ANALYSIS OF FINANCIAL STATEMENTS

FINANCIAL ANALYSIS
MCB

SUBMITTED BY:

MUHAMMAD DANIYAL
ABU BAKKAR
SHARIM JAVED
AHMED SALMAN

CLASS BBA 8

SUBMITTED TO:

SIR FAZAL-UR-REHMAN

DATED: 17-11-2009
ABOUT MCB:

MCB (Formerly Muslim Commercial Bank Ltd.) is the largest private sector bank in
Pakistan. The Adamjee group incorporated in 1948. It proposed during the 1950’s and
60’s. In 1975 it was nationalized with all other private sector bank. Then 1991 it was
privatized. Since the bank has been headway in improving of technology. In the year
2006 bank name was changed to MCB Limited. The bank is now included as one of the
top most bank of the nation.
MCB has been awarded as a Euromoney Award 2008 for the "Best Bank in Asia" The
Chairman of MCB is Mian Mohammad Mansha and the President / CEO is Mr. Atif
Aslam Bajwa. MCB is one of the leading banks of Pakistan with a deposit base of about
Rs. 280 billion and total assets of around Rs.300 billion. Incorporated in 1947, MCB
soon earned the reputation of a solid and conservative financial institution managed by
expatriate executives. In 1974, MCB was nationalized along with all other private sector
banks. The Bank has a customer base of approximately 4 million and a nationwide
distribution network of 1,026 branches, including 8 Islamic banking branches, and over
300 ATMs, in a market with a population of 60 million. During the last fifteen years, the
Bank has concentrated on growth through improving service quality, investment in
technology and people, utilizing its extensive branch network, developing a large and
stable deposit base.

VISION & MISSION:

“To become the preferred provider of quality financial services in the country with
profitability and responsibility and to be the best place to work”

 VISION STATEMENT

To be the leading financial services provider, partnering with our customers for a more
prosperous and secure future.

 MISSION STATEMENT

We are a team of committed professionals, providing innovative and efficient financial

solutions to create and nurture long-term relationships with our customers. In doing so,
we ensure that our shareholders can invest with confidence in us.
RATIO ANALYSIS:

ACTIVITY RATIOS: 2007 2008

 A/R turnover 1.2x 1.8

 Total asset turnover 0.07x 0.09

1.8

1.6

1.4

1.2
2007
1
Column1
0.8

0.6

0.4

0.2

0
A/R TO ASSET TO

 The activity ratios represent the companies’ effectiveness and efficiency with respect to
its operations.
 The bar chart shows an increase in both the A/R T.O and ASSET T.O.
 It means MCB has improved its operations in the next period and the ability to better
utilize the assets to produce the revenues has also improved as the asset turnover shows.
LIQUIDITY RATIOS: 2007 2008

 Current ratio 0.7x 1.43

 Cash ratio 0.8x 1.19

1.6

1.4

1.2

0.8 2007
Column1
0.6

0.4

0.2

0
C.R CASH RATIO

 The liquidity ratios show the firms’ liquidity position.

 For the banks the appropriate liquidity ratios are current and cash ratios as they don not
posses any inventories.
 The ideal current ratio for the banking industry is 2 to 2.5. Although, MCB is a it low but
the twofold increase in the current ratio indicate teat the bank is capable enough to
improve its liquidity position. The improving asset turnover in the previous section also
support the point that by better utilizing its assets the bank can improve its liquidity.
 The cash ratio has also increased and shows improved liquidity which is a point of
interest for the investors.
 The liquidity ratios are not very high, which is a good sign as it indicates that the current
assets are not over financed. Neither excess cash is put idol and unutilized.
SOLVENCY RATIOS: 2007 2008

 Debt/Equity 8% 7.3%
 Debt/capital 6.5 6.6
 Interest coverage 3.7x 2.9

5
2007
4 Series 3

0
D/E D/C INT COV

 The firms’ solvency position has declined a bit as the chart shows decrease in the ratios in
the year 2008.
 The D/E ratio has decreased and the D/C ratio has remained the same. These two ratios
show lower debts in the capital structure. May the bank need to reconsider its capital
structure to optimize the tax shield benefit and to decrease WACC.
 The interest coverage ratio has decreased showing a decrease in the ability to pay interest.
But the improved activity position and the liquidity balance this decrease and indicates
that the firm has an ability to improve its coverage ratio and regain the better solvency
position.
PROFITABILITY RATIOS: 2007 2008

 Gross margin 75% 71

 ROA 53% 57
 ROE 33% 3

80

70

60

50

40 2007
Series 3
30

20

10

0
G.M ROA ROE

 The profitability situation is quite satisfactory. The decreased G.M is may be because of
higher interest rates for the debt raised during the previous years of recession.
 The improved ROA also supported by the better asset turnover shows that the firm has
earned a better return on its assets by better utilizing them and by improving the
operations.
 Return on equity has decreased because of lower profit. But the other ratios are
satisfactory and the bank seems to be capable enough to regain the profit levels.
ANALYSIS OF CASH FLOWS:

OPERATING ACTIVITIES:

The net cash flow from operations is positive but decreased in 2008. The positive cash flow
indicates that the firms’ collection is faster than the payment procedure. This flow of operations
is most desirable by the lenders and investors and the firm itself. The cash has been decreased in
2008 because of the repayment of the debts. This point is supported by the decrease in the debt
ratio in the ratio analysis section. The figures in the cash flow statement also support it.

INVESTING ACTIVITIES:

The cash from investing activities was negative in 2008 indicating the growth and high
investment in the assets. This investment is always attractive for the investors hence the debt was
also higher in that period. The net cash is positive in 2008 showing the liquidation of assets by
the firm. This liquidation does not necessarily mean there is no growth but it also indicates the
increased level of efficiency achieved by better utilizing less assets and generating more
revenues. The later indication is more appropriate as the asset turn over also has improved
showing an improvement in the asset utilization.

FINANCING ACTIVITIES:

The cash from financing activity is negative in both the years and show growth. It also indicates
that the firms’ position is good and the investors are willing to invest. It also sends a positive
signal to the market that the firm has the ability to pay back debt and interests and hence
improves the stock prices of the firm.

CONCLUSION:
By the ratio analysis and the analysis of the cash flows and other statements we can conclude
that the bank is in good financial position and performance as well. It has a better position in
2008 but the financial performance last year was better. The ratios which are changed and show
a negative affect are offset by some other ratios which show a positive affect. The cash flows are
also attractive and show growth, higher efficiency achieved and an attractive investment for the
general public.
ANNEX: