Bank Balance sheet Ratio analysis JAIIB and CAIIB

Ratio analysis is one of the most important section in
jaiib. It covers almost 10 marks.

Knowledge of ratio analysis is necessary to
understand the financial position of a company.

There is a standard ratio for
each ratio ( CURRENT RATIO it is 2:1 ).

There are a total of 19 ratios you need to
know to get 10marks.

*1.
**CURRENT RATIO*

*2.
**ACID TEST RATIO/
QUICK RATIO*

*3.
**Fixed asset
turnover ratio*

*4.
**Current asset
turnover ratio*

*5.
**WORKING CAPITAL
TURNOVER RATIO*

*6.
**DEBTORS TURNOVER
RATIO*

*7.
**CREDITORS
TURNOVER RATIO*

*8.
**STOCK TURNOVER
RATIO*

*9.
**DEBT EQUITY*

*10.
**TOTAL ASSET TO
DEBT RATIO*

*11.
**PROPRIETARY RATIO*

*12.
**INTEREST COVERAGE
RATIO*

*13.
**GROSS PROFIT
RATIO*

*14.
**NET PROFIT RATIO*

*15.
**OPERATING PROFIT
RATIO*

*16.
**OPERATING RATIO*

*17.
**RETURN ON CAPITAL
EMPLOYED*

*18.
**EARNING PER SHARE
*

*19.
**PRICE EARNING
RATIO*

Let's first understand the terms present in the balance sheet
and their classification. You should learn all the balance sheet terms what
they mean exactly. I will explain to you all the terms that come in the balance sheet.
In order to solve these ratios, you need to understand the simple balance sheet
terms like (land and building is a FIXED ASSET). This is the list of items
that appear on the balance sheet.

Let's understand each of them one by one. It is
simple to learn this way.

1) Current Assets – Current assets are those which can be
converted to cash within a year.

·
Cash in hand

·
Cash at bank

·
Sundry debtors

·
Closing stock

·
Short term investment·
Stock

·
Tax provision

·
Advance tax

·
Receivables

·
Debtors

·
Income Accrued Prepaid
expences

·
Advance to suppliers

·
Cash equivalents

Note: Quick asset=current assets-stock and prepaid expenses

2)Current Liabilities – Those liabilities to be paid within
1 year

·
Creditors

·
Sundry creditors

·
Bank Over Draft/ Cash credit

·
Bills payable

·
Outstanding expenses/ expenses payable

·
Provisions

·
Advances from customers

·
Provision for tax

·
Dividend

·
Income received

Note :

Quick
liability= Current liabilities —bank overdraft

Quick asset=current assets-stock
and prepaid expenses

Working capital = Current Assets-
Current Liabilities

Turnover
= sales

*20.
**CURRENT RATIO =
Current assets / current liabilities*

*21.
**ACID TEST RATIO
or QUICK RATIO = quick assets / quick liabilities*

3) Quick asset :
Current asset – stock – prepaid
expences

·
Cash in hand

·
Debtors

·
Advance to suppliers

4) Quick liabilities: Current liabilities – bank
Overdraft/cash credit

5)Networth

·
Reserves

·
Capital

6)Long term liability

·
Term loan

·
Debentures

7)Fixed asset

·
Land and building

·
Machinery

·

In the question, there will be given current liabilities
current assets capital fixed assets etc we have to organize and follow the
total of 19 formulas in ratio analysis JAIIB OR CAIIB EXAM out of which 6 are turned over
ratios. **Remember** turnover means “*SALES*”

*22.
**Fixed asset
turnover ratio *

§ *= sales/net fixed
asset*

*23.
**Current asset
turnover ratio*

§ *=sales/net
current asset*

*24.
**WORKING CAPITAL
TURNOVER RATIO*

§ *=sales / working
capital*

§ *Working capital =
current assets – current liabilities*

*25.
**DEBTORS TURNOVER
RATIO*

§ *=Net credit
sales/avg accounts receivables*

§ *=(op debtors +
clo debtors)/2+BR*

§ *Note: credit sale=total
sale-cash sale*

§ *Average
collection period=365/debtors turnover ratio*

*26.
**CREDITORA
TURNOVER RATIO*

§ *=Net credit
purchase / average accounts payables*

§ *Net Credit
purchase=total purchase-purchased return –cash purchase*

§ *Avg accounts
payable=creditors+ bills payable
([OPENING CREDITOR+CLOSING CREDITOR)/2 ,( OPENING BILLS PAYABLE +
CLOSING BILLS PAYABLE )/2]*

§ *Avg payment
period=365 days /creditors turn over ratio*

*27.
**STOCK TURNOVER
RATIO*

§ *=sales / avg
stock (avg stock=opening stock+closing
stock /2)*

§
*Cost of goods
sold=opening stock +purchases-closing stock+direct expenses*

The income tax of a company with the financial position
assessment is given in the following image.

*28.
**GROSS PROFIT
RATIO*

§ *Profit depends on
sales cost of goods sold*

§ *=sales-cogs*

§ *=Gross profit/net
sales*100*

§ *From the above
figure gross profit is 576448*

§ *To get operating
profit **è 576448- (office
and administration expenses)*

§ *Operating profit
is the income before interest and tax paid=482730*

§ *Total tax paid
here is 23170 *

§ *Net profit =
operating profit (482730) – total tax paid(23170) =459560 *

§ *If a company has equity
and dividend *

§ *Then retained
earning = net profit –equity and dividend*

*The order of
income statement follows as*

*Gross profit **à operating profit
**à profit before
interest and tax **à profit after
interest before tax*

*àprofit after
inter taxes and pref dividend **à retained earning
**à*

problems will be solved soon

On the balance sheet liabilities side you need to classify 3
items(LTL,NW,CL) and in assets side 5 items(CA,FA,NCA,IA,CA-QA). will be posted soon

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Thank You

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