Financial Statement Analysis Of Habib Bank

Final Project Finance FIN 619

Final Project FINANCIAL STATEMENT ANALYSIS OF BANK AL FALAH

AND HABIB BANK LIMITED

A REPORT SUBMITTED TO THE DEPARTMENT OF MANAGEMENT SCIENCES, VIRTUAL UNIVERSITY OF PAKISTAN IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTERS IN BUSINESS ADMINISTRATION

Submitted By

Mc070400479 Sheikh Waqas Ahmed

Department of Management Sciences, Virtual University of Pakistan 1 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619

Dedication I would like to dedicate this project to my parents who have always encourage me throughout in my academic career and make possible for me to stand where I am today.

2 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619

Acknowledgement In the name of ALLAH, the most kind and most merciful. First of all I m grateful to ALLAH ALMIGHTY, who bestowed me with health, abilities and guidance to complete the project in a successful manner, and without HIS help I was unable to perform this task. More than anybody else, I would like to acknowledge my project advisor, Dr. Muhammad Anwar for his never ending support and untiring efforts. He was always there to guide me whenever I felt stuck off and his encouragement always worked as moral booster for me. I have found him very helpful while discussing the tricky issues in this dissertation work. I would also like to thank Mr. Majid Hassan principal JMCIT Lahore. His critical comments on my work have certainly made me think of new ideas and techniques. I am thankful to all my class fellow specially Ambreen Fatima and all other friends who help me during the project when problem arises, specially my seniors Muhammad Yasir, Tanzila Riaz, Fatima and Saeed Mahmood for their kind help.

3 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619

Executive Summary Common Size Financial Statement discloses the internal structure of the firm. It indicates the existing relationship between sales and each income statement account. It shows the mix of assets that produce income and the mix of the sources of capital, whether by current or long-term debt or by equity funding. The primary objective of financial analysis is to forecast or determine the actual financial status and performance of a project

4 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619

TABLE OF CONTENT

Section I a) Introduction…………………………………………………….

6

1.1 Background ………………………………………………………..

6

1.2 Introduction of the organization’s business sector …………………

7

1.3 Company’s Introduction ………………………………….………..

8

Introduction of Habib Bank…………………………………….

8

Introduction of Bank AL Falah………………………………...

9

1.4 List of competitors …………………………………………………

10

1.5 Objectives of Projects………………………………….……………

10

1.6 Significance of the Project………………………………………….

11

b) Processing and Analysis…………..…………………….…….

13

Data Collection Sources……………………..…………………………

13

Data Collection Tools………………………………………….………

14

Data Processing and Analysis…………………………….……………

14

Project proceedings……………………………………………….

14

1. Ratio Analysis…………………………………………….………….

14

a) Liquid Ratio…………………………………………………...

15

b) Leverage Ratio………………………………………………… 18 c) Profitability Ratio……………………………………………… 24 d) Activity Ratio………………………………….….…………..

32

e) Market Ratios………………………………………………….

33

f) Statement of Cash Flow……………………………………….

38

2. Common Size Analysis………………………………………………

39

a) Horizontal Analysis…………..……………………….………

40

b) Vertical Analysis……………..………………………………

49

5 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 3 Review of Descriptive Information………….……………………...

59

4 Comparisons ………………………………………………………..

60

a) Trend Analysis………………………………………………… 60 b) Industry Averages and Comparisons with Competitors………

65

c) Summary……………………………………………………...

65

d) Conclusions / Findings……………………………………….

66

e) Recommendation …………………………………………….

67

Section II……………………………………………………………. 68 a) Introduction of the student……………………………………….LXVIII b) Appendix/Appendices………………………...………………….LXVIII c) Bibliography...……………………………………………………LXXXVII Section I a) Introduction Financial statements for banks present a different analytical problem than manufacturing and service companies. As a result, analysis of a bank's financial statements requires a distinct

approach

that

recognizes

a

bank's

somewhat

unique

risks.

Banks take deposits from savers, paying interest on some of these accounts. They pass these funds on to borrowers, receiving interest on the loans. Their profits are derived from the spread between the rate they pay for funds and the rate they receive from borrowers. By managing this flow of funds, banks generate profits, acting as the intermediary of interest paid and interest received and taking on the risks of offering credit. As one of the most highly regulated banking industries in the world, investors have some level of assurance in the soundness of the banking system. As a result, investors can focus most of their efforts on how a bank will perform in different economic environments. In this project, I am trying to provide assistance to the investors, by showing them the performance of two banks underlying the same functions. 1.1 Background of the project: Financial Statement Analysis is a method used by interested parties such as investors, creditors, and management to evaluate the past, current, and projected conditions and performance of the firm. Ratio analysis is the most common form of financial analysis. It 6 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 provides relative measures of the firm's conditions and performance. Horizontal Analysis and Vertical Analysis are also popular forms. Horizontal analysis is used to evaluate the trend in the accounts over the years, while vertical analysis, also called a Common Size Financial Statement discloses the internal structure of the firm. It indicates the existing relationship between sales and each income statement account. It shows the mix of assets that produce income and the mix of the sources of capital, whether by current or longterm debt or by equity funding. When using the financial ratios, a financial analyst makes two types of comparisons. Financial ratio analysis is an important topic and is covered in all mainstream corporate finance textbooks. It is also a popular agenda item in investment club meetings. It is widely used to summarize the information in a company's financial statements in assessing its financial health. In today's information technology world, real time financial data are readily available via the Internet. Performing financial ratio analysis using publications, such as Robert Morris Associates’ Annual Statement Studies, Dun & Bradstreet’s Key Business Ratios, Moody’s Manuals, Standard & Poor’s Corporation Records, Value Line Investment Survey, etc., is no longer efficient. Since students and investors now have easy access to on-line databases, the assignments on financial ratio analysis can be modified accordingly to enhance learning. In the current scenario where financial instability is rife and financial intuitions are becoming popular, when it comes to investing, the sound analysis of financial statements is one of the most important elements in the fundamental analysis process. At the same time, the massive amount of numbers in a company's financial statements can be bewildering and intimidating to many investors. However, through financial ratio analysis, we shall be able to work with these numbers in an organized fashion and present them in a concise form easily understandable to both the management and interested investors. 1.2 Introduction of the organization’s business sector: The organizations is choose, are from the banking sector. Banking primarily the business

of dealing in money and instruments of credit. Banks were traditionally differentiated from other financial institutions by their principal functions of accepting deposits, subject 7 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 to withdrawal or transfer by check, and of making loans. A bank is a financial institution licensed by a government. Its primary activity is to lend money. Many other financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds. In some countries such as Germany, banks have historically owned major stakes in industrial corporations while in other countries such as the United States banks are prohibited from owning non-financial companies. In Japan, banks are usually the nexus of a cross-share holding entity known as the zaibatsu. In France, banc assurance is prevalent, as most banks offer insurance services (and now real estate services) to their clients. The level of government regulation of the banking industry varies widely, with counties such as Iceland, the United Kingdom and the United States having relatively light regulation of the banking sector, and countries such as China having relatively heavier regulation. Banks have traditionally been distinguished according to their primary functions. Commercial banks, which include national- and state-chartered banks, trust companies, stock savings banks, and industrial banks, have traditionally rendered a wide range of services in addition to their primary functions of making loans and investments and handling demand as well as savings and other time deposits. Mutual savings banks, until recently, accepted only savings and other time deposits, and offered limited types of loans and services. The fact that commercial banks were able to expand or contract their loans and investments in accordance with changes in reserves and reserve requirements further differentiated them from mutual savings banks, where the volume of loans and investments was governed by changes in customers' deposits. Membership in the Federal Deposit Insurance Corporation is compulsory for all Federal Reserve member banks but optional for other banks. 1.3 Company’s introduction:

Introduction of Habib Bank of Pakistan: Habib Bank Limited commonly referred to as "HBL" and head-quartered in Habib Bank Plaza, Karachi, Pakistan, is the largest bank in Pakistan. HBL is a Banking Company, which is engaged in Commercial & Retail Banking and related services domestically and overseas. HBL was incorporated on 25th August 1941 and operated in 8 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 the private sector until its nationalization in 1974. HBL has been approved for privatization and the privatization commission has selected a Financial Advisor to prepare a comprehensive plan and assist in the sale process. The government has appointed a professional management team to restructure the bank and to recover and clean its doubtful and classified portfolio. HBL is one of the largest commercial bank of Pakistan. It accounts for a substantial share (20%) of the total commercial banking market in Pakistan with a network of 1,705 domestic branches; 55 overseas branches in 26 countries spread over Europe, the Middle East, Far East, Asia, Africa and the United States; 3 HBL wholly owned Subsidiaries namely Habib Bank Financial Services (PVT) LTD. Karachi, Habib Finance International LTD (Hong Kong) and Habib Finance Australia Ltd. – Sydney; 2 Joint Ventures namely Habib Nigeria Bank Ltd. (40%) and Himalayan Bank Ltd. (20%) and 2 representative offices in Iran and Egypt. It continues to dominate the commercial banking sector with a major market share in inward foreign remittances (55%) and loans to small industries, traders and farmers. HBL is one of Pakistan's premier banks in terms of deposits and advances with a huge domestic and international network. HBL provides its customers a complete range of banking products and services including retail banking, corporate and institutional banking, trade finance, consumer finance and credit cards. HBL is currently rated AA (Long term) and A-1+ (Short term) and has a balance sheet size of over USD 11 billion. It is the first Pakistani bank to raise Tier II Capital from external sources. Vision: “Enabling people to advance with confidence and success” Mission: “To make our customer prosper, our staff excels and creates value for shareholders” Introduction of Bank Al Falah: Bank Alfalah Limited is a private bank in Pakistan owned by the Abu Dhabi Group. Bank Alfalah Limited was incorporated on June 21st, 1992 as a public limited company under the Companies Ordinance 1984. Its banking operations commenced from November 1st ,1997. The bank is engaged in commercial banking and related services as defined in the Banking companies ordinance, 1962. The Bank is currently operating 9 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 through 195 branches in 74 cities, with the registered office at B.A.Building, I.I.Chundrigar, Karachi. This facilitates the commitment to a culture of innovation and seeks out synergies with clients and service providers to ensure uninterrupted services to its customers. Bank AlFalah is known to perceive the requirements of customers and match them with quality products and service solutions. During the past five years, this bank has emerged as one of the foremost financial institution in the region endeavoring to meet the needs of tomorrow today. With a vision to be the premier organization operating locally & internationality that provides the complete range of financial services to all segments under one roof, Bank Al-Falah is one of the most important entities in banking sector of Pakistan with a strong credit rating of AA for long term and A one plus for the short term. Since its inception, as the new identity of H.C.E.B after the privatization in 1997, the management of the bank has implemented strategies and policies to carve a distinct position for the bank in the market place. Since its inception, as the new identity of H.C.E.B after the privatization in 1997, the management of the bank has implemented strategies and policies to carve a distinct position for the bank in the market place. Strengthened with the banking of the Abu Dhabi Group and driven by the strategic goals set out by its board of management, the Bank has invested in revolutionary technology to have an extensive range of products and services. Vision: “To be the premier organization operating locally & internationality that provides the complete range of financial services to all segments under one roof” Mission: “To develop & deliver the most innovative products, manage customer experience, deliver quality services that contributes to brand strength, establishes a competitive advantage and enhances profitability, thus providing value to the stakeholders of the bank” 1.4 List of competitors: •

Standard Chartered Bank

•

National Banks

•

Allied Bank Limited 10 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 1.5 Objectives of the project: The objective of this project is to provide insight into how the banks work, what are the strengths and weakness of the banks, which bank is financially more feasible than the other. The ratios will be compared of both the banks within the industry to see where the banks stand. Question such as ‘What are the strengths and weaknesses of each bank?’ will be answered with the comparison of the ratios. To give the stock holder a clear view about the financial feasibility of both the banks so that they can take the appropriate decision. And most significantly it will provide a good understanding of the business cycle and the yield curve - both of which have a major impact on the economic performance of banks. The primary objective of financial analysis is to forecast and/or determine the actual financial status and performance of a project and, where appropriate, of the EAs. This is to enable ADB to combine that information with all other pertinent data (technical, economic, social, etc.) to assess the feasibility, viability, and potential economic benefits, of a proposed or continuing lending operation. Secondary objective is the provision of Technical Assistance to a borrower and an EA to enable them to make similar assessments for the project and to apply the techniques to other non-ADB investments. A tertiary objective is to encourage borrowers to make any necessary changes to their institutional and financial management systems to facilitate the generation of appropriate data to support good financial analysis. The objectives of financial analysis as set out above are intended to measure the achievement of financial objectives of a borrower, the project to be (or being) financed. The financial performance of a public and private sector EA should normally be measured by the use of at least one indicator selected from the range of the following groups of indicators derived from the financial analysis of a project and its EA: (i) operation; (ii) capital structure, and (iii) liquidity. This means that, if only one indicator from one of the three categories of indicators above would be the subject of a loan covenant, the remaining indicator or indicators from each group above recommended by the financial analyst should be the subject of periodic reporting. The efficient allocation of resources is an important consideration in pricing policy, particularly for REEA services. Financial analysis is used to describe the impact of such a policy. 11 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 I worked on the financial statements of the bank i.e. Balance sheet of the bank and make some essential calculations in order to give you an idea about the financial stability of the bank. 1.6 Significance of the project: Financial statements provide an overview of a business' financial condition in both short and long term. All the relevant financial information of a business enterprise presented in a structured manner and in a form easy to understand, is called the financial statements. Therefore these financial statements are very useful for the stake holder, as they obtain all insight information. In assessing the significance of various financial data, experts engage in ratio analyses, the process of determining and evaluating financial ratios. A financial ratio is a relationship that indicates something about a company's activities, such as the ratio between the company's current assets, current liabilities or between its accounts receivable and its annual sales. The basic source for these ratios is the company's financial statements that contain figures on assets, liabilities, profits, or losses. Financial ratios are only meaningful when compared with other information. Since they are most often compared with industry data, ratios help an individual understand a company's performance relative to that of competitors; they are often used to trace performance over time. Ratio analysis can reveal much about a company and its operations. However, there are several points to keep in mind about ratios. First, financial statement ratios are "flags" indicating areas of strength or weakness. One or even several ratios might be misleading, but when combined with other knowledge of a company's management and economic circumstances, ratio analysis can tell much about a corporation. Second, there is no single correct value for a ratio. The observation that the value of a particular ratio is too high, too low, or just right depends on the perspective of the analyst and on the company's competitive strategy. Third, a ratio is meaningful only when it is compared with some standard, such as an industry trend, ratio trend, a ratio trend for the specific company being analyzed, or a stated management objective. The significance of my project stems from the very nature of the financial statements i.e. they are usually lengthy, bulky documents which have a huge array of numbers not readily understandable. Financial statement analysis is the process of examining 12 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 relationships among financial statement elements and making comparisons with relevant information. It is a valuable tool used by investors and creditors, financial analysts, and others in their decision-making processes related to stocks, bonds, and other financial instruments. The goal in analyzing financial statements is to assess past performance and current financial position and to make predictions about the future performance of a company. Investors who buy stock are primarily interested in a company's profitability and their prospects for earning a return on their investment by receiving dividends and/or increasing the market value of their stock holdings. Creditors and investors who buy debt securities, such as bonds, are more interested in liquidity and solvency: the company's short-and long-run ability to pay its debts. Financial analysts, who frequently specialize in following certain industries, routinely assess the profitability, liquidity, and solvency of companies in order to make recommendations about the purchase or sale of securities, such as stocks and bonds. Analysts can obtain useful information by comparing a company's most recent financial statements with its results in previous years and with the results of other companies in the same industry. My aim is to summarize all that data into a form which is easily understood by all the relevant parties. b) Processing and Analysis This section should provide solid or concrete foundations to the study. Quality and value of the research report depends upon how precisely and accurately the data is collected, processed, interpreted and analyzed so that fruitful conclusions may be drawn out of it. It includes:

 Data Collection Sources: To think about the issue of data collection means you are wondering about the characteristics of the methods used. Each method has its own advantages and inconveniences. With each technique you might also found a few people who will disapprove its use for such or such reason. At the beginning of a research (Project), it can be important to look for documentary sources. It is what some will call: “the review of papers ". And here, I use the term documentary sources in the widest meaning of this term. Indeed, the goal is not to find only written sources. These documentary sources I use are: •

Sites on the internet, 13 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 •

Articles from scientific publications,

•

Documents on various format (audio, video or computer support),

•

Advisers with a particular expertise

The purpose of the gathering of documentary sources is to have a better idea of what have been said or written about my subject. It is not for the intellectual beauty of the matter which I should do that. The search for documentary sources allowed me to put a more adequate glance at the data you will later gather. Also I use secondary sources for data collection for my work, that include internet and then I use stock exchange for data gathering as the banks are listed in Lahore stock exchange. So I got their annual reports from there.  Data Collection Tools: According to the topic I have selected for my project, the tool used for data collection is direct observation of the financial statements of the banks.  Company profile forms  Company comparison forms  Stock exchange  Internet past articles  Case Study  Data Processing and Analysis: We can use several tools to evaluate a company, but I will use one of the most valuable tool that is “financial ratios“. Ratios are an analyst’s microscope; they allow us get a better view of the firm’s financial health than just looking at the raw financial statements. Ratios are useful both to internal and external analysts of the firm. For internal purposes: ratios can be useful in planning for the future, setting goals, and evaluating the performance of managers. External analysts use ratios to decide whether to grant credit, to monitor financial performance, to forecast financial performance, and to decide whether to invest in the company. I will use Microsoft Word and Microsoft Excel work sheets to compute the different ratios and analysis.

Project proceedings 1. RATIO ANALYSIS: 14 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Financial ratios are useful indicators of a firm's performance and financial situation. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms. Ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. Financial ratios are usually expressed as a percent or as times per period. Ratio analysis is a widely used tool of financial analysis. It is defined as 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. The term ratio refers to the numerical or quantitative relationship between two variables. With the help of ratio analysis conclusion can be drawn regarding several aspects such as financial health, profitability and operational efficiency of the undertaking. Ratio points out the operating efficiency of the firm i.e. whether the management has utilized the firm’s assets correctly, to increase the investor’s wealth. It ensures a fair return to its owners and secures optimum utilization of firm’s assets. Ratio analysis helps in inter-firm comparison by providing necessary data. An inter firm comparison indicates relative position. It provides the relevant data for the comparison of the performance of different departments. If comparison shows a variance, the possible reasons of variations may be identified and if results are negative, the action may be initiated immediately to bring them in line. Yet another dimension of usefulness or ratio analysis, relevant from the View point of management is that it throws light on the degree efficiency in the various activity ratios measures this kind of operational efficiency. a) Liquidity Ratios b) Leverage Ratios c) Profitability Ratios d) Activity Ratios e) Market Ratios f) Statements of Cash Flow

Ratio Analysis a) Liquidity Ratios 15 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Liquidity ratios measure a firm’s ability to meet its current obligations. These include: Current Ratio: Current Ratio = Current Assets / Current Liabilities This ratio indicates the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future. Current assets normally include cash, marketable securities, accounts receivables, and inventories. Current liabilities consist of accounts payable, short-term notes payable, current maturities of long-term debt, accrued taxes, and other accrued expenses. Current assets are important to businesses because they are the assets that are used to fund day-to-day operations and pay ongoing expenses. HABIB BANK Year

2006

2007

2008

Current Assets

575611106

671597594

731954693

Current Liabilities

480455832

566659483

631948038

1.20

1.19

1.16

Current ratio

BANK AL FALAH Year

2006

2007

2008

Current Assets

265182551

316972828

335217471

Current Liabilities

249906022

286843944

315476169

1.06

1.10

1.06

Current ratio

Interpretation HABIB BANK The current ratio for the year 2006, 2007 & 2008 is 1.20, 1.19 & 1.16 respectively, compared to standard ratio 2:1 this ratio is lower which shows low short term liquidity efficiency at the same time holding less than sufficient current assets mean inefficient use of resources BANK AL FALAH The ratios for the last 3 years are 1.06, 1.10 & 1.06, shows below standard of 2:1 which means efficient use of funds but at the risk of low liquidity. 16 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619

Sales to Working Capital: Sales to Working Capital = Sales / Working Capital Sales to working capital give an indication of the turnover in working capital per year. A low working capital indicates an unprofitable use of working capital. HABIB BANK Year

2006

2007

Sales

43685740

43685740

Working Capital Sales to Working

2008 63305033

95155274

104938111

100006655

0.5 times

0.5 times

0.6 times

Capital BANK AL FALAH Year

2006

2007

2008

Sales

21191470

25783871

31046583

Working Capital

15276529

30128884

19741302

Sales to Working

1.38

0.85

1.57

Interpretation: HABIB BANK: This liquidity ratio for the years 2006, 2007 & 2008 is 0.5,0.5 & 0.6 times respectively, compared to standard ratio 2:1 this ratio is lower which shows low short term liquidity efficiency at the same time holding less than sufficient current assets mean inefficient use of resources BANK AL FALAH: The ratios for the last 3 years are 1.06, 1.10 & 1.06, shows below standard of 2:1 which means efficient use of funds but at the risk of low liquidity. Working Capital: 17 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Working Capital = Current Assets – Current Liabilities A measure of both a company's efficiency and its short-term financial health. Positive working capital means that the company is able to pay off its short-term liabilities. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable and inventory). Also known as "net working capital", or the "working capital ratio".

HABIB BANK Year

2006

2007

2008

Current Assets

575611106

671597594

731954693

Current Liabilities

480455832

566659483

631948038

Working Capital

95155274

104938111

100006655

BANK AL FALAH Year

2006

2007

2008

Current Assets

265182551

316972828

335217471

Current Liabilities

249906022

286843944

315476169

Working Capital

15276529

30128884

19741302

Interpretation: HABIB BANK: It is very clear from the above calculations that the working capital of the bank is gradually increasing over the years, which shows good short term liquidity efficiency. BANK AL FALAH: This ratio increased to a great extent in 2007, almost double of the year 2006 but later on in the year 2008 it went down again. b) Leverage Ratios: By using a combination of assets, debt, equity, and interest payments, leverage ratio's are used to understand a company's ability to meet it long term financial obligations. 18 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Leverage ratios measure the degree of protection of suppliers of long term funds. The level of leverage depends on a lot of factors such as availability of collateral, strength of operating cash flow and tax treatments. Thus, investors should be careful about comparing financial leverage between companies from different industries. For example companies in the banking industry naturally operates with a high leverage as collateral their assets are easily collateralized. These include: Time Interest Earned: TIE Ratio = EBIT / Interest Charges The interest coverage ratio tells us how easily a company is able to pay interest expenses associated to the debt they currently have. The ratio is designed to understand the amount of interest due as a function of company’s earnings before interest and taxes (EBIT). This ratio measures the extent to which operating income can decline before the firm is unable to meet its annual interest cost. HABIB BANK Year

2006

2007

EBIT

32044524

34298574

48559935

Interest Charges

13204037

19153957

19153957

1.79

1.83

TIE ratio

2.43

2008

BANK AL FALAH Year

2006

2007

2008

EBIT

17798831

21156515

22125914

Interest charges

15232886

16620963

20331194

1.16

1.27

1.08

TIE ratio

Interpretation HABIB BANK 19 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 We can see from this ratio analysis that, this company has covered their interest expenses 2.43 times in 2006, 1.79 times in 2007 and 1.8 times in 2008. It means they have performed pretty much same in 2007 and 2008, but has taken a different look in 2006. As in 2006 they issued a little high number of long-term loans and does not have good liquidity position, their EBIT became high thus making TIE a little high as well BANK AL FALAH We can see that, this company has covered their interest expenses 1.16 times in 2006, 1.27 times in 2007 and 1.08 times in 2008. It means they haven’t improved in the past years. Debt Ratio: Debt Ratio = Total Debt / Total Assets The ratio of total debt to total assets, generally called the debt ratio, measures the percentage of funds provided by the creditors. The proportion of a firm's total assets that are being financed with borrowed funds. The debt ratio is calculated by dividing total long-term and short-term liabilities by total assets. The higher the ratio, the more leverage the company is using and the more risk it is assuming. Assets and liabilities are found on a company's balance sheet. HABIB BANK Year

2006

2007

2008

Total debt

536848102

628754092

682747953

Total Assets

590291468

691991521

757928,89

Debt Ratio

0.91

0.91

0.9

BANK AL FALAH Year

2006

2007

2008

Total debt

263443596

312675308

331946025

Total Assets

275685541

328895152

348990764

Debt Ratio

0.95

0.95

0.95

20 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Interpretation: HABIB BANK Calculating the debt ratio, we came to see that this company is highly leveraged one BANK AL FALAH Calculating the debt ratio, we came to see that this company is highly leveraged one. Debt to Equity Ratio: Debt to Equity Ratio = Total debt / Total Equity The debt to equity ratio is the most popular leverage ratio and it provides detail around the amount of leverage (liabilities assumed) that a company has in relation to the monies provided by shareholders. As you can see through the formula below, the lower the number, the less leverage that a company is using. The debt to equity ratio gives the proportion of a company (or person's) assets that are financed by debt versus equity. It is a common measure of the long-term viability of a company's business and, along with current ratio, a measure of its liquidity, or its ability to cover its expenses. As a result, debt to equity calculations often only includes long-term debt rather than a company's total liabilities. A high debt to equity ratio implies that the company has been aggressively financing its activities through debt and therefore must pay interest on this financing. HABIB BANK Year Total debt

2006 536848102

2007 628754092

2008 682747953

Total Equity

45177664

55063125

71280902

11.88

11.42

9.58

Debt To Equity Ratio

BANK AL FALAH

21 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Year Total debt

2006 263443596

2007 312675308

2008 331946025

Total Equity

10572605

13766673

14608523

24.91

22.71

22.72

Debt To Equity Ratio

Interpretation HABIB BANK We can see from the above calculations that this ratios continuously decreasing in the last three years. BANK AL FALAH Calculating this debt ratio we can see that it was 24.91, 22.71 & 22.72 in the year 2006, 2007 & 2008 respectively. This shows a decline in the ratio over the years.

Current Worth / Net worth Ratio: Current Worth to Net worth Ratio= Current Worth / Net worth Ratio We can calculate current worth and net worth by using following formulas: Current Worth = Total Current Assets – Total Current Liabilities Net Worth = Total Assets - Total Liabilities HABIB BANK Year

2006

Current Worth

95155274

Net Worth Current Worth to Net

2007 104938111

2008 100006655

53443366

63237429

75180436

1.78

1.66

1.33

worth Ratio BANK AL FALAH Year

2006

2007

2008

Current Worth

15276529

30128884

19741302

Net Worth Current Worth to Net

12241945

16219844

17044739

1.247

1.85

1.15

worth Ratio

22 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Interpretation HABIB BANK We can see from the above calculations that this ratios continuously decreasing in the last three years. In 2006 it was 1.78, in 2007 it was 1.66 and in 2008 it was 1.33. BANK AL FALAH Analysis shows that this ratio was as high as 1.2 among three years. However, it declined to 1.15 in the year 2008. In 2007 the ratio somewhat increased to 1.85. Total Capitalization Ratio: Total Capitalization Ratio = Long-term debt / long-term debt + shareholders' equity The capitalization ratio measures the debt component of a company's capital structure, or capitalization (i.e., the sum of long-term debt liabilities and shareholders' equity) to support a company's operations and growth. Long-term debt is divided by the sum of long-term debt and shareholders' equity. This ratio is considered to be one of the more meaningful of the "debt" ratios - it delivers the key insight into a company's use of leverage. HABIB BANK Year

2006

2007

2008

Long Term debt

56392270

62094609

50799915

Long term debt + Equity Capitalization Ratio

101569934

117157734

122080817

0.56

0.53

0.42

worth Ratio BANK AL FALAH Year

2006

2007

2008

Long Term debt

13537574

25831364

16469856

Long term debt + Equity Capitalization Ratio

24110179

39598037

31078379

0.56

0.65

0.52

worth Ratio Interpretation 23 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 HABIB BANK It is obvious from the above calculations that there is a gradual fall in this ratio over the years. BANK AL FALAH The ratios for the last 3 years are 0.56, 0.65 and 0.52. Shows below standard of 2:1 Long term Assets versus Long term Debt: Long term Assets versus Long term Debt= Long Term Assets/ Long Term Debts HABIB BANK Year

2006

2007

2008

Long Term Assets

14680362

20393927

25973696

Long term debt L.T Assets /L.T Debts

56392270

62094609

50799915

0.26

0.33

0.51

Debt:worth Ratio BANK AL FALAH Year

2006

2007

2008

Long Term Assets

13773293

11922324

10502990

Long term debt L.T Assets /L.T Debts

13537574

25831364

16469856

1.01

0.46

0.63

worth Ratio Debt Coverage Ratio: Debt Coverage Ratio = Net Operating Income / Total Debt HABIB BANK Year

2006

2007

2008

Net Operating Income

12074762

5121453

5655568

Total Debt Debt Coverage Ratio

536848102

628754092

682747953

0.02

0.008

0.0083

Debt:worth Ratio BANK AL FALAH 24 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Year Net Operating Income Total Debt

2006 14574192

2007 15118049

2008 16880487

263443596

312675308

331946025

Debt Coverage Ratio

0.05532186

0.048350633

0.0508531

worth Ratio

9

c) Profitability Ratios: Profitability is the net result of a number of policies and decisions. This section of the discusses the different measures of corporate profitability and financial performance. These ratios, much like the operational performance ratios, give users a good understanding of how well the company utilized its resources in generating profit and shareholder value. The long-term profitability of a company is vital for both the survivability of the company as well as the benefit received by shareholders. It is these ratios that can give insight into the all important "profit". Profitability ratios show the combined effects of liquidity, asset management and debt on operating results. These ratios examine the profit made by the firm and compare these figures with the size of the firm, the assets employed by the firm or its level of sales. There are four important profitability ratios that I am going to analyze: Net Profit Margin: Net Profit margin = Net Profit / Sales x 100 Net Profit Margin gives us the net profit that the business is earning per dollar of sales. This margin indicates the profit after all the costs have been incurred it shows that what % of turnover is represented by the net profit. An increase in the ratios indicates that a firm is producing higher net profit of sales than before. HABIB BANK Year

2006

2007

2008

Net Profit

12700315

10084037

15614020

Sales

43685740

50481021

63305033

29.07%

19.97%

24.66%

Net Profit Margin

BANK AL FALAH 25 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Year

2006

2007

2008

Net Profit

1762691

3130229

1301301

Sales

21191470

25783871

31046583

8.31%

12.1%

4%

Net Profit Margin

Interpretation HABIB BANK Therefore, the Net Profit Margin was 8.31% in 2006, increase to 12.1% in 2007 and then decrease to 4% in 2008 BANK AL FALAH Therefore, the Net Profit Margin was 29.07% in 2006, decrease to 19.97% in 2007 and then again increased to 24.66% in 2008 Operating Income Margin: Operating Income Margin = Operating Income x 100 Net Sales Operating Income Margin = Net mark-up / interest income after provisions + Mark-up / return / interest expensed Total non mark-up / interest expenses

HABIB BANK Year

2006

2007

2008

Operating Income

25278799

24275410

37738818

Net Sales

43685740

50481021

63305033

57.9%

48%

59.6%

Operating Income Margin

BANK AL FALAH 26 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Year

2006

2007

2008

Operating Income

14574192

15118049

16880487

Net Sales

21191470

25783871

31046583

0.687738604

0.586337443

0.5437148

Operating Income Margin

Return on Assets: Return on Assets (ROA) = Profit after Taxation / Average Total assets x 100 ROA, A measure of a company's profitability, equal to a fiscal year's earnings divided by its total assets, expressed as a percentage. This is an important ratio for companies deciding whether or not to initiate a new project. The basis of this ratio is that if a company is going to start a project they expect to earn a return on it, ROA is the return they would receive. Simply put, if ROA is above the rate that the company borrows at then the project should be accepted, if not then it is rejected. HABIB BANK Year Net income Total Average assets ROA

2006

2007

2008

12700315

10084037

15614020

559592686.5

641141494.5

724959955

2.27%

1.57%

2.15%

BANK AL FALAH Year Net income Total Average assets ROA

2006

2007

2008

1762691

3130229

1301301

137966927.5

302290346.5

338942958

1.27%

1.01%

0.038%

Interpretation HABIB BANK 27 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Return on assets decreased in 2007 and 2008 and it was maximum in year 2006. This may have occurred because Square used more debt financing in 2006 compared to 2007 and 2008 which resulted in more interest cost and brought the Net income down. . BANK AL FALAH Return

on

assets

decreased

gradually

throughout

the

years.

Return on Equity (ROE): Return on Total Equity = Profit after taxation x 10 Total Equity Return on Equity measures the amount of Net Income earned by utilizing each dollar of Total common equity. It is the most important of the “Bottom line” ratio. By this, we can find out how much the shareholders are going to get for their shares. This ratio indicates how profitable a company is by comparing its net income to its average shareholders' equity. The return on equity ratio (ROE) measures how much the shareholders earned for their investment in the company. The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors. HABIB BANK Year

2006

2007

2008

Net income

12700315

10084037

15614020

Total Equity

45177664

55063125

71280902

28.11%

18.31%

21.9%

ROE

BANK AL FALAH Year

2006

2007

2008

Net income

1762691

3130229

1301301

Total Equity

10572605

13766673

14608523

16.6%

22.5%

8.9%

ROE

Interpretation 28 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 HABIB BANK The Return on Equity was maximum in 2006 but decreased in 2007 and went down more in 2008. This again may have happened due to the issue of more long-term debt in 2007 and 2008. BANK AL FALAH The Return on Equity was maximum in 2007 but decreased to an extent in the following years 2007 and 2008. This again may have happened due to the issue of more long-term debt in 2007 and 2008. DuPont Return on Assets: DuPont Return on Assets = Profit after taxation x 100 Total Assets

HABIB BANK Year

2006

2007

2008

Net Profit

12700315

10084037

15614020

Total assets

590291468

691991521

757928389

DuPont ROA

2.15%

1.46%

2.06%

BANK AL FALAH Year

2006

2007

2008

1762691

3130229

1301301

Total assets

275685541

328895152

348990764

DuPont ROA

0.006

0.009

0.003

Net Profit

Operating Assets Turnover: Operating Assets Turnover = Operating Assets x 100 Net Sales HABIB BANK 29 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Year

2006

2007

2008

Operating Assets

94230402

97259620

110591707

Net Sales

43685740

50481021

63305033

192.7%

192.7%

174.70%

Operating Assets Turnover Margin

BANK AL FALAH Year

2006

2007

2008

Operating Assets

51094302

59739440

68041671

Net Sales

21191470

25783871

31046583

2.41%

2.31%

2.19%

Operating Assets Turnover Margin

Detail of Operating Assets of Habib Bank Limited 2008 Operating Assets: Cash and balances with treasury banks

56533134

Balances with other banks

39307321

Operating fixed assets

14751252 110591707

2007 Operating Assets: Cash and balances with treasury banks

55487664

Balances with other banks

27020704

Operating fixed assets

13780555 97259620

2006 Operating Assets: Cash and balances with treasury banks

46310478

Balances with other banks

35965048

Operating fixed assets

11954876 30 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 94,230,402 Detail of Operating Assets of Bank Al Falah Limited 2008 Operating Assets: Cash and balances with treasury banks

27859360

Balances with other banks

12731952

Operating fixed assets

10502990 51094302

2007 Operating Assets: Cash and balances with treasury banks

29436378

Balances with other banks

18380738

Operating fixed assets

11922324 59739440

2006 Operating Assets: Cash and balances with treasury banks

32687335

Balances with other banks

21581043

Operating fixed assets

13773293 68041671

Return on Operating Assets: Return on Operating Assets = Profit after Taxation x 100 Operating assets HABIB BANK

31 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Year Net Profit Operating Assets Return on Operating Assets

2006

2007

2008

12700315 94230402

10084037 97259620

15614020 110591707

13.48%

10.37%

11.19%

BANK AL FALAH Year

2006

2007

2008

Net Profit

1762691

3130229

1301301

Operating Assets

51094302

59739440

68041671

0.034

0.052

0.019

Return on Operating Assets

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

HABIB BANK Year

2006

2007

2008

Net Sales

43685740

50481021

Fixed Assets

11954876

13780555

63305033 14751252

Sales to Fixed Assets

3.65 times

3.66 times

3.66 times

BANK AL FALAH Year

2006

2007

2008

Net Sales

21191470

25783871

31046583

Fixed Assets

10502990

11922324

13773293

2.017 times

2.16 times

2.25 times

Sales to Fixed Assets

d) Activity Ratios: 32 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Activity ratio are sometimes are called efficiency ratios. Activity ratios are concerned with how efficiency the assets of the firm are managed. These ratios express relationship between level of sales and the investment in various assets inventories, receivables, fixed assets etc. Total Asset Turnover: Total Asset Turnover = Total Sales / Total Assets The amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales in dollars by assets in dollars. Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. HABIB BANK Year

2006

2007

2008

Total Sales

43685740

50481021

63305033

Total Assets

590291468

691991521

757928389

0.07

0.07

0.08

Total Asset Turnover

BANK AL FALAH Year

2006

2007

2008

Total Sales

21191470

25783871

31046583

Total Assets

275685541

328895152

348990764

0.07

0.07

0.08

Total Asset Turnover

Interpretation HABIB BANK The Return on Equity was maximum in 2006 but decreased in 2007 and went down more in 2008. This again may have happened due to the issue of more long-term debt in 2007 and 2008. 33 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 BANK AL FALAH The Return on Equity was maximum in 2007 but decreased to an extent in the following years 2007 and 2008. This again may have e) Market Ratio: Market Value Ratios relate an observable market value, the stock price, to book values obtained from the firm's financial statements. Dividend per Share – DPS: Dividend per Share = Total amount of Dividend Number of outstanding shares Per share capital = 10 per share Or No. of shares outstanding = share capital / 10 HABIB BANK Year

2006

2007

2008

Total amount of Dividend

691350

1381000

2730251

Number of Shares

690000

690000

759000

Dividend per Share

1.0019

2.0014

3.597

BANK AL FALAH Year

2006

2007

2008

00

00

975000

Number of Shares

500000

650000

799500

Dividend per Share

00

00

1.21

Total amount of Dividend

Note: There is no dividend paid by the bank in the year 2006 and 2007

Earning Per Share- EPS: Earning Per Share =

Profit after Taxation

34 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Number of Shares The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. Earnings per share are generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio. HABIB BANK Year

2006

2007

2008

12700315

10084037

15614020

Number of Shares

690000

690000

759000

Earning Per Share

18.41

14.61

20.57

Profit after Taxation

BANK AL FALAH Year

2006

2007

2008

Profit after Taxation

1762691

3130229

1301301

Number of Shares

500000

650000

799500

Earning Per Share

3.525

4.815

1.627

Price / Earning Ratio: Price / Earning Ratio =

Stock Price Per Share Earning Per Shares

The Price-Earnings Ratio is calculated by dividing the current market price per share of the stock by earnings per share (EPS). (Earnings per share are calculated by dividing net income by the number of shares outstanding.) The P/E Ratio indicates how much investors are willing to pay per dollar of current earnings. As such, high P/E Ratios are associated with growth stocks. (Investors who are willing to pay a high price for a dollar of current earnings obviously expect high earnings in the future.) In this manner, the P/E Ratio also indicates how expensive a particular stock is. This ratio is not meaningful, however, if the firm has very little or negative earnings. The Price-Earnings Ratio is calculated by dividing the current market price per 35 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 share of the stock by earnings per share (EPS). (Earnings per share are calculated by dividing net income by the number of shares outstanding.) The P/E Ratio indicates how much investors are willing to pay per dollar of current earnings. As such, high P/E Ratios are associated with growth stocks. (Investors who are willing to pay a high price for a dollar of current earnings obviously expect high earnings in the future.) In this manner, the P/E Ratio also indicates how expensive a particular stock is. This ratio is not meaningful, however, if the firm has very little or negative earnings. HABIB BANK Year

2006

2007

2008

10

10

10

EPS

18.41

14.61

20.57

Price / Earning Ratio

0.54

0.68

0.49

Stock price per share

BANK AL FALAH Year

2006

2007

2008

10

10

10

EPS

3.525

4.815

1.627

Price / Earning Ratio

2.83

2.07

6.14

Stock price per share

Interpretation HABIB BANK The P/E ratio was 0.54 times in 2006 and increased further to as high as 0.68 times in the following year. However, in 2008 it declined to 0.49 times which is an alarming signal for the potential investors. BANK AL FALAH The P/E ratio was 2.83 times in 2006 and decreased a little bit in 2007. However, in 2008 it increased as much higher than before to 6.14 times.

36 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Dividend Payout Ratio: Dividend Payout Ratio = Dividend per Share Earning per Share The percentage of earnings paid to shareholders in dividends. The payout ratio provides an idea of how well earnings support the dividend payments. More mature companies tend to have a higher payout ratio. This ratio identifies the percentage of earnings (net income) per common share allocated to paying cash dividends to shareholders. The dividend payout ratio is an indicator of how well earnings support the dividend payment. HABIB BANK Year

2006

2007

2008

DPS

1.0019

2.0014

3.597

EPS

18.41

14.61

20.57

Dividend Payout Ratio

0.0544

0.137

0.175

BANK AL FALAH Year

2006

2007

2008

DPS

00

00

1.21

EPS

3.525

4.815

1.627

00

00

0.74

Dividend Payout Ratio

Dividend Yield: Dividend Yield = Dividend per Share Share Price Financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. A stock's dividend yield is expressed as an annual percentage and 37 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 is calculated as the company's annual cash dividend per share divided by the current price of the stock. The dividend yield is found in the stock quotes of dividend-paying companies. Investors should note that stock quotes record the per share dollar amount of a company's latest quarterly declared dividend. This quarterly dollar amount is annualized and compared to the current stock price to generate the per annum dividend yield, which represents an expected return. HABIB BANK Year

2006

2007

2008

DPS

1.0019

2.0014

3.597

10

10

10

0.10019

0.20014

0.3597

Share Price Dividend Yield

BANK AL FALAH Year

2006

2007

2008

DPS

00

00

1.21

Share Price

10

10

10

Dividend Yield

00

00

0.121

Book Value per Share: Book Value per Share

=

Shareholders’ Equity Share Capital

This is defined as the Common Shareholder's Equity divided by the Shares Outstanding at the end of the most recent fiscal quarter. It is the Indication of the net worth of the corporation. Somewhat similar to the earnings per share, but it relates the stockholder's equity to the number of shares outstanding, giving the shares a raw value. Comparing the market value to the book value can indicate whether or not the stock in overvalued or undervalued. HABIB BANK 38 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Year Equity Share Capital

2006

2007

2008

45177664

55063125

71280902

6900000

7590000

7.98

9.39

6900000

Book Value per Share

6.5

BANK AL FALAH Year

2006

2007

2008

Equity

10572605

13766673

14608523

Share Capital

5000000

6500000

7995000

2.11

2.11

1.82

Book Value per Share

f) Statement of cash flow: Cash flow ratios indicate liquidity, borrowing capacity or profitability. This section of the financial ratio looks at cash flow indicators, which focus on the cash being generated in terms of how much is being generated and the safety net that it provides to the company. These ratios can give users another look at the financial health and performance of a company. Operating Cash Flow to Total Debt: Operating Cash Flow to Total Debt = Operating Cash Flow/Total Debt This coverage ratio compares a company's operating cash flow to its total debt, which, for purposes of this ratio, is defined as the sum of short-term borrowings, the current portion of long-term debt and long-term debt. This ratio provides an indication of a company's ability to cover total debt with its yearly cash flow from operations. The higher the percentage ratio, the better the company's ability to carry its total debt. HABIB BANK

39 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619

Year Operating Cash flow Total Debts Operating Cash Flow to T.Debt

2006

2007

2008

17851517 536848102

56224065 628754092

18231677 682747953

0.033

0.089

0.027

2006

2007

2008

7852362

39645325

2499606

263443596

312675308

331946025

0.029

0.126

0.007

BANK AL FALAH Year Operating Cash flow Total Debts Operating Cash Flow to T.Debt

Operating Cash Flow per Share: Operating Cash Flow per Share = Operating cash flow / Total Shares

HABIB BANK Year

2006

2007

2008

17851517

56224065

18231677

690000

690000

759000

25.87

81.48

24.02

2006

2007

2008

Operating Cash flow

7852362

39645325

2499606

Total Shares

500000

650000

799500

15.70

60.99

3.12

Operating Cash flow Total Shares Operating Cash Flow per Share

BANK AL FALAH Year

Operating Cash Flow per Share

. 2. Common Size Analysis (Vertical and Horizontal): 40 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 The term "trend analysis" refers to the concept of collecting information and attempting to spot a pattern, or trend, in the information. In some fields of study, the term "trend analysis" has more formally-defined meanings. Although trend analysis is often used to predict future events, it could be used to estimate uncertain events in the past. Financial statement information is used by both external and internal users, including investors, creditors, managers, and executives. These users must analyze the information in order to make business decisions, so understanding financial statements is of great importance. Several methods of performing financial statement analysis exist. I will discuss two of these methods: horizontal analysis and vertical analysis. a) Horizontal Analysis Methods of financial statement analysis generally involve comparing certain information. The horizontal analysis compares specific items over a number of accounting periods. For example, accounts payable may be compared over a period of months within a fiscal year, or revenue may be compared over a period of several years. It is a procedure in fundamental analysis in which an analyst compares ratios or line items in a company's financial statements over a certain period of time. The analyst will use his or her discretion when choosing a particular timeline; however, the decision is often based on the investing time horizon under consideration. HORIZONTAL ANALYSIS HABIB BANK BALANCE SHEET AS ON DEC 31 2008, 2007 & 2006 (Rupees in ‘000’) 2008 ASSETS Cash and balances with treasury banks Balances with other banks

2007

Horizontal Analysis 2006 2008

2007

2006

56533134

55487664

46310478

122.07

119.8

100

39307321

27020704

35965048

109.29

75.13

100

41 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Lending to financial

6193787

1628130

6550128

94.56

24.86

100

Investments

13814592

177942251

119587476

11.552

148.8

100

Advances

456355507

382172734

349432685

130.6

109.4

100

Other assets Operating fixed

35419252

27346111

17765291

199.37

153.9

100

14751252

13780555

11954876

123.39

115.3

100

11222444

6613372

2725486

411.76

242.6

100

TOTAL ASSETS LIABILITIES Bills payable Borrowings from

757928389

691991521

590291468

128.4

117.2

100

9944257

15418230

5737457

173.32

268.7

100

financial

46844890

58994609

56392270

83.07

104.6

100

597090545

531298127

459140198

130.05

115.7

100

3954925

3100000

0

0

0

0

24913236

19943126

15578177

159.92

128

100

-------

-----------

---------

628754092

536848102

127.18

117.1

100

63237429

53443366

140.67

118.3

100

institutions

assets Deferred tax asset

institutions Deposits and other accounts Sub-ordinate loans Liabilities against assets subject to finance lease Other liabilities Deferred tax liability TOTAL

682747953 LIABILITIES NET ASSETS 75180436 REPRESENTED BY Shareholders Equity Share capital Reserves Unappropriated profit

7590000 24243254

6900000 19821455

6900000 17802584

110 136.18

100 111.3

100 100

39447648

28341670

20 475,080

159.92

128

100

42 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Total equity attributable to the

71280902

55063125

45177664

157.78

121.9

100

the Bank Minority interest Surplus on

890099

965642

913317

97.458

105.7

100

revaluation of

3009435

7208662

7352385

40.931

98.05

100

assets - net of tax TOTAL EQUITY

75180436

63237429

53443366

140.67

118.3

100

equity holders of

HORIZONTAL ANALYSIS HABIB BANK CONSOLIDATED PROFIT & LOSS ACCOUNT AS ON DEC 31 2008, 2007 & 2006 2008 2007 (Rupees in ‘000’) Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income Provision against non-performing loans and

2006

Horizontal Analysis 2008 2007 2006

63,305,033

50,481,021

43,685,740

144.91

115.6

100

26,525,556

19,153,957

13,204,037

200.89

145.1

100

36,779,477

31,327,064

30,481,703

120.66

102.8

100

6,904,919

8,238,227

2,863,207

241.16

287.7

100

372,598

(54,626)

(45,438)

-820.01

120.2

100

1,909,887

(84,310)

(13,697)

-13944

615.5

100

advances - net Charge / (reversal) against offbalance sheet obligations Charge / (reversal) of provision against diminution 43 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 in the value of investments Bad debts written

----------

----------

-------------

9,187,404

8,099,291

2,804,072

27,592,073

23,227,773

27,677,631

99.691

83.92

100

4,518,408

3,420,051

3,931,710

114.92

86.99

100

2,369,233

2,472,663

1,219,623

194.26

202.7

100

2,374,318

1,487,374

1,102,358

215.39

134.9

100

investments in

4,000,330

-------

0

0

0

0

associate Other income

3,116,522

2,643,076

2,235,805

139.39

118.2

100

16,378,811

10,023,164

8,489,496

192.93

118.1

100

43,970,884

33,250,937

36,167,127

121.58

91.94

100

21,348,016

18,297,279

15,425,461

138.39

118.6

100

200,163

276,111

122,510

163.39

225.4

100

64,751

85,152

54,898

117.95

155.1

100

18,106,32

15,602,869

140.59

0

100

off directly Net mark-up / interest income after provisions Fee, commission and brokerage income Income / gain on investments Income from dealing in foreign currencies Gain on

Total non-mark-up / interest income Non mark-up / interest expense Administrative expenses Other provisions / write offs - net Other charges Workers welfare fund Total non mark-up / interest expenses

323,575 21,936,505

44 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Profit before taxation Taxation - Current - Prior years - Deferred Profit after taxation Attributable to: Equity holders of the Bank Minority interest Basic and diluted earnings per share

22,034,379

15,144,617

18,840,487

116.95

80.38

100

8,661,15 233,100 (2,473,891) 6,420,359

7,220,717 1,668,562 (3,828,699) 10,084,037

7,144,846 (39,067) (965,607) 12,700,315

0 -596.67 256.2 50.553

101.1 -4271 396.5 79.4

100 100 100 100

15,614,020

10,084,037

12,700,315

122.94

79.4

100

15,535,011

10,000,231

12,630,259

123

79.18

100

79,009 15,614,020

83,806 10,084,037

70,056 12,700,315

112.78 122.94

119.6 79.4

100 100

20.47

13.18

18.30

111.86

72.02

100

HORIZONTAL ANALYSIS BANK AL FALAH LIMITED BALANCE SHEET AS ON DEC 31 2008, 2007 & 2006

45 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Years (Rupees in ‘000’) 2008 2007

Horizontal Analysis 2006

ASSETS Cash and balances with treasury

2008

2007

2006

118.41

29436378

27859360

118.41

105.7

100

169.5

18380738

12731952

169.5

144.4

100

financial

26.616

3452059

12456653

26.616

27.71

100

institutions Investments Advances Operating fixed

134.46 132.88

88491564 171198992

56502210 144999325

134.46 132.88

156.6 118.1

100 100

131.14

11922324

10502990

131.14

113.5

100

0

0

0

banks Balances with other banks Lending to

assets Deferred tax asset Other assets TOTAL ASSETS LIABILITIES Bills payable Borrowings from financial institutions Deposits and other accounts Sub-ordinate loans Liabilities against assets subject to finance lease Deferred tax liability

0 159.58

6013097

5633051

159.58

106.7

100

126.59

328895152

275685541

126.59

119.3

100

133.9

100

111.68

4138243

3091135

0 111.68

163.09

21230697

8394130

163.09

252.9

100

125.56

273173841

239509391

125.56

114.1

100

79.798

3220858

3222106

79.798

99.96

100

0

0

0

10.85

71.82

100

0

10.85

1379809

1921338

46 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Other liabilities

154.56

9531860

7305496

154.56

130.5

100

126

312675308

263443596

126

118.7

100

16219844

12241945

139.23

132.5

100

6500000 2414833

5000000 2749533

159.9 115.15

130 87.83

100 100

4851840

2823072

122.12

171.9

100

13766673

10572605

138.17

130.2

100

145.94

2453171

1669340

145.94

147

100

139.23

16219844

12241945

139.23

132.5

100

TOTAL LIABILITIES

NET ASSETS 139.23 REPRESENTED BY SHAREHOLDERS EQUITY Share capital 159.9 Reserves 115.15 Unappropriated 122.12 profit 138.17 Surplus on revaluation of assets - net of tax TOTAL EQUITY

HORIZONTAL ANALYSIS BANK AL FALAH LIMITED PROFIT & LOSS ACCOUNT AS ON DEC 31 2008, 2007 & 2006 2008 Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income

2007

2006 Horizontal Analysis (Rupees in ‘000’) 2008 2007 2006

31046583

25783871

21191470

146.51

121.7

100

20331194

16620963

15232886

133.47

109.1

100

10715389

9162908

5958584

179.83

153.8

100

47 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Provision against nonperforming loans and

2035997

2370867

697690

291.82

339.8

100

0

0

0

advances - net Provision for diminution in value of investment Bad debts written off directly

1479062

28298

5844

1537

1841.1

380.2

100

3,543,357

2,376,711

699,227

506.75

339.9

100

7,172,032

6,786,197

5,259,357

136.37

129

100

2,539,321

2,429,599

1,804,998

140.68

134.6

100

300,943

64,722

37,393

804.81

173.1

100

914,845

474,510

386,997

236.4

122.6

100

424,220

2053192

180751

234.7

1136

100

181,571

21530

27599

657.89

78.01

100

1,247,669

1,031,372

842,099

148.16

122.5

100

5,245,427

6,038,466

3,224,639

162.67

187.3

100

12,417,459

12,824,663

8,483,996

146.36

151.2

100

10,741,399

8,272,587

5,874,745

182.84

140.8

100

28,582

6,959

0

0

0

0

Net mark-up / interest income after provisions Non mark-up / interest income Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Gain on sale of securities Unrealized loss on revaluation of investments classifies as held for trading Other income Total non-mark-up / interest income Non mark-up / interest expense Administrative expenses Provisions against offbalance sheet 48 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 obligations Other charges Total non mark-up / interest expenses Profit before taxation Taxation - Current - Prior years - Deferred Profit after taxation Attributable to: Unappropriated profit brought forward Transferred from surplus on revaluation of fixed assets - net of tax Profit available for appropriation

122,758

9,565

43,306

283.47

22.09

100

10,622,739

8289111

5,918,051

179.5

0

100

1,794,720

4,535,552

2,565,945

69.944 0

176.8 0

100 0

1730051 221797 1014835 493419 1301301

1726810 0 321487 1405323 3130229

476226 100874 427902 803254 1962691

219.88 237.17 61.428 66.302

0 75.13 175 159.5

100 100 100 100

4851840

2823072

1886845

24586

24585

26074

94.293

94.29

100

6177727

5977886

3675610

168.07

162.6

100

b) Vertical Analysis It is a method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities and equities) in a balance sheet is represented as a proportion of the total account. The main advantages of analyzing a balance sheet in this manner are that the balance sheets of businesses of all sizes can easily be compared. It also makes it easy to see relative annual changes in one business. When using vertical analysis, the analyst calculates each item on a single financial statement as a percentage of a total. The term vertical analysis applies because each year's figures are listed vertically on a financial statement. The total used by the analyst on the income statement is net sales revenue, while on the balance sheet it is total assets. This approach to financial statement analysis, also known as component percentages, produces common-size financial statements. Common-size balance sheets and income statements 49 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 can be more easily compared, whether across the years for a single company or across different companies.

VERTICAL ANALYSIS HABIB BANK BALANCE SHEET AS ON AS ON DEC 31 2008, 2007 & 2006

50 Sheikh Waqas Ahmed Mc070400479

(Rupees in ‘000’) Vertical Analysis Final Project Finance FIN 619 2006 2008 2007 2006

2008

2007

56533134

55487664

46310478

7.4589

8.019

7.8454

39307321

27020704

35965048

5.1862

3.905

6.0928

6193787

1628130

6550128

0.8172

0.235

1.1096

Investments

13814592

177942251

119587476

1.8227

25.71

20.259

Advances

456355507

382172734

349432685

60.211

55.23

59.197

Other assets Operating

35419252

27346111

17765291

4.6732

3.952

3.0096

14751252

13780555

11954876

1.9463

1.991

2.0252

11222444

6613372

2725486

1.4807

0.956

0.4617

757928389

691991521

590291468

100

100

100

ASSETS Cash and balances with treasury banks Balances with other banks Lending to financial institutions

fixed assets Deferred tax asset TOTAL ASSETS LIABILITIES Bills payable Borrowings from financial institutions Deposits and other accounts Sub-ordinate loans Liabilities

9944257

15418230

5737457

1.312

2.228

0.972

46844890

58994609

56392270

6.1806

8.525

9.5533

597090545

531298127

78.779

76.78

77.782

3954925

3100000

0

0.5218

0.448

24913236

19943126

15578177

3.287

2.882

2.6391

-------

-----------

--------90.081

90.86

90.946

9.919

9.14

9.054

45914019 8

against assets subject to finance lease Other liabilities Deferred tax liability TOTAL

53684810 628754092 LIABILITIES 2 51 NET ASSETS 75180436 S h e i k63237429 h W a q a s A h53443366 med Mc070400479 REPRESENTED BY 682747953

Shareholders Equity

Final Project Finance FIN 619

VERTICAL ANALYSIS HABIB BANK CONSOLIDATED PROFIT & LOSS ACCOUNT AS ON DEC 31 2008, 2007 & 2006 2008 2007 (Rupees in ‘000’) Mark-up / return /

2006

Vertical Analysis 2008 2007 2006

63,305,033

50,481,021

43,685,740

100

100

100

26,525,556

19,153,957

13,204,037

41.901

37.94

30.225

36,779,477

31,327,064

30,481,703

58.099

62.06

69.775

6,904,919

8,238,227

2,863,207

10.907

16.32

6.5541

372,598

(54,626)

(45,438)

0.5886

-0.108

-0.104

1,909,887

(84,310)

(13,697)

3.017

-0.167

-0.031

----------

----------

-------------

0

0

0

9,187,404

8,099,291

2,804,072

14.513

16.04

6.4187

interest income

27,592,073

23,227,773

27,677,631

43.586

46.01

63.356

after provisions Fee, commission

4,518,408

3,420,051

3,931,710

7.1375

6.775

9

interest earned Mark-up / return / interest expensed Net mark-up / interest income Provision against non-performing loans and advances - net Charge / (reversal) against offbalance sheet obligations Charge / (reversal) of provision against diminution in the value of investments Bad debts written off directly Net mark-up /

and brokerage 52 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 income Income / gain on

2,369,233

2,472,663

1,219,623

3.7426

4.898

2.7918

2,374,318

1,487,374

1,102,358

3.7506

2.946

2.5234

investments in

4,000,330

-------

0

6.3191

0.3162

0

associate Other income

3,116,522

2,643,076

2,235,805

4.923

5.236

5.1179

16,378,811

10,023,164

8,489,496

25.873

19.86

19.433

43,970,884

33,250,937

36,167,127

69.459

65.87

82.789

21,348,016

18,297,279

15,425,461

33.722

36.25

35.31

200,163

276,111

122,510

0.3162

0.547

0.2804

64,751

85,152

54,898

0.1023

0.169

0.1257

0.5111

0

0

investments Income from dealing in foreign currencies Gain on

Total non-markup / interest income Non mark-up / interest expense Administrative expenses Other provisions / write offs - net Other charges Workers welfare fund Total non mark-up / interest expenses Profit before taxation Taxation - Current - Prior years - Deferred Profit after taxation Attributable to: Equity holders of

323,575 21,936,505

18,106,32

15,602,869

34.652

0

35.716

22,034,379

15,144,617

18,840,487

34.807

30

43.127

8,661,15 233,100 (2,473,891) 6,420,359

7,220,717 1,668,562 (3,828,699) 10,084,037

7,144,846 (39,067) (965,607) 12,700,315

0 0.3682 -3.908 10.142

14.3 3.305 -7.584 19.98

16.355 -0.089 -2.21 29.072

15,614,020

10,084,037

12,700,315

24.665

19.98

29.072

15,535,011

10,000,231

12,630,259

24.54

19.81

28.912

53 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 the Bank Minority interest Basic and diluted earnings per share

79,009 15,614,020

83,806 10,084,037

70,056 12,700,315

0.125 24.66

0.17 20

0.16 29.07

20.47

13.18

18.30

3.23

2.61

4.189

VERTICAL ANALYSIS BANK AL FALAH LIMITED BALANCE SHEET AS ON DEC 31 2008, 2007 & 2006 Years (Rupees in ‘000’) 2008 2007

Vertical Analysis 2006

ASSETS Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances

2008

2007

2006

32987335

29436378

27859360

9.4522

8.95

10.105

21581043

18380738

12731952

6.1838

5.589

4.6183

3315500

3452059

12456653

0.95

1.05

4.5184

75973238 192671169

88491564 171198992

56502210 144999325

21.769 55.208

26.91 52.05

20.495 52.596

54 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Operating

13773293

11922324

10502990

3.9466

3.625

3.8098

8989186

6013097

5633051

2.5758

1.828

2.0433

348990764

328895152

275685541

100

100

100

3452031

4138243

3091135

0.9891

1.258

1.1213

13690222

21230697

8394130

3.9228

6.455

3.0448

300732858

273173841

239509391

86.172

83.06

86.878

2571169

3220858

3222106

0.7367

0.979

1.1688

208465

1379809

1921338

0.0597

0.42

0.6969

11291280

9531860

7305496

3.2354

2.898

2.6499

331946025

312675308

263443596

95.116

95.07

95.559

NET ASSETS 17044739 REPRESENTED BY:

16219844

12241945

4.884

4.93

4.441

6500000 2414833

5000000 2749533

2.291 0.907

1.98 0.73

1.814 0.997

4851840

2823072

0.988

1.48

1.024

13766673

10572605

4.186

4.19

3.835

2453171

1669340

0.698

0.75

0.606

fixed assets Other assets TOTAL ASSETS LIABILITIES Bills payable Borrowings from financial institutions Deposits and other accounts Sub-ordinate loans Liabilities against assets subject to finance lease Deferred tax liability Other liabilities TOTAL LIABILITIES

Shareholders Equity Share capital 7995000 Reserves 3166056 Unappropriated 3447467 profit 14608523 Surplus on revaluation of

2436216

assets - net of tax 55 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 TOTAL EQUITY

17044739

16219844

12241945

4.884

4.93

4.441

VERTICAL ANALYSIS BANK AL FALAH LIMITED PROFIT & LOSS ACCOUNT AS ON DEC 31 2008, 2007 & 2006 2008 Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income Provision against nonperforming loans and advances - net Provision for diminution in value of investment Bad debts written off directly Net mark-up / interest income after provisions Non mark-up / interest

2007

2006 Vertical Analysis (Rupees in ‘000’) 2008 2007

2006

31046583

25783871

21191470

100

100

100

20331194

16620963

15232886

65.486

64.46

71.882

10715389

9162908

5958584

34.514

35.54

41.23

2035997

2370867

697690

6.55

9.195

3.2923

4.76

0

0

1479062 28298

5844

1537

0.091

0.023

0.0073

3,543,357

2,376,711

699,227

11.413

9.218

3.2996

7,172,032

6,786,197

5,259,357

23.101

26.32

24.818

2,539,321

2,429,599

1,804,998

8.1791

9.423

8.5176

300,943

64,722

37,393

0.9693

0.251

0.1765

income Fee, commission and brokerage income Dividend income

56 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 Income from dealing in

914,845

474,510

386,997

2.9467

1.84

1.8262

424,220

2053192

180751

1.3664

7.963

0.8529

181,571

21530

27599

0.5848

0.084

0.1302

1,247,669

1,031,372

842,099

4.0187

4

3.9738

5,245,427

6,038,466

3,224,639

16.895

23.42

15.217

12,417,459

12,824,663

8,483,996

1357.3

2703

2192.3

expense Administrative expenses Provisions against off-

10,741,399

8,272,587

5,874,745

5915.8

38424

21286

balance sheet obligations Other charges Total non mark-up /

28,582

6,959

0

2.2908

0.042

0

122,758

9,565

43,306

2.3403

0.058

1.343

10,622,739

8289111

5,918,051

85.547

49.87

69.755

1,794,720

4,535,552

2,565,945

1726810 0 321487 1405323 3130229

476226 100874 427902 803254 1962691

27.29 0 6.697 0 1.247 5.45 12.14

12.108 0

1730051 221797 1014835 493419 1301301

5.7807 0 5.5724 0.7144 3.2687 1.5893 4.1914

4851840

2823072

1886845

24586

24585

26074

0.0792

0.095

0.123

6177727

5977886

3675610

19.898

23.18

17.345

foreign currencies Gain on sale of securities Unrealized loss on revaluation of investments classifies as held for trading Other income Total non-mark-up / interest income Non mark-up / interest

interest expenses Profit before taxation Taxation - Current - Prior years - Deferred Profit after taxation Attributable to: Unappropriated profit brought forward Transferred from surplus on revaluation of fixed assets - net of tax Profit available for appropriation

3. Review of Descriptive Information 57 Sheikh Waqas Ahmed Mc070400479

0.476 2.0192 3.7905 9.2617

Final Project Finance FIN 619 Habib Bank Limited: These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards issued by the International Accounting Standards Board as are notified under the Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, 1984 and Banking Companies Ordinance, 1962 and the directives issued by State Bank of Pakistan (SBP). In case the requirements of provisions and directives issued under the Companies Ordinance, 1984 and Banking Companies Ordinance, 1962 and the directives issued by SBP differ, the provisions of and directives issued under the Companies Ordinance, 1984 and Banking Companies Ordinance, 1962 and the directives issued by SBP shall prevail. Amended IAS 27 Consolidated and Separate Financial Statements (effective for annual periods beginning on or after 1 July 2009) requires accounting for changes in ownership interest by the group in a subsidiary, while maintaining control, to be recognized as an equity transaction. When the group loses control of subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognized in the profit or loss. The application of the standard is not likely to have an effect on the Group's financial statements. The auditors conducted their audit in accordance with the auditing standards as applicable in Pakistan. These standards require that they plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. And in their opinion the consolidated financial statements present fairly the financial position of Habib Bank Limited as at December 31, 2006, 2007 & 2008 and the results of its operations, its cash flows and changes in equity for the year then ended in accordance with the approved accounting standards as applicable in Pakistan. Bank Al Falah Limited: The financial statements prepared by the management, present fairly its state of affairs, the results of its operating cash flow and changes in equity. All directors of the company are registered as tax payers and none of them has default in payments of any loan to a banking company. The auditors perform their audit in accordance with the auditing 58 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 standards as applicable in Pakistan. These standards require that they plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. And in their opinion the consolidated financial statements present fairly the financial position of Habib Bank Limited as at December 31, 2006, 2007 & 2008 and the results of its operations, its cash flows and changes in equity for the year then ended in accordance with the approved accounting standards as applicable in Pakistan. The board of directors through its sub committee called Board Risk Management Committee (BRMC) oversees the overall risk of the bank. RMD is the organizational arm performing the functions of identifying, measuring, monitoring and controlling the various risks and assists the Apex level committee and the various sub- committees in conversion of policies into action. Credit risk Management processes encompasses identification, assessment, measurement, monitoring and control of the credit exposures. The bank, as per State Bank of Pakistan Guidelines, has migrated to baseII as on January, with the standardized approach.

4. Comparisons Financial trend analysis is an applied, practical approach for monitoring the financial condition of any company through the use of financial indicators. I shall use technique to compare previous three-year period data and observes how they change. This would permit an assessment of the current financial condition. a) Trend Analysis

A firm's present ratio is compared with its past and expected future ratios to determine whether the company's financial condition is improving or deteriorating over time. Trend analysis studies the financial history of a firm for comparison. By looking at the trend of a particular ratio, one sees whether the ratio is falling, rising, or remaining relatively constant. This helps to detect problems or observe good management.

59 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 TREND ANALYSIS HABIB BANK LIMITED FOR THE YEARS 2006, 2007 & 2008 Performance Area

2006

2007

2008

1.20

1.19

1.16

0.5 times

0.5 times

0.6 times

95155274

104938111

100006655

2.43

1.79

1.83

0.91

0.91

0.9

11.88

11.42

9.58

1.78

1.66

1.33

0.56

0.53

0.42

0.26

0.33

0.51

0.02

0.008

0.0083

29.07%

19.97%

24.66%

57.9%

48%

59.6%

Trend

a) Liquidity Ratios Current Ratio Sales to Working Capital Working Capital

Lower liquidity in 2008 Increase in 2008 Lower liquidity in 2008

b) Leverage Ratios Time Interest Earned Debt Ratio Debt to Equity Ratio Current Worth / Net worth Ratio Total Capitalization Ratio Long term Assets versus Long term Debt Debt Coverage Ratio

Lower since 2008 Leverage remain same Drops in leverage in 2008 Higher in 2006 Lower during 2008 Drops in leverage in 2006 Lower coverage in 2006

c) Profitability Ratios Net Profit Margin Operating Income Margin

60 Sheikh Waqas Ahmed Mc070400479

Lower profitability during 2007 Increased Profitability since 2008

Final Project Finance FIN 619 Return on Assets Operating Assets Turnover Return on Operating Assets Sales to Fixed Assets

2.27%

1.57%

2.15%

192.7%

192.7%

174.70%

13.48%

10.37%

11.19%

3.65 times

3.66 times

3.66 times

0.07

0.07

0.08

1.0019

2.0014

3.597

18.41

14.61

20.57

0.54

0.68

0.49

0.0544

0.137

0.175

0.10019

0.20014

0.3597

6.5

7.98

9.39

0.033

0.089

0.027

25.87

81.48

24.02

Lower ROA during 2007 Lower efficiency since 2008 Lower efficiency in 2007 No change in last 3 years

d) Activity Ratios: Total Asset Turnover

Higher efficiency since 2008

e) Market Ratios: Dividend per Share – DPS Earning Per Share- EPS Price / Earning Ratio Dividend Payout Ratio Dividend Yield Book Value per Share

Good market perceptions Higher In 2008 Lower in 2008 Good market perceptions Lower in 2006 Good market perceptions

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

61 Sheikh Waqas Ahmed Mc070400479

Lower in 2006 Increased during 2007

Final Project Finance FIN 619

TREND ANALYSIS BANK AL FALAH LIMITED FOR THE YEARS 2006, 2007 & 2008 Performance Area

2006

2007

2008

Trend

1.06

1.10

1.06

1.38

0.85

1.57

Increase in 2008

15276529

30128884

19741302

Lower liquidity in

a) Liquidity Ratios Current Ratio Sales to Working Capital Working Capital

Higher liquidity in 2007

2006 b) Leverage Ratios Time Interest Earned

1.16

1.27

1.08

0.95

0.95

0.95

Debt to Equity Ratio

24.91

22.71

22.72

Current Worth / Net worth

1.247

Ratio Total Capitalization Ratio

0.56148790

0.65233950

9

9

1.01

0.46

Debt Ratio

Lower since 2008 Leverage remain same Drops in leverage in 2008

Long term Assets versus

1.85

Long term Debt

1.15

Higher during 2007

0.5299458

Increased during 2007

0.63

Higher during leverage in 2006

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0.05532186

0.04835063

9

3

0.0508531

Lower coverage in 2007

c) Profitability Ratios Net Profit Margin Operating Income Margin

0.08%

0.12%

0.68773860

0.58633744

4

3

0.04% 0.5437148

Lower profitability during 2006 Increased Profitability since 2006

Return on Assets

Operating Assets Turnover Return on Operating Assets Sales to Fixed Assets

0.01277618

0.01035504

5

1

2.41%

2.31%

2.19%

0.034

0.052

0.019

2.017 times

2.16 times

2.25 times

0.07

0.07

0.08

00

00

3.525

4.815

1.627

Higher In 2007

0.54

0.68

0.49

Lower in 2008

00

00

0.74

00

00

0.121

2.11

2.11

1.82

0.0038393

Lower ROA during 2007 Lower efficiency since 2008 Lower efficiency in 2008 Lower in 2006

d) Activity Ratios: Total Asset Turnover

Higher efficiency since 2008

e) Market Ratios: Dividend per Share – DPS Earning Per Share- EPS Price / Earning Ratio Dividend Payout Ratio Dividend Yield Book Value per Share

63 Sheikh Waqas Ahmed Mc070400479

1.21

Dividend announced just in 2008

Good market perceptions No Dividend in 2006 & 2007 Good market perceptions

Final Project Finance FIN 619 f) Statement of cash flow Operating Cash Flow to Total Debt Operating Cash Flow per Share

0.029

0.126

0.007

15.70

60.99

3.12

Lower in 2008 Increased during 2007

b) Industry Averages and Comparisons with Competitors The entire ratio has been compared through above mentioned comparisons and analysis. Which include horizontal analysis, vertical analysis and trend analysis c) Summary Financial Statement Analysis is a method used by interested parties such as investors, creditors, and management to evaluate the past, current, and projected conditions and performance of the firm. This report mainly deals with the insight information of the two mentioned companies. In the current picture where financial volatility is endemic and financial intuitions are becoming popular, when it comes to investing, the sound analysis of financial statements is one of the most important elements in the fundamental analysis process. At the same time, the massive amount of numbers in a company's financial statements can be bewildering and intimidating to many investors. However, through financial ratio analysis, I tried to work with these numbers in an organized fashion and presented them in a summarizing form easily understandable to both the management and interested investors. It is required by law that all private and public limited companies must prepare the financial statements like, income statement, balance sheet and cash flow statement of the particular accounting period. The management and financial analyst of the company analyze the financial statements for making any further financial and administrative decisions for the betterment of the company. Therefore, I select this topic, so that I have done some solid financial analysis that will certainly help the management of review their performance and also assist the interested people like investors and creditors. That as a financial analyst how can I make any important financial decision by analyzing the financial statements of the company. Because, it is the primary responsibility of the 64 Sheikh Waqas Ahmed Mc070400479

Final Project Finance FIN 619 financial managers or financial analyst to manage the financial matters of the company by evaluating the financial statements. I am also providing some important suggestions and opinions about the financial matters of the business. d) Conclusion / Findings: I compare and analysis the financial statements of Habib Bank Limited and Bank Al Falah Limited.  Liquidity position of both companies is not up to standard, both are below industry average, but the liquidity position of Habib Bank is better from Bank AL Falah Limited. Working capital of Habib Bank is better than Bank La Falah, but both companies must improve their liquidity position.  Leverage ratios indicate the high risk associated with both the companies. Generally leverage ratios, measures the percentage of funds provided by the creditors. The proportion of a firm’s total assets is being financed with high percentage of borrowed funds.  Profitability ratios of Habib Bank Limited are better than Bank AL Falah Limited. Net profit of Bank Al falah Limited is low due to heavy financial charges.  Habib Bank has a good market perception due to continuous declaration of dividends but on the other hand Bank LA Falah limited has not announced in dividend in the year 2006 and 2007.  Book value per share of Habib Bank Limited is much higher than the Al Falah Bank. It is the Indication of the net worth of the corporation. Somewhat similar to the earnings per share, but it relates the stockholder's equity to the number of shares outstanding, giving the shares a raw value. So the net worth of Habib Bank is better than Al Falah Bank.  Earning per Share and Operating cash flow of Habib Bank Limited is also better than Bank AL Falah Limited.

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e) Recommendation This section deals with your proposed solutions or plans to cover and remove all the ills and deficiencies that you think (in light of data processing and analysis) needs to be removed or improved. Recommendations should be vivid, lucid and based on your findings. They must be logical and applicable.

Section II a) Introduction of the student � B.com (2 Years) � Warsan Homoeopathic Laboratories � Assistant Accounts Officer � 2 Years Experience

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b) Appendix/Appendices

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c) Bibliography •

Vu hand Outs

•

Internet sources

•

www.investopedia.com

•

www.bankalhabib.com

•

www.habibbankltd.com

•

http://www.canadaone.com/tools/ratios/debt_equity.html

•

Financial Statement Analysis: A Practitioner's Guide, 3rd Edition.

•

Ross, S.A., R.W. Westerfield and B.D. Jordan. Essentials of Corporate Finance (1999), 2nd Edition, Irwin/McGraw-Hill.

•

Ross, S.A., R.W. Westerfield and J. Jaffe. Corporate Finance (1999), 5th Edition, Irwin/McGraw-Hill.

•

Scott, D.F., J.D. Martin, J.W. Petty and A. Keown. Basic Financial Management (1999), 8th Edition, Prentice-Hall, Inc.

d) Index An index is an alphabetical list of names, places and subjects mentioned in the report, along with the page on which they occur. They are rarely included in unpublished reports.

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