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A Study on Financial Statement Analysis of HDFC Bank
NANDINI THAKUR [PG scholar]; M. SHIVA[Guide, Assistant Professor];
Dr.K. VEERAIAH (PhD) [Head of the Department].
Department: - Department of Management Studies.
Branch: MBA (Finance)
MARRI LAXMAN REDDY INSTITUTE OF TECHNOLOGY AND MANAGEMENT
E-mail: - [email protected]
ABSTRACT
The financial analysis is the process of identifying the financial strength and weakness of the
firm establishing relationship between the items of balance sheet and the profit and loss
account.
This study was conducted to assess HDFC Bank's financial performance. HDFC was among
the first to receive an 'in principle' approval from Reserve Bank of India (RBI) to establish a
private sector bank.The bank currently has an enviable network of more than 4,805 outlets,
distributed throughout India 's towns. Both divisions are in real time linked online.
Customers are now serving via mobile banking in over 500 places. The bank already has a
network of about 12,860 networked ATMs 2,657 throughout towns and regions.HDFC Bank
offers a range of products and services including wholesale banking and retail finance,
treasury, vehicle loans, two-wheel loans, personal loans, land loans, consumer-sustainable
loans, lifestyle loans, credit cards and other digital goods.Over the past five years, i.e. 2015,
2016, 2017, 2018 and 2019, the financial results of the above listed bank have been
measured. Data analyzed through ratio analysis such as current ratio, cash position ratio,
fixed asset ratio, debt-equity ratio, and proprietary ratio, and interpretation of each ratio is
given. To conclude this article, the Bank's financial soundness during the study is satisfactory
Keyword:Financial performance, Ratio analysis of HDFC bank.
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INTRODUCTION
Finance is the master key that provides access to all manufacturing and merchandising
sources. Financial success is important for the preparation and management of financial
decisions.It is a process of measuring how effectively a company uses its assets from the
primary business mode to raise revenues and measures organizations' entire financial health
over a given period of time.For the period from 2013-2014 to 2017-2018, financial
performance evaluation was carried out on the basis of certain selected parameters such as
liquidity, solvency and profitability ratios. HDFC is among the biggest institutions in the
private sector.This process served to clearly understand the bank's long-term and short-term
growth. There are several ways in which the researcher used data in this research to analyze
the ratio analysis. This useful research also evaluates the bank's credit worthiness when
determining the rivals' business place.From the total information contained in the financial
statements, the financial analyst needs to select the information relevant to decision making
under consideration. The information then needs to be arranged in a way to highlight the
important relationship. After that the inferences and conclusions are interpreted and drawn.
Financial statements may be used by users for different purposes:
• Owners and managers require financial statements to make significant business decisions
affecting their continued existence.
• Financial analysis of these statements is then carried out to provide a more detailed
understanding of the figures for management.
• Such declarations are sometimes regarded as the basis of handling the stockholders' annual
report.
Tools for financial statement analysis:
The history of financial statement analysis is traced back to the beginning of 20th century.
The analysis was started in western countries for the use of credit analysis. Till 1914,
thefinancial institutions used to relay on the facts of financial statements. But over a period of
time, the need for analysis was felt and a number of techniques were invented and made use
of the purpose of analysis. The most important tools of analysis and interpretation of financial
statements are listed below;
• Ratio analysis;
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• Cash flow analysis;
• Fund flow analysis;
• Comparative financial statement;
• Common size analysis;
• Net working capital analysis;
• Trend analysis;
HDFC Bank was incorporated in August 1994. As of September 30th, 2019, the Bank had
5,314 branches and 13,514 ATM's in 2,768 cities / towns across the country.
The Housing Development Finance Corporation Limited (HDFC) was among the first to
receive an approval 'in principle' from Reserve Bank of India (RBI) to establish a private
sector bank,As part of RBI 's 1994 Indian Banking Sector liberalization. The bank, with its
registered office in Mumbai, India, was established in August 1994 in the form of 'HDFC
Bank Limited.' In January 1995 HDFC Bank began operations as a Scheduled Commercial
Bank.
Vision:
To be the leading provider of financial services in India and a major global bank.
Mission:
We will leverage our people, technology, speed and financial capital to:
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.
OBJECTIVES OF THE STUDY
To measure HDFC Bank financial results.
Analysis of the Bank's liquidity and solvency status.
To offer suggestions that are based on study findings.
Measuring the efficiency of various properties with bank's turnover.
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HYPOTHESIS
NULL HYPOTHESIS:
H0= Financial statement will not have any significant relationship.
H1= The relation between the financial statements will be significant.
ALTERNATE HYPOTHESIS:
H0 = Financial statement will not have any significant relationship.
H1= The financial statement will have a significant relation.
METHODOLOGY
This study is quantitative in nature, meaning that it deals primarily with the HDFC Bank's
financial statements over the last five years. This study is based on secondary data and annual
reports taken from the website of banks. The data were evaluated through the review of the
ratio and the Bank's output for the sample duration were easily clarified.
DATA ANALYSIS:
Some of the major ratios have been evaluated and interpreted for the purpose of
understanding the financial performance of the bank.
CURRENT RATIO:
Current ratio establishes relationship between current assets and current liabilities. Current
assets mean any asset is converted in to cash within a year or 12 months. Current liabilities
are those liabilities are settled or repay within a year.
Current Ratio = Current Assets/ Current Liabilities.
The standard norm or rule of thumb for current ratio is 2:1. It means that let the total amount
of current liabilities. When a bank’s current ratio is 2 or more it means that its liquidity
position is good.
Table.1
Year 2018-19 2017-18 2016-17 2015-16 2014-15
Current Ratio 6.74 7.97 4.64 5.52 6.24
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Current Ratio
9
8
7
6
5
4
3
2
1
0
2018-19 2017-18 2016-17 2015-16 2014-15
Table 1 shows that in 2014-15, the current ratio was 6.24, and increased to 5.52 and 4.64 in
2015-16 and 2016-17. The ratio was raised 7.97 in 2017-18 and in 2018-19 year. This
suggests that the profitability of banks and their debt repayments are strong throughout the
study era.
CASH POSITION RATIO:
Sometimes known as "Absolute Liquidity Ratio" or Ultra Simple Ratio. That's a quick-ratio
variation. This measure is determined when currency- and cash-equivalent availability is
strongly constrained. The percentage compares assets and close assets object availability, and
total short-term liabilities. Cash-position ratio is determined using the formula below.
CashPositionratio=CashandBankBalances+MarketableSecurities/Curren
tLiabilities
Anidealcashpositionratiois0.75:1.Thisratioisamorerigorousmeasureofafirm’sliquidity
position.
Table 2
Year 2018-19 2017-18 2016-17 2015-16 2014-15
CPR 1.47 2.68 0.86 1.05 1.11
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Cash Position Ratio
3
2.5
1.5
0.5
0
2018-19 2017-18 2016-17 2015-16 2014-15
Table 2 demonstrates the bank's willingness to meet its contractual commitments, which
offers the business a stronger role. Cash status Ratio for 2014-15 is 1.11 and had dropped by
1.05 and 0.86 respectively in 2015-16 and 2016-17. Yet this had risen to 2,68 in the year
2017-18. It had been down 1.47 in the year 2018-19. The Bank's liquidity status is strong
throughout the study time.
LONG-TERM SOLVENCY RATIOS
FIXED ASSETS RATIO:
This ratio deals the relationship between fixed assets and long-term funds. The primary motto
of this ratio is to ascertain the proportion of long-term funds invested in fixed assets.
Fixed Assets Ratio = Fixed Assets/ Long-Term Funds
An ideal fixed assets ratio is 0.67. The ratio must not be more than 1, if the ratio is less than
1it indicates that a portion of working capital had financed by long-term funds.
Table 3
Year 2018-19 2017-18 2016-17 2015-16 2014-15
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FAR 7.39 6.95 7.07 6.61 6.22
fixed assets ratio
7.6
7.4
7.2
7
6.8
6.6
6.4
6.2
6
5.8
5.6
2018-19 2017-18 2016-17 2015-16 2014-15
Table 3 displays the Bank's capital assets and long-term reserves. The fixed asset ratio for the
year 2014-15 is 6.22 and rose to 6.61 in 2015-16. The ratio was 7.07 during 2016-17, and it
had decreased by 6.95 in 2017-18. The ratio rose to 7.39 in 2018-19. These ratios are similar
to the normal fixed asset ratio, it is quite high. Compared with the normal average of fixed
asset ratio, such ratios are very small. During the study period, therefore, a portion of
working capital had been financed by long-term funds.
DEBT-EQUITY RATIO:
This measure is otherwise called "External-Internal Measure of Equity" Mainly, the
estimation of the financial soundness of long-term strategies is measured and the respective
shares of insiders and owners are decided. It determines the debt-equity relation.
Debt-Equity Ratio = Shareholders Funds / Total Long-Term Funds
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A high debt-equity ratio shows the highest claims of creditors over assets of the firm than
those of shareholders. A high ratio reveals an unfavorable position of the company. A low
debt-equity ratio indicates lesser claim of creditors and a higher margin is safe for them. The
standard norm of this ratio 2:1 is satisfactory.
Year 2018-19 2017-18 2016-17 2015-16 2014-15
DER 1.27 0.86 1.20 1.37 1.37
Table 4:
Debt Equity Ratio
1.6
1.4
1.2
0.8
0.6
0.4
0.2
0
2018-19 2017-18 2016-17 2015-16 2014-15
Table 4 illustrates the connection between the debt and equity. Throughout 2014-15, the
figure was 1.37, and in 2015-16 it remained the same, accompanied by a 1.20 fall in 2016-17.
It was reduced by 0.86 in 2017-18 but it was improved by 1.27 in the year 2018-19. These
ratios are below the standard 2:1 norm. Therefore, the creditors are secure throughout the
time of analysis.
PROPRIETARY RATIO:
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This ratio is called as owners fund ratio or net worth ratio. This ratio points out relationship
between the stake holder’s funds and total tangible assets.
Proprietary Ratio = Shareholders funds/Total tangible assets
This ratio is very useful to determine the long-term solvency of the company. It is important
to the creditors who can ascertain the proportion of shareholders’ funds in the total assets
employed in the company. Standard norm of this ratio 0.5, below this standard norm the
creditors may have to loss heavily in the event of winding up of the company.
Year 2018-19 2017-18 2016-17 2015-16 2014-15
Proprietary 2.80 2.62 1.95 1.75 2.79
Ratio
Table:5
proprietary ratio
3
2.5
1.5
0.5
0
2018-19 2017-18 2016-17 2015-16 2014-15
Proprietary Ratio
The firm's long-term solvency is clearly explained in Table 5. The level in 2014-15 was 2.79,
and in 2015-16 reduced by 1.75. But during the 2016-17 year, it was raised to 1.95. Followed
by this, it increased to 2,62 and 2,80 respectively in the years 2017-18 and 2018-19.Both
percentages are in excess of the normal 0.5. It obviously indicates that the creditors during
the study time are extremely safe
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FINDINGS:
1. The current ratio indicates that the liquidity of banks and their debt repayment is sound
during the study period.
2. Cash status ratio or Total Liquidity Ratio indicates the bank's liquidity situation is strong
over the study time.
3. Fixed asset ratio explains the portion of working capital during the study period had been
financed by long-term funds.
4. Debt equity ratio explains how safe the creditors are during the period of study.
5. The ownership ratio reveals that the long-term solvency position of the Bank is good
during the period of study.
SUGGESTIONS:
1. HDFC Ltd 's total liquidity status has fluctuated over the study period but it still retains
adequate funds that are more than appropriate to meet the concern's short-term obligations.
2. The chosen unit 's long-term solvency is more than satisfactory and HDFC is heavily
dependent on funding from outside rather than bond capital.
3. This study indicates that HDFC Ltd will offer further housing loans for the nation's growth
to the citizens of India.
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