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← Cross Sectional and Trend Analysis

Return on Asset

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Return on Asset (ROA) measures how effectively the firm’s assets are used to generate profits net of expenses. This is an extremely useful measure of comparison among firm’s competitive performance, for it is the job of managers to utilize the assets of the firm to produce profits. If ROA decreases from previous year to the current year then it shows, that there might be some investment activity has been taken place with in the premises of the organization. ROA is computed by dividing the net income with the total assets. Award one point if the figure comes in positive of the most recent year.

RETURN ON ASSETS (ROA)

 

 

 

 

 

 

Year

2009

2008

2007

2006

2005

ROA %

1.27

6

8

9.8

6.09

Fluctuations and volatility has been observed in the ROA graph of the Company. Likewise the net income, the ROA graph of the company also envisaged a declining trend with the passage of time, as it was almost 10% in the year 2005 and deteriorated by 2% FY 2006 and 2007, but a sharp decline has been envisage in the figure of the year 2008 due to the severe financial crisis and culminated oil prices.

RETURN ON EQUITY:

In real sense, ordinary shareholders are the real owners of the company. They assume the highest risk in the company. The rate of dividend varies with the availability of profits in case of ordinary shares only. Therefore ordinary share holders are more interested in the profitability of a company and the performance, which should be judged on the basis of return on equity capital of the company.

RETURN ON EQUITY (ROE)

 

 

 

 

 

 

Year

2009

2008

2007

2006

2005

ROE %

4.29

14.89

21.58

29.46

22.80

If the net income of a company manifest a positive figure than it means that the company has enough surpluses in their statutory reserves to facilitate their shareholders in a proficient manner. The ROE of the Company was stagnate in three consecutive years of 2004, 2005 and 2006 where the company has the ROE growth of above 20% which really is a big ask. In the year 2006, the company’s ROE ratio was declined little bit by 7% due to the decrement in the net income. In the year 2008 the company’s ROE came in the single figure due to the high oil prices and financial crisis, but it is really appreciable that the company still managed to keep their ROE level in the positive node.

CURRENT RATIO:

Current ratio shows a company’s ability to meet short term obligations or short term financial promises. The higher the ratio than it means the company has a higher liquidity. Now let’s have glance over the current ratios of all the three banks. Award one point if the CR’s figure manifests a positive result.

CURRENT RATIO (CR)

 

 

 

 

 

 

YEAR

2008

2007

2006

2005

2004

Current Ratio

1.23

1.50

1.43

1.63

1.51

As per the prudential regulations, the company is in impeccable position, whose CR is 1:1. From the table, we can see that not a single year meet with the prudential regulations. The logic behind these financial numbers is not an illusive one, like in the year 2004 the CR was 1.5, which means that company have only one asset on their name and rest of the 5 assets were being bought by creating a liability. It is said for the current ratio that if it is low, than it would be good for the organization. The least CR of the company was the lowest in the year 2008, which showed that the company has one asset from their income and 2 on the liability, which mean that the entity is in less distress of liability. From the investor analysis it is good that the company is not under the dismay of liability, which directly related with their dividend.

Recommendations for the Investor. To invest in a company, a company must have some sort of positive signs but in this analysis, we have not found any positive or increasing signs either in the analysis of the income statement or balance sheet as both the statements show negative trends. So according to my analysis, I will not recommend my customer to buy the stocks of the company or to invest in the company. The investors have to wait for the right time to come and then invest in the company.

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