Ratio Analysis Of Meezan Bank Ratio analysis is the calculation and comparison of ratios which are derived from

the information in a company's financial statements. Financial ratios are usually expressed as a percent or as times per period. A. Liquidity Ratios It shows the ability of Meezan bank to cover its current liabilities with its current assets. 1. Current Ratio C.R = Current Assets Current Liabilities Particulars 2009 2008 Cash and balances with treasury banks Balances with other banks financial institutions Investments Financings Current Assets Total Current Assets Bills Payable Due to financial institutions Deposit and other accounts Current Liability Total Current Liabilities C.R = Current Assets / Current Liabilities 8387432 5260467 34499500 23290309 44188066 115625774 1249210 8468425 100333051 110050686 1.051 5763710 1344974 18108000 14526699 39528731 79272114 1057017 4008496 70233875 75299388 1.053

Working Current Ratio = Current Assets / Current Liablities Amounts taken from Balance sheet for current Assets C A = Cash and balances with treasury banks + Balances with other banks + financial institutions + Investments + Financings Amounts taken from Balance sheet for current Liabilities C L = Bills Payable + Due to financial institutions + Deposit and other accounts

Interpretation: An increase in the current ratio represents improvement in the liquidity position of bank while a decrease in the current ratio indicates that there has been deterioration in the liquidity position of the bank. Current ratio in 2009 is little bit decreased as compared with 2008. Its not a good sign for bank. 2. Acid Test Ratio: Acid Test Ratio = Current Assets Inventories / current liabilities Particulars 2009 2008 Cash and balances with treasury banks 8387432 5763710

Balances with other banks financial institutions Investments Financings Current Assets Total Current Assets Inventory Bills Payable Due to financial institutions Deposit and other accounts Current Liability Total Current Liabilities Acid Test Ratio = Current Assets Inventories / current liabilities Working: 2009: Acid Test Ratio = Current Assets Inventories / current liabilities Current Asset Inventory Current Liabilities (115625774-22523969) 110050686 =0.85

5260467 34499500 23290309 44188066 115625774 22523969 1249210 8468425 100333051 110050686 0.85

1344974 18108000 14526699 39528731 79272114 1535744 1057017 4008496 70233875 75299388 1.03

2008: Acid Test Ratio = Current Assets Inventories / current liabilities Current Asset Inventory Current Liabilities (79272114-1535744) 75299388 = 1.03

Interpretation: This graph shows that in year 2008 bank has enough short-term assets to cover its immediate liabilities without selling inventory where as in year 2009 it has less acid test ratio. 3. Working Capital

W.C= Current Assets Current Liabilities Particulars Cash and balances with treasury banks Balances with other banks financial institutions Investments Financings Current Assets Total Current Assets Bills Payable Due to financial institutions Deposit and other accounts Current Liability Total Current Liabilities W.C= Current Assets Current Liabilities Working: 2009: W.C= Current Assets Current Liabilities Current Asset Current Liabilities =115625774-110050686 = 5575088 2008: W.C= Current Assets Current Liabilities Current Asset Current Liabilities =79272114-75299388 = 3972726 2009 8387432 5260467 34499500 23290309 44188066 115625774 1249210 8468425 100333051 110050686 5575088 2008 5763710 1344974 18108000 14526699 39528731 79272114 1057017 4008496 70233875 75299388 3972726

Interpretation: Positive working capital means that the company is able to pay off its short-term liabilities in year 2009. B) Leverage Ratios 1. Time interest earned Time interest earned = Earnings before Tax+ Interest Markup Expense / Interest Expense

Particulars Earning Before Interest & Taxes Interest expense Earning before tax, /interest expense

2009 5210772 3471049 5210772 / 3471049 1.50

2008 3705467 2713156 3705467 / 2713156 1.37

Working: Amounts taken from Pls A/C 2009 = Earnings before tax+ Interest Markup Expense = 1,739,723+3,471,049 = 5210772 Time interest earned = Earnings before Tax+ Interest Markup Expense / Interest Expense = 5210772 / 3471049 = 1.50 2008 = Earnings before tax+ Interest Markup Expense = 992,311+2,713,156 = 3705467 Time interest earned = Earnings before Tax+ Interest Markup Expense / Interest Expense = 3705467 / 2713156 = 1.37

Interpretation Time interest earned indicates whether the business has earned satisfactory profits to pay its journal interest liabilities or not. This indicates the number of times interest is covered by the profits available to pay interest charges. Here the Time interest earned ratio of Meezan bank indicates that the company earned profit 1.50 And 1.37 times more than its interest expenses during last 2 years. This shows that the Company has average strong ability to meet its financial cost
2.

Debt Ratio Debt Ratio = Total Debt Total Asset Particulars 2009 114,997,275 124,181,734 0.926 2008 79,301,092 85,276,070 0.930

Total Debt Total Assets Total Debt / Total Assets Working Amounts taken from Balance Sheet 2009= Debt Ratio = Total Debt Total Asset

= 114,997,275 = 0.926 124,181,734

2008=

Debt Ratio =

Total Debt Total Asset

= 79,301,092 = 0.930 85,276,070

Interpretation A metric used to measure a company's financial risk by determining how much of the company's assets have been financed by debt. It indicates that 93% of the companys total assets are financed through the debts of the company in 2008. This ratio has been decreased in 2009, as compared to 2008, which is good 3. Debt to Equity ratio Debt to Equity = Particulars Total Debt Total Equity Total Debt / Total Equity Working: Amounts taken from Balance Sheet Particular Bills payable Due to financial institutions Deposits and other accounts Sub-ordinated loan Liabilities against assets subject to finance leases Deferred tax liabilities Other liabilities Total Debt Share capital Reserves Unappropriated profit Owner Equity 2009 1,249,210 8,468,425 100,333,051 ---4946589 114,997,275 6650048 1050092 1390395 9090535 2008 1,057,017 4,008,496 70,233,875 --453038 3548666 79,301,092 4925961 845022 570114 6341097 Total Debt Total Equity 2009 114,997,275 9,090,535 12.65 2008 79,301,092 6,341,097 12.51

2009 =

Debt to Equity Ratio =

Total Debt Total Equity

= 114,997,275 = 12.65 9,090,535

2008 =

Debt to Equity Ratio =

Total Debt Total Equity

= 79,301,092 6,341,097

= 12.51

Interpretation Debt to Equity ratio indicates the relationship between the external equities or outsiders funds and the internal equities or shareholders funds. This ratio measures solvency and determine the capital structure of a company. It indicates how much the company is leveraged. It shows that company debts are 12.65 and 12.51 times of companys own equity respectively. Meezan Bank have high debt to equity ratio indicating that Meezan Bank is highly financed with internal funds. It means it have low financial risk. 4. Total Capitalization Ratio Total Capitalization Ratio = Long term Debt / long term Debt + owner Equity Particulars Long term Debts Owner Equity Long term debts + Owner Equity Long term Debt / long term Debt + owner Equity Working: Total Capitalization Ratio = Long term Debt / long term Debt + owner Equity Amounts taken from Balance Sheet Particular Liabilities against assets subject to finance leases Deferred tax liabilities Other liabilities Long term Debt Share capital Reserves Unappropriated profit Owner Equity 2009 --4946589 4946589 6650048 1050092 1390395 9090535 2008 -453038 3548666 4001704 4925961 845022 570114 6341097 2009 4946589 9090535 14037124 0.35 2008 4001704 6341097 10342801 0.39

Interpretation Total Capitalization ratio shows the financial leverage of the bank. This ratio computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by Meezan Bank and compare it to others,

to analyze the risk exposure. It is concluded that long term debts of Meezan Bank are slightly decreasing year by year as compared to its total available capital. www.vuzs.net 5. Debt to Tangible Net worth Ratio: Debt to Tangible Net worth Ratio = Total Debt / Equity intangible assets Particular Total Debt / Equity intangible assets 2009 114997275 / 9090535 95217 12.78 Working: Amounts taken from Balance Sheet Particular vuzs.net Bills payable Due to financial institutions Deposits and other accounts Sub-ordinated loan Liabilities against assets subject to finance leases Deferred tax liabilities Other liabilities Total Debt Share capital Reserves Unappropriated profit Owner Equity Intangible assets (Taken From Annual Repo) 2009 1,249,210 8,468,425 100,333,051 ---4946589 114,997,275 6650048 1050092 1390395 9090535 95217 2008 1,057,017 4,008,496 70,233,875 --453038 3548666 79,301,092 4925961 845022 570114 6341097 94884 2008 79301092 / 6341097 - 94884 12.70

Debt to Tangible Net worth Ratio = Total Debt / Equity intangible assets 2009 = 114997275 / 9090535 95217 = 12.78 2008 = 79301092 / 6341097 - 94884 = 12.70

Interpretation: It Measures a company's leverage or the safety of principal on long-term debt. In year 2009 the ratio increased which, shows that enterprise is riskier where as in year 2008 ratio decreased