Financial analysis of banks

A
Project Report on
Financial Statement Analysis
of
In partial fulfilment of
MASTER OF MANAGEMENT STUDIES
By
Mr. Sahimuddin Khan
(Finance Management)
From
UNIVERSITY OF MUMBAI
(2012-13)

INDEX
Sr. No. Topics Pg. No.
Chap. 1 Introduction
1.1 Objectives of the Project
1.2 Scope of the Project
1.3 Research Methodology
1.4 Limitations of the Project
Chap. 2 History & Profile of Organization
2.1 Indian Economy
2.2 Banking
2.3 History of banking in India
2.4 The banking structure in India
2.5 The Present banking scenario
2.6 Company profile
Chap. 3
Significant Accounting Policies
Chap. 4 Financial Statement Analysis
3.1 1. Meaning 2. Objectives 3. Significance
3.2 Tools of F.S. Analysis
Chap. 5 Analysis & Interpretation of the Data

4.1 Ratio analysis
4.2 Profitability ratio
4.3 Liquidity ratio
4.4 Investment valuation ratio
4.5 Management efficiency ratio
4.6 Debt coverage ratio
4.7 Limitation of financial statement analysis
Chap. 6 Conclusion
Chap. 7 Suggestions/Recommendations
Chap. 8 Bibliography

EXECUTIVE SUMMARY
The project assigned to me was to study the financial health of any three bank in the country. I
decided to choose India’s largest three banks ie ICICI, Axis & HDFC Banks.
Through financial analysis, my aim to understand the financial factors is influencing the bank
and its decision making. Later, I try and evaluate the various ratios to appreciate their impact on
Bank’s performance over the last five years. The financial statements of last five years are
identified, studied and interpreted in light of Bank’s performance. Finally, I study ratio analysis,
of the bank’s to analyzing the financial position of the bank’s in last five years.

OBJECTIVES OF PROJECT:
 To collect and analyse financial statements of the ICICI, Axis and HDFC Bank for year
2007-08 to 2011-12
 To know organizational structure, working culture and business segments of the Banks.
 To know the business environment in which the Bank is working.
 To understand the meaning and objectives of financial statement analysis.
 To know various tools for financial statement analysis and their uses.
 Application of financial statement analysis tools for evaluating the performance of the
Banks for financial years 2007-08 to 2011-12.
 Data interpretation with the help of soft tools.
 Recommendations or suggestions if any.
 Understand the quality of service maintained in the banks
 Determine the performance of banks

SCOPE OF THE PROJECT:
The scope of this project covers a brief financial statements analysis of ICICI, Axis, HDFC Bank
from 2007-08 to 2011-12 by using the annual report of the company for the five years. It also
includes study of accounting standards and accounting policies related to financial statements.
The scope of study includes:
• Significance & Objectives
• Tools such as Comparative Statements, Common Size Statements,
Trend Analysis, Ratio Analysis, Cash Flow Analysis
• Liquidity/Profitability/Turnover/Leverage Ratios and their trends
 Limitations of financial statements analysis.

RESEARCH METHODOLOGY:
Data collection
Primary Data - Following techniques would be used for collection of Primary Data-
 Interviews with bank manager and other respective person working in bank
 Observation
Secondary Data - Following techniques would be used for collecting Secondary Data-
 Newspapers, Journals and Text books
 Magazines
 Search Engines
Based on the relevant primary and secondary data, a comparative analysis will be done so as to
find out the impact of FDI on banking sector with reference to private sector banks
Sample
Sample Unit: Banks
Sampling Size: 3 Banks ( ICICI, Axis & HDFC )

LIMITATION
The study and the analysis are limited to the information available on the internet, as well
as,various survey reports and journals. An in depth coverage of the topic was not possible as it is
very vast and requires expert knowledge. This study is just an overview of such sort of
investment options and their effect on our country.

INDIAN ECONOMY
The economy of India is the tenth-largest in the world by nominal GDP and the third largest by
purchasing power parity (PPP). The country is one of the G-20 major economies and a member
of BRICS. On a per capita income basis, India ranked 140th by nominal GDP and 129th by GDP
(PPP) in 2011, according to the IMF. India is the nineteenth largest exporter and tenth largest
importer in the world. Economic growth rate stood at around 6.5% for the 2011–12 fiscal year.
The independence-era Indian economy (from 1947 to 1991) was based on a mixed economy
combining features of capitalism and socialism, resulting in an inward-looking, interventionist
policies and import-substituting economy that failed to take advantage of the post-war expansion
of trade.[14] This model contributed to widespread inefficiencies and corruption, and the failings
of this system were due largely to its poor implementation.
In 1991, India adopted liberal and free-market oriented principles and liberalized its economy to
international trade under the guidance of Manmohan Singh, who then was the Finance Minister
of India under the leadership of P.V. Narasimha Rao the then Prime Minister who eliminated
License Raj a pre- and post-British Era mechanism of strict government control on setting up
new industry. Following these strong economic reforms, and a strong focus on developing
national infrastructure such as the Golden Quadrilateral project by Atal Bihari Vajpayee, the then
Prime Minister, the country's economic growth progressed at a rapid pace with very high rates of
growth and large increases in the incomes of people.

BANKING
India cannot have a healthy economy without a sound and effective banking system. The
banking system should be hassle free and able to meet the new challenges posed by technology
and other factors, both internal and external.
In the past three decades, India's banking system has earned several outstanding achievements to
its credit. The most striking is its extensive reach. It is no longer confined to metropolises or
cities in India. In fact, Indian banking system has reached even to the remote corners of the
country. This is one of the main aspects of India's growth story.
The government's regulation policy for banks has paid rich dividends with the nationalization of
14 major private banks in 1969. Banking today has become convenient and instant, with the
account holder not having to wait for hours at the bank counter for getting a draft or for
withdrawing money from his account.
HISTORY OF BANKING IN INDIA
The first bank in India, though conservative, was established in 1786. From 1786 till today, the
journey of Indian Banking System can be segregated into three distinct phases:
 Early phase of Indian banks, from 1786 to 1969
 Nationalization of banks and the banking sector reforms, from 1969 to 1991
 New phase of Indian banking system, with the reforms after 1991
Phase 1
The first bank in India, the General Bank of India, was set up in 1786. Bank of Hindustan and
Bengal Bank followed. The East India Company established Bank of Bengal (1809), Bank of
Bombay (1840), and Bank of Madras (1843) as independent units and called them Presidency
banks. These three banks were amalgamated in 1920 and the Imperial Bank of India, a bank of

private shareholders, mostly Europeans, was established. Allahabad Bank was established,
exclusively by Indians, in 1865. Punjab National Bank was set up in 1894 with headquarters in
Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara
Bank, Indian Bank, and Bank of Mysore were set up. The Reserve Bank of India came in 1935.
During the first phase, the growth was very slow and banks also experienced periodic failures
between 1913 and 1948. There were approximately 1,100 banks, mostly small. To streamline the
functioning and activities of commercial banks, the Government of India came up with the
Banking Companies Act, 1949, which was later changed to the Banking Regulation Act, 1949 as
per amending Act of 1965 (Act No. 23 of 1965). The Reserve Bank of India (RBI) was vested
with extensive powers for the supervision of banking in India as the Central banking authority.
During those days, the general public had lesser confidence in banks. As an aftermath, deposit
mobilization was slow. Moreover, the savings bank facility provided by the Postal department
was comparatively safer, and funds were largely given to traders.
Phase 2
The government took major initiatives in banking sector reforms after Independence. In 1955, it
nationalized the Imperial Bank of India and started offering extensive banking facilities,
especially in rural and semi-urban areas. The government constituted the State Bank of India to
act as the principal agent of the RBI and to handle banking transactions of the Union government
and state governments all over the country. Seven banks owned by the Princely states were
nationalized in 1959 and they became subsidiaries of the State Bank of India. In 1969, 14
commercial banks in the country were nationalized. In the second phase of banking sector
reforms, seven more banks were nationalized in 1980. With this, 80 percent of the banking sector
in India came under the government ownership.
Phase 3
This phase has introduced many more products and facilities in the banking sector as part of the
reforms process. In 1991, under the chairmanship of M Narasimham, a committee was set up,
which worked for the liberalization of banking practices. Now, the country is flooded with
foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to

customers. Phone banking and net banking are introduced. The entire system became more
convenient and swift. Time is given importance in all money transactions.
The financial system of India has shown a great deal of resilience. It is sheltered from crises
triggered by external macroeconomic shocks, which other East Asian countries often suffered.
This is all due to a flexible exchange rate regime, the high foreign exchange reserve, the not-yet
fully convertible capital account, and the limited foreign exchange exposure of banks and their
customers.
Nationalization Process
1955: Nationalization of State Bank of India
1959: Nationalization of SBI subsidiaries
1969: Nationalization of 14 major banks
1980: Nationalization of seven banks with deposits over Rs 200 crore
The nationalisation of banks in India took place in 1969 by Mrs. Indira Gandhi the then prime
minister. It nationalised 14 banks then. These banks were mostly owned by businessmen and
even managed by them.
 Central Bank of India
 Bank of Maharashtra
 Dena Bank
 Punjab National Bank
 Syndicate Bank
 Canara Bank
 Indian Bank
 Indian Overseas Bank
 Bank of Baroda

 Union Bank
 Allahabad Bank
 United Bank of India
 UCO Bank
 Bank of India
THE BANKING STRUCTURE IN INDIA
The banking sector in India functions under the umbrella of the RBI—the regulatory, central
bank. The Reserve Bank of India Act was passed in 1934 and the RBI was constituted in 1935 as
the apex bank. The Banking Regulations Act was passed in 1949. This Act brought the RBI
under government control. Under the Act, the RBI received wide-ranging powers in regards to
establishment of new banks, mergers and amalgamations of banks, opening and closing of
branches of banks, maintaining certain standards of banking business, inspection of banks, etc.
The Act also vested licensing powers and the authority to conduct inspections with the RBI.
Banks in India can broadly be classified as regional rural banks or RRBs, scheduled commercial
banks or SCBs, and co-operative banks.
The commercial banking structure in India consists of scheduled commercial banks and
unscheduled banks. Scheduled banks constitute those banks that are included in the Second
Schedule of Reserve Bank of India (RBI) Act, 1934.
As on June 30, 1999, there were 300 scheduled banks in India having a total network of 64,918
branches. The scheduled commercial banks in India comprise State Bank of India and its
associates (8), nationalised banks (19), foreign banks (45), private sector banks (32), co-
operative banks, and regional rural banks. Before the nationalization of Indian banks, the State
Bank of India (SBI) was the only nationalized bank, which was nationalized on July 1, 1955,
under the SBI Act of 1955. The nationalization of seven State Bank subsidiaries took place in
1959.

After the nationalization of banks in India, the branches of the public sector banks rose to
approximately 800 percent in deposits and advances took a huge jump by 11,000 percent.

BANKING
STRUCTUREIN
INDIA
Scheduled
Commercial Banks
Nationalised Banks
Private Banks
Regional Rural bank
Scheduled Co-
OperativeBank
NAFSCOB
Urban Co-Operative
Banks
Rural Co-operative
Credit Institutin
Long Term Structure
State Co-operative
Agriculture & Rural
Development Banks
Primary Co-
operative Agriculture
& Rural
Development Banks
Short Term structure
Statee Co-operative
Banks
District centarl Co-
operative bBanks
Primar Agricultut=re
Credit Socities
All India Financial
Institution
NABARD
SIDBI
EXIM
IDBI
SCHEDULED
BANKS IN INDIA

THE PRESENT BANKING SCENARIO
Indian banking had come a long way since India adopted reforms path. Today Indian Banks are
as technology savvy as their counter parts in developed countries. The
competitive and reform force have led to the emergence of internet, ebanking, ATM, credit card
and mobile banking too, to let banks attract and retain customers. This apart retail
lending has emerged as another major opportunity for banks. Due to globalization, liberalization
and privatization mode, Indian banks going global and many global banks setting up shops in
India, the Indian banking system is set to involve into a totally new level it will help the banking
system grow in strength going into the future.
In recent times economy is been pushing to increase the role of multi-national banks in the
banking sector.
But it is opposed on the front that it will lead to state run insurers loosing business and workers
their job. There are several reasons why giving foreign investors greater voting rights is fraught
with dangers. When domestic or foreign investors acquire a large share holding in any bank and
exercise proportionate voting rights, it creates potential problems not only of excursive
concentration in the banking sector but also can expose the economy to more intensive financial
crises at the slightest hint of panic.
Opposition is not considering the need of present situation. FDI in banking sector can solve
various problems of the overall banking sector. Such as –
 Innovative Financial Products
 Technical Developments in the Foreign Markets
 Problem of Inefficient Management
 Non-performing Assets
 Financial Instability
 Poor Capitalization
 Changing Financial Market Conditions

If we consider the root cause of these problems, the reason is low-capital base and all the
problems is the outcome of the transactions carried over in a bank without a substantial capital
base. In a nutshell, we can say that, as the FDI is a non-debt inflow, which will directly solve the
problem of capital base. Along with that it entails the following benefits such as
Technology Transfer
As due to the globalization local banks are competing in the global market, where innovative
financial products of multinational banks is the key limiting factor in the development of local
bank. They are trying to keep pace with the technological development in the banks. Now a days
banks have been prominent and prudent in the rapid expansion of consumer lending in domestic
as well as in foreign markets. It needs appropriate tools to assess (how such credit is managed)
credit management of the banks and authorities in charge of financial stability. It may need
additional information and techniques to monitor for financial vulnerabilities. FDI's tech
transfers, information sharing, training programs and other forms of technical assistance may
help meet this need.
Better Risk Management
As the banks are expanding their area of operation, there is a need to change their strategies exert
competitive pressures and demonstration effect on local institutions, often including them to
reassess business practices, including local lending practices as the whole banking sector is
crying for a strategic policy for risk management.
Through FDI, the host countries will know efficient management technique. The best example is
Basel II. Most of the banks are opting Basel II for making their financial system more safer.
Financial Stability and Better Capitalization
Host countries may benefit immediately. From foreign entry, if the foreign bank re-capitalize a
struggling local institution. In the process also provides needed balance of payment finance. In
general; more efficient allocation of credit in the financial sector, better capitalization and wider

diversification of foreign banks along with the access of local operations to parent funding, may
reduce the sensitivity of the host country banking system and lead towards financial stability.
So due to the aforesaid benefits economy has consistent flow of FDI over the past few years. In
addition to that, the govt. has also taken step to enhance the FDI (eg. Telecom, civil aviation)
FDI up to 100% through the Reserve Bank's automatic route was permitted for a no. of new
sectors in 2005-06 such as Greenfield airport projects, export trading. All these measures have
been contributing towards increasing direct investment.
COMPANY PROFILE
ICICI Bank
ICICI Bank is India's second-largest bank with total assets of about Rs.1,67,659 crore at March
31, 2005 and profit after tax of Rs. 2,005 crore for the year ended March 31, 2005 (Rs. 1,637
crore in fiscal 2004). ICICI Bank has a network of about 560 branches and extension counters
and over 1,900 ATMs. ICICI Bank offers a wide range of banking products and financial
services to corporate and retail customers through a variety of delivery channels and through its
specialized subsidiaries and affiliates in the areas of investment banking, life and non-life
insurance, venture capital and asset management.
ICICI Bank set up its international banking group in fiscal 2002 to cater to the cross border needs
of clients and leverage on its domestic banking strengths to offer products internationally. ICICI
Bank currently has subsidiaries in the United Kingdom and Canada, branches in Singapore and
Bahrain and representative offices in the United States, China, United Arab Emirates,
Bangladesh and South Africa.
ICICI Bank's equity shares are listed in India on the Stock Exchange, Mumbai and the National
Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the
New York Stock Exchange (NYSE).
As required by the stock exchanges, ICICI Bank has formulated a Code of Business Conduct and
Ethics for its directors and employees.

AXIS BANK
Axis Bank Limited (BSE: 532215, LSE: AXBC) is an Indian financial services firm
headquartered in Mumbai, Maharashtra. It had begun operations in 1994, after theGovernment of
India allowed new private banks to be established. The Bank was promoted jointly by the
Administrator of the Specified Undertaking of the Unit Trust of India (UTI-I),Life Insurance
Corporation of India (LIC), General Insurance Corporation Ltd., National Insurance Company
Ltd., The New India Assurance Company, The Oriental Insurance Corporation and United India
Insurance Company UTI-I holds a special position in the Indian capital markets and has
promoted many leading financial institutions in the country. As on the year ended 31 March
2012, Axis Bank had an operating revenue of 134.37 billion and a net profit of 42.42
billion. Axis Bank (erstwhile UTI Bank) opened its registered office in Ahmedabad and
corporate office in Mumbai in December 1993. The first branch was inaugurated in April 1994 in
Ahmedabad by Dr. Manmohan Singh, then the Honorable Finance Minister. The Bank, as on 31
March 2012, is capitalised to the extent of Rest. 4.132 billion with the public holding (other
than promoters and GDRs) at 54.08%..New Zealand born Richard Chandler owns about 9.5%
share through Orient Global.
HDFC Bank
HDFC Bank Limited (BSE: 500180, NSE: HDFCBANK, NYSE: HDB) is an Indianfinancial
services company based in Mumbai, Maharashtra that was incorporated in August 1994. HDFC
Bank is the fifth or sixth largest bank in India by assets and the first largest bank by market
capitalization as of November 1, 2012. The bank was promoted by the Housing Development
Finance Corporation, a premier housing finance company (set up in 1977) of India. As on
December 2012, HDFC Bank has 2,776 branches and 10,490 ATMs, in 1,399 cities in India, and
all branches of the bank are linked on an online real-time basis. As of December 2012 the bank
had balance sheet size of Rs. 3837 billion. For the fiscal year 2011-12, the bank has reported net
profit of 5167.07 crore(US$950 million), up 31.6% from the previous fiscal.

SIGNIFICANT ACCOUNTING POLICIES:
The following policies have remained the same over 2005-2008 except where explicitly
mentioned.
1 Basis of Presentation:
(a) The Company maintains its accounts on accrual basis following the historical cost
convention, except for the revaluation of certain fixed assets, in accordance with the Generally
Accepted Accounting Principles (GAAP) and in compliance with the Accounting Standards
specified in the Companies (Accounting Standards) Rules, 2006 notified by the Central
Government and other provisions of the Companies Act, 1956. However, certain escalation and
other claims are accounted for in terms of contract with the customers. Insurance and other
claims are accounted for as and when admitted by the appropriate authorities.
(b) The preparation of accounts under GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent liabilities as at the date of the financial statements and the reported amounts of
revenues and expenses during the year. Examples of such estimates include the useful lives of
fixed assets and intangible assets, provision for doubtful debts/advances; future obligation in
respect of retirement benefit plans, etc., actual result could differ from these estimates. Any
revisions to accounting estimates are recognised prospectively in the current and future periods.
2 Fixed Assets:
(a) Fixed assets are stated at cost net of tax / duty credit availed, if any, except for land and
buildings added prior to 30th June, 1985 which are stated at revalued cost as at that date based on
the report of technical expert.

(b) Lump sum fees paid for acquisition of technical know-how relating to plant and machinery is
capitalised as intangible asset.
(c) Fixed assets are eliminated from financial statements, either on disposal or when retired from
active use. The retired assets are disposed off immediately. The capitalised cost of such disposed
/ retired assets are removed from the fixed assets records.
(d) Pre-operative expenses, including interest on borrowings till the date of commissioning, for
the projects, where applicable, incurred till
the projects are ready for commercial production, are treated as part of the project cost and
capitalised.
(e) Internally manufactured / constructed fixed assets are capitalised at factory cost, including
excise duty, where applicable.
(f ) Machinery spares which are specific to particular item of fixed assets and whose use is
irregular are capitalised as part of the cost of
machinery.
3 Impairment of Assets:
(a) The carrying amount of assets, other than inventories is reviewed at each balance sheet date,
to determine whether there is any
indication of impairment. If any such indication exists, the recoverable amount of the assets is
estimated.
(b) An impairment loss is recognized, whenever the carrying amount of assets or its cash
generating units exceeds its recoverable amount.
The recoverable amount is the greater of the asset’s net selling price and value in use which is
determined based on the estimated

future cash flow generated from the continuing use of an asset and from its disposal at the end of
its useful life, discounted to their
present values.
(c) An impairment loss is reversed, if there has been a change in the estimates made to determine
and recognise the recoverable amount
in the earlier year.
4 Intangible Assets and Amortisation:
Intangible assets are recognised as per the criteria specified in the Accounting Standard -
Intangible Assets and are amortised as under:
(a) Leasehold land : Over the period of lease;
(b) Specialised software: Over a period of five years;
(c) Lump sum fees for technical know-how: Over a period of five years from the year of
commercial production.
5 Investments
(a) Long term investments are carried at cost after providing for any diminution in value, if such
diminution is of other than temporary
nature.
(b) Current investments are carried at lower of cost or market value. The determination of
carrying costs of such investments is done on the
basis of specific identification.

6 Inventories:
Inventories are valued at lower of cost or net realisable value, after providing for obsolescence
and damage as under:
(a)Raw materials, packing materials:At Cost, on FIFO / Weighted average basis stores and
spares
(b)Work-in-progress-Manufacturing: At Cost plus appropriate roduction overheads
(c)Work-in-progress-Contracts : At Cost till certain percentage of completion and thereafter at
realisable value
(d)Finished goods-Manufacturing: At Cost, plus appropriate production overheads, including
excise duty paid / payable on such goods
(e) Finished goods - Trading : At Cost, on Weighted average basis
7 Foreign currency transactions,Forward contracts and Derivatives:
(a) The reporting currency of the Company is Indian Rupee.
(b) Foreign currency transactions are recorded on initial recognition in the reporting currency,
using the exchange rate at the date of
transaction. At each balance sheet, foreign currency monetary items are reported using the
closing rate. Exchange differences that arise
on settlement of monetary items are recognised as income or expense in the period in which they
arise.
(c) The Company uses foreign exchange forward contract to hedge its exposure to movements in
foreign exchange rates. The use of these
contracts reduces the risk or cost and the company does not use these contracts for trading or
speculation purposes. Cash flows arising on

account of roll over / cancellation are recognised as income / expense of the period in line with
the movement in the underlying exposures.
(d) Derivative transactions are considered as off-balance sheet items and cash flows arising
therefrom are recognised in the books of
account as and when the settlements take place / over the tenor thereof in accordance with the
terms of the respective contracts.
8 Revenue Recognition:
(a) Revenue from sale of products are recognised when all the significant risk and reward of
ownership of the products are passed on to the customers, which is generally on despatch of
goods and acceptance.
(b) Service income is recognised as per the terms of the contract with the customer, when the
related services are performed.
(c) Sales include excise duty and price variation and is recognised in terms of contracts with the
customers. Sales exclude value added
tax / sales tax, brokerage and commission.
(d) Revenue from contracts is recognised based on percentage completion after providing for
expected losses.
(e) Excise duty in respect of finished goods is included in the valuation of finished goods.
(f ) Dividend income is accounted for when the right to receive income is established.
9 Employee Benefits:
(a) Short Term Employee Benefits

All employee benefits payable wholly within twelve months of rendering service are classified as
short term employee benefits. Benefits such as salaries, wages, short term compensated absences,
etc. and the expected cost of bonus, ex-gratia are recognised during the period in which the
employee renders the service.
(b) Defined contribution Plan Company’s contributions paid / payable during the year to
provident fund, officer’s superannuation fund, ESIC and labour welfare fund are recognised in
the profit and loss account.
(c) Defined Benefit Plan Company’s liabilities towards gratuity, leave encashment, and Post
Retirement Medical Benefits are determined using the Projected Unit Credit Method, which
considers each period of service as giving rise to additional unit of benefit entitlement and
measures each unit separately to build up the final obligation. Actuarial gain and losses are
recognised immediately in the statement profit and loss account as income or expenses.
Obligation measured at the present value of estimated future cash flows using a discounted rate
that is determined by reference to market yields at the balance sheet date on government bonds,
where the currency and terms of the
Government are consistent with the currency and estimated terms of the defined benefit
obligation.
(d) Long Term Employee Benefits : The obligation for long term benefits, such as, leave
encashment is reocognised in the same manner as in the case of defined benefit plans as in (c)
above.
10 Depreciation:
(a) Depreciation on the fixed assets is provided at the rates and in the manner specified in
Schedule XIV of the Companies Act, 1956, on
written down value method other than on buildings and plant and equipment, which are
depreciated on a straight line method.

(b) Building constructed on leasehold land are depreciated at normal rate as prescribed in
Schedule XIV to the Companies Act, 1956, where
the lease period of land is beyond the life of the building. In other cases, amortised over the lease
period.
(c) In the case of revalued assets, the difference between the depreciation based on revaluation
and the depreciation charged on historical cost is recouped out of revaluation reserve.
(d) In case of impaired assets, the depreciation is charged on the adjusted cost computed after
impairment.
11 Research and Development:
(a) Revenue expenditure on research and development is charged under respective heads of
account.
(b) Capital expenditure on research and development is included as part of fixed assets and
depreciated on the same basis as other fixed
assets.
12 Borrowing Costs:
(a) Borrowing costs that are attributable to the acquisition, construction or production of a
qualifying asset are capitalised as part of the cost of such asset till such time as the asset is ready
for its intended use or sale.
(b) All other borrowing costs are recognised as expense in the period in which they are incurred.

13 Taxes on Income:
(a) Tax on income for the current period is determined on the basis of estimated taxable income
and tax credits computed in accordance with the provisions of the Income Tax Act, 1961 and
based on the expected outcome of assessments / appeals.
(b) Deferred tax is recognised on timing differences between the accounting income and the
taxable income for the year, and quantified
using the tax rates and laws enacted or substantively enacted as on the Balance Sheet date.
(c) Deferred tax assets are recognised and carried forward only to the extent that there is
reasonable certainty supported by convincing evidence that sufficient future taxable income will
be available against which such deferred tax assets can be realised.
14 Provisions, Contingent liabilities and Contingent assets:
(a) Provisions are recognised for liabilities that can be measured only by using a substantial
degree of estimation, if
i) the Company has a present obligation as a result of past event;
ii) a probable outflow of resources is expected to settle the obligation; and
iii) the amount of the obligation can be reliably estimated.
(b) Reimbursements by another party, expected in respect of expenditure required to settle a
provision, is recognised when it is virtual certain that reimbursement will be received if
obligation is settled.
(c) Contingent liability is disclosed in the case of
i) a present obligation arising from past event, when it is not probable that an outflow of
resources will be required to settle the
obligation;

ii) a possible obligation, unless the probability of outflow of resources is remote.
(d) Contingent assets neither disclosed nor recognised.
(e) Provision, contingent liabilities and contingent assets are reviewed at each balance sheet date.
FINANCIAL STATEMENTS ANALYSIS
MEANING
The process of critical evaluation of the financial information contained in the financial
statements in order to understand and make decisions regarding the operations of the firm is
called ‘Financial Statement Analysis’. It is basically a study of relationship among various
financial facts and figures as given in a set of financial statements, and the interpretation thereof
to gain an insight into the profitability and operational efficiency of the firm to assess its
financial health and future prospects. The term ‘financial analysis’ includes both ‘analysis and
interpretation’. The term analysis means simplification of financial data by methodical
classification given in the financial statements. Interpretation means explaining the meaning and
significance of the data. These two are complimentary to each other. Analysis is useless without
interpretation, and interpretation without analysis is difficult or even impossible.
OBJECTIVES
Analysis of financial statements reveals important facts concerning managerial performance and
the efficiency of the firm. Broadly speaking, the objectives of the analysis are to apprehend the
information contained in financial statements with a view to know the weaknesses and strengths
of the firm and to make a forecast about the future prospects of the firm thereby, enabling the
analysts to take decisions regarding the operation of, and further investment in, the firm. To be
more specific, the analysis is undertaken to serve the following purposes (objectives):

•To assess the current profitability and operational efficiency of the firm as a whole as well as
its different departments so as to judge the financial health of the firm.
•To ascertain the relative importance of different components of the financial position of the
firm.
•To identify the reasons for change in the profitability/financial position of the firm.
• To judge the ability of the firm to repay its debt and assessing the short-term as well as the
long-term liquidity position of the firm. Through the analysis of financial statements of various
firms, an economist can judge the extent of concentration of economic power and pitfalls in the
financial policies pursued. The analysis also provides the basis for many governmental actions
relating to licensing, controls, fixing of prices, ceiling on profits, dividend freeze, tax subsidy
and other concessions to the corporate sector. It also helps the management in self-appraisal and
the shareholders (owners) and others to judge the performance of the management.
FEATURES OF FINANCIAL ANALYSIS
 To present a complex data contained in the financial statement in simple and
understandable form.
 To classify the items contained in the financial statement inconvenient and rational
groups.
 To make comparison between various groups to draw various conclusions
SIGNIFICANCE
Financial statement analysis is the process of identifying the financial strengths and weaknesses
of the firm by properly establishing relationships between the various items of the balance sheet
and the profit and loss account. Financial statement analysis can be undertaken by management
of the firm, or by parties outside the firm, viz. owners, trade creditors, lenders, investors, labour
unions, analysts and others. The nature of analysis will differ depending on the purpose of the

analyst. A technique frequently used by an analyst need not necessarily serve the purpose of
other analysts because of the difference in the interests of the analysts. Financial statement
analysis is useful and significant to different users in the following ways:
(a)Finance manager: Financial statement analysis focuses on the facts and relationships related to
managerial performance, corporate efficiency, financial strengths and weaknesses and
creditworthiness of the company. A finance manager must be well-equipped with the different
tools of analysis to make rational decisions for the firm. The tools for analysis help in studying
accounting data so as to determine the continuity of the operating policies, investment value of
the business, credit ratings and testing the efficiency of operations. The techniques are equally
important in the area of financial control, enabling the finance manager to make constant reviews
of the actual financial operations of the firm to analyse the causes of major deviations, which
may help in corrective action wherever indicated.
(b)Top management: The importance of financial statement analysis is not limited to the finance
manager alone. Its scope of importance is quite broad which includes top management in general
and the other functional managers.
Management of the firm would be interested in every aspect of the financial analysis. It is their
overall responsibility to see that the resources of the firm are used most efficiently, and that the
firm’s financial condition is sound. Financial statement analysis helps the management in
measuring the success or otherwise of the company’s operations, appraising the individual’s
performance and evaluating the system of internal control.
(c)Trade creditors: A trade creditor, through an analysis of financial statements, appraises not
only the urgent ability of the company to meet its obligations, but also judges the probability of
its continued ability to meet all its financial obligations in future. Trade creditors are particularly
interested in the firm’s ability to meet their claims over a very short period of time. Their
analysis will, therefore, confine to the evaluation of the firm’s liquidity position.
(d)Lenders: Suppliers of long-term debt are concerned with the firm’s long-term solvency and
survival. They analyse the firm’s profitability overtime, its ability to generate cash to be able to
pay interest and repay the principal and the relationship between various sources of funds
(capital structure relationships). Long-term tenders do analyse the historical financial statements.

But they place more emphasis on the firm’s projected financial statements to make analysis
about its future solvency and profitability.
(e)Investors: Investors, who have invested their money in the firm’s shares, are interested about
the firm’s earnings. As such, they concentrate on the analysis of the firm’s present and future
profitability. They are also interested in the firm’s capital structure to ascertain its influences on
firm’s earning and risk. They also evaluate the efficiency of the management and determine
whether a change is needed or not. However, in some large companies, the shareholders’ interest
is limited to decide whether to buy, sell or hold the shares.
(f)Labour unions: Labour unions analyze the financial statements to assess whether it can
presently afford a wage increase and whether it can absorb a wage increase through increased
productivity or by raising the prices.
(g)Others: The economists, researchers, etc. analyze the financial statements to study the present
business and economic conditions. The government agencies need it for price regulations,
taxation and other similar purposes.
PURPOSE OF ANALYSIS OF FINANCIAL STATEMENTS
 To know the earning capacity or profitability.
 To know the solvency.
 To know the financial strengths.
 To know the capability of payment of interest & dividends.
 To make comparative study with other firms.
 To know the trend of business.
 To know the efficiency of mgt.
 To provide useful information to mgt
PROCEDURE OF FINANCIAL STATEMENT ANALYSIS
The following procedure is adopted for the analysis and interpretation of financialstatements:-

 The analyst should acquaint himself with principles and postulated of accounting. He
should know the plans and policies of the managements that hemay be able to find out
whether these plans are properly executed or not.
 The extent of analysis should be determined so that the sphere of work may bedecided. If
the aim is find out. Earning capacity of the enterprise then analysis of income statement
will be undertaken. On the other hand, if financial position is tobe studied then balance
sheet analysis will be necessary.
 The financial data be given in statement should be recognized and rearranged. It will
involve the grouping similar data under same heads. Breaking down of individual
components of statement according to nature. The data is reduced to a standard form. A
relationship is established among financial statements with the help of tools & techniques
of analysis such as ratios, trends, common size, fund flow etc.
 The information is interpreted in a simple and understandable way. The significance and
utility of financial data is explained for help indecision making.
 The conclusions drawn from interpretation are presented to the management in the form
of reports.
Analyzing financial statements involves evaluating three characteristics of a company: its
liquidity, its profitability, and its insolvency. A short-term creditor, such as a bank, is primarily
interested in the ability of the borrower to pay obligations when they come due. The liquidity of
the borrower is extremely important in evaluating the safety of a loan. Along-term creditor, such
as a bondholder, however, looks to profitability and solvency measures that indicate the
company’s ability to survive over a long period of time. Long-term creditors consider such
measures as the amount of debt in the company’s capital structure and its ability to meet interest
payments. Similarly, stockholders are interested in the profitability and solvency of the company.
They want to assess the likelihood of dividends and the growth potential of the stock.
Comparison can be made on a number of different bases.
Following are the three illustrations:

1. Intra-company basis.
This basis compares an item or financial relationship within a company in the current year with
the same item or relationship in one or more prior years. Intra-company comparisons are useful
in detecting changes in financial relationships and significant trends.
2. Industry averages.
This basis compares an item or financial relationship of a company with industry averages (or
norms) published by financial ratings organizations. Comparisons with industry averages provide
information as to a company relative performance within the industry.
3. Intercompany basis.
This basis compares an item or financial relationship of one company with the same item or
relationship in one or more competing companies. The comparisons are made on the basis of the
published financial statements of the individual companies
.
TOOLS OF FINANCIAL ANALYSIS
The most commonly used techniques of financial statement analysis are as follows:
1. Comparative Statements: These are the statements showing the profitability and financial
position of a firm for different periods of time in a comparative form to give an idea about the
position of two or more periods. It usually applies to the two important financial statements,
namely, Balance Sheet and Income Statement prepared in a comparative form. The financial data
will be comparative only when same accounting principles are used in preparing these
statements. If this is not the case, the deviation in the use of accounting principles should be
mentioned as a footnote. Comparative figures indicate the trend and direction of financial
position and operating results. This analysis is also known as ‘horizontal analysis’.
2. Common Size Statements: These are the statements which indicate the relationship of different
items of a financial statement with some common item by expressing each item as a percentage
of the common item. The percentage thus calculated can be easily compared with the results

corresponding percentages of the previous year or of some other firms, as the numbers are
brought to common base. Such statements also allow an analyst to compare the operating and
financing characteristics of two companies of different sizes in the same industry. Thus,
common-size statements are useful, both, in intra-firm comparisons over different years and also
in making inter-firm comparisons for the same year or for several years. This analysis is also
known as ‘Vertical analysis’.
3. Trend Analysis: It is a technique of studying the operational results and financial position
over a series of years. Using the previous years’ data of a business enterprise, trend analysis can
be done to observe the percentage changes over time in the selected data. The trend percentage is
the percentage relationship, which each item of different years bear to the same item in the base
year. Trend analysis is important because, with its long run view, it may point to basic changes in
the nature of the business. By looking at a trend in a particular ratio, one may find whether the
ratio is falling, rising or remaining relatively constant. From this observation, a problem is
detected or the sign of good management is found.
4. Ratio Analysis: It describes the significant relationship which exists between various items of
a balance sheet and a profit and loss account of a firm. As a technique of financial analysis,
accounting ratios measure the comparative significance of the individual items of the income and
position statements. It is possible to assess the profitability, solvency and efficiency of an
enterprise through the technique of ratio analysis.
5. Cash Flow Analysis: It refers to the analysis of actual movement of cash into and out of an
organization. The flow of cash into the business is called as cash inflow or positive cash flow and
the flow of cash out of the firm is called as cash outflow or a negative cash flow. The difference
between the inflow and outflow of cash is the net cash flow. Cash flow statement is prepared to
project the manner in which the cash has been received and has been utilized during an
accounting year as it shows the sources of cash receipts and also the purposes for which
payments are made. Thus, it summarizes the causes for the changes in cash position of a business
enterprise between dates of two balance sheets.

RATIO ANALYSIS
The relationship between two accounting figures, expressed mathematically, is known as
financial ratio (or simply as a ratio). Ratio helps to summarise large quantities of financial data
and to make qualitative judgment about firm’s financial performance .The ratio analysis is the
most powerful tool of financial analysis. Many diverse groups of people are interested in
analysing the financial information to indicate the operating and financial efficiency, and growth
of the firm.
Ratio analysis plays an important role in the corporate world. It is a widely used tool of
financial analysis. Ratio Analysis is relevant in assessing the performance of a firm in respect of
liquidity position, long-term solvency, operating efficiency, overall profitability, inter-firm
comparison and trend analysis.
With the help of ratio analysis, one can determine:
 The ability of firm to meet its current obligations;
 The extent to which the firm has used its long term solvency by barrowing funds ;
 The efficiency with which the firm is utilising its assets in generating sales revenue , and
 The overall operating efficiency and performance of the firm.
Ratio
Analysis
Profitabilit
y Ratio
Liquidity
Ratio
Investme
nt
Valuation
Ratio
Manageme
nt
Efficiency
Ratio
Debt
Coverag
e Ratio

PROFITABILITY RATIOS
Profitability ratios are the financial ratios which talk about the profitability of a business with
respect to its sales or investments. Since the ratios measure the efficiency of operations of a
business with the help of profits, they are called profitability ratios. They are quite useful tools to
understand the efficiencies / inefficiencies of a business and thereby assist management and
owners to take corrective actions.
Profitability ratios are the tools for financial analysis which communicate about the final goal of
a business. For all the profit oriented businesses, the final goal is none other than the
profits. Profits are the life blood of any business without which a business cannot remain a going
concern. Since, the profitability ratios deal with the profits, they are as important as the profits.
The purpose behind calculating the profitability ratios is to measure the operating efficiency of a
business and returns which the business generates. The different stakeholders of a business are
interested in the profitability ratios for different purposes. The stakeholders of a business include
owners, management, creditors, lenders etc.
Profitabi
lity
Ratios
Gross
Profit
Ratio
Net Profit
Margin
Ratio
Return on
Net
Worth(%)
Dividend
Payout
Ratio Net
Profit

Gross Profit Ratio
A financial metric used to assess a firm's financial health by revealing the proportion of money
left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as
the source for paying additional expenses and future savings.
Calculated as:
Gross Profit Ratio= Gross Profit/Revenue
Years Mar '08 Mar '09 Mar '10 Mar '11 Mar '12
ICICI Bank
12.99 12.36 15.06 21.06 20.68
Axis Bank
21.44 20.74 24.06 25.93 22.87
HDFC Bank
28.58 18.05 22.39 28.54 25.53
0
5
10
15
20
25
30
35
Mar '08 Mar '09 Mar '10 Mar '11 Mar '12
ICICI Bank
Axis Bank
HDFC Bank

Net Profit Margin Ratio
A ratio of profitability calculated as net income divided by revenues, or net profits divided by
sales. It measures how much out of every dollar of sales a company actually keeps in earnings.
Profit margin is very useful when comparing companies in similar industries. A higher profit
margin indicates a more profitable company that has better control over its costs compared to its
competitors. Profit margin is displayed as a percentage; a 20% profit margin, for example,
means the company has a net income of $0.20 for each dollar of sales.
Calculated as:
Net Profit Margin Ratio= Net Profit/Net Sales
ICICI Bank 10.51 9.74 12.17 15.91 16.14
Axis Bank 12.22 13.31 16.1 17.2 15.51
HDFC Bank 12.82 11.35 14.76 16.09 15.93
0
2
4
6
8
10
12
14
16
18
20
ICICI Bank
Axis Bank
HDFC Bank

Return on Net Worth
The amount of net income returned as a percentage of shareholders equity. Return on net worth
measures a corporation's profitability by revealing how much profit a company generates with
the money shareholders have invested.
Calculated as:
Return on Net Worth= Net Income/net Worth
ICICI Bank 8.94 7.58 7.79 9.35 10.7
Axis Bank 12.21 17.77 15.67 17.83 18.59
HDFC Bank 13.83 15.32 13.7 15.47 17.26
0
2
4
6
8
10
12
14
16
18
20
ICICI Bank
Axis Bank
HDFC Bank

Dividend Payout Ratio
The dividend payout ratio is the amount of dividends paid to stockholders relative to the amount
of total net income of a company. The amount that is not paid out in dividends to stockholders is
held by the company for growth. The amount that is kept by the company is called retained
earnings.
Calculated as:
Dividend Payout Ratio= Dividend/Net Income
ICICI Bank 33.12 36.6 37.31 35.23 32.82
Axis Bank 23.49 23.16 22.56 19.78 18.15
HDFC Bank 22.16 22.16 21.72 22.72 22.69
0
5
10
15
20
25
30
35
40
ICICI Bank
Axis Bank
HDFC Bank

Interpretation on profitability ratios
 Every firm is most concerned with its profitability. One of the most frequently used tools
of financial ratio analysis is profitability ratios which are used to determine the
company's bottom line and its return to its investors. Profitability measures are important
to company managers and owners alike. If a small business has outside investors who
have put their own money into the company, the primary owner certainly has to show
profitability to those equity investors.
 The gross profit ratio of HDFC bank is strong as compare to ICICI & Axis bank
 The net profit margin ratio of Axis bank is strong as compare to ICICI & HDFC bank
 The return on net worth ratio of Axis bank is strong as compare to ICICI & HDFC bank
 The dividend payout ratio of ICICI bank is strong as compare to Axis & HDFC bank.
The ICICI bank has paid more dividend as compare to Axis and HDFC bank over the last
five year

LIQUIDITY RATIOS:
Liquidity ratios measure the firm’s ability to meet current obligations. It is extremely essential
for a firm to be able to meet its obligations as they become due liquidity ratio's measure. The
ability of the firm to meet its current obligations. In fact analysis is of liquidity needs in the
preparation of cash budgets and cash and funds flow statements, but liquidity ratios by
establishing a relationship between cash and other current assets to current obligations provide a
quick measure of liquidity. Main types of liquidity ratios are:
Liquidity
Ratios
Current
Ratio
Quick
Ratio

Current Ratio
The ratio is worked out by dividing the current assets of the concern by its current liabilities.
Current ratios indicate the relation between current assets and current liabilities. Current
liabilities represent the immediate financial obligations of the company. Current assets are the
sources of repayment of current liabilities. Therefore, the ratio measures the capacity of the
company to meet financial obligation as and when they arise. Textbooks claim a ratio of 1.5 to 2
is ideal.
Calculated as:
CURRENT RATIO = CURRENT ASSETS/ LIABILITIES
Current ratio
ICICI Bank 0.11 0.13 0.14 0.11 0.13
Axis Bank 0.03 0.03 0.03 0.02 0.03
HDFC Bank 0.04 0.04 0.03 0.06 0.08
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
ICICI Bank
Axis Bank
HDFC Bank

Acid Test Ratio/Quick Ratio :
Quick assets represent current assets excluding stock and prepaid expenses. Stock is excluded because it
is not immediately realizable in cash. Prepaid expenses are excluded because they cannot be realized in
cash. One of the defects of current ratio is that it does not measure accurately to meet financial
commitments as and when they arise. This is because the current assets include also items that
are not easily realizable, such as stock. The acid test ratio is a refinement of current ratio and is
calculated to measure the ability of the company to meet the liquidity requirements in the
immediate future. A minimum of 1: 1 is expected which indicates that the concern can fully meet
its financial obligations. This also called as Liquid ratio or Quick ratio.
Calculated as:
QUICK RATIO= (CA–INVENTORIES)/CURRENT LIABILITIES
ICICI Bank 6.42 5.94 14.7 15.86 16.71
Axis Bank 9.23 9.52 19.19 19.6 21.63
HDFC Bank 4.89 5.23 7.14 6.89 6.2
0
5
10
15
20
25
ICICI Bank
Axis Bank
HDFC Bank

Interpretation on liquidity ratios:
 Current Ratio is a liquidity ratio that measures company's ability to pay its debt over the
next 12 months or its business cycle
 Acceptable current ratio values vary from industry to industry. Generally, a current ratio
of 2:1 is considered to be acceptable. The higher the current ratio is, the more capable the
company is to pay its obligations.
 Quick Ratio is an indicator of company's short-term liquidity. It measures the ability to use its
quick assets (cash and cash equivalents, marketable securities and accounts receivable) to pay its
current liabilities.
 Quick ratio specifies whether the assets that can be quickly converted into cash are sufficient to
cover current liabilities. Ideally, quick ratio should be 1:1.

INVESTMENT VALUATION RATIO
Investment Valuation Ratio ratios can be used by investors to estimate the attractiveness of a
potential or existing investment and get an idea of its valuation.
Investment
Valuation
Ratio
Operating
Profit Per
Share
Earning Per
Share
Dividend Per
Share

Operating Profit Per Share
Profit earned after subtracting from revenues those expenses that are directly associated with
operating the business, such as cost of goods sold, administration and marketing, depreciation
and other general operating costs. Operating earnings are an important measure of profitability,
and since this metric excludes non-operating expenses such as interest and taxes, it enables an
assessment of the company's core business profitability to be made.
Calculated as:
Operating Profit Per Share=Operating Profit/Average Outstanding share
ICICI Bank 51.29 48.58 49.8 64.08 76.15
Axis Bank 56.88 83.56 97.29 129.26 157.89
HDFC Bank 107.32 92.36 106.25 160.36 37.71
0
20
40
60
80
100
120
140
160
180
ICICI Bank
Axis Bank
HDFC Bank

Earnings Per Share
The portion of a company's profit allocated to each outstanding share of common stock. Earnings
per share serve as an indicator of a company's profitability.
Calculated as:
Earnings Per Share= Dividend to Equity Shareholders/ Average Outstanding share
ICICI Bank 37.37 33.76 36.1 44.73 56.09
Axis Bank 29.94 50.57 62.06 82.54 102.67
HDFC Bank 44.87 52.77 64.42 84.4 22.02
0
20
40
60
80
100
120
ICICI Bank
Axis Bank
HDFC Bank

Dividend per share
The sum of declared dividends for every ordinary share issued. Dividend per share (DPS) is the
total dividends paid out over an entire year (including interim dividends but not including special
dividends) divided by the number of outstanding ordinary shares issued.
Calculated as:
Dividend per share=Dividend/Number Of Share
ICICI Bank 11 11 12 14 16.5
Axis Bank 6 10 12 14 16
HDFC Bank 8.5 10 12 16.5 4.3
0
2
4
6
8
10
12
14
16
18
ICICI Bank
Axis Bank
HDFC Bank

Interpretation on investment valuation ratios:
 Ratios that can be used by investors to estimate the attractiveness of a potential or
existing investment and get an idea of its valuation.
 The operating profit per share of HDFC bank is much higher than ICICI & Axis bank
except in the year 2011-12 where operating profit per share is higher for Axis bank
 The earnings per share of HDFC bank is much higher than ICICI & Axis bank except in
the year 2011-12 where earnings per share is higher for Axis bank
 The dividend per share for ICICI and Axis bank showing the increasing trend over the
last five years. The dividend per share for HDFC bank is showing increasing trend upto
2010-11, but in the year 2011-12 it decreases. The dividend per share for ICICI bank is
higher than Axis & HDFC bank.

MANGEMENT EFFICIENCY RATIO
Efficiency ratios measure how effectively the company utilizes these assets, as well as how well
it manages its liabilities.
Mangement
Efficiency
Ratio
Net
Profit/Total
Fund Ratio
Loan
Turnover
Ratio
Total Assets
Turnover
Ratio

Loan Turnover Ratio
Loan turnover ratio means the amount of sales, divided by the outstanding loans on the balance
sheet. This could measure how much sales a company has to pay off its loans.
Calculated as:
Loan Turnover Ratio=Sales/Out Standing Loans
Loan Turnover
ICICI Bank 0.2 0.18 0.17 0.17 0.18
Axis Bank 0.18 0.19 0.17 0.16 0.17
HDFC Bank 0.22 0.24 0.18 0.17 0.18
0
0.05
0.1
0.15
0.2
0.25
0.3
ICICI Bank
Axis Bank
HDFC Bank

Total Assets Turnover Ratio
Total asset turnover is a financial ratio that measures the efficiency of a company's use of its
assets in generating sales revenue.
Calculated as:
Total Assets Turnover Ratio= Net Sales/Average Total Assets
ICICI Bank 0.11 0.1 0.09 0.08 0.09
Axis Bank 0.1 0.11 0.09 0.09 0.1
HDFC Bank 0.11 0.13 0.1 0.1 0.11
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
ICICI Bank
Axis Bank
HDFC Bank

Net Profit/Total Fund Ratio
It helps express the total profit or loss on an investment as a percentage of the total value of
funds invested.
Calculated as:
Net Profit/Total Fund Ratio= Net Profit/Total Fund
ICICI Bank 1.12 0.96 1.08 1.34 1.47
Axis Bank 1.17 1.41 1.53 1.6 1.61
HDFC Bank 1.42 1.42 1.45 1.57 1.68
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
ICICI Bank
Axis Bank
HDFC Bank

Interpretation on management efficiency ratio:
 Ratios that are typically used to analyze how well a company uses its assets and liabilities
internally. Efficiency Ratios can calculate the turnover of receivables, the repayment of
liabilities, the quantity and usage of equity and the general use of inventory and
machinery.
 The loan turnover ratio for HDFC bank is higher than the ICICI & Axis bank it means
HDFC bank is more dependent on their income to pay their outstanding loan in
comparison with ICICI & Axis bank
 The total assets turnover ratio for HDFC bank is higher than the ICICI & Axis bank. It
shows that HDFC bank is more efficient in generating revenue from their assets
 The net profit/total fund ratio for all the three banks is fluctuating over the last five years

LIVERAGE RATIOS
A measure of a company's ability to meet its financial obligations. In broad terms, the higher the
coverage ratio,the betterthe abilityof the enterprisetofulfill itsobligationstoits lenders. The trend of
coverage ratios over time is also studied by analysts and investors to ascertain the change in a
company's financial position. Common coverage ratios include
Debt
Coverage
Ratios
Credit
Deposit
Ratio
Cash
Diposit
Ratio
Investmen
t Deposit
Ratio
Total Debt
to Owners
Fund

Credit Deposit Ratio
The proportion of loans generated by banks from the deposits received
Calculated as:
Credit Deposit Ratio= Loans/Deposits
ICICI Bank 84.99 91.44 90.04 87.81 92.23
Axis Bank 65.94 68.89 71.87 74.65 76.26
HDFC Bank 65.28 66.64 72.44 76.02 78.06
0
10
20
30
40
50
60
70
80
90
100
ICICI Bank
Axis Bank
HDFC Bank

Cash Deposits Ratio
Cash deposit ratio is with reference to a bank's the ratio of average cash balance held against
total deposits of a particular branch.
Calculated as:
Cash Deposits Ratio= Average cash Balance/total Deposits
ICICI Bank 10.12 10.14 10.72 11.32 8.6
Axis Bank 8.17 8.16 7.3 7.07 6.01
HDFC Bank 10.49 10.71 9.35 10.79 8.81
0
2
4
6
8
10
12
ICICI Bank
Axis Bank
HDFC Bank

Investment Deposit Ratio
the total of all the long term and short term investment made by the bank on other sources like
banks, share market, loans and advances divided by the total amount of deposits raised by the
bank by various account as mentioned above.
Calculated as:
Investment Deposit Ratio= Total Investment/Total Deposits
ICICI Bank 42.68 46.35 53.28 59.77 61.16
Axis Bank 41.39 39.04 39.55 38.71 40.35
HDFC Bank 47.29 44.43 37.85 34.45 36.99
0
10
20
30
40
50
60
70
ICICI Bank
Axis Bank
HDFC Bank

Total Debt to Owners Fund
The debt-to-equity ratio is a measure of the relationship between the capital contributed by
creditors and the capital contributed by shareholders. It also shows the extent to which
shareholders' equity can fulfil a company's obligations to creditors in the event of a liquidation.
Calculated as:
Total Debt to Owners Fund= Debt/Equity
ICICI Bank 5.27 4.42 3.91 4.1 4.23
Axis Bank 9.99 11.49 8.81 9.96 9.65
HDFC Bank 8.76 9.75 7.78 8.22 8.24
0
2
4
6
8
10
12
14
ICICI Bank
Axis Bank
HDFC Bank

Interpretation leverage coverage ratios
 Any ratio used to calculate the financial leverage of a company to get an idea of the
company's methods of financing or to measure its ability to meet financial obligations.
There are several different ratios, but the main factors looked at include debt, equity,
assets and interest expenses.
 The credit deposit ratio for ICICI bank is higher than Axis & HDFC bank. It shows that
ICICI bank is able to generate more loans from their deposits received as compare to
Axis & HDFC bank
 The cash deposits ratio for Axis bank is constantly low over the last five years as
compare to ICICI & Axis bank. It shows that Axis bank has less diposits as compare to
ICICI & HDFC bank
 The investment deposit ratio of ICICI bank is increasing, Axis bank constant & HDFC
bank is decreasing over the last five year i.e. from 2007-08 to 2011-12. It shows that
ICICI bank is making more investment out of their deposits
 The total debt to owner’s fund ratio for Axis bank is higher than the ICICI & HDFC
bank. It shows Axis bank has more debt then its equity as compare to ICICI & HDFC
bank

LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS
Though financial statement analysis is quite helpful in determining financial strengths and
weaknesses of a firm, it is based on the information available in financial statements. As such,
the financial statement analysis also suffers from various limitations of financial statements.
Hence, the analyst must be conscious of the impact of price level changes, window dressing of
financial statements, changes in accounting policies of a firm, accounting concepts and
conventions, personal judgments, etc.
 Some other limitations of financial statement analysis are:
 Financial statement analysis does not consider price level changes.
 Financial statement analysis may be misleading without the knowledge of the changes in
accounting procedure followed by a firm.
 Financial statement analysis is just a study of interim reports.
 Monetary information alone is considered in financial statement analysis while non-
monetary aspects are ignored.
 The financial statements are prepared on the basis of on-going concept, as such, it does
not reflect the current position.

CONCLUSION
Financial Statement Analysis is an yardstick for measuring the financial status of a bank. It
provides significant information about firm’s strengths and weaknesses to various individuals
and groups such as investors, lenders, management of firm, govt. agencies etc.

SUGGESTIONS/RECOMMENDATIONS:
Every coin has two sides, so is the case with financial statement analysis. It is user friendly tool
for knowing financial status of a firm, but it has certain limitations in terms of lack of
information. Hence it is recommended that one should be cautious while using financial
statement analysis and should also consider the effects of:
• Accounting policies of the firm and
• Changes in accounting procedures and standards followed by the firm.

BIBLIOGRAPHY
 www.moneycontrol.com
 money.rediff.com
 money.livemint.com
 www.icicibank.com
 www.axisbank.com
 www.hdfcbank.com
 www.finance-glossary.com
 (For definition of certain financial terms)
 Financial Management -by I. M. Pandey
 Financial Management- by Ravi Kishor

Financial analysis of banks

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