rawcm,jyoti n swati sec e

7/31/2019 Rawcm,Jyoti n Swati Sec e

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ABSTRACT

This technical note explains in detail the analysis of financial statements of a banking concerns. It

provides insights into two widely used financial tools, ratio analysis and working capitalmanagement. The objective of this note is to help the reader understand how these tools should beused to analyze the financial position of a firm. To demonstrate the process of financial analysis twoof the banks, YES bank and the AXIS bank, are analyzed in terms of ratio analysis and workingcapital management.

INTRODUCTION

Banking

The Indian banking system emerged relatively unscathed from the global economic downturn of 2008-09. While credit growth slowed down, banks were able to control the levelof non-performing assets (NPAs), thanks partly to the Reserve Bank of Indian allowing one-time restructuring of accounts. NPAs as a proportion of gross advances increased from 2.3 per cent as on March 31, 2009 and 2.5 per cent as the end of March 31, 2010. The government has supporting growth of public sector banksinfusing capital as per requirement. The government is expected to continue to maintain its strong support for the banking system, while simultaneously imposing prudential norms to ensure its orderlygrowth.Indian banking industry is considered to be very stable and very healthy balance sheet and low to

risky assets . The global financial crises did not affect the Indian bank significantly.Despite of recent growth of private banking, the sector is dominated by government controlledbanks that hold by three fourth of total bank assets.

FINANCIAL RATIO ANALYSIS

Financial ratio analysis involves the calculation and comparison of ratios which are derived from theinformation given in the company's financial statements. The historical trends of these ratios can beused to make inferences about a company's financial condition, its operations and its investmentattractiveness.

Financial ratio analysis groups the ratios into categories that tell us about the different facets of acompany's financial state of affairs. Some of the categories of ratios are described below through aflow chart:


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LIQUIDITY RATIOS

Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations. Theratios which indicate the liquidity of a company are Current ratio, Quick/Acid-Test ratio, and Cashratio. These ratios are discussed below.

CURRENT RATIO

Current ratio (CR) is the ratio of total current assets (CA) to total current liabilities (CL). Currentassets include cash and bank balances; inventory of raw materials, semi-finished and finishedgoods; marketable securities; debtors (net of provision for bad and doubtful debts); bills receivable;and prepaid expenses. Current liabilities consist of trade creditors, bills payable, bank credit,provision for taxation, dividends payable and outstanding expenses. This ratio measures theliquidity of the current assets and the ability of a company to meet its short-term debt obligation

Current Ratio = Current Assets / Current Liabilities

CR measures the ability of the company to meet its CL, i.e., CA gets converted into cash in theoperating cycle of the firm and provides the funds needed to pay for CL. The higher the currentratio, the greater the short-term solvency. While interpreting the current ratio, the composition ofcurrent assets must not be overlooked. A firm with a high proportion of current assets in the form ofcash and debtors is more liquid than one with a high proportion of current assets in the form ofinventories, even though both the firms have the same current ratio. Internationally, a current ratioof 2:1 is considered satisfactory.

LIQUIDITY RATIO TURNOVER RATIO

PROFITABILITY RATIO LEVERAGES RATIO

RATIOS

LIQUIDITY RATIO TURNOVER RATIO

PROFITABILITY RATIO LEVERAGES RATIO


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QUICK OR ACID-TEST RATIO

Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refers to those current

assets that can be converted into cash immediately without any value dilution. QA includes cashand bank balances, short-term marketable securities, and sundry debtors. Inventory and prepaidexpenses are excluded since these cannot be turned into cash as and when required.

Quick Ratio = Quick Assets / Current Liabilities

QR indicates the extent to which a company can pay its current liabilities without relying on the saleof inventory. This is a fairly stringent measure of liquidity because it is based on those currentassets which are highly liquid. Inventories are excluded from the numerator of this ratio because

they are deemed the least liquid component of current assets. Generally, a quick ratio of 1:1 isconsidered good. One drawback of the quick ratio is that it ignores the timing of receipts andpayments.

CASH RATIO

Since cash and bank balances and short term marketable securities are the most liquid assets of afirm, financial analysts look at the cash ratio. The cash ratio is computed as follows:

Cash Ratio = (Cash and Bank Balances + Current Investments) / Current Liabilities

The cash ratio is the most stringent ratio for measuring liquidity.

OPERATIONAL/TURNOVER RATIOS

These ratios determine how quickly certain current assets can be converted into cash. They arealso called efficiency ratios or asset utilization ratios as they measure the efficiency of a firm inmanaging assets. These ratios are based on the relationship between the level of activityrepresented by sales or cost of goods sold and levels of investment in various assets. The important

turnover ratios are debtors turnover ratio, average collection period, inventory/stock turnover ratio,fixed assets turnover ratio, and total assets turnover ratio. These are described below:

DEBTORS TURNOVER RATIO (DTO)

DTO is calculated by dividing the net credit sales by average debtors outstanding during the year. Itmeasures the liquidity of a firm's debts. Net credit sales are the gross credit sales minus returns, ifany, from customers. Average debtors is the average of debtors at the beginning and at the end ofthe year. This ratio shows how rapidly debts are collected. The higher the DTO, the better it is forthe organization.

Debtors Turnover Ratio = Net Credit Sales / Average Debtor


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AVERAGE COLLECTION PERIOD (ACP)

ACP is calculated by dividing the days in a year by the debtors' turnover. The average collectionperiod represents the number of day's worth of credit sales that is blocked with the debtors(accounts receivable). It is computed as follows:

Average Collection Ratio = Months (days) in a Year / Debtors Turnover

The ACP and the accounts receivables turnover are related as:

ACP = 365 / Accounts Receivable Turnover

The ACP can be compared with the firm's credit terms to judge the efficiency of credit management.For example, if the credit terms are 2/10, net 45, an ACP of 85 days means that the collection isslow and an ACP of 40 days means that the collection is prompt.

INVENTORY OR STOCK TURNOVER RATIO (ITR)

ITR refers to the number of times the inventory is sold and replaced during the accounting period. Itis calculated as follows:

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

ITR reflects the efficiency of inventory management. The higher the ratio, the more efficient is themanagement of inventories, and vice versa. However, a high inventory turnover may also resultfrom a low level of inventory which may lead to frequent stock outs and loss of sales and customergoodwill. For calculating ITR, the average of inventories at the beginning and the end of the year istaken. In general, averages may be used when a flow figure (in this case, cost of goods sold) isrelated to a stock figure (inventories).

FIXED ASSETS TURNOVER (FAT)

The FAT ratio measures the net sales per rupee of investment in fixed assets. It can be computedas follows:

FAT = Net sales / Average net fixed assets

This ratio measures the efficiency with which fixed assets are employed. A high ratio indicates ahigh degree of efficiency in asset utilization while a low ratio reflects an inefficient use of assets.However, this ratio should be used with caution because when the fixed assets of a firm are old and


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substantially depreciated, the fixed assets turnover ratio tends to be high (because the denominatorof the ratio is very low).

TOTAL ASSETS TURNOVER (TAT)

TAT is the ratio between the net sales and the average total assets. It can be computed as follows:

TAT = Net sales / Average total assets

This ratio measures how efficiently an organization is utilizing its assets

LEVERAGE/CAPITAL STRUCTURE RATIO

These ratios measure the long-term solvency of a firm. Financial leverage refers to the use of debtfinance. While debt capital is a cheaper source of finance, it is also a risky source. Leverage ratioshelp us assess the risk arising from the use of debt capital. Two types of ratios are commonly usedto analyze financial leverage - structural ratios and coverage ratios. Structural ratios are based onthe proportions of debt and equity in the financial structure of a firm. Coverage ratios show therelationship between the debt commitments and the sources for meeting them.

The long-term creditors of a firm evaluate its financial strength on the basis of its ability to pay theinterest on the loan regularly during the period of the loan and its ability to pay the principal on

maturity.

RATIOS COMPUTED FROM BALANCE SHEET

Debt-Equity: This ratio shows the relative proportions of debt and equity in financing the assets of afirm. The debt includes short-term and long-term borrowings. The equity includes the networth(paid-up equity capital and reserves and surplus) and preference capital. It can be calculated as:

Debt / Equity

Debt-Asset Ratio: The debt-asset ratio measures the extent to which the borrowed funds support

the firm's assets. It can be calculated as:

Debt / Assets

The numerator of the ratio includes all debt, short-term as well as long-term, and the denominator ofthe ratio includes all the assets (the balance sheet total).


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AVERAGE COLLECTION PERIOD (ACP)

ACP is calculated by dividing the days in a year by the debtors' turnover. The average collection

period represents the number of day's worth of credit sales that is blocked with the debtors(accounts receivable). It is computed as follows:

Average Collection Ratio = Months (days) in a Year / Debtors Turnover

The ACP and the accounts receivables turnover are related as:

ACP = 365 / Accounts Receivable Turnover

The ACP can be compared with the firm's credit terms to judge the efficiency of credit management.For example, if the credit terms are 2/10, net 45, an ACP of 85 days means that the collection isslow and an ACP of 40 days means that the collection is prompt.

INVENTORY OR STOCK TURNOVER RATIO (ITR)

ITR refers to the number of times the inventory is sold and replaced during the accounting period. Itis calculated as follows:

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

ITR reflects the efficiency of inventory management. The higher the ratio, the more efficient is themanagement of inventories, and vice versa. However, a high inventory turnover may also resultfrom a low level of inventory which may lead to frequent stock outs and loss of sales and customergoodwill. For calculating ITR, the average of inventories at the beginning and the end of the year istaken. In general, averages may be used when a flow figure (in this case, cost of goods sold) isrelated to a stock figure (inventories).

FIXED ASSETS TURNOVER (FAT)

The FAT ratio measures the net sales per rupee of investment in fixed assets. It can be computedas follows:

FAT = Net sales / Average net fixed assets

This ratio measures the efficiency with which fixed assets are employed. A high ratio indicates ahigh degree of efficiency in asset utilization while a low ratio reflects an inefficient use of assets.However, this ratio should be used with caution because when the fixed assets of a firm are old andsubstantially depreciated, the fixed assets turnover ratio tends to be high (because the denominatorof the ratio is very low).


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TOTAL ASSETS TURNOVER (TAT)

TAT is the ratio between the net sales and the average total assets. It can be computed as follows:

TAT = Net sales / Average total assets

This ratio measures how efficiently an organization is utilizing its assets.

PROFITABILITY RATIOS

These ratios help measure the profitability of a firm. There are two types of profitability ratios:

Profitability ratios in relation to sales and Profitability ratios in relation to investments.

PROFITABILITY RATIOS IN RELATION TO SALES

A firm which generates a substantial amount of profits per rupee of sales can comfortably meet itsoperating expenses and provide more returns to its shareholders. The relationship between profitand sales is measured by profitability ratios. There are two types of profitability ratios: Gross ProfitMargin and Net Profit Margin.

Gross Profit Margin: This ratio measures the relationship between gross profit and sales. It iscalculated as follows:

Gross Profit Margin = Gross Profit/Net sales * 100

This ratio shows the profit that remains after the manufacturing costs have been met. It measuresthe efficiency of production as well as pricing.

Net Profit Margin: This ratio is computed using the following formula:

Net profit / Net sales

This ratio shows the net earnings (to be distributed to both equity and preference shareholders) as apercentage of net sales. It measures the overall efficiency of production, administration, selling,financing, pricing and tax management. Jointly considered, the gross and net profit margin ratiosprovide an understanding of the cost and profit structure of a firm.


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PROFITABILITY RATIOS IN RELATION TO INVESTMENT

These ratios measure the relationship between the profits and investments of a firm. There arethree such ratios: Return on Assets, Return on Capital Employed, and Return on Shareholders'Equity.

Return on Assets (ROA): This ratio measures the profitability of the assets of a firm. The formulafor calculating ROA is:

ROA = EAT + Interest - Tax Advantage on Interest / Average Total Assets

Return on Capital Employed (ROCE): Capital employed refers to the long-term funds invested bythe creditors and the owners of a firm. It is the sum of long-term liabilities and owner's equity. ROCEindicates the efficiency with which the long-term funds of a firm are utilized. It is computed by thefollowing formula:

ROCE = (EBIT / Average Total Capital Employed) * 100

Return on Shareholders' Equity: This ratio measures the return on shareholders' funds. It can becalculated using the following methods:

Rate of return on total shareholders' equity. Rate of return on ordinary shareholders. Earnings per share.

Dividends per share. Dividend pay-out ratio. Earning and Dividend yield.

(i) Return on Total Shareholders' Equity

The total shareholders' equity consists of preference share capital, ordinary share capital consistingof equity share capital, share premium, reserves and surplus less accumulated losses.

Return on total shareholders' equity = (Net profit after taxes) * 100 /Average total shareholders'equity

(ii) Return on Ordinary Shareholder's Equity (ROSE)

This ratio is calculated by dividing the net profits after taxes and preference dividend by the averageequity capital held by the ordinary shareholders.

ROSE = (Net Profit after Taxes - Preference Dividend) * 100 / Networth

(iii) Earnings per Share (EPS)

EPS measures the profits available to the equity shareholders on each share held. The formula forcalculating EPS is:


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EPS = Net Profits Available to Equity Holders / Number of Ordinary Shares Outstanding

(iv) Dividend per Share (DPS)

DPS shows how much is paid as dividend to the shareholders on each share held. The formula forcalculating EPS is:

DPS = Dividend Paid to Ordinary Shareholders / Number of Ordinary Shares Outstanding

(v) Dividend Pay-out Ratio (D/P Ratio)

D/P ratio shows the percentage share of net profits after taxes and after preference dividend hasbeen paid to the preference equity holders.

D/P ratio = Dividend per Share (DPS) / Earnings per Share * 100

(vi) Earning & Dividend Yield

Earning yield is also known as earning-price ratio and is expressed in terms of the market value pershare.

Earning Yield = EPS / Market Value per Share * 100

Dividend Yield is expressed in terms of the market value per share.

Dividend Yield = (DPS / Market Value per Share) * 100

VALUATION RATIOS

Valuation ratios indicate the performance of the equity stock of a company in the stock market.Since the market value of equity reflects the combined influence of risk and return, valuation ratios

play an important role in assessing a company's performance in the stock market. The importantvaluation ratios are the Price-Earnings Ratio and the Market Value to Book Value Ratio.

Price-Earnings (P/E) Ratio:

The P/E ratio is the ratio between the market price of the shares of a firm and the firm's earnings pershare. The formula for calculating the P/E ratio is:

P/E ratio = Market Price of Share / Earnings per Share

The price-earnings ratio indicates the growth prospects, risk characteristics, degree of liquidity,shareholder orientation, and corporate image of a company.


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Market Value to Book Value Ratio:

This is the ratio between the market price per share (MPS) and actual book value per share. It canbe calculated as follows:

Market Value to Book Value Ratio = Market Price per Share / Book Value per Share

This ratio reflects the contribution of a company to the wealth of its shareholders. When this ratioexceeds 1, it means that the company has contributed to the creation of wealth of its shareholders.

DUPONT ANALYSIS

DuPont Analysis is a technique that breaks ROA and ROE measures down into three basiccomponents that determine a firm's profit efficacy, asset efficiency and leverage. The analysisattempts to isolate the factors that contribute to the strengths and weaknesses in a company'sfinancial performance. Poor asset management, expenses getting out of control, production ormarketing inefficiency could be potential weaknesses within a company. Expressing these individualcomponents rather than interpreting ROE, may help the company identify these weaknesses in abetter way. This model was developed by the US based DuPont company. The model breaks downreturn on net worth (RONW) into three basic components, reflecting the quality of earnings alongwith possible risk levels.

RONW = PAT / NW

Where,

PAT = Profit after TaxNW = Net worth

The above formula can be further broken down into:

RONW = PAT / Sales * Sales / CE * CE / NW

Where, CE = Capital Employed.


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WORKING CAPITAL MANAGEMENT

Working capital may be defined in two ways, either as the total of current assets or the differencebetween the total of current assets and total of current liabilities.Like, most other financial terms the concept of working capital is used as different connotations bydifferent writers. Thus, there emerged the following two the concepts of working capital.

i) Gross concept of working capitalii) Net concept of working capital

Constituents of working capital

No matter how, we define working capital, we should know what constitutes current assets andcurrent liabilities.Current Assets: The following are listed by the Company as current assets:

1) Inventories:a) Raw materials and packing materialsb) Work-in-progressc) Finished/Traded goodsd) Stores, Spares and fuel

2) Sundry Debtors:

a) Debts outstanding for a period exceeding six monthsb) Other debts

3) Cash and Bank balances:a) With Scheduled Banksi) In Current accountsii) In Deposit accounts

b) With othersi) in Current accounts

4) Loans and advances:a) Secured Advances

b) Unsecured (considered good)i) Advances recoverable in cash or kind for value to be receivedii) Depositsiii) Balances with customs and excise authorities


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Current liabilities: The following items are included under this category.

1) Current Liabilities:

a) Sundry creditorsb) Unclaimed dividend warrantsc) Unclaimed debenture interest warrants

2) Short term credit:a) Short term loansb) Cash credit from banksc) Other short term payables

3) Provisions:a) For Taxation

b) Proposed Dividendi) On preference sharesii) On equity shares

TYPES OF WORKING CAPITAL

Sometimes, working capital is divided into two varieties as:i) Permanent working capital

ii) Variable working capital

Permanent Working Capital: Though working capital has a limited life and usually not exceeding ayear, in actual practice some part of the investment inthat is always permanent. Since firms haverelatively longer life and productiondoes not stop at the end of a particular accounting period someinvestment isalways locked up in the form of raw materials, work-in-progress, finished stocks,bookdebts and cash. The investment in these components of working capital issimply carried forward tothe next year. This minimum level of investment incurrent assets that is required to continue thebusiness without interruption isreferred to as permanent working capital. While suggesting amethodology forfinancing working capital requirements by commercial banks, the Tandoncommittee has also recognised the need to maintain a minimum level ofinvestment in current

assets. It referred them as, hard core current assets. TheCommittee wanted the borrowers to meetthis portion of investment out of their own sources and not to depend on commercial banks.

Variable Working Capital: This is also known as the circulating or transitory working capital. This isthe amount of investment required to take care of the fluctuations in the business activity. Whilepermanent working capital is meant to take care of the minimum investment in various currentassets, variable working capital is expected to care for the peaks in the business activity. Whileinvestment in permanent portion can be predicted with some probability, investment in variableportion of working capital cannot be predicted easily as sudden changes in the business activitycauses variations in this portion of working capital.


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TANDON COMMITTEE NORMS

Since mid-sixties, the issue of financing working capital has been engaging the attention of industryand the policy makers. The measures taken by the Reserve Bank of India included the introductionof Credit Authorisation Scheme in November 1965, Constitution of the Dahejia Committee inOctober 1968, Tandon Committee in July 1974 and the Chore Committee in March 1979. Over theyears, attempt has been made to streamline the flow of credit from the banking sector to theindustry. The link between financing of working capital and the recommendations of variouscommittees is that the latter tried to make out a case for fixing norms for the maintenance of variouscurrent assets; thus leading to the determination of optimum working capital.In this regard, Tandon Committee, for the first time, made an attempt to prescribe norms for holdingdiverse current asset items. The committee wanted the commercial banks to quantify the desirablelevel of net working capital and the maximum permissible lending by the banks. In its approach to

the methods of lending, the Committee sought to identify the Reasonable level of current assets asthe basis of its calculation of different methods. In other words, the total of current assets is basedon the norms suggested by them rather than the actual current assets held by the undertakings. Forthis purpose, the Committee suggested norms for carrying raw materials, work-in-progress, finishedgoods, and receivables in respect of 15 major industries. The norms for the four kinds of assets arerelated in the following manner:

Type of Asset Relation to1. Raw Materials Months consumption of raw materials2. Work-in-progress Months cost of production3. Finished goods Months cost of sales

4. Receivables Months sales

The norms represent the maximum levels of inventories and receivables in each type of industry. Itis further laid down that, if the holding of any kind of asset is higher than the level fixed by therelative norms, the surplus would be treated excess holding to be shed off, failing which an amountequal to the value thereof would be treated as excess borrowing and a levy of penal rate of interestis suggested on such excess borrowing. Again, it is not permitted to set off such excess against anyshortfall in the holding of other current assets, as the norms represent the maximum permissiblelevels of holdings.


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Cash FlowParticulars Mar'11 Mar'10 Mar'09 Mar'08 Mar'07

Profit Before Tax 5,135.66 3,851.36 2,785.19 1,646.27 996.24

Net Cash Flows from Operating Activity 11,425.07 28.87 10,551.63 5,960.45 5,295.53

Net Cash Used in Investing Activity -13,985.33 -5,122.98 -9,741.96 -4,702.52 -3,655.58

Net Cash Used in Financing Activity 8,769.69 5,304.07 1,692.32 4,325.79 1,637.01

Net Inc/Dec in Cash and CashEquivalent

6,204.75 189.54 2,512.66 5,585.94 3,276.46

Cash and Cash Equivalent - Beginningof the Year

15,203.91 15,016.90 12,504.24 6,918.31 3,641.84

Cash and Equivalent - End of the Year 21,408.66 15,206.44 15,016.90 12,504.24 6,918.31

Profit & Loss account of Axis Bank ------------------- in Rs. Cr. -------------------

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

12 mths 12 mths 12 mths 12 mths 12 mths

Income

Interest Earned 15,154.81 11,638.02 10,835.49 7,005.32 4,560.40

Other Income 4,632.13 3,945.78 2,896.88 1,750.59 986.49

Total Income 19,786.94 15,583.80 13,732.37 8,755.91 5,546.89

Expenditure

Interest expended 8,591.82 6,633.53 7,149.27 4,419.96 2,993.32

Employee Cost 1,613.90 1,255.82 997.66 670.25 381.35

Selling and Admin Expenses 2,406.59 2,443.05 1,572.83 952.61 589.31

Depreciation 289.59 234.32 188.67 158.11 111.86

Miscellaneous Expenses 3,496.55 2,502.55 2,008.57 1,483.94 812.03

Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00

Operating Expenses 5,734.55 5,066.76 3,590.42 2,454.03 1,387.06

Provisions & Contingencies 2,072.08 1,368.98 1,177.31 810.88 507.49

Total Expenses 16,398.45 13,069.27 11,917.00 7,684.87 4,887.87


12 mths 12 mths 12 mths 12 mths 12 mths

Net Profit for the Year 3,388.49 2,514.53 1,815.36 1,071.03 659.03

Extraordionary Items 0.00 0.00 0.00 0.00 -31.80

Profit brought forward 3,427.43 2,348.09 1,553.87 1,029.07 731.04

Total 6,815.92 4,862.62 3,369.23 2,100.10 1,358.27

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 670.36 567.45 420.52 251.64 148.79

Corporate Dividend Tax 0.00 0.00 0.00 0.00 0.00

Per share data (annualised)

Earning Per Share (Rs) 82.54 62.06 50.57 29.94 23.40

Equity Dividend (%) 140.00 120.00 100.00 60.00 45.00


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Book Value (Rs) 462.77 395.99 284.50 245.13 120.80

Appropriations

Transfer to Statutory Reserves 836.95 867.43 600.62 294.60 180.40

Transfer to Other Reserves 338.84 0.31 0.00 -0.01 0.00

Proposed Dividend/Transfer to Govt 670.36 567.45 420.52 251.64 148.79

Balance c/f to Balance Sheet 4,969.77 3,427.43 2,348.09 1,553.87 1,029.07

Total 6,815.92 4,862.62 3,369.23 2,100.10 1,358.26

RatiosLiquidity ratios

Current Ratio

Calculation of current ratio

2011 2010 2009 2008 2007

Currentassets

4,632.123,901.063,745.152,784.511,892.077

Currentliabilities 8,208.866,133.469,947.677,556.90 5,873.800

Current

ratio

0.56 0.63 0.37 0.36 0.32

The norm for the current ratio in BANKING AREA is 1.33:1. The current ratio of AXIS BANK isalmost equal to .56:1, which is less than the norm. On an average, for every rupee of currentliability, AXIS BANK has Rs. 0.56 of current assets. The current ratio can be better judged if it isstudied along with ratios such as receivables turnover.The higher the receivables greater the firm's ability to pay its current liabilities. Generally, a lowcurrent ratio indicates the firm's inability to meet its current obligations. But a high current ratio mayrepresent unnecessary blocking of liquid assets such as cash and cash equivalents.

Quick RatioYear 2011 2010 2009 2008 2007

Quick assets 1608.9 1177.01 947.018 697.50 434.07

Currentliabilities 8,208.866,133.469,947.677,556.90 5,873.800

Quick ratio 19.60 19.19 9.52 9.23 7.39

Interpretation: A quick ratio of 1:1 is usually considered satisfactory. It is more rigorous andpenetrating test of liquidity position of a firm. In case of presenting company, it would find difficult to

pay its current liability.
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Profitability ratios

Net Margin:

Year 2011 2010 2009 2008 2007

NETPROFI

T

3,388.49 2,514.53 1,815.36 1,071.03 659.03

SALES 19,786.94 15,583.80 13,732.37 8,755.91 5,546.89

Netmargin

17.20 16.10 13.31 12.22 12.01

The net margin has been increasing steadily since 2007. Which is probably a positive sign for thebank.

OPERATINGProfitMargin:

2011 2010 2009 2008 2007

Operatingprofit/sales

5,306.84/19,786.94

3,941.77/15,583.80

2,999.92/13,732.37

2,034.80/8,755.91

1,193.09/5,546.89

Net Margin 26.8 25.58 22.13 23.25 21.84

The OPERATING profit margin has increased significantly. The high OPERATING profit margin

implies higher returns to shareholders in the form of dividends and stock price appreciation.

Debt Equity Ratio

Year 2011 2010 2009 2008 2007

Debt 1,89,237.801,41,300.221,17,374.1187,626.2258,785.600

Equity(resrv&

surplus+capital)

18588.28+

410.55

15639.27+

405.17

9854.58+

359.01

8410.79+

357.71

3120.58+

357.71


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Ratio 9.96 8.81 11.49 9.99 17.28

Interpretation : The debt-equity ratio is fluctuating. This implies that the company is relying more onits owner's equity to finance its assets rather than on borrowed funds. Though the firm is usingrelatively less proportion of debt, the returns on equity investments have been profitable. This canbe explained by calculating the average rate of return earned on the capital employed in assets andcomparing that rate with the average interest rate paid for borrowed funds.

RETURN ON NET WORTH RATIO:

Year 2011 2010 2009 2008 2007

PAT 3,395.47 2,518.40 1,823.56 1,086.21 661.94

NETWORTH(resrv&surplus+capital)

18588.28+

410.55

15639.27+

405.17

9854.58+

359.01

8410.79+

357.71

3120.58+

357.71

Ratio 17.87 15.69 17.85 12.38 19.45

Dividend per Share

Calculation of dividend per share:

years 2011 2010 2009 2008 2007

Dividend to shareholders 670.36 567.45 420.52 251.64 148.79

Number of shares outstanding 48 47 42 42 43

Dividend per share 14.00 12.00 10.00 6.00 4.50

The dividend pay-out to ordinary shareholders has been increasing year after year, resulting in anincrease in DPS. Higher dividends may have been declared because of stagnation in the business,as a result of which earnings were not retained. However, the increase in dividends also indicatesthat the company is generating profits consistently.

Key Financial Ratios of Axis Bank


Investment Valuation Ratios

Face Value 10.00 10.00 10.00 10.00 10.00

Dividend Per Share 14.00 12.00 10.00 6.00 4.50


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Operating Profit Per Share (Rs) 129.26 97.29 83.56 56.88 42.36

Net Operating Profit Per Share (Rs) 471.17 380.27 377.46 244.63 193.93

Free Reserves Per Share (Rs) 373.06 325.87 230.47 208.03 86.60

Bonus in Equity Capital -- -- -- -- --

Profitability Ratios

Interest Spread 3.73 3.95 4.24 3.77 3.27

Adjusted Cash Margin(%) 18.71 17.63 14.76 14.19 14.11

Net Profit Margin 17.20 16.10 13.31 12.22 12.01

Return on Long Term Fund(%) 72.29 66.34 97.35 71.17 119.74

Return on Net Worth(%) 17.83 15.67 17.77 12.21 19.37

Adjusted Return on Net Worth(%) 17.87 15.69 17.85 12.38 19.45

Return on Assets Excluding Revaluations 462.77 395.99 284.50 245.13 120.80

Return on Assets Including Revaluations 462.77 395.99 284.50 245.13 120.80

Management Efficiency Ratios

Interest Income / Total Funds 9.14 9.38 10.53 9.57 8.88

Net Interest Income / Total Funds 5.08 5.34 4.98 4.74 4.01

Non Interest Income / Total Funds 0.17 0.12 0.06 0.02 0.03

Interest Expended / Total Funds 4.06 4.04 5.56 4.83 4.87

Operating Expense / Total Funds 2.57 2.94 2.64 2.51 2.07

Profit Before Provisions / Total Funds 2.54 2.38 2.25 2.07 1.79

Net Profit / Total Funds 1.60 1.53 1.41 1.17 1.07

Loans Turnover 0.16 0.17 0.19 0.18 0.18

Total Income / Capital Employed(%) 9.30 9.51 10.60 9.59 8.92

Interest Expended / Capital Employed(%) 4.06 4.04 5.56 4.83 4.87

Total Assets Turnover Ratios 0.09 0.09 0.11 0.10 0.09

Asset Turnover Ratio 5.65 7.31 7.78 6.32 4.97Profit And Loss Account Ratios

Interest Expended / Interest Earned 56.69 57.00 65.98 63.09 65.64

Other Income / Total Income 1.78 1.30 0.60 0.16 0.39

Operating Expense / Total Income 27.65 30.96 24.95 26.20 23.26

Selling Distribution Cost Composition 0.40 0.30 0.34 0.85 0.54

Balance Sheet Ratios

Capital Adequacy Ratio 12.65 15.80 13.69 13.73 11.57

Advances / Loans Funds(%) 76.16 72.96 73.87 75.89 69.07

Debt Coverage Ratios

Credit Deposit Ratio 74.65 71.87 68.89 65.94 59.85

Investment Deposit Ratio 38.71 39.55 39.04 41.39 48.96

Cash Deposit Ratio 7.07 7.30 8.16 8.17 7.17

Total Debt to Owners Fund 9.96 8.81 11.49 9.99 17.28

Financial Charges Coverage Ratio 0.66 1.62 1.43 1.46 1.41

Financial Charges Coverage Ratio Post Tax 1.43 1.41 1.28 1.28 1.26

Leverage Ratios

Current Ratio 0.02 0.03 0.03 0.03 0.03

Quick Ratio 19.60 19.19 9.52 9.23 7.39

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 19.78 22.56 23.16 23.49 22.57

Dividend Payout Ratio Cash Profit 18.22 20.64 20.98 20.47 19.30


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Earning Retention Ratio 80.26 77.47 76.94 76.84 77.53

Cash Earning Retention Ratio 81.81 79.39 79.11 79.78 80.78

AdjustedCash Flow Times 51.35 51.33 58.33 70.42 75.97


Earnings Per Share 82.54 62.06 50.57 29.94 23.40

Book Value 462.77 395.99 284.50 245.13 120.80

Working capital of axis bank

Working capital = current assets current

liability

2011 2010 2009 2008 2007

Current assets 4,632.12 3,901.06 3,745.15 2,784.51 1,892.077

Current

liabilities 8,208.86 6,133.46 9,947.67 7,556.90 5,873.800

Workingcapital -3576.74 -2232.4 -6202.52 -4772.39 -3981.723

Working capital (abbreviated WC) is a financial metric which represents operatingliquidity available to a business, organization or other entity, including governmental entity.Along with fixed assets such as plant and equipment, working capital is considered a part ofoperating capital. Net working capital is calculated as current assets minus current

liabilities. It is a derivation of working capital, that is commonly used in valuation techniquessuch as DCFs (Discounted cash flows). If current assets are less than current liabilities, anentity has a working capital deficiency, also called a working capital deficit.A negative working capital is a sign of managerial efficiency in a business with low inventoryand accounts receivable (which means they operate on an almost strictly cash basis). In anyother situation, it is a sign a company may be facing bankruptcy or serious financial trouble.You can tell if this is the case by comparing a company's accounts payable to the totalinventory on the balance sheet.


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Yes bank ltd.

Report cardAttribute Value Date

PE ratio 17.83 04/04/12

EPS (Rs) 20.95 Mar, 11

Sales (Rs crore) 1,684.06 Dec, 11

Face Value (Rs) 10

Net profit margin (%) 15.56 Mar, 11

Last dividend (%) 25 20/04/11

Return on average equity 19.16 Mar, 11

Annual results in briefMar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Sales 4,041.74 2,369.71 2,003.32 1,310.82 587.60

Operating profit 3,263.72 1,732.72 1,523.03 926.06 344.80

Interest 2,794.82 1,581.76 1,492.14 974.11 416.26Gross profit 1,190.38 863.33 527.65 350.08 172.41


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Net block 129.52 114.09 130.73 97.28 69.28

Capital work-in-progress 2.91 1.38 0.39 3.89 1.59

Investments 18,828.84 10,209.94 7,117.02 5,093.71 3,073.12

Net current assetsCurrent assets, loans & advances 2,186.11 1,190.73 1,326.86 729.70 376.88

Less : current liabilities & provisions 2,583.07 1,745.32 2,918.10 1,404.13 1,228.68

Total net current assets -396.97 -554.59 -1,591.24 -674.42 -851.80

Miscellaneous expenses not written - - - - -

Total 18,564.30 9,770.82 5,656.90 4,520.45 2,292.20

Notes:Book value of unquoted investments - - - - -

Market value of quoted investments - - - - -

Contingent liabilities 1,36,395.52 1,05,941.3

6

47,803.72 68,874.5

4

52,061.58

Number of equity sharesoutstanding

(Lacs)

3471.47 3396.67 2969.79 2957.90 2800.00

Profit loss account

Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

IncomeOperating income 4,658.12 2,876.15 2,423.90 1,590.84 736.75

ExpensesMaterial consumed - - - - -

Manufacturing expenses - - - - -

Personnel expenses 362.34 256.89 218.02 202.41 117.47

Selling expenses 20.64 10.79 1.48 1.67 2.68

Adminstrative expenses 301.26 289.82 226.01 133.61 65.38

Expenses capitalised - - - - -

Cost of sales 684.23 557.50 445.51 337.69 185.52

Operating profit 1,179.06 736.90 486.25 279.04 134.97

Other recurring income 14.53 54.27 34.54 74.53 45.44

Adjusted PBDIT 1,193.60 791.17 520.79 353.57 180.40

Financial expenses 2,794.82 1,581.76 1,492.14 974.11 416.26Depreciation 34.84 30.26 30.10 19.23 11.07

Other write offs - - - - -

Adjusted PBT -1,636.06 760.91 -1,001.45 334.34 169.33

Tax charges 365.04 248.75 162.07 106.46 55.91

Adjusted PAT 727.58 478.33 304.00 200.03 94.37

Non recurring items -0.44 -0.59 -0.16 -0.01 -

Other non cash adjustments -0.04 - - - -

Reported net profit 727.10 477.74 303.84 200.02 94.37

Earnigs before

appropriation

1,400.05 883.51 548.92 305.32 132.10

Equity dividend 86.79 50.95 - - -

Preference dividend - - - - -

Dividend tax 14.41 8.66 - - -


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Retained earnings 1,298.85 823.91 548.92 305.32 132.10

Cash flowMar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Profit before tax 1,092.18 726.49 465.92 306.54 143.68Net cashflow-operating activity 3,050.63 960.13 -364.59 -196.48 1,801.35

Net cash used in investing

activity

-3,423.73 -2,006.16 -60.20 -49.54 -1,222.69

Netcash used in fin. activity 1,195.82 1,796.57 719.93 580.74 498.60

Net inc/dec in cash and equivlnt 822.73 750.54 295.14 334.73 1,077.26

Cash and equivalnt begin of year 2,673.25 1,922.70 1,627.57 1,292.84 215.58

Cash and equivalnt end of year 3,495.98 2,673.25 1,922.70 1,627.57 1,292.84

RatiosMar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Per share ratiosAdjusted EPS (Rs) 20.96 14.08 10.24 6.76 3.37

Adjusted cash EPS (Rs) 21.96 14.97 11.25 7.41 3.77

Reported EPS (Rs) 20.95 14.06 10.23 6.76 3.37

Reported cash EPS (Rs) 21.95 14.96 11.24 7.41 3.77

Dividend per share 2.50 1.50 - - -

Operating profit per share (Rs) 33.96 21.69 16.37 9.43 4.82

Book value (excl rev res) per share (Rs) 109.29 90.96 54.69 44.59 28.11

Book value (incl rev res) per share (Rs.) 109.29 90.96 54.69 44.59 28.11

Net operating income per share (Rs) 134.18 84.68 81.62 53.78 26.31

Free reserves per share (Rs) 82.62 69.33 36.47 31.18 16.66

Profitability ratiosOperating margin (%) 25.31 25.62 20.06 17.54 18.31

Gross profit margin (%) 24.56 24.56 18.81 16.33 16.81

Net profit margin (%) 15.56 16.30 12.35 12.01 12.06

Adjusted cash margin (%) 16.31 17.35 13.59 13.16 13.48

Adjusted return on net worth (%) 19.17 15.48 18.71 15.16 11.99

Reported return on net worth (%) 19.16 15.46 18.70 15.16 11.98

Return on long term funds (%) 102.46 74.73 120.56 97.09 71.98

Leverage ratiosLong term debt / Equity - - - - -

Total debt/equity 12.11 8.67 9.96 10.06 10.44

Owners fund as % of total source 7.62 10.33 9.12 9.03 8.73

Fixed assets turnover ratio 18.25 13.93 12.44 11.96 8.50

Liquidity ratiosCurrent ratio 0.84 0.68 0.45 0.51 0.30

Current ratio (inc. st loans) 0.04 0.04 0.06 0.04 0.03

Quick ratio 15.34 14.54 5.14 7.92 5.74

Inventory turnover ratio - - - - -


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Payout ratiosDividend payout ratio (net profit) 13.91 12.47 - - -

Dividend payout ratio (cash profit) 13.28 11.73 - - -

Earning retention ratio 86.10 87.54 100.00 100.00 100.00

Cash earnings retention ratio 86.73 88.28 100.00 100.00 100.00

Coverage ratiosAdjusted cash flow time total debt 60.25 52.69 48.40 60.54 77.96

Financial charges coverage ratio 0.42 1.50 0.34 1.36 1.43

Fin. charges cov.ratio (post tax) 1.27 1.32 1.22 1.23 1.25

Component ratiosMaterial cost component (% earnings) - - - - -

Selling cost Component 0.44 0.37 0.06 0.10 0.36

Exports as percent of total sales - - - - -

Import comp. in raw mat. consumed - - - - -

Long term assets / total Assets 0.89 0.89 0.84 0.87 0.89Bonus component in equity capital (%) - - - - -


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RATIOS

LIQUIDITY RATIOS

URRENT RATIO:

Current assets 2,186.11 1,190.73 1,326.86 729.70 376.88

currentabilities

2,583.07 1,745.32 2,918.10 1,404.13 1,228.68

RATIO 0.84 0.68 0.45 0.51 0.30

he norm for the current ratio in BANKING AREA is 1.33:1. The current ratio of YESANK is almost equal to .84:1, which is less than the norm. On an average, for

very rupee of current liability, AXIS BANK has Rs. 0.56 of current assets. Theurrent ratio can be better judged if it is studied along with ratios such aseceivables turnover.he higher the receivables greater the firm's ability to pay its current liabilities.enerally, a low current ratio indicates the firm's inability to meet its currentbligations. But a high current ratio may represent unnecessary blocking of liquidssets such as cash and cash equivalents.

QUICK RATIO:

QUICK assets

currentabilities

2,583.07 1,745.32 2,918.10 1,404.13 1,228.68

RATIO 15.34 14.54 5.14 7.92 5.74

nterpretation: A quick ratio of 1:1 is usually considered satisfactory. It is moregorous and penetrating test of liquidity position of a firm. In case of presenting

ompany, it would find difficult to pay its current liability.

ROFITABILITY RATIOS

PERATING PROFIT RATIO

Year 2011 2010 2009 2008 2007

ALES 4,041.74 2,369.71 2,003.32 1,310.82 587.60PERATINGROFIT

3,263.72 1,732.72 1,523.03 926.06 344.80


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Key Financial Ratios of Yes Bank


Investment Valuation Ratios

Face Value 10.00 10.00 10.00 10.00 10.00

Dividend Per Share 2.50 1.50 -- -- --

Operating Profit Per Share (Rs) 33.96 21.69 16.37 9.43 4.82

Net Operating Profit Per Share (Rs) 134.18 84.68 81.62 53.78 26.31

Free Reserves Per Share (Rs) 82.62 69.33 36.47 31.18 16.66

Bonus in Equity Capital -- -- -- -- --

Profitability Ratios

Interest Spread 3.60 3.21 4.12 3.31 2.63

Adjusted Cash Margin(%) 16.31 17.35 13.59 13.16 13.48

Net Profit Margin 15.56 16.30 12.35 12.01 12.06

Return on Long Term Fund(%) 102.46 74.73 120.56 97.09 71.98

Return on Net Worth(%) 19.16 15.46 18.70 15.16 13.88

Adjusted Return on Net Worth(%) 19.17 15.48 18.71 15.16 11.99

Return on Assets Excluding Revaluations 109.29 90.96 54.69 44.59 28.11

Return on Assets Including Revaluations 109.29 90.96 54.69 44.59 28.11

Management Efficiency Ratios

Interest Income / Total Funds 9.77 9.70 12.16 11.33 9.65

Net Interest Income / Total Funds 3.91 4.37 4.67 4.39 4.20

Non Interest Income / Total Funds 0.03 0.18 0.17 0.53 0.60

Interest Expended / Total Funds 5.86 5.34 7.48 6.94 5.45Operating Expense / Total Funds 1.43 1.88 2.23 2.40 2.43

Profit Before Provisions / Total Funds 2.43 2.57 2.46 2.38 2.22

Net Profit / Total Funds 1.52 1.61 1.52 1.42 1.24

Loans Turnover 0.16 0.17 0.22 0.20 0.17

Total Income / Capital Employed(%) 9.80 9.89 12.33 11.86 10.25

Interest Expended / Capital Employed(%) 5.86 5.34 7.48 6.94 5.45

Total Assets Turnover Ratios 0.10 0.10 0.12 0.11 0.10

Asset Turnover Ratio 18.25 13.93 12.44 11.96 8.50

Profit And Loss Account Ratios

Interest Expended / Interest Earned 69.15 66.75 74.48 74.31 70.84

Other Income / Total Income 0.31 1.85 1.40 4.48 5.81

Operating Expense / Total Income 14.64 19.02 18.12 20.28 23.72

Selling Distribution Cost Composition 0.44 0.37 0.06 0.10 0.36

Balance Sheet Ratios

Capital Adequacy Ratio 16.50 20.60 16.60 13.60 13.60

Advances / Loans Funds(%) 81.65 88.94 76.05 80.78 100.94

Debt Coverage Ratios

Credit Deposit Ratio 77.75 80.52 74.16 73.14 78.13

Investment Deposit Ratio 39.92 40.33 41.47 38.00 39.74

Cash Deposit Ratio 6.97 7.62 7.60 6.28 4.29

Total Debt to Owners Fund 12.11 8.67 9.96 10.06 10.44


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Financial Charges Coverage Ratio 0.43 0.50 0.35 1.36 1.43

Financial Charges Coverage Ratio Post Tax 1.27 1.32 1.22 1.23 1.25

Leverage Ratios

Current Ratio 0.05 0.04 0.07 0.05 0.04

Quick Ratio 15.34 14.54 5.14 7.92 5.74

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 13.91 12.47 -- -- --

Dividend Payout Ratio Cash Profit 13.28 11.73 -- -- --

Earning Retention Ratio 86.10 87.54 100.00 100.00 100.00

Cash Earning Retention Ratio 86.73 88.28 100.00 100.00 100.00

AdjustedCash Flow Times 60.25 52.69 48.40 60.54 77.96


Earnings Per Share 20.95 14.06 10.23 6.76 3.37

Book Value 109.29 90.96 54.69 44.59 28.11

Working capital of yes bank

Working capital = current assets current

liability

2011 2010 20092008 2007

Current assets 2,186.11 1,190.73 1,326.86 729.70 376.88current liabilities 2,583.07 1,745.32 2,918.10 1,404.13 1,228.68

Working capital -396.97 -554.59 -1,591.24 -674.42 -851.80

Working capital is a financial metric which represents operatingliquidity available to a business, organization or other entity, includinggovernmental entity. Along with fixed assets such as plant and equipment,working capital is considered a part of operating capital. Net working capital iscalculated as current assets minus current liabilities. It is a derivation ofworking capital, that is commonly used in valuation techniques such as DCFs

(Discounted cash flows). If current assets are less than current liabilities, anentity has a working capital deficiency, also called a working capital deficit.


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A negative working capital is a sign of managerial efficiency in a business withlow inventory and accounts receivable (which means they operate on an almoststrictly cash basis). In any other situation, it is a sign a company may be facingbankruptcy or serious financial trouble. You can tell if this is the case by

comparing a company's accounts payable to the total inventory on the balancesheet.

rawcm,jyoti n swati sec e

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