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F i n a l P r o j e c t F i n a n c e F I N 6 1 9
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XII
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F i n a l P r o j e c t F i n a n c e F I N 6 1 9
XIII
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XIV
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XVI
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XVII
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XVIII
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XIX
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c) Bibliography
• Vu hand Outs
• Internet sources
• www.investopedia.com
• www.bankalhabib.com
• www.habibbankltd.com
• http://www.canadaone.com/tools/ratios/debt_equity.html
• Financial Statement Analysis: A Practitioner's Guide, 3rd Edition.
• Ross, S.A., R.W. Westerfield and B.D. Jordan. Essentials of Corporate Finance
(1999), 2nd Edition, Irwin/McGraw-Hill.
• Ross, S.A., R.W. Westerfield and J. Jaffe. Corporate Finance (1999), 5th Edition,
Irwin/McGraw-Hill.
• Scott, D.F., J.D. Martin, J.W. Petty and A. Keown. Basic Financial Management
(1999), 8th Edition, Prentice-Hall, Inc.
d) Index
An index is an alphabetical list of names, places and subjects mentioned in the report,
along with the page on which they occur. They are rarely included in unpublished
reports.
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