Financial ratios are useful indicators of a firms performance and financial situation.

Financial ratios can be used to analyze trends and to compare the firms financial There are three types of ratio comparison can be made: 1) Cross sectional analysis. 2) Time series analysis. 3) Combined analysis. # Cross sectional analysis: It involves the comparison of different firms financial ratio at the same point in time. # Time series analysis: It is applied when a financial analyst evaluation of the financial performance over time using financial ratio analysis. # Combined analysis: A combined view makes it possible to assess the trend in the behavior of the ratio in relation to the trend for the industry. Analyzing bank performance with Financial Ratios Financial ratio are constructed by forming ratios of accounting data contained in the bank reports income and condition. A wide variety of financial ratio can be calculated to asses different characteristics of financial performance. To evaluate a particular financial ratio for a bank we comprise with Lanka Bangla Bank LTD. Without comparison with other bank ratio trends over time may not provide valuable information about the bank performances. To overcome this problem various financial ratios are calculated that provide a clear understanding about bank performance. This are given bellow I) II) III) Profitability Ratio Asset Quality Liquidity Ratio

1. Profitability Ratio: Profitability is the net result of a number of policies and decisions. Profitability ratios show the combined effects of liquidity, asset management and debt on operating results. There are five important profitability ratios that we ate going to analyze: i. ii. iii. iv. Return on Equity Return on Asset Profit margin Asset utilization

v. Net interest margin Return on Equity (ROE): Return on Equity measures the amount of Nit income earned by utilizing each dollar of Total common equity it is the most important of the Bottom line ratio. By this, we can find out how much the shareholders are going to get for their shares. The Equation is:

Return on Equity (ROE) = Net income available to common shareholders / Total common Equity.

Following shows the Return on equity of IDLC Bank LTD in different years:

Year Return on Equity

2008 25.22

2009 34.34

2010 35.96

Average ROE of Lanka Bangla Bank LTD = 33.38 Analysis: If we compare IDLC with Lanka Bangla we can see that the ROE oh IDLC is lower than Lanka Bangla in 2008 but the IDLC increasing their net income and share holder equity proportionally thats why their ROE is increasing rapidly and in 2010 it is more than Lanka Bangla. So we can assume that IDLC is going far in future. Return on Total Assets (ROA): Return of total asset measures the amount of Net income earned by utilizing each dollar of Total Assets. The Equation is: Return on Total Assets (ROA) = Net income available to total common shareholders/ Total assets Following shows the Return on asset of IDLC Bank LTD in different years:

Year Return on Asset

2008
2.34

2009
3.62 4.93

2010

Average ROE of Lanka Bangla Bank LTD = 2.77 Analysis: In 2008 the ROA of IDLC is lower than Lanka Bangla but in2009 -2010 the ROA of IDLC is better than Lanka Bangla. If we see deeply we observed that net income of IDLC is steel increasing proportionally. Net profit Margin: Net profit margin measures the percentage of sales dollar remaining after all costs and expense, including interest, taxes, and preferred stock dividends has been deducted. Net Profit Margin = Net income / Operating Revenue

Following shows the Profit margin ratio of IDLC Bank LTD in different years: Year Profit margin ratio 2008
34.47

2009
42.97

2010
43.84

Average Profit margin of Lanka Bangla Bank LTD = 60.78 Analysis: Here we see that the Profit margin is very poor than Lanka Bangla but it steel increasing in 2008 it was 34.47 but in 2010 it reached 43.84. So we hope in future it reached at the industry average level. Asset utilization: Asset utilization measures a companys effectiveness in generating sales revenue from investments back into the company. Asset utilization evaluates the efficiency of managing all of the companys assets. Asset utilization = Operating Revenue/ Total Asset

Following shows the Asset utilization ratio of IDLC Bank LTD in different years: Year Asset utilization ratio 2008
6.80

2009
8.43

2010
11.24

Average Asset utilization of Lanka Bangla Bank LTD = 4.55

Analysis: The Asset utilization ratio is always better than Lanka Bangla .it increasing continuously. Net interest Margin: Net interest Margin = (Total interest income - Total interest expense)/ Average earning Asset Where total interest income is on pretax basis it should be noted that in the case here municipal interest income s non taxable. Following shows the Net interest Margin ratio of IDLC Bank LTD in different years:

Year Net interest Margin

2008
3.50

2009
3.98

2010
4.75

Average Net interest Margin of Lanka Bangla Bank LTD = 1.80

Analysis: The Asset utilization ratio is always better than Lanka Bangla .it increasing continuously. Because interest income and expenses make up the lions share of total operating income and expenses respectively NIM is worth calculating.

2) Asset Quality: Asset quality can be increased only indirectly using financial ratios . On site inspection of the banks outstanding individual loan is certainly the best way to evaluate asset quality in the absence oh thus quality some financial ratios can provide at least a historical account of the credit worthiness of a particular bank loan portfolio.

There are two important Asset quality ratios that we ate going to analyze: I) II) Provision for loan losses Loan Ratio

Provision for loan losses: Each Bank provides an estimate of future loan losses as an expense on its income statement. This expense may be related to the volume of loan as : Provision for loan losses ratio = Provision for loan losses / Total loan and lease

Following shows the Provision for loan losses ratio of IDLC Bank LTD in different years:

Year Provision for loan losses ratio

2008
0.72

2009
0.76

2010
0.59

Average Provision for loan losses ratio of Lanka Bangla Bank LTD = 1.85 Analysis: This data suggest that IDLC provided low for losses on loan than similar banks.

Loan Ratio: The loan ratio indicates the extent to which asset are devoted to loan as opposed to other assets including cash securities plant and equipment. Loan Ratio = Net loan / Total assets Following shows the loan ratio of IDLC Bank LTD in different years:

Year loan ratio

2008
2.17

2009
1.96

2010
2.05

Average loan ratio of Lanka Bangla Bank LTD = 57.29 Analysis: These data suggest that the higher provision for loan loss at IDLC compare to it s Lanka Bangla took place despite its relatively lower expose to loan risk. Additional information of

credit quality of IDLC bank may be obtained from the footnote to its financial statement. Two measure are particularly important the amount of charge off and non performing assets.

3) Liquidity Ratio: Liquidity defines as the extent to which the bank has funds available to meet cash demands for loan and deposit withdrawal. Bank require different amount of liquidity depending on their growth rate and variability in lending and deposit activities.

There are two important Liquidity ratios that we ate going to analyze: I) II) Temporary investment ratio Dollar gap ratio

Temporary investment ratio: Temporary investments are most liquid asset. The higher the ratio of temporary investment to total asset the graters the bank liquidity. Temporary investment include federal fund sold trading account assets investment securities in short term and cash due from other bank. Temporary investment ratio = investment in securities+ due from other bank / Total assets

Following shows the Temporary investment ratio of IDLC Bank LTD in different years:

Year Temporary investment ratio

2008
1.17

2009
1.57

2010
2.79

Average Temporary investment ratio of Lanka Bangla Bank LTD = 7.24 Analysis: The ratio for IDLC and its Lanka Bangla indicate that IDLC has much less fund invested in highly liquid assets than does the Lanka Bangla This may suggest a significant liquidity problem for IDLC. Such problem is also implied by the volatile liability dependency ratio.

Dollar gap ratio: Interest sensitive is the responsiveness of liability cost and assets return to changes in interest rate. The difference between the quantities of interest sensitive asset and liability is known as the Dollar gap ratio.

Dollar gap ratio = (interest rate sensitive Assets - interest rate sensitive liability) /Total Assets Following shows the Dollar gap ratio of IDLC Bank LTD in different years:

Year Dollar gap ratio

2008
(27.68)

2009
(3.14)

2010
(1.24)

Average Dollar gap ratio of Lanka Bangla Bank LTD = 2.99 Analysis: The large negative gap ratio for IDLC to its Lanka Bangla suggest that its Profitability will be affected much more than its Lanka Bangla by a change in interest rate within the next year. If interest rate increases in the near future IDLC profitability is decrease dramatically because of the negative gap ratio. Summary: The evaluation of bank performance is a complex process involving interaction between the environment interest operation and external activates. The ultimate object of management is to maximize the value of the bank equity shares by attaining the optimal mix of returns and risk. In this respect bank management need to develop a comprehensive plan to identify object goal budget and strategies will be consistent with the maximization share value. Planning should encompass both internal and external performance dimension. The primary method of evaluating performance is by analyzing accounting statements. Financial ratio accounting items permit an historical sketch of bank returns and risk Internal performance is the best measured by evaluating the banks market share regulatory compliance and public confidence. Because of invention and deregulation in the financial services industry internal and external competiveness is becoming much more important than in than past.