PART-01

INTRODUCTION

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1.1 Introduction:

As a part of the internship Program of BBA course requirement, I was assigned to do my internship in
Mercantile Bank Limited, Mazar Road branch, Dhaka for the period of three months starting from
April 3, 2011 to June 3, 2011. My report is on the financial performance dealings of Mercantile Bank
Ltd (Mazar Road Branch)

1.2 Background of the study:

With a view to acquire an in-depth knowledge about the practical orientation and experiences of
dynamic business world, it is obligatory to undertake an extensive study to prepare internship report
the students of Business Administration, Bangladesh University of Business & Technology (BUBT),
who are desirous to the successfully completion of their BBA degree. During the preparation of the
internship report, the students are guided and supervised by the faculties of the department with whom
they are attached to. Each student is required to work on a specific topic to his/her learning with the
attachment of any respective organization. As part of the program, I am highly proud to join with
Mercantile bank Limited as Internee and selecting topic Financial Performance Evaluation of
Mercantile Bank Limited (MBL), Mazar Road Branch, Dhaka. I was placed in Mercantile Bank
Limited, Mazar Road Branch for a period of three months. This internship is an orientation to the
entire working activities of Mercantile Bank Limited. However, I had worked there in several
departments, but I had to select an area of study in which I can make detail research and present my
understanding in the report.

This report, Performance Evaluation of Mercantile Bank Limited, has been prepared to fulfill the
partial requirement of BBA program as a mean of Internship Program. While preparing this report, I
had a great opportunity to have sound knowledge of all the banking activities of Mercantile Bank Ltd.

1.3 Significance of the study:

The prime reason of this study is to become familiar with the realistic business world and to attain
practical knowledge about the banking and corporate world. We all know that there is no alternative
of practical knowledge, which is more beneficial than
59theoretical aspects.
1.4 Scope of the study:

The report covers the topic titled The Financial Performance Evaluation of Mercantile Bank
Limited. Therefore, the focus of this report is to analyze the financial performance of MBL. In order
to conduct study on this topic, the following topics fall within the scope of the study.
An overview of Mercantile Bank Limited
Performance analysis of MBL through trend analysis of financial ratios of MBL
Comparison of MBL with CBL and MBL through ratio analysis
To obtain practical experience about general banking activities by involving such type of
program

1.5 Objective of the Study

1.5.1 General Objective:

The prime objective of this report is to analyze The Financial Performance of Mercantile Bank Ltd .
1.5.2 Specific objectives:
The following objectives can be listed as the specific objectives of study.
To identify and assess the present financial performance of Mercantile Bank Limited
To calculate the financial ratios and identify the areas of concern
To compare the financial situation of MBL with the two other banks-City bank, Eastern bank
To understand the implications in analyzing and interpreting the financial ratios
To identify the findings and raise possible recommendations for MBL

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1.6 Methodology:
1.6.1 Research Design:
This report is a descriptive type of research, which briefly reveals the overall activities performed by
Mercantile Bank Ltd. It has been administered by collecting secondary data. Annual report of MBL
was the major secondary data sources in this regard. Ratio analysis in the form trend analysis and
comparative analysis has also been used as major tools for the financial performance evaluation. This
report is analytical in nature.

1.6.2 Sources of data:

Sources of secondary data of this report are:

Annual Report of MBL

Different text book and journals
Various reports and articles related to study
Some of my course elements as related to this report
Web base support from the internet

1.6.3 Data Collection Procedure:

Conducting this study secondary data are used. Data regarding the Performance Evaluation of The
Mercantile Bank Ltd. were collected from secondary sources like Annual Reports, journals,
Brochures, Manuals and Publication of The Mercantile Bank Ltd., official website. Some information
are also collected by taking expert opinion from the officers and difference observation while I doing
internship program at the bank.

1.6.4 Instruments Used for Analysis:

A. Ratio analysis

A.1.Time series (Trend) analysis

A.2. Comparative analysis

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A. Ratio Analysis:

Financial statement provides information about a firms positions at a point in time as well as its
operations over some past period. The quantitative (such as ration analysis) tools are used to analyze
the gathered data and different types of computer software are used for reporting the gathered
information from the analysis. The term ratio refers to the numerical or quantitative relationship
between two items. Ratio can be classified into four broad groups-

1. Liquidity Ratio

2. Activity Ratio

3. Debt Ratio

4. Profitability Ratio

Ratio analysis is made in the form of trend analysis and comparative analysis.

A 1 Trend Analysis

It is really important to analysis trends in ratios as well as their absolute levels. This analysis
informs us whether a companys financial condition improving or deteriorating

A.2 Comparative analysis:

Comparative analysis involves the comparison of different firms financial ratios at the same point of
time or over the number of periods.

59
1.7 Limitation of the Study:

Every matter has some limitations. Therefore, this is also not an exception. The limitations of this
internship report are been sated below:
Due to time and cost restriction, the study is concentrated in selected areas. To continue study
in such a vast area requires a big deal of time. As an internee, I had only three month that is
not enough.
As a financial organization a bank has some restrictions to serve all the real data of the bank
to the general people, as a result the study is mostly depending on official files and annual
reports.
Available data also could not be verified. In most cases, I simply did not have any option but
to furnish with data without verification.
MBL as a commercial bank so its key personnel are very busy and they could not able to give
me enough time for discussion about various topics.
Sometimes such kinds of tasks were given in the Bank that was no way related to my topic
and I was responsible to do it that breaks my concentration in my major area of investigation.
Every organization has its own secrecy that is not revealed to others.
Lack of experience has acted as constraints in the way of meticulous exploration of the topic.

59
 PART-2
OVERVIEW OF MERCANTILE BANK
LTD

59
2.1 Background and History of MBL:
Mercantile Bank Limited is a third generation bank in Bangladesh. Mercantile Bank has been
incorporated on May 20th, 1999 in Head office at 61 Dilkhusha C/A, Dhaka, Bangladesh as a public
limited company with the permission of the Bangladesh Bank. Mercantile Bank Limited commenced
formal commercial banking operation from the June 02, 1999. The founders of MBL are committed to
make it a little more different and a bit special qualitatively.

The Authorized Capital of the Bank is BDT 800000 million and divided into 80000000 ordinary
shares of BDT 100 each as of 31 December 2009. The Paid -up Capital is BDT 215841 million of
21584134 ordinary shares of face value of BDT 100 each and listed both in DSE & CSE. MBL make
it most efficient to meet the needs of 21 st century with assets of BDT 44,940.54 million and more than
1000 employees. The Bank provides a broad range of financial services to its customers and corporate
clients in retail banking, corporate banking and international trade.

The total amount of deposit is BDT 39,348 million and the total loans and advances are BDT
31,877.86 million at the end of the year 2007 that shows a great performance of MBL. The credit
deposit ratio is 81.02%. The net profit after tax at the end of the year 2007 is BDT 540.50 million.

The bank has 10 divisions namely HRD, Credit division, Development and marketing division,
Research and planning division, Information technology division, General banking division, Treasury
and money market division,

The opening of the Principal Office was the big leaf forward and successively the opening of the
Mothijil Branch expanded the horizon of Mercantile Bank Limited to bring its services to the valued
clients more effectively. The second Branch opened at Dhanmondi Residential Area, Dhaka on August
04, 1999. The third branch was opened at Agrabad, Chittagong on November 06, 1999. The bank
stood 58 branches all over the country up to October, 2010. With a firm commitment to achieve an

59
excellence in service, Mercantile Bank Limited has always tried for creating wide array of banking
solution and offer supervision value proposition.

2.2 Vision of Mercantile Bank:

To make finest corporate citizen
2.3 Mission of Mercantile Bank:
Will become most caring, focused for equitable growth based on diversified deployment of resources,
and nevertheless would remain healthy and gainfully profitable Bank.

2.4 Objectives
Strategic objectives:
To achieve positive Economic Value Added (EVA) each year.
To be market leader in product innovation.
To be one of the top three Financial Institutions in Bangladesh in terms of cost efficiency.
To be one of the top five Financial Institutions in Bangladesh in terms of market share in all
significant market segments we serve.

Financial objectives:
To achieve 20% return on shareholders' equity or more, on average.

2.5 Core values

For the customers:

Providing with caring services by being innovative in the development of new banking
products and services

For the shareholders:

Maximizing wealth of the Bank
59
 For the employees:
Respecting worth and dignity of individual employees devoting their energies for the progress
of the Bank

For the community:

Strengthening the corporate values and taking environment and social risks and reward into
account

59
2.6 MBL at a Glance:

MBL is one of the largest private banks in Bangladesh.

It operates through 65 fully computerized branches ensuring best possible and fastest services
to its valued clients.
The bank has more than 500 foreign correspondents worldwide.
Total number of employees nearly 1500.
The Board of Directors consists of 11 members.
The bank is headed by the Managing Director who is the Chief Executive Officer.
The Head Office is located at Banks own 61 Dilkusha C/A at Motijheel, , Dhaka.

MBL Networks
Corporate Offices ( Corporate Branch and Local Office ) 2
Regional Office 10
Worldwide Affiliates 400
Total Branches ( Including Corporate Branch and Local Office ) 65
Authorized Dealer Branches 24
Treasury and Dealing Room 1
Training Institute 1
Man Power 1500

Table- 1: MBL Networks

2.7 Strategies of MBL:

1) MBL Bank Limited mainly follows top down approach to take necessary decisions for the
company. Basically they follow the centralize strategy where the Head Office of the Bank control and
monitor all the activities of its branches. In case of marketing strategy they basically depend on word
of mouth as they are already well reputed for its long-term service in the banking industry.

59
2.8 Function of Mercantile Bank LTD:

Mercantile Bank Limited performs all types of functions of a modern commercial bank, which
generally includes:

2) Mobilization of savings of the people and safe keeping of all types of deposit account
3) Making advances especially for productive activities and for the other commercial and socio-
economic needs
4) Providing banking services to common people through the branches
5) Introduce modern Banking services in the country
6) Discounting and purchasing bills
7) Various information, guidance and suggestions for promotion of trade and industry keeping in
view of the overall economic development of the country
8) Finance for both capital machinery and working capital
9) Finance under small business of self employed clients
10) Finance of farming and non-farming activities to rural people including purchase of
agricultural equipments
11) Developing new products Market surveys before making any finance
12) Finance for small transport
13) Monitoring and forecasting
14) Developing marketing campaigns
15) Finance for household durables
16) Work simplification studies
17) Monitoring diversification of portfolio among different sectors

59
2.9 Organ gram:
2.9.1 Structural Management:

MD & CEO

Chief Advisor
Board of Directors
Managing Director (HRD)

Deputy Managing Director Deputy Managing Director

GSD, CAD, A&I, GB, D&M ID, IT, Credit, R&D

Executive Vice President/

Company Secretary

Senior Vice President Senior Vice President Senior Vice President

Vice President
O
R
G Senior Astt. Vice President
A
N Astt. Vice President
I
Z
Senior Principle Officer
A
T
I Principle Officer
O
N Senior Officer

C Officer
H
A Junior Officer
R
T
Astt. Officer
O
f
Fig: Organizational Chart of MBL
M
B
L
59
2.9.2 The Corporate Structure:

Board of Directors, the apex body of the Bank, formulates policy guidelines, provides strategic
planning and supervises business actives and performance of management while the Board remains
accountable to the company and its shareholders. The Board is assisted by the Executive Committee
and Audit Committee.

2.9.3 Board of Directors:

Board of Directors who decides the composition of each committee determines the responsibilities of
each committee. The board of directors, the apex body of the Bank, formulates policy guidelines,
provides strategic planning and supervises business activities and performance of management while
The Board remains accountable to the company and its shareholders. The Board is assisted by the
Executive Committee and Audit Committee.

Managing Director & CEO Dewan Mujibur Rahman

Additional Managing Director A.K.M. Shahidul Haque
Deputy Managing Director Md. Abul Shahjahan
Table- 2: Board of Director MBL

2.9.4 Executive Committee of MBL:

All routine matters beyond delegated powers of management are decided by or routed through the
Executive Committee, subject to rectification by the Board of Directors.

Senior Executive Vice President Md. Abdul Jalil Chowdhury

Monindra Kumar Nath
M. A. Yousuf Khan
Md. Quamrul Islam Chowdhury
Executive Vice President Choudhury Moshtaq Ahmed
A S M Bulbul
Md. Nazrul Hossain
S Q Bazlur Rashid
Table- 3: Executive Committee of MBL

2.10 Different departments of MBL:

59
There are mainly four departments of MBL-
o General Banking Department
o Credit department
o Cash Section
o Foreign Exchange Department

2.10.1 General Banking:

In this department, the general Banking activities like- opening account & related information are
provided. The general Banking in charge of Mercantile Bank Ltd (Mirpur Branch) is Md. Mizanur
Rahman.

2.10.2 Credit Department:

Credit department helps the customers through providing bank loans. There are various types of loans
handled by different officers. There are secured loan, Unsecured loan, SME loan & Home & other
loan facilities.

2.10.3 Cash Section:

Cash section performs the activities of keeping and giving cash to the customer. The person who
wants to open an account, have to keep specific amount of money to the account. Customers can
withdraw the cash when the need after a specific period. In cash section, various type of bills like-
DESCO bill, ALICO monthly fees are taken from the customers. The name of cash in charge is Md.
Kamruzzaman.

2.10.4 Foreign Exchange Department:

Foreign Exchange Department consists of three sections-
Import section.
Export Section.
Remittance Section.
Three departments are organized properly to provide the best facilities to the customers.

2.11 Correspondent Relationships:

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The Bank has established correspondent relationship across the world with a number of foreign banks
namely Citibank N.A., The bank of Tokyo Mitsubishi Ltd., Standard Chartered Bank, American
Express Bank, HSBC, Commerzbank, Commonwealth Bank of Australia, Scotia Bank, Toronto
Dominion Bank, Unicredito ltaliano, Wachovia Bank, N.A., Hutton National Bank, HypoVereinsbank,
Bank Australia, Sumitomoto Mitsui Banking Corp., ING Bank, United Bank of India, ICICI Bank etc.
The number of foreign correspondents is 584 as of December 31, 2007. Efforts are being continued to
further expand the Correspondent Relationship to facilitate Banks growing foreign trade transactions.

2.12 Human resource development:

In todays competitive business environment, only the quality of human resources makes the
difference. The banks commitment to attract the best persons to work for its and the adaptation of the
latest technologies is reflected in the efforts of the bank in the development of its human resources. in
the face of todays global competition the bank envisages to develop highly motivated workforce and
to equip them with latest skills and technologies. A good working environment promotes a level of
loyalty and commitment, devotion and dedication of the part of the employees.

The bank sent number of officers to Bangladesh Institute of Bank Management and the other training
institutes for specialized training various aspects of banking. The bank is contemplating to set up
Training Institute for providing facilities to its executive and officers. The bank believes in
professional excellence and considers its working force as its most valuable asset and the basis of its
efficiency and strength.

2.13 Branch Expansion:

The bank commenced its business on June 02, 1999. The first Branch was opened at 61 Dilkusha
Commercial Area on the Inauguration Day of the Bank. The second Branch opened at Dhanmondi
Residential Area, Dhaka on August 04, 1999. The third branch was opened at Agrabad, Chittagong on
November 06, 1999.

Now the total number of branches stood at 58 at the end of the month, September 2010.

2.14 Foreign Exchange business:

59
A commercial Bank/MBL is involved in financing foreign trade apart from financing internal credit
requirement in the economy. This involves handling of import business through opening L/C and
handling of export business. As banking has become very keenly competitive, banks find it
convenient to involve in foreign exchange business as a lucrative source of earning income and profit.
Apart from financing foreign trade, Commercial Banks also provide guarantees of various types to
their clients. While these facilities clients to undertake jobs assigned to them by various corporations
and organization, this enables the bank to earn commission.

2.15 Different Types of Scheme & services of MBL:

Mercantile Bank Limited has different types of scheme for a customer. These are given below:

Monthly saving scheme.

Family Maintenance Deposit scheme.
Double benefit deposit scheme.
Special Savings Scheme.
Pension and Family Support Deposit.
Consumers' Credit Scheme.
Small Loan Scheme.
Lease Finance.
Doctors' Credit Scheme.
Rural Development Scheme.
Women Entrepreneurs Development Scheme.
SME Financing Scheme.
Personal Loan Scheme
Car Loan Scheme.

2.16 Financial Highlights of MBL: 59

 years 2006 2007 2008 2009 2010

Particulars Tk in million Tk in million Tk in million Tk in million Tk in million

Paid up capital 1199.12 1498.90 1798.08 2158.42 4072.21

Total Loans & 26842.14 31877.86 43419.36 48295.55 66377.70

Advances
Price earning ratio 9 times 12 times 10 times 11 times 14 time

Earning per share 41.22 30.05 28.53 30.67 41.04

Income from 369.12 764.48 520.33 696.66 919.45

investment

Total asset 37159.65 44940.54 55928.72 66166.52 87140.11

Total deposit 33317.64 39348.00 49538.35 58033.47 75629.14

Table- 4: Financial Highlights of MBL

[Source: Annual journal of MBL (From 2006 to 2010)]

59
 PART-3
THEORITICAL BACKGROUND

59
3. Theoretical aspects:
3.1 Financial performance analysis:
Financial performance analysis of a company is very important to get an overall view about an
organization. It generally consists of interpretation of balance sheet and interpretation of income
statement. By using these two sources, one can perform the ratio analysis in the form of trend and
comparative analysis, which are the major tools for analyzing the financial performance of a bank.

3.2 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.
.

3.3 Income statement:

Income statement also referred as profit and loss statement, 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.

3.4 Ratio Analysis

59
Ratio analysis involves methods of calculating and interpreting financial ratios to assess the banks
performance and status. The basic inputs to ratio analysis are the banks income statement and balance
sheet.

3.5 Types of Ratio Comparisons

Ratio analysis is not merely the application of a formula to financial data to calculate a given ratio.
More important is the interpretation of the ratio value. To answer such questions as is it too high or
too low. Is it good or bad? Two types of ratio comparisons can be made: Cross-sectional & Time-
series analysis.

3.5.1Time-series Analysis

Time-series analysis evaluates performance over time. Comparison of current to past performance,
using ratios, allows the firm to determine whether it is progressing as planned. Additionally, time-
series analysis is often helpful in checking the reasonableness of a firms projected financial
statements.

3.5.2Cross-Sectional Analysis

Cross-Sectional analysis evaluates performance of different firms` financial ratios at the same
point in time.

3.6. Cautions about Ratio Analysis

Before discussing specific ratios, we should consider the following cautions:

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

3.7. Groups of Financial Ratios

Financial ratios can be divided into four basic groups or categories:
i. Liquidity ratios
ii. Activity ratios
iii. Debt ratios
59
iv. Profitability ratios
Liquidity, activity, and debt ratios primarily measure risk, profitability ratios measure return. In the
near term, the important categories are liquidity, activity, and profitability, because these provide the
information that is critical to the short-run operation of the firm.

3.7.1. Analyzing Liquidity

The liquidity of a business firm is measured by its ability to satisfy its short-term obligations as they
come due. Liquidity refers to the solvency of the firms overall financial position. The three basic
measures of liquidity are-

3.7.1. a. Net Working Capital:

Net Working Capital, although not actually a ratio is a common measure of a firms overall liquidity.
A measure of liquidity is calculated by subtracting total current liabilities from total current assets.

Net Working Capital =Total Current Assets Total Current Liabilities

3.7.1. b. Current Ratio:

One of the most general and frequently used of these liquidity ratios is the current ratio. Organizations
use current ratio to measure the firms ability to meet short-term obligations. It shows the banks
ability to cover its current liabilities with its current assets .

Current Ratio = Current Asset/Current Liabilities

3.7.1. c. Quick Ratio:

The quick ratio is a much more exacting measure than current ratio. This ratio shows a firms ability
to meet current liabilities with its most liquid assets.

Quick Ratio=Cash + Government Securities + Receivable / Total Current Liabilities.

3.7.2. Analyzing Activity:

Activity ratios measure the speed with which accounts are converted into sale or cash. With regard to
current accounts measures of liquidity are generally inadequate because differences in the
composition of a firms current accounts can significantly affects its true liquidity.

59
A number of ratios are available for measuring the activity of the important current accounts which
includes inventory, accounts receivable, and account payable. The activity (efficiency of utilization)
of total assets can also be assessed.

3.7.2. a. Operating Cost to Income Ratio:

It measures a particular Banks operating efficiency by measuring the percent of the total operating
income that the Bank spends to operate its daily activities. It is calculated as follows:

Cost Income Ratio = Total Operating Expenses / Total Operating Income

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3.7.2. b. Total Asset Turnover:
The total asset turnover indicates the efficiency with which the firm is able to use all its assets to
generate sales.
Total Asset Turnover = Sales/ Total Asset

3.7.2. c. Investment to Deposit Ratio:

Investment to Deposit Ratio shows the operating efficiency of a particular Bank in promoting its
investment product by measuring the percentage of the total deposit disbursed by the Bank as loan
and advance or as investment. The ratio is calculated as follows:

Investment to Deposit Ratio = Total Investments / Total Deposits

3.7.2. d. Inventory turnover:
A ratio showing how many times a company's inventory is sold and replaced over a period.

Inventory Turnover= Cost of good sold/ Average Inventory

The days in the period can then be divided by the inventory turnover formula to calculate the days it
takes to sell the inventory on hand or "inventory turnover days". This ratio should be compared
against industry averages.
A low turnover implies poor sales and, therefore, excess inventory.
A high ratio implies either strong sales or ineffective buying. High inventory levels are unhealthy
because they represent an investment with a rate of return of zero. It also opens the company up to
trouble should prices begin to fall.

3.7.2. e. Average Collection Period:

Average collection period is useful in evaluating credit and collection policies. This ratio also
measures the quality of debtors. It is arrived at by diving the average daily sales into the accounts
receivable balance:

Average Collection Period=Accounts receivable/ (Credit sales/365)

A short collection period implies prompt payment by debtors. It reduces the chances of bad debts.
Similarly, a longer collection period implies too liberal and inefficient credit collection performance.
It is difficult to provide a standard collection period of debtors .

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3.7.2. f. Average Payment Period:

Average payment period ratio gives the average credit period enjoyed from the creditors that means it
represents the number of days by the firm to pay its creditors. A high creditors turnover ratio or a
lower credit period ratio signifies that the creditors are being paid promptly. This situation enhances
the credit worthiness of the company. However a very favorable ratio to this effect also shows that the
business is not taking the full advantage of credit facilities allowed by the creditors. It can be
calculated using the following formula:

Average Payment Period=Accounts payable/ Average purchase per day

3.7.3. Analyzing Debt

The debt position indicates the amount of other peoples money being used in attempting to generate
profits. In general, the more debt a firm uses in relation to its total assets, the greater its financial
leverage, a term use to describe the magnification of risk and return introduced through the use of
fixed-cost financing such as debt and preferred stock.

3.7.3. a. Debt Ratio:

The debt ratio measures the proportion of total assets provided by the firms creditors.

Debt Ratio = Total Liabilities / Total Assets

3.7.3. b. Time Interest Earned Ratio:

This ratio measures the ability to meet contractual interest payment that means how much the
company able to pay interest from their income.

Time Interest Earned Ratio=EBIT/ Interest

3.7.4. Analyzing Profitability

These measures evaluate the banks earnings with respect to a given level of sales, a certain level of
assets, the owners investment, or share value. Without profits, a firm could not attract outside capital.
Moreover, present owners and creditors would become concerned about the companys future and
attempt to recover their funds. Owners, creditors, and management pay close attention to boosting
profits due to the great importance placed on earnings in the marketplace.
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3.7.4. a. Operating Profit Margin:
The Operating Profit Margin represents what are often called the pure profits earned on each sales
dollar. A high operating profit margin is preferred. The operating profit margin is calculated as
follows:
Operating Profit Margin = Operating Profit / Sales

3.7.4. b. Net profit Margin:

The net profit margin measures the percentage of each sales dollar remaining after all expenses,
including taxes, have deducted. The higher the net profit margin is better. The net profit margin is
calculated as follows:
Net profit Margin = Net profit after Taxes / Sales

3.7.4. c. Return on Asset (ROA):

Return on asset (ROA), which is often called the firms return on total assets, measures the overall
effectiveness of management in generating profits with its available assets. The higher ratio is better.

Return on Asset (ROA) = Net profit after Taxes / Total Assets

3.7.4. d. Return on Equity (ROE):

The Return on Equity (ROE) measures the return earned on the owners investment. Generally, the
higher this return, the better off the owners.
Return on Equity (ROE) = Net profit after Taxes / Stockholders Equity

3.7.4. e. Price/ Earnings ratio (PE ratio):

The Price/ Earnings ratio (price-to-earnings ratio) of a stock is a measure of the price paid for a share
relative to the income or profit earned by the firm per share.

P/E ratio - Price per share / earnings per share

3.7. 4. f. Earnings per share (EPS):

EPS represents the dollar amount earned behalf of each outstanding share of common stock.

EPS= Net income/no. of common share outstanding

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 PART-4
FINANCIAL ANALYSIS

59
4.0. Quantitative Analysis of Mercantile Bank Limited

4.1 Ratio Analysis:

4.1.1 Liquidity Ratio:

Liquidity ratio measures the firms ability to pay short-term obligations as they come due.

1. Current ratio:
The current ratio, one of the most commonly cited financial ratios, measures the firms ability
to meet its short-term obligations. The higher the current ratio, the better the liquidity position
of the firm. It is expressed as

Current Ratio=Current Asset/Current Liabilities

Year 2006 2007 2008 2009 2010

Current Ratio 1.00 1.01 1.02 1.04 1.05
Table-5: Current ratio
Source: Annual Report of MBL
Graphical Presentation:

Figure 4.1 Current Ratio

Interpretation:
The graph shows an upward trend in MBLs current ratio. This indicates that MBL has increased its
liquidity position over the years and thereby it has reduced the chance of being technically insolvent.

2. Net Working capital 59

Net working capital, although not actually a ratio is a common measure of a firms overall Liquidity a
measure of liquidity ratio calculated by

Net Working capital=Current Asset-Current Liabilities

Year 2006 2007 2008 2009 2010

Net Working Tk. Tk. Tk. Tk. Tk.
Capital (Tk. million) 822.34 1056.25 1471.08 2150.14 2447.97

Table-6: Current ratio

Source: Annual Report of MBL

Graphical Presentation:

Figure 4.2: Net Working Capital

Interpretation:
Net working capital measures liquidity position of the firm. In 2006, the net working capital was tk
822.34 million that was gradually increased to tk 2447.97 million in 2010. The graph shows an
increasing trend of MBLs liquidity position this indicates that MBL has increased its ability to pay
short-term obligation out of its currents assets.

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4.1.2 Activity ratios:
Activity ratios measure the speed with which accounts are converted into sale or cash.
1. Cost Income Ratio:
It measures a particular Banks operating efficiency by measuring the percent of the total
operating income that the Bank spends to operate its daily activities. It is calculated as
follows.
Cost Income Ratio=Total operating Expenses/Total Operating Income

Year 2006 2007 2008 2009 2010

Cost Income Ratios 40.13% 42.33% 44.15% 42.25% 40.38
(%)
Table-7: Cost Income ratio
Source: Annual Report of MBL

Graphical Presentation:

Figure 4.3 Cost Income Ratio

Interpretation:
In 2008 the cost income ratio of Mercantile Bank Ltd. is highest but after 2008 it is decreasing.
Therefore, it can be said that the operating efficiency of the Mercantile Bank Ltd. is becoming good.
This means they are successful in minimizing their operating
59 cost relative to its operating income.
2. Total Asset Turnover Ratio:

The total asset turnover indicates the efficiency with which the firm is able to use all its assets to
generate revenue.
Total Asset Turnover= Operating Income/Total Asset

Year 2006 2007 2008 2009 2010

Total Asset Turnover 0.053 0.053 0.051 0.053 0.055
(times)
Table-8: Total Asset Turnover
Source: Annual Report of MBL

Graphical Presentation:

Figure 4.4 Total Asset Turnovers

Interpretation:

This ratio measures the efficiency of the bank in using its total assets to generate operating income.
The graph shows an upward trend in total asset turn over except in 2008. Its total asset turnover is
lowest in 2008, but it is highest in 2010. This indicates that MBL is becoming more efficient in using
its assets to generate operating income.

59
3. Investment to Deposit ratio:
Investment to Deposit Ratio shows the operating efficiency of a particular Bank in promoting its
investment product by measuring the percentage of the total deposit disbursed by the Bank as loan
and advance or as investment.
Investment to Deposit Ratio=Total investment/Total Deposit

Year 2006 2007 2008 2009 2010

Investment To Deposit Ratio .21 .19 .15 .25 .15

Table-9: Investment to Deposit Ratio

Source: Annual Report of MBL

Graphical Presentation:

Figure 4.5 Investment to Deposit ratio

Interpretation:

In 2009, investment to deposit ratio is highest. That is, 25% of total deposits are in the form of
investment. However, this ratio drastically falls from 25% to 15%, which is not good sign for the
company. This indicates that MBL is becoming less efficient in converting their deposit into
investment. 59
4.1.3 Debt ratios:
Debt ratios measure the portion of assets financed by firms creditors. These ratios also indicate the
firms debt service capacity.

1. Debt Ratio:

The debt ratio measures the proportion of total assets financed by the firms creditors.

Debt ratio= Total Liabilities/Total Assets

Year 2006 2007 2008 2009 2010

Debt Ratio .92 0.93 0.94 0.94 0.92
Table-10: Debt Ratio
Source: Annual Report of MBL

Graphical Presentation:

Figure 4.6 Debt Ratio

Interpretation:

The graph shows that debt ratio MBL is fluctuating. The MBL has reduced its debt ratio in 2010 to
amount of 92% from 94% in 2009 and thereby it has reduced its financial leverage and financial risk.
59
2. Time Interest Earned Ratio

The times interest earned ratio, sometimes called the interest coverage ratio, measures the firms
ability to make contractual interest payments.

Time Interest Earned Ratio =Earnings before interest & Taxes/Interest

Year 2006 2007 2008 2009 2010

Time Interest Earned Ratio 1.13 1.22 1.37 1.54 1.28

Table-11: Time Interest Earned Ratio

Source: Annual Report of MBL

Graphical Presentation:

Figure 4.7 Time Interest Earned Ratio

Interpretation:

There is an upward trend in MBLs time interest earned ratio up to year 2009. However, it has
decreased in 2010 to the amount of 1.28 times. This indicates that MBL has reduced its margin safety
in paying the contractual interest and thereby it has increased its financial risk.

4.1.4 Profitability ratios: 59

These ratios measure the banks earnings with respect to a given level of revenue, a certain level of
assets, the owners investment, or share value.

1. Net Profit Margin

The net profit margin measures the percentage of each sales dollar remaining after all expenses,
including taxes, have deducted. The higher the firms net profit margin is better. The net profit margin
is a commonly cited measure of the companys success with respect to earnings on sales .

Net Profit Margin=Net profit after tax/operating income

Year 2006 2007 2008 2009 2010

Net Profit Margin 0.21 0.23 0.22 0.23 0.30

Table-12: Net Profit Margin

Source: Annual Report of MBL
Graphical Presentation:

Figure 4.8 Net Profit Margin

Interpretation:
There is an upward trend in MBLs net profit margin except in 2008 as shown in graph. This
indicates that MBL has succeeded to increase the portion of total operating income that remains after
deducting all the costs and expenditure.

2. Return on Asset (ROA): 59

The return on asset (ROA), which is often called the firms return on total assets, measures the overall
effectiveness of management in generating profits with its available assets. The higher the ratio is
better.

Return on Asset (ROA) =Net Profit after tax/Total Asset

Year 2006 2007 2008 2009 2010

Return On Asset 1.33% 1.20% 1.10% 1.22% 1.64%
(%)

Table-13: Return on Asset

Source: Annual Report of MBL

Graphical Presentation:

Figure 4.9 Return on Asset

Interpretation:

Return on assets is an indicator of how profitable a company is. The banks return on asset increasing
from 1.33 to 1.64 in the preceding 5 years. It can be said that MBLs earning capacity is increasing
year by year. This is good sign for the Bank.

3. Return on Equity (ROE):

59
The return on equity measures the return earned on the owners investment. High the return on equity
is the better for the owner.

Return on Equity=Net Profit after Tax/ Shareholders equity

Year 2006 2007 2008 2009 2010

Return on Equity(%) 21.94 18.45 17.75 18.80 19.84
Table-14: Return on Equity
Source: Annual Report of MBL

Graphical Presentation:

Figure 4.10 Return on Equity

Interpretation:

The return on equity ratio was decreasing from 2006 to 2010. This has been decreased from 21.94%
to 19.84%, which is not desirable. Therefore, the management should work hard to increase the return
associated with equity. Though return on equity has slightly increased in 2010 from preceding year,
still it is significantly deviated from that of in 2006.

4. Earnings per Share

59
The firms Earning per share (EPS) are generally of interest to present or prospective stockholders and
management. The Earning per share represent the number of dollars earned on behalf of each
outstanding share of common stock. The earnings per share is calculated as follows

Earnings Per Share =Earnings available for common stock holder/No. of shares of
common stock outstanding

Year 2006 2007 2008 2009 2010

EPS(tk.) 41.22 30.05 28.53 30.67 41.04

Table-15: Earnings Per Share

Source: Annual Report of MBL

Graphical Presentation:

Figure 4.11 Earnings Per Share

Interpretation:

The graph shows that, EPS is highest in 2006 and there is a downward trend in EPS from year 2006 to
2008. However, MBL has managed to increase its EPS as shown by the upward trend in EPS over the
last three years.

5. Price Earnings Ratio 59

The price or earning (P/E) ratio is commonly used to assess the investors appraisal of share value.
The P/E represents the amount investors are willing to pay for each dollar of the firms earnings. The
higher the P/E ratio, the greater the investor confidence in the firms future is. The price Earning (P/E)
ratio is calculated as follows

Price Earnings Ratio=Market price per share of common stock/Earning per share

Year 2006 2007 2008 2009 2010

Price Earnings Ratio(times) 8.62 13.83 12.21 12.88 14.14

Table-16: Price Earnings Ratio

Source: Annual Report of MBL
Graphical Presentation:

Figure 4.12 Price Earnings Ratio

Interpretation:

The graph shows an upward trend in price earnings ratio of MBL. This indicates that investors
perception regarding performance and future prospects of MBL is becoming well over the last 5 years.
This increasing trend in P/E ratio is good sign for the MBL because it indicates the shareholders
wealth maximization and new investors confidence on MBLs performance and prospect.

59
 PART-5
COMPARATIVE ANALYSIS

59
5.1 Comparative Analysis of MBL with CBL and EBL

5.1.1 Comparative Ratio Analysis:

5.1.2 Liquidity Ratio:

a. Current Ratio:

Year CBL EBL MBL

2008 0.94 0.71 1.02
2009 1.23 0.78 1.04
2010 1.32 1.28 1.05

Table-17: Current Ratio

Source: Annual Report (2008-2010) of CBL, EBL & MBL

Graphical Presentation:

Figure 5.1: Current Ratio

Interpretation:

The current ratio measures a firms liquidity by measuring the portion of its current asset relative to its
current liabilities and the higher the ratio, the higher the liquidity of the firm. In 2008, MBL is in
better liquidity position than CBL and EBL. The graph shows that, CBL current ratio is better than
EBL and MBL in 2009 to 2010.
59
5.1.3 Analyzing Activity:

a. Total Asset Turnover Ratio:

Year CBL EBL MBL

2008 0.06 0.05 0.05
2009 0.06 0.07 0.05
2010 0.08 0.08 0.055

Table-18: Total Asset Turnover

Source: Annual Report (2008-2010) of CBL, EBL & MBL

Graphical Presentation:

Figure 5.2: Total Asset Turnover Ratio

Interpretation:

The graph shows that, the total asset turnover ratio of CBL and EBL is higher than MBL. The graph
also shows that in 2010 the CBL and EBL have the same value (8%). The MBLs total asset turnover
is in worse position than that of other two Banks that indicates they are less capable in comparison to
other two banks to utilize its total assets to generate revenue.

59
5.1.4 Analyzing Debt:

a. Debt Ratio:

Year CBL EBL MBL

2008 0.92 0.89 0.94

2009 0.92 0.87 0.94
2010 0.8 0.85 0.92

Table-19: Debt Ratio

Source: Annual Report (2008-2010) of CBL, EBL & MBL

Graphical Presentation:

Figure 5.3: Debt Ratio

Interpretation:

The graph shows that, the debt ratio of MBL is highest that of CBL and EBL in every year. This
indicates that MBL is using more financial leverage and taking more financial risk than EBL and
CBL.

59
b. Time Interest Earned Ratio:

Year CBL EBL MBL

2008 1.3 1.5 1.37

2009 1.4 1.7 1.54
2010 1.9 2.1 1.28
Table-20: Time Interest Earned Ratio
Source: Annual Report (2008-2010) of CBL, EBL & MBL

Graphical Presentation:

Figure 5.4: Time Interest Earned Ratio

Interpretation:
The graph shows that EBL has the greater ability to meet its interest expense and it is increasing year
by year. This ratio for CBL is also increasing year by year. However, in case of MBL it is fluctuating.
Time interest earned ratio of MBL in 2010 is 1.28 that is lower than that of EBL and CBL. It indicates
that MBL has lower ability to pay contractual interest expenses in comparison with EBL and CBL.

59
5.1.5 Analyzing Profitability:
a) Net Profit Margin:

Year CBL EBL MBL

2008 0.12 0.29 0.22

2009 0.18 0.31 0.23
2010 0.25 0.38 0.30

Table-22: Net Profit Margin

Source: Annual Report (2008-2010) of CBL, EBL & MBL

Graphical Presentation:

Figure 5.5: Net Profit Margin

Interpretation:
The graph shows that, EBL net profit margin is higher than that of Mercantile Bank Limited and City
Bank Limited. The graph also shows net profit margin of three Banks is increasing where CBLs net
profit margin is lowest and MBLs net profit margin is moderate.

b) Return on Asset:
59
 Year CBL EBL MBL

2008 0.8 1.68 1.10

2009 1.2 2.34 1.22
2010 2.2 3.19 1.64

Table-23: Return on Asset

Source: Annual Report (2008-2010) of CBL, EBL & MBL

Graphical Presentation:

Figure 5.6: Return on Asset

Interpretation:

Return on Asset measures the management ability to generate net profit by its total available assets.
The graph shows that EBL management is efficient to generate profit and their ROA is increasing year
by year. In compare to EBL, MBLs management is less efficient. In compare to CBL, they are
efficient in using assets to generate profit except in 2010.

c) Return on Equity (ROE): 59

 Year CBL EBL MBL

2008 11.2 18.64 17.75

2009 16.2 22.1 18.80
2010 21.3 23.64 19.84
Table-24: Return on Equity
Source: Annual Report (2008-2010) of CBL, EBL & MBL

Graphical Presentation:

Figure 5.7: Return on Equity (ROE)

Interpretation:

Return on Equity measures the percentage of profit against 1 taka equity. The ROE of EBL has the
highest value and increasing year by year. In compare to EBL, MBL is in worse position, and in
compare to CBL, MBL is in good position except in 2010. The ROE of all the banks is increasing
over the years.

d) Earnings per Share: 59

 Year CBL EBL MBL

2008 23.3 30.20 28.53

2009 52.1 50.00 30.67
2010 59.4 80.30 41.04

Table-25: Earnings Per Share

Source: Annual Report (2008-2010) of CBL, EBL & MBL

Graphical Presentation:

Figure 5.8: Earning Per Share (EPS)

Interpretation:

Earnings per Share measure the profit against each common stock share. From the graph, it can be
said that EBL has the largest highest earnings per share. In compare to EBL and CBL, MBL is in
worse position. In addition, in compare to CBL, EBL is in good position except in 2009.

e) Price earnings ratio

59
P/E Ratio:

Year CBL EBL MBL

2008 18 17.07 12.21

2009 14 12.89 12.88
2010 17 15.59 14.14

Table-26: Price Earnings Ratio

Source: Annual Report (2008-2010) of CBL, EBL & MBL

Graphical Presentation:

Figure 5.9: P/E Ratio

Interpretation

P/E ratio for CBL is higher than that of others Bank. The P/E ratio for MBL is increasing at a lower
rate. In 2010, the P/E ratio is lowest for MBL and highest for CBL. Therefore, investors confidence is
highest on CBL. The graph also shows investors confidence on MBLs stock is increasing gradually
which are not observed in case of EBL and CBL.

59
 PART-6
FINDINGS, CONCLUSION, AND
RECOMENDATION

59
6.1. Major Findings:

The trend analysis of Mercantile Bank Limited and comparative analysis of Mercantile Bank Limited
with City Bank Limited and Eastern Bank Limited reveals the following major findings .

The current ratio of MBL is increasing year by year. Yet, MBLs liquidity position is still lower
than CBL and EBL in 2010.
Mercantile Bank Limited net working capital has gradually increased year by year.
MBL is becoming more efficient in using assets to generate revenue as reflected in its total
asset turnover. However, their efficiency in utilizing assets is still less than that of CBL and
EBL.
Mercantile Bank Ltds investment to deposit ratio is fluctuating year by year. In 2009, it was
highest. Nevertheless, in 2010 investment to deposit ratio is very low so it indicates the
inefficiency of the bank.
MBL has reduced its debt ratio to 92% in 2010. Still MBL is using more debt and taking more
financial risk in comparison with EBL and CBL.
There is an upward trend in MBLs time interest earned ratio up to year 2009. In 2010, MBL
has poor margin of safety to pay contractual interest in comparison with CBL and EBL.
EBL management is efficient to generate profit and there ROA is increasing year by year. In
compare to EBL and CBL, MBL management is less efficient in generate net income from its
assets
Return to equity holders of MBL has decreased over the last five years from 21.94% to
19.84%, which is not desirable. Its ROE is lower than that of EBL and CBL in 2010 as well.
The Earning per Share of the MBL has increased over the last three years even it is inefficient
in its performance in relative to the EBL and the CBL.
The increasing trend in P/E ratio found in the trend analysis shows upward trend in investors
confidence on MBLs performance and prospect. Yet, investors confidence on MBL is lowest
relative to CBL and MBL.

59
59
6.2 Conclusion:

In developing a countrys economic condition, Bank plays vital role. The Mercantile Bank is one of
the leading banks in our country that also plays a vital role. In 2010, the Mercantile Bank total deposit
was tk.75629.14 million and provided loan tk.66377.70 million. Mercantile bank collects deposit by
providing different types attracting deposit product and provide loan by offering different types of
investment product. In developing economic condition, mercantile bank has the huge contribution.
From the practical point of view, I can declare that I have really enjoyed my internship at this bank
from the very first day. Moreover, the internship program that is mandatory for my B.B.A program
obviously will help me in thinking about my career. Every effort has been given to prepare the report
on Financial Performance Evaluation of MBL. The evaluation of financial performance shows that
there is an increasing trend in liquidity position, total asset turnover, price earnings ratio. With respect
to EBL and CBL, MBL has high debt ratio and low price earnings ratio. The MBL should reduce its
debt ratio, increase its investment to deposits ratio and efficiency of asset utilization to keep speed
with and outperform the EBL and CBL.

59
6.3 Some Recommendations for MBL Bank Limited:

The findings from the analysis require the following recommendations that may help the Mercantile
Bank Limited to improve its performance and to be a key member in the banking sector of
Bangladesh.
Though current ratio of MBL is increasing year by year, it is not in line with EBL and CBL. To
be in line with the other two banks, MBL should slightly increase its current assets relative to
its current liability.
Mercantile Bank Ltd. is becoming successful to decrease its operating expenses relative to its
operating income over the last two years. MBL should try to keep and increase this pace of this
efficiency.
MBL is becoming more efficient in using its assets to generate operating income. Nevertheless,
in order to keep pace with the CBL and MBL it should use its assets more efficiently to
generate more operating income.
Debt Ratio of the MBL is decreasing. MBL should further reduce its debt ratio to bring its
financial risk to a level that is maintained by CBL and EBL.
MBL should reduce its interest obligation by reducing debt or increase its operating income by
utilizing assets properly in order to increase margin of safety in paying interest obligation.
The MBL should increase their investment to deposit ratio to maximize their operating income
and owners equity.
ROA is increasing year by year. MBL should try to maintain it and increase it by utilizing its
assets more efficiently to outperform the CBL and EBL.
There is an upward trend in investors confidence on MBLs performance and prospect. The
MBL should try to keep this upward trend. In order to bring the investors confidence on the
performance of MBL to level that is higher than that of EBL and CBL, MBL should increase
its overall performance.

59
Bibliography:

Books:

Foster, G. (1986) Financial Statement Analysis, Second Edition, Pearson Education Pte.
Ltd, Singapore.

Gitman, L. J. (2003) Principle of Managerial Finance, 10 th edition, Pearson Education Pte.

Ltd, Singapore.

Ross, Stephen A. Westerfield, Randolph W. and Jaffe, Jaffery (2009) Corporate Finance,
Seventh Edition, Tata McGraw-Hill Publishing Company Limited.

Websites:

www.mblbd.bd

www.thecitybank.com

www.easternbank.com

Annual Report:

City Bank Ltd, Annual report 2008-2010.

Eastern Bank Ltd, Annual report 2008-2010.

Mercantile Bank Ltd, Annual report 2006-2010.

59
Annexure

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