FINANCIAL ANALYSIS

Financial statements are the principal means of reporting the financial condition and
results of operations of a business entity. These statements are the means to assist
various parties in decision making who are interested in the activities of the business.
These statements are means to an end of helping stakeholders in decision making to
improve the quality of decision making proper analysis of these statements helps a lot.
Financial statement analysis helps in determining the financial conditions at any
particular point in time and effectiveness of operations of a firm during a specific
period.
The various stakeholders of business are all interested in the analysis of financial
statements. But the focus of interest of all is not the same. For example creditors and
credit reporting agencies are interested in finding out the credit worthiness of the firm
to which they have extended credit or intend to extend credit. Short term creditors are
interested in the short term liquidity of the business and long term creditors are
interested in the long run cash flow which the firm can generate over the long period
of time. Investors are interested in the firm’s ability to sustain profitability over a
period of time. Government agencies analyze financial data for tax purposes. The
internal users of financial statement like management also analyze financial data for
planning and control.
The financial data of MCB is analyzed in the following ways:
• Vertical Analysis
• Horizontal Analysis
• Ratio Analysis
 Vertical Analysis of Balance sheet
Explanation of items 2005 2006 2007 2008 2009
Cash and balances with treasury banks 7.92 9.49 9.67 8.93 7.62
Balances with other banks 0.49 1.92 0.93 0.91 1.18
Lending’s to financial institutions 3.35 6.16 0.26 0.92 0.59
Investments – net 23.26 18.5 27.5 21.7 32.82
6 5 0
Advances – net 60.35 57.9 53.3 59.1 49.73
4 4 8
Operating fixed assets 2.74 2.65 3.90 3.89 3.54
Deferred tax assets – net 0.06 0.05 --- --- ---
Other assets – net 1.83 3.23 4.35 4.47 4.52
LIABILITIES
Bills payable 2.86 2.07 2.55 2.38 1.61
Borrowings 9.16 6.99 9.60 5.11 8.77
Deposits and other accounts 76.76 75.2 71.1 74.4 72.18
5 6 5
Sub-ordinated loan 0.53 0.47 0.12 --- ---
Liabilities against assets subject to finance lease --- --- --- --- ---
Deferred tax liabilities --- --- 0.29 0.10 0.63
Other liabilities 2.74 3.27 2.86 4.79 3.11
Share capital 1.43 1.60 1.53 1.42 1.36
Reserves 3.03 7.21 8.28 8.28 7.54
Un-appropriated profit 1.67 1.62 1.25 2.07 3.10
Surplus on revaluation of assets - net of tax 1.82 1.52 2.36 1.40 1.70

Vertical Analysis of Profit & Loss Account

Explanations of Items 2005 2006 2007 2008 2009
Mark-up / return / interest earned 75.53 83.78 83.14 87.36 90.14
Less: Mark-up / return / interest expensed 11.83 14.71 20.57 25.22 27.67
Balance: Net mark-up / interest income 63.70 69.07 62.57 62.14 62.48
Less: Provisions & Written off 4.87 3.84 8.02 8.77 12.79
= Net mark-up / interest income after provisions 58.83 65.23 54.55 53.37 49.69
Plus: Non-mark-up / interest income 24.47 16.22 16.86 12.64 9.86
Less: Non-mark-up / interest expenses 29.93 21.32 15.68 18.30 19.11
Balance: Profit before taxation 55.37 60.13 55.73 47.71 40.44
Less: Taxation 17.42 20.66 15.80 14.17 13.38
Balance: Profit after taxation 37.95 39.46 39.93 33.54 27.06

Horizontal Analysis of Balance Sheet

Year 2005=100%
Explanation of items 05-06 06-07 07-08 08-09 05-09
Cash and balances with treasury banks 37.19 22.23 -0.13 -2.16 63.85
Balances with other banks 348.62 -42.11 6.19 48.650 309.95
Lending’s to financial institutions 110.84 -95.01 289.97 -26.83 -70.00
Investments – net -8.63 78.13 -14.88 73.63 140.55
 Advances – net 9.94 10.45 19.72 -3.39 40.44
Operating fixed assets 10.65 76.98 7.74 4.35 220.16
Deferred tax assets – net -12.93 --- --- --- ---
Other assets – net 101.61 61.98 10.87 16.30 321.08

Bills payable -16.95 47.71 0.69 -22.28 -3.93

Borrowings -12.54 64.58 -42.49 97.05 63.13
Deposits and other accounts 12.26 13.45 13.04 11.33 60.29
Sub-ordinated loan -0.04 -70 --- --- ---
Liabilities against assets subject to finance lease --- --- --- --- ---
Deferred tax liabilities --- 100 -62.96 631.29 ---
Other liabilities 36.37 4.93 82.09 25.89 93.10
Share capital 28.09 14.96 0 10 62.03
Reserves 172.36 37.86 8.14 4.40 323.92
Un-appropriated profit 10.84 -7.24 79.18 71.64 216.20
Surplus on revaluation of assets - net of tax -4.35 87.09 -36.21 39.94 67.01

Horizontal Analysis of Profit & Loss Account

Year 2005=100%
Explanations of Items 05-06 06-07 07-08 08-09 05-09
Mark-up / return / interest earned 45.18 23.31 25.98 28.90 190.69
Mark-up / return / interest expensed 62.70 73.81 46.98 37.03 469.54
Net mark-up / interest income 41.92 12.56 19.07 25.60 138.90
Provisions & Written off 3.35 159.15 31.13 82.19 539.86
Net mark-up / interest income after provisions 45.11 3.92 17.30 16.30 105.72
Non-mark-up / interest income -13.25 29.19 -10.19 -4.59 -1.93
Non-mark-up / interest expenses -0.07 -8.60 39.89 30.43 66.63
Profit before taxation 42.11 15.17 2.63 5.89 77.86
Profit after taxation 36.09 25.72 0.71 0.79 73.67
 RATIO ANALYSIS

Current Ratio
Year 2005 Year 2006 Year 2007 Year 2008 Year 2009
1.07 1.11 1.10 1.12 1.11

Cash Ratio
Year 2005 Year 2006 Year 2007 Year 2008 Year 2009
0.09 0.11 0.12 0.11 0.09

Time Interest Earned Ratio

Year 2005 Year 2006 Year 2007 Year 2008 Year 2009
6.38 5.70 4.04 3.46 3.26

Debt Ratio
Year 2005 Year 2006 Year 2007 Year 2008 Year 2009
 0.92 0.88 0.87 0.87 0.86

Working Capital
Year 2005 Year 2006 Year 2007 Year 2008 Year 2009
18,080,516 31,757,831 34,129,146 43,144,763 47,700,847

Return on Equity
Year 2005 Year 2006 Year 2007 Year 2008 Year 2009
48.73% 45% 37.66% 31.49% 37.35%

Return on Assets
Year 2005 Year 2006 Year 2007 Year 2008 Year 2009
2.99% 3.79% 4.06% 3.60% 3.25%

Earning per share

Year 2005 Year 2006 Year 2007 Year 2008 Year 2009
Rs. 17.43 Rs. 23.40 Rs. 24.30 Rs. 22.25 Rs. 22.42

Return on Deposit
Year 2005 Year 2006 Year 2007 Year 2008 Year 2009
3.89% 4.72% 5.23% 4.66% 4.22%

Cash to Deposit Ratio

Year 2005 Year 2006 Year 2007 Year 2008 Year 2009
0.103 0.126 0.136 0.120 0.105

Interest Expense to Total Expense Ratio

Year 2005 Year 2006 Year 2007 Year 2008 Year 2009
0.298 0.408 0.567 0.580 0.592

Interest Income to Total Income Ratio

Year 2005 Year 2006 Year 2007 Year 2008 Year 2009
0.755 0.838 0.831 0.874 0.901

Net Profit Margin

Year 2005 Year 2006 Year 2007 Year 2008 Year 2009
37.95% 39.46% 39.93% 33.54% 27.06%