CHAPTER# 4

FINANCIAL ANALYSIS
The main objective of this chapter is to show the financial position of National Bank Of Pakistan
from their financial statements that give information about five things of financial performance:

3.1 Liquidity Ratios:

To measure short term solvency.

There are four types of liquidity ratio

 Current Ratio
 Cash Ratio
 Working Capital Ratio
 Quick Ratio

3.1.1 Current Ratio:

Current Assets
Current Ratio=
Current Liabilities

Years 2014 Rs "000" 2015 Rs "000"

Current Assets 1,549,659,000 1,711,874,000

Current Liabilities 1,367,066,000 1,540,219,000

Current Ratio 1.13 1.10

Interpretation:

 In Fiscal year 2015 current ratio of NBP has every 1 rupees of Current liabilities is
backed by 1.10 rupees of current assets.
 The current ratio decrease from 1.13 to 1.10
Analysis:

Current liabilities grow faster then current assets therefore current ratio fall. NBP current ratio is
good its can easily pay its liabilities. for every Rs 1 of current liabilities is covered by Rs 1.10 of
current assets. If your current ratio is too low you can increase it by increasing by current assets
and decreasing current liabilities.

3.1.2 Cash Ratio:

Cash
Cash Ratio¿ Current Liabilities

Years 2014 Rs "000" 2015 Rs"000"

Cash 98,247,000 151,191,000

Current Liabilities 1,367,066,000 1,540,219,000

Cash Ratio 0.0071 0.10

Interpretation:

 In Fiscal year 2015 every 1 rupees of Current liabilities is backed by 0.10 rupees of
current assets.
 The current ratio increase from 0.0071 to 0.10
Analysis:

Cash ratio of NBP is not good. The bank is not able to pay their liabilities easily. for every Rs 1
of current liabilities is covered by Rs 0.10 of cash ratio. The cash is more liquid asset in the
balance sheet of NPB.

3.1.3 Working Capital Ratio:

Working Capital= Current Assets-Current Liabilities

Working Capital= 1,711,874,000,000-1,540,219,000,000

Working Capital= Rs 171,655,000,000

Interpretation:

 The total working capital ratio is good.NPB can work easily.

Analysis:

Working Capital is more measure of cash flow than a ratio number. A general observation about
these 3 liquidity ratio is that higher.

3.1.4 Quick Ratio:

Quick Assets
Quick Ratio=
Current Liabilities

Quick Assets=Inventory-Current Assets

Years 2014 Rs "000" 2015 Rs"000"

Quick Assets 919,429,000 885,247,000

Current Liabilities 1,367,066,000 1,540,219,000

Quick Ratio 0.67 0.57

Interpretation:

 Every 1 rupees of current liabilities is covered by 0.67 rupees of current liabilities

 inventory is least current assets which is not easily convertible into cash
 quick asset also show the credit policy of bank
 this also show in how much time bank convert their inventory into cash
 quick assets are those assets which is easily convertible into cash

3.2 Assets Management Ratio:

There are two types of assets management ratio

 Total Assets turnover

 Fixed assets turnover

3.2.1. Total Assets Turnover Ratio:

Total income
Total assets turnover =
Total Assets

Years 2014 Rs"000" 2015 Rs"000"

Total Income 115,252,000 114,386,000

Total Assets 1,549,659,000 1,711,874,000

Total Assets Turnover 0.074 0.066

Interpretation:
 In FY 2015 the total assets turnover of NBP shows that Every Rs 1 of total assets is
backed by Rs 0.066 of total income.

Analysis:
The total income ratio of NBP is not good. But the good sign is that its is decreased in FY 2015
as compared to previous years.

3.2.2 Fixed Asset Turnover:

Total income
Fixed assets turnover =
¿ Assets

Years 2014 Rs"000" 2015 Rs"000"

Total Income 115,252,000 114,386,000

Fixed Assets 9,220,160,000 3,423,748,000

Fixxed Assets Turnover 0.080 0.02

3.3 Debt Management (Leverage) Ratio:

The ability of the creditor and shockholder to investment in assets.

There are three types of debt management ratio

 Debt to total assets ratio

 Interest coverage ratio
 Equity multiplier

3.3.1 Debt To Total Assets Ratio:

Total Debt
Debt to total assets ratio =
Total Assets

Years 2014 Rs"000" 2015 Rs"000"

Total Debt 1,367,066,000 1,540,219,000

 Total Assets 1,549,659,000 1,711,874,000

Debt To Total Assets Ratio 0.88 0.90

Interpretation:
 In FY 2015 Debt to total assets ratio of NBP shows that Each 1 rupee of Total assets is
covered by 0.90 rupee of total Debt.

Analysis:
In FY 2015 debt ratio of NBP increased from previous years it is good sign for NBP. In FY 2015
debt ratio is 0.90 and in FY 2014 debt ratio is 0.88.

3.3.2 Interest Coverage Ratio:

Interest expense
Interest coverage ratio¿
EBIT

Years 2014 Rs "000" 2015 Rs "000"

Interest expense 68,462,000 59,999,000

EBIT 23,136,000 34,173,000

Interest coverage ratio 2.95 1.75

INTERPRETATION:

 In FY 2015 Interest coverage ratio of NBP shows that Each 1 rupee of Total operating
profit is covered by 1.75 rupee of interest expense.
3.3.3 Equity Multiplier:
Total Equity
Equity multiplier =
Total Assets

Years 2014 Rs "000" 2015 Rs "000"

Total equity 114,740,000 119,924,000

Total Assets 1,549,659,000 1,711,874,000

Equity multiplier 0.074 0.070

Interpretation:
 Every one rupee of total assets is generated by 0.074 rupees of total equity in 2014
 Every one rupee of total assets is generated by 0.070 rupees of total equity in 2015

Analysis:
Firms can increase ROA by increasing profit margins or asset turnover. Of course, competition

limits their ability to do so simultaneously. Thus, firms tend to face a trade-off between

turnover and margin. In retail trade, for example, mail-order outfits such as L. L.

Bean have low margins and high turnover, whereas high-quality jewelry stores such as

Tiffany’s have high margins and low turnover.

3.4 Profitability Ratio:
Show the combine effect on liquidity assets management and debt management on NBP
operating result.

There are types of Profitability ratio

 Net profit margin

 Gross profit margin
 Return on total assets
 Return on equity
 Basic earning power
 Earning per share
 Dividend per share
 Dividend yield
 Payout Ratio

3.4.1 Net Profit Margin Ratio :

Net Profit / Loss
Net profit margin¿ × 100
Total Income

Years 2014 Rs "000" 2015 Rs"000"

Net Profit 16,071,000 20,077,000

Total Income 115,252,000 114,386,000

 Net profit margin 13.16% 17.55%

Interpretation:
In FY 2015 Net profit margin shows that every Rs 1 of net income generate 17.55% of net profit.

Analysis:
In FY 2015 NBP increased their net profit margin ratio. In FY 2015 net profit ratio is increased
from 13.16% to 17.55%. This is good sign for NBP. The investor has great opportunity to invest
in NBP because the net profit margin of is good.

3.4.2 Gross Profit Margin:

Gross profit
Gross profit margin¿ ×100
Total income

Years 2014 Rs "000" 2015 Rs"000"

Gross profit 77,094,000 89,491,000

Total income 115,252,000 114,386,000

Net gross margin 66.88% 78.23%

Intretation:
In FY 2015 Net profit margin shows that every Rs 1 of net income generate 78.23% of Gross
profit.

ANALYSIS:
In FY 2015 NBP increased their Gross profit margin ratio. In FY 2015 net profit ratio is
increased from 66.88% to 78.23%. There is low risk for investor because their NBP is backed by
government. This is good sign for NBP. The investor has great opportunity to invest in NBP
because the Gross profit margin of is good.

3.4.3 Return On Total Assets:

Net Profit
Return on total assets¿ ×100
Total Assets

Years 2014 Rs"000" 2015 Rs"000"

Net Profit 16,071,000 20,077,000

Total Assets 1,549,659,000 1,711,874,000

ROA 1.03% 1.17%

Interpretation:
 In FY 2015 ROA shows that every Rs 1 of Total Assets generates 1.17% of Net profit.

Analysis:
In FY 2015 ROA is increased from 1.03% to 1.17%.The investor has best option to invest in
NBP because NBP increase their value of assets in the form of capital gain. There is low risk for
investor. This is good sign for NBP. The investor has great opportunity to invest in NBP because
the Gross profit margin of is good.

3.4.4 Return On Equity/ Investment:

 Net Profit
Return On Investment= ×100
Total Equity

Years 2014 Rs"000" 2015 Rs"000"

Net Profit 16,071,000 20,077,000

Total equity 114,740,000 119,924,000

ROI 14% 16.74%

Interpretation:
 NBP in the FY 2015 gives 16.74% Return on investment.
 Every 1 Rupees of investment generate 16.74% of net profit.

Analysis:
The investors has excellent opportunity to invest in NBP. The return on investment of NBP is
good. The figure of NBP of ROI in FY 2015 is 16.74% that increase from 14% in FY 2014. This
is good sign for NBP.

3.4.5 Basic Earning Power:

Operating profit
Basic earning power = ×100
Total assets

Years 2014 Rs"000" 2015 Rs"000"

 Operating Profit 23,136,000 34,173,000

Total Assets 1,549,659,000 1,711,874,000

BEP 1.48% 1.99%

Interpretation:
 For every Rs 1 of total assets generate Rs 1.99% of operating profit.
 Its increased from 1.48% to 1.99%.

3.4.6 Earning Per Share:

Net Profit
Earning per share = Total No. of O shares
S ¿
¿

Years 2014 Rs"000" 2015 Rs"000"

Net Profit 16,071,000 20,077,000

No of O/S shares 2,127,500 2,127,500

Earning per share 7.06 9.43

Interpretation:

 Each share generate 9.43 rupees of net profit in the fiscal year 2015.

Analysis:
In the fiscal year 2015 NBP was increased their EPS form 7.06 to 9.43. The is good for the future
growth of investment also good opportunity for investor to invest in National Bank of Pakistan.
3.4.7 Dividend Per Share:
Total Dividend
Dividend per share = Total No. of O shares
S ¿
¿

Years 2014 Rs"000" 2015 Rs"000"

Dividend 10,737,000 14,990,000

No of O/S shares 2,127,500 2,127,500

DPS 5.04 7.04

Interpretation:
 Each share generated 7.04 rupees of dividend in the Fiscal year 2015.

Analysis:
Dividend per share of NBP was satisfier for investor because this is incease from 5.04 in the
year 2014 to 7.04 in the year 2015. Gradually increase in DPS this is good guesture for NBP.

3.4.8 Dividend Yeild:

DPS
Dividend Yield =
Market price per share

Years 2014 Rs"000" 2015 Rs"000"

DPS 5.04 7.04

 MPPS 40.3 42.5

Dividend Yield 0.12 0.16

Interpretation:

 For every Rs 1 of investment generate Rs 0.16 dividend per share

 Ratio increase from 0.12 in the year 2014 to 0.16 in the year of 2015

3.4.9 Payout Ratio:

Total Dividend
Payout ratio = ×100
Net profit

Years 2014 Rs"000" 2015 Rs"000"

Dividend 10,737,000 14,990,000

Net Profit 16,071,000 20,077,000

Dividend yield 66.80% 74.66%

Interpretation:
 Each 1 rupee of net profit generated 74.66% of dividend in the year of 2015.

Analysis:
The investor was also satisfied from dividend yield because its increase from 66.80% in year
2014 to 74.66. The always concern about that how much percent of dividend given to me and
how much growth in my investment.

3.5 Value:

Total value of the National Bank Of Pakistan.

These are as following

 Retention Ratio
 Growth Rate
 DuPont Analysis
 Profit per employee
 Business per employee
 Advances to Deposits Ratio
 Spread
 Burden

3.5.1 Retention Ratio:

Retain earning
Retention ratio =
Net profit

Years 2014 Rs"000" 2015 Rs"000"

Retain earning 5,334,000 5,087,000

 Net Profit 16,071,000 20,077,000

Retention ratio 33.19% 25.33%

Interpretation:
 Each 1 rupee of Net profit shows 25.33% of Retain earning in the year 2015.

Analysis:
The retention ratio of NBP decrease from 33.19% in year 2014 to 25.33% in the year 2015. This
is because of dividend. NBP allocate large amount of divided to their stockholder therefore the
retention ratio falls.

3.5.2 Growth Rate:

g= Retention Ratio × Return on equity

Net income−Dividend Net profit

g= ×
Net income Total equity

Years 2014 Rs "000" 2015 Rs "000"

Retention ratio 33.19% 25.33%

ROE 14% 16.74%

 Growth rate 4.64% 4.24%

Analysis:
The problem is with retention ratio in year 2014 retention ratio is 33.19% but in 2015 retention
22.33%. The problem is because of pay large amount of dividends or the cost of interest rate is
very high. ROE is fair it increase from 14% to 16.74% this is positive sign for NBP. Overall
retention ratio decrease from 4.64% in FY 2014 to 4.24% in FY 2015. The growth of NBP is
satisfier for investor.

3.5.3 DuPont ANALYSIS:

DuPont analysis = net profit margin× assets turnover× equity multiplier

Net Profit Net income Total assets

¿ × ×
Net income Total assets Total equity

Years 2014 Rs "000" 2015 Rs "000"

Net profit margin 13.16% 17.55%

Total Assets Turnover 0.074 0.066

Equity Multiplier 13.50 14.27

DuPont 0.13 0.16

Analysis:
The problem is that in DuPont analysis of NBP. The total assets turnover is poor and their value
decrease from 0.066 to 0.074 that is dissatisfied for investor which is bad sign for NBP. But the
value of Net profit margin is too good their value increase from 13.16% in 2014 to 17.55% in
2015. The equity multiplier ratio is also good.

3.5.4 Profit Per Employee:

Net profit
Profit per employee=
Total No. of employees

Year 2014 2015

Profit 16,071,000,000 20,077,000,000

Employees 17,275 17,312

Profit per employee 93,027 1,159,715

Interpretation:
 One employee of NBP generate 1,159,715 rupees of profit in the year 2015
 NBP utilize their resources in effect manner
 The employees of NBP are hard workers

3.5.5 Business Per Employee:

Interest earned
Business per employee=
Total No. of employees

Year 2014 2015

Interest earned 115,252 ,000,000 114,386,000,000

Employees 17,275 17,312

Business per employee 6,687,409 6,607,324

Interpretation:
 Every one employee generate Rs 6,607,324 of interest in the year 2015
 Ratio is decrease from 6,687,409 in FY 2014 to 6,607,324 in FY 2015
 ratio shows that how much revenue is earned