A Study on Financial Statement Analysis

Shivaji University, Kolhapur

CHAPTER: 1 INTRODUCTION TO THE STUDY
1.1 INTRODUCTION :Financial statements of an organization are very useful to different parties such as management, shareholders, creditors, investors, banks, government, etc. The trading & profit and loss account gives gross Profit/ loss and Net profit/ loss of organization while balance sheet disclose financial position on a particular date. The information provided in the financial statements serves no purpose unless it is analyzed and interpreted in some comparable terms. Ratio analysis is a powerful tool of financial analysis. The ratio helps to summaries the large quantities of financial data and to qualitative judgment about the firm’s financial performance. Ratio analysis helps in understanding the financial health and trend of business. Its post performance enables to forecast future state of affairs of business. The management uses ratio analysis in formulating policies, In decision making, Evaluating performance, Knowing trends, In planning & forecasting, Controlling & Communicating. The investors are interested in safety, security, and profitability of their investments. Ratio enables the prospective investors to select best company to invest. The shareholders uses ratio to evaluate performance and future prospectus.

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1.2 STATEMENT OF STUDY :“A study on financial statement analysis of PUNJAB NATIONAL BANK” (Head office)”. 1.3 OBJECTIVES :1] To study and understand the financial affairs. 2] To study and understand overall performance. 3] To highlight the strength and weakness through Ratio Analysis Techniques in financial affairs. 4] To analyze and interpret the data collected to draw conclusions. 5] To suggest the remedial measures to overcome the weakness Face the increasing composition, if any. and

1.4 METHODOLOGY :For attaining the above objectives of the study. The data is collected through the two types of sources. I] Primary source. II] Secondary source.

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I] Primary source:In primary source the data is collected through various sources via. Interview of branch manager (sangli), etc. was conducted for first hand information. II] Secondary source:In this study secondary data, A) 4 yrs Balance Sheet and profit & loss A/c of year 2003-04 to 2006-07 is collected from the Annual Reports of the Bank. B) The organizational profile is collected through Web Site of Bank. Web Site - www.pnbindia.org.in C) For theoretical Background of study, I refer the Book Management Accountancy of M.G. Pathkar. 1.5 SCOPE OF THE STUDY:The scope of the study extends to the financial performance of PUNJAB NATIONAL BANK (Head office) by ‘ratio analysis technique’ the ratios are calculated. The period of study is four years i.e. 2004, 2005, 2006 and 2007.

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1.6 LIMITATIONS OF THE STUDY:I) II) III) Lacks of comparative data for inter bank comparison. The data available for study is only 4 years. Study is limited only to ‘financial Statement Analysis’.

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CHAPTER: 2 INTRODUCTION TO BANK

2.1 - Profile
With its presence virtually in all the important centers of the country, Punjab National Bank offers a wide variety of banking services which include corporate and personal banking, industrial finance, agricultural finance, financing of trade and international banking. Among the clients of the Bank are Indian conglomerates, medium and small industrial units, exporters, non-resident Indians and multinational companies. The large presence and vast resource base have helped the Bank to build strong links with trade and industry. Punjab National Bank is serving over 3.5 crore customers through 4540 Offices including 421 extension counters - largest amongst Nationalized Banks. Punjab National Bank with 112 year tradition of sound and prudent banking is one among 300 global companies and seven Indian companies which are expected to emerge as challengers to World’s leading blue chip companies. While among top 1000 world banks, “The Banker”, the leading magazine in London, has placed PNB at the 248th position, the bank features at 1308th position among Forbe’s Global 2000 list of global giants and fast growing companies. At the same time, the bank has been conscious of its social responsibilities by financing agriculture and allied activities and small scale industries (SSI). Considering the importance of small scale

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industries bank has established 31 specialized branches to finance exclusively such industries. Strong correspondent banking relationship which Punjab National Bank maintains with over 200 leading international banks all over the world enhances its capabilities to handle transactions world-wide. Besides, bank has Rupee Drawing Arrangements with 15 exchange companies in the Gulf and one in Singapore. Bank is a member of the SWIFT and over 150 branches of the bank are connected through its computer-based terminal at Mumbai. With its state-of-art dealing rooms and well-trained dealers, the bank offers efficient forex dealing operations in India. The bank has been focusing on expanding its operations outside India and has identified some of the emerging economies, which offer large business potential. Bank has set up representative offices at Almaty: Kazakhistan, Shanghai: China and in London. Besides, Bank has opened a full fledged Branch in Kabul, Afghanistan. Keeping in tune with changing times and to provide its customers more efficient and speedy service, the Bank has taken major initiative in the field of computerization. All the Branches of the Bank have been computerized. The Bank has also launched aggressively the concept of "Any Time, Any Where Banking" through the introduction of Centralized Banking Solution (CBS) and over 2409 offices have already been brought under its ambit. PNB also offers Internet Banking services in the country for Corporate as well as individuals. Internet Banking services are available through all Branches of the Bank networked under CBS. Providing 24
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hours, 365 days banking right from the PC of the user, Internet Banking offers world class banking facilities like anytime, anywhere access to account, complete details of transactions, and statement of account, online information of deposits, loans overdraft account etc. PNB has recently introduced Online Payment Facility for railway reservation through IRCTC Payment Gateway Project and Online Utility Bill Payment Services which allows Internet Banking account holders to pay their telephone, mobile, electricity, insurance and other bills anytime from anywhere from their desktop. Another step taken by PNB in meeting the changing aspirations of its clientele is the launch of its Debit card, which is also an ATM card. It enables the card holder to buy goods and services at over 99270 merchant establishments across the country. Besides, the card can be used to withdraw cash at more than 25000 ATMs, where the 'Maestro' logo is displayed, apart from the PNB's over 1094 ATMs and tie up arrangements with other Banks.

2.2 VISION & MISSION:VISION “To evolve and position the bank as a world class progressive, Cost effective and customer friendly institution providing comprehensive financial & related services; Integrating frontiers of technology & serving various segments of society especially the weaker sections; committed to excellence in serving the public and also excelling in corporate values.”

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MISSION “To provide excellent professional services and improve its position as a leader in the field of financial & related services, build and maintain a team of motivated & committed workforce with high work ethos; use latest technology aimed at customer satisfaction and act an effective catalyst for socio-economic development.”

2.3 – Subsidiaries:• PNB Gilts Ltd.
A subsidiary of Punjab National Bank which was amongst the first ones to get the license for undertaking activities in the Government Security market, as a primary dealer in 1996. The company received ISO 9002 certification from British Standard Institution, making it as the first primary dealer in India to achieve this certification for its quality systems and procedures. This certificate has been granted to the company as a whole including its corporate and branch offices.

• PNB Housing Finance Ltd.
This is a wholly owned subsidiary of Punjab National Bank, is engaged in providing housing loans for purchase, construction and up gradation of a dwelling unit. The company offers Loans for construction or for purchase of house/flat from development authorities and also from private builders/ group housing societies as well as for renovation/ repairs. Company also provides finance for construction of residential projects. Loans to NRIs are also provided for purchase/ construction of house/ flat along with a resident/ non-resident co-borrower.

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PNB Capital Services Limited

Stands merged with PNB Depositors of PNB CAPs to contact Chief Manager Bhikaiji Cama Place for further queries regarding fixed deposits.

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2.4- Board of Directors
Dr K.C Chakrabarty Shri K. Raghuraman Shri J.M.Garg Chairman & Managing Director Executive Director Executive Director

Directors

Shri. Rakesh Singh Shri L.M.Fonseca Shri. S.R.Khurana Shri P.K. Nayar Shri Mohan Lal Bagga Dr.Harsh Mahajan Shri Mohanjit Singh Shri Prakash Agarwal

Govt. of India Nominee Director Reserve Bank of India Nominee Director Director rep. C.A. category Officer Employee Director Workmen Employee Director Shareholder Director Shareholder Director Shareholder Director

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2.5 – Organisational Structure:-

Organisational Structure
Head Office

Zonal Offices (25)

Regional Offices (48)

Branches (4056)

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CHAPTER: 3 THEORETICAL BACKGROUND OF THE RATIO ANALYSIS
3.1 INTRODUCTION:In finance, a financial ratio or accounting ratio is a ratio of selected values on an enterprise's financial statements. There are many standard ratios used to evaluate the overall financial condition of a corporation or other organization. Financial ratios are used by managers within a firm, by current and potential stockholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios. Values used in calculating financial ratios are taken from the balance sheet, income statement, cash flow statement and (rarely) statement of retained earnings. These comprise the firm's "accounting statements" or financial statements. Ratios are always expressed as a decimal value, such as 0.10, or the equivalent percent value, such as 10%. Financial ratios quantify many aspects of a business and are an integral part of financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures.
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1] Liquidity ratios measure the availability of cash to pay debt. 2] Activity ratios measure how quickly a firm converts non-cash assets to cash assets

3] Debt ratios measure the firm's ability to repay long-term debt. 4] Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return. 5] Market ratios measure investor response to owning a company's stock and also the cost of issuing stock Financial ratios allow for comparisons
• • • •

between companies between industries between different time periods for one company between a single company and its industry average

The ratios of firms in different industries, which face different risks, capital requirements, and competition, are not usually comparable.  DEFFINITION OF RATIO ANALYSIS :Ratio analysis can be defined as relationships worked out Among various accounting data. It may be defined as to one number with another number and to express it in terms of another. Robert Anthony defines the ratio as “simply one number expressed in terms of another”. A great number of ratios can be computed
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from the basis of financial statements, i.e. Balance Sheet and Profit & Loss A/C. F. M. Pandy defines the ratio as “the indicated quotient of two mathematical expression and as the relationship between two or more things. “In financial analysis a ratio is used as an index or yardstick to evaluate the financial position and performance of the firm. 3.2 NATURE OF RATIO ANALYSIS:Ratio analysis is a powerful tool pf financial analysis. The term ratio refers to the numerical or quantitative relationships between two items or variables. A ratio is calculated by dividing one item of relationship with other. The alternative method of expressing items which are related to each other are from purpose of financial analysis. The relation between the accounting figures, expressed mathematically is know as ratio. A ratio helps the analyst to make qualitative judgment about the Firm’s financial position and performance. Accounting ratios become significant only when considered along with the figures. In fact a meaningful analysis of financial positions and performance is the first great advantage of accounting ratios This requires ratios and their comparison, which is as follows. 1. For the same firm over a period of year. Or 2. For one firm to against another or

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3. for one department of a firm against other department of the firm. 4. for the interpretation of the ratio. There are several types of ratios, which help to understand the profit and loss of the firm, which is as followsRatios for Various Tests:
1. Short term solvency = Current Ratio, Liquid Ratio, Inventory

turnover Ratio and Debtors Turnover Ratio.
2. Long Term Solvency = Equity Ratio, Equity Debt Ratio, Fixed

Assets Ratio.
3.

Profitability or Earnings=Gross Profit Ratio, Operating Ratio, Net Profit Ratio Inventory Turnover Ratio, Return on Equity Capital Ratio, Return on Total Assets Ratio etc.

Sources of data for financial ratios:Financial ratios are based on summary data presented in financial statements. This summary data is based on the accounting method and accounting standards used by the organization. Accounting methods and principles:Financial ratios may not be directly comparable between companies that use different accounting methods or follow various standard accounting practices. Most public companies are required by law to use generally accepted accounting principles for their home countries, but private companies, partnerships and sole proprietorships may not use accrual basis accounting. Large multi-national corporations
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may use International Financial Reporting Standards to produce their financial statements, or they may use the generally accepted accounting principles of their home country. There is no world-wide standard for calculating the summary data presented in all financial statements, and terminology is not always consistent between companies, industries, countries and time periods. Abbreviations and terminology:Various abbreviations may be used in financial statements, especially financial statements summarized on the Internet. Sales reported by a firm are usually, technically, net sales, which deduct returns, allowances, and early payment discounts from the charge on an invoice. Companies that are primarily involved in providing services based on man-hours do not generally report "Sales" based on man-hours. These companies tend to report "revenue" based in income from services provided.

3.3

TYPES OF RATIO
Ratios as tools of measuring liquidity, profitability,

efficiency and financial position of a company can be classified in to four basic categories: liquidity, leverage, activity, and profitability.

A) LIQUIDITY RATIOS: Liquidity ratios provide test to measure the ability of the corporation or company to cover its short-term obligations out of its short-term resources. Interpretation of liquidity ratios provides

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considerable insight into the present cash solvency of the corporation and its ability to remain solvent in times of advertises.

1) Current Ratio:Current ratio expresses relationship between current assets and current liabilities. It is computed by dividing current assets by current liabilities. A higher current ratio explains that the company will be able to pay its debts maturing within a year. On the other hand, a low current ratio points to the possibility that the company may not be able to pay its short-term debts. However, from the management point of view higher current ratio is indicative of poor planning since an excessive amount of funds lie idle. On the contrary, a low ratio would mean inadequacy of working capital, which may deter smooth functioning of the enterprise. A current ratio of 2:1 was long considered as minimum in a sound business. This rule of thumb has however, succumbed to the rule of reason. An excess of current assets over currents liabilities does not necessarily mean that debts can be promptly. Formula: Current Asset Current Ratio = -----------------------------Current liabilities

2) Acid Test Ratio or Quick Ratio:V.P.I.M.S.R Sangli. 17

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It is measure of judging to pay off its current obligations. It is obtained by dividing quick current assets by current liabilities. Quick current assets would comprise those assets, which can liquidate immediately and at minimum loss in order to meet pressing financial obligations. Formula: Acid Test Ratio or Quick Ratio = Current Assets - inventories -----------------------------------------Current liabilities B) LEVERAGE RATIOS: Leverage ratios are generally designed to measure the contribution of the company’s owner’s vis-à-vis the funds provided by its creditors. Four leverage ratios as under follows. 1) Debt-Equity Ratios: This ratio relates all the creditors’ claims on assets to the owner’s claims. It is computed by dividing the total debt both current and long term of the business by its tangible net worth consisting of common stock and reserves and surplus. If the ratio is greater it would mean creditors have more invested in the business then the owners. Formula: Long term debt

Debt-Equity Ratios = -----------------------------------------Share holders equity

2) Debt to Total Capital:V.P.I.M.S.R Sangli. 18

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This ratio reflects the relationship between long terms borrowed capital and owners capital contribution. This ratio is fund by dividing long-term debt into total capital.

Formula: -

Total debt

Debt to Total Capital = ---------------------------------------Share holder fund

3) Debt to Total Assets Ratio:This ratio exhibits the promotion of assets created though debt including short term and long term liabilities. This ratio is of considerable significance to the creditors in as much as it highlights the long run solvency of the company. Formula: Total debt

Debt to Total Assets Ratio = ----------------------------------Total Asset

4) Proprietary Ratio:It is a variant of debt equity ratio. It establishers relationship between the ‘proprietors’ or ‘shareholders’ funds and the total the total tangible assets. Formula: Total shareholders fund * 100

Proprietary Ratio = --------------------------------------------------V.P.I.M.S.R Sangli. 19

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Total Asset 5) Capital Gearing Ratio :Capital gearing ratio discloses the relationship between the equity share capital and preference capital and loan capital on out side finance. Formula – Fund with fixed interest and dividend

Capital Gearing Ratio = ------------------------------------------------------Shares holders’ fund

C) ACTIVITY RATIOS: Activity ratios reflect how efficiently the company is managing its resources. These ratios express relationship between the level of sales and the investment in various assets. The important activity ratios are. 1) Inventory Turnover Ratio:Inventory turnover is computed by dividing the cost of goods sold by the average inventory for the period. This ratio gives the number of times the inventory is replaced during a given period, usually a year. Formula: Cost of goods sold

Inventory Turnover Ratio = ------------------------------------Average inventory

• Cost of goods sold = Opening stock + manufacturing cost +
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Purchases - Closing stock of inventory.

Opening stock+ closing stock Average inventory = -------------------------------------------------2

2) Total Assets Turnover:This ratio expresses relationship between the amount invested in the assets and the results accruing in terms of sales. Total assets turnover indicate the efficiency with which assets of the company have been utilized. A higher ratio would mean better utilization and vice versa. Formula: Net sales Total Assets Turnover = ---------------------------------------Total Assets

3) Fixed Assets Turnover:It is used to highlight the extent or utilization of the company’s plant and equipment. A law is indicating of the poor utilization of the existing plant capacity. This factor should be kept in mind while production department requests for funds for new capital investment. Formula: V.P.I.M.S.R Sangli. 21

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Cost of sales Fixed Assets Turnover = ------------------------------------------Net fixed Assets

4) Working Capital Turnover:This ratio reflected the turnover of the firms not working capital in the source of the year. This ratio is calculated by dividing net annual sales by net working capital. It is very good measures of analyzing the over the trading and under trading of the firm.

Formula: Net sales Working Capital Turnover = ------------------------------------Working capital

D) PROFITABILITY RATIOS:Profitability ratios are, as matter of facts, best indicators of overall efficiency of the business concern because they compare return of value put into a business with sales or services carried on by enterprise with the help of assets employed. 1) Gross Profit To Sales Ratio. :V.P.I.M.S.R Sangli. 22

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This ratio establishes relationship between gross profit and sales to measure the relative operating efficiency of the company and to reflect its pricing policies. Sometime it is calculated by taking cost of goods sold instead of sales.

Formula: -

Gross profit * 100

Gross Profit to Sales Ratio = ----------------------------------------Net sales

2) Net Profit or Net Profit Margin Ratio:This ratio provides considerable insight into the overall efficiency of the business. Formula: Net profit * 100

Net Profit or Net Profit Margin Ratio = --------------------------------Net sales

3) Operating Profit Ratio:It is worked out by dividing operating profit by net sales with the help of this ratio one can judge the managerial efficiency, which may be able to not be reflected in net profit ratio. This ratio expresses relationship and sales. Formula: Operating profit * 100

Operating Profit Ratio = ----------------------------------------------V.P.I.M.S.R Sangli. 23

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Net sales

4) Operating Cost Ratio:Operating ratio establishes the relationship between cost of goods sold and other operating expenses on the land the sales on other. Formula: Operating cost * 100 Operating Cost Ratio = -------------------------------------------Net sales 5) Return on Equity Shareholders Equity:The profitability from the point of view of the shareholders will be judged after taking into account the amount of dividend payable to the preference shareholders. Formula: Net profit * 100

Return on Equity Shareholders Equity = -------------------------------Shareholders Equity 6) Return on Total Assets:This ratio is computed to know the productivity of the total assets. The ratio can be calculated taking the meaning of the terms according to the purpose and intend of the analysis.

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Formula: -

Net profit * 100

Return on Total Assets = -----------------------------------------Total Assets

7) Earning Per Share Ratio (EPS):The earning per share helps in determining the market price of the share of the company. It helps in estimating the company’s capacity to pay dividend to its equity shareholders. Formula: Net profit

Earning Per Share Ratio (EPS) = -------------------------No. of shares 8) Return on Fixed Asset:This ratio shows profit in relation to fixed asset of the firm. This ratio indicates the profit earning capacity and gives of assets in the firm. High percentage of return asset has shown the efficient utilization of asset the efficiency of the management. FormulaNet profit * 100

Return on Fixed Asset = ----------------------------------------Fixed assets

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•

THE RATIO WHICH STUDIED :-

Total Interest Earned 1] Interest Earned Ratio = ---------------------------------Total Advances Total Interest Paid Interest Paid Ratio = ------------------------------------Total Deposits

X 100

2]

X 100

3] Interest spread ratio = Average interest received on Loans & Advances __ Average interest paid on Deposit

Interest received • Average interest received on = ------------------------------ X100 Loans & Advances Total Advances

•

Average interest paid on Deposit

Interest paid = ------------------------------ X100 Total deposit

Non Interest Income 4] Other Income Ratio = ------------------------------------ X 100 Volume of business

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Profit before Tax 5] Profitability Ratio = ----------------------------------------- X 100 Volume of business Profit 6] Profit to Capital Ratio = ------------------------- X 100 Total Capital

7] Percentage of Profit To Total Income

Profit = -------------------------- X 100 Total Income

Total Advances (output) 8] Credit Deposit Ratio = ----------------------------------------Total Deposit (Input)

X 100

Interest Income 9] Interest Income % of = ----------------------------------------Total income Total Income Other Income 10] Other Income % of = -----------------------------------------Total income Total Income

X 100

X 100

11] Investment Ratio

Investment = -----------------------------------------Total Asset Liquid cash held
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12] CRR (cash reserve ratio) = -----------------------------------Total Assets

X 100

3.4 IMPORTANCE OF RATIO ANALYSIS The importance of ratio analysis lies in the fact that it presents facts on a comparative basis and enables the drawing of inferences regarding the performance of a firm. Ratio analysis is relevant is assessing the performance of a firm in respect of following aspects. 1) Liquidity Position:The liquidity position of a firm could be satisfactory if it is able to meet its current obligations when they become due. A firm can said to have the ability to meet its short term liabilities if it has sufficient liquid funds to pay the interest on its short maturing debt usually within a year as well the principal. This ability is reflected in the liquidity ratios are particularly useful in credit analysis by banks and other suppliers of short-term loans. 2) Long Term Solvency:Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This aspect of the financial position of a borrower is of concern to the long-term creditors, security analysts and the present and potential owners of a business. The long-term solvency is

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measured by the leverage or capital structure and profitability ratios, which focus on earning power and operating efficiency. 3) Over-All Profitability:Unlike the outside parties which are interested in one aspect of the financial position of a firm, the management is constantly concerned about the overall profitability of the company that is they are concerned about the ability of the firm to meet its short term obligations to its creditors, to ensure a reasonable return to its owners and secure optimum utilization of its assets of the firm. 4) Trend Analysis:The ratio analysis enables a firm to take the time dimension in to account. In other words, whether the financial position of a firm is improving or deteriorating over the years. This is made possible by the use of trend analysis. The significance of a trend analysis of ratios lies in the fact that the analyst can know the direction of movement is favorable or unfavorable. 5) Inter-Firm Comparison:Ratio analysis not only throws light on the financial position of a firm but also serves as a stepping-stone or remedial measure. This is made possible due to inter- firm comparison with industry average. A single figure of particular ratio is meaningless unless it is related to some standard. One of popular techniques is to compare the ratios of a firm with the industry average. 6) Operating Efficiency:-

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Yet another dimension of the usefulness of the ratio analysis, relevant from the viewpoint of management, is that it throws light on the degree of efficiency in the management and utilization of its assets. It would be recalled that the various activity ratios measure this kind of operational efficiency.

3.5 LIMITATION OF RATIO ANALYSIS:Some of limitation of which characterize ratio analysis are: 1) Difficulty in Comparison:The main limitation of ratio analysis arises out of the difficulty associated with their comparison to draw inferences. One technique that is employed is interring firm comparison. But such comparisons are vitiated by different procedures adopted by various firms the differences may relate to: • Differences in the basis of inventory valuation. • Different depreciation methods. • Estimate working life of assets, particularly of plant and equipment. • Capitalization of lease. • Amortization to deferred revenue expenditure such as preliminary expenditure and discount on issue of share. 2) Impact of Inflation:This is second major limitation of ratio analysis as a tool of financial analysis is associated with price level change. This, in fact, is a
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weakness of the traditional financial statements, which are based on historical costs. The one implication of this feature of the financial statement as regards ratio analysis is that assets acquired at different periods are, in effect shown at different prices in the balance sheet, as they are not adjusted for changes in the price level. As a result, ratio analysis will not yield strictly comparable and therefore, dependable result. 3) Conceptual Diversity:Yet another factor, which affects the usefulness of ratio, is that there is difference of opinion regarding the various concepts used to compute the ratio. As shown already, there is scope for diversity of opinion as to what constitutes shareholders equity debt, assets, profits and so on. Reliance on a single ratio for a particular purpose may not be a conclusive indicator. For instance, the current ratio alone is not on adequate measure of short-term financial strength, it should be supplemented by the acid test ratio, debtor’s turnover ratio to have a real insight into the liquidity aspect.

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CHAPTER: 4

DATA PRESENTATION & ANALYSIS PUNJAB NATIONAL BANK BALANCE SHEET AS ON

CAPITAL & LIABILITIES Capital Reserve & surplus Deposits Borrowings Other Liabilities & Provisions TOTAL ASSETS Cash and balance with RBI Balance with Banks & Money at Call & Short Notice Investments Advances Fixed Assets Other Assets TOTAL

31.3.2004 Rs. 3153025 47465045 879163958 12890585 81144806 1023317419 31.3.2004 Rs. 67422813 20782329 421254883 472247197 8998435 32611762 1023317419

31.3.2005 Rs. 3153025 78459967 1031668869 27182906 121948042 1262412809 31.3.2005 Rs. 94601969 16288322 506728264 604127514 9652295 31014445 1262412809

(Rs.000 omitted) 31.3.2006 31.3.2007 Rs. Rs. 3153025 90610579 1196849168 66648743 95412349 1452673864 31.3.2006 Rs. 233945550 13971375 410553065 746273712 10302266 37627896 1452673864 3153025 101201574 1398596711 19488566 101785089 1624224965 31.3.2007 Rs. 123720292 32734896 451898360 965965186 10098255 39807976 1624224965

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Profit & Loss Account for the year ended
(Rs.000 omitted) PARTICULARS I INCOME Interest Earned Other Income TOTAL II EXPENDITURE Interest Expended Operating Expenses Provisions and Contingencies TOTAL II I PROFIT Net profit for the year 11086904 14101201 14393109 15400842 77789450 18676299 96465749 41549927 23707240 20120678 85378845 84598508 16756785 101355293 44531094 29752135 12970863 87254092 95841519 12735006 108576525 49173859 30231526 14778031 94183416 115374847 10422982 125797829 60229067 33262310 16905610 110396987 31.3.2004 Rs. 31.3.2005 Rs. 31.3.2006 Rs. 31.3.2007 Rs.

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Table No: 1 Total Interest Earned Interest Earned Ratio = ----------------------------------------- X 100 Total Advances Year 2003-04 2004-05 2005-06 2006-07 Total Interest Earned 77789450 84598508 95841519 115374847 Total Advances 472247197 604127514 746273712 965965186 Ratio 16.47 14.00 12.84 11.94

Interest Earned Chart
20 15 10 5 0 Ratio

2003-04 16.47

2004-05 14

2005-06 12.84

2006-07 11.94

From the above table & graph it can be analyzed that the interest earned ratio is changing year to year. The Interest Earned Ratio was 16.47%, 14.00%, 12.84% & 11.94% in the years 2003-04, 2004-05, 2005-06 and 2006-07 respectively.

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Table No: 2 Total Interest Paid Interest Paid Ratio = ----------------------------------------- X 100 Total Deposits Year 2003-04 2004-05 2005-06 2006-07 Total Interest Paid 41549927 44531094 49173859 60229067 Total Deposits 879163958 1031668869 1196849168 1398596711 Ratio 4.72 4.32 4.10 4.30

Interest Paid Chart
4.8 4.6 4.4 4.2 4 3.8 3.6 Ratio 2003-04 4.72 2004-05 4.32 2005-06 4.1 2006-07 4.3

The above table & graph shows that the Interest paid ratio change year after year as 4.72% in the year 2003-04, 4.32% in the year 2004-05, 4.10% in the year 2005-06 & it is goes up to 4.30% in the year 2006-07. The Interest paid ratio is fluctuating from year to year.

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Table No: 3 Interest spread ratio = Average interest received on Loans & Advances __ Average interest paid on Deposit

Year 2003-04 2004-05 2005-06 2006-07

Interest Earned Ratio 16.47 14.00 12.84 11.94

Interest paid Ratio 4.72 4.32 4.10 4.30

Interest spread Ratio 11.75 9.68 8.74 7.64

Interest spread ratio Chart

12 10 8 6 4 2 0 Ratio 2003-04 11.75 2004-05 9.68 2005-06 8.74 2006-07 7.64

The Interest spread ratio is declining from year to year. The ratio was 11.75%, 9.68%, 8.74% & 7.64% in the year 2003-04, 2004-05, 2005-06 & 2006-07 respectively.

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Shivaji University, Kolhapur

Table No: 4 Non Interest Income Other Income Ratio = ----------------------------------------- X 100 Volume of business Year 2003-04 2004-05 2005-06 2006-07 Non Interest Volume of Ratio Income business 18676299 1351411155 1.38 16756785 1635796383 1.02 12735006 1943122880 0.65 10422982 2364561897 0.44 Other Income Chart
1.4 1.2 1 0.8 0.6 0.4 0.2 0 Ratio 2003-04 1.38 2004-05 1.02 2005-06 0.65 2006-07 0.44

From the graph it can be analyzed that the Other Income is declining from year to year. I.e. in the year 2003-04, other income ratio was 1.38% whereas it is declined as 1.02% in the year 2004-05and In the year 2005-06 other income ratio was 0.65% & in year 2006-07 is declined up to 0.44%. The graph shows the declined trend in Non-Interest Income.

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Shivaji University, Kolhapur

Table No: 5 Profit before Tax Profitability Ratio = ----------------------------------------- X 100 Volume of business Year 2003-04 2004-05 2005-06 2006-07 Profit before Tax 11086904 14101201 14393109 15400842 Volume of business 1351411155 1635796383 1943122880 2364561897 Ratio 0.82 0.86 0.74 0.65

Profitability Chart
1 0.8 0.6 0.4 0.2 0 Ratio

2003-04 0.82

2004-05 0.86

2005-06 0.74

2006-07 0.65

The profitability ratio in year 2003-04 is 0.82% whereas in the next year 2004-05 it goes up to 0.86% and in the year 2005-06 it declines up to 0.74% & in the year 2006-07 the profitability ratio is 0.65%. The profitability ratio is entirely depends on net profit earned by bank in relation to its volume of business.

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Shivaji University, Kolhapur

Table No: 6 Profit Profit to Capital Ratio = ------------------------- X 100 Total Capital Year 2003-04 2004-05 2005-06 2006-07 Profit 11086904 14101201 14393109 15400842 Total Capital 3153025 3153025 3153025 3153025 Ratio 351.63 447.23 456.48 488.45

Profit to Capital Chart
500 400 300 200 100 0 Ratio 2003-04 351.63 2004-05 447.23 2005-06 456.48 2006-07 488.45

The above table & graph shows fluctuations in profit to capital ratio. The profit to capital ratio is 351.63%, 447.23%, 456.48% & 488.45 in the years 2003-04, 2004-05, 2005-06 & 2006-07 respectively.

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Shivaji University, Kolhapur

Table No: - 7 Percentage of Profit To Total Income Year 2003-04 2004-05 2005-06 2006-07 Profit = -------------------------------Total Income Total Income 96465749 101355293 108576525 125797829 X 100

Profit 11086904 14101201 14393109 15400842

Ratio 11.49 13.91 13.25 12.24

Profit to Total Income Chart

14 12 10 8 6 4 2 0 Ratio 2003-04 11.49 2004-05 13.91 2005-06 13.25 2006-07 12.24

From the above graph it is clear that the profit to total income ratio is 11.49% in 2003-04 & 2004-05 it is increase up to 13.91% but in next year 2005-06 declines to 13.25% & in 2006-07 it is increase up to 12.24%. The above income depends upon total income generated by bank and net profit earned.

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Shivaji University, Kolhapur

Table No: 8 Credit Deposit Ratio Total Advances (output) = -------------------------------------------- X 100 Total Deposit (Input) Total Deposit 879163958 1031668869 1196849168 1398596711 Ratio 53.72 58.56 62.35 69.07

Year 2003-04 2004-05 2005-06 2006-07

Total Advances 472247197 604127514 746273712 965965186

C.D Ratio Chart
70 60 50 40 30 20 10 0 Ratio 2003-04 53.72 2004-05 58.56 2005-06 62.35 2006-07 69.07

From above table & Graph it can be analyzed that Credit Deposit Ratio is fluctuating from year to year. The Credit Deposit Ratio is 53.72%, 58.56%, 62.35% and 69.07% in the years 2003-04, 2004-05, 2005-06 and 2006-07 respectively. This showing the increasing trend. The above ratio depends on total loans & advances granted and the total strength of deposits available with the bank.
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Shivaji University, Kolhapur

Table No: 9 Interest Income Interest Income % of total income = --------------------------Total Income Year 2003-04 2004-05 2005-06 2006-07 Interest Income 77789450 84598508 95841519 115374847 Total Income 96465749 101355293 108576525 125797829 X 100 Ratio 80.64 83.47 88.27 91.71

Interest Income % of total income Chart

95 90 85 80 75 Ratio

2003-04 80.64

2004-05 83.47

2005-06 88.27

2006-07 91.71

The Interest Income to the Total Income is 80.64%, 83.47%, 88.27% & 91.71% in the years 2003-04, 2004-05, 2005-06, & 2006-07 respectively. The % of Interest Income to the Total Income shows that the increasing trend.

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Shivaji University, Kolhapur

Table No: 10 Other Income Other Income % of total income = ---------------------------Total Income Year 2003-04 2004-05 2005-06 2006-07 Other Income 18676299 16756785 12735006 10422982 X 100

Total Income Ratio 96465749 19.36 101355293 16.53 108576525 11.73 125797829 8.29

Other Income % of total income Chart

20 15 10 5 0 Ratio

2003-04 19.36

2004-05 16.53

2005-06 11.73

2006-07 8.29

From the graph it can be analyzed that the other % of total income was 19.36%, 16.53%, 11.73%, 8.29% in the years 2003-4, 2004-05, 200506 and 2006-07 respectively. It shows that the declining trend in % of other income to the total income.

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Shivaji University, Kolhapur

Table No: 11 Investment Investment Ratio = ---------------------------------- X 100 Total Asset Year 2003-04 2004-05 2005-06 2006-07 Investment 421254883 506728264 410553065 454898360 Total Asset 1023317419 1262412809 1452673864 1624224965 Ratio 41.17 40.14 28.26 28.07

Investment Chart

50 40 30 20 10 0 Ratio 2003-04 41.17 2004-05 40.14 2005-06 28.26 2006-07 28.07

The above chart shows that the Investment ratio of bank is declining from year to year. It was 41.17%, 40.14%, 28.26% and 28.07% in the years 2003-04, 2004-05, 2005-06, and 2006-07 respectively. It shows that the declining trend in the Investment Ratio.

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Shivaji University, Kolhapur

Table No: 12 Liquid cash held CRR (cash reserve ratio) = --------------------------------- X 100 Total Assets Year 2003-04 2004-05 2005-06 2006-07 Liquid cash held 67422813 94601969 233945550 123720292 Total Asset 1023317419 1262412809 1452673864 1624224965 Ratio 6.59 7.49 16.10 7.61

CRR (cash reserve ratio) Chart
20 15 10 5 0 Ratio

2003-04 6.59

2004-05 7.49

2005-06 16.1

2006-07 7.61

The CRR Ratio in the year 2003-04 was 6.59% whereas in the year 2004-05 it was 7.49% and in the year 2005-06 it increase up to 16.1% but in the next year 2006-07 it decrease up to 7.61%.

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Shivaji University, Kolhapur

CHAPTERE NO.5 FINDINGS & OBSERVATION
On the basis of Data Presentation, Interpretation. The Findings & Observation are as follows: 1] It observes that the interest earned ratio in the year 2003-04 is 16.47% but in the year 2006-07 it is 11.94%. This showing decreasing trend in Interest Earned Ratio. (Reference Table No – 1) 2] It observes that the Interest Paid Ratio in the year 2003-04 is 4.72% and in the year 2006-07 it is 4.30%. This show that the Interest Paid Ratio is between 4% and 5%. (Reference Table No – 2) 3] The Interest Spread Ratio in the year 2003-04 is 11.75% but in the year 2006-07 it is 7.64%. It is clear that that there is decreasing trend in Interest Spread Ratio. (Reference Table NO – 3) 4] The Other Income Ratio in the year 2003-04 is 1.38% and in the year 2006-07 is 0.44%. This shows that the decreasing trend in Other Income. (Reference Table No – 4)
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Shivaji University, Kolhapur

5]

The profitability Ratio in the year 2003-04 is 0.82% and the next three year it is decrease up to 0.65% in the year 2006-07. (Reference Table NO – 5)

6]

It observes that the Profit to Capital ratio in the year 2003-04 is 351.63%. It is increase year to year. In the year 2006-07 it is 488.45%. This shows that the increasing trend in profit to Capital Ratio. (Reference Table No – 6)

7]

The percentage of profit to total Income in the year 2003-04 is 11.49%. It is increase up to 12.24% in the year 2006-07. This shows the increasing trend in percentage of profit to total income. (Reference Table No – 7)

8]

It is observe that the Credit Deposit Ratio is increase year to year. In the year 2003-04 it is 53.72% and in the year 2006-07 it is 69.07%. This showing increasing trend in Credit Deposit Ratio. (Reference Table No – 8)

9]

The Interest Income % of total Income Ratio is increase year to year. In the year 2003-04 it is 80.64% and in the year 2006-07 it is 91.71%. The Interest Income is between 80% & 92%. (Reference Table No – 9)

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Shivaji University, Kolhapur

10]

The Other Income % of Total Income Ratio in the year 2003-04 is 19.36% but in the year 2006-07 it is 8.29%. This showing decreasing trend in Other Income % of Total Income. (Reference Table No – 10)

11]

The Investment Ratio is decrease year to year. The Investment Ratio in the year 2003-04 is 41.17% and in the year 2006-07 it is 28.07%. (Reference Table No – 11)

12]

The Cash Reserve Ratio in the year 2003-047 is 6.59%. It is increased up to 16.10% in the year 2005-06 but in next year 2006-07 it decrease up to 7.61%. (Reference Table No – 12) After the financial statement analysis of Punjab National Bank. It is

observe that the Punjab National Bank is doing business very good in banking sector. The bank is providing Credit Card, Debit Card and Online banking facility to customer. From the balance sheet it observes that the Asset of bank is increase year to year. It indicates that the bank is having good position of Asset as compare to its liability.

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Shivaji University, Kolhapur

CHAPTER – 6 CONCLUSION & SUGGESTIONS Conclusions: 1 Keeping in vies the global trend and Indian economic scene in perticular, the RBI has reduced the Bank Rate making all Banks to reduce their Bench Marking Rates. This resulted in reduction of Interest Earned Ratio of the Bank. 2. Matching to the reducing interest rates on Loans & Advances due to above mentioned reason; the Bank has reduced its interest rates on Deposits also. 3. Since Banks could not reduce the interest paid deposits in proportion to interest earned on Advances. This results in decreasing trends in Interest Spread Ratio of the Bank. 4. Due to tough inter bank competitions; Banks in India had to decrease their other service charges sharply resulting in to decrease in other income ratio.

5. Due to severe strain on interest spread ratio and other income earned on account of above-mentioned reasons, the overall profitability ratio also shows decreasing trend. 6. Since Banks capital has remained almost same over the years, profits being increased, the profit to capital ratio has increased.
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Shivaji University, Kolhapur

7. The ratio of profit to income shows increasing trend due to the fact that under the fierce competition, the bank managed to cut down other expenditure significantly over the years. 8. The credit deposit ratio has increased due to many reasons such as banks rigorous efforts to increase credit port folio, RBI’s policy for credit distribution, increasing economic activities, increasing consumption and expenditure patterns of public in India etc. 9. Due to increase in credit distribution over the years, the interest income has increased resulting in to increase in interest income to total income ratio. 10. The Other Income to Total Income Ratio has decreased due to decrease in other income due to severe competition among banks over the yeras. 11. The investment ratio has decreased due to the RBI’s changing monetory policies over the years such as decrease in CRR & SLR etc. 12. The cash reserve ratio has chnaged in accordence with the RBI’s policies.

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Shivaji University, Kolhapur

SUGGESTIONS:
Altough the Bnaks performance is very good and at par with the industry, here are some humble suggestions: 1. To increase the interest earned ratio, the bank has to mix its loans portfolio in such a way to earn maximum interest. 2. The bank should try to increase its low cost deposit base to reduce the interest paid ratio. 3. The Bank should try its best to increase its Interest Spread ratio significantly by increasing its Credit-deposit ratio (CD Ratio). 4. The Bank must also try to increase its other income ratio by introducing more & more other lucrative services to its customers. 5. Finally, The Bank should endvedour to reduce its other expenditure by implementing stringent controls on all types of expenses.

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Shivaji University, Kolhapur

BIBLIOGRAPHY
1) M.G.Patkar - Management Accountancy. Phadake Publication, Kolhapur. I.M.Pandey - Financial management. VIKAS PUBLISHING HOUSE PVT. LTD. Annual Reports of Punjab National Bank for the years 2003-04 to 2006-07.

2)

3)

4)

Web Site – www.pnbindia.org.in

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