Chapter 01:

Introduction of the study

1.1 Introduction:
We know Bank is the most transparent financial institution. In general sense we know
“Bank” as a financial institution that deals with money. There are different types of
banks like Central bank, Commercial bank, Savings bank, Investment bank, Merchant
bank and Co-operative bank etc. But when we use the term bank it generally means
“commercial bank” That is one which is concerned with accepting deposit of money
from the public, paying the deposited money with interest on demand of the client or
otherwise and employing the deposits in the form of loan and investment to meet the
financial needs of businesses and other classes of society.
Now-a day’s banking sector is modernizing and expanding its hands in different
financial sectors every day. At the same time the banking process is becoming faster,
easier and wider. In order to survive in the competitive field of the banking sector all
organizations are looking for better service opportunities to provide better services to
their fellow clients.
NCC Bank Ltd (National Credit & Commercial Bank Ltd.) is a financial institution,
started its journey in 1985 with the mission of aspiring to be the most admired financial
institution in the country, recognizing as a dynamic, innovative and client focused
company that offers an array of products and services in the search for excellence and
to create an impressive economic value. The bank carries out its international business
through a global network of over four hundred foreign correspondent banks.

1.2 Objectives of the Study:

1. Main Objective:
The main purpose of the report is to evaluate the financial performance of NCC
Bank Ltd (National Credit & Commercial Bank Ltd.)

Specific Objectives:

The specific objectives set for the report are-

1. To examine different approaches used to perform financial performance
evaluation of banks.
2. To analyze change in financial position of NCC Bank Ltd employing financial
ratios.

2|Page
 3. To identify the findings, recommendation & provide a conclusion of NCC Bank.

1.3 Scopes of the Report:

The scope of the study is to have an idea about Financial Performance Evaluation of
NCC Bank Ltd.

• The report starts with the outline of the organization in focus, presenting the
mission and vision of organization. It accompanied by the global perspective
and look into the future.
• Those who looking for the information about Financial Performance Evaluation
of NCC Bank Ltd. they might get help from this report.
• The study explores the present market scenario of NCC Bank and future market
growth prospects in Bangladesh.

1.4 Methodology of the study:

There are several methodologies used for evaluating financial performance. These
methodologies are Comparative Statement (Horizontal), Common-size Statement
(Vertical) and Ratio Analysis. In this report, Ratio analysis is used to evaluate financial
performance.

Sources of Data:

Collecting data is very important to prepare a report. The information was mainly
collected from the secondary sources of data.

Secondary data:
• Study on Annual Reports of NCC bank Limited.
• Online data from NCC Bank website.
• Different journals regarding NCC banking.

1.5 Limitations of the study:

Due to some legal obligation and business secrecy, the bank was reluctant to provide
some sensitive data. Thus, this study limits only on the available published data and
certain degree of formal and informal interview and limited survey. Some problems
during the study, which are mentioning below:

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1. Lack of time: I was in the bank for three months so within this short span of
time it is very difficult to be familiar with all the activities of the bank.
2. Lack of Supervision by the bank officers: As the officers were busy with their
daily working activities, they were not able to give me much time apart from
their daily working activities.
3. Restricted Information: There were various types of information’s that the
bank officers cannot disclose due to the security and other corporate obligations.
4. Other limitation: As I was a newcomer and had no previous experiences in the
banking sector and many practical matters in the bank were in written form so
my own observations may vary from person to person.

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 Chapter 02:
Overview of NCC Bank
Ltd.
2.1 Background:
NCC Bank is very renowned history of Bangladesh Banking. The Company was
incorporated as a Public Limited Company, 1992, under the Companies Act 1994 with
an Authorized Share Capital of BDT 1,000,000,000 divided into 10,000,000 ordinary
shares of BDT 100 each. At present, the Authorized Share Capital of the company is
BDT 10,000,000,000 divided into 1,000,000,000 ordinary shares of BDT 10 each. NCC
Bank was also issued Certificate for Commencement of Business on the same day and
was granted license on 1992 by Bangladesh Bank under the Banking Companies Act
1991 and started its banking operation on. The bank carries out its international business
through a global network of over four hundred foreign correspondent banks.

2.2 Overview:
Registered name of the company

NCC bank Limited.

Registered Office:
13/1 - 13/2, Toyenbee Circular Road, Motijheel C/A, Dhaka – 1000, Bangladesh

Corporate Website:

https://www.nccbank.com.bd/
Corporate Slogan:
To strive for good profit and sound growth
Board Members:
Board Members of NCC BANK are S.M. Abu Mohsin Chairman, Board of
Directors, Md. Abul Bashar Vice Chairman, Board of Directors.

The bank’s has a current network of;

Branches 122

ATM booths 135

Agent Banking 06

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2.3 Mission & Vision:
Vision
To become one of the most adorable commercial Bank in serving Nation as a progressive
and socially responsible financial institution by bringing credit & commerce together for
increased Shareholders value and sustainable growth.

Mission
Delivering excellent financial service to our communities based on strong customer
relationship.
Providing long lasting solutions that combining our cutting edge technology,
experience and financial strength to our clients and stakeholders.
Creating a cohesive and friendly environment where customers and our people can
excel.

2.4 Core Values

Commitment

Core
Trust Accountability
Values

Agility

2.5 Types of Banking Business:

As envisaged in the Memorandum of Association and as licensed by Bangladesh Bank
under the provisions of the Banking Companies Act 1991, the Company started its
banking operation and entitled to carry out the following types of banking business:

• Retail Banking
• SME Banking

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 • Student Banking
• NRB Banking
• Card Services
• Other Banking Services.

2.5.1 Retail Banking Products:

➢ Loan products:

1. NCC Personal Loan

2. Home loan
3. NCC Home Equity Loan
4. Auto loan
5. NCC Professional’s Loan

➢ Deposit Products:

1. NCC Regular Savings

2. NCC Inspire
3. NCC Ruby
4. NCC Current Account
5. NCC Senior

➢ Deposit Pension scheme (DPS) Products:

1. NCC Millionaire Plan

2. NCC Brick by Brick
3. NCC Kotipoti

➢ Fixed Deposit Receipt (FDR) products:

1. NCC BANK LIMITED regular fixed deposit

2. NCC BANK LIMITED Double Saver
3. NCC BANK LIMITED Monthly Benefit Plan

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 2.5.2 SME Banking:

1. NCC BANK LIMITED Bhagyobati

2. NCC BANK LIMITED Krishi
3. NCC BANK LIMITED Mousumi
4. NCC BANK LIMITED Revolving Loan (SME CC)
5. NCC BANK LIMITED Small Business Loan
6. NCC BANK LIMITED Digoon

2.5.3 NCC BANK LIMITED Student Banking:

1. NCC BANK LIMITED Graduate

2. NCC BANK LIMITED Junior

2.5.4 NCC Banking:

1. NCC FDR
2. NCC DPS A/C
3. NCC savings A/C

2.5.5 Card Services:

1. NCC BANK LIMITED Debit Card

a) Visa Classic Debit
b) MasterCard Gold Debit
c) MasterCard Titanium
d) Visa Platinum Debit
e) MasterCard World
f) Visa Signature Debit

2. NCC BANK LIMITED credit Card: There are different types of credit cards at
NCC.
Those are given below:
a) NCC BANK LIMITED Visa Classic Credit Card
b) NCC BANK LIMITED Visa Gold Local Credit Card

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 c) NCC BANK LIMITED VISA Platinum Credit Card
d) NCC BANK LIMITED Visa Signature Credit Card
e) NCC BANK LIMITED Classic Master Credit Card
f) NCC BANK LIMITED Gold Master Credit Card
g) NCC BANK LIMITED Titanium Master Credit Card
h) NCC BANK LIMITED World MasterCard Credit Card

2.5.6 Other Banking Services:

Pay
Order

Online
SWIFT
Banking
Services
Service

Demand
MTBL
Draft
SMS
(DD)
Banking
Issue

EFTN
Service

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 Chapter 03:
Theoretical Overview and
Financial Performance
Evaluation
3.1 Financial Performance Evaluation:
Financial performance evaluation is a process which identifies the financial strengths
and weaknesses of a firm by establishing the relationship between the items of balance
sheet and income statement. It is a subjective measure of how well a firm can use assets
from its primary mode of business and generate revenues.
In brief financial evaluation is the process of selection, relation and evaluation of
financial statements. The tools of analysis are used for determining the investment
value of the business, credit rating and for testing efficiency of operation.

3.2 Objectives:

1. Reviewing the performance of a company over the past periods: To predict

the future prospects of the company, past performance is analyzed by reviewing
the trend of past sales, profitability, cash flows, return on investment, debt-
equity structure and operating expenses, etc.
2. Assessing the current position & operational efficiency: Examining the
current profitability & operational efficiency of the enterprise so that the
financial health of the company can be determined.
3. Predicting growth & profitability prospects: The top management is
concerned with future prospects of the company. Financial analysis helps them
in reviewing the investment alternatives for judging the earning potential of the
enterprise.
4. Loan Decision by Financial Institutions and Banks: Financial analysis helps
the financial institutions, loan agencies & banks to decide whether a loan can be
given to the company or not. It helps them in determining the credit risk,
deciding the terms and conditions of a loan, interest rate, and maturity date etc.

3.3 Advantages of financial Performance Evaluation

1. It helps in measuring the profitability: Financial statement evaluation helps
to know whether the business is making profits or losses. It also helps to know
whether the profits/losses of the firm are increasing or decreasing.
2. It helps to measure the overall financial strength: Financial statement
evaluation helps to understand the overall financial strength of the business. It
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 also helps to take decisions regarding funds available for purchase of assets,
payment of liabilities, etc. It also helps to know whether company's internal
sources of funds (retained earnings of past years) are sufficient or a loan would
be required.

3. It helps to know the efficiency of management: Financial statement

evaluation help to know the efficiency of management in running the business.
It helps to know whether financial policies followed by management are proper
or not.

4. It helps to know the trend of business: Financial statement analysis help to

know the business trends by comparing various types of data such as net profit,
sales, purchases, etc. for two or more years. This help to know how much the
progress business is doing.

3.4 Steps related to the analysis of financial statement:

Step 1 Step 2 Step 3

• Re-organization of • Establishing • Evaluation of
the financial data. relationships Obtained results.
• Broke down into between the
individual components of
components. balance sheet
and profit and
• Re-grouped into loss account.
few principle
elements.

• The first step involves the re-organization of the entire financial data contained
the financial statements. Therefore the financial statements are broke down into
individual components and re-grouped into few principle elements according to
their resemblances and affinities. Thus the balance sheet and profit and loss
accounts are completely re-casted and presented in the condensed form entirely
different from their original shape.
• The second step is the establishment of significant relationships between the
individual components of balance sheet and profit and loss account. This is done

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 through the application tools of financial analysis like Ratio analysis, Trend
analysis, Common size balance sheet and comparative Balance sheet.

• The final step is to evaluate the results obtained by applying the financial tools.

3.5 Limitations of Financial Performance Evaluation

Although there are many advantages of the financial statements, there are certain
disadvantages of the same. These limitations are as follows-
1. While doing the financial analysis, firms often fail to consider the price changes.
When firms compare data from various time periods, they do it without
providing the index to the figures. Hence, the firm does not show the inflation
impact.
2. Firms do not record many intangible assets. Instead, any expenditure made to
create an intangible asset is immediately charged to expense.
3. Firms consider only the monetary aspects of the financial statements. They do
not consider the non-monetary aspect.
4. Firms prepare the financial statements on the basis of on-going concept.
5. The statements do not necessarily provide any value in predicting what will
happen in the future.

3.6 Approaches of Financial Performance Evaluation

Financial statements are prepared to have complete information regarding assets,
liabilities, equity, reserves, expenses and profit and loss of an enterprise. To analyze &
interpret the financial statements, three analytical techniques are commonly used;

1. Comparative statements (Horizontal Analysis)

2. Common size statements (Vertical Analysis)
3. Ratios
3.6.1 Comparative Statements:

It is also known as Horizontal Analysis .Comparison of two or more year’s financial

data is known as Comparative statements analysis or trend analysis. Comparative
statements analysis is facilitated by showing changes between years in both amount and
percentage that helps the analyst to focus the key factors affects profitability or financial
position.

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Formulas:
1. Amount Change =Amount of comparison year – Amount of base year

2. Percentage Change = Amount Change÷ Amount of the base year

Horizontal analysis of financial statements can also be carried out by computing

Trend analysis. Trend analysis states several years’ financial data in term of a base
year. It is the widespread practice of collecting information and attempting to spot a
pattern.

Formula: Base year ÷ Comparison year

3.6.1.1 Pros of Comparative statements Analysis

1. Comparative statements analysis not only improves the review of a company's

consistency over time directly, but it also improves comparability of growth in
a company to that of its competitors as well.
2. Comparative statements analysis allows investors and analysts to see what has
been driving a company's financial performance over a number of years, as well
as to spot trends and growth patterns such as seasonality.
3. Comparative statements also make it easier to compare growth rates and
profitability among multiple companies.

3.6.1.2 Cons of Comparative statements Analysis

A common problem with Comparative statements analysis is that the aggregation of

information in the financial statements may have changed over time, so that revenues,
expenses, assets, or liabilities may shift between different accounts and therefore appear
to cause variances when comparing account balances from one period to the next.
Indeed, sometimes companies change the way they break down their business segments
to make the Comparative statements analysis of growth and profitability trends more
difficult to detect. Accurate analysis can be affected by one off events and accounting
charges.

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3.6.2 Common-Size Statements:
A common –Size Statement is one that shows the items appearing on it in percentage
form as well as dollar form. The proportion of a common size statement is known as
Vertical Analysis. The line items on an income statement can be stated as a percentage
of gross sales, while the line items on a balance sheet can be stated as a percentage of
total asset or liabilities. And vertical analysis of a cash flow statement shows each cash
inflow or outflow as a percentage of the total cash inflows.

Formula = Individual Item / Base Amount *100

3.6.2.1 Advantages of Common-Size Statements

1. Common-Size Statements is used in order to gain a picture of whether
performance metrics are improving or deteriorating.
2. Vertical analysis of financial statement provides a comparable percentage which
can be used to compare with the previous years of the individual items.
3. Different organization statements can be compared as the comparison is made
in percentage.
4. The previous year’s statement and analyze the profit or loss of the period.
5. Where it helps to understand the percentage/share
6. Where it helps to understand the structural composition of the various
components like cost, expenses, assets, and liabilities.

3.6.2.2 Disadvantages of Common-Size Statements

1. The vertical analysis of financial statement does not help to take a firm decision
as there is no standard percentage or ratio regarding the change in the
components of the income statement or the balance sheet.
2. Liquidity of the organization cannot be measured exactly.
3. Quality analysis is not done by using vertical analysis of financial statements as
there is no consistency in the ratio of the elements.

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3.6.3 Ratio analysis

Ratio analysis is the comparison of line items in the financial statements of a business.
Ratio analysis is used to evaluate a number of issues with an entity, such as its liquidity,
efficiency of operations, and profitability.

According to Professor Khan and Jain – “The ratio is the systematic use of ratio to
interpret the financial statements so that the strength and weaknesses of a firm as well
as its historical performance and current financial condition can be determined.”

So, Ratio analysis is a quantitative method of gaining insight into a company's liquidity,
operational efficiency, and profitability by comparing information contained in its
financial statements. Ratio analysis is a cornerstone of fundamental Analysis.

3.6.3.1 Objectives of Ratio analysis:

1. To get overall idea about advancement and backwardness in comparison among

the other competitors.
2. To overview the profit-loss gaining capabilities of the firm.
3. To simplify accounting information.
4. To assess the operating efficiency of the business.
5. To analyse the profitability of the business.

3.6.3.2 Necessity and importance of ratio analysis:

Measure General Efficiency:

Ratios enable the mass of accounting data to summarize and simplify. They act as an
index of the efficiency of the enterprise. As such they serve as an instrument of
management control. Measure Financial Solvency:
Ratios are useful tools in the hands of management and other concerned to evaluate the
firm’s performance over a period of time by comparing the present ratio with the past
ones. They point out the firm’s liquidity position to meet its short-term obligations and
long-term solvency.
Facilitate Decision-Making:

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It throws light on the degree of efficiency of the management and utilization of the
assets and that is why it is called surveyor of efficiency. They help management in
decision-making. Corrective Action:
Ratio analysis provides the inter-firm comparison. They highlight the factors associated
with successful and unsuccessful firms. If the comparison shows an unfavorable
variance, corrective actions can initiate. Thus, it helps the management to take
corrective action.
Intra Firm Comparison:
Intra firm comparisons are facilitating. It is an instrument for the diagnosis of the
financial health of an enterprise. It facilitates the management to know whether the
firm’s financial position is improving or deteriorating by setting a trend with the help
of ratios.

3.6.3.3 Classification

Liquidity Ratios Asset Quality

Indicators And
Leverage Ratios Profitability Ratios
Valuation
and Efficiency
Ratios
Ratios

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1. Current 1. Debt Ratio 1. Loan In relation to Sales
Ratio 2. Equity Ratio
2. Working Ratio 2. Loan to 1. Gross Profit
Capital 3. Debt to Deposit Ratio
Ratio total Capital Ratio 2. Net Profit
3. Debtors Ratio 1. Earnings Margin Ratio
Turnover 4. Debt to Per
Ratio Equity Share( (B) In relation
4. Cash to Ratio EPS) to Investments
Deposit 5. Equity 2. Price 1. Return on
Ratio Multiplier Earnings Investment
5. Retained Ratio Ratio
Earnings to 1. Tax (PER) 2. Return on
Asset Ratio Manageme Capital
6. Time nt Ratio 3. Return on
Interest 2. Degree of Equity
Earned Asset 4. Return on
Ratio Utilization Total Asset.
3. Operating
Efficiency
Ratio
4. Expense
Control
Efficiency
Ratio
5. Asset
Turnover
Ratio

3.7 Liquidity Ratios:

1. Current Ratio

2. Working Capital Ratio

3. Debtors Turnover Ratio

4. Cash Deposit Ratio.

5. Retained Earnings To Total Asset Ratio

6. Time Interest Earned Ratio

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3.7.1 Current Ratio:
The current ratio is a liquidity ratio that measures a company's ability to pay
short-term obligations. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its current debt and
other payables.
Current Ratio = Current Assets / Current liabilities

Norms and Limits

The higher the ratio, the more liquid the company is. Commonly acceptable
current ratio is 2:1; it's a comfortable financial position for most companies.
Acceptable current ratios vary from industry to industry. 1.5 may be an
acceptable current ratio for a company. Low values for the current ratio (values
less than 1) indicate that a firm may have difficulty meeting current obligations.

3.7.2 Working capital:

The excess of current assets over liabilities is known as working capital. The
amount of working capital available to a firm is of considerable interest to short
term creditors, since it represents assets financed from long term capital sources
that do not required near term repayment. Therefore the greater the working
capital, the greater the cushion of protection available to short term creditors and
the greater is the assurance that the short term debts will be paid when due.

Working Capital = (Current assets - current liabilities)/ current liabilities

3.7.3 Debtors Turnover Ratio:

Debtor's Turnover Ratio is an accounting measure used to measure how effective
a company is in extending credit as well as collecting debts. The receivables
turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.

Debtor Turnover Ratio= Net Receivable Sales/ Average Net Receivable

A high ratio implies either that a company operates on a cash basis or that its
extension of credit and collection of accounts receivable is efficient. While a low
ratio implies the company is not making the timely collection of credit.

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3.7.4 Cash Deposit Ratio:
Cash Deposit ratio (CDR) is the ratio of how much a bank lends out of the
deposits it has mobilized. It indicates how much of a bank’s core funds are being
used for lending, the main banking activity. It can also be defined as Total of
Cash in hand divided by total deposits.

Cash Deposit Ratio= Cash / Total Deposits

Factors determining CDR:

The banks not want to hold more than necessary cash reserves because in that
case they lose some of the profit. Similarly, they cannot afford to have a lower
than necessary cash reserve ratio because it can result in their failure to meet
their payment obligations.

1. Size and branch network.

2. Banking habits of its clients.

3. Economic growth of a country develops its financial system.

4. Legal provisions

3.7.5 Retained Earnings to Total Assets Ratio:

Retained earnings to total assets are a ratio which helps in measuring the
profitability of the assets of an entity. The ratio of retained earnings to total assets
helps measure the extent to which a company relies on debt, or leverage. A
business can finance its operations through equity or debt. Debt includes loans
which are to be repaid after a certain amount of time usually with an amount of
interest whereas in equity a business raises capital by offering its shares to the
public in stock exchange. Funds raised through equity do not required to be paid
off later. Retained earnings to total assets indicate how assets were financed from
retention of profit instead of paying profit out as dividends, and acquiring loans.

R/I to TA= Retained earnings /Total Assets

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 Limit;

The lower the ratio, the more a company is funding assets by borrowing instead
of through retained earnings which, again, increases the risk of bankruptcy if
the firm cannot meet its debt obligations. It illustrates how much profits over
all the years since inception were generated from $1 of total asset. Th is ratio
also gives the company an idea how much it relies on debt for the funding of its
total assets.

3.7.6 Time interest Earned Ratio:

The most common measure of the ability of a firm’s operations to provide

protection to the long-term creditors is the Time Interest Earned ratio. Time
interest earned (TIE) or interest coverage ratio is a measure of a company's
ability to honor its debt payments.
Earnings before Interest and Taxes (EBIT) ÷ Interest Expense

Explanation:
A lower times interest earned ratio means less earnings are available to meet
interest payments and that the business is more vulnerable to increases in interest
rates and being unable to meet their existing outstanding loan obligations.

A high times interest earned ratio is favorable because it means that the bank
present less of the risk to investors and creditors in term of solvency. If an
organization has a times interest earned ratio greater than 2.5 is considered an
acceptable range and vice versa.

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 3.8 Profitability Ratios

1. Net Profit Margin

2. Return on Asset (ROA)

3. Return On Equity (ROE)

4. Return On Investment (ROI)

5. Return on Capital Employed

3.8.1 Net Profit Margin:

The Net profit margin ratio is a financial ratio used to calculate the percentage of
profit a company produces from the total revenue. It measures the amount of net
profit a company obtains against its revenue gained.

Profit Margin = Net Income/ Operating Income

Analysis
This ratio indirectly measures how well a company manages its expenses relative
to its operating income. Achieving higher ratios means the company have the
higher amount of profit.

3.8.2 Return on Assets

The term return in the ROA ratio customarily refers to net profit or net income,
the amount of earnings from sales after all costs, expenses, and taxes. Return on
assets measures how effectively the company produces income from its assets.

Return on Assets = Net Income / Total Assets × 100

The more assets a company has amassed, the more sales and potentially more
profits the company may generate. As economies of scale help lower costs and
improve margins, returns may grow at a faster rate than assets, ultimately
increasing return on assets.

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3.8.3 Return on Equity
ROE is a ratio that concerns a company's equity holders the most since it
measures their ability to earn a return on their equity investments. A good or bad
ROE will depend on what’s normal for the industry or company peers. It is
considered a measure of how effectively management is using a company’s
assets to create profits.

Return on Equity=Net Income / Shareholders Equity×100 Analysis:

Large
Large Strong
Net
Equity performance
Income

Small Weak
Small
Net performance
Equity
Income

Sometimes an extremely high ROE is a good thing if net income is extremely

large compared to equity because a company’s performance is so strong.
However, more often an extremely high ROE is due to a small equity account
compared to net income, which indicates risk.

3.8.4 Return on investment (ROI):

Return on investment (ROI) is a financial metric of profitability that is widely
used to measure the return or gain from an investment. ROI is a simple ratio of
the gain from an investment relative to its cost.
In business analysis, ROI is one of the key metrics along with other cash flow
measures such as internal rate of return (IRR) and net present value (NPV) are
used to evaluate and rank the attractiveness of a number of different investment
alternatives. ROI is generally expressed as a percentage rather than as a ratio.

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 Return on Investment=Net Income / Investment
Analysis:

Good for Bad for

Company Company

Positive
ROI Negative
ROI

3.8.5 Return on Capital Employed (ROCE):

Return on capital employed or ROCE is a profitability ratio that measures how

efficiently a company can generate profits from its capital employed by
comparing net operating profit to capital employed. In other words, return on
capital employed shows investors how many dollars in profits each dollar of
capital employed generates.

ROCE is a long-term profitability ratio because it shows how effectively assets

are performing while taking into consideration long-term financing. This is why
ROCE is a more useful ratio than return on equity to evaluate the longevity of a
company.
Return on Capital Employed= Net Operating Income / Employed Capital
Analysis
The return on capital employed ratio shows how much profit each dollar of
employed capital generates. Obviously, a higher ratio would be more favorable
because it means that more dollars of profits are generated by each dollar of
capital employed.

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 3.9 Efficiency Ratios:
1. Tax Management Ratio

2. Degree of Asset Utilization

3. Operating Efficiency Ratio
4. Expence Control Efficiency Ratio
5. Asset Turnover Ratio

3.9.1 Tax management ratio:

Tax management ratio is the ability of banks to reduce their tax exposure. The
higher the tax management ratio, the higher the net income relative to pre- tax
nets operating income and the better off the bank. The only differentiating factor
between the pre-tax operating income and after-tax income used in measuring
this ratio is the tax expense the bank has to incur as per the applicable tax rate
imposed on it.

Tax Management Ratio = Net Income after Tax/ Net income before

3.9.2 Degree of asset utilization (DAU);

The asset utilization ratio calculates the total revenue earned for every dollar of
assets a company owns. Increasing asset utilization means the company is being
more efficient with each dollar of assets it has. This ratio is frequently used to
compare a company's efficiency over time.

Asset Utilization= Operating income/ Total Assets

Analysis of DAU;

In general, asset utilization is a measure of how well a business is able to utilize

their assets to produce revenue. A relatively high ratio means that the company is
efficient in using their assets, whereas a low one may indicate poor asset
management. How high a specific business's asset utilization ratio should be
depends on its industry and stage in its lifecycle. From another angle, a low asset
utilization ratio may indicate over-investment in assets.

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3.9.3 Operating Efficiency Ratio (OEP):
The operating ratio shows the efficiency of a company's management by
comparing the total operating expense of a company to operating income. The
operating ratio shows how efficient a company's management is at keeping costs
low while generating revenue.

Operating Efficiency Ratio (OEP) = Operating Expense / Operating Income

Lower
Efficient
Ratio

Higher
Inefficient
Ratio

3.9.4 Expense Control Efficiency Ratio:

This ratio shows how efficient a firm is to control its expenses. It is also a measure
of operating efficiency as it indicates its control over all its expenses, including
interest expenses, non- interest expenses and provision for loan losses. The
higher the ratio, the lower the expenses and the better off the banks are.

Expense Control Efficiency Ratio= Net income before Tax ÷ Operating Income

3.9.5 Asset Turnover Ratio:

The asset turnover ratio measures the value of a company's sales or revenues
relative to the value of its assets. The asset turnover ratio can be used as an
indicator of the efficiency with which a company is using its assets to generate
revenue. The higher the asset turnover ratio, the more efficient the company is.
Conversely, if a company has a low asset turnover ratio, it indicates it is not
efficiently using its assets to generate Operating Income.

Asset Turnover = Operating income/ Total Assets

Norms;

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 Higher Asset Turnover;
Efficient
Lower Asset Turnover;
Inefficient

3.10 Leverage ratios

1. Debt Ratio
2. Equity Ratio
3. Debt to Equity
4. Debt to Capital Ratio
5. Equity Multiplier

3.10.1 Debt Ratio:

The debt ratio is a financial ratio that measures the extent of a company’s
leverage. The debt ratio is defined as the ratio of total debt to total assets,
expressed as a decimal or percentage. It can be interpreted as the proportion of a
company’s assets that are financed by debt.
Formula: Debt Ratio = Debt / Asset

Norms:
A ratio greater than 1 shows that considerable portion of debt is funded by assets.
In other words, the company has more liabilities than assets. A high ratio also
indicates that a company may be putting itself at a risk of default on its loans if
interest rates were to rise suddenly. A ratio below 1 translates to the fact that a
greater portion of a company's assets is funded by equity. The debt ratio is also
referred to as the debt-to-assets ratio.

Page | 28
3.10.2 Equity Ratio:
The shareholder equity ratio the ratio that shows how much of the company's
assets are funded by equity shares. It also shows how much shareholders would
receive in the event of a company-wide liquidation.

Formula= (Equity ÷ Assets) Or 1 - Debt Ratio Analysis

When a company's shareholder equity ratio approaches 1 0r 100%, it means the
company has financed almost all of its assets with equity, instead of taking on
debt.

3.10.3 Debt to Equity Ratio – D/E:

It is a measure of the degree to which a company is financing its operations
through debt versus wholly-owned funds. More specifically, it reflects the ability
of shareholder equity to cover all outstanding debts in the event of a business
downturn. The Debt-To-Equity Ratio is used to evaluate a company's financial
leverage. The D/E ratio is an important metric used in corporate finance. The
debt-to-equity ratio is a particular type of gearing ratio.

Formula: D/E Ratio= Debt/ Equity

Analysis:
D/E Ratio is considered good if the rate is around 1 to 1.5. But it differs in some
cases. If a company has Tk100, 000 short term debt and Tk 50, 000 long term
debt compared to a company which has Tk 50, 000 short term debt and Tk100,
000 long term debt and both companies have the 1.5 equity ratio, though the
equity ratio is same but the first company is riskier because of its short term debt.

3.10.4 Debt-To-Capital Ratio:

The debt-to-capital ratio is a measurement of a company's financial leverage. The
debt-to-capital ratio is calculated by taking the company's interest-bearing debt,
both short- and long-term liabilities and dividing it by the total capital. Total
capital is all interest-bearing debt plus shareholders' equity, which may include
items such as common stock, preferred stock, and minority interest.

Formula: Debt-To-Capital Ratio = Debt / (Debt +Equity)

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 Analysis:

Higher Debt to
Capital; High Risk

Lower Debt to Capital;

Low Risk

The debt-to-capital ratio gives analysts and investors a better idea of a company's
financial structure and whether or not the company is a suitable investment. All
else being equal, the higher the debt-to-capital ratio, the riskier the company is.

3.10.5 Equity Multiplier Ratio:

The equity multiplier is a financial leverage ratio that measures the amount of a
firm’s assets that are financed by its shareholders by comparing total assets with
total shareholder’s equity.
Like all liquidity ratios and financial leverage ratios, the equity multiplier is an
indication of company risk to creditors. Both creditors and investors use this ratio
to measure how leveraged a company is.

Equity Multiplier = Total Asset / Total Equity

Analysis

Lower multiplier ratios are always considered more conservative and more
favorable than higher ratios because companies with lower ratios are less
dependent on debt financing and don’t have high debt servicing costs.

3.11 Asset Quality Indicators

1. Loan To Asset Ratio

2. Loan To Deposit Ratio

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3.11.1 Loan to Asset Ratio:
The loans to asset Ratio measures the total loans outstanding as a percentage of
total assets. . The higher this ratio indicates a bank is loaned up and its liquidity
is low. The higher the ratio, the more risky a bank may be to higher defaults and
vice-versa.

Loan to Asset Ratio=Total Loan / Total Assets

3.11.2 Loan-to-Deposit Ratio (LDR):

The loan-to-deposit ratio (LDR) is used to assess a bank's liquidity by comparing

a bank's total loans to its total deposits for the same period. A loan to-deposit
ratio shows a bank's ability to cover loan losses and withdrawals by its
customers. Investors monitor the LDR of banks to make sure there's adequate
liquidity to cover loans in the event of an economic downturn resulting in loan
defaults. The LDR is expressed as a percentage. LDR=Loan and advance / Total
Deposit
Analysis

If the ratio is too high, it means that the bank may not have enough liquidity to
cover any unforeseen fund requirements. Conversely, if the ratio is too low, the
bank may not be earning as much as it could be.

3.12 Valuation Ratio

1. Earnings Per Share (EPS)
2. Price Earnings Ratio (PER)

3.12.1 Earnings per share (EPS) Ratio:

Earnings per share (EPS) ratio measures how many dollars of net income have
been earned by each share of common stock during a certain time period. It is a
popular measure of overall profitability of the company and is expressed in
dollars. The higher the EPS figure, the better it is. A higher EPS is the sign of
higher earnings, strong financial position and, therefore, a reliable company for
investors to invest their money.

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 EPS= (Net Income – Proffered dividend) / Outstanding Share

3.12.2 Price Earnings Ratio (P/E):

The Price Earnings Ratio (P/E Ratio) is the relationship between a company’s
stock price and earnings per share (EPS). The ratio is used for valuing companies
and to find out whether they are overvalued or undervalued.
P/E = Stock Price per Share / Earnings per Share
High P/E
Companies with a high Price Earnings Ratio are often considered to be growth
stocks. This indicates a positive future performance, and investors have higher
expectations for future earnings growth and are willing to pay more for them.
Low P/E
Companies with a low Price Earnings Ratio are often considered to be value
stocks. It means they are undervalued because their stock price trade lower
relative to its fundamentals. This mispricing will be a great bargain and will
prompt investors to buy the stock before the market corrects it. And when it does,
investors make a profit as a result of a higher stock price.

3.13 Limitations of Ratio Analysis:

Ratio Analysis involves comparing information taken from the financial
statements to gain a general understanding of the results, financial position, and
cash flow of a business. However, there are a number of limitations of ratio
analysis to be aware of. They are:

1. Historical. All of the information used in ratio analysis is derived from actual
historical results. This does not mean that the same results will carry forward
into the future. However, you can use ratio analysis on pro forma information
and compare it to historical results for consistency.
2. Inflation. If the rate of inflation has changed in any of the periods under
review, this can mean that the numbers are not comparable across periods. For
example, if the inflation rate was 100% in one year, sales would appear to have
doubled over the preceding year, when in fact sales did not change at all.

Page | 32
 3. Operational changes. A company may change its underlying operational
structure to such an extent that a ratio calculated several years ago and
compared to the same ratio today would yield a misleading conclusion.
4. Accounting policies. Different companies may have different policies for
recording the same accounting transaction. This means that comparing the ratio
results of different companies may be like comparing apples and oranges. For
example, one company might use accelerated depreciation while another
company uses straight line or one company records a sale at gross while the
other company does so at net.
5. Findings. It can be quite difficult to ascertain the reason for the results of a
ratio. For example, a current ratio of 2:1 might appear to be excellent, until you
realize that the company just sold a large amount of its stock to bolster its cash
position. A more detailed analysis might reveal that the current ratio will only
temporarily be at that level, and will probably decline in the near future.
6. Company strategy. It can be dangerous to conduct a ratio analysis comparison
between two firms that are pursuing different strategies. For example, one
company may be following a low-cost strategy, and so is willing to accept a
lower gross margin in exchange for more market share. Conversely, a company
in the same industry is focusing on a high customer service strategy where its
prices are higher and gross margin are higher, but it will never attain the
revenue levels of the first company.

In short, ratio analysis has a variety of limitations that can restrict its usefulness.
However, being aware of these problems and use alternative and supplemental
methods to collect and interpret information, ratio analysis is still useful.

3.1.4 Justification of using Ratio Analysis:

Ratio Analysis is a widely used method for evaluating financial performance of

a company. It shows the overall financial position of a company. Ratio analysis
provides financial, managerial and operational information to the external users.
This type of analysis is particularly useful to the outsiders of the company. It
also helps the users to execute intra-firm comparison. Moreover, financial
performance can easily be evaluated by Ratio Analysis.

Page | 33
All the ratios cannot be analyzed due to some limitation. Some important ratios that
reflect company performance are taken into account;

3.14 For Branch level analysis:

1. Current Ratio

2. Expense Control Efficiency Ratio

3. Tax Management Ratio

4. Debt Ratio

5. Loan to Deposit Ratio

3.14.1 Current Ratio:

The current ratio is a liquidity ratio that measures a company's ability to pay short-
term obligations. It tells investors and analysts how a company can maximize the
current assets on its balance sheet to satisfy its current debt and other payables.
Formula: Current Ratio = Current Assets / Current liabilities

Table-4.1 Current Ratio from 2014 – 2018 Amount in Million (Taka)

Particulars 2014 2015 2016 2017 2018
Current Assets 476 452 476 503 587
Current 466 420 464 495 518
Liabilities
Current Ratio 1.022 1.075 1.025 1.017 1.13

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 (Source: Branch Affairs File 2014 – 2018)

Figure 4.1: Current Ratio

1.14 1.13
1.12
1.1
1.076
1.08
1.06
1.04 1.022 1.025
1.017
1.02
1
0.98
0.96
2014 2015 2016 2017 2018
Year

Interpretation: The graph shows that the rate of Current ratio is fluctuating
during this period. The highest rate of the Current Ratio is 1.13 in 2018 and the
lowest rate is 1.017 in 2017. However, the Standard of Current Ratio is 2:1. The
ratio derived from the branch during this period doesn’t maintain the standard
rather it is far below from the standard.

3.14.2 Expense Control Efficiency Ratio

This ratio shows how efficient a firm is to control its expenses. It is also a measure
of operating efficiency as it indicates its control over all its expenses, including
interest expenses, non- interest expenses and provision for loan losses.

Expense Control Efficiency Ratio= Net income before Tax/ Operating Income

Table-4.2 ECE Ratio from 2014 – 2018 Amount in Million (Tk)

Particulars 2014 2015 2016 2017 2018
NI before 124.1 134.2 165.7 125.6 155.2
Tax
Operating 347.7 562.3 642.2 725.3 840.1
Income
Expense 35.79% 23.87% 25.80% 17.32% 18..47%
Control
Efficiency
Ratio
(Source: Branch Affairs File 2014 – 2018)

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 Figure 4.2: Expense Control Efficiency Ratio
40.00% 35.79%
35.00%
30.00% 25.80%
23.87%
25.00%
17.32% 18.47%
20.00%
15.00%
10.00%
5.00%
0.00%
2014 2015 2016 2017 2018
Year

Interpretation: The graph shows that the Expense Control Efficiency Ratio is in
fluctuating trend during this period. The highest rate was 35.79% in 2014 and the
lowest rate was 17.32% in 2017. The standard of Expense Control Efficiency ratio
is 50% or above. The ratio found from the Branch does not maintain the standard.

3.14.3 Tax Management Ratio

Tax Management Ratio reflects the security gains or loss to minimize tax
exposure and indicates what portion of operating income generates net income
after tax.

Formula: Tax management Ratio= NI after tax / NI before tax

Table- 4.3 Tax Management Ratio from 2014 – 2018 Amount in Million (Tk)
Particulars 2014 2015 2016 2017 2018
NI after Tax 48 71.3 94.2 71.4 99.7

NI before 124.1 134.2 165.7 125.6 155.2

Tax
Tax 38.68% 53.17% 56.85% 56.84% 64.24%
Management
Ratio
(Source: Branch Affairs File 2014 – 2018)

Page | 36
 4.3: Tax Management Ratio
70.00% 64.24%
60.00% 56.85% 56.84%
53.17%
50.00%
38.68%
40.00%

30.00%

20.00%

10.00%

0.00%
2014 2015 2016 2017 2018
Year

Interpretation: The graph shows that t he Tax Management Ratio is gradually

increasing during this period. The highest rate found 64.24% in 2018 and the
lowest one 38.68% in 2014. However there is no certain standard of Tax
Management Ratio. The higher the ratio is the better for the branch. Since the Tax
Manage Ratio is getting higher, so the ratio found from the branch is satisfactory.
3.14.4 Debt Ratio
The debt ratio is defined as the ratio of total debt to total assets, expressed as a
decimal or percentage. It can be interpreted as the proportion of a company’s
assets that are financed by debt.

Formula: Debt Ratio = Total Debt / Total Assets

Table-4.4 Debt Ratio from 2014 – 2018 Amount in Million (Taka)

Particulars 2014 2015 2016 2017 2018
Total 519 586 665 801 836
Debt
Total 597 624 707 832 843
Assets
Debt 0.87 0.94 0.94 0.96 0.99
Ratio
(Source: Branch Affairs File 2014 – 2018)

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 4.4 Debt Ratio
1 0.99
0.98
0.96
0.96
0.94 0.94
0.94
0.92
0.9
0.88 0.87
0.86
0.84
0.82
0.8
2014 2015 2016 2017 2018
Year

Interpretation: The graph shows the Debt Ratio was gradually increasing during
this period. The highest ratio was 0.99 in 2018 and the lowest was 0.87 in 2014.
However, the ideal rate of Debt Ratio is 0.50:1 or below. The Debt Ratio derived
from the branch doesn’t maintain the standard rather it is far above from the
standard.
3.14.5 Loan to Deposit Ratio

A loan-to-deposit ratio shows a bank's ability to cover loan losses and

withdrawals by its customers.

Formula: LDR=Loan and advance / Total Deposit

Table-4.5 LDR Ratio from 2014 – 2018 Amount in Million (Taka)

Particulars 2014 2015 2016 2017 2018
Loan and 363 389 434 570 627
Advances
Total 370 399 478 597 656
Deposits
Loan 98.10% 97.50% 90.79% 95.48% 96%
Deposit
Ratio
(Source: Branch Affairs File 2014 – 2018)

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 Figure: 4.5 Loan to Deposit Ratio
100.00%
98.10%
97.50%
98.00%
95.48% 96.00%
96.00%
94.00%
92.00% 90.79%
90.00%
88.00%
86.00%
2014 2015 2016 2017 2018
Year

Interpretation: The graph shows the Loan Deposit Ratio was in fluctuating trend.
It shows the highest ratio 98.10% in 2014 and the lowest ratio 90.79% in 2016.
The standard rate of loan deposit ratio is within 80% to 90%. The Loan Deposit
Ratio found from the branch can maintain the standard.

3.15 For Bank level analysis:

1.Liquidity Ratio.
i. Current Ratio
ii. Retained Earnings to Total Asset Ratio
2.Profitability Ratio
i. Return on Asset ( ROA)
ii. Return on Equity (ROE)
iii. Return on Investment (ROI)
3. Efficiency Ratio
i. Asset Turnover Ratio
ii. Tax Management Ratio
iii. Expense Control Efficiency Ratio
4.Leverage Ratio
i. Debt Ratio
ii. Equity Ratio
iii. Equity Multiplier Ratio

Page | 39
 5.Valuation Ratio
i. Price Earnings Ratio (PER)

3.15.1 Current Ratio:

The current ratio is a liquidity ratio that measures a company's ability to pay short-
term obligations. It tells investors and analysts how a company can maximize the
current assets on its balance sheet to satisfy its current debt and other payables.
Formula: Current Ratio = Current Assets / Current liabilities

Table-4.6 Current Ratio from 2014 – 2018 Amount in Million (Taka)

Particulars 2014 2015 2016 2017 2018
Current 95,431 105,627 111,320 118,999 125,620
Assets
Current 92,896 99,221 109,201 115,887 121,230
Liabilities
Current Ratio 1.027 1.065 1.016 1.027 1.036

(Source: Annual Report 2014 – 2018)

Figure 4.6: Current Ratio

1.07 1.065
1.06 1.049
1.05
1.04 1.036
1.027
1.03
1.02 1.016
1.01
1
0.99
2014 2015 2016 2017 2018
Year

Interpretation: The graph shows that the rate of Current ratio is fluctuating during
this period. The highest rate was in 2017 & 2015(1.065). The lowest one was in
2016(1.016). The standard of Current Ratio is 2:1, which means the bank has 2
portions of current assets against 1 portion of current liabilities. Since above rates
don’t meet up the standard, that’s why the rate is dissatisfactory.

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3.15.2 Retained Earnings(R/E) to Total Assets (T/A) Ratio
Retained earnings to total assets are a ratio which helps in measuring the
profitability of the assets of an entity. It indicates how assets were financed from
retention of profit instead of paying profit out as dividends, and acquiring loans.
Formula: R/I to TA= Retained earnings ÷ Total Assets

Table-4.7 R/E to Total Assets Ratio from 2014 –2018 Amount in Million (Tk)
Particulars 2014 2015 2016 2017 2018
Retained Earnings 313 752 841 1,722 2,175

Total Assets 127,904 146,059 165,370 201,753 222,445

Retained Earnings To 0.25 0.515 0.50 0.85 0.98

Total Asset Ratio
(Source: NCC BANK Annual Report 2014 – 2018)

Figure 4.7: Retained Earnings to Totao Asset

Ratio
1.2
0.98
1
0.85
0.8

0.6 0.52 0.5

0.4
0.25
0.2

0
2014 2015 2016 2017 2018
Year

Interpretation: The graph shows gradually increasing rate of Retained earnings

to total assets ratio during this period. The highest rate is in 2018 (0.98), where as
the lowest rate is in 2014(0.25). However, the ideal rate of Retained Earnings to
Total Assets ratio is 1:1 or 100%. Since NCC BANK cannot maintain the standard,

Page | 41
 so the rate of Retained Earnings to Total Assets Ratio of NCC BANK is
dissatisfactory.

3.15.3 Return on Asset

The term return in the ROA ratio customarily refers to net profit or net income, the
amount of earnings from sales after all costs, expenses, and taxes.

Formula: Return on Assets = (Net Income / Total Assets) × 100

Table-4.8 Return on Asset Ratio from 2014 – 2018 Amount in Million (Tk)

Particulars 2014 2015 2016 2017 2018

Net Income 565 1,366 1,463 1,980 1,734

Total Assets 127,904 146,059 165,370 201,753 222,445

Return On Asset 0.442% 0.943% 0.939% 1.078% 0.8177%
(ROA)
(Source: Annual Report 2014 – 2018)

Figure 4.8: Return on Asset (ROA)

1.20% 1.08%

1.00% 0.95% 0.94%

0.82%
0.80%

0.60%
0.44%
0.40%

0.20%

0.00%
2014 2015 2016 2017 2018
Year

Interpretation: We have found that the rate of ROA is fluctuating. The highest
rate is 1.08% in 2017 and the lowest rate is 0.44% in 2014. ROAs over 5% are

Page | 42
 considered good. Since the rate of ROA is less than the standard, so the ROA of
NCC BANK is not satisfactory.

3.15.4 Return on Equity

ROE is a ratio that provides investors with insight into how efficiently a company
is handling the money that shareholders have contributed to it.

Formula: Return on Equity (ROE) = Net Income / Equity×100

Table-4.9 Return on Equity Ratio from 2014 – 2018 Amount in Million (Tk)
Particulars 2014 2015 2016 2017 2018

Net Income 565 1,366 1,463 1,980 1,734

Equity 6,367 8,929 9,818 11,791 13,278

Return On 8.88% 15.30% 15.61% 18.33% 13.85%

Equity (ROE)

(
Source: Annual Report 2014 – 2018)

Figure 4.9: Return On Equity

20.00% 18.33%
18.00%
15.30% 15.61%
16.00% 13.84%
14.00%
12.00%
10.00% 8.88%
8.00%
6.00%
4.00%
2.00%
0.00%
2014 2015 2016 2017 2018
Year

Interpretation: The graph shows that we have found a fluctuating rate here. The
rate of ROE is highest in the year of 2017 with 18.33%. And the rate is lowest in

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 the year of 2014 with 8.88%. ROE within 15%- 20% is considered good. Since
the ROE maintains the standard, so the ROE is satisfactory for NCC BANK.

3.15.5 Return on Investment (ROI)

Return on Investment (ROI) is a ratio that used to calculate the benefit an investor
will receive in relation to their investment cost.

Formula: Return on Investment (ROI) =Net Income / Investment

Table-4.10 ROI from 2014 –2018 Amount in Million (Tk)

Particulars 2014 2015 2016 2017 2018

Net Income 565 1,366 1,463 1,980 1,734

Investment 29,966 26,201 22,959 25,080 27,389

Return on 1.85% 5.21% 6.66% 7.89% 6.33%

Investment
(ROI)
(Source: Annual Report 2014 – 2018)

Figure 4.10: Return On Investment(ROI)

9.00%
7.89%
8.00%
7.00% 6.66%
6.33%
6.00% 5.21%
5.00%
4.00%
3.00%
1.85%
2.00%
1.00%
0.00%
2014 2015 2016 2017 2018
Year

Interpretation: We can see that the rate of ROI was lowest in the year of 2014.
Then the rate was gradually increasing till the year of 2017. In the year 2018 the
rate fell down to 6.33%. However positive ROI is always good for the banks. So,
the rate of ROI is satisfactory for NCC BANK.

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3.15.6 Asset Turnover Ratio
The asset turnover ratio measures the value of a company's revenues relative to
the value of its assets.

Formula: Asset Turnover Ratio = (Operating income/ Total Asset) ÷100

Table-4.11 Asset Turnover Ratio from 2014 – 2018 Amount in Million (Tk)

Particulars 2014 2015 2016 2017 2018

Operating Income 4,051 6,580 7,514 8,487 9,829

Total Assets 127,904 146,059 165,370 201,753 222,444
Asset Turn Over 3.16% 4.50% 4.55% 4.20% 4.42%
Ratio
(Source: Annual Report 2014 – 2018)

Figure 4.11: Asset Turnover Ratio

5.00% 4.50% 4.55% 4.42%
4.50% 4.20%
4.00%
3.50% 3.16%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
2014 2015 2016 2017 2018
Year

Interpretation: The statistic shows the rate of Asset Turnover Ratio (ATR) is
fluctuating during this period. The lowest rate was in 2014(3.16%). The highest
rate was in 2016(4.55%). Asset Turnover Ratio within 5%-10% is considered
good for the banks. Since, the ratio is close to the standard rate, so ATR is
satisfactory for NCC Bank.

Page | 45
3.15.7 Tax Management Ratio
Tax Management Ratio reflects the security gains or loss to minimize tax
exposure and indicates what portion of operating income generates net income
after tax.

Formula: Tax management Ratio= NI after tax / NI before tax

Table-4.12 Tax Management Ratio from 2014–2018 Amount in Million (Tk)

Particulars 2014 2015 2016 2017 2018

NI after Tax 565 1,366 1,463 1,980 1,734

NI before 1,803 2,273 2,461 2,259 2,518
Tax
Tax
Management 31.34% 60% 59.45% 88% 68.86%
Ratio

(Source: Annual Report 2014 – 2018)

Figure 4.12: Tax Management Ratio

100.00%
88%
90.00%
80.00% 68.86%
70.00% 60% 59.45%
60.00%
50.00%
40.00% 31.34%
30.00%
20.00%
10.00%
0.00%
2014 2015 2016 2017 2018
Year

Interpretation: We observed that the rate of Tax Management Ratio was

gradually increasing from 2014 to 2017. The rate rose in the zenith point in the
year of 2017(88%). The higher the ratio is the better for the bank. So The Tax
Management Ratio is satisfactory for NCC BANK.

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3.15.8 Expense Control Efficiency Ratio
This ratio shows how efficient a firm is to control its expenses. It is also a measure
of operating efficiency as it indicates its control over all its expenses, including
interest expenses, non- interest expenses and provision for loan losses.

Expense Control Efficiency Ratio= Net income before Tax/ Operating Income

Table- 4.13 ECE Ratio from 2014 – 2018 Amount in Million (Tk)
Particulars 2014 2015 2016 2017 2018

NI before Tax 1,803 2,273 2,461 2,259 2,518

Operating Income 4,051 6,580 7,514 8,487 9,829

Expense Control
Efficiency Ratio 44.50% 34.55% 32.75% 26.62% 25.85%
(Source: NCC BANK Annual Report 2014 – 2018)

Figure 4.13: Expense Control Efficiency Ratio

50.00% 44.50%
45.00%
40.00% 34.55%
35.00% 32.75%
30.00% 26.62% 25.86%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2014 2015 2016 2017 2018
Year

Interpretation: The graph shows that there was a gradually decreasing trend over
the period where the highest rate was 44.50% in 2014 and the lowest was 25.86%
in 2018. The standard of ECR is 50% or above. Since the result came from the
bank does not maintain the standard. So the overall ECR is not satisfactory.

Page | 47
3.15.9 Debt Ratio
The debt ratio is defined as the ratio of total debt to total assets, expressed as a
decimal or percentage. It can be interpreted as the proportion of a company’s assets
that are financed by debt.

Formula: Debt Ratio = Total Debt / Total Assets

Table- 4.14 Debt Ratio from 2014 – 2018 Amount in Million (Taka)
Particulars 2014 2015 2016 2017 2018
Total Debt 121535 137,129 155,552 189,991 209,165
Total Assets 127,904 146,059 165,370 201,753 222,444
Debt Ratio 0.95 0.939 0.941 0.942 0.94
(Source: NCC BANK Annual Report 2014 – 2018)

Figure 4.14 : Debt Ratio

0.952 0.950
0.95
0.948
0.946
0.944 0.942
0.942 0.941
0.939 0.940
0.94
0.938
0.936
0.934
0.932
2014 2015 2016 2017 2018
Year

Interpretation: The graph shows that the Debt Ratio is fluctuating during this
period. In 2014 the rate was the highest (0.950). The lowest was in the following
year (0.939). The ideal rate of Debt Ratio is 0.50:1. The higher the ratio the higher
the risk is. Since the rate is higher than the standard, so the Debt Ratio is
dissatisfactory for NCC BANK.

Page | 48
3.15.10 Equity Ratio
The shareholder equity ratio the ratio that shows how much of the company's
assets are funded by equity shares.

Formula: Equity Ratio= Total equity ÷Total Asset

Table-4.15 Equity Ratio from 2014 – 2018 Amount in Million (Tk)

Particulars 2014 2015 2016 2017 2018
Total Equity 6,367 8,929 9,818 11,791 13,278

Total 127,904 146,059 165,370 201,753 222,444

Assets
Equity 4.98% 6.11% 5.95% 5.84% 5.97%
Ratio
(Source: NCC BANK Annual Report 2014 – 2018)

Figure 4.15: Equity Ratio

7.00%
6.11% 5.95% 5.97%
5.84%
6.00%
4.84%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2014 2015 2016 2017 2018
Year

Interpretation: We found a fluctuating rate during this period. The highest rate of
E/R was 6.11% in 2015. The lowest rate was 4.84% in 2014. However the ideal
rate of Equity Ratio is 75% or ¾. Since the rate of Equity Ratio is lower than the
standard, so the Equity ratio of NCC BANK is dissatisfactory.

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3.15.11 Equity Multiplier Ratio
The equity multiplier shows the percentage of assets that are financed or owed by
the shareholders.

Formula: Equity Multiplier = Total Asset / Total Equity

Table- 4.16 Equity Multiplier Ratio from 2014 - 2018 Amount in Million (Tk)
Particulars 2014 2015 2016 2017 2018
Total Assets 127,904 146,059 165,370 201,753 222,445

Total Equity 6,367 8,929 9,818 11,791 13,278

Equity 20 16.39 16.84 17.10 16.75

Multiplier
Ratio
(Source: NCC BANK Annual Report 2014 – 2018)

Figure 4.16: Equity Multiplier

25
20
20
16.39 16.84 17.1 16.75
15

10

0
2014 2015 2016 2017 2018
Year

Interpretation: The graph shows a fluctuating rate during this considered period.
The highest rate (20) was in year 2014 and the lowest rate (16.39) was in 2015.
However, the ideal rate of Equity Multiplier is 2:1. But in 2014 E/M rate 20
means; the bank is using 1 time of asset and 19 times of debt. So here the E/M is
much higher than the standard. So the Equity Multiplier is dissatisfactory for
NCC BANK.

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3.15.12 Price Earnings Ratio
The Price Earnings Ratio (P/E Ratio) is the relationship between a company’s stock
price and earnings per share (EPS). The ratio is used for valuing companies and to
find out whether they are overvalued or undervalued.
Formula: P/E = Stock Price per Share / Earnings per Share

Table-4.17 Price Earnings Ratio from 2014 – 2018

Particulars 2014 2015 2016 2017 2018
Stock Price 11.20Tk 19.5Tk 23.09Tk 34.95Tk 35.25Tk
Per Share
Earnings 1.84Tk 3.08Tk 3.30Tk 3.45Tk 3.03Tk
Per
Share(EPS)
Price 6.09(Times) 6.33(Times) 6.99(Times) 10.13(Times) 11.6(Times)
Earnings
Ratio
(Source: NCC BANK Annual Report 2014 – 2018)

Figure 4.17: Price Earnings Ratio

14
11.6
12
10.13
10
8 6.99
6.09 6.33
6
4
2
0
2014 2015 2016 2017 2018
Year

Interpretation: The graph shows the rate of P/E is gradually increasing during the
considering period. The lowest rate was in 2014 and the highest rate was in 2018.
Increasing trend of P/E with high rate is always positive sign for the banks.
So the P/E ratio rate is satisfactory for NCC BANK.

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 Chapter 04:
Findings, Recommendation
& Conclusion

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4.1 Findings:

For the Branch:

1. Unsatisfactory Current Ratio: The Current Ratio is not satisfactory. The
standard rate of current Ratio is 2:1, which means the bank has 2 portions of
current assets against 1 portion of current liabilities. Current Ratio found from
the branch does not maintain the standard and it is far below from the standard.
(Page-39)
2. Expense Control Efficiency Ratio not agreeable: The Expense control
Efficiency Ratio is dissatisfactory. The standard rate of Expense Control
Efficiency Ratio is 50% 0r above. Expense Control Efficiency Ratio attained
from the branch doesn’t maintain the standard. (Page-40)
3. Suitable Loan Deposit Ratio: The Loan Deposit Ratio is satisfactory. The
standard rate of loan deposit ratio is within 80% to 90%. The Loan Deposit Ratio
found from the branch can maintain the standard. (Page- 43)

For the Bank

1. Current Ratio is not pleasing: The Current Ratio is not satisfactory. The
standard rate of Current Ratio is 2:1, Current Ratio derived from the bank does
not maintain the standard; rather it lies far below the standard. (Page-45)
2. Retained Earnings to Total Assets ratio is not expected: The Retained
Earnings to Total Assets Ratio of NCC BANK is dissatisfactory. The ideal rate
of Retained Earnings to Total Assets ratio is 1.1 or 100%. But rate came from
the bank is below from the standard. (Page-46)

3. Return on Equity maintains its standard: The ROE of NCC BANK is good.
The ideal rate of ROE is 15%- 20%. ROE found from the bank can maintain the
standards. So the ROE is satisfactory. (Page-48)
4. Satisfactory Return on Investment: The overall ROI of NCC BANK
LIMITED is satisfactory. Any positive return is considered good for the bank.
ROI attained from the bank maintain the standard. (Page-49)
5. Equity Ratio is not agreeable: Equity Ratio of NCC BANK is dissatisfactory.
The standard of E/R is 75% or ¾. The Equity Ratio found from the bank does
not maintain the standard; rather it is far below from the standard. (Page-54)

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4.2 Recommendations

For the Branch

1. Current Ratio needs to be improved. The standard of current Ratio is 2:1 but
the branch could not maintain this. To increase this rate the branch has to
increase the current assets or decrease its current liabilities.
2. Expense Control Efficiency Ratio requires to be improved. The standard rate
of Expense Control Efficiency Ratio is 50% or above. To increase this rate the
branch has to increase its Net Income.
3. Loan Deposit Ratio is quite satisfactory. To do better performance the branch
should lend the money 80% to 90% of Total Deposits.

For the Bank:

1. Current Ratio needs to be improved. The ideal rate of Current Ratio is 2:1 but
the bank could not maintain this. To increase this rate the bank has to increase
the current assets or reduce current liabilities.
2. Retained Earnings to Total Assets Ratio needs to be improved. is in
increasing trend. The ideal rate of Retained Earnings to Total Assets ratio is 1.1
or 100% but the bank could not maintain this. So, the bank should try to keep
increasing its Retained Earnings.

3. Return on Equity (ROE) is good. But it needs to enhance as it is decreased in

2018. So, the bank should try to increase this by increasing its Net Income or
reducing Equity.
4. Return on Investment (ROI) is satisfactory. But to get better ROI the bank
should keep try to increase this rate. For this, the bank has to increase its net
income.
5. Equity Ratio (E/R) needs to be improved. The standard of E/R is 75% or ¾.
The bank cannot maintain this standard. So, to increase the Equity Ratio the
bank has to increasing its Total Equity.

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 4.3 Conclusion

NCC Bank Ltd looks forward to a new horizon with a distinctive mission to
become a highly competitive modern and transparent institution. It has been
working with great confidence and competing tremendously with Government
oriented bank, local commercial banks along with the multinational banks also. It
always tried its level best to perform financially well. However, the bank faced
some financial problems from time to time. Some of the problems were-excessive
bad loans, shortage of loans and advances, scarcity of cash in hands due to vault
limit etc. These problems arouse time to time due to economic slowdown, interest
rate fluctuation, emerging capital market, inflation in the money market and so on.
Fighting with all these problems and competing with other banks every moment
the bank is trying to do better to best. If this thing continues, we hope that NCC
Bank. will develop even more in the future.

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Appendix- 1

Reference:

Books:
Ray h. Garrison, Eric w. Noreen Managerial Accounting, 10th edition.
Pandey, I.M. “Financial Statements Analysis”, 9th edition.

Websites:
1. Academia.edu
2. Accountingtools.com
3. Investopedia
4. Wikipedia

Others:
NCC Annual Report 2014-2018

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Appendix- 2
Internship Certificate

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