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Letter of Transmittal August 7, 2014 Residua Islam Senior Lecturer, Department of Business Administration East West University, Bangladesh Mikhail, Dacha Subject: Submission of assignment on “SOOT analysis of financial statements of City sank 2010” Dear Sir, I would like to take this opportunity to thank you for the guidance and support you have provided us during the preparation of this assignment. Without your help this assignment would be impossible to complete.
Here is the SOOT analysis that you approved to do on “City Bank 2010 financial statement” City bank started commencement of banking operation on March 20, 1983 with the Sino to be the leading bank in the country with best practices and highest social commitments. To prepare this report I have collected what I believe the most relevant information to make my assignment as analytical and reliable as possible. I have concentrated my best effort to achieve the objective of this assignment.
In conclusion I want to thank you for assigning this type of project, because it has helped me to gain some experience about the procedure of doing a SOOT analysis of a bank, and I believe that this will surely help me in the future. Yours Sincerely Ashen Carmaker (2011-2-10-178) Acknowledgement I would like to take this opportunity to convey my sincere thanks & gratitude to all who have directly or indirectly helped and contributed towards the complication of this assignment. First and foremost we would like to thank Mr..
Residua Islam for his constant guidance and support throughout this assignment. During the assignment I realized that the degree of relevance of the learning being imparted in the class is very high. The learning enabled me to get a better understanding of the unity-gritty of the subject which I studied. I would also like to thank my class mates for the discussions I we had with them. All hose have resulted in the enrichment of my knowledge and their inputs have helped me to incorporate relevant issues into my assignment.
B. Avenue Branch in the capital, Dacha city. It was the visionary entrepreneurship of around 13 local businessmen who braved the immense uncertainties and risks with rage and zeal that made the establishment & forward march of the bank possible. Those sponsor directors commenced the Journey with only BAT 3. 4 core worth of Capital, which now is a respectable BAT 3,888,547,200 City Bank is among the very few local banks which do not follow the traditional, decentralized, geographically managed, branch based business or profit model.
Instead the bank manages its business and operation vertically from the head office through 4 distinct business divisions namely Corporate & Investment Banking; Retail Banking (including Cards); SEEM Banking; & Treasury & Market Risks. The Bank has set up a new standard in financing in the Industrial, Trade and Foreign exchange business. Its various deposit & credit products have also attracted the clients-both corporate and individuals who feel comfort in doing business with the Bank.
The bank currently has 88 online branches and 10 SEEM service centers and 1 SEEM Agro center spread across the length & breadth of the country that include a full- fledged Islam Banking branch. Besides these traditional delivery points, the bank is also very active in the alternative delivery area. It currently has 99 Tams of its own; ND ATM sharing arrangement with a partner bank that has more than 550 Tams in place; SMS Banking; Interest Banking and so on. It already started its Customer Call Center operation. The bank has a plan to end the current year with 100 own Tams.
Vision To be the leading bank in the country with best practices and highest social commitments Mission To contribute to the socio-economic development of the country To attain highest level of satisfaction through extension of services by dedicated and motivated team of professionals To maintain continuous growth of market share ensuring quality To examine banks profits by ensuring its steady growth To maintain high moral and ethical standards To ensure participative management system and empowerment of human resources Values City bank is aggressive in business and self driven Empowers people, create leaders and drive change Treat people with respect and dignity Personally accountable for delivering on commitments to build high-trust relationship with customers and to ensure customer delight Focus on managing risks and controlling cost in order to double profit Act in ways that reflect the highest standards of integrity. Methodology of the study Mainly I have collected the data from secondary sources. The sources are:- Annual report of city bank limited Website of Dacha stock exchange Different reference books of the library The preparation of the SOOT analysis of the financial statements has been done by liquidity ratio, profitability ratio, dividend policy, provision for bad loan sector wise, provision for doubtful loan sector wise, reserve ratio, growth-rate sector wise, off balance sheet items, management or agency issues. Description Basis of preparation: The financial statements of the bank are made for the year 1 January 2010 to 31
December 2010 and are prepared under historical cost convention and in accordance with the “First schedule (sec-38) of the bank companies act 1991, BIRD circular #14 dated 25 June 2003, other Bangladesh bank circulars, international accounting standards (AS) and international financial reporting standards (FIRS) adopted by the institute of chartered accountants of Bangladesh, companies act 1994, the securities and exchange rules 1987, Dacha & Chitchatting stock exchanges listing regulations and other laws and rules applicable in Bangladesh. Items of income statement Income statement shows also known as profit and loss account is a report of income, expenses and the resulting profit or loss earned during an accounting period under ‘AS-I . Lonesome statements should help investors and creditors determine the past financial performance of the enterprise, predict future performance, and assess the capability of generating future cash flows through report of the income and expenses.
A banks income statement items mainly are:- Interest income Interest expenses Investment income Commission exchange brokerage Different operating expenses like salary, rent, legal expenses, directors fee, auditors e, depreciation and repair of bank assets Different provisions like provision for off balance sheet items, gratuity, loans and advances Income tax Statement of financial position Statement of financial position also known as the balance sheet presents the financial position of any entity at a given date under ‘AS-I . It is comprised of three main components assets liabilities and equity. Statement of financial position helps users of financial statements to assess the financial soundness on an entity in terms of liquidity risk, financial risk, credit risk and business risk.
Statement to the changes to the equity Statement of changes in equity often referred to as statement of retained earning shows changes in owners’ equity over a period of time. Statement to the changes in equity is prepared principally in accordance with BAS-1 “presentation of financial statements” and under the guidelines of Bangladesh bank BIRD circular no. 14 dated June 25, 2003. Notes to the Financial Statements Notes to the financial statements are additional line items, headings and subtotals which are presented separately in the statement of financial position when such presentation is relevant to an understanding of the entity financial position.
Value added and cash flow statement Cash flow statement presents the movement in cash flow over the period as classified under operating investing and financing activities. Cash flow statement is prepared in accordance with BAS-7 titled “cash flow statements”. Analysis Profitability Profitability is the operating result of an organization. It is dependent variable. It may depend on the productivity of the concern. Profitability may increase due to increase in the price, low cost or both at the same time. Net profit margin The net profit margin measures the percentage of each sales dollar remaining after al expenses, including taxes, have deducted. The higher the firm’s net profit margin is better.
Net Profit Margin?Net profit after tax/operating income Year 2009 2010 City Bank 0. 19 0. 25 Tablet : Net Profit Margin Interpretation: In the year 2010 net profit margin increased from 0. 19 to 0. 25 that indicates that banks overall performance is improving. Return on Asset (ROAR) The return on asset (ROAR), which is often called the firm’s return on total assets, measures the overall effectiveness of management in generating profits with its available assets. The higher the ratio is better. Return on Asset (ROAR) ?Net Profit after totally Asset 1. 2 2. 2 Tablet: Return on Assets Interpretation: From the analysis it can be seen that city banks return on assets has increased in 2010. It was 2. Times that means that year bank utilize their assets properly compare to previous year. Return on Equity (ROE) The return on equity measures the return earned on the owner’s (both preferred and common stockholder’s) investment. Generally the higher the return the better of the owner’s. Return on Quietest Profit after Tax/ Shareholders equity 16. 2% 21 Tablet: Return on Equity Interpretation: Return on equity of city bank has increased in 2010 from 16. 2% to 21. 3%. That means the investors are getting higher return than previous year. Earnings per Share The firm’s Earning per share (PEPS) are generally of interest to present or prospective stockholders and management.
The Earning per share represent the number of dollars earned on behalf of each outstanding share of common stock. Earnings per Share ?Earnings available for common stock holder/No of shares outstanding Year 27. 35 59. 4 Tablet: Earnings per share Interpretation: The banks earning per share increased from 27. 35 to 59. . That means it would send a positive signal to the investors to invest in city bank. This happened as there was a boom in the share market. Problems and Prospects The bank shows net profit after tax of Take 240 million, Take 343 million, Take 398 million, Take 819 million and Take 1849 million in 2006, 2007, 2008, 2009 and 2010 respectively.
This has enabled the bank to payout the dividends at substantive rates in years 2006, 2007, 2008, 2009 and 2010. Because of this share price will appreciate in value in the future years and will increase shareholders wealth. In 2010 the economy was in recovery mode. Financial conditions are expected to remain stable however high price of commodities and inflation in economy is a big concern. So decisive policy has to be taken to minimize risk and sustain growth. Liquidity and solvency The liquidity of a business firm is measured by its ability to satisfy its short term obligations as they come due. Liquidity refers to the solvency of the firm’s overall financial position.
The three basic measures of liquidity are- Current ratio The current ratio, one of the most commonly cited financial ratios, measures the firm’s ability to meet its short term obligations. It is expressed as: Current Ratio?current Asset/Current Liabilities 1. 20 1 . 34 Tablet: Current ratio(times) Interpretation: Banks liquidity increased from 1. 20 times in 2009 from 1. 34 times in 2010. So it is bank will be able to pay all its debts. Dividend policy There are mainly two types of dividend policies that a company can follow and they are given below: Cash Dividend- Money paid to stockholders, normally out of the corporation’s current earnings or accumulated profits.
Stock Dividend- A dividend payment made in the form of additional shares, rather than a cash payout. Companies may decide to distribute stock to shareholders of record if the company’s availability of liquid cash is in short supply. Most of the banks have declared stock dividend over the period 2006 to 2010. City bank declared 30% stock dividend for the year 2010. It is observed that dividend for a certain year is declared, recorded, and distributed in the subsequent year. For example: dividend for 2010 is declared, recorded, and distributed in 2011. Provision for bad and doubtful loans On unclassified loans and advances/ investments 1% On unclassified small & medium enterprise financing