The document provides an overview of key financial statements and concepts related to banking. It discusses the balance sheet, income statement, and statement of cash flows. It then explains key components of these statements like assets, liabilities, equity, net income, and cash flow. The document also covers concepts like leverage, net interest margin, types of bank deposits and assets, and measures of money supply.

1. Financial Statements By: $treet

2. Bottom Line Operating Profit Net Income EBIDTA Gross Profit Top Line EBIT PAT

3. Financial Statements Balance Sheet - statement of financial position at a given point in time. Income Statement - revenues minus expenses for a given time period ending at a specified date. Statement of Owner's Equity - also known as Statement of Retained Earnings or Equity Statement. Statement of Cash Flows - summarizes sources and uses of cash

4. Use of Financial Statements

5. Process of Creation of Financial Statements

6. What is the link between the Profit & Loss Statement and the Balance Sheet? Net Income is transferred to the equity section of the balance sheet.

7. Key Accounting Concepts

8. Most Important of All…

9. Key Components of Income Statement

10. Key Components of Income Statement…Continued

11. Key Components of Income Statement…..Continued

12. Model Income Statements

13. Model Income Statements

14. Common Balance Sheet AccountsAssets

15. Common Balance Sheet AccountsAssets

16. Common Balance Sheet AccountsLiabilities

17. Common Balance Sheet AccountsEquity

19. Model Balance Sheet

20. ACTIVITY RATIOS

21. ACTIVITY RATIOS

22. LIQUIDITY RATIOS

23. SOLVENCY RATIOS

24. PROFITABILITY RATIOS

26. Capacity (Cash Flow)

27. Capital

28. Collateral

30. Money, money, money Capital is the amount of money investors put into the bank plus any retained earnings. Liabilitiesis the money the bank borrows from depositors or other sources. Assetsare loans that the bank makes (and a little cash and other assets).

31. Modulo operandi of a bank Banks make money by lending at a higher rate than they borrow. Suppose the banks borrowed at 7%, loaned the money at 10%, for a spread of 3%. The difference between 10% and 7% is called the "net interest spread". Banks report something a little different called the "net interest margin". The difference between the "spread" and the "margin" is because not all assets are loans (some might be held as cash for regulatory reasons). Net Interest Margin (NIM) is the interest earned, minus the interest paid, divided by total assets.

32. Basic structure of a bank Suppose a bank had $100 billion in assets, and a NIM of 4.1% that would be $4.1 billion in annual profits before expenses and charge-offs - on just $10 billion in capital (Note: The diagram shows 10-to-1 leverage; many banks were levered 30-to-1 or more) Of course the bank has expenses (all those nice buildings and employees) - and there are always charge-offs for loans that don't get repaid, even in good times.

33. Common terms in banking Cash Reserve Ratio ( CRR) - The portion (expressed as a percent) of depositors' balances banks must have on hand as cash. Repo rate - The rate at which the RBI lends money to commercial banks. Reverse repo rate – The rate at which RBI takes money from commercial banks. Statutory Liquidity Ratio (SLR) - amount of liquid assets, such as cash, precious metals or other short-term securities, that a financial institution must maintain in its reserves.

34. Common terms in banking Priority sector lending – Loans to certain predefined sectors on subsidized rates. Base rate (previously prime lending rate)– The cost of funds to banks. It indicates the rate below which banks are not allowed to lend. Current Account, Savings Account (CASA) – Indicates quality of deposits. Low cost of funds Non performing assets (NPA) – The an asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, as per RBI guidelines.

35. Assets Physical assets Loans Reserves Investment securities

36. Assets: Loans Consumer Loans: home loans, personal loans, automobile loans, credit card loans Businesses Loans: real estate development loans, capital investment loans.

37. Assets: Reserves Small in amount but important Gives the much needed liquidity to banks for daily transactions, such as processing checks or satisfying cash withdrawals Sense of security to customers Two types of deposits Vault cash Central Bank deposit

38. Assets: Investment security It is buffer between loans and reserves. Few extra reserves which bank is not ready to lock in loans for the long term is put in securities. more interest than reserves safer than loans Types of securities Sovereign debt Interbank money market Commercial papers

39. Liabilities Transaction deposits Other types of deposits Other liabilities

40. Liabilities: Transaction deposits Checking accounts or checkable deposits Any demand deposit account against which checks or drafts of any kind may be written. Checkable deposit accounts include checking, savings and money market accounts. Assets for customers, liabilities for bank Separate listing in the balance sheet because they are part of the M1 money supply

41. Liabilities: Other type of deposit Savings accounts, certificates of deposit, money market deposits, repurchase agreements, and a host of other accounts that find their way into the M2 and M3 monetary aggregates CASA deposits (Current Account , Savings Account)

42. Liabilities: Other liabilities Borrowings from Central Bank and In the interbank money market, commercial papers etc.

43. Net Worth What the bank owes the owners Negative net worth puts the bank in the risk of insolvency Depositors may loose savings Loan loss reserves

44. Measures of money supply M1 – includes all physical money such coins and currency demand deposits, which are checking accounts Negotiable Order of Withdrawal (NOW) Accounts. M2 – includes M1 in addition to all time-related deposits savings deposits non-institutional money-market funds M3 – includes M2 as well as all large time deposits institutional money-market funds short-term repurchase agreements other larger liquid assets.

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