Exemplary Financial Ratios Used By Banks
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Financial ratios used by banks. What this ratio evaluates is the percentage of a companys earnings that is devoted to interest payments. Ratios of INS Bank Figure 1 indicates fixed deposit to total deposit ratio and net profit ratio to owners. It is a ratio that provides a way for the bank to determine how much of their money versus your own money is being used to grow the business.
Banks may use this ratio when evaluating whether to lend additional money to a firm. A financial ratio is a relative magnitude of two financial variables taken from a businesss financial statements. The ratios used in the study are divided into five broad groups.
This ratio is also known as working capital ratio. The formula for this ratio is earnings before interest and taxes divided by interest. There are eleven independent and one dependent ratio has been measured to predict the financial performance of INS Bank.
Financial reporting in the banking industry is significantly different than most other industries. Current ratio may be defined as the relationship between current assets and current liabilities. The five ratios Working Capital to Total Assets Earnings to Total Assets EBIT to Total Assets Value of Equity to Book Debt and Gross Earnings to Total Assets cannot be used in classifying the three banks GT Bank UBA and Polaris into weak strong and very strong categories.
The Leverage Ratio is calculated by dividing your total business liabilities by total equity. Table 1 showing financial ratios of financial statement of INS bank during the period 2013-14 to 2017-18. Financial ratios are widely used to analyze a banks performance specifically to gauge and benchmark the banks level of solvency and liquidity.
They may also use coverage ratios as part of a debt covenant. Most ratios can be calculated using financial statements and they are used to analyze trends in a companys financial performance and how it compares to others in the same industry. Liquidity Management Ratios Interest Rate Risk Management Ratios Credit Risk Management Ratios.