A

Project Report On

Ratio Analysis
At
Bank of India
Submitted to
Yashwantrao Chavan Maharashtra Open University
In the Partial Fulfilment of the
Requirement for
Master of Business Administration

Submitted By

Thakar Namrata Bhausaheb

Under the guidance of

DR. P. D. JAIN

51104, IMRRD, AHMEDNAGAR

Academic Year
2019 - 2020
 CERTIFICATE

This is to certify that Mr. /Miss. Namrata Bhausaheb Thakar is

a bonafide student of MBA programme of Institute of
Management Research & Rural Development (IMRRD),
Ahmednagar. She/he has undertaken and completed the project
work as prescribed by YCMOU, Nashik for the partial fulfillment
of MBA degree course on topic: The Ratio Analysis with
Reference to Bank of India, Baramati. His/her project is highly
appreciated by the Institute. She/he is a sincere student with
pleasant disposition, cool and calm. She/he displayed good
interpersonal skills during the project.
We wish him/her all the best for the future endeavors.

(Project Guide) Centre Co-coordinator

 DECLARATION

I here declare that this project titled “RATIO ANALYSIS” submitted by me is based
on actual work carried out by me under the guidance and supervision of DR. P. D. Jain. Any
reference to work done by any other person or institution or any material obtained from other
sources have been duly cited and referenced. It is further to state that this work is not
submitted anywhere else for any examination.

Date:-
Place: - Ahmednagar

Miss. Namrata Bhausaheb Thakar

MBA (FINANCE)
51104, IMRRD, AHMEDNAAGR
 ACKNOWLEGDEMENT

A project in an organization is an experience wherein the academic knowledge gained

from the institute is applied in a practical manner. I had an opportunity to complete my
project in “Bank of India.”
This project is a great source of earning and a good experience as it made me aware of
professional culture and conducts that exists in an organization.
In this journey many people were influential without whom the task would have been
complete. I am very thankful to Dr. P.D Jain for granting me permission to perform this
project.
I am also thankful to Prof. Ahiwale who is project guide, for helping me at all stages
of my project work and for properly guiding me in the preparation of this project report.
The rich experience, which I gathered during my short stay with the bank, will act, as
a valuable tool in my future. I will always carry very fond memories of these training days.

Miss. Namrata Bhausaheb Thakar

MBA (Finance)
 Index

Chapter Name of The Chapter Page No.

No.

1. Introduction 1-6

2. Company Profile 7-13

3. Overview of Ratio Analysis 14-22

4. Research Methodology 23-28

5. Data Presentation and Analysis 29-71

6. Findings, Conclusions and Recommendations 72-75

Bibliography and Webliography 76

 Sub – Index

Sr. No. Name of Ratios Page No.

1. Current Ratio 52-53

2. Absolute Liquid Ratio 54-55

3. Debt Equity Ratio 56-57

4. Net Working Ratio 58-59

5. Return on Capital Employed Ratio 60-61

6. Fixed Asset to Shareholder’s Fund Ratio 62-63

7. Proprietary Ratio 64-65

8. Capital Gearing Ratio 66-67

9. Solvency Ratio 68-69

10. Fixed Asset Ratio 70-71

CHAPTER NO. 1
INTRODUCTION

1
 Executive summary

Financial statements provide summarized view of the financial position and operation of the
bank. Therefore, now a day it is necessary to all banks to know as well as show the financial
soundness that is position and operation of the bank.
This project was carried out in Bank of India. The project was done in Finance Department
of the bank. The duration of the project was limited. The main focus of my study is to analyze the
performance of the bank by using the “Ratio Analysis” techniques. Being in BBA, I found this
opportunity to determine the relationship of different factors which have impact on the financial
position of the bank.
In this report I made an effort to know the financial position of Bank of India, by using the
Annual Reports and Financial Statement of the bank. The financial analysis of this report will show
the strengths and weaknesses of the Bank of India. Financial analysis will help the bank to take the
decisions.
The financial statement refers to formal and original statements which are prepared to
disclose financial health of the bank in terms of profits, position, and prospects as on a certain data.
Ratio analysis measures profitability, efficiency, and financial soundness of the business. In this
attempt, it made to focus on analyzing and interpreting the ratios to study the financial performance
of Bank of India for the year 2014-2015, 2015-2016, 2016-2017, 2017-2018 and 2018-2019.

2
 Meaning and Concept of Ratio Analysis

The term “Ratio” refers to the numerical and quantitative relationship between two items or
variables. The relationship can be exposed as:
The historical performance and current financial condition can be determined. Ratio reflects
a quantitative
 Percentage

 Fractions

 Proportion of numbers

Ratio analysis is defined as the systematic use of the ratio to interpret the financial
statements. Ratio reflects a quantitative relationship helps to form a quantitative judgment. So that
the historical performance and current financial condition can be determine.
Ratio analysis is one of the popular tools of financial statement analysis. In simple words,
ratio is the quotient formed when one magnitude is divided by another measured in the same unit. A
ratio means “the indicated quotient of two mathematical expressions” and as “the relationship
between two or more things”.
Often however, the ratio is expressed in units. Thus, the ratio is a pure quantity or number,
independent of the measurement units being used. It is a mathematical yardstick that measures the
relationship between two financial figures. It involves the breakdown for the examined financial
report into component part which is then evaluated in relation to each other and to exogenous
standards.
Ratio analysis should not be considered as the ultimate objective test but it may be carried
further based on the outcome and relations about the causes of variations.
Ratios may serve as indicators, clues, or red flags regarding noteworthy relationships
between variables used to measure the firm’s performance in terms of profitability, asset utilization,
liquidity, leverage, or market valuation. This analysis can be use to spot trends that may cause for
concern, such as an increasing average collection period for outstanding receivables or a decline in
the firm’s liquidity status. In this role, ratios serve as red flags for troublesome issues, or
benchmarks for performance measurement.

3
 Financial ratios used by parties both internal and external to the firm. External user includes
security analyst, current and potential investors, creditors, competitors, and other industry
observers. Internally, manager does ratio analysis to monitor performance and pinpoint strengths
and weaknesses from which specific goals, objectives, and policy initiatives may be formed.

Definitions

1. According to Kohler,

“A ratio is the relation, of the amount, a, to another, b, expressed as the ratio of a t to b; a: b

(a as to b); or as a simple fraction, integer, decimal fraction or percentage”.

2. According to Myers,

“Ratio analysis is a study of relationship among the various financial factors in business”.

3. According to Webster,

“A way of expressing relationship between firms’ accounting number and their trend over
time that analysts are use to establish values and evaluate risks”.

4
 Standard of Comparison

The ratio analysis involves comparison for a useful interpretation of the financial statements.
A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared
with some standard. Standard of comparison may consist of:

1. Past Ratio:
Ratios are calculated from past financial statements of firm.

2. Competitor’s Ratio:
Ratios of the some selected firms, especially the most progressive and successful
competitor, at the same point in time.

3. Industry Ratio:
These are the ratios of the firms that belong to different industries.

4. Projected Ratios:
Ratios developed using the projected, or pro forma, financial statements of the same firm.

To evaluate the performance of a firm, compare its current ratios with the past ratios. When
financial ratios over a period of time are compared, it is known as time series or trend analysis. It
gives an indication of the direction of change and reflects whether the firm’s financial performance
has improved or deteriorated or remained same over time.
The analyst should not simply determine the change, but more importantly he should
understand why ratios have changed. The change may be affected by changes in the accounting
policies without material change in the firm’s performance.

5
 Sometimes future ratios are used as the standard of comparison. Future ratios can be
developed from the projected or per forma financial statements. The comparison of past ratios with
future shows the firm’s relative strengths and weaknesses in the past corrective action should be
initiated. Another way of comparison is to compare ratios of one firm with some selected firms in
the same industry at the same point in time. This kind of comparison is known as the cross sectional
analysis. In most cases it is more useful to compare the firm’s ratios of carefully selected
competitors, which have similar operation.
The kind of comparison indicates the relative financial position and performance of the firm.
A firm can easily resort to such a comparison, as it is not difficult to get the published financial
statements of similar firms. To determine the financial condition and performance of a firm, its
ratios may be compared with average ratios of industry to which the firm belongs. Industry ratios
are important standards in view of the fact that each industry has its characteristics, which influence
the financial and operational relationships. But there are certain practical difficulties in using the
industry ratios. First it is difficult to get average ratios for the industries. Second, even if industry
ratios are available, they are the averages of the strong and weak firms.
Sometimes spread may be so wide that the average may be little utility. Third, the average
may be meaningless and the comparison futile if the firms with in the same industry widely differ in
their accounting policies and practices. If it is possible to standardize the accounting data for
companies in the industry and eliminate extremely strong and extremely weak firms. The industry
ratios will prove to be very useful in evaluating the relative financial condition and performance of
the firm.

6
CHAPTER NO. 2
BANK PROFILE

7
 Introduction of Bank of India

Type: Public

Traded as: BSE: 532149

NSE: BANKINDIA

Industry: Banking, financial services

Founded: 7 September 1906; 111 years ago

Headquarters: Mumbai, India

Key people: Dinbandhu Mohapatra (MD and CEO)

Products: Commercial Banking
Retail Banking
Private Banking
Asset Management
Mortgage
Credit Cards

Revenue: Rs. 41,796.47crore (US $ 6.4 billion) (2016)

Operating income: Rs. 6,036crore (US$ 920 million) (2016)

Net income: Rs. 6,089.22crore (US$ 930 million) (2016)

Total assets: Rs. 609,913.93crore (US$ 93 billion) (2016)

Owner: Government of India

Capital ratio: 12.01% (2016)

Website: www.bankofindia.com

8
 Overview of Bank of India
Bank of India (BOI) is commercial bank with headquarter at Bandra - Kurla complex,
Mumbai. Founded in 1906, it has been government- owned since nationalization in 1969. Bank of
India has 5100 branches as on 31 January 2017, including 56 branches outside the India, which
includes five subsidiaries, five representative offices, and one joint venture. Bank of India is a
founder member of SWIFT (Society for Worldwide Interbank Financial Telecommunication),
which facilitate provision of cost effective financial processing and communication services.
The bank came out with its maiden public issue in 1997 and followed on Qualified
Institution Placement in February 2008. While firmly adhering to a policy of prudence and caution,
the bank has been in the forefront of introducing various innovative services and system. Business
has been conducted with the successful blend of traditional values and ethics and the most modern
infrastructure.
The bank has been the first among the nationalized bank to establish a fully computerized
branch and ATM facilities at Mahalaxmi branch at Mumbai way back in 1989. It pioneered the
introduction of Health Code System in 1982, for evaluating or rating its credit portfolio. Presently
the bank has overseas presence in 22 foreign countries spread over 5 continent with 60 offices
including five subsidiaries, five representative offices and one joint venture at key banking and
financial centre namely; Tokyo, Singapore, Hong- Kong, London, Jersey, Paris, and New York.
Some of the popular supplementary services offered by the bank are as follows:

 Depository services.

 Gold coin (new).

 Insurance (Domestic Travel, health, education, etc.)

 Mutual Fund.

 Remittance.

 Safe custody.

 Star cash management services.

9
 History of Bank of India

Bank of India was founded on September 07, 1906 by a group of eminent businessmen from
Mumbai. The bank was under private ownership and control till July 1969 when it was nationalized
along with 13 other banks. Beginning with one office in Mumbai, with paid up capital 50 lacks and
50 employees, the bank has made a rapid growth over the year and blossomed into a mighty
institution with a strong national presence and sizeable international operations. In bank volume, the
bank occupies a premier position among the nationalized banks.
The bank has 3101branches in India spread over all states or union territories including 141
branches. These branches are controlled through 48 zonal offices. There are 29 branches or offices
(including three representative offices) abroad. The bank came out with its maiden public issue in
1997 and follow on Qualified Institution Placements in February 2008. Total number of
shareholders as on September 30, 2009 is 215,790.
The bank’s association with the capital market goes back to 1921 when it entered into an
agreement with the Bombay Stock Exchange (BSE) to manage the BSE clearing house. It is an
association that has blossomed into a joint venture with BSE, called the Bank of India Shareholding
limited to extend depository services to the stoke broking community.

Board of Directors

NAME DESIGNATION
Shri. G. Padmanabham Non Executive Chairman.
Shri. Dinbandhu Mohapatra Managing Director and CEO.
Shri. Neelam Damodharan Executive Director.
Shri. Atanu Kumar Das Executive Director.
Shri. Chaitanya Gayatri Chintapalli Executive Director.
Shri. Girish Chandra Murmu Government Nominee Director.
Smt. R. Sebastien RBI Nominee Director.
Ms. Veni Thapar Part Time Non official Director.
Shri. Dababrata sarkar Shareholder Director.
Shri. Devarajan Harish Shareholder Director.

10
 Vision and Mission

Vision
“To become the bank of choice for corporate, medium business and up market Retail
Customers and developmental banking for small businesses, mass markets and rural markets”.

Mission
“To provide superior, proactive banking service to niche market globally, while providing
cost effective, responsive services to others in our role as a development bank, and in doing so,
meet the requirements of our stakeholders”

Quality Policy
“We, at Bank of India, are committed to become the bank of choice by providing
SUPERIOR, PROACTIVE, INNOVTIVE, STATE- OF- THE- ART banking services with an
attitude of care and concern for the customers and the patrons”.

11
 Awards / Certifications received by the Bank

2010–2011
 The bank received the Winners Award in International Banking Technology Award 2010 from
IBA in the Best Business Enablement Initiative category in recognition of its achievement in
Banking Technology for the Year 2009.
 The bank adjudged FE–EY Most Efficient Public Sector Bank 2010 by Dalal Street.
 Mumbai North Zone of the bank received Third Prize for use of Official Language Hindi in Bank
from Government of India, Ministry of Home Affairs, and Official Language Department.
 The bank received the consolation prize from Maharashtra State Level Bankers Committee for
commendable work done in implementation of official language in Hindi.
 The bank received National Award for Best Bank in West Zone for PMEGP under lending to
KVIC in August 2010.
 The bank has been rated by The Economic Times/The Nielsen company survey The Most Trusted
Brands (MTB) 2010 as follows:– Under PSU Banking Category – 2nd next to SBI– Under Top
Service Brands – 8th rank

2009–2010
 Best Performance in Western Zone under the Rural Employment Generation Program (REGP) of
KVIC.
 The bank rated by the Economic Times / The Nielsen Company survey as The Most Trusted
Brands(MTB) 2009 as follows :– Under PSU Banking Category – 2nd next to SBI.– Under Top
Service Brands – 8th
 The Debutant – 1st time in top 100
 NDTV Profit Business Leadership Awards 2009 – Best PSU Bank
 Outlook money NDTV Profit Awards 2009 – Best Education Loan Provider – Runner up
 CIO Green Information Technology Award
 Dun & Bradstreet – Rolta Corporate Awards 2009, Best Bank under Banking Category
 FE–EY Most Efficient Public Sector Bank Awards 2010 by Dalal Street
 Second Rank for excellent performance in lending to Micro & Small Enterprises Sector by the
Ministry of Micro, Small & Medium Enterprises. Also, Best Performing bank for covering
maximum number of Micro & Small accounts under collateral free lending scheme of CGTMSE
12
 2008–2009

 The NDTV Business Leadership Awards 2008 – India Best PSU Bank Award.
 Business World – PWC Survey – No. 1 Public Sector Bank
 Business Today – KPMG Survey – Ranked No. 1 – The Best Banks 2008.
 Dun & Bradstreet Study 2008 – Best Public Sector Bank and Overall Best Bank in the country.
 Dun & Bradstreet – Rolta Corporate Awards 2008 – Top Indian Company under Banks
 Prestigious CIO 100 Award 2008 for the Bank Green IT initiative

2007–2008

 Second National Award for excellence in lending to MSE sector for the year 2006–07.
 Golden Jubilee Award 2007, for performance under KVIC during 2006–2007 under Western
Region, issued by Ministry of Micro, Small & Medium Enterprise, Government of India.
 Best Performance Award under Mission Shakti for financing Women SHGs during 2007–08 in
the State of Orissa by the Government of Orissa.
 The bank was awarded International Award for Excellence in outsourcing sponsored by Everest
Group & Forbes at New York, USA

13
 CHAPTER NO 3
OVERVIEW OF
RATIO ANALYSIS

14
 Concept of Ratio

The term ‘ratio’ refers to the mathematical relationship between any two interrelated
variables. In other words, it establishes relationship between two items expressed in quantitative
form.
The ratios can be represented in the various forms. They are as follows:

 Percentage:
It is a special type of ratio which expresses the relation between two numerical facts
per hundred.
For example: gross profit is 20% of the sale.

 Quotient:
A ratio may be expressed as quotients.
For example: the current ratio of a XYZ ltd. is 2:1.

 Rates:
It is indeed ratio between two numerical facts covering generally a definite period of
time.
For example: the stock turnover is four times a year.

Definition:

According to J. Batty,
“A ratio can be defined as the term accounting the ratio is used to describe significant
relationships which exist between figures shows in the balance sheet and profit and loss account in
a budgetary control system or any other part of the accounting management”.

15
 Meaning and Definition of Ratio Analysis

The analysis of the financial statements and interpretations of financial results of a particular
period of operations with the help of ‘ratio’ is termed as “Ratio analysis”. Ratio analysis used to
determine the financial soundness of the business concern. Alexander Wall designed a system of
ratio analysis and presented it in useful form in the year 1909.
Ratio analysis is the process of determining and interpreting numerical relationships based
on financial statements. A ratio is a statistical yardstick that provides a measure of the relationship
between two variables or figures.
Ratio analysis is to present the figure of financial statement in simple and intangible form.
Ratio analysis, in this way, is the process of establishing meaningful relationship between two
figures and set of financial statement. Thus, ratio analysis measures the profitability, efficiency
and financial soundness of the business.

Definition:

According to Myers,

“Ratio analysis is a study of relationship among the various financial factors in a business”.

16
 Use of Ratio Analysis

Ratios are useful for several parties such as:

1) Investors, both present as well as potential investors.

2) Financial analyst.

3) Mutual funds.

4) Stock broker and stock exchange authorities.

5) Government.

6) Tax department.

7) Competitors.

8) Research analyst and students.

9) Company’s management.

10) Creditors and suppliers.

11) Lending institutions.

12) Financial manager.

13) Other interested parties like credit rating agencies etc.

17
 Nature of Ratio analysis

Ratio analysis is a technique of analysis and interpretation of financial statements. It is the

process of establishing and interpreting various ratios for helping in making certain decisions. It is
only a means of understanding of financial strengths and weaknesses of a firm. There are a
number of ratios which can be calculated from the information given in the financial statements,
but the analyst has to select the appropriate data and calculate only a few appropriate ratios. The
following are the steps involved in the ratio analysis:

 Selection of relevant data from the financial statements depending upon the objectives of the
analysis.

 Calculation of appropriate ratios from the above data.

 Comparison of the calculated ratios with the same firm in the past, or the ratios developed
from projected financial statements or the ratios of some other firms or the companies with
ratios of the industry to which the firm belongs.

Interpretation of the ratios

The interpretation of ratios is an important factor. The inherent limitations of ratio analysis
should be kept in mind while interpreting them. The impact of the factors such as price level
changes, change in accounting policies, window dressing, etc, should also be kept in mind when
attempting to interpret ratios. The interpretation of ratios can be made in the following ways:

 Single absolute ratio.

 Group of ratios.

 Historical comparison.

 Projected ratios.

 Inter- firm comparison

18
 Guidelines or precautions for use of ratios

The calculation of ratios may not be a difficult task but their use is not easy. Following
guidelines or factors may be kept in mind while interpreting various ratios as follows:

 Accuracy of financial statements.

 Objective or purpose of analysis.

 Selection of ratios.

 Use of standards.

 Caliber of the analysis.

Advantages of ratio analysis

1. Helpful in analysis of financial statements:

Ratio analysis is an extremely device for analyzing the financial statements. It helps the
bankers, creditors, investors, shareholders, etc. in acquiring enough knowledge about the
profitability and financial health of the business. In the light of the knowledge so acquired
by them, they can take necessary decisions about their relationships with concern.

2. Simplification of accounting data:

Accounting ratios simplifies and summarizes a long array of accounting data and makes
them understandable. It discloses the relationship between two such figures, which have a
cause and effect relationship with each other.

19
3. Helpful in comparative study:
With the help of ratio analysis comparison of profitability and financial soundness can be
made between one firm and another in the same industry. Similarly, comparison of current
year figures can also be made with those of previous years with the help of ratio analysis

4. Helpful in locating the weak spot of the business:

Current year’s ratios are compared with those of previous years and some weak spots are
there thus located, remedial measures are taken to correct them.

5. Helpful in forecasting:
Accounting ratios are very helpful in forecasting and the plan for the future.

6. Estimate about the trends of the business:

If accounting ratios are prepared for a number of years, they will reveal the trends of costs,
sales, profits, and other important facts.

7. Fixation of ideal standards:

Ratio helps us in establishing ideal standards of the different items of the business. By
comparing the actual ratios at the end of the year with the ideal ratios, the efficiency of the
business can be measured.

20
8. Effective control:
Ratio analysis discloses the liquidity, solvency and the profitability of the business
enterprise. Such information enables management to access the change that have taken
place over a time in the financial activities of the business. It helps them in discharging
their managerial functions e.g. planning, organizing, directing, communicating and
controlling more effectively.

Limitations of ratio analysis

1. False accounting data gives false ratios:

Accounting ratios are calculated on the basis of given data in profit and loss and balance
sheet. Therefore they will be only as correct as accounting data on which they are based.

2. Comparison not possible if different firm adopt different accounting policies:

There may be different accounting policies adopted by different firms with regard to
providing depreciation, creation of provision for doubtful debts, methods of calculation of
closing stock, etc. For instance, one firm may adopt the policy of charging depreciation on
straight- line basis, while other may charge on written-down value method. Such
differences make the accounting ratios incomparable.

3. Ratio analysis become less effective due to price level changes:

Price level over the year goes on changing, therefore, the ratios of various year cannot be
compared.

4. Ratios may be misleading in the absence of absolute data:

Conclusion is quite misleading because the difference in the size of the two firms. It is,
therefore, essential to study the ratios along with the absolute data on which they are based

21
5. Limited use of a single ratio:
The analyst should not merely rely on a single ratio. He should study several connected
ratios before reaching a conclusion.

6. Window dressing:
Some companies in order to cover up their bad financial position resort to window dressing
i.e. showing a better position than the one, which really exists. They change their balance
sheet in such a way that the important facts and truth may be concealed.

7. Lack of proper standards:

Circumstances differ from firm to firm hence no single standard ratio can be fixed for all
the firms against which the actual ratio may be compared

8. Ratios alone are not adequate for proper conclusions:

Ratios derived from analysis of statements are not sure indicators of good or band financial
position, and profitability of firm. They merely indicate the profitability of favorable or
unfavorable position. The analyst has to carry out further investigations and exercise his
judgment in arriving at a correct diagnosis.

9. Effect of personal ability and bias of analysts:

Another important point to keep in mind is that different persons draw different meaning
of different terms. One analyst may calculate ratios on the basis of profit after income and
tax; a third may consider profits after interest but before tax. Therefore, before making
comparisons, one must be sure that the ratios have been calculated on the same basis.

22
CHAPTER NO 4
RESEARCH
METHODOLOGY

23
 Introduction

Data is collection of necessary details to gain further information. The data is classified into
two types:

1. Primary data

2. Secondary data

 Data collection:

1. Primary data:
The primary data is collected from finance and accounting department of the bank and
interaction with staff of the bank.

2. Secondary data:
It is collected from the audited financial statement, annual reports of the financial year 2012-
2013, 2013- 2014, 2014- 2015, and 2015- 2016.

 Tools of data analysis:

 Diagrams

 Charts

 Percentages

 proportions

24
 Research Objectives

The finance project ratio analysis assesses the financial strengths and weaknesses of Bank of
India through financial ratio analysis. Following are some objectives of the research:
1. To evaluate the performance of the company by using ratios as a yardstick to measure the
efficiency of the bank.

2. To understand liquidity, profitability and efficiency position of the bank during the study
period.

3. To evaluate and analyze various facts of the financial performance of the bank.

4. To make comparisons between the ratio during different period.

5. To study the present financial position at Bank of India.

Scope of the Study

The research has great significance and provides benefit to various parties whom directly or
indirectly interact with bank.
1. It is beneficial to management of the bank by providing crystal clear picture regarding
important aspect like liquidity, leverage, and profitability.

2. The study is also beneficial to employees and offer motivation by showing how activity they
are contributing for bank’s growth.

3. The investors who are interested to invest in the bank’s shares will also get benefited by going
through the study and can easily take a decision whether to invest or not to invest in the
bank’s shares.

25
 Need of the study

1. The financial performance of the company is known by calculating financial statement and
ratio.

2. The study is beneficial to employees and offer motivation by showing how actively they are
contributing for company’s growth.

3. To know the societies contribution to build the industry and also organization.

4. Ratio analysis is a useful and powerful tool of financial analysis.

5. Financial analysis is the process of determining strengths and weaknesses of the bank.

6. Ratio analysis is useful for establishing a strategic relationship between the components of
balance sheet and profit and loss account.

7. Financial performance evaluation has great influence on the development and progress of the
industry.

8. The study has great significance and provides benefits to various parties whom directly or
indirectly interact with the bank.

9. It is beneficial to management of the company by providing crystal clear picture regarding

important aspects like liquidity, leverage, activity, and profitability.

26
 Limitation of the project

1. The study provides an insight into the financial, personnel, marketing, and other aspects of
Bank of India. Every study will bound with certain limitations.

2. The below mentioned are the constraints under which the study is carried out.

3. One of the factors of the study was lack of availability of ample information. Most of the
information has been kept confidential and such as not assessed as art of policy of
company.

4. Time is an important limitation. The whole study was conducted in a period of 90 days,
which is not sufficient to carry out proper interpretation and analysis.

5. The accuracy of the ratios is subjected to the validity of information provided through
balance sheet and profit and loss account and interaction with management.

27
 Hypothesis

1. Liquidity ratio of the bank is satisfactory during the period 2014-2019.

2. Profitability ratio of the bank is satisfactory during the period 2014-2019.

3. Present financial performance of the bank is satisfactory.

4. There is a growth in financial performance of the bank during the period of2014-2019.

5. Bank of India has achieved balance between its various factors during the period of 2014-
2019.

28
 CHAPTER NO. 5
DATA PRESENTATION
AND ANALYSIS

29
 Types of ratios

Accounting Ratios are classified on the basis of the different parties interested in making use
of the ratios. A very large number of accounting ratios are used for the purpose of determining the
financial position of a concern for different purposes. Ratios may be broadly classified in to:

(1) Classification of Ratios on the basis of Balance Sheet.

(2) Classification of Ratios on the basis of Profit and Loss Account.
(3) Classification of Ratios on the basis of Mixed Statement (or) Balance Sheet and Profit and
Loss accounts.

This classification further grouped in to:

I. Liquidity Ratios

II. Profitability Ratios

III. Turnover Ratios

IV. Solvency Ratios

V. Overall Profitability Ratios.

30
These classifications are discussed here under:

1. Classification of Ratios on the basis of Balance Sheet:

Balance sheet ratios are which establishes the Relationships between two balance sheet
items.
E.g. Current Ratio, Fixed Asset Ratio, Capital Gearing Ratio and Liquidity Ratio etc.

2. Classification on the basis of Income Statements:

These ratios deal with the relationships between two items or two groups of items of the
income statement or profit and loss account.
E.g. Gross Profit Ratio, Operating Ratio, Operating Profit Ratio, and Net Profit Ratio etc.

3. Classification on the basis of Mixed Statements:

These ratios are also known as Composite or Mixed Ratios or Inter Statement Ratios. The
inter statement ratios which deal with relationship between the item of profit and loss account and
item of balance sheet.
E.g. return on Investment Ratio, Net Profit to Total Asset Ratio, Creditor's Turnover Ratio, Earning
per Share Ratio and Price Earnings Ratio etc.

31
 Classification of Ratios

Liquidity Ratio Activity Ratio

1. Current Ratio 1. Stock Turnover Ratio

2. Quick Ratio 2. Debtor’s Turnover Ratio
3. Absolute Liquid Ratio 3. Creditor’s Turnover Ratio
4. Total Asset Turnover Ratio
5. Fixed Asset Turnover Ratio
6. Current Asset Turnover Ratio
7. Working Capital Turnover Ratio

Leverage Ratio Profitability Ratio

1. Total Debt Ratio 1. Gross Profit Ratio

2. Debt Equity Ratio 2. Net Profit Ratio
3. Proprietary Ratio 3. Operating Ratio
4. Interest Coverage Ratio 4. Operating Profit Ratio
5. Capital Generating Ratio 5. Expenses Ratio
6. Dividend Coverage Ratio 6. Return on Total Asset
7. Debt Service Ratio 7. Return on Capital
Employed
8. Return on Equity
9. Earnings per Share
10. Price Earnings Ratio

32
 Liquidity ratio

It is extremely essential for a firm to be able to meet its obligations as they become due.
Liquidity ratio measure the ability of the firm to meet its current obligation. In fact, analysis of
liquidity needs the preparation of cash budgets, cash & fund flow statements, but liquidity ratios, by
establishing a relationship between cash & other current asset to current obligations, provide a
quick measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity, and
also that it does not have excess liquidity.
The failure of company to meets its obligation due to lack of sufficient liquidity will result
in poor credit worthiness, loss of creditors confidence or even in legal tangles resulting in the
closure of the company. A very high degree of liquidity is also bad; ideal asset earn nothing. The
firm’s funds will be unnecessary tied up in current assets. Therefore, it is necessary to strike a
proper balance between high liquidity & lack of liquidity.
The most common ratios, which indicate the extent of liquidity or lack of it, are:

1. Current ratio

2. Quick ratio

3. Absolute liquid ratio

33
 Current Ratio

Current ratio is calculated by dividing current assets by current liabilities. Current assets
include cash and those assets that can be converted into cash within a year, such as marketable
securities, debtors and inventories prepaid expense are also included in current assets as they
represent the payments that will not be made by the firm in the future. All obligations maturing
within a year are included in current liabilities. Current liabilities include creditors, bills payable,
accrued expenses, short term bank loan, income tax liability and long term debt maturing in the
current year.
The ideal ratio is 2:1

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Quick Ratio

Quick ratio also called acid-test ratio, establishes a relationship between quick, or liquid,
assets and current liabilities. An asset is liquid if it can be converted into cash immediately or
reasonably soon without a loss of value. Cash is the most liquid asset. Other assets that are
considered to be relatively liquid and included in quick assets are debtors and bills receivable, and
marketable securities (temporary quoted investments). Inventories are considered to be less liquid.
Inventories normally require some time for realizing into cash; their value also has a tendency to
fluctuate. The quick ratio is found out by dividing quick assets by current liabilities.
The ideal ratio is 1:1

𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡𝐴𝑠𝑠𝑒𝑡 – 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

34
 Absolute Liquid Ratio

A financial analyst may examine absolute liquidity ratio & its equivalent to current
liabilities. Trade investment or marketable securities are equivalent of cash; therefore they may be
included in the computation of absolute liquidity ratio. The objective of computing this ratio is to
calculate it together with current ratio and acid test ratio so as to exclude even receivables from the
current assets and find out the absolute liquid ratio. Although receivables, debtors and bills
receivable are generally more liquid than inventories yet there may be doubts regarding their
realization into cash immediately or in time.
The ideal ratio is 1:2

𝐴𝑏𝑠𝑜𝑙𝑢𝑡𝑒 𝐿𝑖𝑞𝑢𝑖𝑑 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑎𝑠ℎ+𝐵𝑎𝑛𝑘+𝑀𝑎𝑟𝑘𝑒𝑡𝑎𝑏𝑙𝑒 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑖𝑒𝑠

𝐿𝑖𝑞𝑢𝑖𝑑 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

35
 LEVERAGE RATIO

Leverage ratio also called solvency ratio. The short-term creditors, like bankers and
suppliers of raw material, are more concerned with the firm’s current debt- paying ability. On the
other hand, long term creditors, like debenture holders, financial institutions etc., are more
concerned with the firm’s long term strength. In fact, a firm should have a strong short as well as
long-term financial position. To judge the long-term financial position of the firm, financial
leverage or capital structure ratios are calculated. These ratios indicate mix of funds provided by
owners and lenders. As a general rule there should be an appropriate mix of debt and owners’ equity
in financing the firm’s assets. Leverage ratios may be calculated from the balance sheet items to
determine the proportion of debt in total financing.
The most common ratios, which indicate the extent of leverage or solvency, are:

1. Total debt ratio

2. Debt equity ratio

3. Proprietary ratio

4. Interest coverage ratio

5. Capital gearing ratio

6. Dividend coverage ratio

7. Debt service ratio

36
 Total Debt Ratio

Several debt ratios may be used to analyze the long-term solvency of a firm. The firm may
be interested in knowing the proportion of the interest-bearing debt in the capital structure. It may,
therefore, compute debt ratio by dividing total debt by capital employed or net assets. Total debt
will include short and long-term borrowings from financial institutions, debentures/bonds, deferred
payment arrangements for buying capital equipment’s, bank borrowings, public deposits and any
other interest bearing loan. Capital employed will include total debt and net worth.
The ideal ratio 2:1

𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜 = 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡

𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑

Debt Equity Ratio

This relationship describing the lenders contribution for each rupee of the owners’
contribution is called debt equity ratio. Debt equity ratio is directly computed by dividing total debt
by net worth. The ratio shares the favourable or unfavourable financial position of the concern.
Equity can improve due to higher ratio due to tax laws regarding interest payment. In other words it
is the ratio of the amount invested by outsiders to the amount of invested by the owners of the
business.
The ideal ratio is 2:1

𝐷𝑒𝑏𝑡 𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 = 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡

𝑁𝑒𝑡 𝑊𝑜𝑟𝑡ℎ

37
 Proprietary Ratio

Proprietary ratio is the test of the financial and credit strength of the business. It relates
shareholders fund to total assets i.e. total funds. This ratio determines the long term and ultimate
solvency of the company. In the other words, proprietary ratio determines as to what extent the
owners interests and expectations are fulfilled from the total investments made in the business
operations. The ratio is calculated by dividing the proprietor’s funds by total assets or total funds.
The relationship is expressed as a pure ratio or as a percentage. It is a test of credit strength. It
determines the extent of trading on equity.
The ideal ratio is 0.5:1

𝑃𝑟𝑜𝑝𝑟𝑖𝑒𝑡𝑎𝑟𝑦 𝑅𝑎𝑡𝑖𝑜 = 𝑃𝑟𝑜𝑝𝑟𝑖𝑒𝑡𝑜𝑟𝑠 𝐹𝑢𝑛𝑑

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡

Interest Coverage Ratio

Debt ratios described above are static in nature, and fall to indicate the firm’s ability to meet
interest obligations. The interest coverage ratio or times interest earned is used to test the firm’s
debt servicing capacity the interest coverage ratio is computed by dividing earnings before interest
and taxes by interest charges. These ratios usually express in x number of times.
The higher ratio is show the higher safety margin.

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐶𝑜𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑎𝑡𝑖𝑜 = 𝐸𝐵𝐼𝑇

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡

38
 Capital Gearing Ratio

Capital gearing ratio brings out the relationship between two types of capital
i.e. capital carrying fixed interest or fixed rate of interest and capital that does not carry fixed rate of
interest or fixed dividend. It is modified counterpart of debt equity ratio. In short, capital gearing
ratio indicates the degree to which capital has been geared in capital structure of company. This
ratio is also known as ‘leverage ratio’ or ‘financial leverage ratio’ or ‘capital structure ratio’.
The low ratio geared can raise funds through long term to give higher returns
to shareholders.
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐺𝑒𝑎𝑟𝑖𝑛𝑔 𝑅𝑎𝑡𝑖𝑜 = 𝐹𝑖𝑥𝑒𝑑 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐵𝑒𝑎𝑟𝑖𝑛𝑔 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑖𝑒𝑠
𝐸𝑞𝑢𝑖𝑡𝑦 𝐶𝑎𝑝𝑖𝑡𝑎𝑙+𝑅𝑒𝑠𝑒𝑟𝑣𝑒 𝑎𝑛𝑑 𝑆𝑢𝑟𝑝𝑙𝑢𝑠

Dividend Coverage Ratio

It measures the ability of a firm to pay dividend on preference which carry a stated rate of
return. This ratio is the ratio of net profits after taxes and the amount of preference dividend. This
ratio indicates margin of safety available to the preference shareholders. It can be seen that although
preference dividend is a fixed obligation, the earnings taken into account are after taxes. This is
because, unlike debt on which interest is charge on the profits of the firm, the preference dividend is
treated as an appropriation of profit.
The higher ratio indicates sufficient amount of retained profits. Even decrease in profit will
not affect payment of dividend in future.

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑡 𝐶𝑜𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑎𝑡𝑖𝑜 = 𝐸𝑎𝑟𝑛𝑖𝑛𝑔 𝐴𝑓𝑡𝑒𝑟 𝑇𝑎𝑥

𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑

39
 Debt Service Ratio

It is considered a more comprehensive and apt measure to compute service capacity of a

business firm. It provides the value in terms of the number of times of the total debt service
obligations consisting of interest and repayment of principal in instalments are covered by the total
operating funds available after the payment of taxes. The higher ratio means higher safety margin.
The ideal satisfactory ratio is 2:1.

𝐷𝑒𝑏𝑡 𝑆𝑒𝑟𝑣𝑖𝑐𝑒 𝑅𝑎𝑡𝑖𝑜 = 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐵𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑇𝑎𝑥

𝐹𝑖𝑥𝑒𝑑 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐶ℎ𝑎𝑟𝑔𝑒𝑠

40
 ACTIVITY RATIO

Funds of creditors and owners are invested in various assets to generate sales and profits, the better
management of assets, the larger amount of sales etc. Activity ratios are employed to evaluate the
efficiency with which the firm manages and utilizes its assets. These ratios are also called turnover
ratios because they indicate the speed with which assets are being converted or turned over to sales.
Activity ratios thus, involve relationship between sales and assets. A proper balance between sales
and assets generally reflects that assets are managed well. Several activity ratios can be calculated
to judge the effectiveness of asset utilization. The various activity or turnover ratios are named as
follows:

1. Stock turnover ratio

2. Debtors turnover ratio

3. Creditors turnover ratio

4. Total asset turnover ratio

5. Fixed asset turnover ratio

6. Current asset turnover ratio

7. Working capital turnover ratio

41
 Stock Turnover Ratio

This ratio indicates the number of times stock is replaced during the year. It measures the
relationship between the cost of goods sold and the inventory level. Stock turnover shows the
efficiency of the firm in producing and selling product. In other words it indicates the frequency of
stock replaced during the given period of time. The ratio can be computed in two ways:-
1. Calculated dividing the cost of goods sold by the average stock and
2. When the opening stock is not given the relationship between sales and closing stock
Is calculating.
The ideal ratio is medium high neither low or nor high. 𝑆𝑡𝑜𝑐𝑘 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜=𝐶𝑜𝑠𝑡 𝑜𝑓
𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑆𝑡𝑜𝑐𝑘

𝑆𝑡𝑜𝑐𝑘 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝑆𝑎𝑙𝑒𝑠

𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑆𝑡𝑜𝑐𝑘

Debtors Turnover Ratio

Firm sales goods for cash and credit. Credit is used as marketing tool by a number of
companies. When the firm extends credit to its customers, debtors are created in firm’s accounts.
Debtors are convertible into cash over a short period and, therefore, are included in current assets.
The liquidity position of the firm depends on the quality of debtors to great extent. It is found out by
dividing credit sales by average debtors.
The lower ratio indicates over investment.

𝐷𝑒𝑏𝑡𝑜𝑟𝑠 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐷𝑒𝑏𝑡𝑜𝑟𝑠

42
 Creditors Turnover Ratio

It similar to debtor’s turnover ratio. It shows the speed with which payments are made to the
suppliers for purchases made from them. It is relationship between net credit purchases and average
trade creditors. It shows the efficiency with which the creditors are managed.

𝐶𝑟𝑒𝑑𝑖𝑡𝑜𝑟𝑠 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑟𝑒𝑑𝑖𝑡𝑜𝑟𝑠

Total Asset Turnover Ratio

Some analysts like to compute the total asset turnover ratio in addition to or instead of the
net assets turnover. This ratio shows the firm’s ability in generating sales from all financial
resources committed to total assets. It measures the overall performance and activity of business
organization.
The ideal ratio more than 2 it indicates efficient utilization and vice versa.

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡

43
 Fixed Asset Turnover Ratio

This ratio establishes a relationship between net sales and fixed assets. The objective of
computing this ratio is to determine the efficiency with which the fixed assets are utilized. An
advance for purchase of a fixed asset is not an operating fixed asset. The ratio is computed by
dividing the net sales by the net fixed assets.
The high ratio indicates better utilization of fixed assets and vice versa.

𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

𝑁𝑒𝑡 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡

Current Asset Turnover Ratio

This ratio establishes a relationship between net sales and current assets. The objective of
computing this ratio is to determine the efficiency with which the current assets are utilized. The
ratio is computed by dividing the net sales by the net current assets.
The high ratio indicates better utilization of current assets and vice versa.

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡

44
 Working Capital Turnover Ratio

This ratio establishes a relationship between net sales and working capital. The objective of
capital turnover ratio is to indicate the velocity of the utilization of net working capital. This ratio
indicates the number of times the working capital is turned over in the course of year. This ratio
measures the efficiency with which the working capital is being used by a firm.
The high ratio indicates that working capital is managed efficiently and vice versa.

𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

𝑁𝑒𝑡 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

45
 PROFITABILITY RATIO

A company should earn profits to survive and grow over a long period of time. Profits are
essential, but it would be wrong to assume that every action initiated by the management of a
company should be aimed at maximizing profits, irrespective of concerns for customers, employees,
suppliers or social consequences. It is unfortunate that the word ‘profit’ is looked upon as a term of
abuse since some firms always want maximize profits at the cost of employees, customers and
society. Except such infrequent cases, it is a fact that sufficient profits must be earned to sustain the
operations of the business to be able to obtain funds from investors for expansion and growth and to
contribute towards the social overheads for the welfare of the society. The profitability ratio is
calculated to measure the operating efficiency of the company.
The various profitability ratios are named as follows

1 .Gross profit ratio

2. Net profit ratio

3. Operating ratio

4. Operating profit ratio

5. Expenses ratio

6. Return on total asset

7. Return on capital employed

8. Return on equity

9. Earnings per share

10. Price earnings ratio

46
 Gross Profit Ratio

The gross profit margin reflects the efficiency with which management produces each unit
of product. This ratio indicates the average spread between the cost of goods sold and the sales
revenue. It measures the relationship between gross profit and net sales. It calculated to know
whether the business is in position to meet operating expenses or not, and how much the
shareholders can get after meeting such expenses. It is expressed as percentage.
High ratio indicates adequately to cover operating expenses.

𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑅𝑎𝑡𝑖𝑜 = 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 ∗ 100

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡

Net Profit Ratio

Net profit is obtained when operating expenses, interest and taxes are subtracted from the
gross profit. Net profit ratio indicates the relationship between net profit and net sales. Net profit is
the proportion of net sales which remains to the owners or the shareholders after all costs; charges
and expenses including income tax have been deducted. It widely used as measure of overall
profitability and is very useful to proprietors.
High ratio gives efficient management as well as profitability and vice versa.

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑅𝑎𝑡𝑖𝑜 = 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 ∗ 100

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

47
 Operating Ratio

This ratio measures the relationship between operating cost and net sales. The main
objective of computing this ratio is to determine the operational efficiency with which production
and purchases and selling operations are carried out. There are two components of this ratio which
are as under
1. Operating cost which comprises:-
A. Cost of goods sold.
B. Other operation expenses.
E.g. administrative, selling and distribution expenses, interest on short term loans, discount allowed
and bad debts.

2. Net sales = gross sales – sales return

Low ratio indicates the profit to cover the interest

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑅𝑎𝑡𝑖𝑜 = 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐶𝑜𝑠𝑡 ∗ 100

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

Operating Profit Ratio

This ratio measures the relationship between operating profits and net sales. The main
objective of computing this ratio is to determine the operational efficiency of the management.
Higher ratio is favourable. It signifies higher operating efficiency of the management and strict
control over operating cost. It indicates profitability of the various operations often the organization,
namely; buying, manufacturing, selling etc. It shows that the organization is able to generate
operating profit out of its day to day operations.

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡 𝑅𝑎𝑡𝑖𝑜 = 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔𝑃𝑟𝑜𝑓𝑖𝑡 ∗ 100

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

48
 Expense Ratio

The ratio of each item of expenses or each group of expenses to net sales is known as an
‘expense ratio’ and such ratios are collectively known as ‘expenses ratio’.
Thus, expense ratio brings out the relationship between various elements of operating costs and net
sales. Expense ratios analyze each individual item of expenses of group of expenses and express
them as a percentage in relation to net sales.
These ratios should remain low so profit margin will increase.

𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 𝑅𝑎𝑡𝑖𝑜 = 𝐴𝑑𝑚𝑖𝑛𝑖𝑠𝑡𝑟𝑎𝑡𝑖𝑣𝑒/𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑎𝑛𝑑 𝐷𝑖𝑠𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 ∗ 100

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

Return on Total Asset

This ratio measures the relationship between net profit before interest and tax, and total
assets. The objective of computing this ratio is to find out how efficiently the total assets have been
used by management. The higher ratio is more efficient to the management and utilization of total
assets.

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡 = 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐵𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑇𝑎𝑥 ∗ 100
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡

49
 Return on Capital Employed

The term capital employed means noncurrent liabilities plus shareholder’s funds or working
capital plus noncurrent assets. The ratio is a measure of the return on the total resources of the
business enterprise. It shows how efficiently management has used the funds provided by the
creditors and the owners. The ratio can be very well used for inter-firm or inter- industry
comparison which will reflect the relative efficiency.
Higher ratio indicates higher productivity of capital employed.

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑 = 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐴𝑓𝑡𝑒𝑟 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑇𝑎𝑥 ∗100
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑

Return on Equity

This ratio measures the relationship between net profit after interest, tax, and preference
dividend, and equity shareholder’s funds. The objective of computing this ratio is to find out how
efficiently the funds supplied by the equity shareholders have been used.
High ratio indicates fair return to equity shareholders and vice versa.

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 = 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐴𝑓𝑡𝑒𝑟 𝑇𝑎𝑥 − 𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 ∗100

𝑃𝑎𝑖𝑑 𝑢𝑝 𝐸𝑞𝑢𝑖𝑡𝑦 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

50
 Earnings per Share

The ratio shows percentage of profit available to equity shareholders or how much return
they get per share. It is used to compare the performance of a company’s equity capital with those
of other companies. The share of the company with higher rate of return will have a greater demand
in the market, resulting it increase in the market value.

𝐸𝑎𝑟𝑛𝑖𝑛𝑔 𝑃𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 = 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐴𝑓𝑡𝑒𝑟 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑇𝑎𝑥 𝑎𝑛𝑑 𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑐𝑒 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 ∗100
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒

Price Earnings Ratio

This ratio measures the relationship between market price per equity share and earnings per
share. The objective of computing this ratio is to make an estimate of appreciation in the value of a
share of a company and is widely used by investors to decide whether or not to buy shares in a
particular company.

Price Earnings Ratio = Market Price per Equity Share

Earning Per Share

51
Current Ratio:

Meaning:
This ratio is called `Working Capital`. It is used to assess the short-term financial position
of the business.

Formula:
Current Ratio = Current Asset
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Year Current Assets Current Liabilities Current Ratio

2014-15 114656.94 132434.28 0.86
2015-16 109158.05 114773.91 0.95
2016-17 183144.07 152872.46 1.19
2017-18 242544.45 135090.41 1.79
2018-19 304752.86 167594.23 1.82

52
 Current Ratio
2
1,8
1,6
1,4
1,2
1
0,8
0,6
0,4
0,2
0
1 2 3 4 5
Datenreihen1 0,86 0,95 1,19 1,79 1,82

Interpretation:
1. After calculating the current ratio of 2014- 2015, 2015- 2016, 2016- 2017, 2017- 2018 and 2018-
19 we can see that current ratio of 2015- 2016 is highest among all four years. Current ratio of
2012-13 is low among all.
2. The current ratio 2012-13 is 0.86, 2013-14 is 0.95, 2014-15 is 1.19 and 2015-16 is 1.79.
3. The current ratio of the bank is increasing because current assets and current liabilities are
increasing.

53
Absolute Liquidity Ratio:

Meaning:
Although receivables, debtors and bills receivables are generally more liquid than
inventories, yet there may be doubts regarding their realization into cash immediately or in time.

Formula:
Absolute Liquidity Ratio = Cash at Bank+ Short Term Investment
Current Liabilities

Year Cash at bank+ short Current Liabilities Absolute Liquidity

term investment Ratio
2014-15 193488.45 132434.28 1.46
2015-16 262052.01 114773.91 2.28
2016-17 283510.55 152872.46 1.85
2017-18 344571.79 135090.41 2.55
2018-19 437552.47 167594.23 2.61

54
 Absolute Liquidity Ratio
3

2,5

1,5

0,5

0
1 2 3 4 5
Datenreihen1 1,46 2,28 1,85 2,55 2,61

Interpretation:
1. After calculating the absolute liquidity ratio of four years we come to know that 2015-2016 has
the highest ratio among all four years.
2. The ratios of 2012-13 are 1.46, 2013-14 is 2.28, 2014-2015 is 1.85 and 2015-16 is 2.55.
3. The ratio of 2015-16 has highest ratio because its short term investment, cash at bank and current
liabilities are higher than others.

55
Debt Equity Ratio:

Meaning:
This ratio is also called ‘Internal- External’ ratio. It is mainly calculated to assess the
soundness of long term financial policies and to determine the relative stakes of outsiders and
owners. It can be determine the relationship between total debt and equity (shareholder’s fund).

Formula:
Debt Equity 𝑅𝑎𝑡𝑖𝑜 = Total long term debt
Shareholder’s fund

Year Total long term debt Shareholder’s Fund Debt Equity Ratio
2014-15 35367.58 23918.16 1.4
2015-16 48427.51 29923.08 1.6
2016-17 40057.14 31446.74 1.3
2017-18 51083.14 32317.22 1.6
2018-19 56228.56 32248.66 1.7

56
 Debt Equity Ratio
1,8
1,6
1,4
1,2
1
0,8
0,6
0,4
0,2
0
1 2 3 4 5
Datenreihen1 1,4 1,6 1,3 1,6 1,7

Interpretation:
1. above graph shows that the relation between the debt and equity of four years. After calculating
the ratio the above graph shows that the ratio of the total debt and owner’s equity is similar for the
years 2013-14 and 2015-16.
2. The ratio of 2012-13 is 1.4, 2013-14 is 1.6, 2014-15 is 1.3 and 2015-16 is 1.6.
3. The ratio of 2014-15 is least because total debt and owner’s fund is less as compared to other
three years.

57
Net Working Ratio:

Meaning:
This ratio establishes relationship between net working capital and total asset.

Formula:
𝑁𝑒𝑡 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑅𝑎𝑡𝑖𝑜 = 𝑁𝑒𝑡 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡

Year Net Working Capital Total Assets Net Working Ratio

2014-15 332164.38 441125.33 0.75
2015-16 417520.58 555324.64 0.75
2016-17 462445.69 603410.51 0.76
2017-18 45556.66 596404.88 0.76
2018-19 486628.76 619025.18 0.78

58
 Net Working Ratio

0,78
0,775
0,77
0,765
0,76
0,755
0,75
0,745
0,74
0,735
1 2 3 4 5
Datenreihen1 0,75 0,75 0,76 0,76 0,78

Interpretation:
1. After calculating the net working ratio we come to know that the year 2014-15 and 2015-16 has
almost same ratios.
2. The ratio of 2012-13 is 0.75, 2013-14 is 0.75, 2014-15 is 0.76 and 2015-16 is 0.76.
3. The ratio for two years is highest because its net working capital and total assets are higher than
others.

59
Return on Capital Employed:

Meaning:
This ratio measures relationship between net profit before interest and tax and capital
employed. This ratio is expressed in percentages.

Formula:
𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 Capital Employed = 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐵𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑇𝑎𝑥 ∗ 100
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑

Year NPBIT Capital Employed Return on Capital

Employed
2014-15 36107.46 32317.22 1.12
2015-16 35502.47 29923.08 1.24
2016-17 39574.01 31446.74 1.26
2017-18 30343.43 23918.15 1.27
2018-19 33763.44 25824.63 1.30

60
 Return On Capital Employed
1,30

1,25

1,20

1,15

1,10

1,05

1,00
1 2 3 4 5
Datenreihen1 1,12 1,24 1,26 1,27 1,30

Interpretation:
1. Above graph shows the relationship between net profit and capital employed.
2. The ratio of 2012-13 is 1.27, 2013-14 is 1.24, 2014-15 is 1.26 and 2015-16 is 1.12.
3. The ratio of 2012-13 is highest because its net profits and capital employed are higher than
others.

61
Fixed Asset to Shareholder’s Fund:

Meaning:
This ratio shows the relationship between fixed assets and shareholder’s fund.

Formula:
Fixed Asset to Shareholder’s Fund = Fixed Assets
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟’𝑠 𝐹𝑢𝑛𝑑

Year Fixed Assets Shareholder’s Fund Fixed Assets to

Shareholder’s Fund
2014-15 8480.31 32317.22 0.26
2015-16 5786.06 29923.08 0.19
2016-17 5885.53 31446.74 0.19
2017-18 2778.93 23918.15 0.12
2018-19 3045.66 25824.63 0.11

62
 Fixed Asset To Shareholder's Fund

0,3

0,25

0,2

0,15

0,1

0,05

0
1 2 3 4 5
Datenreihen1 0,26 0,19 0,19 0,12 0,11

Interpretation:
1. Above graph shows the relation between fixed assets and shareholder’s fund.
2. The ratio of 2012-13 is 0.12, 2013-14 is 0.19, 2014-15 is0.19 and 2015-16 is 0.26.
3. The ratio of 2015-16 has highest ratio because its fixed assets and shareholder’s fund are higher
than others.

63
Proprietary Ratio:

Meaning:
This ratio measures a relationship between proprietor’s funds and total assets. The
objective of computing this ratio is to find out how the proprietors finance the assets.

Formula:
𝑃𝑟𝑜𝑝𝑟𝑖𝑒𝑡𝑎𝑟𝑦 𝑅𝑎𝑡𝑖𝑜 = 𝑃𝑟𝑜𝑝𝑟𝑖𝑒𝑡𝑜𝑟𝑠 𝐹𝑢𝑛𝑑𝑠
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

Year Proprietor’s Fund Total Assets Proprietary Ratio

2014-15 32317.22 596404.88 0.054
2015-16 29923.08 555324.64 0.053
2016-17 31446.74 603410.51 0.052
2017-18 23918.15 441125.33 0.054
2018-19 25824.63 472589.26 0.055

64
 Proprietary Ratio

0,055

0,0545

0,054

0,0535

0,053

0,0525

0,052

0,0515

0,051

0,0505
1 2 3 4 5
Datenreihen1 0,054 0,053 0,052 0,054 0,055

Interpretation:
1. After calculating the proprietary ratio of the four years we can see that the ratio of all four years
is almost same as per the given graph.
2. The ratio 2012-13 is 0.054, 2013-14 is 0.053, 2014-15 is 0.052 and 2015-16 is 0.054.
3. The proprietary ratio of all four years is almost same because shareholder’s fund and total assets
are near to each other.

65
Capital Gearing Ratio:

Meaning:
The term Capital Gearing is used to describe the relationship between equity share capital
including reserves and surplus to preference share capital and other fixed interest bearing-securities.

Formula:
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐺𝑒𝑎𝑟𝑖𝑛𝑔 𝑅𝑎𝑡𝑖𝑜 = 𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 + 𝑅𝑒𝑠𝑒𝑟𝑣𝑒 𝑎𝑛𝑑 𝑆𝑢𝑟𝑝𝑙𝑢𝑠
𝐵𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔𝑠

Year Fix Interest Bearing Borrowings Capital Gearing

Securities Ratio
2014-15 23918.15 35367.58 0.67
2015-16 29923.08 48427.51 0.62
2016-17 31446.74 40057.14 0.79
2017-18 32317.22 51083.14 0.63
2018-19 38598.57 53007.66 0.73

66
 Capital Gearing Ratio

0,8
0,7
0,6
0,5
0,4
0,3
0,2
0,1
0
1 2 3 4 5
Datenreihen1 0,67 0,62 0,79 0,63 0,73

Interpretation:
1. This ratio shows the relation between equity capital and borrowings of four years. After
calculating the ratios we can see that the year 2014-2015 has the highest ratio as compared to other
three years.
2. The ratios of 2012-13 are 0.67, 2013-14 is 0.62, 2014-15 is 0.79 and 2015-16 is 0.63.
3. The ratio of 2014-15 has highest ratio because the equity capital, reserve and surplus and
borrowings are more than other two years.

67
Solvency Ratio:

Meaning:
This ratio provide into the financial techniques used by a firm and focus , as a
consequence , on the long-term solvency position with regard to , periodic payment of interest
during the period of loan repayment of principle on maturity or in predetermined instalments or due
dates.

Formula:
𝑆𝑜𝑙𝑣𝑒𝑛𝑐𝑦 𝑅𝑎𝑡𝑖𝑜 = 𝑂𝑢𝑡𝑠𝑖𝑑𝑒 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Year Outside Liabilities Total Liabilities Solvency Ratio

2014-15 11477.39 441125.33 0.02
2015-16 17865.56 555324.64 0.03
2016-17 15287.25 603410.51 0.02
2017-18 13509.05 596404.88 0.02
2018-19 15872.69 602550.33 0.03

68
 Solvency Ratio

0,03

0,025

0,02

0,015

0,01

0,005

0
1 2 3 4 5
Datenreihen1 0,02 0,03 0,02 0,02 0,03

Interpretation:
1. The above graph of solvency ratio shows that the solvency ratios of three years are almost equal.
2. The ratio of 2012-13 is 0.02, 2013-14 is 0.03, 2014-15 is 0.02 and 2015-16 is 0.02.
3. The solvency ratios of three years are equal because outside liabilities and total assets are near to
each other.

69
Fixed Asset Ratio:

Meaning:
Fixed asset ratio gives the relationship between fixed assets of the company with respect
to its capital employed.

Formula:
𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡 𝑅𝑎𝑡𝑖𝑜 = 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑

Year Fixed Assets Capital Employed Fixed Asset Ratio

2014-15 8480.31 32317.22 0.26
2015-16 5786.06 29923.08 0.19
2016-17 5885.53 31446.74 0.18
2017-18 2778.93 23918.15 0.12
2018-19 3043.66 25824.63 0.11

70
 Fixed Asset Ratio

0,3

0,25

0,2

0,15

0,1

0,05

0
1 2 3 4 5
Datenreihen1 0,26 0,19 0,18 0,12 0,11

Interpretation:
1. The above graph of fixed asset ratio shows the relation between fixed assets and capital
employed of all four years.
2. The ratios of 2012-13 are 0.11, 2013-14 is 0.19, 2014-15 is 0.18 and 2015-16 is 0.26.
3. The ratio of 2015-16 has highest ratio because the fixed assets and capital employed is more than
other three ratios.

71
 CHAPTER NO. 6
FINDINGS, CONCLUSIONS
AND RECOMMENDATION

72
 Research Findings

After calculating all the ratios of all four years of Bank of India we have found different
reasons why there is an increase and decrease in the ratios every year. Reasons for increase or
Decrease in ratios are as follows:

1. The current ratio of the year 2015-16 is highest as compared to other three years because its
assets and liabilities are highest among all four years.

2. The absolute liquidity ratio in a year 2012-13 has least ratio as compared to other three years.

3. Debt equity ratio of 2014-15 is low as compared to others, as its total debt and owner’s equity are
very less.

4. The proprietary ratio of all four years are almost same because after calculating the ratio we come
to know that proprietor’s fund and total assets are almost close to each other.

5. The solvency ratio of three years 2012-13, 2014-15 and 2015-16 are almost same. And 2013-14
is slightly greater than others.

6. For the year 2015-16 fixed asset ratio is highest as compared to other three years because its
fixed assets and capital employed are very high.

7. Net working capital ratio has been increasing slightly for every year.

8. Fixed assets to shareholder’s fund ratio have been increasing year by year.

9. Return on capital employed is almost same for all the four years.

10. The capital gearing ratio in the year 2014-15 is highest because fixed interest bearing securities
are more compared to borrowings.

73
 Conclusions

1. In this project it has been seen that current ratio is consistently increasing which a good sign is
development.

2. Return on capital employed ratio has been increase in ascending order which is good sigh and
determines bank progress which is essential point from the point of view of investors, management
and others.

3. Debt equity ratio is fluctuating up and down where bank should take care and should increase
their shareholder’s fund to maintain continuously increase of this ratio.

4. Return on capital employed is maintained since four years which is good for bank.

5. Proprietary ratio is consistent which is considered as a good sign for bank.

74
 Recommendations

1. Current ratio is consistently increasing which is good; bank should try to maintain it.

2. Return on capital employed ratio is increasing every year which is good; bank should try to
maintain it.

3. There should be improvement in fixed asset ratio, as it is fluctuating at very high level or at very
low level.

4. The proprietary ratio of all three years are same, bank should increase the proprietary ratio by
increasing proprietor’s fund.

75
 Bibliography

1. Financial Management- Dr. Khan and Jain.

2. Research Methodology- Dr. Kirti Gupta.
3. Research Methodology- C. R. Kothari.
4. Management Accounting- Dr. Suhas Mahajan and Dr. Mahesh Kulkarni.
5. Annual report of Bank of India.
6. Management Accounting- Pankar Pramod Kisan.
7. Analysis of Financial Statements- Dr. Nachiket M. Venchalkar.

Webliography

1. www.bankofindia.com
2. www.google.com
3. www.bing.com
4. www.answers.com
5. www.economicstimes.com

76
77