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*

*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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