Fin 380.pdf

A Term Paper On “Financial ratio analysis of Prime Bank & Dutch Bangla Bank”. Submitted To, Leo Vashkor Dewri Senior Lecturer Department of Business Administration East West University

Submitted By, F. M. Tanvir Rahim ID : 2015-1-10-066 & Shekh Md. Arafat Reza ID : 2012-3-10-151

Course Code : FIN 380 Section : 01

Date of Submission : 6 th December, 2018

Letter of Transmittal 6th December, 2018 Leo Vashkor Dewri Senior Lecturer Department of Business Administration East West University.

Subject: Submission of the Term Paper on “Financial ratio analysis of Prime Bank and Dutch-Bangla Bank ”.

Dear Sir, It has been our immense pleasure that we are submitting “Financial ratio analysis of Prime bank and Dutch Bangla bank.” which was assigned as a group report and a mandatory requirement of the course “Commercial bank management” We have put our best effort to look for relevant findings related to the company’s ratio analysis by analyzing the annual report of the Prime bank and Dutch Bangla bank. We hope your kind consideration if any mistakes are there and let us know for our learning purpose.

Sincerely,

F. M. Tanvir Rahim

…………………………….

Shekh Md. Arafat Reza

…………………………….

Acknowledgement

First of all we pay a special thanks to our Almighty God, who made us able to do this report.

We would like to express our gratitude and indebtedness to our honorable faculty Leo Vashkor Dewri ,senior Lecturer, Department of Business Administration, East West University. With his inexhaustible guidence, valuable advice, continuous inspiration and generosity he helped us to carry out this term paper successfully. We would like to exhibit our gratitude to those journalists, web developer groups, Investopedia, and many credible sources which helped us made this report.

Again we like to thanks you sir for your valuable suggestion, comments which helped us immensely and helped us widen our knowledge regarding Bank Management.

Finally, we would like to thank all group members that directly or indirectly helped us to provide and accumulate all the necessary information for the accomplishment of this term paper.

Contents INTRODUCTION ........................................................................................................................................ 5 Origin of the report ................................................................................................................................... 5 Background of the study ........................................................................................................................... 5 Scope of the study ..................................................................................................................................... 5 Objective of the report .............................................................................................................................. 5 Methodology ............................................................................................................................................. 5 Limitations ................................................................................................................................................ 6 Learning Outcome .................................................................................................................................... 6 1)

Number of Days of Inventory ......................................................................................................... 12

2)

Number of days of receivables........................................................................................................ 12

3)

Number of Days Payable ................................................................................................................ 13

4)

Operating cycle ............................................................................................................................... 13

5)

Net Operating cycle ........................................................................................................................ 14

6)

Current Ratio................................................................................................................................... 14

Interpretation ........................................................................................................................................... 14 7)

Quick Ratio ..................................................................................................................................... 15

Interpretation ........................................................................................................................................... 15 8)

Net working capital ......................................................................................................................... 15

Interpretation ........................................................................................................................................... 16 9)

Gross Profit margin ......................................................................................................................... 16

10)

Operating Profit Margin .............................................................................................................. 17

11)

Net Profit margin ........................................................................................................................ 17

12)

Inventory Turnover ..................................................................................................................... 17

13)

Accounts Receivable Turnover ................................................................................................... 17

14)

Total Asset Turnover .................................................................................................................. 18

29)

Recomandation………………………………………………………………………………………………………………….29

30)

Conclusion………………………………………………………………………………………………………………………30

INTRODUCTION Origin of the report The objective of this paper is to analyze the ratio of Prime Bank Limited in comparison with Dutch Bangla Bank Limited. The collected data is from 2013-2017. By analyzing the ratios of Prime Bank Limited and Dutch Bangla Bank Limited, we expect to get an understanding of the financial condition of this bank. Background of the study By analyzing the ratio of the both bank it is easy to evaluate the both bank’s financial performance. Scope of the study The study would focus on the following areas of Prime Bank Limited and Dutch Bangla Bank limited  Credit appraisal system of Ptrime Bank Limited.  Procedure for different credit facilities.  Organization structures and responsibilities of management. Each of the above areas would be critically analyzed in order to determine the efficiency of Prime & Dutch Bangla bank’s Credit appraisal and Management system. Objective of the report  To fulfill the requirement of Commercial Bank Management course  Analyzing the performance of National Credit and Commerce Bank Limited  Analyzing the performance of Prime Bank Limited

Methodology We have used secondary sources of information.      

Website of Prime Bank Limited & Dutch Bangla Bank Limited Annual report 2013 to 2017. Internet Text books Materials provided in class Processing of Data & Bank visit

Limitations    

Market price was not found in the annual report. Interest expense was not broken down in the financial statements. We didn’t have enough primary resources. For resource constraints we mostly depended on secondary data

Learning Outcome We learn from this course as well from this report how to establish a bank, the structure of the bank, procedure of start a bank, legal obligation, interest rate determination, interest rate system, different kinds of deposit and loan, different kinds of financial service provide by banks and also different kind of risk associate with the bank.

Background of Prime Bank Limited

Prime Bank being Banking Company has been registered under the companies Act 1993 as a Public Limited Company on February 12, 1995 with its registered office at 5, Rajuk Avenue, Motijheel Commercial Area, Dhaka-1000, Bangladesh. Later, the office had been shifted to Adamjee Court (annex building), Motijheel Commercial Area. It started operation from April 17, 1995 with a commitment to play some social role in addition to normal banking. Its slogan is “Prime Bank Ltd. – a bank with a difference”. From the very beginning, the bank has adopted the policy of diversifying its business. To achieve this objective, the bank started Consumer Credit Scheme, Lease Financing, Hire Purchase, loans in general, Secured Overdrafts etc. Under the dynamic leadership of the Chief Executive Officer, the bank earned profit within December 1995 and raised its reserve. The bank started operation its business through four branches. Now its branches stood at fifty two and by this year another two new branches will start their operation.

Prime Bank has an authorized capital of Taka 4,000 million and paid up capital of Taka 1,750 million. It is a full licensed scheduled commercial bank set up in the private sector by a group of highly successful entrepreneurs in pursuance of the government to liberalize banking and financial services. The former Governor of Bangladesh Bank Mr. Lutfar Rahman Sarker was the first Managing Director of this bank. At present, Managing Director is Mr. M Shahjahan Bhuiyan, who has a long experience in domestic and international banking. Highly professional people having wide experience in domestic and international banking are managing the bank. The bank has made a significant progress within a very short time due to its very competent board of directors, dynamic management and introduction of various customer friendly deposit and loan products. At present bank has 13 Directors, including the Chairman. The bank holds the first position in the CAMEL rating, published by Bangladesh Bank for the last consecutive four years.

Vision To be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management and profitability having strong liquidity.

Mission To build Prime Bank Limited into an efficient, market driven, customer focused institution with good corporate governance structure. Continuous improvement in our business policies, procedure and efficiency through integration of technology at all levels. Efforts focused On delivery of quality service in all areas of banking activities with the aim to add increased value to shareholders’ investment and offer highest possible benefits to our customers. Strategic Priorities To have sustained growth, broaden and improve range of products and services.

Background of Dutch Bangla Bank Dutch Bangla Bank restricted could be a scheduled bank. The bank is established collectively by native Bangladeshi parties spearheaded by M Sahabuddin Ahmed (Founder & Chairman) and therefore the Dutch company FMO. And conjointly established beneath the Bank firms Act 1991 and incorporated as a public Ltd. beneath the businesses Act 1994. In People's of Republic Bangladesh with the first objective to hold on every kind of banking business in Bangladesh. The Bank is listed with Dhaka exchange restricted and city exchange restricted. DBBL could be an Asian nation European personal venture scheduled bank commenced formal operation from June 3, 1996.

DBBL could be a public Ltd. by shares, incorporated in Asian nation within the year 1995 beneath firms Act 1994. With half-hour equity holding, European nation Development no depository financial institution (FMO) of European nation is that the international co-sponsor of the bank. Out of the remainder seventieth, hour equity has been provided by distinguished native entrepreneurs and industrialists and therefore the rest 100% shares is that the public issue. Throughout the initial operative year (1996-1997) the bank received talent augmentation technical help from ABN Amor Bank of Bangladesh.

DBBL has started its business with foreign Bank. DBBL commenced its business as scheduled bank with impact from Gregorian calendar month 04, 1995 with one branch Motijheel Branch, Dhaka, with a maxim to grow as leader within the banking arena of Asian nation through higher guidance and impact services to purchasers and so to revitalize the economy of the country. All the branches area unit presently providing really On-Line banking facility. DBBL resumed its operational activities at the start with a certified capital of Tk. four hundred million and paid up capital of Tk. 202.14 million.

Nature of Business •

The bank conducts all types of commercial banking operations.

• The company offers deposit products including savings deposit accounts, current deposit accounts, short term deposit accounts, resident foreign currency deposits, foreign currency deposits, convertible and non convertible take accounts, exporter’s FC deposits, and term deposits. • The company offers corporate banking services, including project finance and working capital finance, syndications and structured finance, trade finance, equity finance and social and environmental infrastructure finance. • The bank is also providing individual credit, facilities related to local and foreign remittances and several products related services. • The outline of the Bank, which is considered to support the fixed income group in nurturing the standard of living is competitively priced and has been widely appreciated by the customers. • This banking services consisting of cash credit, term loans, festival loans, women entrepreneurs financing, distributor financing and small shop financing schemes. • It also provides import and export finance, treasury services, debit and credit cards, internet mobile, and SMS banking services, and Automated Teller Machine (ATM) agent banking services. Mission Dutch Bangla Bank engineers enterprise and creativity in business and industry with a commercial to social responsibility. “Profits Alone” do not hold a central focus in the banks operation, because “man does not live by bread and butter alone. Vision DBBL’s essence and attribute rest on a cosmos of ability and therefore the, marvel-magic of a charmed life that abounds with spirit of life and adventures that contributes towards human development. Dutch Bangla Bank dreams of butter Bangladesh, wherever arts and letters, sports and athletics, music and recreation, science and education, health and hygiene, clean and pollution, free atmosphere and specifically a society supported morality and ethics build all our lives price living.

Objectives The objective of core is Dutch Bangla Bank believes in it uncompromising commitment to fulfill its customer needs and satisfaction and to become their first choice in banking. Taking cue from its pool esteemed clientele, Dutch Bangla Bank intends to pave the way for a new era in banking that upholds and epitomizes its vaunted marquees “Your Trusted partner”.

Key Information Year of Establishment: 1996 Authorized Capital: 400 Crore Paid-up Capital: 20 Crore Taka Customers: More than 21,009,000 Number of Employees: 1800 Total Number of Branches: 173 Total Number of Fast Tracks: 747 Total Number of ATM Booths: 4455 POS Merchants: 7180 Rocket Merchants: 10146

1) Number of Days of Inventory Here the value is increasing day by day which is a bad sign for the money to float on market for a long time. The banks must take new decision to reduce the value.

Name Year (2017)

Prime Bank 114.01

Dutch Bangla Bank 8.28

NUMBER OF DAYS INVENTORY Prime Bank

DBBL

7%

93%

2) Number of days of receivables The time of day receivable is constant it is in a good form. The bank may take measures to reduce it.

Name

Prime Bank

Dutch Bangla Bank

Year (2017)

334.88

337.95

Number of Days Receivables

DBBL Prime 333

333.5

334

334.5

335 Column2

335.5

336

Column1

336.5 Series 1

337

337.5

338

338.5

3) Number of Days Payable The payable value is also stable and may not need change. Name Year (2017)

Prime Bank 257.21

Dutch Bangla Bank 273.59

Number of Days Payable 280 260 240 Prime

DBBL

Series 1

Column1

Column2

4) Operating cycle The operating cycle values are also increasing as a matter of fact measures needs to be taken to reduce it. Name Year (2017)

Prime Bank 448.89

Operating Cycle

Prime

DBBL

Dutch Bangla Bank 346.24

5) Net Operating cycle The Operating cycle of the bank has also increased drastically from first year and it need to be bring under control in comparison like the first year. Name Year (2017)

Prime Bank 221.02

Dutch Bangla Bank 72.65

Net operating Cycle DBBL Prime 0

50

100 Column2

150 Column1

200

250

Series 1

6) Current Ratio The current ratio is maintaining a constant value though the liabilities are more than the assent the bank need to increase the asset amount. Name Year (2017)

Prime Bank 0.2238

Dutch Bangla Bank 0.1059

Current Ratio

0.1059 0.2238

Prime

DBBL

Interpretation A low current ratio say less than 1.0-1.5 might suggest that the business is not well placed to pay its debts. It might be required to raise extra finance or extend the time it takes to pay creditors. There is no such thing as an ideal current ratio. Different businesses and industries work with different levels of cover. However, a ratio of less than one is often a cause for concern, particularly if it persists for any length of time.

7) Quick Ratio Here company also need to increase the asset amount as the liabilities are exceeding the asset. Name Year (2017)

Prime Bank 0.066

Dutch Bangla Bank 0.0056

Quick Ratio

Prime

DBBL

Interpretation If quick ratio is higher, company may keep too much cash on hand or have a problem collecting its accounts receivable. Higher quick ratio is needed when the company has difficulty borrowing on short-term notes. A quick ratio higher than 1:1 indicates that the business can meet its current financial obligations with the available quick funds on hand.

8) Net working capital As sales are healthier than the assets the bank must keep the ratio or make it better Name Year (2017)

Prime Bank 0.1236

Dutch Bangla Bank 0.0939

Net Working Capital

DBBL Prime 0

0.5

1

1.5

Series 1

2

2.5

3

Interpretation Net working capital equals a company's total current assets minus its total current liabilities. Current assets are resources, such as cash and accounts receivable, that a company expects to use up or convert to cash within a year. Current liabilities are amounts of money, such as accounts payable, that a company owes to others and expects to pay within a year. Having more net working capital helps a company run its business.

9) Gross Profit margin There is a big fluctuation in gross margin bank need to take measure to keep it constant. Name Year (2017)

Prime Bank 54.75

Dutch Bangla Bank 0.8903

Gross Profit Margin 3.2

54.75

Prime

DBBL

Interpretation Company's total earnings net income which is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses. This number is found on a company's income statement and is an important measure of how profitable the company is over a period of time. The measure is also used to calculate earnings per share. In2017, the gross profit of Prime bank is Higher than Dutch Bangla bank. It means in 2017 Primebank earn more than Dutch Bangla bank.

10) Operating Profit Margin As sales are better than operating income the company should maintain this ratio. Name Year (2017)

Prime Bank 0

Dutch Bangla Bank 0

11) Net Profit margin Bank should take new policies to make the profit margin ratio higher than the existing value. Name Year (2017)

Prime Bank 0

Dutch Bangla Bank 0

12) Inventory Turnover Inventory turnover ratio is very low and is below market standard so bank should try to improve the ratio. Name Year (2017)

Prime Bank 0.0178

Dutch Bangla Bank 0.0223

Inventory Turnover

0.0178 0.0223

Prime

DBBL

13) Accounts Receivable Turnover Bank should take policies to increase the receivable than of selling on credit. Name Year (2017)

Prime Bank 0

Dutch Bangla Bank 0

14) Total Asset Turnover Sales should be more healthier than the total asset amount. Name Year (2017)

Prime Bank 0.1103

Dutch Bangla Bank 0.1212

Total Asset Turnover

0.1103 0.1212

Prime

DBBL

15.Fixed asset Turnover The ratio is healthier than the market standard and bank should maintain it. Prime Bank

DBBL

39.5651

57.4080764

60 40 20 0 Prime Bank

DBBL

Interpretation Fixed asset turnover is the ratio of sales to the value of fixed assets. It indicates how well the business is using its fixed assets to generate sales A declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed assets.

16.Total Debt to Asset Ratio Bank should lessen the debt more and maintain good asset.

Prime Bank

DBBL

39.5651

57.40848

Prime Bank DBBL

Interpretation The Total Debt to Asset Ratio is calculated by Total Debtl/Total Asset. According to the pie chart Prime Bank ratio is lower than DBBL. So its indicates that Prime is in higher position.

17. Long term Debt to Asset Ratio As the bank has more long term debt the bank should try to lessen it and make adjust with market standard. Prime Bank

DBBL

0.903667

0.93753842

Prime Bank DBBL

Interpretation Long term to asset ratio is calculated by Long term debt/total asset shows the ability of management to acquire deposits at a reasonable cost and invest them in profitable investments. This ratio indicates how much net income is generated per Taka of assets. The higher the Long Term Debt Asset, the more the profitable the bank. Here both of the banks Long term debt Asset increase. Prime Bank equity lower than DBBL.

18. Debt to Equity Ratio As total debt is higher than shareholder’s equity bank should try to lessen the total debt. Prime Bank

DBBL

0.903667

0.93753842

Prime Bank DBBL

Interpretation The debt to equity ratio is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. Closely related to leveraging, the ratio is also known as risk, gearing or leverage. Companies finance the purchase of assets either through equity or debt, so a high equity multiplier indicates that a larger portion of asset financing is being done through debt. The multiplier is a variation of the debt to equity ratio. A high equity multiplier is not necessarily better than a low multiplier. Prime Banks equity is higher than DBBL.

19. Equity Multiplier It has a healthy ratio as assets are more than the shareholder’s equity. Prime Bank

DBBL

8.03274

12.0005164

Prime Bank DBBL

Interpretation The equity multiplier is a measurement of a company’s financial leverage. Companies finance the purchase of assets either through equity or debt, so a high equity multiplier indicates that a larger portion of asset financing is being done through debt. The multiplier is a variation of the debt ratio. A high equity multiplier is not necessarily better than a low multiplier. Prime Banks equity is higher than DBBL.

20. Times Interest Coverage Ratio This ratio is okay with the market standard as interest is bit higher than EBIT. Prime Bank

DBBL

0.128683

0.16443607

0.2

0.15 0.1 0.05 0 Prime Bank

DBBL

Interpretation The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by the company's interest expenses for the same period. The lower the interest coverage ratio, the higher the company's debt burden and the greater the possibility of bankruptcy or default. So, Prime bank is Higher than DBBL

21. Fixed Coverage Ratio This value should be increased as EBIT is lower and interest and lease payment is lower bank should work to decrease its value. Prime Bank

DBBL

-0.06064

1132820589

15

10 5 0 -5

Prime Bank

DBBL

Interpretation The fixed charge coverage ratio is a financial ratio that measures a firm’s ability to pay all of its fixed charges or expenses with its income before interest and income taxes. The fixed charge coverage ratio is basically an expanded version of the times interest coverage ratio. According to the chart Prime bank is lower rate and DBBL is more than higher in Prime Bank.

22.Earning’s Per share Here the EPS is decreasing day by day. Prime Bank

DBBL

-1.06272

34.2319708

40 30

Series 3

20

Series 2

10

Series 1

0 -10

Prime Bank

DBBL

Interpretation Earnings per Share indicate the shareholders earning by per share of the company. It also show shows how profitable a company is on a shareholder basis. Here both companies is in fluctuation position. We can’t indicate that which company is better. Both the banks EPS decrease per year but Prime Bank higher than DBBL bank.

23.Dividend Payout Ratio Here as the company didn’t paid dividend most of the year the ratio showed no value. Prime Bank

DBBL

0.365928

-0.02492

0.4 0.3

Series 3

0.2

Series 2

0.1

Series 1

0 -0.1

Prime Bank

DBBL

Interpretation In Prime Bank , the total dividend is increasing. In DBBL the total dividend is decreasing. 24) Price-Earnings Ratio Here the EPS should be higher than the market price to make the bank share more attractive. Prime bank

DBBL

95.84802

-3.54737

Prime Bank DBBL

Interpretation The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative to its per-share earnings. The higher the P/E ratio, the more the market is willing to pay for each amount of annual earnings. DBBL P/E ratio is higher than Prime Bank 25. Basic Earning Power ratio Here bank should take measures to increase operating income from total asset. Prime Bank

DBBL

0.023971

0.059347

0.06 0.05 0.04 0.03 0.02 0.01 0 Prime Bank

DBBL

Interpretation Basic Earning Power Ratio. Basic earning power (BEP) ratio is a measure that calculates the earning power of a business before the effect of the business' income taxes and its financial leverage. It is calculated by dividing earnings before interest and taxes (EBIT) by total assets. According to the chart, DBBL is increasing rather than Prime Bank

26. Return on Assets Compared to total asset net income should also be more from the total asset to make proper utilization. Prime Bank

DBBL

0.023971

0.006499

Sales

Prime Bank DBBL

Interpretation Return on Assets = net profit/total assets shows the ability of management to acquire deposits at a reasonable cost and invest them in profitable investments. This ratio indicates how much net income is generated per Taka of assets. The higher the return on asset, the more the profitable the bank. Here both of the banks return on asset decrease. Prime Banks equity higher than DBBL.

27. Return on Equity Here the shareholder’s equity should also be more than the net income as a matter of fact that shareholders should be paid from the income generated Prime Bank

DBBL

0.246669

0.104041

Sales

Prime Bank DBBL

Interpretation Return on equity is the most important indicator of a bank’s profitability and growth potential. It is the rate of return to shareholders or the percentage return on each Taka of equity invested in the bank. Prime Bank equity Lower than DBBL which is a positive indication.

Recommendations The banks are in reality service administrations. Dutch Bangla Bank Limited has certain complications in General banking events. I would like to bid several proposals and endorsements to overwhelm the difficulties relating the topic mentioned above of Dutch Bangla Bank and also to improve the performance of Dutch Bangla Bank regarding general banking. The following recommendations are not decisions, rather they are only propositions to progress the Performance to accomplish the customer contentment so that, the clients pay more attention to Dutch Bangla Bank. Now, in below some endorsements are mentioned: 

Branch should introduce a smoother function to deal with the customer.



Adding a fully computerized general banking system to satisfy the customers by providing faster service.



Establishing a networking system inside the branches to transfer data within a short period.



Cancel the introducer system to collect more deposit through the new account which will result satisfying the customers.



Upgrading the general banking conveniences rather than the conventional banking system for easier understanding.



Setting up sophisticated technology and formulating appropriate programs to develop the captioned activities.



The bank should increase their staff according to customer demand,



The bank must deliver rapid client service to escape haphazardness.



There is no facility of working out for intern students. They can introduce workspace or seminar for short term period training for an intern that will enrich the recital and knowledge of the intern students.



Every branch should have their capability about the power system and internet connectivity for diminishing the service down time.

Conclusion Every bank’s has their unique strategy, which jumper’s cable to their aim. Some wishes to develop quicker and attain some long range mountains of growth. On the other hand, some can’t want to lead a silence life history minimizing the risk of infection and convoy a mental image of a sound bank. Bank Dutch Bangla Bank Ltd. is still quite new in its operation. The financial analysis of the bank is performing well; appears the bank is doing very well in the banking sector of Bangladesh and has well-to-do.

Dutch Bangla Bank Ltd Panthapath Branch is working well. However, there are some downsides in realizing the different tasks manually; it can be overcome through the involvement of more experts in decision making process and utilizing the tools to judge the integrity of the customers. In conclusion, it can be discussed that over the results accomplished so far are not reasonable, why the bank is not expanding a modern systematic procedure for attractive its asset and there is the chances to make it more actual in the future for their benefit. The intention of the placement program is to expand knowledge of practical banking and to compare this concrete knowledge with academic experience. Throughout, the three months of an internship program, it is not probable to drive to the wisdom or each activity of division because of time limitation. So, objective of internship program have not been fulfilled with complete satisfaction. However, the highest effort has been given to achieve the aims of the internship program. I think this report may show a guideline to Dutch Bangla Bank Ltd. for future planning and successful operation to accomplish its goal in the competitive business environment.