41

RATIO ANALYSIS
Financial analysis is the process of identifying the financial strengths and weakness of the firm
by properly establishing relationship between the items of balance sheet and profit and loss
account, in order to make rational decision in keeping with the objective of the organization, for
that purpose the management use analytical tools. To evaluate the financial condition and
performance of the business entity, the financial analyst needs to perform "checkups" on various
aspects of the business financial health.
A tools frequently used during these checkups is a financial ratio analysis, which relates two
piece of financial data by dividing one quantity by the other we calculate ratios because in this
way we get a comparison that may prove more useful than the raw number by themselves. The
business itself and outside providers of capital (creditors and investors) all undertake financial
statement analysis. The type of analysis varies according to the specific interest party involved.
The nature of analysis is depending at the purpose of analyst.
Liquidity Ratios
Liquidity ratios measure the companys ability to meet its short-term obligations in the short
span of time. There are many ratios of liquidity such as, current ratio, quick ratio and networking
capital. Data is taken from 2010 to 2012 to calculate liquidity ratios of ZTBL.
Current Ratio:

Year

Current Assets
Current Liabilities

2012
2011
2010

11846996
65887460
111024570
63632110
106259151
64370348

Current
Ratio
1.798
1.74
1.65

Interpretation of Current Ratio:

The current ratio of the ZTBL is slowly increasing from 2010 to 2012. This trend shows that the
bank is able to pay its current liabilities from its current assets. Thus the higher the current ratio,

42
the more the bank is considered to be liquid in order to satisfy its short term obligation. It is
depend on the items which comprises the current assets. The major part of current assets of
ZTBL consists of cash, cash with other banks so the lesser current ratio is also considered
favorable.
Quick Ratio:

Year
2012
2011
2010

Quick Assets
Current Liabilities
12525067
65887460
14232906
63632110
13662350
64370348

Quick
Ratio
0.19
0.226
0.212

Interpretation of Quick Ratio:

Above calculated results shows that the quick ratio of ZTBL is higher in 2010 while lower in
2012. That is why it is not in the favor of the organization. The quick ratio of 1.0 or greater is
recommended for the organizations. But the quick ratio cannot provide a better measure of
overall liquidity only when a firms inventory cannot be converted into cash.
Net Working Capital (NWC):

Year

T.C.A T.C.L

2012
2011
2010

118469963 65887460
111024570 63632110
106259151 64370348

Net Working
Capital
82582503
47392460
41888803

Interpretation of NWC:
The NWC of the ZTBL from 2010 to 2012 is increasing gradually. It shows that the bank has
positive working capital that can be used to meet its current needs. Because the total current
assets are greater than total current liabilities and the bank is better able to pay its short term
obligation as they become due. So it is favorable for the bank and positive working capital is
always recommended for any organization.

43

Leverage Ratios
Leverage ratios, also referred to as gearing ratios, measure the extent to which a company
utilizes debt to finance growth. Leverage ratios can provide an indication of a companys longterm solvency. Leverage ratios include debt ratio, total debt to net worth ratio & time interest
earned ratio which are given as under;
Debt Ratio:
Year
2012
2011
2010

Total Liabilities
Total Assets
104463319
131859354
98146493
122467960
95881306
117585949

Debt Ratio
0.7922
0.80
0.815

Interpretation of Debt Ratio:

The debt ratio provides an indication of a companys capital structure and whether the company
is more reliant on debt or shareholder equity to fund assets and activities. The debt ratio of the
ZTBL in 2010 is a highest from the rest of the years while lower in 2011&2012. The higher ratio
shows that bank is more rely on the debt that is why considered to be more risky. The high
leverage ratio considered to be unfavorable if the creditors of the bank can start to demand
repayment of debt. Low ratio means bank is more rely on shareholders equity instead of debt.
Total Debt to Net worth Ratio:
Year
2012
2011
2010

Total Liabilities
Net Worth
104463319
27396035
98146493
24321467
95881306
21704643

Total Debt
to Net Worth
3.81
4.03
4.41

Interpretation of Total Debt to Net worth Ratio:

If we interpret the debt to net worth ratio of the ZTBL, it is gradually decreasing from 2010 to
2012. The higher the debt to net worth ratio, greater will be the business is considered to be risky

44
and consider being unfavorable. The lower the debt to net worth ratio, lower will be the business
is considered to be risky and consider being favorable. The high leverage usually indicates the
business has a lot of risk because it must meet principal and interest on its obligations.
Time Interest Earned Ratio:
Year
2012
2011
2010

EBIT
Interest Expense
10936065
7046657
8103670
4826511
9150536
6261631

Times Interest
Earned ratio
1.552
1.67
1.46

Interpretation of Time Interest Earned Ratio:

Times interest earned is the ratio of earnings before interest and tax (EBIT) of a business to its
interest expense during a given period. The time interest earned ratio of the ZTBL in 2010 is
1.46 which is lower from the rest of the years, Lower values are unfavorable. The ratio is highest
in 2011 which is 1.67. Higher value of times interest earned ratio is favorable meaning greater
ability of a bank to repay its interest and debt. In 2011, the time interest earned ratio is improved
due to the highest amount of the earnings before interest & taxes as compared to other years.
Profitability Ratios
Profitability ratios measure a companys performance and provide an indication of its ability to
generate profits. As profits are used to fund business development and pay dividends to
shareholders, a companys profitability and how efficient it is at generating profits is an
important consideration for shareholders. Following is the interpretation of profitability ratios.
Ratio income before tax

Year
2012
2011
2010

income before tax

Total assets
3889408
131859354
3277159
122467960
2877842
117585949

Ratio income before tax

2.94%
2.67%
2.44%

45
Interpretation of income before tax ratio:
The RIBT is the ratio that shows that how much money is retained by the bank before deducting
the money to be paid as taxes. The RIBT is steadily increasing from 2010 to 2012 due to increase
in the amount of total assets and total income before tax. The RIBT in 2010 is lower from the
rest of the year. The Higher the RIBT ratio shows that the bank has good operating performance
without tax implications and efficiently managed its assets to earn a more money.
Income after tax ratio:
Year
2012
2011
2010

income after tax

Total assets
2589527
131859354
2145149
122467960
1864286
117585949

Ratio income after tax

1.96%
1.75%
1.58%

Income after tax ratio:

Income after tax ratio shows how much money is retained by the bank after deducting tax
expenses. The RIAT is increasing from 2010 to 2012 due to increase in the amount of total assets
and income after tax. The RIAT in 2010 is lower from the rest of the year shows that a bank can
earn less money on more investment. The Higher the RIAT ratio shows that the bank has
efficiently utilize its assets portfolio to earn a more money on total assets.
Return on Assets (ROA):
Year
2012
2011
2010

Net Income
Total assets
3074568
131859354
2616824
122467960
2269967
117585949

Return on Assets
2.33%
2.1%
1.93%

Interpretation of Return on Assets (ROA):

ROA is a measurement of management performance. ROA tells the investor how well a
company uses its assets to generate income. The ROA is gradually increasing from 2010 to 2012
due to increase in the amount of total assets and total income. It denotes a higher level of

46
management performance. The ROA in 2010 is lower from the rest of the year that shows a bank
can earn less money on more investment. The Higher the ROA ratio shows that the bank has
efficiently managed its assets to earn a more money.
Return on Equity (ROE):
Year
2012
2011
2010

Net Income
Stock holder equity
3074568
12522441
2616824
12522441
1864286
12522441

Return on Equity
24.5%
20.89%
14.88%

Interpretation of Return on Equity (ROE):

ROE tells the investor how well a company has used the capital from its shareholders to generate
profits. The ROE is reasonable in 2010 then increased in 2011 due to the increase in income
then ROE is sharply increased in 2012 due to increase in the amount of total income and
stockholders equity. The highest ROE indicates higher management performance. So the higher
ROE ratio consider favorable while lower ROE ratio, consider to be unfavorable.

Loan to deposit ratio:

Year
2012
2011
2010

Loan
Deposit
88060424
11096956
84743706
8962457
84792594
9602772

Loan to Deposit
7.93
9.45
8.83

Interpretation of Loan to deposit:

Loan to deposit ratio tells how much loan is sanctioned by the bank to its customers as compare
to deposits. It is a commonly used ratio for assessing a bank's liquidity by dividing the banks
total loans by its total deposit. The loan to deposit ratio of the ZTBL is lower in 2012. The ratio
in the year of 2010 is 8.83 which is sharply increasing 9.45 in 2011. In 2012 the decrease in ratio
is unfavorable it indicates that banks may not be earning as much as they could be.

47

Earnings Per Shares (EPS):

2012
2011
2010

Net Income
No. of ordinary shares
3074568
2500000
2616824
2500000
1864286
2500000

EPS
1.23
1.05
0.75

Interpretation of EPS:
A banks earnings per share (EPS) ratio allows to measure earnings in relation to every share on
issue. The EPS from 2010 to 2011 is gradually increasing from 0.75 to 1.23 respectively. In
2012, the EPS is increased due to further increase in net income with same amount of total
number of ordinary shares. Higher EPS indicates that as earnings go up over time, the value of
each share of the bank becomes more valuable. However the increase in the number of ordinary
shares in the market will have impact on the EPS.