Background study on financial statements

The main objective of this chapter is to introduce the researcher' s topic and its content include : background of the study, statement of the problem, objectives of the study, hypothesis, research questions, significance of the study, scope of the study and organisation of the study.

Liquidity indicates the ability of the bank to meet its financial obligations in a timely and effective manner.

need for financial statement analysis

However, this doesn't mean that all banks are profitable, there are banks declaring losses Oloo, Their study indicated that capitalization affects the operation of financial capitalization affects the operation of financial institution. The main sources of funds of these banks are private domestic deposit and credit market borrowing.

project report on financial analysis of a company pdf

Thus, the higher the ROE the better the company is in terms of profit generation. A firm should ensure that it does not suffer from lack of liquidity, and it does not have excess liquidity.

The economy of every country aims at a substantial increase in its productive power and better levels of living for its people. Each item in the statement is shown as a base figure of another item in the statement, for a given time period, usually for year.

Effective means producing the results that is wanted or intended; producing a successful result. This intends to capture the liquidity mismatch of assets and liabilities and provides an indication of the extent to which banks could meet short term withdrawal of funds without facing liquidity problems.

Horizontal analysis advantages and disadvantages

These include owners, investors, creditors, government, employees, customers, and the general public. Generally the credit risk is associated with traditional lending activities of banks and it is simply described as risk a loan not being repaid in part or in full. Ratios express the numerical relationship between two or more things. These components help to depict the true picture of the business by relating the items of the components of the financial statements. A low liquidity ratio in one financial institution could affect the entire system. This intends to capture the liquidity mismatch of assets and liabilities and provides an indication of the extent to which banks could meet short term withdrawal of funds without facing liquidity problems. They normally perform this duty by accepting deposits from customers and allowing writing cheques and lending money to individuals, business, non-profit making organizations, government and other organizations. It essentially is a measure of a company's ability to remain in business. Capital adequacy ratio is directly proportional to the resilience of the bank to crisis situations. Paul A. For example, certain expenditures that are high currently, but were well under budget in previous years may cause the management to investigate the cause for the rise in costs; it may be due to switching suppliers or using better quality raw material. Commercial banks could also have additional social and economic goals.

It is different from the market value of equity stock market capitalization which is calculated as follows: number of shares outstanding multiplied by the current share price.

Other risks may concern country risk, regulation risk and so on.

Introduction of financial statement analysis

Kwan and Eisenbeis observed that Asset Quality is commonly used as a risk indicator for financial institutions, which also determines the reliability of capital ratios. Net profit margin: This ratio calculates the amount of profit that the company has earned after taxes and all expenses have been deducted from net sales. Chapter three contains the methodology used while carrying out the research and tools used in collecting data which are analyzed and interpreted and deals also with the profile of the case study. This analysis helps the management to have an insight into levels and areas of strength and weaknesses. A business that has a high return on equity is more likely to be one that is capable of generating cash internally. This is however done with the help of accounting ratios, which is a big challenge to most countries having shortage of professional accountants as it is the case to our country. Financial performance analysis can be classified into different categories on the basis of material used and modes operandi as under: A. Typically, this analysis means that every item on an income and loss statement is expressed as a percentage of gross sales, while every item on a balance sheet is expressed as a percentage of total assets held by the firm. It is also called the statement of financial position. These classifications of bank risks sum up the risks that banks incur, yet it does not embrace one of the key types of risks that a bank faces, which is liquidity risk. The loan portfolio quality has A direct bearing on bank profitability. Because of the wide range of services they provide, they are useful to business people. It sets to find out their findings, ideas, arguments and observations that will be available to this study. More often than not the loan of a bank is the major asset that generates the major share of the banks income. Peter and Rose , Commercial banks are financial institutions that accept demand deposits and make commercial loans to the government and private individuals.

Quality of services: it can be difficult to quantify the quality of services rendered by banks; therefore, some sort of surrogate measure may be used.

To provide suggestion for further improvement.

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Financial Statement Analysis: An Introduction