GOVERNMENT OFFICIAL’S CO-OPERATIVE BANK LTD, BIJAPUR

Contents
Sl.No Titles Page No.
.
I Chapter 1 2-6
 Executive summary
 Statement of the Problem
 Scope of the study
 Limitations of the study
 Objectives of the Study
 Methodology and data collection
II Chapter 2
 INDUSTRY PROFILE 7-10

III Chapter 3
 ORGANIZATION PROFILE 11-19

IV Chapter 4
 Introduction to the topic 20-28
V Chapter 5
 Analysis and interpretation 29-46

VI Chapter 4 47-56
 Findings
 Suggestions
 Conclusion
 Bibliography

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EXECUTIVE
SUMMARY

EXECUTIVE SUMMARY

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Finance is a very important business entity it is required from the establishment of the
business for liquidity or winding up of a business, so financial institutions play a very
important role in the operation of the business.
In the early days banking business was confined to receiving of deposits and lending of
money. But now, a modern banker undertakes wide variety of functions to assist their
customers. They provide various facilities to customers which makes the transaction easy
and comfortable.
Financial institutions such as banks, financial service companies, insurance companies,
securities firms and credit unions have very different ways of reporting financial
information. Running a bank is just difficult as analyzing it for investment purposes.
In this report emphasizes on knowing the financial position of the
Government Official’s Co-Operative Bank Ltd, Bijapur. The project title is “A study of
financial performance based on ratio analysis” which means a process to identify the
financial performance of a firm by properly establishing the relationship between the
items of balance sheet and profit & loss account.

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DESIGN OF THE
STUDY

TITLE OF THE PROJECT:

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“A Study of Financial Performance Based On Ratios” at GOCC Bank Bijapur.

PROJECT OBJECTIVES:
 To recognize the diagnostic role of financial ratios.
 To study the source and uses of ratio analyses.
 To know the financial performance of the organization
 To study different ratios in GOCC bank
 To determine the profitability and liquidity of the bank through ratios analysis
 To compare the present and previous year’s performance of GOCC bank

STATEMENT OF THE PROBLEM:

Ratios are very useful to draw the conclusion so that the management knows factors are
contributing towards growth, which help in improving the profitability and liquidity of
the organization.

SCOPE OF THE STUDY:

The study is exclusively conducted for Government officials co-operative Bank Ltd,
Bijapur. It covers details of the company information comparison of financial statements
of last 5 years, Techniques of statement analysis like ratio analysis finally, findings and
suggestions has been made a part of this project.

LIMITATIONS OF THE STUDY:

The following are the limitations of the study
 The period of the study is limited to 5 years.
 The study of the ratio analysis is done at GOCC Bank and no comparison is made
with other institution.
 The accuracy of the result depends upon the information present on the balance
sheet and P&L a/c.

METHODOLOGY AND DATA COLLECTION

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Methodology
Methodology is the way in which we collect the data. The tools for collection of data for present
project are the primary data and secondary data. The information furnished in this report has
been collected from primary data as well as secondary data.

Data collection
 Primary data has been collected by approaching to General Manager and other
staff members.
 The sources of secondary data are annual reports of the Bank. The company profile
was made available by the officials through several documents. Theoretical help was
derived from books and past reports and records. Support from internet and other
journals.

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INDUSTRY
PROFILE

CO-OPERATIVE BANKS OVERVIEW

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Co-operation means working together. The history of modern civilization is that without
cooperation the social & economic progress would have been impossible. Cooperative
movement owes its origin to England, where a great philosopher, Robert Owen (1771-
1858) gave the idea of 'self help through mutual help, to mitigate the sufferings of the
exploited class in the wake of industrial revolution.
The policy makers of our country considered cooperation as an instrument for
development of rural economy particularly the neglected section of the nation.
Considering this concept of cooperation in mind, the idea took a concrete shape in
India first time in 1904 when the cooperative credit societies Act a measure designed
to face rural indebt ness & provide for registration of credit societies was passed. Later in
1912, the cooperative societies Act also provided for registration of non-credit societies,
well as, federation of cooperatives. Since then cooperative movement has made
noticeable progress with some hindrances, especially in agricultural credit, marketing &
processing of agricultural produce.
The Idea of growth of cooperative movement in India can be had from the fact that
there were as many 3.5 lakh cooperative societies of all type with total membership of
about 16 crores & total working capital about 62500 crores as on 30 June 1990. The
distinguishing feature of cooperative system is that it is largely village-based. In other
word, it is suit for village dominates country like ours. Participation of masses at different
levels in development schemes is a must.
The idea of cooperative essentially is based on the principle of involving the people
themselves directly in the mage of their affairs of different kinds because it is the people
who know best what their problems are, what their priorities are & what could be the best
solutions to suit their needs.

The cooperative banking in India has grown in size & volume. A special feature of
cooperative banks in India is its federal structure the units ranging from primary level to
national level. Cooperative banking in India can be divided into two important areas viz
agriculture and non-agriculture. The agricultural co-operative banks are primary
cooperative banks at the village level, central co-operative banks at the district level
horticulture. During the recent years, the land development banks are bent upon lending
bans only for land improvement and cultivation.
The no. of land development banks increased from 5 in 1950-51 to 19 in 1983-84, while
that of primary banks increased from 286 to 1170 during the same period. But nearly

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70% of LDBS are located in the three southern states of Tamilnadu, Andhra Pradesh and
Karnataka.

GROWTH OF CO-OPERATIVE SOCIETY IN INDIA: -

Particulars 1960-61 1970-71 1980-81 1985-86 1988-89

1. No. of Societies
3.32 3.20 3.26 3.21 3.50
(in lakhs)

2. Membership
352 644 1176 1420 1600
(in lakhs)

3. Share Capital 222 251 2088 3998 5242

(in Crores)

4. Working Capital
1312 6810 25119 41548 62500
(in Crores)

The above tables shows no. Of societies increased very slowly; which was 3.32 lakh in
1960-61 and 3.50 lakh in 1988-89 only. Members increased from 352 lakh in 1960-61 to
1600 lakhs in l988-89 indicate that people have shown a keen interest in cooperation.
While working capital and share capital also increased made a major and important role
in rural & agricultural lending.

MEANING OF CO-OPERATIVE BANK:

“A form of organization wherein persons voluntarily associate together as human beings
on the basis of equality for the promotion of the economic interest of themselves”

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FEATURES:
Co-operative Banks are organized and managed on the principal of Co-operation, self-
help and mutual help. They function with the rule of “One Member, One Vote”. Co-
operative Banks perform all the main banking functions of deposits, supply of Credit and
provision of remittance facilities. Co-operative Banks provide limited banking products
and are functionally specialist in agriculture related products. Co-operative Banks now
provide Housing loans, Vehicle loans, Industrial loans, Hypothecation loans etc.
Some Co-operatives are Scheduled Banks while other are Non - schedule Banks. Co-
operative Banks are subject to CRR and liquidity requirement and other Scheduled and
Non - scheduled Banks requirement is less than commercial Banks. Although the Reserve
Bank of India had power to regulate the Co-operative Bank but this has been exercised
only after 1979 in respect of non agricultural advances they were free to charge any rates
at their discretion.
The main aim of the Co-operative Banks is to provide cheaper credit to their members
and not to maximize profits. They may access the money market to improve their income
so as to remain viable.

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ORGANIZATION
PROFILE

HISTORY OF THE GOCC BANK

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This institution was started as Co-operative Society in the year 1909 under the provision
of the Co-operative Societies Act 1904, with view to meet the pressing credit need of the
Society. The founder this bank is Shri.Shate.
It commenced business with small capital without any deposits. And got the status of the
Bank in the year 1989, it received a license from RBI on 23rd September 1989. Today it is
one well managed Co-operative Bank with annual turnover of more than rupees 5 crores.
In the year 2009 the bank completed a entire decade i.e 100 years.

ORGANIZATION FROFILE

GOVERNMENT OFFICIAL’S CO-OPERATIVE BANK LTD, BIJAPUR. Branch

was started in 12-10-1909 in Karnataka.
Location: MAHAVEER ROAD, Bijapur-586101
Infrastructure: 1) well equipped building.
2) Safety Lockers
Man Power: (Main branch) Total 38 employees are working in this bank.
Major Customer: - Professional like state government employees

OBJECTIVES OF THE BANK

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 Providing variety of loans in order to full fill the needs of the members of the bank
to create funds by means of issue of Shares. Acceptance of deposits, donations
and loans from higher agencies and to lend out to the members of the
Bank at a moderate rate of interest.
 To satisfying the employees through good remuneration as well as wealthy
relationship with employees.
 Giving quality service to the members of the bank.
 Adding new features to the bank so that it will help the members of the bank.

 The objectives of the bank to promote the economic interest of its members and to
encouraging them for savings.
 To create funds by deposits and borrowings here after to lend members at
moderate rates of interest
 To lend money to its members for their specific needs on gold or immovable
properties.

ORGANIZATION CHART

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Board of Directors

General Manager

Manager

Accountants

Recovery Officer

First Division Clerks

Junior assistants

AUTHORITY OF CHAIRMAN:

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1. The chairman shall have general preside over the meetings of the board, he shall have
general control over the paid staff and to do such other things as will be conducive to
the interest of the bank under the general directions of the board of the directors.

2. To sanction regular expenditures, salaries of the staff, office rent, electric charges
usual contingent expenses subject to the approved of the board.

3. To inspect at any time during the working hours of the bank by himself or
along with the members of the board, cash valuables and other securities of the bank
and to respond the matter to the board for its information and to take necessary action
in consultation with the board.

4. Any other powers that may be delegated by the board of the directors. The chairman
and one of the elected directors and the secretary of the bank shall sign all documents.

DUTIES OF BOARD OF THE DIRECTORS

The board of directors shall have the following duties.
1. To admit new members
2. To consider the applications for shares
3. To consider the applications for registration of members
4. To consider the applications for transfer of shares or refund of shares amount
5. To hear and deal with complaints
6. To hear, deal, and structionise the loan applications and to grant loans according
to purpose
7. To institute defend and comprise legal proceedings
8. To incur and sanction office rent and other necessary expenses in connection with
the management of the bank including the purchase of furniture, stationary,
articles required for office use.
9. To make steps for recovery of overdue loans
10. To consider the audit report inspection note and take necessary action
TYPES OF LOANS
The loans can be broadly classified as follows.

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1. Short term loans as demand loan.

2. Long Term loan.
1. Short Term Loan : It is granted for a short period of a year or less than one year.

2. Long Term loan: Term loan is of two types

a. Medium term loan being repayable in 1 to 3 years.

b. Long-term loan being repayable in above 3 to 5 years.

TYPES OF LOANS
1. Personal Security Loan

2. Staff House Loan

3. Vehicle Loan

4. Members House Construction Loan

5. F.D Loan

6. C.T.D Loan

7. Loan on the basis of N.S.C Letter

8. Staff Personal Loan

9. Loan on the basis of N.S.C. Letter

10. Pigmy Loan

11. Staff vehicle Loan

12. Members House Pledge Loan

PROCEDURE OF SANCTIONING OF LOAN

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Bank has rules and regulations regarding loan sanction. The first rule for getting
loan is “a person should be a member of the bank”. Only after that he is eligible for
getting loan.

PROCEDURE FOR GETTING MEMBERSHIP OF THE BANK

If a person wants to be a member of the Bank he should be Government office employee
(State Government, but except 4th categories, means peons), then he can apply for
membership.
In meeting, the BOD and other members will decide whether he is eligible for
membership or not, if they accept then he will be called as the member of the bank. Once
he gets the membership of the bank, then he can apply for the loan. There are some
criteria that have to be evaluated while loan sanctioning. These criteria’s differ according
to the purpose of the loans and type of the loans. These are not standardized for particular
loan. These depend on situation and condition of economy and position of the applicant.
If applicant has, credit worthiness the criteria will not considered as much importance. If
applicant has less credit worthiness and has lot of liabilities then criteria may be
considered important and adhered strictly with those criteria’s.

Step 1: Receiving of Application

The bank has printed application format for every type of loans .The application forms
are designed in such a way that it furnishes all the information regarding applicant and
purpose of loan and other information.
This is very important because the processing of application starts from here onwards.
The application contains various clauses that have to be filled by applicant and he has to
give declaration about genuineness of the information.
Step-2: Processing Of Application
Next step is the processing of applications. This level branch Manager studies application
proposal carefully visibility assessment of loan proposal. At this stage, only he can reject
the proposal if it is not feasible. He checks all the factors to determine feasibility of loan
proposal with respect to amount of loan, credibility of the applicant, purpose of loans,
repayment of loan, ability of the applicant to utilize properly and maintenance of the asset
etc. It is the primary assessment, which reflects feasibility of the loan proposal.
Step-3: Field Study Report

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There are field officers in bank. Their work is to visit the applicants working place and
collect information and to submit a report to the bank. They collect actual information of
the applicant. They collect some other extra information like requirements of the loan to
the applicant, financial condition of the applicant, his transactions with others etc.
These types of casual visit are given by field officers and they provide information to the
bank. The applicant may not mention or tell some hidden facts and these are identified by
the field visit. When the fields study report matches with the information given in the
application. Only after that the application is accepted and forwarded.
Step-4: Recommendation & Built-up Proposal to Head Office
After completing field study Branch Manager forwards to the head office. He has to give
his own opinion about loan proposal and recommend on that proposal. His
recommendation or opinion is very important to the head office to evaluate the loan
proposal. The loan sanction wholly depends upon his recommendation of branch
manager. Because he is nearer to the applicants ability to repayment of interest and
principal.
He must examine consequence of the loan and sanction and highlight risk factors. The
Branch Manager will inform to the Head Office about applicant & his ability to
repayment it. The Branch Manager also highlights true income of the applicant & what
would be the income after loan sanction. The Branch Manager recommendation include
other factors like safety, risk in loan proposal, profitability of the Bank etc.

SCHEMES
The total number of members in banks are increasing day by day. For the convenient of
the customer’s bank has got the permission from town municipal commissioner Bijapur to
purchase 10,000 sq.mtrs plot at Basavan Bagewadi.
Safe Deposit Locker:
For the convenient of the customers bank has provided the Safe Deposit Locker facility.
Earlier it is not there, on 2006 they started to provide the facility.
Bank has started a scheme i.e. “Pratiba Puraskar Yojana” during 2005-2006. The
scheme is mainly for the staffs and members children’s who have scored highest marks in
the annual examination, the said students will be honored under “Pratiba Puraskar
Yojana”.
Special Schemes:

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As per the Reserve Bank of India guidelines / directions the bank is giving 1% interest for
the senior citizens.
Insurance security is provided for the depositors up to Rs. 100000/-.

DEPOSIT SCHEMES

1. Current Deposit

2. Savings Bank Deposit

3. Fixed Deposit

4. Kalpavruksha Deposit

5. Sanchit Deposit

6. Cash Certificate Deposit

7. Pigmy Deposit

8. Cumulative Deposit

9. Members Thrift Deposit.

INTERESTS ON DEPOSIT :
1. Above 30 days and up to 180 days - 6.5%

2. Above 180 days and up to 364 days - 7.5%

3. Above 364 days and up to 24 months - 8.5%

4. Above 24 months and up to 36 months - 9%

5. Above 36 months and up to 60 months - 9.25%

6. Above 60 months - 9.5%

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INTRODUCTION
TO TOPIC

INTRODUCTION

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When we observed the financial statement comprising the balance sheet and
profit or loss account is that they do not give all the information related to financial
operations of firm, they can provide some extremely useful information to the extent that
the balance sheet shows the financial position on a particular date in terms of structure of
assets, liabilities and owner’s equity and profit or loss account shows the results of
operation during the year. Thus the financial statements will provide a summarized view
of the firm. Therefore in order to learn about the firm the careful examination of a
valuable reports and statements through financial analysis or ratio is required.

MEANING AND DEFINITION

Ratio analysis is one of the powerful techniques which are widely used for interpreting
financial statements. This technique serves as a tool for assessing the financial soundness
of the business. It can be used to compare the risk and return relationship of firms of
different sizes. The term ratio refers to the numerical or quantitative relationship between
two items/ variables.
The idea of ratio analysis was introduced by Alexander Wall for the first time in 1919.
Ratios are quantitative relationship between two or more variables taken from financial
statements.
Ratio analysis is defined as, “the systemic use of ratio to interpret the financial
statement so that the strength and weakness of the firm as well as its historical
performance and current financial condition can be determined.
In the financial statement we can find many items are co-related with each other for
example current assets and current liabilities, capital and long term debt, gross profit and
net profit purchase and sales etc

BASIS OF COMPARISON

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Ratios are relative figures reflecting the relationship between variables. They
enable analysts to draw conclusions regarding financial operations. The use of the ratios,
as a tool of financial analysis involves their comparison, for a single ratio like absolute
figures, fails to reveal the true position. For example, if in the case of a firm, the return on
capital employed is 15 percent in a particular year, what does it indicate? Only if the
figure is related to the fact that in the preceding year the relevant return was 12 per cent or
18 percent, it can be inferred whether the profitability of the firm has declined or
improved. Alternatively, if we know that the return for the industry as a whole is 10
percent or 20 percent, the profitability of the firm in question can be evaluated.
Comparison with related facts is, therefore, the basis of ratio analysis. Four types of
comparison are involved

i. Trend ratio
Trend ratios involve a comparison of the ratios of a firm over time, that is,
present ratios are compared with the past ratio of the same firm. Trend ratio indicates
the direction of change in the performance, improvement, deterioration or constancy-
over the years. This kind of ratio particularly applicable to the items of profit and loss
account. It is advisable that trends of the sales and the net income may be studied in
the light of two factors: the rate of fixed expansion or secular trend in the growth of
the business and the general price level. it might be found in practice that a number of
firms would show a persistent growth over the period of the years.
ii. Intra firm comparison
Intra firm comparison involving comparison of the ratio of the firm with those of
the others in the same line of business or for the industry as a whole reflects its
performance in relation to its competitors.

iii. Comparison of items within a single year’s financial statement of

a firm

iv. Comparison with standard or plans.

IMPORTANCE OF THE RATIO ANALYSIS

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As a tool of financial management, ratios are of crucial significance. The

importance of the ratio analysis lies in the fact that it presents facts on a comparative basis
and enables the drawing of inference regarding the performance of a firm. Ratio analysis
is relevant in assessing the performance of a firm in respect of the following aspects.

1. USEFULL TOOL FOR ANALYSIS:

Ratios are exceptionally useful tool with which one can infer the financial
performance of the enterprise over a period of time with the help of ratio analysis.
Conclusions can be drawn regarding several aspects such as financial health,
profitability and operational efficiency of the firms.

Liquidity position to meet its short term obligations and long term solvency. They
indicate strength and weakness of the firms.
2. LIQUIDITY POSITION
With the help of ratio analysis conclusion can be drawn regarding the liquidity position of the
firm. The liquidity position of the firm would be satisfactory if it is able to meet its current
obligation when they become due. a firm can be said to have the ability to meet its short term
liabilities if it has sufficient liquidity funds to pay the interest on its short maturing debts
usually within a year as well as to repay the principal.
3. LONG TERM SOLVENCY
Ratio analysis is equally useful for assessing the long term financial viability of the
firm. This aspects of the financial position of a borrower is of concern to the long
term creditors, security analysis and the present and potential owners of a business.
The long term solvency is measured by the leverage or capital structure and
profitability ratios which focus on earning power and operating efficiency. Ratio
analysis reveals the strength and weakness of a firm in this respect. The leverage
ratios, for instances, will indicate whether a firm has a reasonable proportion of
various sources of finance or whether heavily loaded with debt in which case its
solvency is exposed to serious strain. Similarly the various profitability ratio would
reveal whether or not the firm is able to offer adequate return to its owners consistent
with the risk involved.

4. OPERATING EFFICIENCY

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Yet another dimension of the usefulness of the ratio analysis, relevant from the view
point of the management, is that it throws light on the degree of the efficiency in the
management and utilization of its assets. The various activity ratios measure this kind
of operational efficiency. In fact, the solvency of a firm is, in the ultimate analysis,
dependent upon the sales generated by the use of its assets-total as well as its
components.

5. OVERALL PROFITABILITY
Unlike the outside parties which are interested in one aspect of the financial position
of a firm, the management is constantly concerned about the overall profitability of
the enterprise. That is, they are concerned about the ability of the firm to meet its
short term as well as long term obligations to its creditors, to ensure a reasonable
return to its owners and secure optimum utilization of the assets of the firm. This is
possible if an integrated view is taken and all the ratios are considered together.

6. INTER-FIRM COMPARISON
Ratio analysis not only throws the light on the financial position of a firm but also
serves as a stepping stone to remedial measures. This is made possible due to
interfirm comparison and comparison with the averages. A single figure of a
particular ratio is meaningless unless it is related to some standard or norm. One of
the popular techniques to compare the ratio of the firm with the industry average. It
should be reasonably expected that the performance of a firm should be in broad
conformity with that of the industry to which it belongs. An interfirm comparison
would demonstrate the firm’s position vis-à-vis its competitors.

7. TREND ANALYSIS
Finally, ratio analysis enables a firm to take the time dimension into account. In other
words, whether the financial position of a firm is improving or deteriorating over the
years. This is made possible by the use of the trend analysis. The significance of a
trend analysis of the ratio lies in the fact that the analyst can know the direction of
movement, that is, whether the movement is favorable or unfavorable.

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ADVANTAGES AND DISADVANTAGES OF RATIO ANALYSIS:

ADVANTAGES:

 Simplifies financial statements: Ratio Analysis simplifies the comprehension

of financial statements. Ratios tell the story of changes in financial condition
of the business.
 Measurement of the profitability: We can measure the profitability of
the business by calculating gross profit, net profit, expenses and other ratios.
Profitability is the profit earning capacity of the business. So, profitability
ratios indicate the actual performance of the business. If these ratios fall,
effective control measures will be applied to improve the working of the
business.
 Judges the operational efficiency of the business: With the help of
ratio analysis comparison of the performance between different divisions of
the firm is possible. The ratios are helpful in deciding about the firm’s
efficiency in the past and likely in the future

 Facilitates inter firm comparison: Ratio analysis provides data for inter
company comparison. Ratio highlights the association with successful and
unsuccessful firms. They also reveal strong and weak companies, overvalued
and undervalued companies.
 Assessing the efficiency of the business: We can ascertain whether the
firm is solvent or not by calculating solvency ratios show relationship between
liabilities and assets. If total assets are lesser than outside liabilities, it shows
unsound position of the business. In such case the business will try its best to
improve its solvency i.e., ability to repay loans.

 Makes intra firm comparison possible: Ratio analysis also makes possible
comparison of the performance of different division of the company. The ratio
helpful in deciding about their efficiency.
 Helps in planning: Ratio Analysis helps in planning and forecasting over
period of time a company develops certain norms that may indicates future

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success/ failure. If relationship changes in firms data over different time

periods. The ratio may provide clues on trends and future problems.
 Liquidity position: With the help of ratio analysis conclusions can be drawn
regarding liquidity position of the company. The liquidity position of a
company could be satisfactory if it is able to meet its current obligations when
they become due.
 Long term solvency: Ratio analysis equally useful for assessing the long-term
financial viability of a firm. The long-term solvency is measured by the
leverage / capital structure and profitability ratios, which focus on earning
power and operating efficiency.
 Useful in improving future performance: Ratio analysis indicates
the weak spots of the business. This helps management in overcoming such
weakness and improving the overall performance of thee business in future.

DISADVANTAGES:
Ratio analysis is a widely used tool of financial analysis. Yet, it suffers from
various limitations. The operational implication of this is that while using ratios, the
conclusion should not been taken on their face value. Some of the limitation which
characterize ratio analysis are
1. Difficulty in comparison
One serious limitation of ratio analysis arises out of the difficulty associated
with their comparability. One technique that is employed is interfirm comparison. But
such comparisons are vitiated by different procedures adopted by various firms. The
difference may relate to
 Difference in the basis of inventory valuation
 Different depreciation methods (i.e. straight line vs. written down basis)
 Estimated working life of the assets, particularly of plant and equipment
 Amortization of intangible assets like goodwill, patents and so on.
 Amortization of deferred revenue expenditure such as preliminary
expenditure and discount on issue of shares

 Capitalization of lease

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 Treatment of extraordinary items of income and expenditure and so on

Secondly, apart from different accounting procedures, companies may
have different accounting periods, implying differences in the composition
of the assets, particularly the current assets. For these reasons, the ratios of
two firms may not be strictly comparable.

2. Impact of inflation
The second major limitation of the ratio analysis as a tool of financial analysis
is associated with price level changes. This, in fact is a weakness of the traditional
financial statement which are based on historical cost. An implication of this feature
of the financial statement as regards ratio analysis is that assets acquired at different
periods are, in effect, shown at different prices in the balance sheet, as they are not
adjusted for changes in the price level. As a result, ratio analysis will not yield strictly
comparable and therefore, dependable results.

3. Conceptual Diversity
Yet another factor which affects the usefulness of ratios is that there is
difference of opinion regarding the various concepts used to compute the ratios. There
is scope for diversity of opinion as to what constitutes shareholders’ equity, debt,
asset, profit and so on. Different firms may use these terms in different senses or the
same firm may use them to mean different things at different times.
Reliance on a single ratio for a particular purpose may not be a conclusive
indicator. For instance, the current ratio alone is not an adequate measure of short-
term financial strength; it should be supplemented by the acid test ratio, debtor’s
turnover ratio and inventory and inventory turnover ratio to have a real insight into the
liquidity aspect.

CLASSIFICATION OF RATIO

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1. Profitability Ratios
a. Ratio of profit to total income
b. Ratio of profit to deposits
c. Return on equity
d. Return on Capital
e. Ratio of return on assets

2. Operating Ratios
a. Ratio of interest earned to interest paid
b. ratio of interest paid to total income
c. Ratio of staff expenses to total expenses
d. Ratio of total expenses to total income.

3. Solvency ratios
a. ratio of cash to deposit
b. ratio of investment to deposits
c. Credit deposit ratio
d. ratio of fixed assets to net worth
e. Current assets ratio
f. Quick ratio
g. Fixed assets ratio

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ANALYSIS AND
INTERPRETATION

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PROFITABILITY RATIO:
This ratio shows the earning ability of organization, in other words profitability ratios are
designed to provide answers to questions such as :-
a) Is the profit earned by the firm adequate?
b) What rate of return does it represents?
c) What is the rate of profit for various divisions and segments of the firm?
d) What is the rate of return to equity share holders?

The profitability of the firm can be determined on the following ratios

1. RATIO OF NET PROFIT TO INCOME:

This ratio implies that the percentage of net profit earned by the organization out of its income.
Here this ratio indicates the net profit ratio out of total profit. Normally it is expected between
10%-15%.

Ratio of net profit to total income = net profit *100

Total income

Year Ratio of net profit Amount

to income (%)
2004-05 6.8 =4091762/59681976*100
2005-06 6.5 =4910114/71618371*100
2006-07 1.54 =1001704/64788253*100
2007-08 2.32 =1504277/64562627*100
2008-09 2.95 =2024423/68469180*100

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Ratio of net profit to income (%)

8
7 6.8
6.5
6
5
4
2.95
3
2.32
2 1.54
1
0
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:
The ratio of profit to income is drastically came down from 6.5%(2005-06) to
1.54%(2006-07) it is because of increase in the expenses like advertisement expenses and
increase in nonperforming asset. and last two years it is showing gradual growth
2.32%(2007-08) and 2.95%(2008-09). which show that last 3 years profitability is not
adequate.

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2. Ratio of profit to deposits: This ratio shows organization’s earnings on deposits.

Normal expected rate is (1.0 -2.0).

Ratio of profit to deposits = profit / total deposits *100

year Ratio of profit to Amounts

deposits
2004-05 0.92 =4091762/442160198*100
2005-06 1.01 =4910114/484646420*100
2006-07 0.21 =1001764/472873643*100
2007-08 0.30 =1504277/489297593*100
2008-09 0.36 =2024423/550966276*100

Ratio of profit to deposits

1.2
1.01
1 0.92

0.8

0.6

0.4 0.36
0.3
0.21
0.2

0
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:
Ratio of profit to total deposits in the first year 2004-05 it was 0.92% and in year 2005-06

it was 1.01. And last three years i.e. 0.21%, 0.30 and 0.36%.Iit indicates that the Bank has

not utilized its deposits effectively.

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3. Return on asset : An indicator of how profitable a company is relative to its total

assets. ROA gives an idea as to how efficient management is at using its assets to
generate earnings. Calculated by dividing profit by its total assets. Normally it is expected
to be between 0.6% to 2.0%.
Return on asset = profit / total assets * 100

Ratio of Amounts
Year return on
assets
2004-05 0.74 =4091762/546861500*100
2005-06 0.80 =4910114/606309871*100
2006-07 0.16 =1001764/614073557*100
2007-08 0.23 =1504277/636396364*100
2008-09 0.28 =2024423/715676149*100

Ratio of return on assets

0.9
0.8
0.8 0.74
0.7
0.6
0.5
0.4
0.3 0.28
0.23
0.2 0.16
0.1
0
Year 2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:
Return on asset ratio 0.74 %( 2004-05) And 0.8% (2005-06). After this next three years
Ratio’s are 0.16%,023% and 0.28% . This trend shows that the organization is not good in
converting investment into profit as the expected level is between 0.60% to 2.0%.

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4. Return on equity: This ratio measures the return on the owners (both equity and
preference shareholders) invested in the firm. Normally it is expected to be (10%-17%).
=profit / equity *100

Year Return on equity = Amounts

(%)

2004-05 16 =4091762/25264485*100
2005-06 17.85 =4910114/27492955*100
2006-07 3.38 =1001764/29587190*100
2007-08 4.98 =1504277/30194249*100
2008-09 6.4 =2024423/31584149*100

Return on equity (%)

20
17.85
18
16
16
14
12
10
8 6.4
6 4.98
4 3.38
2
0
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:
The return on equity ratio in the first year it was 16% then in second year it was17.85%
then in third year drastically came down to 3.38% due to decrease in the profit ,in last two
years it is showing gradual growth i.e. ,4.98% and 6.4%.still the ratio is not satisfactory as
still it is far behind from the expected rate.

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5. Return on capital employed: This ratio shows the return on capital employed (share
capital, reserve, retained earnings and long term borrowings) used in the organization.
Normally this ratio is expected to be (15%-20%).

Return on capital employed = profit / capital employed * 100

Return on capital
Year employed (%) = Amount

2004-05 7.04 =4091762/58049562*100

2005-06 6.72 =4910114/72991040*100
2006-07 1.19 =1001704/83792976*100
2007-08 1.59 =1504277/94314060*100
2008-09 1.99 =2024423/101574578*100

Return on capital employed (%)

8
7.04
7 6.72

6
5
4
3
1.99
2 1.59
1.19
1
0
Year 2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:
The return on capital ratio in second year it came down to 6.72% in third year it
drastically came down to 1.19% after that next two year it is gradually moving up. But the
ratio is not satisfactory it indicates that the capital is not utilized properly as normal
expected rate is 15% to 20%.

II. OPERATING RATIO

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This ratio gives the operation efficiency of the organization. The operation efficiency can
be determined by following ratios
1. Ratio of interest earned to interest paid: this ratio shows the percentage of interest
earned on loans and advances and interest paid on deposits. Normally it is expected to be
<200%.
Ratio of interest earned to interest paid == interest earned / interest paid *100
Ratio of interest
year earned to interest amounts
paid (%)
2004-05 135 =58309746/4377981*100
2005-06 128 =60308734/44876384*100
2006-07 152 =63780425/41956898*100
2007-08 156 =61470557/39279940*100
2008-09 155 =67496035/436336125*100

Ratio of interest earned to interest paid (%)

180
160 152 156 155
140 135
128
120
100
80
60
40
20
0
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:
This ratio decreases from 135% (2004-05) to 128 % (2005-06) because interest paid on
barrowing was more after that last three years it is showing consistent performance
i.e.152 %(2006-07) ,156% (2007-08) and 155% (2008-09).this ratio is not satisfactory as
it is expected be <200%.
2. Ratio of interest paid to total income: this ratio shows the percentage of interest paid
to deposits accepted.
Ratio of interest to total income= interest paid /total income *100

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Ratio of interest paid

Year to total income amounts

2004-05 72.3% =4377981/59681976*100

2005-06 62.6% =44876384/71618371*100
2006-07 64.76% =41956898/64788253*100
2007-08 60.80% =39279940/645662627*100
2008-09 63.73% =43636125/68469180*100

Ratio of interest paid to total income

74.00% 72.30%
72.00%
70.00%
68.00%
66.00% 64.76%
63.73%
64.00% 62.60%
62.00% 60.80%
60.00%
58.00%
56.00%
54.00%
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:
Ratio of interest paid to total income decreases from 72.3% (2004-05) to 62% (2005-06)
because decrease in interest paid on the borrowings again the ratio slightly increased in
the next year to 64.76% (2006-07) and in last two years it is showing 60.80% (2007-08)
and 63.73% (2008-09).Normally this ratio is expected to be below 40% so this ratio is not
satisfactory

3. Ratio of staff expenses to total expenses: this ratio is the percentage of staff expenses
to total expenses

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Ratio of staff expenses to total expenses= staff expenses / total expenses*100

Ratio of staff Amount
Year expenses to total
expenses (%)
2004-05 9.9 =5504232 / 55590214 *100
2005-06 9.11 =5812554/63748726*100
2006-07 10.35 =6603975/63786489*100
2007-08 11.73 =7400383/63058350*100
2008-09 14.1 =9415551/66444757*100

Ratio of staff expenses to total expenses (%)

16
14.1
14
11.73
12 10.35
9.9
10 9.11
8
6
4
2
0
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:

The ratio shows that the staff expenses are gradually increasing year after year and last
year it is increased to 14.1% (2008-09) from 11.73% (2007-08) .payment of the employs
is increasing.

4. Ratio of expenses to income: This ratio shows the percentage of expenses to total
income. Normally this ratio is expected to be in the range (50%-75%).
Ratio of expenses to income =total expenses / total income *100

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Ratio of
Year expenses to Amount
income%
2004-05 93.14 =55590214/59681976*100
2005-06 91.27 =66708257/71618371*100
2006-07 98.45 =63786549/64786549*100
2007-08 97.67 =63058350/64562627*100
2008-09 97.04 =66444757/68469180*100

Ratio of expenses to income

100
98.45
98 97.67
97.04

96

94 93.14

92 91.27

90

88

86
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:

Ratio of expenses to income is very high for last three years i.e. 98.45% (2006-007),
97.67 % (2007-08) and 97.04(2008-09) due to increase in operating expenses and staff
expenses. Normally it is expected to be in the range (50%-75%) so this ratio is not
satisfactory.

5. Ratio of administration expenses to total income: This ratio indicates the percentage
of administration expenses out of total income where the administration expenses include
like rent, printing charges, insurance ect.

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= administration expenses / total income * 100

Year Ratio of admn exp to Amount

tol inc (%)

2004-05 11.28 =6733790/59681976*100

2005-06 10.03 =7184570/71618371*100
2006-07 13.48 =8734763/64788253*100
2007-08 13.53 =8741118/64562627*100
2008-09 17.04 =11976146/68469180*100

Ratio of admn exp to tol inc (%)

18 17.04
16
14 13.48 13.53

12 11.28
10.03
10
8
6
4
2
0
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:
Ratio of administration expenses to total income shows that in second year the ratio
reduced to 10.3% then again in third year it raised to 13.48% ,forth year shows not much
difference but last year it raised to 17.04% .the rise in the ratio is due to increase in the
administrative expenses which comprises printing , stationary and other administrative
expenses.

III. Solvency Ratio

This ratio helps to know the liquidity of the firm i.e. ability to meet its short term
obligations or current liabilities. The solvency of the firm can be determined in the
following ratios.

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1. Current ratio is measure of liquidity. Current assets are divided by current liabilities.
The higher the current ratio, the more assurance those current liabilities can be paid.
Standard ratio for current ratio is 2:1.
1. Current ratio = current asset / current liabilities *100

year Current ratio (%) Amount

2004-05 3.52 =21163324/6005364*100

2005-06 9.24 =40855205/4419397*100
2006-07 2.27 =20807053/9134617*100
2007-08 4.51 =38570706/8537389*100
2008-09 3.91 =33151812/8473360*100

Current ratio (%)

10 9.24
9
8
7
6
5 4.51
3.91
4 3.52
3 2.27
2
1
0
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:
Current ratios are satisfactory but in the year 2005-06 it is 9.24 and in 2007-08 it is 4.5
excess of current ratio indicates that presence of ideal money so the organization should
maintain current ratio in such a manner that there should not be ideal current asset.
2. Ratio of cash to deposits: This ratio helps to find what extent the deposits used and
cash balance in hand
This ratio helps to find what extent the deposits used and cash balance in hand. The
conversion into cash while payment of deposits is very important for any bank. If there is
more need of deposit liquidity the bank as to keep more funds in cash. This ratio can be
calculated with the following formula.

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Ratio of total cash to total deposit= total cash / total deposit *100

Year Ratio of cash to deposits (%) Amount

2004-05 4.78 =21163324/442160198*100

2005-06 8.42 =40855205/484646620*100
2006-07 4.4 =20807053/472873643*100
2007-08 7.88 =38570706/489297593*100
2008-09 6.01 =33151812/550966276*100

Ratio of cash to deposits (%)

9 8.42
7.88
8
7
6.01
6
5 4.78
4.4
4
3
2
1
0
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:
ratio of cash to total deposits increases from 4.78%(2004-05) to 8.42% (2005-06) then it
decrease to 4.4 (2006-07) but in last two years it is showing 7.8% and 6.01% The
organization need to reserve (10%-20%) of cash reserves to meet current obligation.
3. Ratio of investments to deposits This ratio shows at what extent the firm invested its
deposits on scurrilities from its deposits.
Ratio of investment to deposit = total investment / total deposits *100

Year Ratio of Amount

investment to
deposit (%)
2004-05 30.25 =133757414/442160198*100
2005-06 33.63 =163027644/484646620*100
2006-07 34.80 =164600881/472873643*100

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2007-08 37.68 =184404122/489297593*100

2008-09 46.24 =254781961/550966276*100

Ratio of investment to deposit (%)

50
46.24
45
40 37.68
33.63 34.8
35
30.25
30
25
20
15
10
5
0
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:
The investment to deposit ratio is gradually increasing year by year. But the ratio is not
satisfactory it indicates the presence of ideal money so bank need to invest the ideal
money available.

4. Ratio of credit deposit: This ratio shows the percentage of loans and advances
provided by bank from its deposits. This ratio is purely depending upon the lending
policy of the bank and also the loan requirements of bank customer. If there is increase in
loans demand higher than the likely rise in deposits the bank has to keep more of its funds
in liquid assets to meet the increase in the loan demand and this is also depending upon
the nature of loan and type of deposit of the bank.

Ratio of credit deposit= loan and advances / total deposits *100

Year Ratio of credit deposit Amount

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(%)
2004-05 75.09 =332042108/442160198*100
2005-06 71.20 =345101283/484646620*100
2006-07 77.82 =368035233/472873643*100
2007-08 72.18 =353195064/489297593*100
2008-09 65.14 =358899844/550966276*100

Ratio of credit deposit (%)

80
77.82
75.09
75
72.18
71.2
70

65.14
65

60

55
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:
Credit deposits ratio is showing consistent performance but last year it has been decreased
to 65.14% (2008-09) from 72.18% (2008-09).but the ratios are satisfactory except the last
year. The normal expected rate of this ratio ranges between (70%-80%).

5. Ratio of loans to total assets: The loans to total assets ratio measures the total loans as
a percentage of total assets. The higher this ratio indicates a bank is loaned up and its
liquidity is low. The higher the ratio more risky the bank may be to higher defaults. This
figure is determined as follows:

Ratio of loans to total assets = loans / total assets *100

Year Ratio of loan to total Amount
assets (%)
2004-05 60.84 =332042108/545686150*100

2005-06 56.91 =3451011233/606309871*100

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2006-07 59.93 =368035233/614073557*100

2007-08 55.49 =353195064/636396364*100

2008-09 50.14 =358899844/715676149*100

Ratio of loan to total assets (%)

70
60.84 59.93
60 56.91 55.49
50.14
50

40

30

20

10

0
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:
Ratio of loan to total assets decreases from 60.84%(2004-05) to 56.91%(2005-06) then
again it increase to 59.93%(2006-07) after that it decrease to 55.49%(2007-08) and
50.14%(2008-09) .this ratio is not satisfactory because it is expected to be (60%-80%)

6. Ratio of current asset to fixed asset: This ratio shows the percentage of current assets
and fixed assets.

Ratio of current asset to fixed asset = current asset / fixed asset * 100

Year Ratio of C.A TO F.A (%) = current asset / fixed asset * 100

2004-05 657.8 =21163324 /3216946*100

2005-06 1386.1 =40855205/2947328*100
2006-07 441.9 =20807053/4717653*100

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2007-08 883.85 =38570706/4363899*100

2008-09 743.8 =33151812/4456903*100

Ratio of C.A TO F.A (%)

1600
1400
1200
1000
800
600
400
200
0
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:
Ratio of current asset to fixed asset in second year it increased to 1386.1% from 657.8%
of first year then in third year it suddenly reduced to 441.9 then in forth year it increased
to 883.85% last year it slightly reduced to 743.8%.this ratio is satisfactory. The increase
in the ratio indicates that excess amount of cash in hand.

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FINDINGS

FINDINGS:

 The ratio of profit to income has drastically come down from 6.5%(2005-
06) to 1.54%(2006-07), it is because of increase in the expenses like
advertisement expenses and increase in nonperforming asset and last two
years it is showing gradual growth 2.32 %( 2007-08) and 2.95 %( 2008-
09), which show that last 3 years profitability is not adequate.
Organization need to cut down the expenses.
This ratio is not satisfactory as it is very less compared to the expected
ratio.

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 Ratio of profit to total deposits in the first year 2004-05 was 0.92% and in

year 2005-06 it was 1.01. And last three years i.e. 0.21%, 0.30 and

0.36%.Iit indicates that the Bank has not utilized its deposits effectively.

 Return on asset ratio 0.74 %( 2004-05) And 0.8% (2005-06). After this
next three years Ratio’s are 0.16%,023% and 0.28% . This trend shows
that the organization is not good in converting investment into profit as the
expected level is between 0.60% to 2.0%.

 The return on equity ratio in the first year was 16% then in second year it
was17.85% then in third year it drastically came down to 3.38% due to
decrease in the profit ,in last two years it is showing gradual growth i.e. ,
4.98% and 6.4%.still the ratio is not satisfactory as still it is far behind
from the expected rate.

 The return on capital ratio in second year came down to 6.72% in third
year it drastically came down to 1.19% after that next two year it is
gradually moving up. But the ratio is not satisfactory which indicates that
the capital is not utilized properly as normal expected rate is 15% to 20%.

 Ratio of interest earned to interest paid decreased from 135% (2004-05) to

128 % (2005-06) because interest paid on barrowing was more after that
last three years it is showing consistent performance i.e.152 %(2006-07) ,
156% (2007-08) and 155% (2008-09).this ratio is not satisfactory as it is
expected be < 200%.

 Ratio of interest paid to total income decreases from 72.3% (2004-05) to

62% (2005-06) because decrease in interest paid on the borrowings again
the ratio slightly increased in the next year to 64.76% (2006-07) and in last
two years it is showing 60.80% (2007-08) and 63.73% (2008-

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09).Normally this ratio is expected to be below 40% so this ratio is not

satisfactory.

 The ratio shows that the staff expenses are gradually increasing year after
year and last year it is increased to 14.1% (2008-09) from 11.73% (2007-
08) .payment of the employs is increasing.

 Ratio of expenses to income is very high for last three years i.e. 98.45%
(2006-007), 97.67 % (2007-08) and 97.04(2008-09) due to increase in
operating expenses and staff expenses. Normally it is expected to be in the
range (50%-75%) so this ratio is not satisfactory.

 Ratio of administration expenses to total income shows that in second year

the ratio reduced to 10.3% then again in third year it raised to 13.48%
,forth year shows not much difference but last year it raised to 17.04% .the
rise in the ratio is due to increase in the administrative expenses which
comprises printing , stationary and other administrative expenses.

 Current ratios are satisfactory but in the year 2005-06 it is 9.24 and in
2007-08 it is 4.5 times excess of current ratio indicates that presence of
ideal money so the organization should maintain current ratio in such a
manner that there should not be ideal current asset.

 Ratio of cash to total deposits increases from 4.78%(2004-05) to 8.42%

(2005-06) then it decrease to 4.4 (2006-07) but in last two years it is
showing 7.8% and 6.01% this ratio is satisfactory but the organization
need to reserve (10%-20%) of cash reserves to meet current obligation.

 The investment to deposit ratio is gradually increasing year by year. But

the ratio is not satisfactory it indicates the presence of ideal money so bank
need to invest the ideal money available.

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 Credit deposits ratio is showing consistent performance but last year it has
been decreased to 65.14% (2008-09) from 72.18% (2008-09).but the ratios
are satisfactory except the last year. The normal expected rate of this ratio
ranges between (70%-80%).

 Ratio of loan to total assets decreased from 60.84%(2004-05) to

56.91%(2005-06) then again it increase to 59.93%(2006-07) after that it
decrease to 55.49%(2007-08) and 50.14%(2008-09) .this ratio is not
satisfactory because it is expected to be (60%-80%).

 Ratio of current asset to fixed asset in second year has increased to

1386.1% from 657.8% of first year then in third year it suddenly reduced
to 441.9 then in forth year it increased to 883.85% last year it slightly
reduced to 743.8%.this ratio is satisfactory. The increase in the ratio
indicates excess amount of cash in hand.

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SUGGESTIONS

SUGGESTIONS:

 Regarding administration expenses the expenses like salary to employee, printing

and stationery are increasing, so it should appoint right person in the right job so

the organization can get maximum contribution with limited payment. As

regarding printing and stationary it should adopt new software programs by which

it can achieve paper less work and it reduces manual work.

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 Current ratios are satisfactory but in the year 2005-06 it is 9.24 and in 2007-08 it

is 4.5 excess of current ratio indicates that presence of ideal money so the

organization should utilize that ideal money.

 Ratio of profit to deposits decreases from (2004-05) 0.68% to 0.16% (2005-06)

.after that the ratio shows a gradual growth in last three years i.e. 0.21%,0.30 and

0.36%.the organization need to use the deposits effectively.

 The expenses are very high for last three years i.e. 98.45% (2006-007), 97.67 %

(2007-08) and 97.04(2008-09) so it needs to be minimized.

 The organization can improve on selection of assets class for investment and other

related factors such as timing etc. This could enhance their Return to Total Assets

and Total Investment to Total Deposits ratios.

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CONCLUSION

CONCLUSION:

This society is existed on the bases of co-operation of its members it shows how co-
operation is achieved in the society and this society has a great opportunity of increase of
its members.
When we analyse its financial performance through ratios there is great decline of its
profit in the year of 2006-07 but in the last three year there is a small increment in its

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financial performance but it is not enough because the society has huge experience and it
has faced many problems during this period. Still society facing problems from
nationalised banks in some aspects. If the society takes suggestions given then it will
reach its maximum profitability.

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BIBLIOGRAPHY

BIBLIOGRAPHY

Balance sheet and Financial Statements were analysed and interpreted from
the Banks ANNUAL REPORT journal.

Text Books

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 Financial Management : Khan and Jain

 Financial Accounting : Narayanaswamy

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