Name - Udit Aggarwal
Roll no. – 2020BBE1059
Semester 1
Accountancy Assignment
UCO Bank
UCO Bank, formerly known as United commercial bank, established in 1943 in
Kolkata. It is a major government owned bank. It is ranked 1931 on the Forbes
global 2000 list whereas 294th in India’s most trusted bank list. According to data
of March 2020, 22,436 total employees were working in UCO bank. Also, it was
having a capital ratio of 11.70%. On NSE, it trades as UCOBANK and on BSE it
trades as 532505.
Source – www.ucobank.com
ANNUAL STATEMENTS (2019-20)
*Only Notes to accounts which are required for ratio
calculation are there in document*
Ratio Analysis
Liquidity Ratios
1) Current Ratio =
For year ending 31.3.2019
a) Current Assets = Cash and Balances with Reserve Bank of India
+ Balances with Banks and Money at Call and Short Notice +
Advances + Other Assets
Current Assets = 8,82,30,103 + 15,60,90,887 + 99,31,38,423 +
21,68,41,328
Current Assets = 1,42,43,00,741
b) Current Liabilities = Deposits + Other Liabilities
Current Liabilities = 1,97,90,67,817 + 6,86,25,673
Current Liabilities = 2,04,76,93,490
Current Ratio = = 0.69:1
For year ending 31.3.2020
a) Current Assets = Cash and Balances with Reserve Bank of India
+ Balances with Banks and Money at Call and Short Notice +
Advances + Other Assets
Current Assets = 6,77,67,284 + 1,10,29,400 + 1,01,17,42,529 +
23,08,85,542
Current Assets = 1,32,14,24,755
b) Current Liabilities = Deposits + Other Liabilities
Current Liabilities = 1,93,20,34,435 + 7,80,00,216
Current Liabilities = 2,01,00,34,651
Current Ratio = = 0.65:1
Analysis
Current ratio is widely used to analyze a bank’s performance,
specifically to gauge and benchmark the bank’s level of solvency.
The current ratio here indicates whether a bank has enough cash
and cash equivalents to cover its short term liabilities or not.
As, it is seen that current ratio is declined in current year. It shows
that Bank is going downhill in terms of current ratio. Bank needs to
work on this and change its ways of work.
A good bank should have current ratio of 1 or higher than it. As,
UCO bank has 0.65 current ratio, it is in a verge of financial risk. It
can pose a lot of problems for bank as banks mostly deal in cash or
short term equipments with customers. So, this low current ratio is
alarming for UCO bank.
2) Quick Ratio =
For year ending 31.3.2019
Quick assets = Current Assets – Interest Accrued – Advance tax
Quick assets = 1,42,43,00,741 -1,70,09,444 – 1,98,98,331
Quick assets = 1,38,73,92,966
Quick Ratio = = 0.67:1
For year ending 31.3.2020
Quick assets = Current Assets – Interest Accrued – Advance tax
Quick assets = 1,32,14,24,755 - 2,09,85,386 – 1,86,40,626
Quick assets = 1,28,17,98,743
Quick Ratio = = 0.63:1
Analysis
Because of short term cash needs a good quick ratio for bank
should be anything greater than 1. This quick ratio is not
satisfactory, especially for a financial institution. According to my
opinion, UCO bank needs to improve its short term position for
completing their daily cash needs.
Also it can be observed that quick ratio has declined over year
which is not at all a good sign. UCO bank needs to change its policy
of allocating quick assets or they are in big trouble. These ratios are
alarming for UCO bank and they are in a severe need to improve
their position.
Solvency Ratios
1) Debt-Equity Ratio =
For year ending 31.3.2019
a) Total Debt = Borrowings + Other Liabilities & Provisions
Total Debt = 8,32,36,786 + 6,86,25,673
Total Debt = 15,18,62,459
b) Shareholder’s Fund = Capital + Reserves & Surplus + Share
application money
Shareholder’s Fund = 5,42,33,982 + 8,37,09,722 + 3,59,66,822
Shareholder’s Fund = 17,39,10,526
Debt-Equity Ratio = = 0.87 : 1
For year ending 31.3.2020
a) Total Debt = Borrowings + Other Liabilities & Provisions
Total Debt = 15,69,50,621 + 7,80,00,216
Total Debt = 23,49,50,837
b) Shareholder’s Fund = Capital + Reserves & Surplus
Shareholder’s Fund = 9,91,83,406 + 9,29,12,835
Shareholder’s Fund = 19,20,96,241
Debt-Equity Ratio = = 1.22 : 1
Analysis
Generally, a debt to equity ratio below 1.0 would be seen relatively
safe, whereas ratio of 2.0 or higher would be considered risky.
Banking industries are known for having high debt to equity ratio.
In previous year, total debt to equity ratio of UCO bank was
relatively safer. Increasing of this ratio is not good for bank point.
Bank needs to keep check on their trading on equity policies or it
can become adverse for them.
But also, debt to equity ratio of UCO bank is relatively better for
banking institution. But it shows Bank has more permanent
obligations which can be somewhat risky. As a conclusion, if
working carefully UCO bank has reliable position in terms of Debt
to Equity ratio.
2) Capital gearing ratio =
For year ending 31.3.2020
a) Fixed interest or Dividend bearing Funds = Borrowings +
Preference Share Capital
Fixed interest or Dividend bearing Funds = 15,69,50,621 +
2,25,00,000
Fixed interest or Dividend bearing Funds = 17,94,50,621
b) Equity Shareholder’s Fund = Equity Share Capital + Reserves &
Surplus
Equity Shareholder’s Fund = 10,00,00,000 + 9,29,12,835
Equity Shareholder’s Fund = 19,29,12,835
Capital gearing ratio = = 0.93 times
Analysis
Capital gearing ratio is measure of capital structure analysis and
financial strength of company. Less than 1 ratio signifies that the
institution is highly geared.
Generally banks are reluctant to give loans to high geared
companies but banks are not that much highly geared. 0.93 times
is moderate ratio for UCO bank. It signifies UCO bank is stable in
terms of Capital gearing and having a reliable position.
(Calculation of previous year was not required but this ratio is
already in favour of UCO bank)
3) Interest coverage Ratio =
For year ending 31.3.2019
a) Earnings before interest and tax = -9,92,49,176
b) Interest on Long term Debts = 10,01,94,785
Interest coverage Ratio = = -0.99 times
For year ending 31.3.2020
a) Earnings before interest and tax = -12,41,22,829
b) Interest on Long term Debts = 10,04,20,601
Interest coverage Ratio = = -1.23 times
Analysis
Interest coverage ratio signifies how many times an institution can
cover its current interest payments with its available earnings. It
means higher the ratio is higher capability of institution to pay
interest.
It can be seen that previous year ratio of UCO bank was better. Last
year ratio was also bad but current year is more dangerous. This
shows the charts of UCO bank are going down.
Negative ratio of UCO bank is not at all good of its future. UCO
bank’s ratio shows that payment of interest can become a burden
for bank. Bank is in severe need to increase its earnings or bank is
in a great trouble.
4) Proprietory Ratio = * 100
For year ending 31.3.2019
a) Shareholder’s Fund = Capital + Reserves & Surplus + Share
application money
Shareholder’s Fund = 5,42,33,982 + 8,37,09,722 + 3,59,66,822
Shareholder’s Fund = 17,39,10,526
b) Total Assets = 2,30,48,40,802
Proprietory Ratio = * 100 = 7.54 %
For year ending 31.3.2020
a) Shareholder’s Fund = Capital + Reserves & Surplus
Shareholder’s Fund = 9,91,83,406 + 9,29,12,835
Shareholder’s Fund = 19,20,96,241
b) Total Assets = 2,35,90,81,513
Proprietory Ratio = * 100 = 8.14 %
Analysis
Proprietry ratio provides a rough estimate of amount of
capitalization currently used to support business. High ratio
suggests company has enough amount of equity for working of
business and it have room for debts if needed.
According to data, Bank have improved in the meantime in terms of
Proprietory ratio. Change of around 3% is a significant improvement
for a year. It shows UCO bank has started to work on this ratio
which is good thing but current year’s ratio is also not much
satisfactory.
40 – 70% can be considered as a good ratio for banking sector.
8.15% is not a decent ratio for UCO bank. UCO bank needs to
reduce debts and increase share capital otherwise smooth survival
of UCO bank is difficult in near future.
Profitability Ratios
Interest income will be considered as net sales in this case
because UCO bank is a financial institution.
1) Gross profit Ratio = * 100
For year ending 31.3.2020
a) Gross profit = Interest Earned - Interest Expended + other income
Gross profit = 15,13,43,332 – 10,04,20,601 + 2,87,12,130
Gross profit = 7,96,34,861
b) Net sales (Revenue from operations) = Interest Earned
Net sales (Revenue from operations) = 15,13,43,332
Gross profit Ratio = * 100 = 52.61%
Analysis
Gross profit ratio shows that gross profit if enough to cover
expenses or not. More the gross profit signifies the better condition
of institution.
UCO bank’s gross profit ratio is moderate and a decent ratio for a
government owned bank. It is better than ratios of other
government owned banks. It shows UCO bank’s capabilities to cover
its expenses through gross profit. But, this ratio can be further
improved by bank by increasing its revenue. A ratio between 60-
80% would have given more assurance to investors as well as bank
employees. But it can be concluded bank’s ratio is stable and
enough.
2) Net profit Ratio = * 100
For year ending 31.3.2019
a) Net profit = -4,32,10,829
b) Net sales (Revenue from operations) = Interest Earned
Net sales (Revenue from operations) = 14,33,06,323
Net profit Ratio = * 100 = -30.15%
For year ending 31.3.2020
a) Net profit = -2,43,68,289
b) Net sales (Revenue from operations) = Interest Earned
Net sales (Revenue from operations) = 15,13,43,332
Net profit Ratio = * 100 = -16.10%
Analysis
Net profit ratio indicates the efficiency and capability to cover
expenses of a institution. Generally, a net profit ratio between 10%
to 20% can be considered good for a bank. Moreover, other
government owned banks in India have decent Net ratios.
Net profit ratio have grown around 14% which is a good number.
So, it can be said UCO bank is able to generate higher revenues
than last year, which is a good sign but this ratio is not that good
also.
Also, negative net profit ratio of UCO bank is very alarming. It is
indicating that bank is going to face problems in near coming
future. Bank is in a severe need to generate more revenue for its
survival. Already loan from RBI is present in financial statements of
the bank. UCO bank needs to work on this quickly.
3) Operating profit Ratio = * 100
For year ending 31.3.2020
a) Operating profit = Gross profit – Operating expenses
Operating profit = 7,96,34,861 – 3,12,78,875
Operating profit = 4,83,55,986
b) Net sales (Revenue from operations) = Interest Earned
Net sales (Revenue from operations) = 15,13,43,332
Operating profit Ratio = * 100 = 31.95%
Analysis
Operating profit ratio indicates how much an institution is making
profit after paying variable costs. It is kind of similar to net profit
ratio as it also measures efficiency of the institution. Generally,
30% to 50% can be considered decent for banking sector as
compared to other banks.
31.95% is a good percentage for UCO bank as compared to previous
ratios in which it is lacking behind. But UCO bank should focus on
increasing its operating income. Similarly, it needs to widen its
scope of operations for surviving in market.
4) Return on total Assets = * 100
For year ending 31.3.2019
a) Net profit after interest and tax = -9,92,49,176
b) Total Assets = 2,30,48,40,802
Return on total Assets = * 100 = -4.30%
For year ending 31.3.2020
a) Net profit after interest and tax = -12,41,22,829
b) Total Assets = 2,35,90,81,513
Return on total Assets = * 100 = -5.26%
Analysis
Return of total assets shows how effectively a company uses its
assets to generate earnings. More return on total assets shows the
better use of assets by the company.
It can be observed that return on total assets have became adverse
in last year which is not good for survival of bank. Bank has to
work on this by reallocating their assets to produce more returns.
Negative ratio is not at all satisfactory. It shows that UCO bank is
not using its resources effectively. They need to reallocate their
resources for better productivity or its future is in danger.
Averagely, other government owned banks have a ratio of more than
10% atleast. UCO bank needs to work on to improve this ratio for
smooth functioning.
5) Return on investment = * 100
For year ending 31.3.2019
a) Net profit before interest and tax = -9,92,49,176
b) Capital Employed = Capital + Reserve and Surplus + Borrowings
+ share application money
Capital Employed = 5,42,33,982 + 8,37,09,722 + 8,32,36,786 +
3,59,66,822
Capital Employed = 25,71,47,312
Return on investment = * 100 = -38.59%
For year ending 31.3.2020
a) Net profit before interest and tax = -12,41,22,829
b) Capital Employed = Capital + Reserve and Surplus + Borrowings
Capital Employed = 9,91,83,406 + 9,29,12,835 + 1,93,20,34,435
Capital Employed = 2,12,41,30,676
Return on investment = * 100 = -5.84%
Analysis
Return on investment is comparison of profits generated to the
money invested in a financial product. A negative return on
investment means investment lost money, it shows you have less
than you would have if you had simply done nothing with your
assets.
There is a difference of 32.75% between returns of both years,
which is a very significant improvement. It shows that UCO bank is
on right path to increase its return on investment. But, current year
ratio is not so good it needs a lot more improvement.
-5.84% is not good ratio for UCO bank. It indicates that bank is not
using its resources efficiently. They are in need to reallocate their
resources for get better returns or they are in a big danger.
6) Return on equity = * 100
For year ending 31.3.2019
a) Net profit after interest and tax = -9,92,49,176
b) Shareholder’s Fund = Capital + Reserves & Surplus + Share
application money
Shareholder’s Fund = 5,42,33,982 + 8,37,09,722 + 3,59,66,822
Shareholder’s Fund = 17,39,10,526
Return on equity = * 100 = -57.06%
For year ending 31.3.2020
a) Net profit after interest and tax = -12,41,22,829
b) Shareholder’s Fund = Capital + Reserves & Surplus
Shareholder’s Fund = 9,91,83,406 + 9,29,12,835
Shareholder’s Fund = 19,20,96,241
Return on equity = * 100 = -64.61%
Analysis
Return on equity indicates how much institution in generating in
return of capital. Negative return on equity indicates that company
would have been better of with raising share capital.
Return on equity has decreased 7.55 in an year which can be very
dangerous for the bank. Bank needs to focus in this area also for
smooth running.
UCO bank is not in good financial position in terms of returns. UCO
bank needs to reallocate its resources to generate more returns.
Bank is not on a right path in terms of equity.
7) Earning per share = - 3.10 (For year ending 31.3.2020)
- 11.16 (For year ending 31.3.2019)
(Already given in Income statement of UCO bank)
Analysis
The earning per share is in negative which shows that bank is not
in a good shape. It is making losses but this earning per share is
much better than last year which shows that bank growing. But
this result is also not desirable of investors. Company is going in
loss and it is in severe need of changing its operations. Reallocating
of resources is becoming a necessity for bank. Also, bank needs to
widen its operation for better earnings.
Activity Ratios
1) Current Assets turnover Ratio =
For year ending 31.3.2020
a) Net sales (Revenue from operations) = Interest Earned
Net sales (Revenue from operations) = 15,13,43,332
b) Current Assets = Cash and Balances with Reserve Bank of India
+ Balances with Banks and Money at Call and Short Notice +
Advances + Other Assets
Current Assets = 6,77,67,284 + 1,10,29,400 + 1,01,17,42,529 +
23,08,85,542
Current Assets = 1,32,14,24,755
Current Assets turnover Ratio = = 0.11 times
Analysis
For a banking sector, a ratio between 0.1-0.25 is considered a
significant ratio. Even, Indian government owned banks have ratio
less than 0.1 normally. This ratio suggests that UCO bank is
generating good revenue from operation per rupee of investment in
current assets.
But, this ratio can also be improved to make it relatively safer in
future. A ratio more than 0.2 can be next target for bank. It can be
done by increasing productivity of current assets.
2) Working capital turnover Ratio =
For year ending 31.3.2019
a) Net sales (Revenue from operations) = Interest Earned
Net sales (Revenue from operations) = 14,33,06,323
b) Working Capital = Current Assets – Current liabilities
Working capital =1,42,43,00,741 - 2,04,76,93,490
Working capital = -62,33,92,749
Working capital turnover Ratio = = -0.22 times
For year ending 31.3.2020
a) Net sales (Revenue from operations) = Interest Earned
Net sales (Revenue from operations) = 15,13,43,332
b) Working Capital = Current Assets – Current liabilities
Working capital = 1,32,14,24,755 - 2,01,00,34,651
Working capital = -68,86,09,896
Working capital turnover Ratio = = -0.21 times
Analysis
Working capital turnover ratio measures how well a business is at
generating sales or every rupee of working capital put to use. A
higher working capital turnover ratio is always better. However, if it
rises too higher, it could suggest that company needs to raise
additional capital.
It can be observed that ratio has slight change or it can be said that
it is same. It shows company need more modification in work for
increasing this ratio.
Negative working capital ratio is miserable, it shows current
liabilities are more than current assets. It suggest company needs
to invest more in current assets for smooth running.
3) Fixed Assets turnover Ratio =
For year ending 31.3.2020
a) Net sales (Revenue from operations) = Interest Earned
Net sales (Revenue from operations) = 15,13,43,332
b) Fixed assets = 2,84,03,728
Fixed Assets turnover Ratio = = 5.32 times
Analysis
Fixed asset turnover ratio indicates relationship between fixed
assets and net sales. It measures efficiency of use of total assets. It
measure per rupee sales generated by per rupee fixed assets. For
financial institutions more than 5% can be considered as a decent
ratio.
Averagely Indian government owned banks have ratios less than
10%. UCO bank is doing good in this ratio but they can improve in
this area by using fixed assets more efficiently.
4) Capital turnover Ratio =
For year ending 31.3.2019
a) Net sales (Revenue from operations) = Interest Earned
Net sales (Revenue from operations) = 14,33,06,323
b) Capital Employed = Capital + Reserve and Surplus + Borrowings
+ share application money
Capital Employed = 5,42,33,982 + 8,37,09,722 + 8,32,36,786 +
3,59,66,822
Capital Employed = 25,71,47,312
Capital turnover Ratio = = 0.55 times
For year ending 31.3.2020
a) Net sales (Revenue from operations) = Interest Earned
Net sales (Revenue from operations) = 15,13,43,332
b) Capital Employed = Capital + Reserve and Surplus + Borrowings
Capital Employed = 9,91,83,406 + 9,29,12,835 + 1,93,20,34,435
Capital Employed = 2,12,41,30,676
Capital turnover Ratio = = 0.07 times
Analysis
Capital turnover ratio suggests how much net sales is generated by
the institution by per rupee of capital employed. In banking sector,
more than 0.10 can be considered good.
This ratio has decreased in the year which is not good for bank. It
means previous allocation of capital employed was better. UCO
bank needs to work in this area. Bank can switch to previous year
policy to get some better results or frame new policies to control
declining capital turnover ratio.
Conclusion
By studying above ratio, conclusion can be drawn that financial
position of UCO bank is not much reliable. Some ratios are not very
promising which shows loopholes in working of bank. Earning per
share is also not good which shows investors are also not getting
good returns.
Allocation of resources is also not as good by bank as most of them
are not even giving returns. Financial position of bank is not the
one in which he/she would invest.
Bank is not even able to previous year losses still which shows
inability of bank to generate revenue which is concerning for both
management and investors. Bank is in a severe need to change its
policies for future.
