Article Review Individual Assignment

FINANCIAL PERFORMANCE EVALUATION
(A Case Study of Awash International Bank (AIB)

A Research project submitted to the Department of Accounting and Finance,
College of Business and Economics, Mekelle University, for the partial
Fulfillment of the Degree of Master of Science in Finance and Investment
By
ABDI DUFERA
Reg. No. PR/0014/01
Advisor
Dr. FISSEHA GIRMAY, PhD
Assistant Professor of Accounting & Finance
Department of Accounting and Finance
College of Business and Economics
Mekelle University Ethiopia
June, 2010
Study On
FINANCIAL PERFORMANCE EVALUATION
(A Case Study of Awash International Bank)
INTRODUCTION
This chapter covers background of the study, statement of the problem, research questions,
and justification of the study, objective of the study, research methodology, and significance of
the study, scope of the study, limitation and organization of the study.
1.1 Background of the study
A bank is a financial intermediary that accepts deposits and channels those deposits
into lending activities. Banks are a fundamental component of the financial system, and
are also active players in financial markets. The essential role of a bank is to connect
those who have capital (such as investors or depositors), with those who seek capital
(such as individuals wanting a loan, or businesses wanting to grow)
(http://en.wikipedia.org/ wiki /Bank).
1.2 Purpose of the article/Statement of the Problem:

Financial performance of a company, being one of the major characteristics, defines
competitiveness, potentials of the business, and economic interests of the company’s
management and reliability of present or future contractors. Therefore, financial
performance analysis and identification of their weaknesses and strengths using
financial performance indicators has its contribution to the management, shareholders,
the public (customers of the bank), the regulator (the government), the financial sector,
and the economy as a whole. Similarly, it flashes direction to bank managers whether
to improve its deposit service or loan service or both. Regulators are also interested in
the financial health of banks for regulation purposes.
1.3 objective of the study

1.3.1 general objective
The overall object of the study is to examine and compare the financial performance of
Awash International bank (AIB) against the industry average from the view point of a
neutral onlooker.
1.3.2 Specific Objective:
The specific objectives of the study are:
• To study and analyze the trends of various elements of the
Financial statements of the AIB
• To analyze and compare the risk and solvency position of the against the industry
average
• To examine and compare the overall profitability of the AIB against the industry
average
• To analyze and compare the liquidity position of the AIB against the industry average
• To evaluate and compare how effectively the company is utilizing its assets against
the industry average.
1.4 Data used (including its type-Quantitative or qualitative)

The source of data for this study was predominantly from secondary sources. However,
the data needed for this study were gathered from both Secondary and primary
sources.
1.5 Methods of Data Analysis:

The collected data through the above tools was analyzed using the techniques of ratio
analysis to find out the true picture of the financial performance of awash international
bank over the recent seven years. Finally, trend analysis (or series analysis) and
comparison against the industry average was made. The analyzed data was presented
using tables and diagrams that are appropriate to explain the facts.
1.6 Findings, conclusion and policy recommendation.
Findings
At this point, the financial analysis has been made in attempting to draw some rough
conclusions on the performance of AIB. One of the main points to understand about
the financial analysis is that all the information that would be conclusive judgment
about what is going on in the company is found in the financial statements and
interview with the concerned staff.
Conclusion
Having found AIB to be less profitable than industry average, what we expect when it comes to
risk and solvency measures is according to the basic rule of finance “the higher the expected
return the higher the risk”. Our findings of profitability and risk & solvency perfectly fit in this
risk-return profile and allow us to conclude that AIB is less profitable, also less risky, and more
solvent than industry average. Analysis of the results of all the risk and solvency measures, Debt
Equity Ratio (DER), Debt to Total Assets ratio (DTAR), Equity Multiplier (EM), and Non-
Performing Loans to Total Loan Ratio (NPTL) indicates AIB to be less risky and more solvent than
industry average.
Policy recommendation
The following recommendations, based on the above research findings, are forwarded below in
order to enhance the financial performance of commercial banks: Loan to deposit ratio of AIB
decreased from 68.73%in 2003 to 54.66% in 2009. This overall declining trend in LDR of AIB
indicates the tendency of comparatively more increase in deposits than loans. This may indicate
that AIB has conservative lending policy over the period under the study.
1.7. My evaluation on article based on:
The theories discussed in the paper and how they compare it
The theories discussed in this article are the problem of banking and financial system become
more important in all countries over the recent years. The income statement which show all
major categories of revenue and expenditure, the net profit or loss for the periods, and the
amount of cash dividends declared measures a firms financial performance over a period of
time, such as a year, quarter or month.
My evaluation on the author argument
The author argued supporting a theory. The reason is the financial sector and specially the
banking system, is vulnerable to system crisis which as lead to creation of costly safety nets,
and depositor insurance schemes with well- known moral hazard problem. It is argued that
there is increasing evidence that the banks are “black boxes” due to the weak transparency and
banks, and willingness to disclose information (Neely et al, 1997).
How well are conclusion of the article aligned with the finding of the study
The author concluded the article aligned with the finding of study in well. “From the common
size analysis of income statement operating income before tax in 2007 was very high comparing
to the other year.’’ From this I can see the way the author conclude his review.
1.8 My comments on what exactly does the work contribute and relate to overall topic of my
course.
1.9 strengths and weakness of the paper
Strength
Weaknesses
References
Abdus, S. (2004),” Bahrain's Commercial Bank Performances during 1994 2001”:
Retrieved from
http://findarticles.com/p/articles/mi_qa3857/is_200401/ai_n13454903
Ahmad, A. U. F., & Hassan, M. K. (2007), “Regulation and Performance of Islamic
Banking in Bangladesh”, Thunderbird International Business Review, 49(2),
retrieved from www.ccsenet.org/journal.html
Awash International bank (2009), “A Brief overview on AIB achievements”: Addis
Ababa, Ethiopia, Brochure December 2009.
Bashir, (2001), “Determinants of Islamic banks’ performance across eight Middle
Eastern countries between 1993 and 1998”; Sudan, September 2001.
Retrieved from. http://www.eurojournals.com/finance.htm.

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FINANCIAL PERFORMANCE EVALUATION

(A Case Study of Awash International Bank (AIB)

1.2 Purpose of the article/Statement of the Problem:

1.3 objective of the study

1.4 Data used (including its type-Quantitative or qualitative)

1.5 Methods of Data Analysis:

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