Chapter -1

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.
Background of the study
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 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 long term 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 & Bradstreets Key Business Ratios, Moodys Manuals, Standard & Poors
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.

Objectives of the study

The objective of this study is to provide insight into how the banks work, what are the strengths
and weakness of the bank. The ratios will be compared of both the banks within the industry to
see where the banks stand. 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 the bank. 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. I worked
on the financia 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.
Methodology of the Study
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 analysts microscope; they allow us get a better view of
the firms 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.

Sources of data
All the necessary information to prepare this report is collected from both primary and
secondary sources of data.
Primary data sources: It includes the fresh or completely new data sources collected for a
specified purpose, such as:
Focus group meetings
Direct observation
Informal discussion
Secondary data sources: It includes sources of existing/published data, such as:
Operational manual
Official Website
Banking journals
BBL newsletters
Research papers
Account statement
1.4.2 Methods of data collection: I have used following methods and tools to gather our
necessary data or information (both the primary & secondary)
Primary Data: all the necessary primary data are collected by using the following methods
or tools:
8

Observation while working in different desks

Informal discussion with professionals
Interview of risk management officers

Secondary Data: I have used following tools to gather our necessary secondary data:
Account statement
Journal of BBL
Net browsing
Annual report (2007-08)

Chapter -2
Theoritical Overview of the Study
Soon after independence of the country Sonali Bank emerged as the largest and leading
Nationalized Commercial Bank by proclamation of the Banks' Nationalization Order 1972
(Presidential Order-26) liquidating the then National Bank of Pakistan, Premier Bank and Bank
of Bhwalpur. As a fully state owned institution, the bank had been discharging its nation-building
responsibilities by undertaking government entrusted different socioeconomic schemes as well as
money market activities of its own volition, covering all spheres of the economy. The bank has
been converted to a Public Limited Company with 100% ownership of the government and
started functioning as Sonali Bank Limited from November 15 2007 taking over all assets,
liabilities and business of Sonali Bank. After corporatization, the management of the bank has
been given required autonomy to make the bank competitive & to run its business effectively.
Sonali Bank Limited is governed by a Board of Directors consisting of 11(Eleven) members. The
Bank is headed by the Chief Executive Officer & Managing Director, who is a well-known
Banker and a reputed professional. The corporate head quarter of the bank is located at
Motijheel, Dhaka, Bangladesh, the main commercial center of the capital.

Chapter-3
Financial Performance is a subjective measure of how well a firm can use assets from its primary
mode of business and generate revenues. This term is also used as a general measure of a
firm'soverall financial health over a given period of time, and can be used to compare similar
firms
across the same industry or to compare industries or sectors in aggregation.Financial
performance analysis refers to an assessment of the viability, stability and profit abilityof a
business, sub-business or project. It is performed by professionals who prepare reports using
ratios that make use of information taken from financial statements and other reports. These
reports are usually presented to top management as one of their bases in making business
decisions. Based on these reports, management may:
Financial performance analysis is a vital to get a financial overview about a company. It enerally
consists of the interpretation of balance sheet and income statement. Ratio analysis and trend
analysis can be done by using these two statements. These analyses are the major tools for
analyzing the companys financial performance. An Analyst can compare a present condition
with the past for the company to determine whether there is an improvement or deterioration or
no change.

Indicators of Financial Performance

Key Performance Indicators(KPI) is a blanket term for the types of markers that businesses use
to measure performance measure in a variety of areas,from marketing to HR to finance.
Keeping close tabs on your small businesss financial performance is essential to long-term
success. These five financial Indicators are given below:Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial
balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership
equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often
described as a "snapshot of a company's financial condition". Of the four basic financial statements, the
balance sheet is the only statement which applies to a single point in time of a business' calendar year. A
standard company balance sheet has three parts: assets, liabilities and ownership equity.

Income Statement
Income statement also referred as profit and loss statement (P&L), earnings statement, operating
statement or statement of operations is a company's financial statement that indicates how the revenue is
transformed into the net income. It displays the revenues recognized for a specific period, and the cost
and expenses charged against these revenues, including write-offs (e.g., depreciation and amortization of

various assets) and taxes. The purpose of the income statement is to show managers and investors
whether the company made or lost money during the period being reported.

Ratio Analysis
A tool used by individuals to conduct a quantitative analysis of information in a companys financial
statements.Ratios are calculated from current year numbers and are then compared to previous years,
other companies,the Industry, or even the economy to judge the performance of the company.The basic
inputs to ratio analysis are the firms income statement and balance sheet for the periods to be examined.
Ratio analysis is predominately used by proponents of fundamental analysis.
In finance, a financial ratio or accounting ratio is a ratio of two selected numerical values taken from an
enterprises financial statements. There are many standard ratios used to try to evaluate the overall
financial condition of a corporation or other organization. Financial ratios may be used by managers
within a firm, by current and potential shareholders (owners) of a firm, and by a firms creditors. Security
analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a
company are traded in a financial market, the market price of the shares is used in certain financial ratios.
In short, ratio analysis is essentially concerened with the calculation of relationships which, after proper
identification and interpretation may provide information about the operations and state of affairs of a
business enterprise.The analysis is used to provide indicators of past performance in terms of critical
success factors of a business.This assistance in decision-making reduces reliance on guesswork and
intution and establishes a basis for sound judgement.

Significance of using ratios

The significance of a ratio can only truly be appreciated when:
1. It is compared with other ratios in the same set of financial statements.
2. It is compared with the same ratio in previous financial statements (trend analysis).
3. It is compared with a standard of performance (industry average).Such a standard may be either the
ratio which represents the typical performance of the trade or industry, or the ratio which represents the
target set by management as desirable for the business.

Types of ratio comparisons

Three types of ratio comparisons can be made:
1. Cross-sectional Analysis: Cross-sectional analysis involves the comparison of different firms
financial ratios at the same point in time. The typical business is interested in how well it has performed
in relation to its competitors.
2. Time- series Analysis: Time-series analysis is applied when a financial analyst evaluates performance
over time. Comparison of current to past performance utilizing ratio analysis allows the firm to determine
whether it is progressing as planned.
3. Combined Analysis: The most informative approach to ratio analysis is one that combines crosssectional and time-series analyses.

Some Words of Caution

1. A single ratio does not generally provide sufficient information from which to judge the overall
performance of the firm.
2. Be sure that the dates of the financial statements being compared are the same.
3. It is preferable to use audited financial statements for ratio analysis.
4. Be certain that the data being compared have been developed in the same way.

Groups of Financial Ratios

Financial ratios can be divided into four basic groups or categories:
A. Liquidity ratios
B. Activity ratios
C. Debt ratios and
D. Profitability ratios
Liquidity measures the ability to maintain positive cash flow, while satisfying immediate obligations.
Activity ratio measures the speed with which accounts are converted into sale or cash. Debt ratio
measures the amount of other peoples money used in generating profit. Profitability measures the ability
to earn income and sustain growth in both short-term and long-term. A company's degree of profitability
is usually based on the income statement, which reports on the company's results of operations.

Analyzing Liquidity
Liquidity refers to the ability of a firm to meet its short-term financial obligations when
and as they come due. It also refers to the solvency of the firms overall financial position

Measurement of your financial performance

Getting on top of financial measures of your performance is an important part of running a
growing business, especially in the current economic climate. Many businesses fail because of
poor financial management or planning.
Your business success can depend on developing and implementing sound financial and
management systems. Updating your original business plan is a good place to start. See prepare
a business plan for growth balnace sheets: the basics
A review of your financial performance can help you reassess your business goals and plan
effectively for improving the business. When conducting a financial review of your business, you
might want to consider the following:

Cashflow - this is the balance of all of the money flowing in and out of your business. You
should ensure that your forecast is regularly reviewed and updated.

Working capital - have your requirements changed? If so, research the reasons for this
movement and assess how this compares to the industry standard. If necessary, take steps to
source additional capital.

Cost base - keep your costs under constant review. Make sure that your costs are covered in
your sale price - but don't expect your customers to pay for any business inefficiencies. For
more information.

Borrowing - what is the position of any overdrafts or loans? Are there more appropriate or
cheaper forms of finance you could use?

Growth - do you have plans in place to adapt your financing to accommodate your business'
changing needs and growth?

Indentify which finance is right for your business.

Measuring your profitability
One of the most important areas of your finances you should review is your profitability. Most
growing businesses ultimately target increased profits, so it's important to know how to measure
profitability. The key standard measures are:

Gross profit margin - how much money is made after direct costs of sales have been taken
into account, or the contribution as it is also known.

Operating margin - this lies between the gross and net measures of profitability.
Overheads are taken into account, but interest and tax payments are not. For this reason, it
is also known as the EBIT (earnings before interest and taxes) margin.

Net profit margin - this is a much narrower measure of profits, as it takes all costs into
account, not just direct ones. All overheads, as well as interest and tax payments, are
included in the profit calculation.

Return on capital employed - this calculates net profit as a percentage of the total capital
employed in a business. This allows you to see how well the money invested in your
business is performing compared with other investments you could make with it, l

ike putting it in the bank.

Other key accounting ratios

There are a number of other commonly used accounting ratios that provide useful measures of
business performance. These include:

liquidity ratios, which tell you about your ability to meet your short-term financial
obligations

efficiency ratios, which tell you how well you are using your business assets

financial leverage or gearing ratios, which tell you how sustainable your exposure to
long-term debt is

Financial Performance Analyzing Techniques

At the beginning of a new year it is always important to review and reflect on the year just
passed and how well you, your staff, and your business performed. What could have been
improved? What did you do well? All as evidenced by results, many of those results being
financial in nature. To help plan for your focus during the next year, financial analysis can help
you uncover what can be improved upon in the next period.
There are a number of techniques you can use to perform financial statement analysis for your
business, depending on what you are trying to find out. The financial statements you want to use
in your analysis are the balance sheet and income statement. Here are some techniques to use to
analyze your financial statements:
1. Trend Analysis
Trend analysis is also called time-series analysis. Trend analysis helps determine how the
business is likely to perform over time. Trend analysis is based on historical data from the
financial statements and forecasted data from the businesses pro forma, or forward-looking,
financial statements.
One popular way of doing trend analysis is by using financial ratio analysis. If you calculate
financial ratios for a business, you have to calculate at least two years of ratios in order for them
to mean anything. Ratios are meaningless unless you have something to compare them to, in this
case the previous years data. For example an important ratio is the Current Ratio which is the
ratio of current or short term, assets to current liabilities on your financial statement. Ideally your
ratio is higher than 1.0 which would mean that for every dollar of short-term liability you have a
dollar of short-term asset. Short term assets are cash, accounts receivable, inventory and other
highly liquid accounts. Short term liabilities are those that are due in one year or less such as
accounts payable, etc. Microsoft has a great Excel template available free which can help you
calculate your ratios and can be found here.

2. Common Size Financial Statement Analysis

Common size financial statement analysis is analyzing the balance sheet and income statement
using percentages. All income statement line items are stated as a percentage of sales. All
balance sheet line items are stated as a percentage of total assets. For example, on the income
statement, every line item is divided by sales and on the balance sheet, every line item is divided
by total assets. This type of analysis enables you to view the income statement and balance sheet
in a percentage format which is easy to interpret.

3. Percentage Change Financial Statement Analysis

Percentage change financial statement analysis gets a little more complicated. When you use this
form of analysis, you calculate growth rates for all income statement items and balance sheet
accounts relative to a base year. This is a very powerful form of financial statement analysis. You
can actually see how different income statement items and balance sheet accounts grew or
declined relative to grows or declines in sales and total assets.
Here is an example of percentage change analysis. Lets say that XYZ, Inc. has $500 in
inventory on its balance sheet in 2011 and $700 in inventory on its balance sheet in 2012. How
much has inventory grown in 2012? The formula to calculate the growth rate in inventory is the
following: Change in inventory/Beginning inventory Balance = $200/$500 = 0.40 = 40%. The
change in inventory for XYZ, Inc. in 2012 is 40%.
4. Benchmarking
Benchmarking is also called industry analysis. Benchmarking involves comparing a company to
other companies in the same industry in order to see how one company is doing financially
compared to the industry. This type of analysis is very helpful to the financial manager as it helps
to see if any financial adjustments need to be made.
Here is a tool at the Small Business Administration website called SizeUp that helps you
compare your business to competitors.
Compiling, analyzing, and understanding financial statements provides business owners one of
the most important tools for reducing the considerable risk involved in starting and growing a
business. The comparison of financial ratios to industry standards is, perhaps, one of the best

uses of financial information, as it allows the business owner to compare the performance of his
or her business with other like businesses.
The ISBDC Business Advisors have a tool available to them to perform an analysis and if you
would like assistance at no cost to you take our business survey.

Chapter -4
Findings ,Conlusion & Recomendation
Findings of the study
As a largest commercial bank and the agent of Bangladesh Bank Sonali Bank has to do various
types of work without thinking about the profit. For this reason we have seen that in some cases
bank has doing loss, but this loss we directly cannot say that bank failing los, this is happening
only for helping the nation. On the other hand we have seen that the bank profit increasing rate is
poor but increasing. The bank is highly liquid and earns much profit on owners equity. Banks
operating efficiency is good. EPS is increasing double per year and earning spread is also
increasing. So after all we can say that as a nationalized bank commercial bank Sonali Bank
Limited is a bank which is earning better than other nationalized bank.

Conclusion:
As a bank Sonali Bank Limited has to do a lot of things for the betterment of the country. The
Bank is strongly positioned in the market and with its core strengths it can match shareholders
expectations and thus raise their wealth in future through ethical banking and best pricing. Thus,
it has to take initiative so that it can fulfill the desire of the govt. as well as people. It will
enhance more public services and build up working teams to provide the best services to its
valuable customers. It must be run in organized way and discipline must be ensured in all sphere
of its performance. Efficient export team, import team and remittance team must be formed and

perform duties properly. More training, computerization, data collection, market analysis and
swiftness in servicing are essentially required. To do these the recommended suggestions can be
used. Although it is theoretical suggestions, it is not valueless. It has great impact on the banking
business and other sectors of the economy. For this, govt. help is essential and it is expected that
govt. will broaden its hand for implementing the recommendations for the welfare of the people
of Bangladesh.

Recommendation:
The Top management of Sonali Bank Limited should be more effective to the employee
then current situation. Because they should take care the branch level employees
benefits, opportunities etc.
The bank has highly skilled employee in the branch level. But the bank should be able to
utilize these employees at appropriate way to take out the banks output.
The website design is need to improve. Therefore, the website should be changed and can
put more information about the bank. The existing design cannot capture the customers
attention.
The cheques design is poor. The good looking cheque design can motivate the customer.
The human resource division can be more effective. Because this human resource
department should think about the employee benefit much.
In the training institute, the training process should be used latest technology to provide
to the trainee. The bank should give training about the office package, basic idea on
computer and internet.

 In the branch level when employees could transfer to another department during that time
that employee is needed at least ten days training according on the transfer position.
The higher management should be more effective about the employee, to take right
strategy, right decision making.
In the branch level employee is working so many extra time, so management should
provide some extra incentives to motivate the employee.
On-line banking is coming soon so the responsible employee should be trained
effectively.
The training evaluation process and form is to be more modernized.
Physical and technological facilities should be increased in evaluating credit proposals.
Infrastructure should be modernized.
The cost of fund needs to be minimized.
The gap between employees and customers will be reduced through arranging meetings.