Sheikh Waqas Ahmed Mc 070400479 MBA Finance

Title of the project

Financial Statement Analysis of Bank Al Falah And Habib Bank Limited

Introduction of the Project

This project is deal with the Financial Statement Analysis Financial Statement Analysis is a method used by interested parties such as investors, creditors, and management to evaluate the past, current, and projected conditions and performance of the firm It objective is to forecast and/or determine the actual financial status and performance of a project

Introduction (continued)
Are of concern is banking A bank is a financial institution licensed by a government. Banking is one of the most highly regulated industries in the world Analysis of a bank's financial statements requires a distinct approach They generate profit from the flow of funds This work will provide assistance to the investors

Introduction of Bank Al Falah

Bank Alfalah Limited was incorporated on June 21st 1992 The Bank is currently operating through 195 branches in 74 cities, With a vision to be the premier organization operating locally & internationality Maintained a strong credit rating of AA for long term and A one plus for the short term.

Introduction of Habib Bank

One of the largest bank in Pakistan Listed bank HBL was incorporated on 25th August 1941 Operated in the private sector until its nationalization in 1974. A network of 1,705 domestic branches; 55 overseas branches in 26 countries spread over Europe, the Middle East, Far East, Asia, Africa and the United States; HBL is currently rated AA (Long term) and A-1+

Objectives and Significance

Objectives To provide insight into how the banks work. To Elaborate the strengths and weakness of the banks. To give the stock holder a clear view about the financial feasibility of both the banks. It will provide a good understanding of the business cycle. Primary objective is to determine the actual financial status and performance of the banks. To measure the achievement of financial objectives of a borrower.

Significance (continued)
Significance
It is the process of examining relationships among financial statement elements and making comparisons with relevant information. Important for investors who buy the companys stock. Useful for financial analysts Very useful for the stockholders Summarized all the data into a form which is easily understood by all the relevant parties. Financial ratios are only meaningful when compared with other information Ratio analysis can reveal much about a company and its operations

Data Collection Sources

Sites on the internet Articles from scientific publications Documents on various format (audio, video or computer support) Advisers with a particular expertise Stock exchange

Data Collection Tools

Stock Exchange Company profile forms Company comparison forms Internet past articles Case Study

Data Processing
Financial Ratios Ratios are an analysts microscope Ratios are useful both to internal and external analysts Microsoft Word and Microsoft Excel work sheets

Data Analysis
a) Financial analysis Ratio analysis Horizontal analysis Vertical analysis b) Industry averages and comparison with competitors

Ratio Analysis
Its a tool which enables the banker or lender to arrive at the following factors : Liquidity position Profitability Solvency Financial Stability Quality of the Management Safety & Security of the loans & advances to be or already been provided

Ratio Analysis (continued)

Ratios Analysis will cover following ratios: a) Liquidity Ratios b) Leverage Ratios c) Profitability Ratios d) Activity Ratios e) Market Ratios f) Statements of Cash Flow

a) Liquidity Ratios Current Ratio

It is the relationship between the current assets and current liabilities of a concern. Current Ratio = Current Assets/Current Liabilities
HABIB BANK
Year Current Assets Current Liabilities Current ratio 2006 575611106 480455832 1.20 2007 671597594 566659483 1.19 2008 731954693 631948038 1.16

BANK AL FALAH

Year Current Assets Current Liabilities Current ratio

2006 265182551 249906022 1.06

2007 316972828 286843944 1.10

2008 335217471 315476169 1.06

Sales to Working Capital

It give an indication of the turnover in working capital per year Sales to Working Capital = Sales / Working Capital
HABIB BANK
2006 43685740 95155274 0.5 times 2007 43685740 104938111 0.5 times 2008 63305033 100006655 0.6 times Year Sales Working Capital Sales to Working Capital

BANK AL FALAH
Year Sales Working Capital Sales to Working 2006 21191470 15276529 1.38 2007 25783871 30128884 0.85 2008 31046583 19741302 1.57

Working Capital
It is a measure of both a company's efficiency and its short-term financial health Working Capital = Current Assets Current Liabilities
HABIB BANK
Year Current Assets
Current Liabilities Working Capital 2006 2007 2008

575611106
480455832 95155274

671597594
566659483 104938111

731954693
631948038 100006655

BANK AL FALAH
Year Current Assets Current Liabilities Working Capital 2006 265182551 249906022 15276529 2007 316972828 286843944 30128884 2008 335217471 315476169 19741302

b) Leverage Ratios: Time Interest Earned

The interest coverage ratio tells us how easily a company is able to pay interest expenses associated to the debt they currently have. TIE Ratio = EBIT / Interest Charges
HABIB BANK
Year EBIT Interest Charges TIE ratio

2006
32044524 13204037 2.43

2007
34298574 19153957 1.79

2008
48559935 19153957 1.83

BANK AL FALAH
2006 EBIT Interest charges TIE ratio 17798831 15232886 1.16 2007 21156515 16620963 1.27 2008 22125914 20331194 1.08

Year

Debt Ratio
The proportion of a firm's total assets that are being financed with borrowed funds Debt Ratio = Total Debt / Total Assets
HABIB BANK

Year Total debt Total Assets Debt Ratio

2006 536848102 590291468 0.91

2007 628754092 691991521 0.91

2008 682747953 757928,89 0.9

BANK AL FALAH
2006 Total debt Total Assets Debt Ratio 263443596 275685541 0.95 2007 312675308 328895152 0.95 2008 331946025 348990764 0.95

Year

Debt to Equity Ratio

The debt to equity ratio gives the proportion of a company (or person's) assets that are financed by debt versus equity s Debt to Equity Ratio = Total debt / Total Equity
HABIB BANK
Year Total debt Total Equity Debt To Equity Ratio 2006 536848102 45177664 11.88 2007 628754092 55063125 11.42 2008 682747953 71280902 9.58

BANK AL FALAH
Year Total debt Total Equity Debt To Equity Ratio 2006 263443596 10572605 24.91 2007 312675308 13766673 22.71 2008 331946025 14608523 22.72

Current Worth / Net worth Ratio

Current Worth to Net worth Ratio= Current Worth / Net worth Ratio
HABIB BANK
Year Current Worth Net Worth Current Worth to Net worth Ratio 2006 95155274 53443366 1.78 2007 104938111 63237429 1.66 2008 100006655 75180436 1.33

BANK AL FALAH
2006 Current Worth Net Worth Current Worth to Net worth Ratio 15276529 12241945 1.247 2007 30128884 16219844 1.85 2008 19741302 17044739 1.15

Year

Total Capitalization Ratio

Total Capitalization Ratio = Long-term debt / long-term debt + shareholders' equity
HABIB BANK
Year Long Term debt Long term debt + Equity Capitalization Ratio worth Ratio 2006 56392270 101569934 0.56 2007 62094609 117157734 0.53 2008 50799915 122080817 0.42

BANK AL FALAH
Year Long Term debt Long term debt + Equity Capitalization Ratio worth Ratio 2006 13537574 24110179 0.56 2007 25831364 39598037 0.65 2008 16469856 31078379 0.52

Long term Assets versus Long term Debt

Long term Assets versus Long term Debt= Long Term Assets/ Long Term Debts
HABIB BANK

Year Long Term Assets Long term debt L.T Assets /L.T Debts Debt:worth Ratio

2006 14680362 56392270 0.26

2007 20393927 62094609 0.33

2008 25973696 50799915 0.51

BANK AL FALAH
Year Long Term Assets Long term debt L.T Assets /L.T Debts worth Ratio 2006 13773293 13537574 1.01 2007 11922324 25831364 0.46 2008 10502990 16469856 0.63

Debt Coverage Ratio

Debt Coverage Ratio = Net Operating Income / Total Debt
HABIB BANK
Year Net Operating Income 2006 12074762 2007 5121453 2008 5655568

Total Debt
Debt Coverage Ratio Debt:worth Ratio

536848102
0.02

628754092
0.008

682747953
0.0083

BANK AL FALAH
Year Net Operating Income Total Debt Debt Coverage Ratio worth Ratio 2006 14574192 263443596 0.055321869 2007 15118049 312675308 0.048350633 2008 16880487 331946025 0.0508531

c) Profitability Ratios Net Profit Margin

Net Profit margin = Net Profit / Sales x 100
HABIB BANK
2006 12700315 2007 10084037 2008 15614020 Year Net Profit

Sales
Net Profit Margin

43685740
29.07%

50481021
19.97%

63305033
24.66%

BANK AL FALAH
2006 1762691 21191470 8.31% 2007 3130229 25783871 12.1% 2008 1301301 31046583 4%

Year Net Profit Sales Net Profit Margin

Operating Income Margin:

Operating Income Margin = Operating Income x 100 Net Sales
HABIB BANK
2006 25278799 43685740 57.9% 2007 24275410 50481021 48% 2008 37738818 63305033 59.6%

Year Operating Income Net Sales Operating Income Margin

BANK AL FALAH
2006
Operating Income Net Sales Operating Income Margin 14574192 21191470 0.687738604

Year

2007
15118049 25783871 0.586337443

2008
16880487 31046583 0.5437148

Return on Assets
Return on Assets (ROA) = Profit after Taxation / Average Total assets x 100
HABIB BANK
Year 2006 2007 2008

Net income
Total Average assets ROA

12700315
559592686.5 2.27%

10084037
641141494.5 1.57%

15614020
724959955 2.15%

BANK AL FALAH
2006
1762691 137966927.5 1.27%

Year Net income Total Average assets ROA

2007
3130229 302290346.5 1.01%

2008
1301301 338942958 0.038%

Return on Equity (ROE)

Return on Total Equity = Profit after taxation x 10 Total Equity
HABIB BANK

Year Net income Total Equity ROE

2006 12700315 45177664 28.11%

2007 10084037 55063125 18.31%

2008 15614020 71280902 21.9%

BANK AL FALAH
2006 Net income Total Equity ROE 1762691 10572605 16.6% 2007 3130229 13766673 22.5% 2008 1301301 14608523 8.9%

Year

DuPont Return on Assets

DuPont Return on Assets = Profit after taxation x 100 Total Assets
HABIB BANK
2006 Net Profit Total assets DuPont ROA 12700315 590291468 2.15% BANK AL FALAH 2007 10084037 691991521 1.46% 2008 15614020 757928389 2.06%

Year

Year Net Profit Total assets DuPont ROA

2006
1762691 275685541 0.006

2007
3130229 328895152 0.009

2008
1301301 348990764 0.003

Operating Assets Turnover

Operating Assets Turnover = Operating Assets x 100 Net Sales
HABIB BANK

Year Operating Assets Net Sales Operating Assets Turnover Margin

2006 94230402 43685740 192.7%

2007 97259620 50481021 192.7%

2008 110591707 63305033 174.70%

BANK AL FALAH

Year Operating Assets Net Sales Operating Assets Turnover Margin

2006 51094302 21191470 2.41%

2007 59739440 25783871 2.31%

2008 68041671 31046583 2.19%

Return on Operating Assets

Return on Operating Assets = Profit after Taxation x 100 Operating assets
HABIB BANK
2006 Net Profit Operating Assets Return on Operating Assets 12700315 94230402 13.48% BANK AL FALAH 2007 10084037 97259620 10.37% 2008 15614020 110591707 11.19%

Year

Year
Net Profit Operating Assets Return on Operating Assets

2006 1762691 51094302 0.034

2007 3130229 59739440 0.052

2008 1301301 68041671 0.019

Sales to Fixed Assets

This ratio is indicates that how much sales are contributed by investment in fixed Assets. Sales to Fixed Assets = Net Sales / Fixed Assets
HABIB BANK

Year Net Sales Fixed Assets Sales to Fixed Assets

2006 43685740 11954876 3.65 times

2007 50481021 13780555 3.66 times

2008 63305033 14751252 3.66 times

BANK AL FALAH

Year
Net Sales Fixed Assets Sales to Fixed Assets

2006 21191470 10502990 2.017 times

2007 25783871 11922324 2.16 times

2008 31046583 13773293 2.25 times

d) Activity Ratios Total Asset Turnover

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue. Total Asset Turnover = Total Sales / Total Assets
HABIB BANK
Year Total Sales Total Assets Total Asset Turnover 2006 43685740 590291468 0.07 2007 50481021 691991521 0.07 2008 63305033 757928389 0.08

BANK AL FALAH

Year
Total Sales Total Assets Total Asset Turnover

2006 21191470 275685541 0.07

2007 25783871 328895152 0.07

2008 31046583 348990764 0.08

e) Market Ratio Dividend per Share DPS

Dividend per Share = Total amount of Dividend Number of outstanding shares
HABIB BANK
Year Total amount of Dividend Number of Shares Dividend per Share 2006 691350 690000 1.0019 2007 1381000 690000 2.0014 2008 2730251 759000 3.597

BANK AL FALAH
2006
00 500000 00

Year Total amount of Dividend Number of Shares Dividend per Share

2007
00 650000 00

2008
975000 799500 1.21

Earning Per Share- EPS

Earning Per Share = Profit after Taxation Number of Shares

HABIB BANK
2006 Profit after Taxation Number of Shares Earning Per Share 12700315 690000 18.41 2007 10084037 690000 14.61 2008 15614020 759000 20.57

Year

BANK AL FALAH
2006
Profit after Taxation Number of Shares Earning Per Share 1762691 500000 3.525

Year

2007
3130229 650000 4.815

2008
1301301 799500 1.627

Price / Earning Ratio

The Price-Earnings Ratio is calculated by dividing the current market price per share of the stock by earnings per share (EPS). Price / Earning Ratio = Stock Price Per Share Earning Per Shares
HABIB BANK
2006 10 18.41 0.54 2007 10 14.61 0.68 2008 10 20.57 0.49 Year Stock price per share EPS Price / Earning Ratio

BANK AL FALAH

Year Stock price per share EPS Price / Earning Ratio

2006
10 3.525 2.83

2007
10 4.815 2.07

2008
10 1.627 6.14

Dividend Payout Ratio

The percentage of earnings paid to shareholders in dividends Dividend Payout Ratio = Dividend per Share Earning per Share
HABIB BANK
2006 DPS EPS Dividend Payout Ratio 1.0019 18.41 0.0544 2007 2.0014 14.61 0.137 2008 3.597 20.57 0.175

Year

BANK AL FALAH
2006 DPS EPS Dividend Payout Ratio 00 3.525 00 2007 00 4.815 00 2008 1.21 1.627 0.74

Year

Dividend Yield
Financial ratio that shows how much a company pays out in dividends each year relative to its share price. Dividend Yield = Dividend per Share Share Price
HABIB BANK
2006 DPS Share Price Dividend Yield 1.0019 10 0.10019 2007 2.0014 10 0.20014 2008 3.597 10 0.3597 Year

BANK AL FALAH

Year DPS Share Price Dividend Yield

2006 00 10 00

2007 00 10 00

2008 1.21 10 0.121

Book Value per Share

This is defined as the Common Shareholder's Equity divided by the Shares Outstanding at the end of the most recent fiscal quarter.

Book Value per Share = Shareholders Equity Share Capital

HABIB BANK
2006 Equity Share Capital Book Value per Share 45177664 6900000 6.5 2007 55063125 6900000 7.98 2008 71280902 7590000 9.39

Year

BANK AL FALAH
2006 Equity Share Capital Book Value per Share 10572605 5000000 2.11 2007 13766673 6500000 2.11 2008 14608523 7995000 1.82

Year

f) Statement of cash flow Operating Cash Flow to Total Debt

This ratio provides an indication of a company's ability to cover total debt with its yearly cash flow from operations

Operating Cash Flow to Total Debt = Operating Cash Flow/Total Debt

BANK AL FALAH
2006 Operating Cash flow Total Debts Operating Cash Flow to T.Debt 17851517 536848102 0.033 2007 56224065 628754092 0.089 2008 18231677 682747953 0.027

Year

HABIB BANK
Year Operating Cash flow Total Debts Operating Cash Flow to T.Debt 2006 7852362 263443596 0.029 2007 39645325 312675308 0.126 2008 2499606 331946025 0.007

Operating Cash Flow per Share

Operating Cash Flow per Share = Operating cash flow / Total Shares
HABIB BANK
Year Operating Cash flow 2006 17851517 2007 56224065 2008 18231677

Total Shares
Operating Cash Flow per Share

690000
25.87

690000
81.48

759000
24.02

BANK AL FALAH

Year Operating Cash flow Total Shares Operating Cash Flow per Share

2006 7852362 500000 15.70

2007 39645325 650000 60.99

2008 2499606 799500 3.12

2. Common Size Analysis (Vertical and Horizontal):

Also known as trend analysis Use to predict future Used to estimate uncertain events in the past Several methods of performing financial statement analysis exist. I will use two of them

Horizontal analysis Vertical analysis

Horizontal Analysis

Methods of financial statement analysis Generally involve comparing certain information Compares specific items over a number of accounting periods Decision is often based on the investing time horizon under consideration.

Vertical Analysis
Method of financial statement analysis Also known as component percentages, produces common-size financial statements. The term vertical analysis applies because each year's figures are listed vertically on a financial statement Use three major categories of accounts (assets, liabilities and equities) in a balance sheet Easy to see relative annual changes in one business

Conclusion/Findings
Liquidity position of both companies is not up to standard, both are below industry average Working capital of Habib Bank is better than Bank La Falah Profitability ratios of Habib Bank Limited are better than Bank AL Falah Limited. Net profit of Bank Al falah Limited is low due to heavy financial charges Habib Bank has a good market perception due to continuous declaration of dividends Bank LA Falah limited has not announced in dividend in the year 2006 and 2007 Earning per Share and Operating cash flow of Habib Bank Limited is also better than Bank AL Falah Limited.

Recommendations
Both banks need to improve their liquidity status Bank al falah need to improve their financial performance on the other hand habib bank is going nicely in this competition. Bank Al falah Limited has to minimize it financial charges. Both the banks need to reduce financial leverage risk.

Thank You