INTRODUCTION
Profile
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At April 4, 2005, ICICI Bank, with free float market capitalization of about Rs. 308.00 billion (US$ 7.00 billion) ranked third amongst all the companies listed on the Indian stock exchanges. ICICI Bank was originally promoted in 1994 by ICICI Limited, an In dian financial institution, and was its wholly-owned subsidiary ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs
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listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at t h e initiative of the World Bank, the G o v e r n m e n t o f I n d i a a n d representatives of Indian industry.
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The principal objective was to create a development financial institution for providing medium-term and longterm project financing to Indian businesses. In the 1990s,I C I C I t r a n s f o r m e d i t s b u s i n e s s f r o m a d e v e l o p m e n t f i n a n c i a l institution offering only project finance to a diversified f i n a n c i a l services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities, and would create the optimal legal structure for the ICICI group's un iversal banking strategy.
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The merger would enhance value for ICICI shareholders through the merged entity's access to low-cost deposits, greater opportunities for earning feebased income and the ability to participate in the payments system and provide transaction-banking services. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations, seamless access to ICICI's strong corporate relationships built up over five decades, entry into new business segments, higher market share in various business segments, particularly fee-based services, and access to the vast talent pool of ICICI and its subsidiaries. In O c t o b e r 2 0 0 1 , t h e B o a r d s o f D i r e c t o r s o f I C I C I a n d I C I C I B a n k approved the merger of ICICI and two of its wh olly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Bank in January 2002,by the High Court of Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002.
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Consequent to the merger, the ICICI group's financing and banking operations, both wholesale and retail, have been integrated in a single entity.
VISION AND MISSION
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OF ICICI BANK
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Vision and Mission of ICICI Bank Ltd.
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We will leverage our people, technology, speed and financial capital to:
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Be the banker of first choice for our customers by delivering high quality, world-class products and services. Expand the frontiers of our business globally. Play a proactive role in the full realization of India’s potential. Maintain a healthy financial profile and diversify our earnings across businesses and geographies. Maintain high standards of governance and ethics. Contribute positively to the various countries and marketsin which we operate. Create value for our stakeholders.
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HISTORY
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ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an allstock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and
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representatives of Indian industry. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business f r o m a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE. A f t e r c o n s i d e r a t i o n o f v a r i o u s corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities, and would create the optimal legal structure for the ICICI group's universal banking strategy. The merger would enhance value for ICICI shareholders through the merged entity's access to low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transaction-banking services. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations, seamless access to ICICI's strong corporate relationships built up over five decades, entry
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into new business segments, higher market share in various business segments, particularly fee-based services, and access to the vast talent pool of ICICI and its subsidiaries. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Banking January 2002, by the High Citst of Gujarat at Ahmedabad in March 2002, and by the High Citst of Judicature at Mumbai and the Reserve Bank of India in April 2002. Consequent to the merger, the ICICI group's financing and banking operations, both wholesale and retail, have been integrated in a single entity. ICICI Bank has formulated a Code of Business Conduct and Ethics for its directors and employees
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AWARDS IN 2009
ICICI Bank
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For the third year in a row ICICI Bank has won The Asset Triple A Country Awards for Best Domestic Bank in India ICICI Bank won the Most Admired Knowledge Enterprises (MAKE)India 2009 Award. ICICI Bank won the first place in "Maximizing Enterprise Intellectual Capital" category, October 28, 2009
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Ms Chanda Kochhar, MD and CEO was awarded with the Indian B u s i n e s s W o m e n L e a d e r s h i p A w a r d a t N D T V P r o f i t B u s i n e s s Leadership Awards , October 26, 2009. ICICI Bank received two awards in CNBC Awaaz Consumer Awards; one for the most preferred auto loan and the other for most preferred credit Card, on September 30, 2009Ms. Chanda Kochhar, Managing Director & CEO ranked in the top 20of the World's 100 Most Powerful Women list compiled by Forbes, August 2009 Financial Express at its FE India's Best Banks Awards, honoured Mr.K.V. Kamath, Chairman with the Lifetime Achievement Award , July25, 2009 ICICI Bank won Asset Triple A Investment Awards for the Best D e r i v a t i v e H o u s e , India. In addition ICICI Bank were Highly commended , Local Currency Structured product, India for 1.5 year ADR GDR linked Range Accrual Note., July 2009ICICI bank won in three categories at World finance Banking awards on June 16, 2009Best NRI Services bank Excellence in Private Banking, APAC Region Excellence in Remittance Business, APAC Region ICICI Bank Mobile Banking was adjudged "Best Bank Award for Initiatives in Mobile Payments and Banking" by IDRBT, on May 18,2009 in Hyderabad. ICICI Bank'sb2 branch free banking was adjudged "Best E-Banking Project Implementation Award 2008" by The Asian Banker, on May11, 2009 at the China World Hotel in Beijing.
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ICICI Bank bags the "Best bank in SME financing (Private Sector)" at the Dun & Bradstreet Banking awards 2009.ICICI Bank NRI services wins the "Excellence in Business Model Innovation Award" in the eighth Asian Banker Excellence in Retail Financial Services Awards Programme. ? ICICI Bank's Rural Micro Banking and Agr iBusiness Group wins WOW Event & Experiential Marketing Aw ard in two categories -"Rural Marketing programme of the year" and "Small Budget On Ground Promotion of the Year". These awards were given for Cattle Loan 'Kamdhenu Campaign' and "Talkies on the move campaign' respectively. ?ICICI Bank's Germany Branch has been c e r t i f i e d b y " S t i f t u n g Warrentest". ? ICICI Bank is ranked 2nd amongst 57 savings products across 19 banks ICICI Bank Germany won the yearly banking test of the investor magazine €uro in the "call money “category. ? The ICICI Bank was awarded the runner's up position in Gartner Business Intelligence and Excellence Award for Asia Pacific for its Business Intelligence functions. ? ICICI Bank's Organisational Excellence Group was recently awarded ISO 9001:2008 certification by TUV Nord. ? The scope of certification comprised processes around consulting and capability building on methods of quality & improvements.
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ICICI Bank has been awarded the following titles under The Asset Triple A Country Awards for 2009:
• Best Transaction Bank in India • Best Trade Finance Bank in India • Best Cash Management Bank in India • Best Domestic Custodian in India ICICI Bank has bagged the Best Cash Management Bank in India award for the second year in a row. The other awards have been bagged for the third year in a row. ? ICICI Bank Canada received the prestigious Canadian Helen Keller Award at the Canadian Helen Keller Centre's Fifth Annual Luncheon in Toronto. ? The award was given to ICICI Bank its longstanding support to this unique training centre for people who are deaf-blind
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INTRODUCTION OF RATIO ANALYSIS
? It refers to the systematic use of ratios to interpret the financial statements in terms of the operating performance and financial position of a firm. ? It involves comparison for a meaningful interpretation of the financial statements.
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? In view of the needs of various uses of ratios the ratios, which can be calculated from the accounting data are classified into the following broad categories A. B. C. D. Liquidity Ratio Turnover Ratio Solvency or Leverage ratios Profitability ratios
A. LIQUIDITY RATIO It measures the ability of the firm to meet its short-term obligations, that is capacity of the firm to pay its current liabilities as and when they fall due. Thus these ratios reflect the short-term financial solvency of a firm. A firm should ensure that it does not suffer from lack of liquidity. The failure to meet obligations on due time may result in bad credit image, loss of creditors confidence, and even in legal proceedings against the firm on the other hand very high degree of liquidity is also not desirable since it would imply that funds are idle and earn nothing. So therefore it is necessary to strike a proper balance between liquidity and lack of liquidity. The various ratios that explains about the liquidity of the firm are 1. Current Ratio 2. Acid Test Ratio / quick ratio 3. Absolute liquid ration / cash ratio
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1. CURRENT RATIO The current ratio measures the short-term solvency of the firm. It establishes the relationship between current assets and current liabilities. It is calculated by dividing current assets by current liabilities. Current Ratio = Current Asset Current Liabilities Current assets include cash and bank balances, marketable securities, inventory, and debtors, excluding provisions for bad debts and doubtful debtors, bills receivables and prepaid expenses. Current liabilities includes sundry creditors, bills payable, short- term loans, income-tax liability, accrued expenses and dividends payable. 2. ACID TEST RATIO / QUICK RATIO It has been an important indicator of the firm’s liquidity position and is used as a complementary ratio to the current ratio. It establishes the relationship between quick assets and current liabilities. It is calculated by dividing quick assets by the current liabilities. Acid Test Ratio = Quick Assets Current liabilities Quick assets are those current assets, which can be converted into cash immediately or within reasonable short time without a loss of value. These include cash and bank
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balances, sundry debtors, bill’s receivables and short-term marketable securities. 3. ABSOLUTE LIQUID RATION / CASH RATIO It shows the relationship between absolute liquid or super quick current assets and liabilities. Absolute liquid assets include cash, bank balances, and marketable securities. Absolute liquid ratio = Absolute liquid assets Current liabilities
B. TURNOVER RATIO Turnover ratios are also known as activity ratios or efficiency ratios with which a firm manages its current assets. The following turnover ratios can be calculated to judge the effectiveness of asset use. 1. Inventory Turnover Ratio 2. Debtor Turnover Ratio 3. Creditor Turnover Ratio 4. Assets Turnover Ratio 1. INVENTORY TURNOVER RATIO This ratio indicates the number of times the inventory has been converted into sales during the period. Thus it evaluates the efficiency of the firm in managing its inventory. It is calculated by dividing the cost of goods sold by average inventory.
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Inventory Turnover Ratio = Cost of goods sold Average Inventory The average inventory is simple average of the opening and closing balances of inventory. (Opening + Closing balances / 2). In certain circumstances opening balance of the inventory may not be known then closing balance of inventory may be considered as average inventory 2. DEBTOR TURNOVER RATIO This indicates the number of times average debtors have been converted into cash during a year. It is determined by dividing the net credit sales by average debtors. Debtor Turnover Ratio = Net Credit Sales Average Trade Debtors Net credit sales consist of gross credit sales minus sales return. Trade debtor includes sundry debtors and bill’s receivables. Average trade debtors (Opening + Closing balances / 2) When the information about credit sales, opening and closing balances of trade debtors is not available then the ratio can be calculated by dividing total sales by closing balances of trade debtor Debtor Turnover Ratio = Total Sales Trade Debtors
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3. CREDITOR TURNOVER RATIO It indicates the number of times sundry creditors have been paid during a year. It is calculated to judge the requirements of cash for paying sundry creditors. It is calculated by dividing the net credit purchases by average creditors. Creditor Turnover Ratio = Net Credit Purchases Average Trade Creditor Net credit purchases consist of gross credit purchases minus purchase return When the information about credit purchases, opening and closing balances of trade creditors is not available then the ratio is calculated by dividing total purchases by the closing balance of trade creditors. Creditor Turnover Ratio = Total purchases Total Trade Creditors
4. ASSETS TURNOVER RATIO The relationship between assets and sales is known as assets turnover ratio. Several assets turnover ratios can be calculated depending upon the groups of assets, which are related to sales.
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a) b) c) d) e)
Total asset turnover. Net asset turnover Fixed asset turnover Current asset turnover Net working capital turnover ratio
a. TOTAL ASSET TURNOVER This ratio shows the firms ability to generate sales from all financial resources committed to total assets. It is calculated by dividing sales by total assets. Total asset turnover = Total Sales Total Assets b. NET ASSET TURNOVER This is calculated by dividing sales by net assets. Net asset turnover = Total Sales Net Assets Net assets represent total assets minus current liabilities. Intangible and fictitious assets like goodwill, patents, accumulated losses, deferred expenditure may be excluded for calculating the net asset turnover. c. FIXED ASSET TURNOVER This ratio is calculated by dividing sales by net fixed assets. Fixed asset turnover = Total Sales Net Fixed Assets
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Net fixed assets represent the cost of fixed assets minus depreciation. d. CURRENT ASSET TURNOVER It is divided by calculating sales by current assets Current asset turnover = Total Sales Current Assets e. NET WORKING CAPITAL TURNOVER RATIO A higher ratio is an indicator of better utilization of current assets and working capital and vice-versa (a lower ratio is an indicator of poor utilization of current assets and working capital). It is calculated by dividing sales by working capital. Net working capital turnover ratio = Total Sales Working Capital Working capital is represented by the difference between current assets and current liabilities.
C. SOLVENCY OR LEVERAGE RATIOS The solvency or leverage ratios throws light on the long term solvency of a firm reflecting it’s ability to assure the long term creditors with regard to periodic payment of
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interest during the period and loan repayment of principal on maturity or in predetermined instalments at due dates. There are thus two aspects of the long-term solvency of a firm. a. b. Ability to repay the principal amount when due Regular payment of the interest.
The ratio is based on the relationship between borrowed funds and owner’s capital it is computed from the balance sheet, the second type are calculated from the profit and loss a/c. The various solvency ratios are 1. 2. 3. 4. 5. 6. Debt equity ratio Debt to total capital ratio Proprietary (Equity) ratio Fixed assets to net worth ratio Fixed assets to long term funds ratio Debt service (Interest coverage) ratio
1. DEBT EQUITY RATIO Debt equity ratio shows the relative claims of creditors (Outsiders) and owners (Interest) against the assets of the firm. Thus this ratio indicates the relative proportions of debt and equity in financing the firm’s assets. It can be calculated by dividing outsider funds (Debt) by shareholder funds (Equity) Debt equity ratio = Outsider Funds (Total Debts) Shareholder Funds or Equity
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The outsider fund includes long-term debts as well as current liabilities. The shareholder funds include equity share capital, preference share capital, reserves and surplus including accumulated profits. However fictitious assets like accumulated deferred expenses etc should be deducted from the total of these items to shareholder funds. The shareholder funds so calculated are known as net worth of the business. 2. DEBT TO TOTAL CAPITAL RATIO Debt to total capital ratio = Total Debts Total Assets 3. PROPRIETARY (EQUITY) RATIO This ratio indicates the proportion of total assets financed by owners. It is calculated by dividing proprietor (Shareholder) funds by total assets. Proprietary (equity) ratio = Shareholder funds Total assets 4. FIXED ASSETS TO NET WORTH RATIO This ratio establishes the relationship between fixed assets and shareholder funds. It is calculated by dividing fixed assets by shareholder funds. Fixed assets to net worth ratio = Fixed Assets X 100 Net Worth The shareholder funds include equity share capital, preference share capital, reserves and surplus including
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accumulated profits. However fictitious assets like accumulated deferred expenses etc should be deducted from the total of these items to shareholder funds. The shareholder funds so calculated are known as net worth of the business. 5. FIXED ASSETS TO LONG TERM FUNDS RATIO Fixed assets to long term funds ratio establishes the relationship between fixed assets and long-term funds and is calculated by dividing fixed assets by long term funds. Fixed assets to long term funds ratio = Fixed Assets X 100 Long-term Funds 6. DEBT SERVICE (INTEREST COVERAGE) RATIO This shows the number of times the earnings of the firms are able to cover the fixed interest liability of the firm. This ratio therefore is also known as Interest coverage or time interest earned ratio. It is calculated by dividing the earnings before interest and tax (EBIT) by interest charges on loans. Debt Service Ratio = Earnings before interest and tax (EBIT) Interest Charges PROFITABILITY RATIOS
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The profitability ratio of the firm can be measured by calculating various profitability ratios. General two groups of profitability ratios are calculated. a. Profitability in relation to sales. b. Profitability in relation to investments. Profitability in relation to sales 1. Gross profit margin or ratio 2. Net profit margin or ratio 3. Operating profit margin or ratio 4. Operating Ratio 5. Expenses Ratio 1. GROSS PROFIT MARGIN OR RATIO It measures the relationship between gross profit and sales. It is calculated by dividing gross profit by sales. Gross profit margin or ratio = Gross profit X 100 Net sales Gross profit is the difference between sales and cost of goods sold. 2. NET PROFIT MARGIN OR RATIO It measures the relationship between net profit and sales of a firm. It indicates management’s efficiency in manufacturing, administrating, and selling the products. It is calculated by dividing net profit after tax by sales. Net profit margin or ratio = Earning after tax X 100 Net Sales
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3. OPERATING PROFIT MARGIN OR RATIO It establishes the relationship between total operating expenses and net sales. It is calculated by dividing operating expenses by the net sales. Operating profit margin or ratio = Operating expenses X 100 Net sales Operating expenses includes cost of goods produced/sold, general and administrative expenses, selling and distributive expenses. 4. EXPENSES RATIO While some of the expenses may be increasing and other may be declining to know the behavior of specific items of expenses the ratio of each individual operating expenses to net sales should be calculated. The various variants of expenses are Cost of goods sold = Cost of goods sold X 100 Net Sales Administrative Expenses Ratio = Administrative Expenses X 100 Net sales Selling and distribution expenses ratio = Selling and distribution expenses X 100 5. OPERATING PROFIT MARGIN OR RATIO
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Operating profit margin or ratio establishes the relationship between operating profit and net sales. It is calculated by dividing operating profit by sales. Operating profit margin or ratio = Operating Profit X 100 Net sales Operating profit is the difference between net sales and total operating expenses. (Operating profit = Net sales – cost of goods sold – administrative expenses – selling and distribution expenses.) PROFITABILITY IN RELATION TO INVESTMENTS 1. Return on gross investment or gross capital employed 2. Return on net investment or net capital employed 3. Return on shareholder’s investment or shareholder’s capital employed. 4. Return on equity shareholder investment or equity shareholder capital employed.
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RETURN ON GROSS CAPITAL EMPLOYED This ratio establishes the relationship between net profit and the gross capital employed. The term gross capital employed refers to the total investment made in business. The conventional approach is to divide Earnings After Tax (EAT) by gross capital employed.
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Return on gross capital employed = Earnings After Tax (EAT) X 100 Gross capital employed 2. RETURN ON NET CAPITAL EMPLOYED It is calculated by dividing Earnings Before Interest & Tax (EBIT) by the net capital employed. The term net capital employed in the gross capital in the business minus current liabilities. Thus it represents the long-term funds supplied by creditors and owners of the firm. Return on net capital employed = Earnings Before Interest & Tax (EBIT) X 100 Net capital employed
3. RETURN ON SHARE CAPITAL EMPLOYED This ratio establishes the relationship between earnings after taxes and the shareholder investment in the business. This ratio reveals how profitability the owners’ funds have been utilized by the firm. It is calculated by dividing Earnings after tax (EAT) by shareholder capital employed.
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Return on share capital employed = Earnings after tax (EAT) X 100 Shareholder capital employed 4. RETURN ON EQUITY SHARE CAPITAL EMPLOYED Equity shareholders are entitled to all the profits remaining after the all outside claims including dividends on preference share capital are paid in full. The earnings may be distributed to them or retained in the business. Return on equity share capital investments or capital employed establishes the relationship between earnings after tax and preference dividend and equity shareholder investment or capital employed or net worth. It is calculated by dividing earnings after tax and preference dividend by equity shareholder’s capital employed. Return on equity share capital employed = Earnings after tax (EAT), preference dividends X 100 Equity share capital employed
EARNINGS PER SHARE It measure the profit available to the equity shareholders on a per share basis. It is computed by dividing earnings available to the equity shareholders by the total number of equity share outstanding
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Earnings per share = Earnings after tax – Preferred dividends (if any) Equity shares outstanding DIVIDEND PER SHARE The dividends paid to the shareholders on a per share basis in dividend per share. Thus dividend per share is the earnings distributed to the ordinary shareholders divided by the number of ordinary shares outstanding. Dividend per share = Earnings paid to the ordinary shareholders Number of ordinary shares outstanding DIVIDENDS PAY OUT RATIO (PAY OUT RATIO) It measures the relationship between the earnings belonging to the equity shareholders and the dividends paid to them. It shows what percentage shares of the earnings are available for the ordinary shareholders are paid out as dividend to the ordinary shareholders. It can be calculated by dividing the total dividend paid to the equity shareholders by the total earnings available to them or alternatively by dividing dividend per share by earnings per share. Dividend pay our ratio (Pay our ratio) = Total dividend paid to equity share holders Total earnings available to equity share holders Or Dividend per share Earnings per share
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DIVIDEND AND EARNINGS YIELD While the earnings per share and dividend per share are based on the book value per share, the yield is expressed in terms of market value per share. The dividend yield may be defined as the relation of dividend per share to the market value per ordinary share and the earning ratio as the ratio of earnings per share to the market value of ordinary share. Dividend Yield = Dividend Per share Market value of ordinary share Earnings yield = Earnings per share Market value of ordinary share PRICE EARNING RATIO The reciprocal of the earnings yield is called price earnings ratio. It is calculated by dividing the market price of the share by the earnings per share. Price earnings (P/E) ratio = Market price of share Earnings per share
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BALANCE SHEET
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OF ICICI BANK
PARTICULARS
2008 RS.CR
2009 RS.CR
CAPITALS & LIABILITIES OWNED FUND EQUITY SHARE CAPITAL 1,112.368 PREFENTIAL SHARE 350 CAPITAL RESERVES AND SURPLUS 45,357.53 LOAN FUNDS
1,113.29 350 48,419.73
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DEPOSITS BORROWING MADE BY BANK TOTAL ASSETS CASH AND BANK BALANCE WITH RBI MONEY AT CALL AT SHORT NOTICE INVESTMENTS ADVANCES FIXED ASSETS GROSS BLOCK ACCUMULATED DEPRECIATION NET BLOCK NET CURRENT ASSETS TOTAL
244,431.05 65,648.43 356,899.69 29,377.53 8663.60
218,347.82 67,323.69 335,554.53 17,536.33 12,430.23
111454.34 215060.94 7036.00 2927.11 4,108.89 31,129.77 356,899.69
103058.31 208090.41 7443.71 3,642.09 3,801.62 34,384.06 335,554.53
RATIO ANALYSIS
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OF ICICI BANK
CURRENT RATIO Formula: Current Ratio = Current Assets / Current Liabilities
2005 Current Asset Current Liabilities Current 11115.99 21796.06 0.51 2006 15642.79 25230.31 0.62 2007 23551.85 38609.59 0.61 2008 31129.77 43235.79 0.72 2009 343484.06 440364.18 0.78
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Ratio
Interpretation : ? The Current Ratio of the Company decreased in 2008-09 from0.72 to 0.78 because of increase in the loans and advances from 310079.48 to 285671.51 and increase in sundry Assets from 31,129.77 to 34,384.06. ? The Current Ratio of the Company decreases in 2007-08 up to from 0.61 to .072 because of the increase in Cash and Bank Balance from 18,706.88 to 29,377.53. ?The Committee appointed by the R.B.I r e c o m m e n d e d a satisfaction current ratio is 1.33:1 the company’s current ratio is raising continuously so it is satisfactory.
LIQUID RATIO: Formula: Liquid ratio = Quick Assets / Current Liabilities
2005 Quick Asset Current Liabilities 108544.38 21796.06 2006 167539.26 25230.31 2007 233201.92 38609.59 2008 277573.77 43235.79 2009 2615763.23 440364.18
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Liquid Ratio
4.98
6.64
6.04
6.42
5.94
Interpretation : • As the standard ratio the quick ratio of 1:1 is satisfactory. • The quick ratio of the company is decreasing from 6.42 to 5.94i n 2 0 0 8 - 0 9 b e c a u s e o f i n c r e a s e i n s u n d r y c r e d i t o r s a n d decrease in the loans and advances. • The quick ratio of the company is decreasing b e c a u s e o f decrease in cash bank balance. • This situation express the company’s has less quick assets which are used to meet the quick liability of the current, thus company may come in trouble for a short period of time. EARNING PER SHARE Formula: Earning per share = NPAT / Number of equity share
2005 NPAT No. of equity share Earning per Share 2007.28 73.67 27.22 2006 2532.95 88.98 28.55 2007 2995.00 89.93 34.59 2008 4092.12 111.27 37.37 2009 3740.62 111.27 33.78
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INTERPRETATION:?This yield can be used by a Share holder while making decisions about the investment on comparison to other alternative investments. ? The E.P.S. when compared to the current market price of the share ,gives measure of the rate of yield . ? The E.P.S. of the company is currently decreasing because of the decreasing in the net worth during recession. ? The earning per share of the IDEA CELLULAR LIMITED is continuously increased in the year from 2005-06 to 2006-07because of highly increased in the net profit. ? Then it was also increased in the year 2007-08 because of the i n c r e a s e d i n t h e n e t p r o f i t a n d r e l a t i v e l y l e s s p e r c e n t a g e increase in the no .of equity share. ? The EPS is continuously increase which e x p r e s s t h a t t h e company is effectively uses its capital and also efficiently uses the loan funds instead of the owner’s fund. It was good for the share holder’s of the company and they get the satisfactory return
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Return on capital employed
Formula: Return on capital employed = NPAT / Capital employed * 100
2005 NPAT Capital Employed Return on Capital Employed 2007.28 736.75 2.72 2006 2532.95 889.93 2.85 2007 2995.00 899.34 3.33 2008 4092.12 1,112.68 3.68 2009 3740.62 1,113.29 3.36
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Interpretation: ? This is another ratio to judge the efficiency and effectiveness of the company like profitability ratio. ? The income from services is greaterly increased compared with t h e p r e v i o u s y e a r a n d t h e t o t a l c a p i t a l e m p l o y e d i n c l u d e s capital and reserves & surplus. Due to huge increase in the net profit the capital employed is also increased along with income from services. Both are effected in the increment of the ratio of current year.
Proprietary ratio
Formula: Proprietary ratio = Proprietary fund / Total fund
2005 Proprietary ratio Total Fund Proprietary Ratio 12,54.95 17,460.89 0.72 2006 22,205.99 24,577.16 0.90 2007 24,313.26 42,258.73 0.58 2008 46,470.21 60,507.30 0.77 2009 49,533.02 51,920.39 0.95
Interpretation:
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? The proprietary ratio establishes the relationship between shareholders funds to total assets. It determines the long-term solvency of the firm. This ratio indicates the extent to which the assets of the company can be lost without affecting the interest of the company. ? The share holder’s funds include capital and reserves and s u r p l u s . T h e r e s e r v e s a n d s u r p l u s i s i n c r e a s e d d u e t o t h e increase in balance in profit and loss account, which is caused by the increase of income from services. ? Total assets, includes fixed and current a s s e t s . T h e f i x e d assets are reduced because of the depreciation and there are no major increments in the fixed assets. The current assets are increased compared with the year 2007.Total assets are also increased than precious year, which resulted an increase in the ratio than older.
CONCLUSION
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? The balance-sheet along with the income statement is an important tools for investors and many other parties who are interested in it to gain insight into a company and its operation. ? The b a l a n c e s h e e t i s a s n a p s h o t a t a s i n g l e p o i n t o f t i m e o f t h e company’s accounts- covering its assets, liabilities and shareholder’s equity. ? The purpose of the balance-sheet is to give users an idea of the company’s financial position along with displaying what the company owns and owes.
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? It is important that all investors know how to use, analyze and read balance-sheet. P & L account tells the net profit and net loss of a company and its appropriation. ? In the case of ICICI Bank, during fiscal 2008, the bank continued to g r o w a n d d i v e r s i f y i t s assets base and revenue streams. ? B a n k maintained its leadership in all main areas such as retail credit, wholesale business, international operation, insurance, mutual fund, rural banking etc. Continuous increase in the number of branches, ATM and electronic channels shows the growth take place in bank. ? Similarly in balance sheet some item is less than previous year and in some items it is more. Ratio analysis of financial statement shows that bank’s current ratio is better than the quick ratio and fixed/worth ratio. ? It means bank has invested more in current assets than the fixed assets and liquid assets. ? Bank have given more advances to its customer and they have less cash in their hand. Profitability ratio of
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bank is lower than as compared to previous year. Return on equity is better than the return on assets. ? Therefore analysis shows that cash inflow is more than the cash outflow in ICICI Bank. ? Thus, the ratio analysis and trend analysis shows that ICICI Bank’s financial position is good. ? Bank’s profitability is increasing but not at high rate. Bank’s liquidity position is fair but not good because bank invest more in current assets than the liquid assets. ? As we all know that ICICI Bank is on the first position among all the private sector bank of India in all areas but it should pay attention on its profitability and liquidity. ? Bank’s position is stable.
Bibliography
? www.moneycontrol.com ? www.icicibank.com ? Other information from ? icsi.edu/webmodules/icsiweb/works/Schdiary/.../38_rati o_analysis.doc ? Wikipedia
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doc_191225314.doc
Profile
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At April 4, 2005, ICICI Bank, with free float market capitalization of about Rs. 308.00 billion (US$ 7.00 billion) ranked third amongst all the companies listed on the Indian stock exchanges. ICICI Bank was originally promoted in 1994 by ICICI Limited, an In dian financial institution, and was its wholly-owned subsidiary ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs
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listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at t h e initiative of the World Bank, the G o v e r n m e n t o f I n d i a a n d representatives of Indian industry.
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The principal objective was to create a development financial institution for providing medium-term and longterm project financing to Indian businesses. In the 1990s,I C I C I t r a n s f o r m e d i t s b u s i n e s s f r o m a d e v e l o p m e n t f i n a n c i a l institution offering only project finance to a diversified f i n a n c i a l services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities, and would create the optimal legal structure for the ICICI group's un iversal banking strategy.
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The merger would enhance value for ICICI shareholders through the merged entity's access to low-cost deposits, greater opportunities for earning feebased income and the ability to participate in the payments system and provide transaction-banking services. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations, seamless access to ICICI's strong corporate relationships built up over five decades, entry into new business segments, higher market share in various business segments, particularly fee-based services, and access to the vast talent pool of ICICI and its subsidiaries. In O c t o b e r 2 0 0 1 , t h e B o a r d s o f D i r e c t o r s o f I C I C I a n d I C I C I B a n k approved the merger of ICICI and two of its wh olly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Bank in January 2002,by the High Court of Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002.
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Consequent to the merger, the ICICI group's financing and banking operations, both wholesale and retail, have been integrated in a single entity.
VISION AND MISSION
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OF ICICI BANK
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Vision and Mission of ICICI Bank Ltd.
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We will leverage our people, technology, speed and financial capital to:
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Be the banker of first choice for our customers by delivering high quality, world-class products and services. Expand the frontiers of our business globally. Play a proactive role in the full realization of India’s potential. Maintain a healthy financial profile and diversify our earnings across businesses and geographies. Maintain high standards of governance and ethics. Contribute positively to the various countries and marketsin which we operate. Create value for our stakeholders.
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HISTORY
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ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an allstock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and
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representatives of Indian industry. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business f r o m a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE. A f t e r c o n s i d e r a t i o n o f v a r i o u s corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities, and would create the optimal legal structure for the ICICI group's universal banking strategy. The merger would enhance value for ICICI shareholders through the merged entity's access to low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transaction-banking services. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations, seamless access to ICICI's strong corporate relationships built up over five decades, entry
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into new business segments, higher market share in various business segments, particularly fee-based services, and access to the vast talent pool of ICICI and its subsidiaries. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Banking January 2002, by the High Citst of Gujarat at Ahmedabad in March 2002, and by the High Citst of Judicature at Mumbai and the Reserve Bank of India in April 2002. Consequent to the merger, the ICICI group's financing and banking operations, both wholesale and retail, have been integrated in a single entity. ICICI Bank has formulated a Code of Business Conduct and Ethics for its directors and employees
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AWARDS IN 2009
ICICI Bank
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For the third year in a row ICICI Bank has won The Asset Triple A Country Awards for Best Domestic Bank in India ICICI Bank won the Most Admired Knowledge Enterprises (MAKE)India 2009 Award. ICICI Bank won the first place in "Maximizing Enterprise Intellectual Capital" category, October 28, 2009
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Ms Chanda Kochhar, MD and CEO was awarded with the Indian B u s i n e s s W o m e n L e a d e r s h i p A w a r d a t N D T V P r o f i t B u s i n e s s Leadership Awards , October 26, 2009. ICICI Bank received two awards in CNBC Awaaz Consumer Awards; one for the most preferred auto loan and the other for most preferred credit Card, on September 30, 2009Ms. Chanda Kochhar, Managing Director & CEO ranked in the top 20of the World's 100 Most Powerful Women list compiled by Forbes, August 2009 Financial Express at its FE India's Best Banks Awards, honoured Mr.K.V. Kamath, Chairman with the Lifetime Achievement Award , July25, 2009 ICICI Bank won Asset Triple A Investment Awards for the Best D e r i v a t i v e H o u s e , India. In addition ICICI Bank were Highly commended , Local Currency Structured product, India for 1.5 year ADR GDR linked Range Accrual Note., July 2009ICICI bank won in three categories at World finance Banking awards on June 16, 2009Best NRI Services bank Excellence in Private Banking, APAC Region Excellence in Remittance Business, APAC Region ICICI Bank Mobile Banking was adjudged "Best Bank Award for Initiatives in Mobile Payments and Banking" by IDRBT, on May 18,2009 in Hyderabad. ICICI Bank'sb2 branch free banking was adjudged "Best E-Banking Project Implementation Award 2008" by The Asian Banker, on May11, 2009 at the China World Hotel in Beijing.
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ICICI Bank bags the "Best bank in SME financing (Private Sector)" at the Dun & Bradstreet Banking awards 2009.ICICI Bank NRI services wins the "Excellence in Business Model Innovation Award" in the eighth Asian Banker Excellence in Retail Financial Services Awards Programme. ? ICICI Bank's Rural Micro Banking and Agr iBusiness Group wins WOW Event & Experiential Marketing Aw ard in two categories -"Rural Marketing programme of the year" and "Small Budget On Ground Promotion of the Year". These awards were given for Cattle Loan 'Kamdhenu Campaign' and "Talkies on the move campaign' respectively. ?ICICI Bank's Germany Branch has been c e r t i f i e d b y " S t i f t u n g Warrentest". ? ICICI Bank is ranked 2nd amongst 57 savings products across 19 banks ICICI Bank Germany won the yearly banking test of the investor magazine €uro in the "call money “category. ? The ICICI Bank was awarded the runner's up position in Gartner Business Intelligence and Excellence Award for Asia Pacific for its Business Intelligence functions. ? ICICI Bank's Organisational Excellence Group was recently awarded ISO 9001:2008 certification by TUV Nord. ? The scope of certification comprised processes around consulting and capability building on methods of quality & improvements.
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ICICI Bank has been awarded the following titles under The Asset Triple A Country Awards for 2009:
• Best Transaction Bank in India • Best Trade Finance Bank in India • Best Cash Management Bank in India • Best Domestic Custodian in India ICICI Bank has bagged the Best Cash Management Bank in India award for the second year in a row. The other awards have been bagged for the third year in a row. ? ICICI Bank Canada received the prestigious Canadian Helen Keller Award at the Canadian Helen Keller Centre's Fifth Annual Luncheon in Toronto. ? The award was given to ICICI Bank its longstanding support to this unique training centre for people who are deaf-blind
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INTRODUCTION OF RATIO ANALYSIS
? It refers to the systematic use of ratios to interpret the financial statements in terms of the operating performance and financial position of a firm. ? It involves comparison for a meaningful interpretation of the financial statements.
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? In view of the needs of various uses of ratios the ratios, which can be calculated from the accounting data are classified into the following broad categories A. B. C. D. Liquidity Ratio Turnover Ratio Solvency or Leverage ratios Profitability ratios
A. LIQUIDITY RATIO It measures the ability of the firm to meet its short-term obligations, that is capacity of the firm to pay its current liabilities as and when they fall due. Thus these ratios reflect the short-term financial solvency of a firm. A firm should ensure that it does not suffer from lack of liquidity. The failure to meet obligations on due time may result in bad credit image, loss of creditors confidence, and even in legal proceedings against the firm on the other hand very high degree of liquidity is also not desirable since it would imply that funds are idle and earn nothing. So therefore it is necessary to strike a proper balance between liquidity and lack of liquidity. The various ratios that explains about the liquidity of the firm are 1. Current Ratio 2. Acid Test Ratio / quick ratio 3. Absolute liquid ration / cash ratio
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1. CURRENT RATIO The current ratio measures the short-term solvency of the firm. It establishes the relationship between current assets and current liabilities. It is calculated by dividing current assets by current liabilities. Current Ratio = Current Asset Current Liabilities Current assets include cash and bank balances, marketable securities, inventory, and debtors, excluding provisions for bad debts and doubtful debtors, bills receivables and prepaid expenses. Current liabilities includes sundry creditors, bills payable, short- term loans, income-tax liability, accrued expenses and dividends payable. 2. ACID TEST RATIO / QUICK RATIO It has been an important indicator of the firm’s liquidity position and is used as a complementary ratio to the current ratio. It establishes the relationship between quick assets and current liabilities. It is calculated by dividing quick assets by the current liabilities. Acid Test Ratio = Quick Assets Current liabilities Quick assets are those current assets, which can be converted into cash immediately or within reasonable short time without a loss of value. These include cash and bank
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balances, sundry debtors, bill’s receivables and short-term marketable securities. 3. ABSOLUTE LIQUID RATION / CASH RATIO It shows the relationship between absolute liquid or super quick current assets and liabilities. Absolute liquid assets include cash, bank balances, and marketable securities. Absolute liquid ratio = Absolute liquid assets Current liabilities
B. TURNOVER RATIO Turnover ratios are also known as activity ratios or efficiency ratios with which a firm manages its current assets. The following turnover ratios can be calculated to judge the effectiveness of asset use. 1. Inventory Turnover Ratio 2. Debtor Turnover Ratio 3. Creditor Turnover Ratio 4. Assets Turnover Ratio 1. INVENTORY TURNOVER RATIO This ratio indicates the number of times the inventory has been converted into sales during the period. Thus it evaluates the efficiency of the firm in managing its inventory. It is calculated by dividing the cost of goods sold by average inventory.
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Inventory Turnover Ratio = Cost of goods sold Average Inventory The average inventory is simple average of the opening and closing balances of inventory. (Opening + Closing balances / 2). In certain circumstances opening balance of the inventory may not be known then closing balance of inventory may be considered as average inventory 2. DEBTOR TURNOVER RATIO This indicates the number of times average debtors have been converted into cash during a year. It is determined by dividing the net credit sales by average debtors. Debtor Turnover Ratio = Net Credit Sales Average Trade Debtors Net credit sales consist of gross credit sales minus sales return. Trade debtor includes sundry debtors and bill’s receivables. Average trade debtors (Opening + Closing balances / 2) When the information about credit sales, opening and closing balances of trade debtors is not available then the ratio can be calculated by dividing total sales by closing balances of trade debtor Debtor Turnover Ratio = Total Sales Trade Debtors
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3. CREDITOR TURNOVER RATIO It indicates the number of times sundry creditors have been paid during a year. It is calculated to judge the requirements of cash for paying sundry creditors. It is calculated by dividing the net credit purchases by average creditors. Creditor Turnover Ratio = Net Credit Purchases Average Trade Creditor Net credit purchases consist of gross credit purchases minus purchase return When the information about credit purchases, opening and closing balances of trade creditors is not available then the ratio is calculated by dividing total purchases by the closing balance of trade creditors. Creditor Turnover Ratio = Total purchases Total Trade Creditors
4. ASSETS TURNOVER RATIO The relationship between assets and sales is known as assets turnover ratio. Several assets turnover ratios can be calculated depending upon the groups of assets, which are related to sales.
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a) b) c) d) e)
Total asset turnover. Net asset turnover Fixed asset turnover Current asset turnover Net working capital turnover ratio
a. TOTAL ASSET TURNOVER This ratio shows the firms ability to generate sales from all financial resources committed to total assets. It is calculated by dividing sales by total assets. Total asset turnover = Total Sales Total Assets b. NET ASSET TURNOVER This is calculated by dividing sales by net assets. Net asset turnover = Total Sales Net Assets Net assets represent total assets minus current liabilities. Intangible and fictitious assets like goodwill, patents, accumulated losses, deferred expenditure may be excluded for calculating the net asset turnover. c. FIXED ASSET TURNOVER This ratio is calculated by dividing sales by net fixed assets. Fixed asset turnover = Total Sales Net Fixed Assets
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Net fixed assets represent the cost of fixed assets minus depreciation. d. CURRENT ASSET TURNOVER It is divided by calculating sales by current assets Current asset turnover = Total Sales Current Assets e. NET WORKING CAPITAL TURNOVER RATIO A higher ratio is an indicator of better utilization of current assets and working capital and vice-versa (a lower ratio is an indicator of poor utilization of current assets and working capital). It is calculated by dividing sales by working capital. Net working capital turnover ratio = Total Sales Working Capital Working capital is represented by the difference between current assets and current liabilities.
C. SOLVENCY OR LEVERAGE RATIOS The solvency or leverage ratios throws light on the long term solvency of a firm reflecting it’s ability to assure the long term creditors with regard to periodic payment of
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interest during the period and loan repayment of principal on maturity or in predetermined instalments at due dates. There are thus two aspects of the long-term solvency of a firm. a. b. Ability to repay the principal amount when due Regular payment of the interest.
The ratio is based on the relationship between borrowed funds and owner’s capital it is computed from the balance sheet, the second type are calculated from the profit and loss a/c. The various solvency ratios are 1. 2. 3. 4. 5. 6. Debt equity ratio Debt to total capital ratio Proprietary (Equity) ratio Fixed assets to net worth ratio Fixed assets to long term funds ratio Debt service (Interest coverage) ratio
1. DEBT EQUITY RATIO Debt equity ratio shows the relative claims of creditors (Outsiders) and owners (Interest) against the assets of the firm. Thus this ratio indicates the relative proportions of debt and equity in financing the firm’s assets. It can be calculated by dividing outsider funds (Debt) by shareholder funds (Equity) Debt equity ratio = Outsider Funds (Total Debts) Shareholder Funds or Equity
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The outsider fund includes long-term debts as well as current liabilities. The shareholder funds include equity share capital, preference share capital, reserves and surplus including accumulated profits. However fictitious assets like accumulated deferred expenses etc should be deducted from the total of these items to shareholder funds. The shareholder funds so calculated are known as net worth of the business. 2. DEBT TO TOTAL CAPITAL RATIO Debt to total capital ratio = Total Debts Total Assets 3. PROPRIETARY (EQUITY) RATIO This ratio indicates the proportion of total assets financed by owners. It is calculated by dividing proprietor (Shareholder) funds by total assets. Proprietary (equity) ratio = Shareholder funds Total assets 4. FIXED ASSETS TO NET WORTH RATIO This ratio establishes the relationship between fixed assets and shareholder funds. It is calculated by dividing fixed assets by shareholder funds. Fixed assets to net worth ratio = Fixed Assets X 100 Net Worth The shareholder funds include equity share capital, preference share capital, reserves and surplus including
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accumulated profits. However fictitious assets like accumulated deferred expenses etc should be deducted from the total of these items to shareholder funds. The shareholder funds so calculated are known as net worth of the business. 5. FIXED ASSETS TO LONG TERM FUNDS RATIO Fixed assets to long term funds ratio establishes the relationship between fixed assets and long-term funds and is calculated by dividing fixed assets by long term funds. Fixed assets to long term funds ratio = Fixed Assets X 100 Long-term Funds 6. DEBT SERVICE (INTEREST COVERAGE) RATIO This shows the number of times the earnings of the firms are able to cover the fixed interest liability of the firm. This ratio therefore is also known as Interest coverage or time interest earned ratio. It is calculated by dividing the earnings before interest and tax (EBIT) by interest charges on loans. Debt Service Ratio = Earnings before interest and tax (EBIT) Interest Charges PROFITABILITY RATIOS
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The profitability ratio of the firm can be measured by calculating various profitability ratios. General two groups of profitability ratios are calculated. a. Profitability in relation to sales. b. Profitability in relation to investments. Profitability in relation to sales 1. Gross profit margin or ratio 2. Net profit margin or ratio 3. Operating profit margin or ratio 4. Operating Ratio 5. Expenses Ratio 1. GROSS PROFIT MARGIN OR RATIO It measures the relationship between gross profit and sales. It is calculated by dividing gross profit by sales. Gross profit margin or ratio = Gross profit X 100 Net sales Gross profit is the difference between sales and cost of goods sold. 2. NET PROFIT MARGIN OR RATIO It measures the relationship between net profit and sales of a firm. It indicates management’s efficiency in manufacturing, administrating, and selling the products. It is calculated by dividing net profit after tax by sales. Net profit margin or ratio = Earning after tax X 100 Net Sales
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3. OPERATING PROFIT MARGIN OR RATIO It establishes the relationship between total operating expenses and net sales. It is calculated by dividing operating expenses by the net sales. Operating profit margin or ratio = Operating expenses X 100 Net sales Operating expenses includes cost of goods produced/sold, general and administrative expenses, selling and distributive expenses. 4. EXPENSES RATIO While some of the expenses may be increasing and other may be declining to know the behavior of specific items of expenses the ratio of each individual operating expenses to net sales should be calculated. The various variants of expenses are Cost of goods sold = Cost of goods sold X 100 Net Sales Administrative Expenses Ratio = Administrative Expenses X 100 Net sales Selling and distribution expenses ratio = Selling and distribution expenses X 100 5. OPERATING PROFIT MARGIN OR RATIO
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Operating profit margin or ratio establishes the relationship between operating profit and net sales. It is calculated by dividing operating profit by sales. Operating profit margin or ratio = Operating Profit X 100 Net sales Operating profit is the difference between net sales and total operating expenses. (Operating profit = Net sales – cost of goods sold – administrative expenses – selling and distribution expenses.) PROFITABILITY IN RELATION TO INVESTMENTS 1. Return on gross investment or gross capital employed 2. Return on net investment or net capital employed 3. Return on shareholder’s investment or shareholder’s capital employed. 4. Return on equity shareholder investment or equity shareholder capital employed.
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RETURN ON GROSS CAPITAL EMPLOYED This ratio establishes the relationship between net profit and the gross capital employed. The term gross capital employed refers to the total investment made in business. The conventional approach is to divide Earnings After Tax (EAT) by gross capital employed.
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Return on gross capital employed = Earnings After Tax (EAT) X 100 Gross capital employed 2. RETURN ON NET CAPITAL EMPLOYED It is calculated by dividing Earnings Before Interest & Tax (EBIT) by the net capital employed. The term net capital employed in the gross capital in the business minus current liabilities. Thus it represents the long-term funds supplied by creditors and owners of the firm. Return on net capital employed = Earnings Before Interest & Tax (EBIT) X 100 Net capital employed
3. RETURN ON SHARE CAPITAL EMPLOYED This ratio establishes the relationship between earnings after taxes and the shareholder investment in the business. This ratio reveals how profitability the owners’ funds have been utilized by the firm. It is calculated by dividing Earnings after tax (EAT) by shareholder capital employed.
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Return on share capital employed = Earnings after tax (EAT) X 100 Shareholder capital employed 4. RETURN ON EQUITY SHARE CAPITAL EMPLOYED Equity shareholders are entitled to all the profits remaining after the all outside claims including dividends on preference share capital are paid in full. The earnings may be distributed to them or retained in the business. Return on equity share capital investments or capital employed establishes the relationship between earnings after tax and preference dividend and equity shareholder investment or capital employed or net worth. It is calculated by dividing earnings after tax and preference dividend by equity shareholder’s capital employed. Return on equity share capital employed = Earnings after tax (EAT), preference dividends X 100 Equity share capital employed
EARNINGS PER SHARE It measure the profit available to the equity shareholders on a per share basis. It is computed by dividing earnings available to the equity shareholders by the total number of equity share outstanding
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Earnings per share = Earnings after tax – Preferred dividends (if any) Equity shares outstanding DIVIDEND PER SHARE The dividends paid to the shareholders on a per share basis in dividend per share. Thus dividend per share is the earnings distributed to the ordinary shareholders divided by the number of ordinary shares outstanding. Dividend per share = Earnings paid to the ordinary shareholders Number of ordinary shares outstanding DIVIDENDS PAY OUT RATIO (PAY OUT RATIO) It measures the relationship between the earnings belonging to the equity shareholders and the dividends paid to them. It shows what percentage shares of the earnings are available for the ordinary shareholders are paid out as dividend to the ordinary shareholders. It can be calculated by dividing the total dividend paid to the equity shareholders by the total earnings available to them or alternatively by dividing dividend per share by earnings per share. Dividend pay our ratio (Pay our ratio) = Total dividend paid to equity share holders Total earnings available to equity share holders Or Dividend per share Earnings per share
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DIVIDEND AND EARNINGS YIELD While the earnings per share and dividend per share are based on the book value per share, the yield is expressed in terms of market value per share. The dividend yield may be defined as the relation of dividend per share to the market value per ordinary share and the earning ratio as the ratio of earnings per share to the market value of ordinary share. Dividend Yield = Dividend Per share Market value of ordinary share Earnings yield = Earnings per share Market value of ordinary share PRICE EARNING RATIO The reciprocal of the earnings yield is called price earnings ratio. It is calculated by dividing the market price of the share by the earnings per share. Price earnings (P/E) ratio = Market price of share Earnings per share
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BALANCE SHEET
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OF ICICI BANK
PARTICULARS
2008 RS.CR
2009 RS.CR
CAPITALS & LIABILITIES OWNED FUND EQUITY SHARE CAPITAL 1,112.368 PREFENTIAL SHARE 350 CAPITAL RESERVES AND SURPLUS 45,357.53 LOAN FUNDS
1,113.29 350 48,419.73
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DEPOSITS BORROWING MADE BY BANK TOTAL ASSETS CASH AND BANK BALANCE WITH RBI MONEY AT CALL AT SHORT NOTICE INVESTMENTS ADVANCES FIXED ASSETS GROSS BLOCK ACCUMULATED DEPRECIATION NET BLOCK NET CURRENT ASSETS TOTAL
244,431.05 65,648.43 356,899.69 29,377.53 8663.60
218,347.82 67,323.69 335,554.53 17,536.33 12,430.23
111454.34 215060.94 7036.00 2927.11 4,108.89 31,129.77 356,899.69
103058.31 208090.41 7443.71 3,642.09 3,801.62 34,384.06 335,554.53
RATIO ANALYSIS
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OF ICICI BANK
CURRENT RATIO Formula: Current Ratio = Current Assets / Current Liabilities
2005 Current Asset Current Liabilities Current 11115.99 21796.06 0.51 2006 15642.79 25230.31 0.62 2007 23551.85 38609.59 0.61 2008 31129.77 43235.79 0.72 2009 343484.06 440364.18 0.78
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Ratio
Interpretation : ? The Current Ratio of the Company decreased in 2008-09 from0.72 to 0.78 because of increase in the loans and advances from 310079.48 to 285671.51 and increase in sundry Assets from 31,129.77 to 34,384.06. ? The Current Ratio of the Company decreases in 2007-08 up to from 0.61 to .072 because of the increase in Cash and Bank Balance from 18,706.88 to 29,377.53. ?The Committee appointed by the R.B.I r e c o m m e n d e d a satisfaction current ratio is 1.33:1 the company’s current ratio is raising continuously so it is satisfactory.
LIQUID RATIO: Formula: Liquid ratio = Quick Assets / Current Liabilities
2005 Quick Asset Current Liabilities 108544.38 21796.06 2006 167539.26 25230.31 2007 233201.92 38609.59 2008 277573.77 43235.79 2009 2615763.23 440364.18
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Liquid Ratio
4.98
6.64
6.04
6.42
5.94
Interpretation : • As the standard ratio the quick ratio of 1:1 is satisfactory. • The quick ratio of the company is decreasing from 6.42 to 5.94i n 2 0 0 8 - 0 9 b e c a u s e o f i n c r e a s e i n s u n d r y c r e d i t o r s a n d decrease in the loans and advances. • The quick ratio of the company is decreasing b e c a u s e o f decrease in cash bank balance. • This situation express the company’s has less quick assets which are used to meet the quick liability of the current, thus company may come in trouble for a short period of time. EARNING PER SHARE Formula: Earning per share = NPAT / Number of equity share
2005 NPAT No. of equity share Earning per Share 2007.28 73.67 27.22 2006 2532.95 88.98 28.55 2007 2995.00 89.93 34.59 2008 4092.12 111.27 37.37 2009 3740.62 111.27 33.78
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INTERPRETATION:?This yield can be used by a Share holder while making decisions about the investment on comparison to other alternative investments. ? The E.P.S. when compared to the current market price of the share ,gives measure of the rate of yield . ? The E.P.S. of the company is currently decreasing because of the decreasing in the net worth during recession. ? The earning per share of the IDEA CELLULAR LIMITED is continuously increased in the year from 2005-06 to 2006-07because of highly increased in the net profit. ? Then it was also increased in the year 2007-08 because of the i n c r e a s e d i n t h e n e t p r o f i t a n d r e l a t i v e l y l e s s p e r c e n t a g e increase in the no .of equity share. ? The EPS is continuously increase which e x p r e s s t h a t t h e company is effectively uses its capital and also efficiently uses the loan funds instead of the owner’s fund. It was good for the share holder’s of the company and they get the satisfactory return
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Return on capital employed
Formula: Return on capital employed = NPAT / Capital employed * 100
2005 NPAT Capital Employed Return on Capital Employed 2007.28 736.75 2.72 2006 2532.95 889.93 2.85 2007 2995.00 899.34 3.33 2008 4092.12 1,112.68 3.68 2009 3740.62 1,113.29 3.36
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Interpretation: ? This is another ratio to judge the efficiency and effectiveness of the company like profitability ratio. ? The income from services is greaterly increased compared with t h e p r e v i o u s y e a r a n d t h e t o t a l c a p i t a l e m p l o y e d i n c l u d e s capital and reserves & surplus. Due to huge increase in the net profit the capital employed is also increased along with income from services. Both are effected in the increment of the ratio of current year.
Proprietary ratio
Formula: Proprietary ratio = Proprietary fund / Total fund
2005 Proprietary ratio Total Fund Proprietary Ratio 12,54.95 17,460.89 0.72 2006 22,205.99 24,577.16 0.90 2007 24,313.26 42,258.73 0.58 2008 46,470.21 60,507.30 0.77 2009 49,533.02 51,920.39 0.95
Interpretation:
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? The proprietary ratio establishes the relationship between shareholders funds to total assets. It determines the long-term solvency of the firm. This ratio indicates the extent to which the assets of the company can be lost without affecting the interest of the company. ? The share holder’s funds include capital and reserves and s u r p l u s . T h e r e s e r v e s a n d s u r p l u s i s i n c r e a s e d d u e t o t h e increase in balance in profit and loss account, which is caused by the increase of income from services. ? Total assets, includes fixed and current a s s e t s . T h e f i x e d assets are reduced because of the depreciation and there are no major increments in the fixed assets. The current assets are increased compared with the year 2007.Total assets are also increased than precious year, which resulted an increase in the ratio than older.
CONCLUSION
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? The balance-sheet along with the income statement is an important tools for investors and many other parties who are interested in it to gain insight into a company and its operation. ? The b a l a n c e s h e e t i s a s n a p s h o t a t a s i n g l e p o i n t o f t i m e o f t h e company’s accounts- covering its assets, liabilities and shareholder’s equity. ? The purpose of the balance-sheet is to give users an idea of the company’s financial position along with displaying what the company owns and owes.
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? It is important that all investors know how to use, analyze and read balance-sheet. P & L account tells the net profit and net loss of a company and its appropriation. ? In the case of ICICI Bank, during fiscal 2008, the bank continued to g r o w a n d d i v e r s i f y i t s assets base and revenue streams. ? B a n k maintained its leadership in all main areas such as retail credit, wholesale business, international operation, insurance, mutual fund, rural banking etc. Continuous increase in the number of branches, ATM and electronic channels shows the growth take place in bank. ? Similarly in balance sheet some item is less than previous year and in some items it is more. Ratio analysis of financial statement shows that bank’s current ratio is better than the quick ratio and fixed/worth ratio. ? It means bank has invested more in current assets than the fixed assets and liquid assets. ? Bank have given more advances to its customer and they have less cash in their hand. Profitability ratio of
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bank is lower than as compared to previous year. Return on equity is better than the return on assets. ? Therefore analysis shows that cash inflow is more than the cash outflow in ICICI Bank. ? Thus, the ratio analysis and trend analysis shows that ICICI Bank’s financial position is good. ? Bank’s profitability is increasing but not at high rate. Bank’s liquidity position is fair but not good because bank invest more in current assets than the liquid assets. ? As we all know that ICICI Bank is on the first position among all the private sector bank of India in all areas but it should pay attention on its profitability and liquidity. ? Bank’s position is stable.
Bibliography
? www.moneycontrol.com ? www.icicibank.com ? Other information from ? icsi.edu/webmodules/icsiweb/works/Schdiary/.../38_rati o_analysis.doc ? Wikipedia
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