8.

Financial Analysis of BOP

Horizontal analysis
2012
Rs. (000)
ASSETS:
Cash and Balances with treasury
Banks
Balances with other Banks
Lending's to financial institutions
Investments
Advances
Other assets
Operating fixed assets
Deferred Tax assets

2013
Rs. (000)

8.52

3,722,089
11,846,823
28,233,211
101,319,954
3,609,457
2,068,744
----------

2.26
7.18

0.82
1.04

164,855,137 100

234,990,675 100

185,892,973

100

Bills payable
Borrowings from financial institutions
Deposits and Other accounts
Subordinated Loans
Liabilities against assets subject to
finance lease
Other liabilities
Deferred Tax liabilities
Total Liabilities

856,448
6,989,424
137,727,606
-----40,988

937,647
17,842,915
191,968,377
-------40,321

0.66
6.74
90.06

0.01

1,219,801
12,278,773
164,071,732
----30,632

2,983,977
1.38
2,205,530
1.02
215,978,767 100

4,564,481
------182,165,419

2.50

Net Assets

16,125,714

10.84

19,011,908

8.80

3,727,554

2.04

Share Capital
Reserves
Un-appropriate Profit
Total Equity

2,902,490
4,537,732
3,219,246
10,658,968

27.23
42.57
30.20

27.97

100

4,230,379
7,427,232
3,468,956
15,126,567

Surplus on Revaluation of Assets

5,466,746

51.28

3,885,341

25.68

1,927,662
2,450,000
17.13 73,461,693
61.46 133,899,143
2.19 5,789,116
1.25 3,252,759
---------

6.04

10,685,058

14,054,859

Total Assets

14,210,302

2014
Rs. (000)

2,178,455
633,333
31.26 22,689,608
56.9 131,724,113
2.46 6,122,406
1.38 3,471,838
8,388,162

5.74
1.17
0.34
12.20
70.9
3.29
1.86
4.51

LIABILITIES
0.57
4.70
92.6
0.02

2,816,341
1.89
298,616
0.2
148,729,423 100

0.43
8.26
88.9

0.01

100

Represented By:

5,287,974
49.1 7,427,232
22.93 (7,674,257)
100 5,040,949
(1,313,395 )

104.9
147.7
100

Vertical Analysis
2012
Rs. (000)
ASSETS:
Cash and Balances with treasury
Banks
Balances with other Banks
Lending's to financial institutions
Investments
Advances
Other assets
Operating fixed assets
Deferred Tax assets

2013
Rs. (000)

2014
Rs. (000)

14,054,859

100

14,210,302

101.1

10,685,058

3,722,089
11,846,823
28,233,211

100
100

51.7
20.6

100

1,927,662
2,450,000
73,461,693

2,178,455
633,333
22,689,608

76.0
2
58.5
5.34
80.3

101,319,954

100

133,899,143

131,724,113

130.0

3,609,457
2,068,744
----------

100
100

5,789,116
3,252,759
---------

157.23

6,122,406
3,471,838
8,388,162

169.6
167.8

164,855,137

100

234,990,675

142.5

185,892,973

100

856,448
6,989,424

100
100

937,647
17,842,915

109.4

1,219,801
12,278,773

142.4

137,727,60
6
-----40,988

100

191,968,37
7
-------40,321

139.3

164,071,732

119.12

98.3

----30,632

74.73

2,816,341
298,616

2,983,977
2,205,530

103.7
738.5

148,729,423

100
100
100

215,978,767

145.21

Net Assets

16,125,714

100

19,011,908

Represented By:
Share Capital
Reserves
Un-appropriate Profit
Total Equity

2,902,490
4,537,732
3,219,246
10,658,968

100
100
100

Surplus on Revaluation of Assets

5,466,746

Total Assets

260.1
132.1
160.1

LIABILITIES
Bills payable
Borrowings from financial
institutions
Deposits and Other accounts
Subordinated Loans
Liabilities against assets subject to
finance lease
Other liabilities
Deferred Tax liabilities
Total Liabilities

100

255.28

175.67

4,564,481
------182,165,419

162.1

117.89

3,727,554

23.11

145.5
134.9

5,287,974
7,427,232
(7,674,257)
5,040,949

104.9
147.7

100

4,230,379
7,427,232
3,468,956
15,126,567

100

3,885,341

710

103.3
141.91

(1,313,395 )

122.4

100

Ratio Analysis
Ratio analysis is helpful to the management of the organization as well as for the investors
and creditors. An investor keeps an eye on the companys financial statement and makes
decisions whether to invest funds in that company or not. Similarly a creditor also analysis
the financial statements and makes decisions whether to grant loan or not.

Ratios
In order to analysis the financial performance of the bank, investors and management use the
ratio analysis in which following ratios are calculated:
1.
2.
3.
4.
5.

Liquidity Ratios
Leverage Ratios
Profitability Ratios
Activity Ratios
Market Ratios

Liquidity Ratios
Liquidity ratios means to measure short term solvency of the company. Ability of the
company to pay off its short term debt. Following ratios are calculated in order to measure
the short term solvency of the company

Current Ratio
Acid Test Ratio
Working Capital

Current Ratio
Current Assets = Cash and Balance with Treasury Banks + Balance with other Banks
+Lending to Financial Institution + Short Investment + Short
Advances + Other Assets
Current Liabilities = Bill Payables + Short Borrowing + Short Deposit + Other
Liabilities
Current Ratio = Current Assets / Current liabilities
Year 2012
Year 2013
Year 2014
=Rs.122,347,224
/
Rs. =Rs.173,120,729/
=Rs.128,967,953/
94,274,512

Rs.140,202,371

= 1.3 : 1

= 1.23 : 1

Rs.107,914,057
= 1.19 : 1

Explanation:
The standard of this ratio is 2:1, means current assets are twice the current liabilities. But
Bank of Punjab has a lower current ratio to the standard rate. In 2012 it was 1.3, in 2013, 1.23
and in 2014 it will be 1.19 which is more than the 2007 but lesser the 2006.

Acid Test Ratio

Current Assets = Cash and Balance with Treasury Banks + Balance with other Banks
+Lending to Financial Institution + Short Investment + Short
Advances + Other Assets
Current Liabilities = Bill Payables + Short Borrowing + Short Deposit + Other
Liabilities
Prepaid expenses = Advances, deposits, advance rent and other prepayments
Acid Test Ratio = Current Assets (Inventories + prepayments) / Current liabilities
Year 2012
Year 2013
Year 2014
= Rs.122, 347, 224- Rs.102,
= Rs.173, 120,729- Rs.
=Rs. 128,967,953-Rs.161,553/
571/Rs. 94,274,512
159,438/ Rs. 140,202,371
Rs. 107,914,057
= 1.29
= 1.23
= 1.19

Explanation:
As the Acid test ratio from year 2012 to 2014 is: Rs.1.29, Rs. 1.23 and Rs 1.19
Respectively. In all three years acid test ratio is slight more than is standard ratio.
It must be 1:1 in order to proof the short term solvency of the bank to pay off
is short term bank.

Working capital
1

Working Capital = Current Assets Current Liabilities

Year 2012

Year 2013

Year 2014

=Rs.122,347,224-Rs.
94,274,512

=Rs.173,120,729- Rs.
140,202,371

=Rs. 128,967,953
Rs.107,914,057

= Rs.28,072,712

= Rs.32,918,358

= Rs.21,053,896

Explanation:
The working capital is rapidly increasing from 2012 to 2013. Because the current assets of
BOP are rapidly, increase. In 2008 it declined but not in a rapid as it grow 2012 to 2013.

Leverage Ratios
These ratios show the capital structure of the firm. Through these ratios we find that how the
firm finance their activities. It is more important for the lender to assess that the firm can
repay the loan amount ort not. Increasing debt increases the likelihood of bankruptcy of the
firm. Following ratios falls under this category,
Time Interest Earned
Debt Ratio
Debt to Equity Ratio
Debt to Tangible Net Worth
Total Capitalization Ratio

Time Interest Earned Ratio:

Time Interest Earned = Profit before tax + Interest Expense (EBIT) / Interest Expense
Year 2012
Year 2013
Year 2014
=Rs.4,768,721/Rs.7,573,72 =Rs.4,855,569/Rs.13,939,37 =(Rs.16,832,906)/Rs.16,614,00
2
7
0
= 0.63
= 0.35
= -1.01

Explanation:
The Time Interest Earned Ratio of BOP is not better. The ratio is consistently is declining
even in 2014 it went negative. This graph is showing that the bank EBIT is not enough to
cover its interest expenses.

Debt Ratio
1

Total Debt

= Bills Payable + Borrowings from financial institutions + Deposits &

other accounts + Subordinate Loans + Liabilities against assets subject
to finance lease + deferred tax liabilities+ Other liabilities
Total Assets = Given in the Balance Sheet
Debt Ratio = (Total Debt / Total Assets) * 100
Year 2012
Year 2013
Year 2014
=Rs.148,729,423/Rs.164,855,137 =Rs.215,978,767/Rs.234,990,675 =Rs.182,165,419/Rs.185,909,120
= 90.21%

= 91.90%

= 97.99%

Explanation:
Debt ratio is measure of debt with the total assets. The graph shows that the debt ratio is
consistently increasing that indicates the dependence on debt is increasing and in 2014 it is at
the higher level. From 2012 to 2014 it rapidly increased. In 2014 the total Debt was the
almost 97% of Total Assets.

Debt / Equity Ratio

Total Debt

= Bills Payable + Borrowings from financial institutions + Deposits &

other accounts + Subordinate Loans + Liabilities against assets subject
to finance lease + deferred tax liabilities+ Other liabilities
Total Equity = Share Capital + Reserves + Un-appropriated Profit
Debt to Equity Ratio = Total Debt / Total Equity
Year 2012
=Rs.148,729,423/Rs.10,658

Year 2013
=Rs.215,978,767/Rs.15,126

Year 2014
=Rs.182,165,419/Rs.5,040,

,968

,567

949

= 14.27

= 36.13

= 13.95

Explanation:
As we already observed that the debt is increasing, in this graph we compare it with the
equity. We find the consistent increase in the debt to equity ratio. In 2014 it was at the higher
level. The debt exceeded the equity.

Debt to Tangible Net Worth

Tangible Net Worth
1

= Total Assets Liabilities Intangible Assets

Debt to Tangible Net Worth = Total Debt / Tangible Net Worth

Year 2012
Year 2013
Year 2014
=Rs.145,614,466/Rs.16,095 =Rs.210,789,260/Rs.18,993 =Rs.177,601,738/Rs.3,735,
,248

,725

613

= 9.05

= 11.10

= 47.54

Explanation:
As the graph is showing that the debt to tangible net worth ratio is increasing. From 2012 to
2013 it slightly increased but from 2012 to 2014 it rapidly increased due to the increase in
debt. So the BOP has not Net Tangible Net Worth to cover the Debt.

Total capitalization Ratio

Total Capitalization Ratio =

Year 2012

Long Term Debt

Long Term Debt + Shareholder's Equity

Year 2013

=Rs.36,296,156/ Rs.46,955,124

=Rs.55,571,712/Rs. 70,698,279

= 0.7729 Times

= 0.7860 Times

Year 2014
=Rs. 46,755,209/
Rs.51,796,158
= 0.9026 Times

Explanation:
The total capitalization ratio compares the total debt with the sum of debt and equity. The low
capitalization ratio indicates the financial fitness of the firm. According to the graph, I can see
that the ratio in 2014 is higher. In 2014, it was at the lowest level in selected years.

Profitability Ratios
Profitability ratios measure the earning ability of the firm. Following ratios are calculated:
Net Profit Margin
Return on Assets
1

DuPont Return on Assets

Operating Income Margin
Return on operating Assets
Return on Total Equity
Gross Profit Margin

Net Profit Margin

Net Profit = Profit after Taxation
Total Revenue = Markup/ return/interest earned
Net Profit Margin = Net Profit / Total Revenue
Year 2012
Year 2013
Year 2014
= Rs.3,804,255 / Rs.11,643,963 = Rs.4,454,018 / Rs. 17,539,538 =
(Rs.10,084,940)
= 32.67%

= 25.39%

Rs.17,752,652
= -56.81%

Explanation:
The net profit margin is declining from 2012 to 2014, as shown in graph. In 2012 the net
profit margin is 32.67% which is higher in selected three years. After this it start to decline
and in 2014 The Bank of Punjab has to bear a loss.

Return on Assets
Net Profit = Profit after Taxation
Total Assets = Given in the Balance Sheet

Year 2012
Rs.3,804,255

ROA = Net Income / Total Assets

Year 2013
/ =
Rs.4,454,018
/ =

Year 2014
(Rs.10,084,940)/

Rs.164,855,137

Rs.234,990,675

Rs.185,892,973

= 2.31%

= 1.895%

= -5.425%

Explanation:
It is simple Return on Assets, which calculate through net income, and total assets but the
result is same as in Du-Pont ROA. It is showing the consistent decline in the return on Assets.

Operating Income Margin

Operating Income Margin = Earnings Before tax + interest expenses / Total Revenue
Year 2012
Year 2013
Year 2014
=Rs.4,768,721/Rs.11,643,963 =Rs.4,855,569/Rs.17,539,53 =( Rs.2,443,41)/Rs.17,752,652
= 40.95%

= -1.376%

= 27.68%

Explanation:
Graph show a decline in the revenues. In 2012 BOP generate enough revenue but in 2014 the
provision pf non performing loans decline the profit even it went in negative which is
-94.96%.

Return in Total Equity

Average Stockholder Equity = Share Capital + Reserves + Un-appropriated Profit
ROE = (Net Income / Average Stockholder Equity) * 100
Year 2012
Year 2013
Year 2014
=Rs.3,804,255/Rs.10,658,96 =Rs.4,454,018/Rs.15,126,56 =(Rs.10,084,940)/Rs.5,040,94
8

= 35.69%

= 29.45%

= -200.06%

Explanation:
Return on Owners Equity in the year 2012 is 35.69%, in the year 2013 is 29.35% and in the
year 2014 is -200.6% which shows an decreasing trend to a lesser extent from year on year
basis as well as it is not meet the standard of banking industry.

Gross Profit Margin

Gross Profit Margin = (Gross Profit / Total Revenue) * 100
1

Year 2012
Year 2013
=Rs.4,070,241/Rs.11,643,963 =Rs.3,600,161/Rs.17,539,53

Year 2014
=Rs.1,138,652/Rs.17,752,65

= 34.96%

= 20.53%

= 6.41%

Explanation:
This ratio also shows the decline in revenue of BOP. In 2012 it nearly 35% but after 2012 it
start to decline and in 2014 it merely 6.41%. Because the revenue of the BOP declines so the
Gross Profit automatically decline.

Activity Ratios
Activity ratios measure a firms ability to convert different accounts within their balance
sheets into cash or sales.

Total Assets Turnover

Fixed Assets Turnover

Total Assets Turnover

Total Assets Turnover Ratio = Interest or Markup / Total Assets
Year 2012
Year 2013
Year 2014
=Rs.11,643,963/Rs.164,855, =Rs.17,539,538/Rs.234,990, =Rs.17,752,652/Rs.185,892,
137

675

973

= 0.071 times

= 0.075 times

= 0.095 times

Explanation:
Total Asset turnover ratio measures the firms effectiveness in generating the revenue from its
investments in total assets. The graph is showing the increase in the total assets turnover ratio.
But its not real growth because when we analyze the Financial Statements of BOP we find
that in 2013 the income and assets increased so the ratio also increased but in 2014 income
decreased whereas the assets decrease with more ratio. So this factor caused the increase in
the total assets turnover in 2014.

Fixed Assets Turnover

Fixed Assets Turnover Ratio = Interest or Markup / Fixed Assets
Year 2012
Year 2013
Year 2014
=Rs.11,643,963/Rs.2,068,744 =Rs.17,539,538/Rs.3,252,75 =Rs.17,752,652/Rs.3,471,83
= 5.63 times

= 5.39 times

= 5.11 times

Explanation:
The fixed asset turnover ratio measures the company's effectiveness in generating sales from
its investment in fixed assets. The graph shows the decline in fixed assets turnover. It means
that the generation of revenue on the fixed assets is declining. The Bank of Punjab is not
using its fixed assets effectively.

Market Ratios
Market ratios are commonly used by the investors to access the performance of a business as
an investment and also the cost of issuing stock.

Dividend per share

Earning per Share
Price / Earning Ratio

Dividend per share

Dividend per share =

Dividend paid to Shareholders / Number of shares outstanding

Note: Bank of Punjab has not paid dividend so this ratio is not calculated

Earning Per Share

Earning Per Share = Net Income / Average No. of Shares Outstanding
Year 2012
Year 2013
Year 2014
=Rs.3,804,255,000/Rs.289,6 =Rs.4,454,018,000/Rs.423,0 =(Rs.10,084,940,000)/Rs.528,7
02,365

37,901

97,376

= Rs.13.14

= Rs.10.53

=Rs.(-19.07 )

Explanation:
The earning per share was 13.14 in 2012, which decrease in 2013, and was 10.53. But in
2014 due to loss the dividend per share went in negative its mean that in 2014 shareholders
have to bear a loss.

Price / Earning Ratio

Price to Earning Ratio = Market Price per Share / Earning per Share
Year 2012
Year 2013
Year 2014
= 101 / 13.14
= 97.85 / 10.53
= 13.20 / -19.07
= Rs.7.69

= Rs.9.29

= Rs.( -6.50)

Explanation:
The P/E ratio was 7.69 in 2012. In 2013, it increased due to the decline in market price so the
shares of BOP look more attractive in 2013 because the P/E ratio is higher but in 2014 as we
already have seen in DPS and EPS calculation the P/E ratio went in negative. In 2014, BOP
has to bear a loss so the DPS and EPS declined so the P/E ratio was also decreased